<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 6, 1998
REGISTRATION NO. 333-43529
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 2
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
--------------------------
LJL BIOSYSTEMS, INC.
(Exact Name of Registrant as Specified in Its Charter)
<TABLE>
<S> <C> <C>
DELAWARE 3826 77-0360183
(State or Other Jurisdiction (Primary Standard Industrial (I.R.S. Employer
of Classification Code Number) Identification
Incorporation or Organization) Number)
</TABLE>
404 TASMAN DRIVE
SUNNYVALE, CA 94089
(408) 541-8787
(Address, Including Zip Code, and Telephone Number, Including Area Code,
of Registrant's Principal Executive Offices)
--------------------------
LEV J. LEYTES
PRESIDENT AND CHIEF EXECUTIVE OFFICER
404 TASMAN DRIVE
SUNNYVALE, CA 94089
(408) 541-8787
(Name, Address Including Zip Code, and Telephone Number Including Area Code, of
Agent for Service)
--------------------------
COPIES TO:
<TABLE>
<S> <C>
MARK B. WEEKS PATRICK A. POHLEN
VENTURE LAW GROUP COOLEY GODWARD LLP
A Professional Corporation 5 Palo Alto Square
2800 Sand Hill Road Palo Alto, CA 94306
Menlo Park, CA 94025
</TABLE>
--------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after the effective date of this Registration Statement.
--------------------------
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. / /
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
--------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
<PAGE>
SUBJECT TO COMPLETION, DATED FEBRUARY 6, 1998
2,500,000 SHARES
[LOGO]
COMMON STOCK
ALL OF THE 2,500,000 SHARES OF COMMON STOCK OFFERED HEREBY ARE BEING SOLD BY
LJL BIOSYSTEMS, INC. ("LJL" OR THE "COMPANY"). PRIOR TO THIS OFFERING, THERE HAS
BEEN NO PUBLIC MARKET FOR THE COMMON STOCK OF THE COMPANY. IT IS CURRENTLY
ESTIMATED THAT THE INITIAL PUBLIC OFFERING PRICE FOR THE COMMON STOCK WILL BE
BETWEEN $11.00 AND $13.00 PER SHARE. SEE "UNDERWRITING" FOR A DISCUSSION OF THE
FACTORS TO BE CONSIDERED IN DETERMINING THE INITIAL PUBLIC OFFERING PRICE.
APPLICATION HAS BEEN MADE TO HAVE THE COMMON STOCK APPROVED FOR QUOTATION ON THE
NASDAQ NATIONAL MARKET UNDER THE SYMBOL "LJLB."
THE SHARES OF COMMON STOCK OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK. SEE
"RISK FACTORS" BEGINNING ON PAGE 6 FOR A DISCUSSION OF CERTAIN FACTORS THAT
SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS IN PURCHASING THE SHARES OF COMMON
STOCK OFFERED HEREBY.
-----------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC DISCOUNT (1) COMPANY (2)
<S> <C> <C> <C>
PER SHARE.................................................... $ $ $
TOTAL (3).................................................... $ $ $
</TABLE>
(1) SEE "UNDERWRITING" FOR INFORMATION CONCERNING INDEMNIFICATION OF THE
UNDERWRITERS AND OTHER MATTERS.
(2) BEFORE DEDUCTING EXPENSES PAYABLE BY THE COMPANY ESTIMATED AT $700,000.
(3) THE COMPANY HAS GRANTED TO THE UNDERWRITERS A 30-DAY OPTION TO PURCHASE UP
TO AN ADDITIONAL 375,000 SHARES OF COMMON STOCK SOLELY TO COVER
OVER-ALLOTMENTS, IF ANY. IF THE UNDERWRITERS EXERCISE THIS OPTION IN FULL,
THE PRICE TO PUBLIC WILL TOTAL $ , THE UNDERWRITING DISCOUNT WILL
TOTAL $ AND THE PROCEEDS TO COMPANY WILL TOTAL $ . SEE
"UNDERWRITING."
THE SHARES OF COMMON STOCK ARE OFFERED BY THE SEVERAL UNDERWRITERS NAMED
HEREIN, SUBJECT TO RECEIPT AND ACCEPTANCE BY THEM AND SUBJECT TO THEIR RIGHT TO
REJECT ANY ORDER IN WHOLE OR IN PART. IT IS EXPECTED THAT DELIVERY OF THE
CERTIFICATES REPRESENTING SUCH SHARES WILL BE MADE AGAINST PAYMENT THEREFOR AT
THE OFFICE OF NATIONSBANC MONTGOMERY SECURITIES LLC ON OR ABOUT ,
1998.
-------------------
NATIONSBANC MONTGOMERY SECURITIES LLC
HAMBRECHT & QUIST
VOLPE BROWN WHELAN & COMPANY
, 1998
<PAGE>
<TABLE>
<S> <C>
[LJL BIOSYSTEMS LOGO] PROPRIETARY TECHNOLOGIES AND PRODUCTS TO ACCELERATE AND
ENHANCE THE DRUG DISCOVERY PROCESS
[Drawing of drug discovery process with Recent advances in molecular biology and genomics as well
compounds and targets going into funnel and as combinatorial chemistry have resulted in the generation
coming out of funnel into drug leads] of large numbers of targets and compounds, shifting the
rate-limiting step in the drug discovery process to
screening.
FIRST HTS PRODUCTS UNDER DEVELOPMENT [photograph of the LJL Analyst]
ANALYST -- a four-mode analyzer specifically
designed to address the needs of the high
throughput screening ("HTS") setting.
POTENTIAL BENEFITS
-higher throughput
-improved analytical performance and
flexibility
-lower compound and reagent costs
HIGH VALUE-ADDED REAGENTS AND ASSAY KITS
POTENTIAL BENEFITS
-ease of implementation and use in HTS
-improved performance LJL ANALYST
Commercial launch is expected in the first half of 1998.
To date, the Company has not sold any HTS products.
[Drawing of drug discovery process with LJL believes that its technology platform addresses many
compounds and targets going into funnel and of the limitations associated with current HTS systems,
coming out of funnel into drug leads] allowing its customers to accelerate the identification
and optimization of lead compounds for development into
new medicines.
</TABLE>
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN ACTIVITIES THAT
STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE SECURITIES OFFERED
HEREBY, INCLUDING OVER- ALLOTMENT, STABILIZING TRANSACTIONS, SYNDICATE SHORT
COVERING TRANSACTIONS AND PENALTY BIDS. THESE TRANSACTIONS MAY BE EFFECTED ON
NASDAQ OR OTHERWISE AND, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME. FOR A
DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING."
Analyst-TM-, CRITERION-TM-, FLARe-TM-, LJL-TM-, SmartOptics-TM-, The High
Throughput Company-TM- and the logo of the Company are trademarks of the
Company. This Prospectus also includes trade names and trademarks of companies
other than LJL, whose mention herein is with due recognition of and without
intent to misappropriate their marks.
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED
INFORMATION AND THE FINANCIAL STATEMENTS AND NOTES THERETO APPEARING ELSEWHERE
IN THIS PROSPECTUS. UNLESS OTHERWISE INDICATED, ALL INFORMATION CONTAINED IN
THIS PROSPECTUS ASSUMES: (I) A 1-FOR-2 REVERSE STOCK SPLIT OF THE COMMON STOCK
AND PREFERRED STOCK TO BE EFFECTED PRIOR TO THIS OFFERING, (II) THE CONVERSION
OF ALL THE OUTSTANDING SHARES OF PREFERRED STOCK INTO SHARES OF COMMON STOCK TO
BE EFFECTED UPON THE CLOSING OF THIS OFFERING AND (III) NO EXERCISE OF THE
UNDERWRITERS' OVER-ALLOTMENT OPTION. EXCEPT FOR THE HISTORICAL INFORMATION
CONTAINED HEREIN, THE DISCUSSION IN THIS PROSPECTUS CONTAINS FORWARD-LOOKING
STATEMENTS THAT INVOLVE RISKS AND UNCERTAINTIES. THE COMPANY'S ACTUAL RESULTS
COULD DIFFER MATERIALLY FROM THOSE DISCUSSED HEREIN. FACTORS THAT COULD CAUSE OR
CONTRIBUTE TO SUCH DIFFERENCES INCLUDE, BUT ARE NOT LIMITED TO, THOSE DISCUSSED
IN "RISK FACTORS," "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS" AND "BUSINESS," AS WELL AS THOSE DISCUSSED ELSEWHERE
IN THIS PROSPECTUS.
THE COMPANY
LJL is developing and marketing proprietary technologies and products to
accelerate and enhance the drug discovery process. LJL's proprietary integrated
technology platform is comprised of instrumentation and fluorescence-based and
other assay technologies designed to provide flexible solutions to the current
and evolving high throughput screening ("HTS") requirements of drug discovery
laboratories. The drug discovery process involves several stages including
target identification, compound synthesis, assay development, screening and lead
optimization. Target identification and compound synthesis historically have
been the limiting factors in the drug discovery process. However, recent
advancements in genomics and molecular biology as well as combinatorial
chemistry have resulted in the generation of large numbers of targets and
compounds. This growth in the number of targets and compounds has shifted the
rate-limiting steps in the drug discovery process to assay development,
screening and lead optimization. High throughput screening is the process of
testing, or screening, a large number of compounds against a target in order to
determine the compound's effect, if any, on the target. To address these
bottlenecks, LJL is developing instrumentation and assays to provide integrated
HTS solutions. LJL believes that its technology platform addresses the major
limitations associated with current HTS systems and will allow its customers to
accelerate the identification and optimization of lead compounds for development
into new medicines.
The Company's first HTS product, ANALYST, is a four-mode analyzer designed
specifically for use in the HTS setting. The Company believes that ANALYST will
provide several important advantages over currently available multi-mode
analyzers, including increased throughput, improved analytical performance and
flexibility, lower reagents costs and the ability to be quickly integrated into
the existing HTS laboratory and to evolve with changing HTS needs. ANALYST is
currently undergoing beta testing at three major pharmaceutical companies and
two biotechnology companies. The Company expects to commence shipments of
ANALYST in the first half of 1998.
LJL's integrated technology platform also includes proprietary
fluorescence-based and other assay technologies. Currently, LJL is developing a
line of high value-added, application-specific reagents and assay kits optimized
for use in HTS and specifically for use with ANALYST. The Company intends to
develop its reagent and assay kits in a single-step format. The Company believes
that a single-step format is better suited for the HTS environment because of
its speed, automation capability and lower cost. Additionally, LJL has licensed
a platform of novel fluorescence-based assay technologies known as Fluorescence
Lifetime Assay Repertoire ("FLARe") which it believes will address a number of
the current limitations associated with fluorescence-based HTS assays. The
Company believes that its proprietary FLARe technology, which includes methods
of assay detection using long-lifetime fluorescent reagents and phase/
modulation, will address the signal-to-noise problems normally associated with
intensity-based fluorescence assays. LJL's first reagents and assay kits are
expected to be introduced in 1998.
From inception in 1988 through the first half of 1996, the Company developed
and manufactured clinical diagnostics and research instruments for OEM
customers. The Company believes these instruments are in use in more than 500
clinical diagnostics and research laboratories worldwide. In the second
3
<PAGE>
half of 1996, the Company implemented a new strategic business model to develop
products for the HTS market to leverage its existing technology platform and
product development and manufacturing expertise into this new market. As a
result of the Company's shift in strategy to the HTS market, the Company
incurred a substantial operating loss in 1997, and it expects to continue to
incur operating losses for at least the next several years. LJL intends to
leverage its proven product development and manufacturing track record to be the
first to market with effective solutions to the problems facing HTS users. The
Company believes that by establishing an installed base of instruments it will
be able to generate recurring revenue from the sale of reagents and assay kits.
Additionally, the Company believes that the market for its screening products
can be extended into other stages of the drug discovery process, such as assay
development and lead optimization. To further strengthen its market position,
the Company plans to develop and acquire additional screening technologies and
to provide early technology access to strategic customers.
The Company's office is located at 404 Tasman Drive, Sunnyvale, CA 94089 and
its telephone number is (408) 541-8787.
RISK FACTORS
The Common Stock offered hereby involves a high degree of risk, including
the risks associated with a new business strategy, the early state of
development of the Company's high throughput screening products, uncertainty in
the emerging high throughput screening market and uncertainty of commercial
acceptance of the Company's high throughput screening products, dependence on
in-licensed technology, the development and commercialization of reagents and
assay kits, a dependence on new products, rapid technological change, lack of
sales and marketing experience, intense competition, the concentration of the
HTS market, a lengthy sales cycle, and the other risks described in the section
titled "Risk Factors" in this Prospectus. See "Risk Factors."
THE OFFERING
<TABLE>
<S> <C>
Common Stock offered by the Company.......... 2,500,000 shares
Common Stock to be outstanding after the
offering................................... 10,705,253 shares(1)(2)
Use of proceeds.............................. For research and development of HTS products,
investments in manufacturing, sales,
marketing and administrative infrastructure
and working capital and general corporate
purposes, including the possible acquisition
of technologies and businesses. See "Use of
Proceeds."
Proposed Nasdaq National Market symbol....... LJLB
</TABLE>
- ------------------------
(1) Based on 8,205,253 shares outstanding as of December 31, 1997. Excludes as
of December 31, 1997 (i) 2,466,750 shares of Common Stock subject to
outstanding options or available for issuance under the Company's 1994
Equity Incentive Plan and 1997 Stock Plan, of which 830,000 shares were
issuable upon exercise of outstanding options at a weighted average exercise
price of $0.71 per share and of which 1,636,750 shares (including 1,250,000
shares subject to stockholder approval) were available for issuance, and
(ii) 37,203 shares issuable upon the net exercise of outstanding warrants.
See "Management--Stock Plans," "Description of Capital Stock--Warrants,"
"Certain Relationships and Related Transactions," and "Underwriting" and
Notes 5, 6 and 7 of Notes to Financial Statements.
(2) Excludes as of December 31, 1997: (i) the reservation of 300,000 shares for
future issuance under the 1998 Employee Stock Purchase Plan and (ii) the
reservation of 150,000 shares for future issuance under the 1998 Directors'
Plan, both of which were approved by the Board of Directors on December 16,
1997 and will be submitted for stockholder approval prior to completion of
the offering. See "Management--Stock Plans" and "--Director Compensation."
4
<PAGE>
SUMMARY FINANCIAL INFORMATION
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------------------
1993 1994 1995 1996 1997
--------- ---------- --------- ---------- ----------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA(1):
Revenues:
Product sales............................................... $ 1,536 $ 3,551 $ 2,236 $ 5,622 $ 4,562
Development agreements...................................... 2,932 2,659 2,915 3,663 642
--------- ---------- --------- ---------- ----------
Total revenues............................................ 4,468 6,210 5,151 9,285 5,204
--------- ---------- --------- ---------- ----------
Costs and operating expenses:
Product sales............................................... 971 1,581 1,174 2,755 2,319
Research and development.................................... 1,524 1,810 1,740 2,384 3,511
Selling, general and administrative......................... 1,576 2,822 1,963 4,062 2,145
--------- ---------- --------- ---------- ----------
Total costs and operating expenses........................ 4,071 6,213 4,877 9,201 7,975
--------- ---------- --------- ---------- ----------
Income (loss) from operations................................. 397 (3) 274 84 (2,771)
Interest and other income, net................................ 12 54 82 176 228
--------- ---------- --------- ---------- ----------
Income (loss) before provision for income taxes............... 409 51 356 260 (2,543)
Provision for income taxes.................................... 7 7 4 2 12
--------- ---------- --------- ---------- ----------
Net income (loss)............................................. $ 402 $ 44 $ 352 $ 258 $ (2,555)
--------- ---------- --------- ---------- ----------
--------- ---------- --------- ---------- ----------
PRO FORMA DATA(2):
Pro forma net income (loss)................................... $ 245 $ 31 $ 214 $ 156 $ (2,343)
--------- ---------- --------- ---------- ----------
--------- ---------- --------- ---------- ----------
Basic and diluted pro forma net (loss) per share.............. $ (0.28)
----------
----------
Shares used in computation of basic and diluted pro forma net
(loss) per share............................................ 8,306
----------
----------
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1997
----------------------------------------
ACTUAL PRO FORMA(3) AS ADJUSTED(4)
--------- ------------- --------------
<S> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents.............................................. $ 5,525 $ 5,525 $ 32,725
Working capital........................................................ 5,111 5,111 32,311
Total assets........................................................... 6,793 6,793 33,993
Long-term debt......................................................... 40 40 40
Mandatorily redeemable convertible preferred stock..................... 9,308 -- --
Accumulated deficit.................................................... (3,750) (3,750) (3,750)
Total stockholders' equity (deficit)................................... (3,795) 5,513 32,713
</TABLE>
- ------------------------
(1) The statement of operations data for the year ended December 31, 1993
reflects the combined results of three commonly-controlled companies, two of
which were merged into, and survived by, the third, LJL BioSystems, Inc., on
January 1, 1994.
(2) See Note 1 of Notes to Financial Statements for a description of pro forma
statement of operations data.
(3) Pro forma for the conversion of all outstanding shares of Preferred Stock
into Common Stock upon the closing of the offering.
(4) Adjusted to reflect the sale of 2,500,000 shares of Common Stock offered by
the Company at an assumed initial public offering price of $12.00 per share
(after deduction of the estimated underwriting discount and offering
expenses) and the receipt and application of the net proceeds thereof, and
reflects the anticipated net exercise of outstanding warrants. See "Use of
Proceeds" and "Capitalization."
5
<PAGE>
RISK FACTORS
AN INVESTMENT IN THE SHARES OF COMMON STOCK OFFERED HEREBY INVOLVES A HIGH
DEGREE OF RISK. ACCORDINGLY, PROSPECTIVE INVESTORS SHOULD CONSIDER CAREFULLY THE
FOLLOWING FACTORS, TOGETHER WITH THE OTHER INFORMATION CONTAINED IN THIS
PROSPECTUS, IN EVALUATING THE COMPANY AND ITS BUSINESS BEFORE PURCHASING THE
SHARES OF COMMON STOCK OFFERED HEREBY. THIS PROSPECTUS CONTAINS FORWARD-LOOKING
STATEMENTS THAT INVOLVE RISK AND UNCERTAINTY. ACTUAL RESULTS AND THE TIMING OF
CERTAIN EVENTS COULD DIFFER MATERIALLY FROM THOSE PROJECTED IN THE
FORWARD-LOOKING STATEMENTS AS A RESULT OF THE RISK FACTORS SET FORTH BELOW AND
OTHER FACTORS DISCUSSED ELSEWHERE IN THIS PROSPECTUS. SEE "SPECIAL NOTE
REGARDING FORWARD-LOOKING STATEMENTS."
NEW BUSINESS STRATEGY; NEW AND UNDEFINED MARKET FOR HIGH THROUGHPUT SCREENING
PRODUCTS
In the second half of 1996, the Company implemented a new strategic business
model to develop products for the HTS market. In connection with this change in
strategy, the Company shifted its focus from developing and manufacturing
clinical diagnostic and research products on an original equipment manufacturing
("OEM") basis to developing, manufacturing and marketing products for the HTS
market. As a result, the Company's historical operating and financial
performance is not indicative of future financial and business results. The
Company incurred operating losses for the year ended December 31, 1997 as a
result of its change in business strategy and expects that operating losses will
increase substantially in future periods due to a significant decline in
revenues and a substantial increase in expenditures to develop and commercialize
the Company's HTS products. The Company anticipates that it will continue to
incur losses for at least the next several years. To date, the Company has not
commercially launched a product for the HTS market. Accordingly, the Company is
subject to the risks inherent in the operation of a new business, such as the
failure to develop an effective sales, marketing and distribution channel,
failure to achieve market acceptance and demand for its HTS products, failure to
implement commercial scale-up of developed HTS products, if any, and failure to
attract and retain key personnel. Furthermore, the HTS market is new and
undefined, and the use of HTS by pharmaceutical and biotechnology companies is
limited. Demand for the Company's HTS products will depend upon the extent to
which pharmaceutical and biotechnology companies adopt HTS as a drug discovery
tool. If HTS does not become a widely used method in drug discovery, demand for
the Company's products will not develop as the Company currently expects or at
all. The lack of demand for the Company's HTS products would have a material
adverse effect on the Company's business, financial condition and results of
operations. See "Selected Financial Data," "Management's Discussion and Analysis
of Financial Condition and Results of Operations," "Business--Pharmaceutical
Research and Development" and "Business--Competition."
EARLY STAGE OF INSTRUMENTATION DEVELOPMENT
The Company's success will depend on its ability to develop and
commercialize its HTS instruments. The Company's first HTS instrument, ANALYST,
has recently entered beta testing and has not yet been implemented in a fully
operational HTS system. The Company has not previously developed or
commercialized products for the HTS market. Much of the instrumentation and
software expected to be incorporated into the Company's HTS products has not
previously been used in HTS applications. The successful implementation and
operation of the Company's HTS products will be a complex process requiring the
integration of advanced robotics, microfluidics, automated storage and retrieval
systems, fluorescence detector technologies and software and information
systems. Even if ANALYST appears to be promising at an early stage of
development or at commercial launch, it may not achieve market acceptance. In
addition, ANALYST may be difficult or uneconomical to produce, fail to achieve
expected performance levels, have a price level that is unacceptable in the
industry or be precluded from commercialization by the proprietary rights of
others. There can be no assurance that the Company will be able to successfully
develop, manufacture and market ANALYST or any other HTS products on a timely
basis, achieve anticipated performance levels or throughputs, gain industry
acceptance of the Company's products or develop a profitable business. The
failure to achieve any of these objectives would have a
6
<PAGE>
material adverse effect on the Company's business, financial condition and
results of operations. See "Business--Products Under Development--Analyst."
RISKS ASSOCIATED WITH THE DEVELOPMENT AND COMMERCIALIZATION OF REAGENTS AND
ASSAY KITS
The Company expects that a substantial portion of its revenues will be
derived from the sale of reagents and assay kits. The Company has no experience
in the development, manufacture or marketing of reagents or assay kits. The
Company intends to license assay technologies from third parties and to develop
reagents and assay kits internally. There can be no assurance that the Company
will succeed in licensing any additional assay technologies on acceptable terms,
if at all, or that it will successfully commercialize any reagents that it
licenses. In addition, the Company is internally developing reagents and assay
kits, but has no previous experience in this area. There can be no assurance
that the Company will successfully develop reagents or assay kits internally or
that, if developed, such reagents and assay kits will achieve market acceptance.
The Company currently intends to outsource the manufacture of reagents and
assays kits. There can be no assurance that the Company will be able to enter
into agreements with third parties for the manufacture of reagents and assay
kits on terms commercially favorable to the Company or at all. In addition, the
Company intends to sell reagents and assay kits to purchasers of HTS
instruments, including ANALYST. There can be no assurance that sales of ANALYST
will be sufficient to support this strategy. A failure to achieve commercial
acceptance of its reagents and assay kits would have a material adverse effect
on the Company's business, financial condition and results of operations. See
"Business--Products Under Development--Reagents and Assays," "--Products Under
Development--FLARe Technology" and "--Patents and Proprietary Rights."
DEPENDENCE ON NEW PRODUCTS; RAPID TECHNOLOGICAL CHANGE
The pharmaceutical and biotechnology instrumentation and reagents market is
characterized by rapid technological change and frequent new product
introductions. The Company's future success will depend on its ability to
enhance its current and planned HTS products and to develop and introduce, on a
timely basis, new products that address the evolving needs of its customers
including its higher-density, ultra high throughput analyzer and microplates and
its fluorescence-based reagents and assay kits. The Company does not anticipate
that prototypes for these ultra high throughput products will be available for
several years, if at all. Production of an ultra high throughput analyzer and
associated microplates, fluorescence-based reagents and assay kits will present
significant development and manufacturing challenges. The Company may experience
difficulties that could delay or prevent the successful development,
introduction and marketing of its new products or its product enhancements. Any
failure to develop and introduce products in a timely manner in response to
changing market demands or customer requirements could have a material adverse
effect on the Company's business, financial condition and results of operations.
See "Business--Products Under Development."
LACK OF SALES AND MARKETING EXPERIENCE
The Company has no experience in direct marketing, sales or distribution.
The Company's future profitability will depend on its ability to develop a
direct sales force to sell its HTS products to pharmaceutical and biotechnology
companies. The Company's products are technical in nature and the Company
therefore believes it is necessary to develop a direct sales force consisting of
people with scientific backgrounds and expertise. Competition for such employees
is intense. There can be no assurance that the Company will be able to attract
and retain qualified salespeople or that the Company will be able to build an
efficient and effective sales and marketing organization. Failure to attract or
retain qualified salespeople or to build such a sales and marketing organization
would have a material adverse effect on the Company's business, financial
condition and results of operations.
The Company intends to market its HTS products in certain international
markets through distributors. The Company does not currently have distributors
in any international markets, and there can be no assurance that the Company
will be able to engage qualified distributors. Such distributors, if engaged,
may fail to satisfy financial or contractual obligations to the Company, fail to
adequately market the Company's
7
<PAGE>
products, cease operations with little or no notice to the Company or offer,
design, manufacture or promote competing product lines. The failure to develop
and maintain effective distribution channels could have a material adverse
effect on the Company's business, financial condition and results of operations.
See "Business--Sales and Marketing."
COMPETITION
The market for HTS products is highly competitive. The Company expects that
competition will increase significantly as more biotechnology and pharmaceutical
companies adopt high throughput screening instruments as a drug discovery tool
and as new companies enter the market with advanced technologies and products.
The Company will compete in many areas, including high throughput screening
instruments, assay development and reagent sales. The Company competes with
companies which directly market HTS products. In addition, pharmaceutical and
biotechnology companies, academic institutions, governmental agencies and other
research organizations are conducting research and developing products in
various areas which compete with the Company's technology platform, either on
their own or in collaboration with others. Many of these competitors have
greater financial, operational and sales and marketing resources, and more
experience in research and development, than the Company. Further, certain
companies offer screening services on a contract or collaborative basis, and
these services could eliminate the need for a potential customer to purchase the
Company's products. The Company's technological approaches may be rendered
obsolete or uneconomical by advances in existing technological approaches or the
development of different approaches by one or more of the Company's current or
future competitors. Many of these competitors have greater financial and
personnel resources, and more experience in research and development, sales and
marketing and other areas than the Company. See "Business--Competition."
CONCENTRATION OF HTS MARKET
The market for HTS products is highly concentrated, with approximately 50
large pharmaceutical companies operating a substantial portion of the Company's
targeted drug discovery laboratories. Accordingly, the Company expects a
relatively small number of customers will account for a substantial portion of
its revenues. The Company will face risks associated with a highly concentrated
customer base when and if it begins to sell its HTS products, including the
failure to establish or maintain relationships within a limited customer pool,
or substantial financial difficulties or decreased capital spending by its
customers, any of which could have a material adverse effect on the Company's
business, financial condition and results of operations. Further, the Company
faces the risk that customers will negotiate price discounts or other
unfavorable terms, which could have a material adverse effect on the Company's
business, financial condition and results of operations. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
LENGTHY SALES CYCLE
The sale of HTS products typically involves a significant technical
evaluation and commitment of capital by customers. Accordingly, the sales cycle
associated with the Company's HTS products is expected to be lengthy and subject
to a number of significant risks, including customers' budgetary constraints and
internal acceptance reviews, that are beyond the Company's control. Due to this
lengthy and unpredictable sales cycle, the Company's operating results could
fluctuate significantly from quarter to quarter. See "--Future Fluctuations in
Operating Results" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
MANUFACTURING RISK
The Company has never manufactured HTS products in commercial quantities.
The Company may encounter difficulties in scaling up production of its HTS
products relating to, among other things, quality control and assurance,
component supply and availability of qualified personnel. There can be no
assurance that, even if successfully developed and introduced to market, any of
the Company's products
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can be manufactured in sufficient quantities while meeting quality control
standards or at acceptable cost. Difficulties encountered by the Company in
manufacturing scale-up could have a material adverse effect on its business,
financial condition and results of operations. See "--Dependence upon Key
Personnel; Need to Hire Additional Qualified Personnel" and "--Risks Associated
with Reagents and Assay Development and Commercialization." See also
"Business--Manufacturing."
MANAGEMENT OF GROWTH
The Company's success will depend on the expansion of its operations and the
effective management of growth, which will place a significant strain on the
Company's management, operational and financial resources. To manage such
growth, the Company must expand its facilities, augment its operational,
financial and management systems and hire and train additional qualified
personnel. The Company's failure to manage growth effectively would have a
material adverse effect on the Company's business, financial condition and
results of operations. See "--Dependence upon Key Personnel; Need to Hire
Additional Qualified Personnel."
DEPENDENCE UPON KEY PERSONNEL; NEED TO HIRE ADDITIONAL QUALIFIED PERSONNEL
The Company's success will depend to a significant degree upon the continued
services of key management, technical, and scientific personnel, including Lev
J. Leytes, the Company's Chairman of the Board of Directors, President and Chief
Executive Officer. In addition, the Company's success will depend on its ability
to attract and retain other highly skilled personnel. Currently, the Company is
seeking to hire certain senior executives, including a Chief Financial Officer.
Competition for qualified personnel is intense, and the process of hiring such
qualified personnel is often lengthy. There can be no assurance that the Company
can recruit such personnel on a timely basis, if at all. The Company's
management and other employees may voluntarily terminate their employment with
the Company at any time. The loss of the services of key personnel, or the
inability to attract and retain additional qualified personnel, could have a
material adverse effect on the Company's business, financial condition and
results of operations. See "Business--Employees" and "Management."
DEPENDENCE ON SUPPLIERS AND CONTRACT MANUFACTURERS
Certain components used in the Company's HTS instruments are currently
purchased from a single or a limited number of outside sources. The reliance on
a sole or limited number of suppliers could result in time delays associated
with redesigning a product due to a failure to obtain a single source component,
an inability to obtain an adequate supply of required components and reduced
control over pricing, quality and timely delivery. The Company does not maintain
long-term agreements with any of its suppliers, and therefore the supply of a
particular component could be terminated at any time without penalty to the
supplier. Any interruption in supply of single source components could have a
material adverse effect on the Company's business, financial condition and
results of operations. The Company intends to rely on contract manufacturers,
some of which may be single-source vendors, for the development, manufacture and
supply of certain of its reagents and assay kits. There can be no assurance the
Company will be able to enter into such manufacturing contracts on commercially
reasonable terms, if at all, or that the Company's current or future contract
manufacturers will meet the Company's requirements for quality, quantity or
timeliness. If the supply of any such instrumentation components, reagents or
assay kits is interrupted, components, reagents and assay kits from alternative
suppliers and contract manufacturers may not be available in sufficient volumes
within required timeframes, if at all, to meet the Company's production needs.
See "Business--Manufacturing."
ACCUMULATED DEFICIT; UNCERTAINTY OF FUTURE PROFITABILITY
As of December 31, 1997, the Company had an accumulated deficit of
approximately $3.8 million. To date, the Company has not yet generated any
revenue from its HTS products, and the Company's expansion of its operations and
continued development of its HTS products will require a substantial increase in
marketing and sales and research and development expenditures for at least the
next several
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years. As a result, the Company expects to incur substantial operating losses
for the next several years. The Company's profitability will depend on its
ability to successfully develop and commercialize its HTS products. Accordingly,
the extent of future losses and the time required to achieve profitability, if
achieved at all, is highly uncertain. Moreover, if profitability is achieved,
the level of such profitability cannot be predicted and may vary significantly
from quarter to quarter. See "Selected Financial Data" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
FUTURE CAPITAL NEEDS; UNCERTAINTY OF ADDITIONAL FUNDING
The Company may be required to raise substantial additional capital over a
period of several years in order to develop and commercialize its products. The
Company's future capital requirements will depend on numerous factors, including
the costs associated with developing and commercializing its products,
developing a direct marketing and sales force, maintaining existing, or entering
into future, licensing and distribution agreements, protecting intellectual
property rights, entering the reagents and assay kits business, expanding
facilities and consummating possible future acquisitions of technologies,
products or businesses. The Company may consume available resources more rapidly
than currently anticipated, resulting in the need for additional funding. The
Company may be required to raise additional capital through a variety of
sources, including the public equity market, private equity financings,
collaborative arrangements, and public or private debt. There can be no
assurance that additional capital will be available on favorable terms, if at
all. If adequate funds are not available, the Company may be required to
significantly reduce or refocus its operations or to obtain funds through
arrangements that may require the Company to relinquish rights to certain of its
products, technologies or potential markets, which would have a material adverse
effect on the Company's business, financial condition and results of operations.
To the extent that additional capital is raised through the sale of equity, the
issuance of such securities would result in ownership dilution to the Company's
existing stockholders. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
RISK OF INTERNATIONAL SALES AND OPERATIONS
The Company expects that international sales will account for a significant
portion of the Company's total revenues. International sales and operations are
subject to a number of risks, including the imposition of government controls,
export license requirements, restrictions on the export of critical technology,
political and economic instability or conflicts, trade restrictions, changes in
tariffs and taxes, difficulties in staffing and managing international
operations, problems in establishing or managing distributor relationships and
general economic conditions. In addition, as the Company expands its
international operations, it may be required to invoice its sales in local
currencies. Consequently, fluctuations in the value of foreign currencies
relative to the U.S. dollar may adversely affect the Company's business,
financial condition and results of operations. See "Business--Sales and
Marketing" and "Management's Discussion and Analysis of Financial Condition and
Results of Operations."
RISKS ASSOCIATED WITH POTENTIAL ACQUISITIONS OF TECHNOLOGIES AND BUSINESSES
The Company may acquire certain technologies, products or businesses to
broaden the scope of its existing and planned product lines and technologies.
Such acquisitions would expose the Company to the risks associated with the
assimilation of new technologies, operations, sites and personnel, the diversion
of resources from the Company's existing business and technologies, the
inability to generate revenues to offset associated acquisition costs, the
maintenance of uniform standards, controls, and procedures and the impairment of
relationships with employees and customers as a result of any integration of new
management personnel. Acquisitions may also result in the issuance of dilutive
equity securities, the incurrence or assumption of debt or additional expenses
associated with amortization of acquired intangible assets or potential
businesses. The Company's failure to successfully address such risks could have
a material adverse effect on the Company's business, financial condition and
results of operations.
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INTELLECTUAL PROPERTY RISKS
The Company's success will depend in part on its ability to obtain patents,
maintain trade secret protection and operate without infringing the proprietary
rights of others. The Company has two U.S. patents. The Company has filed four
U.S. patent applications and six provisional patent applications, all of which
are currently pending. To supplement its proprietary technology, the Company has
licensed ten patents from FluorRx, Inc. ("FluorRx") pursuant to a June 1997
agreement. Under this license, the Company obtained certain worldwide rights
relating to FluorRx's FLARe technology. Certain of these rights have been
licensed on an exclusive basis. Certain other rights have been licensed on a
non-exclusive basis, and therefore could be or are licensed to third parties. In
accordance with such agreement, the Company pays one-time fees as well as
royalties based on sales of its products that incorporate this technology. The
license may be terminated in the event of a material breach by the Company.
Furthermore, FluorRx may elect to convert the exclusive rights into
non-exclusive rights in the event the Company fails to make certain minimum
royalty payments. If the license were terminated by FluorRx due to a material
breach of the license by the Company, the Company would lose the right to
incorporate FLARe technology into its HTS products. In such event, the Company
would be required to exclude FLARe technology from the Company's existing and
future products and either license or develop internally alternative
technologies. There can be no assurance that the Company would be able to
license alternative technologies on commercially reasonable terms, or at all, or
that the Company would be capable of developing internally such technologies.
Furthermore, there can be no assurance that other companies may not
independently develop technology with functionality similar or superior to the
FLARe technology that does not or is claimed not to infringe the FLARe patents,
or that otherwise circumvents the technology licensed to the Company.
The Company is aware of third party patents that contain issued claims that
may cover certain aspects of the Company's reagent technologies. There can be no
assurance that the Company would not be required to license any such patents to
produce certain reagents, assay kits and related products or that such licenses
would be available on commercially reasonable terms, if at all. Any action
against the Company claiming damages and seeking to enjoin commercial activities
relating to the affected technologies could subject the Company to potential
liability for damages. The Company could incur substantial costs in defending
patent infringement claims, obtaining patent licenses, engaging in interference
and opposition proceedings or other challenges to its patent rights or
intellectual property rights made by third parties, or in bringing such
proceedings or enforcing any patent rights against third parties. The Company's
inability to obtain necessary licenses or its involvement in proceedings
concerning patent rights could have a material adverse effect on the business,
financial condition and results of operations of the Company.
The patent positions of bioanalytical product companies, including the
Company, are uncertain and involve complex legal and factual questions. In
addition, the coverage claimed in a patent application can be significantly
reduced before the patent is issued. Consequently, there can be no assurance
that the patent applications of the Company or its licensor will result in
patents being issued or that any issued patents will provide protection against
competitive technologies or will be held valid if challenged or circumvented.
Others may independently develop products similar to those of the Company or
design around or otherwise circumvent patents issued to the Company. In the
event that any relevant claims of third-party patents are upheld as valid and
enforceable, the Company could be prevented from practicing the subject matter
claimed in such patents, or would be required to obtain licenses from the patent
owners of each of such patents or to redesign its products or processes to avoid
infringement. There can be no assurance that such licenses would be available
or, if available, would be on terms acceptable to the Company or that the
Company would be successful in any attempt to redesign its products or processes
to avoid infringement. If the Company does not obtain necessary licenses, it
could be subject to litigation and encounter delays in product introductions
while it attempts to design around such patents. Alternatively, the development,
manufacture or sale of such products could be prevented. Litigation would result
in significant cost to the Company as well as diversion of management time.
Adverse determinations in any such proceedings could have a material adverse
effect on the Company's business, financial condition and results of operations.
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The Company also relies on trade secret and copyright law, and employee and
third-party nondisclosure agreements to protect its intellectual property rights
in its products and technology. There can be no assurance that these agreements
and measures will provide meaningful protection of the Company's trade secrets,
copyrights, know-how, or other proprietary information in the event of any
unauthorized use, misappropriation or disclosure or that others will not
independently develop substantially equivalent proprietary technologies.
Litigation to protect the Company's trade secrets or copyrights would result in
significant cost to the Company as well as diversion of management time. Adverse
determinations in any such proceedings or unauthorized disclosure of the
Company's trade secrets could have a material adverse effect on the Company's
business, financial condition and results of operations. In addition, the laws
of certain foreign countries do not protect the Company's intellectual property
rights to the same extent as do the laws of the United States. There can be no
assurance that the Company will be able to protect its intellectual property in
these markets. See "Business--Intellectual Property," and "--Products Under
Development--FLARe Technology."
GOVERNMENT REGULATION
While the Company believes that none of the Company's HTS products will be
regulated as medical devices or otherwise subject to FDA regulation, the
Company's clinical diagnostics products, including Luminometer, Q2000, Horizon
and a microplate heater, are subject to FDA regulation as medical devices, as
well as similar foreign regulation. The process of obtaining and maintaining
required regulatory clearances and approvals and otherwise remaining in
regulatory compliance in the United States and certain other countries is
lengthy, expensive and uncertain. Although the Company has phased out production
of Luminometer, Q2000 and the microplate heater, the Company will continue to
manufacture Horizon on an OEM basis. Horizon is used in research and clinical
laboratories to perform IN VITRO diagnostic ("IVD") tests, which are exempt from
investigational device exemption ("IDE") requirements, including the need to
obtain the FDA's prior approval, provided that, among other things, the testing
is noninvasive, the product is not used as a diagnostic procedure without
confirmation by another medically established test or procedure, and
distribution controls are established to assure that IVDs distributed for
research are used only for those purposes. To the Company's knowledge, its OEM
customers have met these conditions. There can be no assurance that the FDA
would agree that the OEM customers' distribution of the Company's clinical
diagnostic products meet and have met the requirements for IDE exemption.
Failure by the Company, its OEM customers or the recipients of the Company's
clinical diagnostic products to comply with the IDE exemption requirements could
result in enforcement action by the FDA, which could adversely affect the
Company's or its OEM customers' ability to gain marketing clearance or approval
of these products or could result in the recall of previously distributed
products.
Applicable law requires that LJL comply with the FDA's current GMP
regulations for the manufacture of its clinical diagnostics products, Q2000,
Luminometer, Horizon and the microplate heater. The FDA monitors compliance with
its GMP regulations by subjecting medical product manufacturers to periodic FDA
inspections of their manufacturing facilities. The FDA has recently revised the
GMP regulations. The new Quality System Regulation imposes design controls and
makes other significant changes in the requirements applicable to manufacturers.
LJL is also subject to other regulatory requirements, and may need to submit
reports to the FDA including adverse event reporting. Failure to comply with GMP
regulations or other applicable legal requirements can lead to, among other
things, warning letters, seizure of violative products, suspension of
manufacturing, government injunctions and potential civil or criminal liability
on the part of the Company and the responsible officers and employees. In
addition, the government may halt or restrict continued sale of such
instruments. Any such actions could have a material, adverse effect on the
business, financial condition and results of operations of the Company.
In order to export its clinical diagnostics instruments, the Company
maintains International Organization for Standardization ("ISO") 9001
certification and applies the CE mark to certain products that are exported,
which subjects LJL's operations to periodic surveillance audits. While the
Company believes it is currently in compliance with GMP regulations and ISO
standards, there can be no assurance that the
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Company's operations will be found to comply with GMP regulations, ISO standards
or other applicable legal requirements in the future or that the Company will
not be required to incur substantial costs to maintain its compliance with
existing or future manufacturing regulations, standards or other requirements.
Any such noncompliance or increased cost of compliance could have a material
adverse effect on the Company's business, results of operations and financial
condition.
LJL also is subject to numerous federal, state and local laws relating to
safe working conditions, manufacturing practices, environmental protection,
storage, use and disposal of hazardous or potentially hazardous substances. Any
material failure to comply with such laws could require the Company to incur
significant costs and would have a material, adverse effect upon the Company's
ability to do business. Changes in existing requirements or adoption of new
requirements or policies relating to government regulations could materially and
adversely affect the ability of LJL to comply with such requirements.
HAZARDOUS MATERIALS
The Company's research and development and manufacturing operations involve
the use of hazardous materials, biological samples, chemicals and various
radioactive compounds. In the future, the Company plans to manufacture certain
reagents, some of which likely will contain hazardous materials including
carcinogens. The Company is subject to federal, state and local laws and
regulations governing the storage, use, and disposal of such materials and
certain waste products. The risk of accidental contamination or injury from the
use of these materials cannot be completely eliminated. In the event of an
accident, the Company could be held liable for any damages that result and any
such liability could exceed the resources of the Company, which would have a
material adverse effect on the Company. The Company may incur substantial costs
to comply with environmental regulations if the Company develops its own
commercial reagents manufacturing facility.
FUTURE FLUCTUATIONS IN OPERATING RESULTS
The Company's future operating results are likely to fluctuate substantially
from period to period. The degree of fluctuation will depend on a number of
factors, including the timing and level of sales, the mix of products sold
through direct sales channels and third party distributors, and any change in
the product mix among the Company's planned product lines. Such fluctuations
could have a material adverse effect on its business, financial condition and
results of operations. Because a significant portion of the Company's business
is expected to be derived from orders placed by a limited number of large
customers, variations in the timing of such orders could cause significant
fluctuations in the Company's operating results. Other factors that may result
in fluctuations in operating results include industry acceptance of HTS as a
drug discovery tool, market acceptance of the Company's products, the timing of
new product announcements and the introduction of new products and new
technologies by the Company or its competitors, delays in research and
development of new products, increased research and development expenses,
increased marketing and sales expenses associated with the implementation of the
Company's direct marketing of its products, availability and cost of component
parts from its suppliers, competitive pricing pressures, and developments with
respect to regulatory matters. In connection with future introductions of new
products, the Company may be required to establish or increase reserves or
record charges for inventory obsolescence in connection with unsold inventory,
if any, of older generations of products.
The Company's expenditures for research and development, selling and
marketing, and general and administrative functions are based in part on future
revenue projections. The Company may be unable to adjust spending in a timely
manner in response to any unanticipated declines in revenues, which may have a
material adverse effect on the Company's business, financial condition and
results of operations. The Company may be required to reduce prices in response
to competitive pressures or other factors or increase spending to pursue new
market opportunities. Any decline in average selling prices of a product which
is not offset by a reduction in product costs or by sales of other products with
higher gross margins would decrease the Company's overall gross profit and
adversely affect the Company's business, financial condition and results of
operations. In addition, the Company's operating results may vary from the
expectations of public market analysts and investors, and, as a result, the
price of the Common Stock
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would be materially and adversely affected. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
PRODUCT LIABILITY EXPOSURE; AVAILABILITY OF INSURANCE
The manufacture and sale of products involves an inherent risk of product
liability claims and associated adverse publicity. A successful product
liability claim brought against the Company in excess of its insurance coverage
could have a material adverse effect on the Company's business, financial
condition and results of operations. The Company currently carries product
liability insurance in the amount of $4.0 million. There can be no assurance
that the Company will be able to maintain product liability insurance on
acceptable terms, if at all, or that such insurance will provide adequate
coverage against potential liabilities. Furthermore, an inability to obtain
sufficient insurance coverage on reasonable terms or to otherwise protect
against potential product liability claims could prevent or inhibit the
commercialization and development of the Company's products.
CONTROL BY MANAGEMENT AND EXISTING STOCKHOLDERS
Upon completion of this offering, based on the number of shares outstanding
as of December 31, 1997, the Company's principal stockholders, executive
officers and directors together will beneficially own approximately 74.4% of the
outstanding shares of Common Stock (71.9% if the Underwriters' over-allotment
option is exercised in full). As a result, these stockholders will be able to
control matters requiring approval by the stockholders of the Company, including
approvals of amendments to the Company's Certificate of Incorporation, certain
mergers, a sale of all or substantially all of the assets of the Company, going
private transactions and other fundamental transactions. In addition, the
Company's Certificate of Incorporation, as it is proposed to be amended and
restated concurrently with the closing of this offering (the "Restated
Certificate"), does not provide for cumulative voting with respect to the
election of directors. Consequently, the present directors and executive
officers of the Company, together with the Company's principal stockholders,
will be able to control the election of the members of the Board of Directors of
the Company. Such a concentration of ownership may have the effect of delaying
or preventing a change in control of the Company, including transactions in
which stockholders might otherwise receive a premium for their shares over
current market prices. See "Principal Stockholders."
AVAILABILITY OF PREFERRED STOCK FOR ISSUANCE; ANTI-TAKEOVER PROVISIONS
The Restated Certificate authorizes the Board of Directors of the Company,
without stockholder approval, to issue additional shares of Common Stock and to
fix the rights preferences and privileges of and issue up to 2,000,000 shares of
Preferred Stock with voting, conversion, dividends and other rights and
preferences that could adversely affect the voting power or other rights of the
holders of Common Stock. The issuance of preferred stock, rights to purchase
preferred stock or additional shares of Common Stock may have the effect of
delaying or preventing a change in control of the Company. In addition, the
possible issuance of preferred stock or additional shares of Common Stock could
discourage a proxy contest, make more difficult the acquisition of a substantial
block of the Company's Common Stock or limit the price that investors might be
willing to pay for shares of the Company's Common Stock. Further, the Restated
Certificate provides that any action required or permitted to be taken by
stockholders of the Company must be effected at a duly called annual or special
meeting of stockholders and may not be effected by any consent in writing.
Special meetings of the stockholders of the Company may be called only by the
Chairman of the Board of Directors, the President of the Company, by the Board
of Directors pursuant to resolution adopted by a majority of the total number of
authorized directors, or by the holders of 10% of the outstanding voting stock
of the Company. These and other provisions contained in the Restated Certificate
and the Company's Bylaws, as well as certain provisions of Delaware law, could
delay or make more difficult certain types of transactions involving an actual
or potential change in control of the Company or its management (including
transactions in which stockholders might otherwise receive a premium for their
shares over then current market prices) and may limit the ability of
stockholders to remove current management of the Company or approve transactions
that stockholders may deem to be in
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their best interests and, therefore, could adversely effect the price of the
Company's Common Stock. See "Description of Capital Stock."
BROAD DISCRETION IN APPLICATION OF NET PROCEEDS
The net proceeds to the Company from the sale of the shares of Common Stock
offered hereby are estimated to be approximately $27,200,000 ($31,385,000 if the
Underwriters' overallotment option is exercised in full) after deducting the
underwriting discount and estimated offering expenses. The Company intends to
use the net proceeds from this offering principally for research and development
of HTS products, investments in manufacturing, sales, marketing and
administrative infrastructure, and working capital and general corporate
purposes, including the possible acquisition of technologies and businesses. The
Company's management and Board of Directors will have broad discretion with
respect to the application of such proceeds, and the amounts actually expended
by the Company for working capital purposes may vary significantly depending on
a number of factors, including future revenue growth, if any, and the amount of
cash, if any, generated by the Company's operations. See "Use of Proceeds."
NO PRIOR PUBLIC MARKET FOR COMMON STOCK; POSSIBLE VOLATILITY OF STOCK PRICE
Prior to this offering, there has been no public market for the Common Stock
and there can be no assurance that an active public market for the Common Stock
will develop or be sustained after this offering. The initial public offering
price, which will be determined by negotiations between the Company and the
Underwriters, will not necessarily be indicative of the market price at which
the Common Stock of the Company will trade after this offering. See
"Underwriting" for a discussion of the factors considered in determining the
initial public offering price. In addition, in recent years the stock market in
general, and the shares of biotechnology companies in particular, have
experienced extreme price fluctuations. These broad market and industry
fluctuations may have a material adverse effect on the market price of the
Common Stock. In the future, the Company's operating results may vary from the
expectations of public market analysts and investors, and, as a result, the
price of the Common Stock would be materially and adversely affected.
Announcements of technological innovations or new commercial products by the
Company or its competitors, disputes or other developments concerning
proprietary rights, including patents and litigation matters, publicity
regarding new products or technologies under development by the Company, its
licensors or its competitors, general market conditions, quarterly fluctuations
in the Company's revenues and financial results, as well as the other factors
described in these "Risk Factors" and elsewhere in this Prospectus, may have a
significant impact on the market price of the Common Stock.
SHARES ELIGIBLE FOR FUTURE SALE AND POTENTIAL ADVERSE EFFECT ON MARKET PRICE;
REGISTRATION RIGHTS
Sales of a substantial number of shares of Common Stock in the public market
following this offering could adversely affect the market price for the
Company's Common Stock. The number of shares of Common Stock available for sale
in the public market is limited by restrictions under the Securities Act of
1933, as amended (the "Securities Act"), and lock-up agreements pursuant to
which all directors and executive officers and stockholders of the Company have
agreed not to sell or otherwise dispose of any of their shares without the prior
written consent of NationsBanc Montgomery Securities LLC. However, NationsBanc
Montgomery Securities LLC may at any time without notice, release all or any
portion of the securities subject to lock-up agreements. The Company has agreed
with NationsBanc Montgomery Securities LLC not to release any stockholder from
such lock-up agreement between the stockholder and the Company without the
consent of NationsBanc Montgomery Securities LLC. As a result of such
restrictions and based upon the number of shares outstanding on December 31,
1997, on the date of this Prospectus approximately no shares, other than the
2,500,000 shares offered hereby, will be eligible for sale pursuant to Rule 144
promulgated under the Securities Act. An additional 8,160,253 shares and 401,712
shares issuable upon exercise of outstanding vested options will be eligible for
sale 180 days after the date of this Prospectus upon expiration of the lock-up
agreements and in compliance with certain limitations set forth in the
Securities Act. After this offering, the holders of approximately 8,122,003
shares of Common Stock will be entitled to certain demand and piggyback
registration rights with respect to
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registration of such shares under the Securities Act. If such holders, by
exercising their demand or piggyback registration rights, cause a large number
of securities to be registered and sold in the public market such sales could
have an adverse effect on the market price for the Company's Common Stock. If
the Company were to include in a Company-initiated registration shares held by
such holders pursuant to the exercise of their piggyback registration rights,
such sales may have an adverse effect on the Company's ability to raise needed
capital. See "Shares Eligible For Future Sale" and "Description of Capital
Stock-- Registration Rights."
IMMEDIATE AND SUBSTANTIAL DILUTION; ABSENCE OF DIVIDENDS
Purchasers of the shares of Common Stock offered hereby will experience
immediate and substantial dilution in the net tangible book value of their
investment from the initial public offering price. Additional dilution will
occur upon exercise of outstanding options. See "Dilution" and "Shares Eligible
for Future Sale." Prior to June 1997, the Company operated as an S corporation
for federal and state income tax purposes and distributed its taxable income to
its stockholders in the form of dividends. Since June 1997, the Company has
operated as a C corporation, and does not anticipate paying dividends in the
future. See "Dividend Policy."
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Certain statements contained in this Prospectus, including without
limitation, statements containing the words "believes," "anticipates," "expects"
and words of similar import, constitute "forward-looking statements." Such
forward-looking statements involve known and unknown risks, uncertainties and
other factors which may cause the actual results, performance or achievements of
the Company, or industry results, to be materially different from any future
results, performance or achievements expressed or implied by such
forward-looking statements. Such factors include, among others: the early state
of development of the Company's high throughput screening products; uncertainty
in the emerging high throughput screening market and uncertainty of commercial
acceptance of the Company's high throughput screening products; intense
competition; dependence on proprietary technology; dependence on in-licensed
technology; existing government regulation and changes in, or the failure to
comply with, government regulations; the Company's need for additional
financing; dependence on key personnel; limited manufacturing experience; and
other factors referenced in this Prospectus. Certain of these factors are
discussed in more detail elsewhere in this Prospectus, including, without
limitation, under the captions "Prospectus Summary," "Risk Factors,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Business." Given these uncertainties, prospective investors are
cautioned not to place undue reliance on such forward-looking statements. The
Company disclaims any obligation to update any such factors or to publicly
announce the result of any revisions to any of the forward-looking statements
contained herein to reflect future events or developments.
16
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of the shares of Common Stock
being offered by the Company hereby at an assumed public offering price of
$12.00 per share are estimated to be $27,200,000 ($31,385,000 if the
Underwriters' overallotment option is exercised in full). The Company intends to
use approximately $10 million of the net proceeds of the offering to fund
research and development activities for its HTS products and approximately $8
million for investments in manufacturing, sales, marketing and administrative
infrastructure. The balance of the net proceeds of the offering are expected to
be used for working capital and general corporate purposes, which may include
the acquisition of complementary technologies and businesses. The Company has no
present understandings, commitments or arrangements with respect to any such
acquisitions. Notwithstanding the intended use of proceeds, the Company may use
the proceeds in different proportions than currently anticipated, depending on
changes in market conditions, progress of the Company's research and development
programs and other factors. Pending application of the net proceeds of the
offering as described above, the Company intends to invest such proceeds in
short-term, investment-grade, interest-bearing financial instruments.
DIVIDEND POLICY
Prior to June 1997, the Company operated as an S corporation for federal and
state income tax purposes and distributed its taxable income to its stockholders
in the form of dividends. Since June 1997, the Company has operated as a C
corporation and does not anticipate paying cash dividends in the foreseeable
future. The Company currently intends to retain all available funds and any
future earnings for use in the operation of its business.
17
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company as of
December 31, 1997 (i) on an actual basis, (ii) pro forma to reflect the
conversion of all outstanding shares of Preferred Stock into Common Stock and
(iii) as adjusted to give effect to the sale by the Company of 2,500,000 shares
of Common Stock offered hereby at an assumed initial public offering price of
$12.00 per share and the application of the net proceeds therefrom and 37,203
shares of Common Stock to be issued upon the net exercise of outstanding
warrants. See "Use of Proceeds." This table should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the Financial Statements and Notes thereto included elsewhere in
this Prospectus.
<TABLE>
<CAPTION>
DECEMBER 31, 1997
-----------------------------------
ACTUAL PRO FORMA AS ADJUSTED
--------- ----------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
Long-term debt................................................................ $ 40 $ 40 $ 40
--------- ----------- -----------
Mandatorily redeemable convertible preferred stock; $0.001 par value;
7,400,000 shares authorized; 3,621,503 shares issued and outstanding actual;
no shares issued and outstanding pro forma or as adjusted................... 9,308 -- --
--------- ----------- -----------
Stockholders' equity (deficit)(1)(2):
Common stock; $0.001 par value; 19,000,000 shares authorized; 4,583,750
shares issued and outstanding actual; 8,205,253 shares issued and
outstanding pro forma; 10,742,456 shares issued and outstanding as
adjusted.................................................................. 5 8 11
Additional paid-in capital.................................................. 705 10,010 37,207
Deferred compensation....................................................... (755) (755) (755)
Accumulated deficit......................................................... (3,750) (3,750) (3,750)
--------- ----------- -----------
Total stockholders' equity (deficit)...................................... (3,795) 5,513 32,713
--------- ----------- -----------
Total capitalization.................................................. $ 5,553 $ 5,553 $ 32,753
--------- ----------- -----------
--------- ----------- -----------
</TABLE>
- ------------------------
(1) Excludes as of December 31, 1997, 2,466,750 shares of Common Stock subject
to outstanding options or available for issuance under the Company's 1994
Equity Incentive Plan and 1997 Stock Plan, of which 830,000 shares were
issuable upon exercise of outstanding options at a weighted average exercise
price of $0.71 per share and of which 1,636,750 shares (including 1,250,000
shares subject to stockholder approval) were available for issuance. See
"Management--Stock Plans," "Certain Relationships and Related Transactions,"
and "Underwriting" and Notes 1, 6 and 7 of Notes to Financial Statements.
(2) Excludes as of December 31, 1997: (i) the reservation of 300,000 shares for
future issuance under the 1998 Employee Stock Purchase Plan and (ii) the
reservation of 150,000 shares for future issuance under the 1998 Directors'
Plan, both of which were approved by the Board of Directors on December 16,
1997 and will be submitted for stockholder approval prior to completion of
the offering. See "Management--Stock Plans" and "--Director Compensation."
18
<PAGE>
DILUTION
The pro forma net tangible book value of the Company as of December 31, 1997
(assuming the conversion of all outstanding shares of Preferred Stock into
Common Stock and 37,203 shares of Common Stock to be issued upon the net
exercise of outstanding warrants) was approximately $5,513,000, or $0.67 per
share of Common Stock. Pro forma net tangible book value per share is determined
by dividing the net tangible book value (tangible assets less total liabilities)
of the Company by the number of shares of Common Stock outstanding, including
shares of Common Stock to be issued from the conversion of the Preferred Stock
immediately prior to the consummation of the offering and 37,203 shares of
Common Stock to be issued upon the net exercise of outstanding warrants. Without
taking into account any other changes in the net tangible book value after
December 31, 1997, other than to give effect to the receipt by the Company of
the estimated net proceeds from the sale of 2,500,000 shares of Common Stock
offered by the Company hereby at an assumed initial public offering price of
$12.00 per share, the pro forma net tangible book value of the Company as of
December 31, 1997 would have been $32,713,000, or $3.05 per share. This
represents an immediate increase in the pro forma net tangible book value of
$2.38 per share to existing stockholders and an immediate dilution of $8.95 per
share to new investors. The following table illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price........................ $ 12.00
Pro forma net tangible book value before the offering...... $ 0.67
Increase attributable to new investors(1).................. 2.38
---------
Pro forma net tangible book value after offering............. 3.05
---------
Dilution to new investors.................................... $ 8.95
---------
---------
</TABLE>
The following table summarizes, on a pro forma basis as of December 31,
1997, the difference between existing stockholders and purchasers of shares in
the offering (at an assumed initial public offering price of $12.00 per share
and before deducting underwriting discounts and estimated offering expenses
payable by the Company) with respect to the number of shares of Common Stock
purchased from the Company, the total consideration paid and the average price
per share paid:
<TABLE>
<CAPTION>
SHARES PURCHASED(1) TOTAL CONSIDERATION AVERAGE
------------------------- -------------------------- PRICE PER
NUMBER PERCENT AMOUNT PERCENT SHARE
------------ ----------- ------------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Existing stockholders............. 8,242,456 76.7% $ 9,549,000 24.1% $ 1.16
New investors..................... 2,500,000 23.3% 30,000,000 75.9% 12.00
------------ ----- ------------- -----
Total......................... 10,742,456 100.0% $ 39,549,000 100.0% 3.68
------------ ----- ------------- -----
------------ ----- ------------- -----
</TABLE>
- ------------------------
(1) The foregoing tables assume no exercise of the Underwriters' over-allotment
option and no exercise of outstanding options under the 1994 Equity
Incentive Plan and the 1997 Stock Plan. As of December 31, 1997, options to
purchase 830,000 shares were outstanding under the Company's 1994 Equity
Incentive Plan and 1997 Stock Plan with a weighted average exercise price of
$0.71 per share and 1,636,750 shares were available for issuance under the
1994 Equity Incentive Plan and the 1997 Stock Plan, of which 1,250,000
shares were subject to stockholder approval. On December 16, 1997, the Board
of Directors of the Company approved, subject to stockholder approval: (i)
the reservation of 300,000 shares for future issuance under the 1998
Employee Stock Purchase Plan and (ii) the reservation of 150,000 shares for
future issuance under the 1998 Directors' Plan. To the extent that options
are exercised and shares of Common Stock are issued, there will be further
dilution to new investors. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Liquidity and Capital
Resources," "Management--Stock Plans" and "Description of Capital Stock."
19
<PAGE>
SELECTED FINANCIAL DATA
The selected balance sheet data as of December 31, 1996 and 1997 and the
selected statement of operations data for the years ended December 31, 1995,
1996 and 1997 have been derived from the financial statements of the Company
audited by Price Waterhouse LLP, independent accountants, which are included
elsewhere in this Prospectus. The statement of operations data for the years
ended December 31, 1993 and 1994, and the balance sheet data at December 31,
1993, 1994 and 1995 have been derived from audited financial statements not
included in this Prospectus. The data set forth below should be read in
conjunction with Management's Discussion and Analysis of Financial Condition and
Results of Operations and the Financial Statements and related Notes thereto
included in this Prospectus.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------------
1993 1994 1995 1996 1997
--------- --------- --------- --------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA(1):
Revenues:
Product sales............................................... $ 1,536 $ 3,551 $ 2,236 $ 5,622 $ 4,562
Development agreements...................................... 2,932 2,659 2,915 3,663 642
--------- --------- --------- --------- ---------
Total revenues............................................ 4,468 6,210 5,151 9,285 5,204
--------- --------- --------- --------- ---------
Costs and operating expenses:
Product sales............................................... 971 1,581 1,174 2,755 2,319
Research and development.................................... 1,524 1,810 1,740 2,384 3,511
Selling, general and administrative......................... 1,576 2,822 1,963 4,062 2,145
--------- --------- --------- --------- ---------
Total costs and operating expenses........................ 4,071 6,213 4,877 9,201 7,975
--------- --------- --------- --------- ---------
Income (loss) from operations................................. 397 (3) 274 84 (2,771)
Interest and other income, net................................ 12 54 82 176 228
--------- --------- --------- --------- ---------
Income (loss) before provision for income taxes............... 409 51 356 260 (2,543)
Provision for income taxes.................................... 7 7 4 2 12
--------- --------- --------- --------- ---------
Net income (loss)............................................. $ 402 $ 44 $ 352 $ 258 $ (2,555)
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
PRO FORMA DATA(2):
Income (loss) before provision (benefit) for income taxes... $ 409 $ 51 $ 356 $ 260 $ (2,543)
Pro forma provision (benefit) for income taxes.............. 164 20 142 104 (200)
--------- --------- --------- --------- ---------
Pro forma net income (loss)................................. $ 245 $ 31 $ 214 $ 156 $ (2,343)
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Basic and diluted pro forma net (loss) per share(3)......... $ (0.28)
---------
---------
Shares used in computation of basic and diluted pro forma
net (loss) per share(3)................................... 8,306
---------
---------
</TABLE>
<TABLE>
<CAPTION>
1993 1994 1995 1996 1997
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA(1):
Cash and cash equivalents...................................... $ 510 $ 3 $ 1,773 $ 1,166 $ 5,525
Working capital (deficit)...................................... 175 (27) (4) (295) 5,111
Total assets................................................... 1,367 1,358 2,483 2,458 6,793
Long-term debt................................................. 22 22 32 43 40
Mandatorily redeemable convertible preferred stock............. -- -- -- -- 9,308
Retained earnings (accumulated deficit)........................ 211 9 46 (226) (3,750)
Total stockholders' equity (deficit)........................... 250 48 85 (187) (3,795)
</TABLE>
- ------------------------
(1) The statement of operations data for the year ended December 31, 1993 and
the balance sheet data at December 31, 1993 reflect the combined results and
financial position of three commonly-controlled companies, two of which were
merged into, and survived by, the third, LJL BioSystems, Inc., on January 1,
1994.
(2) Prior to June 1997, the Company operated under the S corporation provisions
of the Internal Revenue Code and comparable provisions of certain state
income tax laws. The pro forma statement of operations data reflect
provisions (benefit) for income taxes as if the Company had been subject to
federal and state income taxation as a C corporation during each of the
periods presented. See Note 1 of Notes to Financial Statements.
(3) See Note 1 of Notes to Financial Statements for a description of the
computation of basic and diluted pro forma net (loss) per share.
20
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THE DISCUSSION BELOW CONTAINS CERTAIN FORWARD-LOOKING STATEMENTS THAT ARE
BASED ON THE BELIEFS OF THE COMPANY'S MANAGEMENT, AS WELL AS ASSUMPTIONS MADE
BY, AND INFORMATION CURRENTLY AVAILABLE TO, THE COMPANY'S MANAGEMENT. THE
COMPANY'S FUTURE RESULTS, PERFORMANCE OR ACHIEVEMENTS COULD DIFFER MATERIALLY
FROM THOSE EXPRESSED IN, OR IMPLIED BY, ANY SUCH FORWARD-LOOKING STATEMENTS. SEE
"RISK FACTORS" FOR A DISCUSSION OF FACTORS THAT COULD CAUSE OR CONTRIBUTE TO
SUCH MATERIAL DIFFERENCES. THE FOLLOWING PRESENTATION OF MANAGEMENT'S DISCUSSION
AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS SHOULD BE READ IN
CONJUNCTION WITH THE COMPANY'S FINANCIAL STATEMENTS AND NOTES THERETO AND OTHER
FINANCIAL INFORMATION INCLUDED THEREIN.
OVERVIEW
From inception in 1988 through 1991, the Company derived its revenues from
the development of clinical diagnostics and research instruments for customers.
Beginning in 1992, the Company began manufacturing and shipping these clinical
diagnostics and research instruments to customers either for their internal use
or for resale on an OEM basis. In the second half of 1996, the Company
implemented a new strategic business model to develop products for the HTS
market to leverage its existing technology platform and product development and
manufacturing expertise into this new market. In connection with this change in
strategy, the Company shifted its focus from developing and manufacturing
clinical diagnostic and research products on an OEM basis to developing,
manufacturing and marketing its own HTS products.
As part of its shift in focus, the Company has deemphasized its OEM
development activities and has phased out production of all but one of its OEM
products. These OEM products included Luminometer (a microplate reader), Q2000
(a clinical analyzer) and a microplate heater, all of which were sold to Chiron
Corporation ("Chiron"), and Horizon (a clinical specimen processor) sold to
Ventana Medical Systems, Inc. ("Ventana"). Product sales to Chiron and Ventana,
as well as revenues from development agreements with CombiChem, Inc.
("CombiChem"), accounted for approximately 90% of total revenues for each of the
years ended December 31, 1995, 1996 and 1997. Although the Company intends to
continue to manufacture the Horizon through 1998 and possibly beyond under its
agreement with Ventana, OEM product sales are expected to substantially decline
in future periods. In addition, revenues from development agreements declined
significantly during the year ended December 31, 1997, and the Company does not
expect to derive revenues from OEM development activities in the future.
Due to the anticipated substantial decline in revenues and the high costs
associated with the development and commercial launch of ANALYST, the
development of a sales and marketing function, the development and
commercialization of assays and reagents and the development of additional
generations of HTS products, the Company expects that operating losses will
increase substantially in future periods. The Company expects to continue to
incur operating losses for at least the next several years. The Company's
ability to achieve profitability will depend in part on its ability to
successfully develop, manufacture, market and achieve industry acceptance of
ANALYST, and to successfully develop, manufacture and market reagents and
assays. In 1996, the Company shifted its business strategy to the HTS market,
and accordingly LJL is subject to the risks inherent in both the operation of a
new business model and the entry into a new and uncertain industry. The
Company's high-density analyzer is in the early feasibility and conceptual
design stage and will present significant development and manufacturing
challenges and, if developed and manufactured, may not achieve industry
acceptance. Although LJL expects that a substantial portion of its future
revenues will be derived from reagents and assay sales, the Company has no
experience in the development, manufacture or marketing of reagents and assays.
The Company's FLARe technology will require a significant investment in research
and development, and the Company faces the risks associated with new and
uncertain technology in developing, manufacturing and commercializing any FLARe
products. Accordingly, the extent of future losses and the time required to
achieve profitability, if any, is highly uncertain. The Company's failure to
successfully and timely design, develop, manufacture and commercialize its HTS
products would have a material adverse effect on the Company's business,
21
<PAGE>
financial condition and results of operations. In addition, the Company's
operating results are likely to fluctuate substantially from period to period,
and a change in the product mix among the Company's different planned product
lines from the Company's current expectations, among other factors, could result
in the failure to meet analysts' expectations regarding revenues or earnings.
RESULTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1996 AND 1997
REVENUES. Total revenues decreased by $4.1 million, from $9.3 million for
the year ended December 31, 1996 to $5.2 million for the year ended December 31,
1997. Revenues recognized under development agreements decreased from $3.7
million during the year ended December 31, 1996 to $642,000 for the year ended
December 31, 1997, due to the Company's decision in 1996 to focus its future
efforts on internal development of a proprietary HTS product platform, the
completion of its existing OEM development agreements, and its decision not to
pursue additional development agreements. Revenues from product sales decreased
by $1.0 million, from $5.6 million during the year ended December 31, 1996 to
$4.6 million for the year ended December 31, 1997, due to the Company's
increasing focus on the HTS market and the phasing out of the Luminometer, Q2000
and the microplate heater products. Although the Company intends to continue to
manufacture Horizon through 1998 and possibly beyond under its agreement with
Ventana, OEM product sales are expected to substantially decline in future
periods. In addition, the Company expects this decline in revenues to continue
due to the completion of OEM development projects.
COST OF PRODUCT SALES. Cost of product sales decreased from $2.8 million
for the year ended December 31, 1996 to $2.3 million for the year ended December
31, 1997, due to decreased unit sales of the Luminometer product. Gross profit,
as a percentage of product sales, decreased from 51% during the year ended
December 31, 1996 to 49% for the year ended December 31, 1997, primarily as a
result of decreased absorption of manufacturing overhead resulting from reduced
unit sales. The Company expects per unit cost of sales will increase and gross
profit will substantially decrease as unit sales continue to decrease, resulting
in decreased absorption of manufacturing overhead. In addition, cost of product
sales of ANALYST is expected to be high for at least several years as a result
of low absorption of manufacturing overhead resulting from low production
volume.
RESEARCH AND DEVELOPMENT. Research and development expense increased from
$2.4 million for the year ended December 31, 1996 to $3.5 million for the year
ended December 31, 1997. This increase was primarily due to a $2.4 million
increase in costs associated with the development of the Company's HTS product
platform, partially offset by a $1.3 million decrease in the level of research
and development expenses incurred in connection with development agreements for
OEM customers. The Company expects research and development expenditures to
increase significantly in future periods to support the development of its HTS
products.
SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and administrative
costs decreased from $4.1 million for the year ended December 31, 1996 to $2.1
million for the year ended December 31, 1997. This decrease was primarily due to
a $2.9 million decrease in the amount of S corporation distributions to the
Company's stockholders due to the Company's change in tax status to a C
corporation (the Company's stockholders paid S corporation taxes on their share
of the Company's taxable income on their individual tax returns), which was
partially offset by a $600,000 increase in marketing and sales expenses
associated with the addition of sales and marketing personnel and HTS product
marketing expenses and other increases in general and administrative expenses.
The Company expects selling, general and administrative expenses to increase
substantially in future periods due to the increased marketing and selling
resources necessary to promote the Company's HTS products, as well as additional
administrative costs associated with being a public company.
INTEREST AND OTHER INCOME, NET. Net interest and other income for the year
ended December 31, 1996 and 1997 was $176,000 and $228,000, respectively, and
primarily consisted of income earned on invested cash balances.
22
<PAGE>
YEARS ENDED DECEMBER 31, 1995 AND 1996
REVENUES. Total revenues increased by $4.1 million, from $5.2 million for
the year ended December 31, 1995 to $9.3 million for the year ended December 31,
1996. Of this increase, $3.4 million was attributable to higher product sales,
which increased from $2.2 million during 1995 to $5.6 million for 1996,
primarily due to $1.1 million in unit sales of Luminometer and commencement of
shipments of Q2000 and Horizon, which contributed an additional $1.1 million and
$600,000, respectively. Revenues from development agreements increased from $2.9
million for the year ended December 31, 1995 to $3.7 million for the year ended
December 31, 1996. This increase was primarily attributable to a new OEM
development agreement and the sale of certain manufacturing rights to Chiron.
COST OF PRODUCT SALES. The Company's cost of product sales increased from
$1.2 million for the year ended December 31, 1995 to $2.8 million for the year
ended December 31, 1996. This increase was primarily attributable to higher unit
sales of Luminometer, Q2000 and Horizon products. Gross profit percentage
increased from 47% in 1995 to 51% in 1996 primarily as a result of improved
absorption of manufacturing overhead resulting from increased production volume.
RESEARCH AND DEVELOPMENT. Research and development expenses increased from
$1.7 million for the year ended December 31, 1995 to $2.4 million for the year
ended December 31, 1996. This increase was due primarily to a $500,000 increase
in costs associated with the Company's HTS research and development program
which commenced in the second half of 1996. Research and development expenses
associated with the Company's development agreements increased by $100,000.
SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and administrative
costs increased from $2.0 million for the year ended December 31, 1995 to $4.1
million for the year ended December 31, 1996. This increase was primarily due to
a $1.9 million increase in the amount of S corporation distributions to the
Company's stockholders as compensation (the Company's stockholders paid S
corporation taxes on their share of the Company's taxable income on their
individual tax returns) and additional administrative expenses.
INTEREST AND OTHER INCOME, NET. Net interest and other income increased
from $82,000 for the year ended December 31, 1995 to $176,000 for the year ended
December 31, 1996. This increase was primarily due to a higher level of interest
earned on invested cash balances.
INCOME TAXES
Prior to June 1997, the Company had been taxed as an S corporation for
federal and state income tax purposes. Under the Internal Revenue Code
provisions regarding S corporations, the Company had not been subject to federal
income taxes but had been subject to state income taxes at a reduced rate. As an
S corporation, the Company's stockholders paid taxes on their share of the
Company's taxable income in their individual tax returns. In June 1997, in
connection with the Preferred Stock financing, the Company became subject to the
C corporation provisions of the Internal Revenue Code pursuant to which the
Company's earnings are taxed for federal and state income tax purposes at the
corporate level. Through June 1997, the Company's profits were distributed to
the Company's stockholders through a combination of compensation, which was
treated as expense in the Statement of Operations, and dividends. Future
distributions are not expected. At December 31, 1997, the Company had a net
operating loss ("NOL") carryforward of $2.4 million for federal income tax
purposes, which expires in 2012. A full valuation allowance has been provided
for the NOL and all other deferred tax assets as management does not consider
their realization more likely than not.
LIQUIDITY AND CAPITAL RESOURCES
From inception through June 1997, the Company funded its operations
primarily through cash flows generated from operations, bank loans for equipment
purchases and loans from stockholders. In June 1997, the Company completed a
private placement of Preferred Stock, generating approximately $8.7 million in
cash, net of expenses.
23
<PAGE>
Cash provided by operating activities has historically fluctuated based on
the timing of receipt of customer deposits, working capital changes resulting
from varying levels of OEM manufacturing activities and fluctuations in the
Company's net income. Net cash used in operations totaled $2.9 million and
$10,000 during the years ended December 31, 1997 and 1996 respectively. The
increase in net cash used in operations is primarily due to the Company's net
loss during the year ended December 31, 1997 compared to net income earned
during 1996 and the Company's reduced emphasis on development arrangements and
OEM manufacturing, which resulted in certain changes in working capital,
including lower customer deposits, partially offset by reduced inventory and
account receivable balances.
Net cash used in operations during the year ended December 31, 1996 of
$10,000 compares to cash provided by operations of $2.2 million in 1995. The
decrease in net cash provided by operations in 1996 was due primarily to an
increase in inventories and other assets, partially offset by increases in
accounts payable and accrued expenses.
Cash flows used in investing activities for the purchase of property and
equipment prior to 1997 were not significant. The increase in equipment
purchases during the year ended December 31, 1997 relates primarily to the
additional equipment needed for the development and manufacture of the Company's
new HTS products.
Net cash used in financing activities for the years ended December 31, 1996
and 1995 totaled $504,000 and $290,000, respectively, and consisted primarily of
distributions to the Company's stockholders as an S corporation. Net cash
provided by financing activities for the year ended December 31, 1997 totaled
$7.7 million and consisted primarily of the net proceeds from the sale of shares
of Preferred Stock, partially offset by dividends paid to stockholders during
1997.
At December 31, 1997, the Company had cash and cash equivalents of $5.5
million and an accumulated deficit of $3.8 million. The Company had three bank
loans, with cumulative outstanding balances of $86,000 bearing interest rates of
approximately 10.5%. Such loans are payable in annual installments of
approximately $30,000. In June 1997, the Company entered into a development,
license and sales agreement with FluorRx under which it obtained worldwide
rights to certain patented assay technologies. Future minimum royalties due
through 2002 under the agreement aggregate approximately $950,000. The source of
funds for these royalty payments is expected to be the sales proceeds from the
sale of HTS products developed by LJL pursuant to the agreement. The Company may
be required to raise substantial additional capital over a period of several
years in order to develop and commercialize its products. The Company's future
capital requirements will depend on numerous factors, including the costs
associated with developing and commercializing its products, developing a direct
marketing and sales force, maintaining existing, or entering into future
licensing and distribution agreements, protecting intellectual property rights,
entering the reagents and assay kits business, expanding facilities and
consummating possible future acquisitions of technologies, products or
businesses. The Company believes the net proceeds of this offering, combined
with cash from operations, will be sufficient to fund operations for at least
the next 18 months. The Company may consume available resources more rapidly
than currently anticipated, resulting in the need for additional funding. The
Company may be required to raise additional capital through a variety of
sources, including the public equity market, private equity financings,
collaborative arrangements, and public or private debt. There can be no
assurance that additional capital will be available on favorable terms, if at
all. If adequate funds are not available, the Company may be required to
significantly reduce or refocus its operations or to obtain funds through
arrangements that may require the Company to relinquish rights to certain of its
products, technologies or potential markets, which could have a material adverse
effect on the Company's business, financial condition and results of operations.
To the extent that additional capital is raised through the sale of equity, the
issuance of such securities would result in ownership dilution to the Company's
existing stockholders.
24
<PAGE>
BUSINESS
LJL is developing and marketing proprietary technologies and products to
accelerate and enhance the drug discovery process. LJL's proprietary integrated
technology platform is comprised of instrumentation and fluorescence-based and
other assay technologies designed to provide a flexible solution to the current
and evolving HTS requirements of drug discovery laboratories. The drug discovery
process involves several stages including target identification, compound
synthesis, assay development, screening and lead optimization. Target
identification and compound synthesis historically have been the rate-limiting
steps in the drug discovery process. Recent advancements in genomics and
molecular biology as well as combinatorial chemistry have resulted in the
generation of large numbers of targets and compounds. This growth in the number
of targets and compounds has shifted the rate-limiting steps of the drug
discovery process to assay development, screening and lead optimization. To
address these bottlenecks, LJL is developing instrumentation and assays to
provide integrated HTS solutions. LJL believes that its technology platform
addresses the major limitations associated with current HTS systems and will
allow its customers to accelerate the identification and optimization of lead
compounds for development into new medicines.
The Company's first HTS product, ANALYST, is a four-mode analyzer designed
specifically for use in the HTS setting. The Company believes that ANALYST will
provide several important advantages over currently available multi-mode
analyzers, including increased throughput, improved analytical performance and
flexibility, lower reagents costs and the ability to be quickly integrated into
the existing HTS laboratory and to evolve with changing HTS needs. ANALYST is
currently undergoing beta testing at three major pharmaceutical companies and
two biotechnology companies. The Company expects to commence shipments of
ANALYST in the first half of 1998.
PHARMACEUTICAL RESEARCH AND DEVELOPMENT
THE DRUG DISCOVERY PROCESS
The drug discovery process involves the synthesis and testing, or screening,
of compounds against a target. A compound is a molecule that might mediate a
disease by its effect on a target. Targets are biological molecules, such as
enzymes, receptors, other proteins and nucleic acids, that are believed to play
a role in the onset or progression of a disease. The stages of the drug
discovery process include target identification, compound synthesis, assay
development, screening, secondary screening of hits, and lead compound
screening, or optimization.
[CHART]
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Targets are identified based on their anticipated role in the progression or
prevention of a disease. Until recently, scientists using conventional methods
had identified only a few hundred targets, many of which have not been
comprehensively screened. Recent developments in molecular biology and genomics
have led to a dramatic increase in the number of targets available for drug
discovery.
After a target is chosen, the researcher selects a library of compounds to
screen against this target. Compounds have historically been obtained from
natural sources or synthesized one at a time. Compound libraries were compiled
over decades by pharmaceutical companies using conventional synthesis
techniques. Recent technology advancements in combinatorial chemistry and other
chemical synthesis techniques, as well as licensing arrangements, have enabled
industrial and academic groups to greatly increase the supply and diversity of
compounds available for screening against targets. As a result, many researchers
are gaining access to libraries of hundreds of thousands of compounds in months
rather than years.
Following target and compound library selection, the compounds must be
screened to determine their effect on the target, if any. A compound that has an
effect on the target is defined as a hit. A greater number of compounds screened
against a given target results in a higher statistical probability that a hit
will be identified. Prior to screening targets against a compound, a biological
test or assay must be developed. An assay is a combination of reagents which
measures the effect of a compound on the activity of a target. Assay development
involves screening the assays to optimize performance against the selected
target. Assays are broadly classified as either biochemical or cellular.
Biochemical assays are usually performed with purified molecular targets and
generally have certain advantages, such as speed, convenience, simplicity and
specificity. Cellular assays are performed with living cells, which may
sacrifice speed and simplicity, but may deliver more biologically relevant
information. Scientists use both cellular and biochemical assays in their drug
discovery efforts. Both types of assays use a variety of detection modalities,
including absorbence, radioisotopic, luminescence, and a variety of fluorometric
technologies, such as fluorescence intensity, fluorescence polarization and
time-resolved fluorescence.
Once a compound is identified as a hit, a number of secondary screens are
performed to evaluate its potency and specificity for the intended target. This
cycle of repeated screening continues until a small number of lead compounds is
selected. These lead compounds are optimized by further screening. Optimized
lead compounds with the greatest therapeutic potential may be selected for
clinical evaluation. Due to the recent dramatic increase in the number of
available compounds and targets, a bottleneck has resulted at the screening
stage of the drug discovery process. Historically, screening has been a manual,
time-consuming process. Screening significantly larger numbers of compounds
against an increasing number of targets requires a system that can operate with
a high degree of automation and analytical flexibility.
CURRENT SCREENING SYSTEMS
Current screening systems operate with varying degrees of automation. Full
automation--from sample dispensing to data collection--enables round-the-clock
operation, thereby increasing the screening rate. Fully-automated HTS systems
consist of assay analyzers, liquid handling systems, robotics, a computerized
system for data management, reagents and assay kits and microplates. A
microplate is a plastic plate that generally contains either 96 wells or 384
wells, each of which holds a mixture of a target, compound and reagents. In the
HTS process, a robot moves a microplate among preparatory stations and then
delivers the microplate to the analyzer. After the microplate is placed into the
analyzer, the instrument directs a light source onto a well (in the case of
fluorescence-based assays). The intensity of the light emitted from the well in
response to this light source is then measured by the analyzer, showing the
degree of the effect, if any, of the compound on the target. In this manner, the
analyzer detects and measures possible bioactivity of a compound against a
target.
Most screening systems utilize off-the-shelf, general purpose assay
analyzers which were originally designed for low throughput use. The Company
believes most screening systems in use today have the following limitations:
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LACK OF ANALYTICAL FLEXIBILITY. Most analyzers do not provide analytical
flexibility because they operate in only one type of assay detection mode.
In order to perform assays using different detection modes, researchers
generally must switch single-mode analyzers and reconfigure the HTS line.
Alternatively, researchers may set up the HTS line with multiple single-mode
analyzers which often results in critical space constraints.
INADEQUATE SENSITIVITY. As researchers continue to use smaller assay
volumes to reduce reagents costs and increase throughput, many analyzers are
inadequate because they are not sensitive enough to read results based on
these smaller volumes. Inadequate sensitivity may result in missed hits,
limited research capabilities, increased costs of compounds, assays and
reagents and lower throughput.
POOR HTS SYSTEM INTEGRATION. Most analyzers have not been designed
specifically for an HTS environment. They are difficult and expensive to
integrate into an HTS line. Even after the analyzer is integrated into the
HTS line, there are often many problems, including increased probability of
system failures, loss of data, time delays and loss of costly compounds and
reagents.
INABILITY TO OPERATE IN DENSER FORMAT. Most analyzers detect assays solely
in the standard 96-well microplate format. However, drug discovery companies
are beginning to move to a denser, 384-well format to reduce costs of
reagents, assays and compounds while increasing throughput. Most existing
analyzers cannot accommodate the need for this denser format.
LIMITATIONS OF CURRENT ASSAYS. Many assays in use today are performed in a
complex, multi-step process and are expensive, time-consuming and difficult
to implement in an HTS setting. In addition, certain assays use
radioisotopes, which result in problematic waste-disposal issues.
Fluorescence-based assays constitute a growing assay format in HTS due to
the relative lack of waste-disposal problems, as well as their sensitivity,
versatility and adaptability to HTS. However, the use of fluorescence-based
assays in HTS has been limited due to the relative insensitivity of
available analyzers. Certain assays are also unsuitable for HTS because of
the low sensitivity of both the assay and analyzer.
The HTS laboratory today must balance the needs for sensitivity and
analytical flexibility. The increasing use of HTS and need for higher throughput
further exposes the limitations of current screening systems. These limitations
result in higher costs, lower throughput and lower productivity.
THE LJL SOLUTION
LJL is developing products specifically designed for both the current and
evolving HTS market. Since 1988, LJL has designed, developed and manufactured
high performance clinical diagnostics analyzers and other automated instruments.
To develop these products, the Company has assembled an integrated team of
scientists and engineers with expertise in fluorescence chemistry, biophysics,
biochemistry, chemical and mechanical engineering, electronics and software.
The Company's first HTS product, ANALYST, is a four-mode analyzer designed
to address many of the current limitations of available multi-mode analyzers.
The Company believes ANALYST will be the only multi-mode analyzer that enables
higher throughput, improved analytical performance and flexibility, lower
compound, assay and reagents costs, allows quick integration into the existing
HTS laboratory and meets evolving HTS needs. ANALYST is currently undergoing
beta testing at three major pharmaceutical companies and two biotechnology
companies. The Company expects to commence shipments of ANALYST in the first
half of 1998.
The Company is also developing high value-added, application-specific
reagents and assay kits, which are being optimized for use in HTS and
specifically for use with ANALYST. The Company believes that customers will
prefer to purchase reagents and instruments from one source for convenience,
ongoing support and accountability.
In addition to ANALYST, the Company is currently developing an analyzer
capable of reading 1,536-well microplates. The Company believes this higher
density format will greatly improve the user's throughput and productivity and
decrease costs. This high-density analyzer will be an evolution of the ANALYST
technology platform. The Company also plans to develop additional assays which
will be optimized to
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<PAGE>
perform in the higher density format and intends to scale down certain of its
first generation assays and reagents for use in this same format.
LJL STRATEGY
LJL's objective is to become a leader in the development and
commercialization of advanced technologies and products that accelerate the pace
and improve the productivity of the drug discovery process. To implement this
strategy, the Company intends to:
PROVIDE FIRST-TO-MARKET HTS SOLUTIONS. LJL's technology platform is
comprised of two principal proprietary components: instrumentation and assay
technologies. LJL intends to leverage this technology platform and its
proven expertise in rapid product development and manufacturing of automated
instrumentation systems to be the first to market with effective HTS
solutions.
PURSUE AN EVOLUTIONARY APPROACH TO PRODUCT DEVELOPMENT. The Company
anticipates that the HTS needs of the pharmaceutical industry will continue
to change rapidly over the next three to five years and are difficult to
predict at this time. LJL intends to offer products with features and
capabilities that provide solutions to the current and evolving HTS needs of
drug discovery laboratories. For example, the Company's first HTS analyzer
can perform four major types of optically-detected assays in both the
industry standard 96-well microplate and 384-well microplate formats.
Additionally, the Company is designing a high-density analyzer to read
1,536-well microplates.
EXTEND INSTRUMENTATION AND ASSAY PRODUCTS INTO OTHER STAGES OF THE DRUG
DISCOVERY PROCESS. LJL believes that its screening products are well-suited
for primary and secondary screening and other closely-related stages of the
drug discovery process such as assay development and lead optimization,
which require repetitive screening. The Company believes that users will
benefit from using the same, high performance screening products.
GENERATE RECURRING REVENUE THROUGH THE SALE OF REAGENTS, ASSAY KITS AND
CONSUMABLES. LJL believes that establishing an installed base of HTS
analyzers will enable the Company to generate recurring revenue from the
sale of reagents, assay kits and consumables. These products will be high
value-added, application-specific tools that are optimized for use in HTS
and specifically with the Company's analyzers. The Company believes that
customers will prefer to purchase reagents and instruments from one source
for convenience, ongoing support and accountability.
DEVELOP AND ACQUIRE NOVEL SCREENING TECHNOLOGIES. LJL recently licensed
FLARe, a platform of patented bioassay technologies, which it believes will
address a number of the current limitations associated with
fluorescence-based HTS assays. LJL is also developing internally certain
reagent technologies and intends to license or acquire additional screening
technologies to establish and maintain a market advantage for its products.
PROVIDE EARLY ACCESS TO STRATEGIC CUSTOMERS. LJL intends to provide
strategic customers with early access to certain of its technologies which
will provide insight into next generation product requirements and
technology needs. The Company believes this insight will allow the Company
to provide products that more closely meet the needs of its customers.
PRODUCTS UNDER DEVELOPMENT
The Company's first HTS products under development are ANALYST and
consumables, including high value-added, application-specific reagents and assay
kits. ANALYST is currently undergoing beta testing (during which the Company
provides an analyzer to a potential customer for use in its operating
environment for a limited period for the purpose of evaluating and testing the
instrument) at three major pharmaceutical companies and two biotechnology
companies. The Company expects to commence shipments of ANALYST in the first
half of 1998, and the first accompanying reagents and assay kits are expected to
be introduced in 1998.
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ANALYST
ANALYST is a four-mode analyzer designed specifically for use in the HTS
setting. ANALYST can read luminescence assays and the three major types of
fluorescence-based assays, fluorescence intensity, fluorescence polarization
("FP") and time resolved fluorescence assays. ANALYST allows users to perform
both cellular and biochemical assays in all four detection formats. To operate
ANALYST, the user specifies the detection mode and other parameters through
either a local host computer running LJL's graphical interface software or an
external system controller. A 96-well or 384-well microplate is placed in the
microplate gripper by a user or robot and is automatically aligned with the
optical detection component, SmartOptics.
Depending on the type of assay detection mode selected by the user,
SmartOptics' system of optical switches, lenses and fiber optic cables focuses
the excitation light source (either a high intensity, constant light in the case
of fluorescence intensity and FP assays or a flashing light in the case of
time-resolved fluorescence assays) into either the middle or bottom of the fluid
in the microwell. This focusing flexibility enables the user to optimize assay
performance for a variety of assays regardless of the location of the optimal
focal area. For example, the optimal focal area for the excitation source in FP
assays is in the middle of the well, whereas the optimal focal area for cellular
assays is the bottom of the well. In addition, this focusing precision allows
these assays to be read at lower reagent concentrations. The Company believes
that certain assays that have previously not been able to be performed because
of existing analyzers' relative insensitivity will now be able to be used with
ANALYST. In addition, because of this increased sensitivity, certain assays can
be read faster, which increases throughput for this assay class. The light
emitted from the well is fed into a photo-multiplier tube where the intensity of
the light is quantitatively measured. The light emitted in a luminescence assay
is generated by a chemical reaction within the well and not in response to an
excitation light source as is the case for fluorescence-based assays. To
optimize performance in each of these detection modes, ANALYST has two
photo-multiplier tubes, one for luminescence assays and one for
fluorescence-based assays, and automatically directs the emitted light to the
proper unit depending on the assay selected. The light strikes the photocathode
within the photo-multiplier tube, generating the signal that is recorded by the
computer. This data can then be directed to the user's data management system
for further analysis.
Several additional features of ANALYST make it particularly suitable for
integration into the current HTS setting and allow it to operate with minimal
human intervention. ANALYST has a comprehensive self-diagnostic system that
monitors the intensity of the excitation light source and helps prevent the loss
of data and compounds. ANALYST has two serial ports, one to communicate between
ANALYST and the robot controller and the other to upload information to the data
management system. The separation of these two functions may reduce the
incidence of data corruption. An additional communications port allows the user
to employ third party software to either alert the user or shut down the system
in the case of a system failure. The control panel can be attached to either
side of the instrument, providing integration flexibility. ANALYST also accepts
microplates in their short dimension, which accommodates light-duty robot arms
and eliminates the need for a plate turntable. Finally, ANALYST is compatible
with most currently-available microplates, reagents and liquid handling systems.
The Company believes ANALYST will be the only multi-mode analyzer that
enables higher throughput, improved analytical performance and flexibility,
lower compound, assay and reagents costs, allows quick integration into the
existing HTS laboratory and meets evolving HTS needs. Analytical flexibility is
substantially improved based on the four-mode detection capability. The Company
believes that the ability to program precise instrument parameters enables
assays to be performed on ANALYST with improved sensitivity. Throughput is
expected to be increased because the programmable four-mode detection capability
saves the time normally lost in manual reconfiguration when switching between
assay modes in other multi-mode systems. In addition, the ability to run screens
in both the 96- and 384-well format with no loss of sensitivity will enable the
user to increase productivity.
There can be no assurance that the Company will successfully manufacture or
market ANALYST or that ANALYST will achieve market acceptance. The failure to
successfully commercialize ANALYST would have a material, adverse effect on the
Company's business, financial condition or results of operations.
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REAGENTS AND ASSAYS
In 1998, the Company intends to offer high value-added, application-specific
reagents and assay kits that are optimized for use in HTS and specifically for
use with ANALYST. The Company intends to initially develop reagents and assay
kits in a single-step format. LJL believes that a single-step assay format is
better suited to the HTS environment because it is faster, less expensive and
easier to automate than multi-step assays. The Company believes that its
reagents and assay kits will provide two major benefits to its customers. First,
overall assay performance is expected to be improved because these consumables
are being optimized for use with ANALYST. Second, the Company believes that
customers will prefer to purchase reagents and instruments from one source for
convenience, ongoing support and accountability.
The use of fluorescence-based assays in HTS is increasing due to their
sensitivity, versatility, adaptability, safety and lack of waste-disposal
problems associated with radioisotopic assays. Among fluorescence-based assays,
FP assays are especially well-suited for HTS because they can be used in a
single-step format and are relatively insensitive to concentration and volume
variations. However, the use of FP assays in HTS has previously been limited
because of the relative insensitivity of available analyzers.
The Company believes the increased sensitivity and precision of ANALYST in
the FP format will improve the performance of FP assays. LJL is currently
developing a new, long-lifetime FP reagent based on its proprietary FLARe assay
technology. Currently available FP reagents have short lifetimes and cannot be
used in screening certain targets. The Company believes that its long-lifetime
FP reagent will expand the class of available targets for certain major
diseases, including cardiovascular and immunodeficiency diseases, that can be
screened in a single-step, FP format.
The Company intends to enter into collaborative relationships for the
development of additional reagents, although, to date, no agreements have been
reached. There can be no assurance that LJL will successfully develop its own
reagents and assay kits, that any LJL reagents and assay kits, if developed,
will achieve market acceptance or result in significant Company revenues, or
that the Company will enter into any agreements for rights to additional
reagents or assay technology, the failure of any of which could have a material
adverse effect on the Company's business, financial condition and results of
operations.
HIGH-DENSITY, ULTRA HIGH THROUGHPUT SCREENING PLATFORM
The Company is developing products designed to operate in a high-density,
ultra high throughput screening system. These products include a 1,536-well
format analyzer, reagents, assay kits and proprietary 1,536-well microplates.
The high-density analyzer will be an evolution of the ANALYST technology
platform, and is being designed to read 1,536 wells arrayed in the same space as
a 96-well microplate. The Company believes this high-density format will
increase throughput significantly over that of currently available systems. In
addition, the high-density analyzer is being designed to perform screens using
significantly reduced assay volumes, thus reducing the costs of reagents, assays
and compounds. LJL is developing 1,536-well microplates to operate with its
high-density analyzer. The Company believes that HTS system performance will be
optimized with the use of these proprietary plates in conjunction with LJL's
high-density analyzer due to the lower error tolerance between system components
in this miniaturized format. In addition, the Company's high-density HTS
analyzer is being designed to operate with third party 1,536-well microplates,
reagents and liquid handling systems. The Company also plans to bring to market
additional reagents and assay kits and intends to miniaturize certain of its
first generation reagents and assays for use in the high-density format.
FLARE TECHNOLOGY
The Company has licensed FLARe, a platform of patented, fluorescence-based
bioassay technologies for use in commercial pharmaceutical and biopharmaceutical
research and development, from FluorRx. Under this agreement, the Company has
the right to develop and commercialize products based upon licensed patents, and
in exchange the Company has agreed to pay FluorRx minimum royalties in the
aggregate amount of approximately $950,000 through 2002. The agreement
terminates upon the earlier of the expiration of the last of the licensed
patents, a court's declaration that the last licensed patent is
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invalid, or an uncured material breach. Fluorescence-based assay technologies
are well-suited to HTS because they are sensitive, versatile, easy to automate
and safer than radioisotopic assays. However, use of fluorescence-based HTS
assays has been limited due to the high level of background noise in the
fluorescence signal within the assay, which obscures the assay-specific signal
and results in loss of sensitivity and reduced accuracy. LJL believes its FLARe
technology may significantly improve the sensitivity, precision and speed of
these assays.
The FLARe platform uses an extension of fluorescence lifetime detection,
called phase/modulation. Phase/modulation is a method of measuring the time
required for a molecule to absorb and then emit light ("fluorescence lifetime").
Fluorescence lifetime assays performed using phase/modulation detection have a
higher signal-to-noise ratio than traditional fluorescence assays based on
measurement of intensity. Small changes in phase/modulation can be accurately
measured, resulting in an assay format that is both accurate and sensitive,
including high-density, low volume HTS formats. In addition, fluctuations in
assay volume do not affect the quality of the assay signal, which is also
important in a high-density format, where precision of fluid handling is
extremely difficult.
Many targets, compounds and microplates have transient fluorescent
properties that obscure the assay-specific signal generated by currently
available short lifetime fluorescent reagents. However, using LJL's
phase/modulation assay detection technology, the transient background signal, or
noise, of the well environment can be electronically subtracted from the
assay-specific signal of the long-lifetime fluorescent reagent, resulting in a
high signal-to-noise ratio.
Because cellular and sub-cellular events such as ligand-receptor binding,
ion flux, and protein-protein interaction all produce changes in the physical
micro-environment, the Company believes FLARe technology can be used in a
single-step assay format against most major classes of human drug targets,
including receptors, ion channels, cell regulatory pathways, gene regulatory
elements and enzymes.
The following chart summarizes several of the key assay modalities of FLARe,
with examples of classes of targets and therapeutic areas to which the Company
believes they may be applicable:
<TABLE>
<CAPTION>
ASSAY TECHNOLOGY POTENTIAL TARGET CLASSES POTENTIAL THERAPEUTIC AREA
- -------------------------------- -------------------------------- --------------------------------
<S> <C> <C>
Long-Lifetime Fluorescence Protein-Protein Interactions Cancer, neurological disorders,
Polarization - cell surface receptors cardiovascular diseases,
(biochemical and cell-based - intracellular signaling inflammatory disorders,
assays) - cell-cycle control gene endocrine diseases
regulation
Phase Resolved Fluorescence Ion Channels Cancer, neurological disorders,
Lifetime Intracellular Ion Flux cardiovascular diseases,
(biochemical and cell-based Cell Surface Receptors inflammatory disorders,
assays) endocrine diseases, and
gastrointestinal diseases
Kinase Reporters Protein Kinases Cancer, autoimmune diseases
(biochemical assays)
Protease Reporters Proteases Cardiovascular disease, AIDS,
(biochemical assays) neurodegenerative diseases
</TABLE>
OEM PRODUCTS
Since 1988, the Company has successfully designed and manufactured several
products for clinical diagnosis, including Luminometer, Q2000, Horizon and a
microplate heater, all of which were or are marketed and sold through third
parties. These products are used primarily in clinical and research
laboratories, which require highly automated systems to perform large numbers of
assays reliably 24 hours a day with minimal human intervention. In addition, in
1996 the Company completed a development agreement with CombiChem, pursuant to
which the Company developed a compound synthesizer for drug discovery. The
Company has employed a proprietary, modular, object-oriented design approach in
which
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previously developed and proven modules are adapted to new systems. LJL believes
this design and manufacturing approach has enabled the Company to rapidly
develop and manufacture new products, and the Company intends to continue to
employ this design and manufacturing method in the development of its HTS
instruments.
Luminometer is a highly sensitive blood analyzer used to detect and monitor
the presence of HIV and hepatitis viruses, which the Company developed for
Chiron's DNA-based diagnostics needs. Since 1992, the Company has manufactured
and shipped more than 700 Luminometers to laboratories worldwide. The Company
also developed for Chiron Q2000, which is a second generation, highly automated
analyzer used for HIV and hepatitis detection and monitoring. The Company sold
the manufacturing rights to Q2000 to Chiron, and has phased out production of
both Q2000 and Luminometer.
In 1996, the Company completed development of Horizon, a clinical specimen
processor used in cancer diagnostics for Ventana. More than 150 units of Horizon
have been manufactured and shipped worldwide. Although the Company intends to
continue to manufacture Horizon under its agreement with Ventana in 1998 and
possibly beyond, revenues from OEM product sales are expected to substantially
decline in future periods.
SALES AND MARKETING
Historically, the Company's clinical diagnostics products have been sold
through OEM relationships to third parties. Thus, in 1997, 1996 and 1995, two of
LJL's largest OEM customers, Chiron and Ventana, accounted for a total of 88%,
71% and 58%, respectively, of total revenues. Although the Company intends to
continue to manufacture the Horizon through 1998 and possibly beyond under its
agreement with Ventana, OEM product sales are expected to substantially decline
in future periods.
The Company intends to market its HTS products worldwide through a direct
sales force in North America and distributors outside North America. LJL
believes that approximately 50 large pharmaceutical companies, each of which
operates numerous laboratories, control a substantial portion of the total
number of pharmaceutical research and development laboratories. As a result, the
Company believes a relatively small direct sales force can effectively penetrate
this market. In addition, the Company intends to market its HTS products to a
significantly larger number of biotechnology and smaller pharmaceutical
companies. The Company currently has a direct sales team of four professionals
and plans to hire additional sales personnel. Because the Company's products are
technically-sophisticated and customers are Ph.D.-level researchers, the sales
force consists of scientifically-qualified personnel to address the technical
sophistication of the Company's products and customers. Sales support is
provided by an in-house applications team. The Company is in the process of
identifying European and Pacific Rim distributors that are currently selling
products into the pharmaceutical R&D market.
The Company is marketing ANALYST and intends to market associated reagents
and assay kits under the trademark name of CRITERION. The Company's high-density
HTS products are expected to include an analyzer, reagents, assay kits and
proprietary 1,536-well microplates. The Company intends to sell reagents
primarily to laboratories that perform relatively large numbers of assays, and
intends to sell assay kits, which will include a combination of reagents and
detailed instructions on protocol and use, to laboratories where convenience and
ease of use are expected to be more important than volume purchase of reagents.
The Company will face the risks associated with a highly concentrated
customer base when and if it begins to sell its HTS products. Thus, any
unfavorable development regarding a customer, including but not limited to such
customer negotiating price discounts or unfavorable terms to LJL on its
products, or encountering substantial financial difficulties or decreasing its
capital spending, could have a material adverse effect on the Company's
business, financial condition and results of operations.
MANUFACTURING
The Company has employed a proprietary, modular, object-oriented design
methodology to develop and manufacture a number of successful analytical systems
for clinical diagnosis. LJL's clinical diagnostics and research products are
manufactured at the Company's facilities in Sunnyvale, California. LJL is an
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FDA-registered medical device manufacturer operating under GMP regulations and
is certified under ISO 9001. Certain of LJL's clinical diagnostics products have
the CE mark for European distribution. The CE designation, CONFORMITE EUROPEENE,
signifies that a company has met the health and safety requirements to sell a
product under the medical device directive in a European Community country. LJL
has built its clinical diagnostics products with an average
mean-time-between-failure rate of over 25,000 hours. LJL has established a track
record of on-time shipment to its customers. The Company has long-standing
relationships with many local suppliers, who both manufacture custom components
and supply off-the-shelf components.
The Company intends to use essentially the same manufacturing process for
ANALYST as it has for its OEM clinical diagnostics products. This manufacturing
process consists of purchasing custom and other components from third parties
and performing sub-assembly, final assembly, and quality assurance functions
in-house. ANALYST will be manufactured in LJL's existing manufacturing facility.
The Company believes that its manufacturing infrastructure for ANALYST is
sufficient for at least the next few years.
The Company's initial strategy with regard to manufacturing reagents is to
outsource the manufacture of assay kits to LJL's specifications. The Company may
begin manufacturing reagents internally if it is determined to be
cost-effective. In addition, the Company intends to expand its relationships
with vendors of plastic disposables and to have them manufacture its 1,536-well
HTS microplates according to LJL specifications.
The Company's success will depend in part on the expansion of its operations
and the effective management of these expanded operations. Manufacturers often
encounter difficulties in scaling up production of new products, including
problems involving quality control and assurance, component supply and shortages
of qualified personnel. Difficulties encountered by the Company in manufacturing
scale-up could have a material adverse effect on its business, financial
condition and results of operations.
COMPETITION
The market for HTS instrumentation is highly competitive. The Company
anticipates that competition will increase significantly as more biotechnology
and pharmaceutical companies adopt HTS instruments as a drug discovery tool and
as new companies enter the market with advanced technologies and products. The
Company will compete in many areas, including high throughput screening
instruments, assay development and reagent sales. The Company competes with
companies which directly market high throughput products. In addition,
pharmaceutical and biotechnology companies, academic institutions, governmental
agencies and other research organizations are conducting research and developing
products in various areas which compete with the Company's technology platform,
either on their own or in collaboration with others. The Company's potential
customers may assemble high throughput screening systems by purchasing
components from competitors. Further, certain companies offer screening services
on a contract or collaborative basis, and these services could eliminate the
need for a potential customer to purchase the Company's products. The Company's
technological approaches may be rendered obsolete or uneconomical by advances in
existing technological approaches or the development of different approaches by
one or more of the Company's current or future competitors. Many of these
competitors have greater financial and personnel resources, and more experience
in research and development, sales and marketing and other areas than the
Company.
INTELLECTUAL PROPERTY RISKS
The Company's success will depend in part on its ability to obtain patents,
maintain trade secret protection and operate without infringing the proprietary
rights of others. The Company has two U.S. patents. The Company has filed four
U.S. patent applications and six provisional patent applications, all of which
are currently pending. To supplement its proprietary technology, the Company has
licensed ten patents from FluorRx pursuant to a June 1997 agreement. Under this
license, the Company obtained certain worldwide rights relating to FluorRx's
FLARe technology. Certain of these rights have been licensed on an exclusive
basis. Certain other rights have been licensed on a non-exclusive basis, and
therefore could be or are licensed to third parties. In accordance with such
agreement, the Company pays
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one-time fees as well as royalties based on sales of its products that
incorporate this technology. The license may be terminated in the event of a
material breach by the Company. Furthermore, FluorRx may elect to convert the
exclusive rights into non-exclusive rights in the event the Company fails to
make certain minimum royalty payments. If the license were terminated by FluorRx
due to a material breach of the license by the Company, the Company would lose
the right to incorporate FLARe technology into its HTS products. In such event,
the Company would be required to exclude FLARe technology from the Company's
existing and future products and either license or develop internally
alternative technologies. There can be no assurance that the Company would be
able to license alternative technologies on commercially reasonable terms, or at
all, or that the Company would be capable of developing internally such
technologies. Furthermore, there can be no assurance that other companies may
not independently develop technology with functionality similar or superior to
the FLARe technology that does not or is claimed not to infringe the FLARe
patents, or that otherwise circumvents the technology licensed to the Company.
The Company is aware of third party patents that contain issued claims that
may cover certain aspects of the Company's reagent technologies. There can be no
assurance that the Company would not be required to license any such patents to
produce certain reagents, assay kits and related products or that such licenses
would be available on commercially reasonable terms, if at all. Any action
against the Company claiming damages and seeking to enjoin commercial activities
relating to the affected technologies could subject the Company to potential
liability for damages. The Company could incur substantial costs in defending
patent infringement claims, obtaining patent licenses, engaging in interference
and opposition proceedings or other challenges to its patent rights or
intellectual property rights made by third parties, or in bringing such
proceedings or enforcing any patent rights against third parties. The Company's
inability to obtain necessary licenses or its involvement in proceedings
concerning patent rights could have a material adverse effect on the business,
financial condition and results of operations of the Company.
The patent positions of bioanalytical product companies, including the
Company, are uncertain and involve complex legal and factual questions. In
addition, the coverage claimed in a patent application can be significantly
reduced before the patent is issued. Consequently, there can be no assurance
that the patent applications of the Company or its licensor will result in
patents being issued or that any issued patents will provide protection against
competitive technologies or will be held valid if challenged or circumvented.
Others may independently develop products similar to those of the Company or
design around or otherwise circumvent patents issued to the Company. In the
event that any relevant claims of third-party patents are upheld as valid and
enforceable, the Company could be prevented from practicing the subject matter
claimed in such patents, or would be required to obtain licenses from the patent
owners of each of such patents or to redesign its products or processes to avoid
infringement. There can be no assurance that such licenses would be available
or, if available, would be on terms acceptable to the Company or that the
Company would be successful in any attempt to redesign its products or processes
to avoid infringement. If the Company does not obtain necessary licenses, it
could be subject to litigation and encounter delays in product introductions
while it attempts to design around such patents. Alternatively, the development,
manufacture or sale of such products could be prevented. Litigation would result
in significant cost to the Company as well as diversion of management time.
Adverse determinations in any such proceedings could have a material adverse
effect on the Company's business, financial condition and results of operations.
The Company also relies on trade secret and copyright law, and employee and
third-party nondisclosure agreements to protect its intellectual property rights
in its products and technology. There can be no assurance that these agreements
and measures will provide meaningful protection of the Company's trade secrets,
copyrights, know-how, or other proprietary information in the event of any
unauthorized use, misappropriation or disclosure or that others will not
independently develop substantially equivalent proprietary technologies.
Litigation to protect the Company's trade secrets or copyrights would result in
significant cost to the Company as well as diversion of management time. Adverse
determinations in any such proceedings or unauthorized disclosure of the
Company's trade secrets could have a material adverse effect on the Company's
business, financial condition and results of operations. In addition, the laws
of certain foreign countries do not protect the Company's intellectual property
rights to the same extent as do
34
<PAGE>
the laws of the United States. There can be no assurance that the Company will
be able to protect its intellectual property in these markets. See
"Business--Intellectual Property," and "--Products Under Development--FLARe
Technology."
GOVERNMENT REGULATION
While the Company believes that none of the Company's HTS products will be
regulated as medical devices or otherwise subject to FDA regulation, the
Company's clinical diagnostics products, including Luminometer, Q2000, Horizon
and a microplate heater, are subject to FDA regulation as medical devices, as
well as similar foreign regulation. The process of obtaining and maintaining
required regulatory clearances and approvals and otherwise remaining in
regulatory compliance in the United States and certain other countries is
lengthy, expensive and uncertain. Although the Company has phased out production
of Luminometer, Q2000 and the microplate heater, the Company will continue to
manufacture Horizon on an OEM basis. Horizon is used in research and clinical
laboratories to perform IVD tests, which are exempt from IDE requirements,
including the need to obtain the FDA's prior approval, provided that, among
other things, the testing is noninvasive, the product is not used as a
diagnostic procedure without confirmation by another medically established test
or procedure, and distribution controls are established to assure that IVDs
distributed for research are used only for those purposes. To the Company's
knowledge, its OEM customers have met these conditions. There can be no
assurance that the FDA would agree that the OEM customers' distribution of the
Company's clinical diagnostic products meet and have met the requirements for
IDE exemption. Failure by the Company, its OEM customers or the recipients of
the Company's clinical diagnostic products to comply with the IDE exemption
requirements could result in enforcement action by the FDA, which could
adversely affect the Company's or its OEM customers' ability to gain marketing
clearance or approval of these products or could result in the recall of
previously distributed products.
Applicable law requires that LJL comply with the FDA's current GMP
regulations for the manufacture of its clinical diagnostics products, Q2000,
Luminometer, Horizon and the microplate heater. The FDA monitors compliance with
its GMP regulations by subjecting medical product manufacturers to periodic FDA
inspections of their manufacturing facilities. The FDA has recently revised the
GMP regulations. The new Quality System Regulation imposes design controls and
makes other significant changes in the requirements applicable to manufacturers.
LJL is also subject to other regulatory requirements, and may need to submit
reports to the FDA including adverse event reporting. Failure to comply with GMP
regulations or other applicable legal requirements can lead to, among other
things, warning letters, seizure of violative products, suspension of
manufacturing, government injunctions and potential civil or criminal liability
on the part of the Company and the responsible officers and employees. In
addition, the government may halt or restrict continued sale of such
instruments. Any such actions could have a material, adverse effect on the
business, financial condition and results of operations of the Company.
In order to export its clinical diagnostics instruments, the Company
maintains ISO 9001 certification and applies the CE mark to certain products
that are exported, which subjects LJL's operations to periodic surveillance
audits. While the Company believes it is currently in compliance with GMP
regulations and ISO standards, there can be no assurance that the Company's
operations will be found to comply with GMP regulations, ISO standards or other
applicable legal requirements in the future or that the Company will not be
required to incur substantial costs to maintain its compliance with existing or
future manufacturing regulations, standards or other requirements. Any such
noncompliance or increased cost of compliance could have a material adverse
effect on the Company's business, results of operations and financial condition.
LJL also is subject to numerous federal, state and local laws relating to
safe working conditions, manufacturing practices, environmental protection,
storage, use and disposal of hazardous or potentially hazardous substances. Any
material failure to comply with such laws could require the Company to incur
significant costs and would have a material, adverse effect upon the Company's
ability to do business.
35
<PAGE>
Changes in existing requirements or adoption of new requirements or policies
relating to government regulations could materially and adversely affect the
ability of LJL to comply with such requirements.
EMPLOYEES
As of December 31, 1997, the Company had 49 employees, of which 11 are
employed in manufacturing, 25 in research and development, and 13 in marketing,
sales and administration. Nine employees hold Ph.D. degrees, and 14 additional
employees hold M.S. degrees. The Company's future success depends upon the
continued service of its key scientific, technical and senior management
personnel and its continuing ability to attract and retain highly qualified
technical and managerial personnel. None of the Company's employees is
represented by a labor union or covered by a collective bargaining agreement.
The Company considers its relations with its employees to be satisfactory.
FACILITIES
The Company's headquarters are located in Sunnyvale, California, and are
comprised of approximately 14,000 square feet of office, research and
development and manufacturing space. The Company's lease of these premises
expires January 31, 2000 and is renewable for an additional term of five years
under certain conditions. As the Company hires additional administrative and
marketing personnel, the Company plans either to lease additional space or to
move its headquarters within the next 24 months in order to support its
projected growth. The Company expects that additional space will be available on
commercially reasonable terms.
36
<PAGE>
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The executive officers and directors of the Company and their ages as of
December 31, 1997 are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION(S)
- ----------------------------------------------------- --- -----------------------------------------------------
<S> <C> <C>
EXECUTIVE OFFICERS
Lev J. Leytes........................................ 42 President, Chief Executive Officer and Chairman of
the Board of Directors
Galina Leytes........................................ 43 Executive Vice President and Director
Anthony H. Bautista.................................. 42 Vice President of Manufacturing Operations
Robert T. Beggs...................................... 49 Vice President of Finance and Administration
William G. Burton, Ph.D.............................. 57 Chief Technology Officer
Douglas N. Modlin, Ph.D.............................. 45 Vice President of Instrumentation Systems Research
and Development
DIRECTORS
George W. Dunbar, Jr.(1)............................. 51 Director
Michael F. Bigham(2)................................. 40 Director
John G. Freund, M.D.(2).............................. 44 Director
Daniel S. Janney(1).................................. 32 Director
</TABLE>
- ------------------------
(1) Member of Audit Committee
(2) Member of Compensation Committee
LEV J. LEYTES is a co-founder of the Company and has been its President,
Chief Executive Officer and Chairman of the Board of Directors since inception.
Prior to founding LJL, Mr. Leytes worked in various technical and management
positions at Beckman Instruments, Inc., a life sciences company, and Molecular
Devices Corporation, a bioanalytical instrumentation company. Mr. Leytes holds
an M.S. in engineering from the Moscow Engineering Institute. Mr. Leytes is the
spouse of Galina Leytes.
GALINA LEYTES is a co-founder of the Company and has been Vice President and
a director since inception, and was promoted to Executive Vice President in
January 1996. Ms. Leytes previously served as the Company's Chief Financial
Officer and Secretary from inception to December 1997. Prior to founding LJL,
Ms. Leytes managed the information systems group at Stanford University, was a
consultant in management information systems, and was a senior programmer at
Charles Schwab & Co., Inc. She holds an M.S. in engineering from the Kiev
Engineering Institute. Ms. Leytes is the spouse of Lev J. Leytes.
ANTHONY H. BAUTISTA joined the Company in November 1991 as Manufacturing
Operations Manager, and was promoted to Director of Manufacturing Operations in
December 1993 and Vice President of Manufacturing Operations in May 1996. Prior
to joining LJL, Mr. Bautista held various management positions in the
manufacturing divisions of Molecular Devices Corporation, a bioanalytical
instrumentation company, and Hewlett-Packard Company, a computer and electronics
company. Mr. Bautista holds an A.A. in electronic technology from the College of
San Mateo and a B.S. in electrical engineering from San Jose State University.
ROBERT T. BEGGS joined the Company in November 1992 as Controller, and was
promoted to Director of Finance and Administration in December 1994 and Vice
President of Finance and Administration in May 1996. Prior to joining LJL, Mr.
Beggs was the Controller of Sequoia-Turner Corporation, a medical instruments
company, acquired in 1991 by Abbott Laboratories, a pharmaceutical and
diagnostics company. Mr. Beggs held several financial management positions at
G.D. Searle & Co., a pharmaceutical company and a wholly-owned subsidiary of
Monsanto Company, and Siemens AG, a diversified electronics
37
<PAGE>
company. Mr. Beggs holds a B.S. in business administration from Nichols College
and an M.B.A. from the University of Massachusetts, Amherst.
WILLIAM G. BURTON, PH.D. joined the Company in March 1996 as Director of
Technology and Business Development, and was promoted to Vice President of
Technology and Business Development in January 1997 and Chief Technology Officer
in August 1997. Dr. Burton was Program Manager, Strategic Market Development for
the BioScience Products Division of Hewlett-Packard Company from September 1994
until March 1996. From January 1993 to September 1994, Dr. Burton was a business
consultant to various biotechnology and pharmaceutical companies. From June 1989
to January 1993, he was a Managing Director of TS/BioDevices, Inc., a
biotechnology systems development company and was responsible for operations and
business development. Previously, Dr. Burton held senior management positions in
biotechnology and health care-related research, product development, marketing
and strategic planning and analysis. He holds a B.S. in biology from California
State University, Long Beach, and an M.S. and Ph.D. in biochemistry from the
University of California at Los Angeles.
DOUGLAS N. MODLIN, PH.D. joined the Company in December 1996 as Senior
Director of Research and Development, and was promoted to Vice President of
Instrumentation Systems Research and Development in October 1997. Prior to
joining the Company, Dr. Modlin was the Manager of Advanced Test Systems
Development at Micro Module Systems, Inc., an electronic integration company,
from November 1995 to December 1996, and was the Associate Technical Director of
Research at Molecular Devices Corporation, a bioanalytical instrumentation
company, from August 1993 to October 1995. From November 1991 to August 1993, he
was the Program Manager of Diagnostic Instrumentation for Affymax NV, a drug
discovery company. Dr. Modlin holds a B.S. in electrical engineering from the
California Polytechnic State University, San Luis Obispo, and an M.S. and Ph.D.
in electrical engineering from Stanford University.
GEORGE W. DUNBAR, JR. has been a director of the Company since February
1995. Mr. Dunbar has been the President, Chief Executive Officer and a director
of Metra Biosystems, Inc., a medical device company specializing in products for
the detection and management of metabolic bone and joint diseases, since July
1991. He is also a member of the Board of Directors of DepoTech Corporation, a
drug delivery company, and Sonus Pharmaceuticals, Inc., a medical diagnostic
ultrasound company. Mr. Dunbar holds a B.S. in electrical engineering and an
M.B.A. from Auburn University.
MICHAEL F. BIGHAM has been a director of the Company since June 1997. Mr.
Bigham has been the President, Chief Executive Officer and a director of Coulter
Pharmaceutical, Inc., a drug development company ("Coulter"), since July 1996.
Prior to joining Coulter, Mr. Bigham served as Executive Vice President of
Operations from April 1994 to June 1996, Chief Financial Officer from April 1989
to June 1996, and Vice President of Corporate Development from July 1988 to
March 1992 at Gilead Sciences, Inc., a biotechnology company. Previously, Mr.
Bigham was Co-head of Healthcare Investment Banking for Hambrecht & Quist LLC,
an investment banking firm. Mr. Bigham is also a member of the Board of
Directors of Datron Systems, Inc., an electronics company, and several
privately-held companies. Mr. Bigham received a B.S. degree in commerce with
distinction from the University of Virginia and an M.B.A. from the Stanford
University Graduate School of Business.
JOHN G. FREUND, M.D. has been a director of the Company since June 1997. Dr.
Freund has been Managing Director of the General Partner of Skyline Venture
Partners, L.P., a venture capital firm, since October 1997. He served as
Managing Director in the Alternative Assets Group of Chancellor Capital
Management, Inc. (now Chancellor LGT Asset Management, Inc.), from August 1995
to September 1997. In 1995, Dr. Freund co-founded Intuitive Surgical Devices,
Inc., a privately-held medical device company. From July 1988 through December
1994, Dr. Freund was employed at Acuson Corporation, a medical equipment
company, where he was Vice President-Corporate Development and later Executive
Vice President. Previously, he was a partner in Morgan Stanley Venture Partners,
a venture capital firm, and also co-founded the healthcare group in the
corporate finance department of Morgan Stanley & Co., Inc. Dr. Freund holds a
B.A. from Harvard College, an M.D. from Harvard Medical School and an M.B.A.
38
<PAGE>
from Harvard Business School, where he was a Baker Scholar and won what is now
called the John L. Loeb Fellowship for excellence in finance.
DANIEL S. JANNEY has been a director of the Company since June 1997. Mr.
Janney is a partner of Alta Partners, a venture capital company, which he joined
in April 1996. Prior to joining Alta Partners, Mr. Janney served as a Vice
President in the health care investment banking group of Montgomery Securities
(now NationsBanc Montgomery Securities LLC) from January 1994 to April 1996 and
as an Associate at Montgomery Securities from March 1993 to December 1993. From
June 1990 to February 1993, Mr. Janney was an Associate at Bankers Trust Company
in the leveraged buyout/private equity group. Mr. Janney holds a B.A. from
Georgetown University and an M.B.A. from the Anderson School at the University
of California, Los Angeles.
BOARD COMPOSITION
The Company currently has authorized seven directors. In accordance with the
terms of the Company's Restated Certificate, effective upon the closing of this
offering, the terms of office of the directors will be divided into two classes:
Class I, whose term will expire at the annual meeting of stockholders to be held
in 1999 or special meeting held in lieu thereof and Class II, whose term will
expire at the annual meeting of stockholders to be held in 2000 or special
meeting held in lieu thereof. The Class I directors are Galina Leytes, George W.
Dunbar, Jr. and Daniel S. Janney, and the Class II directors are Lev J. Leytes,
Michael F. Bigham and John G. Freund, M.D. and a vacancy to be filled by the
Board of Directors. At each annual meeting of stockholders after the initial
classification or special meeting in lieu thereof, the successors to directors
whose terms will then expire will be elected to serve from the time of election
and qualification until the second annual meeting following election or special
meeting held in lieu thereof. In addition, the Company's Restated Certificate
provides that the authorized number of directors may be changed only by
resolution of the Board of Directors. Any additional directorships resulting
from an increase in the number of directors will be distributed among the two
classes so that, as nearly as possible, each class will consist of one-half of
the directors. This classification of the Board of Directors may have the effect
of delaying or preventing changes in control or management of the Company.
Although directors of the Company may be removed for cause by the affirmative
vote of the holders of a majority of the Common Stock, the Company's Restated
Certificate provides that holders of two-thirds of the Common Stock must vote to
approve the removal of a director without cause.
BOARD COMMITTEES
In December 1997, the Board established the Audit Committee and Compensation
Committee. The Board's Audit Committee currently consists of Messrs. Dunbar and
Janney. The Audit Committee reviews the Company's annual audit and meets with
the Company's independent accountants to review the Company's internal
accounting procedures and financial management practices. The Compensation
Committee currently consists of Mr. Bigham and Dr. Freund. The Compensation
Committee recommends compensation and benefits for the Company's President and
Chief Executive Officer and the Company's other executive officers to the Board
of Directors, reviews general policy relating to compensation and benefits of
employees of the Company, and administers the Company's Stock Plans.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
None of the members of the Compensation Committee of the Board of Directors
was, at any time since the formation of the Company, an officer or employee of
the Company. No executive officer of the Company serves as a member of the board
of directors or compensation committee of any entity that has one or more
executive officers serving on the Board of Directors or Compensation Committee.
DIRECTOR COMPENSATION
The Company does not currently provide cash compensation to directors for
services in such capacity, but directors may be reimbursed for certain expenses
in connection with attendance at Board of Directors
39
<PAGE>
and Committee meetings. Directors are eligible to participate in the Company's
Stock Plans and, beginning in 1998, employee directors will also be eligible to
participate in the Company's 1998 Employee Stock Purchase Plan and non-employee
directors will also be eligible to participate in the 1998 Directors' Stock
Option Plan. In December 1995, Mr. Bigham was granted an option to purchase
10,000 shares of Common Stock at an exercise price of $0.10 per share subject to
a four year vesting schedule, in March 1997 he was granted an option to purchase
10,000 shares of Common Stock at an exercise price of $1.00 per share subject to
a four year vesting schedule, and in December 1997 he purchased 5,000 shares of
restricted Common Stock subject to a four year vesting schedule. In February
1995, Mr. Dunbar was granted an option to purchase 20,000 shares of Common Stock
at an exercise price of $0.10 per share subject to a four year vesting schedule
and in December 1997 he was granted an option to purchase 10,000 shares of
Common Stock at an exercise price of $2.00 per share subject to a four year
vesting schedule. In December 1997, Mr. Janney and Dr. Freund each purchased
20,000 shares of restricted Common Stock subject to four year vesting schedules.
See "Stock Plans."
EXECUTIVE COMPENSATION
The following table sets forth certain compensation awarded by the Company
during the fiscal year ended December 31, 1997 to its President, Chief Executive
Officer and Chairman of the Board of Directors and the Company's other four most
highly compensated executive officers, each of whose aggregate compensation
during the Company's last fiscal year exceeded $100,000 (collectively, the
"Named Executive Officers"):
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS
-------------
ANNUAL
COMPENSATION(1) SECURITIES
--------------------- UNDERLYING
NAME AND PRINCIPAL POSITION SALARY($) BONUS($) OPTIONS(#)
- ---------------------------------------------------------------------------- ---------- --------- -------------
<S> <C> <C> <C>
Lev J. Leytes(2) ........................................................... $ 250,000 $ 75,000 12,304
President, Chief Executive Officer and
Chairman of the Board of Directors
Galina Leytes(2) ........................................................... $ 140,000 $ 0 4,823
Executive Vice President and Director
Anthony H. Bautista ........................................................ $ 105,934 $ 50,263 23,760
Vice President of
Manufacturing Operations
Robert T. Beggs ............................................................ $ 108,963 $ 44,411 26,439
Vice President of
Finance and Administration
William G. Burton, Ph.D. ................................................... $ 137,437 $ 36,721 26,891
Chief Technology Officer
</TABLE>
- ------------------------
(1) In accordance with the Securities and Exchange Commission (the "SEC") rules,
other annual compensation in the form of perquisites and other personal
benefits has been omitted where the aggregate amount of such perquisites and
other personal benefits constitutes less than the lesser of $50,000 or 10%
of the total annual salary and bonus for the Named Executive Officer for the
fiscal year.
(2) Prior to June 1997, the Company had been taxed as an S corporation for
federal and state income tax purposes. Under the Internal Revenue Code
regulations regarding S corporations, the Company had not been subject to
federal income taxes but had been subject to state income taxes at a reduced
rate. As an S corporation, the Company's stockholders paid taxes on their
share of the Company's taxable income on their individual tax returns. In
June 1997, in connection with the Company's preferred
40
<PAGE>
stock financing, the Company became subject to the provisions of subchapter
C of the Internal Revenue Code pursuant to which the Company's earnings are
taxed for federal and state income tax purposes at the corporate level.
Amounts exclude S corporation dividends in the aggregate amount of
$1,075,000 distributed to Lev J. Leytes and Galina Leytes for the period
from January 1 through June 5, 1997 during which the Company operated as a
subchapter S corporation for federal and state income tax purposes. See
"Dividend Policy."
OPTION GRANTS IN LAST FISCAL YEAR
The following table provides certain information regarding stock options
granted to the Named Executive Officers during the fiscal year ended December
31, 1997:
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS POTENTIAL REALIZABLE
------------------------------------------------------------ VALUE AT ASSUMED
NUMBER OF ANNUAL RATES OF STOCK
SECURITIES PERCENTAGE OF TOTAL PRICE APPRECIATION FOR
UNDERLYING OPTIONS GRANTED TO EXERCISE OR OPTION TERM(5)
OPTIONS EMPLOYEES IN FISCAL BASE PRICE EXPIRATION ----------------------
NAME GRANTED(#) YEAR(%)(3) ($/SH)(4) DATE 5%($) 10%($)
- --------------------------------- ----------- ------------------- ------------- ----------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Lev J. Leytes.................... 12,304(1) 2.6% $ 2.20 12/16/07 $ 213,434 $ 355,892
Galina Leytes.................... 4,823(1) 1.0 2.20 12/16/07 83,663 139,505
Anthony H. Bautista.............. 10,000(2) 2.1 1.00 8/27/07 185,467 301,249
7,500(2) 1.6 2.00 12/16/07 131,601 218,437
6,260(1) 1.3 2.00 12/16/07 109,843 182,322
Robert T. Beggs.................. 15,000(2) 3.1 1.00 8/27/07 278,201 451,874
5,000(2) 1.0 1.00 3/14/07 92,734 150,625
6,439(1) 1.3 2.00 12/16/07 112,983 187,535
William G. Burton, Ph.D.......... 20,000(2) 4.2 1.00 6/17/07 370,935 602,498
6,891(1) 1.4 2.00 12/16/07 120,915 200,700
</TABLE>
- ------------------------
(1) All of such options granted vest in full on the vesting commencement date.
Such options expire 10 years from the date of grant, or earlier upon
termination of employment. See "Stock Plans - 1997 Stock Plan."
(2) Twenty percent (20%) of such options granted vest one year from the vesting
commencement date, and 1/20th of the total shares vest on each quarterly
anniversary of the vesting commencement date thereafter. Such options expire
10 years from the date of grant, or earlier upon termination of employment.
See "Stock Plans--1994 Equity Incentive Plan" and "Stock Plans--1997 Stock
Plan".
(3) Based on an aggregate of 480,000 options granted to employees, consultants
and directors during the fiscal year ended December 31, 1997.
(4) The exercise price per share of each option except the options granted to
Lev J. Leytes and Galina Leytes was equal to the estimated fair value of the
Common Stock on the date of grant as determined by the Board of Directors.
The exercise price per share of the options granted to Lev J. Leytes and
Galina Leytes was equal to 110% of the estimated fair value of the Common
Stock on the date of grant as determined by the Board of Directors.
(5) The 5% and 10% assumed annual rates of compounded stock price appreciation
are mandated by the rules of the SEC. There can be no assurance that the
actual stock price appreciation over the ten-year option term will be at the
assumed 5% and 10% levels or at any other defined level. Unless the market
price of the Common Stock appreciates over the option term, no value will be
realized from the option grants made to the Named Executive Officers. The
potential realizable value is calculated by assuming that the initial public
offering price of $12.00 per share appreciates at the indicated rate for the
entire term of the option and that the option is exercised at the exercise
price and sold on the last day at the appreciated price.
41
<PAGE>
AGGREGATE OPTION EXERCISES IN FISCAL 1997 AND YEAR-END OPTION HOLDINGS AND
VALUES
The following table sets forth for each of the Named Executive Officers the
shares acquired and the value realized on exercise of stock options during the
fiscal year ended December 31, 1997 and the number and value of securities
underlying unexercised options held by each of the Named Executive Officers as
of December 31, 1997:
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT IN-THE-MONEY OPTIONS AT
SHARES DECEMBER 31, 1997 DECEMBER 31, 1997
ACQUIRED ON VALUE ------------------------- ----------------------------
NAME EXERCISE(#) REALIZED($)(1) EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE(1)
- --------------------------------- ----------- ------------- ------------------------- ----------------------------
<S> <C> <C> <C> <C>
Lev J. Leytes.................... -- -- 12,304/0 $120,579/0
Galina Leytes.................... -- -- 4,823/0 47,265/0
Anthony H. Bautista.............. 25,000 $297,500 6,260/32,500 62,600/363,500
Robert T. Beggs.................. 10,000 119,000 17,939/38,500 201,240/440,150
William G. Burton, Ph.D.......... -- -- 14,891/52,000 164,110/600,800
</TABLE>
- ------------------------
(1) Value realized and value of unexercised in-the-money options are based on a
value of $12.00 per share of the Company's Common Stock, the assumed
offering price. Amounts reflected are based on the assumed value minus the
exercise price multiplied by the number of shares acquired on exercise and
do not indicate that the optionee sold such stock.
EMPLOYMENT AGREEMENTS
In December 1995, the Company entered into an agreement with Mr. Leytes
providing that, in the case of involuntary termination other than for cause,
salary and benefits will continue to be paid for a period of one year from the
date of termination, all stock options and restricted stock then held by Mr.
Leytes will immediately vest, and a bonus equal to the greater of the actual
bonus owing to Mr. Leytes in the year of termination or 100% of the base salary
Mr. Leytes received for the preceding twelve calendar months will be paid.
STOCK PLANS
1994 EQUITY INCENTIVE PLAN. The Company's 1994 Equity Incentive Plan (the
"1994 Plan") was adopted by the Board of Directors and approved by the
stockholders in January 1994. A total of 479,250 shares of Common Stock have
been reserved for issuance under the 1994 Plan. As of December 31, 1997, 38,250
options to purchase any shares of Common Stock had been exercised, options to
purchase a total of 441,000 shares at a weighted average exercise price of $0.20
per share were outstanding and no shares remained available for future option
grants under the 1994 Plan.
The purposes of the 1994 Plan are to provide a means by which employees of
and consultants to the Company may be given an opportunity to benefit from
increases in value of the stock of the Company, to retain the services of
persons who are currently employees or directors of or consultants to the
Company, to secure and retain the services of new employees, directors and
consultants, and to provide incentives for such persons to exert maximum efforts
for the success of the Company. The 1994 Plan provides for the granting to
employees, including officers and employee directors, of incentive stock options
within the meaning of Section 422 of the Code and for the granting to employees
and consultants of nonstatutory stock options. The 1994 Plan also provides for
the granting to employees and consultants of stock bonuses, rights to purchase
restricted stock, and stock appreciation rights (collectively with the incentive
stock options and nonstatutory stock options, the "Stock Awards"). To the extent
an optionee would have the right in any calendar year to exercise for the first
time one or more incentive stock options for shares having an aggregate fair
market value (under all plans of the Company and determined for each share as of
the date the option to purchase the shares was granted) in excess of $100,000,
any such excess options shall be treated as nonstatutory stock options. If not
terminated earlier, the 1994 Plan will terminate in January 2004.
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<PAGE>
The 1994 Plan may be administered by the Board of Directors or a committee
consisting of at least two disinterested directors (the "1994 Administrator").
The 1994 Administrator has the power to determine which of the persons eligible
under the 1994 Plan shall be granted Stock Awards; when and how Stock Awards
shall be granted; whether a Stock Award will be an incentive stock option, a
nonstatutory stock option, a stock bonus, a right to purchase restricted stock,
a stock appreciation right, or a combination of the foregoing; the provisions of
each Stock Award granted (which need not be identical), including the time or
times when a person shall be permitted to receive stock pursuant to a Stock
Award; and the number of shares with respect to which Stock Awards shall be
granted to each such person. Options granted under the 1994 Plan are not
generally transferable by the optionee. Options granted under the 1994 Plan may
be exercised within thirty days after termination of employment or consulting
status, provided however that options may be exercised within 18 months after an
optionee's termination by death or 12 months after an optionee's termination due
to optionee's disability, and in any event no later than the expiration of the
option's 10 year term. The exercise price of incentive stock options must be at
least equal to the fair market value of the Common Stock on the date of grant,
and the exercise price of nonstatutory stock options must be at least equal to
50% of the fair market value of the Common Stock on the date of grant. Under the
Company's standard form of option agreement, the options vest over five years,
with 20% vesting on each annual anniversary of the vesting commencement date.
The 1994 Administrator has the power to accelerate the time at which a Stock
Award may first be exercised or the time during which a Stock Award or any part
thereof will vest, notwithstanding the provisions in the Stock Award. In the
event of a dissolution, sale of substantially all of the Company's assets,
merger, reverse merger, or consolidation of the Company with or into another
corporation, the Board may have the surviving corporation assume the Stock
Awards granted under the 1994 Plan, or substitute similar Stock Awards, continue
the Stock Award in full force and effect or accelerate vesting thereof.
1997 STOCK PLAN. The Company's 1997 Stock Plan (the "1997 Plan") was
adopted by the Board of Directors in March 1997 and approved by the stockholders
in May 1997. An increase of 1,250,000 shares in the number of shares reserved
for issuance under the 1997 Plan, to a total of 2,070,750 shares of Common Stock
issuable thereunder, was authorized by the Board of Directors in December 1997
and will be submitted for approval by the stockholders prior to completion of
this offering. As of December 31, 1997, 45,000 shares of Common Stock had been
issued pursuant to stock purchase rights, no options to purchase any shares of
Common Stock had been exercised, options to purchase a total of 389,000 shares
at a weighted average exercise price of $1.28 per share were outstanding and
1,636,750 shares remained available for future option grants under the 1997
Plan.
The purposes of the 1997 Plan are to attract and retain the best available
personnel to the Company, to provide additional incentives to the Company's
employees and consultants and to promote the success of the Company's business.
The 1997 Plan provides for the granting to employees, including officers and
employee directors, of incentive stock options within the meaning of Section 422
of the Code and for the granting to employees and consultants, including
nonemployee directors, of nonstatutory stock options. Stock purchase rights may
also be granted under the 1997 Plan. To the extent an optionee would have the
right in any calendar year to exercise for the first time one or more incentive
stock options for shares having an aggregate fair market value (under all plans
of the Company and determined for each share as of the date the option to
purchase the shares was granted) in excess of $100,000, any such excess options
shall be treated as nonstatutory stock options. If not terminated earlier, the
1997 Plan will terminate in March 2007.
The 1997 Plan may be administered by the Board of Directors or a committee
appointed by the Board which shall be constituted in such a manner as to comply
with applicable law (the "1997 Administrator"). The 1997 Administrator has the
power to select the consultants and employees to whom options and stock purchase
rights may be granted, to determine the terms of the options granted including
the exercise price, the number of shares subject to the option and the
exercisability thereof, and the form of consideration payable upon exercise.
Options granted under the 1997 Plan are not generally transferable by the
optionee. The maximum number of shares which may be subject to options granted
to any employee for any fiscal year of the Company shall be 2,000,000. Such
limitation shall not take effect until the earliest date required
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<PAGE>
under Section 162(m) of the Code. Options granted under the 1997 Plan must be
exercised within 3 months or such other period of time not less than thirty days
as determined by the 1997 Administrator after termination of employment or
consulting status, provided however that options must be exercised within 6
months after an optionee's termination by death and within 12 months after an
optionee's termination by disability, and in any event no later than the
expiration of the option's 10 year term. The exercise price of incentive stock
options must be at least equal to the fair market value of the Common Stock on
the date of grant, and the exercise price of nonstatutory stock options shall be
determined by the 1997 Administrator on the date of grant; provided, however,
that the exercise price of any stock option granted to the Company's Chief
Executive Officer and the four other most highly compensated officers of the
Company must equal at least 110% in the case of an incentive stock option or
100% in the case of a nonstatutory stock option of the fair market value of the
Common Stock on the date of grant. Under the Company's standard form of option
agreement, the options vest over five years, with 20% vesting on the 12 month
anniversary of the vesting commencement date and with 1/20th vesting quarterly
thereafter. In the event of a dissolution or liquidation, to the extent it has
not been previously exercised, the option or stock purchase right will terminate
immediately prior to the consummation of such proposed action. In the event of a
proposed sale of all or substantially all of the Company's assets, merger of the
Company with or into another corporation, each outstanding option or stock
purchase right shall be assumed or an equivalent option or right substituted by
the successor corporation, unless the successor corporation does not agree to
assume the option or stock purchase right or to substitute an equivalent option
or right, in which case such option or stock purchase right shall terminate upon
consummation of such proposed action.
1998 EMPLOYEE STOCK PURCHASE PLAN. The Company's 1998 Employee Stock
Purchase Plan (the "Purchase Plan") was adopted by the Board of Directors in
December 1997 and will be submitted to the stockholders for approval prior to
the completion of this offering. A total of 300,000 shares of Common Stock has
been reserved for issuance under the Purchase Plan.
The Purchase Plan, which is intended to qualify under Section 423 of the
Code, will be implemented by an offering period commencing on the effective date
of this offering and ending on January 31, 2000. Each subsequent offering period
will have a duration of twenty-four months. Each offering period after the first
offering period will commence on February 1 and August 1 of each year. Each
offering period will consist of four consecutive purchase periods of six months
duration, with the last day of each period being designated a purchase date. The
first purchase date will occur on July 31, 1998, with subsequent purchase dates
to occur every six months thereafter. The Purchase Plan may be administered by
the Board of Directors or a committee thereof. Employees (including officers and
employee directors) of the Company, or of any majority-owned subsidiary
designated by the Board, are eligible to participate in the Purchase Plan if
they are employed by the Company or any such subsidiary for at least 20 hours
per week and more than five months per year. The Purchase Plan permits eligible
employees to purchase Common Stock through payroll deductions, which may not
exceed 20% of an employee's compensation, at a price equal to the lower of 85%
of the fair market value of the Company's Common Stock at the beginning of the
offering period or the purchase date. If the fair market value of the Common
Stock on a purchase date is less than the fair market value at the beginning of
the offering period, a new twenty-four month offering period will automatically
begin on the first business day following the purchase date with a new fair
market value. Employees may end their participation in the offering at any time
during the offering period, and participation ends automatically on termination
of employment with the Company. If not terminated earlier, the Purchase Plan
will have a term of 20 years.
The Purchase Plan provides that in the event of a merger of the Company with
or into another corporation or a sale of all or substantially all of the
Company's assets, each right to purchase stock under the Purchase Plan will be
assumed or an equivalent right substituted by the successor corporation unless
the Board of Directors shortens the offering period so that employees' rights to
purchase stock under the Purchase Plan are exercised prior to the merger or sale
of assets. The Board of Directors has the power to amend or terminate the
Purchase Plan as long as such action does not adversely affect any outstanding
rights to purchase stock thereunder.
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<PAGE>
1998 DIRECTORS' STOCK OPTION PLAN. The 1998 Directors' Stock Option Plan
(the "Directors' Plan") was adopted by the Board of Directors in December 1997
and will be submitted for approval by the stockholders prior to completion of
this offering. A total of 150,000 shares of Common Stock has been reserved for
issuance under the Directors' Plan. The Directors' Plan provides for the
automatic grant of nonstatutory stock options to nonemployee directors of the
Company. The Directors' Plan is designed to work automatically without
administration; however, to the extent administration is necessary, it will be
performed by the Board of Directors.
The Directors' Plan provides that each person who first becomes a
nonemployee director of the Company after the date of this offering shall be
granted a nonstatutory stock option to purchase 20,000 shares of Common Stock
(the "First Option") on the date on which the optionee first becomes a
nonemployee director of the Company. The First Option will not be granted to
individuals serving as nonemployee directors as of the date of this offering.
Thereafter, on the date of each annual meeting of the Company's stockholders,
each nonemployee director (including nonemployee directors who were not granted
a First Option prior to the date of such annual meeting) shall be granted an
option to purchase 5,000 shares of Common Stock (a "Subsequent Option") if, on
such date, he or she has served on the Company's Board of Directors for at least
six months.
The Directors' Plan sets neither a maximum nor a minimum number of shares
for which options may be granted to any one nonemployee director, but does
specify the number of shares that may be included in any one grant and the
method of making a grant. No option granted under the Directors' Plan is
transferable by the optionee other than by will or the laws of descent or
distribution or pursuant to the terms of a qualified domestic relations order,
and each option is exercisable, during the lifetime of the optionee, only by
such optionee. The Directors' Plan provides that the First Option shall become
exercisable in installments as to 25% of the total number of shares subject to
the First Option on each of the first, second, third and fourth anniversaries of
the date of grant of the First Option; each Subsequent Option shall become
exercisable in full on the fourth anniversary of the date of grant of that
Subsequent Option. The exercise price of all stock options granted under the
Directors' Plan shall be equal to the fair market value of a share of the
Company's Common Stock on the date of grant of the option. Options granted under
the Directors' Plan have a term of ten years.
In the event of the dissolution or liquidation of the Company, a sale of all
or substantially all of the assets of the Company, the merger of the Company
with or into another corporation in which the Company is not the surviving
corporation or any other capital reorganization in which more than 50% of the
shares of the Company entitled to vote are exchanged, the Company shall give to
each nonemployee director either (i) a reasonable time within which to exercise
the option, including any part of the option that would not otherwise be
exercisable, prior to the effectiveness of any such transaction at the end of
which time the Option shall terminate, or (ii) the right to exercise the option,
including any part of the option that would not otherwise be exercisable (or
receive a substitute option with comparable terms) as to an equivalent number of
shares of stock of the corporation succeeding the Company or acquiring its
business by reason of any such transaction. The Board of Directors may amend or
terminate the Directors' Plan; provided, however, that no such action may
adversely affect any outstanding option. If not terminated earlier, the
Directors' Plan will have a term of ten years.
401(K) PLAN
Effective January 1, 1992, the Company adopted a tax deferred savings plan
called the LJL
BioSystems, Inc. 401(k) Profit Sharing Plan (the "401(k) Plan"), which covers
all employees who have been employed by the Company for at least one year. An
employee may contribute up to 15% of his or her compensation to the 401(k) Plan
on a pre-tax basis, not to exceed in any given year the maximum amount allowable
under IRS regulations. The Company will contribute the total amount of salary
elected to be deferred by each employee and may contribute a discretionary
matching contribution equal to a specified percentage of the participant's
compensation. The rates of pre-tax contributions may be reduced with respect to
highly compensated employees, as defined in the Internal Revenue Code, so that
the 401(k) Plan will comply with Section 401(k) of the Internal Revenue Code.
Pre-tax contributions are allocated to
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<PAGE>
each employee's individual account, which is invested in selected investment
alternatives according to the directions of the employee. An employee's pre-tax
contributions vest over five years and are nonforfeitable at all times.
Withdrawals are permitted from an employee's account while the employee is still
employed by the Company in the event of a financial hardship or when the
employee reaches age 59 1/2. Employees may also borrow from the accounts. All
benefits are generally distributed to employees upon termination of employment.
LIMITATION OF LIABILITY AND INDEMNIFICATION MATTERS
As permitted by the Delaware General Corporation Law (the "Delaware Law"),
the Company has included in its Restated Certificate a provision to eliminate
the personal liability of its directors for monetary damages for breach of their
fiduciary duties as directors to the fullest extent permitted by Delaware law.
In addition, the Company's Bylaws provide that the Company is required to
indemnify its officers and directors under certain circumstances to the fullest
extent permitted by Delaware law, and the Company is required to advance
expenses to its officers and directors as incurred in connection with
proceedings against them for which they may be indemnified. The Company has
entered into indemnification agreements with each of its officers and directors
containing provisions that are in some respects broader than the specific
indemnification provisions contained in the Delaware Law. The indemnification
agreements require the Company, among other things, to indemnify such officers
and directors against certain liabilities that may arise by reason of their
status or service as officers and directors and to advance their expenses
incurred as a result of any proceeding against them as to which they could be
indemnified. The Company intends to obtain directors' and officers' liability
insurance with respect to liabilities arising out of certain matters, including
matters under the Securities Act.
At present, the Company is not aware of any pending or threatened litigation
or proceeding involving a director, officer, employee or agent of the Company in
which indemnification would be required or permitted. The Company is not aware
of any threatened litigation or proceeding that might result in a claim for such
indemnification. The Company believes that its charter provisions and
indemnification agreements are necessary to attract and retain qualified persons
as directors and officers.
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<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In June 1997, shares of the Company's Preferred Stock, convertible into an
aggregate of 3,621,503 shares of Common Stock, were sold at an as-converted
price of $2.60 per share to investors that included, among others: entities
affiliated with Chancellor LGT Asset Management, Inc. (which consists of 878,462
shares sold to Citiventure 96 Partnership, L.P., 431,923 shares sold to
Chancellor LGT Private Capital Offshore Partners II, L.P. and 228,077 shares
sold to Chancellor Private Capital Partners III, L.P.), entities affiliated with
Alta Partners (which consists of 953,223 shares sold to Alta California
Partners, L.P. and 21,778 shares sold to Alta Embarcadero Partners, LLC),
entities affiliated with Hambrecht & Quist Capital Management, Inc. (which
consists of 461,539 shares sold to H&Q Healthcare Investors and 307,693 shares
sold to H&Q Life Sciences Investors) and 40,000 shares sold to a living trust
and a charitable remainder trust formed by Michael F. Bigham. In addition, the
Company issued warrants to purchase 65,653 shares of Preferred Stock to
NationsBanc Montgomery Securities LLC. The Company expects these warrants will
be exercised immediately prior to the completion of this offering.
In December 1995, the Company entered into an employment agreement with Mr.
Leytes providing that, in the case of involuntary termination other than for
cause, salary and benefits will continue to be paid for a period of one year
from the date of termination, all stock options and restricted stock then held
by Mr. Leytes will immediately vest, and a bonus equal to the greater of the
actual bonus owing to Mr. Leytes in the year of termination or 100% of the base
salary Mr. Leytes received for the preceding twelve calendar months will be
paid.
The Company has entered into indemnification agreements with each of its
officers and directors containing provisions which may require the Company,
among other things, to indemnify its officers and directors against certain
liabilities that may arise by reason of their status or service as officers or
directors and to advance their expenses incurred as a result of any proceeding
against them as to which they could be indemnified. The Company also intends to
execute such agreements with its future directors and executive officers. See
"Management-- Limitation of Liability and Indemnification Matters."
The Company believes that all of the transactions set forth above were in
its best interests. As a matter of policy, the transactions were, and all future
transactions between the Company and its officers, directors, principal
stockholders and affiliates will be, approved by a majority of the Board of
Directors, including a majority of the independent and disinterested directors
on the Board of Directors, and will be on terms no less favorable to the Company
than could be obtained from unaffiliated third parties.
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PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of the Company's Common Stock as of December 31, 1997 and as adjusted
to reflect the sale of the Common Stock offered by the Company pursuant to this
Prospectus and conversion of all outstanding shares of Preferred Stock into
shares of Common Stock by (i) each stockholder who is known by the Company to
own beneficially more than 5% of the Common Stock, (ii) each Named Executive
Officer of the Company, (iii) each director of the Company, and (iv) all
directors and executive officers of the Company as a group.
<TABLE>
<CAPTION>
PERCENTAGE OF SHARES
BENEFICIALLY OWNED(1)(2)
SHARES ------------------------
BENEFICIALLY PRIOR TO AFTER
BENEFICIAL OWNER OWNED OFFERING OFFERING
- ---------------------------------------------------------------------------------- ----------- ----------- -----------
<S> <C> <C> <C>
Entities affiliated with Chancellor LGT Asset Management, Inc.(3)................. 1,538,462 18.7% 14.4%
1166 Avenue of the Americas
New York, NY 10036
Entities affiliated with Alta Partners(4)......................................... 975,001 11.9% 9.1%
One Embarcadero Center
Suite 4050
San Francisco, CA 94111
Entities affiliated with Hambrecht & Quist Capital Management, Inc.(5)............ 769,232 9.4% 7.2%
50 Rowes Wharf
Boston, MA 02110
Lev J. Leytes(6).................................................................. 4,552,804 55.4% 42.5%
Galina Leytes(7).................................................................. 4,545,323 55.4% 42.4%
Anthony H. Bautista(8)............................................................ 32,760 * *
Robert T. Beggs(9)................................................................ 29,439 * *
William G. Burton, Ph.D.(10)...................................................... 14,891 * *
George W. Dunbar, Jr.(11)......................................................... 10,000 * *
Metra Biosystems, Inc.
265 North Whisman Road
Mountain View, CA 94043
Michael F. Bigham(12)............................................................. 50,000 * *
750 Forest Avenue
Palo Alto, CA 94301
John G. Freund, M.D............................................................... 20,000 * *
Daniel S. Janney(13).............................................................. 995,001 12.1% 9.3%
Alta Partners
One Embarcadero Center
Suite 4050
San Francisco, CA 94111
All directors and executive officers as a group (10 persons)(14).................. 5,729,449 69.0% 53.1%
</TABLE>
- ------------------------
* Represents beneficial ownership of less than 1% of the Company's Common
Stock.
(1) Assumes no exercise of the Underwriters' over-allotment option and no
exercise of outstanding warrants. Except pursuant to applicable community
property laws or as indicated in the footnotes to this table, to the
Company's knowledge, each stockholder identified in the table possesses
sole voting and investment power with respect to all shares of Common Stock
shown as beneficially owned by such stockholder.
(2) Applicable percentage of ownership for each stockholder is based on
8,205,253 shares of Common Stock outstanding as of December 31, 1997 and
assumes 10,705,253 shares of Common Stock
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<PAGE>
outstanding after completion of this offering, together with applicable
options for such stockholders. Beneficial ownership is determined in
accordance with the rules of the SEC. The number of shares beneficially
owned by a person includes shares of Common Stock subject to options held
by that person that are currently exercisable or exercisable within 60 days
of December 31, 1997. Such shares issuable pursuant to such options are
deemed outstanding for computing the percentage ownership of the person
holding such options but are not deemed outstanding for the purposes of
computing the percentage ownership of each other person. Unless otherwise
indicated, the address of each of the individuals named above is: c/o LJL
BioSystems, Inc., 404 Tasman Drive, Sunnyvale, CA 94089.
(3) Consists of 878,462 shares held by Citiventure 96 Partnership, L.P.,
431,923 shares held by Chancellor LGT Private Capital Offshore Partners II,
L.P. and 228,077 shares held by Chancellor Private Capital Partners III,
L.P.
(4) Consists of 953,223 shares held by Alta California Partners, L.P. and
21,778 shares held by Alta Embarcadero Partners, LLC. Daniel S. Janney, a
director of the Company, is a general partner of the general partner of
Alta California Partners, L.P. and is a general partner of Alta Embarcadero
Partners, LLC, shares voting and dispositive power with respect to the
shares held by each such entity, and disclaims beneficial ownership of such
shares in which he has no pecuniary interest.
(5) Consists of 461,539 shares held by H&Q Healthcare Investors and 307,693
shares held by H&Q Life Sciences Investors.
(6) Consists of 3,880,500 shares jointly held by Lev J. Leytes and Galina
Leytes, 600,000 shares held by Yalta Investments, L.P., 30,000 shares held
by the Dina L. Leytes Irrevocable Trust and 30,000 shares held by the Mary
E. Leytes Irrevocable Trust and 12,304 shares issuable upon exercise of
options exercisable within 60 days of December 31, 1997. Mr. Leytes
disclaims beneficial ownership of the shares held in each trust except to
the extent of his pecuniary interest therein.
(7) Consists of 3,880,500 shares jointly held by Lev J. Leytes and Galina
Leytes, 600,000 shares held by Yalta Investments, L.P., 30,000 shares held
by the Dina L. Leytes Irrevocable Trust and 30,000 shares held by the Mary
E. Leytes Irrevocable Trust and 4,823 shares issuable upon exercise of
options exercisable within 60 days of December 31, 1997. Ms. Leytes
disclaims beneficial ownership of the shares held in each trust except to
the extent of her pecuniary interest therein.
(8) Includes 7,760 shares issuable upon exercise of options exercisable within
60 days of December 31, 1997.
(9) Includes 19,439 shares issuable upon exercise of options exercisable within
60 days of December 31, 1997.
(10) Consists of 14,891 shares issuable upon exercise of options exercisable
within 60 days of December 31, 1997.
(11) Consists of 10,000 shares issuable upon exercise of options exercisable
within 60 days of December 31, 1997.
(12) Includes 25,000 shares held by a charitable trust formed by Michael F.
Bigham, 15,000 shares held by an irrevocable trust formed by Mr. Bigham,
and 5,000 shares issuable upon exercise of options exercisable within 60
days of December 31, 1997. Mr. Bigham disclaims beneficial ownership of
the shares held in each trust except to the extent of his pecuniary
interest therein.
(13) Includes 953,223 shares held by Alta California Partners, L.P. and 21,778
shares held by Alta Embarcadero Partners, LLC. Daniel S. Janney, a
director of the Company, is a general partner of the general partner of
Alta California Partners, L.P. and is a general partner of Alta
Embarcadero Partners, LLC, shares voting and dispositive power with
respect to the shares held by each such entity, and disclaims beneficial
ownership of such shares in which he has no pecuniary interest.
(14) Includes 975,001 shares held by entities affiliated with certain directors
of the Company as described in Note 4 and 93,948 shares subject to options
exercisable within 60 days of December 31, 1997.
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<PAGE>
DESCRIPTION OF CAPITAL STOCK
Upon the completion of this offering, the authorized capital stock of the
Company will consist of 50,000,000 shares of Common Stock, $0.001 par value, and
2,000,000 shares of undesignated Preferred Stock, $0.001 par value.
COMMON STOCK
As of December 31, 1997, there were 8,205,253 shares of Common Stock
outstanding (pro forma reflecting the conversion of all outstanding shares of
Preferred Stock into Common Stock upon the completion of this offering), held of
record by 27 stockholders, and options to purchase an aggregate of 830,000
shares of Common Stock were also outstanding. There will be 10,705,253 shares of
Common Stock outstanding (assuming no exercise of the Underwriters'
overallotment option, no exercise of outstanding warrants, and no exercise of
outstanding options under the Stock Plans after December 31, 1997) after giving
effect to the sale of the shares of Common Stock to the public offered hereby.
The holders of Common Stock are entitled to one vote for each share held of
record on all matters submitted to a vote of the stockholders. Subject to
preferential rights with respect to any outstanding Preferred Stock, holders of
Common Stock are entitled to receive ratably such dividends as may be declared
by the Board of Directors out of funds legally available therefor. See "Dividend
Policy." In the event of liquidation, dissolution or winding up of the Company,
the holders of Common Stock are entitled to share ratably in all assets
remaining after payment of liabilities and satisfaction of preferential rights
of any outstanding Preferred Stock. The Common Stock has no preemptive or
conversion rights or other subscription rights. The outstanding shares of Common
Stock are, and the shares of Common Stock to be issued upon completion of this
offering will be, fully paid and non-assessable.
PREFERRED STOCK
In June 1997, the Company completed a private placement of 3,621,503 shares
of its Preferred Stock for $2.60 per share. Each share of Preferred Stock is
currently convertible at the option of the holder into one share of Common Stock
of the Company. Each share of Preferred Stock shall be automatically converted
into one share of Common Stock upon either the Company's sale of Common Stock in
a firm commitment underwritten public offering with a public offering price of
not less than $3.00 per share and gross cash proceeds to the Company of at least
$15 million or upon the consent of the holders of 75% of the outstanding shares
of Preferred Stock. Upon the closing of this offering, each outstanding share of
Preferred Stock will be converted into one share of Common Stock and
automatically retired. Thereafter, the Board of Directors is authorized to issue
up to 2,000,000 shares of Preferred Stock in one or more series and to fix the
rights, preferences, privileges and restrictions thereof, including dividend
rights, dividend rates, conversion rights, voting rights, terms of redemption,
redemption prices, liquidation preferences and the number of shares constituting
any series or the designation of such series, without further vote or action by
the stockholders.
The issuance of Preferred Stock may have the effect of delaying, deferring
or preventing a change in control of the Company without further action by the
stockholders. The issuance of Preferred Stock with voting and conversion rights
may adversely affect the voting power of the holders of Common Stock. In certain
circumstances, such issuance could have the effect of decreasing the market
price of the Common Stock. As of the closing of the offering, no shares of
Preferred Stock will be outstanding and the Company currently has no plans to
issue any shares of Preferred Stock.
WARRANTS
As of December 31, 1997, the Company had outstanding exercisable warrants to
purchase 65,653 shares of Preferred Stock at $5.20 per share. The warrants
expire upon the closing of this offering. Each warrant contains provisions for
the adjustment of the exercise price and the aggregate number of shares issuable
upon the exercise of the warrant under certain circumstances, including stock
dividends, stock splits, certain reorganizations and reclassifications. Each
warrant may be exercised, without the payment of cash, for the number of shares
of Common Stock purchasable by the difference between the aggregate
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<PAGE>
exercise price of the warrant and the value at the current market price per
share of Common Stock of the aggregate number of shares purchasable under the
warrant. The Company anticipates that the warrants will be exercised immediately
prior to the closing of this offering.
REGISTRATION RIGHTS
Following this offering the holders of 8,122,003 shares of Common Stock (the
"Registrable Securities") or their transferees will be entitled to certain
rights with respect to the registration of such shares under the Securities Act.
These rights are provided under the terms of an agreement between the Company
and the holders of the Registrable Securities. Subject to certain limitations in
the agreement, the holders of at least 50% of the Registrable Securities may
require, on two occasions beginning after the earlier of June 6, 1999 or 12
months after the effective date of this offering, that the Company use its best
efforts to register the Registrable Securities for public resale. If the Company
registers any of its Common Stock either for its own account or for the account
of other security holders, the holders of Registrable Securities are entitled to
include their shares of Common Stock in such registration, subject to the
ability of the underwriters to limit the number of shares included in the
offering. The holders of Registrable Securities may also require the Company
(not more than two times in any twelve-month period or three times in the
aggregate) to register all or a portion of their Registrable Securities on Form
S-3 when use of such form becomes available to the Company, provided, among
other limitations, that the proposed aggregate selling price (net of any
underwriters' discounts or commissions) is at least $1,000,000. All registration
expenses must be borne by the Company and certain selling expenses relating to
the Registrable Securities must be borne by the Company.
DELAWARE LAW AND CERTAIN CHARTER PROVISIONS
The Company's Restated Certificate and Amended and Restated Bylaws provide,
among other things, that after the closing of this offering, any action required
or permitted to be taken by the stockholders of the Company may be taken only at
a duly called annual or special meeting of the stockholders and may not be
effected by a consent in writing. In addition, special meetings of the
stockholders of the Company may be called only by the Board of Directors, the
Chairman of the Board, the President of the Company or by any person or persons
holding shares representing at least 10% of the outstanding capital stock. The
Restated Certificate also provides for a classified Board and specifies that the
authorized number of directors may be changed only by resolution of the Board of
Directors. See "Management--Board Composition." These provisions may have the
effect of deterring hostile takeovers or delaying changes in control or
management of the Company. The Bylaws also establish procedures, including
advance notice procedures with regard to the nomination, other than by or at the
direction of the Board of Directors, of candidates for election as directors.
The Company is subject to the provisions of Section 203 of the Delaware Law,
an anti-takeover law. In general, the statute prohibits a publicly held Delaware
corporation from engaging in a "business combination" with an "interested
stockholder" for a period of three years after the date of the transaction in
which the person became an interested stockholder, unless the business
combination is approved in a prescribed manner. For purposes of Section 203, a
"business combination" includes a merger, asset sale or other transaction
resulting in a financial benefit to the interested stockholder, and an
"interested stockholder" is a person who, together with affiliates and
associates, owns (or within three years prior, did own) 15% or more of the
corporation's voting stock.
The foregoing provisions could have the effect of making it more difficult
for a third party to effect a change in the control of the Board of Directors.
In addition, these provisions could have the effect of making it more difficult
for a third party to acquire, or of discouraging a third party from attempting
to acquire, a majority of the outstanding voting stock of the Company.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Common Stock is U.S. Stock Transfer
Corporation, 1745 Gardena Avenue, Glendale, California 91204, (818) 502-1404.
51
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has not been any public market for the Common
Stock of the Company. Future sales of substantial amounts of Common Stock in the
public market may adversely affect the market price of the Common Stock offered
hereby. Furthermore, as described below, because only a limited number of shares
will be available for sale shortly after this offering because of certain
contractual and legal restrictions on resale, sales of substantial amounts of
Common Stock of the Company in the public market after the restrictions lapse
could adversely affect the prevailing market price and the ability of the
Company to raise equity capital in the future.
Upon completion of this offering, based on the number of shares outstanding
as of December 31, 1997, the Company will have outstanding an aggregate of
10,705,253 shares of Common Stock assuming (i) the issuance by the Company of
2,500,000 shares of Common Stock offered hereby, (ii) no exercise of outstanding
warrants to purchase 65,653 shares of Preferred Stock, that expire upon the
effective date of this offering, (iii) no exercise of vested options to purchase
314,598 shares of Common Stock, and (iv) no exercise of the Underwriters'
overallotment option to purchase 375,000 shares of Common Stock. Of these
shares, 2,500,000 shares sold in this offering will be freely tradable without
restriction or further registration under the Securities Act, except for shares
held by "affiliates" of the Company as that term is defined in Rule 144 under
the Securities Act and the regulations promulgated thereunder (whose sales would
be subject to certain limitations and restrictions described below).
The remaining 8,205,253 shares of Common Stock held by officers, directors,
employees and other stockholders of the Company are "restricted securities"
within the meaning of Rule 144 under the Securities Act ("Restricted Shares").
These restricted securities may be sold in the public market only if registered
or if they qualify for an exemption from registration under Rules 144 or 701
under the Securities Act, which are summarized below. Sales of these restricted
securities in the public market, or the availability of such shares for sale,
could adversely affect the market price of the Common Stock.
All of the stockholders of the Company have entered into agreements ("Lock
Up Agreements") generally providing that they will not offer, sell, contract to
sell or grant any option to purchase or otherwise dispose of the shares of
Common Stock of the Company or any securities exercisable for or convertible
into the Company's Common Stock owned by them for a period of 180 days after the
effective date of the registration statement filed pursuant to this offering
(the "Effective Date") without the prior written consent of NationsBanc
Montgomery Securities LLC. As a result of these contractual restrictions,
notwithstanding possible earlier eligibility for sale under the provisions of
Rules 144 or 701, shares subject to Lock-Up Agreements will not be salable until
such agreements expire or are waived by NationsBanc Montgomery Securities LLC.
Taking into account the Lock-Up Agreements, and assuming NationsBanc Montgomery
Securities LLC does not release stockholders from these agreements, the
following shares will be eligible for sale in the public market at the following
times: beginning on the Effective Date, only the shares sold in the Offering
will be immediately available for sale in the public market; beginning 180 days
after the Effective Date, approximately 8,122,003 additional shares will be
eligible for sale pursuant to Rule 144, of which all but 258,808 shares are held
by affiliates of the Company and 38,250 additional shares will be eligible for
sale pursuant to Rule 701, of which all but 3,250 shares are held by affiliates
of the Company. Such shares eligible to be sold pursuant to Rules 144 and 701
are subject to certain restrictions as described below.
In general, under Rule 144 as currently in effect, and beginning after the
expiration of the Lock-Up Agreements (180 days after the Effective Date of the
offering), a person (or persons whose shares are aggregated) who has
beneficially owned Restricted Shares for at least one year would be entitled to
sell within any three-month period a number of shares that does not exceed the
greater of: (i) one percent of the number of shares of Common Stock then
outstanding (which will equal approximately 107,053 shares immediately after the
offering); or (ii) the average weekly trading volume of the Common Stock during
the four calendar weeks preceding the date of sale. Sales under Rule 144 are
also subject to certain manner of sale provisions and notice requirements and to
the availability of current public information about the Company. Under Rule
144(k), a person who is not deemed to have been an affiliate of the Company at
any
52
<PAGE>
time during the three months preceding a sale, and who has beneficially owned
the shares proposed to be sold for at least two years, is entitled to sell such
shares without complying with the manner of sale, public information, volume
limitation or notice provisions of Rule 144.
Pursuant to the Lock-Up Agreements, all Company employees and consultants
holding Common Stock or stock options may not sell shares acquired upon exercise
until 180 days after the Effective Date. Beginning 180 days after the Effective
Date, any employee, officer or director of or consultant to the Company who
purchased his or her shares pursuant to a written compensatory plan or contract
may be entitled to rely on the resale provisions of Rule 701. Rule 701 permits
affiliates to sell their Rule 701 shares under Rule 144 without complying with
the holding period requirements of Rule 144. Rule 701 further provides that
non-affiliates may sell such shares in reliance on Rule 144 without having to
comply with the holding period, public information, volume limitation or notice
provisions of Rule 144. In addition, the Company intends to file registration
statements under the Securities Act as promptly as possible after the Effective
Date to register shares to be issued pursuant to the Company's 1994 Plan, 1997
Plan, Purchase Plan and Directors' Plan. As a result, any options exercised
under such plans after the effectiveness of such registration statements will
also be freely tradable in the public market, except that shares held by
affiliates will still be subject to the volume limitation, manner of sale,
notice and public information requirements of Rule 144. As of December 31, 1997,
there were outstanding options for the purchase of 830,000 shares, of which
options for 401,712 shares will be eligible for sale 180 days after the date of
this Prospectus upon expiration of the Lock-Up Agreements and in compliance with
certain limitations set forth in the Securities Act. See "Risk Factors--Shares
Eligible for Future Sale" and "Management--Stock Plans."
In addition, after this offering, the holders of approximately 8,122,003
shares will be entitled to certain rights with respect to registration of such
shares under the Securities Act. Registration of such shares under the
Securities Act would result in such shares becoming freely tradable without
restriction under the Securities Act (except for shares purchased by affiliates
of the Company) immediately upon the effectiveness of such registration. See
"Description of Capital Stock--Registration Rights."
53
<PAGE>
UNDERWRITING
The Underwriters named below, represented by NationsBanc Montgomery
Securities LLC, Hambrecht & Quist LLC and Volpe Brown Whelan & Company, LLC (the
"Representatives"), have severally agreed, subject to the terms and conditions
set forth in the Underwriting Agreement (the "Underwriting Agreement") by and
between the Company and the Underwriters, to purchase from the Company the
aggregate number of shares of Common Stock indicated below opposite their
respective names at the offering price less the underwriting discount set forth
on the cover page of this Prospectus. The Underwriting Agreement provides that
the obligations of the Underwriters to pay for and accept delivery of the shares
of Common Stock are subject to certain conditions precedent, and that the
Underwriters are committed to purchase all of such shares if they purchase any.
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITER SHARES
- --------------------------------------------------------------------------------- ----------
<S> <C>
NationsBanc Montgomery Securities LLC............................................
Hambrecht & Quist LLC............................................................
Volpe Brown Whelan & Company, LLC................................................
----------
Total........................................................................ 2,500,000
----------
----------
</TABLE>
The Representatives have advised the Company that the Underwriters propose
initially to offer the Common Stock to the public on the terms set forth on the
cover page of this Prospectus. The Underwriters may allow selected dealers a
concession of not more than $ per share, and the Underwriters may allow,
and such dealers may reallow, a concession of not more than $ per share
to certain other dealers. After the offering, the price and other selling terms
may be changed by the Representatives. The Common Stock is offered subject to
receipt and acceptance by the Underwriters, and to certain other conditions,
including the right to reject orders in whole or in part.
The Company has granted an option to the Underwriters, exercisable during
the 30-day period after the date of this Prospectus, to purchase up to a maximum
of 375,000 additional shares of Common Stock to cover over-allotments, if any,
at the same price per share as the initial 2,500,000 shares to be purchased by
the Underwriters. To the extent that the Underwriters exercise such option, each
of the Underwriters will be committed, subject to certain conditions, to
purchase such additional shares in approximately the same proportion as set
forth in the above table. The Underwriters may purchase such shares only to
cover over-allotments made in connection with the offering.
In June 1997, H&Q Healthcare Investors and H&Q Life Sciences Investors,
entities affiliated with Hambrecht & Quist LLC, purchased 769,232 shares of the
Company's Preferred Stock at a purchase price of $2.60 per share, for an
aggregate of $2,000,000. Such shares will convert into 769,232 shares of Common
Stock upon the closing of this offering. In June 1997, the Company granted
NationsBanc Montgomery Securities LLC warrants to purchase 65,653 shares of the
Company's Preferred Stock at an exercise price of $5.20 per share. See
"Description of Capital Stock."
The Representatives have advised the Company that the Underwriters do not
expect to confirm sales to any accounts over which they exercise discretionary
authority in excess of 5% of the number of the shares of Common Stock offered
hereby.
The Underwriting Agreement provides that the Company will indemnify the
several Underwriters against certain liabilities, including civil liabilities
under the Securities Act, or will contribute to payments the Underwriters may be
required to make in respect thereof.
54
<PAGE>
For a period of 180 days after the effectiveness of the Registration
Statement, without the prior written consent of NationsBanc Montgomery
Securities LLC, the Company and holders of 8,205,253 shares of Common Stock
including the Company's directors and executive officers have agreed not to
offer, sell or contract to sell, sell or grant any option to purchase, make any
short sale, pledge or otherwise transfer or dispose of, directly or indirectly,
any shares of Common Stock or securities exchangeable or exercisable for or
convertible into shares of, or any other rights to purchase or acquire Common
Stock of the Company other than transfers to the holders' immediate family or
into trusts for the benefit of the holder or members of the holder's immediate
family.
Prior to the offering, there has been no public market for the Common Stock
of the Company. Consequently, the offering price for the Common Stock will be
negotiated between the Company and the Representatives. Among the factors to be
considered in determining the offering price of the Common Stock will be
prevailing market and economic conditions, market valuations of other companies
engaged in activities similar to the Company, estimates of the business
potential and prospects of the Company, the present state of the Company's
business operations, the Company's management and other factors deemed relevant.
The Representatives, on behalf of the Underwriters, may engage in
over-allotment, stabilizing transactions, syndicate covering transactions and
penalty bids in accordance with Regulation M under the Exchange Act.
Over-allotment involves syndicate sales in excess of the offering size, which
creates a syndicate short position. Stabilizing transactions permit bids to
purchase the underlying security so long as the stabilizing bids do not exceed a
specified maximum. Syndicate covering transactions involve purchases of the
Common Stock in the open market after the distribution has been completed in
order to cover syndicate short positions. Penalty bids permit the
Representatives to reclaim a selling concession from a syndicate member when the
Common Stock originally sold by such syndicate member is purchased in a
syndicate covering transaction to cover syndicate short positions. Such
stabilizing transactions, syndicate covering transactions and penalty bids may
cause the price of the Common Stock to be higher than it would otherwise be in
the absence of such transactions. These transactions may be effected on the
Nasdaq National Market or otherwise and, if commenced, may be discontinued at
any time.
The offering is being conducted in accordance with Rule 2720 ("Rule 2720")
of the National Association of Securities Dealers, Inc. (the "NASD") which
provides that, among other things, when an NASD member firm participates in the
offering of equity securities of a company with whom such member has a "conflict
of interest" (as defined in Rule 2720), the initial public offering price can be
no higher than that recommended by a "qualified independent underwriter" (as
defined in Rule 2720) (a "QIU"). Hambrecht & Quist LLC is deemed to have such a
conflict of interest with the Company due to the fact that certain entities
affiliated with Hambrecht & Quist LLC own shares of the Company's Preferred
Stock as described above. NationsBanc Montgomery Securities LLC is serving as
the QIU in the offering and will recommend a price in compliance with the
requirements of Rule 2720. NationsBanc Montgomery Securities LLC has performed
due diligence investigations and reviewed and participated in the preparation of
this Prospectus and the Registration Statement of which this Prospectus forms a
part. NationsBanc Montgomery Securities LLC, in its capacity as QIU, will
receive no additional compensation as such in connection with the offering.
LEGAL MATTERS
The validity of the Common Stock offered hereby will be passed upon for the
Company by Venture Law Group, A Professional Corporation ("Venture Law Group"),
Menlo Park, California. Certain legal matters in connection with this offering
will be passed upon for the Underwriters by Cooley Godward LLP ("Cooley
Godward"), Palo Alto, California. Certain legal matters with respect to
information contained in this Prospectus under the captions "Risk
Factors--Intellectual Property Risks" and "Business--Intellectual Property" will
be passed upon by Kolisch, Hartwell, Dickinson, McCormack & Heuser, patent
counsel to the Company. As of the date of this Prospectus, certain directors of
Venture Law Group and an investment partnership affiliated with Venture Law
Group own (i) options under the 1997 Stock Plan to purchase an aggregate of
20,000 shares of the Company's Common Stock, and (ii) 9,500 shares of the
55
<PAGE>
Company's Preferred Stock, which shares will convert into 9,500 shares of the
Company's Common Stock upon the completion of this offering. As of the date of
this Prospectus, GC&H Investments, an investment partnership affiliated with
Cooley Godward, owns 9,500 shares of the Company's Preferred Stock, which shares
will convert into 9,500 shares of the Company's Common Stock upon the completion
of this offering.
EXPERTS
The financial statements as of December 31, 1996 and 1997 and for each of
the three years in the period ended December 31, 1997 included in this
Prospectus have been so included in reliance on the report of Price Waterhouse
LLP, independent accountants, given on the authority of said firm as experts in
auditing and accounting.
56
<PAGE>
ADDITIONAL INFORMATION
The Company has filed with the SEC a Registration Statement (which term
shall include any amendments thereto) on Form S-1 under the Securities Act with
respect to the Common Stock offered hereby. This Prospectus, which constitutes a
part of the Registration Statement, does not contain all of the information set
forth in the Registration Statement, certain items of which are contained in
exhibits to the Registration Statement as permitted by the rules and regulations
of the SEC. For further information with respect to the Company and the Common
Stock offered hereby, reference is made to the Registration Statement, including
the exhibits thereto, and the financial statements and notes filed as a part
thereof. Statements made in this Prospectus concerning the contents of any
document referred to herein are not necessarily complete. With respect to each
such document filed with the Commission as an exhibit to the Registration
Statement, reference is made to the exhibit for a more complete description of
the matter involved. The Registration Statement, including exhibits thereto and
the financial statements and notes filed as a part thereof, as well as such
reports and other information filed with the Commission, may be inspected
without charge at the public reference facilities maintained by the Commission
at 450 Fifth Street, N.W., Washington, D.C. 20549, and at the regional offices
of the Commission located at Seven World Trade Center, 13th Floor, New York, NY
10048, and the Northwestern Atrium Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661. Copies of all or any part thereof may be obtained from
the Commission upon payment of certain fees prescribed by the Commission. Such
reports and other information may also be inspected without charge at a World
Wide Web site on the Internet maintained by the Commission (http://www.sec.gov)
that contains reports, proxy and information statements and other information
regarding registrants that file electronically with the SEC through the
Electronic Data Gathering, Analysis, and Retrieval System.
57
<PAGE>
LJL BIOSYSTEMS, INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Report of Independent Accountants.......................................................................... F-2
Balance Sheet.............................................................................................. F-3
Statement of Operations.................................................................................... F-4
Statement of Stockholders' Equity (Deficit)................................................................ F-5
Statement of Cash Flows.................................................................................... F-6
Notes to Financial Statements.............................................................................. F-7
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of
LJL BioSystems, Inc.
The reverse stock split described in Note 6 to the financial statements has not
been consummated at February 5, 1998. When it has been consummated, we will be
in a position to furnish the following report:
"In our opinion, the accompanying balance sheet and the related
statements of operations, of stockholders' equity (deficit) and of cash
flows present fairly, in all material respects, the financial position
of LJL BioSystems, Inc. at December 31, 1996 and 1997, and the results
of its operations and its cash flows for each of the three years in the
period ended December 31, 1997, in conformity with generally accepted
accounting principles. 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 of these statements in accordance with generally accepted
auditing standards which 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, assessing the accounting principles used and significant
estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable
basis for the opinion expressed above."
PRICE WATERHOUSE LLP
San Jose, California
January 21, 1998, except as to the second paragraph of
Note 6 which is as of February , 1998
F-2
<PAGE>
LJL BIOSYSTEMS, INC.
BALANCE SHEET
<TABLE>
<CAPTION>
PRO FORMA
STOCKHOLDERS'
EQUITY AT
DECEMBER
DECEMBER 31, 31,
-------------------- 1997
1996 1997 (NOTE 6)
--------- --------- ----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............................. $1,166,000 $5,525,000
Accounts receivable................................... 397,000 59,000
Inventories........................................... 673,000 283,000
Other current assets.................................. 71,000 484,000
--------- ---------
Total current assets................................ 2,307,000 6,351,000
Property and equipment, net............................. 151,000 442,000
--------- ---------
$2,458,000 $6,793,000
--------- ---------
--------- ---------
LIABILITIES, MANDATORILY REDEEMABLE CONVERTIBLE
PREFERRED STOCK AND STOCKHOLDERS' (DEFICIT) EQUITY
Current liabilities:
Accounts payable...................................... $ 233,000 $ 681,000
Accrued expenses...................................... 396,000 360,000
Customer deposits..................................... 1,943,000 153,000
Current portion of long-term debt..................... 30,000 46,000
--------- ---------
Total current liabilities........................... 2,602,000 1,240,000
--------- ---------
Long-term debt, net of current portion.................. 43,000 40,000
--------- ---------
Commitments and contingencies (Note 8)
Mandatorily redeemable convertible preferred stock;
$0.001 par value; 7,400,000 shares authorized;
3,621,503 shares issued and outstanding at December
31, 1997; $21,543,000 redemption value (no shares
outstanding pro forma)................................ -- 9,308,000 $ --
--------- --------- ----------
Stockholders' (deficit) equity:
Common stock; $0.001 par value; 12,000,000 shares
authorized at December 31, 1996; 19,000,000 shares
authorized at December 31, 1997; 4,500,500 shares
issued and outstanding at December 31, 1996;
4,583,750 shares issued and outstanding at December
31, 1997 (8,205,253 shares outstanding pro forma)... 5,000 5,000 8,000
Additional paid-in capital............................ 34,000 705,000 10,010,000
Deferred stock compensation........................... -- (755,000) (755,000)
Accumulated deficit................................... (226,000) (3,750,000) (3,750,000)
--------- --------- ----------
Total stockholders' equity (deficit)................ (187,000) (3,795,000) $5,513,000
--------- --------- ----------
----------
$2,458,000 $6,793,000
--------- ---------
--------- ---------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE>
LJL BIOSYSTEMS, INC.
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------
1995 1996 1997
--------- --------- ----------
<S> <C> <C> <C>
Revenues:
Product sales.......................................... $2,236,000 $5,622,000 $4,562,000
Development agreements................................. 2,915,000 3,663,000 642,000
--------- --------- ----------
Total revenues....................................... 5,151,000 9,285,000 5,204,000
--------- --------- ----------
Costs and operating expenses:
Product sales.......................................... 1,174,000 2,755,000 2,319,000
Research and development............................... 1,740,000 2,384,000 3,511,000
Selling, general and administrative.................... 1,963,000 4,062,000 2,145,000
--------- --------- ----------
Total costs and operating expenses................... 4,877,000 9,201,000 7,975,000
--------- --------- ----------
Income (loss) from operations............................ 274,000 84,000 (2,771,000)
Interest and other income................................ 87,000 181,000 237,000
Interest expense......................................... (5,000) (5,000) (9,000)
--------- --------- ----------
Income (loss) before provision for income taxes.......... 356,000 260,000 (2,543,000)
Provision for income taxes............................... 4,000 2,000 12,000
--------- --------- ----------
Net income (loss)........................................ $ 352,000 $ 258,000 $(2,555,000)
--------- --------- ----------
--------- --------- ----------
Pro forma data (unaudited) (Note 1):
Income (loss) before provision (benefit) for income
taxes................................................ $ 356,000 $ 260,000 $(2,543,000)
Pro forma provision (benefit) for income taxes......... 142,000 104,000 (200,000)
--------- --------- ----------
Pro forma net income (loss)............................ $ 214,000 $ 156,000 $(2,343,000)
--------- --------- ----------
--------- --------- ----------
Basic and diluted pro forma net (loss) per share....... $ (0.28)
----------
----------
Shares used in computation of basic and diluted pro
forma net (loss) per share........................... 8,306,000
----------
----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE>
LJL BIOSYSTEMS, INC.
STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
RETAINED TOTAL
COMMON STOCK ADDITIONAL DEFERRED EARNINGS STOCKHOLDERS'
--------------------- PAID-IN STOCK (ACCUMULATED EQUITY
SHARES AMOUNT CAPITAL COMPENSATION DEFICIT) (DEFICIT)
---------- --------- ---------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1994................ 4,500,500 $ 5,000 $ 34,000 $ -- $ 9,000 $ 48,000
S corporation dividends paid................ -- -- -- -- (315,000) (315,000)
Net income.................................. -- -- -- -- 352,000 352,000
---------- --------- ---------- ------------- ------------- -------------
Balance at December 31, 1995................ 4,500,500 5,000 34,000 -- 46,000 85,000
S corporations dividends paid............... -- -- -- -- (530,000) (530,000)
Net income.................................. -- -- -- -- 258,000 258,000
---------- --------- ---------- ------------- ------------- -------------
Balance at December 31, 1996................ 4,500,500 5,000 34,000 -- (226,000) (187,000)
S corporation dividends paid................ -- -- -- -- (1,075,000) (1,075,000)
Transfer of S corporation accumulated
deficit (Note 1).......................... -- -- (742,000) -- 742,000 --
Issuance of common stock upon exercise of
restricted stock purchase rights.......... 45,000 -- 90,000 -- -- 90,000
Issuance of common stock upon exercise of
stock options............................. 38,250 -- 4,000 -- -- 4,000
Accretion of mandatorily redeemable
convertible preferred stock redemption
value..................................... -- -- -- -- (636,000) (636,000)
Deferred compensation related to certain
stock options and restricted stock........ -- -- 772,000 (772,000) -- --
Stock compensation expense.................. -- -- 547,000 17,000 -- 564,000
Net loss.................................... -- -- -- -- (2,555,000) (2,555,000)
---------- --------- ---------- ------------- ------------- -------------
Balance at December 31, 1997................ 4,583,750 $ 5,000 $ 705,000 $ (755,000) $ (3,750,000) $ (3,795,000)
---------- --------- ---------- ------------- ------------- -------------
---------- --------- ---------- ------------- ------------- -------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE>
LJL BIOSYSTEMS, INC.
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------
1995 1996 1997
--------- --------- ----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)...................................... $ 352,000 $ 258,000 $(2,555,000)
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation and amortization........................ 57,000 63,000 138,000
Stock compensation expense........................... -- -- 564,000
Changes in assets and liabilities:
Accounts receivable................................ 553,000 (48,000) 338,000
Inventories........................................ 30,000 (436,000) 390,000
Other current assets............................... 108,000 (68,000) (413,000)
Accounts payable................................... 2,000 106,000 448,000
Accrued expenses................................... (84,000) 110,000 (36,000)
Customer deposits.................................. 1,145,000 5,000 (1,790,000)
--------- --------- ----------
Net cash provided by (used in) operating
activities..................................... 2,163,000 (10,000) (2,916,000)
--------- --------- ----------
Cash flows used in investing activities for the purchase
of property and equipment.............................. (103,000) (93,000) (429,000)
--------- --------- ----------
Cash flows from financing activities:
Repayment of long-term debt............................ (22,000) (19,000) (37,000)
Proceeds from long-term debt........................... 47,000 45,000 50,000
Proceeds from issuance of mandatorily redeemable
convertible preferred stock, net..................... -- -- 8,672,000
Proceeds from issuance of common stock................. -- -- 94,000
Payment of S corporation dividends..................... (315,000) (530,000) (1,075,000)
--------- --------- ----------
Net cash provided by (used in) financing
activities..................................... (290,000) (504,000) 7,704,000
--------- --------- ----------
Net increase (decrease) in cash and cash equivalents..... 1,770,000 (607,000) 4,359,000
Cash and cash equivalents at beginning of year........... 3,000 1,773,000 1,166,000
--------- --------- ----------
Cash and cash equivalents at end of year................. $1,773,000 $1,166,000 $5,525,000
--------- --------- ----------
--------- --------- ----------
SUPPLEMENTAL CASH FLOW DISCLOSURES:
Cash paid during the year for interest................. $ 5,000 $ 6,000 $ 10,000
Cash paid during the year for income taxes............. $ 5,000 $ 2,000 $ 1,000
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE>
LJL BIOSYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 1-- THE COMPANY AND A SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
THE COMPANY AND BASIS OF PRESENTATION
LJL BioSystems, Inc. (the "Company") was incorporated in Delaware on January
19, 1993 and is the surviving corporation of three commonly controlled
companies, two of which were merged into the third, the Company, on January 1,
1994. Both of these predecessor entities and the Company were all formed and
wholly owned by the Company's two S corporation stockholders. The Company is
developing and intends to commercialize proprietary technologies, products and
services to provide a flexible solution to the current and evolving high
throughput screening requirements of drug discovery laboratories. The Company
operates in one business segment.
In the second half of 1996, the Company implemented a new strategic business
model aimed at developing instruments for the emerging high throughput screening
market of the accelerated drug discovery market to leverage its existing
technology platform and product development and manufacturing expertise into
this new market. In connection with the change in strategy, the Company shifted
its focus from developing and manufacturing original equipment manufacturing
("OEM") clinical diagnostics and research products to developing, manufacturing
and marketing its own products for high throughput screening. As part of its
shift in focus, the Company has deemphasized its OEM development activities and
has phased out production of all but one of its OEM instruments. However, the
Company intends to continue to manufacture products under its agreement with
Ventana Medical Systems, Inc. through 1998 and possibly beyond. As a result,
revenues from development agreements declined significantly during the year
ended December 31, 1997, and revenues from OEM product sales are expected to
materially decline in future periods.
INITIAL PUBLIC OFFERING AND NEED FOR FUTURE CAPITAL
In December 1997, the Board of Directors authorized management of the
Company to file a registration statement with the Securities and Exchange
Commission permitting the Company to sell up to 2,875,000 shares of Common Stock
to the public (the "Offering") (see Note 6). In the event the Offering is not
completed as currently proposed, the Company will need to raise additional
capital to fully execute its business strategy for the HTS market. Management
believes, however, that existing amounts of cash and cash equivalents will be
adequate, subject to available cash flow and expense control measures, to fund
the Company's operations through December 31, 1998.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities,
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
REVENUE RECOGNITION
Revenues from product sales are generally recognized upon shipment.
Development agreements are performed on a best efforts basis and revenues are
recognized based on work performed using the percentage of completion method,
completion measured using cost incurred to total estimated cost at completion.
Amounts received in advance of services rendered are recorded as customer
deposits. Research and development expenses under development agreements were
$1,537,000, $1,663,000 and $316,000 in 1995, 1996 and 1997, respectively.
F-7
<PAGE>
LJL BIOSYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 1-- THE COMPANY AND A SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
(CONTINUED)
RESEARCH AND DEVELOPMENT EXPENSE
Research and development costs are expensed as incurred and consist of costs
incurred for internally funded research and development activities and
development agreements. These amounts include direct costs and research-related
overhead expenses.
CASH AND CASH EQUIVALENTS
Cash equivalents consist of highly liquid investments with maturities from
date of purchase of three months or less.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying value of the Company's financial instruments, including
accounts receivable, accounts payable and accrued liabilities, approximate fair
value due to their short maturities. The carrying value of the Company's
long-term debt approximates fair value as its interest rates approximate market
rates for borrowings with similar terms and maturities.
CONCENTRATION OF CREDIT RISK AND SIGNIFICANT CUSTOMERS
Financial instruments which subject the Company to concentrations of credit
risk consist primarily of accounts receivable. At December 31, 1996, amounts due
from three customers represented 72%, 15% and 10% of gross accounts receivable.
At December 31, 1997, amounts due from one customer represented 100% of gross
accounts receivable. The Company performs ongoing credit evaluations of its
customers' financial condition and provides for expected losses; however, such
amounts have not been material. As a percentage of total revenues, product sales
and revenues recognized under development agreements from individual customers
in excess of 10% of total revenues were as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------
1995 1996 1997
----- ----- -----
<S> <C> <C> <C>
Chiron Corporation......................................... 47% 58% 64%
CombiChem, Inc............................................. 31% 18% --
Ventana Medical Systems, Inc............................... 11% 13% 24%
Becton Dickinson and Company............................... -- 1% 10%
</TABLE>
INVENTORIES
Inventories are stated at the lower of cost, determined using the first-in,
first-out method, or market.
CAPITALIZED SOFTWARE COSTS
Software development costs incurred subsequent to the establishment of
technological feasibility are capitalized in accordance with Statement of
Financial Standards No. 86, "Accounting for the Costs of Computer Software to Be
Sold, Leased, or Otherwise Marketed." Amortization of capitalized software
development costs is the greater of the amount computed using (a) the ratio of
current revenues to the total of current and anticipated future revenues or (b)
the straight-line method over the estimated economic life of the product. No
amounts have been capitalized to date.
F-8
<PAGE>
LJL BIOSYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 1-- THE COMPANY AND A SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
(CONTINUED)
PROPERTY AND EQUIPMENT
Property and equipment is recorded at cost. Depreciation and amortization
are computed using the straight-line method over estimated useful lives ranging
from three to five years. Maintenance and repairs are expensed as incurred.
LONG-LIVED ASSETS
The Company identifies and records impairment losses on long-lived assets
when events and circumstances indicate that the assets might be impaired. No
such events have occurred with respect to the Company's long-lived assets, which
consist primarily of property and equipment and leasehold improvements.
INCOME TAXES
Prior to June 6, 1997, the Company elected to be treated as an S corporation
for federal and California income tax purposes. As a result, little or no
federal or state income taxes were payable at the corporate level. Rather, the
Company's stockholders included their respective portions of the Company's
taxable income in their individual income tax returns. On June 6, 1997, in
connection with the preferred stock financing, the Company became subject to the
C corporation provisions of the Internal Revenue Code. Accordingly, any earnings
after this date will be taxed at federal and state corporate income tax rates.
Upon termination of the Company's S corporation status, the S corporation
accumulated deficit of $742,000 was transferred to additional paid-in capital.
The Company uses the asset and liability approach for accounting for income
taxes which requires the recognition of deferred tax assets and liabilities for
the expected future tax consequences of events recognized in the Company's
financial statements or income tax returns. Deferred tax assets are recognized,
net of any valuation allowance, for deductible temporary differences, net
operating losses and tax credit carryforwards when their realization is
considered more likely than not. Deferred tax expense represents the change in
the deferred tax asset and liability balances.
STOCK-BASED COMPENSATION
The Company has adopted the pro forma disclosure requirements of Statement
of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" ("SFAS 123"). As permitted, the Company continues to recognize
stock-based compensation under the intrinsic value method of accounting as
prescribed by Accounting Principles Board Opinion No. 25. The pro forma effects
of applying SFAS 123 are shown in Note 7 to the financial statements.
PRO FORMA PROVISION (BENEFIT) FOR INCOME TAXES, PRO FORMA NET INCOME (LOSS)
AND BASIC AND DILUTED PRO FORMA NET (LOSS) PER SHARE
Unaudited pro forma provision (benefit) for income taxes presented in the
Statement of Operations reflects income taxes computed at rates that would have
been in effect had the Company been subject to federal and state income taxes at
the corporate level during the periods presented.
The Company has adopted Statement of Financial Accounting Standards No. 128,
"Earnings Per Share." Historical basic and diluted net income (loss) per share
has not been presented herein since such
F-9
<PAGE>
LJL BIOSYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 1-- THE COMPANY AND A SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
(CONTINUED)
amounts are not considered meaningful due to the prior periods' S corporation
status and the significant change in the Company's capital structure that will
occur in connection with the Offering (see Note 6).
Unaudited basic pro forma net (loss) per share is computed using the
weighted average number of common shares outstanding during the period.
Unaudited diluted pro forma net (loss) per share is computed using the weighted
average number of common and common equivalent shares outstanding during the
period. Common equivalent shares consist of the incremental common shares
issuable upon conversion of the mandatorily redeemable convertible preferred
stock (using the if-converted method) and shares issuable upon the exercise of
stock options issued for nominal consideration pursuant to Securities and
Exchange Commission Staff Accounting Bulletins. Common equivalent shares are
excluded from the computation if their effect is antidilutive, except that,
pursuant to Securities and Exchange Commission Staff Accounting Bulletins,
common and common equivalent shares issued during the period commencing twelve
months prior to the initial filing of the Offering, and through the effective
date of the Offering, have been included in the calculation of both unaudited
basic and diluted net (loss) per share as if they were outstanding for all
periods presented.
NOTE 2--COMPOSITION OF BALANCE SHEET AMOUNTS:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1996 1997
--------- ---------
<S> <C> <C>
Accounts receivable comprise:
Trade receivables................................... $ 448,000 $ 63,000
Less allowance for doubtful accounts................ (51,000) (4,000)
--------- ---------
$ 397,000 $ 59,000
--------- ---------
--------- ---------
Inventories comprise:
Raw materials....................................... $ 355,000 $ 278,000
Work-in-process..................................... 313,000 --
Finished goods...................................... 5,000 5,000
--------- ---------
$ 673,000 $ 283,000
--------- ---------
--------- ---------
Other current assets comprise:
Deferred initial public offering costs.............. $ -- $ 425,000
Other............................................... 71,000 59,000
--------- ---------
$ 71,000 $ 484,000
--------- ---------
--------- ---------
Property and equipment comprise:
Computer equipment.................................. $ 508,000 $ 689,000
Furniture and equipment............................. 110,000 350,000
Leasehold improvements.............................. 25,000 33,000
--------- ---------
643,000 1,072,000
Less accumulated depreciation and amortization........ (492,000) (630,000)
--------- ---------
$ 151,000 $ 442,000
--------- ---------
--------- ---------
</TABLE>
F-10
<PAGE>
LJL BIOSYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 3--LONG-TERM DEBT:
In September 1995, September 1996 and June 1997, the Company entered into
equipment loan agreements with a bank related to the purchase of equipment and
software. At December 31, 1997, the Company had outstanding borrowings on these
loans aggregating $86,000. The loans are secured by the related equipment and
software and by personal guarantees by the Company's stockholders, are due and
payable in monthly installments over three years and bear interest at 10.20% to
11.85% per annum. The equipment loan agreements require that the Company
complies with certain covenants, including certain restrictions regarding
distributions to stockholders. Future principal payments under the loan
agreements are $46,000, $30,000 and $10,000 in 1998, 1999 and 2000,
respectively.
NOTE 4--INCOME TAXES:
The historical provisions for income taxes for the years ended December 31,
1995, 1996 and 1997 reflect S corporation taxes imposed in California at a
statutory rate of 1.5% of taxable income, adjusted for nondeductible items. On
June 6, 1997, the Company became subject to the C corporation provisions of the
Internal Revenue Code. No provision for income taxes has been recognized for
periods subsequent to June 6, 1997, as the Company incurred net operating losses
for income tax purposes and has no carryback potential.
Deferred tax assets and liabilities at December 31, 1996 were not material
due to the Company's low tax rate as an S corporation. The significant
components of deferred tax assets and liabilities at December 31, 1997 were as
follows:
<TABLE>
<S> <C>
Net operating loss and tax credit carryforwards................. $1,087,000
Nondeductible reserves and accruals............................. 82,000
----------
Gross deferred tax assets..................................... 1,169,000
Valuation allowance............................................. (1,169,000)
----------
Net deferred tax assets....................................... $ --
----------
----------
</TABLE>
Due to the Company's change in strategy and recent operating losses,
management believes that there is sufficient uncertainty regarding the
realization of deferred tax assets such that a full valuation allowance is
appropriate.
At December 31, 1997, the Company had a federal net operating loss
carryforward of approximately $2.4 million available to reduce future taxable
income, which expires in 2012. The Company's ability to utilize net operating
loss and tax credits carryforwards may be subject to limitation as set forth in
applicable federal and state tax laws. As specified in the Internal Revenue
Code, an ownership change of more than 50% during any three-year period would
result in certain annual limitations on the Company's ability to utilize its net
operating loss and tax credit carryforwards.
NOTE 5-- MANDATORILY REDEEMABLE CONVERTIBLE PREFERRED STOCK AND WARRANTS:
MANDATORILY REDEEMABLE CONVERTIBLE PREFERRED STOCK
In May and June 1997, the Company amended its Certificate of Incorporation
to authorize a total of 7,400,000 shares of Preferred Stock for future issuance.
F-11
<PAGE>
LJL BIOSYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 5-- MANDATORILY REDEEMABLE CONVERTIBLE PREFERRED STOCK AND WARRANTS:
(CONTINUED)
In June 1997, the Company completed a private placement of 3,621,503 shares
of Series A Mandatorily Redeemable Convertible Preferred Stock (the "Series A")
for $2.60 per share, resulting in proceeds of $8,672,000, net of issuance costs
of $744,000.
The Series A stockholders may be entitled to annual dividends at a rate of
$0.312 per share (subject to adjustment for dilution or stock splits). Such
dividends are noncumulative and are payable when and if declared by the Board of
Directors provided, however, that such dividends shall be deemed to be accrued
and cumulatively payable upon the redemption of the Series A shares or a
liquidation or dissolution of the Company. Accordingly, such amounts are
accreted to the carrying value of the Series A shares with a corresponding
charge to accumulated deficit. The Series A shares carry a liquidation
preference of $2.60 per share (subject to adjustment for dilution and stock
splits) plus all declared but unpaid dividends, and are convertible at any time
at the option of the holder on a one-for-one basis (subject to adjustment for
antidilution) into shares of the Company's Common Stock. The Series A
stockholders have one vote for each share of Common Stock into which such shares
may be converted. The Series A shares automatically convert into shares of the
Company's Common Stock in the event of an initial public offering of the
Company's Common Stock of at least $3.00 per share and gross cash proceeds of at
least $15 million. The Series A shares are redeemable on June 6, 2004, or any
annual anniversary date thereafter, upon written notice by holders of at least
75% of the Series A shares, in the amount of $2.60 per share (subject to
adjustment for antidilution) plus cumulative but unpaid dividends.
WARRANTS
In connection with the Series A private placement in June 1997, the Company
issued to the placement agent two warrants to purchase a total of 65,653 shares
of Series A preferred stock at an exercise price of $5.20 per share. The
warrants expire on the earlier of June 6, 2002, the closing of an initial public
offering of the Company's Common Stock pursuant to a registration statement
under the Securities Act of 1993 or a merger or sale of substantially all of the
Company's assets. The warrants are exercisable immediately.
NOTE 6--STOCKHOLDERS' (DEFICIT) EQUITY:
In June 1997, the Board of Directors increased the authorized number of
shares of the Company's Common Stock to 19,000,000. The Company has the right to
repurchase, at the original issue price, certain of the common shares issued to
employees and directors under restricted stock agreements. The Company's
repurchase right lapses over four years based on the length of the individual's
continual service to the Company. At December 31, 1997, 45,000 shares of Common
Stock were subject to repurchase by the Company.
In connection with the Offering, the Board of Directors authorized, subject
to stockholder approval, a one-for-two reverse stock split of the Company's
Common and Series A Stock. All share and per share amounts in the accompanying
financial statements have been retroactively adjusted to reflect the reverse
stock split.
If the Offering is completed under the terms currently contemplated,
3,621,503 shares of outstanding Mandatorily Redeemable Convertible Preferred
Stock will convert into an equal number of shares of Common Stock. Unaudited pro
forma stockholders' equity at December 31, 1997, as adjusted for the assumed
conversion of the Mandatorily Redeemable Convertible Preferred Stock, is set
forth in the accompanying balance sheet.
F-12
<PAGE>
LJL BIOSYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 7--EQUITY INCENTIVE PLANS:
On January 10, 1994, the Company adopted the 1994 Equity Incentive Plan (the
"1994 Plan") under which 499,500 shares of the Company's Common Stock were
reserved for issuance to employees, directors and consultants of the Company, as
approved by the Board of Directors. On March 14, 1997, the Company reduced the
number of shares reserved for issuance under the 1994 Plan to 479,250. The 1994
Plan, which expires in 2004, provides for the grant of incentive as well as
nonstatutory stock options, stock bonuses, stock appreciation rights and
restricted stock purchase rights.
In March 1997, the Company adopted the 1997 Stock Plan (the "1997 Plan")
under which 820,750 shares of the Company's Common Stock (including 20,250
shares originally reserved under the 1994 Plan) have been reserved for issuance
to employees, directors and consultants of the Company, as approved by the Board
of Directors. The 1997 Plan, which expires in 2007, provides for the grant of
incentive as well as nonstatutory stock options and restricted stock purchase
rights.
Options granted under the 1994 Plan and the 1997 Plan are for terms not to
exceed ten years. If the option is granted to a stockholder who owns more than
10% of all outstanding stock of the Company, the term may not exceed five years
and the exercise price of the stock option must be at least 110% of the
estimated fair value of the stock at the date of grant. Exercise prices of
incentive stock options granted to all other persons are generally equal to at
least 100% of the estimated fair value of the stock at the date of grant, as
determined by the Board of Directors. For nonstatutory stock options granted to
all other persons, the exercise price under the 1994 Plan and the 1997 Plan is
generally equal to at least 50% or 85%, respectively, of the estimated fair
value of the stock at the date of grant. Options under the plans generally vest
over a five year period.
The term of restricted stock purchase rights granted under the 1997 Plan is
thirty days, after which unaccepted stock purchase rights expire. If the stock
purchase right is granted to a stockholder who owns stock representing more than
10% of the total combined voting power of all classes of stock of the Company,
the exercise price is generally at least equal to 100% of the estimated fair
value of the stock on the date of grant. The exercise price of stock purchase
rights granted to all other persons is generally equal to at least 85% of the
estimated fair value of the stock on the date of grant.
On December 16, 1997, the Board of Directors adopted the 1998 Employee Stock
Purchase Plan (the "1998 Purchase Plan") and the 1998 Directors' Plan and
reserved 300,000 and 150,000 shares of Common Stock, respectively, for issuance
under these plans. The 1998 Purchase Plan, which is intended to qualify under
Section 423 of the Internal Revenue Code, permits eligible employees to purchase
Common Stock through payroll deductions at a purchase price equal to 85% of the
fair market value of the Company's Common Stock at the beginning or end of the
offering period, whichever is less. The 1998 Directors' Plan provides for
certain automatic grants of nonstatutory stock options to nonemployee directors
of the Company. Options granted under the 1998 Directors' Plan vest over four
years, have a term of ten years and are granted at exercise prices equal to the
fair market value of the Company's Common Stock on the date of grant.
Additionally, on December 16, 1997, the Board of Directors approved an amendment
to the 1997 Plan to increase the number of shares reserved for issuance by
1,250,000 shares. The 1998 Directors' Plan, the 1998 Purchase Plan and the
increase in shares available under the 1997 Plan will be submitted for
stockholder approval prior to completion of the Offering.
F-13
<PAGE>
LJL BIOSYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 7--EQUITY INCENTIVE PLANS: (CONTINUED)
The following table summarizes activity under the 1994 Plan and the 1997
Plan:
<TABLE>
<CAPTION>
WEIGHTED
SHARES STOCK AVERAGE
AVAILABLE OPTIONS EXERCISE
FOR GRANT OUTSTANDING PRICE
---------- ----------- -----------
<S> <C> <C> <C>
Balance at December 31, 1994............................. 256,500 243,000 $ 0.10
Options granted.......................................... (209,000) 209,000 $ 0.10
Options canceled......................................... 105,750 (105,750) $ 0.10
---------- -----------
Balance at December 31, 1995............................. 153,250 346,250 $ 0.10
Options granted.......................................... (102,000) 102,000 $ 0.10
Options canceled......................................... 60,000 (60,000) $ 0.10
---------- -----------
Balance at December 31, 1996............................. 111,250 388,250 $ 0.10
Shares authorized........................................ 2,050,500 --
Issuance of restricted stock............................. (45,000) -- $ 2.00
Options granted.......................................... (480,000) 480,000 $ 1.34
Options exercised........................................ -- (38,250) $ 0.10
---------- -----------
Balance at December 31, 1997............................. 1,636,750 830,000 $ 0.71
---------- -----------
---------- -----------
</TABLE>
The following table summarizes information about stock options outstanding
and vested under the 1994 Plan and the 1997 Plan at December 31, 1997:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
------------------------------------ OPTIONS EXERCISABLE
WEIGHTED ------------------------
AVERAGE WEIGHTED WEIGHTED
REMAINING AVERAGE AVERAGE
NUMBER CONTRACTUAL EXERCISE NUMBER EXERCISE
RANGE OF EXERCISE PRICES OUTSTANDING LIFE PRICE EXERCISABLE PRICE
- ----------------------------------------- ----------- ---------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
$0.10.................................... 350,000 6.1 years $ 0.10 228,100 $ 0.10
$0.60 - 1.00............................. 374,750 9.3 years 0.90 11,249 $ 1.00
$2.00 - 2.20............................. 105,250 10.0 years 2.03 75,249 2.05
----------- -----------
830,000 8.0 years 0.71 314,598 0.60
----------- -----------
----------- -----------
</TABLE>
Deferred compensation is recorded when the exercise price of an option is
less than the deemed fair value of the underlying stock on the date of grant.
From inception through June 1997, all stock options were granted at exercise
prices which equaled the estimated fair value of the underlying stock on the
respective grant dates. In August 1997, the Company granted options to purchase
a total of 75,000 shares of Common Stock at an exercise price of $1.00 per
share. Deferred compensation of approximately $56,000 was recorded on these
options, based on the deemed fair value of the Common Stock on the date of grant
of $1.75 per share. In October 1997, the Company granted options to purchase
24,500 shares of Common Stock at an exercise price of $1.00 per share.
Additional deferred compensation of approximately $123,000 was recorded based on
a deemed fair value of $6.00 per share on the date of grant. Additionally, in
October 1997 the Company granted to a consultant options to purchase 7,500
shares of the Company's Common Stock at an exercise price of $1.00 per share,
resulting in additional deferred compensation of $40,000 based on the estimated
fair value of the options granted. In December 1997, the Company granted rights
to purchase 45,000 shares of restricted Common Stock at an exercise price of
$2.00 per share and options to purchase 30,250 shares of Common Stock at an
exercise price of $2.00 per share. Additional
F-14
<PAGE>
LJL BIOSYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 7--EQUITY INCENTIVE PLANS: (CONTINUED)
deferred compensation of approximately $553,000 related to these grants was
recorded based on a deemed fair value of the Common Stock of $9.35 per share on
the date of grant. Deferred compensation is amortized over the vesting period of
the options or restricted stock, generally four to five years.
In December 1997, the Company also granted fully vested options to employees
to purchase 75,000 shares of Common Stock at exercise prices of $2.00 to $2.20
per share, in lieu of cash bonuses. Compensation expense of $547,000 related to
these options, based on a deemed fair value of the Common Stock on the date of
grant of $9.35 per share, was recognized in 1997.
At December 31, 1997, the Company had 6,153,904 shares of Common Stock
reserved for future issuance upon conversion of mandatorily redeemable
convertible preferred stock, exercise of stock options and exercise of
mandatorily redeemable convertible preferred stock purchase warrants.
The Company accounts for its stock option plans in accordance with the
provisions of Accounting Principles Board Opinion No. 25. Had compensation cost
for the Company's option plans been determined based on the fair value of the
options at the dates of grant, as prescribed in SFAS 123, the Company's pro
forma net income (loss) for the years ended December 31, 1995, 1996 and 1997
would have included additional stock compensation expense of $1,000, $2,000 and
$10,000, respectively. The fair value of each option grant has been estimated on
the date of grant using the minimum value method with the following assumptions
used for grants during the applicable period: dividend yield of 0.0% for 1995,
1996 and 1997; risk-free interest rates of 5.6% to 7.8% for options granted
during the year ended December 31, 1995, 5.5% to 6.8% for options granted during
the year ended December 31, 1996 and 6.3% to 6.5% for options granted during the
year ended December 31, 1997; and a weighted average expected option term of six
years for 1995 and 1996 and four years for 1997.
For pro forma disclosure purposes, option grants made prior to January 1,
1995 are not considered; further, additional option grants are expected to be
made beyond 1997. Accordingly, pro forma disclosures may differ materially from
the reported results of operations in the future.
NOTE 8--COMMITMENTS AND CONTINGENCIES:
In September 1996, the Company amended its operating lease agreement for its
facility to extend the lease term to January 2000 and provide the Company an
option to extend the lease term for an additional five years. The lease
agreement requires the Company to pay minimum rent as well as certain facility
operating expenses incurred by the lessor. In July 1997, the Company entered
into a lease agreement for a laboratory facility and the use of certain
laboratory equipment. The initial term of this lease agreement ends March 31,
1998, at which time the lease may continue on a month-to-month basis. Rent
expense during the years ended December 31, 1995, 1996 and 1997 totaled
$128,000, $149,000 and $161,000, respectively.
Future minimum payments under non-cancelable operating leases are as
follows:
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31,
- ----------------------------------------------------------------------------------
<S> <C>
1998.............................................................................. $ 153,000
1999.............................................................................. 153,000
2000.............................................................................. 13,000
----------
$ 319,000
----------
----------
</TABLE>
F-15
<PAGE>
LJL BIOSYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 8--COMMITMENTS AND CONTINGENCIES: (CONTINUED)
In June 1997, the Company entered into a development, license and sales
agreement (the "Agreement") under which it obtained worldwide rights to certain
patented assay technologies. Future minimum royalties due through 2002 under the
Agreement aggregate approximately $950,000.
Under an employment agreement with an officer entered into in December 1995,
the Company is required in the event of involuntary termination to continue to
pay all salary, bonus and benefits for a period of up to one year.
In the normal course of business, the Company is subject to various claims
and assessments which, in the opinion of management, will not have a material
adverse effect on its results of operations or financial condition.
F-16
<PAGE>
- -------------------------------------------
-------------------------------------------
- -------------------------------------------
-------------------------------------------
NO DEALER, SALES REPRESENTATIVE OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO
GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS IN CONNECTION WITH THIS
OFFERING OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS AND, IF GIVEN OR MADE,
SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY OR ANY OF THE UNDERWRITERS. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY SECURITIES
OTHER THAN THE SHARES OF COMMON STOCK TO WHICH IT RELATES, OR AN OFFER TO, OR A
SOLICITATION OF, ANY PERSON IN ANY JURISDICTION WHERE SUCH AN OFFER OR
SOLICITATION WOULD BE UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY
SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE AN IMPLICATION THAT
THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR
THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO
THE DATE HEREOF.
---------------------
TABLE OF CONTENTS
---------------------
<TABLE>
<CAPTION>
PAGE
---
<S> <C>
PROSPECTUS SUMMARY.............................. 3
RISK FACTORS.................................... 6
SPECIAL NOTE REGARDING FORWARD-LOOKING
STATEMENTS.................................... 16
USE OF PROCEEDS................................. 17
DIVIDEND POLICY................................. 17
CAPITALIZATION.................................. 18
DILUTION........................................ 19
SELECTED FINANCIAL DATA......................... 20
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF
OPERATIONS.................................... 21
BUSINESS........................................ 25
MANAGEMENT...................................... 37
CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS.................................. 47
PRINCIPAL STOCKHOLDERS.......................... 48
DESCRIPTION OF CAPITAL STOCK.................... 50
SHARES ELIGIBLE FOR FUTURE SALE................. 52
UNDERWRITING.................................... 54
LEGAL MATTERS................................... 55
EXPERTS......................................... 56
ADDITIONAL INFORMATION.......................... 57
INDEX TO FINANCIAL STATEMENTS................... F-1
</TABLE>
---------------------
UNTIL , 1998 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL
DEALERS EFFECTING TRANSACTIONS IN THE COMMON STOCK, WHETHER OR NOT PARTICIPATING
IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS 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.
2,500,000 SHARES
[LOGO]
COMMON STOCK
-------------
PROSPECTUS
-------------
NATIONSBANC MONTGOMERY
SECURITIES LLC
HAMBRECHT & QUIST
VOLPE BROWN WHELAN &
COMPANY
, 1998
- -------------------------------------------
-------------------------------------------
- -------------------------------------------
-------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the costs and expenses, other than
underwriting discounts and commissions, payable by the Company in connection
with the sale of Common Stock being registered. All amounts are estimates except
the SEC registration fee and the NASD filing fee and the Nasdaq National Market
listing fee.
<TABLE>
<CAPTION>
AMOUNT
TO BE PAID
----------
<S> <C>
SEC registration fee.............................................................. $ 11,026
NASD filing fee................................................................... 4,238
Nasdaq National Market listing fee................................................ 44,055
Printing and engraving expenses................................................... 120,000
Legal fees and expenses........................................................... 250,000
Accounting fees and expenses...................................................... 150,000
Blue Sky qualification fees and expenses.......................................... 5,000
Transfer agent and registrar fees................................................. 15,000
Miscellaneous fees and expenses................................................... 100,681
----------
Total......................................................................... $ 700,000
----------
----------
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the Delaware General Corporation Law (the "Delaware Law")
authorizes a court to award, or a corporation's Board of Directors to grant,
indemnity to directors and officers in terms sufficiently broad to permit such
indemnification under certain circumstances for liabilities (including
reimbursement for expenses incurred) arising under the Securities Act of 1933,
as amended (the "Securities Act"). Article XIV of the Company's Restated
Certificate (Exhibit 3.3 hereto) and Article VI of the Company's Restated Bylaws
(Exhibit 3.5 hereto) provide for indemnification of the Company's directors,
officers, employees and other agents to the maximum extent permitted by Delaware
Law. In addition, the Company has entered into Indemnification Agreements
(Exhibit 10.2 hereto) with its officers and directors. The Underwriting
Agreement (Exhibit 1.1) also provides for cross-indemnification among the
Company and the Underwriters with respect to certain matters, including matters
arising under the Securities Act.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
Since December 31, 1994, the Company has sold and issued the following
unregistered securities:
1. In June 1997, the Company issued and sold, pursuant to Series A
Preferred Stock Purchase Agreements, an aggregate of 3,621,503 shares of its
Preferred Stock convertible into 3,621,503 shares of Common Stock at a
purchase price of $2.60 per share for an aggregate offering price of
$9,415,907.80. NationsBanc Montgomery Securities LLC served as a placement
agent in the transaction and received compensation in the form of (i) a 5%
placement fee and (ii) warrants to purchase an aggregate of 65,653 shares of
the Company's Preferred Stock convertible into 65,653 shares of Common Stock
with an exercise price of $5.20 per share.
2. From December 31, 1994 through December 31, 1997, the Company
granted options under the 1994 Equity Incentive Plan to purchase an
aggregate of 402,000 shares of Common Stock at exercise prices ranging from
$0.10 to $0.60 per share to 28 employees, directors and consultants.
3. From March 14, 1997 through December 31, 1997, the Company granted
(i) options under the 1997 Stock Plan to purchase an aggregate of 389,000
shares of Common Stock at exercise prices
II-1
<PAGE>
ranging from $1.00 to $2.20 per share to 55 employees, directors and
consultants and (ii) stock purchase rights under the 1997 Stock Plan to
purchase an aggregate of 45,000 shares of Common Stock at a purchase price
of $2.00 per share to 3 directors. Each stock purchase right has been
exercised in full.
4. In November 1997, one employee exercised a stock option for 2,250
shares of Common Stock at an exercise price of $0.10 per share. In December
1997, three employees exercised stock options for an aggregate of 36,000
shares of Common Stock, each at an exercise price of $0.10 per share.
The issuances of the securities in Item 1 above were deemed to be exempt
from registration under the Securities Act in reliance on Regulation D Rule 506
of the Securities Act. The issuances of the options and purchases of Common
Stock in Items 2, 3, and 4 above were deemed exempt from registration under the
Securities Act in reliance upon Rule 701 promulgated under the Securities Act.
The recipients of securities in each such transaction represented their
intentions 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 affixed to the share certificates, options and warrants issued in such
transactions. All recipients had adequate access, through their relationships
with the Company, to information about the Company.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
<TABLE>
<CAPTION>
NUMBER DESCRIPTION
- ----------- --------------------------------------------------------------------------------------------------------
<C> <S>
1.1 Form of Underwriting Agreement.
3.1 Amended and Restated Certificate of Incorporation of the Company, as currently in effect.+
3.2 Form of Amended and Restated Certificate of Incorporation of the Company, to be filed and become
effective prior to the effective date of the offering.+
3.3 Form of Amended and Restated Certificate of Incorporation of the Company, to be filed and become
effective upon completion of the offering.+
3.4 Bylaws of the Company.+
3.5 Form of Amended and Restated Bylaws of the Company, to be effective upon completion of the offering.+
4.1 See Exhibits 3.1, 3.2, 3.3, 3.4 and 3.5.+
4.2 Specimen Stock Certificate.
4.3 Amended and Restated Investors' Rights Agreement dated June 17, 1997 between the Company and the
individuals and entities listed in the signature pages thereto.+
5.1 Opinion of Venture Law Group regarding the legality of the Common Stock being registered.***
10.1 Agreement dated June 5, 1997 between the Company and FluorRx, Inc.+**
10.2 Form of Indemnification Agreement between the Company and each of its officers and directors.+
10.3 Severance Agreement dated December 6, 1995 between the Company and Lev J. Leytes.+
10.4 Lease between Company and Yageo USA Inc., as amended.+
10.5 1994 Equity Incentive Plan and Forms of Agreements.+
10.6 1997 Stock Plan and Forms of Agreements.+
10.7 1998 Directors' Stock Option Plan and Forms of Agreements.+
10.8 1998 Employee Stock Purchase Plan and Subscription Agreement.+
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
NUMBER DESCRIPTION
- ----------- --------------------------------------------------------------------------------------------------------
<C> <S>
11.1 Computation of pro forma basic and diluted net (loss) per share.***
23.1 Consent of Independent Accountants.***
23.2 Consent of Venture Law Group (included in Exhibit 5.1).
23.3 Consent of Kolisch, Hartwell, Dickinson, McCormack & Heuser.+
24.1 Power of Attorney (see page II-4).+
27.1 Financial Data Schedule.***
</TABLE>
- ------------------------
* To be supplied by amendment.
** Confidential treatment requested as to certain portions of this Exhibit.
Omitted portions will be filed separately with the Securities and Exchange
Commission.
*** Replaces previously filed Exhibit.
+ Previously filed.
(b) Financial Statement Schedules
The following financial statement schedule of the Company is filed as part
of this Registration Statement and should be read in conjunction with the
Financial Statements of the Company.
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
Schedules other than those listed above have been omitted for the reason
that they are not required or are not applicable, or the required information 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 for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the SEC such indemnification is against
public policy as expressed in the 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, 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 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.
(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 that time shall be
deemed to be the initial BONA FIDE offering thereof.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment No. 2 to Registration Statement on Form S-1 to be
signed on its behalf by the undersigned, thereunto duly authorized, in the city
of Sunnyvale, State of California on February 6, 1998.
<TABLE>
<S> <C> <C>
LJL BIOSYSTEMS, INC.
By: /s/ LEV J. LEYTES
-----------------------------------------
Lev J. Leytes
PRESIDENT, CHIEF EXECUTIVE OFFICER AND
CHAIRMAN OF THE BOARD OF DIRECTORS
</TABLE>
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 2 to Registration Statement on Form S-1 has been signed by the following
persons in the capacities and on the dates indicated:
SIGNATURE TITLE DATE
- -------------------------- ------------------------------ -------------------
President, Chief Executive
/s/ LEV J. LEYTES Officer and Chairman of the
- -------------------------- Board of Directors February 6, 1998
Lev J. Leytes (Principal Executive
Officer)
/s/ GALINA LEYTES*
- -------------------------- Executive Vice President and February 6, 1998
Galina Leytes Director
Vice President of Finance and
/s/ ROBERT T. BEGGS* Administration (Principal
- -------------------------- Financial and Accounting February 6, 1998
Robert T. Beggs Officer)
/s/ GEORGE W. DUNBAR,
JR.*
- -------------------------- Director February 6, 1998
George W. Dunbar, Jr.
/s/ MICHAEL F. BIGHAM*
- -------------------------- Director February 6, 1998
Michael F. Bigham
/s/ JOHN G. FREUND,
M.D.*
- -------------------------- Director February 6, 1998
John G. Freund, M.D.
/s/ DANIEL S. JANNEY*
- -------------------------- Director February 6, 1998
Daniel S. Janney
*By: /s/ LEV J. LEYTES
-------------------------
Lev J. Leytes
Attorney-in-Fact
II-4
<PAGE>
LJL BIOSYSTEMS, INC.
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
(In thousands)
<TABLE>
<CAPTION>
BALANCE AT BALANCE AT
DESCRIPTION OF BEGINNING END OF
ALLOWANCE AND RESERVES OF PERIOD ADDITIONS DEDUCTIONS PERIOD
- ------------------------------------------------------------------ ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
1995
Allowance for doubtful accounts................................... $ 13 $ 13 $ -- $ 26
1996
Allowance for doubtful accounts................................... $ 26 $ 25 $ -- $ 51
1997
Allowance for doubtful accounts................................... $ 51 $ -- $ 47 $ 4
</TABLE>
S-1
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBITS
- -----------
<C> <S>
1.1 Form of Underwriting Agreement..........................................................................
3.1 Amended and Restated Certificate of Incorporation of the Company, as currently in effect.+..............
3.2 Form of Amended and Restated Certificate of Incorporation of the Company, to be filed and become
effective prior to the effective date of the offering.+...............................................
3.3 Form of Amended and Restated Certificate of Incorporation of the Company, to be filed and become
effective upon completion of the offering.+...........................................................
3.4 Bylaws of the Company.+.................................................................................
3.5 Form of Amended and Restated Bylaws of the Company, to be effective upon completion of the offering.+...
4.1 See Exhibits 3.1, 3.2, 3.3, 3.4 and 3.5.+...............................................................
4.2 Specimen Stock Certificate..............................................................................
4.3 Amended and Restated Investors' Rights Agreement dated June 17, 1997 between the Company and the
individuals and entities listed in the signature pages thereto.+......................................
5.1 Opinion of Venture Law Group regarding the legality of the Common Stock being registered.***............
10.1 Agreement dated June 5, 1997 between the Company and FluorRx, Inc.+**...................................
10.2 Form of Indemnification Agreement between the Company and each of its officers and directors.+..........
10.3 Severance Agreement dated December 6, 1995 between the Company and Lev J. Leytes.+......................
10.4 Lease between Company and Yageo USA Inc., as amended.+..................................................
10.5 1994 Equity Incentive Plan and Forms of Agreements.+....................................................
10.6 1997 Stock Plan and Forms of Agreements.+...............................................................
10.7 1998 Directors' Stock Option Plan and Forms of Agreements.+.............................................
10.8 1998 Employee Stock Purchase Plan and Subscription Agreement.+..........................................
11.1 Computation of pro forma basic and diluted net (loss) per share.***.....................................
23.1 Consent of Independent Accountants.***..................................................................
23.2 Consent of Venture Law Group (included in Exhibit 5.1)..................................................
23.3 Consent of Kolisch, Hartwell, Dickinson, McCormack & Heuser.+...........................................
24.1 Power of Attorney (see page II-4).+.....................................................................
27.1 Financial Data Schedule.***.............................................................................
</TABLE>
- ------------------------
* To be supplied by amendment.
** Confidential treatment requested as to certain portions of this Exhibit.
Omitted portions will be filed separately with the Securities and Exchange
Commission.
*** Replaces previously filed Exhibit.
+ Previously filed.
<PAGE>
2,500,000 Shares
LJL BioSystems, Inc.
Common Stock
Underwriting Agreement
dated _____________, 1998
<PAGE>
TABLE OF CONTENTS
PAGE
Section 1. Representations and Warranties of the Company . . . . . . . . . 2
(a) Compliance with Registration Requirements. . . . . . . . . . . . . . 2
(b) Offering Materials Furnished to Underwriters . . . . . . . . . . . . 2
(c) Distribution of Offering Material By the Company . . . . . . . . . . 3
(d) The Underwriting Agreement . . . . . . . . . . . . . . . . . . . . . 3
(e) Authorization of the Common Shares . . . . . . . . . . . . . . . . . 3
(f) No Applicable Registration or Other Similar Rights . . . . . . . . . 3
(g) No Material Adverse Change . . . . . . . . . . . . . . . . . . . . . 3
(h) Independent Accountants. . . . . . . . . . . . . . . . . . . . . . . 3
(i) Preparation of the Financial Statements. . . . . . . . . . . . . . . 4
(j) Incorporation and Good Standing of the Company . . . . . . . . . . . 4
(k) Capitalization and Other Capital Stock Matters . . . . . . . . . . . 4
(l) Stock Exchange Listing . . . . . . . . . . . . . . . . . . . . . . . 5
(m) Non-Contravention of Existing Instruments; No Further
Authorizations or Approvals Required . . . . . . . . . . . . . . . . 5
(n) No Material Actions or Proceedings . . . . . . . . . . . . . . . . . 5
(o) Intellectual Property Rights . . . . . . . . . . . . . . . . . . . . 5
(p) All Necessary Permits, etc . . . . . . . . . . . . . . . . . . . . . 6
(q) Title to Properties. . . . . . . . . . . . . . . . . . . . . . . . . 6
(r) Tax Law Compliance . . . . . . . . . . . . . . . . . . . . . . . . . 6
(s) Company Not an "Investment Company". . . . . . . . . . . . . . . . . 6
(t) Insurance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
(u) No Price Stabilization or Manipulation . . . . . . . . . . . . . . . 7
(v) Related Party Transactions . . . . . . . . . . . . . . . . . . . . . 7
(w) No Unlawful Contributions or Other Payments. . . . . . . . . . . . . 7
(x) Company's Accounting System. . . . . . . . . . . . . . . . . . . . . 7
(y) Compliance with Environmental Laws . . . . . . . . . . . . . . . . . 7
(z) Periodic Review of Costs of Environmental Compliance . . . . . . . . 8
(aa) ERISA Compliance . . . . . . . . . . . . . . . . . . . . . . . . . . 8
i.
<PAGE>
Section 2. Purchase, Sale and Delivery of the Common Shares . . . . . . . 9
(a) The Firm Common Shares . . . . . . . . . . . . . . . . . . . . . . . 9
(b) The First Closing Date . . . . . . . . . . . . . . . . . . . . . . . 9
(c) The Optional Common Shares; the Second Closing Date. . . . . . . . . 9
(d) Public Offering of the Common Shares . . . . . . . . . . . . . . . .10
(e) Payment for the Common Shares. . . . . . . . . . . . . . . . . . . .10
(f) Delivery of the Common Shares. . . . . . . . . . . . . . . . . . . .10
(g) Delivery of Prospectus to the Underwriters . . . . . . . . . . . . .11
Section 3. Additional Covenants of the Company . . . . . . . . . . . . . .11
(a) Representatives' Review of Proposed Amendments and Supplements . . .11
(b) Securities Act Compliance. . . . . . . . . . . . . . . . . . . . . .11
(c) Amendments and Supplements to the Prospectus and Other Securities
Act Matters. . . . . . . . . . . . . . . . . . . . . . . . . . . . .11
(d) Copies of any Amendments and Supplements to the Prospectus . . . . .12
(e) Blue Sky Compliance. . . . . . . . . . . . . . . . . . . . . . . . .12
(f) Use of Proceeds. . . . . . . . . . . . . . . . . . . . . . . . . . .12
(g) Transfer Agent . . . . . . . . . . . . . . . . . . . . . . . . . . .12
(h) Earnings Statement . . . . . . . . . . . . . . . . . . . . . . . . .12
(i) Periodic Reporting Obligations . . . . . . . . . . . . . . . . . . .12
(j) Agreement Not To Offer or Sell Additional Securities . . . . . . . .13
(k) Future Reports to the Representative . . . . . . . . . . . . . . . .13
(l) Agreement Not To Waive Lock-Up Provisions. . . . . . . . . . . . . .13
Section 4. Payment of Expenses . . . . . . . . . . . . . . . . . . . . . .13
Section 5. Conditions of the Obligations of the Underwriters . . . . . . .14
(a) Accountants' Comfort Letter. . . . . . . . . . . . . . . . . . . . .14
(b) Compliance with Registration Requirements; No Stop Order;
No Objection from NASD . . . . . . . . . . . . . . . . . . . . . . .15
(c) No Material Adverse Change . . . . . . . . . . . . . . . . . . . . .15
(d) Opinions of Counsel for the Company. . . . . . . . . . . . . . . . .15
(e) Opinion of Counsel for the Underwriters. . . . . . . . . . . . . . .15
ii.
<PAGE>
(f) Officers' Certificate. . . . . . . . . . . . . . . . . . . . . . . .16
(g) Bring-down Comfort Letter. . . . . . . . . . . . . . . . . . . . . .16
(h) Lock-Up Agreement from Certain Stockholders of the Company . . . . .16
(i) Additional Documents . . . . . . . . . . . . . . . . . . . . . . . .16
Section 6. Reimbursement of Underwriters' Expenses . . . . . . . . . . . .17
Section 7. Effectiveness of this Agreement . . . . . . . . . . . . . . . .17
Section 8. Indemnification . . . . . . . . . . . . . . . . . . . . . . . .17
(a) Indemnification of the Underwriters. . . . . . . . . . . . . . . . .17
(b) Indemnification of the Company, its Directors and Officers . . . . .18
(c) Notifications and Other Indemnification Procedures . . . . . . . . .19
(d) Settlements. . . . . . . . . . . . . . . . . . . . . . . . . . . . .20
Section 9. Contribution . . . . . . . . . . . . . . . . . . . . . . . . .20
Section 10. Default of One or More of the Several Underwriters . . . . . .22
Section 11. Termination of this Agreement . . . . . . . . . . . . . . . . .22
Section 12. Representations and Indemnities to Survive Delivery . . . . . .23
Section 13. Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . .23
Section 14. Successors . . . . . . . . . . . . . . . . . . . . . . . . . .24
Section 15. Partial Unenforceability . . . . . . . . . . . . . . . . . . .24
Section 16. Governing Law Provisions . . . . . . . . . . . . . . . . . . .24
(a) Consent to Jurisdiction. . . . . . . . . . . . . . . . . . . . . . .24
(b) Waiver of Immunity . . . . . . . . . . . . . . . . . . . . . . . . .25
Section 17. General Provisions . . . . . . . . . . . . . . . . . . . . . .25
iii.
<PAGE>
UNDERWRITING AGREEMENT
______________, 1998
NATIONSBANC MONTGOMERY SECURITIES LLC
HAMBRECHT & QUIST LLC
VOLPE BROWN WHELAN & COMPANY, LLC
As Representatives of the several Underwriters
c/o NATIONSBANC MONTGOMERY SECURITIES LLC
600 Montgomery Street
San Francisco, California 94111
Ladies and Gentlemen:
INTRODUCTORY. LJL BioSystems, Inc., a Delaware corporation (the
"Company"), proposes to issue and sell to the several underwriters named in
Schedule A (the "Underwriters") an aggregate of Two Million Five Hundred
Thousand (2,500,000) shares (the "Firm Common Shares") of its Common Stock,
par value $.001 per share (the "Common Stock"). In addition, the Company has
granted to the Underwriters an option to purchase up to an additional Three
Hundred Seventy Five Thousand (375,000) shares (the "Optional Common Shares")
of Common Stock, as provided in Section 2. The Firm Common Shares and, if
and to the extent such option is exercised, the Optional Common Shares are
collectively called the "Common Shares". Nationsbanc Montgomery Securities
LLC ("NMS"), Hambrecht & Quist LLC and Volpe Brown Whelan & Company, LLC have
agreed to act as representatives of the several Underwriters (in such
capacity, the "Representatives") in connection with the offering and sale of
the Common Shares.
The Company has prepared and filed with the Securities and Exchange
Commission (the "Commission") a registration statement on Form S-1 (File No.
333-43529), which contains a form of prospectus to be used in connection with
the public offering and sale of the Common Shares. Such registration
statement, as amended, including the financial statements, exhibits and
schedules thereto, in the form in which it was declared effective by the
Commission under the Securities Act of 1933 and the rules and regulations
promulgated thereunder (collectively, the "Securities Act"), including any
information deemed to be a part thereof at the time of effectiveness pursuant
to Rule 430A or Rule 434 under the Securities Act, is called the
"Registration Statement". Any registration statement filed by the Company
pursuant to Rule 462(b) under the Securities Act is called the "Rule 462(b)
Registration Statement", and from and after the date and time of filing of
the Rule 462(b) Registration Statement the term "Registration Statement"
shall include the Rule 462(b) Registration Statement. Such prospectus, in
the form first used by the Underwriters to confirm sales of the Common
Shares, is called the "Prospectus"; provided, however, if the Company has,
with the consent of NMS, elected to rely upon Rule 434 under the Securities
Act, the term "Prospectus" shall mean the Company's prospectus subject to
completion (each, a "preliminary prospectus") dated February 6, 1998 (such
preliminary prospectus is called the "Rule 434 preliminary prospectus"),
together with the applicable term sheet (the "Term Sheet") prepared and filed
by the Company with the Commission under Rules
1.
<PAGE>
434 and 424(b) under the Securities Act and all references in this Agreement
to the date of the Prospectus shall mean the date of the Term Sheet. All
references in this Agreement to the Registration Statement, the Rule 462(b)
Registration Statement, a preliminary prospectus, the Prospectus or the Term
Sheet, or any amendments or supplements to any of the foregoing, shall
include any copy thereof filed with the Commission pursuant to its Electronic
Data Gathering, Analysis and Retrieval System ("EDGAR").
The Company hereby confirms its agreements with the Underwriters as
follows:
SECTION 1. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company
hereby represents, warrants and covenants to each Underwriter as follows:
(a) COMPLIANCE WITH REGISTRATION REQUIREMENTS. The
Registration Statement and any Rule 462(b) Registration Statement have been
declared effective by the Commission under the Securities Act. The Company
has complied with all requests of the Commission for additional or
supplemental information. No stop order suspending the effectiveness of the
Registration Statement or any Rule 462(b) Registration Statement is in effect
and no proceedings for such purpose have been instituted or are pending or,
to the best knowledge of the Company, are contemplated or threatened by the
Commission.
Each preliminary prospectus and the Prospectus when filed
complied in all material respects with the Securities Act and, if filed by
electronic transmission pursuant to EDGAR (except as may be permitted by
Regulation S-T under the Securities Act), was identical to the copy thereof
delivered to the Underwriters for use in connection with the offer and sale
of the Common Shares. Each of the Registration Statement, any Rule 462(b)
Registration Statement and any post-effective amendment thereto, at the time
it became effective and at all subsequent times thereto up to and at the
First Closing Date (as defined below) and, as applicable, the Second Closing
Date (as defined below), complied and will comply in all material respects
with the Securities Act and did not and will not contain any 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. The
Prospectus, as amended or supplemented, as of its date and at all subsequent
times thereto up to and at the First Closing Date and, as applicable, the
Second Closing Date, did not and will not contain any untrue statement of a
material fact or omit to state a material fact necessary in order to make the
statements therein, in the light of the circumstances under which they were
made, not misleading. The representations and warranties set forth in the
two immediately preceding sentences do not apply to statements in or
omissions from the Registration Statement, any Rule 462(b) Registration
Statement, or any post-effective amendment thereto, or the Prospectus, or any
amendments or supplements thereto, made in reliance upon and in strict
conformity with information relating to any Underwriter furnished to the
Company in writing by the Representatives expressly for use therein. There
are no contracts or other documents required to be described in the
Prospectus or to be filed as exhibits to the Registration Statement which
have not been described or filed as required.
(b) OFFERING MATERIALS FURNISHED TO UNDERWRITERS. The Company
has delivered to the Representatives three (3) complete manually signed
copies of each filing of the Registration Statement and of each consent and
certificate of experts filed as a part thereof. The Company has delivered
conformed copies of the Registration Statement (without exhibits)
2.
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and preliminary prospectuses and the Prospectus, as amended or supplemented,
in such quantities and at such places as the Representatives have reasonably
requested for each of the Underwriters.
(c) DISTRIBUTION OF OFFERING MATERIAL BY THE COMPANY. The
Company has not distributed and will not distribute, prior to the later of
the Second Closing Date (as defined below) and the completion of the
Underwriters' distribution of the Common Shares, any offering material in
connection with the offering and sale of the Common Shares other than a
preliminary prospectus, the Prospectus or the Registration Statement.
(d) THE UNDERWRITING AGREEMENT. This Agreement has been duly
authorized, executed and delivered by, and is a valid and binding agreement
of, the Company, enforceable in accordance with its terms, except as rights
to indemnification or contribution hereunder may be limited by applicable law
and except as the enforcement hereof may be limited by bankruptcy,
insolvency, reorganization, moratorium or other similar laws relating to or
affecting the rights and remedies of creditors or by general equitable
principles.
(e) AUTHORIZATION OF THE COMMON SHARES. The Common Shares to
be purchased by the Underwriters from the Company have been duly authorized
for issuance and sale pursuant to this Agreement and, when issued and
delivered by the Company pursuant to this Agreement, will be validly issued,
fully paid and nonassessable.
(f) NO APPLICABLE REGISTRATION OR OTHER SIMILAR RIGHTS. There
are no persons with registration or other similar rights to have any equity
or debt securities registered for sale under the Registration Statement or
included in the offering contemplated by this Agreement except for such
rights as have been duly waived.
(g) NO MATERIAL ADVERSE CHANGE. Except as otherwise disclosed
in the Prospectus, subsequent to the respective dates as of which information
is given in the Prospectus: (i) there has been no material adverse change,
or any development that could reasonably be expected to result in a material
adverse change, in the condition, financial or otherwise, or in the earnings,
business, operations or prospects, whether or not arising from transactions
in the ordinary course of business, of the Company (any such change is called
a "Material Adverse Change"); (ii) the Company has not incurred any material
liability or obligation, indirect, direct or contingent, not in the ordinary
course of business nor entered into any material transaction or agreement not
in the ordinary course of business; and (iii) there has been no dividend or
distribution of any kind declared, paid or made by the Company or, except for
dividends paid to the Company on any class of capital stock or repurchase or
redemption by the Company of any class of capital stock.
(h) INDEPENDENT ACCOUNTANTS. Price Waterhouse LLP, who have
expressed their opinion with respect to the financial statements (which term
as used in this Agreement includes the related notes thereto) and supporting
schedules filed with the Commission as a part of the Registration Statement
and included in the Prospectus, are independent public accountants as
required by the Securities Act.
3.
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(i) PREPARATION OF THE FINANCIAL STATEMENTS. The financial
statements filed with the Commission as a part of the Registration Statement
and included in the Prospectus present fairly the consolidated financial
position of the Company as of and at the dates indicated and the results of
their operations and cash flows for the periods specified. The supporting
schedules included in the Registration Statement present fairly the
information required to be stated therein. Such financial statements and
supporting schedules have been prepared in conformity with generally accepted
accounting principles applied on a consistent basis throughout the periods
involved, except as may be expressly stated in the related notes thereto. No
other financial statements or supporting schedules are required to be
included in the Registration Statement. The financial data set forth in the
Prospectus under the captions "Prospectus Summary--Summary Financial
Information", "Selected Financial Data" and "Capitalization" fairly present
the information set forth therein on a basis consistent with that of the
financial statements contained in the Registration Statement.
(j) INCORPORATION AND GOOD STANDING OF THE COMPANY. The
Company has been duly incorporated and is validly existing as a corporation
in good standing under the laws of Delaware and has corporate power and
authority to own, lease and operate its properties and to conduct its
business as described in the Prospectus and to enter into and perform its
obligations under this Agreement. The Company is duly qualified as a foreign
corporation to transact business and is in good standing in the State of
California and each other jurisdiction in which such qualification is
required, whether by reason of the ownership or leasing of property or the
conduct of business, except for such jurisdictions (other than the State of
California) where the failure to so qualify or to be in good standing would
not, individually or in the aggregate, result in a Material Adverse Change.
The Company owns no equity interest in, directly or indirectly, any
corporation, association or other entity.
(k) CAPITALIZATION AND OTHER CAPITAL STOCK MATTERS. The
authorized, issued and outstanding capital stock of the Company is as set
forth in the Prospectus under the caption "Capitalization" (other than for
subsequent issuances, if any, pursuant to employee benefit plans described in
the Prospectus or upon exercise of outstanding options described in the
Prospectus, which issuances have been communicated in writing to the
Representatives). The Common Stock (including the Common Shares) conforms in
all material respects to the description thereof contained in the Prospectus.
All of the issued and outstanding shares of Common Stock have been duly
authorized and validly issued, are fully paid and nonassessable and have been
issued in compliance with federal and state securities laws. None of the
outstanding shares of Common Stock were issued in violation of any preemptive
rights, rights of first refusal or other similar rights to subscribe for or
purchase securities of the Company. There are no authorized or outstanding
options, warrants, preemptive rights, rights of first refusal or other rights
to purchase, or equity or debt securities convertible into or exchangeable or
exercisable for, any capital stock of the Company other than those accurately
described in the Prospectus. The description of the Company's stock option,
stock bonus and other stock plans or arrangements, and the options or other
rights granted thereunder, set forth in the Prospectus accurately and fairly
presents the information required to be shown with respect to such plans,
arrangements, options and rights.
4.
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(l) STOCK EXCHANGE LISTING. The Common Shares have been
approved for listing on the Nasdaq National Market subject only to official
notice of issuance.
(m) NON-CONTRAVENTION OF EXISTING INSTRUMENTS; NO FURTHER
AUTHORIZATIONS OR APPROVALS REQUIRED. The Company is not in violation of its
charter or by-laws or is in default (or, with the giving of notice or lapse
of time, would be in default) ("Default") under any indenture, mortgage, loan
or credit agreement, note, contract, franchise, lease or other instrument to
which the Company is a party or by which it may be bound, or to which any of
the property or assets of the Company is subject (each, an "Existing
Instrument"), except for such Defaults as would not, individually or in the
aggregate, result in a Material Adverse Change. The Company's execution,
delivery and performance of this Agreement and consummation of the
transactions contemplated hereby and by the Prospectus (i) have been duly
authorized by all necessary corporate action and will not result in any
violation of the provisions of the charter or by-laws of the Company, (ii)
will not conflict with or constitute a breach of, or Default under, or result
in the creation or imposition of any lien, charge or encumbrance upon any
property or assets of the Company pursuant to, or require the consent of any
other part to, any Existing Instrument, except for such conflicts, breaches,
Defaults, liens, charges or encumbrances as would not, individually or in the
aggregate, result in a Material Adverse Change and (iii) will not result in
any violation of any law, administrative regulation or administrative or
court decree applicable to the Company. No consent, approval, authorization
or other order of, or registration or filing with, any court or other
governmental or regulatory authority or agency, is required for the Company's
execution, delivery and performance of this Agreement and consummation of the
transactions contemplated hereby and by the Prospectus, except such as have
been obtained or made by the Company and are in full force and effect under
the Securities Act, applicable state securities or blue sky laws and from the
National Association of Securities Dealers, Inc. (the "NASD").
(n) NO MATERIAL ACTIONS OR PROCEEDINGS. There are no legal or
governmental actions, suits or proceedings pending or, to the best of the
Company's knowledge, threatened (i) against or affecting the Company, (ii)
which have as the subject thereof any officer or director of, or property
owned or leased by, the Company or (iii) relating to environmental or
employment discrimination matters, where in any such case (A) there is a
reasonable possibility that such action, suit or proceeding might be
determined adversely to the Company and (B) any such action, suit or
proceeding, if so determined adversely, would reasonably be expected to
result in a Material Adverse Change or adversely affect the consummation of
the transactions contemplated by this Agreement. No material labor dispute
with the employees of the Company, or with the employees of any principal
supplier of the Company, exists or, to the best of the Company's knowledge,
is threatened or imminent.
(o) INTELLECTUAL PROPERTY RIGHTS. Except as described in the
Prospectus, the Company owns or possesses all trademarks, trade names, patent
rights, copyrights, licenses, approvals, trade secrets and other similar
rights (collectively, "Intellectual Property Rights") necessary to conduct
its businesses as now conducted and as proposed to be conducted as described
in the Prospectus; and the expected expiration of any of such Intellectual
Property Rights would not result in a Material Adverse Change. Except as
described in the
5.
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Prospectus, the Company has not at any time violated or infringed or, by
conducting its business as proposed, would violate or infringe the
Intellectual Property Rights of others, which violation or infringement, if
the subject of an unfavorable decision, would result in a Material Adverse
Change. The Company has not at any time received any notice or other
communication (in writing or otherwise) of any actual, alleged, possible or
potential violation or infringement of the Intellectual Property Rights of
others. To the best of the knowledge of the Company, no other person is
violating or infringing, and no Intellectual Property Rights owned or used by
any other person violate, infringe or conflict with, any Intellectual
Property Rights owned or used by the Company.
(p) ALL NECESSARY PERMITS, ETC. The Company possesses such
valid and current certificates, authorizations or permits issued by the
appropriate state, federal or foreign regulatory agencies or bodies necessary
to conduct its business, the lack of which could result in a Material Adverse
Change, and the Company has not received any notice of proceedings relating
to the revocation or modification of, or non-compliance with, any such
certificate, authorization or permit which, singly or in the aggregate, if
the subject of an unfavorable decision, ruling or finding, could result in a
Material Adverse Change.
(q) TITLE TO PROPERTIES. The Company has good and marketable
title to all the properties, real and personal, and assets reflected as owned
in the financial statements referred to in Section 1 (i) above, in each case
free and clear of any security interests, mortgages, liens, encumbrances,
equities, claims and other defects, except those, if any, reflected in such
financial statements such as do not materially and adversely affect the value
of such property and do not materially interfere with the use made or
proposed to be made of such property by the Company. The real property,
improvements, equipment and personal property held under lease by the Company
are held under valid and enforceable leases, with such exceptions as are not
material and do not materially interfere with the use made or proposed to be
made of such real property, improvements, equipment or personal property by
the Company.
(r) TAX LAW COMPLIANCE. The Company has filed all necessary
federal, state and foreign income and franchise tax returns and has paid all
taxes required to be paid by it and, if due and payable, any related or
similar assessment, fine or penalty levied against it. The Company has made
adequate charges, accruals and reserves in the applicable financial
statements referred to in Section 1(i) above in respect of all federal, state
and foreign income and franchise taxes for all periods as to which the tax
liability of the Company has not been finally determined.
(s) COMPANY NOT AN "INVESTMENT COMPANY". The Company is not,
and after receipt of payment for the Common Shares will not be, an
"investment company" within the meaning of Investment Company Act of 1940, as
amended (the "Investment Company Act") and will conduct its business in a
manner so that it will not become subject to the Investment Company Act.
(t) INSURANCE. The Company is insured by recognized,
financially sound and reputable institutions with policies in such amounts
and with such deductibles and
6.
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covering such risks as are generally deemed adequate and customary for its
businesses including, but not limited to, policies covering real and personal
property owned or leased by the Company against theft, damage, destruction,
acts of vandalism and earthquakes. The Company has no reason to believe that
it will not be able (i) to renew its existing insurance coverage as and when
such policies expire or (ii) to obtain comparable coverage from similar
institutions as may be necessary or appropriate to conduct its business as
now conducted and at a comparable cost. The Company has not been denied any
insurance coverage which it has sought or for which it has applied.
(u) NO PRICE STABILIZATION OR MANIPULATION. The Company has
not taken and will not take, directly or indirectly, any action designed to
or that might be reasonably expected to cause or result in stabilization or
manipulation of the price of the Common Stock to facilitate the sale or
resale of the Common Shares or otherwise.
(v) RELATED PARTY TRANSACTIONS. There are no business
relationships or related-party transactions involving the Company or any
other person required to be described in the Prospectus which have not been
described as required.
(w) NO UNLAWFUL CONTRIBUTIONS OR OTHER PAYMENTS. The Company
nor, to the best of the Company's knowledge, any employee or agent of the
Company, has made any contribution or other payment to any official of, or
candidate for, any federal, state or foreign office in violation of any law
or of the character required to be disclosed in the Prospectus.
(x) COMPANY'S ACCOUNTING SYSTEM. The Company maintains a
system of accounting controls sufficient to provide reasonable assurances
that (i) transactions are executed in accordance with management's general or
specific authorization; (ii) transactions are 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.
(y) COMPLIANCE WITH ENVIRONMENTAL LAWS. Except as would not,
individually or in the aggregate, result in a Material Adverse Change (i) the
Company is not in violation of any federal, state, local or foreign law or
regulation relating to pollution or protection of human health or the
environment (including, without limitation, ambient air, surface water,
groundwater, land surface or subsurface strata) or wildlife, including
without limitation, laws and regulations relating to emissions, discharges,
releases or threatened releases of chemicals, pollutants, contaminants,
wastes, toxic substances, hazardous substances, petroleum and petroleum
products (collectively, "Materials of Environmental Concern"), or otherwise
relating to the manufacture, processing, distribution, use, treatment,
storage, disposal, transport or handling of Materials of Environment Concern
(collectively, "Environmental Laws"), which violation includes, but is not
limited to, noncompliance with any permits or other governmental
authorizations required for the operation of the business of the Company
under
7.
<PAGE>
applicable Environmental Laws, or noncompliance with the terms and conditions
thereof, nor has the Company received any written communication, whether from
a governmental authority, citizens group, employee or otherwise, that alleges
that the Company is in violation of any Environmental Law; (ii) there is no
claim, action or cause of action filed with a court or governmental
authority, no investigation with respect to which the Company has received
written notice, and no written notice by any person or entity alleging
potential liability for investigatory costs, cleanup costs, governmental
responses costs, natural resources damages, property damages, personal
injuries, attorneys' fees or penalties arising out of, based on or resulting
from the presence, or release into the environment, of any Material of
Environmental Concern at any location owned, leased or operated by the
Company, now or in the past (collectively, "Environmental Claims"), pending
or, to the best of the Company's knowledge, threatened against the Company or
any person or entity whose liability for any Environmental Claim the Company
has retained or assumed either contractually or by operation of law; and
(iii) to the best of the Company's knowledge, there are no past or present
actions, activities, circumstances, conditions, events or incidents,
including, without limitation, the release, emission, discharge, presence or
disposal of any Material of Environmental Concern, that reasonably could
result in a violation of any Environmental Law or form the basis of a
potential Environmental Claim against the Company or against any person or
entity whose liability for any Environmental Claim the Company has retained
or assumed either contractually or by operation of law.
(z) PERIODIC REVIEW OF COSTS OF ENVIRONMENTAL COMPLIANCE. In
the ordinary course of its business, the Company conducts a periodic review
of the effect of Environmental Laws on the business, operations and
properties of the Company, in the course of which it identifies and evaluates
associated costs and liabilities (including, without limitation, any capital
or operating expenditures required for clean-up, closure of properties or
compliance with Environmental Laws or any permit, license or approval, any
related constraints on operating activities and any potential liabilities to
third parties). On the basis of such review and the amount of its
established reserves, the Company has reasonably concluded that such
associated costs and liabilities would not, individually or in the aggregate,
result in a Material Adverse Change.
(aa) ERISA COMPLIANCE. The Company and any "employee benefit
plan" (as defined under the Employee Retirement Income Security Act of 1974,
as amended, and the regulations and published interpretations thereunder
(collectively, "ERISA")) established or maintained by the Company, or its
"ERISA Affiliates" (as defined below) are in compliance in all material
respects with ERISA. "ERISA Affiliate" means, with respect to the Company,
any member of any group of organizations described in Sections 414(b),(c),(m)
or (o) of the Internal Revenue Code of 1986, as amended, and the regulations
and published interpretations thereunder (the "Code") of which the Company is
a member. No "reportable event" (as defined under ERISA) has occurred or is
reasonably expected to occur with respect to any "employee benefit plan"
established or maintained by the Company, or any of its ERISA Affiliates. No
"employee benefit plan" established or maintained by the Company, or any of
its ERISA Affiliates, if such "employee benefit plan" were terminated, would
have any "amount of unfunded benefit liabilities" (as defined under ERISA).
Neither the Company, nor any of its
8.
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ERISA Affiliates has incurred or reasonably expects to incur any liability
under (i) Title IV of ERISA with respect to termination of, or withdrawal
from, any "employee benefit plan" or (ii) Sections 412, 4971, 4975 or 4980B
of the Code. Each "employee benefit plan" established or maintained by the
Company, or any of its ERISA Affiliates that is intended to be qualified
under Section 401(a) of the Code is so qualified and nothing has occurred,
whether by action or failure to act, which would cause the loss of such
qualification.
Any certificate signed by an officer of the Company and
delivered to the Representatives or to counsel for the Underwriters shall be
deemed to be a representation and warranty by the Company to each Underwriter
as to the matters set forth therein.
SECTION 2. PURCHASE, SALE AND DELIVERY OF THE COMMON SHARES.
(a) THE FIRM COMMON SHARES. The Company agrees to issue and sell to the
several Underwriters the Firm Common Shares upon the terms herein set forth.
On the basis of the representations, warranties and agreements herein
contained, and upon the terms but subject to the conditions herein set forth,
the Underwriters agree, severally and not jointly, to purchase from the
Company the respective number of Firm Common Shares set forth opposite their
names on Schedule A. The purchase price per Firm Common Share to be paid by
the several Underwriters to the Company shall be $[___] per share.
(b) THE FIRST CLOSING DATE. Delivery of certificates for the Firm Common
Shares to be purchased by the Underwriters and payment therefor shall be made
at the offices of NMS, 600 Montgomery Street, San Francisco, California (or
such other place as may be agreed to by the Company and the Representative)
at 6:00 a.m. San Francisco time, on [___], or such other time and date not
later than 10:30 a.m. San Francisco time, on [___] as the Representatives
shall designate by notice to the Company (the time and date of such closing
are called the "First Closing Date"). The Company hereby acknowledges that
circumstances under which the Representatives may provide notice to postpone
the First Closing Date as originally scheduled include, but are in no way
limited to, any determination by the Company or the Representatives to
recirculate to the public copies of an amended or supplemented Prospectus or
a delay as contemplated by the provisions of Section 10.
(c) THE OPTIONAL COMMON SHARES; THE SECOND CLOSING DATE. In addition, on
the basis of the representations, warranties and agreements herein contained,
and upon the terms but subject to the conditions herein set forth, the
Company hereby grants an option to the several Underwriters to purchase,
severally and not jointly, up to an aggregate of Three Hundred Seventy Five
Thousand (375,000) Optional Common Shares from the Company at the purchase
price per share to be paid by the Underwriters for the Firm Common Shares.
The option granted hereunder is for use by the Underwriters solely in
covering any over-allotments in connection with the sale and distribution of
the Firm Common Shares. The option granted hereunder may be exercised at any
time (but not more than once) upon notice by the Representative to the
Company which notice may be given at any time within 30 days from the date of
this Agreement. Such notice shall set forth (i) the aggregate number of
Optional Common Shares as to which the Underwriters are exercising the
option, (ii) the names and denominations in which
9.
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the certificates for the Optional Common Shares are to be registered and
(iii) the time, date and place at which such certificates will be delivered
(which time and date may be simultaneous with, but not earlier than, the
First Closing Date; and in such case the term "First Closing Date" shall
refer to the time and date of delivery of certificates for the Firm Common
Shares and the Optional Common Shares). Such time and date of delivery, if
subsequent to the First Closing Date, is called the "Second Closing Date" and
shall be determined by the Representative and shall not be earlier than three
nor later than five full business days after delivery of such notice of
exercise. If any Optional Common Shares are to be purchased, each
Underwriter agrees, severally and not jointly, to purchase the number of
Optional Common Shares (subject to such adjustments to eliminate fractional
shares as the Representative may determine) that bears the same proportion to
the total number of Optional Common Shares to be purchased as the number of
Firm Common Shares set forth on Schedule A opposite the name of such
Underwriter bears to the total number of Firm Common Shares. The
Representative may cancel the option at any time prior to its expiration by
giving written notice of such cancellation to the Company.
(d) PUBLIC OFFERING OF THE COMMON SHARES. The Representatives hereby
advise the Company that the Underwriters intend to offer for sale to the
public, as described in the Prospectus, their respective portions of the
Common Shares as soon after this Agreement has been executed and the
Registration Statement has been declared effective as the Representatives, in
their sole judgment, have determined is advisable and practicable.
(e) PAYMENT FOR THE COMMON SHARES. Payment for the Common Shares shall be
made at the First Closing Date (and, if applicable, at the Second Closing
Date) by wire transfer of immediately available funds to the order of the
Company.
It is understood that the Representatives have been authorized, for their
own account and the accounts of the several Underwriters, to accept delivery
of and receipt for, and make payment of the purchase price for, the Firm
Common Shares and any Optional Common Shares the Underwriters have agreed to
purchase. NMS, individually and not as a Representative of the
Underwriters, may (but shall not be obligated to) make payment for any Common
Shares to be purchased by any Underwriter whose funds shall not have been
received by the Representatives by the First Closing Date or the Second
Closing Date, as the case may be, for the account of such Underwriter, but
any such payment shall not relieve such Underwriter from any of its
obligations under this Agreement.
(f) DELIVERY OF THE COMMON SHARES. The Company shall deliver, or cause
to be delivered, to the Representatives for the accounts of the several
Underwriters certificates for the Firm Common Shares at the First Closing
Date, against the irrevocable release of a wire transfer of immediately
available funds for the amount of the purchase price therefor. The Company
shall also deliver, or cause to be delivered, to the Representatives for the
accounts of the several Underwriters, certificates for the Optional Common
Shares the Underwriters have agreed to purchase at the First Closing Date or
the Second Closing Date, as the case may be, against the irrevocable release
of a wire transfer of immediately available funds for the amount of the
purchase price therefor. The certificates for the Common Shares shall be in
definitive form and registered in such names and denominations as the
Representatives shall have requested at least
10.
<PAGE>
two full business days prior to the First Closing Date (or the Second Closing
Date, as the case may be) and shall be made available for inspection on the
business day preceding the First Closing Date (or the Second Closing Date, as
the case may be) at a location in New York City as the Representatives may
designate. Time shall be of the essence, and delivery at the time and place
specified in this Agreement is a further condition to the obligations of the
Underwriters.
(g) DELIVERY OF PROSPECTUS TO THE UNDERWRITERS. Not later than 12:00
p.m. on the second business day following the date the Common Shares are
released by the Underwriters for sale to the public, the Company shall
delivery or cause to be delivered copies of the Prospectus in such quantities
and at such places as the Representatives shall request.
SECTION 3. ADDITIONAL COVENANTS OF THE COMPANY. The Company further
covenants and agrees with each Underwriter as follows:
(a) REPRESENTATIVES' REVIEW OF PROPOSED AMENDMENTS AND
SUPPLEMENTS. During such period beginning on the date hereof and ending on
the later of the First Closing Date or such date, as in the opinion of
counsel for the Underwriters, the Prospectus is no longer required by law to
be delivered in connection with sales by an Underwriter or dealer (the
"Prospectus Delivery Period"), prior to amending or supplementing the
Registration Statement (including any registration statement filed under Rule
462(b) under the Securities Act) or the Prospectus, the Company shall furnish
to the Representatives for review a copy of each such proposed amendment or
supplement, and the Company shall not file any such proposed amendment or
supplement to which NMS reasonably objects.
(b) SECURITIES ACT COMPLIANCE. After the date of this
Agreement, the Company shall promptly advise the Representatives in writing
(i) of the receipt of any comments of, or requests for additional or
supplemental information from, the Commission, (ii) of the time and date of
any filing of any post-effective amendment to the Registration Statement or
any amendment or supplement to any preliminary prospectus or the Prospectus,
(iii) of the time and date that any post-effective amendment to the
Registration Statement becomes effective and (iv) of the issuance by the
Commission of any stop order suspending the effectiveness of the Registration
Statement or any post-effective amendment thereto or of any order preventing
or suspending the use of any preliminary prospectus or the Prospectus, or of
any proceedings to remove, suspend or terminate from listing or quotation the
Common Stock from the Nasdaq National Market or any other securities exchange
upon which the it is listed for trading or included or designated for
quotation, or of the threatening or initiation of any proceedings for any of
such purposes. If the Commission shall enter any such stop order at any
time, the Company will use its best efforts to obtain the lifting of such
order at the earliest possible moment. Additionally, the Company agrees that
it shall comply with the provisions of Rules 424(b), 430A and 434, as
applicable, under the Securities Act and will use its reasonable efforts to
confirm that any filings made by the Company under such Rule 424(b) were
received in a timely manner by the Commission.
(c) AMENDMENTS AND SUPPLEMENTS TO THE PROSPECTUS AND OTHER
SECURITIES ACT MATTERS. If, during the Prospectus Delivery Period, any event
shall occur or
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condition exist as a result of which it is necessary to amend or supplement
the Prospectus in order to make the statements therein, in the light of the
circumstances when the Prospectus is delivered to a purchaser, not
misleading, or if in the opinion of the Representatives or counsel for the
Underwriters it is otherwise necessary to amend or supplement the Prospectus
to comply with law, the Company agrees to promptly prepare (subject to
Section 3(A)(a) hereof), file with the Commission and furnish at its own
expense to the Underwriters and to dealers, amendments or supplements to the
Prospectus so that the statements in the Prospectus as so amended or
supplemented will not, in the light of the circumstances when the Prospectus
is delivered to a purchaser, be misleading or so that the Prospectus, as
amended or supplemented, will comply with law.
(d) COPIES OF ANY AMENDMENTS AND SUPPLEMENTS TO THE PROSPECTUS.
The Company agrees to furnish the Representatives, without charge, during
the Prospectus Delivery Period, as many copies of the Prospectus and any
amendments and supplements thereto as the Representatives may request.
(e) BLUE SKY COMPLIANCE. The Company shall cooperate with the
Representatives and counsel for the Underwriters to qualify or register the
Common Shares for sale under (or obtain exemptions from the application of)
the or state securities or blue sky laws or Canadian provincial securities
laws of those jurisdictions designated by the Representatives, shall comply
with such laws and shall continue such qualifications, registrations and
exemptions in effect so long as required for the distribution of the Common
Shares. The Company shall not be required to qualify as a foreign
corporation or to take any action that would subject it to general service of
process in any such jurisdiction where it is not currently qualified or where
it would be subject to taxation as a foreign corporation. The Company will
advise the Representatives promptly of the suspension of the qualification or
registration of (or any such exemption relating to) the Common Shares for
offering, sale or trading in any jurisdiction or any initiation or threat of
any proceeding for any such purpose, and in the event of the issuance of any
order suspending such qualification, registration or exemption, the Company
shall use its best efforts to obtain the withdrawal thereof at the earliest
possible moment.
(f) USE OF PROCEEDS. The Company shall apply the net proceeds
from the sale of the Common Shares sold by it in the manner described under
the caption "Use of Proceeds" in the Prospectus.
(g) TRANSFER AGENT. The Company shall engage and maintain, at
its expense, a registrar and transfer agent for the Common Stock.
(h) EARNINGS STATEMENT. As soon as practicable, the Company
will make generally available to its security holders and to the
Representatives an earnings statement (which need not be audited) covering
the twelve-month period ending [___] that satisfies the provisions of Section
11(a) of the Securities Act.
(i) PERIODIC REPORTING OBLIGATIONS. During the Prospectus
Delivery Period the Company shall file, on a timely basis, with the
Commission and the Nasdaq National Market all reports and documents required
to be filed under the Exchange Act. Additionally, the
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Company shall file with the Commission all reports containing such
information as may be required under Rule 463 under the Securities Act.
(j) AGREEMENT NOT TO OFFER OR SELL ADDITIONAL SECURITIES.
During the period of 180 days following the date of the Prospectus, the
Company will not, without the prior written consent of NMS (which consent
may be withheld at the sole discretion of NMS), directly or indirectly,
sell, offer, contract or grant any option to sell, pledge, transfer or
establish an open "put equivalent position" within the meaning of Rule
16a-1(h) under the Exchange Act, or otherwise dispose of or transfer, or
announce the offering of, or file any registration statement under the
Securities Act in respect of, any shares of Common Stock, options or warrants
to acquire shares of the Common Stock or securities exchangeable or
exercisable for or convertible into shares of Common Stock (other than as
contemplated by this Agreement with respect to the Common Shares); provided,
however, that the Company may issue shares of its Common Stock or options to
purchase its Common Stock, or Common Stock upon exercise of options, pursuant
to any stock option, stock bonus or other stock plan or arrangement described
in the Prospectus, but only if the holders of such shares, options, or shares
issued upon exercise of such options, agree in writing not to sell, offer,
dispose of or otherwise transfer any such shares or options during such 180
day period without the prior written consent of NMS (which consent may be
withheld at the sole discretion of the NMS).
(k) FUTURE REPORTS TO THE REPRESENTATIVE. During the period of
five years hereafter the Company will furnish to the Representative at 600
Montgomery Street, San Francisco, CA 94111 Attention:__________ (i) as soon
as practicable after the end of each fiscal year, copies of the Annual Report
of the Company containing the balance sheet of the Company as of the close of
such fiscal year and statements of income, stockholders' equity and cash
flows for the year then ended and the opinion thereon of the Company's
independent public or certified public accountants; (ii) as soon as
practicable after the filing thereof, copies of each proxy statement, Annual
Report on Form 10-K, Quarterly Report on Form 10-Q, Current Report on Form
8-K or other report filed by the Company with the Commission, the NASD or any
securities exchange; and (iii) as soon as available, copies of any report or
communication of the Company mailed generally to holders of its capital stock.
(l) AGREEMENT NOT TO WAIVE LOCK-UP PROVISIONS. The Company
will not, without the prior written consent of NMS (which consent may be
withheld in the sole discretion of NMS), waive any obligation of any
shareholder of the Company under any agreement to refrain from, directly or
indirectly, selling, offering to sell, contracting or granting any option to
sell, pledging, transferring or establishing an open "put equivalent
position" within the meaning of Rule 16a-1(h) under the Exchange Act, or
otherwise disposing of or transferring, or announcing the offering of, any
Common Shares, options or warrants to acquire Common Shares or securities
exchangeable or exercisable for or convertible into Common Shares of Common
Stock (other than as contemplated by this Agreement with respect to the
Shares) during the period of 180 days following the date of the Prospectus.
SECTION 4. PAYMENT OF EXPENSES. The Company agrees to pay all costs,
fees and expenses incurred in connection with the performance of its
obligations hereunder and in
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connection with the transactions contemplated hereby, including without
limitation (i) all expenses incident to the issuance and delivery of the
Common Shares (including all printing and engraving costs), (ii) all fees and
expenses of the registrar and transfer agent of the Common Stock, (iii) all
necessary issue, transfer and other stamp taxes in connection with the
issuance and sale of the Common Shares to the Underwriters, (iv) all fees and
expenses of the Company's counsel, independent public or certified public
accountants and other advisors, (v) all costs and expenses incurred in
connection with the preparation, printing, filing, shipping and distribution
of the Registration Statement (including financial statements, exhibits,
schedules, consents and certificates of experts), each preliminary prospectus
and the Prospectus, and all amendments and supplements thereto, and this
Agreement, (vi) all filing fees, attorneys' fees and expenses incurred by the
Company or the Underwriters in connection with qualifying or registering (or
obtaining exemptions from the qualification or registration of) all or any
part of the Common Shares for offer and sale under the state securities or
blue sky laws or the provincial securities laws of Canada, and, if requested
by the Representatives, preparing and printing a "Blue Sky Survey" or
memorandum, and any supplements thereto, advising the Underwriters of such
qualifications, registrations and exemptions, (vii) the filing fees incident
to, and the reasonable fees and expenses of counsel for the Underwriters in
connection with, the NASD's review and approval of the Underwriters'
participation in the offering and distribution of the Common Shares, (viii)
the fees and expenses associated with including the Common Shares on the
Nasdaq National Market, and (ix) all other fees, costs and expenses referred
to in Item 13 of Part II of the Registration Statement. Except as provided in
this Section 4, Section 6, Section 8 and Section 9 hereof, the Underwriters
shall pay their own expenses, including the fees and disbursements of their
counsel.
SECTION 5. CONDITIONS OF THE OBLIGATIONS OF THE UNDERWRITERS. The
obligations of the several Underwriters to purchase and pay for the Common
Shares as provided herein on the First Closing Date and, with respect to the
Optional Common Shares, the Second Closing Date, shall be subject to the
accuracy of the representations and warranties on the part of the Company set
forth in Section 1 hereof as of the date hereof and as of the First Closing
Date as though then made and, with respect to the Optional Common Shares, as
of the Second Closing Date as though then made, to the timely performance by
the Company of its covenants and other obligations hereunder, and to each of
the following additional conditions:
(a) ACCOUNTANTS' COMFORT LETTER. On the date hereof, the
Representative shall have received from Price Waterhouse LLP independent
public accountants for the Company, a letter dated the date hereof addressed
to the Underwriters, in form and substance satisfactory to the
Representatives, containing statements and information of the type ordinarily
included in accountant's "comfort letters" to underwriters, delivered
according to Statement of Auditing Standards No. 72 (or any successor
bulletin), with respect to the audited and unaudited financial statements and
certain financial information contained in the Registration Statement and the
Prospectus (and the Representatives shall have received an additional three
(3) conformed copies of such accountants' letter for each of the several
Underwriters).
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(b) COMPLIANCE WITH REGISTRATION REQUIREMENTS; NO STOP ORDER;
NO OBJECTION FROM NASD. For the period from and after effectiveness of this
Agreement and prior to the First Closing Date and, with respect to the
Optional Common Shares, the Second Closing Date:
(i) the Company shall have filed the Prospectus with the
Commission (including the information required by Rule 430A under the
Securities Act) in the manner and within the time period required by Rule
424(b) under the Securities Act; or the Company shall have filed a
post-effective amendment to the Registration Statement containing the
information required by such Rule 430A, and such post-effective amendment
shall have become effective; or, if the Company elected to rely upon Rule 434
under the Securities Act and obtained the Representatives' consent thereto,
the Company shall have filed a Term Sheet with the Commission in the manner
and within the time period required by such Rule 424(b);
(ii) no stop order suspending the effectiveness of the
Registration Statement, any Rule 462(b) Registration Statement, or any
post-effective amendment to the Registration Statement, shall be in effect
and no proceedings for such purpose shall have been instituted or threatened
by the Commission; and
(iii) the NASD shall have raised no objection to the
fairness and reasonableness of the underwriting terms and arrangements.
(c) NO MATERIAL ADVERSE CHANGE. For the period from and after
the date of this Agreement and prior to the First Closing Date and, with
respect to the Optional Common Shares, the Second Closing Date, in the
judgment of the Representatives there shall not have occurred any Material
Adverse Change.
(d) OPINIONS OF COUNSEL FOR THE COMPANY.
(i) On each of the First Closing Date and the Second
Closing Date the Representative shall have received the favorable opinion of
Venture Law Group counsel for the Company, dated as of such Closing Date, the
form of which is attached as Exhibit A (and the Representative shall have
received an additional three (3) conformed copies of such counsel's legal
opinion for each of the several Underwriters).
(ii) On each of the First Closing Date and the Second
Closing Date the Representative shall have received the favorable opinion of
Kolisch, Hartwell, Dickinson, McCormack & Heuser, patent counsel for the
Company, dated as of such Closing Date, the form of which is attached as
Exhibit B (and the Representative shall have received an additional three (3)
conformed copies of such counsel's legal opinion for each of the several
Underwriters).
(e) OPINION OF COUNSEL FOR THE UNDERWRITERS. On each of the
First Closing Date and the Second Closing Date the Representative shall have
received the favorable opinion of Cooley Godward LLP counsel for the
Underwriters, dated as of such Closing Date, with respect to certain matters
set forth in Exhibit A (and the Representatives shall have
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received an additional three (3) conformed copies of such counsel's legal
opinion for each of the several Underwriters).
(f) OFFICERS' CERTIFICATE. On each of the First Closing Date
and the Second Closing Date the Representative shall have received a written
certificate executed by the Chairman of the Board, Chief Executive Officer or
President of the Company and the Chief Financial Officer or Chief Accounting
Officer of the Company, dated as of such Closing Date, to the effect set
forth in subsections (b)(ii) and (c) of this Section 5, and further to the
effect that:
(i) for the period from and after the date of this
Agreement and prior to such Closing Date, there has not occurred any Material
Adverse Change;
(ii) the representations and warranties of the Company
set forth in Section 1 of this Agreement are true and correct with the same
force and effect as though expressly made on and as of such Closing Date; and
(iii) the Company has complied with all the agreements and
satisfied all the conditions on its part to be performed or satisfied at or
prior to such Closing Date.
(g) BRING-DOWN COMFORT LETTER. On each of the First Closing
Date and the Second Closing Date the Representative shall have received from
Price Waterhouse LLP, independent public accountants for the Company, a
letter dated such date, in form and substance satisfactory to the
Representatives, to the effect that they reaffirm the statements made in the
letter furnished by them pursuant to subsection (a) of this Section 5, except
that the specified date referred to therein for the carrying out of
procedures shall be no more than three business days prior to the First
Closing Date or Second Closing Date, as the case may be (and the
Representatives shall have received an additional three (3) conformed copies
of such accountants' letter for each of the several Underwriters).
(h) LOCK-UP AGREEMENT FROM CERTAIN STOCKHOLDERS OF THE
COMPANY. On the date hereof, the Company shall have furnished to the
Representative an agreement in the form of Exhibit C hereto from each
director, officer, and each beneficial owner of Common Shares (as defined and
determined according to Rule 13d-3 under the Exchange Act, except that a one
hundred eighty day period shall be used rather than the sixty day period set
forth therein), and such agreement shall be in full force and effect on each
of the First Closing Date and the Second Closing Date.
(i) ADDITIONAL DOCUMENTS. On or before each of the First
Closing Date and the Second Closing Date, the Representatives and counsel for
the Underwriters shall have received such information, documents and opinions
as they may reasonably require for the purposes of enabling them to pass upon
the issuance and sale of the Common Shares as contemplated herein, or in
order to evidence the accuracy of any of the representations and warranties,
or the satisfaction of any of the conditions or agreements, herein contained.
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If any condition specified in this Section 5 is not
satisfied when and as required to be satisfied, this Agreement may be
terminated by the Representatives by notice to the Company at any time on or
prior to the First Closing Date and, with respect to the Optional Common
Shares, at any time prior to the Second Closing Date, which termination shall
be without liability on the part of any party to any other party, except that
Section 4, Section 6, Section 8 and Section 9 shall at all times be effective
and shall survive such termination.
SECTION 6. REIMBURSEMENT OF UNDERWRITERS' EXPENSES. If this Agreement is
terminated by the Representative pursuant to Section 5 or Section 11, or if
the sale to the Underwriters of the Common Shares on the First Closing Date
is not consummated because of any refusal, inability or failure on the part
of the Company to perform any agreement herein or to comply with any
provision hereof, the Company agrees to reimburse the Representatives and the
other Underwriters (or such Underwriters as have terminated this Agreement
with respect to themselves), severally, upon demand for all out-of-pocket
expenses that shall have been reasonably incurred by the Representatives and
the Underwriters in connection with the proposed purchase and the offering
and sale of the Common Shares, including but not limited to fees and
disbursements of counsel, printing expenses, travel expenses, postage,
facsimile and telephone charges.
SECTION 7. EFFECTIVENESS OF THIS AGREEMENT.
This Agreement shall not become effective until the later of (i) the
execution of this Agreement by the parties hereto and (ii) notification by
the Commission to the Company and the Representatives of the effectiveness of
the Registration Statement under the Securities Act.
Prior to such effectiveness, this Agreement may be terminated by any
party by notice to each of the other parties hereto, and any such termination
shall be without liability on the part of (a) the Company to any Underwriter,
except that the Company shall be obligated to reimburse the expenses of the
Representatives and the Underwriters pursuant to Section 4 hereof, (b) of any
Underwriter to the Company, or (c) of any party hereto to any other party
except that the provisions of Section 8 and Section 9 shall at all times be
effective and shall survive such termination.
SECTION 8. INDEMNIFICATION.
(a) INDEMNIFICATION OF THE UNDERWRITERS. The Company agrees
to indemnify and hold harmless each Underwriter, its officers and employees,
and each person, if any, who controls any Underwriter within the meaning of
the Securities Act and the Exchange Act against any loss, claim, damage,
liability or expense, as incurred, to which such Underwriter or such
controlling person may become subject (including in its capacity as a
"qualified independent underwriter" within the meaning of Rule 2720 of the
Conduct Rules of the NASD), under the Securities Act, the Exchange Act or
other federal or state statutory law or regulation, or at common law or
otherwise (including in settlement of any litigation, if such settlement is
effected with the written consent of the Company), insofar as such loss,
claim, damage, liability or expense (or actions in respect thereof as
contemplated below) arises out of or is based (i) upon any untrue statement
or alleged untrue statement of a material fact contained in the
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Registration Statement, or any amendment thereto, including any information
deemed to be a part thereof pursuant to Rule 430A or Rule 434 under the
Securities Act, or the omission or alleged omission therefrom of a material
fact required to be stated therein or necessary to make the statements
therein not misleading; or (ii) upon any untrue statement or alleged untrue
statement of a material fact contained in any preliminary prospectus or the
Prospectus (or any amendment or supplement thereto), or the omission or
alleged omission therefrom of a material fact necessary in order to make the
statements therein, in the light of the circumstances under which they were
made, not misleading; or (iii) in whole or in part upon any inaccuracy in the
representations and warranties of the Company contained herein; or (iv) in
whole or in part upon any failure of the Company to perform its obligations
hereunder or under law; or (v) any act or failure to act or any alleged act
or failure to act by any Underwriter in connection with, or relating in any
manner to, the Common Stock or the offering contemplated hereby, and which is
included as part of or referred to in any loss, claim, damage, liability or
action arising out of or based upon any matter covered by clause (i) or (ii)
above, provided that the Company shall not be liable under this clause (v) to
the extent that a court of competent jurisdiction shall have determined by a
final judgment that such loss, claim, damage, liability or actio resulted
directly from any such acts or failures to act undertaken or omitted to be
taken by such Underwriter through its bad faith or willful misconduct; and to
reimburse each Underwriter and each such controlling person for any and all
expenses (including the fees and disbursements of counsel chosen by NMS) as
such expenses are reasonably incurred by such Underwriter or such controlling
person in connection with investigating, defending, settling, compromising or
paying any such loss, claim, damage, liability, expense or action; provided,
however, that the foregoing indemnity agreement shall not apply to any loss,
claim, damage, liability or expense to the extent, but only to the extent,
arising out of or based upon any untrue statement or alleged untrue statement
or omission or alleged omission made in reliance upon and in strict
conformity with written information furnished to the Company by the
Representatives expressly for use in the Registration Statement, any
preliminary prospectus or the Prospectus (or any amendment or supplement
thereto); and provided, further, that with respect to any preliminary
prospectus, the foregoing indemnity agreement shall not inure to the benefit
of any Underwriter from whom the person asserting any loss, claim, damage,
liability or expense purchased Common Shares, or any person controlling such
Underwriter, if copies of the Prospectus were timely delivered to the
Underwriter pursuant to Section 2 and a copy of the Prospectus (as then
amended or supplemented if the Company shall have furnished any amendments or
supplements thereto) was not sent or given by or on behalf of such
Underwriter to such person, if required by law so to have been delivered, at
or prior to the written confirmation of the sale of the Common Shares to such
person, and if the Prospectus (as so amended or supplemented) would have
cured the defect giving rise to such loss, claim, damage, liability or
expense. The indemnity agreement set forth in this Section 8(a) shall be in
addition to any liabilities tat the Company may otherwise have.
(b) INDEMNIFICATION OF THE COMPANY, ITS DIRECTORS AND
OFFICERS. Each Underwriter agrees, severally and not jointly, to indemnify
and hold harmless the Company, each of its directors, each of its officers
who signed the Registration Statement and each person, if any, who controls
the Company within the meaning of the Securities Act or the Exchange Act,
against any loss, claim, damage, liability or expense, as incurred, to which
the
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Company, or any such director, officer or controlling person may become
subject, under the Securities Act, the Exchange Act, or other federal or
state statutory law or regulation, or at common law or otherwise (including
in settlement of any litigation, if such settlement is effected with the
written consent of such Underwriter), insofar as such loss, claim, damage,
liability or expense (or actions in respect thereof as contemplated below)
arises out of or is based upon any untrue or alleged untrue statement of a
material fact contained in the Registration Statement, any preliminary
prospectus or the Prospectus (or any amendment or supplement thereto), or
arises out of or is based upon the omission or alleged omission to state
therein a material fact required to be stated therein or necessary to make
the statements therein not misleading, in each case to the extent, but only
to the extent, that such untrue statement or alleged untrue statement or
omission or alleged omission was made in the Registration Statement, any
preliminary prospectus, the Prospectus (or any amendment or supplement
thereto), in reliance upon and in strict conformity with written information
furnished to the Company by the Representatives expressly for use therein;
and to reimburse the Company, or any such director, officer or controlling
person for any legal and other expense reasonably incurred by the Company, or
any such director, officer or controlling person in connection with
investigating, defending, settling, compromising or paying any such loss,
claim, damage, liability, expense or action. The Company hereby acknowledges
that the only information that the Underwritrs have furnished to the Company
expressly for use in the Registration Statement, any preliminary prospectus
or the Prospectus (or any amendment or supplement thereto) are the statements
set forth (A) as the second to last paragraph on the inside front cover page
of the Prospectus concerning stabilization and passive market making by the
Underwriters and (B) in the table in the first paragraph and as the second,
fifth, ninth and tenth paragraphs under the caption "Underwriting" in the
Prospectus; and the Underwriters confirm that such statements are correct.
The indemnity agreement set forth in this Section 8(b) shall be in addition
to any liabilities that each Underwriter may otherwise have.
(c) NOTIFICATIONS AND OTHER INDEMNIFICATION PROCEDURES.
Promptly after receipt by an indemnified party under this Section 8 of notice
of the commencement of any action, such indemnified party will, if a claim in
respect thereof is to be made against an indemnifying party under this
Section 8, notify the indemnifying party in writing of the commencement
thereof, but the omission so to notify the indemnifying party will not
relieve the indemnifying party it from any liability which it may have to any
indemnified party for contribution or otherwise than under the indemnity
agreement contained in this Section 8 or to the extent it is not prejudiced
as a proximate result of such failure. In case any such action is brought
against any indemnified party and such indemnified party seeks or intends to
seek indemnity from an indemnifying party, the indemnifying party will be
entitled to participate in, and, to the extent that it shall elect, jointly
with all other indemnifying parties similarly notified, by written notice
delivered to the indemnified party promptly after receiving the aforesaid
notice from such indemnified party, to assume the defense thereof with
counsel reasonably satisfactory to such indemnified party; provided, however,
if the defendants in any such action include both the indemnified party and
the indemnifying party and the indemnified party shall have reasonably
concluded that a conflict may arise between the positions of the indemnifying
party and the indemnified party in conducting the defense of any such action
or that there may be legal defenses available to it and/or other indemnified
parties which are different from or
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additional to those available to the indemnifying party, the indemnified
party or parties shall have the right to select separate counsel to assume
such legal defenses and to otherwise participate in the defense of such
action on behalf of such indemnified party or parties. Upon receipt of
notice from the indemnifying party to such indemnified party of such
indemnifying party's election so to assume the defense of such action and
approval by the indemnified party of counsel, the indemnifying party will not
be liable to such indemnified party under this Section 8 for any legal or
other expenses subsequently incurred by such indemnified party in connection
with the defense thereof unless (i) the indemnified party shall have employed
separate counsel in accordance with the proviso to the next preceding
sentence (it being understood, however, that the indemnifying party shall not
be liable for the expenses of more than one separate counsel (together with
local counsel), approved by the indemnifying party (NMS in the case of
Section 8(b) and Section 9), representing the indemnified parties who are
parties to such action) or (ii) the indemnifying party shall not have
employed counsel satisfactory to the indemnified party to represent the
indemnified party within a reasonable time after notice of commencement of
the action, in each of which cases the fees and expenses of counsel shall be
at the expense of the indemnifying party.
(d) SETTLEMENTS. The indemnifying party under this Section 8
shall not be liable for any settlement of any proceeding effected without its
written consent, but if settled with such consent or if there be a final
judgment for the plaintiff, the indemnifying party agrees to indemnify the
indemnified party against any loss, claim, damage, liability or expense by
reason of such settlement or judgment. 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 Section 8(c) hereof, 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
30 days after receipt by such indemnifying party of the aforesaid request and
(ii) such indemnifying party shall not have reimbursed the indemnified party
in accordance with such request prior to the date of such settlement. No
indemnifying party shall, without the prior written consent of the
indemnified party, effect any settlement, compromise or consent to the entry
of judgment in any pending or threatened action, suit or proceeding in
respect of which any indemnified party is or could have been a party and
indemnity was or could have been sought hereunder by such indemnified party,
unless such settlement, compromise or consent includes an unconditional
release of such indemnified party from all liability on claims that are the
subject matter of such action, suit or proceeding.
SECTION 9. CONTRIBUTION.
If the indemnification provided for in Section 8 is for any
reason held to be unavailable to or otherwise insufficient to hold harmless
an indemnified party in respect of any losses, claims, damages, liabilities
or expenses referred to therein, then each indemnifying party shall
contribute to the aggregate amount paid or payable by such indemnified party,
as incurred, as a result of any losses, claims, damages, liabilities or
expenses referred to therein (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 Common Shares
pursuant
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to this Agreement 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 the
Underwriters, on the other hand, in connection with the statements or
omissions in the Registration Statement, any preliminary prospectus or the
Prospectus (or any supplement or amendment thereto) or inaccuracies in the
representations and warranties herein which resulted in such losses, claims,
damages, liabilities or expenses, 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 hand, in connection with the
offering of the Common Shares pursuant to this Agreement shall be deemed to
be in the same respective proportions as the total net proceeds from the
offering of the Common Shares pursuant to this Agreement (before deducting
expenses) received by the Company, and the total underwriting discount
received by the Underwriters, in each case as set forth on the front cover
page of the Prospectus (or, if Rule 434 under the Securities Act is used, the
corresponding location on the Term Sheet) bear to the aggregate initial
public offering price of the Common Shares as set forth on uch cover. The
relative fault of the Company, on the one hand, and the Underwriters, on the
other hand, shall be determined by reference to, among other things, whether
any such untrue or alleged untrue statement of a material fact or omission or
alleged omission to state a material fact or any such inaccurate or alleged
inaccurate representation or warranty relates to information supplied by the
Company, on the one hand, or the Underwriters, on the other hand, 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,
claims, damages, liabilities and expenses referred to above shall be deemed
to include, subject to the limitations set forth in Section 8(c), any legal
or other fees or expenses reasonably incurred by such party in connection
with investigating or defending any action or claim. The provisions set
forth in Section 8(c) with respect to notice of commencement of any action
shall apply if a claim for contribution is to be made under this Section 9;
provided, however, that no additional notice shall be required with respect
to any action for which notice has been given under Section 8(c) for purposes
of indemnification.
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 which does not take account of
the equitable considerations referred to in this Section 9.
Notwithstanding the provisions of this Section 9, no Underwriter
shall be required to contribute any amount in excess of the underwriting
commissions received by such Underwriter in connection with the Common Shares
underwritten by it and distributed to the public. No person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the
Securities 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, and not joint, in
proportion to their respective underwriting commitments as set forth opposite
their names in Schedule A. For purposes of this Section 9, each officer and
21.
<PAGE>
employee of an Underwriter and each person, if any, who controls an
Underwriter within the meaning of the Securities Act and the Exchange Act
shall have the same rights to contribution as such Underwriter, and each
director of the Company, each officer of the Company who signed the
Registration Statement, and each person, if any, who controls the Company
with the meaning of the Securities Act and the Exchange Act shall have the
same rights to contribution as the Company.
SECTION 10. DEFAULT OF ONE OR MORE OF THE SEVERAL UNDERWRITERS. If, on
the First Closing Date or the Second Closing Date, as the case may be, any
one or more of the several Underwriters shall fail or refuse to purchase
Common Shares that it or they have agreed to purchase hereunder on such date,
and the aggregate number of Common Shares which such defaulting Underwriter
or Underwriters agreed but failed or refused to purchase does not exceed 10%
of the aggregate number of the Common Shares to be purchased on such date,
the other Underwriters shall be obligated, severally, in the proportions that
the number of Firm Common Shares set forth opposite their respective names on
Schedule A bears to the aggregate number of Firm Common Shares set forth
opposite the names of all such non-defaulting Underwriters, or in such other
proportions as may be specified by the Representatives with the consent of
the non-defaulting Underwriters, to purchase the Common Shares which such
defaulting Underwriter or Underwriters agreed but failed or refused to
purchase on such date. If, on the First Closing Date or the Second Closing
Date, as the case may be, any one or more of the Underwriters shall fail or
refuse to purchase Common Shares and the aggregate number of Common Shares
with respect to which such default occurs exceeds 10% of the aggregate number
of Common Shares to be purchased on such date, and arrangements satisfactory
to the Representative and the Company for the purchase of such Common Shares
are not made within 48 hours after such default, this Agreement shall
terminate without liability of any party to any other party except that the
provisions of Section 4, Section 8 and Section 9 shall at all times be
effective and shall survive such termination. In any such case either NMS
or the Company shall have the right to postpone the First Closing Date or the
Second Closing Date, as the case may be, but in no event for longer than
seven days in order that the required changes, if any, to the Registration
Statement and the Prospectus or any other documents or arrangements may be
effected.
As used in this Agreement, the term "Underwriter" shall be deemed to
include any person substituted for a defaulting Underwriter under this
Section 10. Any action taken under this Section 10 shall not relieve any
defaulting Underwriter from liability in respect of any default of such
Underwriter under this Agreement.
SECTION 11. TERMINATION OF THIS AGREEMENT. Prior to the First Closing
Date, this Agreement may be terminated by the Representatives by notice given
to the Company if at any time (i) trading or quotation in any of the
Company's securities shall have been suspended or limited by the Commission
or by the Nasdaq Stock Market, or trading in securities generally on either
the Nasdaq Stock Market or the New York Stock Exchange shall have been
suspended or limited, or minimum or maximum prices shall have been generally
established on any of such stock exchanges by the Commission or the NASD;
(ii) a general banking moratorium shall have been declared by any of federal,
New York, Delaware or California authorities; (iii) there shall
22.
<PAGE>
have occurred any outbreak or escalation of national or international
hostilities or any crisis or calamity, or any change in the United States or
international financial markets, or any substantial change or development
involving a prospective substantial change in United States' or international
political, financial or economic conditions, as in the judgment of the
Representatives is material and adverse and makes it impracticable to market
the Common Shares in the manner and on the terms described in the Prospectus
or to enforce contracts for the sale of securities; (iv) in the judgment of
the Representatives there shall have occurred any Material Adverse Change; or
(v) the Company shall have sustained a loss by strike, fire, flood,
earthquake, accident or other calamity, whether or not covered by insurance,
of such character as in the judgment of the Representatives is so material
and adverse as to make it impracticable or inadvisable to proceed with the
public offering or the delivery of the Common Shares on the terms and in the
manner contemplated in the Prospectus. Any termination pursuant to this
Section 11 shall be without liability on the part of (a) the Company to any
Underwriter, except that the Company shall be obligated to reimburse the
expenses of the Representatives and the Underwriters pursuant to Sections 4
and 6 hereof, (b) any Underwriter to the Company or (c) of any party hereto
to any other party except that the provisions of Section 8 and Section 9
shall at all times be effective and shall survive such termination.
SECTION 12. REPRESENTATIONS AND INDEMNITIES TO SURVIVE DELIVERY. The
respective indemnities, agreements, representations, warranties and other
statements of the Company, of its officers and of the several Underwriters
set forth in or made pursuant to this Agreement will remain in full force and
effect, regardless of any investigation made by or on behalf of any
Underwriter or the Company or any of its or their partners, officers or
directors or any controlling person, as the case may be, and will survive
delivery of and payment for the Common Shares sold hereunder and any
termination of this Agreement.
SECTION 13. NOTICES. All communications hereunder shall be in writing
and shall be mailed, hand delivered or telecopied and confirmed to the
parties hereto as follows:
If to the Representatives:
NationsBanc Montgomery Securities LLC
600 Montgomery Street
San Francisco, California 94111
Facsimile: 415-249-5558
Attention: Richard A. Smith
with a copy to:
NationsBanc Montgomery Securities LLC
600 Montgomery Street
San Francisco, California 94111
Facsimile: (415) 249-5553
Attention: David A. Baylor, Esq.
23.
<PAGE>
If to the Company:
LJL BioSystems, Inc.
404 Tasman Drive
Sunnyvale, CA 94089
Facsimile: (408) 541-8786
Attention: Lev J. Leytes
With a copy to:
Venture Law Group
2800 Sand Hill Road
Menlo Park, CA 94025
Facsimile: (650) 233-8386
Attention: Mark B. Weeks, Esq.
Any party hereto may change the address for receipt of communications by
giving written notice to the others.
SECTION 14. SUCCESSORS. This Agreement will inure to the benefit of
and be binding upon the parties hereto, including any substitute Underwriters
pursuant to Section 10 hereof, and to the benefit of the employees, officers
and directors and controlling persons referred to in Section 8 and Section 9,
and in each case their respective successors, and personal representatives,
and no other person will have any right or obligation hereunder. The term
"successors" shall not include any purchaser of the Common Shares as such
from any of the Underwriters merely by reason of such purchase.
SECTION 15. PARTIAL UNENFORCEABILITY. The invalidity or
unenforceability of any Section, paragraph or provision of this Agreement
shall not affect the validity or enforceability of any other Section,
paragraph or provision hereof. If any Section, paragraph or provision of
this Agreement is for any reason determined to be invalid or unenforceable,
there shall be deemed to be made such minor changes (and only such minor
changes) as are necessary to make it valid and enforceable.
SECTION 16. GOVERNING LAW PROVISIONS. THIS AGREEMENT SHALL BE
GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE
OF CALIFORNIA APPLICABLE TO AGREEMENTS MADE AND TO BE PERFORMED IN SUCH STATE.
(a) CONSENT TO JURISDICTION. Any legal suit, action or
proceeding arising out of or based upon this Agreement or the transactions
contemplated hereby ("Related Proceedings") may be instituted in the federal
courts of the United States of America located in the City and County of San
Francisco or the courts of the State of California in each case located in
the City and County of San Francisco (collectively, the "Specified Courts"),
and each party irrevocably submits to the exclusive jurisdiction (except for
proceedings instituted in regard to the enforcement of a judgment of any such
court (a "Related Judgment"), as to which such
24.
<PAGE>
jurisdiction is non-exclusive) of such courts in any such suit, action or
proceeding. Service of any process, summons, notice or document by mail to
such party's address set forth above shall be effective service of process
for any suit, action or other proceeding brought in any such court. The
parties irrevocably and unconditionally waive any objection to the laying of
venue of any suit, action or other proceeding in the Specified Courts and
irrevocably and unconditionally waive and agree not to plead or claim in any
such court that any such suit, action or other proceeding brought in any such
court has been brought in an inconvenient forum. Each party not located in
the United States irrevocably appoints CT Corporation System, which currently
maintains a San Francisco office at 49 Stevenson Street, San Francisco,
California 94105, United States of America, as its agent to receive service
of process or other legal summons for purposes of any such suit, action or
proceeding that may be instituted in any state or federal court in the City
and County of San Francisco.
(b) WAIVER OF IMMUNITY. With respect to any Related
Proceeding, each party irrevocably waives, to the fullest extent permitted by
applicable law, all immunity (whether on the basis of sovereignty or
otherwise) from jurisdiction, service of process, attachment (both before and
after judgment) and execution to which it might otherwise be entitled in the
Specified Courts, and with respect to any Related Judgment, each party waives
any such immunity in the Specified Courts or any other court of competent
jurisdiction, and will not raise or claim or cause to be pleaded any such
immunity at or in respect of any such Related Proceeding or Related Judgment,
including, without limitation, any immunity pursuant to the United States
Foreign Sovereign Immunities Act of 1976, as amended.
SECTION 17. GENERAL PROVISIONS. This Agreement constitutes the entire
agreement of the parties to this Agreement and supersedes all prior written
or oral and all contemporaneous oral agreements, understandings and
negotiations with respect to the subject matter hereof. This Agreement may
be executed in two or more counterparts, each one of which shall be an
original, with the same effect as if the signatures thereto and hereto were
upon the same instrument. This Agreement may not be amended or modified
unless in writing by all of the parties hereto, and no condition herein
(express or implied) may be waived unless waived in writing by each party
whom the condition is meant to benefit. The Table of Contents and the
Section headings herein are for the convenience of the parties only and shall
not affect the construction or interpretation of this Agreement.
Each of the parties hereto acknowledges that it is a sophisticated
business person who was adequately represented by counsel during negotiations
regarding the provisions hereof, including, without limitation, the
indemnification provisions of Section 8 and the contribution provisions of
Section 9, and is fully informed regarding said provisions. Each of the
parties hereto further acknowledges that the provisions of Sections 8 and 9
hereto fairly allocate the risks in light of the ability of the parties to
investigate the Company, its affairs and its business in order to assure that
adequate disclosure has been made in the Registration Statement, any
preliminary prospectus and the Prospectus (and any amendments and supplements
thereto), as required by the Securities Act and the Exchange Act.
25.
<PAGE>
If the foregoing is in accordance with your understanding of our
agreement, kindly sign and return to the Company the enclosed copies hereof,
whereupon this instrument, along with all counterparts hereof, shall become a
binding agreement in accordance with its terms.
Very truly yours,
LJL BIOSYSTEMS, INC.
By:________________________________
Lev J. Leytes
President and Chief Executive Officer
The foregoing Underwriting Agreement is hereby confirmed and
accepted by the Representatives in San Francisco, California as of the date
first above written.
NATIONSBANC MONTGOMERY SECURITIES LLC
HAMBRECHT & QUIST LLC
VOLPE BROWN WHELAN & COMPANY, LLC
Acting as Representatives of the
several Underwriters named in
the attached Schedule A.
By: NATIONSBANC MONTGOMERY SECURITIES LLC
By:________________________________
Managing Director
26.
<PAGE>
SCHEDULE A
NUMBER OF
FIRM COMMON
SHARES
UNDERWRITERS TO BE PURCHASED
NationsBanc Montgomery Securities LLC . . . . . . . . . . . . . . . [____]
.
Hambrecht & Quist LLC . . . . . . . . . . . . . . . . . . . . . . . [____]
Volpe Brown Whelan & Company, LLC . . . . . . . . . . . . . . . . . [____]
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,500,000
27.
<PAGE>
EXHIBIT A
Opinion of counsel for the Company to be delivered pursuant to Section
5(d) of the Underwriting Agreement.
References to the Prospectus in this Exhibit A include any supplements
thereto at the Closing Date.
(i) The Company has been duly incorporated and is validly existing as a
corporation in good standing under the laws of the State of Delaware.
(ii) The Company has corporate power and authority to own, lease and
operate its properties and to conduct its business as described in the
Prospectus and to enter into and perform its obligations under the
Underwriting Agreement.
(iii) The Company is duly qualified as a foreign corporation to transact
business and is in good standing in the State of California and in each other
jurisdiction in which such qualification is required, whether by reason of
the ownership or leasing of property or the conduct of business, except for
such jurisdictions (other than the State of California) where the failure to
so qualify or to be in good standing would not, individually or in the
aggregate, result in a Material Adverse Change.
(iv) The authorized, issued and outstanding capital stock of the Company
(including the Common Stock) conform to the descriptions thereof set forth in
the Prospectus. All of the outstanding shares of Common Stock have been duly
authorized and validly issued, are fully paid and nonassessable and, to the
best of such counsel's knowledge, have been issued in compliance with the
registration and qualification requirements of federal and state securities
laws. The form of certificate used to evidence the Common Stock is in due
and proper form and complies with all applicable requirements of the charter
and by-laws of the Company and the General Corporation Law of the State of
Delaware. The description of the Company's stock option, stock bonus and
other stock plans or arrangements, and the options or other rights granted
and exercised thereunder, set forth in the Prospectus accurately and fairly
presents the information required to be shown with respect to such plans,
arrangements, options and rights.
(v) No stockholder of the Company or any other person has any
preemptive right, right of first refusal or other similar right to subscribe
for or purchase securities of the Company arising (i) by operation of the
charter or by-laws of the Company or the General Corporation Law of the State
of Delaware or (ii) to the best knowledge of such counsel, otherwise.
(vi) The Underwriting Agreement has been duly authorized, executed and
delivered by, and is a valid and binding agreement of, the Company,
enforceable in accordance with its terms, except as rights to indemnification
thereunder may be limited by applicable law and except as the enforcement
thereof may be limited by bankruptcy, insolvency, reorganization, moratorium
or other similar laws relating to or affecting creditors' rights generally or
by general equitable principles.
28.
<PAGE>
(vii) The Common Shares to be purchased by the Underwriters from the
Company have been duly authorized for issuance and sale pursuant to the
Underwriting Agreement and, when issued and delivered by the Company pursuant
to the Underwriting Agreement against payment of the consideration set forth
therein, will be validly issued, fully paid and nonassessable.
(viii) Each of the Registration Statement and the Rule 462(b)
Registration Statement, if any, has been declared effective by the Commission
under the Securities Act. To the best knowledge of such counsel, no stop
order suspending the effectiveness of either of the Registration Statement or
the Rule 462(b) Registration Statement, if any, has been issued under the
Securities Act and no proceedings for such purpose have been instituted or
are pending or are contemplated or threatened by the Commission. Any
required filing of the Prospectus and any supplement thereto pursuant to Rule
424(b) under the Securities Act has been made in the manner and within the
time period required by such Rule 424(b).
(ix) The Registration Statement, including any Rule 462(b) Registration
Statement, the Prospectus including any document incorporated by reference
therein, and each amendment or supplement to the Registration Statement and
the Prospectus including any document incorporated by reference therein, as
of their respective effective or issue dates (other than the financial
statements and supporting schedules included or incorporated by reference
therein or in exhibits to or excluded from the Registration Statement, as to
which no opinion need be rendered) comply as to form in all material respects
with the applicable requirements of the Securities Act and the Exchange Act.
(x) The Common Shares have been approved for listing on the Nasdaq
National Market.
(xi) The statements (i) in the Prospectus under the captions "Risk
Factors--Availability of Preferred Stock for Issuance; Anti-Takeover
Provisions", "Risk Factors--Shares Eligible for Future Sale and Potential
Adverse Effect on Market Price", "Description of Capital Stock", "Certain
Relationships and Related Transactions", "Management--Stock Plans", "Shares
Eligible for Future Sale", and (ii) in Item 14 and Item 15 of the
Registration Statement, insofar as such statements constitute matters of law,
summaries of legal matters, the Company's charter or by-law provisions,
documents or legal proceedings, or legal conclusions, has been reviewed by
such counsel and fairly present and summarize, in all material respects, the
matters referred to therein.
(xii) To the best knowledge of such counsel, there are no legal or
governmental actions, suits or proceedings pending or threatened which are
required to be disclosed in the Registration Statement, other than those
disclosed therein.
(xiv) To the best knowledge of such counsel, there are no Existing
Instruments required to be described or referred to in the Registration
Statement or to be filed as exhibits thereto other than those described or
referred to therein or filed or incorporated by reference as exhibits
thereto; and the descriptions thereof and references thereto are correct in
all material respects.
29.
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(xv) No consent, approval, authorization or other order of, or
registration or filing with, any court or other governmental authority or
agency, is required for the Company's execution, delivery and performance of
the Underwriting Agreement and consummation of the transactions contemplated
thereby and by the Prospectus, except as required under the Securities Act,
applicable state securities or blue sky laws and from the NASD.
(xvi) The execution and delivery of the Underwriting Agreement by the
Company and the performance by the Company of its obligations thereunder
(other than performance by the Company of its obligations under the
indemnification section of the Underwriting Agreement, as to which no opinion
need be rendered) (i) have been duly authorized by all necessary corporate
action on the part of the Company; (ii) will not result in any violation of
the provisions of the charter or by-laws of the Company; (iii) will not
constitute a breach of, or Default under, or result in the creation or
imposition of any lien, charge or encumbrance upon any property or assets of
the Company or any material Existing Instrument; (iv) to the best knowledge
of such counsel, will not result in any violation of any law, administrative
regulation or administrative or court decree applicable to the Company.
(xvii) The Company is not, and after receipt of payment for the Common
Shares will not be, an "investment company" within the meaning of Investment
Company Act.
(xviii) Except as disclosed in the Prospectus to the best knowledge of
such counsel, there are no persons with registration or other similar rights
to have any equity or debt securities registered for sale under the
Registration Statement or included in the offering contemplated by the
Underwriting Agreement, except for such rights as have been duly waived.
(xix) To the best knowledge of such counsel, the Company is not in
violation of its charter or by-laws or any law, administrative regulation or
administrative or court decree applicable to the Company or is in Default in
the performance or observance of any obligation, agreement, covenant or
condition contained in any material Existing Instrument, except in each such
case for such violations or Defaults as would not, individually or in the
aggregate, result in a Material Adverse Change.
In addition, such counsel shall state that they have participated in
conferences with officers and other representatives of the Company,
representatives of the independent public or certified public accountants for
the Company and with representatives of the Underwriters at which the
contents of the Registration Statement and the Prospectus, and any
supplements or amendments thereto, and related matters were discussed and,
although such counsel is not passing upon and does not assume any
responsibility for the accuracy, completeness or fairness of the statements
contained in the Registration Statement or the Prospectus (other than as
specified above), and any supplements or amendments thereto, on the basis of
the foregoing, nothing has come to their attention which would lead them to
believe that either the Registration Statement or any amendments thereto, at
the time the Registration Statement or such amendments 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, as of its date or
at the First Closing Date or the Second
30.
<PAGE>
Closing Date, as the case may be, contained an untrue statement of a material
fact or omitted to state a material fact necessary in order to make the
statements therein, in the light of the circumstances under which they were
made, not misleading (it being understood that such counsel need express no
belief as to the financial statements or schedules or other financial or
statistical data derived therefrom, included in the Registration Statement or
the Prospectus or any amendments or supplements thereto).
In rendering such opinion, such counsel may rely (A) as to matters
involving the application of laws of any jurisdiction other than the General
Corporation Law of the State of Delaware, the General Corporation Law of the
State of California or the federal law of the United States, to the extent
they deem proper and specified in such opinion, upon the opinion (which shall
be dated the First Closing Date or the Second Closing Date, as the case may
be, shall be satisfactory in form and substance to the Underwriters, shall
expressly state that the Underwriters may rely on such opinion as if it were
addressed to them and shall be furnished to the Representatives) of other
counsel of good standing whom they believe to be reliable and who are
satisfactory to counsel for the Underwriters; provided, however, that such
counsel shall further state that they believe that they and the Underwriters
are justified in relying upon such opinion of other counsel, and (B) as to
matters of fact, to the extent they deem proper, on certificates of
responsible officers of the Company and public officials.
31.
<PAGE>
EXHIBIT B
Opinion of Kolisch, Hartwell, Dickinson, McCormack & Heuser, Patent
Counsel for the Company, to be delivered pursuant to Section 5(d) of the
Underwriting Agreement:
Such counsel are familiar with the technology used by the Company in
its business and the manner of its use thereof and have read the portions of
the Registration Statement and the Prospectus contained under the captions
"Risk Factors - Intellectual Property Risks" and "Business - Intellectual
Property."
(i) Such counsel have no reason to believe that the information
contained in the Registration Statement and the Prospectus under the captions
"Risk Factors -Intellectual Property Risks" and "Business - Intellectual
Property" (a) contains any untrue statement of a material fact or (b) omits
to state any material fact required to be stated in such sections or
necessary to make the statements therein not misleading;
(ii) to the best of such counsel's knowledge, there are no legal or
governmental proceedings pending, except for pending patent applications,
relating to patent rights, trade secrets, trademarks, service marks or other
proprietary information or materials of the Company, and to the best of such
counsel's knowledge no such proceedings are threatened or contemplated by
governmental authorities or others;
(iii) to the best of such counsel's knowledge, the Company is not
infringing or otherwise violating any patents, trade secrets, trademarks,
service marks or other proprietary information or materials, of others, and
to the best of such counsel's knowledge there are no infringements by others
of any of the Company's patents, trade secrets, trademarks, service marks or
other proprietary information or materials which in the judgment of such
counsel could affect materially the use thereof by the Company; and
(iv) to the best of such counsel's knowledge, except as disclosed in the
Registration Statement and the Prospectus, such counsel do not know of any
patent, trade secret, trademark, service mark or other proprietary
information, which to the best of such counsel's knowledge, is necessary to
conduct the business now being conducted by the Company, as described in the
Registration Statement and the Prospectus, and which is not already owned or
licensed by the Company.
1.
<PAGE>
EXHIBIT C
LOCK-UP AGREEMENT
[DATE]
NationsBanc Montgomery Securities LLC
Hambrecht & Quist LLC
Volpe Brown Whelan & Company, LLC
as Representatives of the several Underwriters
c/o NationsBanc Montgomery Securities LLC 600 Montgomery Street San Francisco,
CA 94111
RE: LJL BIOSYSTEMS, INC. PUBLIC OFFERING
The undersigned understands that you, as representatives (the
"Representatives") of the several underwriters (the "Underwriters"), propose
to enter into an underwriting agreement with LJL BioSystems, Inc. (the
"Company") providing for the public offering (the "Public Offering") by the
Underwriters of shares of Common Stock of the Company pursuant to a
Registration Statement (the "Registration Statement") to be filed by the
Company with the Securities and Exchange Commission (the "Commission").
In consideration of the Underwriters' agreement to purchase and undertake the
Public Offering of the Company's Common Stock, and for other good and
valuable consideration, the receipt of which is hereby acknowledged, the
undersigned agrees that, without the prior written consent of NationsBanc
Montgomery Securities, Inc., it will not, for a period of 180 days subsequent
to the date of the final Prospectus for the Public Offering (the "Lock-Up
Period"), (1) offer, pledge, sell, contract to sell (including, without
limitation, any short sale), sell any option or contract to purchase,
purchase any option or contract to sell, grant any option, right or warrant
to purchase, establish an open "put equivalent position" within the meaning
of Rule 16a-l(h) under the Securities Exchange Act of 1934, as amended, or
otherwise transfer or dispose of, directly or indirectly, any shares of
Common Stock or any securities convertible into or exercisable or
exchangeable for Common Stock owned directly by the undersigned or with
respect to which the undersigned has or acquires beneficial ownership within
the meaning of the rules and regulations of the Commission (collectively, the
"Undersigned's Shares") or (2) enter into any swap or similar agreement that
transfers, in whole or in part, the economic risk of ownership of the Common
Stock, whether any such transaction described in clause (1) above or this
clause (2) is to be settled by delivery of Common Stock or such other
securities, in cash or otherwise or (3) publicly announce the undersigned's
intention to do any of the foregoing.
Notwithstanding the foregoing, if the undersigned is an individual, he or she
may transfer any securities of the Company either during his or her lifetime
or on death by gift, will or intestacy to his or her immediate family or to a
trust, the beneficiaries of which are exclusively the
C-1.
<PAGE>
undersigned and/or a member or members of his or her immediately family:
provided, however, that in each such case described in this paragraph the
transferee agrees in writing to be bound by the provisions of this agreement.
For purposes of this agreement, "immediate family" shall mean spouse, lineal
descendant, father, mother, brother or sister of the transferor.
The undersigned now has and except as contemplated by the preceding
paragraph, for the duration of the Lock-Up Period will have, good and
marketable title to the Undersigned's Shares, free and clear of all liens,
claims and encumbrances.
The undersigned hereby acknowledges that this agreement is valid and binding
notwithstanding any prior agreements relating to this matter and further
agrees and consents to the entry of stop-transfer instructions with the
Company's transfer agent against the transfer of shares of Common Stock held
by the undersigned except in compliance with this agreement. The undersigned
also understands that the Company and the Underwriters will proceed with the
Public Offering in reliance on this agreement.
With respect to the Public Offering only, the undersigned waives any
registration rights relating to registration under the Securities Act of any
Common Stock owned either of record or beneficially by the undersigned,
including any rights to receive notice of the Public Offering.
This agreement is irrevocable and will be binding on the undersigned and the
successors, heirs, person representatives, and assigns of the undersigned. In
the event the Registration Statement is not declared effective by the
Commission by June 30, 1998, this agreement will terminate and be of no
further force or effect.
Very truly yours,
______________________________________________
Signature
______________________________________________
Please Print Name
______________________________________________
Please Print Title, if applicable
______________________________________________
Additional Signature(s), if stock jointly held
C-2.
<PAGE>
COMMON STOCK
NUMBER SHARES
LJL
LJL BIOSYSTEMS-TM-
THE HIGH THROUGHPUT COMPANY-TM-
INCORPORATED UNDER THE LAWS OF SEE REVERSE FOR STATEMENTS RELATING
THE STATE OF DELAWARE TO RIGHTS, PREFERENCES,
PRIVILEGES AND RESTRICTIONS, IF ANY
This Certifies that CUSIP 501873 10 3
is the owner of
FULLY PAID AND NON-ASSESSABLE SHARES OF COMMON STOCK,
PAR VALUE $0.001 PER SHARE, OF
LJL BIOSYSTEMS, INC.
transferable on the books of the Corporation only by the holder hereof in
person or by duly authorized attorney upon surrender of this certificate
properly endorsed. This certificate is not valid until countersigned and
registered by the Transfer Agent and Registrar.
WITNESS the facsimile seal of the Corporation and the facsimile
signatures of its duly authorized officers.
Dated:
/s/ Mark B. Weeks /s/ Lev Leytes
SECRETARY PRESIDENT AND
CHIEF EXECUTIVE OFFICER
[LJL BIOSYSTEMS INC. SEAL]
COUNTERSIGNED AND REGISTERED:
U.S. STOCK TRANSFER CORPORATION
TRANSFER AGENT AND REGISTRAR
BY
AUTHORIZED SIGNATURE
<PAGE>
A statement of the powers, designations, preferences and relative
participating, optional or other special rights of each class of stock
or series thereof and the qualifications, limitations or restrictions of
preferences and/or rights, as may have been established from time to time, by
the Certificate of Incorporation of the Corporation and by any certificate of
determination, 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 at the principal office of the Corporation.
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:
TEN COM -- as tenants in common
TEN ENT -- as tenants by the entireties
JT TEN -- as joint tenants with right of
survivorship and not as tenants
in common
UNIF GIFT MIN ACT -- .............. Custodian ...............
(Cust) (Minor)
under Uniform Gifts to Minors
Act ....................................
(State)
UNIF TRF MIN ACT -- .............. Custodian (until age ....)
(Cust)
................. under Uniform Transfers
(Minor)
to Minors Act ...........................
(State)
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 ___________________________________
NOTICE: THE SIGNATURE(S) TO THIS ASSIGNMENT MUST
CORRESPOND WITH THE NAME(S) AS WRITTEN
UPON THE FACE OF THE CERTIFICATE IN
EVERY PARTICULAR, WITHOUT ALTERATION OR
ENLARGEMENT OR ANY CHANGE WHATEVER.
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.
<PAGE>
EXHIBIT 5.1
[VENTURE LAW GROUP LOGO]
February 4, 1998
LJL BioSystems, Inc.
404 Tasman Drive
Sunnyvale, CA 94089
REGISTRATION STATEMENT ON FORM S-1; FILE NO. 333-43529
Ladies and Gentlemen:
We have examined the Registration Statement on Form S-1 (File No. 333-43529)
filed by you with the Securities and Exchange Commission on December 31, 1997,
as amended on January 8, 1998 (the "Registration Statement") in connection with
the registration under the Securities Act of 1933, as amended, of a total of
2,875,000 shares of your Common Stock (the "Shares"), to be sold by the Company.
The Shares include an over-allotment option to purchase 375,000 shares granted
to the underwriters and are to be sold to the underwriters as described in the
Registration Statement for resale to the public. As your counsel in connection
with this transaction, we have examined the proceedings taken and are familiar
with the proceedings proposed to be taken by you in connection with the sale and
issuance of the Shares.
It is our opinion that the Shares, when issued and sold in the manner
described in the Registration Statement, will be legally and validly issued,
fully paid and nonassessable.
This opinion supercedes, in all respects, our opinion dated January 7, 1998
previously delivered to you and filed as an exhibit to Amendment No. 1 of the
Registration Statement. We consent to the use of this opinion as an exhibit to
the Registration Statement and further consent to the use of our name wherever
appearing in the Registration Statement, including the Prospectus constituting a
part thereof, and in any amendment thereto.
Sincerely,
VENTURE LAW GROUP
A Professional Corporation
/s/ Venture Law Group
<PAGE>
EXHIBIT 11.1
COMPUTATION OF PRO FORMA BASIC AND DILUTED NET (LOSS) PER SHARE
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1997
-------------
<S> <C>
Weighted average shares of common stock outstanding................................................. 4,502,000
Add common stock equivalents issued or granted within twelve months of the initial public offering,
pursuant to Securities and Exchange Commission Staff Accounting Bulletins:
Options to purchase common stock issued for nominal consideration............................... 182,000
Series A mandatorily redeemable preferred stock................................................. 3,622,000
-------------
Shares used to compute pro forma net (loss) per share............................................... 8,306,000
-------------
-------------
Pro forma net (loss)................................................................................ $ (2,343,000)
-------------
-------------
Basic and diluted pro forma net (loss) per share.................................................... $ (0.28)
-------------
-------------
</TABLE>
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of this
Registration Statement on Form S-1 of our report dated January 21, 1998, except
as to the second paragraph of Note 6 which is as of February , 1998, relating
to the financial statements of LJL BioSystems, Inc., which appears in such
Prospectus. We also consent to the application of such report to the Financial
Statement Schedule for the three years ended December 31, 1997 listed under Item
16(b) of this Registration Statement when such schedule is read in conjunction
with the financial statements referred to in our report. The audits referred to
in such report also included this schedule. We also consent to the references to
us under the headings "Experts" and "Selected Financial Data" in such
Prospectus. However, it should be noted that Price Waterhouse LLP has not
prepared or certified such "Selected Financial Data."
PRICE WATERHOUSE LLP
San Jose, California
February , 1998
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 5,525
<SECURITIES> 0
<RECEIVABLES> 63
<ALLOWANCES> 4
<INVENTORY> 283
<CURRENT-ASSETS> 484
<PP&E> 1,072
<DEPRECIATION> 630
<TOTAL-ASSETS> 6,793
<CURRENT-LIABILITIES> 1,240
<BONDS> 0
9,308
0
<COMMON> 5
<OTHER-SE> (3,800)
<TOTAL-LIABILITY-AND-EQUITY> 6,793
<SALES> 4,562
<TOTAL-REVENUES> 5,204
<CGS> 2,319
<TOTAL-COSTS> 7,975
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 9
<INCOME-PRETAX> (2,543)
<INCOME-TAX> 12
<INCOME-CONTINUING> (2,555)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,555)
<EPS-PRIMARY> (0.28)
<EPS-DILUTED> (0.28)
</TABLE>
