<PAGE>
- -------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------------------------
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934.
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1998.
Commission file number 333-43529
--------------------------------
LJL BIOSYSTEMS, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 77-0360183
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification Number)
405 TASMAN DRIVE
SUNNYVALE, CA 94089
(Address of principal executive offices)
--------------------------------------------------
(408) 541-8787
(Registrant's telephone number, including area code)
----------------------------------------------------
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
------- -------
As of July 31, 1998, 10,396,236 shares of the Registrant's Common Stock, $0.001
par value, were issued and outstanding.
- -------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
LJL BIOSYSTEMS, INC.
INDEX
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION PAGE NO.
<S> <C> <C>
Item 1. Consolidated Condensed Financial Statements (Unaudited)... 3
Consolidated Condensed Balance Sheet as of June 30, 1998
and December 31, 1997... . . . . . . . . . . . . . . . 3
Consolidated Condensed Statement of Operations for the
Three and Six Month Periods Ended June 30, 1998 and
1997 . . . . . . . . . . . . . . . . . . . . . . . . . 4
Consolidated Condensed Statement of Cash Flows for the
Six Month Periods Ended June 30, 1998 and 1997 . . . . 5
Notes to Consolidated Condensed Financial Statements
(Unaudited). . . . . . . . . . . . . . . . . . . . . . 6
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations... . . . . . . . . . . . . . . . 8
PART II. OTHER INFORMATION
Item 1. Legal Proceedings. . . . . . . . . . . . . . . . . . . 19
Item 2. Changes in Securities and Use of Proceeds. . . . . . . 19
Item 3. Defaults Upon Senior Securities. . . . . . . . . . . . 19
Item 4. Submission of Matters to a Vote of Securities Holders. 20
Item 5. Other Information. . . . . . . . . . . . . . . . . . . 20
Item 6. Exhibits and Reports on Form 8-K.. . . . . . . . . . . 20
Signatures . . . . . . . . . . . . . . . . . . . . . . 21
Exhibits . . . . . . . . . . . . . . . . . . . . . . . 22
</TABLE>
-2-
<PAGE>
- --------------------------------------------------------------------------------
PART I: FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
- --------------------------------------------------------------------------------
LJL BIOSYSTEMS, INC
CONSOLIDATED CONDENSED BALANCE SHEET
(UNAUDITED)
<TABLE>
<CAPTION>
June 30, December 31,
1998 1997
------------ -----------
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 2,813,000 $ 5,525,000
Short-term investments 10,924,000 -
Accounts receivable 637,000 59,000
Inventories 1,055,000 283,000
Other current assets 252,000 484,000
------------ -----------
Total current assets 15,681,000 6,351,000
Property and equipment, net 652,000 442,000
Other assets 190,000 -
------------ -----------
$ 16,523,000 $ 6,793,000
------------ -----------
------------ -----------
Liabilities, Mandatorily Redeemable Convertible
Preferred Stock and Stockholders' Equity (Deficit)
Current liabilities:
Accounts payable $ 748,000 $ 681,000
Accrued expenses 888,000 360,000
Customer deposits 40,000 153,000
Current portion of long-term debt 93,000 46,000
------------ -----------
Total current liabilities 1,769,000 1,240,000
Long-term debt, net of current portion 344,000 40,000
------------ -----------
Mandatorily redeemable convertible preferred
stock; $21,543,000 redemption value - 9,308,000
------------ -----------
Stockholders' equity (deficit):
Common stock 10,000 5,000
Additional paid-in capital 23,171,000 705,000
Deferred stock compensation (703,000) (755,000)
Accumulated deficit (8,068,000) (3,750,000)
------------- ------------
Total stockholders' equity (deficit) 14,410,000 (3,795,000)
------------ ------------
$ 16,523,000 $ 6,793,000
------------ -----------
------------ -----------
</TABLE>
See accompanying notes to consolidated condensed financial statements.
-3-
<PAGE>
LJL BIOSYSTEMS, INC.
CONSOLIDATED CONDENSED STATEMENT OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
1998 1997 1998 1997
------------ ----------- ------------ -----------
<S> <C> <C> <C> <C>
Revenues:
Product sales $ 1,064,000 $ 1,525,000 $ 1,384,000 $ 3,887,000
Development agreements - 422,000 - 636,000
------------ ----------- ------------ -----------
Total revenues 1,064,000 1,947,000 1,384,000 4,523,000
------------ ----------- ------------ -----------
Costs and operating expenses:
Product sales 741,000 668,000 1,030,000 1,805,000
Research and development 1,365,000 954,000 2,782,000 1,484,000
Selling, general and administrative 1,201,000 430,000 1,917,000 894,000
------------ ----------- ------------ -----------
Total costs and operating expenses 3,307,000 2,052,000 5,729,000 4,183,000
------------ ----------- ------------ -----------
Income (loss) from operations (2,243,000) (105,000) (4,345,000) 340,000
Interest income, net 213,000 23,000 281,000 49,000
------------ ----------- ------------ -----------
Income (loss) before provision for income taxes (2,030,000) 82,000 (4,064,000) 389,000
Provision for income taxes - 2,000 - 12,000
------------ ----------- ------------ -----------
Net income (loss) (2,030,000) (84,000) (4,064,000) 377,000
Accretion of mandatorily redeemable
convertible preferred stock
redemption value - (68,000) (254,000) (68,000)
------------ ------------ ------------- ------------
Net income (loss) available to common
stockholders $ (2,030,000) $ (152,000) $ (4,318,000) $ 309,000
------------- ------------ ------------- -----------
------------- ------------ ------------- -----------
Net income (loss) per share available to common
stockholders:
Basic $ (0.20) $ (0.03) $ (0.53) $ 0.07
---------- ---------- ---------- --------
Diluted $ (0.20) $ (0.03) $ (0.53) $ 0.06
---------- ---------- ---------- --------
Pro forma $ (0.43)
----------
Shares used in computation of net income (loss)
per share available to common stockholders:
Basic 10,370,623 4,500,500 8,088,555 4,500,500
---------- ---------- --------- ---------
Diluted 10,370,623 4,500,500 8,088,555 5,343,813
---------- ---------- --------- ---------
Pro forma 9,517,037
---------
</TABLE>
See accompanying notes to consolidated condensed financial statements.
-4-
<PAGE>
LJL BIOSYSTEMS, INC.
CONSOLIDATED CONDENSED STATEMENT OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Six Months Ended June 30,
1998 1997
------------- ------------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ (4,064,000) $ 377,000
Adjustments to reconcile net income (loss) to net cash
used in operating activities:
Depreciation and amortization 128,000 55,000
Stock compensation expense 86,000 -
Changes in assets and liabilities:
Accounts receivable (578,000) 155,000
Inventories (772,000) 558,000
Other current assets 232,000 56,000
Other assets (190,000) -
Accounts payable 67,000 (47,000)
Accrued expenses 528,000 258,000
Customer deposits (113,000) (1,676,000)
------------- ------------
Net cash used in operating activities (4,676,000) (264,000)
------------- ------------
Cash flows used in investing activities:
Purchase of property and equipment (338,000) (237,000)
Purchase of short-term investments (10,924,000) -
------------- ------------
Net cash used in investing activities (11,262,000) (237,000)
------------- ------------
Cash flows from financing activities:
Proceeds from debt borrowings, net of repayments 351,000 36,000
Proceeds from issuance of mandatorily redeemable
convertible preferred stock, net - 8,672,000
Proceeds from issuance of common stock, net 12,875,000 -
Payment of S corporation dividends - (450,000)
------------- ------------
Net cash provided by financing activities 13,226,000 8,258,000
------------- ------------
Net increase (decrease) in cash and cash equivalents (2,712,000) 7,757,000
Cash and cash equivalents at beginning of period 5,525,000 1,166,000
------------- ------------
Cash and cash equivalents at end of period $ 2,813,000 $ 8,923,000
------------- ------------
------------- ------------
Supplemental disclosure of noncash
financing activities:
Issuance of common stock upon
conversion of mandatorily
redeemable convertible preferred stock $ 9,562,000 $ -
------------- ------------
------------- ------------
</TABLE>
See accompanying notes to consolidated condensed financial statements.
-5-
<PAGE>
LJL BIOSYSTEMS, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 - BASIS OF PRESENTATION:
In the opinion of management of LJL BioSystems, Inc. (the "Company"), the
accompanying unaudited consolidated financial data contains all adjustments,
consisting only of normal recurring adjustments, which the Company considers
necessary to present fairly the financial information included herein. This
Quarterly Report on Form 10-Q should be read in conjunction with the audited
financial statements and notes thereto included in the Prospectus constituting
part of Form S-1 dated March 13, 1998 as filed with the Securities and Exchange
Commission. The interim results presented herein are not necessarily indicative
of the results of operations that may be expected for the full fiscal year
ending December 31, 1998, or any other future period.
NOTE 2 - INVENTORIES:
<TABLE>
<CAPTION>
June 30, December 31,
1998 1997
----------- -----------
<S> <C> <C>
Raw materials $ 620,000 $ 278,000
Work-in-process 326,000 -
Finished goods 109,000 5,000
----------- -----------
$ 1,055,000 $ 283,000
----------- -----------
----------- -----------
</TABLE>
NOTE 3 - INITIAL PUBLIC OFFERING:
On March 13, 1998, the Company completed its initial public offering ("IPO") of
2,000,000 shares of Common Stock at $7.00 per share, with the Company receiving
proceeds, net of underwriting commissions and associated costs, of $12.2
million. In April 1998, the Company sold an additional 88,000 shares of Common
Stock in connection with the exercise of an over-allotment option granted to the
underwriters and received proceeds, net of underwriting commissions and
associated costs, of approximately $0.6 million. Upon the closing of the IPO,
all the outstanding shares of Series A Mandatorily Redeemable Convertible
Preferred Stock (the "Preferred Stock") converted into an equal number of shares
of Common Stock.
NOTE 4 - BASIC AND DILUTED NET INCOME (LOSS) PER SHARE AVAILABLE TO COMMON
STOCKHOLDERS:
The Company adopted Statement of Financial Accounting Standards No. 128
("SFAS No. 128"), "Earnings per Share", during the fiscal year ended December
31, 1997 and retroactively restated all prior periods. Basic earnings per
share is computed using the weighted average number of common shares
outstanding during the period. Diluted earnings per share is computed using
the weighted average number of common and potential common shares outstanding
during the period. Potential common shares consist of the incremental common
shares issuable upon conversion of outstanding convertible preferred stock
(using the if-converted method) and shares issuable upon the exercise of
stock options and warrants (using the treasury stock method). Potential
common shares are excluded from the computation if their effect is
anti-dilutive, as was the case for the three and six month periods ended June
30, 1998 and for the three month period ended June 30, 1997. For the six
month period ended June 30, 1998, net loss available to common stockholders
includes accretion of the Preferred Stock redemption value in the amount of
$254,000.
-6-
<PAGE>
<TABLE>
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
1998 1997 1998 1997
------------- ------------- ------------- -----------
<S> <C> <C> <C> <C>
Net income (loss) $ (2,030,000) $ (84,000) $ (4,064,000) $ 377,000
Accretion of mandatorily redeemable
convertible preferred stock redemption value - (68,000) (254,000) (68,000)
------------- ------------- ------------- -----------
Net income (loss) available
to common stockholders $ (2,030,000) $ (152,000) $ (4,318,000) $ 309,000
------------- ------------- ------------- -----------
------------- ------------- ------------- -----------
Shares calculation:
Weighted average common shares
outstanding - basic 10,370,623 4,500,500 8,088,555 4,500,500
Dilutive potential common shares - - - 843,313
------------- ------------- ------------- -----------
Weighted average common shares
outstanding - diluted 10,370,623 4,500,500 8,088,555 5,343,813
------------- ------------- ------------- -----------
------------- ------------- ------------- -----------
Net income (loss) per share available
to common stockholders - basic $ (0.20) $ (0.03) $ (0.53) $ 0.07
------------- ------------- ------------- -----------
Net income (loss) per share available
to common stockholders - diluted $ (0.20) $ (0.03) $ (0.53) $ 0.06
------------- ------------- ------------- -----------
</TABLE>
NOTE 5 - PRO FORMA NET (LOSS) PER SHARE:
Pro forma net (loss) per share for the six month period ended June 30, 1998 was
calculated using the weighted average number of common shares outstanding during
the period, adjusted for the assumed conversion as of January 1, 1998 of all
outstanding shares of Preferred Stock into 3,621,503 shares of Common Stock.
<TABLE>
<CAPTION>
Six Months Ended
June 30, 1998
----------------
<S> <C>
Net (loss) $ (4,064,000)
-------------
-------------
Weighted average common shares outstanding 8,088,555
Assumed conversion of preferred stock 3,621,503
Less preferred stock included in weighted
average common share calculation (2,193,021)
-------------
Total shares 9,517,037
-------------
-------------
Net (loss) per share - pro forma $ (0.43)
-------------
</TABLE>
NOTE 6 - COMPREHENSIVE INCOME:
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130 ("SFAS No. 130"), "Reporting
Comprehensive Income." SFAS No. 130 establishes standards for the reporting
of comprehensive income and its components in interim and annual financial
statements of the Company beginning in fiscal 1999. Comprehensive income, as
defined, includes all changes in equity (net assets) during a period from
non-owner sources. Reclassification of financial statements for earlier
periods for comparative purposes is required. Adoption of SFAS No. 130 by
the Company in fiscal 1999 is not expected to have a significant effect on
the Company's consolidated financial statements.
-7-
<PAGE>
- -------------------------------------------------------------------------------
PART I: FINANCIAL INFORMATION
ITEM 2. 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. THE COMPANY
ASSUMES NO OBLIGATION TO UPDATE SUCH FORWARD-LOOKING STATEMENTS. SEE "RISK
FACTORS" FOR A DISCUSSION OF CERTAIN FACTORS, AMONG OTHERS, WHICH 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 original equipment manufacturing
("OEM") basis.
In the second half of 1996, the Company implemented a new strategic business
model aimed at developing products for the emerging high throughput screening
("HTS") market, which enables accelerated drug discovery, by leveraging its
existing technology platform and product development and manufacturing
expertise. In connection with this change in strategy, the Company shifted
its focus from developing and manufacturing OEM clinical diagnostics and
research products to developing, manufacturing and marketing its own products
for HTS. As part of its shift in focus, the Company has de-emphasized its
OEM development activities and has phased out production of all but one of
its OEM instruments. However, the Company expects to support and may
continue to manufacture products under its agreement with Ventana Medical
Systems, Inc. ("Ventana") through 1998 and possibly beyond. As a result,
revenues from development agreements have declined significantly, and
revenues from OEM product sales are expected to materially decline in future
periods.
RESULTS OF OPERATIONS
REVENUES
Total revenues were $1.1 million and $1.4 million for the three and six month
periods ended June 30, 1998, respectively, as compared to $1.9 million and
$4.5 million for the three and six month periods ended June 30, 1997,
respectively, representing decreases of $0.8 million or 45% and $3.1 million
or 69%, respectively. The Company began shipping its first generation HTS
product, the ANALYST, during the quarter ended June 30, 1998 and recognized
$1.0 million in revenue during the quarter. No revenue was recognized under
development agreements for OEM products for the three and six month periods
ended June 30, 1998. This compares with $0.4 million and $0.6 million
recognized under development agreements for OEM products for the three and
six month periods ended June 30, 1997, respectively. The decline in revenues
is due to the Company's decision in 1996 to focus its future efforts on
development of a proprietary HTS product platform and not to pursue
additional development or manufacturing agreements for OEM products;
therefore, the Company does not expect revenues from OEM development
agreements in future periods. Revenues from OEM product sales were $0.1
million and $0.4 million for the three and six month periods ended June 30,
1998, respectively, as compared to $1.5 million and $3.9 million for the
three and six month periods ended June 30, 1997, respectively, representing
decreases of $1.4 million and $3.5 million, respectively. These decreases in
OEM product revenues were due to the Company's increasing focus on its HTS
products and the phasing out of the Luminometer (a microplate reader), the
-8-
<PAGE>
Q2000 (a clinical analyzer) and the microplate heater products. OEM product
sales are expected to continue to decline in future periods.
COST OF PRODUCT SALES
Cost of product sales were $0.7 million and $1.0 million for the three and
six month periods ended June 30, 1998 as compared to $0.6 million and $1.8
million for the three and six month periods ended June 30, 1997,
respectively, representing an increase of $0.1 million or 11% and a decrease
of $0.8 million or 43%, respectively. The fluctuations in cost of product
sales for the three and six month periods ended June 30, 1998 as compared to
the three and six month periods ended June 30, 1997, respectively, were
primarily due to the Company's transition in product mix from OEM products to
its new line of HTS products, as well as the fact that a portion of costs
remain fixed regardless of sales volume. Gross profit, as a percentage of
product sales, decreased from 56% and 54% during the three and six month
periods ended June 30, 1997 to 30% and 26% for the three and six month
periods ended June 30, 1998, primarily as a result of decreased absorption of
manufacturing overhead resulting from reduced unit sales. The Company expects
that gross profit as a percentage of product sales will remain modest for the
foreseeable future until sales volumes for the ANALYST and related products
increase and the Company is able to spread its fixed manufacturing costs over
higher production levels.
RESEARCH AND DEVELOPMENT
Research and development expenses were $1.4 million and $2.8 million for the
three and six month periods ended June 30, 1998, respectively, as compared to
$1.0 million and $1.5 million for the three and six month periods ended June
30, 1997, respectively, representing increases of $0.4 million or 43% and
$1.3 million or 88%, respectively. The increases for the three and six month
periods ended June 30, 1998 as compared to the three and six month periods
ended June 30, 1997, respectively, were primarily due to increased costs
associated with the development of the Company's HTS product platform,
partially offset by a 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
continue to increase in future periods to support the development of its HTS
product line.
SELLING, GENERAL AND ADMINISTRATIVE
Selling, general and administrative costs were $1.2 million and $1.9 million for
the three and six month periods ended June 30, 1998, respectively, as compared
to $0.4 million and $0.9 million for the three and six month periods ended June
30, 1998, respectively, representing increases of $0.8 million or 179% and $1.0
million or 114%, respectively. The increases for the three and six month
periods ended June 30, 1998 as compared to the three and six month periods
ended June 30, 1997, respectively, were primarily due to increases in
marketing and sales expenses associated with the addition of sales and marketing
personnel, as well as marketing expenses for the ANALYST and other increases in
general and administrative expenses which include the additional administrative
costs of being a public company. The Company expects selling, general and
administrative expenses to increase in future periods for the reasons described
above.
INTEREST AND OTHER INCOME, NET
Net interest and other income was $213,000 and $281,000 for the three and six
month periods ended June 30, 1998, respectively, as compared to $23,000 and
$49,000 for the three and six month periods ended June 30, 1997,
respectively, representing increases of $190,000 and $232,000, respectively.
The increases for the three and six month periods ended June 30, 1998 as
compared to the three and six month periods ended June 30, 1997,
respectively, were primarily due to interest earned on higher levels of
invested cash, cash equivalents and short-term investments in the first half
of 1998 as compared to the first half of 1997.
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
-9-
<PAGE>
1997, in connection with the Company's 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 Consolidated Statement
of Operations, and dividends. Future distributions of profit are not
expected. No provision for income taxes has been recognized for the three
and six month periods ended June 30, 1998 as the Company incurred net
operating losses and has no carryback potential.
LIQUIDITY AND CAPITAL RESOURCES
As of June 30, 1998, the Company had cash and cash equivalents of $2.8
million, short-term investments of $10.9 million, working capital of $13.9
million and an accumulated deficit of $8.1 million. The Company completed
its IPO of Common Stock in March 1998, raising approximately $12.2 million in
cash, net of underwriting discounts and associated costs. In April 1998, the
Company sold an additional 88,000 shares of Common Stock in connection with
the exercise of an over-allotment option granted to the underwriters and
received cash proceeds, net of underwriting commissions and associated costs,
of approximately $0.6 million. Prior to its IPO, the Company satisfied its
liquidity needs primarily through cash flows generated from operations,
private sales of Preferred Stock, and to a lesser extent, from bank loans for
equipment purchases and loans from stockholders.
Net cash used in operating activities totaled $4.7 million and $0.3 million
during the six month periods ended June 30, 1998 and June 30, 1997 respectively.
The increase in net cash used in operating activities is primarily due to the
Company's net loss during the six month period ended June 30, 1998 of $4.1
million, as compared to net income of $0.4 million during the six month period
ended June 30, 1997.
Net cash used in investing activities totaled $11.3 million and $0.2 million
during the six month periods ended June 30, 1998 and June 30, 1997 respectively.
The increase in cash used in investing activities is primarily due to the
Company's investment of $10.9 million in short-term, investment grade,
interest-bearing financial instruments. These financial instruments, like all
fixed income instruments, are subject to interest rate risk and may fluctuate in
value if market interest rates fluctuate. The Company attempts to limit this
exposure by investing in short-term investments.
Net cash provided by financing activities totaled $13.2 million and $8.3
million during the six month periods ended June 30, 1998 and June 30, 1997
respectively. The increase in cash provided by financing activities is
primarily due to the Company's IPO, which raised approximately $12.8 million
in cash, net of underwriting discounts and associated costs and was completed
in March 1998.
In February 1998, the Company entered into an equipment financing agreement that
provides a $1.3 million line of credit that can be used to finance purchases of
equipment, computers and software necessary to support the Company's HTS
development effort and additions to the marketing, sales and administrative
infrastructure. As of June 30, 1998, the Company had drawn down $0.4 million
against this line of credit.
In June 1997, the Company entered into a development, license and sales
agreement with FluorRx, Inc. ("FluorRx") under which it obtained worldwide
rights to certain patented assay technologies. Future minimum royalty
payments due through 2002 under the agreement will amount to approximately
$1.0 million. The source of funds for these royalty payments is expected to
be primarily the proceeds from the sale of HTS products developed by the
Company pursuant to this 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,
-10-
<PAGE>
products or businesses. The Company believes that its cash, cash
equivalents and short-term investments, combined with cash to be generated
from operations, will be sufficient to fund operations for the next twelve to
fifteen 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 financing,
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.
CERTAIN FACTORS THAT MAY AFFECT FUTURE RESULTS OF OPERATIONS
The Company desires to take advantage of the "Safe Harbor" provisions of the
Private Securities Litigation Reform Act of 1995 and of Section 21E and Rule
3b-6 under the Securities Exchange Act of 1934. Specifically, the Company
wishes to alert readers that the following important factors, as well as other
factors including, without limitation, those described elsewhere in this Report,
could in the future affect, and in the past have affected, the Company's actual
results and could cause the Company's results for future periods to differ
materially from those expressed in any forward-looking statements made by or on
behalf of the Company. The Company assumes no obligation to update such
forward-looking statements.
NEW BUSINESS STRATEGY; NEW AND UNDEFINED MARKET FOR HTS 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 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 three and six month periods ended June 30, 1998 as a result of its
change in business strategy and expects that operating losses will increase
substantially in future quarters 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. The Company has only
recently begun commercial shipments of its first HTS instrument, the ANALYST.
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.
EARLY STAGE OF INSTRUMENT DEVELOPMENT
The Company's success will depend on its ability to develop and commercialize
its HTS instruments. The Company has only recently begun commercial
shipments of its first HTS instrument, the ANALYST. 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, among other technologies,
advanced optics, electronics, robotics, microfluidics, fluorescence detector
technologies and software and information systems. Even if the ANALYST
appears to be promising at commercial launch, it may not achieve market
-11-
<PAGE>
acceptance. In addition, the Company's HTS instruments 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 or other competitive
forces. There can be no assurance that the Company will be able to
successfully develop, manufacture and market the 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 material adverse effect on the Company's business, financial condition
and results of operations.
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 limited
experience in the development, manufacture and marketing of reagents or assay
kits. The Company intends to continue 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. As sales
volumes increase, the Company 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 the ANALYST. There can be no
assurance that sales of the 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.
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,
its fluorescence-based reagents and assay kits, as well as products based on
its FLARe technology. The Company anticipates that production units for
these new products may not be available for several months or 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.
LACK OF SALES AND MARKETING EXPERIENCE
The Company has limited experience in direct marketing, sales or distribution.
The Company's future profitability will depend on its ability to further 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
-12-
<PAGE>
to satisfy financial or contractual obligations to the Company, fail to
adequately market the Company's 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.
COMPETITION
The market for HTS products is highly competitive. The Company expects 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 HTS 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.
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 it sells 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.
LENGTHY SALES CYCLES
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.
MANUFACTURING RISK
The Company has not yet manufactured HTS products in commercial quantities.
Although the Company has started manufacturing and shipping its HTS product,
the ANALYST, 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 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.
-13-
<PAGE>
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.
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. 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.
DEPENDENCE ON SUPPLIERS AND CONTRACT MANUFACTURERS
Certain components used in the Company's HTS products 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 the 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.
ACCUMULATED DEFICIT; UNCERTAINTY OF FUTURE PROFITABILITY
As of June 30, 1998, the Company had an accumulated deficit of approximately
$8.1 million. The Company's expansion of its operations and continued
development of its HTS products will require a substantial increase in sales,
marketing and research and development expenditures for at least the next
several 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.
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
-14-
<PAGE>
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
financing, 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.
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.
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.
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 three U.S. patents. The
Company has filed seven U.S. patent applications, two foreign patent
applications and fourteen provisional patent applications, all of which are
currently pending. To supplement its proprietary technology, the Company has
licensed eleven 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 paid 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 FluorRx were to terminate the license 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
-15-
<PAGE>
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 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.
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 may
continue to manufacture the Horizon on an OEM basis. The Horizon is used in
research and clinical laboratories to perform in vitro diagnostic ("IVD") tests,
-16-
<PAGE>
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 the Company 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. The Company 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 the Company'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.
The Company is also 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 the Company
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 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.
-17-
<PAGE>
IMPACT OF YEAR 2000
The Company is in the process of performing its assessment of the impact of
year 2000 on its operations. These issues involved include the possibility
that software which does not have the capacity to recognize four digits in a
date field may no longer function properly when use of that date becomes
necessary. Management is in the process of formalizing its assessment
procedures and developing a plan to address identified issues. The Company
is evaluating the software it provides to its customers, its financial and
accounting and inventory tracking systems and all other corporate-wide
computer applications, and its other systems and equipment. The extent, if
any, of the impact of the year 2000 on this software, systems, applications
and equipment is unknown. The Company expects its review to be completed by
early 1999 after which the Company will attempt to remedy any issues. The
Company expects such issues will be resolved on a timely basis, and presently
believes that, with modifications to existing software or converting to new
software, the Year 2000 issue will not pose significant operational problems
for the Company's software and computer systems; however, there can be no
assurance there will not be a delay in, or increased costs associated with,
the implementation of such changes, and the Company's inability to
implement such changes could have an adverse effect on future results of
operations. The Company has not fully determined the extent to which it may
be impacted by third parties' systems including those of its suppliers and
collaborative partners, which may not be Year 2000-compliant. While the
Company has begun efforts to seek reassurance from its suppliers, partners
and service providers, there can be no assurance that the systems of other
companies that the Company deals with or on which the Company relies will be
timely converted, or that any such failure to convert by another company
could not have an adverse effect on the Company. Any year 2000 compliance
problems of either the Company, its suppliers, its collaborative partners or
its customers could have a material adverse effect on the Company's business,
operating results and financial condition.
FUTURE FLUCTUATIONS IN OPERATING RESULTS
The Company's future operating results are likely to fluctuate substantially
from quarter to quarter. 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 would be materially and adversely affected.
-18-
<PAGE>
- -------------------------------------------------------------------------------
PART II. OTHER INFORMATION
- -------------------------------------------------------------------------------
ITEM 1: LEGAL PROCEEDINGS
The Company is not currently involved in any material legal proceedings.
ITEM 2: CHANGES IN SECURITIES AND USE OF PROCEEDS
In connection with its IPO in 1998, the Company filed a Registration
Statement on Form S-1, SEC File No. 333-43529 (the "Registration Statement"),
which was declared effective by the Commission on March 12, 1998. Pursuant to
the Registration Statement, the Company registered 2,300,000 shares of its
Common Stock, $0.001 par value per share, for its own account, of which
2,000,000 shares were sold in the Company's IPO and an additional 88,000 shares
were sold in April 1998 when the underwriters exercised their over-allotment
option. The offering commenced on March 13, 1998 and did not terminate until
the 2,088,000 shares had been sold. The aggregate offering price of the
registered shares was $16.1 million and the aggregate offering price of the
amount sold was $14.6 million. The managing underwriters of the offering
were NationsBanc Montgomery Securities LLC, Hambrecht & Quist LLC, and Volpe
Brown Whelan & Company LLC.
From March 12, 1998 to June 30, 1998, the Company incurred the following
expenses in connection with the offering:
<TABLE>
<S> <C>
Underwriting discounts and commissions $ 827,000
Other expenses 969,000
-----------
Total Expenses $ 1,796,000
-----------
-----------
</TABLE>
All of such expenses were direct or indirect payments to others.
The net offering proceeds to the Company through June 30, 1998, after deducting
the total expenses above, were $12.8 million. From March 12, 1998 to June 30,
1998, the Company used such net offering proceeds, in direct or indirect
payments to others, as follows:
<TABLE>
<S> <C>
Manufacturing, sales, marketing and administrative
infrastructure $ 1,317,000
Purchase and installation of machinery and equipment 230,000
Repayment of indebtedness 86,000
Research and development activities 1,598,000
Working capital temporary investments:
Inventory 502,000
Short-term, investment grade, interest-bearing
financial instruments 9,087,000
-----------
Total $ 12,820,000
-----------
-----------
</TABLE>
Each of these amounts is a reasonable estimate of the application of the net
offering proceeds. This use of proceeds does not represent a material change in
the use of proceeds described in the prospectus of the Registration Statement.
ITEM 3: DEFAULTS UPON SENIOR SECURITIES
Not applicable.
-19-
<PAGE>
ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS
Not applicable
ITEM 5: OTHER INFORMATION
Not applicable
ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K
a: Exhibits
Exhibit 10.12 - Secured Loan Agreement between LJL BioSystems, Inc. and
James S. Richey dated April 28, 1998.
Exhibit 10.13 - Amended Warrant to Purchase Shares of Common Stock between
LJL BioSystems, Inc. and Lease Management Services, Inc.
dated February 16, 1998, amended June 1, 1998.
Exhibit 27.1 - Financial Data Schedule.
b: Reports on Form 8-K
There were no reports on Form 8-K filed during the quarter ended June 30,
1998.
-20-
<PAGE>
- -------------------------------------------------------------------------------
SIGNATURES
- -------------------------------------------------------------------------------
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THE
REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED THEREUNTO DULY AUTHORIZED.
LJL BIOSYSTEMS, INC.
DATE: AUGUST 12, 1998 BY: /S/ ROBERT T. BEGGS
-------------------
ROBERT T. BEGGS, VICE PRESIDENT OF
FINANCE AND ADMINISTRATION (DULY
AUTHORIZED AND PRINCIPAL FINANCIAL
AND ACCOUNTING OFFICER)
-21-
<PAGE>
- -------------------------------------------------------------------------------
INDEX TO EXHIBITS
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
EXHIBIT PAGE
------
<S> <C>
Exhibit 10.12 - Secured Loan Agreement between LJL BioSystems, Inc.
and James S. Richey dated April 28, 1998. . . . . . . . 23
Exhibit 10.13 - Amended Warrant to Purchase Shares of Common Stock
Between LJL BioSystems, Inc. and Lease Management
Services, Inc. dated February 16, 1998, amended
June 1, 1998 . . . . . . . . . . . . . . . . . . . . . . 34
Exhibit 27.1 - Financial Data Schedule . . . . . . . . . . . . . . . . . 41
</TABLE>
-22-
<PAGE>
- -------------------------------------------------------------------------------
Exhibit 10.12
Secured Loan Agreement between LJL BioSystems, Inc. and James S. Richey dated
April 28, 1998
- -------------------------------------------------------------------------------
LJL BIOSYSTEMS, INC.
SECURED LOAN AGREEMENT
This Secured Loan Agreement is made as of April 28, 1998 by and between LJL
BioSystems, Inc., a Delaware corporation (the "COMPANY") and James S. Richey
("BORROWER").
RECITALS
Borrower desires to borrow, and the Company desires to lend to Borrower an
aggregate of $190,000 (the "BORROWER AMOUNT") to purchase a principal residence
in the San Francisco Bay Area (the "PRINCIPAL RESIDENCE"). The parties desire
that such loan shall be secured pursuant to a Security Agreement of even date
herewith (the "SECURITY AGREEMENT") by the shares underlying stock options to
purchase aggregate of 112,500 shares of the Company's Common Stock (as adjusted
for subsequent stock splits, reverse stock splits and recapitalization) held by
Borrower while any Borrowed Amount is outstanding (the "SHARES") and by a second
deed of trust on Borrower's Principal Residence on the terms and conditions
contained herein and in the Security Agreement.
AGREEMENT
In consideration of the foregoing, and for other good and valuable
consideration, the receipt of which is hereby acknowledged, the parties agree as
follows:
1. AGREEMENT TO LEND. Subject to the terms and conditions contained in this
Agreement and upon execution of this Agreement, the Company agrees to issue to
Borrower a check or other readily available funds in the Borrowed Amount upon
the closing date of Borrower's purchase of the Principal Residence.
2. PROMISSORY NOTE AND BORROWER COVENANTS. In consideration of the Company's
delivery of the Amount, Borrower will execute a secured promissory note in the
form attached hereto as EXHIBIT A (the "NOTE"), in the principal amount of such
Borrowed Amount and bearing no interest, subject to Borrower's compliance with
Section 7872 of the Internal Revenue Code and the regulations and proposed
regulations thereunder. If Borrower fails to comply with such section and
regulations, the Note shall bear interest at the adjusted federal rate on the
date of the Note, compounding semiannually. Borrower hereby covenants and
agrees for the duration of this Agreement, the Loan and the Note to (i) itemize
his annual federal and state tax returns, (ii) pledge the Shares only to secure
the Borrowed Amount and not to otherwise sell, convey, assign, alienate or
transfer the Shares (other than transfers to family members or trusts that agree
to be bound by the term of this Agreement, the Note and the Security Agreement
and other than the sale of Shares on the public market if the value of the
remaining vested Shares pledged to the Company on the date of such sale equals
at least 50% of the amount of this Note) and (iii) use the Borrowed Amount
solely to purchase Borrower's Principal Residence.
3. SECURITY AGREEMENT. Borrower will additionally execute the Security
Agreement in the form attached hereto as EXHIBIT B as security for Borrower's
obligation to repay the Borrowed Amount, and will deliver, or cause to be
delivered, until the termination of this Agreement, the Security Agreement and
the Note, any certificates representing Shares to the Company or its designee as
pledgeholder of the Shares, together with such other documents of assignment and
other documents as may be reasonably requested by the Company. The Shares will
be held by the Company or its designee as pledgeholder. Borrower shall also
deliver, or cause to be delivered, to the Company a second deed of trust on
Borrower's Principal Residence, executed by Borrower, to be recorded by the
Company (if it so elects) with the official records of the county in which such
residence is located in accordance with the terms of the Security Agreement.
4. NO EMPLOYMENT RIGHTS. Nothing in this Agreement or the Note is
intended or shall be construed to confer upon Borrower any right to
employment or continued employment with the Company, or shall alter in any
-23-
<PAGE>
way the nature of Borrower's employment with the Company.
5. MISCELLANEOUS.
(a) SUCCESSORS AND ASSIGNS. The terms and conditions of this Agreement
shall inure to the benefit of and be binding upon the respective successors and
assigns of the parties. Nothing in this Agreement, express or implied, is
intended to confer upon any party other than the parties hereto or their
respective successors and assigns any rights, remedies, obligations, or
liabilities under or by reason of this Agreement, except as expressly provided
in this Agreement.
(b) GOVERNING LAW. This Agreement and all acts and transactions pursuant
hereto and the rights and obligations of the parties hereto shall be governed,
construed and interpreted in accordance with the laws of the State of
California, without giving effect to principles of conflicts of law.
(c) NOTICES. Any notice required or permitted by this Agreement shall be
in writing and shall be deemed sufficient upon receipt, when delivered
personally or by a nationally-recognized delivery service (such as Federal
Express or UPS) or confirmed facsimile, or forty-eight (48) hours after being
deposited in the U.S. mail as certified or registered mail with postage prepaid,
if such notice is addressed to the party to be notified at such party's address
or facsimile number as set forth below, or as subsequently modified by written
notice.
(d) SEVERABILITY. If one or more provisions of this Agreement are
held to be unenforceable under applicable law, the parties agree to
renegotiate such provision in good faith. In the event that the parties
cannot reach a mutually agreeable and enforceable replacement for such
provision, then (i) such provision shall be excluded from this Agreement,
(ii) the balance of the Agreement shall be interpreted as if such provision
were so excluded and (iii) the balance of the Agreement shall be enforceable
in accordance with its terms.
(e) ADVICE OF LEGAL COUNSEL. Each party acknowledges and represents
that, in executing this Agreement, it has had the opportunity to seek advice
as to its legal rights from legal counsel and that the person signing on its
behalf has read and understood all of the terms and provisions of this
Agreement. This Agreement shall not be construed against any party by reason
of the drafting or preparation thereof.
[Signature Page Follows]
-24-
<PAGE>
The parties hereto have executed this Secured Loan Agreement as of the day
and year first above written.
JAMES S. RICHEY
/s/ James S. Richey
------------------------------------------------------
(Signature)
Address: 960 Forest Avenue
----------------------------------------------
Palo Alto, CA 94301
----------------------------------------------
LJL BIOSYSTEMS, INC.
By: /s/ Robert T. Beggs
------------------------------------------------
Title: Vice President of Finance and Administration
------------------------------------------------
-25-
<PAGE>
EXHIBIT A
SECURED PROMISSORY NOTE
$190,000 Santa Clara, California
April 28, 1998
FOR VALUE RECEIVED, James S. Richey ("BORROWER") promises to pay to LJL
BioSystems, Inc., a Delaware corporation (the "COMPANY"), the principal sum of
One Hundred Ninety-Thousand Dollars ($190,000), together with interest (if any)
on the unpaid principal hereof from the date hereof. Such principal sum shall
not accrue interest subject to Borrower's compliance with Section 7872 of the
Internal Revenue Code and the regulations and proposed regulations thereunder.
If Borrower fails to comply with such section and regulations, the Note shall
bear interest compounded semi-annually at the adjusted federal rate on the date
of this Note (5.83%).
All principal and accrued interest (if any) shall be due and payable in
full on the earliest of (a) February 15, 2008, (b) the termination of Borrower's
employment or consulting relationship with the Company for any reason (or for no
reason), provided that if the Company terminates Borrower without cause, the
principal and accrued interest (if any) shall be due and payable six (6) months
from the date of termination or (c) the date of any sale, conveyance,
assignment, alienation or any other form of transfer of the Shares (as defined
in the Loan Agreement defined below) or Buyer's Principal Residence (as defined
in the Loan Agreement) (excluding transfers of the Shares to family members or
trusts that agree to be bound by the term of this note and the Loan Agreement
and the Security Agreement (as defined below) and excluding the sale of Shares
on the public market if the value of the remaining vested Shares pledged to the
Company on the date of such sale equals at least 50% of the amount of this
Note). Subject to Borrower's continued employment with the Company, on the
sixth anniversary of February 15, 1998, and on each annual anniversary
thereafter, 20% of the principal amount of this Note shall be forgiven and
canceled. Payments of principal and interest (if any) shall be made in lawful
money of the United States of America and shall be credited first to the accrued
interest, with the remainder applied to principal.
Borrower may at any time prepay all or any portion of the principal or interest
owing hereunder.
This Note is subject to the terms of a Secured Loan Agreement, dated as of
April 28, 1998 by and between the Company and Borrower (the "LOAN AGREEMENT")
and is subject to all the provisions thereof, and is secured by a pledge of
Common Stock of the Company underlying certain stock option grants and a second
deed of trust on Borrower's principal residence under the terms of a Security
Agreement dated April 28, 1998 (the "SECURITY AGREEMENT") and is subject to all
the provisions thereof.
Should any action be instituted for the collection of this Note, the
reasonable costs and attorneys' fees therein of the holder shall be paid by
Borrower.
The holder of this Note shall have full recourse against Borrower, and
shall not be required to proceed against the collateral securing this Note in
the event of default.
/s/ James S. Richey
---------------------------
James S. Richey
/s/ Venera S. Richey
---------------------------
spouse of James S. Richey,
so acknowledges and agrees
-26-
<PAGE>
EXHIBIT B
SECURITY AGREEMENT
This Security Agreement is made as of April 28, 1998 by and between LJL
BioSystems, Inc., a Delaware corporation (the "COMPANY"), and James S. Richey
("BORROWER").
RECITALS
The Company has loaned or will loan to Borrower, and Borrower has borrowed
or will borrow from the Company, an aggregate of $190,000 (the "BORROWER
AMOUNT"), which loan is or shall be evidenced by a promissory note (the "NOTE")
and is to be secured by (i) the shares underlying two stock options dated
February 16, 1998 to purchase an aggregate of 112,500 shares of the Company's
Common Stock (as adjusted for subsequent stock splits, reverse stock splits and
recapitalization) (the "SHARES") and (ii) a second deed of trust on Borrower's
principal residence (the "DEED OF TRUST"). The form of Note and the obligations
thereunder are as set forth in EXHIBIT A to the Secured Loan Agreement between
the Company and Borrower, dated the date hereof (the "LOAN AGREEMENT").
AGREEMENT
In consideration of the foregoing, and for other good and valuable
consideration, the receipt of which is hereby acknowledged, the parties to this
Agreement agree as follows:
1. DEED OF TRUST.
(a) In consideration of the loan to Borrower under the Secured Loan
Agreement, and to secure the Borrowed Amount, Borrower is delivering herewith
the Deed of Trust in form and substance approved by the Company and duly
executed by Borrower and Borrower's spouse and properly notarized. The Company
may, if the Company so elects, but without obligation to do so, at any time
record the Deed of Trust against Borrower's principal residence (the "PRINCIPAL
RESIDENCE") in the official records of the county in which the Principal
Residence is located. If the Company so elects, Borrower shall furnish evidence
reasonably satisfactory to the Company that (i) Borrower holds good and
marketable title to the Principal Residence; and (ii) there is no loan, deed of
trust, mortgage or encumbrance against the Principal Residence other than a
first deed of trust in an amount previously disclosed to the Company. Upon the
sale, conveyance, assignment, alienation or any other form of transfer of the
Residence, the Note shall be immediately due and payable in full.
2. PLEDGE OF STOCK.
(a) In consideration of the loan to Borrower under the Secured Loan
Agreement, Borrower, pursuant to the Commercial Code of the State of California,
hereby pledges the Shares to the Secretary of the Company (the "PLEDGEHOLDER"),
who shall hold any certificates representing the Shares subject to the terms and
conditions of this Security Agreement.
(b) The pledged stock (together with an executed blank stock
assignment for use in transferring all or a portion of the Shares to the Company
if, as and when required pursuant to this Security Agreement) shall be held by
the Pledgeholder as security for the repayment of the Notes, and any extensions
or renewals thereof, to be executed by Borrower pursuant to the terms of the
Secured Loan Agreement.
(c) None of the Shares pledged under this Section 1 may be sold,
transferred, pledged, hypothecated or otherwise disposed of by Borrower, except
(i) as required to enable the Company to exercise its rights as a secured party,
(ii) for transfers to family members or trusts that agree to be bound by the
term of this Agreement, the Note and the Loan Agreement, and (iii) for the sale
of Shares on the public market if the value of the remaining vested Shares
pledged to the Company on the date of such sale equals at least 50% of the
amount of the Note.
(d) To ensure the ability of the Company to exercise its rights as a
secured party hereunder,
-27-
<PAGE>
Borrower shall, upon execution of this Agreement and until the termination of
this Agreement, deliver and deposit with the Secretary of the Company, or
such other person designated by the Company, any share certificates
representing the Shares, together with a stock power, duly endorsed in blank,
in the form attached hereto as EXHIBIT B-1. The Shares and stock power(s)
shall be held by the Company in escrow, until such time as the Notes shall
have been paid in full. As a further inducement to the Company to loan to
Borrower the funds represented by the Note, the spouse of Borrower, if any,
shall execute and deliver to the Company a Consent of Spouse in the form
attached hereto as EXHIBIT B-2.
3. BORROWER'S REPRESENTATIONS, WARRANTIES AND COVENANTS. To induce the
Company to enter into this Security Agreement, Borrower represents, warrants and
covenants to the Company, its successors and assigns, as follows:
(a) PAYMENT OF INDEBTEDNESS. Borrower will pay the principal sum of
the Note secured hereby, together with interest thereon (if any), at the time
and in the manner provided in the Note.
(b) ENCUMBRANCES. Borrower has good and marketable title to the
Principal Residence free and clear of all security interests, liens,
encumbrances and rights of others other than a deed of trust constituting a
first lien against the Principal Residence in favor of the primary lender (the
"FIRST DEED OF TRUST") and the Deed of Trust. The Deed of Trust will constitute
a valid, perfected security interest in the Principal Residence, prior to all
monetary liens or encumbrances other than the First Deed of Trust. All Shares
now or hereafter pledged under this Agreement are and shall be free of all other
encumbrances, defenses and liens, and Borrower will not further encumber the
Shares without the prior written consent of the Company.
(c) The consent of no other party or entity is required to grant the
security interest in the Existing Property as provided for in this Agreement.
The creation of the security interest referenced herein, and performance of the
obligations of Borrower hereunder, will not violate or cause a conflict with any
other agreement to which Borrower is a party, or to which the Principal
Residence is subject. Borrower will perform all obligations of Borrower in
connection with the First Deed of Trust (and related documents), and a default
thereunder will constitute a default hereunder.
(d) Other than the First Deed of Trust, there are no security
interests or liens on the Existing Property that could be perfected or
obtained by filing a financing statement or notice with any state filing
office.
(e) There are no actions, proceedings, claims or disputes pending or,
to Borrower's knowledge, threatened against or affecting Borrower or the
Principal Residence except as disclosed to the Company in writing prior to the
date of this Agreement.
(f) Upon the sale, conveyance, assignment, alienation or any other
form of transfer of the Principal Residence, all of the representations,
warranties and covenants contained in this Section 2 with respect to Deed of
Trust and the Principal Residence shall be true.
(g) Borrower shall not sell, convey, assign, alienate, further
encumber, or otherwise transfer the Principal Residence, or enter into any
contract or other agreement to sell, convey, assign, alienate or otherwise
transfer the Principal Residence or any interest therein without giving prior
notice thereof to the Company.
4. VOTING RIGHTS. During the term of this Agreement and so long as all
payments of principal and interest (if any) are made as they become due under
the terms of the Notes, Borrower shall have the right to vote all of the Shares
pledged hereunder to the extent the Shares are voting securities.
5. STOCK ADJUSTMENTS. In the event that during the term of the Agreement
any stock dividend, reclassification, readjustment or other changes declared or
made in the capital structure of the Company, all new, substituted and
additional shares or other securities issued by reason of any such change shall
be delivered to and held by the Pledgeholder under the terms of this Security
Agreement in the same manner as the Shares originally pledged hereunder. In the
event of substitution of such securities, Borrower, the Company and Pledgeholder
shall
-28-
<PAGE>
cooperate and execute such documents as are reasonable so as to provide
for the substitution of such Collateral and, upon such substitution, references
to "Shares" in this Security Agreement shall include the substituted shares of
capital stock of the Company held by Borrower as a result thereof.
6. WARRANTS AND RIGHTS. In the event that, during the term of this
pledge, subscription warrants or other rights or options shall be issued in
connection with the pledged Shares, such rights, warrants and options shall be
the property of Borrower and, if exercised by Borrower, all new stock or other
securities so acquired by Borrower as it relates to the pledged Shares then held
by Pledgeholder shall be immediately delivered to Pledgeholder, to be held under
the terms of this Security Agreement in the same manner as the Shares pledged.
7. DEFAULT. Borrower shall be deemed to be in default of the Note and of
this Security Agreement in the event:
(a) Payment of principal or interest on the Note shall be delinquent
for a period of 10 days or more; or
(b) Borrower fails to perform any of the covenants contained in this
Security Agreement for a period of 10 days after written notice thereof from the
Company; or
(c) Borrower's representations and warranties to the Company
contained in this Agreement or the Deed of Trust were untrue or incorrect as of
the date of funding of the Loan Agreement.
8. REMEDIES IN THE EVENT OF DEFAULT. In the case of an event of default,
as set forth above, the Company shall have the right to accelerate payment of
the Notes upon notice to Borrower, and shall thereafter be entitled to pursue
any or all of its remedies under applicable law, including, without limitation,
(a) offsetting from Borrower's salary, bonuses, vacation pay or other amounts
due to Borrower from the Company, any amount due and payable by Borrower under
the Note, and/or (b) proceeding against the Principal Residence under the Deed
of Trust and against the Shares in accordance with the California Commercial
Code.
9. INSOLVENCY. Borrower agrees that if a bankruptcy or insolvency
proceeding is instituted by or against Borrower, or if a receiver is appointed
for the property of Borrower, or if Borrower makes an assignment for the benefit
of creditors, the entire amount unpaid on the Notes shall become immediately due
and payable, and the Company may proceed as provided in the case of default.
10. WITHDRAWAL OR SUBSTITUTION OF SHARES. Except as described in Section
2(c) hereof, Borrower shall not sell, withdraw, pledge, substitute or otherwise
dispose of all or any part of the Shares without the prior written consent of
the Company.
11. PLEDGE OF SHARES. Except as described in Section 2(c) hereof, the
pledge of Shares shall continue until the payment of all indebtedness secured
hereby, at which time the remaining pledged stock shall be promptly delivered to
Borrower.
12. PLEDGEHOLDER LIABILITY. In the absence of willful or gross
negligence, Pledgeholder shall not be liable to any party for any of his acts,
or omissions to act, as Pledgeholder.
13. MISCELLANEOUS.
(a) SUCCESSORS AND ASSIGNS. The terms and conditions of this
Agreement shall inure to the benefit of and be binding upon the respective
successors and assigns of the parties. Nothing in this Agreement, express or
implied, is intended to confer upon any party other than the parties hereto or
their respective successors and assigns any rights, remedies, obligations, or
liabilities under or by reason of this Agreement, except as expressly provided
in this Agreement.
(b) GOVERNING LAW. This Agreement and all acts and transactions
pursuant hereto and the
-29-
<PAGE>
rights and obligations of the parties hereto shall be governed, construed and
interpreted in accordance with the laws of the State of California, without
giving effect to principles of conflicts of law.
(c) NOTICES. Any notice required or permitted by this Agreement
shall be in writing and shall be deemed sufficient upon receipt, when delivered
personally or by a nationally-recognized delivery service (such as Federal
Express or UPS) or confirmed facsimile, or forty-eight (48) hours after being
deposited in the U.S. mail as certified or registered mail with postage prepaid,
if such notice is addressed to the party to be notified at such party's address
or facsimile number as set forth below, or as subsequently modified by written
notice.
(d) SEVERABILITY. If one or more provisions of this Agreement are
held to be unenforceable under applicable law, the parties agree to renegotiate
such provision in good faith. In the event that the parties cannot reach a
mutually agreeable and enforceable replacement for such provision, then (i) such
provision shall be excluded from this Agreement, (ii) the balance of the
Agreement shall be interpreted as if such provision were so excluded and
(iii) the balance of the Agreement shall be enforceable in accordance with its
terms.
(e) ADVICE OF LEGAL COUNSEL. Each party acknowledges and represents
that, in executing this Agreement, it has had the opportunity to seek advice as
to its legal rights from legal counsel and that the person signing on its behalf
has read and understood all of the terms and provisions of this Agreement. This
Agreement shall not be construed against any party by reason of the drafting or
preparation thereof.
[Signature Page Follows]
-30-
<PAGE>
The parties hereto have executed this Security Agreement as of the day and
year first above written.
JAMES S. RICHEY
/s/ James S. Richey
------------------------------------------------------
(Signature)
Address: 960 Forest Avenue
----------------------------------------------
Palo Alto, CA 94301
----------------------------------------------
LJL BIOSYSTEMS, INC.
By: /s/ Robert T. Beggs
-----------------------------------------------
Title: Vice President of Finance and Administration
-----------------------------------------------
-31-
<PAGE>
EXHIBIT B-1
ASSIGNMENT SEPARATE FROM CERTIFICATE
FOR VALUE RECEIVED I hereby sell, assign and transfer unto LJL BioSystems,
Inc., a Delaware Corporation, (the "Company") (___________) shares of the
Company's Common Stock standing in my name on the books of said corporation and
represented by Certificate No(s).___________________ herewith and do hereby
irrevocably constitute and appoint Robert T. Beggs, Vice President of Finance
and Administration of the Company or his designee to transfer said stock on the
books of the within-named corporation with full power of substitution in the
premises.
Dated:
----------------
Signature:
/s/ James S. Richey
- ----------------------
JAMES S. RICHEY
This Assignment Separate from Certificate was executed in conjunction with the
terms of a Security Agreement between the above assignor and the Company dated
____________, 1998.
-32-
<PAGE>
EXHIBIT B-2
CONSENT OF SPOUSE
I, VENERA J. RICHEY, spouse of James S. Richey, have read and approved the
foregoing Secured Loan Agreement and the exhibits thereto (the "AGREEMENT"). In
consideration of granting of the right to my spouse to borrow funds as set forth
in the Agreement, I hereby appoint my spouse as my attorney-in-fact in respect
to the exercise of any rights under the Agreement and agree to be bound by the
provisions of the Agreement insofar as I may have any rights under such
Agreement or in any property or any shares of LJL BioSystems, Inc. serving as
collateral pursuant thereto under the community property laws of the State of
California or similar laws relating to marital property in effect in the state
of our residence as of the date of the signing of the Agreement.
Dated: 4/28/98
------------
/s/ Venera J. Richey
- ---------------------------
(Signature)
Venera J. Richey
- ---------------------------
(Print name)
-33-
<PAGE>
- -------------------------------------------------------------------------------
Exhibit 10.13
Amended Warrant to Purchase Shares of Common Stock between LJL BioSystems, Inc.
and Lease Management Services, Inc. dated February 16, 1998, amended June 1,
1998
- -------------------------------------------------------------------------------
NEITHER THIS WARRANT NOR THE SECURITIES ISSUABLE UPON EXERCISE OF THIS WARRANT
HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. NO SALE OR
DISPOSITION MAY BE EFFECTED EXCEPT IN COMPLIANCE WITH RULE 144 UNDER SAID ACT OR
WITHOUT AN EFFECTIVE REGISTRATION STATEMENT RELATED THERETO OR AN OPINION OF
COUNSEL FOR THE HOLDER, SATISFACTORY TO THE COMPANY, THAT SUCH REGISTRATION IS
NOT REQUIRED UNDER THE ACT OR RECEIPT OF A NO-ACTION LETTER FROM THE SECURITIES
AND EXCHANGE COMMISSION.
______________________
WARRANT TO PURCHASE SHARES OF COMMON STOCK
February 16, 1998
THIS CERTIFIES THAT, for value received, Lease Management Services, Inc.,
("Holder") is entitled to subscribe for and purchase the number of shares of the
fully paid and nonassessable Common Stock ("the Shares") of LJL BIOSYSTEMS,
INC., a Delaware corporation (the "Company"), determined as set forth below, at
the Warrant Price (as hereinafter defined), subject to the provisions and upon
the terms and conditions hereinafter set forth. As used herein, the term
"Common Stock" shall mean the Company's presently authorized Common Stock, and
any stock into which such Common Stock may hereafter be exchanged.
WARRANT PRICE. The Warrant Price shall initially be Five and 38/100 dollars
($5.38) per share, subject to adjustment as provided in Section 7 below. The
number of shares for which this Warrant shall be exercisable will be equal to
the greater of six thousand six hundred forty five (6,645) shares or the number
of shares obtained by multiplying the amount of the credit facility utilized
during the funding period by 5.5% and then dividing by $5.38. [For example, if
$1,000,000 equipment is financed, then the Warrant will be for 10,223 shares
($1,000,000 x 5.5% DIVIDED BY $5.38).]
2. CONDITIONS TO EXERCISE. The purchase right represented by this Warrant
may be exercised at any time, or from time to time, in whole or in part during
the term commencing on the date hereof and ending on the earlier of:
(a) 5:00 P.M. Pacific time on the fourth annual anniversary of this
Warrant; or
(b) the effective date of the merger of the Company with or into, the
consolidation of the Company with, or the sale by the Company of all or
substantially all of its assets to another corporation or other entity
(other than such a transaction wherein the shareholders of the Company
retain or obtain a majority of the voting capital stock of the surviving,
resulting, or purchasing corporation); provided that the Company shall
notify the registered Holder of this Warrant of the proposed effective date
of the merger, consolidation, or sale at least 30 days prior to the
effectiveness thereof.
In the event that, although the Company shall have given notice of a
transaction pursuant to subparagraph (b) hereof, the transaction does not
close within 60 days of the day specified by the Company, unless otherwise
elected by the Holder any exercise of the Warrant subsequent to the giving
of such notice shall be rescinded and the Warrant shall again be
exercisable until terminated in accordance with this Paragraph 2.
3. METHOD OF EXERCISE; PAYMENT; ISSUANCE OF SHARES; ISSUANCE OF NEW WARRANT.
(a) CASH EXERCISE. Subject to Section 2 hereof, the purchase right
represented by this Warrant may be exercised by
-34-
<PAGE>
the Holder hereof, in whole or in part, by the surrender of this Warrant
(with a duly executed Notice of Exercise in the form attached hereto) at the
principal office of the Company (as set forth in Section 18 below) and by
payment to the Company, by check, of an amount equal to the then applicable
Warrant Price per share multiplied by the number of shares then being
purchased. In the event of any exercise of the rights represented by this
Warrant, certificates for the shares of stock so purchased shall be in the
name of, and delivered to, the Holder hereof, or as such Holder may direct
(subject to the terms of transfer contained herein and upon payment by such
Holder hereof of any applicable transfer taxes). Such delivery shall be made
within 30 days after exercise of the Warrant and at the Company's expense
and, unless this Warrant has been fully exercised or expired, a new Warrant
having terms and conditions substantially identical to this Warrant and
representing the portion of the Shares, if any, with respect to which this
Warrant shall not have been exercised, shall also be issued to the Holder
hereof within 30 days after exercise of the Warrant.
(b) NET ISSUE EXERCISE. In lieu of exercising this Warrant pursuant to
Section 3(a), Holder may elect to receive shares equal to the value of this
Warrant (or of any portion thereof remaining unexercised) by surrender of this
Warrant at the principal office of the Company together with notice of such
election, in which event the Company shall issue to Holder the number of shares
of the Company's Common Stock computed using the following formula:
X = Y (A-B)
-------
A
Where X = the number of shares of Common Stock to be issued to Holder.
Y = the number of shares of Common Stock purchasable under this Warrant (at
the date of such calculation).
A = the Fair Market Value of one share of the Company's Common Stock (at
the date of such calculation).
B = Warrant Price (as adjusted to the date of such calculation).
(c) FAIR MARKET VALUE. For purposes of this Section 3, Fair Market Value of
one share of the Company's Common Stock shall mean:
(i) The average of the closing bid and asked prices of the Common Stock
quoted in the Over-The-Counter Market Summary, or the average of the last
reported sale price of the Common Stock or the closing price quoted on the
Nasdaq National Market System ("NMS") or on any exchange on which the
Common Stock is listed, whichever is applicable, as published in the
Western Edition of the WALL STREET JOURNAL over the ten (10) trading days
prior to the date of determination of fair market value; or
(ii) In the event of an exercise in connection with a merger, acquisition
or other consolidation in which the Company is not the surviving entity, as
described in Section 2(b), the per share Fair Market Value for the Common
Stock shall be the value to be received per share of Common Stock by all
holders of the Common Stock in such transaction as determined by the Board
of Directors; or
(iii) If the Common Stock is not publicly traded, the per share fair
market value of the Common Stock shall be as determined in good faith by
the Company's Board of Directors.
In the event of 3(c)(ii) or 3(c)(iii), above, the Company's Board of
Directors shall prepare a certificate, to be signed by an authorized
Officer of the Company, setting forth in reasonable detail the basis for
and method of determination of the per share Fair Market Value of the
Common Stock. The Board will also certify to the Holder that this per share
Fair Market Value will be applicable to all holders of the Company's Common
Stock. Such certification must be made to Holder at least thirty (30)
business days prior to the proposed effective date of the merger,
consolidation, sale, or other triggering event as defined in 3(c)(ii) and
3(c)(iii).
-35-
<PAGE>
(d) AUTOMATIC EXERCISE. To the extent this Warrant is not previously
exercised, it shall be automatically exercised in accordance with Sections 3(b)
and 3(c) hereof (even if not surrendered) immediately before: (i) its
expiration, or (ii) the consummation of any consolidation or merger of the
Company, or any sale or transfer of a majority of the Company's assets pursuant
to Section 2(b).
4. REPRESENTATIONS AND WARRANTIES OF HOLDER AND RESTRICTIONS ON TRANSFER
IMPOSED BY THE SECURITIES ACT OF 1933.
(a) Representations and Warranties by Holder. The Holder represents and
warrants to the Company with respect to this purchase as follows:
(i) The Holder has substantial experience in evaluating and investing in
private placement transactions of securities of companies similar to the
Company so that the Holder is capable of evaluating the merits and risks of
its investment in the Company and has the capacity to protect its
interests.
(ii) The Holder is acquiring the Warrant and the Shares of Common Stock
issuable upon exercise of the Warrant (collectively the "Securities") for
investment for its own account and not with a view to, or for resale in
connection with, any distribution thereof. The Holder understands that the
Securities have not been registered under the Securities Act of 1933, as
amended (the "Act") by reason of a specific exemption from the registration
provisions of the Act which depends upon, among other things, the bona fide
nature of the investment intent as expressed herein. In this connection,
the Holder understands that, in the view of the Securities and Exchange
Commission (the "SEC"), the statutory basis for such exemption may be
unavailable if this representation was predicated solely upon a present
intention to hold the Securities for the minimum capital gains period
specified under tax statutes, for a deferred sale, for or until an increase
or decrease in the market price of the Securities or for a period of one
year or any other fixed period in the future.
(iii) The Holder acknowledges that the Securities must be held
indefinitely unless subsequently registered under the Act or an exemption
from such registration is available. The Holder is aware of the provisions
of Rule 144 promulgated under the Act ("Rule 144") which permits limited
resale of securities purchased in a private placement subject to the
satisfaction of certain conditions, including, in case the securities have
been held for more than one but less than two years, the existence of a
public market for the shares, the availability of certain public
information about the Company, the resale occurring not less than one year
after a party has purchased and paid for the security to be sold, the sale
being through a "broker's transaction" or in a transaction directly with a
"market maker" (as provided by Rule 144(f)) and the number of shares or
other securities being sold during any three-month period not exceeding
specified limitations.
(iv) The Holder further understands that at the time the Holder wishes to
sell the Securities there may be no public market upon which such a sale
may be effected, and that even if such a public market exists, the Company
may not be satisfying the current public information requirements of Rule
144, and that in such event, the Holder may be precluded from selling the
Securities under Rule 144 unless a) a two-year minimum holding period has
been satisfied and b) the Holder was not at the time of the sale nor at any
time during the three-month period prior to such sale an affiliate of the
Company.
(v) The Holder has had an opportunity to discuss the Company's business,
management and financial affairs with its management and an opportunity to
review the Company's facilities. The Holder understands that such
discussions, as well as the written information issued by the Company, were
intended to describe the aspects of the Company's business and prospects
which it believes to be material but were not necessarily a thorough or
exhaustive description.
(b) LEGENDS. Each certificate representing the Securities shall be endorsed
with the following legend:
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933 AND MAY NOT BE TRANSFERRED UNLESS COVERED BY AN EFFECTIVE
REGISTRATION STATEMENT UNDER SAID ACT, A "NO ACTION" LETTER FROM THE
-36-
<PAGE>
SECURITIES AND EXCHANGE COMMISSION WITH RESPECT TO SUCH TRANSFER, A
TRANSFER MEETING THE REQUIREMENTS OF RULE 144 OF THE SECURITIES AND
EXCHANGE COMMISSION, OR (IF REASONABLY REQUIRED BY THE COMPANY) AN
OPINION OF COUNSEL SATISFACTORY TO THE ISSUER TO THE EFFECT THAT ANY
SUCH TRANSFER IS EXEMPT FROM SUCH REGISTRATION.
The Company need not enter into its stock record a transfer of Securities unless
the conditions specified in the foregoing legend are satisfied. The Company may
also instruct its transfer agent not to allow the transfer of any of the Shares
unless the conditions specified in the foregoing legend are satisfied.
(c) REMOVAL OF LEGEND AND TRANSFER RESTRICTIONS. The legend relating to the
Act endorsed on a certificate pursuant to paragraph 4(b) of this Warrant and the
stop transfer instructions with respect to the Securities represented by such
certificate shall be removed and the Company shall issue a certificate without
such legend to the Holder of the Securities if (i) the Securities are registered
under the Act and a prospectus meeting the requirements of Section 10 of the Act
is available or (ii) the Holder provides to the Company an opinion of counsel
for the Holder reasonably satisfactory to the Company, or a no-action letter or
interpretive opinion of the staff of the SEC reasonably satisfactory to the
Company, to the effect that public sale, transfer or assignment of the
Securities may be made without registration and without compliance with any
restriction such as Rule 144.
5. CONDITION OF TRANSFER OR EXERCISE OF WARRANT. It shall be a condition to
any transfer or exercise of this Warrant that at the time of such transfer or
exercise, the Holder shall provide the Company with a representation in writing
that the Holder or transferee is acquiring this Warrant and the shares of Common
Stock to be issued upon exercise for investment purposes only and not with a
view to any sale or distribution, or will provide the Company with a statement
of pertinent facts covering any proposed distribution. As a further condition
to any transfer of this Warrant or any or all of the shares of Common Stock
issuable upon exercise of this Warrant, other than a transfer registered under
the Act, the Company must have received a legal opinion, in form and substance
satisfactory to the Company and its counsel, reciting the pertinent
circumstances surrounding the proposed transfer and stating that such transfer
is exempt from the registration and prospectus delivery requirements of the Act.
Each certificate evidencing the shares issued upon exercise of the Warrant or
upon any transfer of the shares (other than a transfer registered under the Act
or any subsequent transfer of shares so registered) shall, at the Company's
option, contain a legend in form and substance satisfactory to the Company and
its counsel, restricting the transfer of the shares to sales or other
dispositions exempt from the requirements of the Act.
As further condition to each transfer, the Holder shall surrender this
Warrant to the Company and the transferee shall receive and accept a Warrant, of
like tenor and date, executed by the Company.
6. STOCK FULLY PAID; RESERVATION OF SHARES. All Shares which may be issued
upon the exercise of the rights represented by this Warrant will, upon issuance,
be fully paid and nonassessable, and free from all taxes, liens, and charges
with respect to the issue thereof. During the period within which the rights
represented by this Warrant may be exercised, the Company will at all times have
authorized, and reserved for issuance upon exercise of the purchase rights
evidenced by this Warrant, a sufficient number of shares of its Common Stock to
provide for the exercise of the rights represented by this Warrant.
7. ADJUSTMENT FOR CERTAIN EVENTS: In the event of changes in the outstanding
Common Stock by reason of stock dividends, split-ups, recapitalizations,
reclassifications, mergers, consolidations, combinations or exchanges of shares,
separations, reorganizations, liquidations, or the like, the number and class of
shares available under the Warrant in the aggregate and the Warrant Price shall
be correspondingly adjusted, as appropriate, by the Board of Directors of the
Company. The adjustment shall be such as will give the Holder of this Warrant
upon exercise for the same aggregate Warrant Price the total number, class and
kind of shares as he would have owned had the Warrant been exercised prior to
the event and had he continued to hold such shares until after the event
requiring adjustment.
8. NOTICE OF ADJUSTMENTS. Whenever any Warrant Price shall be adjusted
pursuant to Section 7 hereof, the Company shall prepare a certificate signed by
an officer of the Company setting forth, in reasonable detail, the event
-37-
<PAGE>
requiring the adjustment, the amount of the adjustment, the method by which such
adjustment was calculated, and the Warrant Price and number of shares issuable
upon exercise of the Warrant after giving effect to such adjustment, and shall
cause copies of such certificate to be mailed (by certified or registered mail,
return receipt required, postage prepaid) within thirty (30) days of such
adjustment to the Holder of this Warrant as set forth in Section 18 hereof.
9. "MARKET STAND-OFF" AGREEMENT. Holder hereby agrees that for a period of
up to 180 days following the effective date of the first registration
statement of the Company covering Common Stock (or other securities) to be
sold on behalf of the Company in an underwritten public offering, it will
not, to the extent requested by the Company and any underwriter, sell or
otherwise transfer or dispose of (other than to donees or transferees who
agree to be similarly bound) any of the Shares at any time during such period
except Common Stock included in such registration; provided, however, that
all officers and directors of the Company (other than officers and directors
of the Company who are selling stockholders in such public offering) who hold
securities of the Company or options to acquire securities of the Company
enter into similar agreements.
10. TRANSFERABILITY OF WARRANT. This Warrant is transferable only in its
entirety on the books of the Company at its principal office by the registered
Holder hereof upon surrender of this Warrant properly endorsed, subject to
compliance with Section 5 and applicable federal and state securities laws. The
Company shall issue and deliver to the transferee a new Warrant representing
the Warrant so transferred. Holder shall not have any right to transfer any
portion of this Warrant to any direct competitor of the Company.
11. NO FRACTIONAL SHARES. No fractional share of Common Stock will be issued
in connection with any exercise hereunder, but in lieu of such fractional share
the Company shall make a cash payment therefor upon the basis of the Warrant
Price then in effect.
12. CHARGES, TAXES AND EXPENSES. Issuance of certificates for shares of
Common Stock upon the exercise of this Warrant shall be made without charge to
the Holder for any United States or state of the United States documentary stamp
tax or other incidental expense with respect to the issuance of such
certificate, all of which taxes and expenses shall be paid by the Company, and
such certificates shall be issued in the name of the Holder.
13. NO SHAREHOLDER RIGHTS UNTIL EXERCISE. This Warrant does not entitle the
Holder hereof to any voting rights or other rights as a shareholder of the
Company prior to the exercise hereof.
14. REGISTRY OF WARRANT. The Company shall maintain a registry showing the
name and address of the registered Holder of this Warrant. This Warrant may be
surrendered for exchange or exercise, in accordance with its terms, at such
office or agency of the Company, and the Company and Holder shall be entitled to
rely in all respects, prior to written notice to the contrary, upon such
registry.
15. LOSS, THEFT, DESTRUCTION OR MUTILATION OF WARRANT. Upon receipt by the
Company of evidence reasonably satisfactory to it of the loss, theft,
destruction or mutilation of this Warrant, and, in the case of loss, theft, or
destruction, of indemnity reasonably satisfactory to it, and, if mutilated, upon
surrender and cancellation of this Warrant, the Company will execute and deliver
a new Warrant, having terms and conditions substantially identical to this
Warrant, in lieu hereof.
16. MISCELLANEOUS.
(a) ISSUE DATE. The provisions of this Warrant shall be construed and
shall be given effect in all respect as if it had been issued and delivered
by the Company on the date hereof.
(b) SUCCESSORS. This Warrant shall be binding upon any successors or
assigns of the Company.
(c) GOVERNING LAW. This Warrant shall be governed by and construed in
accordance with the laws of the State of California.
-38-
<PAGE>
(d) HEADINGS. The headings used in this Warrant are used for
convenience only and are not to be considered in construing or interpreting
this Warrant.
(e) SATURDAYS, SUNDAYS, HOLIDAYS. If the last or appointed day for
the taking of any action or the expiration of any right required or granted
herein shall be a Saturday or a Sunday or shall be a legal holiday in the
State of California, then such action may be taken or such right may be
exercised on the next succeeding day not a legal holiday.
17. NO IMPAIRMENT. The Company will not, by amendment of its Certificate of
Incorporation or any other voluntary action, avoid or seek to avoid the
observance or performance of any of the terms of this Warrant, but will at all
times in good faith assist in the carrying out of all such terms and in the
taking of all such action as may be necessary or appropriate in order to protect
the rights of the Holder hereof against impairment.
18. ADDRESSES. Any notice required or permitted hereunder shall be in writing
and shall be mailed by overnight courier, registered or certified mail, return
receipt required, and postage pre-paid, or otherwise delivered by hand or by
messenger, addressed as set forth below, or at such other address as the Company
or the Holder hereof shall have furnished to the other party.
If to the Company: LJL BioSystems, Inc.
404 Tasman Drive
Sunnyvale, CA 94089
Attn: Vice President, Finance & Administration
If to the Holder: Lease Management Services, Inc.
2500 Sand Hill Road, Suite 101
Menlo Park, CA 94025
Attn: Barbara B. Kaiser, EVP/GM
IN WITNESS WHEREOF, LJL BIOSYSTEMS, INC. has caused this Warrant to be executed
by its officers thereunto duly authorized.
Dated as of FEBRUARY16, 1998.
LJL BIOSYSTEMS, INC.
BY: /s/ ROBERT T. BEGGS
--------------------------------------------
TITLE: Vice President of Finance and Administration
--------------------------------------------
-39-
<PAGE>
NOTICE OF EXERCISE
TO:
1. The undersigned Warrantholder ("Holder") elects to acquire shares of the
Common Stock of LJL BIOSYSTEMS, INC. (the "Company"), pursuant to the terms
of the Stock Purchase Warrant dated_________ , 1998, (the "Warrant").
2. The Holder exercises its rights under the Warrant as set forth below:
( ) The Holder elects to purchase___________ shares of Common
Stock as provided in Section 3(a), (c) and tenders herewith a check in the
amount of $_________ as payment of the purchase price.
( ) The Holder elects to convert the purchase rights into
shares of Common Stock as provided in Section 3(b), (c) of the Warrant.
3. The Holder surrenders the Warrant with this Notice of Exercise.
4. The Holder represents that it is acquiring the aforesaid shares of Common
Stock for investment and not with a view to, or for resale in connection
with, distribution and that the Holder has no present intention of
distributing or reselling the shares.
5. Please issue a certificate representing the shares of Common Stock in the
name of the Holder or in such other name as is specified below:
Name:
Address:
Taxpayer I.D.:
____________________________
(Holder)
By:_________________________
Title:______________________
Date:_______________________
-40-
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 2,813,000
<SECURITIES> 10,924,000
<RECEIVABLES> 637,000
<ALLOWANCES> 0
<INVENTORY> 1,055,000
<CURRENT-ASSETS> 252,000
<PP&E> 1,410,000
<DEPRECIATION> 758,000
<TOTAL-ASSETS> 16,523,000
<CURRENT-LIABILITIES> 2,020,000
<BONDS> 0
0
0
<COMMON> 10,000
<OTHER-SE> 14,400,000
<TOTAL-LIABILITY-AND-EQUITY> 16,523,000
<SALES> 1,384,000
<TOTAL-REVENUES> 1,384,000
<CGS> 1,030,000
<TOTAL-COSTS> 5,729,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 6,000
<INCOME-PRETAX> (4,064,000)
<INCOME-TAX> 0
<INCOME-CONTINUING> (4,064,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (4,064,000)
<EPS-PRIMARY> (0.53)
<EPS-DILUTED> (0.53)
</TABLE>
