<PAGE>
As filed with the Securities and Exchange Commission on March 29, 2000
Registration No. 333-96317
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------
AMENDMENT NO. 3
to
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------------
LUMINEX CORPORATION
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
Delaware 8731 74-2747608
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
</TABLE>
12212 Technology Boulevard
Austin, Texas 78727
(512) 219-8020
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
----------------
Mark B. Chandler, Ph.D.
Chairman and Chief Executive Officer
Luminex Corporation
12212 Technology Boulevard
Austin, Texas 78727
(512) 219-8020
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
----------------
Copies to:
<TABLE>
<S> <C>
Craig N. Adams, Esq. Donald J. Murray, Esq.
T. Christopher Pledger, Esq. Dewey Ballantine LLP
Thompson & Knight LLP 1301 Avenue of the Americas
98 San Jacinto Boulevard, Suite 1200 New York, New York 10019
Austin, Texas 78701 (212) 259-8000
(512) 469-6100
</TABLE>
----------------
Approximate date of commencement of proposed sale to the public:
As soon as practicable after the effective date of this Registration Statement.
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [_]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
If this form is a post effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
----------------
The registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the registrant
shall file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until this Registration Statement shall become
effective on such date as the Securities and Exchange Commission, acting
pursuant to said Section 8(a), may determine.
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<PAGE>
PRELIMINARY PROSPECTUS March 29, 2000
Subject to completion
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++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+The information in this prospectus is not complete and may be changed. We may +
+not sell these securities until the registration statement filed with the +
+Securities and Exchange Commission is effective. This preliminary prospectus +
+is not an offer to sell these securities and is not soliciting an offer to +
+buy these securities in any state where the offer or sale is not permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
4,500,000 Shares
[LOGO OF LUMINEX APPEARS HERE]
Common Stock
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This is our initial public offering of shares of our common stock. No public
market currently exists for our common stock. We expect the public offering
price to be between $17.00 and $19.00 per share.
The Nasdaq National Market has approved our common stock for quotation under
the symbol "LMNX."
Before buying any shares you should read the discussion of material risks of
investing in our common stock in "Risk factors" beginning on page 7.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or passed upon the
accuracy or adequacy of this prospectus. Any representation to the contrary is
a criminal offense.
<TABLE>
<CAPTION>
Per share Total
- -------------------------------------------------------
<S> <C> <C>
Public offering price $ $
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Underwriting discounts and commissions $ $
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Proceeds, before expenses, to Luminex $ $
- -------------------------------------------------------
</TABLE>
The underwriters may also purchase up to 675,000 shares of common stock from us
at the public offering price, less the underwriting discounts and commissions,
within 30 days from the date of this prospectus. The underwriters may exercise
this option only to cover over-allotments, if any. If the underwriters exercise
the option in full, the total underwriting discounts and commissions will be
$ , and the total proceeds, before expenses, to Luminex will be $ .
The underwriters are offering the common stock as set forth under
"Underwriting." Delivery of the shares will be made on or about , 2000.
Warburg Dillon Read LLC
Lehman Brothers
Dain Rauscher Wessels
<PAGE>
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[Inside Front Cover]
Luminex
Representation of dyed microsphere during a bioassay using the LabMAP system.
[Inside Front Cover Gatefold]
LabMAP
The Technology
Luminex has developed a proprietary technology that combines a microscopic
fluid stream and digital signal processing to perform high-speed biological
tests at a low cost. This miniaturized biological testing format has broad
applications in pharmaceutical, clinical and biomedical research laboratories.
Representation of microsphere--Luminex dyes microscopic plastic beads, called
microspheres.
Representation of a set of 100 dyed microspheres--in 100 different
fluorescently colored sets.
Representation of microsphere with targeted antibodies on its surface--A
biological test occurs on the surface of each microsphere set.
Representation of four different dyed microspheres representing a bioassay
using the LabMAP system--This allows researchers to perform multiple biological
tests in the same sample.
[Inside Front Cover Gatefold]
A microscopic fluid stream carries each biological test through laser beams in
the Luminex 100, generating florescent signals which provide instantaneous test
results.
Representation of the microfluidic system including two small lasers.
Picture of the Luminex 100 product with XY platform and packaged microspheres.
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<PAGE>
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Through and including , 2000 (the 25th day after commencement of this
offering), federal securities law may require all dealers selling shares of our
common stock, whether or not participating in this offering, to deliver a
prospectus. This delivery requirement is in addition to the obligation of
dealers to deliver a prospectus when acting as underwriters and with respect to
their unsold allotments or subscriptions.
TABLE OF CONTENTS
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<TABLE>
<S> <C>
Prospectus summary................... 3
The offering......................... 5
Summary financial and operating
data............................... 6
Risk factors......................... 7
Forward-looking information.......... 19
Use of proceeds...................... 20
Dividend policy...................... 20
Capitalization....................... 21
Dilution............................. 22
Selected financial data.............. 24
Management's discussion and analysis
of financial condition and results
of operations...................... 26
</TABLE>
<TABLE>
<S> <C>
Business......................... 31
Management....................... 46
Related party transactions....... 55
Principal stockholders........... 57
Description of capital stock..... 59
Shares eligible for future sale.. 62
Underwriting..................... 64
Legal matters.................... 66
Experts.......................... 66
Where you can find more
information.................... 66
Index to financial statements.... F-1
</TABLE>
Luminex(R) and LabMAP(TM) are trademarks of Luminex Corporation. This
prospectus also refers to trademarks and trade names of other organizations.
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<PAGE>
(THIS PAGE INTENTIONALLY LEFT BLANK)
<PAGE>
Prospectus summary
This summary highlights information contained elsewhere in this prospectus. You
should read the entire prospectus carefully, especially the risks of investing
in our common stock which we discuss under "Risk factors." Our principal
executive offices are located at 12212 Technology Boulevard, Austin, Texas
78727. Our telephone number is (512) 219-8020. Our web site is
http://www.luminexcorp.com. We do not intend the information found on our web
site to be a part of this prospectus.
OUR BUSINESS
Luminex Corporation has developed, manufactures and markets a proprietary
technology that simplifies biological testing for the life sciences industry.
This industry depends on a broad range of tests, called bioassays, to discover
new drugs, identify new genes or simply monitor blood cholesterol levels. The
LabMAP system simultaneously performs up to 100 bioassays on a single drop of
fluid. We accomplish this with the Luminex 100, a compact instrument that reads
biological tests taking place on the surface of microscopic plastic beads
called microspheres. The Luminex 100 combines this miniaturized bioassay
capability with small lasers, digital signal processors and proprietary
software to create a system offering significant advantages in speed,
precision, flexibility and cost. We believe our LabMAP technology is broadly
applicable in the fields of drug discovery, clinical diagnostics, genetic
analysis and biomedical research.
We began marketing the current generation of LabMAP in 1999. As of February 29,
2000, 63 life sciences customers have purchased 114 LabMAP systems. Our
customers include Abbott Laboratories, Bio-Rad Laboratories, Inc., Centers for
Disease Control and Prevention, Eli Lilly and Company, GlaxoWellcome plc,
Laboratory Corporation of America, Lawrence Livermore National Laboratories,
Life Technologies, Inc., Mayo Clinic, National Institutes of Health and
SmithKline Beecham Corporation.
OUR MARKET OPPORTUNITY
The life sciences industry uses bioassays extensively to detect the presence of
certain biochemicals, proteins or genes in a sample. Drug discovery, genetic
analysis, pharmacogenomics, clinical diagnostics and general biomedical
research all broadly use bioassays. For example, bioassays can be used to:
.measure the attraction, or affinity, between a chemical compound and a disease
target for drug discovery and development;
.assist physicians in prescribing the appropriate drug therapy to match the
patient's unique genetic makeup, a process known as pharmacogenomics;
.detect genetic variations, such as single nucleotide polymorphisms or SNPs;
and
.measure the presence and quantity of biochemicals in blood to assist
physicians in diagnosing, treating and monitoring disease conditions such as
heart attack or diabetes.
Laboratories either develop bioassays internally to meet their specific needs
or purchase them in the form of an off-the-shelf test kit or customized
service. Industry reports estimate the global market for
3
<PAGE>
tools the drug discovery and development, clinical diagnostic and biomedical
research industries use to develop and perform bioassays to have been
approximately $27.5 billion in 1998 and expect it to grow at an annual rate of
7.2%. There are a number of factors contributing to this increase, including:
.increased spending by pharmaceutical and biomedical research companies on
research and development;
.a shift in research and development focus from gene sequencing to determining
the function of genes and their protein products, known as functional genomics
and proteomics;
.increased demand for disease-specific diagnostic tests;
.application of disease targets from drug discovery into in vitro diagnostics;
and
.evolution of pharmacogenomics.
The differing bioassay needs of life sciences laboratories have led to the
development of specialized techniques and instrumentation. As a result, most of
these laboratories have become highly compartmentalized. For example, clinical
testing facilities organize into functional groups, such as chemistry,
microbiology, immunology and infectious disease. Similarly, pharmaceutical
companies organize their laboratories by disease target, such as cancer and
hypertension, as well as by the stages of the drug discovery process, from
initial bioassay development to toxicology. This has created inefficiencies in
laboratories since they must now purchase multiple instruments, often from
different vendors, to meet their testing needs. This limits the laboratories'
ability to standardize bioassay techniques, operator training and hardware
maintenance.
THE LUMINEX SOLUTION
Our solution is to provide a single platform, the LabMAP technology, that can
perform a wide range of bioassays in a cost-effective manner. The key features
of our platform include the following:
.performs multiple tests simultaneously;
.flexible in customizing bioassays comprised of multiple tests;
.high rate, or throughput, of test results per day;
.ease of use; and
.low cost to purchase and operate.
OUR STRATEGY
Our goal is to establish our LabMAP system as the industry standard for
performing bioassays. To achieve this goal, we have implemented the following
strategy:
.focus on large, fast-growing segments of the life sciences industry;
.continue to develop strategic partnerships to broaden and accelerate market
acceptance of our LabMAP technology;
.provide an open platform that allows customers to design bioassays using a
single platform;
.expand the functionality of the LabMAP product line; and
.allow easy technology access to encourage rapid market adoption.
4
<PAGE>
The offering
The following information assumes that the underwriters do not exercise the
over-allotment option granted to them to purchase additional shares in the
offering.
<TABLE>
<C> <S>
Common stock we are offering............... 4,500,000 shares
Common stock to be outstanding after the
offering................................. 26,676,070 shares
Proposed Nasdaq National Market symbol..... LMNX
Use of proceeds............................ To fund our operations, including
continued development and
manufacturing of existing
products and research and
development of additional
products, expanding our
facilities to be able to meet the
needs of our growing business,
and for other working capital and
general corporate purposes. See
"Use of proceeds."
</TABLE>
Unless we indicate otherwise, when analyzing the information in this
prospectus, you should assume that all outstanding shares of our preferred
stock convert into 8,768,592 shares of our common stock upon the closing of
this offering.
At March 21, 2000, we were obligated to issue shares of common stock upon
exercise of options and warrants as follows:
.4,231,134 shares issuable upon the exercise of options at a weighted average
exercise price of $6.25 per share;
.535,500 shares issuable upon the exercise of warrants at an exercise price of
$1.96 per share; and
.2,587,500 additional shares available for future grant under our 2000 Long-
Term Incentive Plan. See "Management -- Employee benefit plans -- 2000 Long-
Term Incentive Plan."
In addition, we have agreed to issue an additional 675,000 shares if the
underwriters exercise their over-allotment option in full, which we describe in
"Underwriting". If the underwriters exercise this option in full, 27,351,070
shares of common stock will be outstanding after this offering.
We base our calculation of the number of shares of common stock outstanding
after the offering on shares outstanding as of March 21, 2000. See
"Capitalization."
5
<PAGE>
Summary financial and operating data
The as adjusted balance sheet reflects the receipt of the net proceeds from the
sale of 4,500,000 shares of our common stock in this offering at an assumed
price to the public of $18.00 per share, after deducting the underwriting
discounts and commissions and estimated offering expenses. The pro forma net
loss per share and shares used in computing pro forma net loss per share are
calculated as if all of our convertible preferred stock was converted into
shares of our common stock on the date of their issuance.
<TABLE>
<CAPTION>
Period from
May 24, 1995
(inception) to Year Ended December 31,
December 31, 1995 1996 1997 1998 1999
Statement of operations
data (In thousands, except per share data)
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<S> <C> <C> <C> <C> <C>
Revenue:
Product................ $-- $-- $99 $386 $2,606
Grant.................. -- -- -- -- 506
------ ------- ------- ------- --------
Total revenue......... -- -- 99 386 3,112
Cost of product
revenue.............. -- -- 10 88 1,172
------ ------- ------- ------- --------
Gross margin............ -- -- 89 298 1,940
Operating expenses:
Research and
development......... 58 1,036 1,594 3,611 6,188
Selling, general and
administrative...... 216 731 1,426 2,566 5,238
------ ------- ------- ------- --------
Total operating
expenses........... 274 1,767 3,020 6,177 11,426
------ ------- ------- ------- --------
Loss from operations.... (274) (1,767) (2,931) (5,879) (9,486)
Interest income......... 4 7 178 283 284
------ ------- ------- ------- --------
Net loss................ (270) (1,760) (2,753) (5,596) (9,202)
Accretion of discount on
convertible preferred
stock................ -- -- -- -- (3,406)
------ ------- ------- ------- --------
Net loss applicable to
common stockholders.. $ (270) $(1,760) $(2,753) $(5,596) $(12,608)
====== ======= ======= ======= ========
Net loss per share,
basic and diluted.... $(0.06) $(0.16) $(0.21) $(0.43) $(0.96)
====== ======= ======= ======= ========
Shares used in computing
net loss per share,
basic and diluted.... 4,531 10,826 12,842 13,086 13,151
Pro forma net loss per
share, basic and
diluted.............. $(0.45)
========
Shares used in computing
pro forma net loss
per share, basic and
diluted.............. 20,529
</TABLE>
<TABLE>
<CAPTION>
As of December 31,
1999
Actual As Adjusted
Balance sheet data (In thousands)
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<S> <C> <C>
Cash and cash equivalents.................................. $4,083 $78,713
Working capital............................................ 10,426 85,056
Total assets............................................... 12,566 87,196
Total stockholders' equity................................. 11,195 85,825
</TABLE>
Please see Note 2 to our financial statements for an explanation of the method
used to calculate the net loss per share and the number of shares used in the
computation of per share amounts.
6
<PAGE>
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Risk factors
You should carefully consider the risks described below together with all of
the other information included in this prospectus before making an investment
decision. If any of the following risks actually occurs, our business,
financial condition or results of operations could be harmed. In such an event,
the trading price of our common stock could decline, and you may lose all or
part of your investment.
RISKS RELATED TO OUR BUSINESS
We may not be able to successfully implement our business plan or adapt it to
changes in the market.
We are at an early stage of development, and our business model is still
evolving. As a result, we are subject to all of the risks inherent in the
development of new commercial products, such as the need:
.to obtain substantial capital to support the expenses of developing our
technology and commercializing our products;
.to develop a market for our products; and
.to successfully transition from a company with a research focus to a company
capable of supporting commercial activities.
Since commencing operations in May 1995, we have dedicated substantially all of
our resources to the research and development of our products. Because we have
only recently begun to market our products commercially, we have generated
limited revenues from product sales.
We cannot assure you that we will ever achieve or sustain profitability or that
our operating losses will not increase in the future.
We have incurred operating losses and negative cash flow from operations since
our inception. As of December 31, 1999, we had an accumulated deficit of $23.0
million. For the years ended December 31, 1997, 1998 and 1999, we had net
losses of $2.8 million, $5.6 million and $9.2 million, respectively. We expect
to continue to incur operating and net losses and negative cash flow from
operations, which may increase, for the foreseeable future due in part to
anticipated increases in expenses for research and product development and
expansion of our facilities and sales and marketing capabilities. We anticipate
that our business will generate operating losses until we successfully
implement our commercial development strategy and generate significant
additional revenues to support our level of operating expenses.
If our technology and products do not become widely used in the life sciences
industry, it is unlikely that we will ever become profitable.
Life sciences companies have historically conducted screening and
identification tests using a variety of technologies, including bead-based
screening. However, compared to other technologies, the LabMAP technology is
new and unproven, and the use of our technology by life sciences companies is
limited. The commercial success of our technology will depend upon the adoption
of this technology as a method to perform bioassays. In order to be successful,
our products must meet the commercial
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7
<PAGE>
Risk factors
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requirements for bioassays within the life sciences industry, and we must
convince potential customers to utilize our system instead of competing
technologies. Market acceptance will depend on many factors, including our
ability to:
.convince prospective strategic partners and customers that our technology is
an attractive alternative to other technologies for pharmaceutical, clinical
and biomedical testing and analysis;
.manufacture products in sufficient quantities with acceptable quality and at
an acceptable cost; and
.place and service sufficient quantities of our products.
Because of these and other factors, our products may not gain market
acceptance.
Our business plan may not succeed unless we establish meaningful and successful
relationships with our strategic partners.
Our strategy for the development and commercialization of our LabMAP technology
depends in part upon our ability to establish strategic relationships with a
number of partners. Our business plan contemplates that a significant portion
of our future revenues will come from sales of our systems, the development and
sale of bioassay kits utilizing our technology and use of our technology by our
strategic partners in performing services offered to third parties. This
strategy entails a number of risks as more fully described below.
If we cannot establish and maintain sufficient effective strategic
partnerships, we will not be able to create sufficient market demand for our
products.
Our success depends on our ability to maintain our current strategic
partnerships and establish and maintain additional partnerships. Our ability to
enter into agreements with additional partners depends in part on convincing
them that our technology can help achieve and accelerate their goals or
efforts. This may require substantial time and effort on our part. We will
expend substantial funds and management effort with no assurance that a
strategic relationship will result. We cannot assure you that we will be able
to negotiate additional strategic agreements in the future on acceptable terms,
if at all, or that current or future partners will not pursue or develop
alternative technologies either on their own or in collaboration with others.
Termination of strategic relationships, or the failure to enter into a
sufficient number of additional agreements on favorable terms, could reduce
sales of our products or lower margins on our products.
If our strategic partners do not effectively develop and market products based
on our technology, our ability to generate revenues will be diminished.
In return for the right to produce bioassay kits incorporating our technology,
our strategic partners will purchase our systems from us for resale to end-
users and will pay royalties to us based on revenues they generate from sales
of the kits. We expect that we will also generate revenue from royalties on
sales of diagnostic testing services by strategic partners utilizing our
technology. This strategy entails a number of risks. We believe that our
strategic partners will have economic incentives to market these products, but
we cannot predict future sales and royalty revenues because our strategic
partner agreements do not include minimum purchase requirements. The amount of
these revenues will depend on a variety of factors that are outside our
control, including the amount and timing of resources that current and future
strategic partners devote to market products incorporating our technology. Some
of the companies we are targeting as strategic partners offer products
competitive with our LabMAP
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8
<PAGE>
Risk factors
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technology. As a result, competition with these companies may hinder or prevent
strategic relationships. Further, the development and marketing of certain
bioassay kits will require our strategic partners to obtain governmental
approvals, which could delay or prevent their commercialization efforts. If our
current or future strategic partners do not effectively develop and market
products based on our technology and obtain any necessary government approvals,
our revenues from product sales and royalties will be significantly reduced.
We have only produced our products in limited quantities, and we may experience
manufacturing problems or delays that could limit the growth of our revenue.
We currently produce products incorporating our LabMAP technology in limited
quantities. If we successfully develop and introduce these products to the
marketplace, we may not be able to produce sufficient quantities at an
acceptable cost. In addition, we may encounter difficulties in production due
to, among other things, quality control and assurance and component supply.
These difficulties could result in reduced sales of our products, increased
repair or re-engineering costs due to product returns and defects as well as
increased expenses due to switching to alternative suppliers, all of which
could damage our industry reputation and hurt our profitability.
Because we have limited sources of production and suppliers, our ability to
produce and supply our products could be impaired.
We have limited experience producing products for commercial purposes. We
presently outsource most of the assembly of our products to contract
assemblers. In addition, certain key components of our product line are
currently purchased from a limited number of outside sources and may only be
available through a few sources. We do not have agreements with any of our
suppliers or certain of our contract assemblers.
Our reliance on our suppliers and contract assembler exposes us to risks
including:
.the possibility that one or more of our suppliers or assemblers could
terminate their services at any time without penalty;
.the potential inability of our suppliers to obtain required components;
.the potential delays and expenses of seeking alternative sources of supply or
manufacturing services; and
.reduced control over pricing, quality and timely delivery due to the
difficulties in switching to alternative suppliers or assemblers.
Consequently, in the event that components from our suppliers or work performed
by our assembler are delayed or interrupted for any reason, our ability to
produce and supply our products could be impaired.
We have limited experience in selling and marketing our products and may not be
able to develop a direct sales and marketing force that can meet our customers'
needs.
We intend to sell a portion of our products through our own sales force. We
have limited experience in direct marketing, sales and distribution. Our future
profitability will depend in part on our ability to
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9
<PAGE>
Risk factors
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further develop a direct sales and marketing force to sell our products to our
customers. Our products are technical in nature. As a result, we believe it is
necessary to develop a direct sales force that includes people with scientific
backgrounds and expertise. Competition for such employees is intense. We may
not be able to attract and retain qualified salespeople or be able to build an
efficient and effective sales and marketing force. Failure to attract or retain
qualified salespeople or to build an efficient and effective sales and
marketing force could negatively impact sales of our products, thus reducing
our revenues and profitability.
If we cannot provide quality customer service, we could lose customers and our
operating results could suffer.
Our inability to attract, train or retain the number of highly qualified
customer support and technical services personnel that our business needs may
cause our business and prospects to suffer. We are currently expanding these
areas and will need to increase our staff further to support expected new
customers as well as the expanding needs of existing customers. The
introduction of our products to new customers, the integration of our
technology into our customers' existing systems and the ongoing customer
support can be complex. Accordingly, we need highly trained customer support
and technical personnel. Hiring customer support and technical personnel is
very competitive in our industry due to the limited number of people available
with the necessary technical skills and understanding of our systems and
services.
Our business plan contemplates a period of rapid and substantial growth that
will place a strain on our administrative and operational infrastructure.
We increased the number of our employees from 47 at December 31, 1998 to 87 at
February 29, 2000. Our product revenue increased from $386,000 in 1998 to $2.6
million in 1999. Our ability to manage effectively our operations and growth
requires us to continue to improve our operational, financial and management
controls, reporting systems and procedures. We may not successfully implement
improvements to our management information and control systems in an efficient
or timely manner and may discover deficiencies in existing systems and
controls.
Our research and development efforts may not produce commercially viable
products.
We intend to devote significant personnel and financial resources to research
and development activities designed to advance the capabilities of our LabMAP
technology. Some of these research and development activities will be conducted
by others. We may never realize any benefits from such research and development
activities.
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10
<PAGE>
Risk factors
- --------------------------------------------------------------------------------
RISKS RELATED TO OPERATING IN OUR INDUSTRY
The life sciences industry is highly competitive and subject to rapid
technological change, and we may not have the resources necessary to
successfully compete.
We compete with companies in the United States and abroad that are engaged in
the development and production of similar products. We anticipate competition
primarily from the following two sectors:
.companies marketing conventional testing products based on established
technologies; and
.companies developing their own advanced testing technologies.
Many of our competitors have access to greater financial, technical, research,
marketing, sales, distribution, service and other resources than we do. We
face, and will continue to face, intense competition from organizations serving
the life sciences industry that are pursuing competing technologies. These
organizations may develop technologies that are superior alternatives to our
technologies. Further, our competitors may be more effective at implementing
their technologies to develop commercial products.
The life sciences industry is characterized by rapid and continuous
technological innovation. We may need to develop new applications for our
products to remain competitive. Our present or future products could be
rendered obsolete or uneconomical by technological advances by one or more of
our current or future competitors. In addition, the introduction or
announcement of new products by us or by others could result in a delay of or
decrease in sales of existing products, as customers evaluate these new
products. Our future success will depend on our ability to compete effectively
against current technology as well as to respond effectively to technological
advances.
Our success will depend on our ability to retain principal members of our
management and scientific staff.
We depend on the principal members of our management and scientific staff. The
loss of services of any of these persons could delay or reduce our product
development and commercialization efforts. In addition, recruiting and
retaining qualified scientific personnel to perform future research and
development work will be critical to our success. There is a shortage in our
industry of qualified management and scientific personnel, and competition for
these individuals is intense. There can be no assurance that we will be able to
attract additional and retain existing personnel.
The intellectual property rights we rely upon to protect the technology
underlying our products may not be adequate, which could enable third parties
to use our technology or very similar technology and could reduce our ability
to compete in the market.
Our success will depend on our ability to obtain, protect and enforce patents
on our technology and to protect our trade secrets. Any patents we own may not
afford meaningful protection for our technology and products. Others may
challenge our patents and, as a result, our patents could be narrowed,
invalidated or rendered unenforceable. In addition, our current and future
patent applications may not result in the issuance of patents in the United
States or foreign countries. Competitors may develop products similar to ours
which are not covered by our patents. Further, there is a substantial backlog
of patent applications at the US Patent and Trademark Office, and the approval
or rejection of patent applications may take several years.
We have obtained a patent in the United States and have pending applications in
certain foreign jurisdictions, except Japan, for our method of "real time"
detection and quantification of multiple
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11
<PAGE>
Risk factors
- --------------------------------------------------------------------------------
analytes from a single sample. We have filed a lawsuit alleging that as a
result of our prior patent counsel's negligence the corresponding patent
application in Japan was not obtained. We are seeking damages caused by this
negligence. We intend, however, to pursue patent protection in Japan for other
aspects of our technology. As a result, we may not be able to prevent
competitors from developing and marketing technologies similar to our LabMAP
technology in Japan.
We require our employees, consultants and advisors to execute confidentiality
agreements. However, we cannot guarantee that these agreements will provide us
with adequate protection against improper use or disclosure of confidential
information. In addition, in some situations, these agreements may conflict
with, or be subject to, the rights of third parties with whom our employees,
consultants or advisors have prior employment or consulting relationships.
Further, others may independently develop substantially equivalent proprietary
information and techniques, or otherwise gain access to our trade secrets. Our
failure to protect our proprietary information and techniques may inhibit or
limit our ability to exclude certain competitors from the market.
We may be involved in lawsuits to protect or enforce our intellectual property
rights, which may be expensive. If we lose, we may lose the benefit of some of
our intellectual property rights, the loss of which may inhibit or remove our
ability to exclude certain competitors from the market.
In order to protect or enforce our patent rights, we may have to initiate legal
proceedings against third parties, such as infringement suits or interference
proceedings. These legal proceedings could be expensive, take significant time
and divert management's attention from other business concerns. We may also
provoke these third parties to assert claims against us. The patent position of
companies like ours generally is highly uncertain, involves complex legal and
factual questions, and has recently been the subject of much litigation. No
consistent policy has emerged from the US Patent and Trademark Office or the
courts regarding the breadth of claims allowed or the degree of protection
afforded under patents like those we own.
Our success will depend partly on our ability to operate without infringing on
or misappropriating the proprietary rights of others.
We may be sued for infringing on the intellectual property rights of others. In
addition, we may find it necessary, if threatened, to initiate a lawsuit
seeking a declaration from a court that we do not infringe the proprietary
rights of others or that these rights are invalid or unenforceable.
Intellectual property litigation is costly, and, even if we prevail, the cost
of such litigation could affect our profitability. In addition, litigation is
time consuming and could divert management attention and resources away from
our business. If we do not prevail in any litigation, in addition to any
damages we might have to pay, we could be required to stop the infringing
activity or obtain a license. Any required license may not be available to us
on acceptable terms, or at all. In addition, some licenses may be nonexclusive,
and therefore, our competitors may have access to the same technology licensed
to us. If we fail to obtain a required license or are unable to design around a
patent, we may be unable to sell some of our products, which could have a
material adverse affect on our business, financial condition and results of
operations.
We are aware of a European patent granted to Dr. Ioannis Tripatzis, which
covers certain testing agents and certain methods of their use. Dr. Tripatzis
has publicly stated his belief that his patent covers aspects of our
technology. This patent expires in 2004. We cannot assure you that a dispute
with Dr. Tripatzis will not arise or that any dispute with him will be resolved
in our favor.
- --------------------------------------------------------------------------------
12
<PAGE>
Risk factors
- --------------------------------------------------------------------------------
If we fail to comply with the extensive governmental regulations that affect
our business, we could be subject to enforcement actions, injunctions and civil
and criminal penalties that could delay or prevent marketing of our products.
The production, labeling, distribution and marketing of our products for some
purposes and products based on our technology expected to be produced by our
strategic partners are subject to governmental regulation by the United States
Food and Drug Administration in the United States and by similar agencies in
other countries. Depending on their intended applications, some of our products
and products based on our technology expected to be produced by our strategic
partners are subject to approval or clearance by the FDA prior to marketing for
commercial use. Products using our technology for clinical diagnostic purposes
will require such approval or clearance. No such approvals or clearances have
yet been obtained. The process of obtaining necessary FDA clearances or
approvals can be time-consuming, expensive and uncertain. Further, clearance or
approval may place substantial restrictions on the indications for which the
product may be marketed or to whom it may be marketed. In addition, we are also
required to comply with FDA requirements relating to laser safety.
Approved or cleared products are subject to continuing FDA requirements
relating to quality control and quality assurance, maintenance of records and
documentation and labeling and promotion of medical devices. Our inability, or
the inability of our strategic partners, to obtain required regulatory approval
or clearance on a timely or acceptable basis could harm our business. In
addition, failure to comply with applicable regulatory requirements could
subject us or our strategic partners to enforcement action, including product
seizures, recalls, withdrawal of clearances or approvals, restrictions on or
injunctions against marketing our products or products based on our technology,
and civil and criminal penalties.
Medical device laws and regulations are also in effect in many countries
outside the United States. These range from comprehensive device approval
requirements for some or all of our medical device products to requests for
product data or certifications. The number and scope of these requirements are
increasing. Failure to comply with applicable federal, state and foreign
medical device laws and regulations may harm our business, financial condition
and results of operations.
We are also subject to a variety of other laws and regulations relating to,
among other things, environmental protection and work place safety. See
"Business -- Government regulation."
If we become subject to product liability claims, we may be required to pay
damages that exceed our insurance coverage.
Our business exposes us to potential product liability claims that are inherent
in the testing, production, marketing and sale of human diagnostic and
therapeutic products. While we believe that we are reasonably insured against
these risks, there can be no assurance that we will be able to obtain insurance
in amounts or scope sufficient to provide us with adequate coverage against all
potential liabilities. A product liability claim in excess of our insurance
coverage or a recall of one of our products would have to be paid out of our
cash reserves.
Some of our programs are partially supported by government grants, which may be
reduced, withdrawn or delayed.
We have received and may continue to receive funds under United States
government research and technology development programs. Funding by the
government may be significantly reduced in the future for a number of reasons.
For example, some programs are subject to a yearly appropriations
- --------------------------------------------------------------------------------
13
<PAGE>
Risk factors
- --------------------------------------------------------------------------------
process in Congress. Additionally, we may not receive funds under existing or
future grants because of budgeting constraints of the agency administering the
program. We cannot assure you that we will receive significant funding under
government grants.
A portion of our sales have been to universities, government research
laboratories, private foundations and other institutions, where funding is
dependent on grants from government agencies such as the National Institutes of
Health. The funding associated with approved NIH grants for instrumentation
generally becomes available at particular times of the year, as determined by
the government. Although research funding has increased during the past several
years, grants have, in the past, been frozen for extended periods or have
otherwise become unavailable to various institutions, sometimes without advance
notice. Furthermore, increasing political pressures in the United States to
reduce or eliminate budgetary deficits may result in reduced allocations to the
NIH and the other government agencies that fund research and development
activities. If government funding, especially NIH grants, necessary to purchase
our products were to become unavailable to researchers for any extended period
of time or if overall research funding were to decrease, our sales could
decline.
Because we receive revenues principally from life science companies, the
capital spending policies of these entities have a significant effect on the
demand for our products.
Our customers include pharmaceutical, biotechnology, chemical and industrial
companies, and the capital spending policies of these companies can have a
significant effect on the demand for our products. These policies are based on
a wide variety of factors, including the resources available for purchasing
research equipment, the spending priorities among various types of research
equipment and the policies regarding capital expenditures during recessionary
periods. Any decrease in capital spending by life sciences companies could
cause our revenues to decline and impact our profitability.
If third-party payors increasingly restrict payments for health care expenses,
we may experience reduced sales which would hurt our business and our business
prospects.
Third-party payors, such as government entities, health maintenance
organizations and private insurers, are restricting payments for health care.
These restrictions may decrease demand for our products and the price we can
charge. Increasingly, Medicaid and other third-party payors are challenging the
prices charged for medical services, including clinical diagnostic tests. They
are also attempting to contain costs by limiting coverage and the reimbursement
level of tests and other health care products. Without adequate coverage and
reimbursement, consumer demand for tests will decrease. Decreased demand could
cause sales of our products, and sales and services by our strategic partners,
to fall. In addition, decreased demand could place pressure on us or our
strategic partners to lower prices on these products or services, resulting in
lower margins. Reduced sales or margins by us or our strategic partners would
hurt our business, profitability and business prospects.
RISKS RELATED TO THIS OFFERING
Our products have lengthy sales cycles, which could cause our operating results
to fluctuate significantly from quarter to quarter.
The sale of bioassay testing devices typically involves a significant technical
evaluation and commitment of capital by customers. Accordingly, the sales cycle
associated with our products is expected to be lengthy and subject to a number
of significant risks, including customers' budgetary constraints and
- --------------------------------------------------------------------------------
14
<PAGE>
Risk factors
- --------------------------------------------------------------------------------
internal acceptance reviews that are beyond our control. Due to this lengthy
and unpredictable sales cycle, our operating results could fluctuate
significantly from quarter to quarter. We expect to continue to experience
significant fluctuations as a result of a variety of factors, many of which are
outside of our control. The following factors could affect our operating
results:
.market acceptance of our products;
.the timing and willingness of strategic partners to commercialize our products
which would result in royalties;
.expiration of contracts with strategic partners or government research grants,
which may not be renewed or replaced; and
.general and industry specific economic conditions, which may affect our
collaborative partners' research and development expenditures.
A large portion of our expenses, including expenses for facilities, equipment
and personnel, are relatively fixed. Accordingly, if revenues decline or do not
grow as anticipated, we might not be able to correspondingly reduce our
operating expenses. In addition, we plan to significantly increase operating
expenses in 2000. Failure to achieve anticipated levels of revenues could
therefore significantly harm our operating results for a particular fiscal
period.
Due to the possibility of fluctuations in our revenues and expenses, we believe
that quarter-to-quarter comparisons of our operating results are not a good
indication of our future performance. Our operating results in some quarters
may not meet the expectations of stock market analysts and investors. In that
case, our stock price would probably decline.
Our stock price could be volatile, and your investment could suffer a decline
in value.
The trading price of our common stock is likely to be highly volatile and could
be subject to wide fluctuations in price in response to various factors, many
of which are beyond our control, including:
.actual or anticipated variations in quarterly operating results;
.announcements of technological innovations by us or our competitors;
.new products or services introduced or announced by us or our competitors;
.changes in financial estimates by securities analysts;
.conditions or trends in the biotechnology and pharmaceutical industries;
.announcements by us of significant acquisitions, strategic partnerships, joint
ventures or capital commitments;
.additions or departures of key personnel; and
.sales of our common stock.
In addition, the stock market in general, and the Nasdaq National Market and
the market for technology companies in particular, has experienced significant
price and volume fluctuations that have often been unrelated or
disproportionate to the operating performance of those companies. Further,
- --------------------------------------------------------------------------------
15
<PAGE>
Risk factors
- --------------------------------------------------------------------------------
there has been particular volatility in the market prices of securities of life
sciences companies. These broad market and industry factors may seriously harm
the market price of our common stock, regardless of our operating performance.
In the past, following periods of volatility in the market price of a company's
securities, securities class action litigation has often been instituted. A
securities class action suit against us could result in substantial costs,
potential liabilities and the diversion of management's attention and
resources.
There may not be an active, liquid trading market for our common stock.
Prior to this offering, there has been no public market for our common stock.
We cannot assure you that an active trading market for our common stock will
develop following this offering. You may not be able to sell your shares
quickly or at the market price if trading in our stock is not active. The
initial public offering price will be determined by negotiations between us and
representatives of the underwriters based upon a number of factors. The initial
public offering price may not be indicative of prices that will prevail in the
trading market. See "Underwriting" for more information regarding our
arrangement with the underwriters and the factors considered in setting the
initial public offering price.
Our principal stockholders, directors and executive officers will own
approximately 55.0% of our common stock, which may prevent new investors from
influencing corporate decisions.
After this offering, our stockholders who currently own over 5% of our common
stock, our directors and executive officers will beneficially own approximately
55.0% of our outstanding common stock or 53.7% if the underwriters exercise
their over-allotment option in full. These stockholders will be able to
exercise significant influence over all matters requiring stockholder approval,
including the election of directors and the approval of significant corporate
transactions. This concentration of ownership may also delay or prevent a
change in control of the company even if beneficial to our stockholders. See
"Principal stockholders" for additional information on the concentration of
ownership of our common stock.
Future sales of our common stock may depress our stock price.
The market price of our common stock could decline as a result of sales of
substantial amounts of our common stock in the public market after the closing
of this offering, or the perception that these sales could occur. In addition,
these factors could make it more difficult for us to raise funds through future
offerings of common stock. There will be 26,676,070 shares of common stock
outstanding immediately after this offering, or 27,351,070 shares if the
underwriters exercise their over-allotment option in full, based on the number
of shares outstanding at March 21, 2000. All of the shares sold in the offering
will be freely transferable without restriction or further registration under
the Securities Act, except for any shares purchased by our "affiliates," as
defined in Rule 144 of the Securities Act. The remaining 22,176,070 shares of
common stock outstanding will be "restricted securities" as defined in Rule
144. These shares may be sold in the future without registration under the
Securities Act to the extent permitted by Rule 144 or other exemptions under
the Securities Act.
Approximately 180 days after this offering, we intend to register approximately
4,231,134 shares of common stock which are reserved for issuance upon exercise
of options granted under our stock option plan. Once we register these shares,
they can be sold in the public market upon issuance, subject to restrictions
under the securities laws applicable to resales by affiliates. See "Shares
eligible for future sale."
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16
<PAGE>
Risk factors
- --------------------------------------------------------------------------------
You will experience immediate and substantial dilution.
The initial public offering price of our common stock is expected to be
substantially higher than the net tangible book value per share of our common
stock. Therefore, if you purchase shares of our common stock in this offering,
you will incur immediate and substantial dilution of approximately $14.75 in
the pro forma net tangible book value per share of common stock from the price
per share that you pay for the common stock (based upon an assumed initial
public offering price of $18.00 per share). If the holders of outstanding
options or warrants exercise those options or warrants at prices below the
initial public offering price, you will incur further dilution.
If we need but are unable to obtain additional funding to support our
operations, we would have to reduce or cease operations or attempt to sell all
or a part of our operations.
We anticipate that our existing cash and cash equivalents, together with the
net proceeds of this offering, will be sufficient to fund our currently planned
operations through at least December 31, 2001. However, this expectation is
based on our current operating plan, which could change as a result of many
factors, and we could require additional funding sooner than anticipated. Our
requirements for additional capital may be substantial and will depend on many
factors, some of which are beyond our control, including:
.payments received or made under possible future strategic partner agreements;
.market acceptance of our products;
.continued progress of our research and development of our products;
.the cost of protection of patent and other intellectual property rights; or
.further development of production, marketing and sales capabilities.
We have no credit facility or other committed sources of capital. To the extent
capital resources are insufficient to meet future capital requirements, we will
have to raise additional funds to continue the development of our technologies.
There can be no assurance that funds will be available on favorable terms if at
all. To the extent that additional capital is raised through the sale of equity
or convertible debt securities, the issuance of those securities could result
in dilution to our stockholders. Moreover, incurring debt financing could
result in a substantial portion of our operating cash flow being dedicated to
the payment of principal and interest on such indebtedness, could render us
more vulnerable to competitive pressures and economic downturns and could
impose restrictions on our operations. If adequate funds are not available, we
may be required to curtail operations significantly or to obtain funds through
entering into collaboration agreements on unattractive terms.
Because it is unlikely that we will ever pay dividends, you will only be able
to benefit from holding our stock if the stock price appreciates.
We have never paid cash dividends on our capital stock and do not anticipate
paying any cash dividends in the foreseeable future.
- --------------------------------------------------------------------------------
17
<PAGE>
Risk factors
- --------------------------------------------------------------------------------
Anti-takeover provisions in our charter and bylaws and Delaware law could make
a third-party acquisition of us difficult.
Our certificate of incorporation and bylaws contain provisions that could make
it more difficult for a third party to acquire us, even if doing so would be
beneficial to our stockholders. These provisions could limit the price that
investors might be willing to pay in the future for shares of our common stock.
We are also subject to certain provisions of Delaware law that could delay,
deter or prevent a change in control of us. See "Description of securities --
Anti-takeover effects of provisions of the certificate of incorporation, bylaws
and Delaware law."
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18
<PAGE>
- --------------------------------------------------------------------------------
Forward-looking information
Some of the statements under "Prospectus summary," "Risk factors,"
"Management's discussion and analysis of financial condition and results of
operations," "Business" and elsewhere in this prospectus constitute forward-
looking statements. These statements relate to future events or our future
financial performance and involve known and unknown risks, uncertainties and
other factors that may cause our or our industry's actual results, levels of
activity, performance or achievements to be materially different from those
expressed or implied by any forward-looking statements. Some of these factors
are listed under "Risk factors" and elsewhere in this prospectus. In some
cases, you can identify forward-looking statements by terminology such as
"may," "will," "should," "expects," "plans," "anticipates," "intends,"
"believes," "estimates," "predicts," "potential" or "continue" or the negative
of these terms or other comparable terminology. These statements are only
predictions. Actual events or results may differ materially.
- --------------------------------------------------------------------------------
19
<PAGE>
- --------------------------------------------------------------------------------
Use of proceeds
We estimate that the net proceeds from the sale of the shares of common stock
we are offering will be approximately $74.6 million at an assumed initial
public offering price of $18.00 per share after deducting the estimated
underwriting discounts and commissions and estimated offering expenses. If the
underwriters' over-allotment option is exercised in full, we estimate that the
net proceeds will be approximately $85.9 million.
We currently intend to use the net proceeds to fund our operations, including
continued development and manufacturing of existing products as well as
research and development of additional products. In addition, we also intend to
use a portion of the net proceeds to hire additional personnel and expand our
facilities to be able to meet the growing needs of our business. Although we
have no current plans, agreements or commitments with respect to any
acquisition, we may, if the opportunity arises, use an unspecified portion of
the net proceeds to acquire or invest in products, technologies or companies.
We intend to use the balance of the net proceeds for general corporate
purposes, including working capital. Our management may spend the proceeds from
this offering in ways which the stockholders may not deem desirable.
The timing and amount of our actual expenditures will be based on many factors,
including cash flows from operations and the growth of our business.
Until we use the net proceeds of this offering for the above purposes, we
intend to invest the funds in short-term, investment grade, interest-bearing
securities. We cannot predict whether the proceeds invested will yield a
favorable return.
Dividend policy
We have never declared or paid any cash dividends on our capital stock. We
anticipate that we will retain any earnings to support operations and to
finance the growth and development of our business. Therefore, we do not expect
to pay cash dividends in the foreseeable future. Any future determination
relating to our dividend policy will be made at the discretion of our board of
directors and will depend on a number of factors, including future earnings,
capital requirements, financial conditions and future prospects and other
factors the board of directors may deem relevant.
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20
<PAGE>
- --------------------------------------------------------------------------------
Capitalization
The following table sets forth our capitalization as of December 31, 1999:
.on an actual basis;
.on a pro forma basis to give effect to the conversion of 841,359 shares of our
preferred stock outstanding as of the date this prospectus into 8,768,592
shares of common stock upon the closing of this offering; and
.on a pro forma as adjusted basis to give effect to the conversion of our
preferred stock into common stock and the receipt of the estimated net
proceeds from the sale of 4,500,000 shares of common stock offered by this
prospectus at an assumed initial public offering price of $18.00 per share.
<TABLE>
<CAPTION>
Pro Pro Forma
Actual Forma as adjusted
- -------------------------------------------------------------------------------
(in thousands, except share
amounts)
<S> <C> <C> <C>
Preferred stock, par value $0.001;
Authorized shares -- none actual, 5,000,000 pro
forma and pro forma as adjusted
Issued and outstanding shares -- none actual,
pro forma and pro forma as adjusted......... $ -- $ -- $ --
Convertible preferred stock, par value $2.00;
Authorized shares -- 5,000,000 actual, pro
forma and pro forma as adjusted
Issued and outstanding shares -- 841,359
actual, none pro forma and pro forma as
adjusted.................................... 28,946 -- --
Common stock, par value $0.001;
Authorized shares -- 50,000,000 actual,
200,000,000 pro forma and pro forma as
adjusted
Issued and outstanding shares -- 13,167,754
actual, 21,936,346 pro forma and 26,436,346
pro forma as adjusted....................... 13 22 26
Warrants to purchase 535,500 shares of common
stock........................................ 180 180 180
Additional paid-in capital...................... 5,511 34,448 109,074
Deferred stock compensation..................... (467) (467) (467)
Accumulated deficit............................. (22,988) (22,988) (22,988)
------- ------- -------
Total stockholders' equity..................... 11,195 11,195 85,825
------- ------- -------
Total capitalization........................... $11,195 $11,195 $85,825
======= ======= =======
</TABLE>
The table above does not include:
.3,437,359 and 4,231,134 shares of common stock issuable upon exercise of
options outstanding at a weighted average price of $3.06 and $6.25 per share
at December 31, 1999 and March 21, 2000, respectively; and
.2,587,500 additional shares of common stock available for future grant under
our 2000 Long-Term Incentive Plan at March 21, 2000.
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21
<PAGE>
- --------------------------------------------------------------------------------
Dilution
Our historical net tangible book value as of December 31, 1999 was
approximately $11.2 million, or $0.85 per share, based on the number of common
shares outstanding as of December 31, 1999. Historical net tangible book value
per share is equal to the amount of our total tangible assets less total
liabilities, divided by the number of shares of common stock outstanding as of
December 31, 1999.
Our pro forma net tangible book value as of December 31, 1999 was approximately
$11.2 million, or $0.51 per share, based on the pro forma number of shares
outstanding as of December 31, 1999 of 21,936,346, calculated after giving
effect to the automatic conversion of 841,359 shares of our preferred stock
outstanding as of December 31, 1999 into 8,768,592 shares of our common stock.
Dilution in pro forma net tangible book value per share represents the
difference between the amount per share paid by purchasers of shares of our
common stock in this offering and the net tangible book value per share of our
common stock immediately afterwards, after giving effect to the sale of
4,500,000 shares in this offering. This represents an immediate increase in pro
forma net tangible book value of $2.74 per share to existing stockholders and
an immediate dilution in pro forma net tangible book value of $14.75 per share
to new investors. The following table illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share.................. $18.00
Historical net tangible book value per share as of December 31,
1999......................................................... $0.85
Decrease attributable to conversion of preferred stock.......... (0.34)
-----
Pro forma net tangible book value per share as of December 31,
1999......................................................... 0.51
Increase attributable to the offering........................... 2.74
-----
Net tangible book value per share after the offering............. 3.25
------
Dilution per share to new investors.............................. $14.75
======
</TABLE>
The following table summarizes, on a pro forma basis as of December 31, 1999,
after giving effect to this offering, the total number of shares of common
stock purchased from us and the total consideration and the average price per
share paid by existing stockholders and by new investors:
<TABLE>
<CAPTION>
Shares purchased Total consideration Average price
Number Percent Amount Percent per share
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Existing stockholders.. 21,936,346 83% $ 30,562,740 27% $ 1.39
New investors.......... 4,500,000 17% 81,000,000 73% $18.00
---------- --- ------------ ---
Total.................. 26,436,346 100% $111,562,740 100%
========== === ============ ===
</TABLE>
The tables and calculations above assume no exercise of the outstanding options
or warrants described below:
.3,437,359 and 4,231,134 shares issuable upon the exercise of options
outstanding at a weighted average exercise price of $3.06 and $6.25 per share
at December 31, 1999 and March 21, 2000, respectively;
.535,500 shares issuable upon the exercise of warrants outstanding at a
weighted average exercise price of $1.96 per share at December 31, 1999 and
March 21, 2000; and
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22
<PAGE>
Dilution
- --------------------------------------------------------------------------------
.2,587,500 additional shares available for future grant under our 2000 Long-
Term Incentive Plan at March 21, 2000.
To the extent that these options or warrants are exercised, there will be
further dilution to new investors. See "Management -- Employee benefit plans"
for further information regarding our stock option plan and stock purchase
plan.
If the underwriters exercise their over-allotment option in full, the following
will occur:
.the percentage of shares of our common stock held by existing stockholders
will decrease to approximately 81% of the total number of shares of our common
stock outstanding after this offering;
.the number of shares of our common stock held by new public investors will
increase to 5,175,000, or approximately 19% of the total number of shares of
our common stock outstanding after this offering; and
.our pro forma net tangible book value will increase to $3.58 per share to
existing stockholders and our pro forma net tangible book value will be
diluted by $14.42 per share to new investors.
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23
<PAGE>
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Selected financial data
The following selected financial data should be read in conjunction with the
financial statements and the notes to such statements and "Management's
discussion and analysis of financial condition and results of operations"
included elsewhere in this prospectus. The statement of operations data for the
years ended December 31, 1997, 1998 and 1999, and the balance sheet data as of
December 31, 1998 and 1999, are derived from our financial statements which
have been audited by Ernst & Young LLP, independent auditors, and are included
elsewhere in this prospectus. The statement of operations data for the period
from May 24, 1995 (inception) to December 31, 1995 and for the year ended
December 31, 1996 and the balance sheet data as of December 31, 1995, 1996 and
1997 are derived from audited financial statements not included in this
prospectus. Historical results are not necessarily indicative of the results to
be expected in the future.
The pro forma net loss per share and shares used in computing pro forma net
loss per share are calculated as if all of our convertible preferred stock was
converted into shares of our common stock on the date of their issuance.
<TABLE>
<CAPTION>
Period from
May 24, 1995
(inception) to
December 31, Year Ended December 31,
1995 1996 1997 1998 1999
Statement of operations
data (In thousands, except per share data)
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Revenue:
Product ................ $-- $-- $99 $386 $2,606
Grant .................. -- -- -- -- 506
------ ------- ------- ------- --------
Total revenue.......... -- -- 99 386 3,112
Costs of product
revenue............... -- -- 10 88 1,172
------ ------- ------- ------- --------
Gross margin............. -- -- 89 298 1,940
Operating expenses:
Research and
development.......... 58 1,036 1,594 3,611 6,188
Selling, general and
administrative....... 216 731 1,426 2,566 5,238
------ ------- ------- ------- --------
Total operating
expenses............ 274 1,767 3,020 6,177 11,426
------ ------- ------- ------- --------
Loss from operations..... (274) (1,767) (2,931) (5,879) (9,486)
Interest income.......... 4 7 178 283 284
------ ------- ------- ------- --------
Net loss................. (270) (1,760) (2,753) (5,596) (9,202)
Accretion of discount on
convertible preferred
stock................. -- -- -- -- (3,406)
------ ------- ------- ------- --------
Net loss applicable to
common stockholders... $ (270) $(1,760) $(2,753) $(5,596) $(12,608)
====== ======= ======= ======= ========
Net loss per share, basic
and diluted........... $(0.06) $(0.16) $(0.21) $(0.43) $(0.96)
====== ======= ======= ======= ========
Shares used in computing
net loss per share,
basic and diluted..... 4,531 10,826 12,842 13,086 13,151
Pro forma net loss per
share, basic and
diluted............... $(0.45)
========
Shares used in computing
pro forma net loss per
share, basic and
diluted............... 20,529
</TABLE>
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24
<PAGE>
Selected financial data
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
As of December 31,
1995 1996 1997 1998 1999
Balance sheet data (In thousands)
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Cash and cash equivalents.................... $229 $14 $2,821 $8,537 $4,083
Working capital (deficit).................... 138 (249) 2,761 8,391 10,426
Total assets................................. 286 154 3,119 9,590 12,566
Total stockholders' equity (deficit)......... 196 (110) 2,964 9,190 11,195
</TABLE>
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25
<PAGE>
- --------------------------------------------------------------------------------
Management's discussion and analysis of financial condition and results of
operations
The following discussion of our financial condition and results of operations
should be read in conjunction with the financial statements and the notes to
those statements included elsewhere in this prospectus. This discussion may
contain forward-looking statements that involve risks and uncertainties. As a
result of many factors, such as those set forth under "Risk factors" and
elsewhere in this prospectus, our actual results may differ materially from
those anticipated in these forward-looking statements.
Since our inception, we have incurred significant losses and, as of December
31, 1999, we had an accumulated deficit of $23.0 million. We anticipate
incurring additional losses, which may increase, for the foreseeable future.
Prior to 1999, we were considered a development stage company.
We commenced marketing our first generation system, the Luminex R/O system, in
1997 and our second generation technology, the LabMAP system, in 1999. Revenue
on sales of our products is recognized when persuasive evidence of an agreement
exists, delivery has occurred, the fee is fixed and determinable and
collectibility is probable. We expect that each system will generate a
recurring revenue stream from the sale of consumable products. In accordance
with the terms of the grant, grant revenue is recorded as the research expenses
relating to the grant are incurred, provided that the amounts received are not
refundable if the research is not successful. In addition, we may generate
royalty revenue from some of our strategic partners as they sell products
incorporating our technology or provide services to third parties using our
technology.
Our expenses have consisted primarily of costs incurred in research and
development, manufacturing scale-up and business development and from general
and administrative costs associated with our operations. We expect our research
and development expenses to increase in the future as we continue to develop
our products. Also, our selling and marketing expenses will increase as we
commercialize our products, and general and administrative expenses will
increase as we expand our facilities and assume the obligations of a public
reporting company.
We have a limited history of operations. We anticipate that our quarterly
results of operations will fluctuate for the foreseeable future due to several
factors, including market evaluation and acceptance of current or new products,
which may result in a lengthy sales cycle, patent conflicts, the introduction
of new products by our competitors, the timing and extent of our research and
development efforts, and the timing of significant orders. Our limited
operating history makes accurate predictions of future operations difficult or
impossible.
Deferred stock compensation represents the difference between the deemed fair
value of our common stock and the exercise price of options at the date of
grant. We are amortizing these amounts ratably over the vesting periods. As a
result of stock options granted in 1999, we recorded $1.7 million in deferred
stock compensation of which $467,000 remained unamortized as of December 31,
1999. As a result of stock options granted in 2000, we anticipate recording an
additional $2.1 million in deferred stock compensation. The remaining deferred
stock compensation as of December 31, 1999 and the additional deferred stock
compensation recorded in 2000 will be amortized over the respective vesting
terms of the underlying options resulting in anticipated amortization of
approximately $1.3 million in 2000, $556,000 in 2001, $532,000 in 2002, and
$135,000 in 2003. The deferred stock compensation expense incurred as a result
of stock option grants to consultants is an estimate based on the fair market
value of our common stock. Because the actual expense is calculated based on
the fair market value on the vesting date, we may incur additional deferred
stock compensation expense if the price of our common stock on the vesting date
exceeds the fair market value amount used in estimating the expense.
- --------------------------------------------------------------------------------
26
<PAGE>
Management's discussion and analysis of financial condition and results of
operation
- --------------------------------------------------------------------------------
RESULTS OF OPERATIONS
Years ended December 31, 1999 and 1998
Revenue
Revenue increased to $3.1 million in 1999 from $386,000 in 1998. The increase
was primarily attributable to the sale of Luminex 100 systems, which were
introduced in the first quarter of 1999, and Luminex XY Platforms, which were
introduced in the fourth quarter of 1999. Revenue from the sale of microspheres
increased $314,000 in conjunction with sales of the Luminex 100 and the
development of additional applications. Offsetting this increase was a decrease
in sales of the Luminex R/O system of $221,000 in 1999, which is consistent
with the phase-out of the Luminex R/O system and the introduction of the
higher-priced Luminex 100.
Also included in 1999 revenue was $506,000 associated with a government grant
that commenced on January 1, 1999. The grant was suspended as of September 30,
1999 when our joint venture partner withdrew due to a change in its business
strategy. We are in the process of evaluating the work plan and budget and may
resume the project with a new partner. We had no grant revenue in 1998.
Cost of product revenue
Cost of product revenue increased to $1.2 million in 1999 from $88,000 in 1998.
The increase was primarily attributable to the increase in the number of units
of the Luminex 100 sold in 1999 and the higher per unit cost of the Luminex
100, relative to the Luminex R/O system.
Research and development expenses
Research and development expenses increased to $6.2 million in 1999 from $3.6
million in 1998. These expenses include salaries and related costs of research
and development personnel as well as the costs of consultants, parts and
supplies associated with research and development projects. The increase was
primarily attributable to an increase of $789,000 million in salaries and
related personnel costs from the addition of employees during the year as well
as additional costs to complete the development of the Luminex 100 system.
Also, included in 1999 were costs of $607,000 associated with a government
grant. The increase was also due to amortization of deferred stock compensation
of approximately $447,000 in 1999. The increase in amortization of deferred
stock compensation was primarily attributable to the issuance of stock options
to our consultants.
Selling, general and administrative expenses
Selling, general and administrative expenses increased to $5.2 million in 1999
from $2.6 million in 1998. These expenses consist primarily of salaries and
related costs for executive, sales and marketing, finance and other
administrative personnel, the costs of facilities, insurance, trade shows and
legal support as well as the amortization of deferred stock and stock
compensation. The increase was attributable to consulting and professional fees
primarily related to the filing of patent applications that were $244,000
higher than in 1998, a $662,000 increase in salary costs, a $262,000 increase
in facilities costs due to the leasing of additional manufacturing space early
in 1999 and amortization of deferred stock and stock compensation expense of
approximately $817,000. Deferred stock compensation represents the difference
between the deemed fair value of our common stock and the exercise price of
options at the date of grant. These amounts are being amortized ratably over
the vesting periods. The increase in amortization of deferred stock and stock
compensation expense was primarily attributable to the issuance of stock
options to our consultants.
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27
<PAGE>
Management's discussion and analysis of financial condition and results of
operation
- --------------------------------------------------------------------------------
Interest income
Interest income remained relatively unchanged between 1998 and 1999.
Income taxes
As of December 31, 1999, we had federal net operating loss carryforwards of
$17.1 million. As of December 31, 1999, we have recorded a full valuation
allowance for our existing net deferred tax assets due to uncertainties
regarding their realization. We also have federal research tax credit
carryforwards of $572,000. The federal net operating loss and credit
carryforwards begin to expire in 2010, if not utilized. Utilization of the
federal net operating losses and credit carryforwards will be limited by the
change of ownership provisions contained in Section 382 of the Internal Revenue
Code. The annual limitation will result in the expiration of no more than
$750,000 of net operating losses before utilization.
Years ended December 31, 1998 and 1997
Revenue
Revenue increased to $386,000 in 1998 from $99,000 in 1997. The increase was
primarily attributable to higher unit sales of Luminex R/O systems in 1998
compared with 1997.
Cost of product revenue
Cost of product revenue increased to $88,000 in 1998 from $10,000 in 1997. The
increase was primarily attributable to increased unit sales of Luminex R/O
systems in 1998 compared to 1997.
Research and development expenses
Research and development expenses increased to $3.6 million in 1998 from $1.6
million in 1997. The increase was primarily attributable to higher staffing
levels, consulting and professional fees and usage of parts and supplies for
development purposes.
Selling, general and administrative expenses
Selling, general and administrative expenses increased to $2.6 million in 1998
from $1.4 million in 1997 primarily attributable to an increase in facilities
costs, consulting and professional fees and depreciation and amortization.
Interest income
Interest income increased to $283,000 in 1998 from $178,000 in 1997. The
increase was attributable to the higher average cash and cash equivalent
balances resulting from the $11.3 million net proceeds from the sale of our
Series C preferred stock, in mid 1998.
LIQUIDITY AND CAPITAL RESOURCES
We have funded our operations principally with $30.6 million of private equity
financings, $28.9 million of which came from a series of five preferred stock
offerings over the period 1996 through 1999 as follows:
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28
<PAGE>
Management's discussion and analysis of financial condition and results of
operation
- --------------------------------------------------------------------------------
Preferred stock transactions
<TABLE>
<CAPTION>
No. of
Year Shares Amount
(dollar amounts in
Issue millions)
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Preferred Stock, Series A.................................. 1996 457,250 $0.9
Preferred Stock, Series B.................................. 1997 150,000 6.0
Preferred Stock, Series C.................................. 1998 151,571 12.1
Preferred Stock, Series D.................................. 1999 57,538 6.9
Preferred Stock, Series E.................................. 1999 25,000 3.0
-----
$28.9
=====
</TABLE>
Each share of Series A Preferred Stock is convertible into 2.04 shares of our
common stock. Each share of our Series B, C, D and E Preferred Stock is
convertible into 20.4 shares of our common stock.
At December 31, 1999, cash, cash equivalents and short-term investments totaled
$9.0 million compared to $8.5 million and $2.8 million at December 31, 1998 and
1997, respectively. Our cash reserves are held in a variety of short term,
interest-bearing instruments including high-grade corporate bonds, commercial
paper, US government backed securities and money market accounts.
Cash used in operations was $8.4 million for the year ended December 31, 1999
compared with $5.1 million and $2.9 million for the years ended December 31,
1998 and 1997, respectively. The net loss for 1999 of $9.2 million was
partially offset by non-cash charges for depreciation, amortization and stock
compensation of $1.7 million and an increase in deferred revenue of $646,000.
Other factors contributing to the increase in operating cash used were an
increase in accounts receivable of $1.2 million and inventory increases of
$616,000.
Our purchases of property and equipment increased to $1.1 million in 1999, from
$399,000 in 1998. The increase was related to machinery, equipment and computer
equipment purchased to meet our operating equipment requirements, to provide
computer equipment for our new employees and to upgrade our network to
accommodate the increased rate of activity.
We expect to have negative cash flow from operations through at least 2000. We
expect to incur increasing research and development expenses, including
expenses related to additions to personnel and production and commercialization
efforts. Our future capital requirements will depend on a number of factors,
including our success in developing markets for our products, payments received
or made under possible future strategic agreements, the availability of
government research grants, continued progress of our research and development
of potential products, the timing and outcome of regulatory approvals, the
costs involved in preparing, filing, prosecuting, maintaining, defending and
enforcing patent claims and other intellectual property rights, the need to
acquire licenses to new technology, the status of competitive products and the
availability of other financing. We believe our existing cash, cash equivalents
and short-term investments, together with the net proceeds of this offering,
will be sufficient to fund our operating expenses and capital equipment
requirements through at least December 31, 2001.
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29
<PAGE>
Management's discussion and analysis of financial condition and results of
operation
- --------------------------------------------------------------------------------
We have no credit facility or other committed sources of capital. To the extent
our capital resources are insufficient to meet future capital requirements, we
will need to raise additional capital or incur indebtedness to fund our
operations. There can be no assurance that additional debt or equity financing
will be available on acceptable terms, if at all. If adequate funds are not
available, we may be required to delay, reduce the scope of or eliminate our
research and development programs, reduce our commercialization efforts or
obtain funds through arrangements with collaborative partners or others that
may require us to relinquish rights to certain technologies or products that we
might otherwise seek to develop or commercialize.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Our interest income is sensitive to changes in the general level of US interest
rates, particularly since the majority of our investments are in short-term
instruments. Due to the nature of our short-term investments, we have concluded
that there is no material market risk exposure.
Inflation
We do not believe that inflation has had a material adverse impact on our
business or operating results during the periods presented.
Recent accounting pronouncements
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
Accounting for Derivative Instruments and Hedging Activities. SFAS No. 133 is
effective for fiscal years beginning after June 15, 2000. SFAS No. 133 requires
that all derivative instruments be recorded on the balance sheet at their fair
value. Changes in the fair value of derivatives are recorded each period in
current earnings or other comprehensive income. We do not expect that the
adoption of SFAS No. 133 will have a material impact on our financial
statements because we do not currently hold any derivative instruments.
On March 31, 1999, the FASB issued an exposure draft entitled "Accounting for
Certain Transactions Involving Stock Compensation," which is a proposed
interpretation of APB Opinion No. 25 which has an effective date for certain
transactions of December 15, 1998. However, the exposure draft has not been
finalized. Once finalized and issued, the current accounting practices for
transactions involving stock compensation may need to change and such changes
could effect our future earnings.
In December 1999, the Securities and Exchange Commission released Staff
Accounting Bulletin No. 101, Revenue Recognition in Financial Statements, which
provides guidance on the recognition, presentation and disclosure of revenue in
financial statements. The application of SAB No. 101 did not have a material
impact on our financial statements.
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30
<PAGE>
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Business
OVERVIEW
Luminex Corporation has developed, manufactures and markets a proprietary
technology that simplifies biological testing for the life sciences industry.
This industry depends on a broad range of tests, called bioassays, to discover
new drugs, identify new genes or simply monitor blood cholesterol levels. The
LabMAP system simultaneously performs up to 100 bioassays on a single drop of
fluid. We accomplish this with the Luminex 100, a compact instrument that reads
biological tests taking place on the surface of microscopic plastic beads
called microspheres. The Luminex 100 combines this miniaturized bioassay
capability with small lasers, digital signal processors and proprietary
software to create a system offering significant advantages in speed,
precision, flexibility and cost. We believe our LabMAP technology is broadly
applicable in the fields of drug discovery, clinical diagnostics, genetic
analysis and biomedical research.
We began marketing the current generation of LabMAP in 1999. As of February 29,
2000, 63 life sciences customers have purchased 114 LabMAP systems. Our
customers include Abbott Laboratories, Bio-Rad Laboratories, Inc., Centers for
Disease Control and Prevention, Eli Lilly and Company, GlaxoWellcome plc,
Laboratory Corporation of America, Lawrence Livermore National Laboratories,
Life Technologies, Inc., Mayo Clinic, National Institutes of Health and
SmithKline Beecham Corporation.
MARKET OPPORTUNITY
Background
The life sciences industry uses bioassays extensively to detect the presence of
certain biochemicals, proteins or genes in a sample. Drug discovery, genetic
analysis, pharmacogenomics, clinical diagnostics and general biomedical
research broadly use bioassays. For example, bioassays can be used to:
.measure the attraction, or affinity, between a chemical compound and a disease
target for drug discovery and development;
.assist physicians in prescribing the appropriate drug therapy to match the
patient's unique genetic makeup, a process known as pharmacogenomics;
.detect genetic variations, such as single nucleotide polymorphisms or SNPs;
and
.measure the presence and quantity of biochemicals in blood to assist
physicians in diagnosing, treating and monitoring disease conditions such as
heart attack or diabetes.
Laboratories either develop bioassays internally to meet their specific needs
or purchase them in the form of an off-the-shelf test kit or customized
service. Industry reports estimate the global market for tools the drug
discovery and development, clinical diagnostics and biomedical research
industries use to develop and perform bioassays to have been approximately
$27.5 billion in 1998 and expect it to grow at an annual rate of 7.2%.
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<PAGE>
Business
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Markets description
Drug discovery and development
The bioassays the pharmaceutical industry employs vary in design and complexity
throughout the drug discovery and development process. Simple bioassays screen
a pharmaceutical company's library of chemical compounds against disease
targets. Confirmatory testing and lead optimization use more complex bioassays.
Finally, predictive toxicity bioassays are used to test the safety of the
potential drug.
Industry reports estimate the global market for tools to develop and perform
bioassays for the drug discovery and development industry to have been
approximately $7.2 billion in 1998 and project continued growth at an annual
rate of 11%. There are a number of factors driving this growth, including:
.Increased research and development spending. According to industry reports,
pharmaceutical and biotechnology companies spent in excess of $48 billion
worldwide in 1998 on drug discovery and development. These reports project
spending to increase at an annual rate of 11%. This is the result of
increasing pressure to expand the product pipeline, find new applications for
existing or failed drugs and shorten the drug discovery process in order to
maximize the benefits of the patent protection period. As a result, we believe
the number of identified disease targets for drug discovery will rise.
According to industry reports, each pharmaceutical and biotechnology company
expects to screen, on average, 27 targets in 2001, up from 17 in 1999.
.A shift in research and development focus from gene sequencing to determining
the function of genes and their protein products, known as functional genomics
and proteomics. The Human Genomics Project, an international effort to
provide the first complete DNA sequence of a human, as well as the activities
of such companies as Celera Genomics Group and Incyte Pharmaceuticals, are
providing large amounts of information concerning human genes. Pharmaceutical
and biotechnology companies now focus a major part of their research and
development efforts on identifying the role those genes serve in biological
processes and how variations in gene sequences may result in a predisposition
for a disease or an adverse reaction to a drug. These activities are referred
to as functional genomics. Since proteins serve as the mechanism through which
genes control cellular activities, the study of proteins, or proteomics, is
expected to intensify. We expect this shift in focus to lead to a dramatic
rise in the number of identified disease targets and related bioassays.
Clinical diagnostics
The clinical diagnostics market broadly uses bioassays. These bioassays are
commonly referred to as in vitro diagnostics, or IVD, and detect the presence
and quantity of certain substances in body fluids, such as whole blood, plasma,
serum, urine and saliva, as well as cells and tissues. Applications range from
the simple detection of illegal drugs in urine to the screening and diagnosis
of genetic diseases, infectious diseases and cancer. A number of different
clinical settings, including hospital laboratories, commercial laboratories and
physicians' offices/ambulatory care centers perform these applications. There
are more than 150,000 hospital, commercial clinical and physician office
laboratories registered with the Health Care Financing Administration (HCFA) in
the United States.
An industry report estimates the global market for IVD products to have been
approximately $18 billion in 1998 and to be growing at an annual rate of 5%. We
believe a number of industry trends exist that will drive this growth,
including:
.An increase in disease targets from the success of drug discovery efforts. We
believe the rise in research and development spending by pharmaceutical and
biotechnology companies will lead to the
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32
<PAGE>
Business
- --------------------------------------------------------------------------------
identification of a greater number of disease targets. These targets may be
assayed during drug discovery and later developed as IVD products for disease
diagnosis and monitoring. For example, the HIV viral load bioassay originally
used to evaluate potential drug candidates is now the primary tool for patient
monitoring.
.Evolution of pharmacogenomics. Many studies investigate genetic variation
among individuals, including SNPs, and their linkage to disease. A consortium
of pharmaceutical companies seeking to correlate the results of an
individual's SNP profile with drug response funds these studies. In doing so,
pharmaceutical companies are attempting to discover new drugs and revive such
potential blockbuster drugs as Rezulin, an extremely powerful anti-diabetic
with dangerous side effects in a small fraction of users. Pharmacogenomics
allow a physician to tailor a diabetic patient's drug therapy after bioassay
of his or her genetic make-up.
.Consolidation among the clinical diagnostic companies. As a result of industry
consolidation, clinical diagnostic companies have been re-engineering the
laboratory in order to streamline processes, improve productivity and lower
costs. Attempts to integrate the many instruments employed by these
laboratories have been part of this process. We believe, however, that
clinical laboratories will ultimately prefer a single instrument that can
perform the required bioassays.
.Evolution of disease-specific test panels. Traditionally, health care
providers have focused on a single target of a particular disease. Rarely,
though, are diseases confined to a single, isolated molecular abnormality. For
example, the predictive value of a cholesterol test is increased significantly
when the HDL and LDL levels are determined. More recently, physicians have
added homocysteine and C-reactive protein levels to the risk profile for heart
disease. We believe clinical laboratories will demand a system that can
perform all of these tests simultaneously from a single sample in a simple,
cost effective format.
Biomedical research
Biomedical research is focused on understanding biological processes at the
molecular level. Through an understanding of such processes, scientists can
better characterize disease, a critical first step in designing drug therapies.
The National Institutes of Health provides over $12 billion annually in funding
to more than 50,000 scientists. These scientists work in the laboratories of
universities and other not-for-profit research institutions. The pharmaceutical
and biotechnology industries also fund significant research.
According to industry reports, the global market for bioassays in biomedical
research is estimated to have been approximately $2.3 billion in 1998 and
growing at an annual rate of 13%. We believe there are a number of industry
trends that will drive this growth, including:
.Increased research and development spending by pharmaceutical
companies. Pharmaceutical companies have a long history of collaborating with
academic institutions to study biological processes at the molecular and
cellular level. As these collaborations increase and diversify in focus, we
believe the number of bioassays performed will rise.
.Increased demand for SNP studies. Academic and not-for-profit institutions
have played a major role in studying SNPs in the population. The SNP
consortium, a collaboration of academic, not-for-profit research institutions
and pharmaceutical companies, has announced an effort to identify over 300,000
SNPs, some of which may be correlated with disease. As a result, we anticipate
that demand for SNP detection bioassays will increase.
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33
<PAGE>
Business
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Current assay development technologies and their limitations
The differing bioassay needs of life sciences laboratories have led to the
development of specialized techniques and instrumentation. As a result, most of
these laboratories have become highly compartmentalized. For example, clinical
testing facilities are organized into functional groups, such as chemistry,
microbiology, immunology and infectious diseases. Similarly, pharmaceutical
companies organize their laboratories by disease target, such as cancer and
hypertension, as well as by the stages of the drug discovery process, from
initial bioassay development to toxicology. This has created inefficiencies in
laboratories since they must now purchase multiple instruments, often from
different vendors, to meet their testing needs. This limits the laboratories'
ability to standardize bioassay techniques, operator training and hardware
maintenance.
While advances in bioassay technologies have delivered new capabilities, most
remain highly specialized and reinforce the problems associated with
compartmentalization.
The table below briefly describes the key bioassay technologies in the life
sciences industry and what we consider to be their comparative advantages and
disadvantages.
<TABLE>
<CAPTION>
Key technologies Description Markets served Advantages Disadvantages
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
BioChips High-density arrays Biomedical .Performs multiple .High equipment cost
of DNA fragments research tests on a single .High cost per test
attached to a flat platform .Fixed
glass or silicon surface .High throughput configuration/inflexible
.Limited format--can
only perform genetic
bioassays
- -----------------------------------------------------------------------------------------------------------------
Clinical Automated test-tube Clinical .High throughput .High equipment cost-
Immuno-analyzers based platform diagnostics .Reproducible .High cost per test
.Performs large .Requires large sample
number of volume
individual tests .High maintenance costs
.Limited format -- can
only perform
immunologic bioassays
- -----------------------------------------------------------------------------------------------------------------
Gels and Blots Physical separation of Clinical .Low equipment cost . Labor intensive
analytes for diagnostics .Performs multiple .Low throughput
visualization and biomedical bioassays .Cannot perform
research simultaneously enzymatic assays
- -----------------------------------------------------------------------------------------------------------------
Microarrays Low-density arrays Biomedical .Performs multiple . High equipment cost
of DNA fragments research bioassays .Low throughput
attached to a flat simultaneously .Limited format--can
glass or silicon surface .Flexible only perform genetic
configuration bioassays
- -----------------------------------------------------------------------------------------------------------------
Microfluidics chips Miniaturized liquid Biomedical .Low sample volume .High cost per test
handling system research .Low reagent volume .Fixed
on a chip .Performs multiple configuration/inflexible
tests
simultaneously
- -----------------------------------------------------------------------------------------------------------------
Microtiter based assays Plastic trays with Drug discovery, .Ease of use .Requires large sample
discrete wells in which clinical .High throughput volume
assays are fixed diagnostics and .Reproducible .Fixed configuration
biomedical .Broad formats .High reagent costs
research .Single test per well
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
34
<PAGE>
Business
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THE LUMINEX SOLUTION
Our solution is to provide a single platform, the LabMAP technology, that can
perform a wide range of bioassays in a cost-effective manner. Many technologies
are available to perform bioassays in the niche markets that comprise the life
sciences industry, all of which are accurate, sensitive and reliable. Luminex
believes that the LabMAP system meets these requirements and is the only
commercially available technology that provides each of the following key
features:
Multi-analyte/multi-format
LabMAP technology is designed to simultaneously perform from one to 100
distinct bioassays on a single sample. Unlike existing technologies that are
capable of performing only one type of bioassay, LabMAP can perform a broad
range of enzymatic, genetic and immunologic tests on a single instrumentation
platform. For example, the system could perform 100 immunologic allergy tests
using a single blood sample, while the next bioassay tested by the instrument
could be a complex genetic SNP panel. Although some DNA microarray technologies
can test for thousands of analytes per sample, we believe that one hundred
tests per sample will serve a significant portion of the DNA testing market.
Flexibility/scalability
LabMAP technology allows flexibility in customizing test panels. These panels
can be modified to include new bioassays simply by adding additional
microsphere sets. It is also scalable, meaning that there is no change in the
manufacturing process or the required labor, whether producing one million or
just 10 microsphere-based tests. The system remains cost-effective for the
smallest and largest laboratories.
Throughput
Our technology's current ability to perform up to 100 tests on a single sample
permits efficient use for high throughput applications. Throughput can be
further enhanced using the Luminex XY Platform, which permits 9,600 unattended
tests to be performed in less than an hour. A high throughput version of the
Luminex 100 being developed, the Luminex HTS, can be interfaced with automated
liquid handling equipment offered by several manufacturers to perform over
15,000 bioassays per hour.
Ease of use
Most LabMAP bioassays are simple to perform. A test sample, such as a drop of
blood, is added to a reagent solution containing microspheres and then
analyzed. Our LabMAP technology incorporates proprietary software to automate
all aspects of data acquisition and analysis in real-time. Results are provided
without the need for sophisticated data interpretation and can be directly
downloaded into a user's laboratory information system. The Luminex XY Platform
further simplifies use by enabling walk-away capability through automated
sample handling.
Low cost
We have designed the LabMAP system to be relatively inexpensive to manufacture
and utilize. Because the Luminex 100 is manufactured using many off-the-shelf
electronic components commonly used in consumer electronics, our products have
a comparatively low acquisition cost. In addition, microsphere-based bioassays
are inexpensive compared to other technologies such as biochips.
STRATEGY
Our goal is to establish LabMAP technology as the industry standard for
performing bioassays. To achieve this goal, we have implemented the following
strategy:
Focus on large, fast-growing sectors -- We will continue to focus our
commercialization efforts on large and fast-growing sectors of the life
sciences industry. We have targeted major pharmaceutical companies,
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35
<PAGE>
Business
- --------------------------------------------------------------------------------
large clinical laboratories, in vitro diagnostic manufacturers and major
medical institutions for our principal marketing efforts. We believe these
customers provide the greatest opportunity for maximizing the use of LabMAP
technology and that early adoption by these industry leaders will promote wider
market acceptance.
Continue to develop strategic partnerships -- We intend to broaden and
accelerate market acceptance of LabMAP technology by continuing to enter into
development, marketing and distribution partnerships with those leaders in the
life sciences industry that we believe could convert core product lines to the
Luminex platform. They may also develop new applications that take advantage of
unique LabMAP capabilities. By leveraging our partners' strong market positions
and utilizing their distribution channels and marketing infrastructure, we
believe we can expand our installed base.
Provide an open platform -- The LabMAP system allows end users to configure
their own tests without complex and expensive equipment. This open platform
encourages the development of a wide range of bioassays and enables our
strategic partners to deliver a variety of applications to end-users. The value
of LabMAP technology to our customers increases with each new application.
Develop next generation products -- We are committed to expanding the LabMAP
product line. Our research and development group is pursuing a number of
projects, including expanding the number of tests that can be performed on a
given sample and increasing the LabMAP system's throughput. We are also
collaborating with leading industry participants and major medical institutions
to develop additional LabMAP products.
Allow easy technology access -- We do not impose access fees on users of our
technology. We believe maximum value is derived from the recurring revenue
stream generated by widespread and frequent use. This is encouraged by a
pricing structure that combines a low system acquisition cost with inexpensive
consumables.
OUR LABMAP TECHNOLOGY
Our LabMAP technology combines several proven technologies with advanced
digital signal processing and proprietary software. With our technology,
discrete bioassays are performed on the surface of color-coded microspheres.
These microspheres are read in a compact analyzer that utilizes lasers and
high-speed digital signal processing to simultaneously identify the bioassay
and measure its result.
Polystyrene microspheres, approximately the size of a biological cell, are a
fundamental component of LabMAP technology. We purchase raw, undyed
microspheres and, in a proprietary process, dye them in sets with varying
intensities of red and infrared fluorescent dyes to achieve up to 100 distinct
colors. The specific dye proportions permit each color-coded microsphere to be
readily identified based on its fluorescent signature. Our customers create
bioassays by attaching different biochemical reactants to each distinct
microsphere set. The microsphere sets can then be combined in test panels as
required by the user, with a current maximum of 100 tests per panel.
To conduct a bioassay, microspheres with attached biochemicals, or reagents,
are mixed with a test sample. This mixture is then passed through the Luminex
100 instrument. The microspheres travel single file in a fluid stream through
two laser beams. The first laser excites the internal dyes that are used to
identify the microsphere set. The second laser excites a third fluorescent dye
that is used to quantitate the result of the bioassay taking place on the
surface of each individual microsphere. Our proprietary optics, digital signal
processors and software record the fluorescent signature of each microsphere
and compare the
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results to the known identity of each color-coded microsphere set.
Simultaneously, the test is analyzed and the result displayed in real-time.
PRODUCTS
We generally sell our products as a system comprised of one or more instruments
that use LabMAP consumables.
Instruments
Luminex 100
The Luminex 100 is a compact analyzer that integrates fluidics, optics and
digital signal processing to perform up to 100 bioassays simultaneously with a
single drop of fluid. By combining small diode lasers with digital signal
processors and microcontrollers, the Luminex 100 performs rapid, multi-analyte
profiles under the control of a Windows-based personal computer. The Luminex
100 analyzer is sold with a personal computer, LabMAP software and a starter
supply of microspheres for bioassay development. From market introduction
through February 29, 2000, we had sold 114 systems.
Luminex XY Platform
We also offer the Luminex XY Platform, which complements the Luminex 100 by
automating the sequential positioning of each well of a microtiter plate. This
permits a total of up to 9,600 unattended tests per plate to be performed in
less than an hour. It is designed to connect to robotic systems that deliver
these plates to the Luminex 100, allowing integration into fully automated test
centers. From market introduction through February 29, 2000, we had sold 62
Luminex XY Platforms.
Consumables
We use polystyrene microspheres in our LabMAP technology that are approximately
5.6 microns in size. We dye them using our proprietary method in up to 100
distinctly colored microsphere sets. Each can carry the reagents of an
enzymatic, genetic or immunologic bioassay. Consumables also include sheath
fluid and other relevant spare parts.
RESEARCH AND DEVELOPMENT
Our research and development program is devoted to advancing the capabilities
of our LabMAP technology and expanding the number of its applications. For the
fiscal year ended December 31, 1999, expenses for our research and development
activities were $6.1 million as compared to $3.6 million for 1998 and $1.6
million for 1997. As of February 29, 2000, we had approximately 49 engineers,
scientists and technicians dedicated to research and development. In addition,
we are collaborating with academic institutions and other companies to increase
the breadth of LabMAP applications.
Our current projects include:
.expanding our multiple testing capabilities This effort is primarily driven by
the pharmaceutical industry's demand for advanced genetic testing. In order to
expand the number of tests per sample to 1,000, a more complex instrument will
be required incorporating three lasers instead of the two contained in the
Luminex 100. In addition, a third dye must be incorporated into the
microspheres for classification purposes.
.developing a point-of-care version of LabMAP This version of the LabMAP system
would be designed for the small clinic, ambulance and other non-laboratory
environments where bringing
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testing closer to the patient delivers significant medical benefits. For
example, an ambulance-based instrument could evaluate the multiple indicators
of heart attack and forward this information to the hospital prior to patient
arrival.
.developing a high throughput screening version of LabMAP The Luminex HTS is
being developed to meet the ultra-high-throughput demands of some
laboratories. This instrument is being designed to generate up to 400,000
individual bioassay results per day and will readily interface with a number
of existing liquid handling systems.
Our current research collaborations include:
.major manufacturers of liquid handling robotic systems The goal of some
laboratories in the pharmaceutical industry is to perform up to a million
bioassays per day. We believe this could be achieved in a cost-effective
manner by integrating existing high-throughput liquid handlers with three
Luminex HTS systems. We are collaborating with major manufacturers of
sophisticated liquid handling equipment to develop the interface with the
Luminex HTS.
.Abbott Laboratories Luminex is collaborating with Abbott Laboratories to
evaluate the effectiveness of the LabMAP system in "next generation" prostate
specific antigen (PSA) tests.
SALES AND MARKETING
Our sales and marketing strategy is designed to expand the installed base of
LabMAP systems and generate recurring, high-margin revenues from royalties on
bioassay kits and testing services that use our technology, as well as from the
sale of microspheres. The key elements of our strategy include:
.a strategic partner program with leading life sciences companies to act as
resellers of our products to facilitate rapid adoption;
.a direct sales effort to complement the strategic partner program; and
.an extensive customer service program.
Our marketing efforts are divided between identifying leading life sciences
companies and internally generating new leads. We intend to utilize outside
public relations and advertising firms to increase market awareness.
Strategic partner program
We intend to use strategic partners as our primary distribution channel in
order to achieve broad market acceptance of our LabMAP technology. We believe
our strategic partners will provide us with complementary capabilities in
product development, regulatory expertise and sales and marketing. We intend to
target leading life sciences companies with established bioassays that we
believe could be converted onto our LabMAP platform. By leveraging our
partners' customer relationships and distribution channels, we believe that we
can achieve rapid market penetration without a large direct sales force. As a
result, we can utilize our internal resources for technology development and
customer support.
We have agreements with partners that contemplate the incorporation of LabMAP
technology in their application-specific bioassay kits and services. Our
partners sell these kits to medical laboratories, hospitals and other end-users
that use standardized sample analysis and screening products and services. Our
strategic partners also use our technology in performing services for third
parties. Under
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these agreements, we have agreed to supply our partners with Luminex 100
systems and microspheres in amounts and at prices that are determined by mutual
agreement. While our strategic partners are not required to purchase any
minimum number of our systems or microspheres, the agreements obligate them to
pay us royalties based on revenues generated by kits and services using our
technology. These agreements also include cross indemnities by our strategic
partners and us for infringement of third party intellectual property rights
and other specified costs and liabilities.
Pursuant to a Development and Supply Agreement dated March 19, 1999, as
amended, Bio-Rad Laboratories, Inc. has agreed for a term of seven years to
develop and distribute bioassay kits incorporating our LabMAP technology and
distribute Luminex 100 systems. Although we agree upon a rolling six month
forecast of delivery requirements of Luminex 100 systems and microspheres each
month, the agreement does not obligate Bio-Rad to purchase any minimum
quantities. These forecasts constitute good faith estimates of Bio-Rad's
requirements and only the first 90 days of each forecast are binding upon the
parties. Sales to Bio-Rad accounted for approximately 10%, or $298,000, of our
total net revenue in 1999.
Direct sales
Direct sales are supported by a team of employee scientists with expertise in
the pharmaceutical industry, clinical diagnostics and biomedical research. We
intend to expand our direct and field sales staff in selected geographic
locations as required by market demand.
Customer service
Customer service supports users through a comprehensive training program and a
toll-free customer support hotline. If a system requires an upgrade or on-site
repair, customer service will dispatch one of our field service technicians.
Our customer service team assists our strategic partners with the development
of their bioassays. This value-added service is designed to facilitate and
expedite the development of applications based on the LabMAP technology.
CUSTOMERS
Our customers consist of a broad range of participants in the life sciences
industry. As of February 29, 2000, our customers included the following:
<TABLE>
<CAPTION>
Customer Market Application
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<C> <S> <C>
Bio-Rad Laboratories, Inc. In vitro diagnostics, Kits
biomedical
research and drug
discovery
Eli Lilly & Company Drug discovery Protein analysis
GlaxoWellcome plc Drug discovery SNP detection
Laboratory Corporation of America Commercial clinical Clinical testing
laboratory
Life Technologies, Inc. Biomedical research and Kits
drug discovery
Novartis Pharma AG Drug discovery Genetic testing
RW Johnson/Pharmaceutical Drug discovery High throughput screening
Research Institute
SmithKline Beecham Corporation Drug discovery Protein analysis
</TABLE>
In 1999, Bio-Rad Laboratories, Inc. accounted for approximately 10% of our
total net revenue. No other customer accounted for more than 10% of our
revenues in 1999.
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MANUFACTURING OPERATIONS
Luminex 100
The basic components of the Luminex 100 are assembled by Sanmina Corporation,
an ISO 9002 contract manufacturer, pursuant to the terms and conditions of an
Agreement for Electronic Manufacturing Services effective January 1, 2000. This
agreement, which has a four year term that is automatically renewable for
additional one year terms, requires us to provide three and nine month rolling
forecasts of our manufacturing needs. Based on these forecasts, Sanmina
purchases the required system components and parts for the Luminex 100 from an
approved supplier list. We may terminate this agreement upon 120 days prior
written notice. Upon 30 days prior written notice, either party may terminate
upon the other's material breach or insolvency. We believe that, if necessary,
we could enter into an arrangement with an alternative contract manufacturer on
terms and conditions comparable to those we have with Sanmina. We cannot,
however, be certain of this. Once Sanmina has completed its portion of the
assembly process, it ships the system to our facility in Austin, Texas, where
our employees install and align the optical/laser assembly. At this point, a
personal computer with our proprietary software is added and each unit is run
through a quality control protocol.
Parts and component assemblies that comprise the Luminex 100 are obtained from
a number of sources. We intend to develop multiple sources for as many of the
component parts and assemblies as possible.
XY Platform
We purchase the principal components of the XY Platform from several
manufacturers. Final assembly and quality control occurs at our facility in
Austin, Texas.
Microspheres
We buy generic, undyed polystyrene microspheres from any one of three
suppliers. We then dye the microspheres using a proprietary method in our
manufacturing facility in large lots with ten intensities each of red and
infrared dyes to produce 100 distinctly colored microsphere sets. The dyed
microspheres are then repackaged for sale.
INTELLECTUAL PROPERTY
To establish and protect our proprietary technologies and products, we rely on
a combination of patent, copyright, trademark and trade secrets laws, as well
as confidentiality provisions in our contracts.
We have implemented an aggressive patent strategy designed to maximize our
intellectual property rights. We are pursuing patent coverage in the United
States and those foreign countries which correspond to the majority of our
anticipated customer base. We currently own two issued patents in the United
States and have received notices of allowances for two additional patent
applications. In addition, our patent portfolio includes pending patent
applications in the United States and corresponding international and foreign
filings in major industrial nations. One of our patents provides protection for
systems and technology that allows "real time" techniques for the detection and
quantification of many analytes from a single sample. As a result of a
procedural omission, we are unable to obtain comparable patent protection in
Japan.
The issued patents and allowed or pending patent applications claim proprietary
methods for the detection and quantification of analytes from a single sample
in a "real time" format as well as specific aspects and applications of the
LabMAP technology to molecular research.
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Generally, United States patents issued from applications filed on or after
June 8, 1995 have a term of 20 years from the application filing date or
earlier claimed priority. Patents in most other countries have a term of 20
years from the date of filing the patent application. All of our patent
applications, including the applications from which both of our issued patents
were derived, were filed after June 8, 1995. Because the time from filing to
issuance of patent applications in the life sciences industry is often several
years, this process may result in a shortened period of patent protection,
which may adversely affect our ability to exclude competitors from our markets.
Our issued United States patents will expire in 2015. Our success depends to a
significant degree upon our ability to develop proprietary products and
technologies and to obtain patent coverage for the products and technologies.
We intend to continue to file patent applications covering any newly-developed
products and technologies.
Patents provide some degree of protection for our proprietary technology.
However, the pursuit and assertion of patent rights, particularly in areas like
medical device development, pharmaceuticals and biotechnology, involve complex
legal and factual determinations and, therefore, are characterized by some
uncertainty. In addition, the laws governing patentability and the scope of
patent coverage continue to evolve, particularly in life sciences. As a result,
we cannot assure you that patents will issue from any of our patent
applications or from applications licensed to us. The scope of any of our
issued patents may not be sufficiently broad to offer meaningful protection. In
addition, our issued patents or patents licensed to us may be successfully
challenged, invalidated, circumvented or rendered unenforceable so that our
patent rights might not create an effective competitive barrier. Moreover, the
laws of some foreign countries may not protect our proprietary rights to the
same extent as do the laws of the United States. There can be no assurance that
any patents issued to us or our strategic partners will provide a legal basis
for establishing an exclusive market for our products or provide us with any
competitive advantages or that the patents of others will not have an adverse
effect on our ability to do business or to continue to use our technologies
freely. In view of these factors, our intellectual property positions bear some
degree of uncertainty.
The source code for our proprietary software is protected both as a trade
secret and/or as a copyrighted work.
We also rely in part on trade secret protection of our intellectual property.
We attempt to protect our trade secrets by entering into confidentiality
agreements with third parties, employees and consultants. Our employees also
sign agreements requiring that they assign to us their interests in inventions
and original expressions and any corresponding patents and copyrights arising
from their work for us. However, it is possible that these agreements may be
breached, invalidated or rendered unenforceable and if so, there may not be an
adequate corrective remedy available. Despite the measures we have taken to
protect our intellectual property, we cannot assure you that parties to our
agreements will not breach the confidentiality provisions in our contracts or
infringe or misappropriate our patents, copyrights, trademarks, trade secrets
and other proprietary rights. In addition, we cannot assure you that third
parties will not independently discover or invent competing technologies or
reverse engineer our trade secrets, or other technology. Therefore, the
measures we are taking to protect our proprietary technology may not be
adequate.
Although we are not a party to any legal proceedings, in the future, third
parties may file claims asserting that our technologies or products infringe on
their intellectual property. We cannot predict whether third parties will
assert such claims against us or our licensees or against the licensors of
technology licensed to us, or whether those claims will harm our business. If
we are forced to defend against such claims, whether they are with or without
any merit, whether they are resolved in favor of or against us, our licensees
or our licensors, we may face costly litigation and diversion of management's
attention and resources. As a result of such disputes, we may have to develop
at a
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substantial cost non-infringing technology, or enter into licensing agreements.
These agreements, if necessary, may be unavailable on terms acceptable to us,
or at all, which could seriously harm our business or financial condition.
In particular, we are aware of a European patent granted to Dr. Ioannis
Tripatzis, which covers certain testing agents useful for the determination of
antigens and/or antibodies as well as for methods of their use. Dr. Tripatzis
has publicly stated his belief that his patent covers aspects of our bead
technology in Europe. Counterparts of Dr. Tripatzis' European patent exist in
Japan and Canada. While we believe that the overall impact, if any, of Dr.
Tripatzis' patent, which expires in 2004, is limited, we cannot assure you that
any disputes that may arise ultimately will be resolved in our favor or that
the cost of litigating or otherwise resolving any disputes will not materially
adversely affect us.
COMPETITION
Our LabMAP technology can perform many different kinds of tests in many
different fields, including pharmaceutical and biomedical research, clinical
laboratory testing and many other segments of the life sciences industry. For
this reason, the competition we will encounter will necessarily be fragmented
based on the market. There are competitors in every field. Our competition
includes companies marketing conventional testing products based on established
technologies as well as companies developing their own advanced testing
technologies. Most of our competitors are larger than we are and can commit
significantly greater resources to competitive efforts. We cannot assure you
that the LabMAP system will be widely adopted in one or more markets or that we
will be able to compete effectively.
The pharmaceutical industry is the single biggest market for the genomic and
high throughput screening applications of the LabMAP technology. In each
application, Luminex faces a different set of competitors. Genomic testing for
variability in DNA can also be performed by products available from Affymetrix
Inc., Aclara Biosciences, Inc., Clontech Laboratories, Inc., a wholly-owned
subsidiary of Becton Dickinson & Company, and Sequenom, Inc., among others. In
high throughput screening, LJL BioSystems Inc. and Aurora BioSciences
Corporation offer products competitive with ours.
The clinical laboratory market is dominated by several very large competitors.
These include Abbott Laboratories, Bayer Corporation, Bio-Rad, Dade Behring
Inc., a wholly-owned subsidiary of Aventis, and Roche Bioscience, among others.
None currently offer multi-analyte testing systems, but it should be presumed
that programs are underway within at least some of these companies to develop
this capability.
Competition within the biomedical research market is even more fragmented than
that within the pharmaceutical industry. There are hundreds of suppliers to
this market including Amersham Pharmacia Biotech, Molecular Devices
Corporation, PerkinElmer, Inc. and Stratagene Cloning Systems, Inc. Any company
in this field could be a potential competitor with us.
GOVERNMENT REGULATION
We are regulated by the Food and Drug Administration within the framework of
medical devices, pursuant to various statutes including the Federal Food, Drug
and Cosmetic Act as amended and supplemented by the Medical Device Amendments
of 1976, the Safe Medical Devices Act of 1990, the Medical Device Amendments of
1992 and the FDA Modernization Act of 1997. The FDA classifies medical devices
intended for human use into three classes, Class I, Class II and Class III. The
controls applied to the different classifications are those the FDA believes
are necessary to provide reasonable assurance that a device is safe and
effective. Class I devices are noncritical products that can be adequately
regulated by "general controls," including provisions related to labeling,
producer registration, defect notification, records and reports and CGMP
(Current Good Manufacturing
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Practices) requirements. CGMP requirements govern the methods used in, and the
facilities and controls used for, the design, manufacture, packaging and
servicing of all finished medical devices intended for human use. Class II
devices are products for which the general controls of Class I devices alone
are not sufficient to assure the safety and effectiveness of the device and
require special controls. The additional special controls for Class II devices
include performance standards, post-market surveillance patient registries and
the use of FDA guidelines. Standards may include both design and performance
requirements. Class III devices have the most restrictive controls and require
pre-market approval by the FDA. Class III devices include life-sustaining,
life-supporting or implantable devices. The FDA inspects medical device
manufacturers and distributors and has broad authority to order recalls of
medical devices, to seize noncomplying medical devices, to enjoin and/or impose
civil penalties on manufacturers and distributors marketing noncomplying
medical devices and to prosecute criminal violators.
Federal law requires individuals or companies manufacturing most medical
devices intended for human use to file a notice, which is known as a 510(k),
with the FDA at least 90 days before introducing the product into the
marketplace. The 510(k) notice must identify the type of classified device into
which the product falls, the class of that type and the specific marketed
product to which the product claims to be "substantially equivalent." In some
cases the notification must include data from human clinical studies in order
to establish "substantial equivalence." If the registrant states the device is
unclassified, but nonetheless claims substantial equivalence to a marketed
device or recognized diagnostic procedure, it must explain the basis for that
determination. The FDA must affirmatively agree with the claim of substantial
equivalence before the device may be marketed.
The hardware portion of the Luminex 100 is a Class I medical device of a
particular type, which is exempt from the 510(k) notice requirements. Depending
on their intended applications, some of our products and products based on our
technology expected to be produced by our strategic partners are subject to
approval or clearance by the FDA prior to marketing for commercial use.
Products using our technology for clinical diagnostic purposes will require
such approval or clearance. We will assist our strategic partners in filing
their own 510(k)s for their bioassays that will be run on our LabMAP
technology, including providing the verification and validation of our LabMAP
system.
If a product does not qualify for the 510(k) notice procedure (either because
it is not substantially equivalent to a legally marketed device or because it
is a Class III device), the FDA must approve a pre-market approval application
before marketing can begin. Obtaining approval can take several years.
Clearance pursuant to notification can be obtained in less time. In general,
clearance of a 510(k) notification for a device is obtained by the registrant
establishing that the new device is "substantially equivalent" to another
device of such class that is already on the market. This requires the new
device to have the same intended use as a legally marketed predicate device and
have the same technological characteristics as the predicate device. If the
technological characteristics are different, the new device can still be found
to be "substantially equivalent" if information submitted by the applicant
(including clinical data if requested) supports a finding that the new device
is as safe and effective as a legally marketed device and does not raise
questions of safety and efficacy that are different from the predicate device.
There can be no assurance that we will not be required to obtain 510(k)
clearance or pre-market approval prior to commercial distribution of future
products or future applications of current products.
We are registered with the FDA as a device manufacturer. We are subject to
periodic inspection by the FDA for compliance with the FDA's CGMP and other
regulations. These regulations require that we manufacture our products and
maintain our documents in a prescribed manner with respect to manufacturing,
testing and control activities. Further, we are required to comply with various
FDA requirements for labeling. The Medical Device Reporting regulation requires
that a company provide
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information to the FDA whenever there is evidence to reasonably suggest that
one of its devices may have caused or contributed to a death or serious injury,
or a device malfunction would be likely to cause or contribute to a death or
serious injury if the malfunction were to recur. In addition, the FDA prohibits
a company from marketing approved devices for unapproved indications. If the
FDA believes that a company is not in compliance with applicable regulations,
it can institute proceedings to detain or seize products, issue a recall,
impose operating restrictions, enjoin future violations and assess civil and
criminal penalties against the company, its officers or its employees and can
recommend criminal prosecution to the Department of Justice. Other regulatory
agencies may have similar powers. Our strategic partners are subject to the
same requirements and enforcement.
Medical device laws are also in effect in many countries outside of the United
States. These range from comprehensive device approval requirements for some or
all of our medical device products to simpler requests for product data or
certification. The number and scope of these requirements are increasing. In
addition to the requirements relating to medical devices, we will also have to
comply with FDA regulations on the performance of laser products because our
Luminex 100 utilizes lasers in order to identify the bioassays and measure
their result. These regulations are intended to ensure the safety of laser
products by establishing standards to prevent exposure to excess levels of
laser radiation.
Failure to comply with applicable federal, state and foreign medical device
laws and regulations would likely have a material adverse effect on the our
business. In addition, federal, state and foreign regulations regarding the
manufacture and sale of medical devices are subject to future changes. We
cannot predict what impact, if any, such changes might have on our business,
but such change could have a material impact.
We are subject to various federal, state and local laws and regulations
relating to the protection of the environment. In the course of our business,
we are involved in the handling, storage and disposal of certain chemicals. The
laws and regulations applicable to our operations include provisions that
regulate the discharge of materials into the environment. Usually these
environmental laws and regulations impose "strict liability," rendering a
person liable without regard to negligence or fault on the part of such person.
Such environmental laws and regulations may expose us to liability for the
conduct of, or conditions caused by, others, or for acts that were in
compliance with all applicable laws at the time the checks were performed. We
do not believe that we have been required to expend material amounts in
connection with our efforts to comply with environmental requirements or that
compliance with such requirements will have a material adverse effect upon our
capital expenditures, results of operations or competitive position. Because
the requirements imposed by such laws and regulations are frequently changed,
we are unable to predict the cost of compliance with such requirements in the
future, or the effect of such laws on our capital expenditures, results of
operations or competitive position.
EMPLOYEES
As of February 29, 2000, we had 87 employees. None of our employees are covered
by a collective bargaining agreement. We believe that our relations with our
employees are good.
FACILITIES
We occupy approximately 36,000 combined square feet of leased and sub-leased
office space and other facilities in Austin, Texas for our headquarters and as
the base for our marketing and product support
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operations, research and development and manufacturing activities. The monthly
rent on the combined space is approximately $35,000. Substantially all of our
space is leased through early 2002. We intend to use a portion of the proceeds
of this offering to expand our current facilities.
LEGAL PROCEEDINGS
As a result of a procedural omission, we are unable to pursue a patent in Japan
which corresponds to our issued US patent directed to our method of "real time"
detection and quantification of multiple analytes from a single sample. We have
filed a lawsuit alleging negligence on the part of our prior patent counsel in
this matter and seeking to recover the damages we believe will result from any
gaps in our patent protection in Japan as a result of this omission. At this
time, we cannot predict whether this lawsuit will be successful and, if so, the
amount of any damages we may recover.
From time to time, we may be involved in litigation that arises through the
normal course of business. As of the date of this prospectus, we are not a
party to any litigation we believe could reasonably be expected to have a
material adverse effect on our business or results of operations.
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Management
EXECUTIVE OFFICERS AND DIRECTORS
Set forth below is the name, age, position and a brief account of the business
experience of each of our executive officers and directors.
<TABLE>
<CAPTION>
Name Age Position
- -----------------------------------------------------------------------------
<C> <C> <S>
Mark B. Chandler, PhD (1).... 46 Chairman of the Board, President and Chief
Executive Officer
Michael L. Bengtson.......... 42 Executive Vice President, General Counsel
and Secretary
Van S. Chandler.............. 49 Vice President of Instruments
Ralph L. McDade, PhD......... 45 Vice President of Scientific Affairs
Michael D. Spain, MD......... 47 Vice President of Clinical Affairs
James L. Persky.............. 51 Vice President, Treasurer and Chief
Financial Officer
Randel S. Marfin............. 43 Vice President of Business Development
G. Walter Loewenbaum (1)..... 55 Director
A. Sidney Alpert............. 61 Director
Robert J. Cresci (2)......... 56 Director
Laurence E. Hirsch (1)(2).... 54 Director
Jim D. Kever (2)(3).......... 47 Director
Fred C. Goad, Jr. (3)........ 59 Director
John E. Koerner, III (2)(3).. 57 Director
William L. Roper, MD, MPH.... 51 Director
</TABLE>
- --------
(1) Member of the executive committee
(2) Member of the audit committee
(3) Member of the compensation and stock option committee
Mark B. Chandler, PhD Dr. Chandler founded our company with his brother Van S.
Chandler, in May 1995, and has served as Chairman of the Board and Chief
Executive Officer since that date and as President since June 1999. He also has
served as a member of the executive committee of our board of directors since
its formation in July 1997. In 1982, he founded Inland Laboratories, Inc.,
which provides plant and bacterial toxins to the medical research community. As
the President and CEO of Inland, Dr. Chandler received the KPMG Peat Marwick,
High Technology Entrepreneur of the Year award in 1987. He received his PhD in
Immunology from the University of Texas Southwestern Medical School in Dallas
in 1981.
Michael L. Bengtson Mr. Bengtson has agreed to join our company as Executive
Vice President, General Counsel and Secretary upon completion of this offering.
Since 1984, Mr. Bengtson has been an attorney practicing corporate and
securities law with the law firm of Thompson & Knight LLP and has been a
partner in that firm since 1990. Prior to attending law school, Mr. Bengtson
was a certified public accountant with KPMG LLP. Mr. Bengtson received a BS in
Accounting and Business Administration from the University of Kansas in 1980
and a JD from Arizona State University in 1984.
Van S. Chandler Mr. Chandler, our co-founder, has served as Vice President of
Instruments since January 1998. In addition, Mr. Chandler served as a director
from May 1995 to February 2000 and as an independent contractor from 1995 to
1998. Since 1995, he has led the design and development of the digital signal
processing hardware and data analysis software for the Luminex 100 and Luminex
R/O Systems. In 1990, Mr. Chandler founded Sigma Logic Corp., and while serving
as its President and
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CEO from 1990 to 1995, he developed an array of law enforcement technologies,
including wireless police data networks and imaging systems for the FBI. Mr.
Chandler founded Concept Communications, Inc. and served as its President and
CEO from 1985 to 1990. He graduated from the University of Texas at Arlington
in 1972 with a BBA in Statistics.
Ralph L. McDade, PhD Dr. McDade has served as Vice President of Scientific
Affairs since June 1999. From January 1996 to June 1999 he served as Vice
President of Development. From 1988 until 1996, he served as Director of
Research and Development for Inland Laboratories. After post-doctoral training
at The University of Connecticut Health Center in Farmington, he held faculty
positions at The Rockefeller University in New York and at Louisiana State
University Medical Center in New Orleans. Dr. McDade received his PhD in
Microbiology from the University of Texas Southwestern Medical School in 1980.
Michael D. Spain, MD Dr. Spain has served as Vice President of Clinical Affairs
of Luminex since March 1997. From 1994 until joining us, he served as Medical
Director of Laboratory Corporation of America in San Antonio, Texas. From 1984
to 1994, he served as Medical Director of Quest Laboratory in Dallas (formerly
Damon Clinical Laboratory). Following a four year residency in pathology at
Baylor University Medical Center in Dallas, he became board certified in 1984.
Dr. Spain received his MD from the University of Texas Southwestern Medical
School in Dallas in 1980.
James L. Persky Mr. Persky joined our company in March 1998 and has served as
Vice President, Treasurer and Chief Financial Officer since that date. Prior to
joining us, he was Executive Vice President-Finance and Administration and
Chief Financial Officer for Southdown, Inc., a publicly-traded cement
manufacturing company where he served for 13 years. Mr. Persky also spent over
thirteen years in the oil and gas industry in various finance and accounting
positions. Mr. Persky received a BBA from the University of Texas in 1971 and
an MS in Accounting from the University of Houston in 1983. He has been a
Certified Public Accountant since 1979.
Randel S. Marfin Mr. Marfin has served as Vice President of Business
Development, since joining our company in June 1999 and has over thirteen years
of clinical laboratory management experience. Prior to joining us, he worked
for three years at SpectraCell Laboratories, Inc., most recently as Vice
President of Sales and Marketing where he was responsible for business
development, acquisitions, strategic planning and sales and marketing. From
1990 to 1998, he served as General Manager of Texas for both Damon Clinical
Laboratories and Nichols Institute. In addition, Mr. Marfin held sales
management and business development positions for Damon Clinical Laboratories
and MPC Labs. Mr. Marfin has a BS in Biochemistry and Biophysics from the
University of Houston and served in the United States Air Force.
G. Walter Loewenbaum Mr. Loewenbaum has served as a member of our board of
directors since May 1995 and served as Vice Chairman of the Board from April
1998 until January 2000. He also has served as a member of the executive
committee of our board of directors since its formation in July 1997. Since
April 1990, he has served as the President, Chairman and CEO of Loewenbaum &
Company Inc. He received a BA from the University of North Carolina.
Mr. Loewenbaum is also Chairman of 3D Systems Corporation.
A. Sidney Alpert Mr. Alpert has served as a member of our board of directors
since December 1996 and as a member of the audit committee of our board of
directors since its formation in July 1997. Since June 1999, he has served as a
legal consultant to Luminex as well as 3D Systems. From January 1996 to June
1999, Mr. Alpert served as Vice President and General Counsel of 3D Systems
where he
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47
<PAGE>
Management
- --------------------------------------------------------------------------------
was also a director from August 1993 to May 1996. From January 1994 through
December 1995, he was an independent intellectual property consultant. From
late 1988 through December 1993, Mr. Alpert served as Chairman of the Board and
CEO of Competitive Technologies Inc.
Robert J. Cresci Mr. Cresci has served as a member of our board of directors
since December 1996 and has served as a member of the compensation and stock
option committee of our board of directors since its formation in July 1997. He
has been a Managing Director of Pecks Management Partners Ltd., an investment
management firm, since September 1990. Mr. Cresci currently serves on the
boards of Sepracor Inc., Arcadia Financial Ltd., Aviva Petroleum Inc., Quest
Education Corporation, Castle Dental Centers, Inc., Candlewood Hotel Co., Inc.,
SeraCare, Inc., E-Stamp Corporation and Film Roman, Inc.
Laurence E. Hirsch Mr. Hirsch has served as a member of our board of directors
since December 1996 and has served as a member of the executive committee of
our board of directors since its formation in July 1997. He is currently the
Chairman of the Board and CEO of Centex Corporation. He has served in these
positions since July 1991 and July 1988, respectively. He joined Centex as
President and Chief Operating Officer and became a member of their board of
directors in 1985. Mr. Hirsch received a BS in Economics from the Wharton
School at the University of Pennsylvania and a JD from the Villanova University
School of Law. He also serves as a director of Centex Construction Products,
Inc. and A.H. Belo Corporation.
Jim D. Kever Mr. Kever has served as a member of our board of directors since
December 1996 and has served as a member of the audit committee of our board of
directors since its formation in July 1997. He is currently the President and
CEO of Envoy Corporation, a wholly-owned subsidiary of Quintiles Corporation.
Mr. Kever joined Envoy Corporation as Treasurer and General Counsel in October
1981. Prior to joining Envoy (and its predecessor) in 1981, Mr. Kever was
employed by Datanet, a pharmaceutical software company. Mr. Kever received a BS
in business and administration from the University of Arkansas in 1974 and JD
from Vanderbilt University School of Law in 1977.
Fred C. Goad, Jr. Mr. Goad has served as a member of our board of directors
since September 1997 and has served as a member of the compensation and stock
option committee of our board of directors since April 1998. He is Senior
Advisor to the Office of the President of Envoy Corporation. He became a
director and President of Envoy Corporation in August 1984 and served as
Chairman of the Board of Directors and co-CEO of Envoy from August 1995 to
March 1999. Mr. Goad spent ten years with IBM, where he contributed in both
staff and line responsibilities. Mr. Goad also serves on the Board of Directors
for Performance Food Group Company and Quintiles Corporation.
John E. Koerner, III Mr. Koerner has served as a member of our board of
directors since September 1997 and has served as a member of the compensation
and stock option committee of our board of directors since April 1998. He has
been President of Koerner Capital Corporation since 1995 and also serves as a
director on the board of Legg Mason, Inc. He earned a BS in 1965, a JD in 1969
and an MBA in 1971, all from Tulane University.
William L. Roper, MD, MPH Dr. Roper has served as a member of our board of
directors since March 2000. Since July 1997, he has served as the dean of the
School of Public Health at the University of North Carolina at Chapel Hill,
professor of health policy and administration in the School of Public Health
and professor of pediatrics in the School of Medicine. From August 1993 to July
1997, Dr. Roper served in a variety of capacities with the Prudential Insurance
Company of America, including Senior Vice President for Medical Management.
Prior to joining Prudential, Dr. Roper was director of the Centers for Disease
Control and Prevention, served on the senior White House staff and was
administrator of the Health Care Financing Administration. He received his MD
from the University of Alabama School of Medicine and his MPH from the
University of Alabama at Birmingham School of Public Health.
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BOARD COMPOSITION
We currently have nine authorized directors. In accordance with the terms of
our certificate of incorporation, the terms of office of the directors are
divided into three classes:
.Class I, whose term will expire at the annual meeting of stockholders to be
held in 2001;
.Class II, whose term will expire at the annual meeting of stockholders to be
held in 2002; and
.Class III, whose term will expire at the annual meeting of stockholders to be
held in 2003.
The Class I directors are A. Sidney Alpert, William L. Roper and Robert J.
Cresci, the Class II directors are Laurence E. Hirsch, Jim D. Kever and Fred C.
Goad, Jr., and the Class III directors are Mark B. Chandler, G. Walter
Loewenbaum and John E. Koerner, III. At each annual meeting of stockholders
after the initial classification or special meeting in lieu thereof, 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 or special meeting held in lieu thereof. The authorized
number of directors may be changed only by resolution of the board of directors
or a super-majority vote of the stockholders. Any additional directorships
resulting from an increase in the number of directors will be distributed among
the three classes so that, as nearly as possible, each class will consist of
one third of the directors. This classification of the board of directors may
have the effect of delaying or preventing changes in control or management of
Luminex.
BOARD COMMITTEES
The executive committee of the board of directors was established in July 1997.
The members of our executive committee are Mark B. Chandler, G. Walter
Loewenbaum and Laurence E. Hirsch. The executive committee has broad powers as
delegated by the board of directors.
The audit committee of the board of directors was established in July 1997 and
reviews, acts on and reports to the board of directors on various auditing and
accounting matters, including the recommendation of our independent auditors,
the scope of the annual audits, fees to be paid to the independent auditors,
the performance of our independent auditors and our accounting practices. The
members of our audit committee are Robert J. Cresci, Laurence E. Hirsch, Jim D.
Kever and John E. Koerner, III, each of whom is an independent director.
The compensation and stock option committee of the board of directors was
established in July 1997 and determines the salaries and benefits for our
employees, consultants, directors and other individuals compensated by us. The
compensation and stock option committee also administers our stock option
plans, including determining the stock option grants for our employees,
consultants, directors and other individuals. The members of the compensation
and stock option committee are Jim D. Kever, Fred C. Goad, Jr. and John E.
Koerner, III.
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Management
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DIRECTOR COMPENSATION
We reimburse our non-employee directors for expenses incurred in connection
with attending board and committee meetings but do not compensate them for
their services as board or committee members. We have in the past granted non-
employee directors options to purchase our common stock pursuant to the terms
of our 1996 Stock Option Plan, and our board continues to have discretion to
grant options to new non-employee directors. We anticipate that we will
continue to grant options from time to time under the 2000 Long-Term Incentive
Plan to our non-employee directors. In 1997, seven nonemployee directors were
granted fully vested options to purchase 10,200 shares of common stock and one
additional director was granted fully vested options to purchase 61,200 shares
of common stock. In 1999, six non-employee directors were granted a fully
vested option to purchase 30,600 shares of common stock.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Our compensation and stock option committee currently consists of Messrs.
Kever, Goad and Koerner. No member of the compensation and stock option
committee has been an officer or employee of ours at any time. None of our
executive officers serves as a member of the board of directors or compensation
committee of any other company that has one or more executive officers serving
as a member of our board of directors or compensation and stock option
committee. Prior to the formation of the compensation and stock option
committee in July 1997, the board of directors as a whole made decisions
relating to compensation of our executive officers.
LIMITATION OF LIABILITY AND INDEMNIFICATION OF OFFICERS AND DIRECTORS
Our certificate of incorporation and our bylaws provide that our directors and
officers shall be indemnified by us to the fullest extent authorized by
Delaware law, as it now exists or may in the future be amended, against all
expenses and liabilities reasonably incurred in connection with their service
for or on our behalf. In addition, the certificate of incorporation provides
that our directors will not be personally liable for monetary damages to us for
breaches of their fiduciary duty as directors, unless they violated their duty
of loyalty to us or our stockholders, acted in bad faith, knowingly or
intentionally violated the law, authorized illegal dividends or redemptions or
derived an improper personal benefit from their action as directors. We have
obtained insurance which insures our directors and officers against specified
losses and which insures us against specific obligations to indemnify our
directors and officers.
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50
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Management
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EXECUTIVE COMPENSATION
Summary of cash and other compensation
The following table shows all compensation received during the year ended
December 31, 1999 by our Chief Executive Officer and our four other highest-
paid executive officers, collectively referred to as the Named Executive
Officers. Other compensaton consists of matching payments made under our
Savings Incentive Match Plan for Employees under Section 408(p) of the Internal
Revenue Code.
Summary compensation
<TABLE>
- --------------------------------------------------------------------------------
<CAPTION>
Annual Long-term
compensation compensation awards
Securities
Other annual underlying Other
Name and principal position Salary Bonus compensation options compensation
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Mark B. Chandler........... $225,000 $ -- $ -- 510,000 $ --
Chairman and Chief
Executive Officer
Van S. Chandler............ 175,000 -- -- 153,000 5,250
Vice President of
Instruments
Ralph L. McDade............ 175,000 -- -- -- 5,250
Vice President of
Scientific Affairs
Michael D. Spain........... 160,000 -- -- 51,000 4,800
Vice President of Clinical
Affairs
James L. Persky............ 150,000 -- -- -- 4,500
Vice President, Treasurer
and Chief Financial
Officer
</TABLE>
Options
The following table shows information regarding options granted to the
executive officers listed in the summary compensation table above during the
fiscal year ended December 31, 1999. We have not granted any stock appreciation
rights.
Each option represents the right to purchase one share of our common stock. The
options generally vest over three years. The exercise price for options granted
is equal to the fair market value of a share of common stock on the date of
grant. The fair market value of our common stock on a given date is the
conversion price for the convertible preferred stock sold in our most recent
issuance. For stock options granted in November and December 1999, in
accordance with applicable accounting standards, we have redetermined the fair
market value of our common stock based on the estimated initial public offering
price. As a result, we will record deferred stock compensation expense for such
options in an amount equal to the difference between the estimated fair market
value on the date of grant and the initial public offering price. See
"Management--Employee benefit plans" for more details regarding these options.
In the year ended December 31, 1999, we granted options to purchase an
aggregate of 1,666,884 shares of common stock to various officers, employees,
directors and consultants.
The potential realizable value at assumed annual rates of stock price
appreciation for the option term represents hypothetical gains that could be
achieved for the respective options if exercised at the end of the option term.
The 5% and 10% assumed annual rates of compounded stock price appreciation are
required by rules of the SEC and do not represent our estimate or projection of
our future common stock prices. These amounts represent assumed rates of
appreciation in the value of our common stock from the fair market value on the
date of grant. Actual gains, if any, on stock option exercises are dependent on
the future performance of our common stock and overall stock market conditions.
The amounts reflected in the table may not necessarily be achieved.
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Management
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Option grants in last fiscal year
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Potential
realizable
Individual grants value at assumed
% of annual rates of
Number of total appreciation of
securities options Exercise stock
underlying granted price price for option
options to per Expiration term
Name granted employees share date 5% 10%
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Mark B.
Chandler...... 510,000 40% $3.92 5/20/04 $552,563 $1,221,020
Van S. Chandler.. 153,000 12 3.92 5/20/04 165,769 366,306
Ralph L. McDade.. -- -- -- -- -- --
Michael D.
Spain......... 51,000 4 3.92 5/20/04 55,256 122,102
James L. Persky.. -- -- -- -- -- --
</TABLE>
The following table shows information as of December 31, 1999 concerning the
number and value of unexercised options held by each of the executive officers
listed in the summary compensation table above. Options shown as exercisable in
the table below are immediately exercisable. However, we have rights to
repurchase shares of the common stock underlying some of these options upon
termination of the holder's employment with us. There was no public trading
market for the common stock as of December 31, 1999. Accordingly, the value of
unexercised in-the-money options listed below has been calculated on the basis
of the assumed initial public offering price of $18.00 per share, less the
applicable exercise price per share, multiplied by the number of shares
underlying such options.
Aggregated option exercises in the year ended December 31, 1999 and year-end
option values
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Number of securities
Shares underlying unexercised Value of unexercised
acquired options at December 31, in-the-money options
upon Value 1999 at December 31, 1999
Name exercise realized Exercisable Unexercisable Exercisable Unexercisable
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Mark B. Chandler........ -- $-- -- 510,000 $-- $7,180,800
Van S. Chandler......... -- -- -- 153,000 -- 2,154,240
Ralph L. McDade......... -- -- 142,798 112,202 2,010,596 1,579,804
Michael D. Spain........ -- -- 67,997 85,003 957,398 1,196,842
James L. Persky......... -- -- 67,999 136,001 957,426 1,914,894
</TABLE>
EMPLOYMENT AGREEMENTS
Each of our executive officers has an employment agreement expiring on
March 10, 2003. These agreements provide for set minimum annual base salaries
as follows:
<TABLE>
<CAPTION>
Annual
base
Executive salary
- --------------------------------------------------------------------------------
<S> <C>
Mark B. Chandler........................................... $275,000
Michael L. Bengtson........................................ 250,000
Ralph L. McDade............................................ 190,000
Van S. Chandler............................................ 190,000
Michael D. Spain........................................... 190,000
James L. Persky............................................ 180,000
Randel S. Marfin........................................... 160,000
</TABLE>
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52
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Management
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These base salaries are subject to adjustment by our board of directors. In
addition, the agreements provide for incentive bonuses as determined by the
compensation committee or board of directors.
Each of these executives has agreed not to compete with us during the term of
the agreement and for one year after resignation or termination. The agreements
provide for the payment of salary for 12 months after any termination by
Luminex other than for cause, as long as there has not been a change in
control. The employment agreements define "cause" as an employee committing an
immoral crime, materially breaching the employment agreement or failing to obey
written directions of a senior corporate executive. A "change of control" will
be deemed to occur if a substantial portion of our ownership changes or the
constitution of the board changes during any 15-month period without the
approval of our board of directors or stockholders. Further, if the termination
follows a change of control, we will pay the executive a lump sum equal to 2.99
times the executive's average annual base salary plus bonus for the most recent
five calendar years prior to the occurrence of the change of control. The
agreements also provide for additional payments to compensate the executives
for any tax liability imposed on change of control payments to the extent these
payments constitute "parachute payments" under Section 280G of the Internal
Revenue Code. In addition, upon a change of control, all outstanding options
held by executives with employment agreements will vest.
Mr. Bengtson has agreed to join our company as Executive Vice President,
General Counsel and Secretary upon completion of this offering. In addition to
the compensation set forth above, we have granted Mr. Bengtson stock options to
purchase 255,000 shares of common stock at an exercise price of $11.76 per
share. The option agreement provides that the options vest monthly over three
years.
EMPLOYEE BENEFIT PLANS
1996 Stock Option Plan
Our 1996 Stock Option Plan was approved by our board of directors in March 1996
and subsequently amended by our stockholders on May 11, 1998. Our 1996 plan
authorizes the issuance of up to 4,080,000 shares of our common stock as either
incentive stock options within the meaning of Section 422 of the Internal
Revenue Code of 1986 or nonqualified stock options. As of March 21, 2000, we
had 3,248,634 options to purchase common stock under this plan outstanding to
employees, directors and consultants with a weighted average exercise price of
$3.18 per share. After the completion of this offering, no further options will
be granted under this plan.
The board of directors, or a board committee, has the power to determine the
terms of the options, including the exercise price of the options, the number
of shares subject to each option, the exercisability thereof, and the form of
consideration payable on such exercise, provided that the exercise price for
incentive stock options must be at least 100% of fair market value. Incentive
stock options granted to any holder of 10% or more of the combined voting power
of all classes of stock must have an exercise price of not less than 110% of
fair market value and be exercisable for a term of no more than five years.
2000 Long-Term Incentive Plan
Our 2000 Long-Term Incentive Plan has been adopted by our board of directors
and our stockholders as a successor equity plan to our 1996 plan. We may grant
options to purchase up to 3,570,000 shares of common stock under the 2000 plan.
As of March 21, 2000, 982,500 shares were reserved for issuance upon the
exercise of outstanding options and 2,587,500 shares remained available for
future grant.
The 2000 plan provides for the discretionary grant of incentive stock options,
within the meaning of Section 422 of the Internal Revenue Code of 1986, to
employees and for the grant of nonqualified stock options, stock appreciation
rights, dividend equivalents, restricted stock and other incentive awards to
employees, outside directors and consultants. The 2000 plan provides that we
cannot issue incentive stock options after January 2010.
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Management
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The 2000 plan is administered by the board of directors or a board committee.
The administrator has the power to determine the terms of the options or other
awards granted, including the exercise price of the options or other awards,
the number of shares subject to each option or other award (up to 357,000 per
year per participant), the exercisability thereof and the form of consideration
payable upon exercise. In addition, the administrator has the authority to
amend, suspend or terminate the 2000 plan, provided that no such action may
affect any share of common stock previously issued and sold or any option
previously granted under the 2000 plan without the consent of the holder.
The exercise price of all incentive stock options granted under the 2000 plan
must be at least equal to 100% of the fair market value of the common stock on
the date of grant. The exercise price of nonqualified stock options and other
awards granted under the 2000 plan is determined by the administrator, but the
exercise price must be at least 50% of the fair market value of the common
stock on the date of grant. The term of all options granted under the 2000 plan
may not exceed ten years.
Each option and other award is exercisable during the lifetime of the optionee
only by such optionee. Options granted under the 2000 plan must generally be
exercised within 60 days after the end of optionee's status as an employee,
director or consultant, or within one year after such optionee's termination by
disability or death, respectively, but in no event later than the expiration of
the option's term.
The 2000 plan provides that in the event of a merger of our company all options
and other awards shall be assumed or a substitute option or award issued by the
acquiring company unless the board determines in its sole discretion to
accelerate vesting or remove any restrictions.
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Related party transactions
SALES OF SECURITIES
Since January 1, 1997 through March 21, 2000, we have issued the following
securities in private placement transactions:
.150,000 shares of our Series B convertible preferred stock, at a purchase
price of $40.00 per share, for an aggregate purchase price of $6,000,000
between February and April 1997;
.151,571 shares of our Series C convertible preferred stock, at a purchase
price of $80.00 per share, for an aggregate purchase price of $12,125,680 in
June and July 1998;
.57,538 shares of our Series D convertible preferred stock, at a purchase price
of $120.00 per share, for an aggregate purchase price of $6,904,560 between
August and December 1999; and
.25,000 shares of our Series E convertible preferred stock, at a purchase price
of $120.00 per share, for an aggregate purchase price of $3,000,000 in
December 1999.
All preferred stock was issued to accredited investors in reliance upon
exemption from registration under Regulation D of the Securities Act.
The purchasers of more than $60,000 of these securities include, among others,
the following directors of Luminex:
<TABLE>
<CAPTION>
Shares of preferred stock
- -------------------------------------------------------------------------------
Total
Series B Series C Series D Series E consideration
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Robert J. Cresci............. 1,875 1,500 -- -- $195,000
Laurence E. Hirsch........... 5,000 6,250 -- -- 700,000
Jim D. Kever(1).............. 5,000 2,000 -- -- 360,000
Fred C. Goad, Jr. ........... 3,750 6,000 300 -- 666,000
John E. Koerner, III(2)...... 25,000 12,500 -- 25,000 5,000,000
</TABLE>
- --------
(1) Includes 3,621 shares of Series B preferred stock held by a trust in which
Mr. Kever is the trustee. Mr. Kever disclaims beneficial ownership of the
shares held by the trust.
(2) These shares are held by Koerner Capital Corporation of which Mr. Koerner
is the sole stockholder.
For additional information regarding the ownership of securities by executive
officers, directors and stockholders who beneficially own 5% or more of our
outstanding common stock, please see "Principal stockholders."
CONSULTING AGREEMENT
On June 1, 1999 we entered into a consulting agreement with A. Sidney Alpert, a
director of Luminex, whereby Mr. Alpert agreed to provide us with consulting
services one day per week. In consideration for those services, we paid Mr.
Alpert $5,833 per month and granted him options to purchase 51,000
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55
<PAGE>
Related party transactions
- --------------------------------------------------------------------------------
shares of our common stock at an exercise price of $3.92 per share. The options
vest on June 1, 2000. On November 1, 1999, we amended that agreement to
increase the number of days to two per week and to increase the consulting fee
to be paid to Mr. Alpert to $11,666 per month.
OTHER TRANSACTIONS
In April 1997, we paid Southcoast Capital Corporation $266,000 in cash and
issued warrants to Southcoast to purchase 535,500 shares of our common stock at
an exercise price of $1.96 per share for acting as placement agent for the sale
of our Series B convertible preferred stock. The warrants may be exercised in
whole or in part at any time prior to April 3, 2002. At the time of the
transaction, G. Walter Loewenbaum was the chairman and chief executive officer
of Southcoast.
During 1997, we paid Van Chandler, a director of Luminex, $136,000 for
consulting services.
On January 1, 1998, we purchased office and laboratory equipment from Inland
Laboratories, Inc. for $208,782 in cash and 286,102 shares of our common stock.
Mark B. Chandler, our chairman, president and chief executive officer, is the
sole stockholder of Inland.
In July 1998, we paid Loewenbaum & Company $849,000 for acting as placement
agent for the sale of our Series C convertible preferred stock. At the time of
the transaction, G. Walter Loewenbaum was the majority stockholder of
Loewenbaum & Company.
Upon the closing of this offering, Dain Rauscher Wessels, one of the
representatives of the underwriters, will pay a cash referral fee of
approximately $200,000 to LeCorgne Loewenbaum & Co., LLC or Loewenbaum &
Company Incorporated, each of which is an affiliate of G. Walter Loewenbaum, a
director of Luminex, for introducing it to us.
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56
<PAGE>
- --------------------------------------------------------------------------------
Principal stockholders
The following table shows information known to us with respect to the
beneficial ownership of our common stock as of March 21, 2000, and as adjusted
to reflect the sale of the shares of common stock offered under this prospectus
by:
.each person or group of affiliated persons who is known by us to own
beneficially 5% or more of our common stock;
.each of our directors;
.each executive officer listed in the "Summary compensation" table above; and
.all of our directors and executive officers as a group.
Except as indicated in the footnotes to this table and subject to community
property laws where applicable, the persons named in the table have sole voting
and investment power with respect to all shares of our common stock shown as
beneficially owned by them. Beneficial ownership and percentage ownership are
determined in accordance with the rules of the SEC. The table below includes
the number of shares underlying options and warrants which are exercisable
within 60 days from March 21, 2000 and assumes the conversion of all shares of
our preferred stock into shares of our common stock prior to this offering. It
is therefore based on 22,176,070 shares of our common stock outstanding prior
to this offering and 26,676,070 shares outstanding immediately after this
offering. The address for those individuals for which an address is not
otherwise indicated is: 12212 Technology Boulevard, Austin, Texas 78727.
<TABLE>
<CAPTION>
Number of Number of Percent owned
shares shares underlying before this Percent owned
Beneficial Owner outstanding options or warrants offering after this offering
- ---------------------------------------------------------------------------------------------------------
Directors and Named Executive Officers
<S> <C> <C> <C> <C>
Mark B. Chandler, Ph.D. ............ 3,733,702 175,554 17.5 14.6
Van S. Chandler..................... 1,916,921 53,777 8.9 7.4
Ralph L. McDade, Ph.D. ............. 10,200 182,975 * *
Michael D. Spain, M.D. ............. -- 121,221 * *
James L. Persky..................... -- 138,221 * *
G. Walter Loewenbaum (1)(2)......... 3,447,600 415,907 17.1 14.3
A. Sidney Alpert.................... 204,000 10,200 * *
Robert J. Cresci.................... 119,850 51,000 * *
Laurence E. Hirsch.................. 331,500 10,200 1.5 1.3
Fred C. Goad, Jr. (3)............... 245,820 51,000 1.3 1.0
Jim D. Kever (4).................... 203,998 51,000 1.1 *
John E. Koerner, III (5)............ 1,425,960 51,000 6.6 5.5
William L. Roper MD, MPH............ -- 15,000 * *
All directors and executive officers
as a group (15 persons).......... 11,645,332 1,393,265 55.3 46.5
</TABLE>
- --------------------------------------------------------------------------------
57
<PAGE>
Principal stockholders
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Number of Number of Percent owned
shares shares underlying before this Percent owned
Beneficial Owner outstanding options or warrants offering after this offering
- ------------------------------------------------------------------------------------------
Five percent
stockholders
<S> <C> <C> <C> <C>
R. Jerrold Fulton (6)... 1,672,800 -- 7.5 6.3
305 Evergreen Trail
Cedar Hill, Texas 75104
John R. Kettman......... 1,363,059 -- 6.1 5.1
3119 Barton Road
Carrollton, Texas 75007
</TABLE>
- --------
* Less than 1.0%.
(1) Consists of 2,835,000 shares held by Mr. Loewenbaum and 612,000 shares of
held by a partnership in which Mr. Loewenbaum is the general partner. Mr.
Loewenbaum disclaims beneficial ownership of the shares held by the
partnership.
(2) Includes 415,907 shares issuable upon the exercise of a warrant, 268,007 of
which are held by Mr. Loewenbaum and 146,880 of which are held by a trust
for the benefit of Mr. Loewenbaum's children.
(3) Includes 612 shares held by a trust of which Mr. Goad is the trustee. Mr.
Goad disclaims beneficial ownership of the shares held by the trust.
(4) Consists of 85,811 shares held by Mr. Kever and 118,189 shares held by a
trust of which Mr. Kever is the trustee. Mr. Kever disclaims beneficial
ownership of the shares held by the trust.
(5) Includes 1,275,000 shares held by Koerner Capital Corporation of which Mr.
Koerner is the sole stockholder and 150,960 shares held by two trusts for
the benefit of his children. Mr Koerner disclaims beneficial ownership of
the shares held by the trusts.
(6) Consists of 448,800 shares held by Dr. Fulton and 1,224,000 shares held by
a partnership in which Dr. Fulton is the general partner. Dr. Fulton
disclaims beneficial ownership of the shares held by the partnership.
- --------------------------------------------------------------------------------
58
<PAGE>
- --------------------------------------------------------------------------------
Description of capital stock
The following information describes our common stock and preferred stock, as
well as options and warrants to purchase our common stock, and provisions of
our certificate of incorporation and our bylaws, all as will be in effect upon
the closing of this offering. This description is only a summary. You should
also refer to the certificate and bylaws which have been filed with the SEC as
exhibits to our registration statement, of which this prospectus forms a part.
The descriptions of the common stock and preferred stock, as well as options
and warrants to purchase our common stock, reflect changes to our capital
structure that will occur upon the closing of this offering in accordance with
the terms of the certificate.
Upon completion of this offering, our authorized capital stock will consist of
200,000,000 shares of common stock, par value $.001 per share, and 5,000,000
shares of preferred stock, par value $.001 per share.
COMMON STOCK
As of March 21, 2000, there were 13,407,478 shares of common stock outstanding
and held of record by 127 stockholders. There will be 26,676,070 shares of
common stock outstanding upon the closing of this offering, which gives effect
to the issuance of 4,500,000 shares of common stock offered by us under this
prospectus and the conversion of preferred stock discussed below.
Each share of common stock has identical rights and privileges in every
respect. The holders of our common stock are entitled to vote upon all matters
submitted to a vote of our stockholders and are entitled to one vote for each
share of common stock held.
Subject to the prior rights and preferences, if any, applicable to shares of
preferred stock or any series of preferred stock, the holders of common stock
are entitled to receive such dividends, payable in cash, stock or otherwise, as
may be declared by our board out of any funds legally available for the payment
of dividends.
If we voluntarily or involuntarily liquidate, dissolve or wind-up, the holders
of common stock will be entitled to receive after distribution in full of the
preferential amounts, if any, to be distributed to the holders of preferred
stock or any series of preferred stock, all of the remaining assets available
for distribution ratably in proportion to the number of shares of common stock
held by them. Holders of common stock have no preferences or any preemptive
conversion or exchange rights.
PREFERRED STOCK
As of March 21, 2000, there were 841,359 shares of convertible preferred stock
outstanding. Upon the closing of this offering, all outstanding shares of
convertible preferred stock will be converted into 8,768,592 shares of our
common stock and will be held of record by 214 stockholders. These shares of
convertible preferred stock will no longer be authorized, issued or
outstanding. Our certificate of incorporation authorizes the issuance of
5,000,000 shares of preferred stock, par value $.001 per share.
Our board is authorized to provide for the issuance of shares of preferred
stock in one or more series, and to fix for each series voting rights, if any,
designations, preferences and relative, participating, optional or other
special rights and such qualifications, limitations or restrictions as provided
in a
- --------------------------------------------------------------------------------
59
<PAGE>
Description of capital stock
- --------------------------------------------------------------------------------
resolution or resolutions adopted by the board. The board may authorize the
issuance of shares of preferred stock with terms and conditions which could
discourage a takeover or other transaction that holders of some or a majority
of shares of common stock might believe to be in their best interests or in
which holders of common stock might receive a premium for their shares over the
then market price.
WARRANTS
As of March 21, 2000, warrants to purchase a total of 535,500 shares of our
common stock, at an exercise price of $1.96 per share, were outstanding. The
warrants contain anti-dilution provisions providing for adjustments of the
exercise price and the number of shares underlying the warrants upon the
occurrence of certain events, including any recapitalization, reclassification,
stock dividend, stock split, stock combination or similar transaction. The
warrants expire April 2, 2002. The warrants grant to the holders registration
rights with respect to the common stock issuable upon their exercise, which are
described below. All of these warrants will be exercisable immediately before
this offering.
REGISTRATION RIGHTS
At any time six months following the effective date of this offering, the
holders of warrants to purchase 535,500 shares of common stock will be entitled
to demand the registration of their shares under the Securities Act of 1933. We
are not required to effect more than one registration for such holders pursuant
to these demand registration rights, which expire on April 2, 2002. In
addition, after the closing of this offering these holders will be entitled to
piggyback registration rights with respect to the registration of the shares of
common stock underlying their warrants. If we propose to register any shares of
common stock either for our account or for the account of other security
holders, the holders of shares having piggyback rights are entitled to receive
notice of the registration and are entitled to include their shares in the
registration. These registration rights are subject to conditions and
limitations, among which is the right of the underwriters of an offering to
limit the number of shares of common stock held by security holders with
registration rights to be included in such registration. We are generally
required to bear all of the expenses of all these registrations, including the
reasonable fees of a single counsel acting on behalf of all selling
stockholders, except underwriting discounts and selling commissions.
Registration of any of the shares of our common stock held by security holders
with registration rights would result in such shares becoming freely tradable
without restriction under the Securities Act of 1933 immediately upon
effectiveness of such registration.
ANTI-TAKEOVER EFFECTS OF PROVISIONS OF THE CERTIFICATE OF INCORPORATION, BYLAWS
AND DELAWARE LAW
We are subject to Section 203 of the Delaware General Corporation Law, or DGCL
Section 203, which regulates corporate acquisitions. DGCL Section 203 prevents
certain Delaware corporations, including those whose securities are listed for
trading on the Nasdaq National Market, from engaging, under certain
circumstances in a "business combination" with any "interested stockholder" for
three years following the date that such stockholder became an interested
stockholder. For purposes of DGCL Section 203, a "business combination"
includes, among other things, a merger or consolidation involving Luminex and
the interested stockholder and the sale of more than ten percent (10%) of
Luminex's assets. In general, DGCL Section 203 defines an "interested
stockholder" as any entity or person beneficially owning 15% or more of the
outstanding voting stock of Luminex and any entity or person affiliated with or
controlling or controlled by such entity or person. A Delaware corporation may
"opt out" of DGCL Section 203 with an express provision in its original
certificate of
- --------------------------------------------------------------------------------
60
<PAGE>
Description of capital stock
- --------------------------------------------------------------------------------
incorporation or an express provision in its certificate of incorporation or
bylaws resulting from amendments approved by the holders of at least a majority
of the corporation's outstanding voting shares. We have not "opted out" of the
provisions of DGCL Section 203.
Our certificate of incorporation provides that the board of directors is
divided into three classes of directors, with each class serving a staggered
three-year term. The classification system of electing directors may tend to
discourage a third party from making a tender offer or otherwise attempting to
obtain control of Luminex and may maintain the incumbency of the board of
directors, as the classification of the board of directors generally increases
the difficulty of replacing a majority of the directors. The certificate of
incorporation also provides that all stockholder actions must be effected at a
duly called meeting and not by a consent in writing. Further, certain
provisions of our certificate of incorporation provide that the stockholders
may amend the bylaws or certain provisions of the certificate of incorporation
only with the affirmative vote of 75% of our capital stock. These provisions of
the certificate of incorporation and bylaws could discourage potential
acquisition proposals and could delay or prevent a change in control of
Luminex. These provisions are intended to enhance the likelihood of continuity
and stability in the composition of the board of directors and in the policies
formulated by the board of directors and to discourage certain types of
transactions that may involve an actual or threatened change of control of
Luminex. These provisions are designed to reduce our vulnerability to an
unsolicited acquisition proposal. The provisions also are intended to
discourage certain tactics that may be used in proxy fights. However, such
provisions could have the effect of discouraging others from making tender
offers for our shares and, as a consequence, they also may inhibit fluctuations
in the market price of our shares that could result from actual or rumored
takeover attempts. Such provisions also may have the effect of preventing
changes in our management.
Our bylaws provide that any action required or permitted to be taken by our
stockholders at an annual meeting or special meeting of stockholders may only
be taken if each stockholder is given proper advance notice of the action. The
bylaws further provide that special meetings of stockholders may only be called
by a majority of our board of directors, our chairman of the board of directors
or our president. The foregoing provisions could have the effect of delaying
until the next stockholders meeting stockholder actions which are favored by
the holders of a majority of our outstanding voting securities.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for our common stock is ChaseMellon
Shareholder Services.
- --------------------------------------------------------------------------------
61
<PAGE>
- --------------------------------------------------------------------------------
Shares eligible for future sale
Prior to this offering, there has been no public market for our common stock.
The market price of our common stock after this offering could decline as a
result of the sale of a large number of shares of our common stock in the
market, or the perception that such sales could occur. Such sales also could
make it more difficult for us to sell equity securities in the future at a time
and price that we deem appropriate. Based on the number of shares outstanding
at March 21, 2000, after this offering, we will have 26,676,070 outstanding
shares of common stock. Of these shares, the shares being offered hereby are
freely tradable. This leaves 22,176,070 shares eligible for sale in the public
market as follows:
<TABLE>
<CAPTION>
Number
of Shares Date
- -----------------------------------------------------------------------------
<C> <S>
-- After the date of this prospectus
At various times after 90 days from the date of this prospectus
736,422 under Rule 701
21,439,648 At various times after 180 days from the date of this prospectus,
subject, in some cases, to volume limitations under Rule 144
</TABLE>
The holders of 98.8% of our common stock, including all of our directors and
officers, together with the holders of options to purchase 2,106,300 shares of
common stock and the holders of warrants to purchase 535,500 shares of common
stock, have entered into lock-up agreements under which they have agreed with
the underwriters not to offer, sell, contract to sell, hedge or otherwise
dispose of, directly or indirectly, or file with the SEC a registration
statement under the Securities Act relating to, any of its common stock or
securities convertible into or exchangeable for shares of common stock during
the period from the date of this prospectus continuing through the date 180
days after the date of this prospectus, without the prior written consent of
Warburg Dillon Read LLC.
In general, under Rule 144 of the Securities Act of 1933, a person or persons
whose shares are required to be aggregated, including an affiliate, whose
shares have been owned for at least one year is entitled to sell, within any
three-month period after the date of this prospectus, a number of shares that
does not exceed the greater of 1% of the then outstanding shares of common
stock -- approximately 264,728 shares immediately after this offering -- or the
average weekly trading volume in our common stock during the four calendar
weeks preceding the date on which notice of such sale is filed, subject to
certain restrictions. In addition, a person who is not deemed to have been an
affiliate of ours at any time during the 90 days preceding a sale and whose
shares have been beneficially owned by nonaffiliates for at least two years
would be entitled to sell such shares under Rule 144(k) without regard to the
requirements described above. To the extent that shares were acquired from one
of our affiliates, such person's holding period for the purpose of effecting a
sale under Rule 144 commences on the date of transfer from the affiliate.
Following 90 days after the date of this prospectus, shares issued upon
exercise of options that we granted prior to the date of this offering will
also be available for sale in the public market pursuant to Rule 701 under the
Securities Act of 1933. Rule 701 permits resales of such shares in reliance
upon Rule 144 under the Securities Act of 1933 but without compliance with the
restrictions, including the holding-period requirement, imposed under Rule 144.
As of March 21, 2000, options to purchase a total of 4,231,134 shares of common
stock were outstanding, 1,399,338 of which were currently exercisable. Of these
4,231,134 shares, 736,422 shares may be eligible for sale in the public market
at various times after 90 days from the date of this prospectus.
- --------------------------------------------------------------------------------
62
<PAGE>
Shares eligible for future sale
- --------------------------------------------------------------------------------
Approximately 180 days after the date of this prospectus, we intend to file a
registration statement to register for resale the 4,231,134 shares of common
stock reserved for issuance under our stock option plans. We expect the
registration statement to become effective immediately upon filing. Shares
issued upon the exercise of stock options granted under our stock option plans
will be eligible for resale in the public market from time to time subject to
vesting and, in the case of certain options, the expiration of the lock-up
agreements referred to above.
Stockholders holding warrants to purchase 535,500 shares of common stock have
the right, subject to various conditions and limitations, to include their
shares in registration statements relating to our securities. By exercising
their registration rights and causing a large number of shares to be registered
and sold in the public market, these holders may cause the price of the common
stock to fall. In addition, any demand to include such shares in our
registration statements could have a material adverse effect on our ability to
raise needed capital. See "Management -- Benefit plans," "Principal
stockholders," "Shares eligible for future sale" and "Underwriting."
- --------------------------------------------------------------------------------
63
<PAGE>
- --------------------------------------------------------------------------------
Underwriting
Luminex and the underwriters for the offering named below have entered into an
underwriting agreement concerning the shares being offered. Subject to
conditions, each underwriter has severally agreed to purchase the number of
shares indicated in the following table. Warburg Dillon Read LLC, Lehman
Brothers Inc. and Dain Rauscher Incorporated are the representatives of the
underwriters.
<TABLE>
<CAPTION>
Number
Underwriters of shares
- --------------------------------------------------------------------------------
<S> <C>
Warburg Dillon Read LLC..............................................
Lehman Brothers Inc..................................................
Dain Rauscher Incorporated...........................................
---------
Total.............................................................. 4,500,000
=========
</TABLE>
If the underwriters sell more shares than the total number set forth in the
table above, the underwriters have a 30-day option to buy from us up to an
additional 675,000 shares at the initial public offering price less the
underwriting discounts and commissions to cover these sales. If any shares are
purchased under this option, the underwriters will severally purchase shares in
approximately the same proportion as set forth in the table above.
The following table shows the per share and total underwriting discounts and
commissions we will pay to the underwriters. These amounts are shown assuming
both no exercise and full exercise of the underwriters' option to purchase up
to an additional 675,000 shares.
<TABLE>
<CAPTION>
No exercise Full exercise
- --------------------------------------------------------------------------------
<S> <C> <C>
Per share............................................ $ $
Total.............................................. $ $
</TABLE>
We estimate that the total expenses of the offering payable by us, excluding
underwriting discounts and commissions, will be approximately $700,000.
Shares sold by the underwriters to the public will initially be offered at the
initial public offering price set forth on the cover of this prospectus. Any
shares sold by the underwriters to securities dealers may be sold at a discount
of up to $ per share from the initial public offering price. Any of
these securities dealers may resell any shares purchased from the underwriters
to other brokers or dealers at a discount of up to $ per share from
the initial public offering price. If all the shares are not sold at the
initial public offering price, the representatives may change the offering
price and the other selling terms.
The underwriters have informed us that they do not expect discretionary sales
to exceed 5% of the shares of common stock to be offered.
Luminex, its directors, officers and certain of its stockholders have agreed
with the underwriters not to offer, sell, contract to sell, hedge or otherwise
dispose of, directly or indirectly, or file with the SEC a registration
statement under the Securities Act relating to, any of its common stock or
securities convertible into or exchangeable for shares of common stock during
the period from the date of this prospectus continuing through the date 180
days after the date of this prospectus, without the prior written consent of
Warburg Dillon Read LLC.
- --------------------------------------------------------------------------------
64
<PAGE>
Underwriting
- --------------------------------------------------------------------------------
The underwriters have reserved for sale, at the initial public offering price,
up to 225,000 shares of our common stock being offered for sale to our
customers and business partners. At the discretion of our management, other
parties, including our employees, may participate in the reserve shares
program. The number of shares available for sale to the general public in the
offering will be reduced to the extent these persons purchase reserved shares.
Any reserved shares not so purchased will be offered by the underwriters to the
general public on the same terms as the other shares in this offering.
Prior to this offering, there has been no public market for our common stock.
The initial public offering price will be negotiated by us and the
representatives. The principal factors to be considered in determining the
initial public offering price include:
.the information set forth in this prospectus and otherwise available to the
representatives;
.the history and the prospects for the industry in which we compete;
.the ability of our management;
.our prospects for future earnings, the present state of our development, and
our current financial position;
.the general condition of the securities markets at the time of this offering;
and
.the recent market prices of, and the demand for, publicly traded common stock
of generally comparable companies.
In connection with the offering, the underwriters may purchase and sell shares
of common stock in the open market. These transactions may include short sales,
stabilizing transactions and purchases to cover positions created by short
sales. Short sales involve the sale by the underwriters of a greater number of
shares than they are required to purchase in the offering. Stabilizing
transactions consist of bids or purchases made for the purpose of preventing or
retarding a decline in the market price of the common stock while the offering
is in progress.
The underwriters also may impose a penalty bid. This occurs when a particular
underwriter repays to the underwriters a portion of the underwriting discount
received by it because the representatives have repurchased shares sold by or
for the account of that underwriter in stabilizing or short covering
transactions.
These activities by the underwriters may stabilize, maintain or otherwise
affect the market price of the common stock. As a result, the price of the
common stock may be higher than the price that otherwise might exist in the
open market. If these activities are commenced, they may be discontinued by the
underwriters at any time. These transactions may be effected on the Nasdaq
National Market, in the over-the-counter market or otherwise.
We have agreed to indemnify the several underwriters against some liabilities,
including liabilities under the Securities Act of 1933 and to contribute to
payments that the underwriters may be required to make in respect thereof.
Upon the closing of this offering, Dain Rauscher Wessels will pay a cash
referral fee of approximately $200,000 to LeCorgne Loewenbaum & Co., LLC or
Loewenbaum & Company Incorporated, each of which is an affiliate of G. Walter
Loewenbaum, a director of Luminex, for introducing it to us.
- --------------------------------------------------------------------------------
65
<PAGE>
- --------------------------------------------------------------------------------
Legal matters
The validity of the shares of common stock offered hereby will be passed upon
for Luminex Corporation by Thompson & Knight LLP, Austin, Texas. Certain
partners of Thompson & Knight LLP maintain beneficial ownership of 26,520
shares of our common stock. Dewey Ballantine LLP, New York, New York, is acting
as counsel for the underwriters in connection with various legal matters
relating to the shares of common stock offered by this prospectus.
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 in reliance on Ernst & Young LLP's
report given on their authority as experts in accounting and auditing.
Where you can find more information
We have filed with the SEC a registration statement on Form S-1 (including
exhibits, schedules and amendments) under the Securities Act with respect to
the shares of common stock to be sold in this offering. This prospectus does
not contain all the information set forth in the registration statement. For
further information with respect to us and the shares of common stock to be
sold in this offering, reference is made to the registration statement.
Statements contained in this prospectus as to the contents of any contract,
agreement or other document referred to are not necessarily complete. Whenever
a reference is made in this prospectus to any contract or other document of
ours, the reference may not be complete, and you should refer to the exhibits
that are apart of the registration statement for a copy of the contract or
document.
You may read and copy all or any portion of the registration statement or any
other information Luminex files at the SEC's public reference room at 450 Fifth
Street, N.W., Washington, D.C. 20549. You can request copies of these
documents, upon payment of a duplicating fee, by writing to the SEC. Please
call the SEC at 1-800-SEC-0330 for further information on the operation of the
public reference rooms. Our SEC filings, including the registration statement,
are also available to you on the SEC's web site (http://www.sec.gov).
As a result of this offering, we will become subject to the information and
reporting requirements of the Securities Exchange Act, and, in accordance with
those requirements, will file periodic reports, proxy statements and other
information with the SEC.
This prospectus includes statistical data that were obtained from industry
publications. These industry publications generally indicate that the authors
of these publications have obtained information from sources believed to be
reliable, but do not guarantee the accuracy and completeness of their
information. While we believe these industry publications to be reliable, we
have not independently verified their data.
- --------------------------------------------------------------------------------
66
<PAGE>
Luminex Corporation
- --------------------------------------------------------------------------------
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
- --------------------------------------------------------------------------------
<S> <C>
Report of Independent Auditors............................................. F-2
Balance Sheets............................................................. F-3
Statements of Operations................................................... F-4
Statements of Changes in Stockholders' Equity.............................. F-5
Statements of Cash Flows................................................... F-6
Notes to Financial Statements.............................................. F-7
</TABLE>
- --------------------------------------------------------------------------------
F-1
<PAGE>
Luminex Corporation
- --------------------------------------------------------------------------------
REPORT OF INDEPENDENT AUDITORS
The Board of Directors
Luminex Corporation
We have audited the accompanying balance sheets of Luminex Corporation as of
December 31, 1998 and 1999, and the related statements of operations, changes
in stockholders' equity 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 Luminex Corporation 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
Austin, Texas
January 28, 2000, except for Notes 4 and 10,
as to which the date is March 9, 2000
- --------------------------------------------------------------------------------
F-2
<PAGE>
Luminex Corporation
- --------------------------------------------------------------------------------
BALANCE SHEETS
(in thousands, except share and per share amounts)
<TABLE>
<CAPTION>
Pro Forma
Stockholders'
Equity
December 31, December 31,
1998 1999 1999
- -------------------------------------------------------------------------------
(unaudited)
<S> <C> <C> <C>
Assets
Current assets:
Cash and cash equivalents................. $8,537 $4,083
Short-term investments.................... -- 4,929
Accounts receivable, net of allowance for
doubtful accounts of $14 in 1998 and
$64 in 1999............................ 146 1,341
Inventory................................. 47 663
Other..................................... 61 181
-------- --------
Total current assets....................... 8,791 11,197
Property and equipment, net................ 799 1,369
-------- --------
Total assets............................... $9,590 $12,566
======== ========
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable.......................... $168 $373
Accrued liabilities....................... 158 278
Deferred revenue.......................... 74 120
-------- --------
Total current liabilities.................. 400 771
Deferred revenue........................... -- 600
Stockholders' equity:
Preferred Stock, $2 par value, 5,000,000
shares authorized:
Series A Convertible Preferred Stock, $2
stated value, shares issued and
outstanding: 457,250 in 1998 and 1999;
no shares pro forma................... 915 915 $--
Series B Convertible Preferred Stock, $40
stated value, shares issued and
outstanding: 150,000 in 1998 and 1999;
no shares pro forma................... 6,000 6,000 --
Series C Convertible Preferred Stock, $80
stated value, shares issued and
outstanding: 151,571 in 1998 and 1999;
no shares pro forma................... 12,126 12,126 --
Series D Convertible Preferred Stock,
$120 stated value, shares issued and
outstanding: 57,538 in 1999; no shares
pro forma............................. -- 6,905 --
Series E Convertible Preferred Stock,
$120 stated value, shares issued and
outstanding: 25,000 in 1999; no shares
pro forma............................. -- 3,000 --
Common Stock, $.001 par value, 50,000,000
shares authorized; shares issued and
outstanding: 13,133,849 and 13,167,754
in 1998 and 1999, respectively;
21,936,346 shares pro forma............ 13 13 22
Warrants to purchase 535,500 shares of
Common Stock at $1.96 per share........ 180 180 180
Additional paid-in capital................ 336 5,511 34,448
Deferred stock compensation............... -- (467) (467)
Accumulated deficit....................... (10,380) (22,988) (22,988)
-------- -------- --------
Total stockholders' equity................. 9,190 11,195 $ 11,195
-------- -------- ========
Total liabilities and stockholders'
equity.................................. $9,590 $12,566
======== ========
</TABLE>
See accompanying notes.
- --------------------------------------------------------------------------------
F-3
<PAGE>
Luminex Corporation
- --------------------------------------------------------------------------------
STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
Year ended December 31,
1997 1998 1999
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenue:
Product.......................................... $99 $386 $2,606
Grant............................................ -- -- 506
------- ------- --------
Total revenue..................................... 99 386 3,112
Cost of product revenue........................... 10 88 1,172
------- ------- --------
Gross margin...................................... 89 298 1,940
Operating expenses:
Research and development......................... 1,594 3,611 6,188
Selling, general and administrative.............. 1,426 2,566 5,238
------- ------- --------
Total operating expenses.......................... 3,020 6,177 11,426
------- ------- --------
Loss from operations.............................. (2,931) (5,879) (9,486)
Interest income................................... 178 283 284
------- ------- --------
Net loss.......................................... (2,753) (5,596) (9,202)
Accretion of discount on convertible preferred
stock.......................................... -- -- (3,406)
------- ------- --------
Net loss applicable to common stockholders........ $(2,753) $(5,596) $(12,608)
======= ======= ========
Net loss per share, basic and diluted ............ $(0.21) $(0.43) $(0.96)
======= ======= ========
Shares used in computing net loss per share, basic
and diluted.................................... 12,842 13,086 13,151
Pro forma net loss per share, basic and diluted
(unaudited).................................... $(0.45)
========
Shares used in computing pro forma net loss per
share, basic and diluted (unaudited)........... 20,529
</TABLE>
See accompanying notes.
- --------------------------------------------------------------------------------
F-4
<PAGE>
Luminex Corporation
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(in thousands, except share amounts)
<TABLE>
<CAPTION>
Convertible Total
Preferred Stock Common Stock Additional Deferred Stockholders'
Number Number Paid-in Stock Accumulated Equity
of Shares Amount of Shares Amount Warrants Capital Compensation Deficit (Deficit)
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31,
1996.................. 457,250 $915 12,842,308 $13 $-- $993 $-- $(2,031) $(110)
Issuance of Preferred
Stock,
Series B............. 150,000 6,000 -- -- -- -- -- -- 6,000
Stock issuance costs... -- -- -- -- 180 (353) -- -- (173)
Net loss............... -- -- -- -- -- -- -- (2,753) (2,753)
------- ------- ---------- --- ---- ------- ------ -------- -------
Balance at December 31,
1997.................. 607,250 6,915 12,842,308 13 180 640 -- (4,784) 2,964
Issuance of Preferred
Stock,
Series C............. 151,571 12,126 -- -- -- -- -- -- 12,126
Stock issuance costs... -- -- -- -- -- (868) -- -- (868)
Exercise of stock
options.............. -- -- 5,439 -- -- 3 -- -- 3
Common stock issued for
assets purchased..... -- -- 286,102 -- -- 561 -- -- 561
Net loss............... -- -- -- -- -- -- -- (5,596) (5,596)
------- ------- ---------- --- ---- ------- ------ -------- -------
Balance at December 31,
1998.................. 758,821 19,041 13,133,849 13 180 336 -- (10,380) 9,190
Issuance of Preferred
Stock,
Series D, net of
discount............. 57,538 6,499 -- -- -- 406 -- -- 6,905
Issuance of Preferred
Stock,
Series E, net of
discount............. 25,000 -- -- -- -- 3,000 -- -- 3,000
Stock issuance costs... -- -- -- -- -- (8) -- -- (8)
Accretion of discount
on convertible
preferred stock...... -- 3,406 -- -- -- -- -- (3,406) --
Exercise of stock
options.............. -- -- 33,905 -- -- 47 -- -- 47
Deferred stock
compensation related
to stock options..... -- -- -- -- -- 1,730 (1,730) -- --
Amortization of
deferred stock and
stock compensation
expense.............. -- -- -- -- -- -- 1,263 -- 1,263
Net loss............... -- -- -- -- -- -- -- (9,202) (9,202)
------- ------- ---------- --- ---- ------- ------ -------- -------
Balance at December 31,
1999.................. 841,359 $28,946 13,167,754 $13 $180 $5,511 $(467) $(22,988) $11,195
======= ======= ========== === ==== ======= ====== ======== =======
Pro forma balance at
December 31, 1999
(unaudited)........... -- $-- 21,936,346 $22 $180 $34,448 $(467) $(22,988) $11,195
======= ======= ========== === ==== ======= ====== ======== =======
</TABLE>
See accompanying notes.
- --------------------------------------------------------------------------------
F-5
<PAGE>
Luminex Corporation
- --------------------------------------------------------------------------------
STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
Year ended December 31,
1997 1998 1999
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Operating activities
Net loss........................................... $(2,753) $(5,596) $(9,202)
Adjustment to reconcile net loss to cash used in
operating activities:
Depreciation expense.............................. 69 220 330
Amortization expense.............................. -- 143 186
Amortization of deferred stock and stock
compensation expense........................... -- -- 1,263
Changes in operating assets and liabilities:
Accounts receivable.............................. (39) (108) (1,195)
Inventory........................................ (44) (3) (616)
Other assets..................................... (13) (48) (120)
Accounts payable................................. 59 64 205
Accrued liabilities.............................. (167) 107 120
Deferred revenue................................. -- 74 646
------- ------- -------
Net cash used in operating activities.............. (2,888) (5,147) (8,383)
Investing activities
Purchase of short-term investments................. -- -- (4,929)
Purchase of property and equipment................. (132) (399) (1,085)
------- ------- -------
Net cash used in investing activities.............. (132) (399) (6,014)
Financing activities
Proceeds from issuance of Common Stock............. -- 3 47
Proceeds from issuance of Preferred Stock.......... 6,000 12,126 9,904
Stock issuance costs............................... (173) (867) (8)
------- ------- -------
Net cash provided by financing activities.......... 5,827 11,262 9,943
Increase in cash and cash equivalents.............. 2,807 5,716 (4,454)
Cash and cash equivalents, beginning of year....... 14 2,821 8,537
------- ------- -------
Cash and cash equivalents, end of year............. $2,821 $8,537 $4,083
======= ======= =======
Non-cash activities
Common stock issued to acquire property and
equipment from related party.................... $-- $561 $--
</TABLE>
See accompanying notes.
- --------------------------------------------------------------------------------
F-6
<PAGE>
Luminex Corporation
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
1. Organization and business
Luminex Corporation (the "Company") was incorporated in the state of Texas in
May 1995. In June 1998, the Company reincorporated in the state of Delaware.
Since its formation, the Company's activities have been focused primarily on
the research and development of a unique molecular measurement and analysis
system (the LabMAP System) capable of performing multiple tests rapidly and
economically on a single patient sample.
From its inception through December 31, 1998, the Company's activities were
focused primarily on research and development and raising capital and,
accordingly, the Company was considered to be a development stage company. In
1999, the Company commenced shipments of its intended product, the Luminex 100,
and is no longer considered a development stage company.
2. Summary of significant accounting policies
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 amounts and results could differ from those estimates, and such
differences could be material to the financial statements.
Revenue recognition
Revenues from sales of the Company's products are recognized when persuasive
evidence of an agreement exists, delivery of the product has occurred, the fee
is fixed and determinable and collectibility is probable. Revenues from
royalties related to agreements with strategic partners are recognized when
such amounts are reported to the Company. No royalty revenues have been
recognized through December 31, 1999. The Company reserves for uncollectible
accounts based upon experience.
In accordance with the terms of the grant, grant revenue is recorded as
research expenses relating to the grant are incurred, provided that the amounts
received are not refundable if the research is not successful.
Amounts billed or collected in excess of revenue recognized is recorded as
deferred revenue.
Cash equivalents
Cash equivalents consist of cash deposits and investments with original
maturities of three months or less when purchased.
Short-term investments
In accordance with Statement of Financial Accounting Standards ("SFAS") No.
115, Accounting for Certain Investments in Debt and Equity Securities, the
Company's short-term investments are classified as held-to-maturity. Short-term
investments are classified as held-to maturity as the Company has the positive
intent and ability to hold the securities to maturity. Held-to-maturity
securities are stated at amortized cost, adjusted for amortization of premiums
and accretion of discounts to maturity. Such amortization is included in
interest income. Interest on securities classified as held-to-maturity is also
included in interest income.
All of the short-term investments mature within one year of December 31, 1999.
Concentration of credit risk and significant customers
Financial instruments which potentially subject the Company to concentrations
of credit risk consist of short-term investments and trade receivables. The
Company's short-term investments consist of investments in high credit quality
financial institutions and issuers.
- --------------------------------------------------------------------------------
F-7
<PAGE>
Luminex Corporation
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (continued)
The Company provides credit, in the normal course of business, to a number of
customers geographically dispersed primarily throughout the U.S. The Company
performs ongoing credit evaluations of its customers and maintains allowances
for potential credit losses.
The following table summarizes the changes in the allowance for doubtful
accounts for 1997, 1998, and 1999 (in thousands):
<TABLE>
<S> <C>
Balance at December 31, 1996............................................... $--
Additions charged to costs and expenses.................................. --
Write-off of uncollectible accounts...................................... --
---
Balance at December 31, 1997............................................... --
Additions charged to costs and expenses.................................. 14
Write-off of uncollectible accounts...................................... --
---
Balance at December 31, 1998............................................... 14
Additions charged to costs and expenses.................................. 64
Write-off of uncollectible accounts...................................... (14)
---
Balance at December 31, 1999............................................... $64
===
</TABLE>
Sales to individual customers constituting 10% or more of total revenues for
each year were as follows (in thousands):
<TABLE>
<CAPTION>
Year ended
December 31,
1997 1998 1999
- ---------------------------------------------------------------------------------
<S> <C> <C> <C>
Customer No. 1................................................... 14% -- --
Customer No. 2................................................... 10 -- --
Customer No. 3................................................... 10 -- --
Customer No. 4................................................... 10 -- --
Customer No. 5................................................... 10 -- --
Customer No. 6................................................... -- -- 10%
</TABLE>
Inventory
Inventory, consisting primarily of raw materials and purchased components, is
stated at the lower of cost or market. Cost is determined by the weighted
average method. The Company routinely assesses its on-hand inventory for timely
identification and measurement of obsolete, slow-moving, or otherwise impaired
inventory. As of December 31, 1998 and 1999, no such inventory had been
identified and no inventory reserves were recorded.
Property and equipment
Property and equipment are stated at cost. Property and equipment are
depreciated on a straight-line basis over the useful lives of the assets, which
are generally three to seven years. Leasehold improvements are amortized on a
straight-line basis over the shorter of the remaining term of the lease or its
estimated useful life.
Software costs
Purchased software is capitalized at cost and amortized over the estimated
useful life, generally five years. Software developed for use in the Company's
products is expensed as incurred and is classified as research and development
expense.
- --------------------------------------------------------------------------------
F-8
<PAGE>
Luminex Corporation
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (continued)
Impairment of long-lived assets
In accordance with SFAS No. 121, Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed of, if indicators of impairment
exist, the Company assesses the recoverability of the affected long-lived
assets by determining whether the carrying value of such assets can be
recovered through undiscounted future operating cash flows. If impairment is
indicated, the Company will measure the amount of such impairment by comparing
the carrying value of the asset to the present value of the expected future
cash flows associated with the use of the asset. To date, no such indicators of
impairment have been identified.
Research and development costs
Research and development costs are expensed in the period incurred. SFAS No.
86, Accounting for the Costs of Software to be Sold, Leased or Otherwise
Marketed, requires capitalization of certain software development costs
subsequent to the establishment of technological feasibility. Based on the
Company's product development process, technological feasibility is established
upon completion of a working model. Costs related to software development
incurred between completion of the working model and the point at which the
product is ready for general release have been insignificant. Through December
31, 1999, all software development costs have been expensed.
Patent costs
Costs related to patent applications and prosecution are expensed as incurred
as recoverability of such expenditures is uncertain.
Income taxes
The Company accounts for income taxes in accordance with SFAS No. 109,
Accounting for Income Taxes. This statement prescribes the use of the liability
method whereby deferred tax assets and liabilities are determined based on
differences between financial reporting and tax bases of assets and
liabilities, and are measured using enacted tax rates and laws that will be in
effect when the differences are expected to reverse.
Advertising costs
The Company expenses advertising costs as incurred. Advertising expenses were
not significant for all years presented.
Stock-based compensation
SFAS No. 123, Accounting for Stock-Based Compensation ("SFAS 123"), prescribes
accounting and reporting standards for all stock-based compensation plans,
including employee stock options. As allowed by SFAS 123, the Company has
elected to continue to account for its employee stock-based compensation in
accordance with Accounting Principles Board Opinion No. 25, Accounting for
Stock Issued to Employees.
Comprehensive income
In June 1997, the Financial Accounting Standards Board issued SFAS No. 130,
Reporting Comprehensive Income ("SFAS 130"), which establishes standards for
reporting comprehensive income and its components in a full set of financial
statements. The Company adopted SFAS 130 during the year ended December 31,
1998. There was no impact to the Company as a result of the adoption of SFAS
130, as there no differences between net loss and comprehensive loss for all
periods.
Segment reporting
The Company adopted SFAS No. 131, Disclosures About Segments of an Enterprise
and Related Information ("SFAS 131"), during 1998. SFAS 131 requires the use of
a management approach in identifying segments of an enterprise. Management has
determined that the Company operates in one business segment.
- --------------------------------------------------------------------------------
F-9
<PAGE>
Luminex Corporation
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (continued)
Net loss per share
In accordance with SFAS No. 128, Earnings Per Share, and SEC Staff Accounting
Bulletin (or SAB) No. 98, basic net income (loss) per share is computed by
dividing the net income (loss) for the period by the weighted average number of
common shares outstanding during the period. Diluted net income (loss) per
share is computed by dividing the net income (loss) for the period by the
weighted average number of common and common equivalent shares outstanding
during the period. Potentially dilutive securities composed of incremental
common shares issuable upon the exercise of stock options and warrants, and
common shares issuable on conversion of preferred stock, were excluded from
historical diluted loss per share because of their anti-dilutive effect.
Under the provisions of SAB No. 98, common shares issued for nominal
consideration, if any, would be included in the per share calculations as if
they were outstanding for all periods presented. No common shares have been
issued for nominal consideration.
Pro forma net loss per share has been computed as described above and also
gives effect to common equivalent shares arising from preferred stock that will
automatically convert upon the closing of the initial public offering
contemplated by this prospectus (using the as-if converted method from the
original date of issuance).
The following is a reconciliation of the numerator and denominator of basic and
diluted net loss per share (in thousands, except per share amounts):
<TABLE>
<CAPTION>
Year Ended December 31,
1997 1998 1999
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Basic and diluted:
Net loss applicable to common stockholders......... $(2,753) $(5,596) $(12,608)
======= ======= ========
Weighted average shares of common stock
outstanding..................................... 12,842 13,086 13,151
======= ======= ========
Basic and diluted net loss per share............... $(0.21) $(0.43) $(0.96)
======= ======= ========
Pro forma basic and diluted:
Net loss applicable to common stockholders......... $(12,608)
Add back: Accretion of discount on convertible
preferred stock................................. -- -- 3,406
--------
Pro forma net loss applicable to common
stockholders.................................... $ (9,202)
========
Shares used above.................................. 13,151
Pro forma adjustment to reflect weighted average
effect of assumed conversion of preferred
stock........................................... 7,378
--------
Shares used in computing pro forma basic and
diluted net loss per share...................... 20,529
========
Basic and diluted pro forma net loss per share..... $(0.45)
========
</TABLE>
The Company has excluded all convertible preferred stock, outstanding stock
options, outstanding warrants to purchase stock and shares subject to
repurchase from the calculation of diluted loss per common share because all
such securities are antidilutive for all applicable periods presented. The
total number of shares excluded from the calculations of diluted net loss per
share, prior to application of the treasury stock method for options, was
6,213,330, 9,863,318 and 12,741,278 for the years ended December 31, 1997, 1998
and 1999, respectively. Such securities, had they been dilutive, would have
been included in the computations of diluted net loss per share. See Note 4 for
further information on these securities.
- --------------------------------------------------------------------------------
F-10
<PAGE>
Luminex Corporation
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (continued)
Unaudited pro forma stockholders' equity
The unaudited pro forma stockholders' equity information at December 31, 1999
reflects the conversion of the convertible preferred stock.
Recently issued accounting standards
In June 1998, the FASB issued SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities, as amended by SFAS No. 137, which is
effective for fiscal years beginning after June 15, 2000. This statement
requires companies to record derivatives on the balance sheet as assets or
liabilities measured at fair value. Gains or losses resulting from changes in
the values of those derivatives would be accounted for depending on the use of
the derivative and whether it qualifies for hedge accounting. SFAS No. 133 will
be effective for the Company's financial statements for the year ending
December 31, 2001. Management believes that this statement will not have a
material impact on the Company's financial position or results of operations.
In March 1999, the FASB issued an exposure draft entitled Accounting for
Certain Transactions involving Stock Compensation, which is a proposed
interpretation of APB Opinion No. 25. However, the exposure draft has not been
finalized. Once finalized and issued, the current accounting practices for
transactions involving stock compensation may need to change and such changes
could affect the Company's future operating results.
In December 1999, the Securities and Exchange Commission staff released Staff
Accounting Bulletin No. 101, Revenue Recognition in Financial Statements (SAB
No. 101), which provides guidance on the recognition, presentation and
disclosure of revenue in financial statements. The application of SAB No. 101
did not have a material impact on the financial statements of the Company.
Reclassification
Certain amounts in the prior year financial statements have been reclassified
to conform to current year presentation.
3. Property and equipment
Property and equipment consisted of the following at December 31 (in
thousands):
<TABLE>
<CAPTION>
1998 1999
- --------------------------------------------------------------------------------
<S> <C> <C>
Laboratory equipment............................................ $783 $1,180
Computer equipment.............................................. 128 264
Leasehold improvements.......................................... 229 609
Purchased software and intangibles.............................. 56 123
Furniture and fixtures.......................................... 87 192
------ ------
1,283 2,368
Less accumulated amortization and depreciation.................. (484) (999)
------ ------
$799 $1,369
====== ======
</TABLE>
- --------------------------------------------------------------------------------
F-11
<PAGE>
Luminex Corporation
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (continued)
4. Stockholders' equity
Series A Preferred Stock
A total of 457,250 shares of Series A Preferred Stock ("Series A Stock") were
issued in 1995 and 1996 at $2.00 per share. The Series A Stock does not
currently pay a dividend but is entitled to receive a dividend on a pro rata
basis if any dividend is paid to holders of the Common Stock. The Series A
Stock is entitled to one vote on all matters in which shares of Common Stock
are entitled to vote except in certain circumstances under the Delaware General
Corporation Law ("DGCL") where the holders are entitled to vote as a class.
Each share of Series A Stock is convertible at the option of the holder into
2.04 shares of Common Stock subject to adjustment to protect against dilution,
and has a preference in liquidation of $2.00.
With at least 30 days notice to each holder, the Company may, at its option,
redeem all but not part of the Series A Stock. All outstanding shares of Series
A Stock are subject to automatic conversion into fully paid and nonassessable
shares of Common Stock by the Company at $2.00 per share of Common Stock, on
the date that a registration statement registering any shares of Common Stock
under the Securities Act is declared effective by the Securities Exchange
Commission.
Series B Preferred Stock
A total of 150,000 shares of Series B Preferred Stock ("Series B Stock") were
issued in 1997 at $40.00 per share. The Series B Stock does not currently pay a
dividend but is entitled to receive a dividend on a pro rata basis if any
dividend is paid to the holders of the Common Stock. The Series B Stock is
entitled to ten votes on all matters in which shares of Common Stock are
entitled to vote except in certain circumstances under the DGCL where the
holders are entitled to vote as a class. Each share of Series B Stock is
convertible at the option of the holder into 20.4 shares of Common Stock,
subject to adjustment to protect against dilution, and has a preference in
liquidation of $40.00.
The Company may at its option, with not less than 30 and not more than 60 days
notice, redeem all but not part of the Series B Stock for $40.00 per share. All
outstanding shares of Series B Stock are subject to automatic conversion into
fully paid and nonassessable shares of Common Stock by the Company at $4.00 per
share of Common Stock, on the date that a registration statement registering
any shares of Common Stock under the Securities Act is declared effective by
the Securities Exchange Commission.
Series C Preferred Stock
A total of 151,571 shares of Series C Preferred Stock ("Series C Stock") were
issued in 1998 at $80.00 per share. The Series C Stock does not currently pay a
dividend but is entitled to receive a dividend on a pro rata basis if any
dividend is paid to holders of the Common Stock. The Series C Stock is entitled
to ten votes on all matters in which shares of Common Stock are entitled to
vote except in certain circumstances under the DGCL where the holders are
entitled to vote as a class. Each share of Series C Stock is convertible at the
option of the holder into 20.4 shares of Common Stock subject to adjustment to
protect against dilution, and has a preference in liquidation of $80.00.
The Company may, at its option, with not less than 30 and not more than 60 days
notice, redeem all but not part of the Series C Stock for $80.00 per share. All
outstanding shares of Series C Stock are subject to automatic conversion into
fully paid and nonassessable shares of Common Stock by the Company at $8.00 per
share of common stock, on the date that a registration statement registering
any shares of Common Stock under the Securities Act is declared effective by
the Securities and Exchange Commission.
- --------------------------------------------------------------------------------
F-12
<PAGE>
Luminex Corporation
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (continued)
Series D Preferred Stock
A total of 57,538 shares of Series D Preferred Stock ("Series D Stock") were
issued in 1999 at $120.00 per share. The Series D Stock does not currently pay
a dividend but is entitled to receive a dividend on a pro rata basis if any
dividend is paid to holders of the Common Stock. The Series D Stock is entitled
to ten votes on all matters in which shares of Common Stock are entitled to
vote except in certain circumstances under the DGCL where the holders are
entitled to vote as a class. Each share of Series D Stock is convertible at the
option of the holder into 20.4 shares of Common Stock subject to adjustment to
protect against dilution, and has a preference in liquidation of $120.00.
The Company may, at its option, with not less than 30 and not more than 60 days
notice, redeem all but not part of the Series D Stock for $120.00 per share.
All outstanding shares of Series D Stock are subject to automatic conversion
into fully paid and nonassessable shares of Common Stock by the Company at
$12.00 per share of common stock, on the date that a registration statement
registering any shares of Common Stock under the Securities Act is declared
effective by the Securities and Exchange Commission.
Series E Preferred Stock
A total of 25,000 shares of Series E Preferred Stock ("Series E Stock") were
issued in 1999 at $120.00 per share. The Series E Stock does not currently pay
a dividend but is entitled to receive a dividend on a pro rata basis if any
dividend is paid to holders of the Common Stock. The Series E Stock is entitled
to ten votes on all matters in which shares of Common Stock are entitled to
vote except in certain circumstances under the DGCL where the holders are
entitled to vote as a class. Each share of Series E Stock is convertible at the
option of the holder into 20.4 shares of Common Stock subject to adjustment to
protect against dilution, and has a preference in liquidation of $120.00.
The Company may, at its option, with not less than 30 and not more than 60 days
notice, redeem all but not part of the Series C Stock for $120.00 per share.
All outstanding shares of Series E Stock are subject to automatic conversion
into fully paid and nonassessable shares of Common Stock by the Company at
$12.00 per share of common stock, on the date that a registration statement
registering any shares of Common Stock under the Securities Act is declared
effective by the Securities and Exchange Commission.
Discount on Convertible Preferred Stock
The Company recorded a beneficial conversion feature pursuant to EITF 98-5 for
certain shares of Series D Stock issued in November 1999 and the shares of
Series E Stock issued in December 1999. The beneficial conversion feature was
calculated as the difference between the conversion price and the fair value of
the Common Stock into which the preferred stock is convertible. The Company
recorded a discount of $406,000 for Series D Stock issued in November 1999 and
$3,000,000 for Series E Stock issued in December 1999. The total discount of
$3,406,000 was immediately accreted as a preferred stock dividend as the Series
D Stock and the Series E Stock were immediately convertible upon issuance.
Common Stock
At December 31, 1999, there were 13,167,754 shares of Common Stock issued and
outstanding. In addition, approximately 13,344,749 shares were reserved for
future issuance upon exercise of stock options and warrants and upon conversion
of convertible securities.
- --------------------------------------------------------------------------------
F-13
<PAGE>
Luminex Corporation
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (continued)
Warrants to purchase Common Stock
In conjunction with the sale of the Series B Stock, the Company issued warrants
to purchase an aggregate of 535,500 shares of Common Stock at an exercise price
of $1.96 per share. The warrants may be exercised, in whole or in part, at any
time prior to April 3, 2002. (See also Note 8.)
Stock option plan
Under the Company's Stock Option Plan, which was amended in May 1998 (the
"Plan"), options to purchase up to 4,080,000 shares of the Company's Common
Stock may be granted to employees, officers, non-employee directors and
advisors of the Company. The Plan is administered by the Stock Option Committee
of the Board of Directors which has the authority to determine the terms and
conditions under which options will be granted, including the number of shares,
option price, vesting schedule and term. Under certain circumstances, the
Company may repurchase previously granted options or shares issued upon the
exercise of a previously granted option.
Since inception, the Company has granted options to employees at estimated fair
market value on the date of grant. Employee options generally vest one-third on
each of the first, second and third anniversary dates from the date of grant
and have a term of five years.
In 1997, the Company granted a fully vested option to purchase 38,250 shares of
the Company's Common Stock to a consulting firm at an exercise price of $1.96
per share that expires on January 31, 2002. The Company granted an additional
369,750 options to this consulting firm with vesting based on the achievement
of identified milestones. No amount was allocated to the value of these options
as such amounts were insignificant. In 1999, the consulting firm surrendered
all the options in exchange for issuance by the Company of a fully vested
option to purchase 102,000 shares of the Company's Common Stock at an exercise
price of $1.96 per share. The Company recorded, in selling, general and
administrative expenses, stock compensation in the amount of approximately
$433,000 in connection with the issuance of stock options to the consulting
firm.
The Company recorded total deferred stock compensation of $1,730,000 in
connection with certain stock options granted during the year ended December
31, 1999 including stock options granted to a consultant as described in the
preceding paragraph. The amount represents the difference between the exercise
price of stock option grants for 218,481 shares of common stock and the deemed
fair value of the Company's common stock at the time of such grants which
ranged from $1.96 to $5.88 per share and $3.92 to $15.30 per share,
respectively. Such amount is being amortized over the vesting periods of the
applicable options resulting in amortization of $1,263,000 for the year ended
December 31, 1999.
Pro forma information regarding net loss is required by Statement 123, and has
been determined as if the Company had accounted for its employee stock options
under the minimum value method of that Statement. The minimum value for these
options was estimated at the date of grant using a minimum value option pricing
model with the following assumptions for 1997, 1998 and 1999; volatility of 0%;
risk free interest rate of 6%; expected life of the options of 5 years; and an
expected dividend yield of 0%.
For purposes of pro forma disclosures, the estimated fair value of the options
is expensed over the options' vesting periods. The Company's pro forma
information is as follows (in thousands):
<TABLE>
<CAPTION>
1997 1998 1999
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Net loss as reported................................ $(2,753) $(5,596) $(9,202)
Pro forma net loss.................................. (2,800) (5,753) (9,468)
Diluted net loss per share as reported.............. (0.21) (0.43) (0.70)
Pro forma diluted net loss per share................ (0.22) (0.44) (0.72)
</TABLE>
The weighted average grant date fair value of options granted was $0.51, $0.84
and $1.04 for 1997, 1998 and 1999, respectively.
- --------------------------------------------------------------------------------
F-14
<PAGE>
Luminex Corporation
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (continued)
A summary of the changes in Common Stock options is as follows:
<TABLE>
<CAPTION>
Weighted
Range of average
exercise exercise
Shares prices price
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Options outstanding, December 31, 1996......... 405,960 $0.49 $0.49
Granted....................................... 1,279,080 $1.96 $1.96
Exercised..................................... -- -- --
Surrendered................................... -- -- --
--------- ----------- -----
Options outstanding, December 31, 1997......... 1,685,040 $0.49-$1.96 $1.61
Granted....................................... 574,260 $2.94-$3.92 $3.52
Exercised..................................... (5,439) $0.49 $0.49
Surrendered................................... (10,881) $0.49-$2.94 $1.96
--------- ----------- -----
Options outstanding, December 31, 1998......... 2,242,980 $0.49-$3.92 $2.10
Granted....................................... 1,666,884 $1.96-$5.88 $4.03
Exercised..................................... (33,905) $0.49-$1.96 $1.38
Surrendered................................... (438,600) $1.96 $1.96
--------- ----------- -----
Options outstanding, December 31, 1999......... 3,437,359 $0.49-$5.88 $3.06
=========
</TABLE>
The following table summarizes information about options outstanding at
December 31, 1999:
<TABLE>
<CAPTION>
Options outstanding Options exercisable
Weighted average Weighted Number Weighted
Exercise Number remaining average exercisable average
price outstanding contractual life exercise price and vested exercise price
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$0.49 384,295 1.16 $0.49 323,095 $0.49
1.96 918,000 2.80 1.96 690,169 1.96
2.94 330,480 3.16 2.94 110,148 2.94
3.92 1,555,500 4.29 3.92 266,891 3.92
5.88 249,084 4.21 5.88 46,783 5.88
--------- ---------
3,437,359 1,437,086
========= =========
</TABLE>
5. Income taxes
As of December 31, 1999, the Company had federal net operating loss
carryforwards of approximately $17,077,000 and research and development credit
carryforwards of approximately $572,000 that will begin to expire in 2010 if
not utilized.
The Tax Reform Act of 1986 imposes substantial restrictions on the utilization
of net operating losses and tax credits in the event of an "ownership change"
of a corporation. The Company's utilization of the net operating losses will be
subject to an annual limitation due to an "ownership change" resulting from the
sales of private equity securities. The annual limitations will result in the
expiration of no more than $750,000 of net operating losses before utilization.
- --------------------------------------------------------------------------------
F-15
<PAGE>
Luminex Corporation
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (continued)
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amount of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components
of the Company's deferred tax liabilities and assets as of December 31 are as
follows (in thousands):
<TABLE>
<CAPTION>
1998 1999
- --------------------------------------------------------------------------------
<S> <C> <C>
Deferred tax assets:
Deferred revenue.............................................. $-- $267
Depreciable assets............................................ -- 147
Accrued expenses.............................................. 5 40
Net operating loss and credit carryforwards................... 4,080 6,855
Start-up and organization costs............................... 17 11
Stock compensation............................................ -- 467
------- ------
Total deferred tax assets...................................... 4,102 7,787
Valuation allowance for deferred tax assets................... (4,086) (7,764)
------- ------
Net deferred taxes............................................. 16 23
Deferred tax liabilities:
Prepaid expenses.............................................. (16) (23)
------- ------
Total deferred tax liabilities................................. (16) (23)
------- ------
Net deferred taxes............................................. $-- $--
======= ======
</TABLE>
The Company has established a valuation allowance equal to the net deferred tax
assets due to uncertainties regarding the realization of deferred tax assets
based on the Company's lack of earnings history. The valuation allowance
increased by approximately $2,161,000 and $3,678,000 during 1998 and 1999,
respectively.
The Company's provision for income taxes differs from the expected tax benefit
amount computed by applying the statutory federal income tax rate of 34% to
income before income taxes as a result of the following:
<TABLE>
<CAPTION>
Year Ended
December 31,
1997 1998 1999
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Statutory tax rate...................................... (34.0)% (34.0)% (34.0)%
State taxes, net of federal benefit..................... (3.0) (3.0) (3.0)
Nondeductible expenses.................................. -- 1.0 0.1
R&D credit generated.................................... (5.6) (2.6) (2.7)
Other................................................... -- -- (0.6)
Valuation allowance..................................... 42.6 38.6 40.2
----- ----- -----
-- % -- % -- %
===== ===== =====
</TABLE>
6. Employee benefit plans
Beginning January 1, 1998, the Company instituted a Savings Incentive Match
Plan for Employees ("SIMPLE") under Section 408(p) of the Internal Revenue
Code. Each employee of the Company who received at least $5,000 of compensation
during the year from the Company was eligible to contribute
- --------------------------------------------------------------------------------
F-16
<PAGE>
Luminex Corporation
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (continued)
up to $6,000 annually. The Company matches such contributions on a dollar-for-
dollar basis up to a maximum of 3% of the employee's gross salary compensation.
All employee and employer contributions are immediately vested. The Company's
contributions totaled approximately $40,000 in 1998 and $92,000 in 1999.
7. Commitments
Lease arrangements
The Company has various operating leases related primarily to office
facilities. Rental expense for these operating leases for the years 1997, 1998
and 1999 totaled approximately $105,000, $152,000 and $399,000, respectively.
Minimum annual rental commitments as of December 31, 1999 under noncancelable
leases for each of the next five years and in the aggregate are as follows (in
thousands):
<TABLE>
<S> <C>
2000....................................................................... $327
2001....................................................................... 304
2002....................................................................... 74
2003....................................................................... --
2004....................................................................... --
Thereafter................................................................. --
----
Total...................................................................... $705
====
</TABLE>
Legal proceedings
As a result of a procedural omission by the Company's prior patent counsel, the
Company is unable to obtain a patent in Japan and certain other countries for
the Company's method of "real time" detection and quantification of multiple
analytes from a single sample. The Company has filed a lawsuit alleging
negligence on the part of its prior patent counsel in this matter and seeking
to recover the damages believed to result from the lack of this patent
protection in Japan and certain other countries. At this time, management
cannot predict whether this lawsuit will be successful and, if so, the amount
of any damages that may be recovered.
8. Related party transactions
The Company purchased certain office and laboratory equipment from Inland Labs
on January 1, 1998 for $769,766, which was based on the net book value of the
assets acquired by Inland Labs prior to July 1, 1995, and the cost of assets
acquired by Inland Labs subsequent to June 30, 1995. Dr. Chandler was paid
$208,782 in cash and was issued 286,102 shares of the Company's Common Stock. A
committee of outside directors determined that the transaction was fair and in
the best interest of the Company and its stockholders.
In 1997, the Company paid $136,000 to a stockholder and Director of the Company
for consulting services provided in conjunction with the development of the
Company's FlowMetrixTM System and the Luminex 100 diagnostic instrument.
In conjunction with the issuance of the Series B Preferred Stock in 1997, the
Company made cash payments totaling approximately $266,000 and issued warrants
to purchase 535,500 shares of
- --------------------------------------------------------------------------------
F-17
<PAGE>
Luminex Corporation
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (continued)
Common Stock to the predecessor of Loewenbaum & Company, Incorporated
("Loewenbaum"), which acted as the placement agent for the Series B Preferred
Stock. G. Walter Loewenbaum is a major stockholder and Director of Luminex and
is Chairman and Chief Executive Officer of Loewenbaum and held such offices
with its predecessor. The cash and warrants were paid to Loewenbaum's
predecessor as the placement fee for the Series B Preferred Stock. The warrants
may be exercised in whole or in part, at any time prior to April 3, 2002 at
$1.96 per share.
In conjunction with the issuance of the Series C Preferred Stock in 1998, the
Company made cash payments totaling approximately $849,000 to Loewenbaum, which
acted as the placement agent for the Series C Preferred Stock. G. Walter
Loewenbaum is a major stockholder and Director of Luminex and is Chairman and
Chief Executive Officer of Loewenbaum. The cash was paid to Loewenbaum as the
placement fee for the Series C Preferred Stock.
On June 1, 1999 the Company entered into a consulting agreement with a director
of Luminex for consulting services. In consideration for those services, the
Company paid the director $5,833 per month. On November 1, 1999, the Company
amended that agreement to increase the level of consulting services and to
increase the consulting fee to $11,666 per month. In addition, the Company
issued stock options for the purchase of 51,000 shares of the Company's common
stock to this Director of the Company. The Company recorded in sales, general
and administrative expense deferred stock compensation in the amount of
$609,450 in connection with such transaction of which approximately $332,000
was amortized during the year.
On September 1, 1997, seven outside directors of Luminex were each granted
fully vested options to purchase 10,200 shares of common stock at an exercise
price of $1.96 per share, and one outside director of Luminex was granted fully
vested options to purchase 61,200 shares of common stock at an exercise price
of $1.96 per share.
On May 20, 1999, six outside directors of Luminex were each granted fully
vested options to purchase 30,600 shares of common stock at an exercise price
of $3.92 per share.
In December 1999, the Company issued 51,000 shares of Series E convertible
preferred stock for an aggregate price of $3,000,000 to Koerner Capital
Corporation, of which John E. Koerner III, one of the Company's directors is
the sole stockholder.
9. Joint venture research arrangement
In October 1998, the Company, along with a joint venture partner, was granted a
special assistance award by the National Institute of Standards and Technology
to conduct liquid array technology development. In September 1999, the Company
and its joint venture partner suspended all joint venture activities. During
the year, the Company incurred expenses related to liquid array development
activities totaling approximately $600,000 and recognized grant revenues of
approximately $506,000.
10. Subsequent event
On March 6, 2000, the number of authorized shares of common stock was increased
from 25,000,000 to 50,000,000, with the total number of authorized shares of
common stock to be increased to 200,000,000 upon completion of an initial
public offering. Additionally, on March 9, 2000, the Board of Directors of the
Company approved a 2.04-for-1 stock split of common stock in the form of a
stock dividend. All common stock and per share information has been adjusted to
reflect the stock dividend as if such stock dividend had taken place at the
inception of the Company.
- --------------------------------------------------------------------------------
F-18
<PAGE>
- --------------------------------------------------------------------------------
[LOGO OF LUMINEX APPEARS HERE]
- --------------------------------------------------------------------------------
<PAGE>
Part II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. Other Expenses of Issuance and Distribution
The following is an itemized statement of the amounts of all expenses payable
by the Registrant in connection with the registration of the common stock
offered hereby (estimated except for the Registration Fee, NASD Filing Fee and
Nasdaq National Market listing fee), other than underwriting discounts and
commissions:
<TABLE>
<S> <C>
Registration Fee--Securities and Exchange Commission.................. $ 26,400
NASD Filing Fee....................................................... 10,500
Nasdaq National Market listing fee.................................... 95,000
Blue Sky fees and expenses............................................ 5,000
Accountants' fees and expenses........................................ 180,000
Legal fees and expenses............................................... 250,000
Printing and engraving expenses....................................... 125,000
Transfer agent and registrar fees..................................... 3,600
Miscellaneous......................................................... 4,500
--------
Total............................................................... $700,000
========
</TABLE>
ITEM 14. Indemnification of Directors and Officers
Pursuant to Sections 102(b)(7) and 145 of the Delaware General Corporation Law,
our Restated Certificate of Incorporation and Amended and Restated Bylaws
include provisions eliminating or limiting the personal liability of the
members of our board of directors to our company and our stockholders for
monetary damages for breach of fiduciary duty as a director. This does not
apply for any breach of a director's duty of loyalty to our company or our
stockholders, for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of the law, for paying an
unlawful dividend or approving an illegal stock repurchase, or for any
transaction from which a director derived an improper personal benefit.
Our Restated Certificate of Incorporation and Amended and Restated Bylaws also
provide that we have the power to indemnify any person who was or is a party or
is threatened to be made a party to any threatened, pending or completed
action, suit or proceeding (other than an action by or in the right of our
company) by reason of the fact that the person is or was a director, officer,
employee or agent of any corporation, partnership, joint venture, trust or
other enterprise, against any and all expenses (including attorneys' fees),
judgments, fines and amounts paid in settlement and reasonably incurred in
connection with such action, suit or proceeding. Our power to indemnify applies
only if the person acted in good faith and in a manner he reasonably believed
to be in or not opposed to the best interests of our corporation, and with
respect to any criminal action or proceeding, had no reasonable cause to
believe the person's conduct was unlawful.
In the case of an action by or in the right of our company, no indemnification
may be made with respect to any claim, issue or matter as to which such person
shall have been adjudged to be liable to us unless and only to the extent that
the court in which such action or suit was brought shall determine that despite
the adjudication of liability such person is fairly and reasonably entitled to
indemnity for such expenses which the court shall deem proper. To the extent a
director or officer of our company has been successful in the defense of any
action, suit or proceeding referred to above or in the defense of any claim,
issue or matter therein, he shall be indemnified against expenses (including
attorney's fees) actually and reasonably incurred by him in connection
therewith.
II-1
<PAGE>
We have the power to purchase and maintain insurance on behalf of any person
covering any liability incurred by such person in his capacity as a director,
officer, employee or agent of our company, or arising out of his status as
such, whether or not we would have the power to indemnify him against such
liability.
The foregoing summaries are necessarily subject to the complete text of the
statute, Amended and Restated Bylaws and Restated Certificate of Incorporation
referred to above and are qualified in their entirety by reference thereto.
ITEM 15. Recent Sales of Unregistered Securities
A. In the three years preceding the filing of this registration statement, the
Registrant from time to time has granted stock options to employees and
consultants in reliance upon exemption from registration pursuant to either
(1) Section 4(2) of the Securities Act of 1933 or (2) Rule 701 promulgated
under the Securities Act of 1933. The following table sets forth certain
information regarding such grants:
<TABLE>
<CAPTION>
Number Exercise
of shares prices
- --------------------------------------------------------------------------------
<S> <C> <C>
January 1, 1997 to December 31, 1997..................... 1,279,080 $1.96
January 1, 1998 to December 31, 1998..................... 574,260 $2.94-$3.92
January 1, 1999 to December 31, 1999..................... 1,666,884 $1.96-$5.88
January 1, 2000 to March 21, 2000........................ 1,033,500 $5.88-$18.00
</TABLE>
For additional information concerning these transactions, please see
"Management -- Employee benefit plans" in the prospectus included in this
registration statement.
B. Set forth in chronological order is information regarding all securities
sold by the Registrant in the three years preceding the filing of this
registration statement.
(1) Since January 1, 1997, the Registrant has granted to employees,
directors and consultants options to purchase an aggregate of 4,553,724
shares of Common Stock under its 1996 Stock Option Plan and 2000 Long-
Term Incentive Plan at a weighted average exercise price of $6.11.
(2) On April 2, 1997, the Registrant issued a warrant to purchase 535,500
shares of common stock to Southcoast Capital Corporation or its
permitted assigns for an aggregate purchase price of $1,050,000.
(3) In April 1997, the Registrant issued 150,000 shares of its Series B
convertible preferred stock to individuals and entities for an
aggregate purchase price of $6,000,000.
(4) In July 1999, the Registrant issued 151,571 shares of its Series C
convertible preferred stock to individuals and entities for an
aggregate purchase price of $12,125,680.
(5) In December 1999, the Registrant issued 57,538 shares of its Series D
convertible preferred stock to individuals and entities for an
aggregate price of $6,904,560.
(6) In December 1999, the Registrant issued 25,000 shares of our Series E
convertible preferred stock to an entity for an aggregate purchase
price of $3,000,000.
The issuances to employees, directors and consultants described in (1) were
deemed to be exempt from registration under Rule 701 promulgated under Section
3(b) of the Securities Act of 1933 as transactions by an issuer not involving a
public offering or transactions pursuant to compensatory benefit plans and
contracts relating to compensation. The sales described in (2) through (6) were
made only to "accredited investors" and were deemed to be exempt from
registration under the Securities Act of 1933 in reliance on Section 4(2) of
the Securities Act, or Regulation D promulgated thereunder.
II-2
<PAGE>
Other than the placement agent utilized in connection with sales of our Series
B and C preferred stock, no underwriters were involved in the foregoing sales
of securities. Each share of the Registrant's convertible preferred stock
listed above will convert automatically into 20.4 shares of the Registrant's
common stock upon the effectiveness of this registration statement.
ITEM 16. Exhibits and Financial Statement Schedules
(a)Exhibits
<TABLE>
<CAPTION>
Exhibit
Number Description
- -------------------------------------------------------------------------------
<C> <S>
1.1++ Form of Underwriting Agreement
3.1++ Form of Restated Certificate of Incorporation of the Registrant
3.2++ Amended and Restated Bylaws of the Registrant
4.1++ Form of Common Stock Certificate
4.2++ Warrant for the Purchase of Shares of Common Stock dated as of April
2, 1997 by and between the Registrant and Southcoast Capital
Corporation.
5.1++ Opinion of Thompson & Knight L.L.P.
10.1++ 1996 Stock Option Plan of the Registrant, as amended.
10.2++ Form of Stock Option Agreement of the Registrant.
10.3++ Form of Incentive Stock Option Agreement of the Registrant.
10.4++ 2000 Long-Term Incentive Plan of the Registrant.
10.5++ Form of Stock Option Award Agreement of the Registrant.
10.6++ Reserved
10.7+ Development and Supply Agreement dated as of March 19, 1999 by and
between the Registrant and Bio-Rad Laboratories, Inc.
10.8+ Amendment to Development and Supply Agreement dated as of January 13,
2000 by and between the Registrant and Bio-Rad Laboratories, Inc.
10.9+++ Agreement for Electronic Manufacturing Services dated as of January 1,
2000 by and between the Registrant and Sanmina Corporation.
10.10++ Consultant Agreement dated as of June 1, 1999 by and between the
Registrant and A. Sidney Alpert.
10.11++ Amendment to Consultant Agreement dated as of November 1, 1999 by and
between the Registrant and A. Sidney Alpert.
10.12++ Standard Commercial Lease Agreement dated as of August 21, 1989 by and
between the Registrant and Aetna Life Insurance Company, as amended,
for facilities situated at 12112 Technology Boulevard, Austin, Texas
78727.
10.13++ Sublease Agreement dated as of December 20, 1999 by and between the
Registrant and American Innovations, Ltd., for facilities situated at
12112 Technology Boulevard, Austin, Texas 78727.
10.14++ First Amendment to Sublease Agreement dated as of December 20, 1999 by
and between the Registrant and American Innovations, Ltd., for
facilities situated at 12112 Technology Boulevard, Austin, Texas
78727.
10.15++ Form of Employment Agreement between the Registrant and each of Mark B
Chandler, Ph.D., Michael L. Bengtson, Ralph L. McDade, M.D., Van S.
Chandler, Michael D. Spain, M.D., James L. Persky and Randel S.
Marfin.
23.1++ Consent of Thompson & Knight L.L.P. (included as part of Exhibit 5.1
hereto)
23.2 Consent of Independent Auditors
24.1++ Power of Attorney (included on signature page of the Registration
Statement hereto)
24.2++ Power of Attorney of William L. Roper, M.D., M.P.H.
27.1++ Financial Data Schedule
</TABLE>
- --------
* To be filed by amendment.
+ Confidential treatment requested for certain portions of this Exhibit
pursuant to Rule 406 promulgated under the Securities Act, which portions
are omitted and filed separately with the Securities and Exchange
Commission.
++ Previously filed.
II-3
<PAGE>
(b)Financial Statement Schedules
None.
ITEM 17. Undertakings
The undersigned Registrant hereby undertakes to provide to the underwriters, at
the closing specified in the underwriting agreement, certificates in such
denominations and registered in such names as required by the underwriters to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act of
1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the SEC such indemnification is against
public policy as expressed in the Act and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities (other than the
payment by the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as part
of this registration statement in reliance upon Rule 430A and contained
in a form of prospectus filed by the Registrant pursuant to Rule
424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to
be part of this registration statement as of the time it was declared
effective.
(2) For the purpose of determining any liability under the Securities Act
of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating
to the securities offered therein, and the offering of such securities
at the time shall be deemed to be the initial bona fide offering
thereof.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant has
duly caused this Amendment No. 3 to Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Austin,
State of Texas, on March 29, 2000.
Luminex Corporation
/s/ Mark B. Chandler, Ph.D.
By___________________________________
Mark B. Chandler, Ph.D.
Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Amendment No. 3 to Registration Statement has been signed by the following
persons on March 29, 2000 in the capacities indicated
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Mark B. Chandler, Ph.D. Chairman of the Board and March 29, 2000
____________________________________ Chief Executive Officer
Mark B. Chandler, Ph.D. (Principal Executive
Officer)
* Vice President, Treasurer
____________________________________ and Chief Financial Officer
James L. Persky (Principal Financial
Officer)
* Controller (Principal
____________________________________ Accounting Officer)
Harriss T. Currie
* Director
____________________________________
G. Walter Loewenbaum
* Director
____________________________________
A. Sidney Alpert
* Director
____________________________________
Robert J. Cresci
* Director
____________________________________
Laurence E. Hirsch
</TABLE>
II-5
<PAGE>
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
* Director
____________________________________
Jim D. Kever
* Director
____________________________________
Fred C. Goad, Jr.
* Director
____________________________________
John E. Koerner, III
* Director
____________________________________
William L. Roper, M.D., M.P.H.
*By:/s/ Mark B. Chandler, Ph.D.
--------------------------------
Mark B. Chandler, Ph.D.
Attorney-in-fact
</TABLE>
II-6
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit
Number Description
- -------------------------------------------------------------------------------
<C> <S>
1.1++ Form of Underwriting Agreement
3.1++ Form of Restated Certificate of Incorporation of the Registrant
3.2++ Amended and Restated Bylaws of the Registrant
4.1++ Form of Common Stock Certificate
4.2++ Warrant for the Purchase of Shares of Common Stock dated as of April
2, 1997 by and between the Registrant and Southcoast Capital
Corporation.
5.1++ Opinion of Thompson & Knight L.L.P.
10.1++ 1996 Stock Option Plan of the Registrant, as amended.
10.2++ Form of Stock Option Agreement of the Registrant.
10.3++ Form of Incentive Stock Option Agreement of the Registrant.
10.4++ 2000 Long-Term Incentive Plan of the Registrant.
10.5++ Form of Stock Option Award Agreement of the Registrant.
10.6++ Reserved
10.7+ Development and Supply Agreement dated as of March 19, 1999 by and
between the Registrant and Bio-Rad Laboratories, Inc.
10.8+ Amendment to Development and Supply Agreement dated as of January 13,
2000 by and between the Registrant and Bio-Rad Laboratories, Inc.
10.9+++ Agreement for Electronic Manufacturing Services dated as of January 1,
2000 by and between the Registrant and Sanmina Corporation.
10.10++ Consultant Agreement dated as of June 1, 1999 by and between the
Registrant and A. Sidney Alpert.
10.11++ Amendment to Consultant Agreement dated as of November 1, 1999 by and
between the Registrant and A. Sidney Alpert.
10.12++ Standard Commercial Lease Agreement dated as of August 21, 1989 by and
between the Registrant and Aetna Life Insurance Company, as amended,
for facilities situated at 12112 Technology Boulevard, Austin, Texas
78727.
10.13++ Sublease Agreement dated as of December 20, 1999 by and between the
Registrant and American Innovations, Ltd., for facilities situated at
12112 Technology Boulevard, Austin, Texas 78727.
10.14++ First Amendment to Sublease Agreement dated as of December 20, 1999 by
and between the Registrant and American Innovations, Ltd., for
facilities situated at 12112 Technology Boulevard, Austin, Texas
78727.
10.15++ Form of Employment Agreement between the Registrant and each of Mark
B. Chandler, M.D., Michael L. Bengtson, Ralph L. McDade, M.D., Van S.
Chandler, Michael D. Spain, M.D., James L. Persky and Randel S.
Marfin.
23.1++ Consent of Thompson & Knight L.L.P. (included as part of Exhibit 5.1
hereto)
23.2 Consent of Independent Auditors
24.1++ Power of Attorney (included on signature page of the Registration
Statement hereto)
24.2++ Power of Attorney of William L. Roper, M.D., M.P.H.
27.1++ Financial Data Schedule
</TABLE>
- --------
* To be filed by amendment.
+ Confidential treatment requested for certain portions of this Exhibit
pursuant to Rule 406 promulgated under the Securities Act, which portions
are omitted and filed separately with the Securities and Exchange
Commission.
++ Previously filed.
<PAGE>
EXHIBIT 10.7
Confidential Materials omitted and filed separately with the Securities and
Exchange Commission. Asterisks denote omissions.
DEVELOPMENT AND SUPPLY AGREEMENT
This Development and Supply Agreement (the "Agreement"), effective as of
March 19, 1999 (the "Effective Date"), is made by and between LUMINEX
CORPORATION, a Delaware corporation with principal offices at 12212 Technology
Boulevard, Austin, Texas 78727 ("LUMINEX"), and BIO-RAD LABORATORIES, INC., a
Delaware corporation with principal offices at 1000 Alfred Nobel Drive,
Hercules, California 94547 ("BIO-RAD").
BACKGROUND
A. LUMINEX has developed Standard Beads (as defined below) for detection
and quantification of analytes, either singly or in multiplexed (multiple
analytes simultaneously) form and is developing a system for use with such
Standard Beads.
B. BIO-RAD is an international company which manufactures and sells a
wide variety of research and clinical diagnostics products used in healthcare,
scientific investigation and industry.
C. The parties desire that BIO-RAD develop and distribute Kits
incorporating Tests (as defined below) for use within certain fields, and that
BIO-RAD distribute Luminex100 Systems (as defined below) as incorporated into
BIO-RAD's instrumentation.
NOW THEREFORE, for and in consideration of the covenants, conditions, and
undertakings hereinafter set forth, it is agreed by and between the parties as
follows:
ARTICLE 1
DEFINITIONS
-----------
1.1 "Affiliate" means any entity which controls, is controlled by or is
---------
under common control with a party hereto. For such purposes, "control" shall
mean ownership of more than fifty percent (50%) of the shares of the subject
entity entitled to vote in the election of directors (or, in the case of an
entity that is not a corporation, for the election of the corresponding managing
authority).
1.2 "Beads" means Standard Beads and Magnetic Beads.
-----
1.3 "Bead Specifications" means the specifications for the Standard
-------------------
Beads or Magnetic Beads as designated by LUMINEX from time to time in writing.
1.4 "BIO-RAD Improvement Patents" means patents issued during the term of
---------------------------
this Agreement in inventions comprising modifications, extensions or
enhancements conceived or reduced to practice by BIO-RAD to the Standard Beads
or Luminex100 Systems or portions thereof (including Included Software) or to
the manufacture or use of the Standard Beads, Luminex100 Systems or portions
thereof (including Included Software). "BIO-RAD Improvement Patents"
specifically excludes patent claims conceived and reduced to practice by BIO-RAD
consisting of methods of sample preparation, methods of conjugating Standard
Beads to analytes, the composition of matter of the specific chemistries of the
assays developed by BIO-RAD, methods of performing the assays (i.e., the
protocol for the assay) and methods of introducing the patient sample into the
BIO-RAD System.
1.5 "BIO-RAD System" means the Luminex100 System as incorporated into
--------------
BIO-RAD's instrumentation.
1.6 "End User" shall mean a purchaser of Kits that obtains Kits for the
--------
purpose of generating Test results on behalf of itself or third parties and not
for the purpose of re-sale of the Kit.
1
<PAGE>
1.7 "Fields" means the fields set forth in Exhibit A and any such other
------
fields as the parties include hereunder pursuant to Section 3.3. Fields One, Two
and Three as set forth in Exhibit A shall be limited to use in the human
clinical diagnostics industry.
1.8 "Included Software" means [**]
-----------------
1.9 "Intellectual Property Rights" means (i) patent claims to the extent
----------------------------
such claims cover only an apparatus or composition of matter, and not a method
or process; and (ii) copyrights.
1.10 "Kit" means the combination of (i) Standard Beads or Magnetic Beads
---
conjugated to biological reactants, (ii) standards, and (iii) other ancillary
materials supplied by BIO-RAD, e.g. buffers and other solutions, required for
performance of Tests. In order to qualify as a "Kit," it must contain all of
the foregoing components and not one or a subset of the foregoing components and
must be made generally available to BIO-RAD's customers. Except as otherwise
agreed by LUMINEX and BIO-RAD, "Kits" shall not be designed for use in a
Multiplexed Bead Assay of more than one hundred (100) analytes.
1.11 "Luminex100 System" means a laser based fluorescent analytical test
-----------------
system consisting of LUMINEX's instrumentation marketed under the name
Luminex100 and the Software with or without off-the-shelf computer components
(selection of off-the-shelf computer components to be by LUMINEX), and any
functional replacements and line extensions, of the Luminex100 System, including
autosampler-based versions, in each case to the extent made generally available
by LUMINEX to its customers.
1.12 "Luminex100 System Specifications" means the specifications for the
--------------------------------
Luminex100 System as designated by LUMINEX from time to time in writing.
1.13 "Magnetic Beads" means magnetic microsphere beads supplied [**] and
--------------
dyed and modified by LUMINEX for use with Luminex100 Systems.
1.14 "Multiplexed Bead Assays" means a number of assays derived from the
-----------------------
use of fluorescently-dyed microsphere beads with said assays determined
simultaneously on a single sample.
1.15 "Net Sales" means the total amounts invoiced by BIO-RAD to End Users,
---------
Subdistributors or other third parties with respect to the sale or other any
other provision of Kits, less all (i) volume discounts, rebates, and returns;
(ii) customs duties, taxes (e.g., sales, excise, withholding, and value-added
taxes) other than taxes based upon BIO-RAD's income; and (iii) freight,
insurance and other shipment expenses.
1.16 "Panel" means a specified series or group of Tests.
-----
1.17 "Registration Code" means a unique identifier code incorporated into
-----------------
Standard Beads and Magnetic Beads, which code would enable the Software to
identify BIO-RAD as the customer for whom the Standard Beads or Magnetic Beads
were initially supplied, each analyte measured using the Standard Beads or
Magnetic Beads in a particular Test, and other information.
- ---------------
[**] Indicates that material has been omitted and confidential treatment
requested therefor. All such material has been filed separately with the
Commission pursuant to Rule 406.
2
<PAGE>
1.18 "Software" means the software programs in machine executable object
--------
code format incorporated by LUMINEX into the Luminex100 System, and Updates
thereto, in each case that are made available by LUMINEX generally to its
customers as part of the Luminex100 System.
1.19 "Specifications" means the Bead Specifications and Luminex100 System
--------------
Specifications.
1.20 "Standard Beads" means LUMINEX's standard fluorescently-dyed
--------------
microsphere beads supplied by LUMINEX for use with Luminex100 Systems and made
available generally by LUMINEX to its customers.
1.21 "Test" means a single use of Standard Beads or Magnetic Beads in the
----
detection or quantification of an analyte within the Fields for an application
within the Fields.
1.22 "Updates" means error corrections and bug fixes to the Software that
-------
LUMINEX makes generally available to its customers free of charge.
ARTICLE 2
DEVELOPMENT
-----------
2.1 Development.
-----------
(a) BIO-RAD shall be responsible, at its expense, for all Kit design
and development hereunder.
(b) BIO-RAD further shall be responsible, at its expense, for
performing all activities required to secure and maintain all required
regulatory approvals for use of Kits and the BIO-RAD System within the Fields.
LUMINEX will cooperate with BIO-RAD, at BIO-RAD's expense, to the extent
LUMINEX's participation is necessary for BIO-RAD to obtain regulatory approval
for the Kits and BIO-RAD System for use within the Fields. LUMINEX will make
available to BIO-RAD [**] such tangible written information in LUMINEX's
possession and control as is necessary to obtain regulatory approval for the
Kits, it being understood that LUMINEX shall not be required to perform any
tests or studies required for regulatory approval.
(c) LUMINEX may, at BIO-RAD's request and on the terms acceptable to
both parties, conduct initial feasibility studies and/or contract manufacturing
for BIO-RAD.
(d) Subject to the terms and conditions of this Section 2.1(d),
LUMINEX shall use reasonable efforts to treat the Magnetic Beads provided to
LUMINEX by if feasible in LUMINEX's judgment, to permit use of such Magnetic
Beads with the Luminex100 System ("Services"). Such Services shall be subject to
LUMINEX's standard nonrecurring engineering fees then in effect; provided that
BIO-RAD shall not be obligated to pay LUMINEX in excess of [**] Dollars ($[**])
in the aggregate for the Services, and LUMINEX shall not be obligated to provide
services which at LUMINEX's standard rates exceed [**] Dollars ($[**]) with
respect to such Services. It is understood and agreed that LUMINEX's treatment
and BIO-RAD's sale of Magnetic Beads for use with the Luminex100 System will be
subject to LUMINEX's production of a beadmap for the Magnetic Beads that is
acceptable to LUMINEX as determined in accordance with criteria to be set forth
in the Development Agreement (as defined below). BIO-RAD's rights hereunder with
respect to Magnetic Beads shall be subject to agreement upon a tolling fee
payable by BIO-RAD to LUMINEX with respect to each Magnetic Bead dyed for use
with the Luminex100 System or BIO-RAD System. Such supply of Magnetic Beads by
BIO-RAD, the tolling fees payable by BIO-RAD with respect to Magnetic Beads and
any Services provided by LUMINEX with respect to Magnetic Beads is subject to
agreement on the terms and conditions of a development, services and supply
agreement to be negotiated in good faith by the parties ("Development
Agreement"). Notwithstanding any provision of this Agreement to the contrary,
including the provisions of Section 8.3, if the parties do not agree upon a
tolling fee for Magnetic Beads
________________
[**] Indicates that materials has been omitted and confidential treatment
requested therefor. All such material has been filed separately with the
Commission pursuant to Rule 406.
3
<PAGE>
within one hundred eighty (180) days of the Effective Date, all rights of BIO-
RAD and all obligations of LUMINEX with respect to Magnetic Beads shall
automatically terminate unless otherwise agreed in writing.
2.2 Commercialization. BIO-RAD shall (i) evaluate and determine in good
-----------------
faith whether regulatory approval is required in each country in which it elects
to market or distribute the Kits and/or BIO-RAD Systems for use within the
Fields and shall obtain all regulatory approvals BIO-RAD so determines are
required for such marketing and distribution; and (ii) have sold Kits for which
a royalty is owed pursuant to Section 4.6(c) (including a Kit within Field Four)
and have commenced marketing, distribution and commercial sale of BIO-RAD
Systems, in each of (i) and (ii) within [**] months after the availability of
the Luminex100 System. BIO-RAD shall have [**] days to file regulatory approvals
which BIO-RAD determined in its good faith judgment were not required but with
respect to which BIO-RAD was later notified by the applicable government agency
were required. Failure by BIO-RAD to comply with (i) and (ii) with respect to
Field Four shall give LUMINEX the right at its sole election to terminate [**]
of Article 3.2 (b) by written notice to BIO-RAD, except to the extent caused
solely by LUMINEX's failure to supply Standard Beads or Luminex100 Systems in
accordance with the terms hereof or the Development Agreement.
2.3 Other. Without limiting the foregoing provisions of this Article 2,
-----
BIO-RAD hereby agrees to keep LUMINEX reasonably informed as to the progress of
the activities undertaken pursuant to this Article 2.
ARTICLE 3
DISTRIBUTION
------------
3.1 Appointment; Covenant Not to Sue. Subject to the terms and conditions
--------------------------------
of this Agreement, LUMINEX appoints BIO-RAD as a distributor of (i) LUMINEX100
Systems only as part of BIO-RAD Systems and replacement parts therefor and (ii)
Kits designed solely for use in a Field. Subject to the terms and conditions of
this Agreement, LUMINEX grants to BIO-RAD a personal, nontransferable immunity
from suit under LUMINEX's Intellectual Property Rights, with respect to the re-
sale of Luminex100 Systems as incorporated into BIO-RAD instrumentation and
Kits; provided that Beads are sold only as part of Kits, and further provided
that BIO-RAD Systems and Kits are designed and sold solely for use in the Fields
and subject to the end user customer restrictions set forth in Section 3.6
below. BIO-RAD further agrees not to provide the BIO-RAD Systems to any third
party if BIO-RAD U.S. Diagnostics Division management becomes aware that such
third party has previously used or intends to use (i) the BIO-RAD System with
beads other than the Standard Beads or Magnetic Beads authorized by LUMINEX or
(ii) the BIO-RAD System or Beads outside the Fields. BIO-RAD agrees not to
provide the Luminex100 Systems or BIO-RAD Systems other than in the development
of Kits to be distributed in accordance with this Agreement. LUMINEX agrees to
grant to End User customers of BIO-RAD a license to use Standard Beads and
Magnetic Beads in conjunction with their operation of BIO-RAD Systems pursuant
to the End User Licenses set forth in Section 3.6 below. It is understood and
agreed that except as expressly provided in this Section 3.1 above, no rights or
licenses under LUMINEX's patent rights are granted hereunder nor shall any such
rights or licenses be implied from the terms hereof. The parties further
acknowledge and agree that the covenant not to sue set forth in this Section 3.1
above shall not imply that purchasers of the BIO-RAD System from BIO-RAD obtain
any rights under LUMINEX's patent rights. Rather, LUMINEX will grant End Users
the right under LUMINEX's patent rights to use the Luminex100 System with Kits
pursuant to the End User Licenses described in Section 3.6 below only when such
Kits are purchased by the End User.
3.2 Exclusivity
-----------
(a) During the term hereof, subject to the provisions hereof,
LUMINEX will not, and will not grant to third parties the right to, sell
Kits containing Magnetic Beads for use within the Fields with Luminex100
Systems.
(b) For a period of three (3) years commencing with first availability
by BIO-RAD of the first Kit in Field four, LUMINEX will not grant to third
parties the right to distribute a Kit incorporating a Panel within Field Four,
which Panel is specifically intended for use in newborn screening; provided that
BIO-RAD shall make the first Kit in Field Four available within three (3) years
of the Effective Date. If BIO-RAD has paid to LUMINEX at least [**] Dollars
($[**]) in royalties with respect to sales of Kits within Field Four during the
period commencing five (5) years after the Effective Date and expiring twelve
months thereafter, LUMINEX will extend the exclusivity period for Field Four for
one (1) additional year. Upon BIO-RAD's request within fifteen days after the
expiration of the foregoing exclusivity period, the parties shall negotiate in
good faith extension of such exclusivity in Field Four for a period of time to
be mutually agreed in writing, which extension shall be subject to minimum
performance obligations to be mutually agreed upon in writing. If the parties do
not agree upon the terms for extension of exclusivity in Field Four within
thirty (30) days after the date of BIO-RAD's request to commence negotiations,
LUMINEX may proceed to grant rights or licenses to third parties with respect to
all or part of Field Four with no further obligation to BIO-RAD. If BIO-RAD
disputes LUMINEX's rights to proceed to grant any such rights or licenses, the
provisions of Section 3.3(b)(ii) shall apply.
- ---------------
[**] Indicates that material has been omitted and confidential treatment
requested therefor. All such material has been filed separately with the
Commission pursuant to Rule 406.
4
<PAGE>
3.3 Expansion of Fields.
-------------------
(a) From time to time during the term of this Agreement, if BIO-RAD
requests that one or more of the Fields granted to BIO-RAD be expanded to
include additional analytes, such analytes will be included as part of a Field
presently covered by this Agreement to the extent set forth in Exhibit A, or as
part of an additional field to be licensed or granted to BIO-RAD, in each case
to the extent mutually agreed in writing by the parties. The [**] to BIO-
RAD for each additional analyte or field made generally available for [**] by
LUMINEX on a nonexclusive basis to LUMINEX's customers shall not exceed one [**]
Dollars ($[**]).
(b) Preferential Right.
(i) Prior to granting to a third party exclusive rights to
develop or distribute Kits for the detection or quantification of one or more
analytes for use within a field within the human clinical diagnostics industry
(such analytes and field of use are referred to collectively herein as the
"Subject Field"), LUMINEX shall provide BIO-RAD with a right of first offer with
respect to such Subject Field, as follows: prior to entering into an agreement
granting a third party exclusive rights to develop and/or distribute Kits within
a Subject Field, LUMINEX shall provide written notification to BIO-RAD, together
with a summary of the Subject Field. Upon request by BIO-RAD within [**]
days after receipt of such a notice, LUMINEX and BIO-RAD shall negotiate in
good faith an agreement with respect to such Subject Field. If BIO-RAD is not
interested in obtaining rights with respect to such Subject Field, BIO-RAD shall
so notify LUMINEX as early as possible during the foregoing [**] day period. If
(i) BIO-RAD does not so request within such [**] day period to commence
negotiations, or notifies LUMINEX that it is not interested in obtaining rights
with respect to such Subject Field, or (ii) the parties do not enter into a
definitive agreement with respect to such Subject Field within [**] days
after BIO-RAD's receipt of LUMINEX's notice under this Section 3.3(b) (in each
of (i) and (ii), the "Negotiation Period"), LUMINEX may proceed to grant rights
or licenses to third parties with respect to all or any part of the Subject
Field, with no further obligation under this Section 3.3. Notwithstanding the
foregoing, BIO-RAD's rights and obligations under this Section 3.3 shall not
apply to a Subject Field for which BIO-RAD does not Control sufficient rights to
commercialize Kits within such Subject Field, where "Control" means ownership or
a license under all applicable intellectual property rights to make, have made,
use, import, sell, offer for sale, and otherwise distribute each Kit within the
Subject Field on a worldwide basis. BIO-RAD's rights and obligations under this
Section 3.3(b) shall terminate [**] years after the Effective Date. For the
avoidance of doubt, it is understood and agreed that LUMINEX shall have no
obligation to disclose to BIO-RAD any information concerning the terms of
LUMINEX's offers to third parties with respect to Subject Fields. It is further
understood and agreed that nothing in this Section 3.3(b) shall restrict LUMINEX
from granting nonexclusive rights to third parties with respect to any analyte
or field of use without any obligation under this Section 3.3(b).
- -------------------
[**] Indicates that material has been omitted and confidential treatment
requested therefor. All such material has been filed seperately with the
Commission pursuant to Rule 406.
5
<PAGE>
(ii) If BIO-RAD disputes LUMINEX'S right to proceed to
grant rights or licenses to third parties with respect to any Subject Field,
BIO-RAD shall request that such dispute be resolved in accordance with Section
12.5 below. If such dispute is not so resolved and BIO-RAD wishes to pursue such
dispute, then prior to ten (10) days after the expiration of the Negotiation
Period described above regarding such Subject Field, or within ten (10) days
after LUMINEX notifies BIO-RAD that LUMINEX believes Section 3.3(b) does not
apply to a Subject Field (as the case may be), BIO-RAD shall submit to LUMINEX a
written notification requesting arbitration pursuant to Section 12.5 below and
including a written report setting forth (without limitation), the specific
basis for the dispute, and the specific actions BIO-RAD believes LUMINEX must
take to resolve the dispute ("Arbitration Notice"). If such Arbitration Notice
is not received within ten (10) days after the expiration of the Negotiation
Period or such ten (10) day period after notice of LUMINEX's belief that this
Section 3.3(b) does not apply (respectively), then notwithstanding Section 12.5
below, BIO-RAD shall have no further right to dispute LUMINEX'S right to grant
any right or license, or otherwise claim rights pursuant to this Section 3.3(b)
in or to the Subject Field. It is further understood that, notwithstanding the
provisions of Section 12.5, the parties and the arbitrators shall complete the
arbitration within sixty (60) days after the appointment of the arbitrators
under Section 12.5. So long as LUMINEX provides to BIO-RAD the notice required
by Section 3.3(b) above, this Section 3.3(b)(ii) is BIO-RAD's sole remedy for
any failure by LUMINEX to comply with this Section 3.3(b) with respect to a
Subject Field.
(iii) It is understood and agreed that a transfer of all or
substantially all of the business or assets of LUMINEX pertaining to the subject
matter of this Agreement to a third party, whether by merger, acquisition or
otherwise, shall not be deemed a grant to a third party of a right or license
with respect to a Subject Field nor give rise to any right or obligation under
Section 3.3(b) above.
3.4 Reservation of Rights. The use by BIO-RAD of any of LUMINEX's
---------------------
Intellectual Property Rights is authorized only for the purposes herein set
forth and upon termination of this Agreement for any reason such authorization
will cease. Nothing in this Agreement (other than Section 3.2 and 3.3(b)) shall
be deemed to restrict LUMINEX's right to exploit the Standard Beads, Magnetic
Beads or Luminex100 Systems. Neither BIO-RAD nor its customers shall receive any
license or rights under LUMINEX's Intellectual Property Rights by virtue of
their purchase of BIO-RAD Systems other than as expressly set forth herein.
Unless otherwise required by applicable law, BIO-RAD shall not remove, alter,
cover or obfuscate any patent markings, copyright notices or other proprietary
rights notices placed on or embedded in the Standard Beads, Magnetic Beads,
Software or Luminex100 Systems. BIO-RAD shall mark all Kits and BIO-RAD Systems
sold or otherwise distributed under this Agreement in accordance with the
applicable statutes and regulations relating to patent marking of the United
States and all other countries in which the Kits or BIO-RAD Systems are made or
sold. LUMINEX will provide copies in writing of the patents to be covered by
such notice and hereby warrants the accuracy of and right to use such notices.
3.5 No Right to Manufacture or Modify. Software is licensed, and Beads
---------------------------------
and non-Software portions of the Luminex100 System are sold subject in every
case to the condition that such transfer does not convey any license, expressly
or by implication, to manufacture, reconstruct, modify, duplicate or otherwise
copy or reproduce any of the Beads, Software or the Luminex100 Systems. BIO-RAD
shall not alter, modify, adapt, translate, prepare derivative works from,
decompile, reverse engineer, disassemble, or attempt to derive computer source
code from any Luminex100 System or Software. BIO-RAD will notify LUMINEX
immediately upon BIO-RAD U.S. Diagnostics Division management becoming aware
that BIO-RAD or any third party has engaged in any of the foregoing activities
and shall cease selling BIO-RAD Systems or Beads to any such person or entity.
BIO-RAD further agrees that the Standard Beads or Magnetic Beads and Luminex100
System comprise a single system, and the Luminex100 System may not be used by
BIO-RAD with beads other than the Standard Beads or Magnetic Beads authorized by
LUMINEX.
3.6 End User License. BIO-RAD shall include a copy of the End User Kit
----------------
and Software license agreements attached hereto as Exhibit B (the "End User
Licenses") with each Kit or BIO-RAD System, respectively, shipped to a customer
by or for BIO-RAD. BIO-RAD shall further include the labels set forth in
Exhibit B on every BIO-RAD System and Kit.
6
<PAGE>
3.7 Subdistributors. Subject to all the terms and conditions herein,
---------------
BIO-RAD may appoint third parties within BIO-RAD's normal chain of distribution
to sell Kits in accordance with the provisions of this Article 3 and may appoint
subdistributors within its normal chain of distribution to distribute BIO-RAD
Systems (such subdistributors are referred to collectively herein as
"Subdistributors"); provided that (i) BIO-RAD shall terminate any such
Subdistributor that does not follow the provisions of Article 1 (to the extent
referenced in the following Sections), 3, and 7 and Sections 4.5, 4.13, 5.3,
8.1, 8.4, 8.5, 12.1, 12.3, 12.9, and 12.15 of this Agreement, and (ii) BIO-RAD
shall diligently enforce all such Subdistributor agreements. For the avoidance
of doubt, in no event shall BIO-RAD provide Standard Beads or Magnetic Beads to
third parties except as incorporated into Kits or as replacement components of
Kits. Except as expressly provided in this Section 3.7, BIO-RAD shall have no
right to sublicense its rights or appoint Subdistributors hereunder.
3.8 To LUMINEX. BIO-RAD hereby grants to LUMINEX a nonexclusive,
----------
worldwide, unrestricted license, with the right to grant and authorize
sublicenses, under BIO-RAD Improvement Patents solely for use with Luminex100
Systems and Beads and only for use outside of any Fields granted exclusively to
BIO-RAD. Such license shall be deemed royalty-free and fully-paid up.
ARTICLE 4
SUPPLY, PRICING AND ROYALTIES
-----------------------------
4.1 Supply and Use of Standard Beads and Luminex100 Systems. Subject to
-------------------------------------------------------
the terms and conditions of this Agreement, BIO-RAD agrees to acquire from
LUMINEX, and LUMINEX agrees to use reasonable, diligent efforts to supply to
BIO-RAD, BIO-RAD's commercial requirements of Standard Beads and Luminex100
Systems. To ensure the quality and authenticity of the microsphere beads used
with the Luminex100 System, BIO-RAD shall exclusively obtain from LUMINEX
fluorescently-dyed microsphere beads for use with the Luminex100 System, or with
respect to microsphere beads with magnetic properties, have such magnetic beads
dyed and processed by LUMINEX for use with the Luminex100 System.
4.2 Forecasts. Within ten (10) days prior to each calendar quarter,
---------
BIO-RAD and LUMINEX shall agree in writing upon a rolling six month forecast of
delivery requirements of Standard Beads and Luminex100 Systems in each
respective month ("Forecast"). Within ten days following the Effective Date, the
parties shall agree in writing upon the Forecast for the six month period
commencing on March 1, 1999. The first ninety (90) days of the Forecast shall be
binding upon each of the parties hereto. Except as set forth in this Section 4.2
above, The Forecasts shall constitute BIO-RAD's good faith estimates of BIO-
RAD's requirements, and otherwise shall be nonbinding upon either party.
4.3 Orders. LUMINEX shall accept purchase orders from BIO-RAD for
------
Standard Beads and Luminex100 Systems to the extent the volume of Luminex100
Systems is within one hundred thirty percent (130%) of the Forecasts submitted
by BIO-RAD in the calendar month preceding the submission of the purchase order,
and to the extent the volume of Standard Beads is within one hundred fifty
percent (150%) of the Forecasts submitted by BIO-RAD in the calendar month
preceding the submission of the purchase order, in all events subject to the
other terms and conditions of this Agreement. BIO-RAD's orders shall be made
pursuant to written firm purchase orders, and shall provide for shipment in
accordance with LUMINEX's standard lead times then in effect which as of the
Effective Date are ninety (90) days. ANY ADDITIONAL OR INCONSISTENT TERMS OR
CONDITIONS OF ANY PURCHASE ORDER, ACKNOWLEDGMENT OR SIMILAR STANDARDIZED FORM
GIVEN OR RECEIVED PURSUANT TO THIS AGREEMENT SHALL HAVE NO EFFECT AND SUCH TERMS
AND CONDITIONS ARE HEREBY EXCLUDED.
4.4 Delivery. With respect to exact shipping dates, LUMINEX shall use its
--------
reasonable efforts to ship quantities of Standard Beads and Luminex100 Systems
in accordance with purchase orders submitted and accepted in accordance with
Section 4.3 above. All Beads and Luminex100 Systems supplied pursuant to the
terms of this Agreement shall be suitably packed for shipment by LUMINEX and
marked for shipment to the BIO-RAD facility indicated in BIO-RAD's purchase
order. All Beads and Luminex100 Systems will be shipped F.O.B. (U.C.C.) the
7
<PAGE>
shipping point designated by LUMINEX. The carrier shall be selected by agreement
between LUMINEX and BIO-RAD, provided that in the event no such agreement is
reached, LUMINEX shall select the carrier. All shipping and insurance costs, as
well as any special packaging expenses, shall be paid by BIO-RAD.
4.5 Acceptance. All shipments and all shipping and other charges shall be
----------
deemed correct unless LUMINEX receives from BIO-RAD, no later than thirty (30)
days after BIO-RAD's receipt of a given shipment, a written notice specifying
the shipment, the purchase order number, and the nature of the discrepancy
between the order and the shipment or the nature of the discrepancy in the
shipping or other charges, as applicable. LUMINEX agrees to replace, at no
additional expense to BIO-RAD, any Standard Beads or Luminex100 Systems which
fail to conform to the Bead Specifications or Luminex100 System Specifications,
respectively, with Standard Beads or Luminex100 Systems which conform to the
Bead Specifications or Luminex100 System Specifications, respectively. LUMINEX
may analyze any Standard Beads or Luminex100 Systems rejected by BIO-RAD for
nonconformity and if it is objectively established that the Standard Beads or
Luminex100 Systems were conforming, then BIO-RAD shall be responsible for
payment for such Standard Beads or Luminex100 Systems. BIO-RAD shall, at
LUMINEX's option, return to LUMINEX or destroy, and provide written
certification of destruction, all Standard Beads which do not conform to the
Bead Specifications, and BIO-RAD shall return to LUMINEX all Luminex100 Systems
which do not conform to the Luminex100 System Specifications. All returns shall
be in accordance with LUMINEX's written instructions and shall be at LUMINEX's
expense if the Luminex100 System and/or Standard Beads are confirmed by LUMINEX
as defective in Luminex's reasonable judgment.
4.6 Pricing and Royalties.
---------------------
(a) Standard Bead Pricing. BIO-RAD shall pay to LUMINEX [**]
---------------------
[$**] for every [**] units of Standard Beads purchased, where a "unit" of
Standard Beads is equal to one microsphere bead ("Unit Transfer Fee"). This Unit
Transfer Fee will be effective during the first [**] years of this Agreement,
after which time LUMINEX may, at its option, increase the Unit Transfer Fee
effective on [**] days written notice to BIO-RAD. Such increases may occur no
more frequently than once per year. Each annual increase during the first [**]
years after commercial availability of the first Kit shall not exceed [**]
percent ([**]%) of the Unit Transfer Fee previously in effect and thereafter
shall not exceed the [**]. Any increase in the Unit Transfer Fee shall be
effective for all Standard Beads ordered after such notice. Without limiting the
foregoing, the parties agree to negotiate an equitable adjustment to the fees
for Standard Beads in the event of an increase in LUMINEX's cost of Standard
Beads or components thereof purchased from a third party supplier.
(b) Magnetic Bead Tolling Fee. BIO-RAD shall pay to LUMINEX a
-------------------------
tolling fee with respect to each dyed Magnetic Bead. The amount of the tolling
fee shall be set forth in the Development Agreement (as defined in
Section 2.1(d) above).
(c) Kit Royalties. BIO-RAD shall pay to LUMINEX [**] percent ([**]%)
-------------
of Net Sales for Kits sold by BIO-RAD. With respect to BIO-RAD Systems that are
sold on a reagent rental basis, "Net Sales" shall exclude the purchase price of
the instrumentation, fees received for servicing the instrumentation and the
cost of financing the instrumentation, provided that the cost of financing the
instrumentation shall not exceed [**] percent ([**]%) of the purchase price of
the instrumentation ("Kit Royalty"). Notwithstanding the foregoing, if at the
time of the sale of the Kit by BIO-RAD to a third party, LUMINEX charges a third
party distributor of Kits a royalty for Kits sold of less than [**] percent
([**]%) of Net Sales and also charges such third party distributor a transfer
price for the Standard Beads that equals or exceeds the Unit Transfer Fee set
forth in Section 4.6(a) above under an agreement for distribution of in vitro
--------
diagnostic Kits, LUMINEX will offer such lower Kit Royalty to BIO-RAD.
(d) Combination Sales. In the event that a Kit is sold by BIO-RAD in
-----------------
combination with another test not for the Luminex100 System and is priced as a
single combined unit, the portion of Net Sales attributable
- ---------------
[**] Indicates that material has been omitted and confidential treatment
requested therefor. All such material has been filed separately with the
Commission pursuant to Rule 406.
8
<PAGE>
to the Kit shall be calculated by multiplying the total net sales for the
combination by the fraction A/B, where "A" is BIO-RAD list price for the Kit and
"B" is the sum of BIO-RAD list price for the Kit and BIO-RAD list prices of the
other products sold in combination with the Kit. If BIO-RAD does not have a
separate list price for the Kit or such other products, BIO-RAD and LUMINEX
agree to negotiate in good faith a reasonable allocation.
(e) Advance Against Royalties. Upon the Effective Date, BIO-RAD shall
-------------------------
pay to LUMINEX [**] Dollars ($[**]) for each of Field One, Field Two, Field
Three and Field Four (i.e., a total of [**] Dollars ($[**])) as an advance
against Kit Royalties ("Advance"), which Advance shall be fully creditable
against Kit Royalties earned during the first [**] years of this Agreement. The
parties will discuss and agree upon any Advance owed by BIO-RAD for fields in
addition to the Fields prior to adding the additional field. To the extent BIO-
RAD does not generate Kit Royalties equal to or in excess of the Advance during
such [**] year period, the remainder of the Advance not credited against Kit
Royalties shall be deemed nonrefundable.
(f) Luminex100 System Pricing. BIO-RAD shall pay LUMINEX (i) the amounts
-------------------------
set forth in Exhibit E hereto for each Luminex100 System (excluding off-the-
shelf computer components) and (ii) LUMINEX's cost plus [**] percent ([**]%) for
off-the-shelf computer components if purchased from LUMINEX (collectively, the
"Luminex100 Purchase Price"). [**]. The parties understand that BIO-RAD is not
required to purchase off-the-shelf computer components from LUMINEX, and may
source the same directly from the manufacturer, provided that the Luminex100
System is intended for use only on those brands and configurations of computers
supported by LUMINEX, the complete list of which, together with all updates,
LUMINEX shall provide to BIO-RAD. Use with any off-the-shelf computer components
other than those set forth on said list shall result in the voiding of all
warranties provided by LUMINEX to BIO-RAD hereunder except for any warranty
given by LUMINEX hereunder regarding intellectual property; provided, however,
that if the unlisted off-the-shelf computer components give rise to a claim of
infringement of a third party intellectual property right which infringement
would not have arisen had a listed off-the-shelf computer component been used,
such infringement shall be excluded from any intellectual property warranty or
indemnity provided hereunder.
4.7 Conflicts of Interest. It is understood and agreed that BIO-RAD may
---------------------
sell the Kits or sell BIO-RAD Systems to End Users or Subdistributors who
purchase other products and services of BIO-RAD, and as a result, a conflict of
interest may arise. BIO-RAD agrees that BIO-RAD shall not put into place a
specific marketing, promotional or pricing plan which shall discount kits in
order to achieve higher sales of, or a higher sales price for, another product
or service of BIO-RAD. BIO-RAD further agrees that BIO-RAD will not bundle the
Kits or the Luminex100 Systems in a manner that would disadvantage the Kits or
the Luminex100 Systems in comparison with such other products or services
marketed by BIO-RAD.
4.8 Invoicing. LUMINEX shall submit an invoice to BIO-RAD upon shipment
---------
of Standard Beads or Luminex100 Systems ordered by BIO-RAD hereunder. All
invoices shall be sent to the following address: Bio-Rad Laboratories, Inc.,
Accounts Payable, 4000 Alfred Nobel Drive, Hercules, California 94547, or such
other address as specified in the purchase order therefor, and each such invoice
shall state the fees due for Standard Beads or Luminex100 Systems in a given
shipment, plus any insurance, taxes incident to the purchase or shipment
initially paid by LUMINEX but to be borne by BIO-RAD hereunder.
4.9 Reporting and Payment. Payment of the Unit Transfer Fee and the
---------------------
Luminex100 Purchase Price shall be made within thirty (30) days of BIO-RAD's
receipt of an invoice therefor. Payment of Kit Royalties shall be made within
the first ten days of each calendar month for Net Sales in the calendar month
two months prior to the calendar month in which payment is made (e.g., the Kit
Royalties payable within the first ten days of June will be based on Net Sales
in April). Kit Royalties shall be accompanied by a written report stating the
Net Sales generated
- --------------
[**] Indicates that material has been omitted and confidential treatment
requested therefor. All such material has been filed separately with the
Commission pursuant to Rule 406.
9
<PAGE>
in the calendar month to which the payment pertains and the total Kit Royalties
due. All payments hereunder shall be made in U.S. dollars, by direct bank
transfer to an account designated in LUMINEX's invoice. Any late payments shall
bear interest at the rate of one and one-half percent (1 1/2 %) per month or the
highest rate under applicable law, which ever is less, based on the number of
days overdue.
4.10 Taxes.
-----
(a) Any and all amounts payable hereunder do not include any
government taxes (including without limitation sales, use, excise, and value
added taxes) or duties imposed by any governmental agency that are applicable to
the export, import, or purchase of the Standard Beads or the Luminex100 System
(other than taxes on the net income of LUMINEX), and BIO-RAD shall bear all such
taxes and duties. When LUMINEX has the legal obligation to collect and/or pay
such taxes, the appropriate amount shall be added to BIO-RAD's invoice and paid
by BIO-RAD, unless BIO-RAD provides LUMINEX with a valid tax exemption
certificate authorized by the appropriate taxing authority.
(b) All payments by BIO-RAD specified hereunder are expressed as net
amounts and shall be made free and clear of, and without reduction for, any
withholding taxes. Any such taxes which are otherwise imposed on payments to
LUMINEX shall be the sole responsibility of BIO-RAD. BIO-RAD shall provide
LUMINEX with official receipts issued by the appropriate taxing authority or
such other evidence as is reasonably requested by LUMINEX to establish that such
taxes have been paid. If LUMINEX uses a foreign tax credit received by LUMINEX
as a result of the payment of withholding taxes by BIO-RAD and thereby reduces
the amount of U.S. income tax that LUMINEX otherwise would have paid, LUMINEX
shall refund to BIO-RAD the amount of such reduction with respect to such
foreign tax credit. LUMINEX will use commercially reasonable efforts to obtain
foreign tax credits to which LUMINEX is entitled.
4.11 Improvements to Standard Beads or Luminex100 System. If during the
---------------------------------------------------
term of this Agreement LUMINEX enters into a royalty-bearing license or
agreement or a license or agreement requiring payment of license fees or other
payments for the license or other acquisition of rights to new technologies
applicable to the manufacture, sale or use of the Standard Beads or Luminex100
System, and after consultation with BIO-RAD, BIO-RAD does not agree to pay any
such amounts applicable to the manufacture, sale or use of the Standard Beads or
Luminex100 System, within thirty (30) days after a written request by LUMINEX,
LUMINEX at its option may exclude from this Agreement the subject matter covered
by such license or agreement, and in such event the same shall not be within the
Standard Beads or Luminex100 System for any purposes of this Agreement. The
provisions of this Section 4.11 shall not limit the obligations of the parties
under Article 11.
(a) At the Effective Date, to the knowledge of LUMINEX's senior
management, LUMINEX is not engaged in negotiations to obtain rights to royalty-
bearing technologies to which this Section 4.11 pertains.
(b) LUMINEX represents and warrants to BIO-RAD that it has not, up
through and including the date of this Agreement, received from any third party
any information about or notice of any claim or infringement with respect to or
affecting the validity or enforceability of any of the patents, copyrights,
trademarks or know-how relating to the Standard Beads or the Luminex100 System
or any portions thereof.
4.12 Currency Conversion. If any currency conversion shall be required in
-------------------
connection with the calculation of amounts payable under this Agreement, such
conversion shall be made using the selling exchange rate for conversion of the
foreign currency into U.S. Dollars, quoted for current transactions reported by
the Wall Street Journal (New York Edition) for the last business day of the
calendar period to which such payment pertains.
4.13 BIO-RAD Records; Inspection. BIO-RAD shall keep complete, true and
---------------------------
accurate books of accounts and records for the purpose of determining the
amounts payable under this Article 4 or verifying compliance with Section 8.1.
Such books and records shall be kept for at least three (3) years following the
end of the calendar quarter to which they pertain. Such records will be open for
inspection during such three (3)-year period by an independent
10
<PAGE>
auditor chosen by LUMINEX at BIO-RAD's site for the purpose of verifying the
amounts payable by BIO-RAD under this Article 4 or compliance with Section 8.1.
Such on-site inspections may be made no more than once each calendar year, at
reasonable times and on reasonable notice. LUMINEX's auditor will only be
required to reveal whether correct payment was made and if not, the amount of
the underpayment or overpayment. The auditor will be subject to reasonable
confidentialty restrictions with respect to information learned in the course of
performing the audit. Inspections conducted under this Section 4.13 shall be at
the expense of LUMINEX, unless a variation or error producing an underpayment in
amounts payable exceeding five percent (5%) of the amount paid for any period
covered by the inspection is established in the course of any such inspection,
whereupon all costs relating to the inspection for such period and any unpaid
amounts that are discovered shall be paid by BIO-RAD, together with interest as
specified in Section 4.9 above. The parties will endeavor to minimize disruption
of BIO-RAD's normal business activities to the extent reasonably practicable.
4.14 LUMINEX Records; Inspection. LUMINEX shall keep complete, true and
---------------------------
accurate books of accounts and records for the purpose of verifying its
compliance with the pricing provisions of Section 4.6(b) and 4.6(e). Such books
and records shall be kept for at least three (3) years following the end of the
calendar quarter to which they pertain. Such records will be open for inspection
during such three (3)-year period by an independent auditor chosen by BIO-RAD,
at LUMINEX's site for the sole purpose of verifying LUMINEX's compliance with
the pricing provisions of Section 4.6(c) and 4.6(e). Such on-site inspections
may be made no more than once each calendar year, at reasonable times and on
reasonable notice. BIO-RAD's auditor will only be required to reveal whether
correct invoicing was made and if not, the amount of the overpayment. The
auditor will be subject to reasonable confidentialty restrictions with respect
to information learned in the course of performing the audit. Inspections
conducted under this Section 4.14 shall be at the expense of BIO-RAD unless a
variation or error producing an overpayment in amounts payable exceeding five
percent (5%) of the amount paid for any period covered by the inspection is
established in the course of any such inspection, whereupon all costs relating
to the inspection for such period and any unpaid amounts that are discovered
shall be paid by LUMINEX, together with interest at the rate specified in
Section 4.9 above. The parties will endeavor to minimize disruption of LUMINEX's
normal business activities to the extent reasonably practicable.
4.15 Late Delivery Charges. If LUMINEX fails to deliver Standard Beads in
---------------------
accordance with the requirements of Section 4.3 and 4.4, LUMINEX shall deduct
from invoices submitted to BIO-RAD the following percentage of the sales price
of the Standard Beads:
Days of LUMINEX Delay Percentage of Invoiced Sales Price of Standard
--------------------- ----------------------------------------------
Beads
-----
[**] [**]%
[**] [**]%
[**] [**]%
[**] [**]%
If LUMINEX fails to deliver Luminex100 Systems in accordance with the
requirements of Section 4.3 and 4.4, LUMINEX shall deduct from invoices
submitted to BIO-RAD the following percentage of the sales price of the
Luminex100 System (excluding off-the-shelf computer components):
- ------------
[**] Indicates that material has been omitted and confidential treatment
requested therefor. All such material has been filed separately with the
Commission pursuant to Rule 406.
11
<PAGE>
<TABLE>
<CAPTION>
Days of LUMINEX Delay Percentage of Invoiced Sales Price of Luminex100 System
-------------------- -------------------------------------------------------
<S> <C>
[**] [**]%
[**] [**]%
[**] [**]%
[**] [**]%
</TABLE>
4.16 Manufacturing Capacity.
----------------------
(a) Back-Up Manufacturing Right. A "Supply Failure" shall mean a
---------------------------
failure, in any [**] calendar quarters within any [**] month period, in each
case beginning at least [**] months after BIO-RAD's first commercial sale of a
BIO-RAD System, to supply BIO-RAD with at least seventy-five percent (75%) of
the aggregate quantity of Standard Beads or Luminex100 Systems, as applicable,
ordered pursuant to Section 4.3 by BIO-RAD for such two calendar quarters. In
the event of a Supply Failure, BIO-RAD shall have a back-up supply right as set
forth below (the "Back-Up Right") subject to the additional terms and conditions
set forth below or in the Escrow Agreement (as identified below).
(b) Escrow. The parties will enter into an escrow agreement (the
------
"Escrow Agreement") within thirty (30) days of the execution of this Agreement.
LUMINEX agrees to deposit, subject to Section 4.16(c) below, in the technology
escrow account with a third party escrow agent all technical information, know-
how, supplier lists, bill of materials and related information covering Standard
Beads and Luminex100 Systems that is owned or controlled by LUMINEX and is
necessary for the manufacture of Standard Beads and Luminex100 Systems but in
all events excluding Software source code (the "Escrowed Materials"). For
purposes of this Section 4.13(b), "control" means the ability to grant the
rights set forth in Section 4.13(c) without payment of royalties or other
consideration to third parties or any other restrictions from third parties that
would interfere with BIO-RAD's rights to use the Escrowed Materials. The
Escrowed Materials are to be released to BIO-RAD in the event of a Supply
Failure, all as to be specified in more detail in the Escrow Agreement.
(c) Rights. Upon the occurrence of a Supply Failure with respect to
------
Standard Beads or Luminex100 Systems, the immunity from suit granted under
Section 3.1 shall include the right to manufacture Standard Beads or Luminex100
Systems, respectively, and, at BIO-RAD's option, BIO-RAD may manufacture or have
manufactured, BIO-RAD's requirements for Standard Beads or Luminex100 Systems,
respectively, at royalty rates to be negotiated in good faith by the parties. If
the parties have failed to agree upon the royalty rates for Standard Beads
and/or Luminex100 Systems within two calendar months of BIO-RAD's exercise of
its option to manufacture or have manufactured the Standard Beads and/or
Luminex100 Systems, the parties shall submit the matter of determining a
commercially reasonable royalty with respect to the manufacture and sale of
Standard Beads and/or Luminex100 Systems to arbitration pursuant to Section
12.5. The arbitrator shall be instructed to take into consideration BIO-RAD's
Cost of Goods with respect to the manufacture of the Standard Beads and/or
Luminex100 Systems, where "Cost of Goods" means cost of direct labor, direct
materials and manufacturing overhead incurred in the manufacturing of Standard
Beads and/or Luminex100 Systems as calculated in accordance with U.S. GAAP and
consistent with the methods used by BIO-RAD to calculate direct and indirect
costs for its other product lines, excluding sales, general and administrative
costs (SG&A). In the event that BIO-RAD elects to exercise this option with
respect to Standard Beads or Luminex100 Systems, LUMINEX shall have no further
obligation to supply Standard Beads or Luminex100 Systems, as applicable, to
BIO-RAD and LUMINEX's obligations under Article 7 shall cease. In the event that
LUMINEX cures its Supply Failure, LUMINEX may terminate the rights provided to
BIO-RAD under this Section 4.16 upon one hundred twenty (120) days written
notice to BIO-RAD.
- ------------
[**] Indicates that material has been omitted and confidential treatment
requested therefor. All such material has been filed separately with the
Commission pursuant to Rule 406.
12
<PAGE>
4.17 THE PROVISIONS OF SECTION 4.15 SETS FORTH THE SOLE AND EXCLUSIVE
REMEDY FOR ANY FAILURE BY LUMINEX TO SUPPLY BEADS OR LUMINEX100 SYSTEMS.
ARTICLE 5
---------
REGISTRATION CODE FEE,
----------------------
EXCLUSIVITY OF EFFORTS AND OTHER PROVISIONS
-------------------------------------------
5.1 Registration Code Fee. LUMINEX will designate one (1) Registration
---------------------
Code for each Test with respect to which a Kit may be used, and BIO-RAD agrees
that Standard Beads supplied to BIO-RAD hereunder will include Standard Beads
containing such Registration Codes. BIO-RAD shall pay to LUMINEX Three Hundred
Fifty Dollars ($350) per analyte in a given Test which the Registration Code is
designed to detect; provided that the fee for any given Panel shall not exceed
Five Thousand Dollars ($5,000). With respect to Registration Codes designated as
of the Effective Date, such amounts shall be due and payable on the Effective
Date; with respect to Registration Codes later designated such amounts shall be
due at the time of designation by LUMINEX.
5.2 Exclusivity of Efforts. To avoid conflicts of interest, BIO-RAD and
----------------------
its Affiliates will not manufacture, market, sell or otherwise distribute any
materials, technologies or products, other than Luminex100 System and Kits,
specifically designed for performing Multiplexed Bead Assays using flow
cytometry based detection of particles for use in the human clinical diagnostics
industry within the Field. In addition, BIO-RAD agrees that except for
performing its development obligations as agreed pursuant to Section 2.1, BIO-
RAD's clinical diagnostics division or group will not directly or indirectly
develop any materials, technologies or products specifically designed for
performing Multiplexed Bead Assays within the Fields using flow cytometry based
detection of particles. BIO-RAD further agrees that it will not provide research
and development funding to or license any third party to develop, manufacture,
market, sell or otherwise distribute any materials, technologies or products
specifically designed for performing Multiplexed Bead Assays within the Fields
using flow cytometry based detection of particles. It is understood that the
foregoing sentence shall not apply to passive investments by BIO-RAD in equity
of third parties for use in the human clinical diagnostics industry.
5.3 Compliance with Laws. Each party shall be responsible for complying in
--------------------
all material respects with all directives, laws, rules and regulations relating
to the performance of such party's obligations and exercise of such party's
rights hereunder, including without limitation regulatory reporting regulations.
BIO-RAD further shall be responsible for all activities relating to recalls.
5.4 Luminex100 Systems. In addition to the terms and conditions of this
------------------
Agreement, sale of the Luminex100 System shall be subject to LUMINEX's standard
terms and conditions for labelling and patent marking.
ARTICLE 6
MAINTENANCE, SUPPORT AND TRAINING
---------------------------------
6.1 Maintenance and Support. BIO-RAD will provide front-line maintenance
-----------------------
and support for each Luminex100 System purchased by BIO-RAD. The scope of
maintenance and support services provided by LUMINEX will be limited to the
provision of Updates and LUMINEX's standard telephone hotline support to the
extent that LUMINEX makes such telephone support available generally to its
customers free of charge. LUMINEX shall not be responsible for problems arising
in whole or in part from portions of the BIO-RAD System other than the
Luminex100 System as delivered by LUMINEX, as determined by LUMINEX in LUMINEX's
sole reasonable discretion.
6.2 Training. At BIO-RAD's request, LUMINEX will provide three (3) days a
--------
year of training for BIO-RAD field technicians at LUMINEX's facility. BIO-RAD
will be responsible for all travel, food and lodging expenses incurred by BIO-
RAD in connection with such training.
13
<PAGE>
ARTICLE 7
LIMITED WARRANTY
----------------
LUMINEX makes the warranties set forth in Exhibit C to BIO-RAD. BIO-RAD
agrees not to represent the Standard Beads or Luminex100 System in a manner that
is inconsistent with the Specifications or otherwise misrepresent the Standard
Beads or Luminex100 System. EXCEPT AS EXPRESSLY PROVIDED IN EXHIBIT C, LUMINEX
MAKES NO WARRANTIES OR CONDITIONS (EXPRESS, IMPLIED, STATUTORY OR OTHERWISE)
WITH RESPECT TO THE SUBJECT MATTER HEREOF, AND LUMINEX SPECIFICALLY DISCLAIMS
ANY AND ALL IMPLIED WARRANTIES OR CONDITIONS OF MERCHANTABILITY AND FITNESS FOR
A PARTICULAR PURPOSE.
ARTICLE 8
TERM AND TERMINATION
--------------------
8.1 Term. The term of this Agreement shall commence on the Effective Date
----
and continue in full force and effect for a period of seven (7) years after the
first commercial sale of a Kit by BIO-RAD ("Initial Term"), unless earlier
terminated in accordance with this Agreement. This Agreement shall be
automatically extended for additional two (2) year terms for up to three (3)
renewal terms; provided, however, that in the event BIO-RAD does not demonstrate
a significant investment in the research and development of the BIO-RAD System
in excess of [**] Dollars ($[**]) by the expiration of the Initial Term, LUMINEX
may terminate this Agreement by a written notice of termination to BIO-RAD at
least ninety (90) days prior to the expiration of the Initial Term; and further
provided that the automatic renewal of the term of this Agreement for each of
the foregoing two year renewal terms after the first renewal term shall be
subject to the parties agreeing upon and BIO-RAD meeting annual sales goals with
respect to BIO-RAD Systems and Kits which annual sales goals shall be negotiated
in good faith by the parties prior to the commencement of each such renewal
term.
8.2 Termination for Breach. This Agreement may be terminated by either
----------------------
party by written notice effective immediately if the other party breaches any
material term or condition of this Agreement and fails to remedy the breach
within thirty (30) days after being given written notice thereof stating the
nonbreaching party's intent to terminate. Without limiting the foregoing, either
party may terminate portions of this Agreement pursuant to Section 12.14.
8.3 Termination for Failure to Commercialize. Beginning [**] years
----------------------------------------
after availability of the Luminex100 System, if at any time BIO-RAD is not
marketing, selling or distributing one or more Kits for an application within
each of the Fields, LUMINEX may terminate the Agreement with respect to those
Fields in which BIO-RAD is not marketing, selling or distributing by written
notice to BIO-RAD. In the event of such termination under this Section 8.3, the
Advance shall become non-refundable. If BIO-RAD has not made commercially
available Kits incorporating Magnetic Beads in each of the Fields within [**]
years of the Effective Date plus any extension of time necessary to produce
Magnetic Beads reasonably acceptable to BIO-RAD, LUMINEX may terminate [**] by
written notice to BIO-RAD.
8.4 Effect of Termination. BIO-RAD may sell BIO-RAD Systems existing in
---------------------
its inventory as of the effective date of termination of this Agreement, and
procure LUMINEX 100 Systems for orders for BIO-RAD Systems existing as of the
effective date of termination, for a period of ninety (90) days after the
effective date of such termination. LUMINEX agrees to supply Standard Beads to
BIO-RAD and/or to process Magnetic Beads for a period of five (5) years after
any termination or expiration of this Agreement other than termination by
LUMINEX pursuant to Section 8.2. The parties agree to negotiate in good faith an
extension of such commitment after the expiration of such five (5) year period.
8.5 Return of Materials. Within thirty (30) days after the effective date
-------------------
of termination of this Agreement, BIO-RAD shall at LUMINEX's option destroy
LUMINEX's Confidential Information provided to BIO-RAD, and provide written
certification of such destruction, or prepare such LUMINEX Confidential
Information for shipment
- ------------
[**] Indicates that material has been omitted and confidential treatment
requested therefor. All such material has been filed separately with the
Commission pursuant to Rule 406.
14
<PAGE>
to LUMINEX or LUMINEX's designee, as LUMINEX may direct, at LUMINEX's expense.
BIO-RAD shall not make or retain any copies of any LUMINEX Confidential
Information which may have been entrusted to it except for one (1) archival
copy.
8.6 Survival. It is understood that termination of this Agreement shall
--------
not relieve a party from any liability which, at the time of such termination,
has already accrued to the other party. The provisions of Sections 3.1, 3.5,
3.6, 3.7, 4.1, the first sentence of 4.2, 4.4, 4.5, 4.6, 4.7, 4.8, 4.9, 4.10,
4.11, 4.12, 4.13, 4.14 and 4.15 and the last sentence of Section 4.3 hereof
shall survive with respect to Beads supplied during the five year period set
forth in Section 8.4. In addition, the following provisions shall survive any
expiration or termination of this Agreement: Articles 6, 7, 9, 10 (for a period
of five years after expiration of the period set forth in Section 8.4), 11, and
12, and Sections 3.4, 3.5, 3.6, 3.8, 4.10, 4.13, 5.3, 8.4, 8.5, and 8.6. Except
as otherwise expressly provided in this Article 8, all other rights and
obligations of the parties shall terminate upon termination of this Agreement.
End User Licenses shall survive expiration or termination of this Agreement.
ARTICLE 9
LUMINEX TRADEMARKS
------------------
9.1 Trademarks. All BIO-RAD Systems, Luminex100 Systems and Kits will be
----------
branded with LUMINEX's Trademarks in a manner to be mutually agreed upon in
writing. Subject to the provisions of this Article 9, during the term of this
Agreement, BIO-RAD shall have the right to indicate to the public that the Kits
contain Standard Beads or Magnetic Beads, and to advertise the Standard Beads or
Magnetic Beads as incorporated into the Kits under the trademarks, marks, and
trade names of LUMINEX set forth in Exhibit D, as same may be amended in writing
by LUMINEX from time to time ("LUMINEX's Trademarks"), subject to LUMINEX's
prior inspection and written approval of the Kits, BIO-RAD Systems and
Luminex100 Systems in which the LUMINEX Trademarks are attached. In addition,
BIO-RAD shall affix and display LUMINEX's Trademarks, which may be subordinate
to BIO-RAD's product trademark or trademarks, on the external casing, packaging
and labeling of Kits in a manner approved in writing by LUMINEX. All
representations of LUMINEX's Trademarks that BIO-RAD intends to use shall first
be submitted to LUMINEX for approval (which shall not be unreasonably withheld)
of design, color and other details, or shall be exact copies of those used by
LUMINEX. BIO-RAD shall fully comply with all guidelines, if any, communicated by
LUMINEX concerning the use of LUMINEX's Trademarks. LUMINEX may modify any
LUMINEX Trademarks, or substitute an alternative mark for any LUMINEX Trademark
upon sixty (60) days prior notice to BIO-RAD; provided that BIO-RAD shall not be
obligated to modify catalogs until the next scheduled update to the catalog
unless LUMINEX pays the incremental cost of making the modification in advance
of the next scheduled release. BIO-RAD shall not incur any such incremental cost
without LUMINEX's prior written approval of such cost.
9.2 Use. Except as otherwise expressly agreed in writing, BIO-RAD shall
---
not alter or remove any of LUMINEX's Trademarks affixed to or otherwise
contained on or within the Luminex100 System. Except as set forth in this
Article 9, nothing contained in this Agreement shall grant or shall be deemed to
grant to BIO-RAD any right, title or interest in or to LUMINEX's Trademarks. All
uses of LUMINEX's Trademarks will inure solely to LUMINEX, BIO-RAD shall obtain
no rights with respect to any of LUMINEX's Trademarks, other than as expressly
set forth herein, and BIO-RAD irrevocably assigns to LUMINEX all such right,
title and interest, if any, in any of LUMINEX's Trademarks. At no time during
the term of this Agreement or the period of supply set forth in Section 8.4
shall BIO-RAD challenge or assist others to challenge the No Challenge
Trademarks (except to the extent expressly required by applicable law) or the
registration thereof or attempt to register any trademarks, marks or trade names
confusingly similar to the No Challenge Trademarks. For purposes of this Section
9.2, "No Challenge Trademarks" shall mean the marks listed on Exhibit D at the
Effective Date and such other marks as Luminex adds to Exhibit D pursuant to
Section 9.1, provided that the inclusion of such additional marks within the
definition of No Challenge Marks shall be subject to the approval of BIO-RAD
which approval shall not be unreasonably withheld. Upon termination of this
Agreement, BIO-RAD shall immediately cease to use all LUMINEX's Trademarks and
any listing by BIO-RAD of LUMINEX's name in any telephone book, directory,
public record or elsewhere, shall be removed by BIO-RAD as soon as possible, but
in any event not later than the subsequent issue of such publication;
15
<PAGE>
provided, however, that the foregoing shall not apply to any stock of brochures
or products existing at the time of such termination.
9.3 Registered User Agreements. At LUMINEX's option and expense, LUMINEX
--------------------------
and BIO-RAD shall enter into registered user agreements with respect to the
LUMINEX's Trademarks pursuant to applicable trademark law requirements
worldwide. BIO-RAD shall be responsible for proper filing of the registered user
agreement with government authorities worldwide. The parties shall share equally
all costs or fees associated with such filing.
ARTICLE 10
CONFIDENTIALITY
---------------
10.1 Confidential Information. Each party may from time to time disclose
------------------------
to the other party, or such other party may otherwise learn, Confidential
Information. As used herein, "Confidential Information" shall mean any
information which if disclosed in tangible form is marked "Confidential" or with
other similar designation to indicate its confidential or proprietary nature or
if disclosed orally is indicated orally to be confidential or proprietary by the
disclosing party at the time of such disclosure. Notwithstanding the foregoing
or anything herein to the contrary, Confidential Information shall not include
any information that, in each case as demonstrated by written documentation: (i)
was already known to the receiving party, other than under an obligation of
confidentiality, at the time of disclosure; (ii) was generally available to the
public or otherwise part of the public domain at the time of its disclosure to
the receiving party; (iii) became generally available to the public or otherwise
part of the public domain after its disclosure and other than through any act or
omission of the receiving party in breach of this Agreement; (iv) was
subsequently lawfully disclosed to the receiving party by a person other than
the disclosing party; or (v) can be shown by the receiving party to have been
independently developed thereby.
10.2 Confidentiality. Each party agrees to hold and maintain in strict
---------------
confidence all Confidential Information. Each party further agrees not to
disclose any Confidential Information except to those employees and consultants
who have a need to know and provided that each person to whom Confidential
Information is disclosed agrees to be bound by the same terms regarding the
disclosure and use of Confidential Information as set forth in this Article 10.
Without limiting the foregoing, neither party shall use Confidential Information
except as permitted by this Agreement, or as may be necessary to exercise its
rights or perform its obligations under this Agreement. Nothing contained in
this Article 10 shall prevent either party from disclosing any Confidential
Information as is required by law or regulation to be disclosed; provided,
however, that the party disclosing Confidential Information under such a duty to
disclose has provided written notice to the other party promptly upon receiving
notice of such requirement in order to enable such other party to seek a
protective order or otherwise prevent disclosure of such Confidential
Information.
10.3 Review of Publication. As soon as is practicable prior to the oral
---------------------
public disclosure, and prior to the submission to any outside person for public
dissemination of a manuscript describing the scientific data with respect to
Standard Beads or Magnetic Beads, in each case to the extent the contents of the
oral disclosure or manuscript have not been previously disclosed pursuant to
this Section 10.3 before such proposed disclosure, BIO-RAD shall disclose to
LUMINEX the disclosure or manuscript to be made or submitted, and shall allow
LUMINEX at least thirty (30) days to determine whether such disclosure or
manuscript contains subject matter for which patent protection should be sought
prior to publication or which LUMINEX reasonably believes should be modified to
avoid (i) disclosure of information of a confidential or proprietary nature, or
(ii) regulatory or other similar problems.
(a) Publication Rights. After the expiration of thirty (30) days
------------------
from the date of mailing such disclosure or manuscript, unless BIO-RAD has
received the written notice specified below, BIO-RAD shall be free to submit
such manuscript for publication or make the oral disclosure.
(b) Delay of Publication. Prior to the expiration of the thirty (30)
--------------------
day period specified in Section 10.3(a) above, LUMINEX may notify BIO-RAD in
writing of its determination that such oral presentation or manuscript contains
confidential or objectionable material or material that consists of patentable
16
<PAGE>
subject matter for which patent protection should be sought. If so notified,
BIO-RAD shall withhold its proposed public disclosure and the parties shall
mutually consult in good faith to determine the best course of action to take in
order to modify the disclosure or to obtain patent protection. After resolution
of the confidentiality, regulatory or other issues, including without limitation
the filing of a patent application, to both parties' reasonable satisfaction,
BIO-RAD shall be free to submit the manuscript and/or make its public oral
disclosure.
ARTICLE 11
INTELLECTUAL PROPERTY INDEMNIFICATION
-------------------------------------
11.1 LUMINEX Indemnity. LUMINEX shall defend and/or settle any claim,
-----------------
complaint, suit, proceeding or cause of action (collectively and individually
referred to as a "Claim") brought against BIO-RAD by a third party for
infringement of any third party copyright, trademark, trade secret or patent by
the Standard Beads or Luminex100 System, each as delivered by LUMINEX hereunder,
subject to the requirements of Section 11.2 below. LUMINEX shall pay all
resulting damages or settlement amounts finally awarded against BIO-RAD
(including reasonable attorneys' fees and court costs) together with any costs
of End Users or purchasers of the BIO-RAD System to the extent specifically
included under Section 11.4 below, in each event only to the extent attributable
to such Claim. Notwithstanding the provisions of this Section 11.1, LUMINEX will
not have any obligation under this Article 11 to the extent a Claim for
infringement is based upon (i) modified Standard Beads or Luminex100 System if
such infringement would have been avoided by use of the Standard Beads or
Luminex100 System as provided by LUMINEX (unless such modifications are made by
LUMINEX), (ii) use of the Standard Beads or Luminex100 System in applications or
for purposes other than for which the same were intended within the Fields, or
(iii) completed products or equipment or any assembly, combination, method or
process in which the Standard Beads or Luminex100 System are used, to the extent
the infringement would not have resulted if the Standard Beads and Luminex100
System were not incorporated into the BIO-RAD System. It is understood and
agreed that if the use of the Luminex100 System would infringe a third party
patent if used with Standard Beads bound to any analyte generally, the Claim of
infringement would be included as part of LUMINEX's indemnification obligations
under this Section 11.1.
11.2 BIO-RAD Indemnity. At LUMINEX's written request, BIO-RAD shall defend
-----------------
and/or settle any claim, complaint, suit, proceeding or cause of action
(collectively and individually referred to as a "Claim") brought against LUMINEX
by a third party for infringement of any third party copyright, trademark, trade
secret or patent by the (i) the BIO-RAD System except to the extent such Claim
is covered under Section 11.1 above, (ii) any Kit or assay sold by BIO-RAD for
use with the BIO-RAD System or Luminex100 System except to the extent such Claim
is covered under Section 11.1 above, or (iii) the manufacture or use of any of
the items set forth in (i) or (ii) above, subject to the requirements of Section
11.2 below. BIO-RAD shall pay all resulting damages or settlement amounts
finally awarded against LUMINEX (including reasonable attorneys' fees and court
costs) to the extent attributable to such Claim.
11.3 Indemnification Procedure. The indemnified party shall (i) promptly
-------------------------
notify the indemnifying party of each Claim, provided that the indemnifying
party shall only be excused from its indemnification obligations due to delay in
notice if and to the extent the indemnifying party is prejudiced by such delay,
(ii) provide the indemnifying party with sole control over the defense and/or
settlement thereof, and (iii) at the indemnifying party's request and expense,
provide full information and reasonable assistance to the indemnifying party
with respect to such Claims.
11.4 Alternatives. Without limiting Section 11.1 above, if the Standard
------------
Beads or Luminex100 System are or in LUMINEX' reasonable judgment may become
subject of any Claim of infringement of third party intellectual property
rights, or if a court determines that the Standard Beads or Luminex100 System
infringe any third party intellectual property rights, LUMINEX, at its option
and expense, may (i) procure for BIO-RAD the right under such third party
intellectual property rights to use the Standard Beads or Luminex100 System in
accordance with the terms and conditions of this Agreement; or (ii) replace the
Standard Beads or Luminex100 System with other suitable noninfringing product
having functionality substantially the same as the Standard Beads or Luminex100
System so
17
<PAGE>
replaced; or (iii) modify the Standard Beads or Luminex100 System to make the
same noninfringing provided they have substantially the same functionality as
the unmodified Standard Beads and Luminex100 System; or (iv) in the event (i),
(ii) or (iii) above are not commercially reasonable in LUMINEX's judgment,
terminate BIO-RAD's distribution rights with respect to the infringing subject
matter and at LUMINEX's option require that BIO-RAD remove the Standard Beads
and/or Luminex100 System or portion thereof from use. If LUMINEX requires
removal of Standard Beads and/or Luminex100 Systems, the costs of removal from
use of End Users or other purchasers of the BIO-RAD System shall be at LUMINEX's
expense, provided that BIO-RAD shall not incur any such costs without first
obtaining LUMINEX's prior written approval.
11.5 Entire Liability. THE FOREGOING PROVISIONS OF THIS ARTICLE 11 STATE
----------------
THE ENTIRE LIABILITY AND OBLIGATIONS OF LUMINEX AND THE EXCLUSIVE REMEDY OF BIO-
RAD WITH RESPECT TO ANY ALLEGED INFRINGEMENT OF PATENT RIGHTS, TRADE SECRETS,
COPYRIGHTS OR OTHER INTELLECTUAL PROPERTY RIGHTS WITH RESPECT TO THE STANDARD
BEADS, MAGNETIC BEADS OR LUMINEX100 SYSTEM.
ARTICLE 12
MISCELLANEOUS
-------------
12.1 Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED AND
-------------
INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE UNITED STATES AND THE STATE OF
CALIFORNIA WITHOUT REFERENCE TO CONFLICT OF LAWS PRINCIPLES AND EXCLUDING THE
1980 U.N. CONVENTION ON CONTRACTS FOR THE INTERNATIONAL SALE OF GOODS.
12.2 Disputes. If LUMINEX and BIO-RAD, are unable to resolve any dispute
--------
between them, either LUMINEX or BIO-RAD may, by written notice to the other,
have such dispute referred to the Chief Executive Officers (or equivalent) of
LUMINEX and BIO-RAD Vice-President Diagnostics Group, for attempted resolution
by good faith negotiations within fourteen (14) days after such notice is
received. Unless otherwise mutually agreed, the negotiations between the
designated officers shall be conducted by telephone, within three (3) days and
at times within the period stated above offered by the designated officer of
BIO-RAD to the designated officer of LUMINEX for consideration. If the parties
are unable to resolve such dispute in accordance with the aforementioned
procedure or within such fourteen (14) day period, either party shall have the
right to pursue any and all other remedies available to such party.
12.3 Jurisdiction; Venue. All disputes arising out of or related to this
-------------------
Agreement, except disputes arising under Section 3.3(b) or Section 4.16 which
will be subject to arbitration pursuant to Section 12.5 below) will be subject
to the exclusive jurisdiction and venue of the California state courts of Contra
Costa County (or, if there is exclusive federal jurisdiction, the Northern
District Court of California), and the parties consent to the personal and
exclusive jurisdiction of these courts.
12.4 Indemnity. Except for warranty claims for which LUMINEX is liable
---------
under Article 7 and infringement claims covered by Section 11.1, and claims to
the extent directly resulting from LUMINEX's negligence or willful misconduct,
BIO-RAD agrees to indemnify and hold LUMINEX, its officers, directors, employees
and agents harmless from and against any cost, loss, damages, liability or
expense (including attorneys' fees) arising out of third party claims brought
against LUMINEX, its officers, directors, employees or agents relating to use or
distribution by BIO-RAD of the Standard Beads, Magnetic Beads, BIO-RAD Systems
or Luminex100 Systems.
12.5 Arbitration. Any dispute, controversy or claim arising out of Section
-----------
3.3 or the establishment of royalties under Section 4.16(c) shall be settled by
binding arbitration in the manner described in this Section 12.5. The
arbitration shall be conducted pursuant to the Commercial Rules and
Supplementary Procedures for Large, Complex Disputes of the American Arbitration
Association then in effect. Notwithstanding those rules, the following
provisions shall apply to the arbitration hereunder:
18
<PAGE>
(a) Arbitrators. The arbitration shall be conducted by a single
-----------
arbitrator; provided that at the request of either party, the arbitration shall
be conducted by a panel of three (3) arbitrators, with one (1) arbitrator chosen
by each of BIO-RAD and LUMINEX and the third appointed by the other two (2)
arbitrators. If the parties are unable to agree upon a single arbitrator, or the
third arbitrator in case of a panel of three (3), such single or third
arbitrator (as the case may be) shall be appointed in accordance with the rules
of the American Arbitration Association. In any event, the arbitrator or
arbitrators selected in accordance with this Section 12.5 are referred to herein
as the "Panel." With respect to disputes arising under Section 3.3(b) or the
establishment of royalties due under Section 4.16(c), the arbitrators shall be
independent experts in the in vitro diagnostics industry.
--------
(b) Proceedings. The parties and the arbitrators shall use their
-----------
best efforts to complete the arbitration within sixty (60) days after the
appointment of the Panel under Section 12.5(a) above. The Panel shall, in
rendering its decision, apply the substantive law of the State of California,
without regard to its conflict of laws provisions, except that the
interpretation of and enforcement of this Section 12.5 shall be governed by the
U.S. Federal Arbitration Act. The proceeding shall take place in Contra Costa
County, California. The fees of the Panel shall be shared equally by the
parties. Neither party shall initiate an arbitration hereunder unless it has
attempted to resolve the matter in accordance with Section 12.1 above.
12.6 Force Majeure. Except with respect to payment obligations,
-------------
nonperformance of any party shall be excused to the extent that performance is
rendered impossible by strike, fire, earthquake, flood, governmental acts,
orders or restrictions, or other similar causes beyond the reasonable control of
the nonperforming party.
12.7 Assignment. BIO-RAD's rights and obligations under this Agreement may
----------
not be assigned or otherwise transferred to a third party without the prior
written consent of LUMINEX which approval shall not be unreasonably withheld.
LUMINEX may assign or otherwise transfer its rights and obligations under this
Agreement without BIO-RAD's prior consent to a successor-in-interest to all or
substantially all of the business or assets of LUMINEX pertaining to the subject
matter hereof whether by merger, reorganization, asset sale or otherwise. Any
attempted assignment by BIO-RAD in violation of this Section 12.7 shall be null
and void. Subject to the foregoing, this Agreement shall be binding upon and
inure to the benefit of the parties hereto, their successors and assigns.
Notwithstanding the foregoing provisions of this Section 12.7 or any other
provision of this Agreement, in no event shall BIO-RAD gain any rights
whatsoever in an or to any product, technology, invention or other intellectual
property (i) that was conceived, developed or reduced to practice by any
successor-in-interest to the business or assets of LUMINEX pertaining to the
subject matter hereof prior to or after the effective date of the assignment or
other transfer of LUMINEX's business or assets pertaining to the subject matter
hereof ("Transfer"). It is further understood and agreed that the provisions of
Section 3.2 shall not apply to any Acquiror of LUMINEX with respect to products,
technologies, inventions or other intellectual property other than the
Luminex100 System and Beads as they exist at the effective date of the Transfer.
12.8 Notices. Any notice or report required or permitted to be given or
-------
made under this Agreement by either party shall be in writing and delivered to
the other party at its address indicated below (or to such other address as a
party may specify by notice hereunder) by courier or by registered or certified
airmail, postage prepaid, or by facsimile; provided, however, that all facsimile
notices shall be promptly confirmed, in writing, by registered or certified
airmail, postage prepaid. All notices shall be effective as of the date
received by the addressee.
If to LUMINEX: Luminex Corporation
12212 Technology Boulevard
Austin, Texas 78727
Attention: General Counsel
Fax: (512) 258-4173
19
<PAGE>
If to BIO-RAD: Bio-Rad Laboratories, Inc.
Corporate Offices
1000 Alfred Nobel Drive
Hercules, California 94547
Attention: General Counsel
Fax: (510) 741-5815
with a copy to:
Bio-Rad Laboratories, Inc. Diagnostics Group
4000 Alfred Nobel Drive
Hercules, California 94547
Attention: Vice-President, Diagnostics Group
Fax: (510) 741-6499
12.9 Limitation of Liability. Except as otherwise expressly provided here
-----------------------
in, neither party's liability arising out of this Agreement and/or the sale of
Standard Beads, Magnetic Beads and sale of Luminex100 Systems shall exceed to
the total amount paid by BIO-RAD to LUMINEX hereunder. IN NO EVENT SHALL EITHER
PARTY BE LIABLE TO THE OTHER PARTY OR ANY OTHER PERSON FOR ANY SPECIAL,
CONSEQUENTIAL, EXEMPLARY OR INCIDENTAL DAMAGES (INCLUDING LOST OR ANTICIPATED
REVENUES OR PROFITS RELATING TO THE SAME), ARISING FROM OR RELATING TO THIS
AGREEMENT OR THE SUBJECT MATTER HEREOF, WHETHER BASED IN CONTRACT, TORT
(INCLUDING NEGLIGENCE) OR OTHERWISE, AND EVEN IF SUCH PARTY IS ADVISED OF THE
POSSIBILITY OR LIKELIHOOD OF SAME. THESE LIMITATIONS SHALL APPLY NOTWITHSTANDING
ANY FAILURE OF ESSENTIAL PURPOSE OF ANY LIMITED REMEDY PROVIDED HEREIN. THE
FOREGOING LIMITATIONS SHALL NOT APPLY TO LIABILITY OF BIO-RAD ARISING UNDER
LIABILITY OF LUMINEX ARISING UNDER ARTICLE 10 OR SECTION 3.2, 3.3 OR 11.1,
provided, however, that with respect to liability of LUMINEX arising under
- --------- -------
Section 3.3, such liability shall not exceed the lower of (a) five million
($5,000,000) dollars, or (b) ten times the total amount paid by BIO-RAD to
LUMINEX hereunder.
12.10 Confidential Terms. Except as expressly provided herein, each party
------------------
agrees not to disclose any terms of this Agreement to any third party without
the consent of the other party, except to prospective investors and to such
party's accountants, attorneys and other professional advisors or as required by
securities or other applicable laws, in which case the disclosing party shall
seek confidential treatment to the extent available.
12.11 Foreign Corrupt Practices Act. In conformity with the United States
-----------------------------
Foreign Corrupt Practices Act and BIO-RAD and its employees and agents shall not
directly or indirectly make any offer, payment, or promise to pay; authorize
payment; nor offer a gift, promise to give, or authorize the giving of anything
of value for the purpose of influencing any act or decision of an official of
any government (including a decision not to act) or inducing such a person to
use his or her influence to affect any such governmental act or decision in
order to assist LUMINEX in obtaining, retaining or directing any such business.
12.12 Export Control. BIO-RAD further understands and acknowledges that
--------------
LUMINEX is subject to regulation by agencies of the United States, including,
but not limited to, the U.S. Department of Commerce, which prohibit export or
diversion of certain products and technology to certain countries. Any and all
obligations of LUMINEX to provide the Standard Beads, Magnetic Beads or
Luminex100 System, as well as any other technical information or assistance
shall be subject in all respects to such laws and regulations as shall from time
to time govern the license and delivery of technology and products abroad by
persons subject to the jurisdiction of the United States, including without
limitation the U.S. Export Administration Act of 1979, as amended, any successor
legislation, and the Export Administration Regulations issued by the U.S.
Department of Commerce, Bureau of Export Administration. BIO-RAD agrees to
cooperate with LUMINEX including without limitation, providing required
documentation, in order to obtain export licenses or exemptions therefrom.
BIO-RAD agrees that it will
20
<PAGE>
comply with the U.S. Export Administration Regulations and other laws and
regulations governing exports in effect from time to time. BIO-RAD further
agrees not to knowingly provide Standard Beads, Magnetic Beads, Luminex100
Systems or BIO-RAD Systems to any organization, public or private, which engages
in the research or production of military devices, armaments, or any instruments
of warfare, including biological, chemical and nuclear warfare.
12.13 Headings. Headings included herein are for convenience only, do not
--------
form a part of this Agreement and shall not be used in any way to construe or
interpret this Agreement.
12.14 Non-Waiver. Any waiver of the terms and conditions hereof must be
----------
explicitly in writing. The waiver by either of the parties of any breach of any
provision hereof by the other shall not be construed to be a waiver of any
succeeding breach of such provision or a waiver of the provision itself.
12.15 Severability. Should any section, or portion thereof, of this
------------
Agreement be held invalid by reason of any law, statute or regulation existing
now or in the future in any jurisdiction by any court of competent authority or
by a legally enforceable directive of any governmental body, either party may
terminate this Agreement by written notice to the other party within thirty (30)
days after such holding. If this Agreement is not so terminated, such section or
portion thereof shall be validly reformed so as to approximate the intent of the
parties as nearly as possible and, if unreformable, shall be deemed divisible
and deleted with respect to such jurisdiction, but the Agreement shall not
otherwise be affected.
12.16 Independent Contractors. The relationship of BIO-RAD and LUMINEX
-----------------------
established by this Agreement is that of independent contractors. Nothing in
this Agreement shall be construed to create any other relationship between BIO-
RAD and LUMINEX. Neither party shall have any right, power or authority to
assume, create or incur any expense, liability or obligation, express or
implied, on behalf of the other.
12.17 Entire Agreement. The terms and provisions contained in the
----------------
Agreement, including the Exhibits hereto, constitute the entire agreement
between the parties and shall supersede all previous communications,
representations, agreements or understandings, either oral or written, between
the parties. The parties agree that the terms and conditions of this Agreement
shall prevail, notwithstanding contrary or additional terms, in any purchase
order, sales acknowledgment, confirmation or any other document issued by either
party effecting the sale of Standard Beads, Magnetic Beads or sale of Luminex100
Systems. No agreement or understanding varying or extending this Agreement shall
be binding upon either party hereto, unless set forth in a writing which
specifically refers to the Agreement signed by duly authorized officers or
representatives of the respective parties, and the provisions hereof not
specifically amended thereby shall remain in full force and effect.
12.18 Counterparts. This Agreement may be executed in counterparts, each
------------
of which shall be deemed an original, but which together shall constitute one
and the same instrument.
IN WITNESS WHEREOF, the parties hereto have caused their duly authorized
representatives to execute this Agreement.
BIO-RAD LABORATORIES, INC. LUMINEX CORPORATION
By: /s/ Sanford S. Wadler By: /s/ Mark Chandler
----------------------------- -----------------------------
Name: Sanford S. Wadler Name: Mark Chandler
-------------------------- ---------------------------
Title: Vice President and General Counsel Title: Chairman & CEO
----------------------------------- --------------------------
21
<PAGE>
EXHIBIT A
FIELDS
1. "Field One" means [**]
---------
2. "Field Two" means [**]
---------
3. "Field Three" means [**]
-----------
4. "Field Four" means [**]
----------
BIO-RAD may add, [**] an additional [**] analytes (either DNA or protein) to
each Field listed above which analytes are not included within the the Field
definitions at the Effective Date. The foregoing, right is exercisable by
written notice to LUMINEX of the analytes. In addition, BIO-RAD may expand each
Field listed above by an additional [**] analytes (either DNA or protein) by
written notice of such additional analytes and payment to LUMINEX of [**]
Dollars [**] per Field so expanded.
_________
[**] Indicates that material has been omitted and confidential treatment
requested therefor. All such material has been filed separately with the
Commission pursuant to Rule 406.
<PAGE>
EXHIBIT B
END USER LICENSES
Label/Sticker for Luminex 100 System:
No rights or licenses under any of Luminex's patents are granted by or
shall be implied from the sale of this unit of Luminex100 instrumentation
or license of Luminex software to you, the purchaser, and you do not
receive any right under Luminex's patent rights by virtue of your purchase
of Luminex100 instrumentation or license of Luminex software. You agree
that the Luminex100 instrumentation and Luminex software are sold only for
use with fluorescently labeled microsphere beads authorized by Luminex and
you may obtain a royalty-free license under Luminex's patents, if any, to
use this unit of Luminex100 instrumentation with fluorescently labeled
microsphere beads authorized by Luminex by registering this unit of
Luminex100 instrumentation with Luminex in accordance with the instructions
accompanying the Luminex100 instrumentation.
Label License/Sticker for Kit:
By purchasing this Kit, which contains fluorescently labeled microsphere
beads authorized by Luminex, you, the customer, acquire the right under
Luminex's patent rights, if any, to use this Kit or any portion of this Kit,
including without limitation the microsphere beads contained herein, only with
Luminex's laser based fluorescent analytical test instrumentation marketed under
the name Luminex100.
End-User License Agreement (EULA) for Luminex100(TM) Operating System
This Luminex End-User License Agreement ("EULA") is a legal agreement
between you (either an individual or a single entity) the end-user and
Luminex Corporation ("Luminex") regarding the use of the Luminex software
product identified above, which includes computer software and online or
electronic documentation and may include associated media and printed
materials (if any) ("SOFTWARE PRODUCT" or "SOFTWARE"). By clicking on the
button below labeled "Accept", you represent that you have read, understand
and agree to be bound by the terms of this EULA. If you do not agree to be
bound by the terms of this EULA, please click on the button below labeled
"Decline". If you do not agree to be bound by the terms of this EULA, you
are not authorized to use the SOFTWARE PRODUCT and shall discontinue use
immediately. Any unauthorized use is a violation of the law and acts as a
total nullification of all warranties.
The SOFTWARE PRODUCT is protected by copyright laws and international
copyright treaties, as well as other intellectual property laws and treaties.
The SOFTWARE PRODUCT is licensed, not sold.
1. GRANT OF LICENSE. Subject to the terms and conditions of this EULA, Luminex
hereby grants to you a nonexclusive, nontransferable, nonassignable license
(without right to sublicense) under Luminex's copyrights and trade secrets
to use the SOFTWARE PRODUCT on a hardware platform purchased from Luminex
pursuant to Luminex's terms and conditions of sale. You may make one (1)
copy of the SOFTWARE PRODUCT for backup or archival purposes only. Although
no rights or licenses under any of Luminex's patents are granted by or shall
be implied from the license of the SOFTWARE or the sale of Luminex100
instrumentation to you, the purchaser, you may obtain a license under
Luminex's patents, if any, to use this unit of Luminex100 instrumentation
with fluorescently labeled microsphere beads authorized by Luminex by
purchasing such beads from Luminex or an authorized Luminex reseller.
<PAGE>
2. RESTRICTIONS.
. You must maintain all proprietary notices on all copies of the SOFTWARE
PRODUCT.
. You may not distribute copies of the SOFTWARE PRODUCT to third parties.
. You may not reverse-engineer, decompile, disassemble, or otherwise attempt
to derive source code from the SOFTWARE PRODUCT.
. You may not copy (other than one backup or archival copy), distribute,
sublicense, rent, lease, transfer or grant any rights in or to all or any
portion of the SOFTWARE PRODUCT.
. You must comply with all applicable laws regarding the use of the SOFTWARE
PRODUCT.
. You may not modify or prepare derivative works of the SOFTWARE PRODUCT.
. You may not use the SOFTWARE PRODUCT in a computer-based service business or
publicly display visual output of the SOFTWARE PRODUCT.
. You may not transmit the SOFTWARE PRODUCT over a network, by telephone, or
electronically by any means.
3. TERM AND TERMINATION. Your rights under this EULA are effective until
termination. You may terminate this EULA at any time by destroying the
SOFTWARE PRODUCT, including all computer programs and documentation, and
erasing any copies residing on your computer equipment. Luminex may
terminate this EULA upon thirty (30) days written notice to you. Your rights
under this EULA automatically terminate without further action on the part
of Luminex if you do not comply with any of the terms or conditions of this
EULA. Upon any termination of this EULA, you agree to destroy the SOFTWARE
PRODUCT and erase any copies residing on your computer equipment.
4. RIGHTS IN SOFTWARE. All rights and title in and to the SOFTWARE PRODUCT and
any copies thereof are owned by Luminex or its suppliers. This EULA is not a
sale and does not transfer to you any title or ownership interest in or to
the SOFTWARE or any patent, copyright, trade secret, trade name, trademark
or other intellectual property right therein. You shall not remove, alter,
or obscure any proprietary notices contained on or within the SOFTWARE and
shall reproduce such notices on any back-up copy of the SOFTWARE. All title
and intellectual property rights in and to the content which may be accessed
through use of the SOFTWARE PRODUCT is the property of the respective
content owner and may be protected by applicable copyright or other
intellectual property laws and treaties. This EULA grants you no rights to
use such content.
5. EXPORT RESTRICTIONS. You agree that you will not export or re-export the
SOFTWARE PRODUCT to any country, person, entity, or end-user subject to
U.S.A. export restrictions. You hereby warrant no state or federal agency
has suspended, revoked, or denied your export privileges.
6. NO WARRANTY. THE SOFTWARE PRODUCT IS LICENSED "AS IS." ANY USE OF THE
SOFTWARE PRODUCT IS AT YOUR OWN RISK. THE SOFTWARE PRODUCT IS PROVIDED FOR
USE ONLY WITH LUMINEX PRODUCTS. TO THE MAXIMUM EXTENT PERMITTED BY
APPLICABLE LAW, LUMINEX AND ITS SUPPLIERS DISCLAIM ALL WARRANTIES, EITHER
EXPRESS OR IMPLIED, INCLUDING, BUT NOT LIMITED TO, IMPLIED WARRANTIES OF
MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, AND NONINFRINGEMENT.
24
<PAGE>
7. LIMITATION OF LIABILITY. IN NO EVENT SHALL LUMINEX OR ITS SUPPLIERS BE
LIABLE FOR ANY SPECIAL, INCIDENTAL, INDIRECT, OR CONSEQUENTIAL DAMAGES
WHATSOEVER (INCLUDING, WITHOUT LIMITATION, DAMAGES FOR LOSS OF BUSINESS
PROFITS, BUSINESS INTERRUPTION, LOSS OF BUSINESS INFORMATION, OR ANY OTHER
PECUNIARY LOSS) ARISING OUT OF THE USE OF OR INABILITY TO USE THE SOFTWARE
PRODUCT, EVEN IF LUMINEX HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH
DAMAGES.
8. MISCELLANEOUS. This EULA is governed by the laws of the State of Texas,
U.S.A., without reference to conflicts of laws principles. You shall not
assign or sublicense or otherwise transfer the rights or license granted
hereunder, by agreement or by operation of law, without the prior written
consent of Luminex, and all assignments in violation of this prohibition
shall be null and void. This EULA is the complete and exclusive agreement of
Luminex and you and supersedes all other communications, oral or written,
relating to the subject matter hereof. No change to this EULA shall be valid
unless in writing and signed by the party against whom enforcement is
sought. The waiver or failure of Luminex or you to exercise in any respect
any right or rights provided for herein shall not be deemed a waiver of any
further right hereunder. If any provision of this EULA is held
unenforceable, the remainder of this EULA will continue in full force and
effect.
25
<PAGE>
EXHIBIT C
LIMITED WARRANTY
1. Limited Warranty. LUMINEX warrants to BIO-RAD that for one year from
----------------
delivery to an End User, but no more than fifteen (15) months from delivery to
BIO-RAD, the Standard Beads and the Luminex100 System (for purposes of this
Exhibit C, each of the Standard Beads and Luminex100 System is referred to as a
"Product") substantially conform to LUMINEX's published functional
specifications therefor, subject to use in accordance with documentation
provided by LUMINEX that accompanies such Product, including but not limited to
the instructions-for-use; provided, that LUMINEX is reasonably satisfied that
the claimed nonconformities actually exist and were not caused by unusual
physical or electrical stress, misuse, neglect, alteration, improper
installation, unauthorized repair or improper testing. Notwithstanding the
foregoing, the warranty provided herein specifically excludes any software or
hardware not provided by LUMINEX. Subject to LUMINEX's warranty return policies
for Product set forth in paragraph 2 below, LUMINEX's sole liability and
BIO-RAD's exclusive remedy for breach of the foregoing warranty, shall be at
LUMINEX's option, repair or replacement of the Product with a conforming Product
or refund of a percentage of the fee paid by BIO-RAD for the Product which
percentage would be computed based on prior usage. Except as otherwise expressly
set forth in this Agreement, LUMINEX MAKES NO OTHER WARRANTIES OR CONDITION WITH
RESPECT TO THE PRODUCT, EXPRESS OR IMPLIED, AND SPECIFICALLY DISCLAIMS THE
IMPLIED WARRANTIES AND CONDITION OF MERCHANTABILITY, NONINFRINGEMENT AND FITNESS
FOR A PARTICULAR PURPOSE.
Warranty Return Policies. In the event that a Product fails to conform to
------------------------
the warranty set forth in paragraph 1 above, during the warranty period (i)
BIO-RAD shall notify LUMINEX in a timely manner in writing that such Product
failed to conform and shall furnish a detailed explanation of any alleged
nonconformity; and (ii) at LUMINEX's option and election, BIO-RAD shall return
such nonconforming Product to LUMINEX F.O.B. (U.C.C.) LUMINEX's manufacturing
facility or destroy such Product and provide LUMINEX with written certification
of destruction. Except as expressly provided in this paragraph, BIO-RAD would
not have the right to return a Product to LUMINEX without LUMINEX's prior
written consent.
<PAGE>
EXHIBIT D
TRADEMARKS
Luminex
Luminex100
<PAGE>
EXHIBIT E
LUMINEX100 SYSTEM PRICING
-------------------------
Product
Number Item Description
- ------ ----------------
51-00001 Luminex100 System [**]
[**]
This Luminex100 Purchase Price will be effective during the first [**] years of
this Agreement, after which time LUMINEX may, at its option, increase the
Luminex100 Purchase Price effective on [**] days written notice to BIO-
RAD, provided that such increases may occur no more frequently than once per
year. Any increase in the Luminex100 Purchase Price shall be effective for all
Luminex100 Systems ordered after such notice.
_____________
[**] Indicates that material has been omitted and confidential treatment
requested therefor. All such material has been filed separately with the
Commission pursuant to Rule 406.
<PAGE>
EXHIBIT 10.8
Confidential Materials omitted and filed separately with the Securities and
Exchange Commission. Asterisks denote omissions.
AMENDMENT TO DEVELOPMENT AND SUPPLY AGREEMENT
This Amendment to Development and Supply Agreement ("Amendment"), effective
as of January 13, 2000 (the "Amendment Effective Date"), by and between Luminex
Corporation, a Delaware corporation with principal offices at 12212 Technology
Boulevard, Austin, Texas 79727 ("LUMINEX") and Bio-Rad Laboratories, Inc., a
Delaware corporation with principal offices at 1000 Alfired Nobel Drive,
Hercules, California 94547 ("BIO-RAD") (LUMINEX and BIO-RAD collectively, the
"Parties"), amends that certain Development and Supply Agreement by and between
the Parties effective as of March 19, 1999 (the "Agreement").
WHEREAS, the Parties desire to amend the Agreement as set forth herein
below.
NOW, THEREFORE, the Parties agree as follows:
AMENDMENT. This Amendment hereby amends the Agreement to incorporate the
terms and conditions set forth in this Amendment. The relationship of the
Parties shall continue to be governed by the terms and conditions of the
Agreement, as amended herein; and in the event that there is any conflict
between the terms and conditions of the Agreement and this Amendment, the term
and conditions of this Amendment shall control. As used in this Amendment, all
capitalized terms shall have the meanings defined for such terms in this
Amendment or, if not defined in the Amendment, the meanings defined in the
Agreement
MODIFICATIONS TO THE AGREEMENT.
I. Exhibit A to the Agreement is hereby amended to add the following:
[**]
2. "Field Two" in Exhibit A of the Agreement is deleted and replaced with
the following: [**]
3. Section 1.7 of the Agreement is hereby amended to add the following:
"Fields Five and Six, as set forth in Exhibit A, shall be limited to
Research Use.
4. The Agreement is hereby amended to add the following Section 1.23:
- -----------
[**] Indicates that material has been omitted and confidential treatment
requested therefor. All such material has been filed separately with the
Commission pursuant to Rule 406.
<PAGE>
"1.23 "Research Use" means the performance of basic life science
-------------
research, including high throughput screening, but in all events
excluding laboratory testing for human clinical diagnostic
purposes."
5. Section 2.1 (d) of the Agreement is hereby amended to delete the last
sentence of such section and replace it with the following:
"Notwithstanding any provision of this Agreement to the contrary,
including the provisions of Section 8.3, if the parties do not agree by
June 1, 2000 upon: (i) a tolling fee for Magnetic Beads of less than or
equal to [**] ($[**]) for every three thousand (3000) units of Magnetic
Beads purchased, where a "unit" of Magnetic Beads is equal to one
microsphere bead, and (ii) the development of a beadmap for Magnetic
Beads which shall be capable of discriminating between [**] analytes
with a minimum accuracy level of [**] percent ([**]%) and no more than
[**] percent ([**]%) misclassification, all rights of BIO-RAD to have
LUMINEX treat the Magnetic Beads hereunder and all obligations of
LUMINEX with respect to the treatment or processing of Magnetic Beads
for BIO-RAD hereunder shall automatically terminate unless otherwise
agreed in writing, provided, however, that in such event BIO-RAD shall
-------- -------
have the right to have the Magnetic Beads processed by BIO-RAD or a
third party and, for the avoidance of doubt, BIO-RAD shall retain the
exclusivity rights with respect to Magnetic Beads set forth in Section
3.2 of this Agreement."
6. Section 3.1 of the Agreement is hereby amended to add the following
after the phrase "only as part of BIO-RAD Systems":
"'or, within Fields Five and Six, Luminex100 Systems separately"
7. Section 3.1 of the Agreement is hereby further amended to add the
following after the phrase "BIO-RAD U.S. Diagnostics Division
management":
"or BIO-RAD U.S. Life Sciences Division management"
8. Section 3.1 of the Agreement is hereby further amended to add the
following after the phrase "in conjunction with their operation of BIO-
RAD Systems":
"and Luminex100 Systems"
9. Section 3.3(b)(i) of the Agreement is hereby amended to add the
following after the phrase "human clinical diagnostics industry":
"or the life science research industry"
10. Section 3.5 of the Agreement is hereby amended to add the following
after the phrase "BIO-RAD U.S. Diagnostics Division management":
"or BIO-RAD U.S. Life Sciences Division management"
------------
[**] Indicates that material has been omitted and confidential
treatment requested therefor. All such material has been filed
separately with the Commission pursuant to Rule 406.
-2-
<PAGE>
11. Section 4.6(c) of the Agreement is hereby amended to add the following
after the phrase "in vitro diagnostic Kits":
--------
"or Kits for Research Use"
12. Section 4.8 of the Agreement is hereby amended to add the following
after the phrase "All invoices shall be sent to the following
address:"
"For Clinical Diagnostics Group, Bio-Rad Laboratories, Accounts
Payable, 4000 Alfred Nobel Drive, Hercules, California 49547, or for
Life Sciences Group, Bio Rad Laboratories, Accounts Payable, 2000
Alfred Nobel Drive, Hercules, California."
13. Section 4.11 (a) of the Agreement is hereby amended to add the
following after the phrase "At the Effective Date:"
"and at the Amendment Effective Date"
14. Section 4.11(b) of the Agreement is hereby amended to add the
following after the phrase "the date of this Agreement:"
"and at the Amendment Effective Date"
15. Section 5.2 of the Agreement is hereby amended to read in its entirety
as follows:
"Exclusivity of Efforts. To avoid conflicts of interest, BIO-RAD and
----------------------
its Affiliates will not manufacture, market, sell or otherwise
distribute any materials, technologies or products, other than
Luminex100 Systems, Bio-Rad Systems and Kits, specifically designed
for performing Multiplexed Bead Assays using flow cytometry based
detection of particles for use in the human clinical diagnostics
industry or for Research Use within the Fields. In addition, BIO-RAD
agrees that except for performing its development obligations as
agreed pursuant to Section 2.1 and the development and manufacture of
Bio-Rad Systems, neither BIO-RAD's clinical diagnostics division or
group nor BIO-RAD's life sciences division or group will directly or
indirectly develop any materials, technologies or products
specifically designed for performing Multiplexed Bead Assays within
the Fields using flow cytometry based detection of particles. BIO-RAD
further agrees that it will not provide research and development
funding to or license any third party to develop, manufacture, market,
sell or otherwise distribute any materials, technologies or products
specifically designed for performing Multiplexed Bead Assays within
the Fields using flow cytometry based detection of particles. It is
understood that the foregoing sentence shall not apply to passive
investments by BIO-RAD in equity of third parties for use in the human
clinical diagnostics industry or for Research Use."
-3-
<PAGE>
16. Section 8.1 of the Agreement is hereby amended to add the following
after the words "each such renewal term":
"but which in no case shall vary by more than [**] percent ([**]%)
from the average of the three prior years' sales. Notwithstanding the
foregoing provisions of this Section 8.1, Fields Five and Six shall be
included in the Agreement during each of the renewal terms only if the
parties agree upon and BIO-RAD meets annual sales goals with respect
to Kits in Fields Five and Six, which annual sales goals shall be
negotiated in good faith by the parties prior to the commencement of
each such renewal term but which in no case shall vary by more than
[**] percent ([**]%) from the average of the three prior years'
sales."
17. Section 8.3 of the Agreement is hereby amended to add the following
after the phrase "Luminex100 System" in the second line of that
Section:
"(or, with respect to Fields other than Fields One, Two, Three or
Four, beginning five (5) years after the addition to the Agreement of
such Field or Fields)"
18. Section 8.3 of the Agreement is hereby further amended to delete the
last sentence thereof and replace if with the following:
"If BIO-RAD has not made commercially available Kits incorporating
Magnetic Beads in each of Fields One, Two, Three and Four within [**]
years of the Effective Date plus any extension of time necessary to
produce Magnetic Beads reasonably acceptable to BIO-RAD, LUMINEX may
terminate BIO-RAD's exclusive rights with respect to Magnetic Beads in
Fields One, Two, Three and Four by written notice to BIO-RAD. If BIO-
RAD has not made commercially available Kits incorporating Magnetic
Beads in each of Fields Five and Six within three (3) years of the
Amendment Effective Date plus any extension of time necessary to
produce Magnetic Beads reasonably acceptable to BIO-RAD, LUMINEX may
terminate BIO-RAD's exclusive rights with respect to Magnetic Beads in
Five and Six by written notice to BIO- RAD.
19. Section 12.2 of the Agreement is hereby amended to add the following
after the word "Group" in the third line of that Section:
"or BIO-RAD Vice-President Life Sciences Division, as appropriate,"
20. Section 12.8 of the Agreement is hereby amended to add the following
at the end of that Section:
"with a further copy to:
Bio-Rad Laboratories, Inc. Life Science Group
2000 Alfred Nobel Drive
Hercules, California 94547
Attention: Vice-President, Life Science Group"
- --------------
[**] Indicates that material has been omitted and confidential treatment
requested therefor. All such material has been filed separately with the
Commission pursuant to Rule 406.
-4-
<PAGE>
Fax: (510) 741-5803"
21. ADDITIONAL TERM: ADVANCE AGAINST ROYALTIES. Upon the effective date of
this Amendment, BIO-RAD shall pay to LUMINEX an aggregate of [**] Dollars
($[**]) for both of Fields Five and Six as an Advance.
22. The additional fee for expansion of Field Two set forth in Exhibit A of
the Agreement is waived.
ENTIRE AGREEMENT. Notwithstanding the first sentence of Section 12.17 of the
Agreement, together the Agreement (including the Exhibits thereto) and this
Amendment constitute the entire agreement between the Parties in connection
with the subject matter thereof and supersede all prior and contemporaneous
agreements, understandings, negotiations and discussions, whether oral or
written, of the Parties.
IN WITNESS WHEREOF, the Parties have executed this Amendment.
LUMINEX CORPORATION BIO-RAD LABORATORIES, INC.
By: /s/ Randel S. Marfin By: /s/ Sanford Wadler
---------------------- --------------------
Name: Randel S. Marfin Name: Sanford Wadler
---------------------- --------------------
Title: Vice President - Business Development Title: Vice President
-------------------------------------- --------------------
- ----------
[**] Indicates that material has been omitted and confidential treatment
requested therefor. All such material has been filed separately with the
Commission pursuant to Rule 406.
-5-
<PAGE>
- --------------------------------------------------------------------------------
Exhibit 23.2
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the captions "Selected financial
data" and "Experts" and to the use of our report dated January 28, 2000, except
for Notes 4 and 10, as to which the date is March 9, 2000, in the Registration
Statement (Amendment No. 3 to Form S-1) and related Prospectus of Luminex
Corporation for the registration of shares of its common stock.
/s/ Ernst & Young LLP
Austin, Texas
March 27, 2000
- --------------------------------------------------------------------------------
