<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 18, 2000
REGISTRATION NO. 333-34340
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------------------
AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------------------------
CEPHEID
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
CALIFORNIA 3826 77-0441625
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
</TABLE>
1190 BORREGAS AVENUE
SUNNYVALE, CALIFORNIA 94089-1302
(408) 541-4191
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
----------------------------
THOMAS GUTSHALL
CHIEF EXECUTIVE OFFICER
CEPHEID
1190 BORREGAS AVENUE
SUNNYVALE, CALIFORNIA 94089-1302
(408) 541-4191
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
----------------------------
Copies to:
<TABLE>
<S> <C>
August J. Moretti Frederick W. Kanner
Heller Ehrman White & McAuliffe LLP Robert M. Smith
2500 Sand Hill Road, Suite 100 Dewey Ballantine LLP
Menlo Park, California 94025-7063 1301 Avenue of the Americas
Telephone: (650) 234-4229 New York, New York 10019-6092
Facsimile: (650) 234-4299 Telephone: (212) 259-8000
Facsimile: (212) 259-6333
</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, as amended (the "Securities Act"), check the following box. [ ]
If the 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 number of the earlier effective
registration statement for the same offering. [ ]
If the 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 the 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 OR UNTIL THE 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> 2
The information in this preliminary 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.
PRELIMINARY PROSPECTUS Subject to completion May 18, 2000
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5,000,000 Shares
CEPHEID LOGO
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 $10.00 and $12.00 per share.
We have applied to have our common stock listed on the Nasdaq National Market
under the symbol "CPHD."
BEFORE BUYING ANY SHARES, YOU SHOULD READ THE DISCUSSION OF MATERIAL RISKS OF
INVESTING IN OUR COMMON STOCK IN "RISK FACTORS" BEGINNING ON PAGE 8.
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
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<S> <C> <C>
Public offering price $ $
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Underwriting discounts and commissions $ $
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Proceeds, before expenses, to Cepheid $ $
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</TABLE>
The underwriters may also purchase up to 750,000 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 Cepheid 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.
UBS WARBURG LLC
PRUDENTIAL VECTOR HEALTHCARE
A UNIT OF PRUDENTIAL SECURITIES
INVEMED ASSOCIATES
<PAGE> 3
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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.......................... 6
Summary consolidated financial data... 7
Risk factors.......................... 8
Forward-looking information........... 16
Use of proceeds....................... 17
Dividend policy....................... 17
Capitalization........................ 18
Dilution.............................. 19
Selected consolidated financial
data................................ 20
Management's discussion and analysis
of financial condition and results
of operations....................... 22
Business.............................. 28
Management............................ 46
Related party transactions............ 53
Principal shareholders................ 55
Description of capital stock.......... 57
Shares eligible for future sale....... 60
Underwriting.......................... 62
Legal matters......................... 64
Experts............................... 64
Where you can find more information... 65
Index to consolidated financial
statements.......................... F-1
</TABLE>
Cepheid(TM), Smart Cycler(R), I-CORE(TM) and GeneXpert(TM) are trademarks of
Cepheid. Other service marks, trademarks and trade names referred to in this
prospectus are the property of their respective owners.
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<PAGE> 4
Inside cover p.1
Illustration: This illustration, on the right side of the page, depicts
Cepheid's integrated sample preparation, amplification and
detection technology. The illustration shows the elements
of a disposable sample preparation cartridge linking with
the elements of an I-CORE module to perform amplification
and detection. The illustration is accompanied by text,
referencing on the appropriate section of the illustration.
Headline: Automating Gene-Based Testing
Caption: Integrated, Automated, Miniaturized Microfluidic Platforms
for Analyzing Complex Biological Samples, Including Sample
Preparation, Amplification and Detection.
Sub-header: Sample Preparation
In development
Caption: Our microfluidic cartridges, easily held in the palm of your
hand, replace several skilled technicians in a laboratory,
performing all processing steps in a matter of minutes.
Captions:
A raw specimen containing the DNA of interest is added to
the disposable cartridge.
Fluid Chambers: Flow-through fluid control measures and mixes the specimen
and reagents.
Lysing Module: Cells and organisms are rapidly lysed to release their DNA.
Microfluidic
Chip: Micromachined chips capture, purify, and concentrate DNA
molecules.
Reaction tube: Purified DNA molecules are mixed with amplification and
detection chemicals...and delivered into our patented
reaction tube, optimized for amplification and detection.
Sub-header: Amplification and Detection
Commercially available
Caption: Our I-CORE (Integrated Cooling/Heating Optics Reaction)
module is a miniaturized, temperature-controlled
fluorimeter for performing and continuously monitoring
biochemical reactions.
Captions:
Heater: Rapid, precise temperature control speeds time to result.
Optic blocks: Powerful optical analysis, detecting, monitoring and
qualifying up to four different DNA targets simultaneously.
<PAGE> 5
Base of illustration: I-CORE: Every I-CORE module in a larger system
can be operated independently, providing a level of
flexibility not possible with any other bioanalysis
system.
Fold-Out p. 2-3
Title: Cepheid's Integrated Technology Platforms and Products
Fold-Out p. 2
Inside Front Cover
The series of five images in the center of the page shows actual elements of
the Smart Cycler family of products. The first image shows a computer rendering
of a reaction tube. The second image is a photograph of an actual I-CORE module
with a reaction tube held above the module. The third and fourth photographs
show the Smart Cycler System, one that shows the internal 16 I-CORE modules
contained in the system, and another with a reaction tube held above a fully
functional Smart Cycler system. The fifth photograph represents a portable
Notebook Smart Cycler system.
Headline: The Smart Cycler(R) family
Caption: The Smart Cycler(R) family of systems enables rapid
amplification and real time detection of DNA targets in
both a laboratory and portable, field environment.
Sub-header: I-CORE(TM) tube and module;
Commercially available
Text: The patented I-CORE consumable reaction tube enables
efficient reaction and fast detection.
Artwork: Computer image of reaction tube.
Text: The I-Core module -- a single-site DNA assay reaction and
detection system. The building block for Cepheid's broad
range of DNA testing systems -- lab-based and portable.
Artwork: Picture of hand holding reaction tube above I-CORE module.
Sub-header: The 16-site Smart Cycler
Commercially available
Text: Cepheid's first product, the Smart Cycler System, which
contains 16 I-CORE modules.
Artwork: Picture of hand holding I-CORE module above Smart Cycler
system.
Artwork: Picture of hand holding reaction tube above Smart Cycler
system.
<PAGE> 6
Sub-header: Notebook Smart Cycler
In development
Text: This portable DNA testing system contains two I-CORE modules
integrated with a notebook computer.
Artwork: Picture of hand placing tube into a notebook Smart Cycler.
Fold-Out p.3
The series of four images in the center of the page shows elements of the
GeneXpert family of products. The first image shows a photograph of an
industrial designed sample preparation cartridge. The second and third images
represent scanning electron micrographs of a microfluidic chip, one at 3 mm in
size, and a magnified view at 50 um. The fourth image is a computer rendering
of a GeneXpert prototype that is designed to accommodate four sample preparation
cartridges.
Headline: The GeneXpert(TM) family
Caption: The GeneXpert(TM) family of systems will fully integrate
cartridge-based sample preparation with rapid amplification
and detection -- one step rapid DNA detection and analysis.
Sub-header: Sample preparation cartridge
In development
Text: All the steps necessary to perform a complex DNA analysis --
out of the lab and into your hand. A consumable cartridge,
designed for use with I-CORE based systems for complete,
seamless automation.
Artwork: Photograph of hand holding sample preparation cartridge.
Sub-header: Microfluidic chip
In development
Text: Micromachined silicon chips operate in a "flow-through"
mode, enabling capture and concentration of DNA in a sample
preparation cartridge.
Artwork: Scanning electron micrographs showing silicon chip at 3 mm
view.
Artwork: Scanning electron micrographs showing silicon chip at 50 um
view.
Sub-header: GeneXpert(TM) prototype
In development
Text: Industrial design for the GeneXpert system based on a
prototype. From raw specimen to result, automatically, in
less than 1 hour.
<PAGE> 7
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 that we discuss under "Risk factors." Our principal
executive offices are located at 1190 Borregas Avenue, Sunnyvale, California
94089. Our telephone number is (408) 541-4191. Our web site is
http://www.cepheid.com. We do not intend the information found on our website to
be a part of this prospectus.
OUR BUSINESS
We develop, manufacture and market microfluidic systems that integrate, automate
and accelerate biological testing. Our systems are miniaturized instruments that
analyze complex biological samples in a disposable cartridge by combining
molecular biology with microfluidic technology that processes small quantities
of liquid, typically using components fabricated with computer chip technology.
These systems rapidly perform all of the steps required to analyze complex
biological samples. We are initially focused on the detection and analysis of
nucleic acids, such as DNA, in samples such as blood, urine, cell cultures, food
and industrial water. The three key processing steps in nucleic acid testing
are:
+ SAMPLE PREPARATION -- procedures that must be performed to isolate the target
cells and to separate and purify their nucleic acids;
+ AMPLIFICATION -- a chemical process to make large quantities of DNA; and
+ DETECTION -- the method of determining the presence or absence of the target
DNA, typically through the use of fluorescent dyes.
Our systems can perform a broad range of functions that include automated
purification of DNA, screening for disease-causing agents, rapid detection of
food and water contaminants and genetic profiling. Our systems are designed for
a wide variety of laboratory and field settings, enabling users to perform tests
where and when they are needed.
We commenced commercial sales of our first product, the Smart Cycler, during May
2000. We have not, to date, recorded significant revenues from product sales.
The Smart Cycler is a fast, versatile DNA amplification and detection system
initially directed to the life sciences research market. Our GeneXpert system,
currently in development, is designed to integrate automated sample preparation
with our Smart Cycler amplification and detection technology in a disposable
cartridge format. This fully integrated system will allow us to perform analysis
of biological samples faster and more efficiently than products currently
available. We are collaborating with strategic partners to co-develop assays, or
biological tests, and to provide marketing and sales support across a broad
range of markets.
OUR MARKET OPPORTUNITY
The life sciences research, clinical diagnostics, industrial testing and
pharmacogenomics markets use assays extensively to detect and quantify nucleic
acids or proteins in biological samples. With the recent advances in the field
of gene sciences, or genomics, and the resulting availability of vast DNA
sequence libraries that catalogue the structure of various sequences of DNA,
there has been a marked shift towards biological tests that detect the presence
of DNA sequences unique to a gene in a sample. Such gene-based testing offers a
level of sensitivity and specificity unmatched by other technologies and is the
fastest growing segment in these markets. We believe that DNA assays will only
achieve their full market potential upon the development of advanced instruments
and integrated processes that address the following issues:
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3
<PAGE> 8
+ LONG TIME TO RESULT -- Currently, sample preparation, amplification and
detection can require several hours or even days, especially when cell
culturing is needed;
+ EXPENSIVE, LARGE AND INFLEXIBLE EQUIPMENT -- Most currently available
equipment is expensive, large and inflexible and is typically configured to
accommodate only one assay protocol at a time;
+ SKILLED TECHNICIANS, LABORATORY REQUIRED -- The majority of currently
available equipment and methods require skilled scientists and technicians
and a laboratory setting;
+ SAMPLE VOLUME CONSTRAINTS -- Existing microfluidic technologies accept and
process only very small sample volumes and therefore cannot assure that the
target molecule, if present in the sample, will be captured; and
+ LACK OF INTEGRATION -- Currently available amplification and detection
systems do not integrate automated sample preparation.
THE CEPHEID SOLUTION
We have developed integrated microfluidic instruments designed to incorporate
our automated sample preparation, amplification and detection technologies. Our
systems will allow practitioners in the life sciences research, clinical
diagnostics, industrial testing and pharmacogenomics markets to make use of the
vast new libraries of nucleic acid sequences now being generated by genomics
researchers. We believe our technologies provide the following advantages:
+ RAPID RESULTS -- Our proprietary I-CORE technology, incorporated into our
Smart Cycler and GeneXpert systems, generally achieves the heating and
cooling, or thermal cycling, required for DNA amplification and detection in
under 25 minutes. Our GeneXpert system has accomplished sample preparation in
as little as five minutes;
+ INEXPENSIVE, MODULAR, FLEXIBLE -- Our systems are flexible platforms that are
designed to run several different types of assays simultaneously. Our systems
are modular, enabling us to build products to meet the varying needs of our
target markets;
+ EASY TO OPERATE, PORTABLE -- The automation designed into our products will
permit operation by less skilled personnel and enable testing at the point of
use, outside of a laboratory setting;
+ WIDE RANGE OF SAMPLE VOLUMES -- In applications where the concentration of
the target molecule or organism is low, larger sample volumes must be tested
to find the target. Our GeneXpert system is designed to handle, in a
disposable cartridge, higher sample volumes than any other product currently
available; and
+ INTEGRATION OF KEY STEPS -- Our GeneXpert system is designed to integrate
sample preparation, amplification and detection into one system.
THE CEPHEID STRATEGY
Our objective is to become the leading provider of microfluidic systems that
integrate, automate and accelerate biological testing. Key elements of our
strategy include:
+ APPLY CORE TECHNOLOGIES BROADLY -- We intend to integrate our proprietary
I-CORE and automated sample preparation technologies to provide rapid
biological analysis platforms with applicability across a number of markets.
Our unique capabilities for rapid sample preparation through the use of
microfluidics will streamline this otherwise labor-intensive process;
+ INTRODUCE PRODUCTS IN STAGES -- We intend to establish an initial market
position in the life sciences research market by providing a fast, flexible
thermal cycler, our Smart Cycler. Our next product, the GeneXpert system,
will integrate and automate sample preparation with amplification and
detection;
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4
<PAGE> 9
+ FOCUS INITIALLY ON NUCLEIC ACID ANALYSIS -- We are initially focusing on the
development and application of our platform technologies to the field of
rapid nucleic acid analysis. We will adapt our sample preparation and
amplification technologies to increase the number of samples that can be
processed, referred to as throughput, as well as lower costs and provide
greater sensitivity;
+ COLLABORATE WITH PARTNERS -- We intend to market our systems to each of our
targeted market segments principally through partners to provide marketing,
sales, service and distribution. We have entered into a distribution
agreement with Fisher Scientific for the life sciences research market and in
May 2000 commenced sales of the Smart Cycler system in this market. Upon
receipt of necessary regulatory and other approvals, we intend to enter into
the clinical diagnostics market, initially through collaborative arrangements
with Innogenetics and Infectio Diagnostic. Our research also indicated that
significant opportunities exist in the industrial testing and
pharmacogenomics markets, and we have commenced discussions with potential
collaborative partners to penetrate these markets. We will utilize our
partners to develop chemistries for assays; and
+ GENERATE RECURRING REVENUE FROM DISPOSABLE PRODUCTS -- We expect to generate
recurring revenue from the manufacture and sale of our single use reaction
tubes and integrated sample preparation cartridges.
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5
<PAGE> 10
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.
Common stock we are offering........ 5,000,000 shares
Common stock to be outstanding after
the offering........................ 25,515,430 shares
Proposed Nasdaq National Market
symbol.............................. CPHD
Use of proceeds..................... To fund our research and development
activities, expand manufacturing and
customer service for existing products,
continue development and manufacturing
of additional products, for other
working capital and general corporate
purposes, for capital expenditures,
including expansion of our facilities
and to support possible acquisitions
and strategic investments. See "Use of
proceeds."
Unless we indicate otherwise, when analyzing the information in this prospectus,
you should assume that all outstanding shares of our preferred stock convert
into 13,326,636 shares of our common stock upon the closing of this offering.
The number of shares of common stock to be outstanding after the offering in the
table above is based on the number of shares outstanding as of March 31, 2000,
excluding:
+ 540,276 shares issuable upon the exercise of options at a weighted average
exercise price of $2.39 per share;
+ 320,397 shares issuable upon the exercise of warrants at a weighted average
exercise price of $2.49 per share;
+ 892,930 additional shares available for future grant under our 1997 Stock
Option Plan;
+ 200,000 additional shares available for future grant under our 2000
Non-Employee Directors' Stock Option Plan; and
+ 200,000 additional shares available for future purchase under our 2000
Employee Stock Purchase Plan.
In addition, we have agreed to issue an additional 750,000 shares if the
underwriters exercise their over-allotment option in full, which we describe in
"Underwriting." If the underwriters exercise this option in full, 26,265,430
shares of our common stock will be outstanding after this offering.
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6
<PAGE> 11
Summary consolidated financial data
The as adjusted consolidated balance sheet reflects the receipt of the net
proceeds from the sale of 5,000,000 shares of our common stock in this offering
at an assumed price to the public of $11.00 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. The statement of
operations for the year ended December 31, 1997 included approximately $95,000
of expenses incurred from our inception (March 4, 1996) through December 31,
1996 related to fund raising activities. Although we were formed in March 1996,
we did not receive our initial financing until March 1997.
<TABLE>
<CAPTION>
PERIOD FROM PERIOD FROM
INCEPTION INCEPTION
(MARCH 4, (MARCH 4,
1996) THROUGH YEAR ENDED 1996) THROUGH THREE MONTHS ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, MARCH 31,
1997 1998 1999 1999 1999 2000
CONSOLIDATED STATEMENT
OF OPERATIONS DATA (IN THOUSANDS, EXCEPT PER SHARE DATA)
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<S> <C> <C> <C> <C> <C> <C>
Total revenues.................... $ 1,445 $ 3,577 $ 3,595 $ 8,617 $ 615 $ 916
Operating costs and expenses:
Cost of product sales........... -- -- 97 97 -- 131
Research and development........ 2,220 5,990 10,262 18,472 2,282 3,467
Selling, general and
administrative................ 583 1,178 1,297 3,058 289 730
------- ------- ------- -------- -------- --------
Total costs and operating
expenses................. 2,803 7,168 11,656 21,627 2,571 4,328
Loss from operations.............. (1,358) (3,591) (8,061) (13,010) (1,956) (3,412)
Interest income................... 88 325 250 663 104 202
Interest and other expense........ (4) (45) (108) (157) (19) (43)
------- ------- ------- -------- -------- --------
Net loss.......................... (1,274) (3,311) (7,919) (12,504) (1,871) (3,253)
Deemed dividend to preferred
shareholders.................... -- -- -- -- -- 19,114
------- ------- ------- -------- -------- --------
Net loss allocable to common
shareholders.................... $(1,274) $(3,311) $(7,919) $(12,504) $ (1,871) $(22,367)
------- ------- ------- -------- -------- --------
------- ------- ------- -------- -------- --------
Basic and diluted net loss per
common share.................... $ (7.61) $ (1.37) $ (1.90) $ (0.55) $ (4.42)
------- ------- ------- -------- --------
------- ------- ------- -------- --------
Shares used in computing basic and
diluted net loss per common
share........................... 167 2,414 4,164 3,415 5,065
Pro forma basic and diluted net
loss per common share........... $ (0.71) $ (1.22)
------- --------
------- --------
Shares used in computing pro forma
basic and diluted net loss per
common share.................... 11,111 18,391
</TABLE>
<TABLE>
<CAPTION>
AS OF MARCH 31, 2000
ACTUAL AS ADJUSTED
CONSOLIDATED BALANCE SHEET DATA (IN THOUSANDS)
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<S> <C> <C>
Cash and cash equivalents................................... $ 18,420 $ 68,270
Working capital............................................. 17,264 67,114
Total assets................................................ 22,087 71,937
Long-term portion of debt and capital lease obligations..... 1,071 1,071
Deficit accumulated during the development stage............ (15,757) (15,757)
Total shareholders' equity.................................. 18,546 68,396
</TABLE>
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7
<PAGE> 12
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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 ARE HEAVILY DEPENDENT ON THE EFFORTS OF FISHER SCIENTIFIC FOR THE MARKETING
AND SALE OF OUR FIRST PRODUCT. IF OUR PRODUCTS DO NOT ACHIEVE MARKET ACCEPTANCE,
WE WILL NOT ACHIEVE PROFITABILITY.
Our technologies are still in the early stages of development. We commenced
commercial sale of our first product, the Smart Cycler system, for the life
sciences research market in the first half of 2000. Fisher Scientific is the
co-exclusive distributor of our Smart Cycler system for the life sciences
research market. We will be substantially dependent on Fisher Scientific for the
marketing and sales of the Smart Cycler system and we will have little ability
to influence its efforts. If our Smart Cycler system is not successful, this
could have a negative impact on our ability to sell future systems. If our
systems do not gain market acceptance, we will be unable to generate significant
sales, which will prevent us from achieving profitability. Market acceptance
will depend on many factors, including:
+ our ability and the ability of our collaborators to convince our potential
customers of the advantages and economic value of our systems over
well-established technologies and products;
+ our ability and the ability of our collaborators to sell our systems; and
+ the success of our competitors' efforts to market and sell their products.
Our systems have been in operation for a limited period of time. As a result we
have not fully established their accuracy, reliability or ease of operation in
commercial use. If our Smart Cycler systems are not accepted in the marketplace,
this could have a negative effect on our ability to sell subsequent systems.
WE EXPECT TO INCUR FUTURE OPERATING LOSSES AND MAY NOT ACHIEVE OR MAINTAIN
PROFITABILITY.
We have experienced significant operating losses each year since our inception
and expect to incur substantial additional operating losses at least through
2002, primarily as a result of expected increases in expenses for manufacturing
capabilities, research and product development costs and selling, general and
administrative costs. We may never achieve profitability. For example, we
experienced net losses of approximately $1.3 million in the period from
inception (March 4, 1996) to December 31, 1997, $3.3 million in 1998, $7.9
million in 1999 and $3.3 million for the three months ended March 31, 2000. As
of March 31, 2000, we had an accumulated deficit of approximately $15.8 million.
Our losses have resulted principally from costs incurred in research and
development and from selling, general and administrative costs associated with
our operations.
WE DEPEND ON COLLABORATIONS WITH OTHER COMPANIES TO COMMERCIALIZE OUR PRODUCTS.
IF OUR COLLABORATORS ARE UNSUCCESSFUL OR IF WE ARE NOT ABLE TO FIND PROSPECTIVE
COLLABORATORS, WE MAY NOT BE ABLE TO COMMERCIALIZE OUR PRODUCTS.
We have entered into non-exclusive collaborations with Innogenetics and Infectio
Diagnostics whereby our partners will provide funding to support the development
and engineering efforts required to adapt
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8
<PAGE> 13
RISK FACTORS
- --------------------------------------------------------------------------------
our systems to meet their specific market needs. Through these collaborations,
we also intend to rely upon our partners to provide the marketing, sales,
service and distribution functions. We only intend to develop a limited internal
capability for these functions. These contracts expire after a fixed period of
time. If they are not renewed or if we do not enter into new collaboration
agreements, our revenues will be reduced and our products may not be
commercialized. Our collaborators have the responsibility, where required, to
apply for the regulatory approval of any products to the US Food and Drug
Administration, or FDA, and corresponding regulatory agencies in other
countries. In addition, our collaborators may require a license for the
chemistries used in our products. Although we believe our collaborators have an
economic motivation to succeed in performing their contractual responsibilities,
we have limited or no control over the resources that any collaborator may
devote to our products. Any of our present or future collaborators may not
perform their obligations as expected. These collaborators may breach or
terminate their agreements with us or otherwise fail to conduct their
collaborative activities successfully and in a timely manner. Further, our
collaborators may not devote sufficient resources to the marketing, sale,
service or distribution of these products. If any of these events occur, we may
not be able to commercialize our products.
WE WILL REQUIRE A LICENSE FOR THERMAL CYCLING IN THE FIELD OF CLINICAL
DIAGNOSTICS AND OUR BUSINESS WILL SUFFER IF WE ARE UNABLE TO OBTAIN SUCH
LICENSE.
We have received a license from PE Biosystems for thermal cycling limited to the
fields of life sciences research, industrial testing, aspects of identity
testing and forensics. We will require a license from PE Biosystems for thermal
cycling in additional fields, such as clinical diagnostics. PE Biosystems
competes with us in the sale of thermal cycling equipment. We may not be able to
obtain such license on reasonable terms, or at all. If we are unable to obtain
such a license, we may be unable to sell our products for use in these fields.
This would reduce the market for our products and reduce our future revenues.
COMPETING TECHNOLOGIES MAY ADVERSELY AFFECT US.
We expect to encounter intense competition from a number of companies that offer
products in our targeted application areas. We anticipate that these competitors
will include:
+ companies developing and marketing life sciences research products;
+ health care companies that manufacture laboratory-based tests and analyzers;
+ diagnostic and pharmaceutical companies; and
+ companies developing drug discovery technologies.
If we succeed in developing products in these areas, we will face competition
from both established and development-stage companies that continually enter
these markets.
In many instances, our competitors have substantially greater financial,
technical, research and other resources and larger, more established marketing,
sales, distribution and service organization than we have. Moreover, these
competitors may offer broader product lines and tactical discounts, and have
greater name recognition.
In addition, several companies are currently making or developing products that
may or will compete with our products. Our competitors may succeed in
developing, obtaining FDA approval for or marketing technologies or products
that are more effective or commercially attractive than our potential products
or that render our technologies and potential products obsolete. As these
companies develop their technologies, they may develop proprietary positions
that may prevent us from successfully commercializing our products.
- --------------------------------------------------------------------------------
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RISK FACTORS
- --------------------------------------------------------------------------------
Also, we may not have the financial resources, technical expertise or marketing,
distribution or support capabilities to compete successfully in the future.
WE EXPECT THAT OUR OPERATING RESULTS WILL FLUCTUATE SIGNIFICANTLY AND ANY
FAILURE TO MEET FINANCIAL EXPECTATIONS MAY DISAPPOINT SECURITIES ANALYSTS OR
INVESTORS AND RESULT IN A DECLINE IN OUR STOCK PRICE.
We expect that our quarterly operating results will fluctuate in the future as a
result of many factors, some of which are outside of our control. We expect our
gross profit to fluctuate depending upon the timing of introduction and
acceptance of our products. In addition, our operating results may be effected
by the inability of some of our customers to consummate anticipated purchases of
our products, whether due to changes in internal priorities or, in the case of
governmental customers, problems with the appropriations process. It is possible
that in some future quarter or quarters our operating results will be below the
expectations of securities analysts or investors. In this event, the market
price of our common stock may fall abruptly and significantly. Because our
revenue and operating results are difficult to predict, we believe that
period-to-period comparisons of our results of operations are not a good
indication of our future performance.
If revenue declines in a quarter, whether due to a delay in recognizing expected
revenue or otherwise, our earnings will decline because many of our expenses are
relatively fixed. In particular, research and development and selling, general
and administrative expenses are not significantly affected by variations in
revenue.
OUR PRODUCTS COULD INFRINGE ON THE INTELLECTUAL PROPERTY RIGHTS OF OTHERS, WHICH
MAY REQUIRE COSTLY LITIGATION AND, IF WE ARE NOT SUCCESSFUL, COULD ALSO CAUSE US
TO PAY SUBSTANTIAL DAMAGES AND LIMIT OUR ABILITY TO SELL SOME OR ALL OF OUR
PRODUCTS.
Our market success depends in part on us neither infringing valid, enforceable
patents or proprietary rights of third parties, nor breaching any licenses that
may relate to our technologies and products. We are aware of third-party patents
that may relate to our technology. It is possible that we may unintentionally
infringe upon these patents or proprietary rights of third parties.
In response, third parties may assert infringement or other intellectual
property claims against us. We may consequently be subjected to substantial
damages for past infringement if it is ultimately determined that our products
infringe a third party's proprietary rights. Further, we may be prohibited from
selling our products before we obtain a license, which, if available at all, may
require us to pay substantial royalties. Even if these claims are without merit,
defending a lawsuit takes significant time, may be expensive and may divert
management attention from other business concerns. Any public announcements
related to litigation or interference proceedings initiated or threatened
against us could cause our stock price to decline.
WE MAY NEED TO INITIATE LAWSUITS TO PROTECT OR ENFORCE OUR PATENTS, WHICH WOULD
BE EXPENSIVE AND, IF WE LOSE, MAY CAUSE US TO LOSE SOME, IF NOT ALL, OF OUR
INTELLECTUAL PROPERTY RIGHTS, AND THEREBY IMPAIR OUR ABILITY TO COMPETE IN THE
MARKET.
We rely on patents to protect a large part of our intellectual property and our
competitive position. In order to protect or enforce our patent rights, we may
initiate patent litigation against third parties, such as infringement suits or
interference proceedings. These lawsuits could be expensive, take significant
time and divert management's attention from other business concerns. They would
put our patents at risk of being invalidated or interpreted narrowly and our
patent applications at risk of not issuing. We may also provoke these third
parties to assert claims against us. Patent law relating to the scope of claims
in the technology fields in which we operate is still evolving and,
consequently, patent
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RISK FACTORS
- --------------------------------------------------------------------------------
positions in our industry are generally uncertain. We cannot assure you that we
will prevail in any of these suits or that the damages or other remedies
awarded, if any, will be commercially valuable. During the course of these
suits, there may be public announcements of the results of hearings, motions and
other interim proceedings or developments in the litigation. If securities
analysts or investors perceive any of these results to be negative, it could
cause our stock to decline.
THE RIGHTS WE RELY UPON TO PROTECT THE INTELLECTUAL PROPERTY UNDERLYING OUR
PRODUCTS MAY NOT BE ADEQUATE, WHICH COULD ENABLE THIRD PARTIES TO USE THE
TECHNOLOGY AND WOULD REDUCE OUR ABILITY TO COMPETE IN THE MARKET.
Our competitive success will be affected in part by our continued ability to
obtain and maintain patent protection on our inventions, technologies and
discoveries, including intellectual property that we license. Our pending patent
applications may lack priority over others' applications or may not result in
the issuance of patents. Even if issued, our patents may not be sufficiently
broad to provide protection against competitors with similar technologies and
may be challenged, invalidated or circumvented.
In addition to patents, we rely on a combination of trade secrets, copyright and
trademark laws, nondisclosure agreements, licenses and other contractual
provisions and technical measures to maintain and develop our competitive
position via our intellectual property rights. Nevertheless, these measures may
not be adequate to safeguard the technology underlying our products. If
inadequately protected, third parties could use our technology, and our ability
to compete in the market would be reduced. In addition, employees, consultants
and others who participate in the development of our products may breach their
agreements with us regarding our intellectual property. We may not have adequate
remedies for the breach. We also may not be able to effectively protect our
intellectual property rights in some foreign countries. For a variety of
reasons, we may decide not to file for patent, copyright or trademark protection
outside of the United States. We also realize that our trade secrets may become
known through other means not currently foreseen by us. Notwithstanding our
efforts to protect our intellectual property, our competitors may independently
develop similar or alternative technologies or products that are equal or
superior to our technology. Our competitors may also develop similar products
without infringing on any of our intellectual property rights or design around
our proprietary technologies.
THE REGULATORY APPROVAL PROCESS IS EXPENSIVE, TIME CONSUMING, UNCERTAIN AND MAY
PREVENT US FROM OBTAINING REQUIRED APPROVALS FOR THE COMMERCIALIZATION OF SOME
OF OUR PRODUCTS.
Some of our products, depending upon their intended use, will be subject to
approval or clearance by the FDA or foreign governmental entities prior to their
marketing for commercial use. Products used for clinical diagnostic purposes
will require such approval. To date, we have not sought approval from the FDA or
any foreign governmental body for the commercial sale of any of our products.
The process of obtaining necessary FDA or foreign clearance or approvals can be
lengthy, expensive and uncertain. We expect our collaborators generally to
direct the regulatory approval process for many of our products. There are no
assurances that they will timely and diligently pursue such process, or that
they or we can obtain any required clearance or approval. Any such failure, or
any material delay in obtaining the clearance or approval, could harm our
business, financial condition and results of operations.
In addition, our failure or the failure of our collaborators to comply with
regulatory requirements applicable to our products could result in significant
sanctions, including:
+ injunctions;
+ recall or seizure of products;
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RISK FACTORS
- --------------------------------------------------------------------------------
+ withdrawal of marketing clearances or approvals; and
+ fines, civil penalties and criminal prosecutions.
RESTRICTIONS ON REIMBURSEMENT FROM THIRD PARTY PAYORS OF THE COST TO PATIENTS OF
OUR PRODUCTS MAY LIMIT OUR ABILITY TO SELL PRODUCTS IN SOME MARKETS.
Our ability to sell our products in the clinical diagnostics market will depend
in part on the extent to which reimbursement for our products and related
treatments will be available from:
+ government health administration authorities;
+ private health coverage insurers;
+ managed care organizations; and
+ other organizations.
If appropriate reimbursement cannot be obtained, it could prevent us from
successfully commercializing some of our potential products.
There are efforts by governmental and third-party payors to contain or reduce
the costs of health care through various means. Additionally, third-party payors
are increasingly challenging the price of medical products and services. If
purchasers or users of our products are not able to obtain adequate
reimbursement for the cost of using our products, they may forego or reduce
their use. Significant uncertainty exists as to the reimbursement status of
newly approved health care products and whether adequate third-party coverage
will be available.
WE DEPEND ON OUR KEY PERSONNEL, THE LOSS OF WHOM WOULD IMPAIR OUR ABILITY TO
COMPETE.
We are highly dependent on the principal members of our management and
scientific staff. The loss of services of any of these persons could seriously
harm our product development and commercialization efforts. In addition, we will
require additional skilled personnel in areas such as manufacturing, quality
control, project management, microbiology, software engineering, mechanical
engineering and electrical engineering. Our business is located in Silicon
Valley, California, where demand for personnel with these skills is extremely
high and is likely to remain high. As a result, competition for and retention of
personnel, particularly for employees with technical expertise, is intense and
the turnover rate is high. If we are unable to hire, train and retain a
sufficient number of qualified employees, our ability to conduct and expand our
business could be seriously reduced. The inability to retain and hire qualified
personnel could also hinder the planned expansion of our business.
WE HAVE LIMITED EXPERIENCE IN MANUFACTURING OUR SYSTEMS AND MAY ENCOUNTER
MANUFACTURING PROBLEMS OR DELAYS THAT COULD RESULT IN LOST REVENUE.
We intend initially to manufacture our own systems. We currently have limited
manufacturing capacity for our systems. If we fail to manufacture and deliver
products in a timely manner, our relationships with our customers could be
seriously harmed, and revenue would decline. We have only recently begun to
manufacture our Smart Cycler systems and are continuing to develop our quality
control procedures. We cannot assure you that manufacturing or quality control
problems will not arise as we attempt to scale-up our production of Smart Cycler
systems or that we can scale-up manufacture and quality control in a timely
manner or at commercially reasonable costs. If we are unable to manufacture
Smart Cycler systems or our disposable reaction tubes consistently on a timely
basis because of these or other factors, our product sales will decline. Our
Smart Cycler systems largely require manual assembly. We are currently
manufacturing Smart Cycler systems and disposable
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RISK FACTORS
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reaction tubes in-house, in limited volumes. If demand for our products
increases significantly, we will either need to expand our in-house
manufacturing capabilities or outsource to other manufacturers.
Our manufacturing facilities are subject to periodic regulatory inspections by
the FDA and other federal and state regulatory agencies. These facilities are
subject to Quality System Regulations, or QSR, requirements of the FDA. If we
fail to maintain facilities in accordance with QSR regulations, other
international quality standards or other regulatory requirements, then the
manufacturing process could be suspended or terminated, which would impair our
business.
WE RELY ON SINGLE SOURCE SUPPLIERS FOR SOME OF OUR PRODUCT COMPONENTS THAT COULD
IMPAIR OUR MANUFACTURING ABILITY.
We depend on long term delivery contracts with four separate single source
suppliers that supply several components used in the manufacture of our Smart
Cycler. If we need alternative sources for key component parts for any reason,
such component parts may not be immediately available. If alternative suppliers
are not immediately available, we will have to identify and qualify alternative
suppliers, and production of such components may be delayed. We may not be able
to find an adequate alternative supplier in a reasonable time period, or on
commercially acceptable terms, if at all. Our inability to obtain a key source
supplier for the manufacture of our potential products may force us to curtail
or cease operations.
FAILURE TO RAISE ADDITIONAL CAPITAL OR GENERATE THE SIGNIFICANT CAPITAL
NECESSARY TO EXPAND OUR OPERATIONS AND INVEST IN NEW PRODUCTS COULD REDUCE OUR
ABILITY TO COMPETE AND RESULT IN LOWER REVENUE.
We anticipate that our existing capital resources and the net proceeds from this
offering will enable us to maintain currently planned operations through at
least the year 2001. However, we premise this expectation on our current
operating plan, which may change as a result of many factors, including market
acceptance of our Smart Cycler system and future opportunities with
collaborators. Consequently, we may need additional funding sooner than
anticipated. Our inability to raise capital would seriously harm our business
and product development efforts.
In addition, we may choose to raise additional capital due to market conditions
or strategic considerations even if we believe we have sufficient funds for our
current or future operating plans. To the extent that additional capital is
raised through the sale of equity or convertible debt securities, the issuance
of these securities could result in dilution to our shareholders.
We currently have no credit facility or committed sources of capital. To the
extent operating and capital resources are insufficient to meet future
requirements, we will have to raise additional funds to continue the development
and commercialization of our technologies. These funds may not be available on
favorable terms, or at all. If adequate funds are not available on attractive
terms, we may be required to curtail operations significantly or to obtain funds
by entering into financing, supply or collaboration agreements on unattractive
terms.
IF A NATURAL DISASTER STRIKES OUR MANUFACTURING FACILITIES WE MAY BE UNABLE TO
MANUFACTURE OUR PRODUCTS FOR A SUBSTANTIAL AMOUNT OF TIME AND WE WOULD
EXPERIENCE LOST REVENUE.
Our manufacturing facilities are located in Sunnyvale, California. The
facilities and some pieces of manufacturing equipment are difficult to replace
and could require substantial replacement lead-time. Our manufacturing
facilities may be affected by natural disasters such as earthquakes and floods.
Earthquakes are of particular significance since the manufacturing facilities
are located in an earthquake-prone area. In the event our existing manufacturing
facilities or equipment is affected by man-made or natural disasters, we may be
unable to manufacture products for sale, meet customer
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RISK FACTORS
- --------------------------------------------------------------------------------
demands or sales projections. If our manufacturing operations were curtailed or
ceased, it would seriously harm our business.
WE USE HAZARDOUS MATERIALS IN OUR BUSINESS. ANY CLAIMS RELATING TO IMPROPER
HANDLING, STORAGE OR DISPOSAL OF THESE MATERIALS COULD BE TIME CONSUMING AND
COSTLY.
Our research and development processes involve the controlled storage, use and
disposal of hazardous materials, including biological hazardous materials. We
are subject to federal, state and local regulations governing the use,
manufacture, storage, handling and disposal of materials and waste products.
Although we believe that our safety procedures for handling and disposing of
these hazardous materials comply with the standards prescribed by law and
regulation, the risk of accidental contamination or injury from hazardous
materials cannot be eliminated completely. In the event of an accident, we could
be held liable for any damages that result, and any liability could exceed the
limits or fall outside the coverage of our insurance. We may not be able to
maintain insurance on acceptable terms, or at all. We could be required to incur
significant costs to comply with current or future environmental laws and
regulations.
WE MAY HAVE SIGNIFICANT PRODUCT LIABILITY EXPOSURE.
We face an inherent business risk of exposure to product liability claims if our
technologies or systems are alleged to have caused harm. We may not be able to
obtain insurance for such potential liability on acceptable terms with adequate
coverage or may be excluded from coverage under the terms of the policy. We may
not be able to maintain insurance on acceptable terms, or at all.
RISKS RELATED TO THIS OFFERING
YOU WILL EXPERIENCE IMMEDIATE AND SUBSTANTIAL DILUTION.
The initial public offering price is substantially higher than the book value
per share of our common stock. Investors purchasing common stock in this
offering will, therefore, incur immediate dilution of $8.32 in net tangible book
value per share of common stock, based on the initial public offering price of
$11.00 per share. In addition, the number of shares available for issuance under
our stock option and employee stock purchase plans will automatically increase
without shareholder approval. You will incur additional dilution upon the
exercise of outstanding stock options and warrants. See "Dilution" for a more
detailed discussion of the dilution you will incur in this offering.
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 volatile and could be
subject to wide price fluctuations in response to various factors, many of which
are beyond our control, including:
+ announcements or introduction of technological innovations 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, financings or strategic
partnerships; and
+ sales of our common stock.
In addition, the stock market in general, and the Nasdaq National Market and the
biotechnology industry market in particular, have experienced significant price
and volume fluctuations that have often been unrelated or disproportionate to
the operating performance of those 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, securities class action litigation has
often been
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RISK FACTORS
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instituted following periods of volatility in the market price of a company's
securities. A securities class action suit against us could result in
substantial costs, potential liabilities and the diversion of our management's
attention and resources.
CONCENTRATION OF OWNERSHIP AMONG OUR EXISTING EXECUTIVE OFFICERS, DIRECTORS AND
PRINCIPAL SHAREHOLDERS MAY PREVENT NEW INVESTORS FROM INFLUENCING SIGNIFICANT
CORPORATE DECISIONS.
Following this offering our directors, entities affiliated with our directors
and our executive officers will beneficially own, in the aggregate approximately
23.5% of our outstanding common stock. These shareholders as a group will be
able to influence our management and affairs and, if acting together, will be
able to significantly influence most matters requiring the approval by our
shareholders, including the election of directors, any merger, consolidation or
sale of all or substantially all of our assets and any other significant
corporate transaction. This concentration of ownership may also delay or prevent
a change of control of our company at a premium price if these shareholders
oppose it. See "Principal shareholders" for details on our stock ownership.
OUR ANTI-TAKEOVER PROVISIONS COULD DISCOURAGE POTENTIAL TAKEOVER ATTEMPTS AND
THUS LIMIT THE PRICE INVESTORS MIGHT BE WILLING TO PAY FOR OUR COMMON STOCK IN
THE FUTURE.
The provisions of our articles of incorporation that eliminate cumulative
voting, create a staggered board of directors and authorize our board of
directors to issue preferred stock with rights superior to our common stock
could discourage a third party from acquiring, or make it more difficult for a
third party to acquire, control of us without approval of our board of
directors. Such provisions could also limit the price that investors might be
willing to pay for shares of our common stock in the future.
THERE IS A LARGE NUMBER OF SHARES THAT MAY BE SOLD IN THE MARKET FOLLOWING THIS
OFFERING, WHICH MAY DEPRESS THE MARKET PRICE OF OUR COMMON STOCK.
Sales of a substantial number of shares of our common stock in the public market
following this offering could cause the market price of our common stock to
decline. If there are more shares of our common stock offered for sale than
buyers are willing to purchase, then the market price of our common stock may
decline to a market price at which buyers are willing to purchase the offered
shares of common stock and sellers remain willing to sell the shares.
There will be 25,515,430 shares of common stock outstanding immediately after
this offering, or 26,265,430 shares if the representatives of the underwriters
exercise their over-allotment option in full. All of the shares sold in the
offering will be freely tradable 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.
All of our existing shareholders have executed lock-up agreements. Those lock-up
agreements restrict all of our existing shareholders from selling, pledging or
otherwise disposing of their shares for a period of 180 days after the date of
this prospectus without the prior written consent of UBS Warburg LLC. However,
UBS Warburg LLC may, in its sole discretion, release all or any portion of the
common stock from the restrictions of the lock-up agreements.
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15
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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. Moreover, neither we nor any other person assumes
responsibility for the accuracy and completeness of those statements. We are
under no duty to update any of the forward-looking statements after the date of
this prospectus to conform them to actual results.
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Use of proceeds
We estimate that the net proceeds from the sale of the shares of common stock we
are offering will be approximately $49.9 million at an assumed initial public
offering price of $11.00 per share after deducting the 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 $57.5 million.
We currently intend to use the net proceeds to fund our research and development
activities, expand manufacturing and customer service for existing products and
continue development and manufacturing of additional products, for other working
capital and general corporate purposes and for capital expenditures. 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.
Our management may spend the proceeds from this offering in ways which the
shareholders 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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Capitalization
The following table sets forth our capitalization as of March 31, 2000:
+ on an actual basis;
+ on a pro forma basis as of such date to reflect the automatic conversion
prior to the closing of this offering of all outstanding shares of preferred
stock into 13,326,636 shares of common stock and the filing of amended and
restated articles of incorporation to increase the number of common shares
authorized; and
+ on a pro forma as adjusted basis to reflect the sale of the common stock
offered by this prospectus at an assumed initial public offering price of
$11.00 per share, after deducting the underwriting discounts and commissions
and estimated offering expenses payable by us, and to reflect the use of the
offering proceeds.
<TABLE>
<CAPTION>
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
(In thousands, except share data)
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Equipment financing, less current portion................ $ 1,071 $ 1,071 $ 1,071
-------- -------- --------
Shareholders' equity:
Preferred stock, no par value, no shares authorized,
issued or outstanding, actual and pro forma; 5,000,000
authorized, no shares issued and outstanding, pro forma
as adjusted............................................ -- -- --
Convertible preferred stock, no par value, 14,000,000
shares authorized, actual; no shares authorized, pro
forma and pro forma as adjusted; 13,326,636 shares
issued and outstanding, actual; no shares issued and
outstanding, pro forma and pro forma as adjusted....... 32,680 -- --
Common stock, no par value, 30,000,000 shares authorized,
and actual pro forma; 100,000,000 pro forma as
adjusted; 7,188,794 shares issued and outstanding,
actual; 20,515,430 shares issued and outstanding, pro
forma; 25,515,430 shares issued and outstanding, pro
forma as adjusted...................................... 698 33,378 83,228
Additional paid-in capital............................... 6,318 6,318 6,318
Note receivable from shareholder......................... (69) (69) (69)
Deferred stock-based compensation........................ (5,324) (5,324) (5,324)
Deficit accumulated during the development stage......... (15,757) (15,757) (15,757)
-------- -------- --------
Total shareholders' equity..................... 18,546 18,546 68,396
-------- -------- --------
Total capitalization........................... $ 19,617 $ 19,617 $ 69,467
======== ======== ========
</TABLE>
The number of shares of common stock to be outstanding after the offering is
based on the number of shares outstanding as of March 31, 2000 and excludes:
+ 540,276 shares issuable upon the exercise of options at a weighted average
exercise price of $2.39 per share;
+ 320,397 shares issuable upon the exercise of warrants at a weighted average
exercise price of $2.49 per share;
+ 892,930 additional shares available for future grant under our 1997 Stock
Option Plan;
+ 200,000 additional shares available for future grant under our 2000
Non-Employee Directors' Stock Option Plan; and
+ 200,000 additional shares available for future purchase under our 2000
Employee Stock Purchase Plan.
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Dilution
Our historical net tangible book value as of March 31, 2000 was approximately
$18.5 million, or $2.58 per share, based on the number of common shares
outstanding as of March 31, 2000. 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 March 31,
2000.
Our pro forma net tangible book value as of March 31, 2000 was approximately
$18.5 million, or $0.90 per share, based on the pro forma number of shares
outstanding as of March 31, 2000 of 20,515,430, calculated after giving effect
to the automatic conversion of 13,326,636 shares of our preferred stock
outstanding as of March 31, 2000 into 13,326,636 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
5,000,000 shares in this offering. This represents an immediate increase in pro
forma net tangible book value of $1.78 per share to existing stockholders and in
immediate dilution in pro forma net tangible book value of $8.32 per share to
new investors. The following table illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............. $11.00
Historical net tangible book value per share as of March
31, 2000............................................... $ 2.58
Decrease attributable to conversion of preferred stock.... (1.68)
------
Pro forma net tangible book value per share as of March
31, 2000............................................... 0.90
Increase attributable to the offering..................... 1.78
------
Net tangible book value per share after the offering........ 2.68
------
Dilution per share to new investors......................... $ 8.32
======
</TABLE>
The following table summarizes, on a pro forma basis as of March 31, 2000, 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 shareholders.......... 20,515,430 80% $33,500,923 38% $ 1.63
New investors.................. 5,000,000 20 55,000,000 62 $11.00
---------- ---- ----------- ----
Total..................... 25,515,430 100% $88,500,923 100% $ 3.47
========== ==== =========== ====
</TABLE>
The number of shares of common stock outstanding in the table above is based on
the number of shares outstanding as of March 31, 2000 and excludes:
+ 540,276 shares issuable upon the exercise of options at a weighted average
exercise price of $2.39 per share;
+ 320,397 shares issuable upon the exercise of warrants at a weighted average
exercise price of $2.49 per share;
+ 892,930 additional shares available for future grant under our 1997 Stock
Option Plan;
+ 200,000 additional shares available for future grant under our 2000
Non-Employee Directors' Stock Option Plan; and
+ 200,000 additional shares available for future purchase under our 2000
Employee Stock Purchase Plan.
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19
<PAGE> 24
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Selected consolidated financial data
The following tables contain selected consolidated financial data as of and for
each of the three fiscal periods ended December 31, 1997, 1998 and 1999 and have
been derived from our consolidated financial statements, which have been audited
by Ernst & Young LLP, independent auditors. The consolidated statement of
operations data for the three month periods ended March 31, 1999 and 2000 and
the consolidated balance sheet data as of March 31, 2000 are derived from our
unaudited consolidated financial statements included elsewhere in this
prospectus and include all adjustments consisting only of normal, recurring
adjustments, which we consider necessary for a fair presentation of the data.
The selected consolidated financial data should be read in conjunction with our
consolidated financial statements and the notes to those consolidated financial
statements and Management's discussion and analysis of financial condition and
results of operations included elsewhere 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 common stock on the date of their issuance. The
statement of operations for the year ended December 31, 1997 included
approximately $95,000 of expenses incurred from our inception (March 4, 1996)
through December 31, 1996 related to fund raising activities. Although we were
formed in March 1996, we did not receive our initial financing until March 1997.
<TABLE>
<CAPTION>
PERIOD FROM PERIOD FROM
INCEPTION INCEPTION PERIOD FROM
(MARCH 4, 1996) (MARCH 4, 1996) INCEPTION
THROUGH YEAR ENDED THROUGH THREE MONTHS (MARCH 4, 1996)
DECEMBER 31, DECEMBER 31, DECEMBER 31, ENDED MARCH 31, THROUGH
CONSOLIDATED STATEMENT 1997 1998 1999 1999 1999 2000 MARCH 31, 2000
OF OPERATIONS DATA (IN THOUSANDS, EXCEPT PER SHARE DATA)
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Total revenues.............. $ 1,445 $ 3,577 $ 3,595 $ 8,617 $ 615 $ 916 $9,533
Operating costs and
expenses:
Cost of product sales...... -- -- 97 97 -- 131 228
Research and development... 2,220 5,990 10,262 18,472 2,282 3,467 21,939
Selling, general and
administrative........... 583 1,178 1,297 3,058 289 730 3,788
----- ----- ----- ------- ----- ----- -----
Total costs and operating
expenses................... 2,803 7,168 11,656 21,627 2,571 4,328 25,955
----- ----- ----- ------- ----- ----- -----
Loss from operations........ (1,358) (3,591) (8,061) (13,010) (1,956) (3,412) (16,422)
Interest income............. 88 325 250 663 104 202 865
Interest expense............ (4) (45) (108) (157) (19) (43) (200)
----- ----- ----- ------- ----- ----- -----
Net loss.................... (1,274) (3,311) (7,919) (12,504) (1,871) (3,253) (15,757)
Deemed dividend to preferred
shareholders............... -- -- -- -- -- (19,114) (19,114)
----- ----- ----- ------- ----- ----- -----
Net loss allocable to common
shareholders............... $(1,274) $(3,311) $(7,919) $(12,504) $(1,871) $(22,367) $(34,871)
----- ----- ----- ------- ----- ----- -------
----- ----- ----- ------- ----- ----- -------
Basic and diluted net loss
per common share........... $ (7.61) $ (1.37) $ (1.90) $ (0.55) $ (4.42)
----- ----- ----- ----- -----
----- ----- ----- ----- -----
Shares used in computing
basic and diluted net loss
per common share........... 167 2,414 4,164 3,415 5,065
Pro forma basic and diluted
net loss per common
share...................... $ (0.71) $ (1.22)
----- -----
----- -----
Shares used in computing pro
forma basic and diluted net
loss per common share...... 11,111 18,391
</TABLE>
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20
<PAGE> 25
SELECTED CONSOLIDATED FINANCIAL DATA
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
AS OF
AS OF DECEMBER 31, MARCH 31,
1997 1998 1999 2000
(In thousands)
CONSOLIDATED BALANCE SHEET DATA
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Cash, cash equivalents and short term investments........ $ 1,120 $ 8,676 $ 1,493 $ 18,420
Restricted cash.......................................... 300 300 -- --
Working capital.......................................... 1,188 8,347 732 17,264
Total assets............................................. 2,453 11,042 4,886 22,087
Long-term debt, net of current portion................... 88 531 1,205 1,071
Deficit accumulated during development stage............. (1,274) (4,586) (12,504) (15,757)
Total shareholders' equity............................... 1,909 9,175 1,557 18,546
</TABLE>
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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 consolidated financial statements and the
notes to those consolidated financial 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.
OVERVIEW
From inception in March 1996 through March 2000, our operating activities were
primarily devoted to research and development of our core technologies,
development of our first-generation products such as the Smart Cycler system and
the GeneXpert system, recruiting personnel, business development, raising
capital and acquiring assets. In the last half of 1999, we recognized revenue
from our first product sales when we sold prototype versions of our Smart Cycler
system for DNA amplification and detection to two customers. In May 2000, Fisher
Scientific, our distributor to the life sciences research market, commenced
commercial sales of our Smart Cycler system.
Since inception, we have incurred significant losses and, as of March 31, 2000,
we had an accumulated deficit of $15.8 million. We anticipate incurring
additional losses, which may increase, through at least 2002 as we increase our
commercialization activity. Our losses have resulted from research and
development, manufacturing scale-up and selling, general and administrative
costs associated with our operations. We expect to incur increasing research and
development and manufacturing scale-up costs. We expect that our selling,
general and administrative expenses will increase as we commercialize our
products and incur the obligations of a public reporting company. In 2000 we
expect to incur additional costs resulting from facilities expansion. As a
result, we will need to generate significantly higher revenue to achieve
profitability.
Our revenue has been derived from grants and government-sponsored research, and
research and development contracts with commercial partners. Although we
introduced our Smart Cycler system in May 2000 and are developing new products
and plan to introduce future products, we cannot assure you that we will be
successful in these efforts.
We anticipate that our quarterly results of operations will fluctuate due to
several factors, including market evaluation and acceptance of current or new
products, the success and timing of signing new customer or collaboration
agreements, the timing of commercial availability of new applications for our
products and the timing and extent of our research and development efforts.
Deferred stock-based compensation represents the difference between the fair
value of our common stock and the exercise price of options on the date of
grant. The fair value of our common stock for purposes of this calculation was
determined based on our review of the primary business factors underlying the
value of our common stock on the date such option grants were made, viewed in
light of this offering and the expected initial public offering price per share.
During the year ended December 31, 1999, we recorded deferred stock-based
compensation totaling $736,000. Additional deferred stock-based compensation
totaling $5.4 million was recorded for options granted during the quarter ended
March 31, 2000. These amounts are included as a reduction to shareholders'
equity and are being amortized over the respective vesting periods of the
individual stock options, which vesting is generally four years. We recorded
amortization of deferred compensation of $184,000 for the year
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
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ended December 31, 1999 and $615,000 for the three months ended March 31, 2000.
We expect to record amortization expense for deferred compensation with respect
to options granted as of March 31, 2000 as follows: $2.6 million during the
remainder of 2000, $1.7 million during 2001, $768,000 during 2002, $245,000
during 2003 and $3,000 during 2004. The amount of deferred compensation expense
to be recorded in future periods may decrease if unvested options for which
deferred compensation has been recorded are subsequently canceled.
We determined compensation for options granted to non-employees in accordance
with Statement of Financial Accounting Standards No. 123 and the Emerging Issues
Task Force Consensus No. 96-18 as the fair value of the equity instruments
issued. We record compensation for options granted to non-employees as the
related services are rendered, and the value of the compensation may be
periodically remeasured and the expense adjusted accordingly as the underlying
options vest. We recorded an aggregate of $30,000 as a research and development
expense in the year ended December 31, 1999 and $165,000 for the three months
ended March 31, 2000 for non-employee stock-based compensation. The aggregate
value of $1.6 million, based on the deemed fair value of our common stock at
March 31, 2000, will be recorded as a research and development expense over the
period of the related services, which is generally three months to two years.
This expense will be based on the fair value of the stock option using the
Black-Scholes option valuation model and may be periodically remeasured and the
expense adjusted accordingly as the underlying options vest.
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 2000 AND 1999
REVENUES
Revenues increased to $916,000 in the three months ended March 31, 2000 from
$615,000 in the three months ended March 31, 1999. The components of this
increase were a $391,000 increase in grant and government-sponsored research
revenue, a $151,000 increase in product sales, and a decrease of $241,000 in
research and development revenue from commercial partners.
COST OF PRODUCT SALES
In the three months ended March 31, 2000, we sold initial versions of our Smart
Cycler to five collaborators with cost of sales of $131,000. Cost of product
sales includes direct material costs, labor and manufacturing overhead, royalty
costs from licensed technologies and reserves for excess inventory. There were
no product sales in the three months ended March 31, 1999.
RESEARCH AND DEVELOPMENT EXPENSES
Research and development expenses increased to $3.5 million in the three months
ended March 31, 2000 from $2.3 million in the three months ended March 31, 1999.
This $1.2 million increase included $409,000 of non-cash charges related to the
amortization of deferred stock-based compensation and $165,000 of non-cash
non-employee stock-based compensation. The remaining increase of $611,000 was
attributed to a $250,000 increase in salaries and related personnel costs from
the addition of software engineering employees as well as a $204,000 increase in
outside services engaged to complete the development of the software for our
Smart Cycler systems.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses increased to $730,000 in the three
months ended March 31, 2000 from $289,000 in the three months ended March 31,
1999. This $441,000 increase included $206,000 of non-cash charges related to
the amortization of deferred stock-based compensation. The remaining $235,000
increase was due to an $87,000 increase in salaries and related personnel costs
incurred in connection with the hiring of technical and administrative staff in
the
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
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customer support function in anticipation of the launch of our Smart Cycler
systems in May 2000, and a $74,000 increase in recruiting fees and temporary
employees.
INTEREST INCOME (EXPENSE), NET
Net interest income increased to $159,000 in the three months ended March 31,
2000 from $85,000 in the three months ended March 31, 1999. This increase was
due to increases in cash and cash equivalents as a result of our equity
financing in the three months ended March 31, 2000.
YEARS ENDED DECEMBER 31, 1999 AND 1998
REVENUES
Revenues were $3.6 million in 1999 and $3.6 million in 1998. In 1999, research
and development revenue from commercial partners increased by $480,000 and
revenue from product sales increased by $160,000, offset by a $621,000 decrease
in grant and government-sponsored research revenue.
COST OF PRODUCT SALES
In 1999 we sold initial versions of our Smart Cycler systems to two
collaborators. We recorded cost of sales of $97,000.
RESEARCH AND DEVELOPMENT EXPENSES
Research and development expenses increased to $10.3 million in 1999 from $6.0
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
attributable to an increase of $2.7 million in salaries and related personnel
costs from the addition of employees as well as additional supplies and
consulting costs required to develop, assemble, build and test prototypes of
Smart Cycler systems and a $1.6 million increase in research and development
expenses on other projects.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses increased to $1.3 million in 1999
from $1.2 million in 1998. These expenses consisted of an increase of $140,000
in salaries and related costs.
INTEREST INCOME (EXPENSE), NET
Net interest income consists of income from our cash and investments offset by
interest expense related to our equipment financing. Net interest income
decreased to $142,000 in 1999 from $280,000 in 1998. This decrease resulted from
a declining cash and investment balance and increased debt obligations.
INCOME TAXES
As of December 31, 1999, we had federal net operating loss carryforwards of
approximately $11.9 million. We also had federal research and development tax
credit carryforwards of approximately $300,000. The net operating loss and
credit carryforwards will expire at various dates beginning on 2006 through
2019, if not utilized. Utilization of the net operating losses and credits may
be substantially limited due to the change in ownership provisions of the
Internal Revenue Code of 1986 and similar state provisions. The annual
limitation may result in the expiration of net operating losses and credits
before utilization.
As of December 31, 1998 and 1999, we had deferred tax assets of approximately
$2.1 million and $5.1 million, respectively. The net deferred tax asset has been
fully offset by a valuation allowance. The net valuation allowance increased by
$3.0 million during the year ended December 31, 1999.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
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Deferred tax assets relate to net operating loss carryforwards, research credit
carryforwards and capitalized research and development costs.
YEARS ENDED DECEMBER 31, 1998 AND 1997
REVENUES
Revenues increased to $3.6 million in 1998 from $1.4 million in 1997. Of this
increase, $1.5 million was due to increased grant and government-sponsored
research revenue, and $662,000 was due to increased research and development
revenue from commercial partners, primarily pursuant to the Development and
Supply Agreement with Innogenetics, which we entered into in November 1998.
RESEARCH AND DEVELOPMENT EXPENSES
Our research and development expenses increased to $6.0 million in 1998 from
$2.2 million in 1997. Of this increase, $1.6 million was related to compensation
for additional scientific personnel and related costs, and $1.4 million was
related to increased supplies and consulting costs due to increased activities
in government, commercial and internal projects.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses increased to $1.2 million in 1998
from $583,000 in 1997. The increase was due to a $425,000 increase related to
the hiring of additional personnel to support our growing business activities
and a $170,000 increase in other expenses.
INTEREST INCOME (EXPENSE), NET
Net interest income increased to $280,000 in 1998 from $84,000 in 1997. This
increase was due to increases in cash and investment balances as a result of our
equity financing in April 1998.
LIQUIDITY AND CAPITAL RESOURCES
We have financed our operations from inception through private sales of
preferred stock, contract payments to us under government and commercial
research and development agreements and equipment financing arrangements.
Through March 31, 2000, we received net proceeds of $33.2 million from issuances
of common and preferred stock and $8.8 million from commercial research and
development agreements and government grants and contracts. In addition, through
March 31, 2000 we had financed equipment purchases and leasehold improvements
totaling approximately $2.1 million. As of March 31, 2000, we had $1.6 million
in equipment financing obligations. These obligations are secured by the
equipment financed, bear interest at a weighted-average fixed rate of 12.48% and
are due in monthly installments through June 2003. Under the terms of the
equipment financing agreement a balloon payment is due at the end of each loan
term. This equipment financing facility has expired.
As of March 31, 2000, we had $18.4 million in cash and cash equivalents, as
compared to $1.5 million as of December 31, 1999. We used $7.1 million for
operations in the year ended December 31, 1999 and $2.2 million for the three
months ended March 31, 2000. In 1999, this consisted of the net loss for the
period of $7.9 million offset in part by non-cash charges of $214,000 related to
stock-based compensation of $498,000, amortization and depreciation expense, and
working capital changes of $104,000. For the three months ended March 31, 2000,
this amount consisted of $3.3 million in net loss for the period, offset in part
by $780,000 related to stock-based compensation, amortization and depreciation
of $172,000 and working capital changes of $142,000. In 1999, cash provided by
investing activities was $421,000, which consisted of $1.6 million of proceeds
from the maturities of marketable securities, $300,000 related to the expiration
of a standby letter of credit, offset by $1.5 million of capital expenditures.
We used $254,000 in investing activities for the three
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
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months ended March 31, 2000, which consisted of capital expenditures. We
received $1.1 million from financing activities for the year ended December 31,
1999 and $19.3 million for the three months ended March 31, 2000. In 1999, this
amount was attributed to proceeds from equipment financing of $1.3 million,
offset by repayment of our equipment financing arrangement of $270,000. In the
three months ended March 31, 2000, the amount was related to our receipt of
$19.5 million from the issuance of preferred and common stock, offset by
repayment of our equipment financing arrangement of $118,000.
We expect to have negative cash flow from operations through at least 2002. We
expect to incur increasing research and development expenses, as well as
expenses for additional personnel for production and commercialization efforts.
Our future capital requirements depend on a number of factors, including market
acceptance of our products, the resources we devote to developing and supporting
our products, continued progress of our research and development of potential
products, the need to acquire licenses to new technology and the availability of
other financing. We believe that our current cash balances, together with the
net proceeds of this offering and revenue to be derived from product sales and
research and development collaborations will be sufficient to fund our
operations at least through the year 2001. 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 technologies or products that we might otherwise seek to
develop or commercialize.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, Accounting for Derivative Financial
Instruments and for Hedging Activities, or SFAS 133, which provides a
comprehensive and consistent standard for the recognition and measurement of
derivatives and hedging activities. SFAS 133 is effective for fiscal years
beginning after June 15, 1999 and is not anticipated to have an impact on our
results of operations or financial condition when adopted, as we hold no
derivative financial instruments and do not currently engage in hedging
activities.
In March 1998, the American Institute of Certified Public Accountants issued
Statement of Position 98-1, Accounting for the Costs of Computer Software
Developed or Obtained for Internal Use, or SOP 98-1. SOP 98-1 requires that
entities capitalize costs related to internal use software once certain criteria
have been met. We adopted the provisions of SOP 98-1 on January 1, 1999. Through
December 31, 1999, we have capitalized approximately $350,000 relating to the
purchase and installation of enterprise resource planning, accounting, cadcam
and documentation systems for internal use. The assets are depreciated using the
straight-line method over a useful life of five years.
In December 1999, the Securities and Exchange Commission, or SEC, issued Staff
Accounting Bulletin No. 101, Revenue Recognition in Financial Statements, or SAB
101. SAB 101 summarizes the SEC's views in applying generally accepted
accounting principles to revenue recognition. The adoption of SAB 101 had no
impact on the Company's historical revenue recognition policy.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
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QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The primary objective of our investment activities is to preserve principal
while at the same time maximizing the income we receive from our investments
without significantly increasing risk. Some of the securities that we invest in
may have market risk. This means that a change in prevailing interest rates may
cause the principal amount of the investment to fluctuate. For example, if we
hold a security that was issued with a fixed interest rate at the then
prevailing rate and the prevailing interest rate later rises, the principal
amount of our investment will probably decline. To minimize this risk in the
future, we intend to maintain our portfolio of cash equivalents and short-term
investments in a variety of investment-grade securities, including commercial
paper, money market funds and government and non-government debt securities. At
December 31, 1999 and March 31, 2000 we held no investments in marketable
securities.
We have operated primarily in the United States and all sales to date have been
made in US dollars. Accordingly, we have not had any exposure to foreign
currency rate fluctuations.
We do not believe that inflation has had a material adverse impact on our
business or operating results during the periods presented.
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Business
OVERVIEW
Cepheid develops, manufactures and markets microfluidic systems that integrate,
automate and accelerate biological testing. Our systems are miniaturized
instruments that analyze complex biological samples in a disposable cartridge by
combining molecular biology with microfluidic technology that processes small
quantities of liquid, typically using components fabricated with computer chip
technology. These systems rapidly perform all of the steps required to analyze
complex biological samples. We are initially focused on the detection and
analysis of nucleic acids, such as DNA, in samples such as blood, urine, cell
cultures, food and industrial water. The three key processing steps in nucleic
acid testing are:
+ SAMPLE PREPARATION -- procedures that must be performed to isolate the target
cells and to separate and purify their nucleic acids;
+ AMPLIFICATION -- a chemical process to make large quantities of DNA; and
+ DETECTION -- the method of determining the presence or absence of the target
DNA, typically through the use of fluorescent dyes.
We believe our technology has applications in many markets, including life
sciences research, clinical diagnostics, industrial testing and
pharmacogenomics. Our systems can perform a broad range of functions that
includes automated purification of DNA, screening for disease-causing agents,
rapid detection of food and water contaminants and genetic profiling. Our
systems are designed for a wide variety of laboratory and field settings,
enabling users to perform tests where and when they are needed.
We commenced commercial sales of our first product, the Smart Cycler, during May
2000. The Smart Cycler is a fast, versatile DNA amplification and detection
system initially directed to the life sciences research market. During the
second half of 2000, we intend to release the Smart Cycler XC, a portable
version of this instrument. Our GeneXpert system, currently in development, is
designed to integrate automated sample preparation with our Smart Cycler
amplification and detection technology in a disposable cartridge format. We
believe our integrated systems allow us to perform analysis of biological
samples faster and more efficiently than any other products currently available.
We are collaborating with strategic partners to co-develop assays, or biological
tests, and to provide marketing and sales support across a broad range of
markets.
INDUSTRY BACKGROUND
OVERVIEW
Nucleic acids are molecules found inside cells. Nucleic acids, such as DNA and
RNA, contain the unique blueprint, or genes, of each living creature. Advances
in molecular biology have led to the development of techniques for reading the
genome and for detecting the presence of a known DNA sequence. The most widely
used method for DNA analysis is first to amplify the target DNA and subsequently
to detect the DNA with the use of fluorescent dyes. The most common
amplification technique is polymerase chain reaction, or PCR.
The biochemicals used to test for the presence of DNA from a specific organism
are DNA probes. Probes have been developed for identifying strep, HIV,
gonorrhea, syphilis, chlamydia, anthrax, E.coli and salmonella. In fact, probes
can be designed for any unique DNA sequence and have been
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BUSINESS
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developed for many significant infectious disease organisms and many DNA
mutations associated with human cancer and with inherited human characteristics.
The life sciences research, clinical diagnostics, industrial testing and
pharmacogenomics industries use assays extensively to detect and quantify
nucleic acids and proteins in biological samples. With the recent advances in
the field of genomics and the availability of vast DNA sequence libraries, there
has been a marked shift towards biological tests that detect the presence of DNA
sequences unique to a gene. Such gene-based testing offers a level of
sensitivity and specificity unmatched by other technologies and is the fastest
growing segment in these markets. The growth of gene-based testing has been
limited by technical complexity, labor intensity, cost and lack of automation.
AMPLIFICATION AND DETECTION
For samples with low concentrations of target organisms, cell culturing is
routinely used to naturally grow enough copies of the organism for detection and
identification. However, cell culturing is a very slow amplification process,
which may require several days to generate a million or more copies.
The discovery of PCR and other amplification techniques dramatically improved
the turnaround and time sensitivity of DNA probe assays. PCR acts on a target
molecule to generate a million or more copies of the target nucleic acid
sequence through repeated cycles of heating and cooling. Originally, this
thermal cycling was accomplished by manually moving the sample between hot and
cold water baths. Detection is typically accomplished by tagging the DNA with
fluorescent dyes and manually placing the amplified sample on a gel to read it.
Later, thermal cyclers were developed to automate the heating and cooling
functions, and fluorimeters were developed to read the fluorescent signal.
SAMPLE PREPARATION
Before a laboratory can perform PCR and other nucleic acid tests, a sequence of
labor intensive, complex and time consuming sample preparation procedures must
be performed to isolate the target cells and to separate and purify their
nucleic acids. These sample preparation procedures include cell separation and
washing, cell lysing, and DNA or RNA purification. Each of the procedures
involves many reagent handling and mixing steps and the use of assorted
laboratory equipment such as balances, centrifuges, vortexers, pipettors,
microplates, bead columns and plate readers. Kits containing reagents and
consumables for DNA and RNA purification simplify these procedures, but they
remain manually intensive and are subject to operator error and specimen
cross-contamination. The sample preparation market for nucleic acids was
estimated to be over $722 million in 1999 and is expected to grow at a rate of
9.5% per year.
Most samples require lysis, which is the rupturing of a cell membrane to release
the DNA contained inside. Rapid, efficient, versatile lysis of cells and
organisms to extract DNA, RNA or proteins is not an easy process. Today, this
step can be one of the most time consuming and complex steps in bio-analysis.
For example, red blood cells are extremely easy to lyse, but they do not contain
any nucleic acids and are rarely of interest to genetic researchers. On the
other hand, white blood cells do contain nucleic acids, including the complete
human genome. White blood cells are more difficult to lyse and must be separated
from the red blood cells, which contain PCR-inhibiting chemicals. Organisms such
as spores, tuberculosis cells, chlamydia and other bacteria are even more
difficult to lyse, and researchers today typically use harsh, PCR-inhibiting
chemicals, at elevated temperatures for long periods of time in order to
accomplish this task.
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LIMITATIONS
Despite the shift to DNA-based testing in our target markets, current
technologies have inherent limitations including one or more of the following:
LONG TIME TO RESULT
Current sample preparation, amplification and detection processes are slow.
Sample preparation typically requires up to eight hours to complete.
Amplification and detection can require an additional two hours or more to
complete. The overall time required is often days, especially when cell
culturing is needed.
EXPENSIVE, LARGE AND INFLEXIBLE EQUIPMENT
Most currently available equipment is expensive, large and inflexible and is
typically configured to accommodate only one assay protocol. As a result, in
order to operate this equipment cost-effectively, it must be run in a batches,
rather than individual tests.
SKILLED TECHNICIANS, LABORATORY REQUIRED
The majority of currently available equipment and methods require skilled
scientists and technicians and a laboratory setting. In many cases, separate
rooms are required for sample preparation and amplification to prevent
contamination from one sample to another.
SAMPLE VOLUME CONSTRAINTS
The challenge of DNA testing is to ensure that the target molecule, if present
in the sample, is captured. If the target molecule is present and is not
captured, the test will provide a false negative. Existing microfluidic
technologies accept and process only very small sample volumes and therefore
require significant sample preparation efforts. For example, one nanoliter of
human blood, approximately one fifty-thousandth of a drop, may be sufficient to
detect human DNA. However, more than a milliliter of blood, which is a million
times larger than a nanoliter, may be necessary to establish the presence or
absence of pathogens such as bacteria and viruses.
LACK OF INTEGRATION
Currently available amplification and detection systems do not integrate sample
preparation and are configured in ways that complicate the future integration of
sample preparation.
In summary, DNA testing is currently a complicated, time consuming process that
requires expensive, specialized equipment and highly trained staff. We believe
that DNA assays will only achieve their full market potential upon the
development of advanced instruments and integrated processes that are both rapid
and automated.
THE CEPHEID SOLUTION
We have developed integrated microfluidic instruments designed to incorporate
our automated sample preparation, amplification and detection technologies and
handle a variety of different biological samples. We believe our systems
represent significant advances in the tools needed in the life sciences
research, clinical diagnostics, industrial testing and pharmacogenomics markets.
Our systems will allow practitioners in these markets to make use of the vast
new libraries of nucleic acid sequences now being generated by genomics
researchers.
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Our platform technologies address each of the limitations set forth above in the
following manner:
RAPID RESULTS
Our proprietary I-CORE technology, incorporated into our Smart Cycler and
GeneXpert systems, generally achieves the heating and cooling, or thermal
cycling, required for amplification and detection in under 25 minutes through:
+ faster heating and cooling rates; and
+ immediate access to individual test results without having to wait for the
completion of a batch.
Our GeneXpert system will further reduce the time to result by incorporating our
automated sample preparation technology. We have accomplished sample preparation
in our GeneXpert prototype in as little as 5 minutes and a final result in less
than 30 minutes.
INEXPENSIVE, MODULAR, FLEXIBLE
Our systems are flexible platforms that are designed to run many different types
of assays simultaneously. In addition, as many as four different target
molecules can be simultaneously detected in the same reaction tube. This
flexibility enables our systems to perform assays more cost-effectively than
other currently available systems. Our systems are modular, enabling us to build
products to meet the varying needs of our target markets.
EASY TO OPERATE, PORTABLE
Our systems are easy to use and less labor intensive than other systems
currently available. The Smart Cycler integrates amplification and detection,
which eliminates the risk of cross-contamination inherent when using two
instruments. The GeneXpert will provide an even greater level of integration and
automation by combining sample preparation with amplification and detection.
This level of integration will permit operation by less skilled personnel and
enable testing at the point of use, outside of a laboratory setting.
WIDE RANGE OF SAMPLE VOLUMES
Our GeneXpert system incorporates our automated sample preparation technology
into disposable cartridges. These cartridges are designed to handle a wide range
of sample volumes, concentrating and purifying the target DNA in a sample and
removing extraneous materials, thereby increasing the sensitivity of the
resulting assay. Our sample preparation technology effectively concentrates the
target molecules from large sample volumes for detection by a wide range of
other microfluidic technologies that are designed to work with smaller volumes.
INTEGRATION OF KEY STEPS
All of our component systems have been designed for integration. The GeneXpert
system is designed to integrate sample preparation, amplification and detection
into one system.
MARKETS
Laboratory experimentation in life sciences research, clinical diagnostics,
industrial testing and pharmacogenomics still relies on primitive tools such as
test tubes, beakers and other equipment that require extensive manual
manipulation. These methods are expensive and often imprecise and present
significant productivity challenges. We believe that there is a significant need
for simpler, faster and more accurate laboratory tests in all of these markets.
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LIFE SCIENCES RESEARCH
The life sciences industry employs more than 100,000 molecular biology
researchers worldwide focusing on basic biomedical, pharmaceutical,
environmental, agricultural and clinical diagnostics research. In recent years
significant research efforts have focused on identifying genes and determining
their function. This field, which is known as genomics, has accelerated the
understanding of the molecular mechanisms of genetics, diseases and disease
treatment. DNA and RNA sample preparation, target amplification, and detection
technologies are increasingly important and widely used procedures in the life
sciences research field.
CLINICAL DIAGNOSTICS
Numerous breakthroughs in molecular biology and genomics have provided new
insights into the nature of human diseases and new therapies for treating them.
As a result, DNA-based testing is being rapidly adopted in the field of clinical
diagnostics to detect, identify and characterize pathogens, to determine
antibiotic resistance and to identify genetic abnormalities, such as cancer.
PATHOGEN DETECTION
Detection and identification of pathogens in a variety of clinical specimens
rely on culture and biochemical identification techniques that have evolved over
the past 200 years. Specimens, such as blood, urine, feces or swab extracts, are
applied to growth media capable of selectively supporting the growth of
microorganisms. The material is incubated for one or more days to allow the
microorganisms to grow. Additional tests are then performed to identify the
microorganism or to determine if antimicrobial drug resistance is present. These
techniques are typically manually intensive. Even in cases where some degree of
automation has been introduced, results may still not available for several
days.
Patients infected with pathogens, such as bacteria, viruses and fungi, may die
if untreated before laboratory results are available. Moreover, in recent years
resistance to antibiotic and antiviral therapies has become an important health
issue. In order to appropriately treat a patient, clinicians need to detect
pathogens with specificity and rapidly determine if a candidate drug is
effective against the pathogen in that patient. We believe our products will
address a wide range of applications where rapid testing will dramatically
impact the clinical management of acute infectious diseases.
BLOOD PRODUCT QUALITY
Nucleic acid amplification techniques have been developed to detect bacteria and
major blood viruses, such as HIV, HCV, HBV and HTLV, in donor blood. Current
tests typically require one or more days to complete. Rapid pathogen testing
will reduce the time spent waiting for test results and enable immediate blood
pooling and component separation.
PRE-TRANSFUSION BLOOD TESTING
All donated blood is currently tested for viruses, but blood and blood products
can become contaminated with bacteria after donation. The American Red Cross has
recommended that platelets and other blood components be tested for bacteria
immediately prior to transfusion to minimize the risk of patient infection from
contaminated blood. Currently, this testing typically requires one or more days
to complete. We believe that our technology will enable rapid bacterial testing
and potentially extend the shelf life of blood products.
CANCER
Diagnosis and prognosis of cancer currently depends on the pathological
examination of tissue sections using special stains or specific antibody-based
reagents to detect evidence of abnormal cell morphology
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or proliferation. Biopsies for staging cancer operations are obtained
surgically, typically in the hospital or in specialized in-patient oncology
clinics. The information obtained during these procedures and subsequent
molecular analyses that determine the treatment may not be available in a timely
manner. We believe integrated analysis systems that can rapidly and
automatically process cells or tissues and detect cancerous genetic
abnormalities will be required to meet the needs of the growing oncology field.
INDUSTRIAL TESTING
The detection and identification of bacterial and viral pathogens as well as
general contaminants in food raw materials, industrial product materials,
processing or assembly lines and water continue to depend on conventional
culturing techniques. These techniques typically require two to three days and
thus do not alert industrial producers to quality control problems until well
after the fact. Currently no industrial producer can detect and control the
sudden introduction of a pathogen or contaminant in a time-critical manner.
FOOD AND BIOPROCESSING
We believe rapid, on-site testing will provide considerable economic value to
food producers by ensuring high product quality, greater yields, elimination of
product recalls and reduced treatment costs. To achieve these benefits, we
believe integrated, easy-to-use biological analysis systems are required.
WATER SUPPLIES
Water supply quality management is a critical need in a wide range of
industries, including food, pulp and paper, cosmetics, personal hygiene
products, metals and plastics, petrochemical and power generation. With greater
pressure to recycle water, minimize the use of antibacterials and maintain
quality discharges, manufacturers are seeking technologies to rapidly identify
contamination problems at the source. For example, cryptosporidium parvum is a
water-borne pathogen infective at a dose of a single organism. It is responsible
for frequent widespread outbreaks of intestinal disease that can be life
threatening for individuals with compromised immune systems. To detect the
presence of organisms such as cryptosporidium, there is a need for rapid
biological testing systems that can concentrate the organisms from several
gallons of water. We believe that on-site, rapid testing systems, such as the
ones we are developing, will play an important role in further enabling the
detection of these types of pathogens.
FORENSIC AND IDENTITY TESTING
The use of DNA "fingerprinting" techniques for identifying individuals is
increasing. These techniques typically utilize PCR and sample preparation from
whole blood or cells. In addition to human applications, there are important
plant and animal identity applications, such as detection of
genetically-modified organisms, or GMOs, and the verification of plant and
animal strains. We believe integrated, easy-to-use instruments for both the
laboratory and field will be needed to satisfy the growing demand for this type
of testing.
PHARMACOGENOMICS
Major pharmaceutical companies spent more than $35 billion worldwide in 1998 on
drug discovery and development. Sales of instrumentation and supplies for
genomic- and proteomic-related research reached $2.8 billion in 1998.
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DRUG DISCOVERY AND DEVELOPMENT
Pharmaceutical and genomic companies are continually seeking more efficient,
high-throughput technologies to accelerate drug discovery and development. New
molecular tools, including microarrays and microfluidic devices are being
introduced that allow the probing of a very large number of DNA targets.
However, nearly all of these tools require sample preparation and nucleic acid
amplification prior to their use. We believe these new molecular tools will be
more widely adopted when there is a viable and cost-effective integration of
sample preparation with amplification and detection. Our systems are designed to
automate, integrate and accelerate these procedures.
PREDICTIVE MEDICINE
A natural outgrowth of the genomic research undertaken to support drug discovery
is the identification of genetic markers, such as single nucleotide
polymorphisms, or SNPs. These markers correlate directly to an individual's
response to a specific drug or its side effects. We believe pharmaceutical
companies will be integrating pharmacogenomic profiling into their drug
development and clinical studies protocols. We believe that, as a result,
regulatory approval for these new drugs will require use of companion genetic
tests to ensure the presence or absence of specific markers. This will improve
patient management by allowing physicians to prescribe the right drugs for the
right patients.
We have obtained a license from PE Biosystems to make and sell thermal cycling
systems for use with PCR in the fields of life sciences research, industrial
testing and drug discovery and development. An additional license will be
required to use these systems for PCR thermal cycling in the fields of clinical
diagnostics and predictive medicine.
THE CEPHEID STRATEGY
Our objective is to become the leading provider of microfluidic systems that
integrate, automate and accelerate biological testing. We intend to develop our
platform technologies for the emerging life sciences research, clinical
diagnostics, industrial testing and pharmacogenomics markets. We are applying
our technologies to all key processing steps in biological testing: sample
preparation, amplification and detection. Key elements of our strategy include:
APPLY CORE TECHNOLOGIES BROADLY
We intend to integrate our proprietary I-CORE and automated sample preparation
technologies to provide rapid biological analysis platforms with applicability
across a number of markets. Our unique capabilities for rapid sample preparation
through the use of microfluidics will streamline this otherwise labor-intensive
process. We are developing our Smart Cycler and GeneXpert systems to improve
speed and flexibility in some markets and to address other markets that
historically have been served by traditional microbiological culturing
techniques, immunoassays or empirical analysis. Our target markets include life
sciences research, clinical diagnostics, industrial testing and
pharmacogenomics.
INTRODUCE PRODUCTS IN STAGES
We intend to establish an initial market position in the life sciences research
market through the introduction of our Smart Cycler. We have entered into a
distribution agreement with Fisher Scientific under which Fisher has agreed to
market our Smart Cycler. We intend to introduce our GeneXpert system next. This
system will integrate automated sample preparation with amplification and
detection technology. We will also provide our I-CORE modules on an original
equipment manufacturer, or OEM, basis to manufacturers of clinical diagnostic
equipment for use with their sample preparation and assay components.
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FOCUS INITIALLY ON NUCLEIC ACID ANALYSIS
We are initially focusing on the development and application of our platform
technologies to the field of rapid nucleic acid analysis. We intend to adapt our
platforms to provide purified nucleic acids to traditional analysis systems as
well as emerging high-density testing technologies. We will adapt our sample
preparation and amplification technologies to improve throughput, lower costs
and provide greater sensitivity, thus providing applications in drug development
and the emerging field of predictive medicine.
COLLABORATE WITH PARTNERS
We intend to market our systems to each of our targeted market segments
principally through partners to provide marketing, sales, service and
distribution. We have entered into a number of non-exclusive collaborations
whereby our partners have agreed to provide funding to support the development
and engineering efforts required to adapt our systems to meet their specific
market needs. In certain markets, we will retain the rights to market directly
to end customers. We will utilize our partners to develop chemistries for
assays.
GENERATE RECURRING REVENUE FROM DISPOSABLE PRODUCTS
We expect to generate recurring revenue from the manufacture and sale of our
single use reaction tubes and integrated sample preparation cartridges. We
intend to manufacture these disposable products in our own facilities using
advanced assembly processes based on robotics and continuous flow processing to
minimize labor costs and ensure product quality.
THE CEPHEID TECHNOLOGY
AUTOMATED SAMPLE PREPARATION
Automated sample preparation remains the last major hurdle in creating fully
integrated nucleic acid analysis systems. Most automated sample preparation
instruments available today utilize robotics, with machines merely duplicating
the steps technicians would perform in laboratories. These systems have been
beneficial to high throughput, single assay applications, but require large
capital investments and skilled personnel in a laboratory.
We believe our proprietary automated sample preparation technology will be the
first to integrate the basic chemistry and physics required to prepare a raw
sample for analysis. We have developed microfluidic technologies that perform
these steps in a disposable cartridge. The key steps in sample preparation
together with our corresponding technologies are as follows:
ADDING REAGENTS
We manufacture disposable sample preparation cartridges that can contain
reagents needed for the amplification process as well as probes for specific
nucleic acid targets. Our low-cost, plastic molded cartridges also incorporate a
proven fluid delivery system.
MEASURING SAMPLE VOLUME AND MIXING
We use pressure differences to flow liquids through our cartridges and use
proprietary mechanical valving mechanisms to produce precise fluid flow control.
Our flow-through technology allows the sample to be processed on a continuous
basis and is critical to our ability to accommodate the larger sample sizes
required for high sensitivity pathogen detection. Our cartridges mix fluids
through a versatile, proprietary, plastic valve assembly that can accommodate a
variety of sample preparation protocols.
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SEPARATING SPECIFIC CELLS OR TARGETS
Our cartridges incorporate filters and filter assemblies that can perform
functions ranging from basic sample clean-up to specific cell or target capture.
LYSING CELLS
We have developed a very rapid proprietary lysis technology capable of releasing
DNA from the cells of organisms that are difficult to lyse, such as spores. This
technology does not require harsh chemicals, and therefore eliminates the
difficult and time-consuming purification steps that are required by
conventional technologies. This technology is incorporated in our GeneXpert
system and will allow lysis procedures, that now may take hours, to be performed
in seconds. We have developed and delivered a number of self-contained
prototypes to select strategic collaborators.
CAPTURING AND CONCENTRATING DNA
We have developed a miniature silicon chip specifically designed for effective
molecular capture and concentration. These chips, approximately 4mm by 4mm,
contain thousands of identical, tall pillars (typically 5 to 10 microns in
diameter, 200 microns tall, spaced 5 to 10 microns apart). Traditional
solid-phase materials widely used in current sample preparation techniques for
DNA capture, such as glass fibers, bind and hold molecules with varying
efficiencies. In contrast, the uniform forest of identical pillars on our
extraction and concentration chip results in extremely uniform binding, allowing
rapid and efficient release of the captured DNA.
Because our chips are operated in a flow-through mode, they can capture and
concentrate DNA or other chemicals from large liquid sample volumes. We have
increased the concentration of target DNA by a factor as large as 10 in samples
as large as one milliliter. All material in the sample other than the target DNA
is moved to a waste chamber in the cartridge.
PREPARING FOR ANALYSIS
We integrate the sample preparation cartridge with our proprietary reaction
tube, the same tube designed for our I-CORE and Smart Cycler for amplification
and detection. After capturing and concentrating the DNA from the sample, our
cartridge automatically mixes the DNA with amplification reagents and moves the
DNA to the reaction tube for amplification and detection.
AMPLIFICATION AND DETECTION
In 1996, we licensed a technology from Lawrence Livermore National Laboratories
that allows us to integrate amplification and detection. Our commercial version
of the technology is called the Integrated, Cooling/Heating Optics Reaction
module, or I-CORE module, a single chamber module measuring approximately 1 inch
by 4 inches by 5 inches. An I-CORE is a complete, independent,
temperature-controlled fluorimeter for performing and continuously monitoring
chemical reactions such as PCR, and is a key element of both our Smart Cycler
and GeneXpert systems. The temperature of the sample can be controlled rapidly
and accurately, allowing faster reactions and more accurate results. The I-CORE
technology also allows the analysis of samples to be performed with much lower
power than traditional methods. This permits our systems to become truly
portable, giving our customers the capability to obtain bioanalytical results
when and where they are needed. The modular nature of the I-CORE allows us to
develop a variety of flexible instrument platforms, designed to meet the needs
of many of our customers.
INDEPENDENT CONTROL
One of the key distinguishing features of our I-CORE technology is that in a
system composed of multiple I-COREs, each I-CORE can be operated and controlled
independently. This is not possible with any other system currently on the
market. In contrast to traditional thermal cycling systems, in
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which all the samples are subjected to the same time/temperature/optical
protocol, each sample in an I-CORE-based instrument can be subjected to a
different protocol. This allows the operator to perform many different assays or
experiments at the same time on the same instrument.
POWERFUL OPTICAL ANALYSIS
Each I-CORE module includes a powerful, four-channel optical analysis system
capable of complex chemical assays. This allows the detection and quantification
of multiple fluorescent dyes and multiple target molecules in the same reaction
tube. Continuous optical monitoring during amplification also allows the user to
stop the reaction as soon as a target is detected, thereby shortening the time
to result. For example, in a single reaction tube, the I-CORE module could
simultaneously detect and quantify staphylococcus aureus, detect the presence or
absence of the methicillin-resistance gene and measure the response of a
separate internal control. The internal control allows us to verify the
performance of the system.
PATENTED REACTION TUBE
Our disposable patented reaction tube is used in conjunction with the I-CORE
module and has been optimized to provide rapid temperature cycling and long
optical path lengths for optimum optical sensitivity. In addition, the tube is
designed to eliminate entrapped air, which can interfere with the optical
signal. This feature minimizes optical noise, makes assays more uniform and
reproducible and minimizes the need for optical normalization.
PRODUCTS
We are developing two families of products, the Smart Cycler and GeneXpert
families, that incorporate our core technologies. The following table sets forth
our amplification and detection products:
<TABLE>
<CAPTION>
NAME DESCRIPTION STATUS
---- ----------- ------
<S> <C> <C>
I-CORE Module Complete thermal cycling microinstrument for In Production
DNA amplification and detection
Smart Cycler Laboratory-based DNA analysis instrument In Production
containing 16 I-CORE modules
Smart Cycler XC Portable, battery-operated DNA analysis In Development
instrument containing 16 I-CORE modules for use
in the field
Notebook Smart Cycler Portable, battery-operated DNA analysis In Development
instrument containing two I-CORE modules
integrated with a notebook computer
Smart Cycler Reaction Disposable I-CORE reaction tubes optimized for In Production
Tubes (25 micronL and research and diagnostic applications
100 micronL)
</TABLE>
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The following table sets forth our family of products that integrate sample
preparation, amplification and detection:
<TABLE>
<CAPTION>
NAME DESCRIPTION STATUS
---- ----------- ------
<S> <C> <C>
GeneXpert Automated system for sample preparation, In Development
amplification and detection from raw biological
samples
Briefcase GeneXpert Portable, battery-operated version of the In Development
GeneXpert
GXPT-1 Disposable cartridge for spores and bacteria in In Development
aqueous-based solutions
GXPT-2 Disposable cartridge for genomic DNA in blood In Development
GXPT-3 Disposable cartridge for viral pathogens in Future Development
clinical swabs
GXPT-4 Disposable cartridge for bacterial DNA in blood Future Development
GXPT-5 Disposable cartridge for viral pathogens in Future Development
blood
</TABLE>
I-CORE MODULE
Our I-CORE module is a low-cost, self-contained fluorimeter for performing and
continuously monitoring chemical reactions such as PCR. Each module can perform
optical fluorescence analysis of up to four separate wavelengths. The I-CORE
module rapidly and accurately controls the heating and cooling of the sample,
which allows faster reactions and more accurate results. I-CORE modules can be
configured into a variety of DNA analysis instruments or can be sold to
manufacturers of large clinical and research instruments for incorporation into
their instrument platforms. The I-CORE module is a key component in both our
Smart Cycler and GeneXpert families of products. We expect to incorporate our
I-CORE technology into future systems.
SMART CYCLER FAMILY
Our Smart Cycler system contains 16 I-CORE modules arranged into a rapid,
flexible, multi-purpose instrument capable of performing DNA amplification and
detection by means of a number of available fluorescent chemical techniques. In
1998, we received an R&D 100 award from R&D Magazine for the design of the Smart
Cycler. To date, we have placed 27 Smart Cyclers with 17 different collaborators
for technology evaluation. We anticipate the commercial launch of the Smart
Cycler in the first half of 2000, and we have a co-exclusive agreement with
Fisher Scientific to distribute the Smart Cycler.
Our Smart Cycler XC (eXtreme Conditions) is a portable, battery-operated version
of the Smart Cycler targeted toward military, law enforcement and industrial
testing markets. The development of the Smart Cycler XC was funded by the US
Army under a development contract. To date, we have placed two systems in the
field for technology evaluation.
Our Notebook Smart Cycler is a battery-operated prototype thermal cycler in
which two I-CORE modules have been integrated with a notebook computer to
further increase portability for the point-of-use market.
REACTION TUBES
One of our patented reaction tubes is required for each assay run using our
I-CORE or Smart Cycler family of products. We offer two types of patented
reaction tubes for use with these systems. Both are designed to be disposed of
after a single use and represent opportunities for recurring revenue from an
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installed base of instruments. We manufacture and sell a 25 microliter tube,
typically preferred in the life sciences research market, and a 100 microliter
tube, which is typical for applications that might require larger liquid
reaction volumes.
GENEXPERT SYSTEM
Our GeneXpert family of products combines sample preparation with the
amplification and detection functions performed by our I-CORE module into an
integrated, automated DNA analysis instrument. These products are designed to
purify, concentrate, detect and identify targeted DNA sequences, from sample to
result, in less than 30 minutes. Current techniques for accomplishing this same
complex series of procedures require extensive manual labor by skilled
technicians and can take anywhere from six hours to three days.
Our GeneXpert technology platform is designed to accept cartridges with several
different internal configurations, each designed to perform a different class of
assay. Each cartridge will be labeled with bar codes that instruct the
instrument how to direct the fluids through the cartridge and activate the
various mixing, lysing, amplification, detection and other functions as
required. Furthermore, the GeneXpert system is compact, uses low power and is
suitable for applications requiring portability.
DISPOSABLE ASSAY CARTRIDGES
We have two disposable assay cartridges under development:
SPORES AND BACTERIA IN AQUEOUS-BASED SOLUTIONS
Our GXPT-1 cartridge will be a general-purpose device optimized for rapidly
extracting, concentrating and detecting spores and bacteria from aqueous-based
samples. We have successfully demonstrated the usefulness of this cartridge for
applications such as detecting infectious organisms in urine, bacteria from
swabs and spores in environmental samples. We anticipate this cartridge will
also be used to detect bacteria in food, spores in industrial products and to
replace bacterial cultures. We are optimizing this cartridge to improve speed
and sensitivity when targets are present in low concentration in a large volume.
GENOMIC DNA IN BLOOD
Our GXPT-2 cartridge will be optimized for extracting and concentrating genomic
DNA from blood or cell cultures. This cartridge will have broad applications in
HLA (human leukocyte antigen) analysis, genetic analysis and SNP detection and
analysis. This cartridge will extract white blood cells from whole blood,
automatically lyse these cells, extract and concentrate the genomic DNA, then
selectively amplify and detect several genomic regions containing the SNPs of
interest. The practical realization of SNP information in routine medical
testing will require simple, cost-effective disposables such as this cartridge.
In addition to our own development efforts, we are working with collaborators to
co-develop the methodologies and chemistries to be used in specific assays
incorporated in these cartridges. Our cartridge design supports a strategy in
which a continuous introduction of new assays and new disposable cartridges can
be launched over a period of time, expanding the panel of tests that can be
implemented on an installed base of GeneXpert instruments. We are engaged in the
early stage development of these additional disposable cartridges:
VIRAL PATHOGENS IN SWABS
We intend to design our GXPT-3 cartridge to accept nasal swab extracts or other
respiratory secretions, capture the viral pathogens, lyse the viruses and
perform real-time PCR. We believe there
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will be widespread adoption of rapid respiratory virus testing, such as for flu
and childhood viral pathogens, as new antiviral treatments become available.
BACTERIAL DNA IN BLOOD
We intend to design our GXPT-4 cartridge to accept up to 10 milliliters of whole
blood and extract and concentrate bacterial DNA. This will enable detection of
the presence of bacteria. Bacterial contamination in blood causes over 20,000
deaths per year in the United States. Relatively large volumes of blood are
necessary to achieve the required diagnostic sensitivity. In addition, this
cartridge in the GeneXpert system will be able to rapidly and simultaneously
detect antibiotic resistance.
VIRAL PATHOGENS (DNA AND RNA) IN BLOOD
We intend to design our GXPT-5 cartridge to accept up to 10 milliliters of whole
blood, separate and concentrate viruses and their nucleic acids. This will
enable the rapid screening of donor blood for transfusions and blood from organ
donors. We believe that this cartridge will also be utilized for monitoring
therapeutic response to antiviral drugs.
RESEARCH AND DEVELOPMENT
Our research and development efforts are focused on refining and enhancing of
our existing systems, significantly improving our basic technology and
developing key future technologies and systems. As with our core technologies
and products, we are concentrating our efforts in the areas of sample
preparation, amplification and detection.
SAMPLE PREPARATION
+ New miniature components for improved performance of nucleic acid
purification;
+ Large and small-scale microfluidic systems for automated fluid handling;
+ New processing methodologies and chemistries, including viral capture; and
+ Parallel, high-density sample handling and processing systems.
AMPLIFICATION
+ Enhanced performance of reaction components and systems; and
+ Alternative amplification chemistries.
DETECTION
+ Distinguishing a larger number of fluorescent probes;
+ Alternative detection technologies, including solid-state optical detection
systems with applicability beyond current homogeneous methodologies;
+ Alternative nucleic acid and other biomolecule detection techniques; and
+ Further miniaturization of optical detection systems.
SALES AND MARKETING
Our commercialization strategy is to sell our products principally through
distribution partners across a wide range of markets, including life sciences
research, clinical diagnostics, industrial testing and
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pharmacogenomics. We may market our products directly to key customers in the
pharmaceutical industry and the US government.
Our distribution partners are continually looking for innovative new products.
We plan to partner with them to gain access to their marketing resources and
their proprietary reagents and assays. We will retain the rights to manufacture
the key components and disposable products for our systems. We currently have
eight employees engaged in marketing, sales and service activities and are
planning to hire additional personnel before the end of the year.
COLLABORATIONS
We have entered into collaborations with commercial entities and have received
grants and research contracts from US government agencies. We have entered into
the following significant commercial collaborations:
FISHER SCIENTIFIC
We intend to launch our first product, the Smart Cycler system, in the first
half of 2000 into the US life sciences research market through the Life Sciences
group of Fisher Scientific, Inc. Fisher has distribution rights to the US life
sciences research market and the option to extend those rights into Canada and
certain European countries. Fisher will sell under the Cepheid label and trade
dress. We will establish the end user list price for the system, accessories and
disposable reaction tubes. This three year arrangement may be extended by mutual
agreement.
Our agreement with Fisher is subject to Fisher's ongoing fulfillment of minimum
purchase requirements. We also retain the ability to market, directly or through
a collaborator, a private-label version of the system to the life sciences
research market.
INNOGENETICS
We have entered into a Development and Supply Agreement with Innogenetics, a
Belgian biotechnology company. The focus of this collaboration is the
development of products integrating our proprietary technologies for sample
preparation, rapid amplification and detection and Innogenetics' proprietary
methods for genetic testing and viral genotyping. Any resulting products will be
sold on a worldwide basis by Innogenetics, through their direct sales
organizations in the US and Europe and through distributor organizations.
INFECTIO DIAGNOSTIC
We have formed Aridia Corp., a joint venture we own equally with Infectio
Diagnostic (I.D.I.), Inc., a Canadian diagnostic company. Aridia is developing a
line of proprietary molecular diagnostic tests for the rapid, time critical
identification of bacterial and fungal infections, such as group B strep,
antibiotic resistant bacteria, meningitis and sepsis. The first products from
this venture, a line of assays adapted to our Smart Cycler system, will be
directed primarily to hospital laboratories. Products incorporating our sample
preparation cartridge technology will follow and will enable diagnostic
procedures to be performed closer to the patient. These products will require
FDA approval or clearance, or other applicable regulatory approval or clearance,
which has not been obtained or sought.
US GOVERNMENT
Fast DNA testing, available when and where it is needed, is of great interest to
the US government, primarily for biological warfare defense, but also for
medical diagnostics, food testing, forensics and
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other applications. We have received grants and research contracts from the
following US government agencies that have funded much of our fundamental
technology development:
+ Defense Advanced Research Projects Agency;
+ United States Army Medical Research Institute of Infectious Diseases;
+ Soldier Biological Chemical Command; and
+ Lawrence Livermore National Laboratory.
In addition, the following US government agencies are evaluating prototypes of
our products:
+ Center for Disease Control;
+ Federal Bureau of Investigation; and
+ Armed Forces Institute of Pathology.
MANUFACTURING
Our manufacturing processes were designed to comply with ISO 9001 quality
control procedures but, we have not yet applied for ISO certification. Our
facilities and manufacturing processes are designed to comply with FDA's Quality
Systems Requirements to enable us to market our systems in the future into the
clinical diagnostics and industrial testing markets. We perform final assembly,
calibration and test of our instruments. We produce our patented disposable
reaction tubes on a custom, automated assembly line. This line can be expanded
to deliver up to 20 million tubes per year with a single shift. Our new
manufacturing facility provides increased capacity for assembly, test and
inventory of our products.
COMPETITION
Several companies provide instruments for DNA amplification or detection. PE
Biosystems and Hoffmann La Roche sell systems integrating amplification and
detection to the commercial market. Organon Teknika, Promega and Qiagen are
competitors in the area of sample preparation, selling both sample preparation
kits and robotic systems.
We expect to encounter intense competition from a number of companies that offer
various products for sample preparation, amplification and detection. We
anticipate that our competitors will come primarily from the following two
sectors:
+ companies providing conventional products based on established technologies;
and
+ companies developing their own microfluidics technologies.
In order to compete against vendors of conventional products, we will need to
demonstrate the advantages of our products over alternative well-established
technologies and products. We will also need to demonstrate the potential
economic value of our products relative to these conventional technologies and
products.
We will also need to compete effectively with companies developing their own
microfluidics technologies and products, such as ACLARA Biosciences, Caliper,
Nanogen and Orchid Biosciences. Other companies we are aware of that are
involved in microfluidic research include Affymetrix, Motorola, 3M and PE
Biosystems. Microfluidic technologies have undergone and are expected to
continue to undergo rapid and significant change. Our future success will depend
on our ability to establish and maintain a competitive position in these and
future technologies. Rapid technological
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development may result in our products or technologies becoming obsolete.
Products we offer could be made obsolete either by less expensive or more
effective products based on similar or other technologies.
In many instances, our competitors have or will have substantially greater
financial, technical, research and other resources and larger, more established
marketing, sales, distribution and service organizations than we do. Moreover,
competitors may have greater name recognition than we do, and may offer
discounts as a competitive tactic. We cannot assure you that our competitors
will not succeed in developing or marketing technologies or products that are
more effective or commercially attractive than our products, or that would
render our technologies and products obsolete. Also, we may not have the
financial resources, technical expertise or marketing, distribution or support
capabilities to compete successfully in the future. Our success will depend in
large part on our ability to maintain a competitive position with our
technologies.
GOVERNMENT REGULATION
For our initial commercial market, the biomedical research market, we do not
anticipate the need for FDA or other regulatory approval. We have not applied
for FDA or other regulatory approvals with respect to any of our products under
development. We anticipate, however, the manufacturing, labeling, distribution
and marketing of some or all of the diagnostic products under development or
diagnostic products we may develop and commercialize in the future will be
subject to regulation in the United States and in other countries. In addition
to clinical diagnostics markets, we also may pursue forensic, agricultural,
environmental, laboratory and industrial applications for our products which may
be subject to different government regulation. Aspects of our manufacturing and
marketing activities may also be subject to federal, state and local regulation
by various governmental authorities.
In the United States, the FDA regulates, as medical devices, most diagnostic
tests and in vitro reagents that are marketed as finished test kits and
equipment. Pursuant to the Federal Food, Drug and Cosmetic Act, and the
regulations promulgated thereunder, the FDA regulates the preclinical and
clinical testing, design, manufacture, labeling, distribution and promotion of
medical devices. We will not be able to commence marketing or commercial sales
in the United States of new medical devices under development that fall within
the FDA's jurisdiction until we receive clearance or approval from the FDA,
which can be a lengthy, expensive, and uncertain process. Noncompliance with
applicable requirements can result in, among other things, administrative or
judicially imposed sanctions such as injunctions, civil penalties, recall or
seizure of products, total or partial suspension of production, failure of the
government to grant premarket clearance or premarket approval for devices,
withdrawal of marketing clearances or approvals, or criminal prosecution.
INTELLECTUAL PROPERTY
PATENTS AND PATENTS PENDING
We hold an exclusive license to key technologies from the Lawrence Livermore
National Laboratory, or LLNL, in the fields of nucleic acid analysis and ligand
binding assays with integrated optical detection. These technologies have
resulted in one issued US patent and include one pending US patent application
and two pending international counterpart patent application. The LLNL
technologies are the basis of our I-CORE module and encompass the key I-CORE
features.
We also have an issued US patent on our disposable reaction tube. We have an
additional 12 pending US patent applications and six pending international
counterpart applications relating to our technologies. Our pending patent
applications relate to our I-CORE module, reaction tubes, lysing
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technology, nucleic acid concentration chip and microfluidic devices, and
methods and systems as applied to sample processing and automated DNA analysis.
OUTSIDE TECHNOLOGIES REQUIRED
We have obtained a thermal cycling license from PE Biosystems for sale of the
I-CORE module in the life sciences research, industrial testing and drug
discovery and development markets. In addition, we are in discussions with PE
Biosystems regarding a license to their US patent covering thermal cycling
systems for other fields.
In the area of human diagnostics for PCR-based applications, we rely on partners
who have negotiated or are negotiating the appropriate licenses from Hoffmann La
Roche for application to this field. There are also numerous non-PCR
amplification methods that can be adapted to our systems and we are pursuing
collaborations with developers of these methods.
EMPLOYEES
As of March 31, 2000, we had 76 full-time employees of whom seven hold PhD
degrees and seven hold other advanced degrees. Approximately 37 employees are
engaged in research and product development, 24 of whom are in engineering and
13 in biotechnology. None of our employees are represented by a labor union. We
place a high value on our human capital and consider our employee relations to
be good.
FACILITIES
We occupy approximately 33,000 square feet of leased and sub-leased office and
laboratory space in Sunnyvale, California as the base for our manufacturing,
product support and research and development efforts. All our space is leased
through at least mid 2003 and is expected to meet our currently anticipated
facilities needs at least through 2001. If necessary, we believe we will be able
to obtain additional facilities space on commercially reasonable terms.
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LEGAL PROCEEDINGS
We are not a party to any legal proceedings.
SCIENTIFIC ADVISORY BOARD
We have assembled a group of scientific advisors with demonstrated expertise in
fields related to microbiology, microfluidics, instrumentation technologies and
systems. Our Scientific Advisory Board meets periodically with our scientific
and development personnel and management to discuss our present and long-term
research and development activities. Scientific Advisory Board members include:
+ R. Bruce Darling, PhD, Professor of Electrical Engineering, University of
Washington. Dr. Darling is an expert in the areas of microfabrication,
microfluidic systems, modeling and instrumentation.
+ Stanley Falkow, PhD, Professor Microbiology and Immunology, Geographic
Medicine and Infectious Diseases, Stanford University School of Medicine. Dr.
Falkow focuses his research efforts on microbial pathogenicity and
investigates the natural history of infectious diseases at molecular and
genetic levels.
+ Gregory Kovacs, MD, PhD, Associate Professor of Electrical Engineering and,
by courtesy, of Medicine, Stanford University. Dr. Kovacs develops
micromachined sensors and fluidic devices for biomedical applications,
clinical and research instrumentation and specialized devices for detection
of environmental pathogens and toxins. Dr. Kovacs serves as the chair of our
Scientific Advisory Board.
+ Dorian Liepmann, PhD, Associate Professor, Bioengineering and Mechanical
Engineering, University of California, Berkeley. Dr. Liepmann's research
areas include experimental fluid mechanics, biofluid mechanics, microfluidic
systems, bio-MEMS, mixing, free surface flows and hydroacoustics.
+ David A. Relman, MD, Assistant Professor Medicine, Stanford University. Dr.
Relman's research focuses on molecular mechanisms of pathogenesis and
advanced molecular methods for microbial pathogen discovery.
+ Ann Warford, PhD, Director of Laboratory Operations, SRA Life Sciences. Dr.
Warford is an expert in the practical application of advanced clinical
diagnostics in hospital settings.
+ Richard Zare, PhD, Marguerite Blake Wilbur Professor in Natural Science at
Stanford University, Department of Chemistry, Stanford University. Dr. Zare
investigates chemical reactions at the molecular level, including molecular
collision processes and dedicates a good deal of his time to advancing
chemical analysis technologies through such techniques as laser-induced
fluorescence and high performance capillary electrophoresis.
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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
<S> <C> <C>
- -----------------------------------------------------------------------------------------------------
Thomas L. Gutshall........................... 62 Chairman of the Board, Chief Executive
Officer and Director
Kurt Petersen, PhD .......................... 52 President, Chief Operating Officer and
Director
M. Allen Northrup, PhD ...................... 45 Vice-President, Research and Chief Technical
Officer
Catherine A. Smith........................... 44 Vice-President, Finance and Chief Financial
Officer
Gerald S. Casilli(1)......................... 60 Director
Cristina H. Kepner(1)........................ 53 Director
Ernest Mario, PhD(1) ........................ 61 Director
Dean O. Morton(2)............................ 68 Director
Hollings C. Renton(2)........................ 53 Director
</TABLE>
- ---------------
(1) Member of the audit committee
(2) Member of the compensation committee
Thomas L. Gutshall Mr. Gutshall is a co-founder and has served us as Chairman
of the Board and Chief Executive Officer since August 1996. From January 1995 to
August 1996, he was President and Chief Operating Officer of CV Therapeutics.
From 1989 to 1994, he was Executive Vice President at Syntex Corporation and a
member of the Pharmaceutical Executive Committee. His responsibilities while at
Syntex included managing Syva Company, Syntex Agribusiness, Pharmaceutical and
Chemical Operations and Services, Syntex Pharmaceutical Intl. Ltd. and
Environmental Health and Safety. He is also a member of the board of directors
of Catalytica Pharmaceuticals and CV Therapeutics.
Kurt Petersen, PhD Dr. Petersen is a co-founder and has served us as President
and Chief Operating Officer since August 1996. From January 1996 through July
1996, Dr. Petersen worked as a private consultant. From 1985 to 1995, he served
as Vice President, Technology for NovaSensor. While at NovaSensor he was
responsible for commercializing many innovative micromachined devices and
fundamental fabrication processes. He holds 19 patents and has authored over 80
papers and presentations.
M. Allen Northrup, PhD Dr. Northrup is a co-founder and has served us as Vice
President, Research and Chief Technology Officer since May 1997. From 1991 to
1997, he served as the Principal Engineer at the Microtechnology Center of
Lawrence Livermore National Laboratory, where he demonstrated the first
micromachined and optically interrogated PCR system. He holds 17 patents, has
authored 50 publications and serves on several national and international
committees in the areas of biotechnology and microinstrumentation.
Catherine A. Smith Ms. Smith is our Vice President, Finance and Chief Financial
Officer and joined us as Vice President in January 1998. From 1992 to 1997, she
was a consultant to numerous private and public biotechnology, pharmaceutical,
diagnostic and device companies, providing interim or part-time financial
management. She began her career at the international public accounting firm
Deloitte + Touche, where she served as an audit manager from 1979 to 1984. She
also served as the Controller for Thoratec Laboratories Corporation from 1984 to
1989.
Gerald A. Casilli Mr. Casilli joined us as a director in April 1997. Mr.
Casilli has served as Chairman of the Board of IKOS Systems, Inc. since 1989 and
as Chief Executive Officer from 1989 to 1995. From 1986 to 1989, he was a
general partner at Trinity Ventures, Ltd., a venture capital firm. Mr. Casilli
was a general partner of Genesis Capital, a venture capital firm from 1982 to
1990. In
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1973, Mr. Casilli founded Millennium Systems, a manufacturer of microprocessor
development systems, and served as its President and Chief Executive Officer
until 1982. Mr. Casilli currently serves as a director of Evans & Sutherland.
Cristina H. Kepner Ms. Kepner joined us as a director in May 1998. She is
Executive Vice President and director of Invemed Associates LLC, an investment
bank. She has been with Invemed since 1978, where she also serves as Corporate
Finance Director. She is currently on the boards of ViroLogic, Inc. and Quipp,
Inc.
Ernest Mario, PhD Dr. Mario joined us as a director in March 2000. He has been
the Chairman of the Board since 1997 and Chief Executive Officer of ALZA
Corporation since 1993. From 1993 to 1997, he was Co-Chairman of the Board of
ALZA. Prior to joining ALZA, he served as Chief Executive of Glaxo Holdings plc,
a pharmaceutical corporation, from 1989 to 1993, and as Deputy Chairman from
1992 to 1993. From 1988 to 1989, he served as Chairman of the Board and Chief
Executive Officer of Glaxo, Inc., a subsidiary of Glaxo Holdings, and from 1986
to 1988 as President and Chief Operating Officer of Glaxo, Inc. He currently
serves on the boards of Catalytica, Inc., COR Therapeutics, Inc., Pharmaceutical
Product Development, Inc. and SonoSite, Inc.
Dean O. Morton Mr. Morton joined us as a director in July 1997. He was Executive
Vice President, Chief Operating Officer and a director of Hewlett-Packard
Company. He is currently a member of the board of directors of ALZA Corporation,
BEA Systems, Inc., Centigram Communications Corporation, The Clorox Company and
KLA-Tencor Corporation. He is a trustee of the State Street Research group of
mutual funds and a director of the Metropolitan Series Fund, Inc. and State
Street Research Portfolios, Inc. He serves on the Board of Monterey Bay Aquarium
Research Institute and the Board of Kaiser Foundation Health Plan and Hospitals.
He is a trustee of the David and Lucille Packard Foundation and Chairman of The
Center for Excellence in Non Profits.
Hollings C. Renton Mr. Renton joined us as a director in March 2000. Since 1993,
he has served as the President and Chief Executive Officer and a director of
Onyx Pharmaceuticals, Inc. From 1991 to 1993, he served as President and Chief
Operating Officer of Chiron Corporation following their acquisition of Cetus
Corporation. Prior to the acquisition, he served as President of Cetus from 1990
to 1993 and as Chief Operating Officer of Cetus from 1987 to 1990.
BOARD COMPOSITION
We will have nine authorized directors upon the closing of this offering. In
accordance with the terms of our amended and restated articles of incorporation,
the terms of office of the board of directors will be divided into three
classes:
+ Class I directors, whose term will expire at the annual meeting of
shareholders to be held in 2001;
+ Class II directors, whose term will expire at the annual meeting of
shareholders to be held in 2002; and
+ Class III directors, whose term will expire at the annual meeting of
shareholders to be held in 2003.
The Class I directors will be Mr. Morton and Dr. Petersen, the Class II
directors will be Mr. Casilli and Ms. Kepner and the Class III directors will be
Dr. Mario, Mr. Gutshall and Mr. Renton. There will be two vacancies on the board
of directors. At each annual meeting of shareholders after the initial
classification, 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. The authorized number of directors may be
increased only by resolution of the board of directors and a majority vote of
our shareholders. Any additional directorships resulting from an increase in the
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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 our board of directors may have the effect of delaying or
preventing changes in control or management of our company.
BOARD COMMITTEES
The audit committee of our board of directors was established in September 1998
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 our annual audits, fees to be paid to our independent
auditors, the performance of our independent auditors and our accounting
practices. The members of our audit committee are Mr. Casilli, Ms. Kepner and
Dr. Mario, each of whom is an independent director.
The compensation committee of the board of directors was established in
September 1998 and reviews and approves the salaries and stock options
recommended by our Human Resources Department for our employees, consultants,
directors and other individuals compensated by us. Mr. Morton and Mr. Renton,
each of whom is an independent director, are currently the members of the
compensation committee.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
No member of our compensation committee has ever been at any time an officer or
employee of ours, and none of our executive officers serves as a member of the
board of directors or compensation committee of any entity that has one or more
officers serving as a member of our board of directors or compensation
committee.
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
stock plans, and our board continues to have the discretion to grant options to
new non-employee directors. In 1999, none of our non-employee directors were
granted any options. In March 2000, upon joining our board, Dr. Mario and Mr.
Renton each received an option to purchase 48,000 shares of our common stock.
Beginning in April 2000, our non-employee directors will each receive
nondiscretionary, automatic grants of options to purchase 15,000 shares of our
common stock upon joining the board of directors and nondiscretionary, automatic
grants of options to purchase 5,000 shares of our common stock each year
pursuant to the 2000 Non-Employee Directors' Stock Option Plan.
LIMITATION OF LIABILITY AND INDEMNIFICATION OF OFFICERS AND DIRECTORS
Our amended and restated articles of incorporation limit the liability of
directors to the maximum extent permitted by California law. California law
provides that directors of a corporation will not be personally liable for
monetary damages for breach of their fiduciary duties as directors, except
liability for:
+ breach of their duty of loyalty to the corporation or its shareholders;
+ acts or omissions not in good faith or which involve intentional misconduct
or a knowing violation of law;
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+ unlawful payments of dividends or unlawful stock repurchases or redemptions;
or
+ any transaction from which the director derived an improper personal benefit.
Such limitation of liability does not apply to liabilities arising under the
federal or state securities laws and does not affect the availability of
equitable remedies such as injunctive relief or rescission.
Our bylaws provide that we shall indemnify our directors, officers, employees
and other agents to the fullest extent permitted by law. We believe that
indemnification under our bylaws covers at least negligence and gross negligence
on the part of indemnified parties. Our bylaws also permit us to secure
insurance on behalf of any officer, director, employee or other agent for any
liability arising out of his or her actions in such capacity, regardless of
whether the bylaws permit such indemnification.
We intend to enter into agreements to indemnify our directors, in addition to
the indemnification provided for in our bylaws. These agreements, among other
things, will indemnify our directors for certain expenses (including attorneys'
fees), judgments, fines and settlement amounts incurred by any such director in
any action or proceeding, including any action by or in our right, arising out
of such person's services as one of our directors, to any of our subsidiaries or
to any other company or enterprise to which the director provides services at
our request. We believe that these provisions and agreements are necessary to
attract and retain qualified persons as directors.
There is no pending litigation or proceeding involving any of our directors or
officers in which indemnification is required or permitted, and we are not aware
of any threatened litigation or proceeding that may result in a claim for such
indemnification.
EXECUTIVE COMPENSATION
The following table shows all compensation received during 1999 by our Chief
Executive Officer and our other most highly compensated executive officers, who
received salary and bonus compensation of more than $100,000 during 1999,
collectively referred to as the Named Executive Officers. There was no other
compensation to the Named Executive Officers in 1999.
SUMMARY COMPENSATION
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
ANNUAL COMPENSATION
NAME AND PRINCIPAL POSITION SALARY BONUS
<S> <C> <C>
- --------------------------------------------------------------------------------
Thomas L. Gutshall.......................................... $170,000 --
Chairman of the Board and Chief Executive Officer
Kurt Petersen, PhD.......................................... $170,000 --
President and Chief Operating Officer
M. Allen Northrup, PhD...................................... $160,000 $64,625
Vice President, Research and Chief Technical Officer
Catherine A. Smith.......................................... $140,000 --
Vice President, Finance and Chief Financial Officer
</TABLE>
OPTION GRANTS IN LAST FISCAL YEAR
No options were granted to any of the Named Executive Officers during the fiscal
year ended December 31, 1999.
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AGGREGATED OPTION EXERCISES IN THE YEAR DECEMBER 31, 1999 AND YEAR-END OPTION
VALUES
As of December 31, 1999, none of the Named Executive Officers held any options.
None of the Named Executive Officers exercised any options during the fiscal
year ended December 31, 1999.
EMPLOYEE BENEFIT PLANS
1997 STOCK OPTION PLAN
Our board of directors adopted our 1997 Stock Option Plan on January 31, 1997.
This plan provides for the grant of incentive stock options to our employees and
nonstatutory stock options to our employees, directors and consultants. As of
March 31, 2000, 2,800,000 shares of common stock were reserved for issuance
under this plan. Of these shares, 1,366,794 shares had been issued upon exercise
of stock options, 540,276 shares were subject to outstanding options and 892,930
shares were available for future grant.
Our board of directors administers this plan and determines the terms of options
granted, including the exercise price, the number of shares subject to
individual option awards and the vesting period of options. The exercise price
of nonstatutory options must generally be at least 85% of the fair market value
of our common stock on the date of grant. The exercise price of incentive stock
options cannot be lower than 100% of the fair market value of our common stock
on the date of grant and, in the case of incentive stock options granted to
holders of more than 10% of our voting power, not less than 110% of the fair
market value. The term of an incentive stock option cannot exceed 10 years, and
the term of an incentive stock option granted to a holder of more than 10% of
our voting power cannot exceed five years.
Our board of directors may not, materially amend, modify or terminate this plan
without the consent of a majority of our shareholders. This plan will terminate
in 2007 unless terminated earlier by our board of directors and our
shareholders.
2000 EMPLOYEE STOCK PURCHASE PLAN
Our board of directors adopted our 2000 Employee Stock Purchase Plan in April
2000. This plan provides our employees with an opportunity to purchase our
common stock through accumulated payroll deductions.
A total of 200,000 shares of common stock has been reserved for issuance under
this plan. In addition, this plan provides for annual increases in the number of
shares available for issuance under the plan on the first day of each year,
beginning January 1, 2001, equal to the lesser of:
+ 200,000 shares;
+ 0.75% of the outstanding shares of our capital stock on that date;
+ such lesser amount as may be determined by our board of directors.
Our board of directors, or a committee appointed by the board, administers this
plan. Our board or its committee has full and exclusive authority to interpret
the terms of this plan and determine eligibility.
Employees are eligible to participate in this plan if they are employed by us or
any participating subsidiary for at least 20 hours per week for at least 22
weeks in any calendar year. However, an employee may not be granted an option to
purchase stock under the purchase plan if such employee immediately after grant
owns stock possessing five percent or more of the total combined voting power or
value of all classes of our capital stock or of any subsidiary.
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This plan, which is intended to qualify under Section 423 of the Internal
Revenue Code of 1986, as amended, allows participants to obtain favorable tax
treatment of purchases and sales of shares obtained under the plan. The plan
provides for offering periods of up to 24 months, as determined by the plan
administrator. The offering periods will generally start on January 1 of each
year, except that the first offering period will commence on the first trading
day before the effective date of this offering, will end on the last trading day
on or before December 31, 2000, and will have two purchase periods ending on the
last trading days of December 2000 and June 2001.
This plan permits participants to purchase our common stock though payroll
deductions of up to 15% of the participant's compensation, up to a maximum of
$25,000 per year. Compensation is defined as the participant's base straight
time gross earnings and commissions, but excludes payments for overtime, shift
premium payments, incentive compensation, incentive payments, bonuses and other
compensation.
Amounts deducted and accumulated for the participant's account are used to
purchase shares of our common stock on the last trading day of each purchase
period at a price of 85% of the lower of the fair market values of the common
stock at the beginning of the offering period and the end of the purchase
period. Participants may reduce their withholding percentage to zero at any time
during an offering period and may increase their withholding percentage or
decrease it on the first day of each purchase period. Participants may end their
participation at any time during an offering period, and they will be paid their
payroll deductions to date. Participation ends automatically upon termination of
employment with us.
A participant may not transfer rights granted under this plan other than by
will, the laws of descent and distribution or as otherwise provided under the
plan.
This plan provides that if we merge with or into another corporation or effect a
sale of substantially all of our assets, a successor entity may assume or
substitute for each outstanding purchase right. If the successor entity refuses
to assume or substitute the outstanding purchase rights, the offering period
then in progress will be shortened, and a new exercise date will be set.
This plan will terminate in 2020. Our board of directors has the authority,
however, to amend or terminate this plan at any time and may apply any action to
affect their outstanding rights to purchase stock under this plan.
2000 NON-EMPLOYEE DIRECTORS' STOCK OPTION PLAN
Our board adopted the 2000 non-employee directors' stock option plan in March
2000. This plan provides for the automatic grant to our non-employee directors
of options to purchase shares of our common stock.
SHARE RESERVE
We have reserved a total of 200,000 shares of our common stock for issuance
under this plan. If an optionholder does not purchase the shares subject to his
or her option before the option expires or otherwise terminates, the shares that
are not purchased will again become available for issuance under this plan.
ADMINISTRATION
The board administers this plan. The board has the authority to construe,
interpret and amend this plan, but this plan specifies the essential terms of
the options, including:
+ the option recipients;
+ the grant dates;
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+ the number of shares subject to the option;
+ the exercisability and vesting of the option;
+ the exercise price; and
+ the type of consideration.
ELIGIBILITY
Options will automatically be granted under this plan to our non-employee
directors as follows:
+ Each non-employee director who is elected to the board following the adoption
of this plan will be granted an option for 15,000 shares on the date of
election to the board; and
+ On the date of the next board meeting following each year's annual meeting of
shareholders, each non-employee director who is continuing as a non-employee
director and has been a director for longer than six months, will be granted
an additional option for 5,000 shares.
As long as the non-employee director continues to serve with us or with an
affiliate of ours (whether in the capacity of a director, consultant, or an
employee) each option granted under this plan to such person will vest
commencing one month after the date of its grant, at the rate of one
thirty-sixth of the total number of shares each month for the initial 15,000
share grants and one-twelfth of the total number of shares each month for the
annual 5,000 share grants until fully vested and will remain exercisable
throughout its term.
OPTION TERMS
Options have an exercise price equal to 100% of the fair market value of our
common stock on the grant date. The option term is ten years but it generally
will terminate three months after the optionholder's service terminates. If
termination is due to the optionholder's disability or death, however, the
post-termination exercise period is extended to 12 months.
The optionholder may not transfer the option. The optionholder may designate a
beneficiary to exercise the option following the optionholder's death.
Otherwise, the option exercise rights will pass by the optionholder's will or by
the laws of descent and distribution.
PLAN TERMINATION
This plan terminates in March 2010.
401(k) PLAN
In July 1997, our board of directors adopted a Retirement Savings and Investment
Plan covering our full-time employees located in the United States. This plan is
intended to qualify under Section 401(k) of the Internal Revenue Code of 1986,
as amended, so that contributions to this plan by employees, and the investment
earnings thereon, are not taxable to our employees until withdrawn. Pursuant to
this plan, employees may elect to reduce their current compensation by up to the
lesser of 20% of their annual compensation or the statutory prescribed annual
limit, $10,000 in 1999 and $10,500 in 2000, and to have the amount of such
reduction contributed to their plan. We do not currently make matching
contributions on behalf of plan participants.
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Related party transactions
SALES OF SECURITIES
+ In February 1997, we sold to various investors a total of 2,530,000 shares of
Series A preferred stock at a purchase price of $1.25 per share.
+ In April 1998, we sold to various investors a total of 3,666,658 shares of
Series B preferred stock at a purchase price of $2.25 per share.
+ In November 1998, we sold to Innogenetics, a collaborator, a total of 750,000
shares of Series C preferred stock at a purchase price of $3.00 per share.
+ In January through March 2000, we sold to various investors a total of
6,379,978 shares of Series C preferred stock at a purchase price of $3.00 per
share.
The following is a description of transactions since inception to which we have
been a party, in which the amount involved exceeds $60,000 and in which any
director, executive officer or holder of more than 5% of our capital stock had
or will have a direct or indirect material interest, other than compensation
arrangements which are described under "Management."
The following persons or entities purchased securities in the amounts set forth,
on an as-converted to common stock basis, in the chart below. We sold shares of
our Series A preferred stock between January 1997 and March 1997. We sold shares
of our Series B preferred stock between March 1998 and April 1998. We sold
shares of our Series C preferred stock between November 1998 and March 2000.
<TABLE>
<CAPTION>
SHARES OF PREFERRED STOCK
- ---------------------------------------------------------------------------------------------------------------------
PURCHASER(1) COMMON STOCK SERIES A SERIES B SERIES C WARRANTS
<S> <C> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------
DIRECTORS AND PRINCIPAL SHAREHOLDERS
Gerald S. Casilli............................. 80,000 140,000 23,000 65,306 --
Cristina H. Kepner(4)......................... -- -- 1,580,000 34,000 239,480
Invemed Associates LLC(4)..................... -- -- 1,580,000 34,000 239,480
Dean O. Morton................................ 48,000 40,000 25,000 25,000 --
EXECUTIVE OFFICERS
Thomas L. Gutshall............................ 1,000,000(2) 6,000 2,000 6,000 --
Kurt Petersen, PhD............................ 1,200,000(2) -- -- -- --
M. Allen Northrup, PhD........................ 1,200,000(2)(3) -- -- -- --
Catherine A. Smith............................ 259,000(2) -- -- -- --
OTHER TRANSACTION INFORMATION
Price per share............................... $0.005 to $1.50 $1.25 $2.25 $3.00 $2.58
</TABLE>
(1) See "Principal shareholders" for more detail on shares held by these
purchasers.
(2) These shares were purchased pursuant to a stock purchase agreement that
provided for a right of repurchase held by us.
(3) During 1997, we loaned $138,000 to Dr. Northrup for the purchase of common
stock from the exercise of the employee's stock options. Dr. Northrup paid
4% of the total exercise price, and we loaned Dr. Northrup the remaining 96%
of the purchase price. The loan bears interest at 7%.
(4) Includes 1,555,000 shares of common stock owned by Invemed Fund L.P., a fund
for which Invemed Associates LLC is the sole general partner, but only holds
a 0.5 percent partnership interest. In connection with the sale of Series B
preferred stock in April 1998, Invemed Associates acted as our agent and
received a warrant to purchase 233,248 shares of our common stock at $2.58
per share, which was transferred to Invemed Fund L.P., and Cristina H.
Kepner received a warrant to purchase 6,232 shares of our common stock at
$2.58 per share.
We have entered into, or prior to this offering will enter into, indemnification
agreements with our directors and executive officers for the indemnification of
and advancement of expenses to these
- --------------------------------------------------------------------------------
53
<PAGE> 58
RELATED PARTY TRANSACTIONS
- --------------------------------------------------------------------------------
persons to the fullest extent permitted by law. We also intend to enter into
these agreements with our future directors and executive officers.
Holders of our preferred stock are entitled to registration rights with respect
to the shares of our common stock that they will hold following this offering.
We believe that all transactions between us and our officers, directors,
principal shareholders and other affiliates have been and will be on terms no
less favorable to us than could be obtained from unaffiliated third parties.
- --------------------------------------------------------------------------------
54
<PAGE> 59
- --------------------------------------------------------------------------------
Principal shareholders
The following table sets forth information known to us with respect to the
beneficial ownership of our common stock as of March 31, 2000 (assuming
conversion of all outstanding shares of preferred stock into common stock upon
the closing of this offering and as adjusted to reflect the sale of the shares
offered by this prospectus) by:
+ each person or group of affiliated persons who is known by us to beneficially
own more than 5% of our common stock;
+ each of our directors;
+ each Named Executive Officer listed in the "Summary compensation" table
above; and
+ all of our executive officers and directors as a group.
Percentage of ownership is based on 20,515,430 shares outstanding as of March
31, 2000 assuming conversion of our preferred stock, and 25,515,430 shares
outstanding after this offering, assuming no exercise of the underwriters'
over-allotment options. All shares of the common stock subject to options
currently exercisable or exercisable within 60 days after March 31, 2000 are
deemed to be outstanding for the purpose of computing the percentage of
ownership of the person holding such options, but are not deemed to be
outstanding for computing the percentage of ownership of any other person.
Unless otherwise indicated below, each shareholder named in the table has sole
or shared voting and investment power with respect to all shares beneficially
owned, subject to applicable community property laws. Unless otherwise indicated
in the table, the address of each individual listed in the table is c/o Cepheid,
1190 Borregas Avenue, Sunnyvale, CA 94089.
<TABLE>
<CAPTION>
PERCENT BEFORE PERCENT AFTER
BENEFICIAL OWNER TOTAL NUMBER OFFERING OFFERING
<S> <C> <C> <C>
- ----------------------------------------------------------------------------------------------
DIRECTORS AND NAMED EXECUTIVE OFFICERS
Gerald S. Casilli(1)......................... 295,896 1.4% 1.2%
Cristina H. Kepner(2)........................ 1,853,480 8.9% 7.2%
Ernest Mario, PhD(3)......................... 48,000 * *
Dean O. Morton(4)............................ 148,000 * *
Hollings Renton(5)........................... 48,000 * *
Thomas L. Gutshall(6)........................ 1,058,000 5.1% 4.1%
Kurt Petersen, PhD(7)........................ 1,119,000 5.5% 4.4%
M. Allen Northrup, PhD(8).................... 1,200,000 5.8% 4.7%
Catherine A. Smith(9)........................ 259,000 1.3% 1.0%
All executive officers and directors as a
group (9 persons).......................... 6,029,376 29.2% 23.5%
FIVE PERCENT SHAREHOLDERS
Invemed Associates LLC(2).................... 1,788,248 8.6% 7.0%
Wheatley Partners II, LP(10)................. 2,224,989 10.8% 8.7%
</TABLE>
* Less than one percent.
(1) Includes an immediately exercisable option to acquire 10,000 shares of
common stock. As of March 31, 2000, we have the right to repurchase 9,167
of the shares issuable upon exercise of this option and 20,000 shares of
common stock owned by Mr. Casilli if he ceases to be one of our directors.
Mr. Casilli's business address is c/o IKOS, 19050 Pruneridge Avenue,
Cupertino, CA 95014.
- --------------------------------------------------------------------------------
55
<PAGE> 60
PRINCIPAL SHAREHOLDERS
- --------------------------------------------------------------------------------
(2) Includes 1,555,000 shares of common stock owned by Invemed Fund, L.P., a
fund for which Invemed Associates LLC is the sole general partner but only
holds a 0.5 percent partnership interest. Invemed Fund, L.P. holds warrants
to purchase an additional 233,248 shares. Ms. Kepner shares voting and
investment power over the shares held by Invemed Fund, L.P. and disclaims
beneficial ownership of these shares. Ms. Kepner's business address is c/o
Invemed Associates, 375 Park Avenue, New York, NY 10152.
(3) Consists of an immediately exercisable option to purchase 48,000 shares. As
of March 31, 2000, we have the right to repurchase 47,000 of the shares
issuable upon exercise of this option if Dr. Mario ceases to be one of our
directors. Dr. Mario's business address is c/o ALZA Corporation, 1900
Charleston Road, Mountain View, CA 94043.
(4) Includes an immediately exercisable option to acquire 10,000 shares of
common stock. As of March 31, 2000, we have the right to repurchase 9,167
of the shares issuable upon exercise of this option and 15,000 shares of
common stock owned by Mr. Morton if he ceases to be one of our directors.
Mr. Morton's business address is c/o Hewlett-Packard Corporation, 3200
Hillview Avenue, Palo Alto, CA 94304.
(5) Consists of an immediately exercisable option to purchase 48,000 shares. As
of March 31, 2000, we have the right to repurchase 48,000 of the shares
issuable upon exercise of this option if Mr. Renton ceases to be one of our
directors. Mr. Renton's business address is c/o Onyx Pharmaceuticals, Inc.,
3031 Research Drive, Richmond, CA 94806.
(6) Includes an immediately exercisable option to purchase 50,000 shares. As of
March 31, 2000, we have the right to repurchase 45,834 of the shares
issuable upon exercise of this option and 62,500 shares of common stock
owned by Mr. Gutshall if he ceases to be an employee, director or
consultant for us.
(7) As of March 31, 2000, we have the right to repurchase 75,000 shares of
common stock owned by Dr. Petersen if he ceases to be an employee, director
or consultant for us.
(8) As of March 31, 2000, we have the right to repurchase 300,000 shares of
common stock owned by Dr. Northrup if he ceases to be an employee or
consultant for us.
(9) As of March 31, 2000, we have the right to repurchase 92,292 shares of
common stock owned by Ms. Smith if she ceases to be an employee or
consultant for us.
(10) The business address of Wheatley Partners II, LP is 80 Cuttermill Road,
Suite 311, Great Neck, NY 11021.
- --------------------------------------------------------------------------------
56
<PAGE> 61
- --------------------------------------------------------------------------------
Description of capital stock
The following information describes our common stock and preferred stock, and
provisions of our amended and restated articles 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 amended and restated articles 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 our common
stock and preferred stock reflect changes to our capital structure that will
occur upon the closing of this offering in accordance with the terms of the
amended and restated articles.
Upon completion of this offering, our authorized capital stock will consist of
100,000,000 shares of common stock, no par value, and 5,000,000 shares of
preferred stock, no par value.
COMMON STOCK
As of March 31, 2000, there were 7,188,794 shares of our common stock
outstanding and held of record by 96 shareholders. There will be 25,515,430
shares of our common stock outstanding upon the closing of this offering, which
gives effect to the issuance of 5,000,000 shares of common stock offered by us
under this prospectus and the conversion of preferred stock discussed below.
Each share of our 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 shareholders and are entitled to one vote for each
share of common stock held. The holders of our common stock will not have
cumulative voting rights.
Subject to the prior rights and preferences, if any, applicable to shares of our
preferred stock or any series of preferred stock, the holders of our common
stock are entitled to receive such dividends, payable in cash, stock or
otherwise, as may be declared by our board of directors out of any funds legally
available for the payment of dividends.
If we voluntarily or involuntarily liquidate, dissolve or wind-up, the holders
of our common stock will be entitled to receive after distribution in full of
the preferential amounts, if any, to be distributed to the holders of our
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 our common stock have no preferences or
any preemptive conversion or exchange rights and there will be no redemption or
sinking fund provisions applicable to our common stock.
PREFERRED STOCK
As of March 31, 2000, there were 13,326,636 shares of preferred stock
outstanding. Upon the closing of this offering, all outstanding shares of
preferred stock will be converted into 13,326,636 shares of our common stock and
will be held of record by 163 shareholders. These shares of preferred stock will
no longer be authorized, issued or outstanding.
Our board of directors is authorized to provide for the issuance of shares of
preferred stock in one or more series, and to fix for each series such rights
and preferences, including voting rights, dividend rights, conversion rights,
redemption privileges and liquidation preferences, as shall be provided in a
resolution or resolutions adopted by the board. The rights of the holders of our
common stock will be subject to, and may be adversely affected by, the rights of
holders of any preferred stock that we may issue in the future. Our board of
directors may authorize the issuance of shares of preferred stock with terms and
conditions that could discourage a takeover or other transaction that holders of
some or a
- --------------------------------------------------------------------------------
57
<PAGE> 62
DESCRIPTION OF CAPITAL STOCK
- --------------------------------------------------------------------------------
majority of shares of our 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.
REGISTRATION RIGHTS
Pursuant to a registration rights agreement entered into between us and holders
of shares of common stock issuable upon conversion of our Series
A, Series B and Series C preferred stock, we are obligated, under limited
circumstances and subject to specified conditions and limitations, to use our
reasonable best efforts to register the registrable shares.
We must use our best efforts to register the registrable shares:
+ if we receive written notice from holders of 50% or more of the registrable
shares requesting that we effect a registration with respect to at least 20%
of the registrable shares then held by the holders requesting registration;
+ if we decide to register our own securities; or
+ if we receive written notice from any holder or holders of the registrable
shares requesting that we effect a registration on Form S-3 (a shortened form
of registration statement) with respect to the registrable shares and we are
then eligible to use Form S-3 (which at the earliest could occur twelve
calendar months after the closing of this offering).
However, in addition to certain other conditions and limitations, if requested
by the underwriters to decrease the number of shares registered, we can limit
the number of registrable shares included in the registration. The underwriters
have requested that no registrable shares be registered in this offering. In
addition, the holders of these registration rights have entered into lock-up
agreements and waived their registration rights for a period of 180 days
following this offering.
LIMITATION OF LIABILITY AND INDEMNIFICATION MATTERS
Our amended and restated articles of incorporation limit the personal liability
of our directors for monetary damages to the fullest extent permitted by the
California General Corporation Law. Under California law, a director's liability
to a company or its shareholders may not be limited:
+ for acts or omissions that involve intentional misconduct or a knowing and
culpable violation of law;
+ for acts or omissions that a director believes to be contrary to the best
interests of the company or its shareholders or that involve the absence of
good faith on the part of the director;
+ for any transaction from which a director derived an improper personal
benefit;
+ for acts or omissions that show a reckless disregard for the director's duty
to the company or its shareholders in circumstances in which the director was
aware, or should have been aware, in the ordinary course of performing the
director's duties, of a risk of serious injury to the company or its
shareholders;
+ for acts or omissions that constitute an unexcused pattern of inattention
that amounts to an abdication of the director's duty to the company or its
shareholders;
+ under Section 310 of the California General Corporation Law concerning
contracts or transactions between the company and a director; or
+ under Section 316 of the California General Corporation Law concerning
directors' liability for improper dividends, loans and guarantees.
- --------------------------------------------------------------------------------
58
<PAGE> 63
DESCRIPTION OF CAPITAL STOCK
- --------------------------------------------------------------------------------
The limitation of liability does not affect the availability of injunctions and
other equitable remedies available to our share holders for any violation by a
director of the director's fiduciary duty to us or our shareholders.
Our articles of incorporation also include an authorization for us to indemnify
our "agents," as defined in Section 317 of the California General Corporation
Law, through bylaw provisions, by agreement or otherwise, to the fullest extent
permitted by law. Pursuant to this provision, our amended and restated bylaws
provide for indemnification of our directors, officers and employees. In
addition, we may, at our discretion, provide indemnification to persons whom we
are not obligated to indemnify. The amended and restated bylaws also allow us to
enter into indemnity agreements with individual directors, officers, employees
and other agents. Indemnity agreements have been entered into with all directors
and certain executive officers and provide the maximum indemnification permitted
by law. We also intend to obtain directors' and officers' liability insurance.
These agreements, together with our amended and restated bylaws and amended and
restated articles of incorporation, may require us, among other things, to
indemnify our directors and executive officers, other than for liability
resulting from willful misconduct of a culpable nature, and to advance expenses
to them as they are incurred, provided that they undertake to repay the amount
advanced if it is ultimately determined by a court that they are not entitled to
indemnification. Section 317 of the California General Corporation Law and our
amended and restated bylaws and our indemnification agreements make provision
for the indemnification of officers, directors and other corporate agents in
terms sufficiently broad to indemnify such persons, under certain circumstances,
for liabilities, including reimbursement of expenses incurred, arising under the
Securities Act. We are not currently aware of any pending litigation or
proceeding involving any of our directors, officers, employees or agents in
which indemnification will be required or permitted. Moreover, we are not
currently aware of any threatened litigation or proceeding that might result in
a claim for such indemnification. We believe that the foregoing indemnification
provisions and agreements are necessary to attract and retain qualified persons
and directors and executive officers.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for our common stock is American Securities
Transfer and Trust.
- --------------------------------------------------------------------------------
59
<PAGE> 64
- --------------------------------------------------------------------------------
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 31, 2000, after this offering, we will have 25,515,430 outstanding shares
of common stock. Of these shares, the shares being offered hereby are freely
tradable. The remaining 20,515,430 shares are eligible for sale in the public
market at various times after 180 days from the date of this prospectus,
subject, in some cases, to volume limitations under Rule 144.
All of the holders of our common stock, together with the holders of options to
purchase 540,276 shares of common stock and the holders of warrants to purchase
320,397 shares of our 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 of 1933 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 UBS Warburg 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 255,154 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 31, 2000, options to purchase a total of 540,276 shares of our
common stock were outstanding, all of which were currently exercisable. Of these
540,276 shares, 535,276 shares may be eligible for sale in the public market at
various times after 90 days from the date of this prospectus.
Approximately 180 days after the date of this prospectus, we intend to file a
registration statement to register for resale the 1,433,206 shares of common
stock reserved for issuance under our stock option plans and employee stock
purchase plan. 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.
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60
<PAGE> 65
SHARES ELIGIBLE FOR FUTURE SALE
- --------------------------------------------------------------------------------
Holders of our preferred stock, whose shares will be converted into 13,326,636
shares of our common stock upon the closing of this offering and holders of
warrants to purchase 320,397 shares of our 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."
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61
<PAGE> 66
- --------------------------------------------------------------------------------
Underwriting
Cepheid 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. UBS Warburg LLC, Prudential Securities
Incorporated and Invemed Associates LLC are the representatives of the
underwriters.
<TABLE>
<CAPTION>
NUMBER
UNDERWRITER OF SHARES
<S> <C>
- --------------------------------------------------------------------------
UBS Warburg LLC.............................................
Prudential Securities Incorporated..........................
Invemed Associates LLC......................................
------------
Total.............................................
============
</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 750,000 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 tables show 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 750,000 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 $ .
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.
Cepheid and all of its shareholders 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 UBS Warburg LLC.
The underwriters have reserved for sale, at the initial public offering price,
up to 250,000 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
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<PAGE> 67
UNDERWRITING
- --------------------------------------------------------------------------------
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.
As of March 31, 2000, Invemed Associates LLC, one of the underwriters, held
1,555,000 shares of Series B preferred stock through Invemed Fund, L.P., a fund
for which Invemed Associates is the general partner. These shares were purchased
in April 1998 at $2.25 per share. Certain affiliates of Invemed Associates hold
188,580 shares of Series B preferred stock, all of which were purchased in April
1998 at $2.25 per share, and 318,000 shares of Series C preferred stock, all of
which were purchased in January 2000 at $3.00 per share. An affiliate of UBS
Warburg LLC, one of the underwriters, holds an aggregate of 33,333 shares of
Series C preferred stock, all of which were purchased in January 2000 at $3.00
per share. Certain affiliates of Prudential Securities Incorporated, one of the
underwriters, hold 10,000 shares of Series B preferred stock, all of which were
purchased in April 1998 at $2.25 per share, and 51,666 shares of Series C
preferred stock, all of which were purchased in January or February 2000 at
$3.00 per share. The aforementioned affiliated shareholders have agreed, for a
period of 180 days following the date of this prospectus, that they will not
sell, transfer, assign, pledge, hypothecate or otherwise transfer these shares
without the prior written consent of UBS Warburg LLC.
Prior to this offering, there has been no public market for the 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 prospectus 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 our 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 our common stock while the offering
is in progress.
The underwriters may also 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 affect the
market price of our common stock. As a result, the price of our 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 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.
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63
<PAGE> 68
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Legal matters
The validity of the common stock offered hereby will be passed upon for us by
Heller Ehrman White & McAuliffe LLP, Palo Alto, California. Heller Ehrman White
& McAuliffe LLP owns 51,875 shares of our common and preferred stock, and HEWM
Investors, an entity affiliated with Heller Ehrman White & McAuliffe LLP, owns
39,444 shares of our common and preferred stock. Certain legal matters will be
passed upon for the underwriters by Dewey Ballantine LLP, New York, New York.
Experts
Ernst & Young LLP, independent auditors, have audited our consolidated financial
statements at December 31, 1998 and 1999, for the periods from inception (March
4, 1996) through December 31, 1997 and 1999, and for the years ended December
31, 1998 and 1999, as set forth in their report. We have included our financial
statements in the prospectus and elsewhere in the registration statement in
reliance on Ernst & Young LLP's report, given on their authority as experts in
accounting and auditing.
The statements in this prospectus as set forth under the captions "Risk
factors -- Our products could infringe on the intellectual property rights of
others, which may require costly litigation and, if we are not successful, could
also cause us to pay substantial damages and limit our liability to sell some or
all of our products" and "-- The rights we rely upon to protect the intellectual
property underlying our products may not be adequate, which could enable third
parties to use the technology and would reduce our ability to compete in the
market" and in "Business -- Intellectual Property" have been passed upon by
Heller Ehrman White & McAuliffe LLP, our patent counsel and experts on such
matters, and are included herein in reliance upon its review and approval.
- --------------------------------------------------------------------------------
64
<PAGE> 69
- --------------------------------------------------------------------------------
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 of the information set forth in the registration statement. For
further information with respect to us and the common stock to be sold in this
offering, reference is made to the registration statement. 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 a
part 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 Cepheid files at the SEC's public reference room at 450 Fifth
Street, N.W., Washington, DC 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.
- --------------------------------------------------------------------------------
65
<PAGE> 70
CEPHEID
(A DEVELOPMENT STAGE COMPANY)
- --------------------------------------------------------------------------------
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
- ------------------------------------------------------------------
<S> <C>
Report of Ernst & Young LLP, Independent Auditors........... F-2
Consolidated Balance Sheets................................. F-3
Consolidated Statements of Operations....................... F-4
Consolidated Statements of Shareholders' Equity............. F-5
Consolidated Statements of Cash Flows....................... F-6
Notes to Consolidated Financial Statements.................. F-7
</TABLE>
- --------------------------------------------------------------------------------
F- 1
<PAGE> 71
CEPHEID
(A DEVELOPMENT STAGE COMPANY)
- --------------------------------------------------------------------------------
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Board of Directors and Shareholders
Cepheid
We have audited the accompanying consolidated balance sheets of Cepheid (a
development stage company) as of December 31, 1998 and 1999, and the related
consolidated statements of operations, shareholders' equity, and cash flows for
the years ended December 31, 1998 and 1999 and the periods from inception (March
4, 1996) through December 31, 1997 and 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 consolidated financial position of Cepheid at
December 31, 1998 and 1999 and the consolidated results of its operations and
its cash flows for the years ended December 31, 1998 and 1999 and the periods
from inception (March 4, 1996) through December 31, 1997 and 1999, in conformity
with accounting principles generally accepted in the United States.
/s/ ERNST & YOUNG LLP
Palo Alto, California
March 20, 2000
- --------------------------------------------------------------------------------
F- 2
<PAGE> 72
CEPHEID
(A DEVELOPMENT STAGE COMPANY)
- --------------------------------------------------------------------------------
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
PRO FORMA
SHAREHOLDERS'
EQUITY
MARCH 31,
DECEMBER 31, MARCH 31, 2000
1998 1999 2000 (NOTE 1)
- -------------------------------------------------------------------------------------------------------
(UNAUDITED)
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.............. $ 7,079,031 $ 1,493,313 $ 18,420,495
Short term investments................. 1,596,529 -- --
Accounts receivable.................... 764,495 566,033 574,134
Inventory.............................. -- 285,433 505,019
Prepaid expenses and other current
assets............................... 172,110 434,998 163,638
----------- ------------ ------------
Total current assets..................... 9,612,165 2,779,777 19,663,286
Property and equipment, net.............. 1,100,164 2,077,844 2,160,512
Other assets............................. 330,010 28,299 263,250
----------- ------------ ------------
Total assets............................. $11,042,339 $ 4,885,920 $ 22,087,048
=========== ============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable....................... $ 434,992 $ 574,029 $ 564,238
Accrued compensation................... 239,572 345,796 544,448
Accrued professional fees.............. -- 78,021 40,347
Accrued other liabilities.............. 367,515 412,210 636,803
Deferred revenue....................... 44,760 128,533 85,638
Current portion of equipment
financing............................ 174,536 496,742 512,414
Current portion of deferred rent....... 4,128 12,313 14,992
----------- ------------ ------------
Total current liabilities................ 1,265,503 2,047,644 2,398,880
Equipment financing, less current
portion................................ 530,836 1,205,066 1,070,933
Deferred rent, less current portion...... 71,320 76,357 71,716
Commitments
Shareholders' equity:
Convertible preferred stock, no par
value; designated in series;
14,000,000 shares authorized;
6,946,658, 6,946,658 and 13,326,636
shares issued and outstanding at
December 31, 1998 and 1999 and March
31, 2000, respectively (none pro
forma); aggregate liquidation value
of $13,662,481 and $32,802,415 at
December 31, 1999 and March 31, 2000,
respectively......................... 13,565,965 13,565,965 32,679,594 $ --
Common stock, no par value;
30,000,000 shares authorized,
6,764,930, 6,871,177 and 7,188,794
shares issued and outstanding at
December 31, 1998 and 1999 and March
31, 2000, respectively (20,515,430
shares pro forma).................... 297,943 350,690 698,443 33,378,037
Additional paid-in capital............. -- 766,005 6,317,630 6,317,630
Note receivable from shareholder....... (103,500) (69,000) (69,000) (69,000)
Deferred stock-based compensation...... -- (552,466) (5,323,655) (5,323,655)
Deficit accumulated during the
development stage.................... (4,585,728) (12,504,341) (15,757,493) (15,757,493)
----------- ------------ ------------ ------------
Total shareholders' equity............... 9,174,680 1,556,853 18,545,519 $ 18,545,519
----------- ------------ ------------ ============
Total liabilities and shareholders'
equity................................. $11,042,339 $ 4,885,920 $ 22,087,048
=========== ============ ============
</TABLE>
See accompanying notes.
- --------------------------------------------------------------------------------
F- 3
<PAGE> 73
CEPHEID
(A DEVELOPMENT STAGE COMPANY)
- --------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
PERIOD FROM PERIOD FROM
INCEPTION INCEPTION
(MARCH 4, 1996) (MARCH 4, 1996)
THROUGH THROUGH THREE MONTHS ENDED
DECEMBER 31, YEAR ENDED DECEMBER 31, DECEMBER 31, MARCH 31,
1997 1998 1999 1999 1999 2000
- --------------------------------------------------------------------------------------------------------------------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Revenues:
Product sales............ $ -- $ -- $ 159,451 $ 159,451 $ -- $ 151,388
Grant and government
sponsored research
revenue................ 1,400,081 2,869,540 2,248,935 6,518,556 263,746 654,905
Research and development
revenue................ 45,206 706,969 1,187,138 1,939,313 351,538 109,665
----------- ----------- ----------- ------------ ------------ ------------
Total revenues............. 1,445,287 3,576,509 3,595,524 8,617,320 615,284 915,958
Operating costs and
expenses:
Cost of product sales.... -- -- 97,088 97,088 -- 130,585
Research and development
(including charges for
stock-based
compensation of
$169,288 in 1999 and
$409,235 for the three
months ended March 31,
2000).................. 2,220,688 5,990,127 10,261,332 18,472,147 2,282,050 3,467,207
Selling, general and
administrative
(including charges for
stock-based
compensation of $14,251
in 1999 and $206,201
for the three months
ended March 31,
2000).................. 582,702 1,178,318 1,297,731 3,058,751 288,972 730,155
----------- ----------- ----------- ------------ ------------ ------------
Total costs and operating
expenses................. 2,803,390 7,168,445 11,656,151 21,627,986 2,571,022 4,327,947
----------- ----------- ----------- ------------ ------------ ------------
Loss from operations....... (1,358,103) (3,591,936) (8,060,627) (13,010,666) (1,955,738) (3,411,989)
Interest income............ 87,690 325,244 250,135 663,069 104,043 202,214
Interest expense........... (3,745) (44,878) (108,121) (156,744) (19,318) (43,377)
----------- ----------- ----------- ------------ ------------ ------------
Net loss................... (1,274,158) (3,311,570) (7,918,613) (12,504,341) (1,871,013) (3,253,152)
Deemed dividend to Series C
preferred shareholders
(Note 10)................ -- -- -- -- -- (19,113,629)
----------- ----------- ----------- ------------ ------------ ------------
Net loss allocable to
common shareholders...... $(1,274,158) $(3,311,570) $(7,918,613) $(12,504,341) $ (1,871,013) $(22,366,781)
=========== =========== =========== ============ ============ ============
Basic and diluted net loss
per common share......... $ (7.61) $ (1.37) $ (1.90) $ (0.55) $ (4.42)
=========== =========== =========== ============ ============
Shares used in computing
basic and diluted net
loss per common share.... 167,390 2,414,087 4,163,963 3,415,273 5,064,632
Pro forma basic and diluted
net loss per common
share,
$ (0.71) $ (1.22)
=========== ============
Shares used in computing
pro forma basic and
diluted net loss per
common share,
(unaudited).............. 11,110,621 18,391,268
<CAPTION>
PERIOD FROM
INCEPTION
(MARCH 4, 1996)
THROUGH
MARCH 31,
2000
- ---------------------------
(UNAUDITED)
<S> <C>
Revenues:
Product sales............ $ 310,839
Grant and government
sponsored research
revenue................ 7,173,461
Research and development
revenue................ 2,048,978
------------
Total revenues............. 9,533,278
Operating costs and
expenses:
Cost of product sales.... 227,673
Research and development
(including charges for
stock-based
compensation of
$169,288 in 1999 and
$409,235 for the three
months ended March 31,
2000).................. 21,939,354
Selling, general and
administrative
(including charges for
stock-based
compensation of $14,251
in 1999 and $206,201
for the three months
ended March 31,
2000).................. 3,788,906
------------
Total costs and operating
expenses................. 25,955,933
------------
Loss from operations....... (16,422,655)
Interest income............ 865,283
Interest expense........... (200,121)
------------
Net loss................... (15,757,493)
Deemed dividend to Series C
preferred shareholders
(Note 10)................ (19,113,629)
------------
Net loss allocable to
common shareholders...... $(34,871,122)
============
Basic and diluted net loss
per common share.........
Shares used in computing
basic and diluted net
loss per common share....
Pro forma basic and diluted
net loss per common
share,
Shares used in computing
pro forma basic and
diluted net loss per
common share,
(unaudited)..............
</TABLE>
See accompanying notes.
- --------------------------------------------------------------------------------
F- 4
<PAGE> 74
CEPHEID
(A DEVELOPMENT STAGE COMPANY)
- --------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
PERIOD FROM INCEPTION (MARCH 4, 1996) THROUGH MARCH 31, 2000
<TABLE>
<CAPTION>
DEFICIT
NOTE ACCUMULATED
ADDITIONAL RECEIVABLE DEFERRED DURING THE TOTAL
PREFERRED COMMON PAID-IN FROM STOCK-BASED DEVELOPMENT SHAREHOLDERS'
STOCK STOCK CAPITAL SHAREHOLDER COMPENSATION STAGE EQUITY
<S> <C> <C> <C> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------------------
Issuance of 4,548,000 shares
of common stock at $0.005
per share for cash to
founders and directors
between December 1996 and
February 1997.............. $ -- $ 22,740 $ -- $ -- $ -- $ -- $ 22,740
Issuance of 1,328,000 shares
of common stock at
$0.05 - $0.12 per share for
cash and a promissory note
to founders and directors
in March, June and August
1997....................... -- 153,760 -- (138,000) -- -- 15,760
Issuance of 2,530,000 shares
of Series A convertible
preferred stock to
investors at $1.25 per
share for cash in March
1997, net of issuance costs
of $17,500................. 3,145,000 -- -- -- -- -- 3,145,000
Net loss and comprehensive
loss for period from
inception (March 4, 1996)
through December 31,
1997....................... -- -- -- -- -- (1,274,158) (1,274,158)
----------- -------- ---------- --------- ----------- ------------ -----------
Balance at December 31, 1997... 3,145,000 176,500 -- (138,000) -- (1,274,158) 1,909,342
Issuance of 888,930 shares of
common stock at
$0.05 - $0.30 per share for
cash under employee and
consultant option plans at
various dates in 1998...... -- 121,443 -- -- -- -- 121,443
Issuance of 3,666,658 shares
of Series B convertible
preferred stock to
investors at $2.25 per
share in April 1998 for
cash, net of issuance costs
of $58,650................. 8,191,330 -- -- -- -- -- 8,191,330
Issuance of 750,000 shares of
Series C convertible
preferred stock to a
research collaborator at
$3.00 per share in November
1998 for cash, net of
issuance costs of
$20,365.................... 2,229,635 -- -- -- -- -- 2,229,635
Payment on note receivable
from related party in
April, 1998................ -- -- -- 34,500 -- -- 34,500
Net loss and comprehensive
loss....................... -- -- -- -- -- (3,311,570) (3,311,570)
----------- -------- ---------- --------- ----------- ------------ -----------
Balance at December 31, 1998... 13,565,965 297,943 -- (103,500) -- (4,585,728) 9,174,680
Issuance of 106,247 shares of
common stock at
$0.12 - $0.50 per share for
cash under employee and
consultant plans and to
other investors at various
dates in 1999, net of
repurchases................ -- 52,747 -- -- -- -- 52,747
Payment on note receivable
from related party in July
1999....................... -- -- -- 34,500 -- -- 34,500
Deferred stock-based
compensation............... -- -- 736,005 -- (736,005) -- --
Amortization of deferred
stock-based compensation... -- -- -- -- 183,539 -- 183,539
Compensation relating to
options issued to
consultants to purchase
common stock for services
rendered, such option
valued using the
Black-Scholes Valuation
model...................... -- -- 30,000 -- -- -- 30,000
Net loss and comprehensive
loss....................... -- -- -- -- -- (7,918,613) (7,918,613)
----------- -------- ---------- --------- ----------- ------------ -----------
Balance at December 31, 1999... 13,565,965 350,690 766,005 (69,000) (552,466) (12,504,341) 1,556,853
Issuance of 317,617 shares of
common stock at
$0.12 - $1.50 per share for
cash under employee and
consultant option plans, in
January, February and March
2000 (unaudited)........... -- 347,753 -- -- -- -- 347,753
Issuance of 6,379,978 shares
of Series C convertible
preferred stock to
investors at $3.00 per
share in January 2000 for
cash, net of issuance costs
of $26,371 (unaudited)..... 19,113,629 -- -- -- -- -- 19,113,629
Deferred stock-based
compensation (unaudited)... -- -- 5,386,625 -- (5,386,625) -- --
Amortization of deferred
stock-based compensation
(unaudited)................ -- -- -- -- 615,436 -- 615,436
Compensation relating to
options issued to
consultants to purchase
common stock for services
rendered, such option
valued using the
Black-Scholes Valuation
model (unaudited).......... -- -- 165,000 -- -- -- 165,000
Net loss and comprehensive
loss (unaudited)........... -- -- -- -- -- (3,253,152) (3,253,152)
----------- -------- ---------- --------- ----------- ------------ -----------
Balance at March 31, 2000
(unaudited).................. $32,679,594 $698,443 $6,317,630 $ (69,000) $(5,323,655) $(15,757,493) $18,545,519
=========== ======== ========== ========= =========== ============ ===========
</TABLE>
See accompanying notes.
- --------------------------------------------------------------------------------
F- 5
<PAGE> 75
CEPHEID
(A DEVELOPMENT STAGE COMPANY)
- --------------------------------------------------------------------------------
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
PERIOD FROM PERIOD FROM
INCEPTION INCEPTION
(MARCH 4, 1996) (MARCH 4, 1996)
THROUGH THROUGH THREE MONTHS ENDED
DECEMBER 31, YEAR ENDED DECEMBER 31, DECEMBER 31, MARCH 31,
1997 1998 1999 1999 1999 2000
- -------------------------------------------------------------------------------------------------------------------------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES:
Net loss........................... $(1,274,158) $(3,311,570) $(7,918,613) $(12,504,341) $(1,871,013) $(3,253,152)
Adjustments to reconcile net loss
to net cash used in operating
activities:
Depreciation and amortization..... 28,106 220,905 498,228 747,239 101,265 171,643
Amortization of deferred stock-
based compensation.............. -- -- 183,539 183,539 -- 615,436
Issuance of options to purchase
common stock for services
rendered........................ -- -- 30,000 30,000 -- 165,000
Deferred rent..................... 9,496 65,952 13,222 88,670 (312) (1,962)
Changes in operating assets and
liabilities:
Accounts receivable............. (448,653) (315,842) 198,462 (566,033) 230,984 (8,101)
Inventory....................... -- -- (285,433) (285,433) -- (219,586)
Prepaid expenses and other
assets........................ (105,502) (96,618) (261,177) (463,297) (67,429) 36,409
Accounts payable and other
current liabilities........... 369,121 478,146 345,526 1,192,793 243,424 134,233
Accrued compensation............ 53,467 186,105 106,224 345,796 68,483 198,652
----------- ----------- ----------- ------------ ----------- -----------
Net cash used in operating
activities........................ (1,368,123) (2,772,922) (7,090,022) (11,231,067) (1,294,598) (2,161,428)
----------- ----------- ----------- ------------ ----------- -----------
INVESTING ACTIVITIES:
Capital expenditures............... (507,169) (842,006) (1,475,908) (2,825,083) (502,436) (254,311)
Proceeds from maturities of
marketable securities............. 1,220,776 4,717,429 1,596,529 7,534,734 1,596,529 --
Purchase of marketable
securities........................ (2,040,323) (5,494,411) -- (7,534,734) -- --
Restricted cash.................... (300,000) -- 300,000 -- -- --
----------- ----------- ----------- ------------ ----------- -----------
Net cash (used in) provided by
investing activities.............. (1,626,716) (1,618,988) 420,621 (2,825,083) 1,094,093 (254,311)
----------- ----------- ----------- ------------ ----------- -----------
FINANCING ACTIVITIES:
Net proceeds from the sales of
preferred shares.................. 3,162,500 10,499,990 -- 13,662,490 -- 19,113,629
Net proceeds from the sales of
common shares..................... 21,000 42,418 52,747 116,165 23,412 347,753
Repayment on note receivable from
shareholder....................... -- 34,500 34,500 69,000 -- --
Proceeds from loan arrangements.... 116,898 690,282 1,266,287 2,073,467 -- --
Principle payments under loan
arrangements...................... (4,990) (96,818) (269,851) (371,659) (39,341) (118,461)
----------- ----------- ----------- ------------ ----------- -----------
Net cash provided by (used in)
financing activities.............. 3,295,408 11,170,372 1,083,683 15,549,463 (15,929) 19,342,921
----------- ----------- ----------- ------------ ----------- -----------
Net increase (decrease) in cash
and cash equivalents.............. 300,569 6,778,462 (5,585,718) 1,493,313 (216,434) 16,927,182
Cash and cash equivalents at
beginning of period............... -- 300,569 7,079,031 -- 7,079,031 1,493,313
----------- ----------- ----------- ------------ ----------- -----------
Cash and cash equivalents at end of
period............................ $ 300,569 $ 7,079,031 $ 1,493,313 $ 1,493,313 $ 6,862,597 $18,420,495
=========== =========== =========== ============ =========== ===========
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for interest............ $ 3,747 $ 44,878 $ 108,121 $ 156,746 $ 19,318 $ 43,377
=========== =========== =========== ============ =========== ===========
SUPPLEMENTAL SCHEDULE OF NONCASH
INVESTING AND FINANCING
ACTIVITIES:
Issuance of common stock under
promissary note................. $ 138,000 $ -- $ -- $ 138,000 $ -- $ --
=========== =========== =========== ============ =========== ===========
Conversion of accounts payable to
convertible preferred stock..... $ 30,000 $ -- $ -- $ 30,000 $ -- $ 30,000
=========== =========== =========== ============ =========== ===========
Deferred stock-based compensation
related to certain stock
options......................... $ -- $ -- $ 736,005 $ 736,005 $ -- $ 5,386,625
=========== =========== =========== ============ =========== ===========
<CAPTION>
PERIOD FROM
INCEPTION
(MARCH 4, 1996)
THROUGH
MARCH 31, 2000
- -----------------------------------
(UNAUDITED)
<S> <C>
OPERATING ACTIVITIES:
Net loss........................... $(15,757,493)
Adjustments to reconcile net loss
to net cash used in operating
activities:
Depreciation and amortization..... 918,882
Amortization of deferred stock-
based compensation.............. 798,975
Issuance of options to purchase
common stock for services
rendered........................ 195,000
Deferred rent..................... 86,708
Changes in operating assets and
liabilities:
Accounts receivable............. (574,134)
Inventory....................... (505,019)
Prepaid expenses and other
assets........................ (426,888)
Accounts payable and other
current liabilities........... 1,327,026
Accrued compensation............ 544,448
------------
Net cash used in operating
activities........................ (13,392,495)
------------
INVESTING ACTIVITIES:
Capital expenditures............... (3,079,394)
Proceeds from maturities of
marketable securities............. 7,534,734
Purchase of marketable
securities........................ (7,534,734)
Restricted cash.................... --
------------
Net cash (used in) provided by
investing activities.............. (3,079,394)
------------
FINANCING ACTIVITIES:
Net proceeds from the sales of
preferred shares.................. 32,776,119
Net proceeds from the sales of
common shares..................... 463,918
Repayment on note receivable from
shareholder....................... 69,000
Proceeds from loan arrangements.... 2,073,467
Principle payments under loan
arrangements...................... (490,120)
------------
Net cash provided by (used in)
financing activities.............. 34,892,384
------------
Net increase (decrease) in cash
and cash equivalents.............. 18,420,495
Cash and cash equivalents at
beginning of period............... --
------------
Cash and cash equivalents at end of
period............................ $ 18,420,495
============
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for interest............ $ 200,123
============
SUPPLEMENTAL SCHEDULE OF NONCASH
INVESTING AND FINANCING
ACTIVITIES:
Issuance of common stock under
promissary note................. $ 138,000
============
Conversion of accounts payable to
convertible preferred stock..... $ 60,000
============
Deferred stock-based compensation
related to certain stock
options......................... $ 6,122,630
============
</TABLE>
See accompanying notes.
- --------------------------------------------------------------------------------
F- 6
<PAGE> 76
CEPHEID
(A DEVELOPMENT STAGE COMPANY)
DECEMBER 31, 1999
(INFORMATION AS OF MARCH 31, 2000 AND FOR THE THREE MONTHS ENDED MARCH 31, 1999
AND 2000 IS UNAUDITED)
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION, BUSINESS AND BASIS OF PRESENTATION
Cepheid (the "Company") was incorporated in the State of California on March 4,
1996. The Company was organized to develop new technology platforms that exploit
the advantages of micromachining, microelectronics, and microfluidic
technologies to create automated, integrated, miniaturized instrument systems
for life sciences research, clinical diagnostics, industrial testing and
pharmacogenomics markets.
The Company's activities to date have consisted principally of raising capital,
arranging for facilities, acquiring equipment and licensing rights, recruiting
managerial and technical personnel, implementing document control and designing
and developing instrument systems. Accordingly, the Company is considered to be
in the development stage at March 31, 2000. The statement of operations for the
year ended December 31, 1997 included approximately $95,000 of expenses incurred
from our inception (March 4, 1996) to December 31, 1996 related to fundraising
activities. Although we were formed in March 1996, we did not receive our
initial financing until March 1997.
At December 31, 1999 and March 31, 2000, the Company had incurred an accumulated
deficit of approximately $12,500,000 and $15,757,000, respectively. The Company
has and expects to continue to finance its activities principally through
revenue sources, sales of its equity securities (see Note 10), and capital
equipment financing.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements of Cepheid include the accounts of the
Company and its wholly-owned subsidiary. All significant intercompany balances
and transactions have been eliminated.
USE OF ESTIMATES
The preparation of consolidated financial statements in conformity with
accounting principles generally accepted in the United States requires
management to make estimates and assumptions that affect the amounts reported in
the consolidated financial statements and accompanying notes. Actual results
could differ from these estimates.
UNAUDITED PRO FORMA INFORMATION
In February 2000, the Board of Directors authorized the management of the
Company to file a registration statement with the Securities and Exchange
Commission permitting the Company to sell shares of its common stock to the
public. If the initial public offering is consummated under the terms presently
anticipated, all of the preferred stock outstanding will automatically be
converted into common stock. Unaudited pro forma shareholders' equity at March
31, 2000, as adjusted for the assumed conversion of the preferred stock, is set
forth on the balance sheet.
INTERIM FINANCIAL DATA
The consolidated financial information at March 31, 2000 and for the three
months ended March 31, 1999 and 2000 is unaudited but has been prepared on the
same basis as the annual consolidated
- --------------------------------------------------------------------------------
F- 7
<PAGE> 77
CEPHEID
(A DEVELOPMENT STAGE COMPANY)
DECEMBER 31, 1999
(INFORMATION AS OF MARCH 31, 2000 AND FOR THE THREE MONTHS ENDED MARCH 31, 1999
AND 2000 IS UNAUDITED)
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
financial statements and, in the opinion of management, includes all adjustments
(consisting only of normal recurring adjustments) that the Company considers
necessary for a fair presentation of the consolidated financial position at such
dates and the consolidated operating results and cash flows for such periods.
Results for the interim periods are not necessarily indicative of the results to
be expected for any subsequent period.
REVENUE RECOGNITION
Contract revenues related to best efforts, research and development agreements
and government grants are recognized as the related services are performed.
Under these agreements, the Company is required to perform specific research and
development activities and is reimbursed based on the costs associated with each
specific contract over the term of the agreement. Milestone related revenues are
recognized upon the achievement of the specified milestone. Deferred revenue is
recorded when funds are received in advance of services to be performed.
Product revenue is recognized upon delivery and the transfer of title to
customers, net of allowances for estimated returns, if any.
RESEARCH AND DEVELOPMENT
Research and development expenses consist of costs incurred for
company-sponsored and collaborative research and development activities. These
costs include direct and research-related overhead expenses. Research and
development expenses under collaborative agreements and government grants
approximate the revenue recognized under such agreements. The Company expenses
research and development costs as such costs are incurred.
CASH AND CASH EQUIVALENTS
Cash equivalents consist of highly liquid investments with original maturities
of three months or less. At December 31, 1998, 1999 and March 31, 2000, the
Company had $6,929,634, $1,493,015 and $18,343,332, respectively, in a money
market fund which invests in various U.S. government securities including
Treasury bills, notes and bonds.
SHORT-TERM INVESTMENTS
The Company classifies its short-term investments as available-for-sale and
records its investments at fair market value in accordance with Statement of
Financial Accounting Standards No. 115. Available-for-sale securities are
carried at amounts that approximate fair market value based on quoted market
prices. Realized gains and losses and declines in value judged to be
other-than-temporary on available-for-sale securities are included in interest
income. Interest on securities classified as available-for-sale is also included
in interest income. The Company has experienced no realized gains or losses on
its short-term investments. At December 31, 1998, short-term investments
consisted of U.S. government securities with an average maturity of 90 days, and
a fair value of $1,596,529, which approximated amortized cost. There were no
short-term investments as of December 31, 1999 and March 31, 2000.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation is calculated using the
straight-line method, and the cost is amortized over the estimated useful lives
of the assets, which range from three to five
- --------------------------------------------------------------------------------
F- 8
<PAGE> 78
CEPHEID
(A DEVELOPMENT STAGE COMPANY)
DECEMBER 31, 1999
(INFORMATION AS OF MARCH 31, 2000 AND FOR THE THREE MONTHS ENDED MARCH 31, 1999
AND 2000 IS UNAUDITED)
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
years. Leasehold improvements are amortized using the straight-line method over
the estimated useful lives of the assets or the term of the lease, whichever is
shorter.
IMPAIRMENT OF LONG-LIVED ASSETS
In accordance with the provisions of Statement of Financial Accounting Standards
No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of" ("SFAS 121"), the Company reviews long-lived assets,
including property and equipment, for impairment whenever events or changes in
business circumstances indicate that the carrying amounts of the assets may not
be fully recoverable. Under SFAS 121, an impairment loss would be recognized
when estimated undiscounted future cash flows expected to result from the use of
the asset and its eventual disposition is less than its carrying amount.
Impairment, if any, is assessed using discounted cash flows. Through March 31,
2000, there have been no such losses.
STOCK-BASED COMPENSATION
As permitted by Statement of Financial Accounting Standards No. 123, "Accounting
for Stock-Based Compensation" ("SFAS 123"), the Company has elected to account
for stock options granted to employees and directors using the intrinsic value
method and; accordingly, does not recognize compensation expense for stock
options granted to employees with exercise prices equal to the fair value of the
underlying common shares. Options granted to non-employees have been accounted
for in accordance with SFAS 123 and Emerging Issues Task Force Consensus No.
96-18, "Accounting for Equity Instruments That Are Issued to Other Than
Employees for Acquiring or in Conjunction with Selling, Goods or Services," and
may be periodically re-measured with the resulting value charged to expense over
the period of the related services being rendered.
INVENTORIES
Inventories are stated at the lower of standard cost (which approximates actual
cost) or market. At December 31, 1999 and March 31, 2000, inventories consisted
mainly of raw materials.
COMPREHENSIVE INCOME (LOSS)
As of January 1, 1998 the Company adopted Statement of Financial Accounting
Standards No. 130, "Reporting Comprehensive Income" ("SFAS 130"). SFAS 130
requires unrealized gains or losses on the Company's available-for-sale
securities to be included in other comprehensive income. For the years ended
December 31, 1998 and 1999 and the three months ended March 31, 1999 and 2000,
comprehensive loss equaled net loss as other comprehensive income (loss) was
zero.
SEGMENT REPORTING
Effective in January 1998, the Company adopted Statement of Financial Accounting
Standards No. 131, "Disclosure about Segments of an Enterprise and Related
Information" ("SFAS 131"). SFAS 131 establishes annual and interim reporting
standards for an enterprise's operating segments and related disclosures about
its products, services, geographic areas, and major customers. The Company has
determined that it operates in only one segment and accordingly, the adoption of
SFAS 131 had no impact on the financial statements.
- --------------------------------------------------------------------------------
F- 9
<PAGE> 79
CEPHEID
(A DEVELOPMENT STAGE COMPANY)
DECEMBER 31, 1999
(INFORMATION AS OF MARCH 31, 2000 AND FOR THE THREE MONTHS ENDED MARCH 31, 1999
AND 2000 IS UNAUDITED)
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NET LOSS PER SHARE
Basic net loss per share has been calculated based on the weighted-average
number of common shares outstanding during the period, less shares subject to
the Company's right of repurchase. Diluted net loss per share would give effect
to the dilutive effect of common stock equivalents consisting of convertible
preferred stock, stock options and warrants (calculated using the treasury stock
method). Potentially dilutive securities have been excluded from the computation
of diluted net loss per share as their inclusion would be antidilutive.
The computation of pro forma basic and diluted net loss per share includes
shares issuable upon the conversion of outstanding shares of convertible
preferred stock (using the as-if converted method) from the original date of
issuance.
The following table presents the calculation of basic, diluted and pro forma
basic and diluted net loss per share:
<TABLE>
<CAPTION>
PERIOD FROM
INCEPTION (MARCH 4, THREE MONTHS
1996) THROUGH YEAR ENDED DECEMBER 31, ENDED MARCH 31,
DECEMBER 31, 1997 1998 1999 1999 2000
<S> <C> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------
Net loss allocable to common
shareholders............... $(1,274,158) $(3,311,570) $(7,918,613) $(1,871,013) $(22,366,781)
=========== =========== =========== =========== ============
Basic and diluted:
Weighted-average shares of
common stock
outstanding.............. 5,112,493 6,501,013 6,834,552 6,791,443 6,871,177
Less: weighted-average
shares subject to
repurchase............... (4,945,103) (4,086,926) (2,670,589) (3,376,170) (1,806,545)
----------- ----------- ----------- ----------- ------------
Shares used in computing
basic and diluted net
loss per share........... 167,390 2,414,087 4,163,963 3,415,273 5,064,632
=========== =========== =========== =========== ============
Basic and diluted net loss
per share.................. $ (7.61) $ (1.37) $ (1.90) $ (0.55) $ (4.42)
=========== =========== =========== =========== ============
Pro forma basic and diluted:
Shares used above.......... 4,163,963 5,064,632
Pro forma adjustment to
reflect weighted-average
effect of assumed
conversion of preferred
stock (unaudited)........ 6,946,658 13,326,636
----------- ------------
Shares used in computing
pro forma basic and
diluted net loss per
share (unaudited)........ 11,110,621 18,391,268
=========== ============
Pro forma basic and diluted
net loss per share
(unaudited)................ $ (0.71) $ (1.22)
=========== ============
</TABLE>
- --------------------------------------------------------------------------------
F- 10
<PAGE> 80
CEPHEID
(A DEVELOPMENT STAGE COMPANY)
DECEMBER 31, 1999
(INFORMATION AS OF MARCH 31, 2000 AND FOR THE THREE MONTHS ENDED MARCH 31, 1999
AND 2000 IS UNAUDITED)
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
During all periods presented, the Company had securities outstanding which could
potentially dilute basic earnings per share in the future, but were excluded
from the computation of diluted net loss per share, as their effect would have
been antidilutive. These outstanding securities consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1997 1998 1999 1999 2000
<S> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------
Convertible preferred stock...... 2,530,000 6,946,658 6,946,658 6,946,658 13,326,636
Outstanding options.............. 495,920 199,880 289,360 176,330 540,276
Warrants......................... 32,000 306,797 320,397 320,397 320,397
---------- ---------- ---------- ---------- -----------
Total................... 3,057,920 7,453,335 7,556,415 7,443,385 14,187,309
========== ========== ========== ========== ===========
Weighted average exercise price
of options..................... $ 0.11 $ 0.18 $ 0.39 $ 0.26 $ 2.39
========== ========== ========== ========== ===========
Weighted average exercise price
of warrants.................... $ 1.75 $ 2.49 $ 2.49 $ 2.49 $ 2.49
========== ========== ========== ========== ===========
</TABLE>
SIGNIFICANT CONCENTRATIONS
Financial instruments that potentially subject the company to concentrations of
credit risk primarily consist of cash equivalents and marketable securities.
The Company relies on several companies as the sole source of various materials
in its manufacturing process. Any extended interruption in the supply of these
materials could result in the failure to meet customer demand.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Financial
Instruments and for Hedging Activities" ("SFAS 133") which provides a
comprehensive and consistent standard for the recognition and measurement of
derivatives and hedging activities. SFAS 133 is effective for fiscal years
beginning after June 15, 2000 and is not anticipated to have an impact on the
Company's results of operations or financial condition when adopted as the
Company holds no derivative financial instruments and does not currently engage
in hedging activities.
In March 1998, the ACIPA issued Statement of Position 98-1, "Accounting for the
Costs of Computer Software Developed or Obtained for Internal Use" ("SOP 98-1").
SOP 98-1 requires that the entities capitalize certain costs related to internal
use software once certain criteria have been met. The Company adopted the
provisions of SOP 98-1 on January 1, 1999. Through December 31, 1999, the
Company has capitalized approximately $350,000 relating to the purchase and
installation of enterprise resource planning, accounting, cadcam and
documentation systems for internal use. The assets are depreciated using the
straight line method over a useful life which is expected to be five years.
In December 1999, the Securities and Exchange Commission issued Staff Accounting
Bulletin No. 101, "Revenue Recognition in Financial Statements" ("SAB 101"). SAB
101 summarizes the SEC's views in applying generally accepted accounting
principles to revenue recognition. The adoption of SAB 101 had no impact on the
Company's historical revenue recognition policy.
- --------------------------------------------------------------------------------
F- 11
<PAGE> 81
CEPHEID
(A DEVELOPMENT STAGE COMPANY)
DECEMBER 31, 1999
(INFORMATION AS OF MARCH 31, 2000 AND FOR THE THREE MONTHS ENDED MARCH 31, 1999
AND 2000 IS UNAUDITED)
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. LICENSE AGREEMENTS
LAWRENCE LIVERMORE NATIONAL LABORATORY
The Company has a worldwide exclusive license with Lawrence Livermore National
Laboratory ("LLNL") to use or sublicense certain patent rights and to make, have
made, import, and use certain licensed products relating to the patent rights
for the use of rapid thermal cycling technology with real time optical detection
for nucleic acid amplification.
In consideration for this technology, the Company paid LLNL an issue fee of
$150,000 in 1997, which is included in research and development expense in that
year. Upon commercialization of any product containing the licensed technology,
including the Smart Cycler system, the Company will pay royalties to LLNL based
on net sales.
PE BIOSYSTEMS
In April 2000, the Company entered into a non-exclusive license agreement with
PE Biosystems for the use of a thermal cycling technology in specific fields.
The license required the Company to pay a fee of approximately $120,000 upon the
execution of the agreement and to pay royalties on future product sales.
3. GRANT AND OTHER GOVERNMENT SPONSORED RESEARCH AGREEMENTS
THE EDGEWOOD RESEARCH, DEVELOPMENT AND ENGINEERING CENTER
In September 1996, The Company entered into a research and development contract
with the Edgewood Research, Development and Engineering Center ("ERDEC"), a
department of the U.S. government. The agreement provides for research and
development funding as well as certain milestone payments to the Company upon
the occurrence of specific events as defined in the agreement. The agreement and
its related service agreement terminated in February 2000.
Total revenue of $1,325,081 (95% of total grant and government-sponsored
research revenue), $1,112,925 (39% of total grant and government-sponsored
research revenue), $54,328 (2% of total grant and government-sponsored research
revenue) and $2,212 (1% of total grant and government-sponsored research
revenue) was recognized for the period from inception (March 4, 1996) through
December 31, 1997, for the years ended December 31, 1998 and 1999, and for the
three months ended March 31, 2000, respectively.
US DEPARTMENT OF THE ARMY
In November 1997, the Company entered into an agreement with the US Army to
conduct research and development services relating to the design and development
of a specified device. The agreement was modified in May 1998 and in August
1998. The agreement provides for research and development cost-plus-fixed-fee
funding and is performed on the "best-efforts" basis. The aggregate funding for
the agreement, including all modifications, totaled $1,349,545. The contract
termination date has been extended to January 2001 and includes additional
funding. Revenue recognized under this research agreement was $262,412 (9% of
total grant and government sponsored research revenue), $976,071 (43% of total
grant and government sponsored research revenue) and $111,062 (17% of total
grant
- --------------------------------------------------------------------------------
F- 12
<PAGE> 82
CEPHEID
(A DEVELOPMENT STAGE COMPANY)
DECEMBER 31, 1999
(INFORMATION AS OF MARCH 31, 2000 AND FOR THE THREE MONTHS ENDED MARCH 31, 1999
AND 2000 IS UNAUDITED)
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
and government-sponsored research revenue) for the years ended December 31, 1998
and 1999, and for the three months ended March 31, 2000, respectively.
GRANT FROM THE DEFENSE ADVANCED RESEARCH PROJECTS AGENCY
In May 1998, the Company received a three-year grant of approximately $5,000,000
from the Defense Advanced Research Projects Agency ("DARPA") to perform research
and development on the design and development of a specific device. Over the
three year period, approximately $1,000,000 of this amount directly funds work
by the United States Military Institute for Infectious Disease ("USAMRIID"), a
subcontractor to the Company under the grant. The Company estimates that up to
an additional $750,000 funded to the Company will in turn fund other
subcontractors under the grant over the same period. The associated revenue and
expense related to these subcontractors will appear in the Company's statement
of operations. The three-year grant is subject to annual funding approval. For
the first and second years of the program, $1,057,254 and $1,643,013,
respectively have been awarded. Such amounts exclude funding for the USAMRIID
subcontract. Costs associated with the research and development activities under
this grant for the years ended December 1998 and 1999, and for the three months
ended March 31, 2000, approximate the revenue recognized of $882,213 (31% of
total grant and government sponsored research revenue), $968,348 (43% of total
grant and government sponsored research revenue) and $395,813 (60% of total
grant and government-sponsored research revenue), respectively.
4. RESEARCH AND DEVELOPMENT ARRANGEMENT
In November 1998, the Company entered into a joint research and development
collaboration and supply agreement with Innogenetics NV which provides funding
for best efforts research and development activities to the Company. The
contract does not have a specified term, however, termination may occur upon
mutual consent of the parties or by contract breach. Funding under this
arrangement approximates $1.4 million and revenue recognized under this research
arrangement was $476,125, $730,817 and $109,665 for the years ended December 31,
1998 and 1999, and for the three months ended March 31, 2000, respectively.
In November 1998, in conjunction with the agreement, Innogenetics purchased
750,000 shares of Series C preferred stock at $3.00 per share.
5. DISTRIBUTION AGREEMENT
In January 2000, the Company entered into a co-exclusive, multi-year agreement
with Fisher Scientific Company L.L.C. ("Fisher") to market the Cepheid Smart
Cycler(R) system in the United States. Under the terms of the agreement, the
Company granted to Fisher the co-exclusive right to distribute the Company's
thermal cyclers, accessories and reaction tubes in the United States and certain
foreign countries into the life science market. The term of the agreement
extends for three years from the date of the Company's initial product launch
and remains in force for successive six month periods unless either party gives
written notice of non-renewal. The Company may also terminate the co-exclusivity
of the distribution rights if Fisher fails to achieve certain sales targets.
- --------------------------------------------------------------------------------
F- 13
<PAGE> 83
CEPHEID
(A DEVELOPMENT STAGE COMPANY)
DECEMBER 31, 1999
(INFORMATION AS OF MARCH 31, 2000 AND FOR THE THREE MONTHS ENDED MARCH 31, 1999
AND 2000 IS UNAUDITED)
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
6. JOINT VENTURE AGREEMENT
In February 2000, the Company entered into a joint venture shareholder agreement
with Infectio Diagnostics (I.D.I.) Inc. ("Infectio"). The joint venture, Aridia
Corp., was created primarily to engage in the business of developing, producing
and exploiting a series of innovative human diagnostic systems and products for
rapid identification of pathogens responsible for human infectious diseases.
Both the Company and Infectio hold an equal portion in the joint venture. The
agreement provides that each party sell products to the joint venture at defined
transfer prices, and each party will share equally in the net profits. In
conjunction with this agreement, a Joint Technology and Collaboration Agreement
was also signed between Aridia Corp. and both Infectio and the Company. Due to
the early stage of this arrangement, no amounts were incurred by or recorded as
a result of the joint venture through March 31, 2000.
7. PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
1998 1999
<S> <C> <C>
- --------------------------------------------------------------------------------------
Scientific equipment........................................ $ 613,033 $1,496,683
Office furniture, computers and equipment................... 638,541 1,025,233
Leasehold improvements...................................... 97,601 303,167
---------- ----------
1,349,175 2,825,083
Less accumulated depreciation and amortization.............. (249,011) (747,239)
---------- ----------
$1,100,164 $2,077,844
========== ==========
</TABLE>
8. EQUIPMENT FINANCING
In July 1997, the Company entered into an initial equipment financing agreement
with a financing company for up to $1,000,000. In March 1999, the equipment line
was increased to $2,530,000 which the Company could draw upon through December
31, 1999. As of December 31, 1998 and 1999, the Company had financed $807,180
and $2,073,467, respectively, in equipment purchases under this agreement. The
equipment loans are to be repaid over 42 months at interest rates ranging from
11.49% to 12.90% and are secured by the related equipment.
In November 1999, $306,000 of the financed amount was deposited with the
financing company in accordance with a negative covenant pledge agreement which
stipulated that such a payment is required if the Company failed to meet certain
on-hand cash requirements during the life of the agreement. The deposit was
refunded to the Company in March 2000 upon meeting those requirements. As of
December 31, 1999, this deposit was included in "prepaid expenses and other
current assets."
- --------------------------------------------------------------------------------
F- 14
<PAGE> 84
CEPHEID
(A DEVELOPMENT STAGE COMPANY)
DECEMBER 31, 1999
(INFORMATION AS OF MARCH 31, 2000 AND FOR THE THREE MONTHS ENDED MARCH 31, 1999
AND 2000 IS UNAUDITED)
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
In conjunction with the original agreement, the Company issued the financing
company a warrant to purchase 32,000 shares of the Company's Series A Preferred
Stock at $1.75 per share (see Note 10). The warrant is exercisable immediately.
In conjunction with a March 1999 amendment to the agreement, the Company issued
the financing company a warrant to purchase 13,600 shares of the Company's
common stock at an exercise price of $2.35 per share. The warrant is exercisable
immediately. The value of all warrants issued to the financing company,
determined using a Black-Scholes valuation model, was immaterial for accounting
purposes; therefore, no value was recorded related to these warrants.
Future minimum principal payments under the equipment financing arrangement at
December 31, 1999 are as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
<S> <C>
- ------------------------------------------------------------------------
2000................................................... $ 681,947
2001................................................... 685,604
2002................................................... 539,513
2003................................................... 152,138
----------
Total minimum payments............................ 2,059,202
Amount representing interest........................... (357,394)
----------
Present value of future payments....................... 1,701,808
Current portion of equipment financing................. (496,742)
----------
Noncurrent portion of equipment financing.............. $1,205,066
==========
</TABLE>
9. FACILITY LEASE
The Company leases its facilities under an operating lease. This lease expires
July 31, 2003 with renewal option at the end of the initial term of the lease.
Lease payments under this operating lease are subject to future increases based
on the Consumer Price Index. In connection with the facility lease agreement the
Company obtained an irrevocable standby letter of credit in the amount of
$300,000 to secure its building lease, which is included in "other assets" at
December 31 1998. This requirement was terminated in March 1999.
Minimum annual rental commitments under the operating leases at December 31,
1999 are as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
<S> <C>
- ------------------------------------------------------------------------
2000................................................... $ 424,598
2001................................................... 434,688
2002................................................... 444,672
2003................................................... 262,080
----------
Total minimum payments............................ $1,566,038
==========
</TABLE>
Rent expense for the period from inception (March 5, 1996) through December 31,
1997, and for the years ended December 31, 1998 and 1999 was $111,117, $401,952
and $423,493, respectively.
- --------------------------------------------------------------------------------
F- 15
<PAGE> 85
CEPHEID
(A DEVELOPMENT STAGE COMPANY)
DECEMBER 31, 1999
(INFORMATION AS OF MARCH 31, 2000 AND FOR THE THREE MONTHS ENDED MARCH 31, 1999
AND 2000 IS UNAUDITED)
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
In March 2000, the Company leased additional facilities adjacent to the existing
property primarily for manufacturing and customer service operations. The term
of the lease is two years commencing on May 1, 2000. Minimum annual rental
commitments under the operating lease is $209,050, $319,225 and $107,350 for the
years ended December 31, 2000, 2001 and 2002, respectively.
10. SHAREHOLDERS' EQUITY
COMMON STOCK
In January 2000, the Company's Board of Directors approved an amendment to the
Company's articles of incorporation which increased the number of authorized
shares of common stock to 30,000,000 shares.
FOUNDERS AND DIRECTORS' SHARES
From August 1996 to August 1997, the Company issued 5,876,000 shares of common
stock to founders and directors of the Company. Generally, these common shares
are subject to the Company's lapsing right of repurchase. This right lapses
ratably over a period of 48 months from the date of purchase. There are
1,568,040 and 960,000 shares subject to repurchase by the Company as of December
31, 1999 and March 31, 2000.
CONVERTIBLE PREFERRED STOCK
The following table describes information with respect to the series of
convertible preferred stock outstanding:
<TABLE>
<CAPTION>
SHARES ISSUED ISSUANCE PRICE PREFERENCE IN
AND OUTSTANDING PER SHARE LIQUIDATION
<S> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------
Series A..................................... 2,530,000 $1.25 $ 3,162,500
Series B..................................... 3,666,658 2.25 8,249,981
Series C..................................... 750,000 3.00 2,250,000
---------- -----------
Balance, December 31, 1999................... 6,946,658 13,662,481
Series C..................................... 6,379,978 3.00 19,139,934
---------- -----------
Balance, March 31, 2000...................... 13,326,636 $32,802,415
========== ===========
</TABLE>
Series A, B and C convertible preferred shareholders are entitled to
noncumulative annual dividends, when and if declared by the board of directors,
of $.08, $.14 and $.18 per share, respectively, payable in preference to common
stock dividends. No dividends have been declared or paid by the Company to date.
Series A, B and C convertible preferred shares have a liquidation preference of
$1.25, $2.25 and $3.00 per share, respectively, plus all declared but unpaid
dividends. Upon liquidation, after payment of the full liquidation preference
has been made to the Series A, B and C shareholders, the remaining assets of the
Company, if any, shall be distributed ratably among the common shareholders. If
the assets available for distribution to the preferred shareholders are
insufficient to pay such shareholders the full preferential amount, then the
available assets shall be ratably distributed first to the shareholders of
Series B and C as a single class, with any remaining assets payable to Series A
preferred shareholders.
- --------------------------------------------------------------------------------
F- 16
<PAGE> 86
CEPHEID
(A DEVELOPMENT STAGE COMPANY)
DECEMBER 31, 1999
(INFORMATION AS OF MARCH 31, 2000 AND FOR THE THREE MONTHS ENDED MARCH 31, 1999
AND 2000 IS UNAUDITED)
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Preferred stock is convertible at any time at the option of the shareholder. As
of March 2000, each share of Series A, B and C convertible stock is convertible
into one share of common stock plus any accumulated and unpaid dividends. The
conversion ratio is adjustable under certain circumstances including stock
splits or dividends. Each share of Series A, B and C convertible preferred stock
automatically converts into common stock at the conversion rate in the event of
an underwritten public offering of the Company's common stock at an offering
price of not less than $5.00 per share and with aggregate net proceeds to the
Company, after deduction of underwriting commissions and expenses, of at least
$10,000,000 or upon approval by the majority of the preferred shareholders of
each series. Each share of convertible preferred stock votes equally with shares
of common stock on an "if-converted" basis.
CHANGE IN AUTHORIZED SHARES
In January 2000, the Board of Directors increased the authorized number of
shares of Series C Preferred Stock to 7,130,000 shares. In March 2000, the Board
of Directors approved an amendment to the Company's articles of incorporation.
In that amendment, the Company is authorized to issue 100,000,000 shares of its
common and 5,000,000 shares of preferred stock. This amendment to the articles
of incorporation is subject to stockholder approval.
DEEMED DIVIDEND
In January through March 2000, the Company consummated the sale of 6,379,978
shares of Series C convertible preferred stock from which the Company received
proceeds of approximately $19.1 million or $3.00 per share. At the date of
issuance, the Company believed the per share price of $3.00 represented the fair
value of the preferred stock. Subsequent to the commencement of the Company's
initial public offering process, Cepheid re-evaluated the fair value of its
common stock as of January and March 2000. Accordingly, the increase in fair
value has resulted in a beneficial conversion feature of $19.1 million, that has
been recorded as a deemed dividend to preferred shareholders in 2000. The
Company recorded the deemed dividend at the date of issuance by offsetting
charges and credits to additional paid-in-capital, without any effect on total
shareholders' equity. This change was made against additional paid in capital as
the Company did not have retained earnings from which it could have deducted a
deemed dividend. The preferred stock dividend increases the net loss allocable
to common shareholders in the calculation of basic and diluted net loss per
common share for the three months ended March 31, 2000. The guidelines set forth
in the Emerging Issues Task Force Consensus No. 98-5 limit the amount of the
deemed dividend to the amount of the proceeds of the related financing.
WARRANTS
In connection with the equipment financing agreement entered into in October
1997 and amended in March 1999, the Company issued warrants to purchase 32,000
shares of Series A convertible preferred stock at an exercise price of $1.75 per
share and 13,600 shares of common stock at an exercise price of $2.35 per share.
The Series A warrant expires on the earliest of October 9, 2003, or the day
prior to the effectiveness of a registration statement covering an underwritten
offering of the Company's securities with aggregate proceeds of at least
$15,000,000, or a merger or sale of substantially all of the Company's assets.
The common stock warrant expires March 16, 2005. The warrants are exercisable
immediately. The value of the warrants was insignificant for accounting
purposes.
- --------------------------------------------------------------------------------
F- 17
<PAGE> 87
CEPHEID
(A DEVELOPMENT STAGE COMPANY)
DECEMBER 31, 1999
(INFORMATION AS OF MARCH 31, 2000 AND FOR THE THREE MONTHS ENDED MARCH 31, 1999
AND 2000 IS UNAUDITED)
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
In connection with the Series B Preferred Stock offering in 1998, the Company
issued warrants to purchase 274,797 shares of common stock at an exercise price
of $2.58 per share to the private placement agent for the Series B Preferred
Stock financing. The warrants expire on April 30, 2003. The warrants are
exercisable immediately as of the issue date of April 22, 1998. Because these
warrants are considered equity issuance costs, no value was recorded since the
net impact on Shareholders' equity would have been zero.
A summary of warrants to purchase stock at December 31, 1999 and March 31, 2000
is as follows:
<TABLE>
<CAPTION>
NUMBER OF EXERCISE
DESCRIPTION STOCK WARRANTS PRICE EXPIRATION
<S> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------
Lease financing arrangements.................. Series A Preferred 32,000 $1.75 2003
Issuance of Series B.......................... Common 274,797 $2.58 2003
Lease financing arrangements.................. Common 13,600 $2.35 2005
-------
320,397
=======
</TABLE>
Stock Option Plan
On April 16, 1997, the Board of Directors approved a stock option plan (the
"Plan") and initially reserved 2,000,000 shares for issuance thereunder. In
January 2000, the Board of Directors and the shareholders approved an amendment
to reserve an additional 800,000 shares for issuance under the Plan. As of
December 31, 1999 and March 31, 2000, 711,463 and 892,930 shares remain
available for future grant, respectively. Under the Plan, incentive stock
options may be granted to employees, and nonstatutory stock options may be
granted to employees, directors and consultants. Options are granted at an
exercise price of not less than the fair value per share of the common stock on
the date of grant and expire not later than ten years from the date of grant.
The options may be exercised immediately upon grant, however, the shares
issuable upon exercise of the options are subject to a lapsing right of
repurchase by the Company. Options under the Plan generally vest 25% one year
after the date of grant and then on a pro rata basis over the following 36
months. An aggregate 483,205 and 701,978 shares are subject to repurchase at an
aggregate repurchase price of $102,919 and $408,315 as of December 31, 1999 and
March 31, 2000, respectively. Such repurchase rights will lapse at a minimum
rate of 25% per annum and over a period of time not to exceed four years from
the date the option was granted.
Pro forma net loss and net loss per share information has been determined as if
the Company had accounted for its employee stock options granted under the fair
value method of SFAS 123. The fair value of these options was estimated at the
date of grant using the Black-Scholes option pricing model, with the following
weighted-average assumptions: risk-free interest rates of 6.5%, 5.75% and 6.0%
for grants in fiscal 1997, 1998 and 1999, respectively; a weighted-average
expected life of five years; and a dividend yield of zero. The weighted-average
fair value of options granted during 1997, 1998, and 1999 was $0.03, $0.05 and
$2.99, respectively.
- --------------------------------------------------------------------------------
F- 18
<PAGE> 88
CEPHEID
(A DEVELOPMENT STAGE COMPANY)
DECEMBER 31, 1999
(INFORMATION AS OF MARCH 31, 2000 AND FOR THE THREE MONTHS ENDED MARCH 31, 1999
AND 2000 IS UNAUDITED)
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
For purposes of pro forma disclosures, the estimated fair value of the options
is amortized over the options' vesting periods. The Company's pro forma
information is as follows (in thousands except for per share data):
<TABLE>
<CAPTION>
PERIOD FROM
INCEPTION
(MARCH 4, 1996)
THROUGH
DECEMBER 31, YEAR ENDED DECEMBER 31,
1997 1998 1999
<S> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------
Net loss attributable to common shareholders:
As reported......................................... $(1,274) $(3,312) $(7,919)
Pro forma........................................... $(1,276) $(3,317) $(7,939)
Basic and diluted net loss per share:
As reported......................................... $ (7.61) $ (1.37) $ (1.90)
Pro forma........................................... $ (7.62) $ (1.37) $ (1.91)
</TABLE>
The fair value option valuation model was developed for use in estimating the
fair value of traded options which have no vesting restrictions and are fully
transferable. Because the Company's employee stock options have characteristics
significantly different from those of traded options, and because changes in the
subjective input assumptions can materially affect the fair value estimate, in
management's opinion, the existing models do not necessarily provide a reliable
single measure of the fair value of employee stock options.
- --------------------------------------------------------------------------------
F- 19
<PAGE> 89
CEPHEID
(A DEVELOPMENT STAGE COMPANY)
DECEMBER 31, 1999
(INFORMATION AS OF MARCH 31, 2000 AND FOR THE THREE MONTHS ENDED MARCH 31, 1999
AND 2000 IS UNAUDITED)
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
A summary of option activity is as follows:
<TABLE>
<CAPTION>
OUTSTANDING STOCK OPTIONS
SHARES WEIGHTED
AVAILABLE AVERAGE
FOR FUTURE NUMBER EXERCISE
GRANT OF SHARES PRICE
<S> <C> <C> <C>
- ------------------------------------------------------------------------------------------------
Authorized............................................. 2,000,000 -- --
Granted................................................ (503,720) 503,720 $0.11
Forfeited.............................................. 7,800 (7,800) $0.05
--------- --------
Balance, December 31, 1997............................... 1,504,080 495,920 $0.11
Granted................................................ (615,690) 615,690 $0.19
Exercised.............................................. -- (888,930) $0.14
Forfeited.............................................. 22,800 (22,800) $0.09
--------- --------
Balance, December 31, 1998............................... 911,190 199,880 $0.18
Granted below fair value............................... (266,950) 266,950 $0.50
Exercised.............................................. -- (122,470) $0.45
Forfeited.............................................. 55,000 (55,000) $0.35
Repurchased............................................ 12,223 -- $0.35
--------- --------
Balance, December 31, 1999............................... 711,463 289,360 $0.39
Authorized (unaudited)................................. 1,000,000 -- --
Granted below fair value (unaudited)................... (632,450) 632,450 $2.41
Exercised (unaudited).................................. -- (381,534) $0.92
Repurchased (unaudited)................................ 13,917 -- $0.14
--------- --------
Balance, March 31, 2000 (unaudited)...................... 1,092,930 540,276 $2.39
========= ========
</TABLE>
The following table summarizes information about exercisable options outstanding
at December 31, 1999:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING AND EXERCISABLE
WEIGHTED AVERAGE
NUMBER CONTRACTUAL LIFE
EXERCISE PRICE OF SHARES REMAINING (IN YEARS)
<S> <C> <C>
- -------------------------------------------------------------------------------------------------
$0.05....................................................... 7,200 7.16
0.12....................................................... 45,380 6.89
0.22....................................................... 30,500 8.57
0.30....................................................... 5,800 8.73
0.35....................................................... 16,930 8.96
0.50....................................................... 183,550 6.83
-------- -----
289,360 7.20
-------- -----
-------- -----
</TABLE>
STOCK-BASED COMPENSATION
During the year ended December 31, 1999 and the three months ended March 31,
2000, in connection with stock option grants to employees, deferred stock
compensation was recorded totaling $736,005,
- --------------------------------------------------------------------------------
F- 20
<PAGE> 90
CEPHEID
(A DEVELOPMENT STAGE COMPANY)
DECEMBER 31, 1999
(INFORMATION AS OF MARCH 31, 2000 AND FOR THE THREE MONTHS ENDED MARCH 31, 1999
AND 2000 IS UNAUDITED)
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
and $5,386,625, respectively, representing the difference between the deemed
fair value of the common stock for financial reporting purposes and the exercise
price of the underlying options. This amount is recorded as a reduction of
shareholders' equity and is being amortized over the vesting period of the
individual options, generally four years. The Company recorded amortization of
deferred stock compensation of $183,539 and $615,436 for the year ended December
31, 1999 and the three months ended March 31, 2000, respectively.
During the years ended December 31, 1998 and 1999 and during the three months
ended March 31, 2000, the Company granted 21,200, 4,800 and 9,600 nonqualified
common stock options to consultants at exercise prices that range from $0.12 to
$1.50 per share for services rendered, respectively. Such options are included
in the option tables disclosed above. The options generally vest over two years
and have expiration dates which range from the end of the term of the consulting
agreements to ten years after the grant date. Expense of $30,000 and $165,000
was recognized in 1999 and for the three months ended March 31, 2000,
respectively, related to these transactions. The related expense in 1998 was not
material. The fair value of these options was estimated using the Black-Scholes
model, with the following weighted-average assumptions: risk-free interest rate
of 5.75%, 6.0% and 6.0% for grants in fiscal 1998, 1999 and in the three months
ended March 31, 2000, respectively; a weighted-average expected life of five
years; a dividend yield of zero and expected volatility of the Company's common
stock of 0.7.
RESERVED SHARES
The Company has reserved shares of common stock for future issuance as follows:
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1999 2000
<S> <C> <C>
- ----------------------------------------------------------------------------------------
Stock Options:
Options outstanding....................................... 289,360 540,276
Reserved for future grants................................ 711,463 1,092,930
Convertible preferred stock:
Issued and outstanding.................................... 6,946,658 13,326,636
Warrants outstanding........................................ 320,397 320,397
--------- ----------
8,267,878 15,280,239
========= ==========
</TABLE>
NOTE RECEIVABLE FROM SHAREHOLDER
During 1997, the Company loaned $138,000 to an employee for the purchase of
common stock upon the exercise of the employee's stock options. The employee
paid 4% of the total exercise price, and the Company loaned the employee the
remaining 96% of the purchase price subject to a full-recourse note. The loan
bears interest at 7.0%. The principle sum of the note is due on April 16, 2001
along with all unpaid interest. At December 31, 1997, 1998 and 1999, the
balances of $138,000, $103,500 and $69,000, respectively, were outstanding on
the promissory note.
2000 NON-EMPLOYEE DIRECTORS' STOCK OPTION PLAN
In March 2000, the Company adopted the 2000 Nonemployee Directors Stock Option
Plan ("the Directors Plan") and reserved a total of 200,000 shares of common
stock for issuance thereunder.
- --------------------------------------------------------------------------------
F- 21
<PAGE> 91
CEPHEID
(A DEVELOPMENT STAGE COMPANY)
DECEMBER 31, 1999
(INFORMATION AS OF MARCH 31, 2000 AND FOR THE THREE MONTHS ENDED MARCH 31, 1999
AND 2000 IS UNAUDITED)
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Each nonemployee director who becomes a director of the Company will be
automatically granted a nonstatutory stock option to purchase 15,000 shares of
common stock on the date on which such person first becomes a director. At the
first board meeting following each annual shareholders meeting, beginning with
the first board meeting after the first Annual Shareholders Meeting, each
nonemployee director then in office for over six months will automatically be
granted a nonstatutory option to purchase 5,000 shares of common stock. The
exercise price of options under the Directors Plan will be equal to the fair
market value of the common stock on the date of the grant. The term of these
options is 10 years. The Directors Plan will terminate in March 2010, unless
terminated earlier in accordance with the provisions of the Directors Plan.
11. INCOME TAXES
The Company has no provision for U.S. federal or state income taxes for any
period as it has incurred operating losses in all periods and for all
jurisdictions.
As of December 31, 1999, the Company had federal net operating loss
carryforwards of approximately $11,900,000. The Company also had federal
research and development tax credit carryforwards of approximately $300,000. The
net operating loss and credit carryforwards will expire at various dates
beginning in 2006 through 2019, if not utilized.
Utilization of the net operating losses and credit carryforwards may be subject
to a substantial annual limitation due to ownership change provisions of the
Internal Revenue Code of 1986 and similar state provisions. The annual
limitation may result in the expiration of net operating losses and credits
before utilization.
Significant components of the Company's deferred tax assets are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
1998 1999
- --------------------------------------------------------------------------------------
<S> <C> <C>
Net operating loss carry forwards........................... $1,800,000 $4,500,000
Research and other credit carry forwards.................... 200,000 500,000
Other -- Net................................................ 100,000 100,000
---------- ----------
Total deferred tax assets................................... 2,100,000 5,100,000
Valuation allowance for deferred tax assets................. (2,100,000) (5,100,000)
---------- ----------
Net deferred tax assets..................................... $ -- $ --
========== ==========
</TABLE>
Because of the Company's lack of earnings history, the deferred tax assets have
been fully offset by a valuation allowance. The valuation allowance increased by
approximately $600,000 and $1,500,000 during the periods ended December 31, 1997
and December 31, 1998, respectively.
12. BENEFIT PLAN
Effective January 1, 1998, the Company adopted a 401(k) plan that allows
eligible employees to contribute up to $10,000 of their qualified compensation
subject to IRS limits. The Company has the
- --------------------------------------------------------------------------------
F- 22
<PAGE> 92
CEPHEID
(A DEVELOPMENT STAGE COMPANY)
DECEMBER 31, 1999
(INFORMATION AS OF MARCH 31, 2000 AND FOR THE THREE MONTHS ENDED MARCH 31, 1999
AND 2000 IS UNAUDITED)
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
discretion to make matching contributions each year. For the years ended
December 31, 1998 and 1999, the Company did not make any matching contributions.
13. SUBSEQUENT EVENTS (UNAUDITED)
In April 2000, the Board of Directors adopted the 2000 Employee Stock Purchase
Plan (the "Purchase Plan"). A total of 200,000 shares of the Company's common
stock have been reserved for issuance under the Purchase Plan. The Purchase Plan
permits eligible employees to purchase common stock at a discount up to a
maximum of 15% of compensation through payroll deductions during defined
offering periods. The price at which stock is purchased under the Purchase Plan
is equal to 85% of the fair market value of the common stock on the first or
last day of the offering period, whichever is lower. The initial offering period
will commence on the effective date of the initial public offering and will end
in June 2002. In addition, the Purchase Plan provides for annual increases in
the number of shares available for issuance under the Purchase Plan on the first
business day of each year, beginning January 1, 2001, equal to the lesser of
200,000 shares, 0.75% of the outstanding shares on the date of the annual
increase or such amount as may be determined by the Board.
- --------------------------------------------------------------------------------
F- 23
<PAGE> 93
Cepheid's Smart Cycler System commercially available May 1, 2000 through Fisher
Scientific
<PAGE> 94
Description of artwork
Inside back cover, p. 6
Full page photograph of Smart Cycler System, including Smart Cycler instrument,
computer monitor, mini-centrifuge, tube racks, cooling block and reaction tubes.
No dealer, salesperson or other person is authorized to give any information or
to represent anything not contained in this prospectus. You must not rely on any
unauthorized information or representations. This prospectus is an offer to sell
only the shares offered hereby, but only under circumstances and in
jurisdictions where it is lawful to do so. The information contained in this
prospectus is current only as of its date.
<PAGE> 95
[CEPHEID LOGO]
<PAGE> 96
- --------------------------------------------------------------------------------
Part II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth all expenses to be paid by Cepheid, other than
the underwriting discounts and commissions payable by Cepheid in connection with
the sale of the common stock being registered. All amounts shown are estimates
except for the registration fee and the NASD filing fee.
<TABLE>
<CAPTION>
AMOUNT
TO BE PAID
<S> <C>
- ------------------------------------------------------------------------
Registration fee............................................ $ 18,216
NASD filing fee............................................. 9,700
Nasdaq National Market listing fee.......................... 95,000
Blue sky qualification fees and expenses.................... 5,000
Printing and engraving expenses............................. 225,000
Legal fees and expenses..................................... 350,000
Accounting fees and expenses................................ 350,000
Director and officer liability insurance.................... 165,000
Transfer agent and registrar fees........................... 10,000
Miscellaneous expenses...................................... 72,084
----------
Total............................................. $1,300,000
==========
</TABLE>
ITEM 14. INDEMNIFICATION OF OFFICERS AND DIRECTORS
Section 315 of the California General Corporation Law permits indemnification of
officers and directors and other corporate agents under certain circumstances
and subject to certain limitations. Our Articles of Incorporation and Bylaws
provide that we will indemnify our directors, officers, employees and agents to
the full extent permitted by California General Corporation Law, including in
circumstances in which indemnification is otherwise discretionary under
California law. In addition, we intend to enter into indemnification agreements
with our directors and officers that require us, among other things, to
indemnify them against certain liabilities that may arise by reason of their
status or service (other than liabilities arising from willful misconduct of a
culpable nature). The indemnification provisions in our Articles of
Incorporation and Bylaws and the indemnification of our officers and directors
under the indemnification agreements may be sufficiently broad to permit
indemnification of our officers and directors for liabilities (including
reimbursement of expenses incurred) arising under the Securities Act. In
addition, the underwriting agreement filed as Exhibit 1.1 to this Registration
Statement provides for indemnification by the underwriters of the Company and
our officers and directors for certain liabilities arising under the Securities
Act, or otherwise. Reference is made to Item 17 of this Registration Statement
for additional information regarding indemnification of officers and directors.
We also intend to maintain director and officer liability insurance, if
available on reasonable terms, to insure our directors and officers against the
cost of defense, settlement or payment of a judgment under certain
circumstances. In addition, the underwriting agreement filed as Exhibit 1.1 to
this Registration Statement provides for indemnification by the underwriters of
the Company and our officers and directors for certain liabilities arising under
the Securities Act, or otherwise.
- --------------------------------------------------------------------------------
II- 1
<PAGE> 97
PART II
- --------------------------------------------------------------------------------
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
Since our incorporation in August 1996, we have sold and issued the following
securities:
1. In March 1997, we sold 2,530,000 shares of Series A preferred stock to 30
investors for aggregate consideration of $3,162,500.
2. In April 1998, we sold 3,666,658 shares of Series B preferred stock to 38
investors for aggregate consideration of $8,249,980.
3. In November 1998, we sold 750,000 shares of Series C preferred stock to
Innogenetics, N.V. for an aggregate consideration of $2,250,000.
4. In January to March 2000, we sold 6,379,978 shares of Series C preferred
stock to 150 investors for aggregate consideration of $19,140,000.
5. From inception through March 31, 2000, we issued 7,188,794 shares of common
stock at prices ranging from $0.005 to $1.50, and we have options outstanding
to purchase an aggregate of 540,276 shares of common stock with exercise
prices ranging from $0.05 to $6.00 per share. From inception through March
31, 2000, options to purchase 1,366,794 shares of common stock were exercised
for aggregate consideration of approximately $524,000 net of repurchased
shares.
There were no underwriters employed in connection with any of the transactions
set forth in Item 15.
The issuances of securities described in Items 1 through 5 were deemed to be
exempt from registration under the Securities Act in reliance on Section 4(2) of
the Securities Act and Regulation D promulgated thereunder as transactions by an
issuer not involving a public offering. With respect to the issuance of stock
options described in Item 5, an exemption from registration was unnecessary in
that none of the transactions involved a "sale" of securities as this term is
used in Section 2(3) of the Securities Act. The sale and issuance of securities
and the exercise of options described in Item 5 are deemed to be exempt from
registration under the Securities Act by virtue of Rule 701 promulgated
thereunder in that they were offered and sold either pursuant to a written
compensatory benefit plan or pursuant to a written contract relating to
compensation, as provided in Rule 701. The recipients of securities in each such
transaction represented their intention to acquire the securities for investment
only and not with a view to or for sale in connection with any distribution
thereof and appropriate legends were fixed to the share certificates and other
instruments issued in such transactions. All recipients either received adequate
information about us or had access, through employment or other relationships,
to such information.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
<C> <S>
- -----------------------------------------------------------------------
1.1 Form of Underwriting Agreement
*3.1 Amended and Restated Articles of Incorporation
3.2 Amended and Restated Bylaws
4.1 Reference is made to Exhibits 3.1 and 3.2
4.2 Specimen Common Stock Certificate
5.1 Opinion of Heller Ehrman White & McAuliffe LLP
*10.1 Standard Industrial Lease, dated October 21, 1997, between
Cepheid and Marin County Employees Retirement Association.
</TABLE>
- --------------------------------------------------------------------------------
II- 2
<PAGE> 98
PART II
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
<C> <S>
*10.2 Consent of Landlord and Lease Agreement among Cepheid, AMB
Property, L.P. and SIMCO Electronics, dated March 28, 2000.
10.3++ 1997 Stock Option Plan, as amended
10.4++ 2000 Employee Stock Purchase Plan
*10.5 2000 Non-Employee Directors' Stock Option Plan
*10.6 Form of Indemnification Agreement between Cepheid and its
officers and directors.
*10.7 Promissory Note, dated June 4, 1997 between Cepheid and M.
Allen Northrup, Ph.D.
*10.8 Amended and Restated Investor Rights Agreement, dated
January 21, 2000 among Cepheid and certain shareholders of
Cepheid.
*10.9+ License Agreement, dated January 16, 1996, between Cepheid
and The Regents of the University of California, Lawrence
Livermore National Laboratory.
*10.10+ Letter Agreement, dated January 10, 2000, between Cepheid
and Fisher Scientific Company LLC.
10.11+ Development and Supply Agreement, dated November 17, 1998,
between Cepheid and Innogenetics N.V.
*10.12 Joint Technology and Collaboration Agreement, dated February
4, 2000, among Cepheid, Aridia Corp. and Infectio Diagnostic
(I.D.I.) Inc.
*10.13 Shareholders Agreement, dated February 4, 2000, among
Cepheid, Aridia Corp. and Infectio Diagnostic (I.D.I.) Inc.
*10.14+ License and Supply Agreement, dated February 4, 2000,
between Cepheid and Aridia Corp.
*10.15+ License and Supply Agreement, dated February 4, 2000,
between Aridia Corp. and Infectio Diagnostic (I.D.I.) Inc.
10.16+ Thermal Cycler Supplier Agreement, dated April 15, 2000,
between Cepheid and PE Biosystems, a division of PE
Corporation.
23.1 Consent of Ernst & Young LLP, Independent Auditors.
23.2 Consent of Heller Ehrman White & McAuliffe LLP. Reference is
made to Exhibit 5.1.
*24.1 Power of Attorney. Reference is made to the signature page.
*27.1 Financial Data Schedule.
</TABLE>
- -------------------------
* Previously filed.
+ Confidential treatment requested.
++ Replaces previously filed exhibit.
(b) FINANCIAL STATEMENT SCHEDULE.
Schedules have been omitted because the information required to be set forth
therein is not applicable or is shown in the financial statements or notes
thereto.
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 by the Registrant for liabilities arising under the
Securities Act may be permitted to directors, officers and controlling persons
of the Registrant pursuant to the provisions referenced in Item 14 of this
Registration Statement or otherwise, the Registrant has been advised that in the
opinion of the Commission such indemnification is against public policy as
expressed in the
- --------------------------------------------------------------------------------
II- 3
<PAGE> 99
PART II
- --------------------------------------------------------------------------------
Securities Act, and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer, or controlling
person of 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 hereunder, 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
Securities 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, 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; and
(2) For the purpose of determining any liability under the Securities Act, 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> 100
PART II
- --------------------------------------------------------------------------------
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant has
duly caused this Amendment No. 1 to the Registration Statement to be signed on
its behalf by the undersigned, thereunto duly authorized, in Sunnyvale,
California, on the 16th day of May 2000.
CEPHEID
By: /s/ THOMAS L. GUTSHALL
------------------------------------
Thomas L. Gutshall
Chairman and Chief Executive Officer
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT, THIS AMENDMENT NO. 1 TO THE
REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATES INDICATED:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ THOMAS L. GUTSHALL Chairman of the Board, May 16, 2000
- -------------------------------------------------------- Chief Executive Officer
Thomas L. Gutshall and Director
(Principal Executive Officer)
/s/ KURT PETERSEN, PH.D. President, Chief Operating May 16, 2000
- -------------------------------------------------------- Officer and Director
Kurt Petersen, Ph.D.
/s/ CATHERINE A. SMITH Vice-President of Finance and May 16, 2000
- -------------------------------------------------------- Chief Financial Officer
Catherine A. Smith (Principal Financial and
Accounting Officer)
* Director May 16, 2000
- --------------------------------------------------------
Gerald S. Casilli
* Director May 16, 2000
- --------------------------------------------------------
Cristina H. Kepner
* Director May 16, 2000
- --------------------------------------------------------
Ernest Mario, Ph.D.
* Director May 16, 2000
- --------------------------------------------------------
Dean O. Morton
* Director May 16, 2000
- --------------------------------------------------------
Hollings C. Renton
*By: /s/ THOMAS L. GUTSHALL
- ---------------------------------------------------
Thomas L. Gutshall, Attorney-in-fact
</TABLE>
- --------------------------------------------------------------------------------
II- 5
<PAGE> 101
PART II
- --------------------------------------------------------------------------------
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- -----------------------------------------------------------------------
<C> <S>
1.1 Form of Underwriting Agreement
*3.1 Amended and Restated Articles of Incorporation
3.2 Amended and Restated Bylaws
4.1 Reference is made to Exhibits 3.1 and 3.2
4.2 Specimen Common Stock Certificate
5.1 Opinion of Heller Ehrman White & McAuliffe LLP
*10.1 Standard Industrial Lease, dated October 21, 1997, between
Cepheid and Marin County Employees Retirement Association.
*10.2 Consent of Landlord and Lease Agreement among Cepheid, AMB
Property, L.P. and SIMCO Electronics, dated March 18, 2000.
10.3++ 1997 Stock Option Plan, as amended
10.4++ 2000 Employee Stock Purchase Plan
*10.5 2000 Non-Employee Director's Stock Option Plan
*10.6 Form of Indemnification Agreement between Cepheid and its
officers and directors.
*10.7 Promissory Note, dated June 4, 1997 between Cepheid and M.
Allen Northrup, Ph.D.
*10.8 Amended and Restated Investor Rights Agreement, dated
January 21, 2000 among Cepheid and certain shareholders of
Cepheid.
*10.9+ License Agreement, dated January 16, 1996, between Cepheid
and The Regents of the University of California, Lawrence
Livermore National Laboratory.
*10.10+ Letter Agreement, dated January 10, 2000, between Cepheid
and Fisher Scientific Company LLC.
10.11+ Development and Supply Agreement, dated November 17, 1998,
between Cepheid and Innogenetics N.V.
*10.12 Joint Technology and Collaboration Agreement, dated February
4, 2000, among Cepheid, Aridia Corp. and Infectio Diagnostic
(I.D.I.) Inc.
*10.13 Shareholders Agreement, dated February 4, 2000, among
Cepheid, Aridia Corp. and Infectio Diagnostic (I.D.I.) Inc.
*10.14+ License and Supply Agreement, dated February 4, 2000,
between Cepheid and Aridia Corp.
*10.15+ License and Supply Agreement, dated February 4, 2000,
between Aridia Corp. and Infectio Diagnostic (I.D.I.) Inc.
10.16+ Thermal Cycler Supplier Agreement, dated April 15, 2000,
between Cepheid and PE Biosystems, a division of PE
Corporation
23.1 Consent of Ernst & Young, LLP Independent Auditors.
23.2 Consent of Heller Ehrman White & McAuliffe LLP. Reference is
made to Exhibit 5.1.
*24.1 Power of Attorney. Reference is made to the signature page.
*27.1 Financial Data Schedule.
</TABLE>
- -------------------------
* Previously filed.
+ Confidential treatment requested.
++ Replaces previously filed exhibit.
- --------------------------------------------------------------------------------
II- 6
<PAGE> 1
EXHIBIT 1.1
Cepheid
[_____] Shares
Common Stock
(No Par Value)
UNDERWRITING AGREEMENT
[_____], 2000
<PAGE> 2
UNDERWRITING AGREEMENT
[_____], 2000
UBS Warburg LLC
Prudential Vector Healthcare
Invemed Associates LLC
As representatives of the several Underwriters
named in Schedule A hereto
c/o UBS Warburg LLC
299 Park Avenue
New York, New York 10171-0026
Ladies and Gentlemen:
Cepheid, a California corporation (the "Company"), proposes to
issue and sell to the Underwriters named in Schedule A annexed hereto (the
"Underwriters") an aggregate of [_____] shares (the "Firm Shares") of Common
Stock, no par value (the "Common Stock"), of the Company. In addition, solely
for the purpose of covering over-allotments, the Company proposes to grant to
the Underwriters the option to purchase from the Company up to an additional
[_____] shares of Common Stock (the "Additional Shares"). The Firm Shares and
the Additional Shares are hereinafter collectively sometimes referred to as the
Shares. The Shares are described in the Prospectus which is referred to below.
The Company hereby acknowledges that in connection with the
proposed offering of the Shares, it has requested UBS Warburg LLC ("UBSW") to
administer a directed share program (the "Directed Share Program") under which
up to [_____] shares of the Firm Shares to be purchased by you (the "Reserved
Shares") shall be reserved for sale by you at the initial public offering price
to [the Company's officers, directors, employees, and consultants and others
having a business relationship with the Company] (the "Directed Share
Participants") as part of the distribution of the Shares by the Underwriters,
subject to the terms of this Agreement, the applicable rules, regulations and
interpretations of the National Association of Securities Dealers, Inc. and all
other applicable laws, rules and regulations. The number of Shares available for
sale to the general public will be reduced to the extent that Directed Share
Participants purchase Reserved Shares. You may offer any Reserved Shares not
purchased by Directed Share Participants to the general public on the same basis
as the other Shares being issued and sold hereunder. The Company has supplied
UBSW with the names, addresses and telephone numbers of the individuals or other
entities which the Company has designated to be participants in the Directed
Share Program. It is understood
-1-
<PAGE> 3
that any number of those designated to participate in the Directed Share Program
may decline to do so.
The Company has filed, in accordance with the provisions of the
Securities Act of 1933, as amended, and the rules and regulations thereunder
(collectively called the "Act"), with the Securities and Exchange Commission
(the "Commission") a registration statement on Form S-1 (File No. 333-34340)
including a prospectus, relating to the Shares. The Company has furnished to
you, for use by the Underwriters and by dealers, copies of one or more
preliminary prospectuses (each thereof being herein called a "Preliminary
Prospectus") relating to the Shares. Except where the context otherwise
requires, the registration statement, as amended when it becomes effective,
including all documents filed as a part thereof, and including any information
contained in a prospectus subsequently filed with the Commission pursuant to
Rule 424(b) under the Act and deemed to be part of the registration statement at
the time of effectiveness pursuant to Rule 430(A) under the Act, and also
including any registration statement filed pursuant to Rule 462(b) under the
Act, is herein called the Registration Statement, and the prospectus, in the
form filed by the Company with the Commission pursuant to Rule 424(b) under the
Act on or before the second business day after the date hereof (or such earlier
time as may be required under the Act) or, if no such filing is required, the
form of final prospectus included in the Registration Statement at the time it
became effective, is herein called the Prospectus.
The Company and the Underwriters agree as follows:
1. Sale and Purchase. Upon the basis of the representations and
warranties and subject to the terms and conditions herein set forth, the Company
agrees to sell to the respective Underwriters and each of the Underwriters,
severally and not jointly, agrees to purchase from the Company the aggregate
number of Firm Shares set forth opposite the name of such Underwriter in
Schedule A attached hereto in each case at a purchase price of $[_____] per
Share. The Company is advised by you that the Underwriters intend (i) to make a
public offering of their respective portions of the Firm Shares as soon after
the effective date of the Registration Statement as in your judgment is
advisable and (ii) initially to offer the Firm Shares upon the terms set forth
in the Prospectus. You may from time to time increase or decrease the public
offering price after the initial public offering to such extent as you may
determine.
In addition, the Company hereby grants to the several
Underwriters the option to purchase, and upon the basis of the representations
and warranties and subject to the terms and conditions herein set forth, the
Underwriters shall have the right to purchase, severally and not jointly, from
the Company, ratably in accordance with the number of Firm Shares to be
purchased by each of them, all or a portion of the Additional Shares as may be
necessary to cover over-allotments made in connection with the offering of the
Firm Shares, at the same purchase price per share to be paid by the Underwriters
to the Company for the Firm Shares. This option may be exercised by you on
behalf of the several Underwriters at any time and
-2-
<PAGE> 4
from time to time on or before the thirtieth day following the date hereof, by
written notice to the Company. Such notice shall set forth the aggregate number
of Additional Shares as to which the option is being exercised, and the date and
time when the Additional Shares are to be delivered (such date and time being
herein referred to as the additional time of purchase); provided, however, that
the additional time of purchase shall not be earlier than the time of purchase
(as defined below) nor earlier than the second business day (1) after the date
on which the option shall have been exercised nor later than the tenth business
day after the date on which the option shall have been exercised. The number of
Additional Shares to be sold to each Underwriter shall be the number which bears
the same proportion to the aggregate number of Additional Shares being purchased
as the number of Firm Shares set forth opposite the name of such Underwriter on
Schedule A hereto bears to the total number of Firm Shares (subject, in each
case, to such adjustment as you may determine to eliminate fractional shares).
2. Payment and Delivery. Payment of the purchase price for the
Firm Shares shall be made to the Company by Federal Funds wire transfer, against
delivery of the certificates for the Firm Shares to you through the facilities
of the Depository Trust Company ("DTC") for the respective accounts of the
Underwriters. Such payment and delivery shall be made at 10:00 A.M., New York
City time, on [_____], 2000 (unless another time shall be agreed to by you and
the Company or unless postponed in accordance with the provisions of Section 8
hereof). The time at which such payment and delivery are actually made is
hereinafter sometimes called the time of purchase. Certificates for the Firm
Shares shall be delivered to you in definitive form in such names and in such
denominations as you shall specify on the second business day preceding the time
of purchase. For the purpose of expediting the checking of the certificates for
the Firm Shares by you, the Company agrees to make such certificates available
to you for such purpose at least one full business day preceding the time of
purchase.
Payment of the purchase price for the Additional Shares shall be
made at the additional time of purchase in the same manner and at the same
office as the payment for the Firm Shares. Certificates for the Additional
Shares shall be delivered to you in definitive form in such names and in such
denominations as you shall specify no later than the second business day
preceding the additional time of purchase. For the purpose of expediting the
checking of the certificates for the Additional Shares by you, the Company
agrees to make such certificates available to you for such purpose at least one
full business day preceding the additional time of purchase.
Deliveries of the documents described in Section 6 below
with respect to the purchase of the Shares shall be made at the offices of Dewey
Ballantine LLP, 1301 Avenue of
- --------
(1) As used herein "business day" shall mean a day on which the New
York Stock Exchange is open for trading.
-3-
<PAGE> 5
the Americas, New York, New York at 9:00 a.m., New York time, on the date of the
closing of the purchase of the Firm Shares or the Additional Shares, as the case
may be.
3. Representations and Warranties. The Company represents and
warrants to each of the Underwriters that:
(a) the Company has not received, and has no notice of, any
order of the Commission preventing or suspending the use of any
Preliminary Prospectus, or instituting proceedings for that purpose, and
each Preliminary Prospectus, at the time of filing thereof, conformed in
all material respects to the requirements of the Act; and when the
Registration Statement became or becomes effective, the Registration
Statement and the Prospectus complied or will comply fully in all
material respects with the provisions of the Act, and the Registration
Statement did not or will not contain an untrue statement of a material
fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein not misleading, and the
Prospectus did not or will not contain an untrue statement of a material
fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances
under which they were made, not misleading and the Prospectus, any
Preliminary Prospectus and any supplement thereto or prospectus wrapper
prepared in connection therewith, at their respective times of issuance
and at the time of closing, complied and will comply in all material
respects with any applicable laws or regulations of jurisdictions in
which the Prospectus and such preliminary prospectus, as amended or
supplemented, if applicable, are distributed in connection with the
offer and sale of Reserved Shares, provided, however, that the Company
makes no warranty or representation with respect to any statement
contained in the Registration Statement or the Prospectus in reliance
upon and in conformity with information concerning the Underwriters and
furnished in writing by or on behalf of any Underwriter through you to
the Company expressly for use in the Registration Statement or the
Prospectus; and the Company has not distributed directly or indirectly
any offering material in connection with the offering or sale of the
Shares other than the Registration Statement, the Preliminary
Prospectus, the Prospectus or any other materials, if any, permitted by
the Act;
(b) as of the date of this Agreement, the Company has authorized
and outstanding capital stock as set forth under the heading entitled
"Actual" in the section of the Registration Statement and the Prospectus
entitled "Capitalization" and, as of the time of purchase, and assuming
the receipt and application of the net proceeds as described under the
section of the Registration Statement and the Prospectus entitled "Use
of Proceeds," the Company shall have an authorized and outstanding
capital stock as set forth under the heading entitled "Pro Forma As
Adjusted" in the section of the Registration Statement and the
Prospectus entitled "Capitalization"; all of the shares of capital stock
will be duly and validly authorized and issued, fully paid and
-4-
<PAGE> 6
non-assessable, will have been issued in compliance with all federal and
state securities laws and will not have been issued in violation of any
preemptive right, resale right, right of first refusal or similar right;
(c) the Company has been duly organized and is validly existing
as a corporation and is in good standing under the laws of the State of
California, with full power and authority to own, lease and operate its
properties and conduct its business as described in the Registration
Statement;
(d) the Company is duly qualified to do business as a foreign
corporation and is in good standing in each jurisdiction in which the
ownership or leasing of its properties or the conduct of its business
requires such qualification, except where the failure to so qualify
would not individually or in the aggregate have a material adverse
effect on the business, prospects, properties, condition (financial or
otherwise) or results of operation of the Company (a "Material Adverse
Effect"); the Company does not have any subsidiaries (as defined in the
Act); the Company does not own, directly or indirectly, any shares of
stock or any other equity or long-term debt securities of any
corporation or have any equity interest in any firm, partnership,
limited liability company, joint venture, association or other entity
except as set forth in the Registration Statement and the Prospectus;
complete and correct copies of the certificate of incorporation and
bylaws or other organizational documents of the Company and all
amendments thereto have been delivered to you, and except as set forth
in the exhibits to the Registration Statement no changes therein will be
made subsequent to the date hereof and prior to the time of purchase or,
if later, the additional time of purchase;
(e) the Company is not in breach of, or in default under (and no
event has occurred which with notice, lapse of time, or both would
result in any breach of, or constitute a default under), its charter or
bylaws or other organizational documents or in the performance or
observance of any obligation, agreement, covenant or condition contained
in any indenture, mortgage, deed of trust, bank loan or credit agreement
or other evidence of indebtedness, or any lease, contract or other
agreement or instrument to which the Company is a party or by which it
or any of its properties is bound the effect of which would individually
or in the aggregate have a Material Adverse Effect, and the execution,
delivery and performance of this Agreement, the issuance and sale of the
Shares contemplated hereby and by the Registration Statement will not
conflict with, or result in any breach of or constitute a default under
(nor constitute any event which with notice, lapse of time, or both
would result in any breach of, or constitute a default under), any
provisions of the charter or bylaws or other organizational documents of
the Company or under any provision of any license, permit, franchise,
indenture, mortgage, deed of trust, bank loan or credit agreement or
other evidence of indebtedness, or any lease, contract or other
agreement or instrument to which the
-5-
<PAGE> 7
Company is a party or by which it or its properties may be bound or
affected, or under any federal, state, local or foreign law, regulation
or rule or any decree, judgment or order applicable to the Company the
result of which would individually or in the aggregate have a Material
Adverse Effect;
(f) this Agreement has been duly authorized, executed and
delivered by the Company and is a legal, valid and binding agreement of
the Company, enforceable in accordance with its terms;
(g) the capital stock of the Company, including the Shares,
conforms in all material respects to the description thereof contained
in the Registration Statement and Prospectus; the certificates for the
Shares are in due and proper form; and the holders of the Shares will
not be subject to personal liability by reason of being such holders;
(h) the Shares have been duly and validly authorized and, when
issued and delivered against payment therefor as provided herein, will
be duly and validly issued, fully paid and non-assessable;
(i) no approval, authorization, consent or order of or filing
with any national, state or local governmental or regulatory commission,
board, body, authority or agency is required in connection with the
execution, delivery and performance by the Company of this Agreement,
the issuance and sale of the Shares contemplated hereby and by the
Registration Statement, other than registration of the Shares under the
Act, which has been or will be effected by the Company, and any
necessary qualification under the securities or blue sky laws of the
various jurisdictions in which the Shares are being offered by the
Underwriters or under the rules and regulations of the National
Association of Securities Dealers, Inc. ("NASD");
(j) except as set forth in the Registration Statement and the
Prospectus: (i) no person has the right, contractual or otherwise, to
cause the Company to issue to it, or register pursuant to the Act, any
shares of capital stock or other equity interests; and (ii) no person
has any preemptive rights, co-sale rights, rights of first refusal or
other rights to purchase any shares of Common Stock of the Company.
(k) Ernst & Young LLP, whose report on the financial statements
of the Company are filed with the Commission as part of the Registration
Statement and Prospectus, are independent public accountants as required
by the Act;
(l) the Company has all necessary licenses, permits, franchises,
authorizations, consents and approvals, and made all necessary filings
required under any federal, state, local or foreign law, regulation or
rule, and has obtained all necessary authorizations, consents and
approvals from other persons, in order to conduct its business; the
Company is not in violation of, or in default under, any such
-6-
<PAGE> 8
license, permit, franchise, authorization, consent or approval or any
federal, state, local or foreign law, regulation or rule or any decree,
order or judgment applicable to the Company, the effect of which could
individually or in the aggregate have a Material Adverse Effect;
(m) all legal or governmental proceedings, all statutes and
regulations and all contracts, leases or documents of a character
required to be described in the Registration Statement or the Prospectus
or to be filed as an exhibit to the Registration Statement have been so
described or filed as required;
(n) there are no private or governmental actions, suits, claims,
investigations or proceedings pending, threatened or, to the knowledge
of the Company, contemplated, to which the Company or any of its
officers is subject or of which any of its properties is subject,
whether at law, in equity or before or by any federal, state, local or
foreign governmental or regulatory commission, board, body, authority or
agency;
(o) the audited financial statements of the Company included in
the Registration Statement and the Prospectus present fairly the
financial position and results of operations of the Company as of the
dates and for the periods indicated; such financial statements have been
prepared in conformity with generally accepted accounting principles
applied on a consistent basis during the periods involved; the pro forma
financial data included in the Registration Statement and the Prospectus
comply as to form in all material respects with the applicable
accounting requirements of Regulation S-X of the Securities Act, and the
pro forma adjustments have been properly applied to the historical
amounts in the compilation of those statements; and the other financial
and statistical data set forth in the Registration Statement and the
Prospectus are accurately presented and prepared on a basis consistent
with such financial statements and the books and records of the Company;
(p) subsequent to the respective dates as of which information is
given in the Registration Statement and the Prospectus, there has not
been (i) any material adverse change, or any development involving a
prospective material adverse change, in the business, prospects,
properties, condition (financial or otherwise) or results of operations
of the Company, (ii) any transaction which is material to the Company,
(iii) the incurrence by the Company of any obligation, direct or
contingent, and whether or not in the ordinary course of business, which
is material to the Company, (iv) any change in the capital stock or
other equity interest or outstanding indebtedness of the Company or (v)
any dividend or distribution of any kind declared, paid or made on the
capital stock or other equity interest of the Company. The Company does
not have any material contingent obligations which are not disclosed in
the Registration Statement;
-7-
<PAGE> 9
(q) the Company has obtained the agreement of each of its
executive officers, directors and holders of Common Stock and securities
convertible into or exchangeable or exercisable for Common Stock not to
sell, offer to sell, contract to sell, hypothecate, pledge, grant any
option to sell or otherwise dispose of, directly or indirectly, any
shares of Common Stock or securities convertible into or exchangeable or
exercisable for Common Stock or warrants or other rights to purchase
Common Stock for a period of 180 days after the date of the Prospectus
without the prior written consent of UBSW;
(r) the Company has good and marketable title to all property
(real and personal) described in the Prospectus as being owned by it,
free and clear of all liens, claims, security interests or other
encumbrances except such as are described in the Registration Statement
and the Prospectus and except as would not individually or in the
aggregate have a Material Adverse Effect. All the property described in
the Prospectus as being held under lease by the Company is held thereby
under valid, subsisting and enforceable leases;
(s) the Company is insured by insurers of recognized financial
responsibility against such losses and risks and in such amount as are
customary in the business in which it is engaged; all policies of
insurance insuring the Company or any of its businesses, assets,
employees, officers and directors are in full force and effect, and the
Company is in compliance with the terms of such policies in all material
respects; there are no claims by the Company under any such policy or
instrument as to which any insurance company is denying liability or
defending under a reservation of rights clause;
(t) the Company has not either sent or received any notice of
termination of any of the contracts or agreements referred to or
described in, or filed as an exhibit to, the Registration Statement, and
no such termination has been threatened by the Company or any other
party to any such contract or agreement;
(u) all statistical and market-related data included in the
Prospectus are based on or derived from sources that the Company
believes to be reliable and accurate, and the Company has obtained the
written consent to the use of such data from such sources to the extent
required;
(v) neither the Company nor any of its affiliates has taken,
directly or indirectly, any action designed to or which has constituted
or which might reasonably be expected to cause or result, under the
Securities Exchange Act of 1934, as amended, and the rules and
regulations thereunder (collectively called the "Exchange Act") or
otherwise, in stabilization or manipulation of the price of any security
of the Company to facilitate the sale or resale of the Shares;
-8-
<PAGE> 10
(w) other than as set forth in the Prospectus, the Company will
own, possess, license or have other rights to use all patents,
trademarks, servicemarks, trade names, copyrights, trade secrets,
information, proprietary rights and processes ("Intellectual Property")
necessary for its business as described in the Prospectus (including the
offer and sale of those products and services, both currently marketed
and under development, described in the Prospectus), without, to the
Company's knowledge, any conflict with or infringement of the interests
of others, and has taken all reasonable steps necessary to secure
interests in such Intellectual Property; except as disclosed in the
Prospectus, the Company is not aware of outstanding options, licenses or
agreements of any kind relating to the Intellectual Property of the
Company which are required to be disclosed in the Prospectus, and,
except as disclosed in the Prospectus the Company is not a party to or
bound by any options, licenses or agreements with respect to the
Intellectual Property of any other person or entity which are required
to be disclosed in the Prospectus; none of the technology employed by
the Company has been obtained or is being used by the Company in
violation of any contractual obligation binding on the Company or any of
its directors or executive officers or, to the Company's knowledge, any
employees of the Company or otherwise in violation of the rights of any
persons; except as disclosed in the Prospectus, the Company has not
received any communications alleging that the Company has violated,
infringed or conflicted with, or, by conducting its business as
described in the Prospectus, would violate, infringe or conflict with
any of the Intellectual Property of any other person or entity other
than any such violation, infringement or conflict which would not
individually or in the aggregate have a Material Adverse Effect;
(x) the Company has not sustained since the date of the latest
audited financial statements included in the Prospectus any loss or
interference with its business from fire, explosion, flood or other
calamity, whether or not covered by insurance, or from any labor dispute
or court or governmental action, order or decree, otherwise than as
disclosed in the Prospectus or other than any loss or interference which
individually or in the aggregate would not have a Material Adverse
Effect;
(y) the Company has not violated any foreign, federal, state or
local law or regulation relating to the protection of human health and
safety, the environment or hazardous or toxic substances or wastes,
pollutants or contaminants, nor any federal or state law relating to
discrimination in the hiring, promotion or pay of employees nor any
applicable federal or state wages and hours laws, nor any provisions of
the Employee Retirement Income Security Act or the rules and regulations
promulgated thereunder, which individually or in the aggregate might
result in a Material Adverse Effect;
(z) the Company maintains a system of internal accounting
controls sufficient to provide reasonable assurances that (i)
transactions are executed in accordance with management's general or
specific authorization; (ii) transactions are
-9-
<PAGE> 11
recorded as necessary to permit preparation of financial statements in
conformity with generally accepted accounting principles and to maintain
accountability for assets; (iii) access to assets is permitted only in
accordance with management's general or specific authorization; and (iv)
the recorded accountability for assets is compared with existing assets
at reasonable intervals and appropriate action is taken with respect to
any differences;
(aa) the Company has filed all federal, state, local and foreign
tax returns and tax forms required to be filed. Such returns and forms
are complete and correct in all material respects, and all taxes shown
by such returns or otherwise assessed that are due or payable have been
paid, except such taxes as are being contested in good faith and as to
which adequate reserves have been provided. All payroll withholdings
required to be made by the Company with respect to employees have been
made. The charges, accruals and reserves on the books of the Company in
respect of any tax liability for any year not finally determined are
adequate to meet any assessments or reassessments for additional taxes.
There have been no tax deficiencies asserted and, to the knowledge of
the Company, no tax deficiency might be reasonably asserted or
threatened against the Company that could individually or in the
aggregate have a Material Adverse Effect; and
(bb) the Company is not, and after the offering and sale of the
Shares, will not be, an "investment company" or a "promoter," "principal
underwriter" for or an entity "controlled" by an "investment company,"
as such terms are defined in the Investment Company Act of 1940, as
amended (the "Investment Company Act").
In addition, any certificate signed by any officer of the
Company, delivered to the Representatives or counsel for the Underwriters in
connection with the offering of the Shares shall be deemed to be a
representation and warranty by the Company, as to matters covered thereby, to
each Underwriter.
4. Certain Covenants. The Company hereby agrees:
(a) to furnish such information as may be required and otherwise
to cooperate in qualifying the Shares for offering and sale under the
securities or blue sky laws of such states as you may designate and to
maintain such qualifications in effect so long as required for the
distribution of the Shares; provided that the Company shall not be
required to qualify as a foreign corporation or to consent to the
service of process under the laws of any such state (except service of
process with respect to the offering and sale of the Shares); and to
promptly advise you of the receipt of any notification with respect to
the suspension of the qualification of the Shares for sale in any
jurisdiction or the initiation or threatening of any proceeding for such
purpose;
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<PAGE> 12
(b) to make available to the Underwriters in New York City, as
soon as practicable after the Registration Statement becomes effective,
and thereafter from time to time to furnish to the Underwriters, as many
copies of the Prospectus (or of the Prospectus as amended or
supplemented if the Company shall have made any amendments or
supplements thereto after the effective date of the Registration
Statement) as the Underwriters may request for the purposes contemplated
by the Act; in case any Underwriter is required to deliver a prospectus
beyond the nine-month period referred to in Section 10(a)(3) of the Act
in connection with the sale of the Shares, the Company will prepare
promptly upon request and at its cost such amendment or amendments to
the Registration Statement and such prospectuses as may be necessary to
permit compliance with the requirements of Section 10(a)(3) of the Act;
(c) to advise you promptly and (if requested by you) to confirm
such advice in writing, (i) when the Registration Statement has become
effective and when any post-effective amendment thereto becomes
effective and (ii) if Rule 430A under the Act is used, when the
Prospectus is filed with the Commission pursuant to Rule 424(b) under
the Act (which the Company agrees to file in a timely manner under such
Rules);
(d) to advise you promptly, confirming such advice in writing, of
any request by the Commission for amendments or supplements to the
Registration Statement or Prospectus or for additional information with
respect thereto, or of notice of institution of proceedings for, or the
entry of a stop order suspending the effectiveness of the Registration
Statement and, if the Commission should enter a stop order suspending
the effectiveness of the Registration Statement, to use its best efforts
to obtain the lifting or removal of such order as soon as possible; to
advise you promptly of any proposal to amend or supplement the
Registration Statement or Prospectus and to file no such amendment or
supplement to which you shall object in writing;
(e) subject to Section 4(o) hereof, to file promptly all reports
and any definitive proxy or information statement required to be filed
by the Company with the Commission in order to comply with the Exchange
Act subsequent to the date of the Prospectus and for so long as the
delivery of a prospectus is required in connection with the offering or
sale of the shares, and to promptly notify you of such filing;
(f) if necessary or appropriate, to file in a timely fashion a
registration statement pursuant to Rule 462(b) under the Act;
(g) to furnish to you and, upon request, to each of the other
Underwriters for a period of five years from the date of this Agreement
(i) copies of any reports or other communications which the Company
shall send to its shareholders or shall from
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<PAGE> 13
time to time publish or publicly disseminate, (ii) copies of all annual,
quarterly and current reports filed with the Commission on Forms 10-K,
10-Q and 8-K, or such other similar form as may be designated by the
Commission, (iii) copies of documents or reports filed with any national
securities exchange on which any class of securities of the Company is
listed, and (iv) such other information as you may reasonably request
regarding the Company as soon as such communications, documents or
information becomes available;
(h) to advise the Underwriters promptly of the occurrence of any
event known to the Company within the time during which a Prospectus
relating to the Shares is required to be delivered under the Act which
would require the making of any change in the Prospectus then being used
so that the Prospectus would not include an untrue statement of a
material fact or omit to state a material fact necessary to make the
statements therein, in the light of the circumstances under which they
are made, not misleading, and, during such time, to prepare and furnish
promptly to the underwriters, at no expense to the Underwriters, such
amendments or supplements to such Prospectus as may be necessary to
reflect any such change and to furnish you a copy of such proposed
amendment or supplement before filing any such amendment or supplement
with the Commission;
(i) to make generally available to its security holders, and to
deliver to you, as soon as practicable an earnings statement of the
Company (which will satisfy the provisions of Section 11(a) of the Act)
covering a period of twelve months beginning after the effective date of
the Registration Statement (as defined in Rule 158(c) of the Act) and
ending not later than 15 months thereafter;
(j) to furnish to its shareholders as soon as practicable after
the end of each fiscal year an annual report (including a balance sheet
and statements of income, shareholders' equity and of cash flow of the
Company for such fiscal year, accompanied by a copy of the certificate
or report thereon of nationally recognized independent certified public
accountants);
(k) to furnish to you four conformed copies of the Registration
Statement, as initially filed with the Commission, and of all amendments
thereto including all exhibits thereto) and sufficient conformed copies
of the foregoing (other than exhibits) for distribution of a copy to
each of the other Underwriters;
(l) to furnish to you as early as practicable prior to the time
of purchase and the additional time of purchase, as the case may be, but
not later than two business days prior thereto, a copy of the latest
available quarterly (if available) or monthly unaudited interim
consolidated financial statements, if any, of the Company, which have
been read by the Company's independent certified public accountants, as
stated in their letter to be furnished pursuant to Section 6(b) hereof;
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<PAGE> 14
(m) to apply the net proceeds from the sale of the Shares in the
manner set forth under the caption "Use of Proceeds" in the Prospectus;
(n) to pay all costs, expenses, fees and taxes in connection with
(i) the preparation and filing of the Registration Statement, each
Preliminary Prospectus, the Prospectus, and any amendments or
supplements thereto, and the printing and furnishing of copies of each
thereof to the Underwriters and to dealers (including costs of mailing
and shipment), (ii) the registration, issue, sale and delivery of the
Shares, (iii) the producing, word processing and/or printing of this
Agreement, any Agreement Among Underwriters, any dealer agreements, any
Powers of Attorney and any closing documents (including compilations
thereof) and the reproduction and/or printing and furnishing of copies
of each thereof to the Underwriters and (except closing documents) to
dealers (including costs of mailing and shipment), (iv) the
qualification of the Shares for offering and sale under state laws and
the determination of their eligibility for investment under state law as
aforesaid (including the reasonable legal fees and filing fees and other
disbursements of counsel for the Underwriters) and the printing and
furnishing of copies of any blue sky surveys or legal investment surveys
to the Underwriters and to dealers, (v) any listing of the Shares on any
securities exchange or qualification of the Shares for quotation on
NASDAQ and any registration thereof under the Exchange Act, (vi) any
filing for review of the public offering of the Shares by the NASD,
including the associated reasonable fees and disbursements of counsel
for the Underwriters, and (vii) the performance of the Company's other
obligations hereunder;
(o) to furnish to you, before filing with the Commission
subsequent to the effective date of the Registration Statement and
during the period referred to in paragraph (h) above, a copy of any
document proposed to be filed pursuant to Section 13, 14 or 15(d) of the
Exchange Act;
(p) not to sell, offer to sell, contract to sell, hypothecate,
pledge, grant any option to sell or otherwise dispose of, directly or
indirectly, any shares of Common Stock or securities convertible into or
exchangeable or exercisable for Common Stock or warrants or other rights
to purchase Common Stock or any other shares of the Company that are
substantially similar to Common Stock or permit the registration under
the Act of any shares of Common Stock for a period of 180 days after the
date hereof (the "Lock-up Period"), without the prior written consent of
UBSW, except for (i) the registration of the Shares and the sales to the
Underwriters pursuant to this Agreement, (ii) issuances of Common Stock
upon the exercise of outstanding options or warrants as disclosed in the
Registration Statement and the Prospectus, such issued Common Stock not
to be disposed of by the recipients thereof prior to the expiration of
the Lock-up Period and (iii) the issuance of employee stock options not
exercisable
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<PAGE> 15
during the Lock-up Period pursuant to stock option plans described in
the Registration Statement and the Prospectus; and
(q) to use its best efforts to cause the Common Stock to be
listed for quotation on the National Association of Securities Dealers
Automated Quotation National Market System ("NASDAQ").
5. Reimbursement of Underwriters' Expenses. The Company agrees
that if the Shares are not delivered for any reason other than the termination
of this Agreement pursuant to subsections (ii), (iii) or (iv) of the second
paragraph of Section 7 hereof or the last paragraph of Section 8 hereof or the
default by one or more of the Underwriters in its or their respective
obligations hereunder, it shall, in addition to paying the amounts described in
Section 4(n) hereof, reimburse the Underwriters for all of the out-of-pocket
accountable expenses actually incurred by the Underwriters, including the
reasonable fees and disbursements of their counsel.
6. Conditions of Underwriters' Obligations. The several
obligations of the Underwriters hereunder are subject to the accuracy of the
representations and warranties of the Company on the date hereof and at the time
of purchase (and the several obligations of the Underwriters at the additional
time of purchase are subject to the accuracy of the representations and
warranties of the Company on the date hereof and at the time of purchase (unless
previously waived) and at the additional time of purchase, as the case may be),
the performance by the Company of its obligations hereunder and to the following
additional conditions precedent:
(a) The Company shall furnish to you at the time of purchase and
at the additional time of purchase, as the case may be, an opinion of
Heller, Ehrman, White & McAuliffe, counsel for the Company, addressed to
the Underwriters, and dated the time of purchase or the additional time
of purchase, as the case may be, with reproduced copies for each of the
other Underwriters and in form reasonably satisfactory to Dewey
Ballantine LLP, counsel for the Underwriters, stating that:
(i) the Company has been duly incorporated and is validly
existing as a corporation and is in good standing under the laws
of the State of California, with full power and authority to own,
lease and operate its properties and conduct its business as
described in the Registration Statement and the Prospectus, to
execute and deliver this Agreement and to issue, sell and deliver
the Shares as herein contemplated;
(ii) the Company is duly qualified to do business as a
foreign corporation and is in good standing in each jurisdiction
in which the ownership or leasing of its properties or the
conduct of its business requires such
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<PAGE> 16
qualification, except where the failure to so qualify would not
individually or in the aggregate have a Material Adverse Effect;
(iii) this Agreement has been duly authorized, executed
and delivered by the Company and is a legal, valid and binding
agreement of the Company enforceable in accordance with its
terms;
(iv) the Shares have been duly authorized and, when issued
and delivered to and paid for by the Underwriters, will be
validly issued, fully paid and non-assessable;
(v) the Company has authorized and outstanding shares of
capital stock as set forth in the Registration Statement and the
Prospectus; the outstanding shares of capital stock of the
Company have been duly and validly authorized and issued and are
fully paid, nonassessable and free of statutory and, to such
counsel's knowledge, contractual preemptive rights, resale
rights, rights of first refusal and similar rights, except as set
forth in the Prospectus and the Registration Statement; the
Shares when issued will be free of statutory and, to such
counsel's knowledge, contractual preemptive rights, resale
rights, rights of first refusal and similar rights; the
certificates for the Shares are in due and proper form and the
holders of the Shares will not be subject to personal liability
by reason of being such holders;
(vi) the capital stock of the Company, including the
Shares, conforms to the description thereof contained in the
Registration Statement and Prospectus;
(vii) the Registration Statement and the Prospectus
(except as to the financial statements and schedules and other
financial and statistical data contained therein, as to which
such counsel need express no opinion) comply as to form in all
material respects with the requirements of the Act;
(viii) the Registration Statement has become effective
under the Act and, to such counsel's knowledge, no stop order
proceedings with respect thereto are pending or threatened under
the Act and any required filing of the Prospectus, and any
supplement thereto pursuant to Rule 424 under the Act has been
made in the manner and within the time period required by such
Rule 424;
(ix) no approval, authorization, consent or order of or
filing with any national, state or local governmental or
regulatory commission, board, body, authority or agency is
required in connection with the execution, delivery and
performance of this Agreement, the issuance and sale of the
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<PAGE> 17
Shares and the consummation of the transactions contemplated
hereby and by the Registration Statement, other than
registration of the Shares under the Act and other than any
necessary qualification under the state securities or blue sky
laws of the various jurisdictions in which the Shares are being
offered by the Underwriters, as to which such qualification such
counsel need express no opinion;
(x) the execution, delivery and performance of this
agreement by the Company and the transactions contemplated hereby
and by the Registration Statement do not and will not conflict
with, or result in any breach of, or constitute a default under
(nor constitute any event which with notice, lapse of time, or
both, would result in any breach of, or constitute a default
under), any provisions of the charter or bylaws or other
organizational documents of the Company or under any provision of
any license, permit, franchise, indenture, mortgage, deed of
trust, bank loan or credit agreement or other evidence of
indebtedness, or any lease, contract or other agreement or
instrument to which the Company is a party or by which its
properties may be bound or affected that is filed as an exhibit
to the Registration Statement or under any federal, state, local
or foreign law, regulation or rule, or any decree, judgment or
order applicable to the Company and known to such counsel;
(xi) to such counsel's knowledge, the Company is not in
violation of its charter or bylaws, and the Company is not in
breach of nor in default under (nor has any event occurred which
with notice, lapse of time, or both would result in any breach
of, or constitute a default under), any license, permit,
franchise, indenture, mortgage, deed of trust, bank loan or
credit agreement or other evidence of indebtedness, or any lease,
contract or other agreement or instrument to which the Company is
or was a party or by which it or its properties may be bound or
affected or in violation of any federal, state, local or foreign
law, regulation or rule or any decree, judgment or order
applicable to the Company the effect of which would individually
or in the aggregate have a Material Adverse Effect;
(xii) to such counsel's knowledge, there are no contracts,
licenses, agreements, leases or documents of a character which
are required to be filed as exhibits to the Registration
Statement or to be described in the Prospectus which have not
been so filed or described;
(xiii) to such counsel's knowledge, there are no private
or governmental actions, suits, claims, investigations or
proceedings pending, threatened or contemplated to which the
Company or any of its officers is subject or of which any of its
properties is subject, whether at law, in equity or
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<PAGE> 18
before or by any federal, state, local or foreign governmental
or regulatory commission, board, body, authority or agency;
(xiv) the Company is not, and after the offering and sale
of the Shares, will not be, an "investment company," or a
"promoter," "principal underwriter" for or an entity controlled
by an "investment company," as such terms are defined in the
Investment Company Act;
(xv) the statements in the Registration Statement and
Prospectus, insofar as they are descriptions of contracts,
agreements or other legal documents, or refer to statements of
law or legal conclusions, are accurate in all material respects
and present fairly the information required to be shown; and
(xvi) to the knowledge of such counsel, except as
described in the Registration Statement and Prospectus, no person
is entitled to registration rights with respect to shares of
capital stock or other securities of the Company.
In addition, such counsel shall state that it has participated in
conferences with officers and other representatives of the Company,
representatives of the independent public accountants of the Company and
representatives of the Underwriters at which the contents of the
Registration Statement and Prospectus were discussed and, although such
counsel is not passing upon and does not assume responsibility for the
accuracy, completeness or fairness of the statements contained in the
Registration Statement or Prospectus (except as and to the extent stated
in subparagraphs (vi), (vii) and (xv) above), on the basis of the
foregoing nothing has come to the attention of such counsel that causes
them to believe that the Registration Statement or any amendment thereto
at the time such Registration Statement or amendment became effective
contained an untrue statement of a material fact or omitted to state a
material fact required to be stated therein or necessary to make the
statements therein not misleading, or that the Prospectus or any
supplement thereto at the date of such Prospectus or such supplement,
and at all times up to and including the time of purchase or additional
time of purchase, as the case may be, contained an untrue statement of a
material fact or omitted to state a material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading (it being
understood that such counsel need express no opinion with respect to the
financial statements and schedules and other financial and statistical
data included in the Registration Statement or Prospectus).
(b) You shall have received at the time of purchase and at the
additional time of purchase, as the case may be, the opinion of [_____],
special counsel to the Company with respect to patents and proprietary
rights, dated the time of purchase or the additional time of purchase,
as the case may be, stating that:
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<PAGE> 19
(i) To such counsel's knowledge, except as described in
the Prospectus, (A) the Company has valid license rights or clear
title to the Intellectual Property referenced in the Prospectus,
and there are no rights of third parties to any such Intellectual
Property; (B) there is no infringement or other violation by
third parties of any of the Intellectual Property of the Company
referenced in the Prospectus; (C) there is no infringement or
other violation by the Company of any Intellectual Property of
others; (D) there is no pending or threatened action, suit
proceeding or claim by governmental authorities or others that
the Company infringes or otherwise violates any Intellectual
Property of others, and such counsel is unaware of any facts
which would form a reasonable basis for any such claim; and (E)
there is no pending or threatened action, suit, proceeding or
claim by governmental authorities or others challenging the
rights of the Company in or to, or challenging the scope of, any
Intellectual Property of the Company referenced in the
Prospectus, and such counsel is unaware of any facts which would
form a reasonable basis for any such claim;
(ii) to such counsel's knowledge, the patent applications
of the Company presently on file disclose patentable subject
matter, and such counsel is not aware of any inventorship
challenges, any interference which has been declared or provoked,
or any other material fact with respect to the patent
applications of the Company presently on file that (A) would
preclude the issuance of patents with respect to such
applications, or (B) would lead such counsel to conclude that
such patents, when issued, would not be valid and enforceable in
accordance with applicable regulations; and
(iii) the statements in the Registration Statement and the
Prospectus referencing Intellectual Property matters, insofar as
such statements constitute summaries of legal matters, contracts,
agreements, documents or proceedings referred to therein, or
refer to statements of law or legal conclusions, are in all
material respects accurate and complete statements or summaries
of the matters therein set forth. Nothing has come to such
counsel's attention that causes them to believe that such above
described portions of the Registration Statement, at the time
such Registration Statement became effective, contained an untrue
statement of a material fact or omitted to state a material fact
required to be stated therein or necessary to make the statements
therein not misleading, or that such above described portions of
the Prospectus, at the date of the Prospectus contained an untrue
statement of material fact or omitted to state a material fact
required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were
made, not misleading.
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<PAGE> 20
(c) You shall have received at the time of purchase and at the
additional time of purchase, as the case may be, the opinion of [_____],
regulatory counsel to the Company, dated the time of purchase or the
additional time of purchase, as the case may be, to the effect that the
statements in the Registration Statement and the Prospectus referencing
regulatory matters, insofar as such statements constitute summaries of
food and drug regulatory matters with respect to the Company, as of the
date of the Registration Statement and the Prospectus and as of the date
of such opinion, are in all material respects accurate and complete
statements or summaries of the matters therein set forth; and nothing
has come to such counsel's attention that causes such counsel to believe
that the above-described portions of the Registration Statement and the
Prospectus, at the date of the Registration Statement and the Prospectus
or at the date of such opinion, contained or contains an untrue
statement of material fact or omitted or omits to state a material fact
required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading.
(d) You shall have received at the time of purchase and at the
additional time of purchase, as the case may be, the favorable opinion
of Dewey Ballantine LLP, counsel for the Underwriters, dated the time of
purchase or the additional time of purchase, as the case may be, with
respect to the issuance and sale of the Shares by the Company, the
Registration Statement, the Prospectus (together with any supplement
thereto) and such other related matters as the Underwriters may require.
(e) You shall have received from Ernst & Young LLP, letters
dated, respectively, the date of this Agreement and the time of purchase
and additional time of purchase, as the case may be, and addressed to
the Underwriters (with reproduced copies for each of the Underwriters)
in the forms heretofore approved by Dewey Ballantine LLP, counsel for
the Underwriters.
(f) No amendment or supplement to the Registration Statement or
Prospectus shall be filed prior to the time the Registration Statement
becomes effective to which you object in writing.
(g) The Registration Statement shall become effective, or if Rule
430A under the Act is used, the Prospectus shall have been filed with
the Commission pursuant to Rule 424(b) under the Act, at or before 5:30
P.M., New York City time, on the date of this Agreement, unless a later
time (but not later than 5:30 P.M., New York City time, on the second
full business day after the date of this Agreement) shall be agreed to
by the Company and you in writing or by telephone, confirmed in writing;
provided, however, that the Company and you and any group of
Underwriters, including you, who have agreed hereunder to purchase in
the aggregate at least 50% of the Firm Shares may from time to time
agree on a later date.
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<PAGE> 21
(h) Prior to the time of purchase or the additional time of
purchase, as the case may be, (i) no stop order with respect to the
effectiveness of the Registration Statement shall have been issued under
the Act or proceedings initiated under Section 8(d) or 8(e) of the Act;
(ii) the Registration Statement and all amendments thereto, or
modifications thereof, if any, shall not contain an untrue statement of
a material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein not misleading; and
(iii) the Prospectus and all amendments or supplements thereto, or
modifications thereof, if any, shall not contain an untrue statement of
a material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein, in the light of the
circumstances under which they are made, not misleading.
(i) Between the time of execution of this Agreement and the time
of purchase or the additional time of purchase, as the case may be, (i)
no material and unfavorable change, or any development involving a
prospective material and adverse change, financial or otherwise (other
than as specifically identified in the Registration Statement and
Prospectus), in the business, prospects, properties, condition or
results of operations of the Company shall occur or become known and
(ii) no transaction which is material and unfavorable to the Company
shall have been entered into by the Company.
(j) The Company will, at the time of purchase or additional time
of purchase, as the case may be, deliver to you a certificate of its
President and its Chief Financial Officer to the effect that the
representations and warranties of the Company as set forth in this
Agreement are true and correct as of each such date, that the Company
has performed such of their obligations under this Agreement as are to
be performed at or before the time of purchase and at or before the
additional time of purchase, as the case may be, and the conditions set
forth in paragraphs (g), (h) and (i) of this Section 6 have been met.
(k) You shall have received signed letters, dated the date of
this Agreement, from each of the officers and directors of the Company
and all shareholders of the Company agreeing with the Underwriters that
such persons will not sell, offer or agree to sell, contract to sell,
hypothecate, pledge, grant any option to sell or otherwise dispose of,
directly or indirectly, any shares of Common Stock of the Company or
securities convertible into or exchangeable or exercisable for Common
Stock or warrants or other rights to purchase Common Stock or any other
securities of the Company that are substantially similar to the Common
Stock for a period of 180 days after the date of the Prospectus without
UBSW's prior written consent.
(l) The Company shall have furnished to you such other documents
and certificates as to the accuracy and completeness of any statement in
the Registration
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<PAGE> 22
Statement and the Prospectus as of the time of purchase and the
additional time of purchase, as the case may be, as you may reasonably
request.
(m) The Shares shall have been approved for listing for quotation
on NASDAQ, subject only to notice of issuance at or prior to the time of
purchase or the additional time of purchase, as the case may be.
7. Effective Date of Agreement; Termination. This Agreement shall
become effective (i) if Rule 430A under the Act is not used, when you shall have
received notification of the effectiveness of the Registration Statement, or
(ii) if Rule 430A under the Act is used, when the parties hereto have executed
and delivered this Agreement.
The obligations of the several Underwriters hereunder shall be
subject to termination in the absolute discretion of you or any group of
Underwriters (which may include you) which has agreed to purchase in the
aggregate at least 50% of the Firm Shares, (i) if, since the time of execution
of this Agreement or the respective dates as of which information is given in
the Registration Statement and Prospectus, there has been any material adverse
and unfavorable change, or any development involving a prospective material
adverse change, financial or otherwise (other than as specifically identified in
the Registration Statement and Prospectus), in the business, prospects,
properties, condition or results of operations of the Company which would, in
your judgment or in the judgment of such group of Underwriters, make it
impracticable to market the Shares, or, (ii) if, at any time prior to the time
of purchase or, with respect to the purchase of any Additional Shares, the
additional time of purchase, as the case may be, trading in securities on the
New York Stock Exchange, the American Stock Exchange or the Nasdaq National
Market shall have been suspended or limitations or minimum prices shall have
been established on the New York Stock Exchange, the American Stock Exchange or
the Nasdaq National Market, or (iii) if a banking moratorium shall have been
declared either by the United States or New York State authorities, or (iv) if
the United States shall have declared war in accordance with its constitutional
processes or there shall have occurred any material outbreak or escalation of
hostilities or other national or international calamity or crisis of such
magnitude in its effect on the financial markets of the United States as, in
your judgment or in the judgment of such group of Underwriters, to make it
impracticable to market the Shares.
If you or any group of Underwriters elects to terminate this
Agreement as provided in this Section 7, the Company and each other Underwriter
shall be notified promptly by letter or telegram.
If the sale to the Underwriters of the Shares, as contemplated by
this Agreement, is not carried out by the Underwriters for any reason permitted
under this Agreement or if such sale is not carried out because the Company
shall be unable to comply with any of the terms of this Agreement, the Company
shall not be under any obligation or liability under this Agreement (except to
the extent provided in Sections 4(n), 5 and 9 hereof),
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<PAGE> 23
and the Underwriters shall be under no obligation or liability to the Company
under this Agreement (except to the extent provided in Section 9 hereof) or to
one another hereunder.
8. Increase in Underwriters' Commitments. Subject to Sections 6
and 7, if any Underwriter shall default in its obligation to take up and pay for
the Firm Shares to be purchased by it hereunder (otherwise than for a reason
sufficient to justify the termination of this Agreement under the provisions of
Section 7 hereof) and if the number of Firm Shares which all Underwriters so
defaulting shall have agreed but failed to take up and pay for does not exceed
10% of the total number of Firm Shares, the non-defaulting Underwriters shall
take up and pay for (in addition to the aggregate number of Firm Shares they are
obligated to purchase pursuant to Section 1 hereof) the number of Firm Shares
agreed to be purchased by all such defaulting Underwriters, as hereinafter
provided. Such Shares shall be taken up and paid for by such non-defaulting
Underwriter or Underwriters in such amount or amounts as you may designate with
the consent of each Underwriter so designated or, in the event no such
designation is made, such Shares shall be taken up and paid for by all
non-defaulting Underwriters pro rata in proportion to the aggregate number of
Firm Shares set opposite the names of such non-defaulting Underwriters in
Schedule A.
Without relieving any defaulting Underwriter from its obligations
hereunder, the Company agrees with the non-defaulting Underwriters that it will
not sell any Firm Shares hereunder unless all of the Firm Shares are purchased
by the Underwriters (or by substituted Underwriters selected by you with the
approval of the Company or selected by the Company with your approval).
If a new Underwriter or Underwriters are substituted by the
Underwriters or by the Company for a defaulting Underwriter or Underwriters in
accordance with the foregoing provision, the Company or you shall have the right
to postpone the time of purchase for a period not exceeding five business days
in order that any necessary changes in the Registration Statement and Prospectus
and other documents may be effected.
The term Underwriter as used in this Agreement shall refer to and
include any Underwriter substituted under this Section 8 with like effect as if
such substituted Underwriter had originally been named in Schedule A.
If the aggregate number of Shares which the defaulting
Underwriter or Underwriters agreed to purchase exceeds 10% of the total number
of Shares which all Underwriters agreed to purchase hereunder, and if neither
the non-defaulting Underwriters nor the Company shall make arrangements within
the five business day period stated above for the purchase of all the Shares
which the defaulting Underwriter or Underwriters agreed to purchase hereunder,
this Agreement shall be terminated without further act or deed and without any
liability on the part of the Company to any non-defaulting Underwriter and
without any liability on the part of any non-defaulting Underwriter to the
Company. Nothing
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<PAGE> 24
in this paragraph, and no action taken hereunder, shall relieve any defaulting
Underwriter from liability in respect of any default of such Underwriter under
this Agreement.
9. Indemnity and Contribution.
(a) The Company agrees to indemnify, defend and hold harmless
each Underwriter, its partners, directors and officers, and any person who
controls any Underwriter within the meaning of Section 15 of the Act or Section
20 of the Exchange Act, and the successors and assigns of all of the foregoing
persons from and against any loss, damage, expense, liability or claim
(including the reasonable cost of investigation) which, jointly or severally,
any such Underwriter or any such person may incur under the Act, the Exchange
Act, the common law or otherwise, insofar as such loss, damage, expense,
liability or claim arises out of or is based upon (i) any untrue statement or
alleged untrue statement of a material fact contained in the Registration
Statement (or in the Registration Statement as amended by any post-effective
amendment thereof by the Company) or in a Prospectus (the term Prospectus for
the purpose of this Section 9 being deemed to include any Preliminary
Prospectus, the Prospectus and the Prospectus as amended or supplemented by the
Company), or arises out of or is based upon any omission or alleged omission to
state a material fact required to be stated in either such Registration
Statement or Prospectus or necessary to make the statements made therein not
misleading, except insofar as any such loss, damage, expense, liability or claim
arises out of or is based upon any untrue statement or alleged untrue statement
of a material fact contained in and in conformity with information furnished in
writing by or on behalf of any Underwriter through you to the Company expressly
for use with reference to such Underwriter in such Registration Statement or
such Prospectus or arises out of or is based upon any omission or alleged
omission to state a material fact in connection with such information required
to be stated in such Registration Statement or such Prospectus or necessary to
make such information not misleading or (ii) any untrue statement or alleged
untrue statement made by the Company in Section 3 of this Agreement or the
failure by the Company to perform when and as required any agreement or covenant
contained herein or (iii) any untrue statement or alleged untrue statement of
any material fact contained in any audio or visual materials provided by the
Company or based upon written information furnished by or on behalf of the
Company including, without limitation, slides, videos, films, tape recordings,
used in connection with the marketing of the Shares, or (iv) the Directed Share
Program, provided that, the Company shall not be responsible for any loss,
damage, expense, liability, or claim that is finally judicially determined to
have resulted from the bad faith or gross negligence of the Underwriters in
conducting the Directed Share Program.
If any action, suit or proceeding (together, a "Proceeding") is
brought against an Underwriter or any such person in respect of which indemnity
may be sought against the Company pursuant to the foregoing paragraph, such
Underwriter or such person shall promptly notify the Company in writing of the
institution of such Proceeding and the
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<PAGE> 25
Company shall assume the defense of such Proceeding, including the employment of
counsel reasonably satisfactory to such indemnified party and payment of all
fees and expenses; provided, however, that the omission to so notify the Company
shall not relieve the Company from any liability which the Company may have to
any Underwriter or any such person or otherwise. Such Underwriter or such person
shall have the right to employ its or their own counsel in any such case, but
the fees and expenses of such counsel shall be at the expense of such
Underwriter or of such person unless the employment of such counsel shall have
been authorized in writing by the Company in connection with the defense of such
Proceeding or the Company shall not have, within a reasonable period of time in
light of the circumstances, employed counsel to defend such Proceeding or such
indemnified party or parties shall have reasonably concluded that there may be
defenses available to it or them which are different from, additional to or in
conflict with those available to the Company (in which case the Company shall
not have the right to direct the defense of such Proceeding on behalf of the
indemnified party or parties), in any of which events such fees and expenses
shall be borne by the Company and paid as incurred (it being understood,
however, that the Company shall not be liable for the expenses of more than one
separate counsel (in addition to any local counsel) in any one Proceeding or
series of related Proceedings in the same jurisdiction representing the
indemnified parties who are parties to such Proceeding). The Company shall not
be liable for any settlement of any Proceeding effected without the written
consent of the Company but if settled with the written consent of the Company,
the Company agrees to indemnify and hold harmless any Underwriter and any such
person from and against any loss or liability by reason of such settlement.
Notwithstanding the foregoing sentence, if at any time an indemnified party
shall have requested an indemnifying party to reimburse the indemnified party
for fees and expenses of counsel as contemplated by the second sentence of this
paragraph, then the indemnifying party agrees that it shall be liable for any
settlement of any Proceeding effected without its written consent if (i) such
settlement is entered into more than 60 days after receipt by such indemnifying
party of the aforesaid request, (ii) such indemnifying party shall not have
reimbursed the indemnified party in accordance with such request prior to the
date of such settlement and (iii) such indemnified party shall have given the
indemnifying party at least 30 days' prior notice of its intention to settle. No
indemnifying party shall, without the prior written consent of the indemnified
party, effect any settlement of any pending or threatened Proceeding in respect
of which any indemnified party is or could have been a party and indemnity could
have been sought hereunder by such indemnified party, unless such settlement
includes an unconditional release of such indemnified party from all liability
on claims that are the subject matter of such Proceeding and does not include an
admission of fault, culpability or a failure to act, by or on behalf of such
indemnified party.
(b) In connection with the offer and sale of the Reserved Shares,
the Company agrees to pay UBSW, at its request, the full purchase price of all
Reserved Shares which were subject to a properly confirmed agreement to purchase
and for which any Directed Share Participant failed to pay therefor and accept
delivery thereof.
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<PAGE> 26
(c) Each Underwriter severally agrees to indemnify, defend and
hold harmless the Company, its directors and officers, and any person who
controls the Company within the meaning of Section 15 of the Act or Section 20
of the Exchange Act, and the successors and assigns of all of the foregoing
persons from and against any loss, damage, expense, liability or claim
(including the reasonable cost of investigation) which, jointly or severally,
the Company or any such person may incur under the Act, the Exchange Act, the
common law or otherwise, insofar as such loss, damage, expense, liability or
claim arises out of or is based upon any untrue statement or alleged untrue
statement of a material fact contained in and in conformity with information
furnished in writing by or on behalf of such Underwriter through you to the
Company expressly for use with reference to such Underwriter in the Registration
Statement (or in the Registration Statement as amended by any post-effective
amendment thereof by the Company) or in a Prospectus, or arises out of or is
based upon any omission or alleged omission to state a material fact in
connection with such information required to be stated in such Registration
Statement or such Prospectus or necessary to make such information not
misleading.
If any Proceeding is brought against the Company or any such
person in respect of which indemnity may be sought against any Underwriter
pursuant to the foregoing paragraph, the Company or such person shall promptly
notify such Underwriter in writing of the institution of such Proceeding and
such Underwriter shall assume the defense of such Proceeding, including the
employment of counsel reasonably satisfactory to such indemnified party and
payment of all fees and expenses; provided, however, that the omission to so
notify such Underwriter shall not relieve such Underwriter from any liability
which such Underwriter may have to the Company or any such person or otherwise.
The Company or such person shall have the right to employ its own counsel in any
such case, but the fees and expenses of such counsel shall be at the expense of
the Company or such person unless the employment of such counsel shall have been
authorized in writing by such Underwriter in connection with the defense of such
Proceeding or such Underwriter shall not have, within a reasonable period of
time in light of the circumstances, employed counsel to have charge of the
defense of such Proceeding or such indemnified party or parties shall have
reasonably concluded that there may be defenses available to it or them which
are different from or additional to or in conflict with those available to such
Underwriter (in which case such Underwriter shall not have the right to direct
the defense of such Proceeding on behalf of the indemnified party or parties,
but such Underwriter may employ counsel and participate in the defense thereof
but the fees and expenses of such counsel shall be at the expense of such
Underwriter), in any of which events such fees and expenses shall be borne by
such Underwriter and paid as incurred (it being understood, however, that such
Underwriter shall not be liable for the expenses of more than one separate
counsel (in addition to any local counsel) in any one Proceeding or series of
related Proceedings in the same jurisdiction representing the indemnified
parties who are parties to such Proceeding). No Underwriter shall be liable for
any settlement of any such Proceeding effected without the written consent of
such Underwriter but if settled with the written consent of such Underwriter,
such
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<PAGE> 27
Underwriter agrees to indemnify and hold harmless the Company and any such
person from and against any loss or liability by reason of such settlement.
Notwithstanding the foregoing sentence, if at any time an indemnified party
shall have requested an indemnifying party to reimburse the indemnified party
for fees and expenses of counsel as contemplated by the second sentence of this
paragraph, then the indemnifying party agrees that it shall be liable for any
settlement of any Proceeding effected without its written consent if (i) such
settlement is entered into more than 60 days after receipt by such indemnifying
party of the aforesaid request, (ii) such indemnifying party shall not have
reimbursed the indemnified party in accordance with such request prior to the
date of such settlement and (iii) such indemnified party shall have given the
indemnifying party at least 30 days' prior notice of its intention to settle. No
indemnifying party shall, without the prior written consent of the indemnified
party, effect any settlement of any pending or threatened Proceeding in respect
of which any indemnified party is or could have been a party and indemnity could
have been sought hereunder by such indemnified party, unless such settlement
includes an unconditional release of such indemnified party from all liability
on claims that are the subject matter of such Proceeding.
(d) If the indemnification provided for in this Section 9 is
unavailable to an indemnified party under subsections (a), (b) or (c) of this
Section 9 in respect of any losses, damages, expenses, liabilities or claims
referred to therein, then each applicable indemnifying party, in lieu of
indemnifying such indemnified party, shall contribute to the amount paid or
payable by such indemnified party as a result of such losses, damages, expenses,
liabilities or claims (i) in such proportion as is appropriate to reflect the
relative benefits received by the Company on the one hand and the Underwriters
on the other hand from the offering of the Shares or (ii) if the allocation
provided by clause (i) above is not permitted by applicable law, in such
proportion as is appropriate to reflect not only the relative benefits referred
to in clause (i) above but also the relative fault of the Company on the one
hand and of the Underwriters on the other in connection with the statements or
omissions which resulted in such losses, damages, expenses, liabilities or
claims, as well as any other relevant equitable considerations. The relative
benefits received by the Company on the one hand and the Underwriters on the
other shall be deemed to be in the same respective proportions as the total
proceeds from the offering (net of underwriting discounts and commissions but
before deducting expenses) received by the Company and the total underwriting
discounts and commissions received by the Underwriters, bear to the aggregate
public offering price of the Shares. The relative fault of the Company on the
one hand and of the Underwriters on the other shall be determined by reference
to, among other things, whether the untrue statement or alleged untrue statement
of a material fact or omission or alleged omission relates to information
supplied by the Company or by the Underwriters and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
statement or omission. The amount paid or payable by a party as a result of the
losses, damages, expenses, liabilities and claims referred to in this subsection
shall be deemed to include any legal or
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<PAGE> 28
other fees or expenses reasonably incurred by such party in connection with
investigating, preparing to defend or defending any Proceeding.
(e) The Company and the Underwriters agree that it would not be
just and equitable if contribution pursuant to this Section 9 were determined by
pro rata allocation (even if the Underwriters were treated as one entity for
such purpose) or by any other method of allocation that does not take account of
the equitable considerations referred to in subsection (c) above.
Notwithstanding the provisions of this Section 9, no Underwriter shall be
required to contribute any amount in excess of the amount by which the total
price at which the Shares underwritten by such Underwriter and distributed to
the public were offered to the public exceeds the amount of any damage which
such Underwriter has otherwise been required to pay by reason of such untrue
statement or alleged untrue statement or omission or alleged omission. No person
guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of
the Act) shall be entitled to contribution from any person who was not guilty of
such fraudulent misrepresentation. The Underwriters' obligations to contribute
pursuant to this Section 9 are several in proportion to their respective
underwriting commitments and not joint.
(f) The indemnity and contribution agreements contained in this
Section 9 and the covenants, warranties and representations of the Company
contained in this Agreement shall remain in full force and effect regardless of
any investigation made by or on behalf of any Underwriter, its partners,
directors or officers or any person (including each partner, officer or director
of such person) who controls any Underwriter within the meaning of Section 15 of
the Act or Section 20 of the Exchange Act, or by or on behalf of the Company its
directors or officers or any person who controls the Company within the meaning
of Section 15 of the Act or Section 20 of the Exchange Act, and shall survive
any termination of this Agreement or the issuance and delivery of the Shares.
The Company and each Underwriter agree promptly to notify each other of the
commencement of any Proceeding against it and, in the case of the Company,
against any of the Company's officers or directors in connection with the
issuance and sale of the Shares, or in connection with the Registration
Statement or Prospectus.
10. Notices. Except as otherwise herein provided, all statements,
requests, notices and agreements shall be in writing or by telegram and, if to
the Underwriters, shall be sufficient in all respects if delivered or sent to
UBS Warburg LLC, 299 Park Avenue, New York, NY 10171-0026, Attention: Syndicate
Department and, if to the Company, shall be sufficient in all respects if
delivered or sent to the Company at the offices of the Company at 1190 Borregas
Avenue, Sunnyvale, CA, 94089-1302, Attention: President.
11. Governing Law; Construction. This Agreement and any claim,
counterclaim or dispute of any kind or nature whatsoever arising out of or in
any way relating to this Agreement ("Claim"), directly or indirectly, shall be
governed by, and construed in accordance with, the laws of the State of New
York. The Section headings in this Agreement
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<PAGE> 29
have been inserted as a matter of convenience of reference and are not a part of
this Agreement.
12. Submission to Jurisdiction. Except as set forth below, no
Claim may be commenced, prosecuted or continued in any court other than the
courts of the State of New York located in the City and County of New York or in
the United States District Court for the Southern District of New York, which
courts shall have jurisdiction over the adjudication of such matters, and the
Company consents to the jurisdiction of such courts and personal service with
respect thereto. The Company hereby consents to personal jurisdiction, service
and venue in any court in which any Claim arising out of or in any way relating
to this Agreement is brought by any third party against UBSW or any indemnified
party. Each of UBSW and the Company (on their respective behalfs and, to the
extent permitted by applicable law, on behalf of their respective shareholders
and affiliates) waives all right to trial by jury in any action, proceeding or
counterclaim (whether based upon contract, tort or otherwise) in any way arising
out of or relating to this Agreement. The Company agrees that a final judgment
in any such action, proceeding or counterclaim brought in any such court shall
be conclusive and binding upon the Company and may be enforced in any other
courts in the jurisdiction of which the Company is or may be subject, by suit
upon such judgment.
13. Parties at Interest. The Agreement herein set forth has been
and is made solely for the benefit of the Underwriters and the Company and to
the extent provided in Section 9 hereof the controlling persons, directors and
officers referred to in such section, and their respective successors, assigns,
heirs, personal representatives and executors and administrators. No other
person, partnership, association or corporation (including a purchaser, as such
purchaser, from any of the Underwriters) shall acquire or have any right under
or by virtue of this Agreement.
14. Counterparts. This Agreement may be signed by the parties in
one or more counterparts which together shall constitute one and the same
agreement among the parties.
15. Successors and Assigns. This Agreement shall be binding upon
the Underwriters, the Company and their successors and assigns and any successor
or assign of any substantial portion of the Company's, and any of the
Underwriters' respective businesses and/or assets.
16. Miscellaneous. UBSW, an indirect, wholly owned subsidiary of
UBS AG, is not a bank and is separate from any affiliated bank, including any
U.S. branch or agency of UBS AG. Because UBSW is a separately incorporated
entity, it is solely responsible for its own contractual obligations and
commitments, including obligations with respect to sales and purchases of
securities. Securities sold, offered or recommended by UBSW are not deposits,
are not insured by the Federal Deposit Insurance Corporation, are not
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<PAGE> 30
guaranteed by a branch or agency, and are not otherwise an obligation or
responsibility of a branch or agency.
A lending affiliate of UBSW may have lending relationships with
issuers of securities underwritten or privately placed by UBSW. To the extent
required under the securities laws, prospectuses and other disclosure documents
for securities underwritten or privately placed by UBSW will disclose the
existence of any such lending relationships and whether the proceeds of the
issue will be used to repay debts owed to affiliates of UBSW.
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<PAGE> 31
If the foregoing correctly sets forth the understanding among the
Company and the Underwriters, please so indicate in the space provided below for
the purpose, whereupon this letter and your acceptance shall constitute a
binding agreement among the Company and the Underwriters, severally.
Very truly yours,
CEPHEID
By:
-------------------------------
Name:
Title:
Accepted and agreed to as of the date first above written, on behalf of
themselves and the other several Underwriters named in Schedule A
UBS WARBURG LLC
PRUDENTIAL VECTOR HEALTHCARE
INVEMED ASSOCIATES
By: UBS WARBURG LLC
By:
--------------------------------------
Name:
Title: [_____]
By:
--------------------------------------
Name:
Title: [_____]
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<PAGE> 32
SCHEDULE A
<TABLE>
<CAPTION>
Number of
Underwriter Firm Shares
- ----------- -----------
<S> <C>
UBS WARBURG LLC.....................................................
PRUDENTIAL VECTOR HEALTHCARE........................................
INVEMED ASSOCIATES..................................................
Total........................
===========
</TABLE>
<PAGE> 1
EXHIBIT 3.2
AMENDED AND RESTATED BYLAWS
OF
CEPHEID
- --------------------------------------------------------------------------------
ARTICLE I.
SHAREHOLDERS
SECTION 1. ANNUAL MEETING.
(1) An annual meeting of the shareholders, for the election of directors
to succeed those whose terms expire and for the transaction of such other
business as may properly come before the meeting, shall be held at such place,
on such date, and at such time as the Board of Directors shall each year fix.
(2) Nominations of persons for election to the Board of Directors of the
Corporation and the proposal of business to be considered by the shareholders
may be made at an annual meeting of shareholders (a) pursuant to the
Corporation's notice of meeting, (b) by or at the direction of the Board of
Directors or (c) by any shareholder of the Corporation who was a shareholder of
record at the time of giving of the notice provided for in this Bylaw, who is
entitled to vote at the meeting and who complied with the notice procedures set
forth in this Bylaw.
(3) For nominations or other business to be properly brought before an
annual meeting by a shareholder pursuant to clause (c) of paragraph (2) of this
Bylaw, the shareholder must have given timely notice thereof in writing to the
Secretary of the Corporation. To be timely, a shareholder's notice shall be
delivered to the Secretary at the principal executive offices of the Corporation
not less than 120 days prior to the first anniversary of the preceding year's
annual meeting; provided, however, that in the event that the date of the annual
meeting is advanced by more than 30 days or delayed by more than 60 days from
such anniversary date, notice by the shareholder to be timely must be so
delivered not earlier than the 150th day prior to such annual meeting and not
later than the close of business on the later of (i) the 90th day prior to such
annual meeting or (ii) the 10th day following the day on which public
announcement of the date of such meeting is first made; and provided further
that if no annual meeting was held in the previous year, notice by the
shareholder to be timely must be so received a reasonable time before the
Corporation's notice of annual meeting is mailed or sent to shareholders. Such
shareholder's notice shall set forth (a) as to each person whom the shareholder
proposes to nominate for election or reelection as a director all information
relating to such person that is required to be disclosed in solicitations of
proxies for election of directors, or is otherwise required, in each case
pursuant to Regulation 14A under the Securities
<PAGE> 2
Exchange Act of 1934, as amended (the "Exchange Act") (including such person's
written consent to being named in the proxy statement as a nominee and to
serving as a director if elected); (b) as to any other business that the
shareholder proposes to bring before the meeting, a brief description of the
business desired to be brought before the meeting, the reasons for conducting
such business at the meeting and any material interest in such business of such
shareholder and the beneficial owner, if any, on whose behalf the proposal is
made; and (c) as to the shareholder giving the notice and the beneficial owner,
if any, on whose behalf the nomination or proposal is made (i) the name and
address of such shareholder, as they appear on the Corporation's books, and of
such beneficial owner and (ii) the class and number of shares of the Corporation
which are owned beneficially and of record by such shareholder and such
beneficial owner.
(4) Notwithstanding anything in the second sentence of paragraph (3) of
this Bylaw to the contrary, in the event that the number of directors to be
elected to the Board of Directors of the Corporation is increased and there is
no public announcement naming all of the nominees for director or specifying the
size of the increased Board of Directors made by the Corporation at least 100
days prior to the first anniversary of the preceding year's annual meeting, a
shareholder's notice required by this Bylaw shall also be considered timely, but
only with respect to nominees for any new positions created by such increase, if
it shall be delivered to the Secretary at the principal executive offices of the
Corporation not later than the close of business on the 10th day following the
day on which such public announcement is first made by the corporation.
(5) Only such persons who are nominated in accordance with the
procedures set forth in these Bylaws shall be eligible to serve as directors and
only such business shall be conducted at an annual meeting of shareholders as
shall have been brought before the meeting in accordance with the procedures set
forth in these Bylaws. The chairman of the meeting shall have the power and duty
to determine whether a nomination or any business proposed to be brought before
the meeting was made in accordance with the procedures set forth in these
Bylaws. The chairman of the meeting shall have the power and duty to determine
whether a nomination or any business proposed to be brought before the meeting
was made in accordance with the procedures set forth in these Bylaws and, if any
proposed nomination or business is not in compliance with these Bylaws, to
declare that such defective proposed business or nomination shall be
disregarded.
(6) For purposes of these Bylaws, "public announcement" shall mean
disclosure in a press release reported by the Dow Jones News Service, Associated
Press or a comparable national news service or in a document publicly filed by
the Corporation with the Securities and Exchange Commission pursuant to Section
13, 14 or 15(d) of the Exchange Act.
(7) Notwithstanding the foregoing provisions of this Bylaw, a
shareholder shall also comply with all applicable requirements of the Exchange
Act and the rules and
2
<PAGE> 3
regulations thereunder with respect to the matters set forth in this Bylaw.
Nothing in this Bylaw shall be deemed to affect any rights of shareholders to
request inclusion of proposals in the Corporation's proxy statement pursuant to
Rule 14a 8 under the Exchange Act.
SECTION 2. SPECIAL MEETINGS: NOTICE.
Special meetings of the shareholders, other than those required by
statute, may be called at any time by the Board of Directors pursuant to a
resolution approved by a majority of the whole Board of Directors. Notice of
every special meeting, stating the time, place and purpose, shall be given by
mailing, postage prepaid, at least 10 but not more than 60 days before each such
meeting, a copy of such notice addressed to each shareholder of the Corporation
at his post office address as recorded on the books of the Corporation. The
Board of Directors may postpone or reschedule any previously scheduled special
meeting.
Only such business shall be conducted at a special meeting of shareholders
as shall have been brought before the meeting pursuant to the Corporation's
notice of meeting.
SECTION 3. NOTICE OF MEETINGS.
Written notice of the place, date, and time of all meetings of the
shareholders shall be given, not less than 10 nor more than 60 days before the
date on which the meeting is to be held, to each shareholder entitled to vote at
such meeting, except as otherwise provided herein or required by law (meaning,
here and hereinafter, as required from time to time by the General Corporation
Law of the State of California or the Corporation's Articles of Incorporation).
Written notice of any meeting of shareholders, if mailed, is given when
deposited in the United States mail, postage prepaid, directed to the
shareholder at such shareholder's address as it appears on the records of the
Corporation. An affidavit of the Secretary or an Assistant Secretary or of the
transfer agent of the Corporation that the notice has been given shall, in the
absence of fraud, be prima facie evidence of the facts stated therein.
When a meeting is adjourned to another place, date or time, written notice
need not be given of the adjourned meeting if the place, date and time thereof
are announced at the meeting at which the adjournment is taken; provided,
however, that if the date of any adjourned meeting is more than 30 days after
the date for which the meeting was originally noticed, or if a new record date
is fixed for the adjourned meeting, written notice of the place, date, and time
of the adjourned meeting shall be given in conformity herewith. At any adjourned
meeting, any business may be transacted which might have been transacted at the
original meeting.
3
<PAGE> 4
SECTION 4. QUORUM.
At any meeting of the shareholders, the holders of a majority of all of
the shares of the stock entitled to vote at the meeting, present in person or by
proxy, shall constitute a quorum for all purposes, unless or except to the
extent that the presence of a larger number may be required by law. Where a
separate vote by a class or classes is required, a majority of the shares of
such class or classes present in person or represented by proxy shall constitute
a quorum entitled to take action with respect to that vote on that matter.
If a quorum shall fail to attend any meeting, the chairman of the meeting
may adjourn the meeting to another place, date, or time.
SECTION 5. ORGANIZATION.
Such person as the Board of Directors may have designated or, in the
absence of such a person, the Chairman of the Board or, in his or her absence,
the Chief Executive Officer of the Corporation or, in his or her absence, such
person as may be chosen by the holders of a majority of the shares entitled to
vote who are present, in person or by proxy, shall call to order any meeting of
the shareholders and act as chairman of the meeting. In the absence of the
Secretary of the Corporation, the secretary of the meeting shall be such person
as the chairman appoints.
SECTION 6. CONDUCT OF BUSINESS.
The chairman of any meeting of shareholders shall determine the order of
business and the procedure at the meeting, including such regulation of the
manner of voting and the conduct of discussion as seem to him or her in order.
The chairman shall have the power to adjourn the meeting to another place, date
and time. The date and time of the opening and closing of the polls for each
matter upon which the shareholders will vote at the meeting shall be announced
at the meeting.
SECTION 7. PROXIES AND VOTING.
At any meeting of the shareholders, every shareholder entitled to vote may
vote in person or by proxy authorized by an instrument in writing or by a
transmission permitted by law filed in accordance with the procedure established
for the meeting. Any copy, facsimile telecommunication or other reliable
reproduction of the writing or transmission created pursuant to this paragraph
may be substituted or used in lieu of the original writing or transmission for
any and all purposes for which the original writing or transmission could be
used, provided that such copy, facsimile telecommunication or other reproduction
shall be a complete reproduction of the entire original writing or transmission.
A proxy must bear a date within 11 months prior to the meeting, unless the proxy
specifies a different length of time. A revocable proxy is revoked by a writing
4
<PAGE> 5
delivered to the Secretary of the corporation stating that the proxy is revoked
or by a subsequent proxy executed by, or by attendance at the meeting and voting
in person by, the person executing the proxy.
All voting, including on the election of directors but excepting where
otherwise required by law, may be by a voice vote; provided, however, that upon
demand therefore by a shareholder entitled to vote or by his or her proxy, a
stock vote shall be taken. Every stock vote shall be taken by ballots, each of
which shall state the name of the shareholder or proxy voting and such other
information as may be required under the procedure established for the meeting.
The Corporation may, and to the extent required by law, shall, in advance
of any meeting of shareholders, appoint one or more inspectors to act at the
meeting and make a written report thereof. The Corporation may designate one or
more persons as alternate inspectors to replace any inspector who fails to act.
If no inspector or alternate is able to act at a meeting of shareholders, the
person presiding at the meeting may, and to the extent required by law, shall,
appoint one or more inspectors to act at the meeting. Each inspector, before
entering upon the discharge of his duties, shall take and sign an oath
faithfully to execute the duties of inspector with strict impartiality and
according to the best of his ability. Every vote taken by ballots shall be
counted by a duly appointed inspector or inspectors.
All elections shall be determined by a plurality of the votes cast, and
except as otherwise required by law, all other matters shall be determined by a
majority of the votes cast affirmatively or negatively.
SECTION 8. ELECTION INSPECTORS.
One or three election inspectors may be appointed by the Board of
Directors in advance of a meeting of shareholders or at the meeting by the
chairman of the meeting. If not previously chosen, one or three inspectors shall
be appointed by the chairman of the meeting if a shareholder or proxyholder so
requests. When inspectors are appointed at the request of a shareholder or
proxyholder, the majority of shares represented in person or by proxy shall
determine whether one or three inspectors shall be chosen. The election
inspectors shall determine all questions concerning the existence of a quorum
and the right to vote, shall tabulate and determine the results of voting and
shall do all other acts necessary or helpful to the expeditious and impartial
conduct of the vote. If there are three inspectors, the decision, act or
certificate of a majority of the inspectors is effective as if made by all.
5
<PAGE> 6
SECTION 9. STOCK LIST.
A complete list of shareholders entitled to vote at any meeting of
shareholders, arranged in alphabetical order for each class of stock and showing
the address of each such shareholder and the number of shares registered in his
or her name, shall be open to the examination of any such shareholder, for any
purpose germane to the meeting, during ordinary business hours for a period of
at least 10 days prior to the meeting, either at a place within the city where
the meeting is to be held, which place shall be specified in the notice of the
meeting, or if not so specified, at the place where the meeting is to be held.
The stock list shall also be kept at the place of the meeting during the
whole time thereof and shall be open to the examination of any such shareholder
who is present. This list shall presumptively determine the identity of the
shareholders entitled to vote at the meeting and the number of shares held by
each of them.
SECTION 10. WAIVER OF NOTICE.
Whenever notice is required to be given under any provision of the General
Corporation Law of the State of California or of the Articles of Incorporation
or these Bylaws, a written waiver, signed by the person entitled to notice,
whether before or after the time stated therein, shall be deemed equivalent to
notice. Attendance of a person at a meeting shall constitute a waiver of notice
of such meeting, except when the person attends a meeting for the express
purpose of objecting, at the beginning of the meeting, to the transaction of any
business because the meeting is not lawfully called or convened. Neither the
business to be transacted at, nor the purpose of, any regular or special meeting
of the shareholders, directors, or members of a committee of directors need be
specified in any written waiver of notice unless so required by the Articles of
Incorporation or these Bylaws.
SECTION 11. CERTIFICATES OF STOCK.
Each shareholder shall be entitled to a certificate signed by, or in the
name of the Corporation by, the President or a Vice President, and by the
Secretary or an Assistant Secretary, or the Treasurer or an Assistant Treasurer,
certifying the number of shares owned by him or her. Any or all of the
signatures on the certificate may be by facsimile.
SECTION 12. TRANSFERS OF STOCK.
Transfers of stock shall be made only upon the transfer books of the
Corporation kept at an office of the Corporation or by transfer agents
designated to transfer shares of the stock of the Corporation. Except where a
certificate is issued in accordance with Section 14 of Article I of these
Bylaws, an outstanding certificate for the number of
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shares involved shall be surrendered for cancellation before a new certificate
is issued therefor.
SECTION 13. RECORD DATE.
In order that the Corporation may determine the shareholders entitled to
notice of or to vote at any meeting of shareholders, or to receive payment of
any dividend or other distribution or allotment of any rights or to exercise any
rights in respect of any change, conversion or exchange of stock or for the
purpose of any other lawful action, the Board of Directors may, except as
otherwise required by law, fix a record date for the determination of the
shareholders entitled to notice of any meeting, to vote, to receive any dividend
or other distribution or allotment of rights or to exercise any rights. The
record date shall be not more than 60 nor less than 10 days prior to the date of
the meeting nor more than 60 days prior to such other action. If no record date
is fixed, the record date for determining shareholders entitled to notice of or
to vote at a meeting of shareholders shall be at the close of business on the
business day next preceding the day on which notice is given, or, if notice is
waived, the close of business on the business day next preceding the day on
which the meeting is held. Except as otherwise provided by law, when a record
date is fixed, as provided herein, only shareholders on the record date are
entitled to notice and to vote, to receive the dividend, distribution or
allotment of rights or to exercise rights, as the case may be, notwithstanding
any transfer of shares on the books of the corporation occurring after the
record date. Except as otherwise provided by law, the corporation shall be
entitled to treat the holder of record of any shares as the holder in fact of
such shares and shall not be bound to recognize any equitable or other claim to
or interest in such shares on the part of any other person, whether or not the
corporation shall have express or other notice of such claim or interest. A
determination of shareholders of record entitled to notice of or to vote at a
meeting of shareholders shall apply to any adjournment of the meeting unless the
Board of Directors fixes a new record date. The Board of Directors shall fix a
new record date if the adjourned meeting takes place more than 45 days after the
date set for the original meeting.
SECTION 14. LOST, STOLEN OR DESTROYED CERTIFICATES.
In the event of the loss, theft or destruction of any certificate of
stock, another may be issued in its place pursuant to such regulations as the
Board of Directors may establish concerning proof of such loss, theft or
destruction and concerning the giving of a satisfactory bond or bonds of
indemnity.
SECTION 15. REGULATIONS.
The issue, transfer, conversion and registration of certificates of stock
shall be governed by such other regulations as the Board of Directors may
establish.
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ARTICLE II.
BOARD OF DIRECTORS
SECTION 1. NUMBER.
The authorized number of directors of this corporation shall be no less
than five or more than nine, with the exact number of directors within the
variable range to be set by resolution of the Board of Directors. An amendment
reducing the minimum number of directors to a number less than five cannot be
adopted if the votes cast against its adoption at a meeting of the shareholders,
or the shares not consenting in the case of action by written consent, are equal
to more than 16-2/3% of the outstanding shares entitled to vote. No amendment
may change the maximum number of authorized directors to a number greater than
two times the minimum number of directors minus one.
SECTION 2. ELECTION AND TERM.
Directors shall be elected pursuant to the Articles of Incorporation. At
each annual meeting of shareholders, directors up for election shall be elected
to hold office until the expiration of their term as set forth in the Articles
of Incorporation. Each director, including a director elected to fill a vacancy,
shall hold office until the expiration of the term for which the director was
elected and until a successor has been elected. The Board of Directors may
declare vacant the office of any director who has been declared to be of unsound
mind by court order or convicted of a felony. Vacancies on the Board of
Directors not caused by removal may be filled by a majority of the directors
then in office, regardless of whether they constitute a quorum, or by a sole
remaining director. The shareholders may elect a director at any time to fill
any vacancy not filled, or which cannot be filled, by the Board of Directors. No
reduction in the authorized number of directors shall have the effect of
removing any director prior to the expiration of his term of office.
SECTION 3. REMOVAL.
Except as described below, any or all of the directors may be removed
without cause if such removal is approved by the affirmative vote or written
consent of a majority of the outstanding shares entitled to vote. Unless the
entire Board of Directors is so removed, no director may be removed if (i) the
votes cast against removal, or not consenting in writing to such removal in the
case of written consent, would be sufficient to elect such director if voted
cumulatively at an election at which the same total number of votes was cast or,
if such action is taken by written consent, all shares entitled to vote were
voted and (ii) the entire number of directors authorized at the time of the
director's most recent election were then being elected.
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SECTION 4. RESIGNATION.
Any director may resign by giving notice to the Chairman of the Board, the
President, the Secretary or the Board of Directors. The resignation of a
director shall be effective when given unless the director specifies a later
time. The resignation shall be effective regardless of whether it is accepted by
the Corporation.
SECTION 5. NEWLY CREATED DIRECTORSHIPS AND VACANCIES.
Subject to applicable law and to the rights of the holders of any series
of preferred stock with respect to such series of preferred stock, and unless
the Board of Directors otherwise determines, newly created directorships
resulting from any increase in the authorized number of directors or any
vacancies on the Board of Directors resulting from death, resignation,
retirement, disqualification, removal from office or other cause shall be filled
only by a majority vote of the directors then in office, though less than a
quorum, and directors so chosen shall hold office until such director's
successor shall have been duly elected and qualified. No decrease in the number
of authorized directors constituting the entire Board of Directors shall shorten
the term of any incumbent director.
SECTION 6. POWERS.
Subject to the limitations imposed by law or contained in the Articles of
Incorporation, the business and affairs of the corporation shall be managed and
all corporate powers shall be exercised by or under the ultimate direction of
the Board of Directors. The Board of Directors may, except as otherwise required
by law, exercise all such powers and do all such acts and things as may be
exercised or done by the Corporation, including, without limiting the generality
of the foregoing, the unqualified power:
(a) To declare dividends from time to time in accordance with law;
(b) To purchase or otherwise acquire any property, rights or privileges
on such terms as it shall determine;
(c) To authorize the creation, making and issuance, in such form as it
may determine, of written obligations of every kind, negotiable or non
negotiable, secured or unsecured, and to do all things necessary in connection
therewith;
(d) To remove any officer of the Corporation with or without cause, and
from time to time to devolve the powers and duties of any officer upon any other
person for the time being;
(e) To confer upon any officer of the Corporation the power to appoint,
remove and suspend subordinate officers, employees and agents;
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(f) To adopt from time to time such stock option, stock purchase, bonus
or other compensation plans for directors, officers, employees and agents of the
Corporation and its subsidiaries as it may determine;
(g) To adopt from time to time such insurance, retirement, and other
benefit plans for directors, officers, employees and agents of the Corporation
and its subsidiaries as it may determine; and,
(h) To adopt from time to time regulations, not inconsistent with these
Bylaws, for the management of the Corporation's business and affairs.
SECTION 7. INSPECTION OF RECORDS AND PROPERTIES.
Each director may inspect all books, records, documents and physical
properties of the corporation and its subsidiaries at any reasonable time.
Inspections may be conducted either by the director or the director's agent or
attorney. The right of inspection includes the right to copy and make extracts.
SECTION 8. TIME AND PLACE OF MEETINGS AND TELEPHONE MEETINGS.
Unless the Board of Directors determines otherwise, the Board shall hold a
regular meeting during each quarter of the corporation's fiscal year. One such
meeting shall take place immediately following the annual meeting of
shareholders. All meetings of directors shall be held at the principal executive
office of the corporation or at such other place, within or without California,
as shall be designated in the notice of the meeting or in a resolution of the
Board of Directors. Directors may participate in a meeting through use of
conference telephone, electronic video screen communication or other
communications equipment, provided that all of the following apply:
(a) each member participating in the meeting can communicate with all of
the other members concurrently; and
(b) each member is provided the means of participating in all matters
before the board, including the capacity to propose, or to interpose an
objection to, a specific action to be taken by the corporation; and
(c) the corporation adopts and implements some means of verifying both
of the following:
(i) a person communicating by telephone, electronic video screen,
or other communications equipment is a director entitled to participate in
the board meeting; and
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(ii) all statements, questions, actions, or votes were made by that
director and not by another person not permitted to participate as a
director.
SECTION 9. CALL.
Meetings of the Board of Directors, whether regular or special, may be
called by the Chairman of the Board, the President, the Secretary, any Vice
President or any two directors.
SECTION 10. NOTICE.
Regular meetings of the Board of Directors may be held without notice if
the time and the place of such meetings has been fixed by the Bylaws or the
Board. Special meetings shall be held upon four days, notice by mail or 48
hours, notice delivered personally or by telephone, including a voice messaging
system or other system or technology designed to record and communicate
messages, telegraph, facsimile, electronic mail or other electronic means and
regular meetings shall be held upon similar notice if notice is required for
such meetings. A notice or waiver of notice need not specify the purpose of any
regular or special meeting. Notice of the time and place of holding an adjourned
meeting need not be given to absent directors if the time and place of the
adjourned meeting is announced at the meeting at which the adjournment is taken,
but if a meeting is adjourned for more than 24 hours, notice of the adjourned
meeting shall be given prior to the time of such meeting to the directors who
were not present at the time of the adjournment.
SECTION 11. MEETING WITHOUT REGULAR CALL AND NOTICE.
The transactions of any meeting of the Board of Directors, however called
and noticed or wherever held, are as valid as though had at a meeting duly held
after regular call and notice if a quorum is present and if, either before or
after the meeting, each of the directors not present signs a written waiver of
notice, a consent to the holding of the meeting or an approval of the minutes of
the meeting. For such purposes, a director shall not be considered present at a
meeting if, although in attendance at the meeting, the director protests the
lack of notice prior to the meeting or at its commencement.
SECTION 12. CONDUCT OF BUSINESS; ACTION WITHOUT MEETING.
At any meeting of the Board of Directors, business shall be transacted in
such order and manner as the Board may from time to time determine, and all
matters shall be determined by the vote of a majority of the directors present,
except as otherwise provided herein or required by law. Action may be taken by
the Board of Directors without a meeting if all members thereof consent thereto
in writing, and the writing or writings are filed with the minutes of
proceedings of the Board of Directors.
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SECTION 13. QUORUM AND REQUIRED VOTE.
A majority of the directors then in office shall constitute a quorum for
the transaction of business, provided that, unless the authorized number of
directors is one, the number constituting a quorum shall not be less than the
greater of one-third of the authorized number of directors or two directors.
Subject to the provisions of Section 310 (relating to certain transactions
involving interested directors) and Section 317(e) (relating to indemnification
of corporate agents) of the California Corporations Code, every act or decision
done or made by a majority of the directors present at a meeting duly held at
which a quorum is present is the act of the Board. A meeting at which a quorum
is initially present may continue to transact business notwithstanding the
withdrawal of directors, if any action taken is approved by at least a majority
of the required quorum for such meeting. A majority of the directors present at
a meeting, whether or not a quorum is present, may adjourn the meeting to
another time and place.
SECTION 14. WAIVER OF NOTICE.
Whenever notice is required to be given under any provision of the General
Corporation Law of the State of California, the Articles of Incorporation, or
these Bylaws, a written waiver thereof, signed by the person entitled to notice,
whether before or after the time stated therein, shall be deemed equivalent to
notice. Attendance of a person at a meeting shall constitute a waiver of notice
of such meeting, except when such person attends a meeting for the express
purpose of objecting, at the beginning of the meeting, to the transaction of any
business because the meeting is not lawfully called or convened. Neither the
business to be transacted at, nor the purpose of, any regular or special meeting
of the directors, or members of a committee of directors, need be specified in
any written waiver of notice unless so required by the Articles of Incorporation
or these Bylaws.
SECTION 15. COMPENSATION OF DIRECTORS.
Unless otherwise restricted by the Articles of Incorporation, the Board of
Directors shall have the authority to fix the compensation of the directors. The
directors may be paid their expenses, if any, of attendance at each meeting of
the Board of Directors and may be paid a fixed sum for attendance at the meeting
of the Board of Directors or paid a stated salary or paid other compensation as
director. No such payment shall preclude any director from serving the
Corporation in any other capacity and receiving compensation therefor. Members
of special or standing committees may be allowed like compensation for attending
committee meetings.
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ARTICLE III.
COMMITTEES
SECTION 1. COMMITTEES OF THE BOARD OF DIRECTORS.
The Board of Directors, by a vote of a majority of the whole Board, may
from time to time designate committees of the Board, each consisting of two or
more directors, and with such lawfully delegable powers and duties as it thereby
confers, to serve at the pleasure of the Board and shall, for those committees
and any others provided for herein, elect a director or directors to serve as
the member or members, designating, if it desires, other directors as alternate
members who may replace any absent or disqualified member at any meeting of the
committee. In the absence or disqualification of any member of any committee and
any alternate member in his or her place, the member or members of the committee
present at the meeting and not disqualified from voting, whether or not he or
she or they constitute a quorum, may by unanimous vote appoint another member of
the Board of Directors to act at the meeting in the place of the absent or
disqualified member. To the extent permitted by the resolution of the Board of
Directors, a committee may exercise all of the authority of the Board except:
(a) the approval of any action which, under the California Corporations
Code, must be approved by the outstanding shares or approved by the
shareholders;
(b) the filling of vacancies on the Board or any committee;
(c) the fixing of compensation of the directors for serving on the Board
or any committee;
(d) the adoption, amendment or repeal of Bylaws;
(e) the amendment or repeal of any resolution of the Board which by its
express terms is not so amendable or repealable;
(f) a distribution to the shareholders of the corporation, except at a
rate, in a periodic amount or within a price range determined by the Board; and
(g) the appointment of any other committees of the Board or the members
of such committees.
SECTION 2. CONDUCT OF BUSINESS.
Each committee may determine the procedural rules for meeting and
conducting its business and shall act in accordance therewith, except as
otherwise provided herein or required by law. Adequate provision shall be made
for notice to members of all meetings; one-third (1/3) of the members shall
constitute a quorum unless the committee
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shall consist of two (2) members, in which event one (1) member shall constitute
a quorum; and all matters shall be determined by a majority vote of the members
present. Action may be taken by any committee without a meeting if all members
thereof consent thereto in writing, and the writing or writings are filed with
the minutes of the proceedings of such committee.
SECTION 3. COMMITTEE MEETINGS.
The principles set forth in Sections 7 through 14 of Article II of these
Bylaws shall apply to committees of the Board of Directors and to actions taken
by such committees.
ARTICLE IV.
OFFICERS
SECTION 1. GENERALLY.
The officers of the corporation shall include a Chairman of the Board or a
President or both, a Secretary and a Chief Financial Officer. The Board of
Directors may also choose one or more Vice Presidents, Assistant Secretaries or
other officers. Any number of offices may be held by the same person. The
salaries of officers elected by the Board of Directors shall be fixed from time
to time by the Board of Directors or by such officers as may be designated by
resolution of the Board.
SECTION 2. ELECTION, TERM OF OFFICE AND VACANCIES.
At its regular meeting after each annual meeting of shareholders, the
Board of Directors shall choose the officers of the corporation. The Board may
choose additional officers or fill vacant offices at any other time. No officer
must be a member of the Board of Directors except the Chairman of the Board. The
officers shall hold office until their successors are chosen, except that the
Board of Directors may remove any officer at any time.
SECTION 3. RESIGNATION.
Any officer may resign at any time upon notice to the corporation without
prejudice to the rights, if any, of the corporation under any contract to which
the officer is a party. The resignation of an officer shall be effective when
given unless the officer specifies a later time. The resignation shall be
effective regardless of whether it is accepted by the corporation.
SECTION 4. CHAIRMAN OF THE BOARD; PRESIDENT.
If the Board of Directors elects a Chairman of the Board, such officer
shall preside over all meetings of the Board of Directors and of shareholders.
If there be no Chairman
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of the Board, the President shall perform such duties. The Board of Directors
shall designate either the Chairman of the Board or the President as the chief
executive officer and may prescribe the duties and powers of the chief executive
officer. If there be no Chairman of the Board, the President shall be the chief
executive officer. He or she shall have power to sign all stock certificates,
contracts and other instruments of the Corporation which are authorized and
shall have general supervision and direction of all of the other officers,
employees and agents of the Corporation.
SECTION 5. SECRETARY.
Unless otherwise determined by the Board of Directors or the chief
executive officer, the Secretary shall have the following powers and duties:
(a) Record of Corporate Proceedings. The Secretary shall attend all
meetings of shareholders and the Board of Directors and its committees and shall
record all votes and the minutes of such meetings in a book to be kept at the
principal executive office of the corporation or at such other place as the
Board may determine. The Secretary shall keep at the corporation's principal
executive office, if in California, or at its principal business office in
California if the principal executive office is not in California, the original
or a copy of these Bylaws, as amended.
(b) Record of Shares. Unless a transfer agent is appointed by the Board
of Directors to keep a share register, the Secretary shall keep a share register
at the principal executive office of the corporation showing the names of the
shareholders and their addresses, the number and class of shares held by each,
the number and date of certificates issued and the number and date of
cancellation of each certificate surrendered for cancellation.
(c) Notices. The Secretary shall give such notices as may be required by
law or these Bylaws.
SECTION 6. CHIEF FINANCIAL OFFICER.
Unless the Board of Directors designates another treasurer, the Chief
Financial Officer shall be the treasurer of the corporation. Unless otherwise
determined by the Board of Directors or the chief executive officer, the Chief
Financial Officer shall have custody of the corporate funds and securities,
shall keep adequate and correct accounts of the corporation's properties and
business transactions, shall disburse such funds of the corporation as may be
ordered by the Board or the chief executive officer (taking proper vouchers for
such disbursements), and shall render to the chief executive officer and the
Board, at regular meetings of the Board or whenever the Board may require, an
account of all transactions and the financial condition of the corporation.
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SECTION 7. OTHER OFFICERS.
The other officers of the corporation, if any, shall exercise such powers
and perform such duties as the Board of Directors or the chief executive officer
shall prescribe.
SECTION 8. DELEGATION OF AUTHORITY.
The Board of Directors may from time to time delegate the powers or duties
of any officer to any other officers or agents, notwithstanding any provision
hereof.
SECTION 9. REMOVAL.
Any officer of the Corporation may be removed at any time, with or without
cause, by the Board of Directors.
SECTION 10. ACTION WITH RESPECT TO SECURITIES OF OTHER CORPORATIONS.
Unless otherwise directed by the Board of Directors, the President or any
officer of the Corporation authorized by the President shall have power to vote
and other wise act on behalf of the Corporation, in person or by proxy, at any
meeting of shareholders of or with respect to any action of shareholders of any
other Corporation in which this Corporation may hold securities and otherwise to
exercise any and all rights and powers which this Corporation may possess by
reason of its ownership of securities in such other Corporation.
ARTICLE V.
NOTICES
SECTION 1. NOTICES.
Except as otherwise specifically provided herein or required by law, all
notices required to be given to any shareholder, director, officer, employee or
agent shall be in writing and may in every instance be effectively given by hand
delivery to the recipient thereof, by depositing such notice in the mails,
postage paid, recognized overnight delivery service or by sending such notice by
facsimile, receipt acknowledged, or by prepaid telegram or mailgram. Any such
notice shall be addressed to such shareholder, director, officer, employee or
agent at his or her last known address as the same appears on the books of the
Corporation. The time when such notice is received, if hand delivered, or
dispatched, if delivered through the mails or by telegram or mailgram, shall be
the time of the giving of the notice.
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SECTION 2. WAIVERS.
A written waiver of any notice, signed by a shareholder, director,
officer, employee or agent, whether before or after the time of the event for
which notice is to be given, shall be deemed equivalent to the notice required
to be given to such shareholder, director, officer, employee or agent. Neither
the business nor the purpose of any meeting need be specified in such a waiver.
Attendance at any meeting shall constitute waiver of notice except attendance
for the sole purpose of objecting to the timeliness of notice.
ARTICLE VI.
MISCELLANEOUS
SECTION 1. FACSIMILE SIGNATURES.
In addition to the provisions for use of facsimile signatures elsewhere
specifically authorized in these Bylaws, facsimile signatures of any officer or
officers of the Corporation may be used whenever and as authorized by the Board
of Directors or a committee thereof.
SECTION 2. CORPORATE SEAL.
The Board of Directors may provide a suitable seal containing the name of
the Corporation, which seal shall be in the charge of the Secretary. If and when
so directed by the Board of Directors or a committee thereof, duplicates of the
seal may be kept and used by the Treasurer or by an Assistant Secretary or
Assistant Treasurer.
SECTION 3. RELIANCE UPON BOOKS, REPORTS AND RECORDS.
Each director, each member of any committee designated by the Board of
Directors, and each officer of the Corporation shall, in the performance of his
or her duties, be fully protected in relying in good faith upon the books of
account or other records of the Corporation and upon such information, opinions,
reports or statements presented to the Corporation by any of its officers or
employees, or committees of the Board of Directors so designated, or by any
other person as to matters which such director or committee member reasonably
believes are within such other person's professional or expert competence and
who has been selected with reasonable care by or on behalf of the Corporation.
SECTION 4. FISCAL YEAR.
The fiscal year of the Corporation shall be as fixed by the Board of
Directors.
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SECTION 5. TIME PERIODS.
In applying any provision of these Bylaws which requires that an act be
done or not be done a specified number of days prior to an event or that an act
be done during a period of a specified number of days prior to an event,
calendar days shall be used, the day of the doing of the act shall be excluded,
and the day of the event shall be included.
ARTICLE VII.
INDEMNIFICATION OF DIRECTORS AND OFFICERS
SECTION 1. RIGHT TO INDEMNIFICATION.
To the fullest extent permitted by law, this corporation shall indemnify
its directors, officers, employees and other persons described in Section 317(a)
of the California Corporations Code, including persons formerly occupying any
such position, against all expenses, judgments, fines, settlements and other
amounts actually and reasonably incurred by them in connection with any
"proceeding", as that term is used in such Section and including an action by or
in the right of the corporation, by reason of the fact that such person is or
was a person described by such Section. "Expenses", as used in this Bylaw, shall
have the same meaning as in Section 317(a) of the California Corporations Code.
SECTION 2. APPROVAL OF INDEMNITY.
Upon written request to the Board of Directors by any person seeking
indemnification under Section 317(b) or Section 317(c) of the California
Corporations Code, the Board shall promptly determine in accordance with Section
317(e) of the Code whether the applicable standard of conduct set forth in
Section 317(b) or Section 317(c) has been met and, if so, the Board shall
authorize indemnification. If the Board cannot authorize indemnification because
the number of directors who are parties to the proceeding with respect to which
indemnification is sought prevent the formation of a quorum of directors who are
not parties to such proceeding, the Board shall promptly call a meeting of
shareholders. At such meeting, the shareholders shall determine in accordance
with Section 317(e) of the Code whether the applicable standard of conduct set
forth in Section 317(b) or Section 317(c) has been met and, if so, the
shareholders present at the meeting in person or by proxy shall authorize
indemnification.
SECTION 3. RIGHT TO ADVANCEMENT OF EXPENSES.
To the full extent permitted by law and except as is otherwise determined
by the Board of Directors in the specific instance, expenses incurred by a
person seeking indemnification under this Bylaw in defending any proceeding
covered by this Bylaw shall be advanced by the corporation prior to the final
disposition of the proceeding upon
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receipt by the corporation of an undertaking by or on behalf of such person to
repay such amount unless it shall ultimately be determined that such person is
entitled to be indemnified by the corporation therefor.
SECTION 4. RIGHT OF INDEMNITEE TO BRING SUIT.
If a claim under Section 1 or 3 of this ARTICLE VII is not paid in full by
the Corporation within 60 days after a written claim has been received by the
Corporation, except in the case of a claim for an advancement of expenses, in
which case the applicable period shall be 20 days, the indemnitee may at any
time thereafter bring suit against the Corporation to recover the unpaid amount
of the claim. If successful in whole or in part in any such suit, or in a suit
brought by the Corporation to recover an advancement of expenses pursuant to the
terms of an undertaking, the indemnitee shall be entitled to be paid also the
expense of prosecuting or defending such suit. In (i) any suit brought by the
indemnitee to enforce a right to indemnification hereunder (but not in a suit
brought by the indemnitee to enforce a right to an advancement of expenses) it
shall be a defense that, and (ii) in any suit brought by the Corporation to
recover an advancement of expenses pursuant to the terms of an undertaking, the
Corporation shall be entitled to recover such expenses upon a final adjudication
that, the indemnitee has not met any applicable standard for indemnification set
forth in the California General Corporation Law. Neither the failure of the
Corporation (including its Board of Directors, independent legal counsel or its
shareholders) to have made a determination prior to the commencement of such
suit that indemnification of the indemnitee is proper in the circumstances
because the indemnitee has met the applicable standard of conduct set forth in
the California General Corporation Law, nor an actual determination by the
Corporation (including its Board of Directors, independent legal counsel or its
shareholders) that the indemnitee has not met such applicable standard of
conduct, shall create a presumption that the indemnitee has not met the
applicable standard of conduct or, in the case of such a suit brought by the
indemnitee, be a defense to such suit. In any suit brought by the indemnitee to
enforce a right to indemnification or to an advancement of expenses hereunder,
or brought by the Corporation to recover an advancement of expenses pursuant to
the terms of an undertaking, the burden of proving that the indemnitee is not
entitled to be indemnified, or to such advancement of expenses, under this
ARTICLE VII or otherwise shall be on the Corporation.
SECTION 5. NON EXCLUSIVITY OF RIGHTS.
The rights to indemnification and to the advancement of expenses conferred
in this ARTICLE VII shall not be exclusive of any other right which any person
may have or hereafter acquire under any statute, the Corporation's Articles of
Incorporation, Bylaws, agreement, vote of shareholders or disinterested
directors or otherwise.
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SECTION 6. INSURANCE.
The Corporation may maintain insurance, at its expense, to protect itself
and any director, officer, employee or agent of the Corporation or another
corporation, partnership, joint venture, trust or other enterprise against any
expense, liability or loss, whether or not the Corporation would have the power
to indemnify such person against such expense, liability or loss under the
California General Corporation Law.
SECTION 7. INDEMNIFICATION OF EMPLOYEES AND AGENTS OF THE CORPORATION.
The Corporation may, to the extent authorized from time to time by the
Board of Directors, grant rights to indemnification and to the advancement of
expenses to any employee or agent of the Corporation to the fullest extent of
the provisions of this Article with respect to the indemnification and
advancement of expenses of directors and officers of the Corporation.
ARTICLE VIII.
AMENDMENTS
In furtherance and not in limitation of the powers conferred by law, the
Board of Directors is expressly authorized to make, alter, amend and repeal the
Bylaws subject to the power of the holders of capital stock of the Corporation
to alter, amend or repeal the Bylaws; provided, however, that, with respect to
the powers of holders of capital stock to make, alter, amend and repeal Bylaws
of the Corporation, notwithstanding any other provision of these Bylaws or any
provision of law which might otherwise permit a lesser vote or no vote, but in
addition to any affirmative vote of the holders of any particular class or
series of the capital stock of the Corporation required by law, these Bylaws or
any preferred stock, the affirmative vote of the holders of at least 50 percent
of the voting power of all of the then-outstanding shares entitled to vote
generally in the election of directors, voting together as a single class, shall
be required to make, alter, amend or repeal any provision of these Bylaws.
20
<PAGE> 21
This is to certify that the foregoing is a true and correct copy of the
Bylaws of Cepheid and that such Bylaws were duly adopted by the Board of
Directors of such corporation on May __, 2000 and approved by the Shareholders
on May __, 2000.
_____________________________________
Secretary
21
<PAGE> 1
Exhibit 4.2
COMMON STOCK COMMON STOCK
CEPHEID
INCORPORATED UNDER THE LAWS OF THE STATE OF CALIFORNIA
[ILLEGIBLE]
CUSIP 15670R 10 7
FULLY PAID AND NONASSESSABLE SHARES OF THE COMMON STOCK, NO PAR VALUE OF
CEPHEID
transferable on the books of the Corporation by the holder hereof in person or
by duly authorized attorney upon surrender of this Certificate properly
endorsed. This Certificate is not valid unless countersigned and registered by
the Transfer Agent and Registrar.
WITNESS the facsimile seal of the Corporation and the facsimile signature
of its duly authorized officers.
Dated:
/s/ [Signature Illegible] [SEAL] /s/ THOMAS GUTSHALL
SECRETARY CHAIRMAN AND
CHIEF EXECUTIVE OFFICER
<PAGE> 2
CEPHEID
A statement of rights, preferences, privileges and restrictions granted to
or imposed upon the respective classes or series of shares and upon the holders
thereof as established, from time to time, by the Articles of Incorporation of
the Corporation and by any certificate of determination, and the number of
shares constituting each class and series and the designations thereof, may be
obtained by the holder hereof upon request and without charge from the Secretary
of the Corporation at its corporate headquarters.
The following abbreviations, when used in the inscription on the face of
this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
<TABLE>
<S> <C>
TEN COM - as tenants in common UNIF GIFT MIN ACT - _______________ Custodian _______________
(Cust) (Minor)
TEN ENT - as tenants by the entireties under Uniform Gifts to Minors
Act _________________________
JT TEN - as joint tenants with right of (State)
survivorship and not as tenants UNIF TRF MIN ACT - ________________ Custodian (until age ____)
in common (Cust)
___________________ under Uniform Transfers
(Minor)
</TABLE>
Additional abbreviations may also be used though not in the above list.
FOR VALUE RECEIVED, _______________________ hereby sell, assign and transfer
unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
______________________________________
______________________________________
________________________________________________________________________________
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE)
________________________________________________________________________________
________________________________________________________________________________
_________________________________________________________________________ Shares
of the capital stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint
_______________________________________________________________________ Attorney
to transfer the said stock on the books of the within named Corporation with
full power of substitution in the premises.
Dated ________________________________
X _______________________________________
X _______________________________________
THE SIGNATURE OF THIS ASSIGNMENT MUST
CORRESPOND WITH THE NAME(S) AS WRITTEN
NOTICE: UPON THE FACE OF THE CERTIFICATE IN EVERY
PARTICULAR, WITHOUT ALTERATION OR
ENLARGEMENT OR ANY CHANGE WHATSOEVER.
SIGNATURE(S) GUARANTEED
By _______________________________________________________________________
THE SIGNATURE(S) MUST BE GUARANTEED BY AN ELIGIBLE GUARANTOR INSTITUTION
(BANKS, STOCKBROKERS, SAVINGS AND LOAN ASSOCIATIONS AND CREDIT UNIONS WITH
MEMBERSHIP IN AN APPROVED SIGNATURE GUARANTEE MEDALLION PROGRAM), PURSUANT
TO S.E.C. RULE 17Ad-15.
- --------------------------------------- ----------------------------------------
AMERICAN BANK NOTE COMPANY PRODUCTION ??????????????????????????
???? AND ????? STREET ??? ??? ?? MAY 2, ????
PHILADELPHIA, PA ????? CEPHEID, INC.
(???) ???-???? ? ??????? ???
- --------------------------------------- ----------------------------------------
SALES: ?? ?????? ??? ??? ???? OPERATOR: DATE:
- --------------------------------------- ----------------------------------------
/?????? ??/LIVE JOBS/C/??????? ????? Rev 1
- --------------------------------------- ----------------------------------------
<PAGE> 1
EXHIBIT 5.1
[HELLER EHRMAN WHITE & MCAULIFFE LLP LETTERHEAD]
May 18, 2000
Main (650) 234-7000
Fax (650) 234-4299
22660.0024
Cepheid
1190 Borregas Avenue
Sunnyvale, California 94089-1302
RE: REGISTRATION STATEMENT ON FORM S-1
Ladies and Gentlemen:
We have acted as counsel to Cepheid, a California corporation (the
"Company"), in connection with the Registration Statement on Form S-1
(Registration No. 333-34340) filed with the Securities and Exchange Commission
on April 7, 2000 (as may be further amended or supplemented, the "Registration
Statement") for the purpose of registering under the Securities Act of 1933, as
amended, 5,750,000 shares of its authorized but unissued Common Stock, no par
value (the "Shares"). The Shares, which include up to 750,000 shares of the
Company's Common Stock issuable pursuant to an over-allotment option granted to
the underwriters, are to be sold pursuant to an Underwriting Agreement (the
"Underwriting Agreement") among the Company and UBS Warburg LLC, Prudential
Securities Incorporated and Invemed Associates, Inc., as representatives of the
several underwriters named in Schedule A to the Underwriting Agreement.
We have assumed the authenticity of all records, documents and instruments
submitted to us as originals, the genuineness of all signatures, the legal
capacity of natural persons and the conformity to the originals of all records,
documents and instruments submitted to us as copies.
In rendering our opinion, we have examined the following records, documents
and instruments:
(a) The Amended and Restated Articles of Incorporation of the Company,
filed as an exhibit to the Registration Statement and to be filed with
the California Secretary of State in connection with the sale of the
Shares, and certified to us by an officer of the Company as being the
form to be filed with the California Secretary of State in connection
with the sale of the Shares;
<PAGE> 2
Cepheid
May 18, 2000
Page 2
(b) The Bylaws of the Company certified to us by an officer of the Company
as being complete and in full force and effect as of the date of this
opinion;
(c) A Certificate of an officer of the Company (i) attaching records
certified to us as constituting all records of proceedings and actions
of the Board of Directors, including any committee thereof, and
shareholders of the Company relating to the Shares, and the
Registration Statement, and (ii) certifying as to certain factual
matters;
(d) The Registration Statement; and
(e) A draft of the Underwriting Agreement to be filed as Exhibit 1.1 to
the Registration Statement.
This opinion is limited to the federal law of the United States of America
and the General Corporation Law of the State of California, and we disclaim any
opinion as to the laws of any other jurisdiction. We further disclaim any
opinion as to any other statute, rule, regulation, ordinance, order or other
promulgation of any other jurisdiction or any regional or local governmental
body or as to any related judicial or administrative opinion. Our opinion to the
effect that all issued and outstanding Shares are fully paid and nonassessable
is based on the certification obtained from the Company identified in item (c)
above to the effect that the consideration of such Shares recited in the Board
of Directors' resolutions for such Shares has been received.
Based upon the foregoing and our examination of such questions of law as we
have deemed necessary or appropriate for the purpose of this opinion, and
assuming that (i) the Registration Statement becomes and remains effective
during the period when the Shares are offered and sold, (ii) the Underwriting
Agreement signed by the parties thereto conforms in all material respects to the
draft to be filed as Exhibit 1.1 to the Registration Statement, (iii) the
currently unissued Shares to be sold by the Company are issued, delivered and
paid for in accordance with the terms of the Underwriting Agreement, (iv)
appropriate certificates evidencing the Shares will be executed and delivered by
the Company, and (v) all applicable securities laws are complied with, it is our
opinion that, when issued by the Company, the currently unissued Shares covered
by the Registration Statement will be legally issued, fully paid and
nonassessable.
This opinion is rendered to you in connection with the Registration
Statement and is solely for your benefit. This opinion may not be relied upon by
you for any other purpose, or relied upon by any other person, firm, corporation
or other entity for any purpose, without our prior written consent. We disclaim
any obligation to advise you of any change of law that occurs, or any facts of
which we may become aware, after the date of this opinion.
<PAGE> 3
Cepheid
May 18, 2000
Page 3
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the reference to us under the caption "Legal
Matters" in the Registration Statement.
Very truly yours,
/s/ HELLER EHRMAN WHITE & MCAULIFFE LLP
<PAGE> 1
EXHIBIT 10.3
1997 STOCK OPTION PLAN
OF
CEPHEID
(as amended)
1. PURPOSES OF THE PLAN.
The purposes of the 1997 Stock Option Plan (the "Plan") of Cepheid, a
California corporation (the "Company"), are to:
(a) Encourage selected employees, directors and consultants to
improve operations and increase profits of the Company;
(b) Encourage selected employees, directors and consultants to accept
or continue employment or association with the Company or its Affiliates; and
(c) Increase the interest of selected employees, directors and
consultants in the Company's welfare through participation in the growth in
value of the common stock of the Company (the "Common Stock").
Options granted under this Plan ("Options") may be "incentive stock
options" ("ISOs") intended to satisfy the requirements of Section 422 of the
Internal Revenue Code of 1986, as amended (the "Code"), or "nonqualified
options" ("NQOs").
2. ELIGIBLE PERSONS.
Every person who at the date of grant of an Option is a full-time
employee of the Company or of any Affiliate (as defined below) of the Company is
eligible to receive NQOs or ISOs under this Plan. Every person who at the date
of grant is a consultant to, or non-employee director of, the Company or any
Affiliate (as defined below) of the Company is eligible to receive NQOs under
this Plan. The term "Affiliate" as used in the Plan means a parent or subsidiary
corporation as defined in the applicable provisions (currently Sections 424(e)
and (f), respectively) of the Code. The term "employee" includes an officer or
director who is an employee, of the Company. The term "consultant" includes
persons employed by, or otherwise affiliated with, a consultant.
3. STOCK SUBJECT TO THIS PLAN.
Subject to the provisions of Section 6.1.1 of the Plan, the total
number of shares of stock which may be issued under options granted pursuant to
this Plan shall not exceed 2,800,000 shares of Common Stock plus an annual
increase to be added on the first business day of each calendar year beginning
January 1, 2001, equal to the lesser of (i) 1,000,000 shares, (ii) 3% of the
outstanding shares of capital stock on such date or (iii) an amount determined
by the Board. The shares covered by the portion of any grant under the Plan
which expires unexercised shall become available again for grants under the
Plan.
<PAGE> 2
4. ADMINISTRATION.
(a) This Plan shall be administered by the Board of Directors of the
Company (the "Board") or, either in its entirety or only insofar as required
pursuant to Section 4(b) hereof, by a committee (the "Committee") of at least
two Board members to which administration of the Plan, or of part of the Plan,
is delegated (in either case, the "Administrator").
(b) From and after such time as the Company registers a class of
equity securities under Section 12 of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), it is intended that this Plan shall be
administered in accordance with the disinterested administration requirements of
Rule 16b-3 promulgated by the Securities and Exchange Commission ("Rule 16b-3"),
or any successor rule thereto.
(c) Subject to the other provisions of this Plan, the Administrator
shall have the authority, in its discretion: (i) to grant Options; (ii) to
determine the fair market value of the Common Stock subject to Options; (iii) to
determine the exercise price of Options granted; (iv) to determine the persons
to whom, and the time or times at which, Options shall be granted, and the
number of shares subject to each Option; (v) to interpret this Plan; (vi) to
prescribe, amend, and rescind rules and regulations relating to this Plan; (vii)
to determine the terms and provisions of each Option granted (which need not be
identical), including but not limited to, the time or times at which Options
shall be exercisable; (viii) with the consent of the optionee, to modify or
amend any Option; (ix) to defer (with the consent of the optionee) the exercise
date of any Option; (x) to authorize any person to execute on behalf of the
Company any instrument evidencing the grant of an Option; and (xi) to make all
other determinations deemed necessary or advisable for the administration of
this Plan. The Administrator may delegate nondiscretionary administrative duties
to such employees of the Company as it deems proper.
(d) All questions of interpretation, implementation, and application
of this Plan shall be determined by the Administrator. Such determinations shall
be final and binding on all persons.
(e) With respect to persons subject to Section 16 of the Exchange
Act, if any, transactions under this Plan are intended to comply with the
applicable conditions of Rule 16b-3, or any successor rule thereto. To the
extent any provision of this Plan or action by the Administrator fails to so
comply, it shall be deemed null and void, to the extent permitted by law and
deemed advisable by the Administrator. Notwithstanding the above, it shall be
the responsibility of such persons, not of the Company or the Administrator, to
comply with the requirements of Section 16 of the Exchange Act; and neither the
Company nor the Administrator shall be liable if this Plan or any transaction
under this Plan fails to comply with the applicable conditions of Rule 16b-3 or
any successor rule thereto, or if any such person incurs any liability under
Section 16 of the Exchange Act.
2
<PAGE> 3
5. GRANTING OF OPTIONS; OPTION AGREEMENT.
(a) No Options shall be granted under this Plan after ten years from
the date of adoption of this Plan by the Board.
(b) Each Option shall be evidenced by a written stock option
agreement, in form satisfactory to the Company, executed by the Company and the
person to whom such Option is granted; provided, however, that the failure by
the Company, the optionee, or both to execute such an agreement shall not
invalidate the granting of an Option, although the exercise of each option shall
be subject to Section 6.1.3.
(c) The stock option agreement shall specify whether each Option it
evidences is an NQO or an ISO.
(d) Subject to Section 6.3.3 with respect to ISOs, the Administrator
may approve the grant of Options under this Plan to persons who are expected to
become employees, directors or consultants of the Company, but are not
employees, directors or consultants at the date of approval.
6. TERMS AND CONDITIONS OF OPTIONS.
Each Option granted under this Plan shall be subject to the terms and
conditions set forth in Section 6.1. NQOs shall be also subject to the terms and
conditions set forth in Section 6.2, but not those set forth in Section 6.3.
ISOs shall also be subject to the terms and conditions set forth in Section 6.3,
but not those set forth in Section 6.2.
6.1 Terms and Conditions to Which All Options Are Subject. All
Options granted under this Plan shall be subject to the following terms and
conditions:
6.1.1 Changes in Capital Structure. Subject to Section 6.1.2, if
the stock of the Company is changed by reason of a stock split, reverse stock
split, stock dividend, or recapitalization, combination or reclassification,
appropriate adjustments shall be made by the Board in (a) the number and class
of shares of stock subject to this Plan and each Option outstanding under this
Plan, and (b) the exercise price of each outstanding Option; provided, however,
that the Company shall not be required to issue fractional shares as a result of
any such adjustments. Each such adjustment shall be subject to approval by the
Board in its sole discretion.
6.1.2 Corporate Transactions.
(a) Dissolution or Liquidation. In the event of the
proposed dissolution or liquidation of the Company, the Administrator shall
notify the Optionee at least thirty (30) days prior to such proposed action. To
the extent it has not been previously exercised, all Options will terminate
immediately prior to the consummation of such proposed action.
3
<PAGE> 4
(b) Merger or Asset Sale. In the event of a merger of the
Company with or into another corporation, or the sale of substantially all of
the assets of the Company:
(i) Options. Each Option shall be assumed or an
equivalent option substituted by the successor corporation (including as a
"successor" any purchaser of substantially all of the assets of the Company) or
a parent or subsidiary of the successor corporation. In the event that the
successor corporation refuses to assume or substitute for the Option, the
Optionee shall have the right to exercise the Option as to all of the shares of
Common Stock covered by the Option, including Shares as to which it would not
otherwise be exercisable. If an Option is exercisable in lieu of assumption or
substitution in the event of a merger or sale of assets, the Administrator shall
notify the Optionee that the Option shall be fully exercisable for a period of
fifteen (15) days from the date of such notice, and the Option shall terminate
upon the expiration of such period. For the purposes of this paragraph, the
Option shall be considered assumed if, following the merger or sale of assets,
the option confers the right to purchase or receive, for each share of Common
Stock subject to the Option immediately prior to the merger or sale of assets,
the consideration (whether stock, cash, or other securities or property)
received in the merger or sale of assets by holders of Common Stock for each
share held on the effective date of the transaction (and if holders were offered
a choice of consideration, the type of consideration chosen by the holders of a
majority of the outstanding shares); provided, however, that if such
consideration received in the merger or sale of assets was not solely common
stock of the successor corporation or its parent entity, the Administrator may,
with the consent of the successor corporation, provide for the consideration to
be received upon the exercise of the Option, for each Share of Common Stock
subject to the Option, to be solely common stock of the successor corporation or
its parent entity equal in fair market value to the per share consideration
received by holders of Common Stock in the merger or sale of assets.
(ii) Shares Subject to Right of Repurchase. Any Shares
subject to a Right of Repurchase of the Company shall be exchanged for the
consideration (whether stock, cash, or other securities or property) received in
the merger or asset sale by the holders of Common Stock for each share held on
the effective date of the transaction, as described in the preceding paragraph.
If in such exchange the Optionee receives shares of stock of the successor
corporation or a parent or subsidiary of such successor corporation, and if the
successor corporation has agreed to assume or substitute for Options as provided
in the preceding paragraph, such exchanged shares shall continue to be subject
to a Right of Repurchase as provided in the Optionee's Stock Option Plan stock
purchase agreement. If, as provided in the preceding paragraph, the Optionee
shall have the right to exercise an Option as to all of the shares of Common
Stock covered thereby, all Shares that are subject to a Right of Repurchase of
the Company shall be released from such Right of Repurchase and shall be fully
vested.
6.1.3 Time of Option Exercise. Subject to Section 5 and Section
6.3.4, Options granted under this Plan shall be exercisable (a) immediately as
of the effective date of the stock option agreement granting the Option, or (b)
in accordance with a schedule related to the date of the grant of the Option,
the date of first employment, or such other date as may be set by the
Administrator (in any case, the "Vesting Base Date") and specified in the
written stock option agreement relating to such Option; provided, however, that
the right to
4
<PAGE> 5
exercise an Option must vest at the rate of at least 20% per year over five
years from the date the Option was granted. In any case, no Option shall be
exercisable until a written stock option agreement in form satisfactory to the
Company is executed by the Company and the optionee.
6.1.4 Option Grant Date. Except in the case of advance approvals
described in Section 5(d), the date of grant of an Option under this Plan shall
be the date as of which the Administrator approves the grant.
6.1.5 Nonassignability of Option Rights. No Option granted under
this Plan shall be assignable or otherwise transferable by the optionee except
by will or by the laws of descent and distribution. During the life of the
optionee, an Option shall be exercisable only by the optionee.
6.1.6 Payment. Except as provided below, payment in full, in
cash, shall be made for all stock purchased at the time written notice of
exercise of an Option is given to the Company, and proceeds of any payment shall
constitute general funds of the Company. At the time an Option is granted or
exercised, the Administrator, in the exercise of its absolute discretion after
considering any tax or accounting consequences, may authorize any one or more of
the following additional methods of payment:
(a) Acceptance of the optionee's full recourse promissory
note for all or part of the Option price, payable on such terms and bearing such
interest rate as determined by the Administrator (but in no event less than the
minimum interest rate specified under the Code at which no additional interest
would be imputed), which promissory note may be either secured or unsecured in
such manner as the Administrator shall approve (including, without limitation,
by a security interest in the shares of the Company); and
(b) Delivery by the optionee of Common Stock already owned
by the optionee for all or part of the Option price, provided the value
(determined as set forth in Section 6.1.11) of such Common Stock is equal on the
date of exercise to the Option price, or such portion thereof as the optionee is
authorized to pay by delivery of such stock; provided, however, that if an
optionee has exercised any portion of any Option granted by the Company by
delivery of Common Stock, the optionee may not, within six months following such
exercise, exercise any Option granted under this Plan by delivery of Common
Stock without the consent of the Administrator.
6.1.7 Termination of Employment.
(a) If for any reason other than death or disability, an
optionee ceases to be employed by the Company or any of its Affiliates (such
event being called a "Termination"), Options held at the date of Termination (to
the extent then exercisable) may be exercised in whole or in part at any time
within three months of the date of such Termination, or such other period of not
less than thirty days after the date of such Termination as is specified in the
Option Agreement (but in no event after the Expiration Date); provided, that if
such exercise of the Option would result in liability for the optionee under
Section 16(b) of the Exchange Act, then such three-month period automatically
shall be extended until the tenth day following the
5
<PAGE> 6
last date upon which optionee has any liability under Section 16(b) (but in no
event after the Expiration Date).
(b) If an optionee dies while employed by the Company or an
Affiliate or within the period that the Option remains exercisable after
Termination, Options then held (to the extent then exercisable) may be
exercised, in whole or in part, by the optionee, by the optionee's personal
representative, or by the person to whom the Option is transferred by devise or
the laws of descent and distribution, at any time within twelve months after the
death of the optionee, or such other period of not less than six months from the
date of Termination as is specified in the Option Agreement (but in no event
after the Expiration Date).
(c) If an optionee ceases to be employed by the Company as
a result of his or her disability, the optionee may, but only within six (6)
months from the date of Termination (and in no event after the Expiration Date),
exercise the Option to the extent otherwise entitled to exercise it at the date
of Termination; provided, however, that if such disability is not a "disability"
as such term is defined in Section 22(e)(3) of the Code, in the case of an ISO
such ISO shall automatically convert to an NQO on the day three months and one
day following such Termination. To the extent that the optionee was not entitled
to exercise the Option at the date of Termination or if the optionee does not
exercise such Option to the extent so entitled within the time specified herein,
the Option shall terminate, and the Shares covered by such Option shall revert
to the Plan.
(d) For purposes of this Section 6.1.7, "employment"
includes service as a director or as a consultant. For purposes of this Section
6.1.7, an optionee's employment shall not be deemed to terminate by reason of
sick leave, military leave, or other leave of absence approved by the
Administrator, if the period of any such leave does not exceed 90 days or, if
longer, if the optionee's right to reemployment by the Company or any Affiliate
is guaranteed either contractually or by statute.
6.1.8 Repurchase of Stock. At the option of the Administrator,
the stock to be delivered pursuant to the exercise of any Option granted to an
employee, director or consultant under this Plan may be subject to a right of
repurchase in favor of the Company with respect to any employee, or director or
consultant whose employment, or director or consulting relationship with the
Company is terminated. Such right of repurchase either:
(a) shall be at the Option exercise price and (i) shall
lapse at the rate of at least 20% per year over five years from the date the
Option is granted (without regard to the date it becomes exercisable), and must
be exercised for cash or cancellation of purchase money indebtedness within 90
days of such termination and (ii) if the right is assignable by the Company, the
assignee must pay the Company upon assignment of the right (unless the assignee
is a 100% owned subsidiary of the Company or is an Affiliate) cash equal to the
difference between the Option exercise price and the value (determined as set
forth in Section 6.1.11) of the stock to be purchased if the Option exercise
price is less than such value; or
(b) shall be at the higher of the Option exercise price or
the value (determined as set forth in Section 6.1.11) of the stock being
purchased on the date of
6
<PAGE> 7
termination, and must be exercised for cash or cancellation of purchase money
indebtedness within 90 days of termination of employment, and such right shall
terminate when the Company's securities become publicly traded.
Determination of the number of shares subject to any such right of
repurchase shall be made as of the date the employee's employment by, director's
director relationship with, or consultant's consulting relationship with, the
Company terminates, not as of the date that any Option granted to such employee,
director or consultant is thereafter exercised.
6.1.9 Withholding and Employment Taxes. At the time of exercise
of an Option or at such other time as the amount of such obligations becomes
determinable (the "Tax Date"), the optionee shall remit to the Company in cash
all applicable federal and state withholding and employment taxes. If authorized
by the Administrator in its sole discretion after considering any tax or
accounting consequences, an optionee may elect to (i) deliver a promissory note
on such terms as the Administrator deems appropriate, (ii) tender to the Company
previously owned shares of Stock or other securities of the Company, or (iii)
have shares of Common Stock which are acquired upon exercise of the Option
withheld by the Company to pay some or all of the amount of tax that is required
by law to be withheld by the Company as a result of the exercise of such Option,
subject to the following limitations:
(a) Any election pursuant to clause (iii) above by an
optionee subject to Section 16 of the Exchange Act shall either (x) be made at
least six months before the Tax Date and shall be irrevocable; or (y) shall be
made in (or made earlier to take effect in) any ten-day period beginning on the
third business day following the date of release for publication of the
Company's quarterly or annual summary statements of earnings and shall be
subject to approval by the Administrator, which approval may be given at any
time after such election has been made. In addition, in the case of (y), the
Option shall be held at least six months prior to the Tax Date.
(b) Any election pursuant to clause (ii) above, where the
optionee is tendering Common Stock issued pursuant to the exercise of an Option,
shall require that such shares be held at least six months prior to the Tax
Date.
Any of the foregoing limitations may be waived (or additional
limitations may be imposed) by the Administrator, in its sole discretion, if the
Administrator determines that such foregoing limitations are not required (or
that such additional limitations are required) in order that the transaction
shall be exempt from Section 16(b) of the Exchange Act pursuant to Rule 16b-3,
or any successor rule thereto. In addition, any of the foregoing limitations may
be waived by the Administrator, in its sole discretion, if the Administrator
determines that Rule 16b-3, or any successor rule thereto, is not applicable to
the exercise of the Option by the optionee or for any other reason.
Any securities tendered or withheld in accordance with this Section
6.1.9 shall be valued by the Company as of the Tax Date.
7
<PAGE> 8
6.1.10 Other Provisions. Each Option granted under this Plan may
contain such other terms, provisions, and conditions not inconsistent with this
Plan as may be determined by the Administrator, and each ISO granted under this
Plan shall include such provisions and conditions as are necessary to qualify
the Option as an "incentive stock option" within the meaning of Section 422 of
the Code. If Options provide for a right of first refusal in favor of the
Company with respect to stock acquired by employees, directors or consultants,
such Options shall provide that the right of first refusal shall terminate upon
the earlier of (i) the closing of the Company's initial registered public
offering to the public generally, or (ii) the date ten years after the grant
date as set forth in Section 6.1.4.
6.1.11 Determination of Value. For purposes of the Plan, the
value of Common Stock or other securities of the Company shall be determined as
follows:
(a) If the stock of the Company is listed on any
established stock exchange or a national market system, including without
limitation the National Market System of the National Association of Securities
Dealers, Inc. Automated Quotation System, its fair market value shall be the
closing sales price for such stock or the closing bid if no sales were reported,
as quoted on such system or exchange (or the largest such exchange) for the date
the value is to be determined (or if there are no sales for such date, then for
the last preceding business day on which there were sales), as reported in the
Wall Street Journal or similar publication.
(b) If the stock of the Company is regularly quoted by a
recognized securities dealer but selling prices are not reported, its fair
market value shall be the mean between the high bid and low asked prices for the
stock on the date the value is to be determined (or if there are no quoted
prices for the date of grant, then for the last preceding business day on which
there were quoted prices).
(c) In the absence of an established market for the stock,
the fair market value thereof shall be determined in good faith by the
Administrator, with reference to the Company's net worth, prospective earning
power, dividend-paying capacity, and other relevant factors, including the
goodwill of the Company, the economic outlook in the Company's industry, the
Company's position in the industry and its management, and the values of stock
of other corporations in the same or a similar line of business.
6.1.12 Option Term. Subject to Section 6.3.5, no Option shall be
exercisable more than ten years after the date of grant, or such lesser period
of time as is set forth in the stock option agreement (the end of the maximum
exercise period stated in the stock option agreement is referred to in this Plan
as the "Expiration Date").
6.1.13 Exercise Price. The exercise price of any Option granted
to any person who owns, directly or by attribution under the Code currently
Section 424(d), stock possessing more than ten percent of the total combined
voting power of all classes of stock of the Company or of any Affiliate (a "Ten
Percent Stockholder") shall in no event be less than 110% of the fair market
value (determined in accordance with Section 6.1.11) of the stock covered by the
Option at the time the Option is granted.
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6.2 Terms and Conditions to Which Only NQOs Are Subject. Options
granted under this Plan which are designated as NQOs shall be subject to the
following terms and conditions:
6.2.1 Exercise Price. Except as set forth in Section 6.1.13, the
exercise price of an NQO shall be not less than 85% of the fair market value
(determined in accordance with Section 6.1.11) of the stock subject to the
Option on the date of grant.
6.3 Terms and Conditions to Which Only ISOs Are Subject. Options
granted under this Plan which are designated as ISOs shall be subject to the
following terms and conditions:
6.3.1 Exercise Price. Except as set forth in Section 6.1.13, the
exercise price of an ISO shall be determined in accordance with the applicable
provisions of the Code and shall in no event be less than the fair market value
(determined in accordance with Section 6.1.11) of the stock covered by the
Option at the time the Option is granted.
6.3.2 Disqualifying Dispositions. If stock acquired by exercise
of an ISO granted pursuant to this Plan is disposed of in a "disqualifying
disposition" within the meaning of Section 422 of the Code, the holder of the
stock immediately before the disposition shall promptly notify the Company in
writing of the date and terms of the disposition and shall provide such other
information regarding the Option as the Company may reasonably require.
6.3.3 Grant Date. If an ISO is granted in anticipation of
employment as provided in Section 5(d), the Option shall be deemed granted,
without further approval, on the date the grantee assumes the employment
relationship forming the basis for such grant, and, in addition, satisfies all
requirements of this Plan for Options granted on that date.
6.3.4 Vesting. Notwithstanding any other provision of this Plan,
ISOs granted under all incentive stock option plans of the Company and its
subsidiaries may not "vest" for more than $100,000 in fair market value of stock
(measured on the grant dates(s)) in any calendar year. For purposes of the
preceding sentence, an option "vests" when it first becomes exercisable. If, by
their terms, such ISOs taken together would vest to a greater extent in a
calendar year, and unless otherwise provided by the Administrator, the vesting
limitation described above shall be applied by deferring the exercisability of
those ISOs or portions of ISOs which have the highest per share exercise prices;
but in no event shall more than $100,000 in fair market value of stock (measured
on the grant date(s)) vest in any calendar year. The ISOs or portions of ISOs
whose exercisability is so deferred shall become exercisable on the first day of
the first subsequent calendar year during which they may be exercised, as
determined by applying these same principles and all other provisions of this
Plan including those relating to the expiration and termination of ISOs. In no
event, however, will the operation of this Section 6.3.4 cause an ISO to vest
before its terms or, having vested, cease to be vested.
6.3.5 Term. Notwithstanding Section 6.1.12, no ISO granted to any
Ten Percent Stockholder shall be exercisable more than five years after the date
of grant.
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7. MANNER OF EXERCISE.
(a) An optionee wishing to exercise an Option shall give written
notice to the Company at its principal executive office, to the attention of the
officer of the Company designated by the Administrator, accompanied by payment
of the exercise price as provided in Section 6.1.6. The date the Company
receives written notice of an exercise hereunder accompanied by payment of the
exercise price will be considered as the date such Option was exercised.
(b) Promptly after receipt of written notice of exercise of an
Option, the Company shall, without stock issue or transfer taxes to the optionee
or other person entitled to exercise the Option, deliver to the optionee or such
other person a certificate or certificates for the requisite number of shares of
stock. An optionee or permitted transferee of an optionee shall not have any
privileges as a shareholder with respect to any shares of stock covered by the
Option until the date of issuance (as evidenced by the appropriate entry on the
books of the Company or a duly authorized transfer agent) of such shares.
8. EMPLOYMENT OR CONSULTING RELATIONSHIP.
Nothing in this Plan or any Option granted thereunder shall interfere
with or limit in any way the right of the Company or of any of its Affiliates to
terminate any optionee's employment or consulting at any time, nor confer upon
any optionee any right to continue in the employ of, or consult with, the
Company or any of its Affiliates.
9. FINANCIAL INFORMATION.
The Company shall provide to each optionee during the period such
optionee holds an outstanding Option, and to each holder of Common Stock
acquired upon exercise of Options granted under the Plan for so long as such
person is a holder of such Common Stock, annual financial statements of the
Company as prepared either by the Company or independent certified public
accountants of the Company. Such financial statements shall include, at a
minimum, a balance sheet and an income statement, and shall be delivered as soon
as practicable following the end of the Company's fiscal year.
10. CONDITIONS UPON ISSUANCE OF SHARES.
Shares of Common Stock shall not be issued pursuant to the exercise of
an Option unless the exercise of such Option and the issuance and delivery of
such shares pursuant thereto shall comply with all relevant provisions of law,
including, without limitation, the Securities Act of 1933, as amended (the
"Securities Act").
11. NONEXCLUSIVITY OF THE PLAN.
The adoption of the Plan shall not be construed as creating any
limitations on the power of the Company to adopt such other incentive
arrangements as it may deem desirable, including, without limitation, the
granting of stock options other than under the Plan.
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12. MARKET STANDOFF.
Each Optionee, if so requested by the Company or any representative of
the underwriters in connection with any registration of the offering of any
securities of the company under the Securities Act shall not sell or otherwise
transfer any shares of Common Stock acquired upon exercise of Options during the
180-day period following the effective date of a registration statement of the
company filed under the Securities Act; provided, however, that such restriction
shall apply only to the first two registration statements of the Company to
become effective under the Securities Act which includes securities to be sold
on behalf of the Company to the public in an underwritten public offering under
the Securities Act. The Company may impose stop-transfer instructions with
respect to securities subject to the foregoing restriction until the end of such
180-day period.
13. AMENDMENTS TO PLAN.
The Board may at any time amend, alter, suspend or discontinue this
Plan. Without the consent of an optionee, no amendment, alteration, suspension
or discontinuance may adversely affect outstanding Options except to conform
this Plan and ISOs granted under this Plan to the requirements of federal or
other tax laws relating to incentive stock options. No amendment, alteration,
suspension or discontinuance shall require shareholder approval unless (a)
shareholder approval is required to preserve incentive stock option treatment
for federal income tax purposes, or (b) the Board otherwise concludes that
shareholder approval is advisable.
14. EFFECTIVE DATE OF PLAN.
This Plan shall become effective upon adoption by the Board provided,
however, that no Option shall be exercisable unless and until written consent of
the shareholders of the Company, or approval of shareholders of the Company
voting at a validly called shareholders' meeting, is obtained within 12 months
after adoption by the Board. If such shareholder approval is not obtained within
such time, Options granted hereunder shall terminate and be of no force and
effect from and after expiration of such 12-month period. Options may be granted
and exercised under this Plan only after there has been compliance with all
applicable federal and state securities laws.
Plan adopted by the Board of Directors on January 31, 1997; amended on April
__, 2000.
Plan approved by Shareholders on January 31, 1997; amended on May __, 2000.
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EXHIBIT 10.4
CEPHEID
2000 EMPLOYEE STOCK PURCHASE PLAN
1. Purpose. This Plan is intended to provide Employees of the Company and
its Designated Subsidiaries an opportunity to purchase Common Stock through
accumulated payroll deductions.
2. Definitions.
(a) "Administrator" means the Board or the persons appointed by the
Board to administer this Plan pursuant to Section 13.
(b) "Board" means the Board of Directors of the Company.
(c) "Code" means the Internal Revenue Code of 1986, as amended.
(d) "Common Stock" means the Common Stock of the Company.
(e) "Company" means Cepheid, a California corporation.
(f) "Compensation" means all regular, straight-time gross earnings of
a Participant, including commissions but exclusive of payments for overtime,
shift premium, incentive compensation, incentive payments, bonuses and other
compensation.
(g) "Continuous Employment" means the absence of any interruption or
termination of service as an Employee. Continuous Employment shall not be
considered interrupted in the case of a leave of absence agreed to in writing by
the Company, provided that either (i) the leave does not exceed 90 days or (ii)
re-employment upon expiration of the leave is guaranteed by contract or statute.
(h) "Designated Subsidiaries" means the Subsidiaries that have been
designated by the Board from time to time in its sole discretion to participate
in this Plan.
(i) "Employee" means any person, including an officer, who is
employed for at least 20 hours per week by the Company or one of its Designated
Subsidiaries during at least 22 weeks in any calendar year. Whether an
individual qualifies as an Employee shall be determined by the Administrator, in
its sole discretion, by reference to Section 3401(c) of the Code and the
regulations promulgated thereunder; unless the Administrator makes a contrary
determination, the Employees of the Company shall, for all purposes of this
Plan, be those individuals who satisfy the customary employment criteria set
forth above and are carried as employees by the Company or a Designated
Subsidiary for regular payroll purposes.
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(j) "Purchase Date" means such business days during each Offering
Period of this Plan as may be identified by the Administrator pursuant to
Section 8.
(k) "Interim Offering Date" means the first business day following a
Purchase Date other than the last Purchase Date of an Offering Period.
(l) "Offering Date" means the first business day of an Offering
Period.
(m) "Offering Period" means a period established by the Administrator
pursuant to Section 4 during which payroll deductions are accumulated from one
or more Participants and applied to the purchase of Common Stock.
(n) "Participant" means an Employee who has elected to participate in
this Plan pursuant to Section 5.
(o) "Plan" means this Cepheid 2000 Employee Stock Purchase Plan.
(p) "Purchase Right" means a right to purchase Common Stock granted
pursuant to Section 7.
(q) "Subsidiary" means, from time to time, any corporation, domestic
or foreign, of which not less than 50% of the voting shares are held by the
Company or another Subsidiary of the Company.
3. Eligibility.
(a) Regular Participation. Any person who is, or will be, an Employee
on an Offering Date shall be eligible to participate in this Plan during the
corresponding Offering Period, subject to the requirements of Section 5(a).
(b) Interim Participation. Any person who becomes an Employee after
an Offering Date shall be eligible to participate in this Plan during the
corresponding Offering Period, but only on and beginning with the first Interim
Offering Date.
(c) No Participation by Five-Percent Stockholders. Notwithstanding
paragraphs (a) and (b) of this Section 3, an Employee shall not participate in
this Plan during an Offering Period if immediately after the grant of a Purchase
Right on the Offering Date or Interim Offering Date, the Employee (or any other
person whose stock would be attributed to the Employee under Section 424(d) of
the Code) would own stock possessing five percent or more of the total combined
voting power or value of all classes of stock of the Company or of any
Subsidiary. For this purpose, an Employee is treated as owning stock that he or
she could purchase by exercise of Purchase Rights or other options.
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4. Offering Periods.
Unless otherwise determined by the Administrator:
(a) the first Offering Period under this Plan shall begin on the
first business day before the effective date of a firmly underwritten initial
public offering of Common Stock and shall end on the last business day of June
2002;
(b) the duration of each Offering Period (other than the first
Offering Period) shall be 24 months (measured from the first business day of the
first month to the last business day of the 24th month);
(c) a new Offering Period shall begin on the first business day after
the last Purchase Date of an Offering Period; and
(d) an Offering Period shall terminate on the first date that no
Participants are enrolled in it.
5. Participation.
(a) An Employee may become a Participant in this Plan by completing a
subscription agreement, in such form or forms as the Administrator may approve
from time to time, and delivering it to the Administrator within 15 days before
the applicable Offering Date or Interim Offering Date, unless another time for
filing the subscription agreement is set by the Administrator for all Employees
with respect to a given Offering Period. The subscription agreement shall
authorize payroll deductions pursuant to this Plan and shall have such other
terms as the Administrator may specify from time to time.
(b) At the end of an Offering Period, each Participant in the
Offering Period who remains an Employee shall be automatically enrolled in the
next succeeding Offering Period (a "Re-enrollment") unless, in a manner and at a
time specified by the Administrator, but in no event later than the day before
the Offering Date of such succeeding Offering Period, the Participant notifies
the Administrator in writing that the Participant does not wish to be
re-enrolled. Re-enrollment shall be at the withholding percentage specified in
the Participant's most recent subscription agreement unless the Participant
changes that percentage by timely written notice. No Participant shall be
automatically re-enrolled whose participation has terminated by operation of
Section 10.
6. Payroll Deductions.
(a) Each Participant shall have withheld a percentage of his or her
Compensation received during an Offering Period. Withholding shall be in whole
percentages of such Compensation, up to a maximum (not to exceed 15%)
established by the Administrator from time to time, as specified by the
Participant in his or her subscription agreement. Payroll deductions for a
Participant during an Offering Period shall begin with the first payroll
following
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the Offering Date or Interim Offering Date and shall end on the last Purchase
Date of the Offering Period, unless sooner terminated by the Participant as
provided in Section 10.
(b) All payroll deductions made by a Participant shall be credited to
the Participant's account under this Plan. A Participant may not make any
additional payments into such account.
(c) A Participant may reduce the rate of his or her payroll
deductions to 0% at any time during an Offering Period, effective 15 days after
the Participant files with the Administrator a new subscription agreement
authorizing the change. A Participant may make other changes to the rate of his
or her payroll deductions during an Offering Period effective the day after the
first Purchase Date that is at least 15 days after the Administrator's receipt
of a new subscription agreement authorizing the change.
7. Purchase Rights.
(a) Grant of Purchase Rights. On the Offering Date, or (if
applicable) Interim Offering Date of each Offering Period, the Participant shall
be granted a Purchase Right to purchase during the Offering Period the number of
shares of Common Stock determined by dividing (i) $25,000 multiplied by the
number of (whole or part) calendar years in the Offering Period by (ii) the fair
market value of a share of Common Stock on the Offering Date or Interim Offering
Date.
(b) Terms of Purchase Rights. Except as otherwise determined by the
Administrator, each Purchase Right shall have the following terms:
(i) The per-share price of the shares subject to a Purchase
Right shall be 85% of the lower of the fair market values
of a share of Common Stock on (a) the Offering Date, or
Interim Offering Date, on which the Purchase Right was
granted and (b) the Purchase Date. The fair market value of
the Common Stock on a given date shall be the closing price
as reported in the Wall Street Journal; provided, however,
that if there is no public trading of the Common Stock on
that date, then fair market value shall be determined by
the Administrator in its discretion.
(ii) Payment for shares purchased by exercise of Purchase Rights
shall be made only through payroll deductions under Section
6.
(iii) Upon purchase or disposition of shares acquired by exercise
of a Purchase Right, the Participant shall pay, or make
provision adequate to the Administrator for payment of, all
tax (and similar) withholdings that the Administrator
determines, in its discretion, are required due to the
acquisition or disposition, including without limitation
any such withholding that the Administrator determines in
its discretion is necessary to allow the Company and its
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Subsidiaries to claim tax deductions or other benefits in
connection with the acquisition or disposition.
(iv) During his or her lifetime, a Participant's Purchase Right
is exercisable only by the Participant.
(v) The Purchase Rights will in all respects be subject to the
terms and conditions of this Plan, as interpreted by the
Administrator from time to time.
8. Purchase Dates; Purchase of Shares; Refund of Excess Cash.
(a) The Administrator shall establish one or more Purchase Dates for
each Offering Period. Unless otherwise determined by the Administrator,
(i) the last business days of December 2000, June 2001,
December 2001 and June 2002 shall be the Purchase Dates of
the initial Offering Period under this Plan, and
(ii) the last trading day of each December and June during a
subsequent Offering Period shall be a Purchase Date.
(b) Each Participant's Purchase Right shall be exercised
automatically on each Purchase Date during the Offering Period, to purchase the
maximum number of full shares at the applicable price using the Participant's
accumulated payroll deductions.
(c) The shares purchased upon exercise of a Purchase Right shall be
deemed to be transferred to the Participant on the Purchase Date.
(d) Any cash remaining in a Participant's payroll deduction account
after the purchase of shares on a Purchase Date shall be carried forward in that
account for application on the next Purchase Date; provided that upon
termination of an Offering Period, any such cash shall be promptly refunded to
the Participant.
9. Registration and Delivery of Share Certificates.
(a) Shares purchased by a Participant under this Plan will be
registered in the name of the Participant, or in the name of the Participant and
his or her spouse, or in the name of the Participant and joint tenant(s) (with
right of survivorship), as designated by the Participant.
(b) As soon as administratively feasible after each Purchase Date,
the Company shall deliver to the Participant a certificate representing the
shares purchased upon exercise of a Purchase Right. If approved by the
Administrator in its discretion, the Company may instead (i) deliver a
certificate (or equivalent) to a broker for crediting to the Participant's
account or (ii) make a notation in the Participant's favor of non-certificated
shares on the Company's stock records.
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<PAGE> 6
10. Withdrawal; Termination of Employment.
(a) A Participant may withdraw all, but not less than all, the
payroll deductions credited to his account under this Plan at any time before a
Purchase Date by giving written notice to the Administrator in a form the
Administrator prescribes from time to time. The Participant's Purchase Right
will automatically terminate on the date of receipt of the notice, all payroll
deductions credited to the Participant's account will be refunded promptly
thereafter, and no further payroll deductions will be made during the Offering
Period.
(b) Upon termination of a Participant's Continuous Employment for any
reason, including retirement or death, the payroll deductions credited to the
Participant's account will be promptly refunded to the Participant or, in the
case of death, to the person or persons entitled thereto under Section 14 of
this Plan, and the Participant's Purchase Right will automatically terminate.
(c) A Participant's withdrawal from an offering will not affect the
Participant's eligibility to participate in a succeeding offering or in any
similar plan that may be adopted by the Company.
11. Use of Funds; No Interest.
Amounts withheld from Participants' Compensation under this Plan shall
constitute general funds of the Company, may be used for any corporate purpose,
and need not be segregated from other funds. No interest shall accrue on a
Participant's payroll deductions.
12. Number of Shares Reserved.
(a) The following number of shares of Common Stock are reserved for
issuance under this Plan, and such number may be issued at any time before
termination of this Plan:
(i) Beginning the date of approval of this Plan by the
stockholders of the Company, 200,000 shares of Common
Stock; and
(ii) Beginning the first business day of each calendar year
starting January 1, 2001, the lesser of an additional (i)
200,000 shares of Common Stock, (ii) 0.75% of the
outstanding shares of capital stock on such date or (iii)
an amount determined by the Board.
(b) If the total number of shares that would otherwise be subject to
Purchase Rights granted on an Offering Date exceeds the number of shares then
available under this Plan (after deduction of all shares for which Purchase
Rights have been exercised or are then outstanding), the Administrator shall
make a pro-rata allocation of the available shares in a manner that it
determines to be as uniform and equitable as practicable. In such event, the
Administrator shall give written notice of the reduction and allocation to each
Participant.
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<PAGE> 7
(c) The Administrator may, in its discretion, transfer shares
reserved for issuance under this Plan into a plan or plans of similar terms, as
approved by the Board, providing for the purchase of shares of Common Stock to
employees of Subsidiaries designated by the Board that do not (or do not
thereafter) participate in this Plan. Such additional plans may, without
limitation, provide for variances from the terms of this Plan to take into
account special circumstances (such as foreign legal restrictions) affecting the
employees of the designated Subsidiaries.
13. Administration.
This Plan shall be administered by the Board or by such directors,
officers, and employees of the Company as the Board may select from time to time
(the "Administrator"). All costs and expenses incurred in administering this
Plan shall be paid by the Company, provided that any taxes applicable to an
Employee's participation in this Plan may be charged to the Employee by the
Company. The Administrator may make such rules and reg ulations as it deems
necessary to administer this Plan and to interpret any provision of this Plan.
Any determination, decision, or action of the Administrator in connection with
the construction, interpretation, administration, or application of this Plan or
any right granted under this Plan shall be final, conclusive, and binding upon
all persons, and no member of the Administrator shall be liable for any such
determination, decision, or action.
14. Designation of Beneficiary.
(a) A Participant may file a written designation of a beneficiary who
is to receive any shares and cash, if any, from the Participant's account under
this Plan in the event of the Participant's death.
(b) A designation of beneficiary may be changed by the Participant at
any time by written notice. In the event of the death of a Participant, and in
the absence of a beneficiary validly designated under this Plan who is living at
the time of the Participant's death, the Administrator shall deliver such shares
and/or cash to the executor or administrator of the Participant's estate, or if
no such executor or administrator has been appointed (to the Administrator's
knowledge), the Administrator, in its discretion, may deliver such shares and/or
cash to the spouse or to any one or more dependents or relatives of the
Participant or, if no spouse, dependent, or relative is known to the
Administrator, then to such other person as the Administrator may designate.
15. Transferability.
Neither payroll deductions credited to a Participant's account nor any
rights with regard to the exercise of a Purchase Right or to receive shares
under this Plan may be assigned, transferred, pledged, or otherwise disposed of
in any way (other than by will, the laws of descent and distribution or as
provided in Section 14) by the Participant. Any such attempt at assignment,
transfer, pledge, or other disposition shall be without effect, except that the
Administrator may treat such act as an election to withdraw funds in accordance
with Section 10.
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<PAGE> 8
16. Reports.
Individual accounts will be maintained for each Participant in this
Plan. Statements of account will be given to Participants promptly following
each Purchase Date, setting forth the amounts of payroll deductions, per-share
purchase price, number of shares purchased, and the remaining cash balance, if
any.
17. Adjustments upon Changes in Capitalization.
(a) Subject to any required action by the stockholders of the
Company, the number of shares of Common Stock covered by each Purchase Right
that has not yet been exercised and the number of shares of Common Stock that
have been authorized for issuance under this Plan but have not yet been placed
under a Purchase Right (collectively, the "Reserves"), as well as the price per
share of Common Stock covered by each Purchase Right that has not yet been
exercised, shall be proportionately adjusted for any increase or decrease in the
number of issued shares of Common Stock resulting from a stock split, reverse
stock split, stock dividend, combination or reclassification of the Common
Stock, or any other increase or decrease in the number of shares of Common Stock
effected without receipt of consideration by the Company; provided, however,
that conversion of any convertible securities of the Company shall not be deemed
to have been "effected without receipt of consideration." Such adjustment shall
be made by the Administrator, whose determination shall be final, binding, and
conclusive. Except as expressly provided herein, no issue by the Company of
shares of stock of any class, or securities convertible into shares of stock of
any class, shall affect, and no adjustment by reason thereof shall be made with
respect to, the number or price of shares of Common Stock subject to a Purchase
Right.
(b) In the event of the proposed dissolution or liquidation of the
Company, the then-current Offering Period will terminate immediately before the
consummation of such proposed action, unless otherwise provided by the Board or
the Administrator (if the Administrator is not the Board). In the event of a
proposed sale of all or substantially all of the assets of the Company, or the
merger of the Company with or into another corporation (if stockholders of the
Company own less than 50% of the total outstanding voting power in the surviving
entity or a parent of the surviving entity after the merger), each Purchase
Right shall be assumed or an equivalent purchase right shall be substituted by
the successor corporation or a parent or subsidiary of the successor
corporation, unless the successor corporation does not agree to assume the
Purchase Right or to substitute an equivalent purchase right, in which case the
Administrator may, in lieu of such assumption or substitution, accelerate the
exercisability of Purchase Rights and allow Purchase Rights to be exercisable
(if the Board approves) as to shares as to which the Purchase Right would not
otherwise be exercisable, on terms and for a period that the Administrator
determines in its discretion. To the extent that the Administrator accelerates
exercisability of Purchase Rights as described above, it shall promptly so
notify all Participants in writing.
(c) The Administrator may, in its discretion, also make provision for
adjusting the Reserves, as well as the price per share of Common Stock covered
by each outstanding
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Purchase Right, if the Company effects one or more reorganizations,
recapitalizations, rights offerings, or other increases or reductions of shares
of its outstanding Common Stock, or if the Company consolidates with or merges
into any other corporation.
18. Amendment or Termination.
(a) The Board may at any time terminate or amend this Plan. No
amendment may be made without prior approval of the stockholders of the Company
(obtained in the manner described in paragraph 20) if it would:
(i) Increase the number of shares that may be issued under this
Plan; or
(ii) Change the designation of the employees (or class of
employees) eligible for participation in this Plan.
(b) The Board may elect to terminate any or all outstanding Purchase
Rights at any time, except to the extent that exercisability of such Purchase
Rights has been accelerated pursuant to Section 17(b). If this Plan is
terminated, the Board may also elect to terminate Purchase Rights upon
completion of the next purchase of shares on the next Purchase Date or to permit
Purchase Rights to expire in accordance with their terms (with participation to
continue through such expiration dates). If Purchase Rights are terminated
before expiration, any funds contributed to this Plan that have not been used to
purchase shares shall be refunded to Participants as soon as administratively
feasible.
19. Notices.
All notices or other communications by a Participant to the Company or
the Administrator under or in connection with this Plan shall be deemed to have
been duly given when received in the form specified by the Administrator at the
location, or by the person, designated by the Administrator for that purpose.
20. Stockholder Approval.
This Plan shall be submitted to the stockholders of the Company for
their approval within 12 months after the date this Plan is adopted by the
Board.
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21. Conditions upon Issuance of Shares.
(a) Shares shall not be issued with respect to a Purchase Right
unless the exercise of such Purchase Right and the issuance and delivery of such
shares pursuant thereto shall comply with all applicable provisions of law,
domestic or foreign, including, without limitation, the Securities Act of 1933,
as amended, the Securities Exchange Act of 1934, as amended, the rules and
regulations promulgated thereunder, and the requirements of any stock exchange
upon which the shares may then be listed, and shall be further subject to the
approval of counsel for the Company with respect to such compliance.
(b) As a condition to the exercise of a Purchase Right, the Company
may require the person exercising such Purchase Right to represent and warrant
at the time of any such exercise that the shares are being purchased only for
investment and without any present intention to sell or distribute such shares
if, in the opinion of counsel for the Company, such a representation is required
by any of the aforementioned applicable provisions of law.
22. Term of Plan.
This Plan shall become effective upon the earlier to occur of its
adoption by the Board of Directors or its approval by the stockholders of the
Company as described in Section 20. It shall continue in effect for a term of 20
years unless sooner terminated under Section 19.
10
<PAGE> 1
EXHIBIT 10.11
*CERTAIN INFORMATION WITHIN THIS EXHIBIT HAS BEEN OMITTED AND THE NON-PUBLIC
INFORMATION HAS BEEN FILED SEPARATELY WITH THE SEC. CONFIDENTIAL TREATMENT HAS
BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS.
DEVELOPMENT AND SUPPLY AGREEMENT
THIS DEVELOPMENT AND SUPPLY AGREEMENT (the "Agreement") is made and
entered into as of this ____ day of November, 1998, (the "Effective Date") by
and between INNOGENETICS N.V., a Belgian company with its principal office at
Industriepark 7- box 4, B-9052 Ghent, Belgium, ("INNOGENETICS") and CEPHEID, a
California corporation with its principal office at 1190 Borregas Avenue,
Sunnyvale, California 94089 ("CEPHEID").
R E C I T A L S
A. INNOGENETICS has certain proprietary technology and experience
relating to diagnostic assay reagents, protocols, and detection systems.
B. CEPHEID has the ability to apply its proprietary microelectronics,
micromachining and microfluidics technologies in the development of test
systems, breadboards and prototypes to optimize INNOGENETICS diagnostic assay
procedures.
C. The parties desire to enter into this Agreement to develop,
manufacture, and commercialize innovative diagnostic systems integrating
proprietary INNOGENETICS assays and technologies, and proprietary CEPHEID
technologies and systems.
THE PARTIES AGREE AS FOLLOWS:
1. DEFINITIONS. As used in this Agreement, the following terms shall
have the following meanings:
"CEPHEID IP" shall mean all copyrights, trademarks, Know-How,
and inventions (as evidenced by authorship on a patent application or utility
model) developed during the Term of the R&D Collaboration solely by CEPHEID
employees or consultants which do not incorporate Confidential Information
belonging to INNOGENETICS.
<PAGE> 2
"Change of Control" shall mean either (a) an event where a
company other than INNOGENETICS acquires, merges with, or in some manner gains a
controlling interest (greater than 50% equity ownership or the right by contract
or otherwise to elect a majority of the Board of Directors) in CEPHEID, or (b)
an event where a company other than CEPHEID acquires, merges with, or in some
manner gains a controlling interest (greater than 50% equity ownership or the
right by contract or otherwise to elect a majority of the Board of Directors) in
INNOGENETICS.
"Confidential Information" shall mean (a) all proprietary
information and materials, patentable or otherwise, of a Party which is
disclosed by or on behalf of such Party to the other Party, including, but not
limited to formulations, techniques, methodology, equipment, data, reports,
Know-How, preclinical and clinical trials and the results thereof, sources of
supply, patent positions and business plans, including any negative
developments, and (b) any other information designated by the disclosing Party
to the other Party as confidential or proprietary, whether or not related to the
Project; provided however, Confidential Information shall not include
information disclosed which: (i) was known or used by the receiving Party prior
to its date of disclosure to the receiving Party, as evidenced by the prior
written records of the receiving Party; or (ii) either before or after the date
of the disclosure to the receiving Party is lawfully disclosed without
restriction on disclosure to the receiving Party by an independent, unaffiliated
third party rightfully in possession of the Confidential Information; or (iii)
either before or after the date of the disclosure to the receiving Party becomes
published or generally known to the public through no fault or omission on the
part of the receiving Party; or (iv) is required to be disclosed by the
receiving Party to comply with applicable laws, to defend or prosecute
litigation or to comply with governmental regulations, provided that the
receiving Party provides prior written notice of such disclosure to the other
Party and takes reasonable and lawful actions to avoid and/or minimize the
degree of such disclosure.
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<PAGE> 3
"Field" shall mean (i) human diagnostics, as evidenced by
regulatory labeling indicating approval for use in human diagnostics or for
investigation of putative clinical utility by a diagnostics laboratory in a
clinical research setting (e.g. For Investigational Use Only or For Research Use
Only); (ii) food testing; and (iii) veterinary testing. Additional fields
associated with opportunities that may arise during the course of the R&D
Collaboration will be the subject of good faith negotiations between the
Parties.
"INNOGENETICS IP" shall mean all copyrights, trademarks,
Know-How and inventions (as evidenced by authorship on a patent application or
utility model) developed during the Term of the R&D Collaboration solely by
INNOGENETICS employees or consultants which do not incorporate Confidential
Information belonging to CEPHEID.
"Joint IP" shall mean all copyrights, Know-How and inventions
(as evidenced by authorship on a joint application for a patent or utility
model) developed during the Term of the R&D Collaboration jointly by
INNOGENETICS and CEPHEID employees or consultants.
"Know-How" shall mean all information, patentable or otherwise,
of a Party (whether solely or jointly owned) which (a) is used or developed in
the R&D Collaboration and (b) is reasonably useful or necessary or is required
to develop, use, manufacture, distribute and/or sell the Products.
"Net Sales" shall mean revenues actually received by CEPHEID
from a third party attributable to sale or transfer of any product less costs
actually identified on the invoice and allowed directly attributable to such
sale or transfer, including (i) discounts, in amounts customary in the trade,
for quantity purchases, cash payments and prompt payments, (ii) credits or
refunds for claims or returns, (iii) any transportation or insurance premiums
paid by CEPHEID and (iv) taxes, including sales, use, excise, import, export and
other taxes and duties borne by CEPHEID.
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<PAGE> 4
"Party" shall mean INNOGENETICS or CEPHEID; "Parties" shall mean
both INNOGENETICS and CEPHEID and their affiliates (defined as an entity in
which INNOGENETICS or CEPHEID has greater than 50% equity ownership or
controlling interest).
"Prior IP" shall mean any patents, patent applications,
copyrights, trademarks, licenses, and Know-How, owned by a Party prior to the
date of this Agreement.
"Production Unit" shall mean a Product produced using final
production equipment and processes, resulting in a unit that can be used, as
required, for clinical trials and obtaining product registration, or that can be
sold.
"Products" shall mean systems, subsystems, consumables, and
software resulting from the R&D Collaboration and incorporating proprietary
CEPHEID technology and proprietary INNOGENETICS technology, or systems,
subsystems, and consumables incorporating proprietary CEPHEID technology that
are specifically designed and produced according to INNOGENETICS approved
Product Requirements and Specifications for use with proprietary INNOGENETICS
technology and assay procedures.
"Product Requirements and Specifications" shall mean a detailed
listing of design features and performance characteristics of Products that are
required to meet the defined needs of the intended customers or users, that are
required to achieve success in the defined markets, and which are deemed to be
technically feasible by the Parties. Product Requirements and Specifications
will be developed as part of the Work Plan for a given Product or group of
Products prior to initiation of the development phase for that Product or
Products. Product Requirements and Specifications can be modified during the
development phase upon approval by the R&D Committee.
"R&D Collaboration" shall mean the collaboration between the
Parties pursuant to this Agreement.
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<PAGE> 5
"R&D Committee" shall mean the research and development
committee comprised of three members from the technical and commercial
management teams of each of CEPHEID and INNOGENETICS.
"Term" shall have the meaning described in Section 8 of this
Agreement.
"Territory" shall mean any and all countries of the world.
"Work Plan" shall mean a detailed work plan setting forth
Product Requirements and Specifications, as well as a budget and development
milestones and timetables established by the Parties for the development of the
Products. A Work Plan will be developed for each Product or group of Products to
be developed under the R&D Collaboration.
2. R&D COMMITTEE AND WORK PLAN.
The Parties shall appoint their members of the R&D Committee
within 15 days after the Effective Date of this Agreement. The R&D Committee
shall establish a Work Plan within 60 days after the Effective Date of this
Agreement. The R&D Committee shall have the authority to make all decisions
concerning the conduct of the R&D Collaboration, including annual updates of,
and modifications to, the Work Plan. With respect to all matters to be decided
by the R&D Committee, the decision of a majority of all the members of the R&D
Committee shall be determinative. Any modifications to the Work Plan shall be in
writing. All meetings of the R&D Committee shall be summarized in writing and
sent to both Parties. At least two representatives of each Party shall be
present at such meetings. All decisions made by the R&D Committee shall be
approved in writing by all members before becoming effective. The R&D Committee
shall meet at least quarterly, alternating between CEPHEID's headquarters in
California and INNOGENETICS' headquarters in Belgium, or in other mutually
agreed upon venues, or by video conferencing.
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<PAGE> 6
3. RESEARCH AND DEVELOPMENT COLLABORATION.
3.1 R&D Collaboration Phases. The R&D Collaboration shall
proceed in a minimum of three major phases:
3.1.1 Phase 1 - Feasibility Demonstration and Method
Optimization. Test systems, breadboards, and prototypes shall be developed to
demonstrate the feasibility of various analytical processes integral to the
performance of INNOGENETICS' existing and future test methods, including rapid,
micro-PCR, homogeneous detection, and sample preparation and DNA or RNA
extraction for human genomic and pathogen samples. Prototypes shall be designed
according to the requirements of INNOGENETICS' assay reagents and protocols, and
will be used to optimize the INNOGENETICS assay procedures. The results from
this feasibility and optimization work will enable the definition of
specifications for saleable products to be developed by CEPHEID on behalf of
INNOGENETICS.
As part of Phase I, the following prototypes will be
delivered by CEPHEID to INNOGENETICS, according to schedules to be established
in the Work Plan:
I-CORE/Smart Cycler(TM):
- One optical thermal cycler prototype (8 reaction sites,
100ul tube, sprung heater design, 2 color optics).
- Two optical thermal cycler prototypes (8 reaction sites,
25ul tube, sprung heater design, 4 color optics).
Sample Preparation Cartridges:
- Prototype HCV Extraction Cartridges (number to be
determined).
- Prototype Genomic DNA Extraction Cartridges (number to
be determined).
3.1.2 Phase 2 - Product Development (Near-Term
Products). As determined by the Product Requirements and Specification efforts
of the R&D
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<PAGE> 7
Committee, and by the results of the feasibility/optimization work of Phase 1,
the Parties envision that several potential products will be developed by
CEPHEID on behalf of INNOGENETICS, such as:
- I-CORE based thermal cycler as a precursor to LIPA
hybridization
- I-CORE based thermal cycler with homogeneous detection
(fluorescent dye based)
- Sample preparation cartridge for HCV RNA extraction and
concentration (or general pathogen RNA extraction)
- Sample preparation device for human genomic DNA
extraction and concentration (HLA model).
Each of these projects will be defined by a Work Plan, outlining
Product Requirements and Specifications, as well as budget and development
milestones and timetable.
3.1.3 Phase 3 - Product Development (Long-Term
Products). Both INNOGENETICS and CEPHEID realize that there is considerable
value in developing systems that provide true automation of important diagnostic
test procedures. Accordingly, they have together conceived of a fully integrated
system or system based on the complete integration of their respective
technologies and carrying out a complete diagnostic procedure from sample
preparation through detection and result reporting. Based on the results of the
feasibility/optimization work of Phase 1, a system or systems will be jointly
specified that will provide the basis for joint research and development
activities directed toward this fully integrated system. Such joint
specification may lead to continued feasibility work, or to a development
program, under a Work Plan.
3.1.4 Modification of Phase 1. If feasibility of I-CORE
based procedures or either sample preparation cartridge is not demonstrated
within the time frame projected for Phase 1, the R&D Committee may recommend
that the feasibility work be extended, or the applicable portion of the program
be terminated. Such
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<PAGE> 8
extension or termination shall be subject to approval by the management
committees of both INNOGENETICS and CEPHEID.
3.1.5 Modification of Phase 2. Following the Phase 1
feasibility work and upon initiation of development of specified products, the
R&D Committee shall define and agree upon milestones within the development Work
Plan. If the Parties do not achieve the milestones, the R&D Committee may
recommend that the development work be extended, or the applicable portion of
the program be terminated. Such extension or termination shall be subject to
approval by the management committees of both INNOGENETICS and CEPHEID.
3.1.6 R&D Collaboration Termination. A decision to
terminate the R&D Collaboration shall be based on the objective assessment by
both Parties of technical and/or commercial issues. If after such objective
assessment, both Parties cannot reach agreement, then the matter shall be
referred to arbitration in accordance with Section 15. If the R&D Collaboration
is terminated, either Party shall be able to use Joint IP developed during the
R&D Collaboration, subject to the terms and conditions of Section 6.7.
3.2 R&D Collaboration Employees. In order to facilitate
the R&D Collaboration, employees of either Party may be assigned to work on the
premises of the other Party for specified periods of time and for specifically
defined projects, provided that visits shall be on mutually convenient dates and
during mutually convenient business hours and shall not unreasonably interrupt
the operations of the other Party. Each Party shall require each of its
employees and consultants assigned to the R&D Collaboration to execute an
agreement for the assignment of inventions and for the protection of
Confidential Information in such reasonable form as may from time to time be
used by such Party and approved by the other Party.
3.3 R&D Collaboration Funding.
INNOGENETICS shall fund the fully loaded Research, Development and
Engineering ("RD&E") costs that CEPHEID incurs on behalf of INNOGENETICS in
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<PAGE> 9
performing work of the R&D Collaboration to develop INNOGENETICS specified
products.
3.3.1 Phase 1 Funding. Such RD&E costs shall be
comprised of direct RD&E costs, RD&E overhead, and direct costs and allocated
overhead of constructing and delivering prototype systems and cartridges as
described in 3.1.1.
Estimated funding requirements for Phase I are as follows:
<TABLE>
<CAPTION>
($000's)
Q1 Q2 Q3 Q4 Total
-- -- -- -- -----
<S> <C> <C> <C> <C> <C>
I-CORE/Smart Cycler(TM) $[**] -- -- -- $[**]
Sample Prep Cartridges $[**] $[**] $[**] $[**] $[**]
Total $[**] $[**] $[**] $[**] $[**]
</TABLE>
The above quarterly funding estimates are for a time period commencing December
1, 1998 and ending November 30, 1999. Funding provided to CEPHEID by
INNOGENETICS, under the Heads of Agreement dated August 19, 1998 and executed by
the Parties, that exceeded the actual expenditures incurred by CEPHEID in
carrying out the applicable activities under the Heads of Agreement, shall be
credited towards the funding estimates above.
The above funding estimates are based on a fully loaded RD&E FTE cost of
$[**]. This FTE cost may be adjusted on an annual basis, as necessary,
provided that CEPHEID provides evidence of increased costs of FTE's directed to
the R&D Collaboration.
3.3.2 Phase 2 and 3 Funding. INNOGENETICS shall fund the
fully loaded RD&E costs that CEPHEID incurs in connection with the completion of
INNOGENETICS specified products, based on the prototypes developed and evaluated
in Phase 1. Such expenses may include, but are not limited to, INNOGENETICS
specific user software and user interface, instrument chassis and external case,
and any scale-up
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<PAGE> 10
costs specific to the INNOGENETICS products. Budgets will be included in Work
Plans for Phases 2 and 3 Products shall be developed and approved by the
Research Committee at the appropriate time prior to initiation of associated
RD&E activities.
3.3.3 Reconciliation. Required funding for Phase 1, 2
and 3 shall be estimated by the Parties and set forth in the Work Plan. The
estimated funding shall be paid by INNOGENETICS to CEPHEID in advance on a
quarterly basis, after receipt of the corresponding invoice from CEPHEID. Within
90 days after the end of each phase of Phase 1, 2, and 3 CEPHEID shall submit
its actual RD&E costs in reasonable detail. If such actual cost, as approved in
advance by the R&D Committee, exceeds the amounts paid CEPHEID, INNOGENETICS
shall promptly pay CEPHEID the difference, and if such actual cost for Phase 1
or 2 is less than the amounts paid CEPHEID, INNOGENETICS shall receive a credit
against its future funding obligations in the amount of such difference or for
Phase 3 CEPHEID shall promptly pay INNOGENETICS the difference.
3.3.4 Records. The Parties shall keep true and accurate
records to substantiate the expenditure of all funds paid for the RD&E, to
document Net Sales amounts, or as necessary to carry out other obligations under
this Agreement. Upon request, the Parties shall permit an authorized independent
certified public accountant to inspect once per calendar year such records in
confidence in order to verify only the information subject to the inspection.
Such examination shall be at the cost of the Party requesting the inspection,
unless the accountant concludes that the records show a difference of 5% or
more, in which case the examination will be paid by the audited Party.
3.3.5 Diligence. CEPHEID will be responsible to hire and
retain scientists with sufficient qualifications, skill, and experience to carry
out its obligations under this Agreement. During the term of the R&D
Collaboration, CEPHEID shall use all reasonable efforts and proceed diligently
to perform the obligations and activities set out for CEPHEID in the Work Plan,
including, without limitation, using its good faith
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<PAGE> 11
efforts to allocate the required number of scientists. CEPHEID shall conduct all
work under the Work Plan in compliance with all requirements of applicable laws,
rules, and regulations, and all other applicable good laboratory practices in an
attempt to achieve its objectives efficiently and expeditiously.
3.3.6 R&D Collaboration Reporting. Within forty-five
(45) days following the end of each quarter during the term of the R&D
Collaboration, CEPHEID shall provide to INNOGENETICS written reports (i)
summarizing the activities and results obtained under the Work Plan during such
quarter; (ii) setting forth the number and allocation of FTE's devoted to the
Work Plan with reference to the different activities performed during such
quarter.
4. LICENSES.
4.1 Exclusive License Grant. During the Term of the R&D
Collaboration and Supply Agreement (as per Section 7 thereof), CEPHEID hereby
grants INNOGENETICS a royalty-free, worldwide, exclusive license to sell and
have sold the Products that incorporate INNOGENETICS proprietary technology or
are intended for use solely with INNOGENETICS' proprietary technology or assay
methods.
4.2 Non-Exclusive License Grant. During the Term of the R&D
Collaboration and Supply Agreement, CEPHEID hereby grants INNOGENETICS a
royalty-free, worldwide, non-exclusive license to sell and have sold generically
applicable products developed in the course of the R&D Collaboration, the
applications of which are not limited to use with INNOGENETICS proprietary
technology or assay methods.
4.3 Non-exclusive Trademark License. CEPHEID hereby grants
INNOGENETICS a royalty-free worldwide, non-exclusive license to use CEPHEID
trademarks in connection with marketing and sale of the Products identified in
Sections 4.1 and 4.2. INNOGENETICS agrees to submit the use of such trademarks
in any literature or product inserts or labeling to CEPHEID for review and
approval prior to use
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<PAGE> 12
and to use the trademarks only in a manner approved by CEPHEID. INNOGENETICS
shall clearly reference CEPHEID in any marketing literature and product inserts.
5. NON-COMPETE.
5.1 DNA Extraction Sample Preparation Cartridge. If the R&D
Collaboration results in development of a sample preparation cartridge for
extraction of genomic DNA that does not incorporate proprietary INNOGENETICS
technology and that is generically applicable for any procedure based on
analysis of human genomic DNA, then CEPHEID agrees not to provide such cartridge
for sale by another party to be licensed and approved for use in [**], which are
current market areas for INNOGENETICS; for a time period of [**] following the
supply to INNOGENETICS by CEPHEID of the number of Production Units necessary to
conduct clinical trials, marketing trials and product registration.
5.2 Viral Nucleic Acid Extraction Sample Preparation Cartridge.
If the R&D Collaboration results in the development of a sample preparation
cartridge for extraction of viral nucleic acid that does not incorporate
proprietary INNOGENETICS technology and that is generically applicable for any
procedure based on analysis of viral nucleic acid, then CEPHEID agrees not to
provide such cartridge for sale by another party to be licensed and approved for
use in [**], which are applications areas currently under development by
INNOGENETICS for a time period of [**] following the supply to INNOGENETICS by
CEPHEID of the number of Production Units necessary to conduct clinical trials,
marketing trials and product registration.
5.3 Royalties. If after the applicable time period for
non-compete, CEPHEID provides a generically applicable cartridge for sale by
another party for any of the listed applications (as referenced in 5.1 and 5.2),
then CEPHEID will pay to
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<PAGE> 13
INNOGENETICS, within 60 days after the end of each calendar quarter, a royalty
of [**] on CEPHEID's Net Sales of such cartridge(s), up to a cumulative amount
equal to [**] of the R&D funding provided by INNOGENETICS to CEPHEID for
development of such specific cartridge(s). All such royalties shall be payable
in United States dollars. In addition, INNOGENETICS will be able to purchase
such generic cartridges from CEPHEID at pricing terms no less favorable (taken
as a whole, based on volume and other terms) than those provided to other
companies to whom the generic cartridges are sold by CEPHEID.
5.4 Distribution Rights. As outlined in 4.1, INNOGENETICS will
have exclusive distribution rights for Products in the Field and Territory. As
outlined in 4.2, INNOGENETICS will have non-exclusive distribution rights for
generically applicable products developed in the course of the R&D
Collaboration, in the Field and Territory. Such rights shall extend to third
parties with whom INNOGENETICS has a distributor agreement. INNOGENETICS shall
have responsibility for obtaining all permits and regulatory approvals necessary
to sell the Products within its Territory.
5.5 Third Party Collaborations. Subject to the terms and
conditions of this Agreement, the Parties shall each have the right to enter
into collaborations with third parties.
6. INTELLECTUAL PROPERTY.
6.1 CEPHEID Third Party Intellectual Property. CEPHEID shall be
responsible at its cost for securing rights to any third party intellectual
property related to systems, subsystems, and non-reagent consumables (such as
disposable reaction tubes), required to make, use, and/or sell Products in the
Field.
6.2 INNOGENETICS Third Party Intellectual Property. INNOGENETICS
shall be responsible at its cost for securing rights to any third party
intellectual property related to reagents and detection (such as **), required
to make, use, and/or sell Products in the Field.
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<PAGE> 14
6.3 Other Technologies. For technologies that are not clearly
applicable to systems or reagents and detection, the Parties shall discuss and
determine where responsibility for securing a license shall lie.
6.4 Prior Intellectual Property. Each Party owns their
respective Prior IP, and the other Party shall not obtain any rights thereto,
except as expressly set forth in this Agreement.
6.5 CEPHEID Intellectual Property. CEPHEID shall solely own all
CEPHEID IP.
6.6 INNOGENETICS Intellectual Property. INNOGENETICS shall
solely own all INNOGENETICS IP.
6.7 Joint Intellectual Property. Both INNOGENETICS and CEPHEID
shall jointly own all Joint IP. Either Party shall have a first right of refusal
to exclusively license some or all of the Joint IP, under terms to be
negotiated. If neither Party opts to take an exclusive license to some or all of
the Joint IP, then each Party shall receive an unrestricted royalty-bearing
license, under terms to be negotiated, to use such Joint IP outside of the R&D
Collaboration, subject to any limitations imposed by dominating Prior IP of
either Party. The Parties will agree and define which of the Parties will have
responsibility for filing and maintaining the joint patents, on a case by case
basis. Costs for filing and maintaining will be equally shared by both Parties,
unless a different cost sharing formula for a particular joint patent, is agreed
upon by both Parties. If a joint patent is infringed by a third party, the
Parties will jointly decide on the appropriate action. No Party will take action
in response to a third party infringement of a joint patent without consent of
the other Party, which shall not be unreasonably withheld.
7. SUPPLY AGREEMENT.
7.1 Exclusive Supplier. For the Term of this Agreement, CEPHEID
shall supply INNOGENETICS with one hundred percent (100%) of its requirements
for the CEPHEID systems, subsystems and consumables that are incorporated in the
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<PAGE> 15
Products. Such systems, subsystems, and consumables shall be subject to
CEPHEID's terms and conditions of sale, as the same may be modified from time to
time, but not more than once per year.
7.2 Pricing. Such systems, subsystems, and consumables shall be
sold to INNOGENETICS at transfer prices that shall be established in the
following manner: target transfer prices will be established at the time that
such Products are specified, as part of the Product Requirements and
Specifications under the Work Plan. Final transfer prices shall be agreed upon
at least 90 days prior to sale to INNOGENETICS. Transfer prices shall be
reviewed and subject to renegotiation at the request of either Party, but no
more than once per year. CEPHEID shall be responsible for any royalty payments
to Lawrence Livermore National Laboratories ("LLNL") relating to the sale of
such systems, subsystems and consumables based on technology licensed from LNL
to CEPHEID.
7.3 Transfer Price Estimates. For the I-CORE based system, the
estimated transfer prices are as follows, subject to unit volumes and specific
product characteristics that may be required by INNOGENETICS: Per I-CORE site:
$[**]; Per Reaction Tube: $[**]. These estimated transfer prices are based
on estimated standard cost plus a certain percent profit margin for CEPHEID.
7.4 Pricing Formula. The cost plus profit margin method shall be
generally applied by CEPHEID in establishing transfer prices. However, the
Parties recognize that other formulas for revenue sharing and transfer pricing
may be more appropriate for other market or product opportunities, depending
upon unit volumes, price per test and other market conditions. In order to
ensure an equitable sharing of return for both parties, such other formulas
shall be considered by the Parties on an opportunity by opportunity basis, and
agreed upon in the course of establishing target transfer prices as part of the
Work Plan for a Product or group of Products.
7.5 CEPHEID Records. CEPHEID shall keep true and correct records
to substantiate the supply price charged to INNOGENETICS pursuant to this
Section 7.
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Upon request of INNOGENETICS, CEPHEID shall permit INNOGENETICS or its
authorized representative to inspect once per calendar year records for the
preceding two calendar years in confidence in order to verify the supply price
charged to INNOGENETICS.
7.6 Product Need Forecasts; Minimum Purchase Requirements. At
the initiation of Phase 2 of the Research and Development Collaboration and on
an annual basis thereafter, INNOGENETICS shall provide CEPHEID with a written
two-year forecast of Products required. This forecast shall be comprised of a
one year forecast (first 6 months of monthly requirements and following 2
quarters of quarterly requirements) and a one year projection. This forecast
will be updated quarterly. CEPHEID shall notify INNOGENETICS as soon as possible
in the event CEPHEID determines that it would be unable to supply PRODUCTS in
accordance with the forecasted orders. Upon launch of the said Products, the
first three months of the updated forecast will represent a purchase commitment.
In addition, the Parties shall negotiate a schedule of minimum annual purchase
requirements for each Product.
7.7 Manufacturing Rights. The Parties agree that the
manufacturing of Products, excluding biologically active components, shall be
the responsibility of CEPHEID. INNOGENETICS shall be responsible for the
manufacturing of the biologically active components and shall have the right to
incorporate the biologically active components into the Products. INNOGENETICS
shall have the final Product responsibility towards its customers and regulatory
bodies. In the case that all test specific biologically active components would
need to be incorporated into the Production Units within a single production
process, CEPHEID as well as INNOGENETICS shall have to approve the manufacturing
plans as well as the procedures and facilities where such production will take
place. The procedures and facilities shall, in any case, allow the manufacturing
of Products under conditions acceptable to the regulatory bodies of those
countries where Products shall be sold.
7.8 Security of Supply.
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7.8.1. Product Quality, Safety, and Conformity. All
Products supplied to INNOGENETICS, including the containerization and packaging
thereof (as defined and agreed upon as part of the Product Requirements and
Specifications) shall, at the time of delivery, be free from manufacturing
defects (including, without limitation, defects in material and workmanship),
and shall be manufactured, packaged, and supplied in conformity in all aspects
with the Product Requirements and Specifications, and International Airfreight
Transport Association requirements in force at such time. CEPHEID shall have
carried out the applicable and agreed upon tests and quality control procedures
relative to the Products prior to the delivery thereof. The Products shall be of
merchantable quality, and generally safe for their intended use.
7.8.2. Changes in Product Requirements and
Specifications. No amendment shall be made to the Product Requirements and
Specifications without the prior written approval of the other Party; without
limitation of the foregoing, the manufacturing process, labeling, packing
components with respect to any Product shall not be changed if such change could
affect the performance or registration of any such Product without the prior
written consent of INNOGENETICS. In the event of any agreed-upon change, CEPHEID
shall provide reasonable documentation to enable INNOGENTICS to appropriately
modify the Product Requirements and Specifications to be applied to the Product
thereunder.
7.8.3. Modifications to Products or Production Process.
If CEPHEID makes any improvement, modification, or adjustment to any of the
Products of the production process thereof during the Term of this Agreement,
CEPHEID shall notify INNOGENETICS as soon as is practicable. INNOGENETICS shall
have the option of including or not including in the Products such improvement,
modification, or adjustment as it shall request, on a schedule and at a cost
agreed upon by the Parties.
7.8.4. Certification of Conformity to Product
Requirements and Specifications. CEPHEID will undertake in respect of each
delivery of Products to INNOGENETICS to give notice to INNOGENETICS with such
delivery, the appropriate
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documentation in which CEPHEID certifies that the Products in such delivery have
been analyzed and meet the applicable Product Requirements and Specifications.
Such documentation shall also set forth the batch or lot number of the Products,
the date of manufacture, and as applicable, batch-to-batch test data and
expiration dates for such Products. The configuration of such documentation as
well as the testing methods to be applied to ensure conformity of the delivered
Products to the applicable Product Requirements and Specifications shall be
agreed upon by both Parties as part of the approval of the Product Requirements
and Specifications.
7.8.5. Notification of Non-Conformance or Customer
Complaints. Each Party shall notify the other Party promptly of the discovery
and nature of any non-conformance of any Product to its Product Requirements and
Specifications and regarding any material complaints such Party may receive from
customers, or from any governmental or regulatory authority in respect to such
Product, its manufacture, or its constituents. Upon notification by either
Party, the appropriate Party or Parties (depending upon whether the
non-conformance is related to hardware, software, and/or reagents) shall conduct
a quality assurance/quality control investigation and shall inform the other
Party or Parties regarding the findings of such investigation, as soon as such
findings are available, and in any event within two (2) weeks of the other
Party's notification. In addition, each Party shall inform the other Party of
any and all defects it discovers within its production process that might
influence the performance of the Products delivered to INNOGENETICS. Upon
INNOGENETICS's request, CEPHEID shall provide to INNOGENETICS all reasonable
information and assistance necessary for INNOGENETICS to understand and resolve
complaints received from its customers or regulatory authority.
7.8.6. Quality Audits and Inspections. CEPHEID shall
allow INNOGENETICS and its duly authorized representatives, and the personnel of
appropriate regulatory authorities, reasonable access to such premises as are
used in the production and testing of the Products for the purpose of conducting
a quality audit
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thereof. As appropriate, INNOGENTICS shall allow CEPHEID and its duly authorized
representatives reasonable access to such premises as are used in the
incorporation of biologically active components into Products, for the purpose
of CEPHEID's rendering its approval of such facilities and procedures, as per
Section 7.7.
7.8.7. Inability to Supply Products. Subject to the
provisions in Section 21 regarding excusable delays as a result of force
majeure, upon written notice to CEPHEID from INNOGENETICS, CEPHEID shall
transfer the applicable technology, know-how, and licenses to INNOGENETICS to
make, have made, sell, and have sold Products, upon the occurrence of any of the
following events, (i ) - (v ) below. However the Parties recognize that the
underlying objective of this Agreement is to realize an economical and
reasonable way the mutual interests and requirements of the Parties. In the
instance of an inability to supply Products, the Parties will meet to discuss
potential solutions in order to avoid the recurrence of the inability to supply
Products.
(i) CEPHEID is unable to supply such Product or Product component for any
reason, including by reason of non-compliance with regulatory requirements or
the commencement by or against CEPHEID any bankruptcy or insolvency proceeding,
or CEPHEID is unable to supply any such Product or Product component conforming
in all respects with the representations and warranties set forth in the
Agreement;
(ii) CEPHEID notifies INNOGENETICS that it is unwilling to manufacture or supply
such Product or Product component;
(iii) CEPHEID fails to meet three (3) consecutive scheduled delivery dates, or
delivery is delayed by more than three (3) months, or fails to meet an agreed
upon replacement date by more than thirty (30) days.
(iv) CEPHEID shall be in violation, breach or default of any material
representation, warranty, covenant, or agreement contained in the Agreement and
shall not have cured or undertake to cure the same within sixty (60) days after
INNOGENETICS's request to do so;
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(v) CEPHEID fails, over any twelve (12) month period, to deliver more than
eighty percent (80%) of INNOGENETIC's orders for Products in accordance with
INNOGENETICS's forecast.
CEPHEID will make all necessary efforts to ensure that such technology transfer
is finalized within three (3) months after being given written notice by
INNOGENETICS that such technology transfer is requested according to this
paragraph 7.8 of the Agreement. Such technology transfer shall be at CEPHEID's
expense. INNOGENETICS shall use the transferred technology only for the
manufacture and sale of the Products affected under the applicable event or
events above.
7.9 Freedom from Liens and Encumbrances. Upon payment to CEPHEID
by INNOGENETICS under the terms of Section 7.2, the Products supplied to
INNOGENTICS by CEPHEID shall be free of all liens and encumbrances of any kind.
8. TERM.
8.1 Supply Agreement. Unless earlier terminated in accordance
with the provisions of this Section 8, Section 7 "Supply Agreement" shall remain
in effect as from the Effective Date of this Agreement for as long as Products
are purchased by INNOGENETICS from CEPHEID in amounts at least equivalent to the
minimum purchase requirements.
8.2 R&D Collaboration. Unless earlier terminated in accordance
with the provisions of this Section 8.2 "R&D Collaboration" shall remain in
effect as long as CEPHEID and INNOGENETICS identify product development
opportunities of mutual interest, under mutually acceptable terms, they will
continue to collaborate to introduce important, innovative products to the
diagnostics marketplace.
8.3 Termination. This Agreement may be terminated as follows:
(a) by mutual written consent of the Parties; and
(b) failure by either Party or its Affiliates to comply
with any of the material obligations contained in this Agreement shall entitle
the other Party to give the
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defaulting Party notice specifying the nature of the default and requiring it to
cure such default. If such default is not cured within 60 days after the receipt
of such notice (or, if such default cannot be cured within such 60-day period,
if the Party in default does not commence and diligently continue actions to
cure such default), the notifying Party shall be entitled, without prejudice to
any other rights conferred on it by this Agreement, in addition to any other
remedies available to it by law or in equity, to terminate this Agreement
immediately by giving written notice. The right of either Party to terminate the
Agreement, as hereinabove provided, shall not be affected in any way by its
waiver or failure to take action with respect to any previous default.
9. ASSIGNABILITY.
9.1 Assignment by CEPHEID. Upon prior approval by INNOGENETICS
not to be unreasonably withheld, CEPHEID may assign all its rights and duties
under this Agreement.
9.2 Assignment by INNOGENETICS. Upon prior approval by CEPHEID
not to be unreasonably withheld, INNOGENETICS may assign all its rights and
duties under this Agreement.
10. CHANGE OF CONTROL
10.1 Survival of Rights. In the event of a Change of Control of
CEPHEID, the following rights that INNOGENETICS enjoys under this Agreement
shall survive, as follows:
a) Systems, subsystems, and consumables comprising
Products that are manufactured by CEPHEID or its vendors and sold to
INNOGENETICS will continue to be sold to INNOGENETICS at the same transfer
prices and the same minimum purchase requirements in effect at the time of the
Change of Control for at least eighteen (18) months following the Change of
Control. If after 18 months following the Change of Control, INNOGENETICS is
unable to purchase the applicable systems, subsystems, and
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consumables from CEPHEID under substantially equivalent terms, INNOGENETICS
shall automatically obtain a royalty-free license to manufacture these systems,
subsystems, and consumables themselves, or to contract for their manufacture by
vendors of INNOGENETICS' selection. CEPHEID will also transfer to INNOGENETICS
the applicable technology and Know-How necessary to enable INNOGENETICS to
manufacture the applicable systems, subsystems, and consumables.
b) R&D Collaborations underway at the time of Change of Control
will be carried out to completion, as defined by development of product or
products that are fully specified at the time. Such R&D Collaborations will
proceed according to the agreed upon Work Plans with INNOGENETICS providing
funding at the agreed upon levels. If CEPHEID is unable to supply the products
resulting from these collaborations to INNOGENETICS, then INNOGENETICS will
receive a royalty-free license to manufacture these products themselves.
10.2 Termination. INNOGENETICS may elect to terminate part or
all of this Agreement with CEPHEID in the event of the Change of Control in
either CEPHEID or INNOGENETICS, but in so electing, INNOGENETICS must provide at
least six (6) months notice of its intention to do so. If INNOGENETICS elects to
terminate the Agreement as a result of a change of control in INNOGENETICS, and
in so terminating, INNOGENETICS no longer wishes to market and sell Products
that have been developed or sold up to that point, then CEPHEID will have the
option to receive a license to the associated INNOGENETICS technology and to
sell or have sold the associated Products, at terms to be negotiated.
11. CONFIDENTIAL INFORMATION.
Each Party hereto shall maintain the Confidential Information of
the other Party in confidence during the term of this Agreement and during the
period ending two years after the termination of the R&D Collaboration, and
shall not disclose, divulge or otherwise communicate such Confidential
Information to others, or use it for any purpose,
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except as permitted or contemplated by this Agreement or pursuant to, and in
order to carry out, the terms and objectives of this Agreement, and hereby
agrees to exercise every reasonable precaution to prevent the unauthorized
disclosure of such Confidential Information by any of its directors, officers,
employees, consultants, subcontractors, agents or sublicensees. The parties
agree that the R&D Committee must provide written consent before either Party
can publish scientific results related to the R&D Collaboration.
12. REPRESENTATIONS.
12.1 Representations of INNOGENETICS. INNOGENETICS hereby
represents to CEPHEID as follows:
a) it is a corporation validly existing and in good
standing under the laws of Belgium and has the corporate power and authority to
conduct its business and to own its assets and is duly qualified or licensed to
do business in Belgium
b) it has the power and authority to execute, deliver
and perform this Agreement and the transactions contemplated hereby, has taken
all necessary corporate action to authorize the execution and delivery of this
Agreement and the consummation of the transactions contemplated hereby.
c) this Agreement has been executed and delivered by
INNOGENETICS and constitutes a valid and binding obligation of INNOGENETICS
enforceable against it in accordance with its terms.
12.2 Representations of CEPHEID. CEPHEID hereby represents to
INNOGENETICS as follows:
a) it is a corporation validly existing and in good
standing under the laws of California and has the corporate power and authority
to conduct its business and to own its assets and is duly qualified or licensed
to do business in California.
b) it has the power and authority to execute, deliver
and perform this Agreement and the transactions contemplated hereby, has taken
all necessary corporate
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action to authorize the execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby.
c) this Agreement has been executed and delivered by
CEPHEID and constitutes a valid and binding obligation of CEPHEID enforceable
against it in accordance with its terms.
d) All the material contracts, agreements, and
instruments to which CEPHEID is a party, are valid, binding and in full force
and effect in all material respects. CEPHEID has complied with all the material
provisions of all its material contracts, obligations, agreements, plans,
arrangements, and commitments, and there does not exist any event of default
under any such agreement which would have a material adverse effect on the
condition, financial or otherwise, of CEPHEID. There is no action, suit,
proceeding or investigation pending or threatened against CEPHEID before any
court or before any governmental or administrative agency for the renegotiation
of or any other adjustment of any such agreement.
e) To CEPHEID's knowledge, there is pending or overtly
threatened action, suit, proceeding or claim, or to CEPHEID's knowledge, any
basis therefore, nor would there be, to CEPHEID's knowledge, any basis therefore
as a result of the services proposed to be conducted by CEPHEID hereby, whether
or not purportedly on behalf of CEPHEID, to which CEPHEID is or may be named as
a party or its property is or may be subject to, to CEPHEID's knowledge, to
which any officer, key employee or principal stockholder of CEPHEID is subject,
and in which (in any case) an unfavorable outcome, ruling or finding would have
a material adverse effect on the condition, financial or otherwise, or
operations of CEPHEID; and CEPHEID has no knowledge of any unasserted claim, the
assertion of which is likely and which, if asserted, will seek damages, an
injunction or other legal, equitable, monetary or nonmonetary relief, which
claim (individually or collectively with other asserted claims) if sustained
would have a material adverse effect on the condition, financial or otherwise,
operations of CEPHEID. CEPHEID has not admitted in writing its inability to pay
its debts generally as they
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become due, filed or consented to the filing against it of a petition of
bankruptcy or a petition to take advantage of any insolvency act, made an
assignment for the benefits of creditors, consented to the appointment of a
receiver for itself or for the whole or any substantial portion of its property
or had a petition of bankruptcy filed against it, been adjudicated a bankruptcy
or filed a petition or answer seeking reorganization or arrangement under any
law or statute of any jurisdiction similar to the laws of the United States.
f) Upon receipt of at least two (2) business days notice
and during normal business hours, CEPHEID agrees to provide INNOGENETICS
reasonable access to CEPHEID's research and development facilities, books and
records and full cooperation by the directors, officers, employees, technicians,
scientists and other agents and representatives of CEPHEID to the extent
necessary to fulfill its obligations under this Agreement and to utilize the
benefits of the licenses granted herein.
g) CEPHEID shall not conduct any work under the Work
Plan that knowingly infringes the valid intellectual property of any third
party.
12.3. Representations of CEPHEID and INNOGENETICS. CEPHEID and
INNOGENETICS shall not enter into any other agreement or arrangement, or grant
any rights, inconsistent with the terms reflected herein.
13. COVENANTS.
13.1. Covenants of Innogenetics. INNOGENETICS covenants with
CEPHEID, in so far as it relates to the R&D work and supply and distribution
activities, as follows:
a) INNOGENETICS will at all times maintain product
liability insurance covering the Products in commercially reasonable amounts and
will name CEPHEID as a co-insured on such insurance.
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b) INNOGENETICS will obtain and maintain at its cost all
regulatory approvals necessary for the manufacture, sale, exportation and
importation of the Products.
13.2. Indemnification. Each Party covenants, in so far as it
relates to the R&D Collaboration and supply and distribution activities, as
follows: each Party shall indemnify, defend, and hold harmless the other Party,
its Affiliates, its licensees and its sublicensees, and their respective
directors, officers, employees, and agents, from any and all liabilities,
damages, losses, penalties, costs and expenses (including the fees of attorneys
and other professional advisors) arising of or resulting from: gross negligence,
recklessness or intentional acts or omissions of such Party and its Affiliates,
and their respective directors, officers, employees, and agents, in connection
with the work performed by such Party under this Agreement.
13.3. Notice. In the event that either Party is seeking an
indemnification under this Article, such Party shall inform the indemnifying
Party of a claim as soon as reasonably practicable after it receives notice of
the claim, and shall permit the indemnifying Party to assume direction and
control of the defense of the claim (including the right to settle at the sole
discretion of the indemnifying Party) in the defense of the claim.
14. NOTICES. All notices, requests, demands, and other communications
made in connection with this Agreement shall be in writing, shall be employ the
English language, and shall be deemed to have been duly given on the date of
delivery if delivered by hand delivery or by facsimile to the person identified
below for five days after mailing if mailed by certified or registered mail
postage prepaid return receipt requested addressed as follows:
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If to CEPHEID: CEPHEID
1190 Borregas Avenue
Sunnyvale, CA 94089
Attention: President
Facsimile: 408-541-4192
Confirmation Number: 408-541-4191
With a copy to: Heller Ehrman White & McAuliffe
2500 Sand Hill Road, Ste. 100
Menlo Park, California 94025
Attention: August J. Moretti
Facsimile: (650) 234-4229
Confirmation Number: (650) 234-4200
If to INNOGENETICS: INNOGENETICS
Industriepark 7-Box 4, B-9052
Ghent, Belgium
Attention: Business Development Dept.,
Dirk Pollet, Ph.D.
Facsimile: 32-9-241-0799
Confirmation Number: 32-3-252-3752
With a copy to: INNOGENETICS
Industriepark 7-Box 4, B-9052
Ghent, Belgium
Attention: Corporate Counsel
Johan Van den Eynde
Facsimile: 32-9-241-0799
Confirmation Number: 32-9-241-0711
Such addresses may be changed from time to time by means of a notice
given in the matter provided in this section.
15. DISPUTE RESOLUTION. In the event that a dispute arises between the
Parties relating to or arising from this Agreement, the Parties shall negotiate
in good faith to resolve such dispute. Any resolution reached by the Parties
shall be binding on the Parties. In the event that the Parties fail to reach a
resolution within 30 days, then the dispute shall be submitted to the Chief
Executive Officers of INNOGENETICS and
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CEPHEID who shall negotiate in good faith for a period of 30 days to resolve
such dispute. In the event that such officers do not reach a resolution with
respect to such dispute, such dispute shall be resolved by binding arbitration
to take place in London, England pursuant to the administrative authority of the
London Court of International Arbitration and under the UNCITRAL Arbitration
Rules now in force, with such modifications as the Parties shall agree. All
proceedings and all pleadings shall be in English. The Parties shall attempt by
agreement to nominate a sole arbitrator within 20 days of filing an arbitration
notice. If the Parties fail to nominate a sole arbitrator during such period,
the sole arbitrator shall be appointed by the London Court of International
Arbitration. The arbitration award shall be final and binding on the Parties.
16. GOVERNING LAW. In the event of a dispute, the Agreement will be
governed by and construed by either Belgian or California law as determined by
the arbitrator pursuant to Section 15.
17. COUNTERPARTS. This Agreement may be executed in one or more
counterparts with the same effect as if the signatures to each counterpart were
upon a single instrument. All counterparts shall be considered an original of
this Agreement.
18. NO AGENCY. Nothing herein shall be deemed to constitute either Party
as the agent or representative of the other Party, or both Parties as joint
venturers or partners for any purpose. Each Party shall be an independent
contractor, not an employee or partner of the other Party, and the manner in
which a Party renders its services under this Agreement shall be within such
Party's sole discretion. Neither Party shall be responsible for the acts or
omissions of the other Party, and neither Party will have authority to speak
for, represent or obligate the other Party in any way without prior written
authority from the other Party.
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19. WAIVER. The waiver by either Party of a breach or a default of any
provisions of this Agreement by the other Party shall not be construed as a
waiver of any succeeding breach of the same or any other provisions, nor shall
any delay or omission on the part of either Party to exercise or avail itself of
any right, power or privilege that it has or may have hereunder operate as a
waiver of any right, power or privilege by such Party.
20. FORCE MAJEURE.
20.1 General Force Majeure. In the event that either Party is
prevented from performing or is unable to perform any of its obligations under
this Agreement due to any act of God; fire; casualty; flood; war; strike;
lockout; failure or public utilities; injunction or any act, exercise, assertion
or requirement of governmental authority; epidemic; destruction of production
facilities; riots; insurrection; inability to procure or use materials, labor,
equipment, transportation or energy; or any other cause beyond the reasonable
control of the Party invoking this Section 20, if such Party shall have used its
best efforts to avoid such occurrence, such Party shall give notice to the other
Party promptly in writing, and thereupon the affected Party's performance shall
be excused and the time for performance shall be extended for the period of
delay or inability to perform due to such occurrence. Each party will take
reasonable efforts to prevent loss of equipment and information due to any act
of God or accident (including earthquake), including off-site archiving of
critical records and data.
20.2. Unforeseen Developments. The underlying objective of this
Agreement is to realize in an economical and reasonable way the mutual interests
and requirements of the Parties. If, at any time, this Agreement should no
longer meet this objective because of economic developments or political changes
that could not be reasonably foreseen at the time of the signing of this
Agreement, thus causing undue and prolonged hardship to a Party, the Parties
shall meet to discuss a mutually agreeable solution according to the economic
and reasonable objectives of this Agreement.
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21. PUBLICITY. Neither party will disclose the existence or the terms of
this Agreement without the prior written consent of the other party, which
consent will not be unreasonably withheld.
22. NON-SOLICITATION. During the term of the R&D Collaboration, each
Party agrees not to induce any employee of the other Party participating in the
R&D Collaboration to discontinue its employment with that Party in order to
become employed by or associated with any business, enterprise, or effort that
is associated with its own business.
23. GENERAL. This document contains the entire agreement between the
Parties with respect to the subject matter of this Agreement and supersedes the
Heads of Agreement dated August 19, 1998 executed by the parties and all prior
and contemporaneous correspondence, understandings and discussions between the
Parties. This Agreement may be modified only by a subsequent written agreement
signed by both Parties. If any provision of this Agreement is held to be
unenforceable, the remaining provisions shall continue unaffected. This
Agreement shall be binding on the parties hereto and their respective successors
and assigns.
IN WITNESS WHEREOF, the Parties have entered into this Agreement on the
first date written above.
INNOGENETICS CEPHEID
By: By:
--------------------------------- ---------------------------------
Its: Its:
-------------------------------- --------------------------------
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Exhibit 10.16
*CERTAIN INFORMATION WITHIN THIS EXHIBIT HAS BEEN OMITTED AND THE NON-PUBLIC
INFORMATION HAS BEEN FILED SEPARATELY WITH THE SEC. CONFIDENTIAL TREATMENT HAS
BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS.
THERMAL CYCLER SUPPLIER AGREEMENT
This Agreement, effective April 15, 2000, is made by and between PE
Biosystems, a division of PE Corporation, a corporation of the State of
Delaware, having an office at 850 Lincoln Centre Drive, Foster City, California
94404 ("PE CORP"), and Cepheid, a corporation of the State of California, having
an office at 1190 Borregas Avenue, Sunnyvale, California 94089 ("Thermal Cycler
Supplier") hereafter collectively referred to as "The Parties."
Whereas, PE CORP has the power to convey limited rights for research and
in certain other fields under U.S. Patents Nos. 4,683,195, 4,683,202 and
4,965,188, describing and claiming gene amplification processes including, among
others, a process known as the polymerase chain reaction ("PCR") process, which
are owned by Roche Molecular Systems, Inc., and amplification process claims in
corresponding counterpart patents and patent applications in other countries,
owned by F. Hoffmann-La Roche Ltd (both of which are referred to collectively
herein as "Roche").
Whereas, PE CORP offers to PCR users commercial and non-commercial
license rights under these patents and patent applications for automated
performance of the PCR process for research and certain other fields that
include, inter alia, an up-front fee component based on the capacity of thermal
cyclers used to perform the process.
Whereas, PE CORP offers to thermal cycler suppliers license rights under those
patents, namely, an authorization to distribute their instruments with a label
conveying to their customers rights under the up-front fee component of the PCR
licenses described above, and the right to promote their instruments as
"Authorized Thermal Cyclers" for PCR.
Whereas, PE CORP owns US. Patents Nos. 5,038,852 and 5,333,675,
describing and claiming automated apparatus suitable for performing the PCR
process, and apparatus claims in corresponding counterpart patents and patent
applications in other countries.
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Whereas, PE CORP owns U.S. Patent No. 5,475,610, describing and claiming
improvements in thermal cycling apparatus for- PCR, including a pressing heated
cover, and corresponding counterpart patents and patent applications in other
countries.
Whereas, PE CORP owns U.S. Patent No. 5,656,493, describing and claiming
an amplification system comprising PCR reagents and a thermal cycler programmed
to carry out a PCR protocol.
Whereas, PE CORP owns patents and applications outside the U.S. that
claim priority of U.S. application Serial No. 899,061 (filed in 1986) and that
claim automated performance of the PCR process using certain programmed thermal
cyclers.
Whereas, PE CORP offers to PCR users license rights for research and
certain other fields under its amplification system claims and automated method
claims, and offers to thermal cycler suppliers the right to pass such rights to
their thermal cycler customers.
Whereas, PE CORP has offered to Thermal Cycler Supplier the above Roche
process rights, and the PE CORP systems, apparatus, automated method and
pressing heated cover rights separately or in combinations, and Thermal Cycler
Supplier has requested rights under the above Roche PCR process patents and PE
CORP systems patent rights only, without rights under the above identified PE
CORP apparatus, automated method and pressing heated cover patents and
applications.
NOW, THEREFORE, The Parties agree as follows:
1. Definitions
For the purpose of this Agreement the terms set forth
hereinafter shall be defined as fellows;
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1.1 "AFFILIATE" of a party to this Agreement shall mean an
organization: a) whose voting stock is controlled or owned directly or
indirectly to the extent of fifty percent (50%) or more by the party; b) which
directly or indirectly owns or controls fifty percent (50%) or more of the
voting stock of the party; c) whose majority ownership is directly or indirectly
common to that of the party; or d) defined under (a), (b), or (c) above except
the amount of said ownership is less than fifty percent (50%) but that amount is
the maximum amount permitted by law and Thermal Cycler Supplier has effective
control.
1.2 "AMPLIFICATION PATENT RIGHTS" shall mean the nucleic acid
amplification processes, including particularly the PCR process, covered by:
United States Patents Nos. 4,683,195, 4,683,202 and 4,965,188; and any
corresponding amplification process claim in patents and patent applications in
other countries claiming priority of any of them. Amplification Patent Rights
include rights only under the identified Roche patents and applications. They do
not include rights, expressly or by implication, under any other Roche or PE
CORP patent or application, or to any claim to reagents, apparatus, or a system
of reagents and apparatus.
1.3 "AMPLIFICATION SYSTEM PATENT RIGHTS" shall mean U.S. Patent
No. 5,656,493, which describes and claims an amplification system comprising PCR
reagents and a thermal cycler programmed to carry out a PCR protocol.
Amplification System Patent Rights include rights only under the identified PE
CORP patent. They do not include rights, expressly or by implication, under any
other Roche or PE CORP patent or application, or to any claim to reagents,
apparatus, or an amplification process, even if that process is a result of the
natural and intended operation of the system.
1.4 "AUTHORIZED REAGENT" shall mean a DNA polymerase whose use in
performance of the PCR process is covered by the running-royalty component of a
PCR process license under the Amplification Patent Rights for internal research
and development. The running-royalty component of that license may be obtained
through the purchase of reagents bearing a valid label conveying the
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running-royalty component; alternatively, it may be purchased from PE CORP.
Other PCR process licenses in the Fields also require use of Authorized
Reagents.
1.5 "AUTHORIZED THERMAL CYCLER" shall mean a thermal cycler or
temperature cycling instrument whose use in automated performance of the PCR
process is covered by the automated-capacity, up-front fee component of a PCR
process license under the Amplification Patent Rights for internal research and
development. The up-front fee component of that license may be obtained through
the purchase of a thermal cycler or temperature cycling instrument bearing a
valid label conveying the up-front component; alternatively, it may be purchased
from PE CORP. Other PCR process licenses in the Fields also require use of an
instrument whose use is similarly covered, i.e., an "Authorized Thermal
Cycler".
1.6 "FIELDS" shall mean research and development, quality
assurance or control, environmental testing, plant diagnostics, identity testing
(other than parentage testing for humans) and forensics. The Fields specifically
exclude human and veterinary diagnostics.
1.7 "NET SALES PRICE" for thermal cyclers, temperature cycling
instruments and add-on modules distributed under this Agreement shall refer to
the sales price charged to unrelated Third-Party end users as to whom the price
is not affected by any other purchase, by any other dealing or by any special
course of dealing, and shall mean the gross invoice price to such an end user
less the following deductions where applicable: (i) discounts allowed and taken,
in amounts customary in the trade, and (ii) sales and/or use taxes and/or duties
for particular sales. No allowance or deduction shall be made for commissions or
collections, by whatever name known. Thermal cyclers, temperature cycling
instruments and add-on modules subject to this Agreement shall be separately
invoiced items.
For distributions other than sales described by the preceding
paragraph, including any sale, loan, lease, consignment, gift or other
distribution (i) to an end user that is Thermal Cycler,
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<PAGE> 5
Supplier itself, an Affiliate or a distributor, (ii) to an end user that enjoys
a special course of dealing with Thermal Cycler Supplier, an Affiliate or
distributor, or (iii) is under a reagent rental agreement or other arrangement
that is not a sale to an unrelated Third-Party end user as to whom the price is
unaffected by other purchase, dealing or special course of dealing, the Net
Sales Price shall be determined by reference to the Net Sales Price which would
be applicable in an arm's length sale to a similarly situated unrelated
Third-Party end user as to whom the price is not affected by any other purchase,
by any other dealing or by any special course of dealing.
Net Sales Price shall be calculated on the basis of sales or
transfers to end users by Thermal Cycler Supplier, its Affiliate or a
distributor of either, as the case may be. In the event Thermal Cycler Supplier
is unable to account for end-user sales by any distributor, the Net Sales Price
shall be calculated as the price to the final distributor multiplied by [**],
which factor represents a [**] margin on sales to end users by the distributor.
1.8 "TERRITORY" shall mean worldwide.
1.9 "THIRD PARTY" shall mean a party other than The Parties.
1.10 "TEMPERATURE CYCLING INSTRUMENT", as used in this Agreement,
shall mean an instrument, whether in single or multiple modules, that includes a
thermal cycler as defined in Article 1.11 and additional structure for
performing one or more other functions.
1.11 "THERMAL CYCLER", as used in this Agreement, shall mean an
instrument, whether in single or multiple modules, that is capable in itself of
automatically cycling samples in the PCR process.
2. GRANT
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<PAGE> 6
2.1 Upon the terms and subject to the exceptions and conditions of
this agreement, PE CORP grants to Thermal Cycler Supplier the following
personal, non-transferable, royalty-bearing, non-exclusive rights in the
Territory under the Amplification Patent Rights:
(a) Thermal Cycler Supplier is hereby authorized to sell
and distribute to end users under Thermal Cycler Supplier's
name and trademarks the specific thermal cyclers and
temperature cycling instruments described in Exhibit 1 (i.e.
the Smart Cycler(R) System, Smart Cycler(R) XC System and
GeneXpert(TM) Prototype, in the configurations described) and
any thermal cycler or temperature cycling instrument
containing one or more I-CORE(TM) modules (as defined in
Exhibit 1) manufactured by Thermal Cycler Supplier, but not
otherwise to sell or distribute to thermal cycler suppliers,
with a label conveying to end users (including Thermal Cycler
Supplier itself) in the Fields the up-front rights of PCR
process licenses under the Amplification Patent Rights as
specified in the label set forth in Section 5.1 below, that
is, with an Authorized Thermal Cycler label; and
(b) Thermal Cycler Supplier may advertise and promote
such thermal cyclers and temperature cycling instruments as
described in Exhibit 1 and so labeled as Authorized Thermal
Cyclers for PCR.
The grant of this Section 2.1 conveys no right or immunity, express or implied,
under the Amplification System Patent Rights.
2.2 Upon the terms and subject to the exceptions and conditions of
this Agreement, PE CORP grants to Thermal Cycler Supplier a personal,
non-transferable, royalty-bearing, non-exclusive right under the Amplification
System Patent Rights to convey to end-user customers (including Thermal Cycler
Supplier itself) of Thermal Cycler Supplier's Authorized Thermal Cyclers a non-
exclusive license to use the same in the Fields in the Territory. The grant of
this Section 2.2 includes no right or immunity, express or implied, under the
Amplification Patent Rights.
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2.3 No right, immunity, authorization or license is granted,
expressly or by implication, for any other purpose, or in any other field,
including: to make, have made, use or sell any polymerase (such as Taq),
amplification reagent or kit; or to perform PCR or nucleic acid amplification
that is not fully licensed under the Amplification Patent Rights. No right,
immunity, authorization or license is granted, expressly or by implication,
under any patent or patent application that is not expressly included in the
Amplification Patent Rights, or the Amplification System Patent Rights.
Specifically, but without limitation, no right, immunity, authorization or
license is granted, expressly or by implication, under patents and applications
of PE CORP or Roche that cover apparatus, methods, or reagents for real-time
detection (for example, U.S. Patent No. 5,928,907 and published European patent
applications EP 872562 and EP 512334) or for homogeneous assay (for example,
U.S. Patents Nos. 5,210,015, 5,487,972, 5,538,848, all related to the 5'
nuclease assay).
2.4 Rights granted to Thermal Cycler Supplier by this Agreement
are personal to Thermal Cycler Supplier alone. Thermal Cycler Supplier shall
have no right to sublicense, assign or otherwise transfer or share its rights
hereunder.
2.5 Notwithstanding the prohibition of Section 2.4, Thermal Cycler
Supplier's rights to sell to end users under the grants of Sections 2.1 and 2.2
include the right to sell through Affiliates (so long as Thermal Cycler Supplier
reports and pays under this Agreement on their behalf) and through distributors
of Thermal Cycler Supplier and such Affiliates, as well as directly.
2.6 Thermal Cycler Supplier agrees not to promote, directly or
through distributors, the unlicensed use of the Amplification Patent Rights by
the sale of unauthorized thermal cyclers or temperature cycling instruments, or
by selling add-on modules for thermal cyclers or temperature cycling instruments
other than as additions to Authorized Thermal Cyclers.
3. FEES, ROYALTIES, RECORDS AND REPORTS
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3.1 For the licenses and rights granted under Article 2, Thermal
Cycler Supplier shall pay to PE CORP:
(a) license issue fee of US$[**];
(b) for each Smart Cycler(R) System or Smart Cycler(R) XC
System thermal cycler as described in Exhibit 1
(including all modules and components), or any
thermal cycler or temperature cycling instrument
containing one or more I-CORE(TM) modules (as defined
in Exhibit 1) having a maximum capacity, if fully
expanded, of more than [**] individual samples,
delivered or invoiced by Thermal Cycler Supplier or
an Affiliate after the effective date of this
Agreement, US$[**] plus [**] percent ([**]%) of the
Net Sales Price, and for each add-on module, [**]
percent ([**]%) of the Net Sales Price;
(c) for each GeneXpert(TM) Prototype temperature cycling
instrument as described in Exhibit 1 (including all
modules and components), or any thermal cycler or
temperature cycling instrument containing one
I-CORE(TM) module (as defined in Exhibit 1) having a
non-expandable capacity of no more than [**]
individual sample, delivered or invoiced by Thermal
Cycler Supplier or an Affiliate after the effective
date of this Agreement, US$[**] plus [**] percent
([**]%) of the Net Sales Price; and
(d) for each thermal cycler or temperature cycling
instrument containing one or more I-CORE(TM) modules
(as defined in Exhibit 1) having a maximum capacity,
if fully expanded, of at least [**] but no more than
[**] individual samples, delivered or invoiced by
Thermal Cycler Supplier or an Affiliate after the
effective date of this Agreement, US$[**] plus [**]
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[**] percent ([**]%) of the Net Sales Price, and for
each add-on module, [**] percent ([**]%) of the Net
Sales Price.
The license issue fee shall be paid on the effective date of this Agreement. The
per-thermal cycler payments specified in this Section 3,1 shall be paid as
specified in Sections 3.4 and 3.5. Each thermal cycler or temperature cycling
instrument for which those payments are paid shall be an Authorized Thermal
Cycler and shall be so designated pursuant to Article 5 hereof.
3.2 All amounts payable hereunder shall be payable in United
States dollars. Sales in other countries shall be converted to U.S. dollars
based on the New York rate of exchange as quoted in the Wall Street Journal for
the last business day of the applicable quarter. If not so published, The
Parties may agree on a substitute publication. In the event there is no
comparable publication, the applicable rate for such date by the appropriate
governmental agency in such country shall apply.
3.3 Thermal Cycler Supplier shall keep, and shall require its
pertinent Affiliates to keep, full, true and accurate books of account
containing all particulars necessary to show the amount payable to PE CORP under
this Agreement. Such books and the supporting data shall be open at all
reasonable times, for three (3) years following the end of the calendar year to
which they pertain (and access shall not be denied thereafter, if reasonably
available), to the inspection of an independent inspector retained by PE CORP.
If in dispute, such records shall be kept until the dispute is settled.
Inspection shall be at PE CORP's expense, unless the inspector concludes that
the amount payable that is stated in a report is understated by five percent
(5%) or more, in which case expenses shall be paid by Thermal Cycler Supplier.
3.4 Thermal Cycler Supplier shall within thirty (30) days after
the first of each January, April, July and October deliver to PE CORP a true and
accurate accounting report. This report shall be on a country-by-country basis
and shall give such particulars of the business conducted by Thermal Cycler
Supplier in each country during the preceding three (3) calendar months as are
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pertinent to accounting under this Agreement and shall be in accordance with,
and include all information specified in, the royalty report form attached
hereto as Appendix A.
The correctness and completeness of each report shall be
attested to in writing by the responsible financial officer of Thermal Cycler
Supplier or by Thermal Cycler Supplier's external auditor.
3.5 Simultaneously with the delivery of each royalty report,
Thermal Cycler Supplier shall pay to PE CORP the monies then due under this
Agreement for the period covered by the report. Each report and payment shall be
sent by the due date to the following address:
PE Biosystems
PE Corporation
850 Lincoln Centre Drive
Foster City, California, 94404 U.S.A.
Attention: Director of Licensing
or to any address that PE CORP may advise in writing.
3.6 If Thermal Cycler Supplier shall fail to pay any amount owing
under this Agreement by the due date, the amount owed shall bear interest at two
percent (2%) over the Citibank NA base lending rate ("prime rate") from the due
date until paid, provided, however, that if this interest rate is held to be
unenforceable for any reason, the interest rate shall be the maximum rate
allowed by law at the time the payment is due.
3.7 Failure of Thermal Cycler Supplier to pay any amount specified
under this Agreement within thirty (30) days after the due date will give PE
CORP the right to terminate under Section 6.7.
3.8 If all patents included in the Amplification Patent Rights
expire before all patents included in the Amplification System Patent Rights,
or vice versa, the per-thermal cycler payments
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specified in Section 3.1 shall thereafter be reduced to the amount PE CORP is
then charging for the remaining claims.
4. PAST SALES SALES AND ACTIVITIES
4.1 On the effective date of this Agreement, Thermal Cycler
Supplier shall pay to PE CORP the sum of $[**]. In consideration thereof all
thermal cyclers and temperature cycling instruments delivered or invoiced by
Thermal Cycler Supplier and its Affiliates (including thermal cyclers and
temperature cycling instruments delivered to themselves for use) prior to the
effective date of this Agreement shall be considered Authorized Thermal Cyclers
subject to the conditions of Section 4.2 and 5.3; and all earlier use of such
thermal cyclers or temperature cycling instruments by customers, direct or
indirect, of Thermal Cycler Supplier shall be deemed to have been use of a
thermal cycler or temperature cycling instrument within the grant of this
Agreement. This section does not apply to thermal cyclers or temperature cycling
instruments already authorized by PCR users.
4.2 Thermal Cycler Supplier shall send to the original end-user
customers of the thermal cyclers and temperature cycling instruments that are
the subject of Section 4.1, Authorized Thermal Cycler notices in accord with
Section 5.1 with a means reasonably satisfactory to PE CORP to relate each such
notice to the appropriate thermal cycler or temperature cycling instrument. Any
such thermal cycler or temperature cycling instrument not having an
authorization notice within one hundred and twenty (120) days after the
effective date of this Agreement shall cease to be an Authorized Thermal Cycler
unless Thermal Cycler Supplier establishes to the reasonable satisfaction of PE
CORP that (a) the thermal cycler or temperature cycling instrument falls within
Section 4.1 and (b) the Authorized Thermal Cycler notice for the thermal cycler
or temperature cycling instrument has not been applied to another instrument.
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5. AUTHORIZATION NOTICE
5.1 Thermal Cycler Supplier agrees to include prominently in the
front of the user's manual for each Authorized Thermal Cycler, and for no other
thermal cycler or temperature cycling instrument, a Notice as specified from
time to time by PE CORP. Unless and until PE CORP reasonably instructs
differently, the Notice shall be:
AUTHORIZED THERMAL CYCLER
THIS INSTRUMENT, SERIAL NO. ____, IS AN AUTHORIZED THERMAL
CYCLER. ITS PURCHASE PRICE INCLUDES THE UP-FRONT FEE COMPONENT
OF A LICENSE UNDER THE PATENTS ON THE POLYMERASE CHAIN
REACTION (PCR) PROCESS, WHICH ARE OWNED BY ROCHE MOLECULAR
SYSTEMS INC. AND F. HOFFMANN-LA ROCHE LTD, TO PRACTICE THE PCR
PROCESS FOR INTERNAL RESEARCH AND DEVELOPMENT USING THIS
INSTRUMENT. THE RUNNING ROYALTY COMPONENT OF THAT LICENSE MAY
BE PURCHASED FROM PE BIOSYSTEMS OR OBTAINED BY PURCHASING
AUTHORIZED REAGENTS. THIS INSTRUMENT IS ALSO AN AUTHORIZED
THERMAL CYCLER FOR USE WITH APPLICATIONS LICENSES AVAILABLE
FROM PE BIOSYSTEMS. ITS USE WITH AUTHORIZED REAGENTS ALSO
PROVIDES A LIMITED PCR LICENSE IN ACCORDANCE WITH THE LABEL
RIGHTS ACCOMPANYING SUCH REAGENTS. PURCHASE OF THIS PRODUCT
DOES NOT ITSELF CONVEY TO THE PURCHASER A COMPLETE LICENSE OR
RIGHT TO PERFORM THE PCR PROCESS. FURTHER INFORMATION ON
PURCHASING LICENSES TO PRACTICE THE PCR PROCESS MAY BE
OBTAINED BY CONTACTING THE DIRECTOR OF LICENSING AT PE
CORPORATION, 850 LINCOLN CENTRE DRIVE, FOSTER CITY, CALIFORNIA
94404.
NO RIGHTS ARE CONVEYED EXPRESSLY, BY IMPLICATION OR ESTOPPEL
TO ANY PATENTS ON REAL-TIME METHODS, INCLUDING BUT NOT LIMITED
TO 5' NUCLEASE ASSAYS, OR TO ANY PATENT CLAIMING A REAGENT OR
KIT.
PE BIOSYSTEMS DOES NOT GUARANTEE THE PERFORMANCE OF THIS
INSTRUMENT.
5.2 Thermal Cycler Supplier agrees to affix permanently and
prominently to each Authorized Thermal Cycler the designation "Authorized
Thermal Cycler", its Serial Number and a direction to consult the user's manual
for license information.
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5.3 Thermal Cycler Supplier further agrees to instruct the
ultimate purchaser that transfer of the thermal cycler or temperature cycling
instrument without the Serial Number or the Notice shall automatically terminate
the authorization granted by this Agreement and the thermal cycler or
temperature cycling instrument shall cease to be an Authorized Thermal Cycler.
5.4 To avoid confusion among thermal cycler users, Thermal Cycler
Supplier agrees not to designate or refer to thermal cyclers or temperature
cycling instruments covered by this Agreement as "licensed" unless it fully and
simultaneously explains that the thermal cyclers or temperature cycling
instruments do not convey with their purchase a complete license under the
Amplification Patent Rights.
5.5 No Authorization Notice shall be supplied with an add-on
module or anything else which is less than a complete thermal cycler or
temperature cycling instrument.
6. TERM AND TERMINATION
6.1 This Agreement, unless sooner terminated, shall continue until
the expiration of the last-to-expire of the patents under which rights are
granted in this Agreement.
6.2 This Agreement shall terminate upon a holding of invalidity or
unenforceability of all patent claims licensed hereunder by a final court
decision from which no appeal is or can be taken.
6.3 Thermal Cycler Supplier may terminate this Agreement for any
reason by giving written notice to PE CORP and ceasing to advertise or promote
its thermal cyclers or temperature cycling instruments as described in Exhibit 1
as Authorized Thermal Cyclers. Such termination shall be effective ninety (90)
days after said notice or cessation, whichever is later.
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6.4 The decision of a Court or Administrative body finding PE CORP
liable or culpable due to Thermal Cycler Supplier's manufacture of thermal
cyclers or temperature cycling instruments covered by this Agreement or due to
the sale or distribution of those thermal cyclers or temperature cycling
instruments by Thermal Cycler Supplier, an Affiliate or a distributor shall give
PE CORP the right to terminate this Agreement immediately upon notice.
6.5 This Agreement shall terminate upon (i) an adjudication of
Thermal Cycler Supplier as bankrupt or insolvent, or Thermal Cycler Supplier's
admission in writing of its inability to pay its obligations as they mature;
(ii) an assignment by Thermal Cycler Supplier for the benefit of creditors;
(iii) the appointment of, or Thermal Cycler Suppliers applying for or consenting
to the appointment of, a receiver, trustee or similar officer for a substantial
part of its property; (iv) the institution of or any act of Thermal Cycler
Supplier instituting any bankruptcy, insolvency arrangement, or similar
proceeding; (v) the issuance or levy of any judgment, writ, warrant of
attachment or execution or similar process against a substantial part of the
property of Thermal Cycler Supplier; or (vi) loss of Thermal Cycler Suppliers
federal or state licenses, permits or accreditation necessary for distribution
of Authorized Thermal Cyclers.
6.6 PE CORP may terminate this Agreement immediately on notice
upon any change in the ownership or control of Thermal Cycler Supplier or of its
assets. For such purposes, a "change in ownership or control" shall mean that
30% or more of the voting stock of Thermal Cycler Supplier becomes subject to
the ownership or control of a person or entity, or any related group of persons
or entities acting in concert, which person(s) or entity(ies) did not own or
control such portion of voting stock on the Effective Date hereof. PE CORP shall
have the same right to terminate upon any transfer of 30% or more of the assets
of Thermal Cycler Supplier.
6.7 Upon any breach of or default of a material term under this
Agreement by Thermal Cycler Supplier, PE CORP may terminate this Agreement upon
thirty (30) days' written notice. PE CORP will withdraw such notice if, during
the notice period, Thermal Cycler Supplier fully cures such breach or default to
PE CORP's reasonable satisfaction.
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6.8 Upon expiration or termination of this Agreement, all rights
granted to Thermal Cycler Supplier shall revert to or be retained by PE CORP.
6.9 Thermal Cycler Supplier's obligations to report and pay
royalties as to activities under this Agreement shall survive termination or
expiration.
7. CONFIDENTIALITY - PUBLICITY
7.1 In advertisements, catalogs, brochures, sales literature and
promotional literature for Authorized Thermal Cyclers, Thermal Cycler Supplier,
Affiliates and distributors shall state the following prominently in type and
location:
Practice of the patented polymerase chain reaction (PCR)
process requires a license. The <Supplier's Model> Thermal
Cycler is an Authorized Thermal Cycler and may be used with
PCR licenses available from PE Corporation. Its use with
Authorized Reagents also provides a limited PCR license in
accordance with the label rights accompanying such reagents.
7.2 With respect to Thermal Cycler Supplier's distribution of any
written information to Third Parties, including but not limited to advertising,
brochures, catalogs, promotional and sales material, and public relations
material, PE CORP shall have the right to prescribe changes regarding references
to, or descriptions of: PE CORP, PCR, the patents under which rights are granted
in this Agreement, PCR licenses or authorizations, or this Agreement. Thermal
Cycler Supplier agrees to comply with PE CORP's reasonable prescriptions.
7.3 Except as provided in Sections 7.1 and 7.2, Thermal Cycler
Supplier shall, to the extent reasonably practicable, maintain the
confidentiality of the provisions of this Agreement and shall refrain from
disclosing the terms of this Agreement without the prior written consent of PE
CORP, except to the extent Thermal Cycler Supplier concludes in good faith that
such disclosure is required under applicable law or regulation, in which case PE
CORP shall be notified in advance
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8. COMPLIANCE AND QUALITY
8.1 In the exercise of any and all rights and in performance
hereunder, it shall be the duty of Thermal Cycler Supplier, not PE CORP, to
comply fully with all applicable laws, regulations and ordinances and to obtain
and keep in effect licenses, permits and other governmental approvals (federal,
state or local) necessary or appropriate to carry on activities hereunder.
8.2 PE CORP does not approve or endorse thermal cyclers or
temperature cycling instruments of Thermal Cycler Supplier in any way or for any
purpose, including PCR Quality and quality control with respect to suitability
for PCR, according to standards and requirements that may exist in the
marketplace from time to time, are the sole responsibility of Thermal Cycler
Supplier.
9. ASSIGNMENT
9.1 This Agreement shall not be assigned by Thermal Cycler
Supplier (including without limitation any assignment or transfer that would
arise from a sale or transfer of Thermal Cycler Supplier's business).
9.2 PE CORP may assign all or any part of its rights and
obligations under this Agreement at any time without the consent of Thermal
Cycler Supplier. Thermal Cycler Supplier agrees to execute such further
acknowledgments or other instruments as PE CORP may reasonably request in
connection with such assignment.
10. NEGATION OF WARRANTIES AND INDEMNITY
10.1 Nothing in this Agreement shall be construed as: (a) a
warranty or representation by PE CORP as to the validity or scope of any patent;
(b) a warranty or representation that the practice under the Amplification
Patent Rights or the Amplification System Patent Rights is or will be free from
infringement of patents of Third Patties; (c) an authority or obligation to
sublicense or to sue
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Third Parties for infringement; (d) except as expressly set forth herein,
conferring the right to use in advertising, publicity or otherwise, in any form,
the name of, or any trademark or trade name of, PE CORP or Roche; (e) conferring
by implication, estoppel or otherwise any license, immunity or right under any
patent owned by or licensed to PE CORP or Roche other than those specified,
regardless of whether such patent is dominant or subordinate to the patents
under which rights are granted in this Agreement; (f) an obligation to furnish
any know-how; or (g) creating any agency, partnership, joint venture or similar
relationship between PE CORP or Roche and Thermal Cycler Supplier.
10.2 PE CORP MAKES NO EXPRESS OR IMPLIED WARRANTIES OF
MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE.
10.3 Thermal Cycler Supplier agrees to take all reasonable
precautions to prevent death, personal injury, illness and property damage from
the use of Authorized Thermal Cyclers. Thermal Cycler Supplier shall assume full
responsibility for its operation under the patents under which rights are
granted in this Agreement, the manufacture of Authorized Thermal Cyclers and the
use thereof and shall defend, indemnify and hold PE CORP harmless from and
against all liability, demands, damages, expenses (including attorneys fees) and
losses for death, personal injury, illness, property damage or any other injury
or damage, including any damages or expenses arising in connection with state or
federal regulatory action, in view of the use by Thermal Cycler Supplier, its
officers, directors, agents and employees of the Amplification Patent Rights and
the Amplification System Patent Rights, and the manufacture and use of
Authorized Thermal Cyclers except that Thermal Cycler Supplier shall not be
liable to PE CORP for injury or damage arising solely because of PE CORP's
negligence.
11. MOST FAVORED LICENSEE
11.1 If after signature of this Agreement, PE CORP grants to any
unrelated third party, other than Roche, a license of substantially the same
scope as granted to Thermal Cycler Supplier
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herein but under more favorable royalty rates than those given to Thermal Cycler
Supplier under this Agreement, PE CORP shall promptly notify Thermal Cycler
Supplier of said more favorable royalty rates, and Thermal Cycler Supplier shall
have the right and option to substitute such more favorable royalty rates for
the royalty rates contained herein. Thermal Cycler Supplier's right to elect
said more favorable royalty rates shall extend only for so long as and shall be
conditioned on Thermal Cycler Supplier's acceptance of all the same conditions,
favorable or unfavorable, under which such more favorable royalty rates shall
be available to such other third party. Upon Thermal Cycler Supplier's
acceptance of all such terms of said third-party agreement, the more favorable
royalty rates shall be effective as to Thermal Cycler Supplier on the date of
execution of such other third party license agreement. Notwithstanding the
foregoing, in the event that PE CORP and/or Roche shall receive substantial
other nonmonetary consideration, for example, such as intellectual property
rights, as a part of the consideration for its granting of such license to a
third party, then this Section 11.1 shall not apply.
12. GENERAL
12.1 This Agreement constitutes the entire agreement between The
Parties as to the subject matter hereof, and all prior negotiations,
representations, agreements and understandings are merged into, extinguished by
and completely expressed by it. This Agreement may be modified or amended only
by a writing executed by authorized officers of each of The Parties.
12.2 Any notice required or permitted to be given by this Agreement
shall be given by postpaid, first class, registered or certified mail, or by
courier or facsimile, properly addressed to the other party at the respective
address as shown below:
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If to PE CORP:
PE Biosystems
PE Corporation
850 Lincoln Centre Drive
Foster City, California 94404 U.S.A.
Attn.: Director of Licensing
If to Thermal Cycler Supplier:
Cepheid
1190 Borregas Avenue
Sunnyvale, California 94089
Attn.: President
Either party may change its address by providing notice to the other. A notice
shall be deemed given four (4) full business days after the day of mailing, or
one full day after the date of delivery to the courier, or the date of facsimile
transmission, as the case may be.
12.3 Governing Law and Venue. This Agreement shall be deemed made
in the State of Delaware, and it shall be construed and enforced in accordance
with the law of the State of Delaware. The Parties agree that the exclusive
jurisdiction and venue for any dispute or controversy arising from this
Agreement shall be in the state or federal courts in Delaware.
12.4 Nothing in this Agreement shall be construed to require the
commission of any act contrary to law, and wherever there is any conflict
between any provision of this Agreement or concerning the legal right of The
Parties to enter into this contract and any statute, law or ordinance, the
latter shall prevail, but the provision shall be limited only to the extent
necessary.
12.5 If any provision of this Agreement is held or discovered to
both parties' satisfaction to be illegal, invalid or unenforceable in any
jurisdiction or to render any patent in that jurisdiction unenforceable, the
provision as it applies to that jurisdiction only shall be replaced
automatically, as part of the document, by a provision as similar in terms as
possible but not subject to such infirmity, in order to achieve the intent of
the parties to the extent possible. In any event, as to that
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jurisdiction all other provisions of this Agreement shall be deemed valid and
enforceable to the full extent possible.
IN WITNESS WHEREOF, The Parties hereto have duly executed this Agreement on the
date(s) indicated below.
PE BIOSYSTEMS CEPHEID
----------------------------------
(THERMAL CYCLER SUPPLIER)
By: /s/ [Signature Illegible] By: /s/ THOMAS L. GUTSHALL
------------------------------------- -------------------------------
Title: V. P., Intellectual Property Title: CEO & Chairman
---------------------------------- ----------------------------
Date: 4/13/00 Date: 4/6/00
----------------------------------- -----------------------------
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<TABLE>
<S><C>
APPENDIX A
SUMMARY ROYALTY/FEE REPORT
THERMAL CYCLER SUPPLIER AGREEMENT
FOR THE PERIOD: ________ TO ________ FOR SALES IN THE COUNTRY OF ________
THERMAL CYCLER (TC) SUPPLIER: CEPHEID EFFECTIVE DATE: 4/15/00 ROYALTY/FEE RATE: ________
[ ] Check here if there were no sales for this period.
TC/TCI/Add-on Mod. # of Gross Invoice Price Deductions Allowed Net Sales Price
Model # TC/TCI/Add-on Mod. (actual) (explain) (actual) Royalty/Fee Due
______________ ______________ ______________ ______________ ______________ ______________
______________ ______________ ______________ ______________ ______________ ______________
______________ ______________ ______________ ______________ ______________ ______________
______________ ______________ ______________ ______________ ______________ ______________
______________ ______________ ______________ ______________ ______________ ______________
TC/TCI/Add-on Mod. # of Calculated Net
Model # TC/TCI/Add-on Mod. Price to Distributor Sales Price Royalty/Fee Due
______________ ______________ ______________ ______________ ______________
______________ ______________ ______________ ______________ ______________
______________ ______________ ______________ ______________ ______________
______________ ______________ ______________ ______________ ______________
______________ ______________ ______________ ______________ ______________
TOTAL ROYALTY/FEE EARNED: ______________
ROYALTY/FEE PAYMENT DUE: ______________
I hereby certify the information set forth above is correct and complete with respect to the amounts due under the
applicable license agreement.
By _______________________________________ Title ____________________ Date ___________________
Name (please print) _______________________________
PE CORPORATION
Send report to:
Director of Licensing, PE Biosystems, PE Corporation, 850 Lincoln Centre Drive, Foster City, CA 94404 USA
</TABLE>
<PAGE> 22
EXHIBIT 1
Attached (Exhibits 1a - 1c) are descriptions and specifications for the specific
Cepheid thermal cyclers and temperature cycling instruments referenced in the
"Grant" clause, Article 2.1, paragraph (a):
Exhibit la - Smart Cycler(R) System (2 pages)
Exhibit 1b - Smart Cycler(R) XC System (2 pages)
Exhibit 1c - GeneXpert(TM) Prototype (2 pages)
Also attached (Exhibit 1d) is a prospective set of general specifications for
any thermal cycler or temperature cycling instrument containing one or more
I-CORE(TM) modules which may be manufactured under this Agreement by Cepheid, as
referenced in the "Grant" clause, Article 2.1, paragraph (a).
22
<PAGE> 23
Exhibit 1d: General Specifications for Cepheid's Thermal Cycle and Temperature
Cycling Instruments
The instruments are those containing one or more I-CORE(TM) modules. An I-CORE
module is comprised of (1) a single site, discrete, individually controllable
heater sleeve containing a heating element and designed to accept a disposable
reaction tube or cartridge, (2) an integrated cooling mechanism (e.g. a fan)
that enables passage of ambient or cooled air across the heater sleeve, and (3)
optical blocks containing solid state components that enable optical
interrogation of the reaction solution in the reaction tube or cartridge.
In a single site configuration comprised or a single I-CORE module, the I-CORE
module will contain all of the elements listed above.
In a multi-site configuration comprised of multiple I-CORE modules, each I-CORE
module:
a) will contain a single site, discrete, individually
controllable heater sleeve containing a heating element and
designed to accept a disposable reaction tube or cartridge.
b) may or may not contain an integrated cooling mechanism. If an
integrated cooling mechanism is not included, each I-CORE
reaction site will be cooled by the passage of ambient or
cooled air coming from an external source passing across the
heater sleeve.
c) may or may not contain optical blocks. If optical blocks are
not included, the instrument will be optically "blind", that
is, it will not be capable of optical interrogation, or
optical interrogation will occur on a separate module.
23
<PAGE> 24
Exhibit 1a, page 1
[CEPHEID LOGO] BIOANALYSIS FOR THE NEW MILLENNIUM
RAPID THERMAL
CYCLING WITH
REAL-TIME DETECTION
SMART CYCLER(R) SYSTEM
The Smart Cycler(R) from Cepheid is a highly versatile and efficient thermal
cycler with real-time optical detection specifically tailored to the rapidly
evolving needs of today's molecular biology laboratory. Based on state of the
art microelectronic design, the Smart Cycler(R) can be configured by the user
into a series of 1-6 processing blocks, each containing 16 reaction sites. Each
of the 16 sites within a processing block is individually programmable, and
each is capable of 4 channel multiplexed fluorometric detection. Through a
sophisticated PC-based user interface, the operator can define and
simultaneously carry out any number of separate protocols, each with a unique
set of cycling parameters, threshold criterion, and analytical algorithms. In
addition, each site can be thermally and optically monitored on a real-time
basis and results can be analyzed and reported according to user defined modes.
The Smart Cycler(R) is the ideal system for method optimization and for
efficiently processing workloads comprised of variable sample numbers and
protocols.
DILUTION SERIES PERFORMED ON SMART CYCLER(R)
SYSTEM USING A BETA-ACTIN ASSAY
[GRAPH]
o 1-6 PROCESSING BLOCKS
o 16 INDEPENDENTLY PROGRAMMABLE REACTION SITES PER PROCESSING BLOCK
o 4 COLOR REAL-TIME OPTICAL DETECTION IN EACH SITE
o FASTER & MORE SENSITIVE THAN REFERENCE SYSTEMS
<PAGE> 25
Exhibit 1a, page 2
[CEPHEID LOGO] BIOANALYSIS FOR THE NEW MILLENNIUM
SPECIFICATIONS;
PHYSICAL DIMENSIONS
12"W x 12"Lx 10"H (each processing block)
22 lbs per processing block
POWER REQUIREMENTS
85-264 VAC, 47-200 Hz
350 Watts
OPTICS*
2 optic blocks per site
Components: LED's, filters, photo-diodes
4 color excitation
4 color detection from 500 nm - 700 nm
Dye detection limit <10nM
for FAM/TAM/TET/ROX
SITE-LEVEL HEATING/COOLING ASSEMBLY*
Solid state heater and forced air cooling
at each reaction site
16 independently controlled reaction sites
per processing block
1-6 processing blocks can be interconnected
COMPUTER
Pentium(R) computer
WIN 98 OS, WIN 2000
CD ROM
USB
A single host PC supports up to six SmartCycler
instruments
SOFTWARE/USER INTERFACE
Windows 98, Windows 2000 compatible
Menu driven user interface
Point & click protocol definition
(cycle #, temp, times, read points,
melting curve analysis, quantitation)
Qualitative and quantitative data analysis
REACTION TUBES*
Single use, disposable tubes
Polypropylene construction
25 (micro)l & 100 (micro)l reaction volumes
No-leak closure seals and pressurized tube
PERFORMANCE PARAMTERS
Heating ramp rates
6.5 degrees C/sec from 50 degrees C to 95 degrees C
Cooling ramp rates
2 degrees C/sec from 95 degrees C to 50 degrees C
Programmed time at Temperature
+/- 1.0 sec
Temperature accuracy
+/- 0.5 degrees C from 60 degrees C to 95 degrees C
Melt curve programmable ramp rate
0.1 degrees C/sec to 1.0 degrees C/sec
ASSAY PERFORMANCE
Cycle time (Beta Actin assay)
<40 seconds per cycle
<30 minutes for 45 cycles
Analytical sensitivity (Beta Actin assay)
150,000 copies in <28 cycles
150 copes in <34 cycles
<150 copies in 35 - 45 cycles
Analytical precision
Site to site threshold crossing in
+/- 0.5 cycles
*Covered by issued or pending patents
<PAGE> 26
Exhibit 1b, page 1
[CEPHEID LOGO] BIOANALYSIS FOR THE NEW MILLENNIUM
[PHOTO] PORTABLE NUCLEIN ACID DETECTION
SMART CYCLER(R) XC SYSTEM
The Smart Cycler XC (Xtreme Conditions) from Cepheid is a very rapid, highly
efficient, fully ruggedized, battery operated thermal cycler with real-time
optical detection. Based on state of the art microelectronic design, the Smart
Cycler XC is comprised of 16 independently programmable reaction sites, each
with 4 channel multiplexed fluorometric detection. Up to 16 different protocols
can be processed and monitored simultaneously and each reaction can be
terminated as soon as a positive signal threshold is reached. Speed and
sensitivity of the system meets or surpasses that of sophisticated laboratory
systems. The Smart Cycler XC is the solution for rapid, real-time, field-based
pathogen detection or other nucleic acid probe analysis.
[Graph]
O BATTERY OPERATED
O 16 INDEPENDENTLY PROGRAMMABLE REACTION SITES
O 4 COLOR REAL-TIME OPTICAL DETECTION
O FASTER & MORE SENSITIVE THAN LABORATORY SYSTEMS
<PAGE> 27
EXHIBIT 1b, page 2
[CEPHEID LOGO]
BIOANALYSIS FOR THE NEW MILLENNIUM
SPECIFICATIONS:
PHYSICAL DIMENSIONS
26.5" X 18.9 X 13.4
62 lbs w/computer & rechargeable battery pack
POWER REQUIREMENTS
Can run on:
AC (110V/60Hz; 220V/50Hz)
Internal battery pack (1 hour operation)
External battery pack (6 hours operation)
Automobile electrical adaptor or 12V auto battery
OPTICS*
2 optic blocks per site
Components: LED's, filters, photo-diodes
4 color excitation
4 color detection from 500 nm - 700 nm
Dye detection limit <10nM for FAM/TAM/TET/ROX
SITE-LEVEL HEATING/COLLING ASSEMBLY*
Solid state heater and forced air cooling at each reaction site
16 independently controlled reaction sites per processing block
1-4 processing blocks can be interconnected
COMPUTER
Laptop Pentium(R) computer
WIN 98 OS, WIN 2000
USB, modem, ethernet
A single host PC supports up to four Smart Cycler XC instruments
Zip Drive
SOFTWARE/USER INTERFACE WINDOWS 98
Windows 98, Windows 2000 compatible
Menu driven user interface
Point & click protocol definition (cycle #, temp, times, read points,
melting curve analysis, quantitation)
Qualitative and quantitative data analysis
REACTION TUBES*
Single use, disposable tubes
Polypropylene construction
25 ul & 100 ul reaction volumes
No-leak closure seals and pressurized tube
PERFORMANCE PARAMETERS
Heating ramp rates
6.5 degrees C/sec from 50 degrees C to 95 degrees C
Cooling ramp rates
2 degrees C/sec from 95 degrees C to 50 degrees C
Programmed time at Temperature
+/- 1.0 sec
Temperature accuracy
+/- 0.5 degrees C from 60 degrees C to 95 degrees C
Melt curve programmable ramp rate
0.1 degrees C/sec to 1.0 degrees C/sec
ASSAY PERFORMANCE
Cycle time (Beta Actin assay)
<40 seconds per cycle
<30 minutes for 45 cycles
Analytical sensitivity (Beta Actin assay)
150,000 copies in <28 cycles
150 copies <34 cycles
<150 copies in 35 - 45 cycles
Analytical precision
Site to site threshold crossing in +/- 0.5 cycles
RUGGEDIZATION/ENVIRONMENTAL
Meets MIL STD 810E for shock and vibration
Temperature: -32 C to 71 C Storage
0 C to 49 C Operation
*Covered by issued or pending patents
<PAGE> 28
Exhibit 1c, page 1
[CEPHEID LOGO] BIOANALYSIS FOR THE NEW MILLENNIUM
GENEXPERT(TM) PROTOTYPE
[PHOTO] Integrated, Automated, Hands-off DNA Detection
SUMMARY OF DATA - CT/GC ASSAY
Cepheid has integrated its proprietary cartridge-based sample preparation
technology with its rapid thermal cycling and real-time detection platform
(I-CORE(TM)) to produce a revolutionary demonstration system -- the
GeneXpert(TM). The cartridge, which employs a fluid circuit comprised of various
processing elements, automatically carries out a complete sample preparation and
DNA extraction procedure (including filtration, cell lysis, DNA extraction, and
addition of pre-loan assay specific PCR reagents) on 5 ml of urine in less than
5 minutes. The extracted DNA and PCR reaction mixture is delivered automatically
to a closed, integrated reaction tube, where it undergoes rapid thermal cycling,
amplification and real-time optical readings in a Cepheld I-CORE(TM) module.
Using a Taqman based system for homogeneous fluorescent detection, the presence
of Ct can be detected using the TET channel and GC using the FAM channel.
Results are available in less than 30 minutes from the start of the procedure.
<TABLE>
<CAPTION>
CEPHEID FDA APPROVED FDA APPROVED
GENEXPERT(TM) REFERENCE KIT A REFERENCE KIT B
ASSAY TIME CT & GC CT GC
---------- ------------ --------------- ---------------
<S> <C> <C> <C>
TOTAL # OF STEPS 1 23 33
Sample Preparation <5 98 66
(minutes)
Amplification 25 90-100 120
(minutes)
Detection [Real Time] 119 85
(minutes)
TOTAL TIME <30 307 271
(MINUTES)
</TABLE>
<PAGE> 29
EXHIBIT 1c, page 2
[CEPHEID LOGO] BIOANALYSIS FOR THE NEW MILLENNIUM
[GRAPH RAPID LYSIS OF CHLAMYDIA]
[GRAPH MULTIPLEX DETECTION OF CT AND GC IN URINE]
<PAGE> 1
EXHIBIT 23.1
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the references to our firm under the captions "Selected
Consolidated Financial Data" and "Experts" and to the use of our report dated
March 20, 2000 in Amendment No. 1 to the Registration Statement (Form S-1, No.
333-34340) and related Prospectus of Cepheid for the registration of 5,750,000
shares of its common stock.
/s/ ERNST & YOUNG LLP
Palo Alto, California
May 16, 2000
