<PAGE>
As filed with the Securities and Exchange Commission on June 11, 1999
Registration No. 333-69207
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
---------------
AMENDMENT NO. 9 TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------
CARESIDE, INC.
(Exact name of registrant as specified in its charter)
Delaware 3841 23-2863507
(Primary Standard (I.R.S. Employer
(State or other Industrial Identification No.)
jurisdiction of Classification Code
incorporation or Number)
organization)
6100 Bristol Parkway, Culver City, CA 90230
(310) 338-6767
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)
---------------
W. Vickery Stoughton
Chairman of the Board of Directors and
Chief Executive Officer
Careside, Inc.
6100 Bristol Parkway
Culver City, CA 90230
(310) 338-6767
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
---------------
With copies to:
Barry M. Abelson, Esq. Jonathan L. Kravetz, Esq.
Julia D. Corelli, Esq. Mintz, Levin, Cohn, Ferris,
Pepper Hamilton LLP Glovsky and Popeo, P.C.
3000 Two Logan Square One Financial Center
Philadelphia, PA 19103 Boston, MA 02111
(215) 981-4000 --------------- (617) 542-6000
Approximate date of commencement of proposed sale to the public: As soon as
practicable after this Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act,
check the following box. [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following box. [_]
CALCULATION OF REGISTRATION FEE
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Proposed
Proposed Maximum
Title of Each Class of Amount Maximum Aggregate Amount of
Securities to be to be Offering Price Offering Registration
Registered Registered Per Share(1) Price(1) Fee
- ---------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Units, each consisting
of...................... 2,300,000(2) $ 7.50 $17,250,000 $ 4,796
- ---------------------------------------------------------------------------------
(i) one share of common
stock, and.............. 2,300,000 -- -- --
- ---------------------------------------------------------------------------------
(ii) one warrant to
purchase one share of
common stock............ 2,300,000 -- -- --
- ---------------------------------------------------------------------------------
Representatives' Warrants
(3)..................... 200,000 $ 0.00 $ 0 $ 0
- ---------------------------------------------------------------------------------
Units issuable upon
exercise of the
Representatives'
Warrants, each consisting
of...................... 200,000 $ 9.00 $ 1,800,000 $ 501
- ---------------------------------------------------------------------------------
(i) one share of common
stock, and.............. 200,000 -- -- --
- ---------------------------------------------------------------------------------
(ii) one warrant to
purchase one share of
common stock............ 200,000 -- -- --
- ---------------------------------------------------------------------------------
Shares of common stock
issuable upon exercise of
warrants, including
warrants underlying
Representatives' Warrants
(4)..................... 2,500,000 $11.25 $28,125,000 $ 7,819
- ---------------------------------------------------------------------------------
Totals................... 5,200,000 -- $47,175,000 $13,116
- ---------------------------------------------------------------------------------
</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(a) promulgated under the Securities Act of 1933, as
amended.
(2) Includes 300,000 units that the underwriters have the option to purchase
to cover over-allotments, if any.
(3) In connection with the sale of the units, Careside is granting to Paulson
Investment Company, Inc., Millenium Financial Group, Inc., and marion bass
securities corporation, the representatives of the several underwriters
(the "Representatives"), warrants to purchase 200,000 units (the
"Representatives' Warrants").
(4) Pursuant to Rule 416 promulgated under the Securities Act of 1933, as
amended, there are also being registered such additional shares of common
stock as may be issuable pursuant to the anti-dilution provisions of the
warrants and the Representatives' Warrants.
(5) Fees totaling an aggregate amount of $17,487 were previously paid by
Careside in connection with the filing of the Registration Statement on
December 18, 1998, Amendment No. 1 to the Registration Statement on
February 1, 1999 and Amendment No. 7 to the Registration Statement on May
5, 1999.
---------------
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this
Registration Statement shall thereafter become effective in accordance with
Section 8(a) of the Securities Act of 1933, as amended, or until this
Registration Statement shall become effective on such date as the Securities
and Exchange Commission, acting pursuant to Section 8(a), may determine.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
The information in this prospectus is not complete and may be changed. We may
not sell these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus is not an
offer to sell these securities and it is not soliciting an offer to buy these
securities in any state where the offer or sale is not permitted.
Subject to Completion, Dated June 11, 1999
2,000,000 Units
[LOGO OF CARESIDE]
This is an initial public offering of 2,000,000 units. We expect that the
offering price per unit will be $7.50. Each unit consists of:
. one share of common stock; and
. one redeemable common stock purchase warrant.
This prospectus also relates to warrants to purchase up to 200,000 units,
exercisable for $ [120% of the initial public offering price per unit]
each, which the representatives of the underwriters will receive as part of
their compensation in connection with the offering, and to the 2,200,000
shares of common stock which will be received in the future if warrants
included in all of the units are exercised at $ [150% of the initial public
offering price per unit] each. If all of the warrants are exercised, Careside
will receive $ .
We have applied to have the common stock, warrants and units listed for
quotation on the American Stock Exchange under the symbols "CSA", "CSA.WS" and
"CSA.U", respectively. There is currently no public market for the common
stock, warrants or units.
Investing in the units involves significant risks. See "Risk Factors"
beginning on page 7.
<TABLE>
<CAPTION>
Per Unit/Warrant Total
---------------- -----
<S> <C> <C>
Offering price of units.................................. $ $
Underwriting discount on units........................... $ $
Proceeds to Careside from the sale of units.............. $ $
</TABLE>
In addition, we have granted a 45-day option to the underwriters to purchase
up to 300,000 additional units to cover over-allotments.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if
this prospectus is truthful or complete. Any representation to the contrary is
a criminal offense.
---------------
Paulson Investment Company, Inc.
Millennium Financial Group, Inc.
marion bass securities corporation
, 1999
<PAGE>
[Inside Front Cover]
[CARESIDE LOGO] THE CARESIDE SYSTEM IS A PROPRIETARY BLOOD TESTING
SYSTEM. IT INCLUDES THE CARESIDE ANALYZER(TM) AND
DISPOSABLE TEST CARTRIDGES.
CARESIDE ANALYZER(TM) [Photo of CareSide
Analyzer and
Cartridges]
(A) CHEMISTRY
The CareSide (B) ELECTROCHEMISTRY
Analyzer(TM) combines (C) IMMUNOCHEMISTRY
multiple testing (D) COAGULATION
methodologies.
[Photo Close-up of [Photo of Different
Cartridge] Cartridges]
THE CARESIDE CARTRIDGE
The proprietary test cartridges have unique design
features.
COMPREHENSIVE MENU LOW COST EASE OF USE
At launch, Careside The Careside system's A non-technical
expects to offer more approach to testing is individual with
than 50 tests. This designed to produce a simple training can
would be the most rapid test result at a easily operate the
comprehensive menu for a competitive price. CareSide
single point-of-care Analyzer(TM).
system.
----------------
We have not yet commercialized the Careside system. We currently have 31
tests cleared or exempt for professional laboratory use by the United States
Food and Drug Administration. We plan to complete development and seek to
obtain FDA clearance or exemption for additional tests and uses prior to
commercial introduction.
Careside(TM), CareSide Analyzer(TM) and Careside's logo are our trademarks
for which registration applications have been filed with the United States
Patent and Trademark Office. All other tradenames, trademarks or servicemarks
appearing in this prospectus are the property of their respective owners and
are not our property.
2
<PAGE>
PROSPECTUS SUMMARY
The following summary highlights information from this prospectus. Because
this is a summary, it does not contain all of the information that you should
consider before investing in the units. You should read the entire prospectus
carefully, including the "Risk Factors" section, the financial statements and
the notes to those financial statements.
Careside
Careside has developed and plans to sell a proprietary blood testing system
called the Careside system. It is designed to decentralize laboratory
operations. The system consists of a testing instrument called the CareSide
Analyzer and disposable test cartridges. It performs blood tests in the same
location as the patient, or what is commonly called point-of-care testing.
Blood testing is a significant part of routine and critical patient care.
Today, almost all blood testing is done by sending the blood samples to
hospital or commercial laboratories. Because of transportation time and several
processing steps, these central laboratories generally take between 4 and 24
hours to provide test results to the doctor. We believe that the Careside
system provides the platform for solving the limitations of central blood
testing laboratories and redefines the market for point-of-care testing. Here
are the reasons why:
. Cost-Effective Results -- Our system is designed to provide test results
that are cost competitive with both hospital and commercial
laboratories.
. Rapid Test Results -- Our system produces test results within 10 to 15
minutes from the time the blood is drawn from the patient.
. Comprehensive Test Menu -- We believe that our planned menu of tests
represents over 80% of all blood tests ordered on an out-patient basis,
including all of the most commonly ordered blood tests.
. Ease of Use -- Our system is designed for use by non-technical
personnel, with only simple training.
. Industry Standard Technology -- Our system uses the same test methods
and technology as large testing devices in hospital and commercial
laboratories.
. Embedded Quality Assurance/Quality Control -- Our system captures all
data required to comply with regulations governing laboratory
operations, including those under the Clinical Laboratory Improvement
Amendments of 1988.
. Ability for Practice Enhancement -- By providing rapid test results for
a broad menu of tests, our system will enable doctors to treat patients
more quickly, see more patients, improve office productivity and improve
patient satisfaction and quality of care. In addition, healthcare
providers can increase their revenue by performing and billing for tests
themselves.
Our goal is to make decentralized testing with the Careside system the
standard for routine and critical care blood testing.
The Careside System Status
The FDA has already granted pre-market clearance for the CareSide Analyzer
and clearance or exemption for 31 blood tests for professional laboratory use.
We recently filed three additional blood tests for clearance. Our commercial
product launch is planned for the fourth quarter of 1999. We expect to have the
CareSide Analyzer and a comprehensive menu of over 50 tests cleared or exempt
at that time.
3
<PAGE>
We intend to complete pilot site marketing studies by the end of the third
quarter of 1999. These studies will demonstrate our system's cost-effectiveness
and how potential customers will use it. We have arranged pilot site studies
with APRIA Healthcare in the home care services market, three hospitals
affiliated with Child Health Corporation of America in the hospital market,
Reliant Care Group, L.L.C. in the nursing home market and SmithKline Beecham
Clinical Laboratories, Inc. for its own use. We are also arranging pilot site
studies with several group practices located in Arizona and California.
Market Opportunity
The lack of timely test results from central laboratories has given rise to a
growing market for point-of-care tests. According to 1997 industry data and
estimates, the worldwide product market for testing of blood and other bodily
fluids and tissues was $18.3 billion in 1997 and was expected to grow to $20
billion in 2000. Based on their prior industry experience, our senior
management believes that the Careside system's 50 test menu will address over
38% of this market. The rest of the market includes complex and specialized
tests not performed by the Careside system. The U.S. and Canadian market is
approximately 40% of the worldwide market. Our initial marketing efforts will
be targeted towards converting U.S. and Canadian blood testing to point-of-care
testing.
Early History
SmithKline Beecham Clinical Laboratories, Inc. conducted extensive surveys of
the point-of-care market beginning in 1993. As a result, in 1994, SmithKline
started our predecessor business to develop the technology we use. We acquired
this business in November 1996. Several senior members of SmithKline's
management team, including the President of SmithKline Beecham Clinical
Laboratories, worked on this point-of-care project at SmithKline. They are now
part of the executive management team of Careside.
Careside was incorporated in the State of Delaware in July 1996 under the
name Exigent Diagnostics, Inc. In May 1998, we changed our name to Careside,
Inc. Our principal executive offices are located at 6100 Bristol Parkway,
Culver City, California 90230 and our telephone number is (310) 338-6767.
4
<PAGE>
The Offering
Except as otherwise indicated, all information in this prospectus assumes no
exercise of the underwriters' over-allotment option or the representatives'
warrants, and has been adjusted to give effect to a 1-for-5.2 reverse stock
split to be effected immediately prior to the completion of the offering.
<TABLE>
<C> <S>
Securities Offered ....... 2,000,000 units. Each unit consists of one share of
common stock and one warrant to purchase an
additional share of common stock. The units will
automatically separate 30 days from the date of
this prospectus, after which the common stock and
warrants in the units will trade separately.
Warrants.................. The warrants included in the units will be
exercisable commencing 30 days after the offering.
The exercise price of a warrant is $ [150% of the
initial public offering price per unit]. They
expire on the fifth anniversary of the date of this
prospectus. If the closing price of our common
stock on each of the ten consecutive trading days
preceding our notice of redemption is at least $
[200% of the initial public offering price per
unit], we may redeem some or all of the outstanding
warrants if we provide the holders with 30 days'
prior written notice. The redemption price will be
$0.05 per warrant. No redemption can occur until
six months after the date of this prospectus.
Common Stock Outstanding.. 5,084,340 shares of common stock were outstanding
before the offering. After the offering, there will
be 7,084,340 shares outstanding. Both of these
numbers exclude 2,106,657 shares of common stock
issuable upon exercise of options and warrants
which are outstanding or will be outstanding
immediately after the offering. After the offering,
there will also be another 2,000,000 shares of
common stock issuable upon exercise of warrants
included in the units.
Dividend Policy........... We do not plan to pay cash dividends in the
foreseeable future.
Use of Proceeds........... We expect to use the proceeds from the offering,
which we estimate will be approximately
$12,475,000, to:
. complete product development, launch our product
and cover related expenses;
. purchase manufacturing equipment and expand our
facilities; and
. build inventory and provide working capital.
</TABLE>
<TABLE>
<S> <C>
Proposed American Stock Exchange Symbol for Common Stock................. CSA
Proposed American Stock Exchange Symbol for Warrants..................... CSA.WS
Proposed American Stock Exchange Symbol for Units........................ CSA.U
</TABLE>
5
<PAGE>
Summary Financial Data
The following table presents summary financial information for Careside and
the predecessor business at SmithKline Beecham Clinical Laboratories, Inc. The
as adjusted balance sheet data assumes the sale by Careside of 2,000,000 units
in the offering at $7.50 per unit and the use of the estimated net proceeds as
set forth in "Use of Proceeds" on page 15. You should read this data together
with the financial statements and related notes included in this prospectus.
<TABLE>
<CAPTION>
Predecessor Business
------------------------------------
Year ended Ten months
December 31, ended
----------------------- October 31,
1994 1995 1996
----------- ----------- -----------
(unaudited)
<S> <C> <C> <C>
Statement of
Operations Data:
Operating
expenses:
Research and
development..... $ 949,346 $ 2,109,802 $ 3,054,503
General and
administration.. 26,069 585,058 224,399
--------- ----------- -----------
Operating loss.. $(975,415) $(2,694,860) $(3,278,902)
========= =========== ===========
Net interest
income
(expense).......
Net loss.........
Net loss per
share...........
Shares used in
computing net
loss per share..
<CAPTION>
Careside, Inc.
-------------------------------------------------------------------------------
Period from Period from
Inception Inception
(July 10, Year ended Three months (July 10,
1996) to December 31, ended March 31, 1996) to
December 31, ------------------------- ------------------------- March 31,
1996 1997 1998 1998 1999 1999
------------- ------------ ------------ ------------ ------------ -------------
(unaudited) (unaudited)
<S> <C> <C> <C> <C> <C> <C>
Statement of
Operations Data:
Operating
expenses:
Research and
development..... $ 1,561,847 $ 5,895,465 $ 8,297,974 $ 1,541,119 $ 2,076,046 $ 17,831,332
General and
administration.. 55,515 640,574 850,129 196,595 569,907 2,116,125
------------- ------------ ------------ ------------ ------------ -------------
Operating loss.. (1,617,362) (6,536,039) (9,148,103) (1,737,714) (2,645,953) (19,947,457)
Net interest
income
(expense)....... (20,809) 205,256 211,814 17,857 (359,724) 36,537
------------- ------------ ------------ ------------ ------------ -------------
Net loss......... $(1,638,171) $(6,330,783) $(8,936,289) $(1,719,857) $(3,005,677) $(19,910,920)
============= ============ ============ ============ ============ =============
Net loss per
share........... $ (2.25) $ (2.04) $ (1.93) $ (0.49) $ (0.59)
============= ============ ============ ============ ============
Shares used in
computing net
loss per share.. 728,465 3,098,980 4,629,916 3,521,808 5,084,340
============= ============ ============ ============ ============
</TABLE>
<TABLE>
<CAPTION>
Careside, Inc.
----------------------------------------
March 31, 1999 (unaudited)
----------------------------------------
Pro Forma
Actual Pro Forma As Adjusted
------------ ------------ ------------
<S> <C> <C> <C>
Balance Sheet Data:
Cash and cash equivalents............ $ 2,051,786 $ 2,051,786 $14,526,556
Total assets......................... 7,248,753 7,248,753 19,723,523
Long-term debt, including current
portion............................. 3,996,763 2,996,763 2,996,763
Deficit accumulated during
development stage................... (19,910,920) (19,910,920) (20,241,034)
Total stockholders' equity........... 1,143,468 2,164,071 14,638,841
</TABLE>
6
<PAGE>
RISK FACTORS
An investment in the units involves many risks. These risks may be
substantial and are inherent in the business of Careside. You should carefully
consider the following information about these risks, together with the other
information in this prospectus, before buying units.
If any of the following risks actually occur, our business and prospects
could be materially adversely affected, the trading price of our units, common
stock or warrants could decline, and you might lose all or part of your
investment.
We Have a Limited Operating History and Have Not Generated any Revenue
Careside was formed in 1996 and has not generated any revenue. We have
incurred net losses of approximately $20 million from inception through March
31, 1999. We will not generate any revenue from product sales and will continue
to incur significant additional operating losses until we complete the
development of our test menu, receive necessary FDA clearances, expand our
manufacturing and marketing efforts, manufacture our products according to
regulations prescribed by the FDA, and begin selling the Careside system.
The Offering May Not Raise Sufficient Funds to Meet Our Goals
The offering may not provide sufficient funds to fully implement our business
plan. We anticipate that the estimated net proceeds from the offering, together
with revenue expected after 1999 and proceeds of our current equipment lease
financing, will be sufficient to fund our operating expenses and capital
requirements for at least 12 months. However, these expenses and requirements
may change. If sufficient funds are not raised or revenues are not sufficient,
we may have to reduce our initial marketing expenses or product development
activities. In addition, we may not be able to meet our obligations to our
suppliers and strategic partners during this 12 month period. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations--
Liquidity and Capital Resources" on page 20.
Additional Funding May Not Be Available
We intend to draw on existing availability under our equipment lease facility
or, if necessary, seek additional lease financing, to fund our purchase of
equipment for our automated cartridge assembly line. Additional funding for our
activities may come from the exercise of warrants included in units sold in the
offering. We also may seek additional financing to build inventory and to
refinance our bridge loan. To support our current and any future funding
requirements, we may need to issue additional equity securities, incur more
debt, obtain added lease financing and/or seek third-party collaboration
opportunities. Additional funding may have unacceptable terms or may not be
available at all for reasons relating to:
.Careside's inability to meet its business plan, or
.changes in lenders' or investors' views of medical device or small
capitalization companies.
If adequate funds are not available, we may be required to delay, reduce or
eliminate product development programs or to license to third parties rights to
commercialize our products or technologies.
We May Never Be Profitable
Even if we are able to generate revenue from sales of the Careside system, we
may never be profitable. There are several reasons why this might happen:
.We could build up our overhead in anticipation of sales goals that are not
met.
.We may not be able to reduce our manufacturing costs to acceptable levels.
.We may have to lower our prices to remain competitive.
.We may experience delays in developing additional tests or product
upgrades.
.We may experience problems in production, distribution or marketing.
Medical Community May Not Accept the Careside System
The CareSide Analyzer and related test cartridges are our only products. We
will not be able to operate profitably unless these products achieve a
significant level of market acceptance. The following factors are the greatest
risks to our market acceptance:
7
<PAGE>
We May Fail to Develop the Comprehensive Test Menu Needed to Sell Our Product
If we are not able to fully develop our proposed comprehensive test menu,
customers may not buy our products. One of our major selling points to
potential customers will be the breadth of our menu.
We May Be Unable to Change How Tests are Ordered
We may not be able to demonstrate the economic or clinical benefits of the
Careside system sufficiently to convince members of the medical community to
change the way they order tests. Currently, physicians and hospitals typically
order blood tests from central laboratories.
Managed Care Contracts May Limit Our Market Penetration
Our ability to sell to healthcare providers may be limited by managed care
relationships. Many health maintenance and managed care organizations have
exclusive contracts with laboratories that require participating or employed
physicians to send patient specimens only to contracted laboratories.
Consequently, such physicians may be precluded from using the Careside system
unless they obtain a waiver from the relevant health maintenance or managed
care organization.
We May Be Unable to Keep Pace With Changing Technology
Blood testing technology is evolving. Other companies may develop products in
response to technological changes that make our products noncompetitive,
particularly if the development, introduction or marketing of our products is
delayed.
CLIA May Discourage Healthcare Providers from Using Point-of-Care Testing
Careside system users will be required to be licensed under the Clinical
Laboratory Improvement Amendments of 1988. While the Careside system is
designed to make licensure easy, CLIA licensing requirements may make
healthcare providers reluctant to initiate, continue or expand patient testing
using the Careside system.
Failure to Obtain Point-of-Care Use Designation Will Limit Our Market
Opportunity
The Careside system is not currently authorized for point-of-care use or
physician office laboratory use. It is authorized for professional laboratory
use. Professional laboratories include hospital, commercial and independent
laboratories. As a result, we are presently unable to sell to an important
segment of our market. Clearance for point-of-care use and physician office
laboratory use from the FDA is necessary to expand our potential market beyond
professional laboratories. We will seek these clearances for the CareSide
Analyzer in the third quarter of 1999.
We May Not Be Able to Develop Our Products
In order for us to expand our test menu, we must complete the development of
one of the four types of disposable cartridges. Factors outside our control may
delay our proposed development schedules by one year or more. These factors
include:
.delays in regulatory clearance,
.technological difficulties,
.restrictions on access to proprietary technology of strategic partners,
and
.changes in the healthcare, regulatory or reimbursement environment.
Reductions in Third-Party Reimbursement For Tests May Hurt Our Business
Government authorities, private health insurers and other third-party payers,
such as health maintenance organizations may not reimburse providers for our
products' tests. Current reimbursement amounts for diagnostic tests may not be
maintained. Any decrease in test reimbursement amounts may reduce the demand
for our products or force us to lower our sales prices. In addition,
legislative proposals to reform healthcare and the trend toward managed
healthcare in the United States may require lower prices for our products. See
"Business--Third Party Reimbursement" on page 40.
8
<PAGE>
We Have No Sales, Marketing or Distribution Experience
We may not be able to recruit or retain direct sales and marketing personnel
who will successfully implement our marketing strategy. We have no sales,
marketing or distribution experience. We intend to distribute our products in
the United States primarily through our own sales force, and internationally
through a limited number of distributors. Establishing a sales and marketing
capability will require substantial efforts and significant resources.
Third-Party Distributors May Not Be Effective
We will depend on third party distributors to assist us in promoting market
acceptance and creating demand for our products. We have an exclusive
distribution arrangement with SmithKline Beecham Clinical Laboratories, Inc.
for the commercial laboratory market in the United States and certain foreign
countries. We have also granted Fuji a right of first refusal to distribute the
Careside system exclusively in Japan and non-exclusively in some of the other
Asian countries. We will need additional arrangements to distribute our
products worldwide. We may not be able to maintain these arrangements or enter
into additional distribution arrangements. In addition, we have little control
over the resources that the distributors will devote to the marketing of the
Careside system. See "Business--Marketing Strategy" on page 34 and "Certain
Transactions--SmithKline Beecham" on page 53.
A Pending Acquisition of SBCL Adds to Uncertainties in Our Commercial
Laboratory Market
Quest Diagnostics Incorporated and SmithKline Beechem Clinical Laboratories,
Inc. have announced that Quest is acquiring all of the stock of SBCL. Quest
will succeed to our distribution agreement with SBCL. We have had no prior
business relationship with Quest and are currently discussing with Quest their
intentions with respect to distribution of our products under this agreement.
Just as SBCL could, Quest may choose to distribute our products, terminate the
SBCL agreement or refrain from distributing our products in select areas.
Our Contract Manufacturers May Not Adequately Meet Our Future Product Demand
We will depend upon outside vendors to manufacture most of the Careside
system, including the CareSide Analyzer and components of the disposable
testing cartridges. We will have only limited control over third-party
manufacturers as to quality control and timing of production and delivery. We
cannot be certain that outside manufacturers will be able to provide us with a
sufficient number of instruments and cartridge components on a timely basis.
Our Lack of Manufacturing Experience Could Reduce Our Ability to Assemble
Cartridges
We will be assembling the cartridges at Careside. We have never operated a
manufacturing/assembly business. We will need to assemble significant and
increasing quantities of test cartridges on a timely basis, while maintaining
strict quality standards. As volume dictates, we will convert from manual
production of cartridge components and assembly to an automated system which we
are currently building. We may not be able to achieve and maintain product
accuracy and reliability when producing the cartridges in the quantities
required, on a timely basis or at an acceptable cost.
Our Third-Party Suppliers Could Interrupt Our Supply
We will purchase the materials used in the test cartridges from outside
suppliers, such as Fuji Photo Film Co., Ltd. Each of our supply agreements has
termination rights. Any interruption in supply would adversely affect our
schedule. See "Business--Manufacturing and Supply" on page 38.
9
<PAGE>
Our Ability to Add Hematology Testing Capabilities Depends on Third Parties
The CareSide Analyzer does not perform hematology tests, which are an
important part of point-of-care testing. We are negotiating arrangements for a
third party to supply hematology testing capabilities in an additional device.
We may not be able to agree upon pricing that will enable us to offer cost-
effective hematology testing. In addition, our third party developer has not
yet completed the interface between the hematology device and the CareSide
Analyzer. See "Business--The Careside System--Test Menu" on page 32.
Our CEO and Other Key Personnel Are Critical To Our Success
The loss of key employees or unsuccessful recruiting efforts will harm us.
Competition for qualified and talented individuals with experience in point-of-
care testing is intense. Our success depends on our ability to retain the
services of Mr. Stoughton, our Chairman of the Board of Directors and Chief
Executive Officer, and Dr. Grove, Executive Vice President--Research and
Development. Mr. Stoughton has over 20 years experience as a senior executive
of several large hospitals and over four years experience as President of
SmithKline Beecham Clinical Laboratories, Inc. Dr. Grove managed research and
development activities at SmithKline Beecham Clinical Laboratories, Inc. for 12
years and has extensive experience in the development of diagnostic tests. We
also need to attract additional sales and marketing, research and development,
and experienced manufacturing personnel. See "Management--Employment
Agreements" on page 49.
We May Not Be Able to Manage Our Expanding Operations
We will need to expand our operations if we are successful in achieving
market acceptance for the Careside system. This expansion will result in
additional responsibilities for management and place significant demand upon
our management, our operating and financial systems and our resources. To
accommodate this growth and to compete effectively, we will need to implement
and improve our internal operating systems and controls, and to hire and train
additional personnel.
Our Competitors Have Advantages Over Us
Our business may fail because our market is highly competitive. Our primary
competitors are large diagnostic device manufacturers, commercial and hospital
laboratories and other point-of-care device manufacturers. The large device
manufacturers and commercial and hospital laboratories have significant
marketing, manufacturing, financial and managerial resources, and have
substantially greater research and development capabilities than we do. We
expect that manufacturers of conventional blood testing products used in
centralized laboratories will compete intensely with us to maintain their
market share. Commercial and hospital laboratories may try to influence
providers against the Careside system to protect their revenue. Other point-of-
care companies have already sold their product in the marketplace. We
anticipate competition from these manufacturers in discrete tests using areas
such as critical care testing. Many of these companies offer tests that will
cost less than the Careside system and so may be attractive to some of our
customers. See "Business--Competition" on page 39.
Our Proprietary Technology is a Crucial Part of Our Business
The success of our business will depend on our ability to protect our
proprietary technology. Our business may fail if we are not able to do so.
We Do Not Have Any Patents on Our Proprietary Technology
We have two U.S. patent applications which have been allowed and are expected
to be issued as U.S. patents. We have submitted five additional U.S. and two
international patent applications, and one joint patent application with a
strategic contract partner. We intend to file additional U.S. and international
patent applications. We cannot be certain that any patent application will
result in the issuance of a patent or that our patents will withstand any
challenges by third parties.
10
<PAGE>
Our Technology May Infringe on the Proprietary Rights of Third Parties
Universities and government laboratories, physicians and other corporations
are conducting substantial research in point-of-care diagnostic blood testing
technology. Given the nature of our industry, it is possible that patent
applications have been filed by others, and patents may be issued to them,
relating to specific diagnostic products and processes. Patent applications in
the U.S. are secret until the patent is issued. We cannot know whether
competing applications have been filed. A prior conflicting patent application
would detract from the value of our patents. In addition, if we use
technologies, products or processes covered by patent applications filed by
others, or by patents issued to others, we may have to obtain licenses. We may
not be able to obtain such licenses on reasonable terms, or at all.
We May Be Unable to Build Brand Loyalty Because Our Trademarks and Trade Names
May Not Be Protected
Our registered or unregistered trademarks or trade names may be challenged,
canceled, infringed, circumvented or declared generic or determined to be
infringing on other marks. We may not be able to protect our rights to these
trademarks and trade names, which we need to build brand loyalty. Brand
recognition is critical to our short term and long term marketing strategies,
especially as we commercialize future enhancements to our products. See
"Business--Patents and Proprietary Rights" on page 39.
Our Trade Secrets May Be Disclosed
We also rely on unpatented trade secrets to protect our proprietary
technology. We attempt to protect our proprietary technology through an
employee handbook and agreements with our executive officers. Our employees
have not signed confidentiality agreements. The confidentiality provisions in
the handbook and executives' agreements may not be enforceable under applicable
law. Other companies may independently develop or otherwise acquire equivalent
technology or gain access to our proprietary technology.
Our Proprietary Rights May Fail to Protect Our Business
We may have to resort to litigation to protect or defend our rights. This
could result in substantial costs and the diversion of management's attention.
If we lost any such litigation, we could lose our competitive position, be
required to obtain licenses from third parties or be prevented from
manufacturing, selling or using certain of our products.
We Do Not Own all Necessary Intellectual Property
Some of the intellectual property we use in developing our test cartridges is
owned by others, such as Fuji Photo Film Co., Ltd., and licensed on a non-
exclusive basis to us. We believe alternative technology does exist. However,
if our access to our current technology terminated, our development efforts
could be delayed until we achieved access to the alternative technology. In
that circumstance, we cannot be sure that we would be able to achieve access to
alternative sources of technology. If alternative technology is unavailable, we
would have to change our testing methodologies. This would cause substantial
delay and cost in development of our product.
Extensive Government Regulation May Increase Our Expenses and Cause Delays in
our Product Commercialization
Our products are medical devices subject to extensive regulation by the FDA,
similar agencies in other countries, and to a lesser extent, by state
regulatory authorities. See "Business -- Government Regulation" page 40. In
addition to our need to obtain a point-of-care use designation, the following
are the greatest regulatory risks we face:
We Need Additional FDA Pre-Market Clearances to Successfully Commercialize Our
Products
FDA regulations require rigorous laboratory and clinical testing to establish
product performance before commercial marketing. Medical devices such as the
CareSide Analyzer are subject to pre-market clearance. Clearance is subject to
further review, such as when products are modified. We cannot be certain that
we will
11
<PAGE>
be able to obtain all necessary approvals on a timely basis, or at all.
Moreover, it is possible that one or more of our products will be subjected to
more extensive pre-market clinical testing and FDA pre-market approval.
We May Incur Substantial Expenses to Comply With GMP and Other Manufacturing
Regulations
Our manufacturing facilities and processes will be required to comply with
strict federal regulations, including Good Manufacturing Practices, or GMP, and
quality system requirements, regarding validation and quality of manufacturing.
We have limited experience in complying with regulations governing our products
and manufacturing facilities. We must devote substantial resources and
management attention to monitoring and maintaining compliance with governmental
regulations. If we, or our manufacturing partners, violate applicable
regulations, we may be sanctioned and our production or distribution may be
suspended. In addition, the FDA may withdraw the approval or clearance to
market any of our products.
Year 2000 Problems Could Interrupt Our Supply
Our receipt of key component products used in the Careside system may be
delayed if our suppliers' software systems are not able to read and apply
proper dates. We expect to have contingency plans in place in the event any of
our key suppliers are not Year 2000 compliant by the second half of 1999.
However, our contingency plans may not provide the same product or timing as
our current suppliers.
Significant Number of Shares Eligible for Future Sale Could Lower Market Price
Sales of large numbers of common stock after the offering, or even the
potential for those sales, are likely to lower the market price of common
stock. In addition, these sales may negatively affect our ability to raise
needed capital through the sale of our common stock. After the offering, we
will have 7,084,340 shares of common stock outstanding. In addition to the
2,000,000 shares that will be freely tradable after the offering, and the
2,000,000 additional shares that may be issued if the warrants sold in the
offering are exercised, 8,104,522 currently outstanding or reserved shares may
be sold in the future subject to compliance with the Securities Act.
<TABLE>
<CAPTION>
Number of Shares Description
<S> <C>
5,084,340 Common stock currently outstanding
422,403 Issuable upon exercise of currently outstanding options
761,805 Issuable upon exercise of options that may be granted in the future
150,000 Issuable pursuant to employee stock purchase plan
960,146 Issuable upon exercise of warrants outstanding upon completing the offering
325,828 Issuable upon conversion of Series A Convertible Preferred Stock and
exercise of warrants received on conversion beginning six months after
the effective date of the offering
400,000 Issuable upon exercise of the representatives' warrants for units beginning one
year after the effective date of the offering, and upon exercise of warrants
included in those units
---------
8,104,522
=========
</TABLE>
All of our directors, officers and principal stockholders are subject to
lock-up agreements. The parties to the lock-up agreements, other than S. R.
One, Limited, are not permitted to sell their shares until one year after the
offering without the prior written consent of Paulson Investment Company, Inc.
and Millennium Financial Group, Inc. S. R. One is subject to a six month lock-
up period. When a lock-up period expires, all of the shares previously subject
to the lock-up will become tradable. Given that over 95% of our currently
outstanding shares are subject to a lock-up, the expiration of the applicable
lock-up period could have a depressive effect on the market price of our common
stock. See "Shares Eligible for Future Sale" on page 63.
12
<PAGE>
Control of Careside By Our Management and Principal Stockholders Could Conflict
With Other Shareholders' Interests
The interests of our directors and executive officers, and our principal
stockholders could conflict with the interests of other Careside stockholders,
including the purchasers in the offering. Following completion of the offering,
our directors and executive officers, together with the principal stockholders
of Careside, will own or control approximately 28.04% of our outstanding common
stock. Accordingly, these stockholders may be able to influence the outcome of
stockholder votes, including votes concerning the election of directors,
certain amendments to our charter and bylaws, and the approval of significant
corporate transactions such as a merger or a sale of our assets. This influence
could have the effect of delaying, deferring or preventing a change in control
of Careside. See "Principal Stockholders" on page 52.
Future Issuances of Preferred Stock May Dilute Rights of Common Stockholders
Our Board of Directors will have the authority to issue up to shares of
preferred stock [5,000,000 less the number of shares of Series A Convertible
Preferred Stock outstanding upon the consummation of the offering] and to
determine the price, privileges and other terms of such shares. The Board may
exercise this authority without the approval of the stockholders. The rights of
the holders of common stock may be adversely affected by the rights of the
holders of any preferred stock that may be issued in the future. The issuance
of preferred stock may make it more difficult for a third party to acquire
control of Careside. See "Description of Capital Stock--Undesignated Preferred
Stock" on page 57.
Statute, Charter and By-laws May Delay or Prevent an Acquisition of Careside
We will be subject to the anti-takeover provisions of Section 203 of the
Delaware General Corporation Law. Section 203 could delay or prevent a third
party or a significant stockholder from acquiring control of Careside. In
addition, our charter and by-laws may have the effect of discouraging, delaying
or preventing a merger, tender offer or proxy contest involving Careside. Any
of these anti-takeover provisions could lower the market price of the common
stock. See "Description of Capital Stock--Takeover Protection and Certain
Charter and By-Law Provisions" on page 61.
Our Units, Common Stock and Warrants May Trade Below the Unit Offering Price
Our units, shares of common stock and warrants may trade at prices
significantly below the initial public offering unit price. The initial public
offering unit price may bear no relationship to the future market price of our
units, common stock or warrants. The market prices may be highly volatile
depending on many factors, including:
. the success of our new products or new products introduced by our
competitors,
. developments with respect to our patents and other proprietary rights,
. our ability to meet sales and earnings expectations of securities
analysts, and
. changes in general market conditions.
Your Warrants Can Be Redeemed on Short Notice
We could redeem your warrants for $0.05 per warrant on 30 days' prior written
notice, provided that the closing price of our common stock has been at least
$ [200% of the initial offering price per unit] for the ten consecutive
trading days immediately preceding the date of notice of redemption. If we give
notice of redemption, a holder would be forced to sell or exercise the warrants
or accept the redemption price. This kind of redemption cannot occur until six
months after the date of this prospectus. See "Description of Capital Stock--
Unit Warrants" on page 57.
You Will Be Unable to Exercise Your Warrants in the Absence of an Effective
Registration Statement
We will be able to issue shares of our common stock upon exercise of your
warrants only if there is a then current prospectus relating to the common
stock under an effective registration statement filed with the
13
<PAGE>
Securities and Exchange Commission, and only if such common stock is qualified
for sale or exempt from qualification under applicable state securities laws.
Although we have agreed to use our best efforts to meet these requirements, we
cannot assure investors that we will be able to do so. The warrants may be
deprived of any value and the market for the warrants may be limited if we do
not meet these requirements.
Purchasers in the Offering Will Face Immediate and Substantial Dilution
The initial public offering unit price is substantially higher than the net
tangible book value per share of common stock. If 2,000,000 units are sold in
the offering at $7.50 per unit, our net tangible book value per share will be
$2.07, $5.43 below the $7.50 offering price. The net tangible book value after
the offering will thus be 72% below the $7.50 offering price. Sales of
additional common stock in the future may reduce net tangible book value per
share, resulting in further dilution to purchasers of units sold in the
offering. See "Dilution" on page 17.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Some of the statements contained in this prospectus discuss future events and
developments, including our ability to generate revenue, income and cash flows,
or state other "forward-looking" information. We generally identify these
forward-looking statements by using the words "anticipate," "believe,"
"estimate," "expect," and similar expressions. Those statements are subject to
known and unknown risks, uncertainties and other factors that could cause the
actual results to differ materially from those contemplated by the statements.
Important factors that may cause actual results to differ include those set
forth under "Risk Factors" beginning on page 7.
We do not promise to update forward-looking information to reflect actual
results or changes in assumptions or other factors that could affect those
statements.
14
<PAGE>
USE OF PROCEEDS
We estimate that we will receive net proceeds from the sale of units in the
offering of approximately $12,475,000 after the deduction of underwriting
discounts and commissions and expenses payable by us. This assumes an initial
public offering price of $7.50 per unit. We estimate net proceeds of
approximately $14,586,000 if the underwriters' over-allotment option is
exercised in full. We expect to use the proceeds as follows:
<TABLE>
<CAPTION>
Approximate
Amount of
Net Approximate
Proceeds Percentage
(in of Net
millions) Proceeds
----------- -----------
<S> <C> <C>
Complete product development and launch and related
expenses ............................................ $10.7 85.6%
Purchase manufacturing equipment and expand our
facilities........................................... $ 0.8 6.4%
Build inventory and provide working capital........... $ 1.0 8.0%
----- -----
Total from unit sales............................... $12.5 100.0%
</TABLE>
If warrants included in units (including units issued upon exercise of the
representatives' warrants) are exercised, the total proceeds to us from the
exercise of the representatives' warrants and warrants included in all units to
us will be $26,550,000 ($29,925,000 if the over-allotment option is exercised
in full). This assumes an initial public offering price of $7.50 per unit. We
would expect to use the proceeds of warrant exercises to repay debt. In
addition, we would use remaining proceeds from warrant exercises for further
product development, such as the future enhancements described on page 34, and
related expenses, to purchase manufacturing equipment and expand our facilities
and to build inventory and provide working capital, all in approximately the
same relative percentages as set forth above.
Pending use of the net proceeds, we intend to invest such funds in short-term
bank deposits and investment grade securities, United States government
securities, and other short-term, income-producing securities.
The foregoing discussion is merely an estimate based on our current business
plans. Our actual expenditures may vary depending upon circumstances not yet
known, such as the time actually required to reach a positive cash flow, or to
successfully develop our products. In addition, we expect to either repay the
$2 million of our bridge financing which matures in December 1999 with proceeds
of warrant exercises or of a new loan or to negotiate to convert it into
preferred or common equity. To the extent that warrant exercise proceeds, the
new loan or conversion is not available, we may use a portion of the net
proceeds of the offering for repayment which would reduce application of the
net proceeds to purchase equipment, build inventory and provide working capital
and, if necessary, to conduct research and development. If a portion of the net
proceeds were used to repay the bridge financing, we might need additional
financing for equipment.
DIVIDEND POLICY
We have never paid any cash dividends on our shares of common stock and do
not anticipate paying any cash dividends on our shares of common stock in the
foreseeable future. Currently, we intend to retain any future earnings for
reinvestment in our business. Any future determination to pay cash dividends
will be at the discretion of our Board of Directors and will be dependent upon
our financial condition, results of operations, capital requirements and other
factors our Board of Directors deems relevant.
15
<PAGE>
CAPITALIZATION
The following table sets forth as of March 31, 1999 for Careside:
. the actual capitalization,
. the pro forma capitalization which reflects the conversion of
$1,000,000 borrowed under the bridge financing, together with accrued
interest on the $1,000,000, into shares of Series A Convertible
Preferred Stock upon consummation of the offering, and
. the pro forma as adjusted capitalization which shows the effect of the
sale of 2,000,000 units in the offering at an assumed initial public
offering price of $7.50 per unit and the use of the estimated net
proceeds of the offering.
This table should be read in conjunction with our Financial Statements
included elsewhere in this prospectus.
<TABLE>
<CAPTION>
March 31, 1999
----------------------------------------
Pro Forma
Actual Pro Forma As Adjusted
------------ ------------ ------------
<S> <C> <C> <C>
Current portion of long-term debt:
Equipment loan due finance
company........................... $ 193,671 $ 193,671 $ 193,671
Note payable under bridge
financing(1)...................... 3,000,000 2,000,000 2,000,000
------------ ------------ ------------
Total current portion of long-
term debt....................... 3,193,671 2,193,671 2,193,671
============ ============ ============
Long-term debt:
Equipment loan due finance
company........................... 803,092 803,092 803,092
------------ ------------ ------------
Stockholders' equity:
Preferred Stock, $.01 par value --
5,000,000 shares authorized; none
issued and outstanding (actual);
160,095 shares Series A
Convertible Preferred Stock issued
and outstanding (pro forma and pro
forma as adjusted)................ -- 1,020,603 1,020,603
Common Stock, $.01 par value --
50,000,000 shares authorized;
5,084,340 shares issued and
outstanding (actual and pro forma)
and 7,084,340 shares issued and
outstanding (pro forma as
adjusted) (2)..................... 50,843 50,843 70,843
Additional paid-in capital......... 21,003,545 21,003,545 33,788,429
Deficit accumulated during
development stage................. (19,910,920) (19,910,920) (20,241,034)
------------ ------------ ------------
Total stockholders' equity....... 1,143,468 2,164,071 14,638,841
------------ ------------ ------------
Total capitalization............. $ 1,946,560 $ 2,967,163 $ 15,441,933
============ ============ ============
</TABLE>
- --------
(1) For a discussion of the note payable, see the description of the 1998
bridge financing under "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Liquidity and Capital Resources" on
page 20 and "Certain Transactions--Financing Activities" on page 54.
(2) Excludes 1,782,549 shares of common stock issuable upon exercise of options
and warrants which will be outstanding upon completion of the offering.
Also excludes an aggregate of 325,828 shares of common stock issuable upon
conversion of the Series A Convertible Preferred Stock and exercise of
warrants received on conversion. The Series A Convertible Preferred Stock
will be outstanding upon completion of the offering and convertible after
six months.
16
<PAGE>
DILUTION
As of March 31, 1999, our pro forma net tangible book value was $2,164,071,
or $0.43 per share of common stock. Pro forma net tangible book value per share
represents our total tangible assets less total liabilities after giving pro
forma effect to the conversion of $1,000,000 borrowed under the bridge
financiang into shares of Series A Convertible Preferred Stock, divided by the
total number of shares of common stock outstanding. Without taking into effect
any changes in the net tangible book value after March 31, 1999, other than to
give effect to the sale of 2,000,000 units in the offering at an assumed
initial public offering price of $7.50 per unit and the application of the
estimated net proceeds of the offering, the net tangible book value of Careside
as of March 31, 1999 would have been $14,638,841 or $2.07 per share. This
represents an immediate increase of $1.64 per share of common stock to existing
stockholders and an immediate dilution of $5.43 per share of common stock to
the new stockholders who purchase units in the offering. The following table
illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price........................... $7.50
Pro forma net tangible book value per share before the
offering....................................................... 0.43
Increase in net tangible book value per share attributable to
new stockholders............................................... 1.64
----
As adjusted net tangible book value per share after the
offering....................................................... 2.07
-----
Dilution in tangible book value per share to new stockholders... $5.43
=====
</TABLE>
If the underwriters' over-allotment option is exercised in full, dilution per
share to new stockholders would be $5.23 per share of common stock.
The following table summarizes as of March 31, 1999 the differences between
the existing stockholders and the new stockholders with respect to the number
of shares of common stock included in units purchased, the total consideration
paid, and the average price per share paid:
<TABLE>
<CAPTION>
Shares Purchased Total Consideration
----------------- ------------------- Average
Number Percent Amount Percent Price Per Share
--------- ------- ----------- ------- ---------------
<S> <C> <C> <C> <C> <C>
Existing stockholders..... 5,084,340 71.8% $23,318,075 60.9% $4.59
New stockholders.......... 2,000,000 28.2 15,000,000 39.1 $7.50
--------- ----- ----------- -----
Total................... 7,084,340 100.0% $38,318,075 100.0%
========= ===== =========== =====
</TABLE>
The above computations assume no exercise of outstanding options or warrants
to purchase common stock, the underwriters' over-allotment option, the warrants
included in units sold in the offering or the representatives' warrants. All of
these outstanding securities are described in "Description of Capital Stock" on
page 56. To the extent that these options and warrants are exercised, there
will be further dilution to new investors.
17
<PAGE>
SELECTED FINANCIAL DATA
The following selected financial data of Careside and the predecessor
business should be read in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations" on page 19 and the
Financial Statements and notes thereto beginning on page F-7. The financial
data presented for the predecessor business at SmithKline Beecham Clinical
Laboratories, Inc. represents the research and development and related general
and administrative costs incurred by SmithKline Beecham Corporation in
connection with the development of technology and know-how acquired by Careside
on November 7, 1996. The selected financial data for Careside as of December
31, 1996 and the predecessor business as of December 31, 1995 and for the year
then ended are derived from the audited financial statements not included in
this prospectus. The selected financial data for Careside as of March 31, 1999
and for the three months ended March 31, 1998 and 1999 and for the period from
inception (July 10, 1996) to March 31, 1999 and for the predecessor business as
of December 31, 1994 and for the year then ended are unaudited, but, in our
opinion, include all adjustments necessary for a fair presentation of such
financial data.
<TABLE>
<CAPTION>
Predecessor Business
-----------------------------------
Year ended Ten months
December 31, ended
---------------------- October 31,
1994 1995 1996
--------- ----------- -----------
<S> <C> <C> <C>
Statement of
Operations Data:
Operating
expenses
Research and
development.... $ 949,346 $ 2,109,802 $ 3,054,503
General and
administration.. 26,069 585,058 224,399
--------- ----------- -----------
Operating loss.. $(975,415) $(2,694,860) $(3,278,902)
========= =========== ===========
Net interest
income
(expense).......
Net loss.........
Net loss per
share...........
Shares used in
computing net
loss per share..
<CAPTION>
Careside, Inc.
-------------------------------------------------------------------------------
Period from Period from
Inception Inception
(July 10, Year ended Three months (July 10,
1996) to December 31, ended March 31, 1996) to
December 31, ------------------------- ------------------------- March 31,
1996 1997 1998 1998 1999 1999
------------- ------------ ------------ ------------ ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
Statement of
Operations Data:
Operating
expenses
Research and
development.... $ 1,561,847 $ 5,895,465 $ 8,297,974 $ 1,541,119 $ 2,076,046 $ 17,831,332
General and
administration.. 55,515 640,574 850,129 196,595 569,907 2,116,125
------------- ------------ ------------ ------------ ------------ -------------
Operating loss.. (1,617,362) (6,536,039) (9,148,103) (1,737,714) (2,645,953) (19,947,457)
Net interest
income
(expense)....... (20,809) 205,256 211,814 17,857 (359,724) 36,537
------------- ------------ ------------ ------------ ------------ -------------
Net loss......... $(1,638,171) $(6,330,783) $(8,936,289) $(1,719,857) $(3,005,677) $(19,910,920)
============= ============ ============ ============ ============ =============
Net loss per
share........... $ (2.25) $ (2.04) $ (1.93) $ (0.49) $ (0.59)
============= ============ ============ ============ ============
Shares used in
computing net
loss per share.. 728,465 3,098,980 4,629,916 3,521,808 5,084,340
============= ============ ============ ============ ============
</TABLE>
<TABLE>
<CAPTION>
Predecessor
Business(1) Careside, Inc.
---------------------- --------------------------------------------------
December 31, December 31,
---------------------- ------------------------------------ March 31,
1994 1995 1996 1997 1998 1999
--------- ----------- ---------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Balance Sheet Data:
Cash and cash
equivalents ........... $ -- $ -- $ 31,041 $1,237,149 $ 3,926,603 $ 2,051,786
Total assets............ 43,780 306,589 1,192,562 3,140,223 7,911,403 7,248,753
Long-term debt.......... -- -- -- -- 2,044,932 803,092
Deficit accumulated
during the development
stage.................. (975,415) (3,670,275) (1,638,171) (7,968,954) (16,905,243) (19,910,920)
Total stockholders'
equity (deficit)....... -- -- (1,066,818) 2,437,607 4,149,145 1,143,468
</TABLE>
18
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Overview
Development of the point-of-care technology used in the Careside system began
in 1994 at SmithKline Beecham Clinical Laboratories, Inc., a subsidiary of
SmithKline Beecham Corporation. In November 1996, we acquired the predecessor
business, including intellectual property, equipment and other assets, from
SmithKline, to continue the development of point-of-care diagnostic technology
and to create a commercial product. As part of the consideration paid for the
acquisition, SmithKline Beecham Corporation became an equity owner in Careside.
The initial development of our point-of-care technology at SmithKline has been
reflected in the accompanying financial statements as a predecessor business.
Since November 1996, we have devoted substantially all of our resources to
research and development activities. We have incurred losses since inception.
As of December 31, 1998, the aggregate loss incurred was approximately $16.9
million. We expect to incur significant additional losses over at least the
next 18 months as we continue product development activities, complete a pilot
marketing program and initiate marketing efforts.
Although the CareSide Analyzer and 31 tests are cleared or exempt by the FDA
for use in professional laboratory testing, our commercial product launch is
not expected to take place until the fourth quarter of 1999. To date, we have
generated no revenue. We expect that our revenue will derive primarily from the
sale of disposable test cartridges rather than of the CareSide Analyzer itself.
Results of Operations
Three Months Ended March 31, 1999 and 1998
Research and Development Expenses. Research and development expenses
increased to approximately $2.1 million for the three months ended March 31,
1999 compared to approximately $1.5 million in the same period in 1998, an
increase of 35%. This increase reflects the expanded efforts to complete
production of the CareSide Analyzer and to support additional test submissions
to the FDA.
General and Administrative Expenses. General and administrative expenses
increased to $570,000 for the three months ended March 31, 1999 compared to
$197,000 in the same period in 1998. This increase reflects the increase in the
preliminary sales and marketing efforts associated with planned pilot market
testing in 1999.
Net Interest Income (Expense). Interest income was approximately the same
for the three months ended March 31, 1999 as compared to the same period in
1998 at $42,000 and $18,000, respectively. This reflects comparable levels of
cash and cash equivalents available for investment. Interest expense was
$402,000 for the three months ended March 31, 1999 which reflects interest paid
on the line-of-credit to purchase equipment initiated in late 1998, accrued
interest on the S.R. One bridge loan, and the non-cash interest charge
associated with the cost of warrants granted to S.R. One in connection with the
bridge loan facility.
Net Loss. The net loss increased to approximately $3.0 million for the three
months ended March 31, 1999 compared to $1.7 million in the same period in
1998. This increase reflects the increase in research and development expenses
and interest expense on the line-of-credit to purchase equipment and the S.R.
One bridge loan.
Years Ended December 31, 1998 and 1997
Research and Development Expenses. Research and development expenses
increased to approximately $8.3 million for the year ended December 31, 1998
compared to approximately $5.9 million in the same period in 1997, an increase
of 41%. This increase reflects increased payments to third parties for the
development of the CareSide Analyzer and increased staffing for additional test
development and submissions to the FDA.
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General and Administrative Expenses. General and administrative expenses
increased to $850,000 for the year ended December 31, 1998 compared to $641,000
in the same period in 1997, an increase of 33%. This increase reflects the
increase in the preliminary sales and marketing efforts associated with planned
pilot market testing in the second quarter of 1999.
Net Interest Income (Expense). Interest income was approximately the same
for the year ended December 31, 1998 as compared to the same period in 1997 at
$212,000 and $205,000, respectively. This reflects comparable levels of cash
and cash equivalents available for investment.
Net Loss. The net loss was approximately $8.9 million for the year ended
December 31, 1998 compared to approximately $6.3 million in the same period in
1997, an increase of 41%. This increase reflects the increase in research and
development expenses and preliminary sales and marketing efforts.
Years Ended December 31, 1997 and 1996
Research and Development Expenses. Research and development expenses
increased to approximately $5.9 million for the year ended December 31, 1997
compared to approximately $1.6 million for the period from inception through
December 31, 1996. This increase reflects a full year of spending as well as
the expanded efforts devoted to completing additional test development and
submissions of these tests to the FDA. Combined research and development
expenses for the year ended December 31, 1996 for both Careside and the
predecessor business were approximately $4.6 million.
General and Administrative Expenses. General and administrative expenses
increased to $641,000 for the year ended December 31, 1997 compared to $56,000
for the period from inception through December 31, 1996. This increase reflects
the full year impact of general and administrative expenses and the costs
associated with raising additional capital. Combined general and administrative
expenses for the year ended December 31, 1996 for both Careside and the
predecessor business were $280,000.
Net Interest Income (Expense). Net interest income was $205,000 for the year
ended December 31, 1997 compared to net interest expense of $21,000 for the
period from inception through December 31, 1996. This increase reflects the
impact of the resulting cash and cash equivalents available for investment
after an equity financing in 1997.
Net Loss. The net loss was approximately $6.3 million for the year ended
December 31, 1997 compared to approximately $1.6 million for the period from
inception through December 31, 1996. This increase reflects the increase in
research and development expenses, a full year of activity and preliminary
sales and marketing efforts.
Liquidity and Capital Resources
We have financed our operations since inception primarily through the net
proceeds generated from the issuance of common stock, long-term debt and
certain short-term borrowings that were subsequently converted into equity
securities. As of March 31, 1999, we have received net proceeds aggregating
approximately $24.0 million from these transactions.
Net cash used in operating activities was approximately $1.7 million for the
three months ended March 31, 1999 compared to approximately $1.4 million in the
same period in 1998. For the three months ended March 31, 1999, cash used in
operating activities represents the net loss for the period offset by an
increase in accounts payable and the non-cash amortization of imputed interest
in the S.R. One bridge loan. Net cash used in operating activities was
approximately $7.7 million for the year ended December 31, 1998. This
represents the net loss for the year partially offset by an increase in
accounts payable to the manufacturer of the CareSide Analyzer. Net cash used in
operating activities was approximately $6.5 million for the year ended December
31, 1997 and $0.9 million for the period from inception through December 31,
1996. Cash used for operations was primarily related to funding expansion of
research and development activities as well as the establishment of an
administrative infrastructure.
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Cash used in investing activities for the purchase of property and equipment
was approximately $1.2 million and $300,000 for the three months ended March
31, 1999 and 1998, respectively, $2.0 million and $0.9 million for the years
ended December 31, 1998 and 1997, respectively, and $345,000 for the period
from inception through December 31, 1996. The cash was used primarily for the
acquisition of laboratory equipment used in research and development.
At March 31, 1999, our principal source of liquidity was approximately $2.1
million in cash and cash equivalents.
In December 1998, we entered into an agreement with an equipment lease
financing company regarding a $2.5 million facility secured by specific
equipment. Each draw will be a separate loan under the facility. Approximately
$1.0 million of this facility was drawn in December 1998 and was secured by our
existing equipment. We anticipate drawing the remaining amount by the end of
1999 which will be secured by manufacturing equipment for cartridge assembly
which we purchase with the loan proceeds. Each equipment loan will have a 48-
month term and bears an interest rate of approximately 14% per annum adjusted
for an index rate based on four-year U.S. Treasury Notes at the time of
borrowing.
In addition, we entered into an agreement for the bridge financing with S.R.
One, Limited of which $1.5 million was funded in December 1998 and $1.5 million
was funded in January 1999. In April 1999, S.R. One, Limited agreed to convert
$1 million of the $3 million loan, together with accrued interest at the rate
of 8% on $1 million, upon consummation of the offering, into shares of Series A
Convertible Preferred Stock. The conversion price will be 85% of the initial
public offering price per unit. This means that the number of shares of our
Series A Convertible Preferred Stock issued to S.R. One upon this conversion
will depend upon when the offering is completed and the initial public offering
price per unit. If the initial public offering price per unit is $7.50 and the
offering closes on June 21, 1999, S.R. One will receive 162,914 shares of
Series A Convertible Preferred Stock. Each share of Series A Convertible
Preferred Stock will in turn be convertible, at the option of the holder, six
months after the offering is completed, into one share of our common stock and
one warrant to purchase an additional share of our common stock. All accrued
and unpaid dividends with respect to shares of Series A Convertible Preferred
Stock that are converted by S.R. One will also be converted into units at the
initial public offering price per unit. The exercise price and other terms of
the warrant received on the conversion will be the same as the warrants
included in units sold in the offering. The remaining $2 million of the loan
matures in December 1999. At that time, we expect either to repay the $2
million balance on the bridge financing with the proceeds of a new loan or to
negotiate to convert the balance of it into preferred or common equity. The
annual interest rate on the remaining $2 million will increase to 10% on July
1, 1999. If the remainder of the bridge loan is not repaid by December 1, 1999,
S. R. One will have the option to convert all or any portion of the remaining
loan, plus accrued interest thereon, into shares of Series A Convertible
Preferred Stock. This Series A Convertible Preferred Stock will be issued to
S.R. One on the same basis as the Series A Convertible Preferred Stock that is
issued to S. R. One as part of the $1 million conversion at the completion of
the offering.
We issued a bridge warrant to S.R. One, Limited in connection with the bridge
financing. The bridge warrant was exercisable for the number of shares of
common stock equal to $750,000 divided by 85% of the initial public offering
price of the common stock in an initial public offering. The number of warrants
doubled if the loan was not repaid by June 30, 1999. As part of the conversion
of a portion of the bridge financing into shares of Series A Convertible
Preferred Stock, the bridge warrant will be modified such that it will be
exercisable in all events for the number of shares of common stock which is
equal to $1,500,000 divided by 85% of the initial public offering price per
unit in the offering. If the offering price is $7.50 per unit, the bridge
warrant will be exercisable for 235,294 shares of common stock. The bridge
warrant has an exercise price of 85% of the initial public offering price per
unit. The bridge warrant will become exercisable on the earlier of December 17,
1999 or six months after the completion of the offering. The bridge warrant
will expire on the earlier of December 17, 2005 or four years after completion
of the offering.
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We estimate that our current liquidity, when combined with the proceeds of
this offering, sales revenue expected after 1999 and equipment lease financing
proceeds (under our current equipment lease facility already in place), will be
sufficient to fund our operating expenses and capital requirements for at least
12 months. Our operating expenses will increase as we approach the market
launch of our product in the fourth quarter of 1999. To the extent that we need
additional funds in connection with our commercial product launch, we expect to
borrow funds to complete our automated cartridge assembly line and build
sufficient cartridge inventory for launch and subsequent sales. We also expect
that the development of additional tests will require research expenditures at
a level comparable to past spending for test development. Sales and marketing
activities will require hiring and training approximately 15 additional staff
in 1999. Initiation of manufacturing activities will require hiring
approximately 20 staff and capital expenditures to purchase the equipment
needed for the automated cartridge assembly line. This estimate of the period
for which we expect our available sources of cash to be sufficient to meet our
funding needs is a forward looking statement that involves risks and
uncertainties. There can be no assurance that we will be able to meet our
capital requirements for this period as a result of certain factors set forth
under "Risk Factors--Additional Funding May Not Be Available" and elsewhere in
this prospectus. In the event our capital requirements are greater than
estimated, we may need to raise additional capital to fund our research and
development activities, to scale-up manufacturing activities and to expand our
sales and marketing efforts. Our future liquidity and capital funding
requirements will depend on numerous factors, including the extent to which our
products under development are successfully developed and gain market
acceptance, the timing of regulatory actions regarding our products, the costs
and timing of expansions of sales, marketing and manufacturing activities,
procurement and enforcement of patents important to our business, and the
impact of competitors' products. There can be no assurance that such additional
capital will be available on terms acceptable to us, if at all. Furthermore,
any additional equity financing may be dilutive to stockholders, and debt
financing, if available, may include restrictive covenants. If adequate funds
are not available, we may be forced to curtail our operations significantly or
to obtain funds through entering into collaborative agreements or other
arrangements on unfavorable terms. Our failure to raise capital on acceptable
terms could have a material adverse effect on our business, financial condition
or results of operations.
Income Taxes
As of December 31, 1998, we had approximately $2,148,000 and $225,000 of net
operating loss and research and development credit carryforwards, respectively,
for federal income tax purposes, which expire on various dates between 2011 and
2013. These amounts reflect different treatment of expenses for tax reporting
than are used for financial reporting. As of December 31, 1998, we had
capitalized approximately $12.9 million of research and development expenses
for federal income tax purposes. The Tax Reform Act of 1986 contains certain
provisions that may limit our ability to utilize net operating loss and tax
credit carryforwards in any given year. We experienced a change in ownership
interest in excess of 50% as defined under the Tax Reform Act upon the first
closing of our 1997 equity financing. We will have another change in ownership
as defined in the Tax Reform Act upon completion of the offering. We do not
believe that this change in ownership will impact our ability to utilize our
net operating loss and tax credit carryforwards. There can be no assurance that
ownership changes in future periods will not significantly limit our use of
existing or future net operating loss and tax credit carryforwards.
Year 2000 Compliance
We have identified our Year 2000 risks in three major categories: internal
business operations software; software utilized within the CareSide Analyzer;
and software used by our external suppliers and distributor. A review of our
non-information technology systems did not identify any material risks.
With respect to internal operations, most of our computers and software
programs have been recently acquired. We have relied on the efforts of computer
and software vendors to make their latest hardware and software releases Year
2000 compliant. As a result, no incremental material compliance cost is
expected to be
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incurred in this area. Our management has contacted vendors to confirm the
status of their software that we use. In addition, we have utilized Year 2000
test software to evaluate compliance.
With respect to the CareSide Analyzer, all development work has occurred
since the widespread recognition of the Year 2000 problem. We designed our
products and the software encoded in our system to be Year 2000 compliant. We
plan to issue software updates for the CareSide Analyzer on a routine basis to
add additional tests to the menu. If an unforeseen Year 2000 issue arises, we
could distribute compliant software to our customers at little or no
incremental cost as part of these routine updates. In the future, it will also
be necessary to link the CareSide Analyzer with customer systems. If these
systems are Year 2000 compliant, management's time addressing Year 2000 issues
on the CareSide Analyzer's interface with customer systems will be minimal. If
they are not, management's time may be more significant. As the specific
customers are not known at this time, it is not possible to measure the
opportunity cost.
Regarding our critical suppliers, the worst scenario that we might encounter
would be a short-term disruption of supply if a vendor were impacted by an
unforeseen Year 2000 failure. We inquire regularly regarding our suppliers'
Year 2000 compliance programs. To date, we believe that our suppliers either
are or will be Year 2000 compliant. We expect to establish appropriate
contingency plans by mid-1999 in the event certain key suppliers are not Year
2000 compliant. These contingency plans could include utilizing alternative
suppliers or building inventory of critical parts as appropriate. We do not
anticipate any incremental material costs if we are required to implement our
contingency plans.
We expect sales of our product to begin in the fourth quarter of 1999. This
may include sales pursuant to our distribution and supply agreement with SBCL.
Based on inquiries of SBCL, if the distribution of our product does commence
before the Year 2000, we do not believe that Year 2000 problems encountered by
SBCL would impact our ability to distribute our product. Distribution of our
products by other third parties is not anticipated before the year 2000.
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BUSINESS
General
We have developed and plan to sell a proprietary blood testing system. It is
designed to decentralize laboratory operations. The system provides cost-
effective, accurate test results within 10 to 15 minutes at the point-of-care,
for a comprehensive menu of routine blood tests. Because it provides rapid test
results, the Careside system can also perform blood tests required for critical
care testing. The Careside system performs chemistry, electrochemistry,
coagulation and immunochemistry tests within a single testing instrument. Tests
in these four different test categories, along with hematology tests, comprise
the vast majority of blood tests ordered. No other point-of-care product
currently in the market offers as broad a menu of tests or combines these four
test categories. Our goal is to make the Careside system the standard for
routine and critical care blood testing. If we are successful, diagnostic
information will travel more rapidly and healthcare costs for physicians,
providers and payers will be reduced.
The Careside system consists of the CareSide Analyzer and disposable test
cartridges. A separate, optional hematology testing device which has been
developed and is manufactured by a third party can be connected to the CareSide
Analyzer. We are currently developing the software that will allow data
interchange from the hematology testing device to the CareSide Analyzer. The
Careside system is easy to use and can be operated by a non-technical person
with appropriate training in connection with use of the device. Its software
will enable the user to capture all data required to comply with the Clinical
Laboratory Improvement Amendments of 1988. This law, commonly called CLIA,
governs quality assurance and quality control processes and reporting for
healthcare providers.
The FDA has granted pre-market clearance for the CareSide Analyzer and pre-
market clearance or exemption for 31 blood tests for professional laboratory
use. We recently filed three additional blood tests for clearance. Professional
laboratories include hospital, commercial and independent laboratories. As part
of our pilot marketing studies, we have arranged for clinical settings for
point-of-care and physician office laboratory validation studies to obtain FDA
designation of the Careside system for point-of-care and physician office
laboratory use by non-technical personnel with appropriate training. We have
developed protocols for these studies with guidance from the FDA. These
protocols will allow Careside to submit point-of-care validation studies for a
subset of tests for FDA point-of-care and physician office laboratory use
clearance rather than the full menu of individual tests. While the FDA has
reserved the right to request additional information on tests not included in
the protocol if it identifies issues in connection with the use of such tests
in a point-of-care setting, the FDA has informed us that if it approves the
subset of tests for point-of-care and physician office laboratory use, then the
full menu of 31 tests will be granted FDA clearance for point-of-care and
physician office laboratory use.
We intend to complete pilot site marketing studies by the end of the third
quarter of 1999. We expect the pilot studies to demonstrate how potential
customers will use the Careside system and its cost-effectiveness. At our
commercial product launch, planned for the fourth quarter of 1999, we expect to
have the CareSide Analyzer and over 50 tests, including nine hematology tests,
cleared or exempt for professional laboratory use. We expect to have all of our
tests cleared for point-of-care and physician office laboratory use as well by
the end of 1999. We believe that the Careside system's planned menu represents
over 80% of all blood tests ordered on an out-patient basis, including all of
the most commonly ordered out-patient blood tests. We plan to market and
distribute the Careside system in the United States through our own sales force
and through SBCL.
We have utilized strategic partners with specific design expertise and state-
of-the-art technology in order to develop the Careside system rapidly and on a
cost-effective basis. Many of our partners' expertise is in the area of test
reagents. Reagents are the materials within the test cartridges that react with
a patient's blood. The CareSide Analyzer then performs the test by analyzing
the reaction. Currently, we have agreements with:
. Fuji Photo Film Co., Ltd. for the supply of its dry film based chemistry
reagents,
. International Technidyne Corporation for the joint development of
coagulation reagents, and
. UMM Electronics, Inc. to design and manufacture the CareSide Analyzer.
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Currently, we are negotiating a long-term agreement with Diagnostic Reagents,
Inc. to supply reagents for the test cartridges. We previously contracted with
Hauser, Inc. for the design of the Careside system and with Battelle Memorial
Institute for the design of the system's disposable test cartridges and their
automated assembly manufacturing system.
In November 1996, we acquired the assets and contracts used in the
predecessor business, including intellectual property, equipment and other
assets, from SmithKline to continue the development of point-of-care diagnostic
technology and to create a commercial product. Several senior members of our
management team worked on this point-of-care project at SmithKline, including
our Chief Executive Officer and Executive Vice President--Research and
Development. We continue to have a business relationship with SmithKline
Beecham Clinical Laboratories, Inc. through a distribution and supply
agreement. This agreement gives SBCL distribution rights in the United States
and certain foreign countries, including the right to use the Careside system
in its commercial laboratory business.
The Laboratory Testing Market
According to 1997 industry data and estimates, the worldwide market for in
vitro testing was $18.3 billion in 1997 and was expected to grow to $20 billion
in 2000. In vitro testing is the testing of all bodily tissues and fluids,
including blood. Based on their experiences while at SmithKline, our senior
management believes that the Careside system's 50 test menu will address over
38% of this market. The rest of the market includes complex and specialized
tests not performed by the Careside system. The United States and Canadian
market for in vitro testing is approximately 40% of the worldwide market. We
will seek to convert a reasonable portion of the United States and Canadian
blood testing market to point-of-care testing and then expand into the
worldwide market.
Most routine blood tests are sent to a central location, either a commercial
or hospital laboratory, for processing. In these central laboratories, large
blood analyzers reduce individual test costs by producing high volumes of test
results. Commercial laboratories provide approximately 27% of all in vitro
diagnostic testing services, hospital laboratories provide approximately 63%,
and the balance is provided in physicians' offices.
Commercial laboratories are currently the low cost provider of blood testing
services due primarily to economies of scale in testing multiple samples in
large analyzers. Commercial laboratories' testing expenditures relate
predominantly to labor intensive functions such as distribution, customer
service, general administration, communication technology and preparation of
the blood sample. There are numerous steps involved in obtaining test results
from commercial laboratories. Blood samples are collected throughout the day
from a variety of sources including hospitals, physicians' offices, nursing
homes and home care agencies. The samples are transported to the laboratory,
usually with special care in packaging to preserve sample integrity. After the
samples arrive at the laboratory, several administrative tasks are necessary as
thousands of samples are processed daily. Each sample is split into tubes that
are then sorted for testing in multiple large analyzers. The high throughput
analyzers require the attention of highly skilled technicians to prepare
reagents, prime multiple pumps, calibrate, prepare and load blood samples,
conduct centrifuge operations, process measurement data and report results.
This complex process must be tightly controlled at each step to ensure both
administrative and analytical accuracy. Tests are generally run overnight and
results are sent back to the healthcare provider the following day. This
factory-like process limits the ability to provide test results in less than 24
hours. If results are required sooner, certain laboratory operations must be
interrupted, resulting in significantly increased costs.
The process in hospital laboratories is very similar. Blood samples are
typically collected in the early morning with tests performed late morning and
early afternoon. Results are generally returned within four to five hours.
However, in many instances, hospitals must respond to critical patient
conditions and conduct tests on an immediate basis in order to support the
healthcare provider when a patient's condition is life threatening. A hospital
must be able to process these critical care tests 24 hours a day. This requires
the hospital laboratory to remain open whether or not any tests are being
conducted. With insufficient testing volume to absorb laboratory operating
expenses and capital costs, tests performed in hospital laboratories are more
expensive.
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Many physicians' offices currently outsource their testing to commercial or
hospital laboratories. This practice is largely the result of the enactment of
the Clinical Laboratory Improvement Amendments in 1988. CLIA was an attempt to
ensure the quality and reliability of laboratory test results by placing more
stringent administrative and regulatory burdens on testing conducted in the
physician's office. Under CLIA, technicians conducting complex tests must meet
detailed proficiency requirements and must have established well-defined
quality assurance and quality control programs. As a result, for most
individual physicians, diagnostic testing became too burdensome and costly to
justify being done in the office.
Managed care has put substantial pressure on healthcare providers to reduce
costs and to treat patients using clinical treatment protocols that have been
developed for many chronic and acute illnesses. These protocols frequently
contain diagnostic tests that are used to help avoid the occurrence of acute
episodes of illness. Diagnostic blood and urine testing are two of the major
tools used in these protocols for early detection and ongoing evaluation of
treatment efficacy. Although these pressures should increase testing volume,
managed care providers and other payers are becoming more stringent by only
reimbursing tests for which there is a clear medical need. We expect these
pressures to continue to cause healthcare providers to order individual
diagnostic tests instead of "panels," or pre-determined groups, of tests
performed at one time. Managed care providers and payers will reimburse all
tests in a panel only if there is a clear medical need for each. As managed
care pressures mount to perform only medically necessary tests, reimbursement
rates for individual tests will decrease, requiring the healthcare provider and
the testing laboratory to be even more cost-effective. Therefore, we believe
that, because the Careside system performs single reagent testing and offers
packages of tests that are based on third-party payer approved panels, it will
be well received by managed care organizations and other payers.
The lack of timely test results from central laboratories has given rise to a
growing market for point-of-care tests. The initial products in the market have
targeted point-of-care tests for use in emergency rooms or critical care units.
While immediate test results benefit the patient and the healthcare provider,
current point-of-care testing devices have added costs to the system as the
hospitals must continue to operate a central laboratory using equipment that
conducts the same critical care tests as well as a much broader menu of tests
required for routine care. Furthermore, current point-of-care devices have not
attempted to provide customers with the quality assurance and quality control
data storage and retrieval capabilities necessary for CLIA requirements.
We believe that an easy-to-use diagnostic blood testing system offering a
broad menu of accurate point-of-care tests with built-in quality assurance and
quality control features can respond to the substantial unmet needs in the
diagnostic testing marketplace. We expect that the Careside system will be able
to perform all of the most commonly ordered out-patient blood tests.
Consequently, it will enable healthcare providers to decentralize laboratory
services to the point-of-care and outsource the less common tests as necessary.
Careside's Solution
We believe that the Careside system provides the platform for solving the
limitations of central blood testing laboratories and redefines the market for
point-of-care testing. In addition, we believe the features of the Careside
system will enable healthcare providers not currently conducting blood tests to
start providing this service. The following are the reasons why:
. Cost-Effective Results-- The Careside system is designed to provide test
results that are cost competitive with commercial laboratories, the
lowest cost alternative currently available in the market. This is true
even taking into consideration the initial purchase of the CareSide
Analyzer, laboratory set-up and training, and ongoing costs associated
with maintenance, cartridge and blood drawing supplies.
. Rapid Test Results--The Careside system furnishes test results within 10
to 15 minutes from the time blood is drawn from the patient. The Careside
system can test from one to six cartridges in this time period. By
comparison, 24 hours or more may elapse before a healthcare provider has
in hand the
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results of blood tests performed at commercial laboratories, and four to
five hours may elapse before results are in the provider's hands for a
blood test performed at a hospital laboratory.
. Comprehensive Test Menu--The Careside system will offer a broad menu of
the most commonly ordered blood tests, including critical care tests. The
Careside system performs chemistry, electrochemistry, coagulation and
immunochemistry tests, all within a single testing instrument. By the
time of product launch, over 50 tests, including nine hematology tests,
are expected to be available for professional laboratory use, which we
believe substantially exceeds the capabilities of any point-of-care
system currently on the market. The hematology tests will be available
through an optional separate hematology testing device, manufactured by a
third party, which can be electronically connected to the Careside
system.
. Ease of Use--The Careside system can be easily operated and maintained by
non-technical personnel with appropriate training in connection with use
of the device. The test process does not require separate centrifuging or
sample splitting, and automatically doses and mixes the patient's blood
sample with reagents within the cartridges.
. Industry Standard Technology--The Careside system uses many test methods
that are the same as those used in hospital and commercial laboratories.
The Careside system's technology is a miniaturization of the technology
in the largest testing devices utilized by centralized laboratories,
which is considered the best testing technology.
. Embedded Quality Assurance and Quality Control--The CareSide Analyzer has
operating software designed to assist in meeting the quality assurance
and quality control documentation requirements of the Clinical Laboratory
Improvement Amendments of 1988.
. Ability for Practice Enhancement--The Careside system's rapid test
results enable a provider to make clinical decisions more quickly, see
more patients, eliminate time spent reviewing records and making follow-
up calls, and improve patient satisfaction and quality of care.
Healthcare providers can also increase their revenue by performing and
billing for tests themselves.
Careside's Strategy
Our goal is to make point-of-care testing with the Careside system the
standard of care for routine and critical care blood testing. If we are
successful, diagnostic information will travel more rapidly and reduce
healthcare costs for physicians, providers and payers. The following are the
key elements of our strategy to achieve our objective:
Provide the Unique Point-of-Care Solution. Most point-of-care companies have
focused solely on the critical care testing market with a limited number of
tests. In contrast, we have developed the Careside system to replace large
analyzers and decentralize testing to the point-of-care. As an illustrative
analogy, we believe that centralized laboratory testing is like using a
mainframe computer, whereas point-of-care testing is like using a desktop
personal computer. Unlike the "mainframe computer-based" approach of large
hospital and commercial testing laboratories, the Careside system creates a
"personal computer-based" solution for blood testing. We believe this will
enable hospitals and other healthcare provider-sponsored laboratories to
substantially reduce their reliance on centralized testing services. Instead,
they could use decentralized point-of-care technology on a cost-effective basis
with test results available in 10 to 15 minutes.
More complex tests that are not supportable by our decentralized testing
system, such as microbiology, genetic and other less common tests, could then
be referred outside the hospital to commercial laboratories or to a core
laboratory supporting multiple hospitals. Centralized laboratories that
continue to provide such complex testing would be able to streamline
procedures. We expect that this would lower the cost of complex testing. With
lower costs of centralized testing and the Careside system for decentralized
testing, we expect that the entire testing process will become more efficient
and cost effective. After the Careside system's launch, we intend to continue
to build its test menu so as to have the broadest test menu of any point-of-
care system on the
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market. Its unique menu will combine the four different test categories of
chemistry, electrochemistry, coagulation and immunochemistry into a single
testing instrument.
Satisfy Healthcare System Needs. The Careside system is designed to meet the
various needs of each of our targeted customer markets. Important factors for
hospitals will include quality of test result, ease of use, impact on
personnel, benefits to patients and whether it provides a better cost
alternative than the central hospital laboratory. For physician group
practices, the Careside system will offer improvements in daily office routine,
greater convenience, enhanced patient satisfaction, and new revenue
opportunities. For the nursing home and home care markets, which traditionally
outsource testing services, the Careside system will offer improved turnaround
time on test results, individualized testing, cost savings or revenue
opportunities, and improved patient services. We believe that the Careside
system will enable each of these types of healthcare providers to replace their
centralized testing services with decentralized point-of-care technology on a
cost-effective basis. In pursuing this strategy, we will continue to benefit
from the over 20 years experience of our Chief Executive Officer as a senior
executive of several large hospitals where hospital laboratory costs were a
significant issue, as well as his more than four years experience as President
of SmithKline Beecham Clinical Laboratories, Inc. See "Management."
Leverage Expertise of Strategic Partners. We expect to continue to work with
our strategic partners, such as Fuji Photo Film Co., Ltd. and UMM Electronics,
Inc. who have already developed specific expertise and state-of-the-art
technology. Fuji supplies chemistry and electrochemistry test reagents for the
Careside system's proprietary test cartridges. UMM develops the software and
manufactures the device for our system. With these and other strategic
partners, we expect to be able to develop new tests on a rapid, cost-effective
basis.
Systematic Commercial Rollout. The CareSide Analyzer and 31 tests are cleared
for marketing in the United States for use in professional laboratories. We
recently filed three additional blood tests for clearance. Our commercial
product launch is planned for the fourth quarter of 1999, at which time over 50
tests are expected to be cleared or exempt by the FDA. By the end of the third
quarter of 1999, we intend to complete pilot site marketing studies in certain
of our targeted market segments to determine utilization patterns, demonstrate
cost-effectiveness and develop a "how-to" book. The how-to book will be a tool
for customers to follow in order to take the appropriate steps in establishing
diagnostic testing services using the Careside system. We have arranged pilot
site studies with APRIA Healthcare in the home care services market, three
hospitals affiliated with Child Health Corporation of America in the hospital
market, Reliant Care Group, L.L.C. in the nursing home market, and SmithKline
Beecham Clinical Laboratories, Inc. for its own use within its commercial
laboratory business. We are also in the process of arranging pilot site studies
with several group practices for the physician office market, including group
practices in Arizona and California. We plan to market and distribute the
Careside system in the United States through our own sales force and through
our distribution arrangement with SBCL. We believe that this systematic
commercial rollout improves the chances of having a successful product launch.
28
<PAGE>
Status of Careside Product Development
<TABLE>
<CAPTION>
Technology
Product Regulatory Status Partner
- --------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
CareSide Analyzer Cleared under Section 510(k) of the Federal Food, Drug and Cosmetic UMM
Act for use in professional laboratories. Section 510(k) clearance Electronics, Inc.
for point-of-care and physician office laboratory use will be applied Hauser, Inc.
for based on data to be gathered during the marketing pilot program.
- --------------------------------------------------------------------------------------------------------------
Disposable Test Test cartridges are integral to approval of the tests listed below. Battelle
Cartridges Chemistry, electrochemistry and coagulation cartridges have been Memorial
developed. The immunochemistry test cartridge is in development. Institute
- --------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------
Submitted Pending
Marketing
Clearance
Cleared/Exempt for for Professional Planned 1999
Test Category Professional Laboratory Use* Laboratory Use Submissions
- --------------------------------------------------------------------------------------------------------------
Chemistry Glucose Ammonia Carbon Dioxide Fuji Photo
BUN (Urea Magnesium Ionized Calcium Film Co., Ltd.
Nitrogen)
Creatinine Bilirubin,
Direct
BUN/Creatinine Hemoglobin
Ratio
Albumin Direct LDL-
A/G Ratio cholesterol
(calc.)
Globulin (calc.) Anion Gap
Total (Chem-Echem)
Cholesterol
HDL-Cholesterol
LDL-Cholesterol
(calc.)
Cholesterol/HDL
Cholesterol
Ratio
GGT
ALT
Total Bilirubin
Phosphorus
Total Protein
Uric Acid
Triglycerides
LDH
Total Calcium
Alkaline
Phosphatase
Osmolality
Amylase
AST
ALT/AST Ratio
Creatine Kinase
Creatine
Kinase MB
%CKMB
- --------------------------------------------------------------------------------------------------------------
Electrochemistry Chloride Fuji Photo
Potassium Film Co., Ltd.
Sodium
- --------------------------------------------------------------------------------------------------------------
Coagulation PT aPTT International
Fibrinogen Technidyne
Thrombin Time Corporation
- --------------------------------------------------------------------------------------------------------------
Immunochemistry Digoxin Diagnostic
Theophylline Reagents, Inc.
Phenytoin
</TABLE>
* Clearance or exemption for point-of-care and physician office laboratory use
by non-technical personnel is expected based on submissions after our pilot
marketing studies.
<TABLE>
<CAPTION>
Technology
Product Regulatory Status Partner
- -----------------------------------------------------------------------------------------
<C> <S> <C>
Hematology Testing Cleared under Section 510(k) of the Federal Independent third
Device Food, Drug and Cosmetic Act for use in parties with whom we
professional laboratories. are negotiating
supply agreements
- -----------------------------------------------------------------------------------------
Careside Cable Development planned for second and third Advanced Medical
Interface between quarters of 1999. Information
the CareSide Technologies, Inc.
Analyzer and the
Hematology Testing
Device
- -----------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------
Hematology Tests
Platelet count All hematology tests will be submitted with Independent third
Lymphocyte/Monocyte the filing of the hematology testing device parties with whom we
Count under Section 510(k) in 1999 for are negotiating
% professional laboratory, point-of-care and supply agreements
Lymphocyte/Monocyte physician office laboratory use.
Count
Total Granulocyte
Count
% Total Granulocyte
Count
White Blood Cell
Count
Hematocrit
Hemoglobin
MCHC
</TABLE>
29
<PAGE>
The Careside System
The Careside system is comprised of an instrument, the CareSide Analyzer, and
a series of disposable, diagnostic test cartridges designed for the accurate
determination of a wide variety of commonly ordered chemistry,
electrochemistry, immunochemistry and coagulation tests. In addition, the
Careside system will offer an optional separate hematology testing device
manufactured by a third party. The chart on page 28 summarizes the status of
tests that the CareSide Analyzer is intended to perform.
The CareSide Analyzer
The CareSide Analyzer is approximately 13 inches tall by 12 inches wide and
11 inches deep and weighs about 17 pounds. The exterior is made of high impact
resin plastic. The top of the CareSide Analyzer consists primarily of a touch
screen, on an ergonometric angle, on which the user inputs patient, physician
and billing information, the tests to be conducted and any desired commentary.
Alternatively, a separate keyboard is available for use if the operator so
chooses. We believe that the CareSide Analyzer's user interface software is a
significant strategic advantage. For example, its quality assurance and quality
control capabilities are equal to those required of central laboratories. The
quality assurance and quality control software stores and interprets the
quality control data generated using the embedded electronic quality control
system in the CareSide Analyzer as well as the traditional wet testing quality
control approach for test cartridges. After testing, quality control data is
flagged when out of limits and plotted on graphs for easy review. A set of five
re-usable and proprietary quality control test cartridges will be provided with
each instrument which allow the user to perform automated, electronic quality
control for all electrochemistry, chemistry, coagulation and immunochemistry
tests. These reusable quality control test cartridges will replace traditional
quality control which involved running multiple levels of commercial plasma
specimens for all the tests on the system. The software utilized by the
CareSide Analyzer is designed to govern testing of one patient at a time,
perform quality assurance and quality control documentation and conduct the
test ordering processes. It also contains a security system that is compliant
with the Clinical Laboratory Improvement Amendments of 1988. The user interface
system can be customized for each particular customer.
The process for using the CareSide Analyzer is streamlined and partially
automated compared to conducting tests in large commercial blood diagnostic
testing laboratories. The Careside system can be operated by non-technical
personnel with appropriate training in connection with the use of the device.
The operator will first select one or more test cartridges from inventory
depending on the tests ordered by the attending healthcare provider. Most
cartridges will contain one test, but some cartridges will contain two or three
tests. Up to six cartridges of a single patient's blood can be tested at the
same time. See "--Disposable Test Cartridges." The Careside system is currently
capable of conducting a maximum of eight tests per patient in a single 10 to 15
minute test cycle. When the development of additional multi-test cartridges is
completed, the Careside system will be able to handle 13 tests in a single 10
to 15 minute test cycle. To prepare a cartridge, the operator will place a
small amount of the patient's drawn blood into the test cartridge with a
pipette or other standard transfer device. The operator will then simply load
the test cartridges into the instrument. Any combination of cartridges can be
loaded in any order, thus enabling the operator flexibility to perform
individual tests or customized panels. This flexibility is designed to minimize
waste by allowing the operator to run only the tests ordered by the provider
rather than traditional pre-set panels that may contain unnecessary tests. This
feature is particularly responsive to the current and expected future
requirements of third-party payers. See "--Third-Party Reimbursement."
30
<PAGE>
ROUTINE BLOOD ANALYSIS PROCEDURE: THE CARESIDE SYSTEM
[Illustrations of Careside System]
1. Draw blood. Place a few 2. Using the touch-screen or 3. 10-15 minutes later,
drops of whole blood into keyboard, input demographic CareSise Analyser(TM)
the cartridge sample well. information and select tests provides test results
to be performed. Insert via print card, screen,
appropriate cartridge and and/or electronic data
press start. transfer. Caregiver
reviews test results
with patient.
After the operator inputs patient information and test orders, the instrument
will automatically perform the tests and record and display or print the
results. To perform the tests, the CareSide Analyzer undertakes cycles for
heating, centrifuging and several types of reading. The cycle time from the
moment the cartridge is dosed with whole blood and placed into the CareSide
Analyzer to final test result is approximately 10 to 15 minutes for chemistry,
electrochemistry, immunochemistry or coagulation tests, or any combination of
these tests. A standard Chem 7 panel, comprised of sodium, potassium, chloride,
carbon dioxide, glucose, creatinine and urea nitrogen tests, can be performed
in approximately ten minutes and will utilize five cartridges. Sodium,
potassium and chloride tests are on one cartridge and they are always ordered
in combination. At the conclusion of the test, the CareSide Analyzer ejects the
cartridges into a waste container for later disposal in appropriate biohazard
vessels.
The CareSide Analyzer provides test results to the healthcare professional in
several ways. A self-adhesive label can be printed with test results for direct
transfer to the patient's chart. Each CareSide Analyzer also incorporates a
floppy disk drive so that information can be downloaded from the instrument for
analysis. An additional electronic output method is through use of the rs-232
port on the rear of the machine. We expect to routinely work with our customers
to program an appropriate software interface into the CareSide Analyzer to
allow information to be transferred electronically into the user's data system.
Linkage software is being specially developed for us for this purpose by
Advanced Medical Information Technologies, Inc.
Disposable Test Cartridges
Each test cartridge is designed to facilitate the flow of the blood, serum or
plasma specimen onto chemicals packaged in the cartridge. These chemicals,
which are called reagents, react with the specimen and change. The changes are
then read by the CareSide Analyzer to yield the test result. Each test
cartridge is designed for a single use. Its various channels and pools assure
proper reagent and specimen temperature equilibration, sample separation,
sample metering, sample dispensing, test incubation and facilitate result
detection. Each cartridge contains all reagents necessary to perform a reagent
measurement on a serum, plasma or whole blood sample for a particular test. The
proprietary cartridges are each approximately 2.5 inches long and 1.5 inches
wide and are comprised of layers of molded plastic with channels for
application of the sample to the reagent. When stored in refrigerators, the
cartridges are expected to have a maximum of an 18 month shelf life. The
cartridges are placed in the CareSide Analyzer directly from the refrigerator
after sample dosing. The first four minutes of the test cycle warms the test
cartridges to the appropriate test temperature. If
31
<PAGE>
necessary, the CareSide Analyzer then spins the cartridges using centrifugal
force to push the sample through small channels, separating it into serum or
plasma. Excess sample is deposited in an overflow well. A measured amount of
sample remains in the metering passage and is dispensed onto the reagent film
or mixed with wet reagent pushed from an interior pouch. Each test cartridge is
designed to be airtight to prevent ventilation spoilage of the specimen sample.
The three basic types of measurements that will be made are spectral
transmittance, reflectance and electrochemical. In the case of the chemistry
cartridge, the CareSide Analyzer's platter spins the cartridge containing the
dry film, which will turn color from reaction with the blood element, over
LED/photodiode pairs. The LED lights reflect through the colors of the reagent.
Multiple reflectance tests are performed to yield a result. In the case of
coagulation and immunochemistry tests, the cartridge is spun over the same
LED/photodiode pairs which shine through a small rectangular hollowed prism,
called a prismatic cuvette, built into the cartridge. The light transmission is
then read by the CareSide Analyzer. In the case of electrochemistry, the test
is done on whole blood, before the other cartridges are centrifuged. For these
tests, the CareSide Analyzer contains ion specific electrodes which interact
with the proprietary electrochemistry cartridges to yield the test result.
The disposable test cartridges have a number of key features that we believe
contribute to the Careside system's reliability, speed, low cost and accuracy
of analysis. These include:
. Unique Cartridge Design. Specimen preparation, calibration and test
performance are incorporated in an inexpensive plastic cartridge. Where
necessary, the cartridge design incorporates storage and measured
delivery of reagents and electrolytes for mixing with the patient's
sample prior to analysis. Cartridges are loaded into the instrument
manually and are designed so that they can be inserted in only one
direction to avoid error.
. Ease of Sampling. Sampling is automatic and requires small volumes using
approximately 75 to 150 microliters ((mu)l) of whole blood, as compared
to current approaches requiring much larger amounts. The dosing process
requires the tester to fill the cartridge well to a point indicated on
the cartridge. No precise measurement of the blood sample is required by
the tester, as the cartridges' channels measure how much sample is
applied to the reagent.
. Built-in Centrifuge. Separation of plasma from whole blood, as required
for many tests, is accomplished in the cartridge after placement in the
CareSide Analyzer, so that a separate centrifugation step is
unnecessary.
. Flexibility in Testing. One, two or three tests may be contained in each
cartridge. Single test cartridges and a three test cartridge have been
designed, manufactured and used in testing. Two test cartridges have
been designed, but have not yet been manufactured and used in testing.
The added cost and complications of using test panels containing
unnecessary tests is avoided.
. Quality Assurance and Quality Control Features. All test cartridges are
bar-coded for test identification. The bar codes contain the type of
test cartridge, as well as a lot number, expiration date and self-
calibration information, which are all CLIA requirements. The data from
the cartridge's bar code will be read and stored in the CareSide
Analyzer. As each test is completed, it becomes part of the CLIA
documentation. Because each cartridge contains an identifying bar code
which is read by the instrument, the order in which the cartridges are
loaded is immaterial. The Careside system will check that the ordered
tests and the cartridges entered in the device match.
Test Menu
The CareSide Analyzer combines chemistry, electrochemistry, coagulation and
immunochemistry testing in a single testing instrument. In addition, the
Careside system will offer an optional separate hematology testing device
manufactured by a third party. We are not aware of any point-of-care blood
testing system on the market that has this combined capability.
32
<PAGE>
Chemistry Tests. Chemistry tests are used to assess general health status as
well as to diagnose and monitor diseases of the major organ systems such as the
heart, liver, kidney, blood, pancreas, endocrine and bone. The film chemistry
cartridges contain dry chemistry reagents which are stacked as required for the
test. Within a few minutes after the sample has been applied, a colored dye is
produced. The color intensity of the dye is measured by reflectance and,
through calibration information coded in the instrument and on the test
cartridge, a quantitative test result is generated.
We have recently executed a long-term supply agreement with Fuji Photo Film
Co., Ltd. for the use of its dry film chemistry reagent technology. Although in
dry form, the film uses the same technology as the wet reagent technology used
in high volume commercial analyzers. The agreement replaces an earlier
agreement with Fuji that was applicable only during the development stage of
the Careside system. The new agreement continues to provide us with an
exclusive supply of Fuji's dry film chemistry reagents for use in our point-of-
care system for more than 25 chemistry tests. We have agreed to purchase our
dry chemistry reagents exclusively from Fuji. See "--Sales--International."
Fuji is also developing four additional chemistry tests at its expense. Any
additional tests that Fuji develops may be available to us over the period of
the existing agreement, which runs through 2003 and thereafter is automatically
renewed on an annual basis. If we fail to obtain the necessary regulatory
clearances for 80% of the 39 tests specified in the contract by the end of
1999, our rights become non-exclusive.
Electrochemistry Tests. Like chemistry tests, electrochemistry tests
produced by Fuji pursuant to its agreement with us, are used to assess general
health status and to diagnose and monitor diseases of the major organ systems
such as the heart, liver, kidney, blood, pancreas, endocrine and bone. The
electrochemistry cartridge contains an ion specific electrode slide. When the
slide reacts with the sample, it generates values that correlate to the
concentration of sodium, potassium and chloride in the sample. The test
compares an electrochemical signal generated from a reference solution to a
similar signal generated from the patient's blood. The reference solution is a
liquid contained in a pre-filled pouch embedded in the cartridge. One side of
the ion specific electrode slide is exposed to a reference solution during the
testing sequence and the other side is exposed to the patient's whole blood.
The CareSide Analyzer reads the difference between the two, thereby generating
the test result.
Coagulation Tests. Coagulation testing assesses the ability of a patient's
blood to coagulate. Coagulation is the series of events that leads to the
formation of a blood clot. Tests of prothrombin time, or PT, and activated
partial thromboplastin time, or aPTT, are the primary coagulation tests used by
both physicians and hospitals.
Reagents from the coagulation test cartridge are contained inside a small
hollowed prism, called a prismatic cuvette, and in a pouch. Plasma is delivered
to the cuvette by pressurization of the membrane on the cartridge. A second
reagent, such as a buffer or calcium chloride, is added via the pouch. Light is
then transmitted through the cuvette. The coagulation reaction causes a change
in the cloudiness, or turbidity, of the plasma that is detected optically by
the CareSide Analyzer. The time it takes for this optical change to occur is
reported out as the coagulation time.
We have co-developed coagulation reagent technology for the PT test and we
are co-developing coagulation reagent technology for the aPTT test with
International Technidyne Corporation. International Technidyne has agreed to
provide such reagent technology to Careside on an exclusive basis for use in
multiple test category blood testing devices such as the CareSide Analyzer.
However, International Technidyne will retain the exclusive right to use the
technology in the field of point-of-care devices that perform only coagulation
testing. International Technidyne will also manufacture the coagulation reagent
and load it in the cuvette for us.
Immunochemistry Tests. Immunochemistry tests are used for the diagnosis of
drug effectiveness for heart, thyroid analysis and for other purposes. To date,
immunochemistry systems have had limited penetration in the point-of-care
market, because they are difficult to use, related instrumentation is
expensive, reagents are costly and assay times are long. We are in the process
of developing our immunochemistry test cartridge and are in the process of
performing our first validation studies using it.
33
<PAGE>
The immunochemistry test cartridge is identical in form and function to the
coagulation test cartridge except that a much smaller sample size is delivered
to the prismatic cuvette. The reagents in the cuvette and pouch are different
for each immunochemistry test. The CareSide Analyzer measures a rate of change
or endpoint in cloudiness depending on the test. The rate of change or endpoint
is converted from calibration information coded in the instrument and on the
test cartridge, generating a test result. We currently purchase immunochemistry
reagents from Diagnostic Reagents, Inc. and are currently negotiating a long-
term supply agreement with Diagnostic Reagents.
Hematology Tests. Hematology testing determines various attributes of a
patient's blood, such as how many platelets, monocytes or lymphocytes it has.
We expect to expand the Careside system's capabilities by adding nine or more
hematology tests, which will be performed on a separate optional device
manufactured and supported by a third party. While the hematology device we
intend to use has been developed, we are currently developing the software that
will allow data interchange from the hematology device to the CareSide
Analyzer. Our contract partner, Advanced Medical Information Technologies,
Inc., also known as AdMIT, is currently developing a link between the Careside
system and other medical devices, including the hematology device. The cabled
interface developed by AdMIT will enable users of the CareSide Analyzer to
connect hematology devices and other diagnostic test devices into the CareSide
Analyzer, thereby allowing the users to further avail themselves of the
CareSide Analyzer's extensive ordering, data storage, clinical records and
quality assurance and quality control capabilities.
Future Developments
We intend to have the broadest menu of any point-of-care blood testing device
and plan to continue to develop tests for the Careside system. At product
launch, the Careside system's menu is expected to include over 50 tests,
including an option for nine hematology tests, representing over 80% of all
blood tests ordered on an out-patient basis, including all of the most commonly
ordered out-patient blood tests. Even though our point-of-care technology will
not be capable of conducting every test potentially ordered by a healthcare
provider, we believe that, within five years, our planned menu will provide
over 90% of all out-patient tests in many clinical settings, and up to 60% of
tests commonly ordered in in-patient settings. For tests not performed by the
Careside system, healthcare providers could order tests from either a hospital
laboratory or a commercial laboratory.
We plan to add enhancements to the Careside system within the next five
years, including the ability for the blood sample to be loaded from a test tube
into a test cartridge automatically. This will eliminate the need for a person
to handle an open tube containing the patient's blood. In addition, we are
evaluating alternative methods of immunochemistry testing, such as the use of
high precision latex beads for the development, within five years, of large
molecule immunochemistry tests. Also designed and under development is a multi-
test cartridge that will be able to perform two or more film tests
simultaneously on one cartridge. The CareSide Analyzer's detection technology
is capable of extensive menu expansion. This gives us the ability to add
traditional chemistry, coagulation and small molecule immunochemistry tests
such as screening tests for drugs of abuse. We expect to develop additional
tests in the large molecule immunochemistry field such as prostate specific
antigen for prostate cancer and Troponin for heart attacks, as well as tests
for infectious diseases such as Strep A and Chlamydia.
In addition to linking the CareSide Analyzer and hematology or other
diagnostic testing devices, the AdMIT product is being designed to be connected
directly into laboratory or clinical information systems, physician practice
management systems or other information systems, either directly through a
local area network or via the Internet.
Marketing Strategy
Our marketing strategy is to position the Careside system as the blood
testing system of choice by demonstrating to hospitals the benefits of
decentralized blood testing, and by providing other healthcare providers with a
profitable and cost-effective alternative to central laboratory testing. By the
end of the third quarter of 1999, we intend to complete pilot site marketing
studies with hospitals, home care organizations and physician group practices
to determine utilization patterns, create a "how-to" book, and demonstrate
cost-
34
<PAGE>
effectiveness. We currently plan to rollout our system in SmithKline's
commercial laboratories pursuant to our distribution and supply agreement with
SmithKline Beecham Clinical Laboratories, Inc., and through our own sales force
to hospitals, nursing homes, home care organizations and larger physician group
practices. SmithKline has recently entered into an agreement to sell the stock
of SBCL to Quest Diagnostics Incorporated and take a 29.5% ownership interest
in Quest. Following the announcement of the sale of SBCL to Quest, we began
discussing the timing of our product launch with Quest. The discussions are
ongoing. Quest's acquisition of SBCL is anticipated to close in July 1999. We
believe that, allowing for time within Quest for internal planning, we should
be able to undertake our initial rollout to the commercial laboratory market
through SBCL, as a subsidiary of Quest, in the last quarter of 1999. At the
time of product rollout, our goal is to have the most comprehensive menu of
tests available in any single point-of-care system.
Our key targeted market segments are as follows:
Hospitals. There are over 5,000 acute care hospitals in the United States.
Laboratory testing services required by hospitals are usually provided by a
central hospital laboratory, which services all of the hospital's testing needs
as well as the testing service needs of hospital physician groups. Hospital
laboratories are expensive to maintain because they have to be maintained on a
24 hour basis, they require specially trained personnel to be present at all
times to operate high volume analyzers and they demand significant amounts of
capital to equip and maintain. Furthermore, hospitals are often reimbursed by
institutional payers for patient admissions based on specific diagnoses
reflecting the complexity of the care needed and a predetermined payment for
such care. While laboratory testing services are an essential part of diagnosis
and monitoring the beneficial results of treatment, they also represent a cost
to the hospital as it seeks to generate a profit by completing the care and
treatment of patients before their costs exceed the level of reimbursement. The
Careside system provides hospitals with the opportunity to decentralize
laboratory testing to the patient floors and bedside, as routine and stat tests
can be conducted at the time the patient is being evaluated by providers.
Consequently, the Careside system is expected to enable some hospitals to
eliminate their central laboratories or replace certain costly analyzers and
outsource non-routine testing not done on the CareSide Analyzer to a
centralized laboratory.
Physician Groups. There are over 3,500 physician groups in the United States
with practices in excess of 35 doctors. Excluding radiology groups, the target
market for the Careside system is over 2,200 groups. Physicians usually obtain
their laboratory testing services from the hospital laboratories with which the
physicians are affiliated or from a commercial laboratory. In either case,
patient samples are collected from the physician's office and sent via courier
to the applicable laboratory, with results delivered to the physician, either
electronically, by fax or by telephone. For physician group practices, the
Careside system will offer improvements in daily office routine, greater
convenience, enhanced patient satisfaction and new revenue opportunities.
Home Care. Industry data shows that the number of home care agencies and
patients receiving home care services has grown significantly in recent years.
We believe significant growth in this market segment will continue. Industry
data reported that the total number of Medicare certified home care agencies
rose from 11,000 in 1989 to over 20,000 by the end of 1996. In 1996, the Health
Care Financing Administration estimated that 3.9 million Medicare enrollees
would receive home care services during 1997. This is twice the number that
received such services in 1990. The number of home care visits increased from
70 million in 1990 to an estimated 306 million in 1997. On average, 30% of home
care patients visited each week require laboratory testing. Common laboratory
tests include, among others, Chem 7 panels, iron, blood glucose, magnesium,
prothrombin time and immunochemistry tests for monitoring phenobarbital,
phenytoin and digoxin. Patient samples are drawn from the patient, gathered
from the home care providers and delivered via courier to a commercial
laboratory for testing. Test results are made available the next day or on a
premium price basis by fax, telephone or written report delivered four or five
hours later. The CareSide Analyzer is expected to enable the home healthcare
provider to draw the patient's sample, run the test and deliver the results
without having the sample delivered via courier to a commercial laboratory.
35
<PAGE>
Nursing Homes. In 1994, the most recent year for which industry data has
been compiled, there were over 15,000 nursing homes in the United States with
more than 1.6 million licensed beds. The average occupancy rate was over 92%
with each nursing home averaging nearly 100 patients. Common diagnostic tests
ordered for nursing home patients are complete blood counts, Chem 7 panels,
electrolytes, blood glucose, prostate specific antigen, therapeutic drug
monitoring and urinalysis. Nursing homes generally obtain their testing
services from commercial laboratories and encounter the same delays and
reimbursement issues as physicians. The CareSide System provides a profit
opportunity to the nursing home by allowing it to conduct and bill for
laboratory services, while simultaneously enhancing the nursing home's ability
to provide better care.
Pilot Program
Prior to the commercial rollout of our system commencing in the fourth
quarter of 1999, we will have completed pilot studies of the Careside system in
multiple sites within certain targeted market segments. To date, we have
arranged for pilot studies with Children's Hospital of San Diego, Children's
Hospital--Los Angeles and the Seattle Children's Hospital, all through Child
Health Corporation of America, APRIA Healthcare, one of the largest United
States home care providers, Reliant Care Group, L.L.C., a chain of nursing
homes, and SBCL. We are currently arranging for pilot studies with several
group physician practices located in Phoenix, Arizona and Los Angeles,
California.
The purposes of piloting the Careside system are to collect data
demonstrating the economic benefit of the Careside system in each customer
segment, to create a how-to book that will be tailored to the needs of each
customer type and to provide validation testing necessary to obtain FDA
marketing clearance for point-of-care and physician office laboratory use. This
how-to book will explain the process of obtaining and maintaining a laboratory
license, train personnel to conduct testing and educate personnel about the
operation of the Careside system. With both a financial model and a how-to book
that are specific to customer segments, we then intend to introduce the
Careside system to the overall market in the fourth quarter of 1999.
Sales
Domestic
We intend to hire, train and regionally deploy our own domestic sales force
to sell the Careside system to hospitals, healthcare systems, large physician
group practices, managed care organizations, home care agencies and nursing
homes, either directly or through institutional pharmaceutical service
organizations which serve them. Because we intend to target customers who order
large volumes of tests, we anticipate building a direct sales force of
approximately 40 people.
As one of the largest commercial laboratories in the United States,
SmithKline Beecham Clinical Laboratories, Inc. conducts millions of tests for
small physician groups and individual physicians annually. We expect the
Careside system to be available to small or solo practices through in-patient
service centers owned and staffed by SBCL since it may be inefficient for such
practices to own and operate a CareSide Analyzer. SBCL owns and operates over
700 patient service centers across the United States. We have entered into a
distribution agreement with SBCL which gives SBCL, with respect to domestic
sales, an exclusive right, as a commercial laboratory, to use and distribute
the Careside system within the commercial laboratory industry and the non-
exclusive rights to sell the Careside system to hospitals and healthcare
systems, other health care providers, managed care organizations and insurers.
The agreement also obligates SBCL, upon FDA clearance or exemption of 30
specified tests, to purchase a minimum number of CareSide Analyzers and test
cartridges from us for the first five years following such FDA action.
SmithKline has informed us that no amendments to our distribution and supply
agreement with SmithKline Beecham Clinical Laboratories, Inc. will occur as a
result of the sale of SBCL to Quest Diagnostics Incorporated. We are currently
in discussions with Quest regarding the implementation of our distribution and
supply agreement. SBCL will continue to be the entity with which we deal. It
will, however, be a subsidiary of Quest after the transaction closes. See
"Certain Transactions--SmithKline Beecham."
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International
In international markets, we intend initially to enter into distribution
agreements and gradually to develop our own sales force as appropriate. Our
distribution and supply agreement with SBCL gives SBCL the same exclusive and
non-exclusive distribution rights as it has in the United States in any ten of
the following countries where SBCL owns, operates, manages a commercial
laboratory on or before December 31, 2000: Great Britain, Mexico, Spain, South
Africa, Singapore, Malaysia, Indonesia, Australia, Chile, Argentina, France and
Germany. In addition, Fuji Photo Film Co., Ltd. has a right of first refusal to
be our distributor on an exclusive basis in Japan and a non-exclusive basis in
other Asian countries. The current agreement with Fuji expires in 2003 and
permits automatic annual renewals thereafter subject to cancellation by either
party. In addition, we expect to partner with other diagnostic instrument
distributors in the international markets with an initial focus on Europe. See
"Certain Transactions--SmithKline Beecham."
Research and Development
As of June 10, 1999, we employed 26 scientists and technical staff who
supervise the development of the instrument and tests, validate test results,
and perform quality assurance and quality control documentation and regulatory
submissions.
After extensive review of available test technologies, we chose Fuji Photo
Film Co., Ltd. as our partner for chemistry and electrochemistry tests. Fuji
makes dry film based chemistry tests and uses them in large analyzers that it
produces and sells in Japan and Taiwan. In addition, Fuji has agreed to supply
this reagent technology during the Careside system's development stage for more
than 25 chemistry tests. Fuji has agreed to develop four additional tests at
its expense for the Careside system. See "--The Careside System--Test Menu."
The utilization of third parties to develop our tests has allowed us to focus
on creating a platform for delivery of a highly efficient test system. For
hospital environments, the CareSide Analyzer's software has a configuration
capability that facilitates a test order entry menu and security processes as
determined by laboratory management. Fields exist for extensive data capture
including patient, physician and billing information. All of these systems are
optional to the user other than the data requirements for compliance with the
Clinical Laboratory Improvement Amendments of 1988. In addition, the Careside
system easily accommodates test menu additions by downloading new test
algorithms into the device via a floppy disk. This eliminates the need to
remove the instrument from the field as new test capabilities receive FDA
clearance/approval.
We have entered into a series of research and development agreements for our
system. As is customary in the industry, these agreements are short term and
provide for termination for any reason by either party on relatively short
notice. Battelle Memorial Institute, a leader in developing industrial
technology, has designed the disposable testing cartridge according to
specifications which we provided. All applicable patent rights under this
contract have been assigned to us. To date, two patent applications on the
cartridges have been allowed and are expected to be issued as U.S. patents in
the near future. We have also filed a third U.S. patent application on our
cartridges. See "--Patents and Proprietary Rights." Pursuant to our
relationship with Battelle, Battelle is also designing a cost-effective
manufacturing process and quality assurance methods, based on federal Good
Manufacturing Practices protocols, for the disposable cartridges.
UMM Electronics, Inc., a contract engineering and manufacturing firm,
performed the design and development work of the CareSide Analyzer and
continues to provide development services for us to further enhance our
product. Other products developed by UMM include point-of-care blood glucose
monitors, point-of-care coagulation instruments, intravenous infusion pumps,
dialysis machines and infant care warmers. UMM is an FDA-registered
manufacturer of sophisticated medical products required to comply with federal
GMP regulations.
Hauser, Inc., an industrial design consultant, provided services for the
design and development of the entire Careside system. Hauser conducted focus
groups from each target market segment in order to obtain
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customer input on the design features and to assist in the development of an
instrument and software systems involving user interaction. Currently, Hauser
is providing packaging design services.
We continue to pursue development work with other contract partners. We are
further developing coagulation reagent technology with International Technidyne
Corporation. We recently filed a joint patent application with ITC for a
coagulation reagent. In addition, we are utilizing the services of AdMIT to
develop the cabled interfaces between the CareSide Analyzer and other medical
devices and information systems.
Manufacturing and Supply
We designed and outfitted a building in Culver City, California, of
approximately 16,000 square feet in December 1996 as our development facility
and offices. The building contains space for our automated assembly system
which Battelle Memorial Institute is designing. The assembly system will mount
the reagents in the test cartridges, and package and label the cartridges. This
facility has been set up to comply with all applicable state and federal
regulatory requirements, including registration with the state and federal
governments in accordance with applicable laws governing medical devices prior
to commercial distribution. The facility will be subject to periodic FDA
inspection to determine whether our manufacturing processes comply with federal
GMP regulations for medical devices.
We intend to assemble and package at our Culver City facility all cartridges
used by the instrument. The cartridges are assembled in two main stages.
Initially, those components which are not sensitive to humidity, such as
plastic parts, are assembled in a normal humidity environment. The second stage
of the cartridge assembly process involves the mounting of dry film chemistry
strips or pouched reagents in the cartridges, which must be done in a low
humidity environment to preserve the film. This step will be performed in an
automated assembly line at our facility. We are in the process of selecting and
purchasing the equipment necessary for this process. We expect our first
automated assembly line to be in place by the end of 1999 or as our cartridge
inventory needs increase. In addition, during the cartridge manufacturing
process, our equipment must test the pressure of the ultrasonic seal between
the base plate and the upper plates of the test cartridges. Our equipment
allows for several inspection steps during the assembly process. Battelle is
assisting us in developing the fully automated assembly line for the cartridges
with these steps built in. The production capacity of the pilot cartridge
production line for chemistry and immunochemistry will be approximately 1,800
units per hour or 13,000 units per shift. Depending on the specific tests
ordered, our current facility, with additional equipment, will support between
$40 and $60 million of test cartridge sales annually. The automated production
line will utilize proprietary process technology, designed by Battelle and
owned by us, and will be scalable to meet increasing demand.
We will outsource the manufacturing of the plastic components of our
cartridges. We have been using a third party to manufacture these components
using injection molding processes. Recently, we obtained bids from a number of
manufacturers of cartridge components and have selected a supplier to meet our
manufacturing needs based on competitive terms.
We have entered into an agreement with UMM Electronics, Inc. for the
manufacture of the CareSide Analyzer at UMM Electronics' facility in
Indianapolis. Certain aspects of the manufacturing agreement, including the
price at which UMM Electronics will manufacture the device, are subject to
further negotiation and will be finalized once tooling is completed and the
manufacturing line set up.
We expect to source our chemistry, electrochemistry, coagulation and
immunochemistry reagents from Fuji, International Technidyne Corporation and
Diagnostic Reagents, Inc. See "--The Careside System--Test Menu."
We intend to purchase and distribute a hematology testing device manufactured
by a third party and are currently negotiating a supply agreement.
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Competition
We will principally compete with manufacturers of traditional diagnostic
testing equipment used by centralized laboratories and current point-of-care
diagnostic companies whose products perform testing for patients in critical
condition. Historically, most clinical testing has been performed in a
centralized laboratory setting. These laboratories provide analyses similar to
those to be conducted by our system and have traditionally been effective at
processing large panels of tests using skilled technicians and complex
equipment. While the CareSide Analyzer will not be designed to provide the same
range of tests, we believe that our products will offer several advantages over
centralized laboratories, including lower costs, mobility, faster results,
simplified specimen preparation, reduced opportunity for error through
decreased specimen handling, ease of regulatory compliance and increased
patient satisfaction.
We are also aware of other companies with point-of-care analysis devices.
These companies have focused on the testing for critical care patients or tests
that are disease specific. Examples of disease specific tests are glucose and
digoxin which measure blood sugar levels in diabetic patients or heart
complications. In all cases, these companies perform a limited number of tests
and their systems are not designed to have their test menus increase.
Consequently, these devices add costs as the large analyzers in hospital or
commercial laboratories conduct these tests and many more. We believe that our
system will offer distinct competitive advantages over these products,
including the ability to conduct tests in multiple test categories in a single
device, internal centrifugation, convenience and ease of use. Several
companies, including i-STAT Corporation, Abaxis, Inc., Diametrics Medical, Inc.
and PharmaNetics, Inc., are currently making or developing products that will
compete with our tests although not with our system. Some of these companies
also provide disease specific tests that will not be available at the time of
launch on the CareSide Analyzer but which we expect will be added later.
Some large pharmaceutical companies also have point-of-care blood testing
devices and could, given their resources, develop systems which compete with
the Careside system. Abbott Laboratories, Inc., Clinical Diagnostic Systems (a
division of Johnson & Johnson) and Roche Diagnostic Systems, Inc. all have
products which perform point-of-care testing. To date, we believe that none has
developed a point-of-care testing system comparable to our system.
Patents and Proprietary Rights
Our policy is to seek patent protection, both in the United States and
abroad, for each of the areas of invention embodied in our CareSide Analyzer
and related cartridges. To date, we have filed three patent applications on our
cartridges with the U.S. Patent and Trademark Office. Two of these applications
have been allowed and are expected to be issued as U.S. patents. We have also
filed a joint U.S. patent application with International Technidyne Corporation
for a coagulation reagent. We have filed international applications
corresponding to two of our U.S. cartridge applications and intend to file an
additional international application corresponding to the remaining U.S.
cartridge application. We have also filed one design and three utility patent
applications on the CareSide Analyzer. Our agreements with Fuji Photo Film Co.,
Ltd., Battelle Memorial Institute and International Technidyne Corporation,
assign to us certain proprietary rights that result from the research conducted
under the agreements. The Fuji agreement gives us non-exclusive rights to use
Fuji's proprietary technology in the Careside system outside of Japan. Only
Fuji will sell our system in Japan. The other agreements provide that the
technology used in the Careside system is owned either by us or jointly by us
and our partner. These agreements do not restrict us, if we choose, from
seeking other suppliers of competitive technologies. We will seek to protect
any such proprietary rights assigned to us by our technology partners. Battelle
and International Technidyne have agreed to share expenses or otherwise assist
us in prosecuting patent applications. Upon completion of the offering, we
expect to proceed with the patent application process, and anticipate the
filing of additional applications. In addition to patent protection, if any, we
will rely upon trade secrets, know-how and continuing technological innovation.
Although our Chief Executive Officer, Executive Vice President--Research and
Development and Chief Financial Officer have agreed to maintain in confidence
our confidential information and proprietary technology, we have not otherwise
required our
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employees to sign confidentiality agreements. We plan on seeking the execution
of such confidentiality agreements by our current and future employees.
Third-Party Reimbursement
In April 1998, the federal government instituted a policy that, in connection
with Medicare reimbursement for large panel testing, will only reimburse four
different panels of chemistry tests, the largest of which has 13 tests. The
consequence of this policy has been that more single tests are ordered as
compared to large panels. The Careside system is currently capable of
conducting eight tests in a single 10 to 15 minute test cycle. At the time of
product launch, the 13 test panel can be accommodated in two test cycles. Upon
the completion of development of additional multi-test cartridges, the Careside
system will be able to handle a 13-test panel in a single 10 to 15 minute test
cycle. The Careside system is also configured to easily test any combination of
single test cartridges with similar cycle times for up to six single tests per
cycle. Payers have stated that they will only reimburse for panels that are
disease specific. With this change in policy and reimbursement practice, the
number of tests reimbursed as part of panels has begun to drop. The Careside
system, which places primary focus on single and disease specific testing, is
very competitive in light of these changes in payer practice related to test
panels. See "Risk Factors--Uncertainty Relating to Third-Party Reimbursement
May Impact Our Business."
Managed care provides physicians with incentives to treat patients using
clinical treatment protocols that have been developed for many chronic and
acute illnesses. These protocols frequently contain preventative diagnostic
interventions that are used to help avoid the occurrence of acute episodes of
illness. Diagnostic blood testing is one of the major tools used in these
protocols for early detection and for ongoing evaluation of treatment efficacy.
We believe that a diagnostic blood testing system that is cost effective and
adds convenience and rapid information will be well received by managed care
organizations and their physicians.
Even with the growth of managed care, more than 75% of all blood tests
continue to be reimbursed on a fee for service basis. This number has remained
steady in the commercial laboratory industry for the past three years. We
believe that in both the managed care and fee-for-service markets, our point-
of-care system will be responsive to incentives that drive the respective
markets. Many managed care entities dictate to their member physicians which
laboratories they must use for blood testing. Physicians have the opportunity
to utilize exceptions to these mandates to conduct in-office testing. The
Careside system will enable physicians to offer laboratory testing services and
take advantage of these exceptions to the managed care organizations' policies.
We expect to facilitate this by working closely with the physicians and the
managed care organizations to demonstrate cost effectiveness and cost reduction
of our system. This will be a critical component of the pilot site testing
strategy and is intended to position the Careside system as the new testing
standard and the blood testing system of choice over traditional laboratory
testing methods.
Government Regulation
The FDA regulates the development, manufacture, and marketing of medical
devices including diagnostic tests. The FDA requires testing of the Careside
system in accordance with regulatory requirements in the laboratory and, as
appropriate, in clinical settings to establish product performance before
marketing. After marketing has commenced, FDA clearance must be obtained before
making certain types of product changes. The CareSide Analyzer and certain
tests have already received marketing clearance for professional laboratory
use, but not for point-of-care or physician office laboratory use. We expect
that the CareSide Analyzer and tests will receive marketing clearance for
point-of-care and physician office laboratory use following clinical testing of
the instrument at clinical sites. Without the point-of-care and physician
office laboratory use clearance, the CareSide Analyzer could be used only at
professional laboratory sites with laboratory personnel, which would limit our
potential market. Professional laboratories include hospital, commerical and
independent laboratories. As part of our pilot marketing studies, we have
arranged for clinical settings for point-of-care and physician office
laboratory use validation studies commencing in June 1999. We expect point-of-
care and physician office laboratory use clearances prior to our commercial
product launch in the fourth quarter of 1999.
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The point-of-care designation depends upon the FDA's determination that the
results obtained from clinical studies for a number of representative tests,
selected by the FDA, have accuracy and reliability when performed by a non-
laboratory user that is equivalent to or better than test results obtained from
the same tests performed by a laboratory professional.
The FDA has regulations that set varying requirements for medical devices
according to potential risk class. Class I devices represent the lowest
potential risk devices and are therefore subject only to the general controls
that include establishment registration, product listing, the prohibition of
mislabeling or adulteration, and a requirement to comply with federal Good
Manufacturing Practices regulations. Pre-market notification is required for
some Class I clinical diagnostic devices. Class II devices present greater risk
than Class I devices and are subject to special controls, such as guidelines or
performance standards, as well as the same general controls that are applicable
to Class I devices. Class II devices require pre-market clearance to
demonstrate that the FDA accepts the manufacturer's claims that the device is
substantially equivalent to other legally marketed devices, and meets generally
accepted performance criteria that may be required to demonstrate that the
device is safe and effective. Class III devices present a higher level of risk
and are additionally subject to rigorous demonstration of safety and
effectiveness through the pre-market approval process.
For some Class I and most Class II devices, a pre-market notification must be
submitted to the FDA. Usually within 90 days of the receipt of this
notification, the FDA makes the determination whether the device submitted is
substantially equivalent to a legally marketed device. A legally marketed
device is one which was marketed prior to the passage of the Medical Device
Amendments of 1976, or a post-1976 device that has been determined by the FDA
to be substantially equivalent to previously cleared devices. A determination
of substantial equivalence requires several FDA findings: first, that the
device has the same intended use as the legally marketed device; and second,
either that the device has the same technological characteristics as the
legally marketed device or, if it does not, that the device is as safe and
effective as the legally marketed device and does not present different
questions about safety and effectiveness. Class III devices require extensive
clinical testing to prove safety and effectiveness, and submission of the
resulting data to the FDA as a pre-market approval application. The FDA
ordinarily will refer a new device pre-market approval application to an
advisory panel of outside experts for a recommendation on whether to approve
the application or to request additional testing. The CareSide Analyzer and all
31 tests already cleared or exempt by the FDA have been classified in Class II.
We believe that all of the remaining tests currently expected to be performed
by the CareSide Analyzer will be similarly classified. If the FDA disagrees,
however, a pre-market approval application might be required for one or more
tests. Certain future tests, such as prostate specific antigen, are expected to
require pre-market approval.
The information required for a pre-market notification for the Company's
products will be generated by or for us. For tests that will be performed in a
clinical laboratory, validation may be performed in the manufacturer's
laboratory. For tests that are intended for use outside of the clinical
laboratory, such as physician offices or nursing homes, the FDA also requires
that validation data be gathered from at least three clinical sites. We believe
that the required laboratory or clinical studies do not constitute a
significant risk for patients. Non-significant risk device studies performed in
the clinic require institutional review board approval and may require patient
informed consent but do not require the clearance of an investigational device
exemption application by the FDA. If the FDA were to believe that such studies
constitute a significant risk, we would need to submit an investigational
device exemption application, containing an investigation and study monitoring
plan, and allow the FDA 30 days to review the investigational device exemption
application or request additional information prior to initiating an
investigation.
Where a pre-market approval application is required, FDA regulations require
the demonstration of safety and effectiveness, typically based upon extensive
clinical trials. Fulfilling the requirements of the pre-market approval
application are costly and both the preparation and review are time consuming,
commonly taking from one to several years. Before granting pre-market approval,
the FDA must inspect and find acceptable the proposed manufacturing procedures
and facilities. The pre-market approval regulations also require FDA approval
of most changes made after the tests have been approved.
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Manufacturing Regulation
For products either cleared through the pre-market notification process or
approved through the pre-market approval process, our manufacturing facility
must also be registered with the FDA. The manufacture of products subject to
Section 510(k) of the Federal Food, Drug, and Cosmetic Act or to Section 515
pre-market approval requirements must be in accordance with quality system
regulations and current federal Good Manufacturing Practices regulations. We
are also subject to various post-marketing requirements, such as complaint
handling and reporting of adverse events. Pre-market approval products are also
subject to annual reports. The FDA typically inspects manufacturing facilities
every two years. We intend to seek and maintain ISO 9001 certification. As a
result, inspections by notified bodies may be more frequent.
The CareSide Analyzer is being further developed and will be manufactured by
UMM Electronics, Inc. UMM is an FDA registered and inspected facility. UMM is
also ISO 9001 certified. In adherence to FDA and ISO 9001 requirements, UMM
follows a structured design control process.
Third-Party Safety
Third-party safety certification is not required for FDA marketing
permission, but will be required by our customers and to enter markets in other
countries. In this regard, we are in the process of obtaining an Underwriters
Laboratories, or UL, listing for the instrument. UL will review the CareSide
Analyzer according to UL 3101-1 that is equivalent to the international
standard IEC 1010. The CareSide Analyzer is also being designed to comply with
requirements that ultimately will facilitate marketing of the product in Europe
and Japan. These requirements include the Low Voltage Directive (73/23/EEC),
the Electromagnetic Compatibility Directive (89/336/EEC), and the In Vitro
Diagnostic Medical Device Directive (98/79/EC).
Clinical Laboratory Improvement Amendments of 1988
All medical testing in the United States is regulated by the Health Care
Financing Administration according to the complexity of the testing as
specified under the Clinical Laboratory Improvement Amendments of 1998. CLIA
regulations establish three categories of laboratory tests, for which
regulatory requirements become increasingly stringent as the complexity of the
test rises: (1) tests that require little or no operator skill, which allows
for a certificated waiver of the regulations; (2) tests of moderate complexity;
and (3) high complexity tests which require significant operator skill or
training. CLIA regulatory requirements apply to facilities such as clinical
laboratories, hospitals, and physician offices which perform laboratory tests.
All laboratories are subject to periodic inspection. In addition, all
laboratories performing tests of moderate or high complexity must register with
HCFA or an organization to whom HCFA has delegated such authority. They also
must meet requirements relating to personnel qualifications, proficiency
testing, quality assurance, and quality control. We expect all of the tests for
the CareSide Analyzer to be categorized as moderate or lower complexity. To
date, the tests performed by the CareSide Analyzer have been categorized within
the moderate complexity class as defined by current CLIA regulations. In
practical terms, performing a test of moderate complexity means that the
individual supervising the test, i.e., the physician, pathologist or laboratory
director, must be appropriately educated and trained, whereas the individual
who operates the CareSide Analyzer requires either formal laboratory education
or a high-school education and training in the skills required to perform
testing with the CareSide Analyzer, such as specimen collection and quality
control.
State Regulation
We and our products will be subject to a variety of state laws and
regulations in those states where our products are marketed, sold or used.
Thirteen states currently restrict or control, to varying degrees, the use of
medical devices such as the Careside system outside the clinical laboratory by
persons other than doctors or licensed technicians. For example, California,
New York and Florida all have unique requirements that define which steps in
the testing process can be performed by physicians, nursing or other personnel
who are not licensed technicians. We have designed our testing system to comply
with these requirements, while minimizing the need for higher cost labor to run
the test process. However, these restrictions may add labor
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costs to the customer, and such costs may hinder our ability to market our
products in these locations. Although we plan to seek interpretations, rulings
or changes in relevant laws and regulations to remove or ameliorate these
restrictions, there can be no assurance that we will be successful.
International Regulation
In addition to the United States market, we intend to pursue markets in Asia
and Europe through select strategic alliances. The recently published European
Community In Vitro Diagnostic Directive places our products within a category
that has a low regulatory burden. Manufacturers are allowed entry into the
market based upon self-certification that they complied with published
directives, similar to existing United States requirements, containing
performance, labeling, and other quality requirements. Japan has its own
requirements for in vitro diagnostics.
Product Liability and Property Insurance
Sale of our products entails risk of product liability claims. The medical
testing industry has historically been litigious, and we face financial
exposure to product liability claims in the event that use of our products
result in personal injury. We also face the possibility that defects in the
design or manufacture of our products might necessitate a product recall. There
can be no assurance that we will not experience losses due to product liability
claims or recalls in the future. We anticipate purchasing product liability
insurance in reasonable and customary amounts when we begin to sell products in
the third quarter of 1999. Such insurance can be expensive, difficult to obtain
and may not be available in the future on acceptable terms, or at all. No
assurance can be given that product liability insurance can be maintained in
the future at a reasonable cost or in sufficient amounts to protect us against
losses due to liability. An inability to maintain insurance at an acceptable
cost or to otherwise protect against potential product liability could prevent
or inhibit the commercialization of our products. We expect that our insurance
coverage will be adequate for the risks we face. However, a product liability
claim in excess of relevant insurance coverage or product recall could have a
material adverse effect on our business, financial condition and results of
operations.
We have liability insurance covering our property and operations with
coverage and deductible amounts and exclusions that we believe are customary
for companies of our size and adequate for our industry. There can be no
assurance that our current insurance coverage is adequate or that we will be
able to maintain insurance at an acceptable cost or otherwise to protect
against liability.
Employees
As of June 10, 1999, we had 31 full-time employees, of which 26 were engaged
in research and development and manufacturing activities and five were engaged
in administrative activities. None of our employees is covered by a collective
bargaining agreement, and we believe our relations with our employees are good.
Additionally, our contract strategic partners, Battelle Memorial Institute and
UMM Electronics, Inc. have provided approximately 40 full-time equivalent
employees on a contract basis to develop the Careside system.
Properties
We lease approximately 16,000 square feet of space in Culver City, California
as our executive offices and for the research and development, validation,
manufacture and assembly of test cartridges. The lease has a term of five
years, with a current monthly rent of $13,620, increasing to $15,220 per month
until the expiration of the lease in October 2001. We have an option to renew
the lease for one additional five-year term at 95% of the fair market rental
value. We believe that the Culver City facility will adequately serve our needs
for the immediate future.
Legal Proceedings
We are not a party to any material legal proceedings.
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MANAGEMENT
Directors, Executive Officers and Key Employees
The following table sets forth certain information concerning the individuals
who serve as our directors, executive officers and key employees:
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<C> <S> <C>
Directors and Executive Officers:
W. Vickery Stoughton (1)......... 53 Chairman of the Board of Directors and Chief Executive Officer
Thomas H. Grove.................. 50 Executive Vice President--Research and Development,
Secretary and Director
James R. Koch (2)................ 45 Chief Financial Officer, Treasurer, Executive Vice
President and Director
Anthony P. Brenner (1)........... 41 Director
William F. Flatley (2)........... 57 Director
Kenneth N. Kermes (2)............ 64 Director
C. Alan MacDonald (2)............ 66 Director
Diana Mackie (1)................. 52 Director
Philip B. Smith (1).............. 63 Director
Key Employees:
Kenneth Asarch................... 41 Vice President--Quality Systems and Regulatory Affairs
Marija N. Valentekovich.......... 67 Vice President--Manufacturing
</TABLE>
- --------
(1) Member of Compensation Committee
(2) Member of Audit Committee
Directors and Executive Officers
W. Vickery Stoughton, Chairman of the Board of Directors and Chief Executive
Officer. Mr. Stoughton has served as our Chairman of the Board of Directors and
the Chief Executive Officer since our formation in July 1996. Prior to that, he
served as President of SmithKline Beecham Diagnostics Systems Co., a diagnostic
services and product company, from October 1995 to July 1996, and was President
of SmithKline Beecham Clinical Laboratories, Inc., a provider of diagnostic
laboratory services, from August 1992 to September 1995. As President of SBDS,
Mr. Stoughton had responsibility for SBCL, SmithKline Beecham Clinical
Laboratories International and SBDS's genetic testing and point-of-care testing
projects. In addition, Mr. Stoughton served as Chief Executive Officer and Vice
Chancellor for Health Affairs of Duke University Hospital from 1991 to 1992,
Chief Executive Officer of Toronto Hospital in Toronto, Canada from 1981 to
1991, Chief Operating Officer of Brigham and Women's Hospital in Boston from
1980 to 1981 and Chief Executive Officer of Peter Bent Brigham Hospital in
Boston from 1978 to 1980. Mr. Stoughton holds a B.S. in Chemistry from St.
Louis University and a M.B.A. from the University of Chicago. He is currently a
director of Sun Life Assurance Company of Canada, a financial services company,
and Biomira, Inc., a pharmaceutical company.
Thomas H. Grove, Executive Vice President--Research and Development,
Secretary and Director. Dr. Grove has served as our Executive Vice President--
Research and Development, Secretary and as one of our directors since our
formation in July 1996. From April 1984 to July 1996, he served in a number of
management positions at SmithKline Beecham Clinical Laboratories, Inc.
involving research and development activities, including the position of Vice
President of Scientific Affairs from January 1991 to July 1996, where, among
other things, he was in charge of National Quality Control and Quality
Assurance for SBCL. Dr. Grove has received a number of awards, including a NATO
Science Fellowship to attend Oxford University from 1978 to 1979. He was also
named Young Investigator of the Year in 1980 by the American
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Association for Clinical Chemistry and was elected to the National Academy of
Clinical Biochemistry in 1977. Dr. Grove holds a B.S. in Biology from SUNY-
Albany and a Ph.D. in Biochemistry from Syracuse University.
James R. Koch, Chief Financial Officer, Treasurer, Executive Vice President
and Director. Mr. Koch has served as our Chief Financial Officer, Treasurer,
Executive Vice President and as one of our directors since July 1998. Prior to
joining us, Mr. Koch served as Vice President and Chief Financial Officer of
ILEX Oncology, Inc., a company which develops oncology drugs, from August 1996
to July 1998. In addition, Mr. Koch served as Vice President, Finance and Chief
Financial Officer for two start-up specialty pharmaceutical companies, Symphony
Pharmaceuticals, Inc., from September 1993 to August 1996, and Neose
Pharmaceuticals, Inc., currently Neose Technologies, Inc., from September 1991
to September 1993. His prior experience also includes ten years in senior
financial management positions with G.D. Searle Pharmaceutical, a manufacturer
of pharmaceutical products. Mr. Koch holds a B.S. in Mechanical Engineering
from General Motors Institute and a M.S. from the Krannert School of Management
at Purdue University.
Anthony P. Brenner, Director. Mr. Brenner has served as one of our directors
since November 1996. Since January 1998, he has served as a Managing Director
with Omega Ventures, a venture capital firm, where he oversees investment
activities in the information and business services industries. Prior to that,
Mr. Brenner served as Senior Managing Director of Advanta Partners LP, a
private equity investment partnership, and as a member of the Board of
Directors of Advanta Corporation, a financial services company, from 1992 to
1996. In addition, since 1989 Mr. Brenner has served as President of Cedar
Point Partners, a private equity investment partnership. Mr. Brenner earned a
B.A. from Yale University and a M.B.A. from Stanford University.
William F. Flatley, Director. Mr. Flatley has served as one of our directors
since November 1996. Since July 1997, he has served as the President and Chief
Executive Officer of Executive Health Group, a provider of preventive
healthcare services to corporations. From 1980 to December 1994, he held a
number of senior management positions with Bristol-Myers Squibb Corporation, a
pharmaceutical company, including President of a multi-division medical device
business, the Health Care Group, and President of the Drackett Company, a
household products manufacturer. Mr. Flatley retired from Bristol-Myers Squibb
at the end of 1994 but continued to provide the company with certain consulting
services after his retirement. Mr. Flatley obtained a B.S. from Villanova
University and a M.B.A. from the Wharton School of the University of
Pennsylvania.
Kenneth N. Kermes, Director. Mr. Kermes has served as one of our directors
since February 1997. Since June 1998, he has served as a principal of Riparian
Partners Limited and of Bay View Equity Partners, two related investment
banking and private equity investment partnerships. Prior to that, he served as
Vice President of Business and Finance for the University of Rhode Island from
December 1994 to June 1998 and as Chief Financial Officer for SmithKline
Beecham Corporation from October 1986 to July 1989. From 1991 to 1994, Mr.
Kermes was a consultant and an investor in the venture capital industry. Mr.
Kermes obtained a B.A. from Amherst College and attended the New York
University Graduate School of Business and the Harvard Business School Advanced
Management Program.
C. Alan MacDonald, Director. Mr. MacDonald has served as one of our directors
since November 1996. Since October 1997, Mr. MacDonald has served as a Managing
Director of Directorship, Inc., a consulting firm specializing in corporate
governance issues. Prior to that, he served as General Partner of the Marketing
Partnership, Inc., a full service marketing consulting firm, from January 1995
to July 1997 and as an acquisitions consultant with the Noel Group, a venture
capital firm, from July 1994 to December 1994. In addition, he served as
Chairman and Chief Executive Officer of Lincoln Snacks Co., a caramelized
popcorn snack company, from September 1992 to July 1994. Mr. MacDonald holds a
B.S. in Hotel Administration from Cornell University and is a member of the
Cornell Society of Hotelmen and the Dean's Advisory Committee at Cornell. Mr.
MacDonald is also a director of Lincoln Snacks Co.
Diana Mackie, Director. Ms. Mackie has served as one of our directors since
February 1997. She currently is a Vice President for Strategy and Business
Development at SmithKline Beecham Healthcare
45
<PAGE>
Services, the business development division of SmithKline Beecham Corporation,
a position she has held since October 1997, where her responsibilities include
developing business plans, long-range strategy and negotiating external
alliances and investments. Prior to that, Ms. Mackie served as Vice President,
Group Business Initiatives for SBHS from November 1996 to October 1997. From
March 1996 to November 1996, she was General Manager of Diversified
Prescription Delivery, a pharmaceutical mail services company and a wholly-
owned subsidiary of Diversified Pharmaceutical Services, a pharmaceutical
benefit management group. From March 1993 to March 1996, she served as Vice
President, Strategy Development, SmithKline Beecham Pharmaceuticals, a
pharmaceutical company. Ms. Mackie holds a B.S. in Chemistry from the
University of Illinois, a M.B.A. from The Massachusetts Institute of Technology
Sloan School of Management and a M.S. in Polymer and Fiber Engineering from The
Massachusetts Institute of Technology.
Philip B. Smith, Director. Mr. Smith has served as one of our directors since
November 1996. Since June 1998, Mr. Smith has served as a Vice Chairman of
Laird & Co., LLC, a merchant bank. In addition, from 1991 until August 1998,
Mr. Smith served as a Vice Chairman with Spencer Trask Securities Incorporated,
an investment banking firm. Mr. Smith served in a number of other senior
management positions. From June 1986 to June 1988, Mr. Smith served as Managing
Director of Prudential Securities, an investment firm, in its merchant bank
division. From December 1967 to December 1972, Mr. Smith served as President
and Chief Executive Officer of Citicorp Venture Capital, a venture capital
company which he founded. Mr. Smith currently serves on the board of directors
of Movie Gallery, Inc., Digital Video Systems, Inc., and KLS Enviro Resources,
Inc. Mr. Smith has a B.S.E. from Princeton University and a M.B.A. from the
Harvard Business School.
Key Employees
Kenneth Asarch, Vice President--Quality Systems and Regulatory Affairs. Dr.
Asarch has served as our Vice President--Quality Systems and Regulatory Affairs
since November 1996. From June 1995 to October 1996, Dr. Asarch served as
Director of Regulatory Affairs for SmithKline Beecham Clinical Laboratories,
Inc. and SmithKline Beecham Diagnostics Systems Co. Prior to that, he served as
Director of Regulatory Affairs, Quality Assurance and Clinical Affairs with
Diagnostic Products Corporation, an immuno-diagnostic testing company, from
1987 to 1995, where his duties included overseeing the FDA regulatory clearance
and approval process for approximately 150 blood testing products. Dr. Asarch
holds a B.S. in Biochemistry from the University of California at Los Angeles
and doctoral degrees in both Clinical Pharmacy (Pharm.D.) and Pharmaceutical
Sciences (Ph.D.) from the University of Southern California.
Marija N. Valentekovich, Vice President--Manufacturing. Dr. Valentekovich has
served as our Vice President--Manufacturing since January 1998 when she came
out of retirement to join us. Before that, Dr. Valentekovich served as a
Production Manager with Diagnostic Products Corporation from January 1989 to
July 1997. Dr. Valentekovich received a M.S. in Chemical Engineering and a
Ph.D. in Physical Organic Chemistry, using radioisotope techniques, from the
University of Zagreb, Croatia.
Agreement Relating to Election of Directors
Each of our directors was nominated and elected pursuant to the terms and
conditions of a stockholders' agreement we entered into with our stockholders
and warrantholders in connection with two private placements of our common
stock in 1997 and 1998. Pursuant to this stockholders' agreement, SmithKline
Beecham Corporation was granted the right to nominate an individual to our
Board of Directors to serve as its representative. Spencer Trask Securities
Incorporated was also granted the right in the stockholders' agreement to
nominate one individual to our Board of Directors to serve as its
representative. Currently, Ms. Mackie serves as SmithKline's representative and
Mr. Smith serves as Spencer Trask's representative. Mr. Stoughton and Dr. Grove
were nominated and elected to our Board of Directors pursuant to this
stockholders' agreement. In addition, the stockholders' agreement requires that
three individuals who are independent of us and hold no more than five percent
of our common stock serve on our Board of Directors. The number of directors
permitted by the stockholders' agreement was increased from seven to nine with
the consent of Spencer Trask
46
<PAGE>
as called for in the stockholders' agreement. This stockholders' agreement
expires by its terms upon the completion of the offering.
Classified Board of Directors
Upon completion of the offering, our Board of Directors will be divided into
three classes. Each class will contain, as nearly as possible, an equal number
of directors. Directors within each class will be elected to serve three-year
terms and approximately one-third of the directors will sit for election at
each annual meeting of our stockholders. Mr. Koch, Mr. Kermes and Mr. Smith
will serve in the class whose term expires in 2000. Dr. Grove, Mr. Flatley and
Ms. Mackie will serve in the class whose term expires in 2001. Mr. Stoughton,
Mr. Brenner and Mr. MacDonald will serve in the class whose term expires in
2002. A classified board of directors may have the effect of deterring or
delaying any attempt by any group to obtain control of us by a proxy contest
since such third party would be required to have its nominees elected at two
separate annual meetings of our Board of Directors in order to elect a majority
of the members of our Board of Directors. See "Description of Capital Stock--
Takeover Protection and Certain Charter and By-Law Provisions."
Director Compensation
Our non-employee directors receive an annual fee of $5,000 payable semi-
annually, plus $1,000 for each Board of Directors or committee meeting they
attend in person and $500 for those meetings they attend telephonically. Ms.
Mackie is precluded by SmithKline policy from receiving any fees or stock
options for her service as a director. We reimburse all reasonable expenses
incurred by the directors in attending Board of Directors or committee
meetings. In addition, the non-employee directors, other than the SmithKline
representative, Ms. Mackie, participate in our 1996 Incentive and Non-Qualified
Stock Option Plan. For each year that Mr. Brenner, Mr. Flatley, Mr. Kermes, Mr.
MacDonald and Mr. Smith served as directors, we granted each an annual option
to purchase 2,163 shares of common stock at the then applicable market price.
The options granted after the end of 1996 were issued at $5.20 per share. The
options granted after the end of 1997 were issued at $6.76 per share. The
options granted after the end of 1998 were issued at $7.50 per share. Upon
completion of the offering, options granted to non-employee directors will only
be made under our 1998 Director Stock Option Plan. Under our 1998 Director
Stock Option Plan, we will grant each non-employee director an annual option to
purchase 2,000 shares of common stock at the then applicable market price. See
"--Stock Option Plans" and "Certain Transactions."
Committees of the Board of Directors
The Compensation Committee of the Board of Directors presently consists of
Mr. Stoughton, Mr. Brenner, Ms. Mackie and Mr. Smith. The Compensation
Committee makes recommendations to the Board of Directors concerning salaries
and incentive compensation for our officers and employees other than our Chief
Executive Officer, whose compensation is determined by the Board of Directors
after consultation with the non-employee directors on the Compensation
Committee. The Audit Committee of the Board of Directors presently consists of
Mr. Koch, Mr. Flatley, Mr. Kermes and Mr. MacDonald. The Audit Committee
reviews our financial statements and accounting practices, makes
recommendations to the Board of Directors regarding the selection of
independent auditors and reviews the results and scope of all audits and other
services provided by our independent auditors.
Compensation Committee Interlocks and Insider Participation
While Mr. Stoughton, a member of our Compensation Committee, is our Chairman
of the Board of Directors and Chief Executive Officer, Mr. Brenner, Ms. Mackie
and Mr. Smith, the other members of our Compensation Committee, have not been,
at any time since our formation, an officer or employee of ours. In addition,
none of our executive officers serves as a member of the board of directors or
compensation committee of any entity that has one or more executive officers
serving on our Board of Directors or Compensation Committee. Cedar Capital
Investors, an entity owned and controlled by Mr. Brenner, provided certain
financial consulting services to us immediately following our formation and up
to the completion of our private placement of common stock in
47
<PAGE>
1997. As consideration for such services, we reimbursed Cedar Capital's out-of-
pocket expenses and granted Cedar Capital an option to purchase 1,154 shares of
common stock at an exercise price of $.052 per share. Ms. Mackie, who serves as
Vice President for Strategy and Business Development at SmithKline Beecham
Healthcare Services, the business development division of SmithKline Beecham
Corporation, was nominated to serve on the Board of Directors by SmithKline
Beecham Corporation pursuant to the terms of a stockholders' agreement by and
among us and our stockholders and warrantholders prior to the offering. Mr.
Smith, who served as a Vice Chairman of Spencer Trask Securities Incorporated
until August 1998, was nominated to serve on the Board of Directors by Spencer
Trask Securities and was formerly a partner in Exigent Partners L.P. See "--
Agreement Relating to Election of Directors" and "Certain Transactions."
Executive Compensation
The following table sets forth information regarding compensation awarded to,
earned by, or paid to our Chief Executive Officer and executive officers whose
salary and bonus exceeded $100,000 for all services rendered to us during the
years ended December 31, 1997 and 1998. No executive officer who would
otherwise have been includable in such table on the basis of salary and bonus
earned during the years ended December 31, 1997 and 1998 has resigned or
otherwise terminated employment during such years.
Summary Compensation Table
<TABLE>
<CAPTION>
Long-Term
Annual Compensation
Compensation Awards
----------------- ------------
Securities
Name and Principal Underlying All Other
Position Year Salary Bonus(1) Options Compensation(2)
------------------ ---- -------- -------- ------------ ---------------
<S> <C> <C> <C> <C> <C>
W. Vickery Stoughton...... 1998 $203,481 -- 9,135 $20,797
Chairman of the Board of 1997 $195,281 $27,000 158,655 $20,547
Directors and Chief
Executive Officer
Thomas H. Grove........... 1998 $163,880 -- 5,529 $ 8,603
Executive Vice 1997 $154,013 $25,000 79,327 $ 8,353
President--Research and
Development
</TABLE>
- --------
(1) Bonus earned in 1997 and paid in 1998.
(2) Includes $4,750 contributed under our 401(k) Plan for the benefit of each
of Mr. Stoughton and Dr. Grove in 1997 and $5,000 for the benefit of each
of Mr. Stoughton and Dr. Grove in 1998. Also includes $15,797 and $3,603 of
premiums paid for life insurance for Mr. Stoughton and Dr. Grove, in each
year, respectively.
Stock Options Granted to Executive Officers During 1998
The following table sets forth information regarding options for the purchase
of common stock that were granted to certain executive officers during the year
ended December 31, 1998:
Option Grants in 1998
<TABLE>
<CAPTION>
Potential Realizable
Number of Percent of Value at Assumed
Shares Total Annual Rates of Stock
Underlying Options Exercise or Price Appreciation for
Options Granted Base Price Option Term (4)
Granted to Employees Per Share Expiration -----------------------
Name (1) in 1998 (2) (3) Date 5% 10%
---- ---------- ------------ ----------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
W. Vickery Stoughton.... 7,212 7% $6.76 7/30/08 $ 30,661 $ 77,700
1,923 2% $7.28 11/05/08 $ 8,804 $ 22,312
Thomas H. Grove......... 3,606 4% $6.76 7/30/08 $ 15,330 $ 38,850
1,923 2% $7.28 11/05/08 $ 8,804 $ 22,312
</TABLE>
- --------
(1) All options were granted under our 1996 Incentive and Non-Qualified Stock
Option Plan. The first listed grant for each person vested or will vest 12%
on December 31, 1998, 1999, 2000, 2001 and 2002 and
48
<PAGE>
40% on July 30, 2007. The second listed grant vested or will vest 20% on
each December 31, commencing December 31, 1998. See "--Stock Option Plans."
(2) Based on an aggregate of 101,135 shares of common stock underlying options
granted to employees in 1998.
(3) Options were granted at fair market value, as determined by our Board of
Directors, based on all factors available to them on the date of grant.
These factors included our history and prospects, as well as the history
and prospects of our industry, an assessment of our past and present
operations and financial performance, the prospects for our future
earnings, the present state of our development, the possibility of an
initial public offering by us and market prices of publicly traded common
stocks of comparable companies in recent periods.
(4) Assumes stock price appreciation of 5% and 10% compounded annually from the
date the respective options were granted to their expiration date, as
mandated by the rules of the Securities and Exchange Commission, and does
not represent our estimate or projection of the future appreciation of our
stock price. Actual gains, if any, on stock option exercises and common
stock holdings, are dependent upon the timing of such exercise and the
future performance of the common stock and may be greater or less than the
potential realizable value set forth in the table.
The following table sets forth certain information regarding options held as
of December 31, 1998 by certain executive officers. None of such executive
officers exercised options during the year ended December 31, 1998.
Fiscal Year-End Option Values
<TABLE>
<CAPTION>
Number of Shares
Underlying Unexercised Value of Unexercised
Options at Fiscal Year- In-The-Money Options at
End Fiscal Year-End (1)
------------------------- -------------------------
Name Exercisable Unexercisable Exercisable Unexercisable
---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
W. Vickery Stoughton....... 80,577 87,213 $164,477 $166,312
Thomas H. Grove............ 40,481 44,375 $ 89,383 $ 90,536
</TABLE>
- --------
(1) There was no public trading market for the common stock as of December 31,
1998. Accordingly, these values have been calculated on the basis of the
assumed initial public offering price of $7.50 per share minus the
applicable per share exercise price.
Employment Agreements
We are party to employment agreements with each of Mr. Stoughton, Dr. Grove
and Mr. Koch. On the anniversary date of each employment agreement, the
agreement is automatically extended for three-year rolling terms unless either
party, at least 60 days prior to the annual extension date, gives notice that
the employment agreement shall not be extended or otherwise terminates the
agreement. Mr. Stoughton, Dr. Grove and Mr. Koch may resign upon 90 days notice
to us. Under the employment agreements, Mr. Stoughton, Dr. Grove or Mr. Koch
will be entitled to have his base salary, bonus and stock options continue to
accrue through the end of the then current term if he is terminated without
cause, or becomes disabled. "Cause" includes disloyalty, dishonesty, fraud,
conviction of a felony or the disclosure of confidential information. He will
also be entitled to such amounts if he terminates his employment agreement as a
result of a reduction in his duties, our breach of the employment agreement or
a transaction resulting in our sale. The employment agreements prohibit Mr.
Stoughton, Dr. Grove and Mr. Koch from engaging in the point-of-care
diagnostics business during the term of such employment agreements. These non-
compete clauses will remain in effect for one year after the expiration or
termination of employment. If, however, the term of employment had continued
for at least two years then the non-compete clauses have no effect when
employment is terminated or expires. However, if we terminate employment
without cause or if the employee terminates his employment following our breach
of the agreement or because of a change of control, the non-compete clause
terminates.
Under their respective employment agreements, Mr. Stoughton serves as our
Chairman of the Board of Directors and Chief Executive Officer, and currently
earns an annual base salary of $210,893, Dr. Grove serves
49
<PAGE>
as Executive Vice President--Research and Development, and currently earns an
annual base salary of $167,633, and Mr. Koch serves as our Chief Financial
Officer, Treasurer and Executive Vice President, and currently earns an annual
base salary of $160,000. In addition, Mr. Koch received a $15,000 relocation
allowance in connection with entering into his employment agreement. At the
discretion of our Board of Directors, an annual bonus may be paid to Mr.
Stoughton, Dr. Grove and Mr. Koch. In each case, we may agree to future raises
and other compensation for each of Mr. Stoughton, Dr. Grove and Mr. Koch. In
addition, Mr. Stoughton, Dr. Grove and Mr. Koch are eligible to receive stock
options pursuant to the 1996 Incentive and Non-Qualified Stock Option Plan, the
1996 Key Executive Stock Option Plan and the 1998 Incentive and Non-Qualified
Stock Option Plan. Such executive officers are also entitled to reimbursement
for certain travel and entertainment expenses incurred in connection with the
performance of their duties.
Stock Option Plans
We currently have two stock option plans in place: the 1996 Incentive and
Non-Qualified Stock Option Plan and the 1996 Key Executive Stock Option Plan.
These plans provide for the grant of stock options to purchase up to 576,923
shares of common stock. To date, we have granted options to purchase 441,130
shares of common stock under these plans. Of these, options to purchase 422,403
shares are outstanding. The weighted average exercise price of options
outstanding under the plans is $5.85. To date, we have granted Mr. Stoughton,
Dr. Grove, Mr. Koch, Dr. Asarch, and Dr. Valentekovich options to purchase
167,790, 84,856, 41,586, 21,875 and 5,769 shares of common stock, respectively,
at a weighted average exercise price of $5.69. We have also granted options to
purchase an aggregate of 30,282 shares of common stock to non-employee
directors for their service as directors. We may grant options to purchase
136,805 shares of common stock in the future under the 1996 Incentive and Non-
Qualified Stock Option Plan.
Upon completion of the offering, two additional option plans will take
effect: the 1998 Incentive and Non-Qualified Stock Option Plan and the 1998
Director Stock Option Plan. These 1998 plans provide for the grant of stock
options to purchase up to 565,000 and 60,000 shares of common stock,
respectively.
The purpose of our stock option plans is to promote our long-term growth and
profitability by providing key personnel with incentives to improve stockholder
value and to contribute to our growth and financial success. After completion
of this offering, options may be awarded under the 1996 plans and the 1998
Incentive and Non-Qualified Stock Option Plan to our executive officers,
employees and consultants. Only non-employee directors will be eligible for
awards under the 1998 Director Stock Option Plan.
Our option plans are administered by our Board of Directors or a committee of
the Board. They decide the types of options to be granted, the number of shares
to be covered, the exercise price of each stock option, the expiration date of
each stock option, the vesting schedule and any other material provisions.
Non-employee directors have received automatic, fully-vested option grants
under the 1996 Incentive and Non-Qualified Stock Option Plan. After completion
of the offering, each year, we will automatically grant each non-employee
director an option to purchase 2,000 shares of common stock under the 1998
Director Stock Option Plan. Director options always have a fair market value
exercise price. Such options vest at the end of the year of service as a
director to which the option relates. All director options under the 1998
Director Stock Option Plan generally will be exercisable for a period of five
years.
Option grants to our employees may take the form of either incentive stock
options, which are intended to qualify for preferential tax treatment under
Section 422 of the Internal Revenue Code, or non-qualified stock options, which
do not qualify for such treatment. Directors may receive only non-qualified
stock options. The exercise price of an incentive stock option generally must
not be less than the fair market value of the common stock on the date the
option is granted. The exercise price of a non-qualified stock option will be
stated in the option agreement governing the non-qualified stock option and is
not required by the option plans to be the fair market value of the common
stock on the date the option is granted.
50
<PAGE>
In the event of any stock dividend, stock split, reverse stock split,
recapitalization or reclassification, involving us, appropriate proportional
adjustments will be made in the number of shares reserved for issuance under
the option plans, and the number, kind and price of shares covered by
outstanding grants. The option plans also provide for the ability of the Board
of Directors or a committee to accelerate the exercise date of any options
granted thereunder. Options may not be exercised more than 10 years after the
date of grant. In some cases, shorter periods apply. Shares underlying options
that lapse or expire are returned to the pool of shares available under the
plans. Grants under any option plan may only be made during the 10 year period
after the plan's adoption.
Our stock option plans may be amended by the Board of Directors so long as
such amendment does not change the terms of any outstanding option without the
affected optionee's consent or increase the number of shares that are the
subject of the plans.
Employee Stock Purchase Plan
Our Board of Directors adopted an Employee Stock Purchase Plan in November
1998. This plan qualifies as an employee stock purchase plan under Internal
Revenue Code Section 423 and will be effective upon completion of the offering.
It allows employees to purchase, in the aggregate, up to 150,000 shares of our
common stock at a discount through payroll deductions. The purchase price per
share offered under the Employee Stock Purchase Plan will be 85% of the lesser
of the fair market value per share of common stock on the first or last trading
day of the quarter. Stock purchased will not be subject to taxes until sold.
The plan is designed to encourage and facilitate the purchase of common stock
by our employees and thereby to provide our employees with both a personal
stake in our business and a long range inducement to remain our employee. Each
of our full-time employees is eligible to participate in the Employee Stock
Purchase Plan.
The number and price of shares of common stock available for purchase under
the plan is subject to adjustment in the event the outstanding shares of common
stock are increased or decreased through stock dividends, recapitalizations,
reorganizations or similar changes. The plan is to be administered by our Board
of Directors or a committee of the Board of Directors.
All funds we hold or receive under the Employee Stock Purchase Plan may be
used for any corporate purpose until applied to the purchase of shares of
common stock or refunded to employees and will not be segregated from our
general assets. We will pay all fees and expenses incurred (excluding
individual federal, state, local or other taxes) in connection with the
Employee Stock Purchase Plan.
Unless stockholder approval is required by law, the Board of Directors or a
committee of the Board of Directors has the right to amend, modify or terminate
the Employee Stock Purchase Plan at any time without notice, provided that no
employee's then existing rights are adversely affected without his or her
consent.
401(k) Plan
We have a 401(k) Salary Reduction Plan and Trust for eligible employees.
Eligible employees may contribute up to 15% of their current compensation, up
to a statutorily prescribed annual limit, to the 401(k) plan. Each participant
is fully-vested in his or her deferred salary contributions. A participant's
contributions are held in trust and invested pursuant to his or her directions
from among 20 or more investment funds made available under the 401(k) plan. We
may make matching contributions of 50% of each participant's deferred salary
contributions, up to a maximum of 4% of such participant's compensation. Our
matching contributions vest after a participant has completed three years of
service with us, or earlier upon attainment of age 55, death while in service,
retirement for disability or termination of the 401(k) plan. Payment of 401(k)
plan benefits are made in a single lump-sum payment. Distribution of a
participant's vested interest in his or her account generally occurs after a
participant's termination of employment for any reason, including retirement,
death or disability.
51
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of common stock as of June 10, 1999, by (1) each person or group of
affiliated persons known by us to be the beneficial owner of more than 5% of
our outstanding common stock, (2) each of our directors, (3) each of our
executive officers and (4) all of our executive officers and directors as a
group. As of such date, there were 5,084,340 shares of common stock outstanding
before giving effect to the sale of units in the offering.
The number of shares of common stock actually owned by each principal
stockholder is listed in Column A, entitled "Shares of Common Stock." In
addition, each principal stockholder is deemed to be the beneficial owner of
common stock that such stockholder can acquire upon the exercise of warrants or
options on or within 60 days after June 10, 1999, including options or warrants
which vest upon consummation of the offering. These option and warrant shares
are listed separately in Column B, entitled "Shares Underlying
Options/Warrants." The total of these two columns is then set forth in Column
C. Each principal stockholder's percentage ownership before the offering is in
Column D and is based on the share numbers in Column C. Column E presents their
percentage ownership of outstanding common stock immediately after the offering
assuming 2,000,000 shares of common stock are issued as part of units sold in
the offering and no over-allotment option is exercised. The warrants included
in units sold in the offering and the warrants to purchase units issued to the
underwriters' representatives are disregarded for purposes of calculating the
percentages in Column E. Unless otherwise noted, we believe that all persons
named in the table have sole voting and investment power with respect to all
shares beneficially owned by them.
<TABLE>
<CAPTION>
(C) (D) (E)
(A) (B) Total Total Total
Shares of Shares Beneficial Ownership Percentage Percentage
Common Underlying (Column A plus Owned Before Owned After
Name of Beneficial Owner Stock Options/Warrants Column B) Offering Offering
- ------------------------ --------- ---------------- -------------------- ------------ -----------
<S> <C> <C> <C> <C> <C>
Kevin Kimberlin......... 765,891(1) 336,349(2) 1,102,240 20.3% 14.9%
c/o Spencer Trask
Securities
Incorporated
535 Madison Avenue,
18th Floor
New York, New York
10022
SmithKline Beecham
Corporation............ 229,808 559,402(3) 789,210 14.0% 10.3%
One Franklin Plaza
Philadelphia,
Pennsylvania 19101
W. Vickery Stoughton.... 285,005 152,693 437,698 8.4% 6.0%
c/o Careside, Inc.
6100 Bristol Parkway
Culver City, California
90230
Peter Friedli........... 373,521(4) 42,974(5) 416,495 8.1% 5.8%
c/o Friedli Corp.
Finance
Freigustrasse 5
8002 Zurich,
Switzerland
Dr. Thomas H. Grove..... 205,294 76,539 281,833 5.5% 3.9%
c/o Careside, Inc.
6100 Bristol Parkway
Culver City, California
90230
Philip B. Smith......... 94,315(6) 115,261(7) 209,576 4.0% 2.9%
James R. Koch........... -- 32,676 32,676 * *
William F. Flatley...... 15,470 6,490 21,962 * *
Anthony P. Brenner...... 9,615 7,644(8) 17,260 * *
Kenneth Kermes.......... 2,959 4,326 7,285 * *
Diana Mackie............ 4,438 -- 4,438 * *
C. Alan MacDonald....... -- 6,490 6,490 * *
All executive officers
and directors as a
group (9 persons)...... 617,096 402,119 1,019,218 18.6% 13.6%
</TABLE>
- --------
* Represents less than 1% of our outstanding shares of common stock.
(1) Includes 371,090 shares of common stock held by Oshkim Limited Partners,
L.P., and 339,041 shares of common stock held by Kevin Kimberlin Partners,
L.P., both of which are limited partnerships of which Mr. Kimberlin is the
general partner, and 55,760 shares of common stock held by Spencer Trask
Securities Incorporated of which Mr. Kimberlin is Chairman and exercises
voting control.
(2) Includes 20,517 shares of common stock issuable upon the exercise of
warrants held by Oshkim Limited Partners, L.P., and 38,095 shares of
common stock issuable upon the exercise of warrants held by Kevin
Kimberlin Partners, L.P. Also includes 277,737 shares of common stock
issuable upon the exercise of warrants owned by Spencer Trask Securities
Incorporated of which Mr. Kimberlin is Chairman and exercises voting
control. See "Certain Transactions--Financing Activities."
(3) Includes 325,828 shares of common stock underlying shares of Series A
Convertible Preferred Stock, and underlying warrants which will be
received if the Series A Convertible Preferred Stock is converted, owned
by S.R. One, Limited, an affiliate of SmithKline Beecham Corporation, as
of completion of the offering. Also includes 235,294 shares of common
stock issuable upon exercise of bridge loan warrants that will be owned by
S.R. One, Limited upon completion of the offering. S.R. One has agreed not
to exercise the bridge warrants until the earlier of six months after the
offering or December 17, 1999.
(4) Includes 373,521 shares of common stock owned by Venturetec, Inc., of
which Mr. Friedli is the controlling stockholder.
(5) Includes 9,320 shares of common stock issuable upon the exercise of
warrants owned by Pine Incorporated, a corporation owned and controlled by
Mr. Friedli.
(6) Includes 50,952 shares of common stock owned by Private Equity
Partnership, of which Mr. Smith is the general partner.
(7) Includes 108,771 shares of common stock issuable upon exercise of warrants
held by Private Equity Partnership.
(8) Includes 1,154 shares of common stock issuable upon the exercise of
options which were issued pursuant to a consulting agreement with an
affiliate of Mr. Brenner. See "Certain Transactions--Financing
Activities."
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CERTAIN TRANSACTIONS
SmithKline Beecham
In July 1996, we entered into a letter of intent with SmithKline Beecham
Corporation and SmithKline Beecham Diagnostics Systems Co., an affiliate of
SmithKline Beecham Corporation, with respect to their point-of-care development
program. Pursuant to that letter of intent, SmithKline Beecham Corporation
supported the point-of-care development program by funding $1.8 million of the
program's operating expenses for the transition period from July 1, 1996
through October 31, 1996. This funding has been reflected in the Statement of
Operations of the predecessor business for the ten months ended October 31,
1996. Pursuant to an asset purchase agreement, SmithKline Beecham Diagnostics
Systems Co. and SmithKline Beecham Clinical Laboratories, Inc., sold us certain
fixed and intangible assets used in connection with the point-of-care
development program. As consideration for the purchase of the assets, we issued
to SmithKline Beecham Diagnostics Systems Co. 5% of our total common stock
outstanding at that time. This stock was later transferred to SmithKline
Beecham Corporation. Ms. Mackie, Vice President for Strategy and Business
Development at SmithKline Beecham Healthcare Services, a division of SmithKline
Beecham Corporation, has served as one of our directors since February 1997 as
a representative of SmithKline Beecham Corporation. SmithKline Beecham
Corporation is one of our significant stockholders.
In addition to the operating funding provided during the transition period,
SmithKline Beecham Corporation made available to us a $1.0 million credit
facility at an interest rate of 8% per annum. We used the $1.0 million to fund
research and development and to establish our production facility by funding
capital purchases, rental payments for our facilities in Culver City,
California and operating expenses. In January 1997, the SmithKline Beecham
Corporation credit facility was converted into an additional 2% of our
outstanding common stock simultaneously with the initial closing of our 1997
private placement of common stock.
Simultaneously with the closing of the asset purchase, we entered into a
distribution and supply agreement with SmithKline Beecham Clinical
Laboratories, Inc. pursuant to which SBCL received exclusive distribution
rights to sell our products to segments of the commercial laboratory industry.
The exclusive distribution rights will extend to ten of the following
countries: United States, Great Britain, Mexico, Spain, South Africa,
Singapore, Malaysia, Indonesia, Australia, Chile, Argentina, France or Germany,
if SBCL or one of its affiliates owns, operates or manages a clinical
laboratory in such country on or before December 31, 2000. Whenever we obtain
the necessary approvals to market and sell our products in a listed country,
SBCL must submit purchase orders for the products within designated time
periods in order to preserve its exclusive rights in that country. Otherwise,
we will be free to sell our products in that country to the commercial
laboratory industry as well. Our ability to sell our products outside the
commercial laboratory industry is not limited by the contract with SBCL. SBCL
and its affiliates are not restricted from entering into similar commercial
distribution arrangements with other point-of-care diagnostic companies. In
consideration for this grant of exclusivity, SBCL will pay us an annual fee of
up to $100,000 commencing on the date of FDA approval of the CareSide Analyzer
and 25 designated tests. Subject to earlier termination, the distribution and
supply agreement will terminate five years from the date of such FDA approval.
Under the distribution and supply agreement, SBCL will, until December 31,
2000 or any earlier termination of the agreement, supply us with clinical
samples to enable us to validate tests for our research and development of
point-of-care products. We will bear the cost of retrieving the samples and
conducting our comparative validation tests. In addition, the distribution and
supply agreement obligates SBCL, upon FDA approval of the CareSide Analyzer and
30 designated tests, to purchase minimum numbers of CareSide Analyzers and test
cartridges from us for the first five years following such FDA approval. We
have agreed to supply SBCL with its requirements of CareSide Analyzers and
cartridges at our cost plus a reasonable margin. If we do not develop the
CareSide Analyzer and obtain FDA approval of 25 designated tests by
December 31, 2000, SBCL has the option to terminate the agreement or waive the
FDA approval requirement.
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Under our distribution and supply agreement with SBCL, all intellectual
property rights to patents, trademarks or otherwise which are associated with
the marketing and development of point-of-care products remain with us although
we share rights and responsibilities with SBCL in the protection of these
rights.
Financing Activities
On December 2, 1996, in connection with the establishment of a $1 million
working capital facility, we issued 557,601 shares of common stock to Exigent
Partners, L.P. for an aggregate purchase price of $98,995. The working capital
facility was arranged by Exigent Partners, L.P. to be provided to us in the
form of a $1.0 million irrevocable letter of credit from Citibank, N.A.,
secured by pledges of cash or cash equivalents by Exigent Partners, L.P. The
general partner of Exigent Partners, L.P. was Kevin Kimberlin, an affiliate of
Spencer Trask Securities Incorporated and one of our principal stockholders,
and the limited partners were Mr. Stoughton and Dr. Grove, two of our executive
officers and directors, and Mr. Smith, one of our directors. Of the 557,601
shares of common stock issued to Exigent Partners, L.P., Mr. Kimberlin took
beneficial ownership of 426,850 shares of common stock, and Mr. Stoughton and
Dr. Grove took beneficial ownership of 36,802 and 18,958 shares of common
stock, respectively. We repaid all funds drawn under the facility and the
letter of credit, both of which have since terminated. Exigent Partners, L.P.
was dissolved and each of its partners received a pro rata distribution of
shares of common stock. See "Principal Stockholders."
In 1997 and 1998, we undertook two private placements of our common stock,
both of which were completed through Spencer Trask Securities Incorporated.
Spencer Trask received approximately $2.5 million in commissions and expenses
from the private placements, which generated aggregate net proceeds to us of
$19.0 million. Affiliates of Spencer Trask, including its employees, received
warrants to purchase 384,615 shares of common stock at $5.20 per share in the
1997 private placement and warrants to purchase 340,237 shares of common stock
at $6.76 per share in the 1998 private placement. Warrants issued in connection
with both private placements will expire three years from the closing of the
offering.
As partial consideration for its services in the 1997 private placement,
Spencer Trask was granted a right of first refusal to act as underwriter or
agent for any proposed public offering or any private placement of our
securities. Spencer Trask was also granted the right to purchase securities in
any such offering in which purchasers in the 1997 private placement are
entitled to preemptive rights under the stockholders' agreement or in any sale
of common stock by the former partners of Exigent Partners, L.P. Spencer Trask
has waived all such rights in connection with the offering.
At the first closing of the 1997 private placement, we entered into an
investment banking agreement with Spencer Trask pursuant to which Spencer Trask
will receive a percentage, ranging from seven percent to two and one-half
percent, depending upon the size of the transaction involved, of the
consideration involved in any transaction we undertake with a person introduced
to us by Spencer Trask in the five years ending March 2002. The agreement also
provides for Spencer Trask, subject to certain terms and conditions, to act as
our exclusive representative in advising us with respect to executive
compensation benefits, insurance and retirement planning, providing us with
certain investment banking services and addressing our cash management needs.
Spencer Trask has waived all such rights relating to investment banking
services.
In connection with the 1997 and 1998 private placements, we entered into a
stockholders' agreement with each of our stockholders and warrantholders. The
stockholders' agreement included preemptive rights and provided for the
nomination and election of each of our current directors including Ms. Diana
Mackie, Vice President of a division of SmithKline Beecham Corporation. The
preemptive rights do not apply to shares issued in the offering. The
stockholders' agreement will terminate by its terms upon completion of the
offering. See "Management-- Agreement Relating to Election of Directors."
In December 1997, Cedar Capital Investors, an entity owned and controlled by
Anthony P. Brenner, one of our directors, provided certain financial consulting
services to us in connection with the 1998 private placement. In consideration
for providing such services, Cedar Capital Investors was reimbursed $6,651 for
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out-of-pocket expenses and received options to purchase 1,154 shares of common
stock at an exercise price of $.052 per share. These options remain exercisable
until August 8, 2007.
In July 1998, in connection with the relocation of James R. Koch, our Chief
Financial Officer, Treasurer and Executive Vice President, as well as one of
our directors, from Texas to the Los Angeles area in August 1998, we provided a
bridge loan to Mr. Koch, pursuant to a promissory note executed in our favor by
Mr. Koch, in the aggregate principal amount of $125,000. The bridge loan, which
was subject to an interest rate of 7.5% per annum, was paid in full by Mr. Koch
on September 21, 1998. As of that date, an aggregate of $125,911 in principal
and interest was owing under the promissory note.
In December 1998, we entered into a bridge financing with S.R. One, Limited,
a business trust controlled by SmithKline Beecham Corporation. For
consideration of $3.0 million cash, we issued S.R. One a $3.0 million note
payable bearing interest at 8%. In April 1999, S.R. One agreed to convert $1
million of the $3 million loan, together with accrued interest on the $1
million, upon consummation of the offering, into shares of Series A Convertible
Preferred Stock. The conversion price will be 85% of the initial public
offering price per unit such that the number of shares of our Series A
Convertible Preferred Stock issued to S.R. One upon the conversion of the loan
will depend upon when the offering is completed and the initial public offering
price per unit. If the initial public offering price per unit is $7.50 and the
offering closes on June 21, 1999, S.R. One will receive 162,914 shares of
Series A Convertible Preferred Stock. Each share of Series A Convertible
Preferred Stock will in turn be convertible, at the option of the holder, six
months after the offering into units, comprised of one share of our common
stock and one warrant to purchase an additional share of our common stock. All
accrued and unpaid dividends with respect to shares of Series A Convertible
Preferred Stock that are converted by S.R. One will be converted into units at
the initial public offering price per unit. The exercise price and other terms
of the warrant received on the conversion of the Series A Convertible Preferred
Stock will be the same as the warrants included in units sold in the offering.
The remaining $2 million of the loan matures in December 1999. The annual
interest rate on the remaining $2 million will increase to 10% on July 1, 1999.
If the remainder of the bridge loan is not repaid by December 1, 1999, S.R. One
will have the option to convert all or any portion of the remaining loan, plus
accrued interest thereon, into shares of Series A Convertible Preferred Stock.
This Series A Convertible Preferred Stock will be issued to S.R. One on the
same basis as the Series A Convertible Preferred Stock that is issued to S.R.
One as part of the $1 million conversion at the completion of the offering.
In connection with the bridge financing, we issued a warrant to S.R. One
which entitled it to purchase that number of shares of common stock equal to
$750,000 divided by 85% of the initial public offering price per share of
common stock. The number of warrants doubled if the bridge loan was not repaid
by June 30, 1999. As part of the conversion of a portion of the bridge
financing into shares of Series A Convertible Preferred Stock, the bridge
warrant will be modified such that it will be exercisable in all events for the
number of shares of common stock which is equal to $1,500,000 divided by 85% of
the initial public offering price per unit in the offering. S.R. One has agreed
that it will not exercise the bridge warrant until the earlier of December 17,
1999 or six months after the offering is completed.
We consider the terms of all of the above-referenced transactions to be at
arm's length and reasonably equivalent to terms it could have obtained through
negotiations with unaffiliated third parties under similar economic conditions.
Any transactions undertaken in the future, including loans, we enter into with
any of our officers, directors and principal stockholders or their affiliates,
will be approved by a majority of the entire Board of Directors, and will be on
terms no less favorable to us than could be obtained from unaffiliated third
parties. See "Description of Capital Stock--Takeover Protection and Certain
Charter and By-Law Provisions."
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DESCRIPTION OF CAPITAL STOCK
Upon completion of the offering, our authorized capital stock will consist of
(1) 50,000,000 shares of common stock, $.01 par value per share, and (2)
5,000,000 shares of preferred stock, $.01 par value per share, of which there
will be 7,084,340 shares of common stock and [162,914 if the initial
public offering price per unit is $7.50 and the offering closes on June 21,
1999] shares of Series A Convertible Preferred Stock outstanding, assuming no
exercise of the underwriters' over-allotment option. The following description
of our capital stock is a summary and is qualified in its entirety by the
provisions of our Amended and Restated Certificate of Incorporation and Amended
(including the Certificate of Designations for our Series A Convertible
Preferred Stock) and Restated By-Laws, copies of which have been filed as
exhibits to the registration statement of which this prospectus forms a part.
Units
Each unit consists of one share of common stock and one warrant to purchase
an additional share of common stock. The units will automatically separate 30
days from the date of this prospectus, after which the common stock and
warrants in the units will trade separately.
Common Stock
The issued and outstanding shares of common stock being offered hereby will
be, when sold and issued in accordance herewith, validly issued, fully paid and
non-assessable. Each holder of shares of common stock will be entitled to one
vote for each share held of record and may not cumulate votes for election of
directors. The shares will not be entitled to preemptive rights under
applicable law and will not be subject to redemption or assessment. Subject to
the rights and preferences of the holders of any preferred stock outstanding in
the future, upon our liquidation, dissolution or winding-up, the holders of
shares of common stock will be entitled to receive, pro rata, our assets which
are legally available for distribution to stockholders. In addition, subject to
the rights and preferences of the holders of any preferred stock outstanding in
the future, the holders of shares of common stock will be entitled to share
ratably in dividends as, if and when declared by our Board of Directors. We do
not anticipate that any dividends will be paid in the foreseeable future. As of
June 10, 1999, there were 433 holders of common stock.
Series A Convertible Preferred Stock
The Series A Convertible Preferred Stock will have a stated value equal to
$ per share [initial public offering price per unit]. Upon completion of the
offering, the number of shares of Series A Convertible Preferred Stock
outstanding will be equal to $1 million plus the accrued interest on $1 million
of the bridge loan from S.R. One, Limited, divided by 85% of the initial public
offering price per unit. The Series A Convertible Preferred Stock will be
preferred over common stock in dividends and will have a liquidation preference
over common stock equal to the stated value of the Series A Convertible
Preferred Stock, plus all accrued and unpaid dividends on the Series A
Convertible Preferred Stock. Each share of Series A Convertible Preferred Stock
will have one vote on all matters to be voted on by the holders of the common
stock and will vote with the holders of the common stock as one voting group.
The Series A Convertible Preferred Stock has the right to vote as a separate
class pursuant to applicable law and on any action limiting the preferences or
rights of the Series A Convertible Preferred Stock, reclassifying the common
stock or any other capital stock ranking junior to the Series A Convertible
Preferred Stock into any class of security ranking senior to or the same as the
Series A Convertible Preferred Stock, or increasing the authorized number of
shares of Series A Convertible Preferred Stock. The Series A Convertible
Preferred Stock will bear a cumulative dividend, which shall accrue if not
declared by the Board of Directors, at an annual rate of 10% of stated value.
Each share of Series A Convertible Preferred Stock will be convertible at the
option of the holder six months after the offering into one unit comprised of
one share of common stock and a warrant to purchase one additional share of
common stock. All accrued and unpaid dividends with respect to shares of Series
A Convertible Preferred Stock that are converted will be converted into units
at the initial offering price per unit. The terms and conditions of the
warrants received on conversion of Series A Convertible Preferred Stock,
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including its exercise price, will be identical to the terms and conditions of
the warrants included in the units sold in the offering.
We will have the right to redeem the Series A Convertible Preferred Stock at
any time for a per share amount equal to the sum of $ [the initial public
offering price per unit], any accrued and unpaid dividends and the greater of
$0.05 or the excess of the average five day closing price of a share of common
stock over the exercise price of the warrant issuable upon conversion of the
Series A Convertible Preferred Stock.
Undesignated Preferred Stock
In addition to the common stock and the Series A Convertible Preferred Stock,
we are, without further action by stockholders, also authorized to issue up to
shares of preferred stock [5,000,000 less the number of shares of Series A
Convertible Preferred Stock outstanding upon the consummation of the offering].
Our Board of Directors may determine the timing, series, designation, and
number of shares of preferred stock to be issued, as well as the rights,
preferences, and limitations of such shares, including those relating to voting
power, redemption, conversion, dividend rights, and liquidation. The issuance
of preferred stock could adversely affect the voting power of the holders of
common stock or have the effect of deterring, delaying or preventing any
attempt by a person, entity or group to obtain control of us. We have no
current plans to issue any shares of preferred stock.
Unit Warrants
Each warrant comprising part of the units sold in the offering will entitle
the holder to purchase one share of common stock at an exercise price of $
[150% of the initial public offering price per unit]. We may reduce the
exercise price of the warrants for a period of at least 20 days. We must give
holders of warrants at least 15 days' notice of such decrease, which notice may
be in the form of a press release. The warrants will generally be exercisable
at any time commencing 30 days after the date of this prospectus until the
fifth anniversary of the date of this prospectus, unless earlier redeemed. The
warrants are redeemable by us, in whole or in part pro rata from all warrant
holders, at a price of $0.05 per warrant, upon 30 days' prior written notice,
if the closing price defined in the warrant agreement, which we describe below,
per share of common stock for the ten consecutive trading days immediately
preceding the date of notice of redemption equals or exceeds $ [200% of the
initial public offering price per unit]. We may not redeem any warrants until
six months after the date of this prospectus. We may give more than one notice
of redemption. If given, notices of redemption are required to be mailed by
registered or certified mail to record holders of warrants. If we give notice
of our intention to redeem, a holder will have the choice either to sell or
exercise his or her warrants before the date specified in the redemption notice
or to accept the redemption price. After the redemption date, there can be no
exercise of the warrants that were the subject of the redemption.
Upon the completion of the offering, an additional 200,000 warrants will be
issued to the representatives of the underwriters entitling them to receive,
upon due exercise and payment of $ as the exercise price [120% of the
initial public offering price per unit], 200,000 units having the same terms as
the units sold in the offering. The representatives' warrants will expire five
years from the effective date of the offering and will be exercisable
commencing one year after the effective date of the offering. See
"Underwriting."
The warrants will be issued in registered form under a warrant agreement
between us and American Stock Transfer & Trust Company, as warrant agent. The
shares of common stock underlying the warrants, when issued upon exercise of a
warrant, will be fully paid and nonassessable. We will pay any transfer tax
incurred as a result of the issuance of common stock to the holder upon its
exercise.
The warrants contain provisions that protect the holders against dilution by
adjustment of the exercise price. These adjustments will occur in the event of
a merger, consolidation, sale or conveyance of all of the capital stock or
substantially all of the assets of Careside, stock split or reverse stock
split, stock dividend, capital reorganization or reclassification of our common
stock. We have the option to issue fractional shares or cash for fractional
shares upon the exercise of a warrant. The holder of a warrant will not, by
reason of owning a warrant, possess any rights as our shareholder until he or
she exercises the warrant.
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A warrant may be exercised upon surrender of the warrant certificate on or
before the expiration or redemption date of the warrant at the offices of the
warrant agent, with the form of "Election to Purchase" on the reverse side of
the warrant certificate completed and executed as indicated, accompanied by
payment of the exercise price (by certified or bank check payable to the order
of Careside, Inc.) for the number of shares with respect to which the warrant
is being exercised.
For a holder to exercise the warrants, there must be a current registration
statement in effect with the Securities and Exchange Commission and
qualification in effect under applicable state securities laws (or applicable
exemptions from state qualification requirements) with respect to the issuance
of common stock or other securities underlying the warrants. We have agreed to
use all commercially reasonable efforts to cause the registration statement, of
which this prospectus forms a part, to remain effective in anticipation of and
before the exercise of the warrants and take such other actions under the laws
of various states as may be required to cause the sale of common stock or other
securities upon exercise of warrants to be lawful. We will not be required to
honor the exercise of warrants if, in the opinion of our Board of Directors,
with the advice of counsel, the sale of securities upon exercise would be
unlawful. If the securities underlying the warrants are not registered under a
current effective registration statement or qualified under applicable state
securities laws and securities of the same class are listed on a securities
exchange or there are at least two independent market makers for the securities
of the same class, we may elect to redeem warrants submitted for exercise
instead of obtaining registration and qualification. If we elect to redeem the
warrants instead of obtaining registration, the redemption price of the
warrants would be equal to the difference between the aggregate low asked price
or closing price of the securities underlying the warrants and the exercise
price of the warrants.
The foregoing discussion of material terms and provisions of the warrants is
qualified in its entirety by reference to the detailed provisions of the
warrant agreement, the form of which has been filed as an exhibit to the
registration statement of which this prospectus is a part.
For the life of the warrants, the holders have the opportunity to profit from
a rise in the market price of the common stock without assuming the risk of
ownership of the shares of common stock underlying the warrants. The warrant
holders may be expected to exercise their warrants at a time when we would, in
all likelihood, be able to obtain any needed capital by an offering of common
stock on terms more favorable than those provided for by the warrants.
Furthermore, the terms on which we could obtain additional capital during the
life of the warrants may be adversely affected by the existence of the
warrants.
Prior Warrants
As of June 10, 1999, we had outstanding exercisable warrants to purchase
384,615 shares of common stock at $5.20 per share. These warrants were issued
in connection with the 1997 private placement and will expire three years after
the completion of the offering. In addition, as of June 10, 1999, we had
outstanding exercisable warrants to purchase 340,237 shares of common stock at
$6.76 per share. These warrants were issued in connection with the 1998 private
placement and will expire three years from the closing of the offering.
Further, we issued a bridge warrant to S.R. One, Limited in connection with the
bridge financing. The bridge warrant will become exercisable on the earlier of
December 17, 1999 or six months after the completion of the offering for the
number of shares of common stock which is equal to $1,500,000 divided by 85% of
the initial public offering price per unit in the offering. The bridge warrant
would be exercisable for 235,294 shares of common stock if the initial public
offering price were $7.50 per unit. The bridge warrant has an exercise price of
85% of the initial public offering price per unit. The bridge warrant will
expire four years after completion of the offering.
Registration Rights
Granted in Private Placements
We granted investors in the 1997 and 1998 private placements of common stock
demand and incidental registration rights. These include the right of the
holders of a majority of the registrable shares to demand registration of their
shares and the right of these investors to include their shares in other
registrations of our equity securities, other than in connection with issuances
under our benefit and other employee plans. We
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granted similar rights with respect to the shares underlying the warrants
issued to Spencer Trask Securities Incorporated in connection with the 1997 and
1998 private placements. In addition, we agreed to effect a registration under
the Securities Act for the resale of the common stock purchased by investors in
the 1997 private placement automatically within 180 days after the date of this
prospectus. We also agreed to effect a registration for the resale of the
common stock purchased by investors in the 1998 private placement automatically
within 360 days after the date of this prospectus. This automatic registration
may be delayed by Spencer Trask together with the underwriters of this
offering. If we fail to register the common stock underlying the shares in
accordance with the terms of the agreements with the investors in the 1997 and
1998 private placements, we must either repurchase the shares at the fair
market value or give investors the ability to elect a majority of our Board of
Directors in order to provide liquidity. Pursuant to powers of attorney granted
by many investors, and amendments and waivers to the registration agreements,
our obligation to effect such registrations has been deferred until one year
after the date of this prospectus.
Granted to SmithKline
We have also granted demand and incidental registration rights to SmithKline
Beecham Corporation for the registration under the Securities Act of the resale
of any or all of the common stock held by it at any time after the date of this
prospectus. SmithKline has agreed not to make a demand for registration for a
period of at least one year after the offering. If we register an issuance of
our equity securities, other than shares issuable under employee or other
benefit plans, SmithKline may request that its shares be included in the
registration.
Granted to Management and Exigent Partners, L.P.
Additionally, Messrs. Stoughton and Smith, Drs. Grove and Asarch and three of
our employees and the former partners of Exigent Partners, L.P. have also been
granted demand and incidental registration rights with respect to their common
stock. The holders of a majority of all registrable securities owned by these
stockholders may demand on two occasions registration for the resale of any or
all of their shares. If we register an issuance of our equity securities, other
than shares issuable under our employee or other benefit plans, these holders
may request to include their shares in the registration.
Granted to S.R. One
In December 1998 in connection with the bridge financing and in April 1999 in
connection with the conversion of a portion of the bridge loan into Series A
Convertible Preferred Stock, we granted demand and incidental registration
rights to S.R. One, Limited. S.R. One may demand that its shares of common
stock purchased upon exercise of the bridge warrant, or the common stock and
warrants issued on conversion of the Series A Convertible Preferred Stock, be
registered under the Securities Act. S.R. One may make such demand anytime
after six months and before three years after this offering. S.R. One has the
same incidental registration rights as SmithKline, described above.
Granted to Representative
Pursuant to a warrant agreement that we have entered into with Paulson
Investment Company, Inc., on behalf of each of the representatives of the
underwriters, we have agreed to maintain an effective registration statement
with respect to the issuance of the common stock and warrants included in the
units issued to our underwriters' representatives, if necessary, to allow their
public resale without restriction, at all times during the period in which the
representatives' warrants are exercisable, beginning one year after the
effective date of the offering. The representatives' warrants, as well as the
shares of common stock and warrants included in the units issuable upon
exercise of the representatives' warrants, are being registered on the
registration statement of which this prospectus is a part. We will cause the
registration statement to remain effective until the earlier of the time that
all of the representatives' warrants have been exercised and the date which is
five years after the effective date of the offering. All expenses incurred in
connection with the registration of the shares of common stock and warrants
included in the units issuable upon the exercise of the representatives'
warrants will be borne by us. Under the warrant agreement, the parties will
also be bound by standard indemnification and contribution provisions with
respect to the registration of the warrant shares issuable upon the exercise of
the representatives' warrants.
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General
As of June 10, 1999, there were 5,084,340 shares of common stock subject to
registration rights. We will pay for all expenses incurred in connection with
these registrations, other than underwriting discounts and commissions. The
registration agreements also provide for customary indemnification and
contribution provisions involving the participants in any registration effected
pursuant thereto. The foregoing is only a summary of certain of the terms and
conditions of the registration rights agreements involving such parties. Copies
of the actual agreements have been filed with the Securities and Exchange
Commission as exhibits to the registration statement of which this prospectus
is a part.
Certain Federal Income Tax Considerations
The following discussion sets forth the material federal income tax
consequences, under current law, relating to the purchase and sale of the units
and the underlying common stock and warrants. The discussion is a summary and
does not purport to deal with all aspects of federal taxation that may be
applicable to an investor, nor does it consider specific facts and
circumstances that may be relevant to a particular investor's tax position.
Some holders, such as dealers in securities, insurance companies, tax exempt
organizations, foreign persons and those holding common stock or warrants as
part of a straddle or hedge transaction, may be subject to special rules that
are not addressed in this discussion. This discussion is based only on current
provisions of the Internal Revenue Code of 1986, as amended, and on
administrative and judicial interpretations as of the date hereof, all of which
are subject to change. You should consult your own tax advisor as to the
specific tax consequences to you of this offering, including the applicability
of federal, state, local and foreign tax laws.
Allocation of Purchase Price
Each unit as a whole will have a tax basis equal to the cost of the unit. The
measure of income or loss from some of the transactions described below depends
on the tax basis in each of the warrant and the common stock comprising the
unit. We have allocated the purchase price between the warrant and the common
stock so that the tax basis for the warrant will be $0.05 and the tax basis for
the common stock will be equal to the cost of the unit less $0.05. If you
disagree with the allocation, please see your tax advisor for advice on how to
notify the Internal Revenue Service that you disagree with the allocation and
claim a different basis.
Exercise or Sale of Warrants
No gain or loss will be recognized by a holder of a warrant on the purchase
of shares of common stock for cash on an exercise of a warrant, except that
gain will be recognized to the extent cash is received in lieu of fractional
shares. The tax basis of common stock received upon exercise of a warrant will
equal the sum of the holder's tax basis for the exercised warrant and the
exercise price. The holding period of the common stock acquired will begin on
the date the warrant is exercised and the common stock is purchased. It does
not include the period during which the warrant was held.
Gain or loss from the sale or other disposition of a warrant will be capital
gain or loss to its holder if the common stock to which the warrant relates
would have been a capital asset in the hands of such holder. This capital gain
or loss will be long-term capital gain or loss if the holder has held the
warrant for more than one year at the time of the sale, disposition or lapse.
On the redemption of a warrant by us, the holder generally will realize capital
gain or loss. Individuals generally have a maximum federal income tax of 20% on
long term capital gains. The deduction of capital losses is subject to
limitations.
Sale of Common Stock
A holder's sale of common stock which is not in connection with a tax free
reorganization of Careside will result in the recognition of gain or loss to
the holder in an amount equal to the difference between the amount realized and
such holder's tax basis in the common stock. If the common stock constitutes a
capital asset in the hands of the holder, gain or loss upon the sale of the
common stock will be characterized as long-
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<PAGE>
term or short-term capital gain or loss, depending on whether the common stock
has been held for more than one year. Individuals generally have a maximum
federal income tax of 20% on long term capital gains. The deductions of capital
losses is subject to limitations.
Expiration of Warrants Without Exercise
If a holder of a warrant allows it to expire without exercise, the expiration
will be treated as a sale or exchange of the warrant on the expiration date.
The holder will have a loss equal to the amount of such holder's tax basis in
the lapsed warrant. If the warrant constitutes a capital asset in the hands of
the holder, the loss will be characterized as long-term or short-term capital
loss, depending on whether the warrant was held for more than one year. The
deduction of capital losses is subject to limitations.
Takeover Protection and Certain Charter and By-Law Provisions
Certain provisions of the Delaware General Corporation Law (the "DGCL"), our
Amended and Restated Certificate of Incorporation (the "Charter") our Amended
and Restated By-Laws (the "By-Laws") and our stock option plans may have an
anti-takeover effect and may delay, deter or prevent a tender offer, proxy
contest or other takeover attempt. This may be true even in circumstances where
a takeover attempt might result in payment of a premium over market price for
shares held by stockholders.
Following the completion of the offering, we will become subject to Section
203 of the DGCL. Section 203 prohibits, subject to certain exceptions, a
Delaware corporation from engaging in any business combination with any
interested stockholder for a period of three years following the date that such
stockholder became an interested stockholder. A business combination includes
mergers, asset sales and other transactions that may result in a financial
benefit to stockholders. A person will be deemed an interested stockholder
triggering this protection if the person together with any affiliates or
associates of such person, beneficially owns, directly or indirectly, 15% or
more of our outstanding voting stock. There are three exceptions to these
provisions. First, if our Board of Directors gives prior approval to either the
business combination or the transaction which resulted in the stockholder
becoming an interested stockholder then the restrictions do not apply. Second,
the restrictions will not apply if, upon the consummation of the transaction
which resulted in the stockholder becoming an interested stockholder, the
interested stockholder owns at least 85% of our outstanding voting stock.
Finally, the restrictions will not apply if, at the time of or following the
consummation of the transaction in which the stockholder became an interested
stockholder, our Board of Directors approves the business combination and
stockholders holding at least 66 2/3% of our outstanding voting stock not owned
by the interested stockholder authorize the business combination.
Upon completion of the offering, our Board of Directors will be divided into
three classes of directors each containing, as nearly as possible, an equal
number of directors. Directors within each class will serve three-year terms.
Approximately one-third of the directors will sit for election at each annual
meeting of our stockholders. All directors elected to our classified Board of
Directors serve until the election and qualification of their successors or
their earlier resignation or removal. The Board of Directors may create new
directorships and fill such positions so created. In addition, the Board of
Directors or its remaining members, even though less than a quorum may fill
vacancies on the Board of Directors occurring for any reason until the next
annual election of directors. Members of the Board of Directors may only be
removed for cause. These provisions may have the effect of deterring or
delaying any attempt by any group to obtain control of us by a proxy contest.
For example, a third party would be required to have its nominees elected at
two separate annual meetings in order to elect a majority of the members of the
Board of Directors.
We may issue shares of undesignated preferred stock [5,000,000 less the
number of shares of Series A Convertible Preferred Stock]. Under certain
circumstances, the issuance of preferred stock could be utilized as a method of
discouraging, delaying or preventing a change in control of our stock.
Our Charter provides that any action required or permitted to be taken by our
stockholders may be effected only at an annual or special meeting of
stockholders. Such action will not be permitted to be taken by
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<PAGE>
written consent in lieu of a meeting. Our Charter and the By-Laws also provide
that special meetings of stockholders may only be called by a majority of our
Board of Directors, our Chairman or our Chief Executive Officer. Stockholders
will not be permitted to call a special meeting or to require that our Board of
Directors call a special meeting of stockholders.
Our Charter provides that any director or the entire Board of Directors may
be removed only for cause and only upon the affirmative vote of holders of 80%
or more of the outstanding shares of our capital stock. Further, our Charter
provides that the amendment of this provision for removing directors for cause
may only be amended by the affirmative vote of at least 75% of the voting power
of all the then outstanding shares of our capital stock voting together as a
single class.
Our By-Laws establish an advance notice procedure for nomination, other than
by or at the direction of our Board of Directors, of candidates for election as
directors. Advance notice procedures also exist for other stockholder proposals
to be considered at annual or special meetings of stockholders. In general, we
must receive notice of intent to nominate a director or raise business at an
annual meeting not less than 60 nor more than 90 days prior to the scheduled
annual meeting. In the case of a special meeting called for the purpose of
electing directors, such notice of intent must be received not later than the
close of business on the fifth day following the day on which notice of the
date of the meeting was mailed. Such notice of intent must contain certain
specified information concerning the person to be nominated or the mater to be
brought before the meeting.
In addition, our By-Laws allow our Board of Directors to increase the number
of directors from time to time although a decrease in the number of directors
may not have the effect of shortening the term of any incumbent director. Our
By-Laws also grant the Board of Directors the authority to fill any vacancies
on the Board of Directors, including vacancies resulting from an increase in
the number of directors. Our Charter states that our By-Laws may be amended by
the stockholders only by the vote of not less than 80% of the outstanding
shares of stock entitled to vote upon the election of directors.
The provisions of the Charter and the By-Laws summarized in the preceding
paragraphs may have the effect of delaying, deferring or preventing a non-
negotiated merger or other business combination involving us. These provisions
are intended to encourage any person interested in acquiring us to negotiate
with and obtain the approval of our Board of Directors in connection with the
transaction. Certain of these provisions may, however, discourage our future
acquisition in a transaction not approved by our Board of Directors in which
stockholders might receive an attractive value for their shares or that a
substantial number or even a majority of our stockholders might believe to be
in their best interest. As a result, stockholders who desire to participate in
such a transaction may not have the opportunity to do so. Such provisions could
also discourage bids for our common stock at a premium, as well as create a
depressive effect on the market price of our common stock. See "Risk Factors--
Statute, Charter and By-laws May Delay or Prevent Acquisition of Careside."
Our stock option plans, in certain circumstances, allow our Board of
Directors or a committee thereof to accelerate the vesting or exercise date of
any options granted thereunder. The ability to accelerate the vesting or
exercise date of options could be utilized as a method of discouraging,
delaying or preventing a change in control of our stock. See "Management--Stock
Option Plans."
Transfer Agent and Registrar
The transfer agent and registrar and warrant agent for our units, common
stock and warrants is American Stock Transfer & Trust Company, New York, New
York.
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<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of the offering, we expect to have 7,084,340 shares of common
stock outstanding, assuming no exercise of outstanding options or warrants, or
7,384,340 shares if the underwriters' over-allotment is exercised in full. Of
these shares, the 2,000,000 shares of common stock, and the shares of common
stock issued upon exercise of the warrants, issued as part of the units sold in
the offering will be freely tradeable without restrictions or further
registration under the Securities Act, except that any shares purchased by our
"affiliates", as that term is defined under the Securities Act, may generally
only be sold in compliance with the limitations of Rule 144 under the
Securities Act. All of the remaining outstanding shares of common stock are
restricted securities within the meaning of Rule 144 and may not be sold in the
absence of registration under the Securities Act unless an exemption from
registration is available, including the exemption from registration offered by
Rule 144.
Holders of more than 95% of our restricted shares of common stock, other than
those beneficially owned by S.R. One, Limited, have agreed (the "Lock-Up
Agreements") not to sell or otherwise dispose of any of their shares of common
stock for a period of one year after completion of the offering, without the
prior written consent of Paulson Investment Company, Inc. and Millennium
Financial Group, Inc., subject to certain limited exceptions. S.R. One has a
six month lock-up period. After the expiration of these lock-up periods, or
earlier with the prior written consent of Paulson and Millennium, 5,084,340
shares of the common stock may be sold in the public market pursuant to Rule
144.
In general, under Rule 144, as currently in effect, beginning 90 days after
the date of this prospectus, a person who has beneficially owned restricted
shares for at least one year, including a person who may be deemed to be our
affiliate, may sell within any three-month period a number of shares of common
stock that does not exceed a maximum number of shares. This maximum is equal to
the greater of 1% of the then outstanding shares of our common stock or the
average weekly trading volume in the common stock during the four calendar
weeks immediately preceding the sale. Sales under Rule 144 are also subject to
restrictions relating to manner of sale, notice and availability of current
public information about us. In addition, under Rule 144(k) of the Securities
Act, a person who is not our affiliate, has not been an affiliate of ours
within three months prior to the sale and has beneficially owned shares for at
least two years, would be entitled to sell such shares immediately without
regard to volume limitations, manner of sale provisions, notice or other
requirements of Rule 144.
Beginning 90 days after the date of this prospectus, certain shares issued or
issuable upon the exercise of options granted by us prior to the date of this
prospectus will also be eligible, subject to the lock-up periods, for sale in
the public market pursuant to Rule 701 under the Securities Act. Pursuant to
Rule 701, persons who purchase shares upon exercise of options granted under a
written compensatory plan or contract may sell such shares in reliance on Rule
144 without having to comply with the holding period requirements of Rule 144,
and in the case of non-affiliates, without having to comply with the public
information, volume limitation or notice provisions of Rule 144. As of June 10,
1999, we have options outstanding to purchase 422,403 shares of common stock
which have not been exercised and which become exercisable at various times in
the future. Any shares issued upon the exercise of these options will be
eligible for sale pursuant to Rule 701.
We intend to file a Form S-8 registration statement under the Securities Act
approximately 180 days after the closing of the offering to register up to an
aggregate of 1,334,208 shares of common stock reserved for issuance under our
stock option plans and the employee stock purchase plan. See "Management--Stock
Option Plans" and "--Employee Stock Purchase Plan." Accordingly, shares
registered under such registration statement will, subject to Rule 144 volume
limitations applicable to affiliates, be available for sale in the open market,
unless such options are subject to vesting restrictions or the Lock-Up
Agreements. As of June 10, 1999, options to purchase 422,403 shares of common
stock were outstanding. An additional 911,805 shares of common stock remained
available for future grants under our 1996 and 1998 stock option plans and
issuance under the employee stock purchase plan.
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We previously issued warrants to purchase an aggregate of 724,852 shares of
common stock at exercise prices ranging $5.20 to $6.76 per share to Spencer
Trask Securities Incorporated. These warrants are exercisable until three years
after completion of the offering. The bridge warrant issued to S.R. One,
Limited will become exercisable on the earlier of December 17, 1999 or six
months after completion of the offering to purchase a number of shares of
common stock equal to $1,500,000 divided by 85% of the initial public offering
price per unit. The bridge warrant has an exercise price of 85% of the initial
public offering price per unit and will expire on the earlier of December 17,
2005 or four years after the completion of the offering. The holders of the
warrants and the bridge warrant are entitled to certain registration rights
with respect to the shares issuable upon exercise of such warrants. These
shares may be sold without restriction in the public market upon registration,
and with respect to more than 95% of these shares, after the lock-up period
expires.
The shares of Series A Convertible Preferred Stock issued to S.R. One upon
completion of this offering as part of the conversion of the bridge financing,
together with accrued and unpaid dividends thereon, are convertible at the
option of the holder six months after this offering into a unit comprised of
one share of common stock and a warrant to purchase one additional share of
common stock. The warrant will have the same terms as the warrants issued as
part of the units sold in this offering. The holder of the Series A Convertible
Preferred Stock is entitled to certain registration rights with respect to the
shares of common stock, and the shares of common stock issuable upon exercise
of the warrants, included in the units received upon conversion of the Series A
Convertible Preferred Stock.
In connection with the offering, the Company has agreed to issue to the
representatives of the underwriters warrants to purchase 200,000 units. This
number is equal to 10% of the number of units being offered by this prospectus,
excluding over-allotment shares. The representatives' warrants will be
exercisable into units at any time during the four-year period commencing one
year after the effective date of the offering. The common stock and warrants
issued to the representatives upon exercise of these warrants will be freely
tradable.
Prior to the offering, there has been no market for our common stock and
there can be no assurance that a significant public market for the common stock
will develop or be sustained after the offering. Future sales of substantial
amounts of common stock, including shares issued upon exercise of outstanding
options and warrants in the public market after the offering, or the perception
that such sales may occur, could adversely affect market prices prevailing from
time to time and could impair our ability to raise capital through the sale of
our securities.
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UNDERWRITING
The underwriters named below, for whom Paulson Investment Company, Inc.,
Millennium Financial Group, Inc. and marion bass securities corporation are
acting as the representatives, have severally agreed, subject to the terms and
conditions contained in an underwriting agreement, to purchase from us, and we
have agreed to sell to each underwriter, the aggregate number of units
indicated below opposite the name of such underwriter at the initial public
offering price less the underwriting discount set forth below and on the cover
page of this prospectus:
<TABLE>
<CAPTION>
Number of
Units
Name of Underwriter Purchased
- ------------------- ---------
<S> <C>
Paulson Investment Company, Inc.......................................
Millennium Financial Group, Inc.......................................
marion bass securities corporation....................................
TOTAL...............................................................
===
</TABLE>
The underwriting agreement provides that the obligations of the underwriters
are subject to certain conditions and that the underwriters are committed to
purchase all of the units, other than those covered by the over-allotment
option described below, if any are purchased. The underwriting agreement also
provides that we will indemnify the underwriters against certain liabilities,
including liabilities under the Securities Act, and will contribute to payments
which the underwriters may be required to make in respect thereof.
The representatives have advised us that the underwriters propose to offer
the units directly to the public initially at the public offering price set
forth on the cover page of this prospectus and to certain dealers, who may
include the underwriters, at such public offering price less a selling
concession not to exceed $ per unit. The underwriters may allow, and such
dealers may reallow, a concession of not more than $ per unit to certain other
dealers. After the offering, the offering price, the concession to certain
dealers and other selling terms may be changed by the representatives of the
underwriters. The representatives have informed us that they do not expect the
underwriters to confirm sales of units on a discretionary basis.
We have granted to the underwriters an option, exercisable not later than 45
days after the date of this prospectus, to purchase up to a maximum of 300,000
additional units solely to cover over-allotments, if any, at the initial public
offering price less the underwriting discount set forth herein. If the
underwriters exercise the over-allotment option, each underwriter will be
committed to purchase a proportionate number of the additional units based on
its relative proportion of units to be purchased by it shown in the preceding
table.
Without the prior written consent of Paulson Investment Company, Inc. and
Millennium Financial Group, Inc., holders of more than 95% of our shares of
common stock, certain option and warrant holders, including our officers and
directors, and we, are not permitted to offer, pledge, sell, contract to sell
or otherwise transfer or dispose of, directly or indirectly, our securities
until after at least one year (six months in the case of S.R. One, Limited)
after the closing of the offering. Such prohibition does not apply to our grant
of options under our stock option plans, our issuance of warrants to the
representatives, our issuance of our units upon exercise of the over-allotment
option, our issuance of common stock upon the exercise of the warrants
contained in the units, or our issuance of common stock pursuant to conversion
of our Series A Convertible Preferred Stock or upon exercise of the bridge loan
warrants held by S.R. One or other outstanding warrants.
The following table sets forth the amount of the underwriting discount and
the nature of the compensation to be paid to the underwriters for each unit and
in total. Such amounts are shown assuming both no exercise and full exercise of
the underwriters' over-allotment option.
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<TABLE>
<CAPTION>
Compensation to be paid to Underwriters
---------------------------------------------------------------
No Exercise of Over- Full Exercise of Over-
Allotment Option Allotment Option
------------------------------- -------------------------------
Per Unit Total Per Share Total
-------------- ---------------- -------------- ----------------
<S> <C> <C> <C> <C>
Underwriting Discount...
Representative's
Warrants(1)............ 1/10th Warrant 200,000 Warrants 1/10th Warrant 200,000 Warrants
Non-accountable Expense
Allowance(2)........... N/A $281,250 N/A $323,438
</TABLE>
- --------
(1) In connection with the offering, we have agreed to issue warrants to the
representatives of the underwriters to purchase a number of units equal to
ten percent (10%) of the number of units being offered hereby, excluding
over-allotment shares. The representatives' warrants will be exercisable
into units during the four-year period beginning on the first anniversary
of the effective date of the offering, at an exercise price equal to one
hundred twenty percent (120%) of the initial public offering price per unit
set forth on the cover page of this prospectus. The representatives'
warrants are restricted from sale, transfer, assignment or hypothecation
for a period of one year from the effective date of the offering except to
officers and partners of the representatives of the underwriters. See
"Description of Capital Stock--Registration Rights." To the extent that the
representatives of the underwriters realize any gain from the resale of the
shares issuable upon the exercise of such warrants, such gain may be deemed
additional underwriting compensation.
(2) We have also agreed to pay the representatives of the underwriters a non-
accountable expense allowance equal to 1.5% of the gross proceeds of the
offering. In addition, we have agreed to pay up to $ of the
underwriters' counsel's fees and expenses for their services to the
underwriters in connection with the offering during the period through
March 31, 1999.
The following table sets forth an itemization of all expenses we will pay in
connection with the issuance and distribution of the securities being
registered. Except for the SEC Registration Fee, the American Stock Exchange
Listing Fee and the NASD Fee, the amounts listed below are estimates.
<TABLE>
<CAPTION>
Nature of Expense Amount
- ----------------- ----------
<S> <C>
SEC Registration Fee................................................ $ 13,116
American Stock Exchange Listing Fee................................. 50,000
NASD Fee............................................................ 6,790
Printing and engraving fees......................................... 300,000
Registrant's counsel fees and expenses.............................. 500,000
Accounting fees and expenses........................................ 200,000
Underwriters' Expenses.............................................. 281,250
Blue Sky expenses and NASD counsel fees............................. 56,000
Transfer agent and registrar fees................................... 8,000
Other Offering Expenses............................................. 107,000
Miscellaneous....................................................... 77,844
----------
TOTAL............................................................. $1,600,000
==========
</TABLE>
Prior to the offering, there has been no public market for our units, shares
of common stock or warrants. The initial public offering price of the units and
the exercise price and other terms of the warrants underlying the units, as
well as the exercise price of the representatives' warrants, were determined
through arm's length negotiations between us and the representatives of the
underwriters, and do not necessarily bear any relationship to our assets, book
value, financial condition, or other established criteria of value. In
determining such prices and terms, consideration was given to prevailing market
conditions, the prospects for the business and industry in which we compete, an
assessment of our management, our capital structure, our past and present
operations, and our prospects for future earnings. The initial public offering
price of the units and the
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exercise price of the warrants should not be considered to be indicative of our
actual value. There can be no assurance that an active trading market will
develop for our units, shares of common stock or warrants or that the aggregate
prices at which our units, common stock and warrants will sell in the public
market after the offering will be higher than the price at which the units will
be sold in the offering.
In connection with the offering, certain underwriters and selling group
members and their respective affiliates may engage in transactions that
stabilize, maintain or otherwise affect the market price of our units, common
stock and/or warrants. Such transactions may include stabilization transactions
effected in accordance with Regulation M of the Securities Exchange Act of
1934, pursuant to which such persons may bid for or purchase units, common
stock and/or warrants for the purpose of pegging, fixing or maintaining the
price of our units, common stock and/or warrants at a level that is higher than
the market would dictate in the absence of such transactions.
The underwriters may also create a short position for the account of the
underwriters by selling more units in connection with the offering than they
are committed to purchase from the company, and in such case may purchase
units, common stock or warrants in the open market following the completion of
the offering to cover all or a portion of such short position. The underwriters
may also cover all or a portion of such short position, up to 300,000 units, by
exercising the over-allotment option described herein.
In addition, the representatives of the underwriters may also impose a
"penalty bid" under contractual arrangements with the underwriters whereby the
representatives may reclaim from an underwriter, or dealer participating in the
offering, for the account of other underwriters, the selling concession with
respect to units that are distributed in the offering but subsequently
purchased for the account of the underwriters in the open market.
In general, any of the transactions described above may result in the
maintenance of the price of our units, common stock or warrants at a level
above that which might otherwise prevail in the absence of such transactions.
We and the underwriters make no representation or prediction as to the
direction or magnitude of any effect that such transactions may have on the
price of our units, common stock or warrants. In addition, we and the
underwriters make no representation that the representatives of the
underwriters or the underwriters, as the case may be, will engage in such
transactions or that such transactions, once commenced, will not be
discontinued without notice.
Millennium Financial Group, Inc. was organized in June 1996. Since such date,
Millennium has been engaged primarily in the institutional brokerage business
and has participated as an underwriter or a member of the selling group in
seven public offerings. Millennium acted as a co-managing underwriter in four
of those offerings and has participated in a total of ten private offerings.
The offering contemplated hereby will be the fifth public offering co-managed
by Millennium.
Spencer Trask Securities Incorporated is not participating as an underwriter
or member of the selling group in the offering. Fahnestock & Co. Inc.
originally acted as lead underwriter in connection with this offering. In April
1999, Fahnestock withdrew from participation in the offering. Paulson
Investment Company, Inc. subsequently became lead underwriter. As a result of
Fahnestock's earlier involvement, we paid Fahnestock $60,000 to cover its out-
of-pocket expenses.
LEGAL MATTERS
The validity of units offered hereby will be passed upon for us by Pepper
Hamilton LLP. Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C., Boston,
Massachusetts has acted as counsel for the underwriters in connection with the
offering.
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EXPERTS
The audited financial statements included in this prospectus and elsewhere in
the registration statement have been audited by Arthur Andersen LLP,
independent public accountants, as indicated in their reports with respect
thereto, and are included herein in reliance upon the authority of that firm as
experts in giving their reports. Reference is made to their report contained
elsewhere in this prospectus on us which contains an explanatory paragraph
regarding our ability to continue as a going concern.
The statements in this prospectus under the captions "Risk Factors -- Our
Proprietary Technology is a Crucial Part of Our Business -- We Do Not Have Any
Patents on Our Proprietary Technology," "Risk Factors-- Our Proprietary
Technology is a Crucial Part of Our Business -- Our Technology May Infringe on
the Proprietary Rights of Third Parties" and "Business -- Patents and
Proprietary Rights" relating to patent matters have been reviewed and approved
by Oppenheimer Wolff & Donnelly LLP, Los Angeles, California, patent counsel to
Careside, as experts on such matters, and are included herein in reliance upon
that review and approval.
WHERE YOU CAN GET MORE INFORMATION
Our fiscal year ends on December 31. We will file annual, quarterly and
current reports, proxy statements and other information with the Securities and
Exchange Commission. You may read and copy any reports, statements or other
information on file at the SEC's public reference room in Washington, D.C. You
can request copies of those documents, upon payment of a duplicating fee, by
writing to the SEC.
We have filed a registration statement on Form S-1 with the SEC. This
prospectus, which forms a part of the registration statement, does not contain
all of the information included in the registration statement. Certain
information is omitted. You should refer to the registration statement and its
exhibits. With respect to references made in this prospectus to any contract or
other document relating to us, such references are not necessarily complete.
You should refer to the exhibits attached to the registration statement for
copies of the actual contract or document. You may review a copy of the
registration statement at the SEC's public reference room in Washington, D.C.,
and at the SEC's regional offices in Chicago, Illinois and New York, New York.
Please call the SEC at 1-800-SEC-0330 for further information on the operation
of the public reference rooms. Our SEC filings, including the registration
statement, can also be reviewed by accessing the SEC's Internet site at
http://www.sec.gov.
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CARESIDE, INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
CARESIDE, INC.:
Report of Independent Public Accountants................................. F-2
Balance Sheets........................................................... F-3
Statements of Operations................................................. F-4
Statements of Stockholders' Equity (Deficit)............................. F-5
Statements of Cash Flows................................................. F-6
Notes to Financial Statements............................................ F-7
PREDECESSOR BUSINESS:
Report of Independent Public Accountants................................. F-14
Statement of Operations.................................................. F-15
Notes to Statement of Operations......................................... F-16
</TABLE>
F-1
<PAGE>
After the recapitalization referred to in Note 2 to the Financial Statements
is effected, we will be in a position to render the following report.
ARTHUR ANDERSEN LLP
Philadelphia, Pa,
January 29, 1999
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Careside, Inc.:
We have audited the accompanying balance sheets of Careside, Inc. (a Delaware
corporation in the development stage) as of December 31, 1997 and 1998, and the
related statements of operations, stockholders' equity (deficit) and cash flows
for the period from inception (July 10, 1996) to December 31, 1996, the years
ended December 31, 1997 and 1998, and the period from inception (July 10, 1996)
to December 31, 1998. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Careside, Inc. as of December
31, 1997 and 1998, and the results of its operations and its cash flows for the
period from inception (July 10, 1996) to December 31, 1996, the years ended
December 31, 1997 and 1998, and the period from inception (July 10, 1996) to
December 31, 1998, in conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 1 to the
financial statements, the Company will require significant funding to continue
operations, which raises substantial doubt about its ability to continue as a
going concern. Management's plans in regard to these matters are also described
in Note 1. The financial statements do not include any adjustments relating to
the recoverability and classification of asset carrying amounts or the amount
and classification of liabilities that might result should the Company be
unable to continue as a going concern.
Philadelphia, Pa.,
January 20, 1999 (except for the
recapitalization discussed in Note 2,
as to which the date is , 1999)
F-2
<PAGE>
CARESIDE, INC.
(a development-stage company)
BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
------------------------- March 31,
1997 1998 1999
----------- ------------ -----------
(unaudited)
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents............ $ 1,237,149 $ 3,926,603 $ 2,051,786
Prepaid expenses and other........... 226,580 251,698 83,447
----------- ------------ -----------
Total current assets............... 1,463,729 4,178,301 2,135,233
PROPERTY AND EQUIPMENT, net............ 1,578,727 3,216,959 4,206,992
DEFERRED OFFERING COSTS................ -- 498,443 888,828
DEPOSITS............................... 97,767 17,700 17,700
----------- ------------ -----------
$ 3,140,223 $ 7,911,403 $ 7,248,753
=========== ============ ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt.... $ -- $ 186,998 $ 3,193,671
Accounts payable..................... 492,985 1,369,889 1,923,874
Accrued expenses..................... 209,631 160,439 184,648
----------- ------------ -----------
Total current liabilities.......... 702,616 1,717,326 5,302,193
----------- ------------ -----------
LONG-TERM DEBT......................... -- 2,044,932 803,092
----------- ------------ -----------
COMMITMENTS (Note 9)
STOCKHOLDERS' EQUITY:
Preferred stock, $.01 par value,
5,000,000 shares authorized, none
issued.............................. -- -- --
Common stock, $.01 par value,
50,000,000 shares authorized,
3,365,400, 5,084,340 and 5,084,340
shares issued and outstanding....... 33,654 50,843 50,843
Additional paid-in capital........... 10,372,907 21,003,545 21,003,545
Deficit accumulated during
development stage................... (7,968,954) (16,905,243) (19,910,920)
----------- ------------ -----------
Total stockholders' equity......... 2,437,607 4,149,145 1,143,468
----------- ------------ -----------
$ 3,140,223 $ 7,911,403 $ 7,248,753
=========== ============ ===========
</TABLE>
The accompanying notes are an integral part of these statements.
F-3
<PAGE>
CARESIDE, INC.
(a development-stage company)
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
For the Period For the Period For the Period
From From From
Inception For the Year Inception Inception
(July 10, 1996) Ended For the Three Months (July 10, 1996) (July 10, 1996)
Through December 31, Ended March 31, Through Through
December 31, ------------------------ ------------------------ December 31, March 31,
1996 1997 1998 1998 1999 1998 1999
--------------- ----------- ----------- ----------- ----------- --------------- ---------------
(unaudited) (unaudited)
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATING EXPENSES:
Research and
development......... $ 1,561,847 $ 5,895,465 $ 8,297,974 $ 1,541,119 $ 2,076,046 $ 15,755,286 $ 17,831,332
General and
administrative...... 55,515 640,574 850,129 196,595 569,907 1,546,218 2,116,125
----------- ----------- ----------- ----------- ----------- ------------ ------------
Operating loss....... (1,617,362) (6,536,039) (9,148,103) (1,737,714) (2,645,953) (17,301,504) (19,947,457)
INTEREST INCOME....... -- 213,585 234,089 17,857 42,054 447,674 489,728
INTEREST EXPENSE...... (20,809) (8,329) (22,275) -- (401,778) (51,413) (453,191)
----------- ----------- ----------- ----------- ----------- ------------ ------------
NET LOSS.............. $(1,638,171) $(6,330,783) $(8,936,289) $(1,719,857) $(3,005,677) $(16,905,243) $(19,910,920)
=========== =========== =========== =========== =========== ============ ============
BASIC NET LOSS PER
SHARE................ $ (2.25) $ (2.04) $ (1.93) $ (0.49) $ (0.59)
=========== =========== =========== =========== ===========
SHARES USED IN
COMPUTING BASIC NET
LOSS PER SHARE 728,465 3,098,980 4,629,916 3,521,808 5,084,340
=========== =========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
F-4
<PAGE>
CARESIDE, INC.
(a development-stage company)
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
Deficit
Accumulated
Common Stock Additional Stock During Total
----------------- Paid-in Subscription Development Stockholders'
Shares Amount Capital Receivable Stage Equity (Deficit)
--------- ------- ----------- ------------ ------------ ----------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, JULY 10, 1996
(inception)............ -- $ -- $ -- $ -- $ -- $ --
Shares issued to
founders and
management............ 659,344 6,593 (6,593) -- -- --
Shares issued to
SmithKline Beecham
Corporation in
connection with asset
purchase.............. 34,702 347 571,006 -- -- 571,353
Sale of shares to
Exigent Partners,
L.P................... 557,601 5,576 93,419 (98,995) -- --
Shares issued to
investment banker in
connection with equity
financing............. 30,173 302 (302) -- -- --
Shares issued to
SmithKline Beecham
Corporation pursuant
to antidilution
agreement............. 30,935 310 (310) -- -- --
Net loss............... -- -- -- -- (1,638,171) (1,638,171)
--------- ------- ----------- ------- ------------ -----------
BALANCE, DECEMBER 31,
1996................... 1,312,755 13,128 657,220 (98,995) (1,638,171) (1,066,818)
Shares issued in
connection with
private placement, net
of expenses of
$1,291,772 1,923,090 19,231 8,688,998 -- -- 8,708,229
Shares issued to
SmithKline Beecham
Corporation upon
conversion of note
payable............... 129,555 1,295 1,026,689 -- -- 1,027,984
Payment of stock
subscription.......... -- -- -- 98,995 -- 98,995
Net loss............... -- -- -- -- (6,330,783) (6,330,783)
--------- ------- ----------- ------- ------------ -----------
BALANCE, DECEMBER 31,
1997................... 3,365,400 33,654 10,372,907 -- (7,968,954) 2,437,607
Shares issued in
connection with
private placement, net
of expenses of
$1,302,029............ 1,701,225 17,012 10,180,959 -- -- 10,197,971
Shares issued in
connection with
exercise of stock
options............... 17,715 177 119,565 -- -- 119,742
Value of warrants
issued in connection
with bridge
financing............. -- -- 330,114 -- -- 330,114
Net loss............... -- -- -- -- (8,936,289) (8,936,289)
--------- ------- ----------- ------- ------------ -----------
BALANCE, DECEMBER 31,
1998 .................. 5,084,340 50,843 21,003,545 -- (16,905,243) 4,149,145
Net loss (unaudited)... -- -- -- -- (3,005,677) (3,005,677)
--------- ------- ----------- ------- ------------ -----------
BALANCE, MARCH 31, 1999
(unaudited)............ 5,084,340 $50,843 $21,003,545 $ -- $(19,910,920) $ 1,143,468
========= ======= =========== ======= ============ ===========
</TABLE>
The accompanying notes are an integral part of these statements.
F-5
<PAGE>
CARESIDE, INC.
(a development-stage company)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the Period For the Period For the Period
From From From
Inception Inception Inception
(July 10, 1996) For the Year Ended For the Three Months (July 10, 1996) (July 10, 1996)
Through December 31, Ended March 31, Through Through
December 31, ------------------------ ------------------------ December 31, March 31,
1996 1997 1998 1998 1999 1998 1999
--------------- ----------- ----------- ----------- ----------- --------------- ---------------
(unaudited) (unaudited)
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES:
Net loss............. $(1,638,171) $(6,330,783) $(8,936,289) $(1,719,857) $(3,005,677) $(16,905,243) $(19,910,920)
Adjustments to
reconcile net loss
to net cash used in
operating
activities--
Depreciation......... 12,275 145,858 367,231 43,965 234,761 525,364 760,125
Imputed interest on
note payable........ -- 8,329 -- -- -- 8,329 8,329
Amortization of debt
discount............ -- -- 20,960 -- 309,154 20,960 330,114
Changes in assets and
liabilities--
Decrease (increase)
in prepaid expenses
and other........... (15,840) (210,740) (25,118) 12,164 168,251 (251,698) (83,447)
Decrease (increase)
in deposits......... (102,700) 19,933 80,067 (968) -- (2,700) (2,700)
Increase in accounts
payable............. 284,079 208,906 876,904 327,583 553,985 1,369,889 1,923,874
Increase (decrease)
in accrued
expenses............ 575,301 (346,014) (49,192) (110,483) 24,209 180,095 204,304
----------- ----------- ----------- ----------- ----------- ------------ ------------
Net cash used in
operating
activities......... (885,056) (6,504,511) (7,665,437) (1,447,596) (1,715,317) (15,055,004) (16,770,321)
----------- ----------- ----------- ----------- ----------- ------------ ------------
INVESTING ACTIVITIES:
Purchases of property
and equipment....... (344,733) (888,510) (2,005,463) (299,976) (1,224,794) (3,238,706) (4,463,500)
----------- ----------- ----------- ----------- ----------- ------------ ------------
FINANCING ACTIVITIES:
Net borrowings
(repayments) on line
of credit........... 400,000 (400,000) -- -- -- -- --
Proceeds from the
issuance of notes... 1,000,000 -- 2,541,084 -- 1,500,000 3,541,084 5,041,084
Deferred offering
costs............... (191,906) -- (498,443) -- (390,385) (690,349) (1,080,734)
Proceeds from the
issuance of Common
stock............... -- 8,900,134 10,317,713 7,159,321 -- 19,217,847 19,217,847
Payments on note
payable............. -- -- -- -- (44,321) -- (44,,321)
Payment of stock
subscription........ -- 98,995 -- -- -- 98,995 98,995
Cash received from
SmithKline Beecham
Corporation in
connection with
asset purchase...... 52,736 -- -- -- -- 52,736 52,736
----------- ----------- ----------- ----------- ----------- ------------ ------------
Net cash provided by
financing
activities......... 1,260,830 8,599,129 12,360,354 7,159,321 1,065,294 22,220,313 23,285,607
----------- ----------- ----------- ----------- ----------- ------------ ------------
NET INCREASE
(DECREASE) IN CASH
AND CASH
EQUIVALENTS.......... 31,041 1,206,108 2,689,454 5,411,749 (1,874,817) 3,926,603 2,051,786
CASH AND CASH
EQUIVALENTS,
BEGINNING OF PERIOD.. -- 31,041 1,237,149 1,237,149 3,926,603 -- --
----------- ----------- ----------- ----------- ----------- ------------ ------------
CASH AND CASH
EQUIVALENTS, END OF
PERIOD............... $ 31,041 $ 1,237,149 $ 3,926,603 $ 6,648,898 $ 2,051,786 $ 3,926,603 $ 2,051,786
=========== =========== =========== =========== =========== ============ ============
</TABLE>
The accompanying notes are an integral part of these statements.
F-6
<PAGE>
CARESIDE, INC.
(a development-stage company)
NOTES TO FINANCIAL STATEMENTS
1. CARESIDE:
Background
Careside, Inc., formerly Exigent Diagnostics, Inc., is focused on designing
products intended to perform routine diagnostic blood tests in doctors'
offices, hospital rooms, patient homes or anywhere a patient is receiving
medical attention. Careside's first product in development is a compact
portable device with related disposables that performs chemistry,
electrochemistry, immunochemistry and coagulation testing.
Development-Stage Risks and Liquidity
Careside was incorporated in July 1996 to acquire an ongoing, point-of-care
("POC") testing, development-stage product from SmithKline Beecham Corporation
and its affiliates ("SmithKline") and to complete the development of and to
manufacture, market and distribute POC diagnostic products. Since its
inception, Careside has generated no revenues and incurred significant losses.
Careside anticipates incurring additional losses over at least the next several
years, and such losses are expected to increase as Careside expands its
research and development activities. Substantial financing will be needed by
Careside to fund its operations and to commercially develop its products. The
ability of Careside to commercialize its products will depend on, among other
things, the relative cost to the customer of Careside's products compared to
alternative products, its ability to obtain necessary regulatory approvals and
to manufacture the products in accordance with Good Manufacturing Practices,
and its ability to market and distribute its products. There can be no
assurance that Careside's research and development efforts will be successful
or that any products developed by Careside will receive regulatory clearance or
be profitable in the marketplace.
The accompanying financial statements have been prepared in conformity with
principles of accounting applicable to a going concern. These principles
contemplate the realization of assets and the satisfaction of liabilities in
the normal course of business. As shown in the accompanying financial
statements, Careside incurred a net loss of $8,936,289 and used cash for
operating activities of $7,665,437 for the year ended December 31, 1998.
Management believes that Careside's existing sources of liquidity together with
the proceeds to be received from its initial public offering (the "Offering")
contemplated in this prospectus will be sufficient to fund its planned
operations into 2000. There can be no assurance that the Offering will be
successful.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Interim Financial Statements
The financial statements as of March 31, 1999 and for the three months ended
March 31, 1998 and 1999 are unaudited and, in the opinion of management,
include all adjustments (consisting only of normal and recurring adjustments)
necessary for a fair presentation of results for these interim periods. The
results of operations for the three months ended March 31, 1999 are not
necessarily indicative of the results expected for the entire year.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of expenses during the reporting period. Actual results
could differ from those estimates.
Cash and Cash Equivalents
Careside considers all highly liquid investments consisting of purchases with
an original maturity of three months or less to be cash equivalents.
F-7
<PAGE>
Property and Equipment
Property and equipment are stated at cost. Property and equipment capitalized
under capital leases are recorded at the present value of the minimum lease
payments due over the lease term. Depreciation and amortization are provided
using the straight-line method over the estimated useful lives of the related
assets or the lease term, whichever is shorter. Careside uses lives of three to
five years for research and manufacturing equipment and five to seven years for
office equipment.
Fair Value of Financial Instruments
Cash and cash equivalents, prepaid expenses and other current assets,
accounts payable and accrued expenses are reflected in the accompanying
financial statements at fair value due to the short-term nature of those
instruments. The carrying amount of long-term debt approximates fair value on
the balance sheet dates.
Research and Development
Research and development costs are charged to expense as incurred.
Income Taxes
Careside follows Statement of Financial Accounting Standards ("SFAS") No.
109, "Accounting for Income Taxes." Under SFAS No. 109, the liability method is
used in accounting for income taxes. Under this method, deferred tax assets and
liabilities are determined based on differences between the financial reporting
and tax bases of assets and liabilities and are measured using enacted tax
rates that are expected to be in effect when the differences reverse.
Accounting for Stock-Based Compensation
Careside applies Accounting Principles Board ("APB") Opinion No. 25,
"Accounting for Stock Issued to Employees," in accounting for its stock
options. Careside follows the disclosure requirements of SFAS No. 123,
"Accounting for Stock-Based Compensation," which permits pro forma disclosure
of the net loss using a fair value-based method of accounting for employee
stock option plans (see Note 8).
Net Loss Per Common Share
Careside has presented net loss per share pursuant to SFAS No. 128, "Earnings
per Share," and the Securities and Exchange Commission Staff Accounting
Bulletin No. 98. Net loss per share is computed using the weighted average
number of common and dilutive common equivalent shares outstanding during the
period.
Basic loss per share was computed by dividing net loss applicable to common
shareholders by the weighted average number of shares of Common stock
outstanding during the period. Dilutive loss per share has not been presented,
since the impact on loss per share using the treasury stock method is anti-
dilutive due to Careside's losses.
Recapitalization
In February 1999, Careside's stockholders approved a 1-for-5.2 reverse stock
split of Careside's Common stock to be effective upon consummation of the
offering. All references in the accompanying financial statements to the number
of shares and per share amounts have been retroactively restated to reflect the
reverse stock split.
Recently Issued Pronouncements
In June 1997, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 130, "Reporting Comprehensive Income." This statement requires companies to
classify items of other comprehensive income
F-8
<PAGE>
separately from retained earnings and additional paid-in capital in the
stockholders' equity section of the balance sheet. SFAS No. 130 is effective
for financial statements issued for fiscal years beginning after December 15,
1997. Management believes that SFAS No. 130 will not have a material adverse
effect on Careside's financial statements.
In June 1997, the FASB issued SFAS No. 131, "Disclosure about Segments of an
Enterprise and Related Information." This statement establishes additional
standards for segment reporting in the financial statements and is effective
for fiscal years beginning after December 15, 1997. Management is currently
evaluating the need to make additional disclosures under SFAS No. 131. However,
this statement will not have any effect on Careside's reported financial
position or results of operations.
3. PROPERTY AND EQUIPMENT:
<TABLE>
<CAPTION>
December 31,
---------------------- March 31,
1997 1998 1999
---------- ---------- ----------
<S> <C> <C> <C>
Laboratory equipment.................. $1,280,663 $3,264,286 $4,475,181
Leasehold improvements................ 371,239 371,239 371,239
Computer and office equipment......... 84,958 106,798 120,697
---------- ---------- ----------
1,736,860 3,742,323 4,967,117
Less-Accumulated depreciation and
amortization......................... (158,133) (525,364) (760,125)
---------- ---------- ----------
$1,578,727 $3,216,959 $4,206,992
========== ========== ==========
</TABLE>
Depreciation and amortization expense for the period from inception (July 10,
1996) through December 31, 1996, the years ended 1997 and 1998, the three
months ended March 31, 1998 and 1999, the period from inception (July 10, 1996)
through December 31, 1998 and the period from inception (July 10, 1996) through
March 31, 1999 was $12,275, $145,858, $367,231, $43,965, $234,761, $525,364 and
$760,125, respectively.
4. INCOME TAXES:
At December 31, 1998, Careside had net operating loss carryforwards for
federal income tax purposes of approximately $2,148,000. In addition, Careside
has federal research and development credit carryforwards of approximately
$225,000. The net operating loss and credit carryforwards begin to expire in
2011 and are subject to review and possible adjustment by the Internal Revenue
Service. The Tax Reform Act of 1986 contains provisions that may limit the net
operating loss carryforwards available to be used in any given year in the
event of significant changes in ownership interest.
The approximate income tax effect of each type of temporary difference and
carryforward is as follows:
<TABLE>
<CAPTION>
December 31,
----------------------
1997 1998
---------- ----------
<S> <C> <C>
Net operating loss carryforwards........................ $ 233,188 $ 730,438
Research and development credit carryforwards........... 128,623 224,775
Capitalized research and development.................... 2,219,926 4,395,926
Start-up costs.......................................... 185,906 419,936
Nondeductible accruals.................................. 8,779 6,663
Nondeductible depreciation and amortization............. 53,765 178,623
Valuation allowance..................................... (2,830,187) (5,956,361)
---------- ----------
$ -- $ --
========== ==========
</TABLE>
Due to the uncertainty surrounding the realization of the deferred tax asset,
Careside has provided a full valuation allowance against this asset.
F-9
<PAGE>
5. COMMON STOCK PRIVATE PLACEMENTS:
In March 1997, Careside completed a private placement (the "1997 Private
Placement") of 1,923,090 shares of its Common stock at $5.20 per share. The
1997 Private Placement raised approximately $8,800,000, net of the placement
agent's commission and offering costs. In connection with the 1997 Private
Placement, the placement agent and its affiliates received warrants to purchase
384,615 shares of Careside's Common stock at $5.20 per share. These warrants
are currently exercisable and expire on the later of seven years from the date
of issuance or three years from the closing the Offering.
In June 1998, Careside completed a private placement (the "1998 Private
Placement") of 1,701,225 shares of its Common stock at $6.76 per share, which
generated net proceeds of approximately $10,200,000. In connection with the
1998 Private Placement, the placement agent and its affiliates received
warrants to purchase 340,237 shares of Careside's Common stock at $6.76 per
share. These warrants are currently exercisable and expire on the later of
seven years from the date of issuance or three years from the closing of the
Offering. In connection with providing financial consulting services for the
1998 Private Placement, Careside granted an option to purchase 1,154 shares of
Common stock at $.05 per share to an entity owned by a director of Careside.
6. TRANSACTIONS WITH SMITHKLINE:
On November 7, 1996, Careside and SmithKline entered into an Asset Purchase
Agreement (the "Agreement") under which Careside acquired certain assets and
intangible property related to SmithKline's POC business in exchange for a 5%
equity interest in Careside. In connection with the Agreement, SmithKline
loaned Careside $1,000,000, which was converted into an additional 2% equity
interest in Careside upon the closing of the 1997 Private Placement (see Note
5). The Agreement provided for certain antidilution protection, which required
Careside to issue additional shares of Common stock to SmithKline such that it
maintained its 7% ownership interest, until a defined equity financing was
completed. Upon the closing of the 1997 Private Placement, the antidilution
protection lapsed and SmithKline owned 195,192 shares, representing 5.8% of the
then outstanding Common stock. The tangible property received in connection
with the Agreement was as follows:
<TABLE>
<S> <C>
Cash........................................................... $ 52,736
Property and equipment......................................... 503,617
Deposit........................................................ 15,000
--------
$571,353
========
</TABLE>
In December 1998, Careside entered into an agreement with an affiliate of
SmithKline for up to $3,000,000 of bridge financing (see Note 7).
7. DEBT:
<TABLE>
<CAPTION>
December 31,
------------------
1997 1998
------- ----------
<S> <C> <C>
Note payable, interest at 8%, $1,500,000 due on January
31, 2000,
net of unamortized discount of $309,154................ $ -- $1,190,846
Equipment loan due to finance company, interest at 14%,
due in 47
remaining monthly installments of principal and
interest
of $26,836, with a final payment of $133,489 in
December 2002.......................................... -- 1,041,084
------- ----------
2,231,930
Less--Current portion................................... -- (186,998)
------- ----------
Long-term debt.......................................... $ -- $2,044,932
======= ==========
</TABLE>
In connection with the Agreement (see Note 6), Careside borrowed $1,000,000
from SmithKline. In connection with closing the 1997 Private Placement (see
Note 5), 129,555 shares of Common stock were issued to SmithKline upon the
conversion of the $1,000,000 note plus accrued interest of $27,985.
F-10
<PAGE>
In December 1996, Careside established a $1,000,000 line of credit facility
with a bank collateralized by a standby letter of credit guaranteed by Exigent
Partners, L.P. ("Exigent Partners"), whose partners are the founders of
Careside and an affiliate of the private placement agent. In consideration for
the establishment of the standby letter of credit, Exigent Partners was issued
557,601 shares of Common stock at $0.18 per share. The balance outstanding
under the line at December 31, 1996 was $400,000, with interest at 9.25% per
year. The line was repaid in connection with the 1997 Private Placement.
In December 1998, Careside entered into a $2,500,000 facility with an
equipment lease financing company. Borrowings under the facility will be
evidenced as separate loans and will be secured by specific equipment assets.
Each equipment loan will have a 48-month term and bears interest at
approximately 14% per year, adjusted for an index rate based on 48-month U.S.
Treasury Notes at the time of borrowing.
In December 1998, Careside entered into an agreement with an affiliate of
SmithKline for up to $3,000,000 of bridge financing, of which $1,500,000 was
drawn on December 28, 1998. The remaining $1,500,000 may be drawn, at
Careside's option, prior to January 31, 1999. The outstanding principal under
the bridge financing matures upon the earliest of the completion of the
Offering, a private equity financing of at least $8,000,000 or January 31,
2000. Careside issued a warrant (the "Bridge Warrant") in connection with the
bridge financing. The Bridge Warrant is exercisable into that number of shares
of Common stock which is equal to $750,000 divided by 85% of the Offering price
per share. The Bridge Warrant has an exercise price equal to 85% of the
Offering price. If the Offering does not occur, the Bridge Warrant is
exercisable into 103,022 shares of Common stock at an exercise price of $7.28
per share. If the outstanding principal under the bridge financing is not
repaid by June 30, 1999, the Bridge Warrant becomes exercisable for twice as
many shares of Common stock. The Bridge Warrant becomes exercisable on the
earlier of December 1999 or six months after the completion of the Offering and
expires on the earlier of December 2005 or four years after the completion of
the Offering. Using the Black-Scholes model, the estimated fair value of the
Bridge Warrant was calculated at $330,114 and was recorded as a reduction in
the carrying amount of the bridge note, with a corresponding increase in
stockholders' equity. The discount on the bridge note is being amortized over
the estimated term of the note as additional interest expense.
Future maturities of debt at December 31, 1998 are as follows:
<TABLE>
<S> <C>
1999......................................................... $ 186,998
2000......................................................... 1,715,141
2001......................................................... 247,520
2002......................................................... 391,425
----------
2,541,084
Less--Unamortized discount................................... (309,154)
----------
$2,231,930
==========
</TABLE>
Careside borrowed the remaining $1,500,000 under the Bridge Financing in
January 1999.
8. STOCK OPTIONS AND WARRANTS:
Stock Options
Careside has adopted the 1996 Incentive and Non-Qualified Stock Option Plan
and the 1996 Key Executive Stock Option Plan (together, the "Plans"), which
provide for the granting of options to purchase up to 576,923 shares of Common
stock to directors, officers, consultants and employees of Careside. The number
of options to be granted and the option prices are determined by the Board of
Directors in accordance with the terms of the Plans. Each option expires on
such date as the Board of Directors may determine.
F-11
<PAGE>
For purposes of SFAS No. 123 disclosure requirements, the fair value of each
option grant is estimated on the date of grant using the Black-Scholes option-
pricing model using the following assumptions for options granted during 1997
and 1998: weighted average risk-free interest rate of 6.41% and 5.56%; expected
weighted average life of 6.7 and 7.0 years; dividend yield of zero; and
volatility of zero. The weighted average fair value of each option granted
during 1997 and 1998 was $1.72 and $2.20, respectively. Had the compensation
cost of these options been recorded for the year ended December 31, 1997 and
1998, the Company's net loss would have increased by approximately $28,000 and
$316,000, respectively.
Information with respect to options under the Plans is as follows:
<TABLE>
<CAPTION>
Options Outstanding
------------------------------
Available Price Aggregate
for Grant Shares Per Share Price
--------- ------- ---------- ----------
<S> <C> <C> <C> <C>
Balance, inception (July
10, 1996)................ -- -- $ -- $ --
Authorized.............. 576,923 -- -- --
-------- ------- ---------- ----------
Balance, December 31,
1996..................... 576,923 -- -- --
Granted................. (317,163) 317,163 .05--7.44 1,741,122
-------- ------- ---------- ----------
Balance, December 31,
1997..................... 259,760 317,163 .05--7.44 1,741,122
Granted................. (111,950) 111,950 6.76--7.28 762,782
Cancelled............... 673 (673) 5.20 (3,500)
Exercised............... -- (17,715) 6.76 (119,753)
-------- ------- ---------- ----------
Balance, December 31,
1998..................... 148,483 410,725 .05--7.28 2,380,651
Granted................. (1,202) 1,202 8.00 9,616
Cancelled............... 339 (339) 6.76 (2,292)
-------- ------- ---------- ----------
Balance, March 31, 1999... 147,620 411,588 $.05--8.00 $2,387,975
======== ======= ========== ==========
</TABLE>
As of March 31, 1999, 198,343 options were exercisable at prices ranging from
$.05 to $7.28 per share, with a weighted average exercise price of $5.70 per
share. At March 31, 1999, the aggregate exercise price of these options was
$1,129,802.
Stock Warrants
The following table summarizes outstanding warrants at March 31, 1999:
<TABLE>
<CAPTION>
Type of Outstanding Exercise
Warrants Warrants Price Issuance Date
-------- ----------- -------- -------------
<S> <C> <C> <C>
Common stock 384,615 $5.20 February 1997
Common stock 340,237 $6.76 April 1998
-------
724,852
=======
</TABLE>
The warrants issued in March 1997 and June 1998 are currently exercisable and
expire on the later of seven years from the date of issuance or three years
from the closing of the Offering. In addition to the above warrants, the
Company issued a Bridge Warrant in connection with the issuance of debt (See
Note 7). The Bridge Warrant becomes exercisable on the earlier of December 1999
or six months after the completion of the Offering and expires on the earlier
of December 2005 or four years after the completion of the Offering.
F-12
<PAGE>
9. COMMITMENTS:
Leases
Careside leases an office and laboratory facility under a noncancelable
operating lease. Rent expense for the period from inception (July 10, 1996)
through December 31, 1996, the years ended 1997 and 1998, the three months
ended March 31, 1998 and 1999, the period from inception (July 10, 1996)
through December 31, 1998 and the period from inception (July 10, 1996) through
March 31, 1999 was $26,126, $156,756, $156,756, $39,189, $39,189, $339,638 and
$378,827, respectively. Future minimum rental payments under these leases at
December 31, 1998 are as follows:
<TABLE>
<S> <C>
1999............................................................ 167,440
2000............................................................ 177,040
2001............................................................ 152,200
--------
$496,680
========
</TABLE>
Collaborative Arrangements
Careside has utilized strategic partners with specific design expertise and
state-of-the-art technology in order to develop the Careside system rapidly and
on a cost-effective basis. Careside has agreements with (i) Fuji Photo Film
Co., Ltd. for the supply of its dry film based chemistry reagents,(ii)
International Technidyne Corporation for the joint development of coagulation
reagents, (iii) UMM Electronics, Inc. to design and manufacture the CareSide
Analyzer and (iv) Advanced Medical Information Technologies, Inc. to develop
software to link the Careside system and other medical devices, including the
hematology device. In addition, Careside contracted with Hauser, Inc. for the
design of the Careside system and with Battelle Memorial Institute for the
design of the system's disposable test cartridges and their automated assembly
manufacturing system. Careside's agreements with its strategic partners do not
obligate Careside to any minimum purchase commitments.
Employment Agreements
Careside has entered into three-year renewable employment agreements with
three of its executive officers that provide for aggregate annual compensation
of approximately $539,000.
10.RETIREMENT PLAN:
Careside maintains a 401(k) profit sharing plan on behalf of its employees.
Participation in the plan is voluntary and eligible employees, as defined, may
contribute up to 15% of their compensation to the plan. Careside matches 50% of
the employee's contribution up to 4% of an employee's compensation. Careside's
contributions were zero, $32,315, $34,657, $9,490, $13,849, $66,972 and $80,821
for the period from inception (July 10, 1996) through December 31, 1996, the
years ended 1997 and 1998, the three months ended March 31, 1998 and 1999, the
period from inception (July 10, 1996) through December 31, 1998 and the period
from inception (July 10, 1996) through March 31, 1999, respectively.
F-13
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Careside, Inc:
We have audited the accompanying statement of operations for the ten months
ended October 31, 1996 of the Predecessor Business (see Note 1). This financial
statement is the responsibility of the Company's management. Our responsibility
is to express an opinion on this financial statement based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
The statement of operations has been prepared for the purpose of complying
with the rules and regulations of the Securities and Exchange Commission (for
inclusion in the Form S-1 filing of Careside, Inc.) as described in Note 1 and
is not intended to be a complete presentation of the financial results of the
Predecessor Business.
In our opinion, the statement of operations referred to above presents
fairly, in all material respects, the results of operations of the Predecessor
Business for the ten months ended October 31, 1996, in conformity with
generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Philadelphia, Pa.,
October 16, 1998
F-14
<PAGE>
PREDECESSOR BUSINESS (NOTE 1)
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
Ten Months
Ended
October 31,
1996
-----------
<S> <C>
OPERATING EXPENSES:
Research and development........................................ $ 3,054,503
General and administrative...................................... 224,399
-----------
NET LOSS.......................................................... $(3,278,902)
===========
</TABLE>
The accompanying notes are an integral part of this statement.
F-15
<PAGE>
PREDECESSOR BUSINESS
NOTES TO STATEMENT OF OPERATIONS
1. BASIS OF PRESENTATION:
Careside, Inc. was incorporated in Delaware on July 12, 1996, and had no
operations until the purchase of certain assets from SmithKline Beecham
Corporation ("SmithKline") on November 7, 1996. The assets were acquired in
exchange for an equity interest in Careside. The assets acquired are referred
to as the "Predecessor Business." In connection with Careside's initial public
offering as contemplated in this Prospectus, the accompanying financial
statement has been prepared to comply with the rules and regulations of the
Securities and Exchange Commission.
The statement of operations represents the research and development and
related general and administrative expenses incurred by the Predecessor
Business in connection with the technology and know-how acquired by Careside.
The development of the technology related to the Predecessor Business commenced
in 1994.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of expenses during the reporting period. Actual results
could differ from those estimates.
Research and Development
Research and development costs are charged to expense as incurred.
Transactions with SmithKline
For the ten months ended October 31, 1996, SmithKline allocated corporate
overhead to the Predecessor Business of $55,118 for employee benefits and other
corporate services. These allocations were based on actual payroll expense
incurred by the Predecessor Business and the estimated cost of services
provided by SmithKline. Management believes the method of allocation of such
expenses is reasonable and that the Predecessor Business would not have
incurred any other material costs if it had operated on a stand alone basis. In
addition, SmithKline funded approximately $7,450,000 of operating losses and
capital expenditures since the commencement of the Predecessor Business for
which no interest charge has been reflected in the statement of operations.
Cash Flow Information
For the ten months ended October 31, 1996, cash used in operations was
$3,233,423 and purchases of property and equipment were $242,507.
F-16
<PAGE>
[Inside Back Cover]
ROUTINE BLOOD ANALYSIS PROCEDURE
<TABLE>
<CAPTION>
THE TRADITIONAL WAY [Careside Logo] THE CARESIDE SOLUTION
<S> <C> <C> <C> <C>
[Drawings of At hospital or 1. [Photos of Draw blood. Place a
Traditional 1 commercial lab, Cartridge and Blood few drops of whole
Blood Testing caregiver or Test] blood into the
Procedures] phlebotomist draws blood cartridge sample well.
sample.
Technicians properly
2 package and store blood
sample for transport.
Hospitals hand-carry 2. [Photos of Using the touch-screen
multiple samples to the CareSide Analyzer or keyboard, input
3 clinical lab. Commercial and Test Menu] demographic
laboratories receive information and select
samples via ground tests to be performed.
and/or air courier. Insert appropriate
cartridges and press
start.
4 Lab technicians receive
and log the samples.
5 Samples are then 3. [Photos of Test 10 to 15 minutes
separated for different Results and Test later, CareSide
testing stations. Analysis] Analyzer(TM) provides
test results via print
card, screen and/or
electronic data
transfer. Caregiver
can immediately review
data with patient.
Technicians centrifuge
6 the samples to separate
whole blood into serum
and plasma.
Skilled technologists
7 prepare various large,
high-volume analyzers
for batch processing and
run the tests.
Skilled technologists CareSide Analyzer(TM): 10 to 15 Minutes
8 review results to assure
that they pass quality Hospital lab: Typically 4 to 6 Hours
control checks.
Commercial lab: Typically 24 Hours
Data is transferred to
9 laboratory information
systems and into QA/QC
records.
10 Data is disseminated to
the caregivers.
Caregiver reviews the
11 data and reconciles it
with patient charts.
Caregiver calls patient
12 to report results and to
order additional therapy
or schedule follow-up
visit if required.
</TABLE>
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
We have not authorized any dealer, salesperson or other person to give any
information or represent anything not contained in this prospectus. You must
not rely on any unauthorized information. This prospectus does not offer to
sell or buy any units in any jurisdiction where it is unlawful. The
information in this prospectus is current as of , 1999.
----------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Summary....................................................... 3
Risk Factors............................................................. 7
Special Note Regarding Forward-Looking Statements........................ 14
Use of Proceeds.......................................................... 15
Dividend Policy.......................................................... 15
Capitalization........................................................... 16
Dilution................................................................. 17
Selected Financial Data.................................................. 18
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 19
Business................................................................. 24
Management............................................................... 44
Principal Stockholders................................................... 52
Certain Transactions..................................................... 53
Description of Capital Stock............................................. 56
Shares Eligible for Future Sale.......................................... 63
Underwriting............................................................. 65
Legal Matters............................................................ 67
Experts.................................................................. 68
Where You Can Get More Information....................................... 68
Index to Financial Statements............................................ F-1
</TABLE>
----------------
Until , 1999 (25 days after the date of this prospectus), all dealers
that buy, sell or trade these securities, whether or not participating in this
offering, may be required to deliver a prospectus. This is in addition to the
dealers' obligation to deliver a prospectus when acting as underwriters and
with respect to their unsold allotments or subscriptions.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
[LOGO OF CARESIDE]
2,000,000 Units
Each Unit Consists of One Share of Common Stock and One Redeemable Common
Stock Purchase Warrant
----------------
PROSPECTUS
----------------
Paulson Investment Company, Inc.
Millennium Financial Group, Inc.
marion bass securities corporation
, 1999
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution.
The following table sets forth an itemization of all estimated expenses, all
of which we will pay, in connection with the issuance and distribution of the
securities being registered:
<TABLE>
<CAPTION>
Nature of Expense Amount
----------------- ----------
<S> <C>
SEC Registration Fee............................................ $ 13,116*
American Stock Exchange Listing Fee............................. 50,000
NASD Fee........................................................ 6,790*
Printing and engraving fees..................................... 300,000
Registrant's counsel fees and expenses.......................... 500,000
Accounting fees and expenses.................................... 200,000
Underwriters' Expenses.......................................... 281,250
Blue Sky expenses and counsel fees.............................. 56,000
Transfer agent and registrar fees............................... 8,000
Other Offering Expenses......................................... 107,000
Miscellaneous................................................... 77,847
----------
TOTAL......................................................... $1,600,000
==========
</TABLE>
- ----------------
* Previously paid by us.
Item 14. Indemnification of Directors and Officers.
Our Amended and Restated Certificate of Incorporation (the "Charter")
provides that we shall indemnify and advance expenses to the fullest extent
permitted by Section 145 of the Delaware General Corporation Law ("DGCL"), as
amended from time to time, to each person who is or was one of our directors or
officers and the heirs, executors and administrators of such a person. Any
expenses, including attorneys' fees, incurred by a person who is or was one of
our directors or officers, and the heirs, executors and administrators of such
a person in connection with defending any such proceeding in advance of its
final disposition shall be paid by us; provided, however, that if the DGCL
requires, an advancement of expenses incurred by an indemnitee in his capacity
as a director or officer, and not in any other capacity in which service was or
is rendered by such indemnitee, including, without limitation, service to an
employee benefit plan, shall be made only upon delivery to us of an undertaking
by or on behalf of such indemnitee, to repay all amounts so advanced, if it
shall ultimately be determined that such indemnitee is not entitled to be
indemnified for such expenses. Notwithstanding the aforementioned
indemnification provisions, we may, at the discretion of our Chief Executive
Officer, enter into indemnification agreements with directors or officers.
Section 145 of the DGCL provides that a corporation has the power to
indemnify any director or officer, or former director or officer, who was or is
a party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative
or investigative, other than an action by or in the right of the corporation,
by reason of the fact that such director or officer or former director or
officer is or was a director, officer, employee or agent of the corporation,
against expenses, including attorneys' fees, judgments, fines and amounts paid
in settlement actually and reasonably incurred by them in connection with such
action, suit or proceeding, if such person shall have acted in good faith and
in a manner reasonably believed to be in or not opposed to the best interests
of the corporation, and, with respect to any criminal action or proceeding,
provided that such person had no reasonable cause to believe his or her conduct
was unlawful, except that, if such action shall be in the right of the
corporation, no such indemnification shall be provided as to any claim, issue
or matter as to which such person shall have been judged to have been liable to
the corporation unless and to the extent that the Court of Chancery of the
State of Delaware, or any court in which such suit or action was brought, shall
determine upon application that, in view of all of the circumstances of the
case, such person is fairly and reasonably entitled to indemnity for such
expenses as such court shall deem proper.
II-1
<PAGE>
The Charter, which will be filed prior to the completion of our initial
public offering of securities, contains a provision to limit the personal
liability of our directors to the fullest extent permitted by Section 102(b)(7)
of the DGCL, as amended. In addition, the Amended and Restated By-Laws, which
will become effective prior to the completion of the offering of securities,
provide that we shall indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative,
other than an action by us or in our right, by reason of the fact that he is or
was one of our directors, officers, employees or agents, or is or was serving
at our request as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise, against
expenses, including attorneys' fees, judgments, fines and amounts paid in
settlement actually and reasonably incurred by him in connection with such
action, suit or proceeding if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to our best interests, and, with
respect to any criminal action or proceeding, had no reasonable cause to
believe his conduct was unlawful. See Exhibit 3.1c, "Form of Amended and
Restated Certificate of Incorporation of Careside, Inc."
As permitted by the DGCL, the Charter, which will be filed prior to the
completion of the offering, provides that, subject to certain limited
exceptions, none of our directors shall be liable to us or our stockholders for
monetary damages for breach of fiduciary duty as a director, except for
liability (1) for any breach of the director's duty of loyalty to us or our
stockholders, (2) for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (3) for the unlawful
payment of dividends on or redemption or repurchase of our capital stock or (4)
for any transaction from which the director derived an improper personal
benefit. The effect of this provision is to limit our ability and our
stockholders' ability through stockholder derivative suits on our behalf, to
recover monetary damages against a director for the breach of certain fiduciary
duties as a director, including breaches resulting from grossly negligent
conduct. In addition, the Charter and Amended and Restated By-Laws provide that
we shall, to the fullest extent permitted by the DGCL, indemnify all of our
directors and officers and that we may, to the extent permitted by the DGCL,
indemnify our employees and agents.
We have agreed to indemnify the underwriters against certain liabilities,
including civil liabilities under the Securities Act.
Item 15. Recent Sales of Unregistered Securities.
Since our formation in July 1996, we have issued the following securities,
giving retroactive effect to a 1-for-5.2 reverse stock split to be effected in
connection with the offering described in the prospectus, without registration
under the Securities Act:
1. In July 1996 and October 1996, we issued an aggregate of 659,344 shares
of common stock to our founder group for no consideration.
2. In November 1996, pursuant to an asset purchase agreement, SmithKline
Beecham Diagnostics Systems Co. and SmithKline Beecham Clinical
Laboratories, Inc. sold us certain fixed and intangible assets used in
connection with our point-of-care development program. As consideration
for the purchase of the assets, we issued to SBDS 34,702 shares of
common stock, representing 5% of our total common stock outstanding at
that time.
3. In December 1996, in connection with the establishment of a $1.0 million
working capital facility, we issued Exigent Partners, L.P. 557,601
shares of common stock for an aggregate purchase price of $98,995. In
the same month, we issued (1) 30,935 shares of common stock to
SmithKline Beecham Corporation pursuant to certain anti-dilution
protections granted to SmithKline Beecham Corporation in connection with
a credit facility and asset transfer and (2) 30,173 shares of common
stock to Philip B. Smith for the investment banking services he provided
in connection with our equity financing.
4. In January 1997, our credit facility from SmithKline Beecham
Corporation, pursuant to its terms, was converted into 129,555 shares of
common stock, representing 2% of our total common stock outstanding at
that time.
II-2
<PAGE>
5. In March 1997, we completed a private placement of securities through
Spencer Trask Securities Incorporated which resulted in our issuance of
1,923,090 shares of common stock at $5.20 per share to 203 investors who
were deemed to be accredited investors under Rule 501(a) of Regulation D
of the Securities Act of 1933 based upon representations made to us by
such investors. In connection with the private placement in February
1997, we issued warrants to Spencer Trask Securities Incorporated to
purchase 384,615 shares of common stock at an exercise price of $5.20
per share as partial consideration for its services in the private
placement. These warrants expire three (3) years after closing of the
offering. Of the proceeds of this private placement, which totalled in
the aggregate approximately $10 million, we received approximately $9
million with the remainder paid as a commission to Spencer Trask for its
services in the private placement.
6. In February 1997, we granted stock options to purchase an aggregate of
256,368 shares of common stock under our 1996 Incentive and Non-
Qualified Stock Option Plan and 1996 Key Executive Stock Option Plan
(collectively, the "1996 Stock Option Plans") to ten employees and
directors. The weighted average per share exercise price of these stock
options is $5.29.
7. In May 1997, we granted stock options to purchase 192 shares of common
stock under our 1996 Incentive and Non-Qualified Stock Option Plan to
one employee. The per share exercise price of these stock options is
$5.20.
8. In June 1997, we granted stock options to purchase an aggregate of
31,731 shares of common stock under our 1996 Stock Option Plans to an
individual who was both one of our employees. The per share exercise
price of these stock options is $6.76.
9. In August 1997, we granted Cedar Capital Investors, options to purchase
1,154 shares of common stock at an exercise price of $.052 per share.
These options remain exercisable until August 8, 2007. These options
were granted to Cedar Capital Investors in consideration for providing
certain financial consulting services to us in connection with a private
placement of securities in 1998.
10. In December 1997, we granted stock options to purchase an aggregate of
27,718 shares of common stock under our 1996 Incentive and Non-
Qualified Stock Option Plan to 20 employees. The weighted average per
share exercise price of these stock options is $6.09.
11. In January 1998, we granted stock options to purchase an aggregate of
1,923 shares of common stock under our 1996 Incentive and Non-Qualified
Stock Option Plan to one employee. The per share exercise price of
these stock options is $6.76.
12. In February 1998, we granted stock options to purchase an aggregate of
13,700 shares of common stock under our 1996 Incentive and Non-
Qualified Stock Option Plan to one employee and five non-employee
directors. The per share exercise price of these stock options is
$6.76.
13. In May 1998, we granted stock options to purchase an aggregate of
17,715 shares of common stock under our 1996 Incentive and Non-
Qualified Stock Option Plan to 18 employees which were immediately
exercised. The per share exercise price of these stock options was
$6.76 per share.
14. In June 1998, we completed a second private placement of securities
through Spencer Trask Securities Incorporated which resulted in our
issuance of 1,701,225 shares of common stock at $6.76 per share to 311
investors, of whom 101 invested in the 1997 private placement of
securities, who were deemed to be accredited investors under Rule
501(a) of Regulation D of the Securities Act of 1933 based upon certain
representations made to us by such investors. In connection with the
private placement in 1998, we issued warrants to Spencer Trask
Securities Incorporated to purchase 340,237 shares of common stock at
an exercise price of $6.76 per share as partial consideration for our
services in these private placements. These warrants expire three years
from the date of closing of the offering. Of the proceeds of this
private placement, which totalled in the aggregate approximately $11.5
million, we received approximately $10 million with the remainder paid
as a commission to Spencer Trask Securities Incorporated for its
services in the private placement.
15. In July 1998, we granted stock options to purchase an aggregate of
67,074 shares of common stock under our 1996 Stock Option Plans to 29
employees two of whom are directors. The per share exercise price of
these stock options is $6.76.
II-3
<PAGE>
16. In November 1998, we granted stock options to purchase an aggregate of
11,538 shares of common stock under our 1996 Incentive and Non-
Qualified Stock Option Plan to six employees two of whom are directors.
The per share exercise price of these stock options is $7.28.
17. In December 1998, we entered into a bridge loan agreement with S.R.
One, Limited for a $3.0 million loan at 8% per annum interest. Draw
down of $1.5 million on this loan occurred on December 28, 1998 with
the remaining $1.5 million drawn down in January 1999. Prior to the
modification described in item 19 below, the bridge loan matured on the
date of completion of the offering or January 31, 2000, whichever
occurred sooner. We issued a warrant to S.R. One, Limited which, prior
to the modification described in Item 19 below, had an exercise price
based upon the initial public offering price of our common stock, less
a 15% discount, as partial consideration for providing the bridge loan.
The warrant is not exercisable until at least six months after
completion of the offering.
18. In January 1999, we granted stock options to purchase an aggregate of
1,202 shares of common stock under our 1996 Incentive and Non-Qualified
Stock Option Plan to one employee. The per share exercise price of
these stock options is $8.00.
19. In April 1999, we entered into a commitment letter with S.R. One,
Limited pursuant to which S.R. One agreed to convert $1 million of our
$3 million bridge loan, together with accrued interest at the rate of
8% on $1 million, upon consummation of the offering, into shares of
Series A Convertible Preferred Stock. The remaining $2 million of the
bridge loan matures in December 1999. The annual interest rate on the
remaining $2 million will increase to 10% on July 1, 1999. If the
remainder of the bridge loan is not repaid by December 1, 1999, S.R.
One will have the option to convert all or any portion of the remaining
loan, plus accrued interest thereon, into shares of Series A
Convertible Preferred Stock on the same basis as the Series A
Convertible Preferred Stock that is issued to S.R. One as part of the
$1 million conversion at the completion of the offering. As part of the
conversion, the bridge warrant issued to S.R. One in the bridge
financing was modified such that it will entitle S.R. One to purchase
that number of shares of common stock which is equal to $1,500,000
divided by 85% of the initial public offering price of a unit.
20. In June 1999, we granted stock options to purchase an aggregate of
10,815 shares of common stock under our 1996 Incentive and Non-
Qualified Stock Option Plan to five non-employee directors. The per
share exercise price of these stock options is $7.50.
We believe that the transactions described in paragraphs 1 through 19 above
were exempt from registration under Section 3(b), 4(2) or 3(a)(9) of the
Securities Act because the subject securities were either (1) issued pursuant
to a compensatory benefit plan pursuant to Rule 701 under the Securities Act,
(2) issued to a limited group of persons, each of whom was believed to have
been a sophisticated investor or to have had a preexisting business or personal
relationship with us or our management and to have been purchasing for
investment without a view to further distribution or (3) exchanged by us with
our existing security holders exclusively where no commission or other
remuneration was paid or given directly or indirectly for soliciting such
exchange. In addition, the recipients of securities in each such transaction
represented their intentions to acquire the securities for investment only and
not with a view to or for sale in connection with any distribution thereof and
appropriate legends were affixed to the share certificates issued in such
transactions. All recipients had adequate access, through their relationships
with us, to information about us.
Item 16. Exhibits and Financial Statement Schedules.
(a) Exhibits:
<TABLE>
<CAPTION>
Exhibit No. Description
----------- -----------
<C> <S>
1.1* Form of Underwriting Agreement
3.1a* Amended and Restated Certificate of Incorporation of Careside,
Inc.
3.1b* Form of Certificate of Amendment of Certificate of Incorporation
of Careside, Inc. (to be filed immediately prior to completion of
the offering)
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
Exhibit No. Description
----------- -----------
<C> <S>
3.1c Form of Amended and Restated Certificate of Incorporation of
Careside, Inc. (to be filed immediately prior to the completion of
the offering)
3.1d Form of Certificate of Designations of Series A Convertible
Preferred Stock (to be filed immediately prior to completion of
the offering)
3.2a Bylaws of Careside, Inc.
3.2b* Form of Amended and Restated Bylaws of Careside, Inc. (effective
upon completion of the offering)
4.1* Specimen Stock Certificate
4.2a* Form of Warrant Certificate
4.2b* Form of Unit Certificate
4.2* Placement Agent Warrant Agreement dated as of January 31, 1997 by
and between Careside, Inc. and Spencer Trask Securities
Incorporated (including Form of Warrant)
4.3* Placement Agent Warrant Agreement dated as of March 6, 1998 by and
between Careside, Inc. and Spencer Trask Securities Incorporated
(including Form of Warrant)
4.4* Securities Purchase Agreement dated as of December 17, 1998 by and
between S.R. One, Limited and Careside, Inc. (including Form of
Note) (as amended)
4.5* Warrant Issued to S.R. One, Limited on December 17, 1998
4.6* Form of Warrant Agreement to be dated as of the closing date of
the offering, by and between Careside, Inc. and Paulson Investment
Company, Inc.
4.7* Form of Warrant Agreement to be dated as of the closing date of
the offering, by and between Careside, Inc. and American Stock
Transfer & Trust Company, as Warrant Agent
4.8* Form of Warrant to be issued to S.R. One, Limited on , 1999.
4.9* Form of New Note to be issued to S.R. One, Limited dated as of
December 17, 1999.
5.1 Opinion of Pepper Hamilton LLP
10.1* Registration Rights Agreement dated as of November 7, 1996 by and
among SmithKline Beecham Diagnostic Systems Co., SmithKline
Beecham Corporation and Careside, Inc.
10.2* Registration Rights Agreement dated as of December 4, 1996 by and
among Careside, Inc., Exigent Partners, L.P., W. Vickery
Stoughton, Thomas H. Grove, Kenneth B. Asarch, William S. Knight,
Donald S. Wong, Ashok K. Sawhney and Philip B. Smith
10.3* Amendment No. 1 to Registration Rights Agreement dated as of
January 31, 1997 by and among Careside, Inc. Exigent Partners,
L.P., W. Vickery Stoughton, Thomas H. Grove, Kenneth B. Asarch,
William S. Knight, Donald S. Wong, Ashok K. Sawhney and Philip B.
Smith
10.4* Registration Rights Agreement dated as of December 4, 1996 by and
between Careside, Inc. and Spencer Trask Securities Incorporated
10.5* Registration Rights Agreement dated as of January 31, 1997 by and
among Careside, Inc. and the Investors signatory thereto
10.6* Stockholders Agreement dated as of December 4, 1996 by and among
the Careside, Inc., SmithKline Beecham Corporation, SmithKline
Beecham Diagnostic Systems Co., Spencer Trask Securities
Incorporated, Exigent Partners, L.P., W. Vickery Stoughton, Thomas
H. Grove, Kenneth B. Asarch, William S. Knight, Donald S. Wong,
Ashok K. Sawhney, Philip B. Smith and each Investor signatory
thereto
10.7* Consulting Agreement by and between Careside, Inc. and Cedar
Capital Investors dated August 8, 1997
10.8* Employment Agreement dated as of March 3, 1997 between Careside,
Inc. and W. Vickery Stoughton
10.9* Employment Agreement dated as of March 3, 1997 between Careside,
Inc. and Thomas H. Grove
10.10* Employment Agreement dated as of July 30, 1998 between Careside,
Inc. and James R. Koch
10.11* 1996 Incentive and Non-Qualified Stock Option Plan, as amended and
restated
10.12* 1996 Key Executive Stock Option Plan, as amended and restated
10.13* 1998 Incentive and Non-Qualified Stock Option Plan
10.14* 1998 Director Stock Option Plan
10.15* Standard Industrial/Commercial Single-Tenant Lease-NET dated as of
October 14, 1996, by and between Fox Hills Business Park, a
California Limited Partnership and Careside, Inc.
10.16* Agreement dated as of August 23, 1996, by and between Fuji Photo
Film Co., Ltd. and Careside, Inc.+
10.17* Agreement dated as of December 12, 1995, by and between United
Medical Manufacturing Company and SmithKline Beecham Corporation
and assignment
</TABLE>
II-5
<PAGE>
<TABLE>
<CAPTION>
Exhibit No. Description
----------- -----------
<C> <S>
10.18* Product Development and Supply Agreement dated as of July 18,
1997, by and between Careside, Inc. and UMM Electronics, Inc.
10.19* Agreement executed December 7, 1995 and February 28, 1996, by and
between SmithKline Beecham Corporation and Hauser, Inc. and
assignment
10.20* Agreement Number CP032284 Cost Type executed December 5 and 17,
1996 by and between Battelle Memorial Institute and Careside, Inc.
10.21* Joint Research and Development Agreement dated as of October 28,
1996 by and between Careside, Inc. and International Technidyne
Corporation+
10.22* Commitment Letter between S.R. One, Limited and Careside, Inc.
dated April 29, 1999.
10.23* Distribution and Supply Agreement dated as of November 7, 1996, by
and between SmithKline Beecham Clinical Laboratories, Inc. and
Careside, Inc, as amended on February 12, 1999.+
10.24* Asset Purchase Agreement dated as of November 7, 1996, by and
among SmithKline Beecham Clinical Laboratories, Inc., SmithKline
Beecham Diagnostic Systems Co. and Careside, Inc.
10.25* Loan and Security Agreement dated as of October 1, 1996, by and
between Careside, Inc. and SmithKline Beecham Corporation
10.26* Placement Agency Agreement dated as of December 10, 1996, by and
between Careside, Inc. and Spencer Trask Securities Incorporated
10.27* Placement Agency Agreement dated as of January 29, 1998, by and
between Spencer Trask Securities Incorporated and Careside, Inc.
10.28* Investment Banking Agreement dated as of January 31, 1997, by and
between Careside, Inc. and Spencer Trask Securities Incorporated
10.29* Agreement of Limited Partnership of Exigent Partners, L.P. dated
as of October 1996, by and between Kevin Kimberlin and those
persons listed on Schedule A attached thereto
10.30* The Lincoln National Life Insurance Company Standardized 401(k)
Salary Reduction Plan and Trust Prototype Plan Adoption Agreement
Plan #008, effective January 1, 1997, by and between Careside,
Inc. W. Vickery Stoughton and Thomas Grove
10.31* Employee Stock Purchase Plan
10.32* Registration Rights Agreement dated as of March 6, 1998 by and
among Careside, Inc. and the Investors signatory thereto
10.33* Registration Rights Agreement dated as of March 6, 1998 by and
between Careside, Inc. and Spencer Trask Securities Incorporated
10.34* Registration Rights Agreement dated as of December 17, 1998 by and
between Careside, Inc. and S.R. One, Limited
10.35* Waiver Letter Agreement dated as of May 25, 1999 by and between
Careside, Inc. and Spencer Trask Securities Incorporated
10.36* Letter Agreements between Advanced Medical Information
Technologies, Inc. and Careside, Inc. dated January 11, 1999,
January 25, 1999 and February 19, 1999.+
10.37* Form of Securities Conversion Agreement dated as of , 1999
between S.R. One, Limited and Careside, Inc.
10.38* Form of Amended and Restated Registration Rights Agreement dated
as of , 1999 between S.R. One, Limited and Careside, Inc.
10.39 Agreement dated as of April 13, 1999 by and between Fuji Photo
Film Co., Ltd. and Careside, Inc.+
23.1 Consent of Arthur Andersen LLP
23.2 Consent of Pepper Hamilton LLP (included in Exhibit 5.1)
23.3 Consent of Oppenheimer Wolff & Donnelly LLP
24.1* Power of Attorney (included on Signature Pages)
27.1* Financial Data Schedule
</TABLE>
- --------
* Previously filed with the Securities and Exchange Commission.
+ Portions of these documents have been omitted pursuant to a request for
confidential treatment. The material has been filed separately with the
Securities and Exchange Commission.
(b) Financial Statement Schedules:
Financial Statement Schedules are omitted because the information is included
in the Financial Statements or notes thereto.
II-6
<PAGE>
Item 17. Undertakings.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities
Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
The undersigned registrant hereby undertakes that:
(1) To file during any period in which offers or sales are being made, a
post-effective amendment to this registration statement to:
(i) Include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933, as amended (the "Securities Act");
(ii) Reflect in the prospectus any facts or events arising after the
effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set
forth in the registration statement. Notwithstanding the
foregoing, any increase or decrease in volume of securities
offered (if the dollar value of the securities offered would not
exceed that which was registered) and any deviation from the low
or high end of the estimated maximum offering range may be
reflected in the form of prospectus filed with the Commission
pursuant to Rule 424(b) if, in the aggregate, the changes in
volume and price represent no more than a 20% change in the
maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective registration statement,
and
(iii) Include additional or changed material information on the plan of
distribution not previously disclosed in the registration
statement or any material change to such information in the
registration statement.
(2) For purposes of determining liability under the Securities Act, treat
each post-effective amendment as a new registration statement of the
securities offered, and the offering of the securities at that time to
be the initial bona fide offering.
(3) File a post-effective amendment to remove from registration any of the
securities that remain unsold at the end of the offering.
(4) For purposes of determining any liability under the Securities Act, the
information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the registrant pursuant to Rule 424(b)(1)
or (4) or 497(h) under the Securities Act shall be deemed to be part of
this registration statement as of the time it was declared effective.
(5) For purposes of determining any liability under the Securities Act,
each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall
be deemed to be the initial bona fide offering thereof.
In addition, the undersigned registrant hereby undertakes to provide to the
underwriters at the closing specified in the underwriting agreements,
certificates in such denominations and registered in such names as required by
the underwriters to permit prompt delivery to each purchaser.
II-7
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-1 and has duly caused this Amendment No. 9 to
the Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in Culver City, California, on the 11th day of June,
1999.
CARESIDE, INC.
/s/ W. Vickery Stoughton
By: _________________________________
W. Vickery Stoughton
Chairman of the Board of
Directors
and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 9 to the Registration Statement has been signed by the following persons in
the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ W. Vickery Stoughton Chairman of the Board of June 11, 1999
______________________________________ Directors, Chief
W. Vickery Stoughton Executive Officer and
Director (principal
executive officer)
/s/ Thomas H. Grove Executive Vice President-- June 11, 1999
______________________________________ Research and Development
Thomas H. Grove and Director
/s/ James R. Koch Chief Financial Officer, June 11, 1999
______________________________________ Treasurer, Executive Vice
James R. Koch President and Director
(principal financial and
accounting officer)
* Director June 11, 1999
______________________________________
Anthony P. Brenner
* Director June 11, 1999
______________________________________
William F. Flatley
* Director June 11, 1999
______________________________________
Kenneth N. Kermes
* Director June 11, 1999
______________________________________
C. Alan MacDonald
* Director June 11, 1999
______________________________________
Diana Mackie
* Director June 11, 1999
______________________________________
Philip B. Smith
</TABLE>
/s/ W. Vickery Stoughton
*By: ________________________________
W. Vickery Stoughton Attorney-in-
Fact
II-8
<PAGE>
EXHIBIT 3.1C
FORM OF
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
CARESIDE, INC.
______________
CARESIDE, INC. (the "Corporation"), a corporation organized and
existing under and by virtue of the General Corporation Law of the State of
Delaware ("DGCL"), does hereby certify that:
1. The present name of the Corporation is CARESIDE, INC.
2. The name under which the Corporation was originally incorporated was
"Exigent Diagnostics, Inc." and the date of filing of the original Certificate
of Incorporation of the Corporation with the Secretary of State of the State of
Delaware was July 10, 1996.
3. This Amended and Restated Certificate of Incorporation, which amends
and restates the Corporation's Certificate of Incorporation in its entirety, has
been duly adopted pursuant to the provisions of Sections 242 and 245 of the
DGCL, and the stockholders of the Corporation have given their written consent
hereto in accordance with Section 228 of the DGCL. The provisions of the
Restated Certificate of Incorporation are as follows:
FIRST. The name of this corporation is:
CARESIDE, Inc.
SECOND. The registered office in the State of Delaware is located at
1201 Market Street, Suite 1600, in the City of Wilmington, County of New Castle
19801, and its registered agent at such address is PHS Corporate Services, Inc.
THIRD. The purpose or purposes of the corporation shall be to engage
in any lawful act or activity for which corporations may be organized under the
General Corporation Law of Delaware.
FOURTH. The total number of shares of all classes of stock which the
corporation shall have the authority to issue is:
Fifty Million (50,000,000) shares of Common Stock, $0.01 par value per
share; and
Five Million (5,000,000) shares of Preferred Stock, $0.01 par value
per share.
<PAGE>
FIFTH. The Board of Directors is authorized, subject to limitations
prescribed by law and the provisions of Article FOURTH, to provide for the
issuance from time to time of the shares of Preferred Stock in one or more
series, and by filing a certificate pursuant to the applicable law of the State
of Delaware, to establish from time to time the number of shares to be included
in a series, and to fix the designation, powers, preferences and rights of the
shares of such series, which may be different from the designations, powers,
preferences and rights of shares of any other series, and the qualifications,
limitations or restrictions thereof.
The authority of the Board with respect to such series shall include,
but not be limited to, determination of the following:
a. The number of shares constituting such series and the
distinctive designation of such series;
b. The dividend rate on the shares of such series, whether
dividends shall be cumulative, and, if so, from which date or dates, and the
relative rights of priority, if any, of payment of dividends on shares of such
series;
c. Whether such series shall have voting rights, in addition
to the voting rights provided by law, and, if so, the terms of such voting
rights;
d. Whether such series shall have conversion privileges, and,
if so, the terms and conditions of such conversion, including provision for
adjustment of the conversion rate in such events as the Board of Directors shall
determine;
e. Whether or not the shares of such series shall be
redeemable, and, if so, the term and conditions of such redemption, including
the date or date upon or after which they shall be redeemable, and the amount
per share payable in case of redemption, which amount may vary under different
conditions and at different redemption dates;
f. Whether such series shall have a sinking fund for the
redemption or purchase of shares of such series, and, if so, the terms and
amount of such sinking fund;
g. The rights of the shares of such series in the event of
voluntary or involuntary liquidation, dissolution or winding up of the
Corporation, and the relative rights of priority, if any, of payment of shares
of such series;
h. Any other relative rights, preferences and limitations of
such series.
Dividends on outstanding shares of Preferred Stock shall be paid or
declared and set apart for payment before any dividends shall be paid or
declared and set apart for payment on the common shares with respect to the
same dividend period.
-2-
<PAGE>
If upon any voluntary or involuntary liquidation, dissolution or
winding up of the Corporation, the assets available for distribution to holders
of shares of Preferred Stock of all series shall be insufficient to pay such
holders the full preferential amount to which they are entitled, then such
assets shall be distributed ratably among the shares of all series of Preferred
Stock in accordance with the respective preferential amounts (including unpaid
cumulative dividends, if any) payable with respect thereto.
SIXTH. The election of directors need not be by written ballot,
unless the By-laws so provide.
SEVENTH. The Board of Directors shall be classified as follows:
(a) The number of directors constituting the entire Board shall
be not less than six nor more than twelve (12) or, if a majority of the Board of
Directors so determines, fourteen (14), as fixed from time to time by vote of a
majority of the entire Board, provided, however, that the number of directors
shall not be reduced so as to shorten the term of any director at the time in
office. Directors need not own any shares of capital stock of the Corporation.
(b) The Board of Directors shall be divided into three classes,
as nearly equal in numbers as the then total number of directors constituting
the entire Board permits with the term of office of one class expiring each
year. The term of office of those directors in the first class shall expire at
the next succeeding annual meeting, in the second class shall expire at the
second succeeding annual meeting and in the third class at the third succeeding
annual meeting. At each annual meeting of Stockholder's the successors to the
class of directors whose term shall then expire shall be elected to hold office
for a term expiring at the third succeeding annual meeting. Any vacancies in the
Board of Directors for any reason, and any directorships resulting from any
increase in the number of directors, may be filled by the Board of Directors,
acting by a majority of the directors then in office, although less than a
quorum, and any directors so chosen shall hold office until the next election of
the class for which such directors shall have been chosen and until their
successors shall be elected and qualified. Notwithstanding the foregoing, and
except as otherwise required by law, whenever the holders of any one or more
series of Preferred Stock shall have the right, voting separately as a class, to
elect one or more directors of the Corporation, the terms of the director or
directors elected by such holders shall expire at the next annual meeting of
Stockholders held more than twelve months following election of such director.
(c) Notwithstanding any other provisions of this Certificate of
Incorporation or the By-laws of the Corporation (and notwithstanding the fact
that some lesser percentage may be specified by law, this Certificate of
Incorporation or the By-laws of the Corporation), any director or the entire
Board of Directors of the Corporation may be removed at
-3-
<PAGE>
any time, but only for cause and only by the affirmative vote of the holders of
80% or more of the outstanding shares of capital stock of the Corporation
entitled to vote generally in the election of directors (considered for this
purpose as one class) cast at a meeting of the Stockholders called for that
purpose.
Notwithstanding any other provisions of this Amended and Restated
Certificate of Incorporation or any provision of law which might otherwise
permit a lesser vote or no vote, but in addition to any affirmative vote of the
holders of any particular class or series of capital stock required by law, this
Amended and Restated Certificate of Incorporation or any preferred stock
designation, the affirmative vote of at least 75% of the voting power of all of
the then-outstanding shares of capital stock of the Corporation, voting together
as a single class, shall be required to alter, amend or repeal this Section (c)
of Article SEVENTH.
EIGHTH. No action required to be taken or which may be taken at any
annual or special meeting of stockholders of the Corporation may be taken
without a meeting, and the power of stockholders to consent in writing, without
a meeting, to the taking of any action is specifically denied.
NINTH. Special meeting of stockholders may be called at any time by a
majority of Board of Directors or the Chairman and Chief Executive Officer of
the Corporation. At any time, upon the written request of any person who has
called a special meeting, it shall be the duty of the Secretary to fix the time
and place of the meeting, which shall be held not more than 60 days after
receipt of the request. If the Secretary neglects or refuses to fix the time or
place of the meeting, the person or persons calling the meeting may do so.
TENTH. All of the powers of this Corporation, insofar as the same may
be lawfully vested by this Certificate of Incorporation in the Board of
Directors, are hereby conferred upon the Board of Directors of this Corporation.
In furtherance and not in limitation of that power the Board of Directors shall
have the power to make, adopt, alter, amend and repeal from time to time By-laws
of this Corporation, subject to the right of the stockholders entitled to vote
with respect thereto adopt, alter, amend and repeal By-laws made by the Board of
Directors; provided, however, that By-laws shall not be adopted, altered,
amended or repealed by the stockholders of the Corporation except by the vote of
the holders of not less than eighty percent (80%) of the outstanding shares of
stock entitled to vote upon the election of directors.
ELEVENTH. The Corporation shall indemnify and advance expenses to the
fullest extent permitted by Section 145 of the General Corporation Law of
Delaware ("DGCL"), as amended from time to time, to each person who is or was a
director or officer of the Corporation and the heirs, executors and
administrators of such a person. Any expenses (including attorneys' fees)
incurred by each person who is or was a director or officer of the Corporation,
and the heirs, executors and administrators of such a person in connection with
defending any such proceeding in advance of its final disposition shall be paid
by the Corporation; provided, however, that if the DGCL requires, an advancement
of expenses
-4-
<PAGE>
incurred by an indemnitee in his capacity as a director or officer (and not in
any other capacity in which service was or is rendered by such indemnitee,
including, without limitation, service to an employee benefit plan) shall be
made only upon delivery to the Corporation of an undertaking by or on behalf of
such indemnitee, to repay all amounts so advanced, if it shall ultimately be
determined that such indemnitee is not entitled to be indemnified for such
expenses under this Article or otherwise. Notwithstanding the aforementioned
indemnification provisions, the Corporation may, at the discretion of the Chief
Executive Officer of the Corporation, enter into indemnification agreements with
directors or officers.
TWELFTH. Whenever a compromise or arrangement is proposed between
this corporation and its creditors or any class of them and/or between this
corporation and its stockholders or any class of them, any court of equitable
jurisdiction within the State of Delaware may, on the application in a summary
way of this corporation or of any creditor or stockholder thereof or in the
application of any receiver or receivers appointed for this corporation under
the provisions of Sec. 291 of Title 8 of the Delaware Code or on the application
of trustees in dissolution or of any receiver or receivers appointed for this
corporation under the provisions of Sec. 279 of Title 8 of the Delaware Code
order a meeting of the creditors or class of creditors, and/or of the
stockholders or class of stockholders of this corporation, as the case may be,
agree to any compromise or arrangement and to any reorganization of this
corporation as a consequence of such compromise or arrangement, the said
compromise or arrangement and the said reorganization shall, if sanctioned by
the court to which the said application has been made, be binding on all the
creditors or claims of creditors, and/or on all the stockholders or class of
stockholders of this corporation, as the case may be, and also on this
corporation.
THIRTEENTH. The books of the Corporation may be kept (subject to any
provision contained in the statutes) outside the State of Delaware at such place
or places as may be designated from time to time by the board of directors or in
the bylaws of the Corporation.
FOURTEENTH. The personal liability of the directors of the
Corporation is hereby eliminated to the fullest extent permitted by Section
102(b)(7) of the DGCL, as the same may be amended and supplemented.
THE UNDERSIGNED, being the Chairman and Chief Executive Officer of the
Corporation, for the purpose of amending and restating the Corporation's
Certificate of Incorporation pursuant to the DGCL, do make this certificate,
hereby declaring and certifying that this is my act and deed on behalf of the
Corporation this ___ day of June, 1999.
_______________________________
W. Vickery Stoughton
Chairman and Chief Executive Officer
-5-
<PAGE>
EXHIBIT 3.1d
FORM OF
CARESIDE, INC.
CERTIFICATE OF DESIGNATIONS
SERIES A CONVERTIBLE PREFERRED STOCK
(PURSUANT TO SECTION 151 OF THE GENERAL
CORPORATION LAW OF THE STATE OF DELAWARE)
Careside, Inc., a corporation organized and existing under the laws of
the State of Delaware (hereinafter called the "Corporation"), hereby certifies
that pursuant to the authority contained in Article Fourth of the Corporation's
Certificate of Incorporation and in accordance with the provisions of Section
151 of the General Corporation Law of Delaware (the "DGCL") the following
resolution was duly adopted by the Board of Directors of the Corporation at a
meeting duly called and held on June 9, 1999, creating a series of its
Preferred Stock designated as Series A Convertible Preferred Stock (the "Series
A Preferred Stock").
RESOLVED, that pursuant to the authority granted to and vested in the
Board of Directors of the Corporation (hereinafter called the "Board of
Directors") in accordance with the provisions of the Corporation's Certificate
of Incorporation, as amended to date (hereinafter called the "Certificate of
Incorporation"), the Board of Directors hereby creates a series of Preferred
Stock designated Series A Convertible Preferred Stock and hereby states the
designation and number of shares, and fixes the relative rights, powers and
preferences thereof, and the limitations or restrictions thereof, as follows:
Section 1. Series A Preferred Stock. Of the Five Million (5,000,000)
------------------------
Preferred Shares that the Corporation has authority to issue, [
]/1/ are hereby designated shares of Series A Preferred Stock, with a stated
value of $[ ]/2/ per share (the "Series A Stated Value").
Section 2. Dividends.
---------
(A) The holder of each share of Series A Preferred Stock shall be
entitled to receive, when and as declared by the Board of Directors (in its sole
discretion and without any obligation so to declare dividends regardless of the
funds available for that purpose) out of funds legally available for that
purpose, cash dividends equal to ten percent (10%) of the Series A
- -------------------------
/1/This blank to be filled in with the number of shares of Series A Convertible
Preferred Stock equal to $1,000,000 plus interest thereon accrued through the
date of the closing of the Company's initial public offering of units.
/2/This blank to be filled in with the offering price per unit.
<PAGE>
Stated Value per annum per share. Dividends shall be cumulative and shall
compound on an annual basis on each anniversary date of the Original Issuance
Date (as defined below), until declared and paid, and shall be payable pro rata
for partial year periods. Except to the extent paid in conjunction with an
Optional Redemption (as defined below), no dividends shall be paid upon, or
declared and set apart for, any share of Series A Preferred Stock unless at the
same time a like proportionate dividend shall be paid upon or declared and set
apart for all shares of Series A Preferred Stock then outstanding.
(B) No dividends or other distributions of any nature (other than
stock dividends payable in shares of the Common Stock (as defined herein)) shall
be declared and/or paid on any Common Shares, or any other shares ranking junior
to the Series A Preferred Stock unless and until all accrued and unpaid
dividends on the Series A Preferred Stock have been paid in full.
Section 3. Rights on Liquidation, Dissolution, Winding Up. In the event
----------------------------------------------
of any liquidation, dissolution or winding up of the Corporation, whether
voluntary or involuntary, the holders of shares of Series A Preferred Stock then
outstanding shall be entitled to be paid out of the assets of the Corporation
available for distribution to its shareholders, whether from capital, surplus or
earnings, before any payment shall be made to the holders of any stock ranking
on liquidation junior to the Series A Preferred Stock (with respect to rights on
liquidation, dissolution or winding up, the shares of Series A Preferred Stock
shall rank senior to all other shares of capital stock of the Corporation,
including, without limitation, Common Shares) an amount equal to the Series A
Stated Value per share, plus all accrued and unpaid dividends thereon (the
"Liquidation Preference"). If upon any liquidation, dissolution or winding up
of the Corporation, the assets of the Corporation available for distribution to
its shareholders shall be insufficient to pay the holders of shares of Series A
Preferred Stock the full amounts to which they respectively shall be entitled,
the holders of shares of Series A Preferred Stock shall share ratably in any
distribution of assets. In the event of any liquidation, dissolution or winding
up of the Corporation, after payment shall have been made to the holders of
shares of Series A Preferred Stock of the full amount to which they shall be
entitled as aforesaid, the holders of any class or classes of stock ranking on
liquidation junior to the Series A Preferred Stock shall be entitled, to the
exclusion of and without participation by the holders of shares of Series A
Preferred Stock, to share, according to their respective rights and preferences,
in all remaining assets of the Corporation available for distribution to its
shareholders.
Section 4. Optional Redemption.
-------------------
(A) At any time, subject to an Optional Redemption Notice (as defined
below), the Corporation may redeem all or any portion of the then outstanding
shares of Series A Preferred Stock (the "Optional Redemption"). In the event
the Corporation redeems a portion of the then outstanding Series A Preferred
Stock, the redemption shall be made pro rata among all of the holders of shares
of Series A Preferred Stock. The redemption of the Series A Preferred
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<PAGE>
Stock shall be at a per share redemption price (the "Optional Redemption Price")
equal to the sum of (x) the Corporation's initial public offering price per Unit
(as defined herein) (the "IPO Unit Price"), (y) all accrued and unpaid dividends
per share of outstanding Series A Preferred Stock, such dividends to accrue and
be computed through the date immediately preceding the Redemption Date (as
defined below) and (z) the greater of (A) $0.05 and (B) the difference between
of the average Market Price (as defined herein) per share of the Corporation's
common stock, $0.01 par value per share (the "Common Stock"), on the five (5)
consecutive trading days immediately preceding the Redemption Date and the
exercise price of the warrants issuable upon conversion of the Series A
Preferred Stock. At any time, following the Original Issuance Date, the
Corporation may deliver to the holders of the Series A Preferred Stock a notice
(the "Optional Redemption Notice") by first-class certified mail, postage
prepaid, to holders of record of the outstanding shares of Series A Preferred
Stock to be redeemed at their respective addresses as the same shall appear on
the books of the Corporation. Such notice shall specify the date on which such
Series A Preferred Stock shall be redeemed (the "Optional Redemption Date"),
which date shall not be fewer than five (5) days thereafter or longer than
ninety (90) days thereafter. The total amount payable per share of Series A
Preferred Stock on the Optional Redemption Date is hereinafter referred to as
the "Optional Redemption Price."
As used herein, "Market Price" means, with respect to shares of Common
Stock, (a) if the shares are listed or admitted for trading on any trading on
any national securities exchange or included in The Nasdaq National Market or
Nasdaq SmallCap Market, the last reported sales price as reported on such
exchange or market; (b) if the shares are not listed or admitted for trading on
any national securities exchange or included in The Nasdaq National Market or
Nasdaq SmallCap Market, the average of the last reported closing bid and asked
quotation for the shares as reported on the National Association of Securities
Dealers Automated Quotation System ("NASDAQ") or a similar service if NASDAQ is
not reporting such information; (c) if the shares are not listed or admitted for
trading on any national securities exchange or included in The Nasdaq National
Market or Nasdaq SmallCap Market or quoted by NASDAQ or a similar service, the
average of the last reported bid and asked quotation for the shares as quoted by
a market maker in the shares (or if there is more than one market maker, the bid
and asked quotation shall be obtained from two market makers and the average of
the lowest bid and highest asked quotation). In the absence of any available
public quotations for the Common Stock, the Board shall determine in good faith
the fair value of the Common Stock, which determination shall be set forth in a
certificate of the Secretary of the Corporation.
(B) The Optional Redemption Price for any shares of Series A Preferred
Stock redeemed pursuant to Section 4(A) on any Optional Redemption Date shall be
payable as follows: on such Optional Redemption Date, the Corporation shall pay
to each holder of shares of Series A Preferred Stock being redeemed the Optional
Redemption Price being paid to such holder for such Series A Preferred Stock in
cash. Simultaneously with its receipt of such cash payment, each holder of
Series A Preferred Stock shall deliver to the Corporation or its agent the
certificates representing the shares of Series A Preferred Stock being redeemed;
provided, that,
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<PAGE>
upon the payment by the Corporation of the applicable Optional Redemption Price,
all rights in respect of the shares of Series A Preferred Stock to be redeemed
shall cease and terminate, and such shares shall no longer be deemed to be
outstanding, whether or not the certificates representing such shares have been
received by the Corporation.
(C) Once redeemed pursuant to the provisions of this Section 4, shares
of Series A Preferred Stock shall be canceled and not subject to reissuance and
such redeemed shares shall, without any action on the part of the Corporation or
the shareholders of the Corporation, be eliminated from the authorized capital
of the Corporation.
(D) No shares of Series A Preferred Stock shall be entitled to the
benefit of a sinking fund or purchase fund.
Section 5. Voting.
------
(A) In addition to the rights otherwise expressly provided herein or
as provided by any applicable law, subject to the limitations set forth herein,
each share of Series A Preferred Stock shall entitle the holder thereof to one
(1) vote on all matters submitted to a vote of the holders of Common Stock of
the Corporation in the same manner and with the same effect as such holders of
Common Stock, voting together with the holders of Common Stock as one voting
group. Except as otherwise provided in the Corporation's Certificate of
Incorporation, its bylaws or by applicable law, and subject to the provisions of
Section 5(B) hereof, the holders of Series A Preferred Stock and the holders of
shares of Common Stock shall vote together as one class on all matters submitted
to a vote of holders of Common Stock of the Corporation.
(B) The holders of Series A Preferred Stock shall vote as a separate
voting group on, and the affirmative vote of a majority of the outstanding
shares of Series A Preferred Stock shall be required to authorize, any action
which would:
(1) in any manner alter or change the designation or the powers,
preferences or rights, or the qualifications, limitations or restrictions of the
Series A Preferred Stock (including by merger, consolidation or otherwise,
except in a Fundamental Transaction (as defined in Section 6(F)(2)) in which the
provisions of Section 6(F)(3) are complied with);
(2) reclassify Common Shares, or any other shares of any class or
series of capital stock hereinafter created junior to the Series A Preferred
Stock into shares of any class or series of capital stock ranking, either as to
payment of dividends, distribution of assets (upon liquidation, dissolution,
winding up or otherwise) or redemption, prior to or on a parity with the Series
A Preferred Stock; or
(3) increase the authorized number of shares of Series A
Preferred Stock.
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<PAGE>
(C) If at any time any action is proposed by the Corporation which
requires the affirmative vote of the holders of the Series A Preferred Stock
pursuant to Section 5(B), the Chief Executive Officer (or any other officer) of
the Corporation shall call a special meeting of the holders of Series A
Preferred Stock for the purpose of voting on such proposed action. Such meeting
shall be held at the earliest practicable date at such place as specified in or
determined in accordance with the By-laws of the Corporation. Subject to the
provisions of Section 228 of the Delaware General Corporation Law, any action
required or permitted to be taken at any special meeting of the holders of
Series A Preferred Stock may be taken without a meeting, without prior notice
and without a vote, if a consent in writing, setting forth the action so taken,
shall be signed by the holders of outstanding stock having not less than the
minimum number of votes that would be necessary to authorize or take such action
at a meeting at which all shares entitled to vote thereon were present and
voted. Prompt notice of the taking of such action without a meeting by less
than unanimous written consent shall be given to those holders of Series A
Preferred Stock who have not consented in writing.
Section 6. Conversion into Units.
---------------------
The holders of shares of Series A Preferred Stock shall have the
following conversion rights:
(A) Subject to the limitations set forth below, the shares of Series
A Preferred Stock shall be convertible at any time commencing six months after
the consummation of the Corporation's initial public offering of the
Corporation's units (the "Units"), each of which Unit consists of one share of
Common Stock and one warrant to purchase one share of Common Stock (the
"Warrant"), unless previously redeemed by the Corporation, into a number of
Units equal to (i) the number of shares of Series A Preferred Stock being
converted, plus (ii) the number of Units equal to the accrued and unpaid
dividends in respect of such shares of Series A Preferred Stock divided by the
IPO Unit Price. Such conversion shall be effected upon written notice to the
Corporation that such holder is exercising a conversion right pursuant to this
Section 6(A) (the "Conversion Notice"). The Conversion Notice shall be sent by
the holder of the Series A Preferred Stock to the Corporation by first class,
certified mail, postage prepaid. Conversion effected pursuant to this Section
6(A) shall be deemed to have been effected on the date the aforesaid delivery is
made, and such date is referred to herein as the "Conversion Date".
-5-
<PAGE>
(B) Any shares of Series A Preferred Stock which have been converted
shall be canceled and all dividends on converted shares shall cease to accrue
and the certificates representing shares of Series A Preferred Stock so
converted shall represent the right to receive (i) such number of Units into
which such shares of Series A Preferred Stock are convertible, plus (ii) cash
payable for any fractional Unit. The Board shall at all times, so long as any
shares of Series A Preferred Stock remain outstanding, reserve a sufficient
number of authorized but unissued shares of Common Stock to be issued in
satisfaction of the aforesaid conversion rights and privileges.
(C) Following exercise of the conversion rights pursuant to Sections
6(A) or (B), the holder of any shares of Series A Preferred Stock so converted
shall promptly deliver to the Corporation during regular business hours, at the
office of any transfer agent of the Corporation for the Series A Preferred
Stock, or at such other place as may be designated by the Corporation, the
certificate or certificates for the shares to be converted, duly endorsed or
assigned in blank or to the Corporation (if required by it), or if the holder
notifies the Corporation or its transfer agent that such certificate or
certificates have been lost, stolen or destroyed, upon the execution and
delivery of an agreement satisfactory to the Corporation to indemnify the
Corporation from any losses incurred by it in connection therewith, accompanied
by written notice stating the name or names (with address) in which the
certificate or certificates for the Common Stock and Warrants included in Units
are to be issued. As promptly as practicable thereafter, the Corporation shall
(x) issue and deliver to or upon the written order of such holder, to the place
designated by such holder, a certificate or certificates for the number of full
Common Shares and Warrants included in Units to which such holder is entitled
and a check or cash in respect of any fractional interest in a Unit as provided
in Section 6(D) hereof. Each person in whose name the certificate or
certificates for Common Shares and Warrants included in Units are to be issued
shall be deemed to have become a shareholder of record on the applicable
Conversion Date unless the transfer books of the Corporation are closed on that
date, in which event such holder shall be deemed to have become a shareholder of
record on the next succeeding date on which the transfer books are open, but the
number of Units into which each share of Series A Preferred Stock shall be
converted is that number which was in effect on the applicable Conversion Date.
Upon conversion of only a portion of the number of shares covered by a
certificate representing shares of Series A Preferred Stock surrendered for
conversion, or upon the written order of the holder of the certificate so
surrendered for conversion, the Corporation shall issue and deliver, at the
expense of the Corporation, a new certificate covering the number of shares of
Series A Preferred Stock, representing the unconverted portion of the
certificate so surrendered, which new certificate shall entitle the holder
thereof to dividends on the shares of Series A Preferred Stock, represented
thereby to the same extent as if the certificate theretofore covering such
unconverted shares had not been surrendered for conversion.
(D) No fractional Units shall be issued upon conversion of shares of
Series A Preferred Stock. If more than one share of Series A Preferred Stock
shall be surrendered for conversion at any one time by the same holder, the
number of full Units issuable upon
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<PAGE>
conversion thereof shall be computed on the basis of the aggregate number of
shares of Series A Preferred Stock so surrendered. Instead of any fractional
Units which would otherwise be issuable upon conversion of any shares of Series
A Preferred Stock, the Corporation shall pay a cash adjustment in respect of
such fractional interest in an amount equal to the Fair Market Value of the
Common Shares on the Conversion Date multiplied by such fractional interest.
Fractional interests shall not be entitled to dividends, and the holders of
fractional interests shall not be entitled to any rights as shareholders of the
Corporation in respect of such fractional interests.
(E) The conversion rights for the Series A Preferred Stock shall be
subject to adjustment from time to time as follows:
(1) If, at any time after the Original Issuance Date, the number
of Common Shares outstanding is increased by a stock dividend payable in Common
Shares or other distribution of Common Shares to holders of Common Shares or by
a subdivision or split-up of Common Shares, or the number of Common Shares
outstanding is decreased by a combination of the outstanding Common Shares, the
number of Units which the holder of Series A Preferred Stock would otherwise
have been entitled to upon exercise of the Conversion Right shall be
appropriately adjusted so that the holder of any Series A Preferred Stock
thereafter surrendered for conversion shall be entitled to receive the number
and kind of Units which such holder would have owned or have been entitled to
receive after the happening of such event had such Series A Preferred Stock been
converted immediately prior to the record date (or if no record date has been
established in connection with such event, the effective date) for such event.
An adjustment pursuant to this Section 6(E)(1) shall become effective
immediately after the record date in the case of a stock dividend or
distribution and shall become effective immediately after the effective date in
the case of a subdivision or combination.
(2) In case, at any time after the Original Issuance Date of any
reorganization of the Corporation, reclassification of the stock of the
Corporation (other than a change in par value or from par value to no par value
or from no par value to par value or as a result of a stock dividend or
subdivision, split-up or combination of shares), or the merger or consolidation
of the Corporation into or with another corporation, or the merger or
consolidation of any other corporation into or with the Corporation, in which
such consolidation or merger the shareholders of the Corporation receive
distributions of cash or securities as a result of such consolidation or merger
(other than a consolidation or merger in which the Corporation is the continuing
corporation and which does not result in any change in the Common Shares), or in
the case of any share exchange pursuant to which all of the outstanding Common
Shares are converted into other securities or property (any such reorganization,
reclassification, merger, consolidation or share exchange being called a
"Fundamental Transaction"), the Corporation shall make appropriate provision or
cause appropriate provision to be made so that holders of each share of Series A
Preferred Stock then outstanding shall have the right thereafter to convert such
share of Series A Preferred Stock into the kind and amount of shares of stock
and other securities and property receivable upon such Fundamental Transaction
by a holder of the number
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<PAGE>
of Units into which such share of Series A Preferred Stock would have been
converted immediately prior to the effective date of such Fundamental
Transaction. If in connection with any such Fundamental Transaction, each holder
of Common Shares is entitled to elect to receive either securities, cash or
other assets upon completion of such Fundamental Transaction, the Corporation
shall provide or cause to be provided to each holder of Series A Preferred Stock
the right to elect the securities, cash or other assets into which the Series A
Preferred Stock held by such holder shall be convertible after completion of any
such Fundamental Transaction on the same terms and subject to the same
conditions applicable to holders of the Common Stock (including, without
limitation, notice of the right to elect, limitations on the period in which
such election shall be made and the effect of failing to exercise the election).
The Corporation shall not effect any such Fundamental Transaction unless the
provisions of this paragraph have been complied with. The above provisions shall
similarly apply to successive Fundamental Transactions.
(3) All calculations under this Section 6(E) shall be made to the
nearest one-hundreth (1/100) of a Unit.
(4) In any case in which the provisions of this Section 6(E)
shall require that an adjustment shall become effective immediately after a
record date for an event, the Corporation may defer until the occurrence of such
event (i) issuing to the holder of any share of Series A Preferred Stock
converted after such record date and before the occurrence of such event the
additional Units issuable upon such conversion by reason of the adjustment
required by such event over and above the Units issuable upon such conversion
before giving effect to such adjustment and (ii) paying to such holder any
amount in cash in lieu of a fractional Units pursuant to Section 6(D); provided,
--------
however, that the Corporation shall deliver to such holder a due bill or other
- -------
appropriate instrument evidencing such holder's right to receive such additional
Units, and such cash, upon the occurrence of the event requiring such
adjustment.
(5) Whenever the number of Units into which the Series A
Preferred Stock is convertible shall be adjusted as provided herein, the
Corporation shall forthwith file, at the office of the transfer agent for the
Series A Preferred Stock or at such other place as may be designated by the
Corporation, a statement, signed by a senior officer and its independent
certified public accountants, showing in reasonable detail the facts requiring
such adjustment and the number of shares of Units into which the Series A
Preferred Stock can be converted after such adjustment. The Corporation shall
also cause a copy of such statement to be sent by mail, first class certified
mail, return receipt requested, postage prepaid, to each holder of shares of any
Series A Preferred Stock at his address appearing on the Corporation's records.
Notwithstanding the foregoing notice provisions, failure of the Corporation to
give such notice or a defect in such notice shall not affect the binding nature
of such corporate action of the Corporation.
(6) In the event the Corporation shall propose to take any action
of the types described in Section 6(E)(1) or (2) hereof, the Corporation shall
give notice to each holder
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<PAGE>
of shares of Series A Preferred Stock in the manner set forth in this Section
6(E)(6), which notice shall specify the record date, if any, with respect to any
such action and the date on which such action is to take place. Such notice
shall also set forth such facts with respect thereto as shall be reasonably
necessary to indicate the effect of such action (to the extent such effect may
be known at the date of such notice) on the number of Units or cash or other
securities into which the Series A Preferred will be convertible. In the case of
any action which would require the fixing of a record date, such notice shall be
given at least twenty (20) days prior to the date so fixed, and in case of all
other action, such notice shall be given at least thirty (30) days prior to the
taking of such proposed action. Failure to give such notice, or any defect
therein, shall not affect the legality or validity of any such action.
(7) The Corporation shall pay all documentary, stamp or other
transactional taxes attributable to the issuance or delivery of Units upon
conversion of shares of Series A Preferred Stock; provided, however, that the
-------- -------
Corporation shall not be required to pay any taxes which may be payable in
respect of any transfer involved in the issuance or delivery of any certificate
for such shares in a name other than that of the holder of the shares of Series
A Preferred Stock in respect of which such shares are being issued.
(8) The Corporation shall reserve and at all times from and after
the Original Issuance Date keep reserved free from preemptive rights, out of its
authorized but unissued Common Shares, solely for the purpose of effecting the
conversion of the shares of Series A Preferred Stock sufficient shares to
provide for the conversion of all outstanding shares of Series A Preferred
Stock.
(9) All Common Shares which may be issued in connection with the
conversion provisions set forth herein will, upon issuance by the Corporation,
be validly issued, fully paid and nonassessable and free from all taxes, liens
or charges with respect thereto.
(10) Once converted pursuant to the provisions hereof, shares of
Series A Preferred Stock so converted shall be canceled and not subject to
reissuance, and such converted shares shall, without any action on the part of
the Corporation or the shareholders of the Corporation, be eliminated from the
authorized capital of the Corporation.
(F) The term "Original Issuance Date" shall mean with respect to the
Series A Preferred Stock, June ___, 1999.
(G) The "Fair Market Value" of Common Shares on any day means: (a) if
the principal market for the Common Shares is The New York Stock Exchange,
American Stock Exchange or any other national securities exchange or The Nasdaq
National Market, the closing sales price of the Common Shares on such day as
reported by such exchange or market, or on a consolidated tape reflecting
transactions on such exchange or market, or (b) if the principal
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<PAGE>
market for the Common Shares is not a national securities exchange or The Nasdaq
National Market and transactions in the Common Shares are quoted on the National
Association of Securities Dealers Automated Quotations System, the mean between
the closing bid and the closing asked prices for the Common Shares on such day
as quoted on such System, or (c) if transactions in the Common Shares are not
quoted on the National Association of Securities Dealers Automated Quotations
System, the price therefor reported by the National Quotation Bureau, Inc.;
provided that if none of (a), (b) or (c) above is applicable, or if no trades
have been made or no quotes are available for such day, the Fair Market Value of
the Common Shares shall be determined, in good faith, by the Board of Directors
of the Corporation.
IN WITNESS WHEREOF, this Certificate of Designations is executed on
behalf of the Company by its Chairman of the Board of Directors and Chief
Executive Officer and attested by its Secretary this ____ day of June, 1999.
Attest:
--------------------------------------------------
Chairman of the Board of Directors and
Chief Executive Officer
- ------------------------------
Secretary
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<PAGE>
EXHIBIT 3.2a
CARESIDE, INC.
BYLAWS
------
ARTICLE I OFFICES
-----------------
1.1 Registered Office: The registered office shall be in the City of
-----------------
Wilmington, County of New Castle, State of Delaware.
1.2 Other Offices: The corporation may also have offices at such other
-------------
places both within and without the State of Delaware as the board of directors
may from time to time determine or the business of the corporation may require.
ARTICLE II MEETINGS OF STOCKHOLDERS
------------------------------------
2.1 Place of Meetings: All meetings of the stockholders for the election
-----------------
of directors shall be held at such place either within or without the State of
Delaware as shall be designated from time to time by the board of directors and
stated in the notice of the meeting. Meetings of stockholders for any other
purpose may be held at such time and place, within or without the State of
Delaware, as shall be stated in the notice of the meeting or in a duly executed
waiver of notice thereof.
2.2 Date of Annual Meeting: Annual meetings of stockholders, commencing
----------------------
with the year 1997, shall be held on the first Wednesday of August, if not a
legal holiday, and if a legal holiday, then on the next secular day following,
at 10:00 o'clock A.M., or at such other date and time as shall be designated
from time to time by the board of directors and stated in the notice of the
meeting, at which they shall elect by a plurality vote a board of directors, and
transact such other business as may properly be brought before the meeting.
2.3 Notice of Annual Meeting: Written notice of the annual meeting
------------------------
stating the place, date and hour of the meeting shall be given to each
stockholder entitled to vote at such meeting not less than ten nor more than
sixty days before the date of the meeting.
2.4 Stockholders List: The officer who has charge of the stock ledger of
-----------------
the corporation shall prepare and make, at least ten days before every meeting
of stockholders, a complete list of the stockholders entitled to vote at the
meeting, arranged in alphabetical order, and showing the address of each
stockholder and the number of shares registered in the name of each stockholder.
Such list shall be open to the examination of any stockholders, for any purpose
germane to the meeting, during ordinary business hours, for a period of at least
ten days prior to the meeting, either at a place within the city where the
meeting is to be held, which place shall be specified in the notice of the
meeting, or, if not so specified, at the place where the meeting is to be held.
The list shall also be produced
<PAGE>
and kept at the time and place of the meeting during the whole time thereof, and
may be inspected by any stockholder who is present.
2.5 Special Meetings: Special meetings of the stockholders, for any
----------------
purpose or purposes, unless otherwise prescribed by statute or by the
certificate of incorporation, may be called by the president and shall be called
by the president or secretary at the request in writing of a majority of the
board of directors, or at the request in writing of stockholders owning a
majority in amount of the entire capital stock of the corporation issued and
outstanding and entitled to vote. Such request shall state the purpose or
purposes of the proposed meeting.
2.6 Notice of Special Meetings: Written notice of a special meeting
--------------------------
stating the place, date and hour of the meeting and the purpose or purposes for
which the meeting is called, shall be given not less than ten nor more than
sixty days before the date of the meeting, to each stockholder entitled to vote
at such meeting.
2.7 Business Transacted at Special Meeting: Business transacted at any
--------------------------------------
special meeting of stockholders shall be limited to the purposes stated in the
notice.
2.8 Quorum: The holders of a majority of the stock issued and outstanding
------
and entitled to vote thereat, present in person or represented by proxy, shall
constitute a quorum at all meetings of the stockholders for the transaction of
business except as otherwise provided by statute or by the certificate of
incorporation. If, however, such quorum shall not be present or represented at
any meeting of the stockholders, the stockholders entitled to vote thereat,
present in person or represented by proxy, shall have power to adjourn the
meeting from time to time, without notice other than announcement at the
meeting, until a quorum shall be present or represented. At such adjourned
meeting at which a quorum shall be present or represented any business may be
transacted which might have been transacted at the meeting as originally
notified. If the adjournment is for more than thirty days, or if after the
adjournment a new record date is fixed for the adjourned meeting, a notice of
the adjourned meeting shall be given to each stockholder of record entitled to
vote at the meeting.
2.9 Vote Required: When a quorum is present at any meeting, the vote of
-------------
the holders of a majority of the stock having voting power present in person or
represented by proxy shall decide any question brought before such meeting,
unless the question is one upon which by express provision of the statutes or of
the certificate of incorporation, a different vote is required in which case
such express provision shall govern and control the decision of such question.
2.10 Voting: Unless otherwise provided in the certificate of incorporation
------
each stockholder shall at every meeting of the stockholders be entitled to one
vote in person or by proxy for each share of the capital stock having voting
power held by such stockholder, but no proxy shall be voted on after three years
from its date, unless the proxy provides for a longer period.
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<PAGE>
At all elections of the directors of the corporation each stockholder
having voting power shall be entitled to exercise the right to cumulative
voting, but only if so provided in the certificate of incorporation.
2.11 Action Without Meeting: Unless otherwise provided in the certificate
----------------------
of incorporation, any action required to be taken at any annual or special
meeting of stockholders of the corporation, or any action which may be taken at
any annual or special meeting of such stockholders, may be taken without a
meeting, without prior notice and without a vote, if a consent in writing,
setting forth the action so taken, shall be signed by the holders of outstanding
stock having not less than the minimum number of votes that would be necessary
to authorize or take such action at a meeting at which all shares entitled to
vote thereon were present and voted. Prompt notice of the taking of the
corporate action without a meeting by less than unanimous written consent shall
be given to those stockholders who have not consented in writing.
ARTICLE III DIRECTORS
----------------------
3.1 Number of Directors: The number of directors which shall constitute
-------------------
the whole board shall be not less than one (1) nor more than five (5). The
first board shall consist of two (2) directors. Thereafter, within the limits
above specified, the number of directors shall be determined by resolution of
the board of directors or by the stockholders at the annual meeting. The
directors shall be elected at the annual meeting of the stockholders, except as
provided in Section 3.2 of these ByLaws, and each director elected shall hold
office until his successor is elected and qualified. Directors need not be
stockholders.
3.2 Vacancies: Vacancies and newly created directorships resulting from
---------
any increase in the authorized number of directors may be filled by a majority
of the directors then in office, though less than a quorum, or by a sole
remaining director, and the directors so chosen shall hold office until the next
annual election and until their successors are duly elected and shall qualify,
unless sooner displaced. If there are no directors in office, then an election
of directors may be held in the manner provided by statute. If, at the time of
filling any vacancy or any newly created directorship, the directors then in
office shall constitute less than a majority of the whole board (as constituted
immediately prior to any such increase), the Court of Chancery may, upon
application of any stockholder or stockholders holding at least ten percent of
the total number of the shares at the time outstanding having the right to vote
for such directors, summarily order an election to be held to fill any such
vacancies or newly created directorships, or to replace the directors chosen by
the directors then in office.
3.3 Powers of Directors: The business of the corporation shall be managed
-------------------
by or under the direction of its board of directors which may exercise all such
powers of the corporation and do all such lawful acts and things as are not by
statute or by the certificate of incorporation or by these bylaws directed or
required to be exercised or done by the stockholders.
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<PAGE>
3.4 Place of Meetings: The board of directors of the corporation may hold
-----------------
meetings, both regular and special, either within or without the State of
Delaware.
3.5 First Meeting: The first meeting of each newly elected board of
-------------
directors shall be held at such time and place as shall be fixed by the vote of
the stockholders at the annual meeting and no notice of such meeting shall be
necessary to the newly elected directors in order legally to constitute the
meeting, provided a quorum shall be present. In the event of the failure of the
stockholders to fix the time or place of such first meeting of the newly elected
board of directors, or in the event such meeting is not held at the time and
place so fixed by the stockholders, the meeting may be held at such time and
place as shall be specified in a notice given as hereinafter provided for
special meetings of the board of directors or as shall be specified in a written
waiver signed by all of the directors.
3.6 Regular Meetings: Regular meetings of the board of directors may be
----------------
held without notice at such time and at such place as shall from time to time be
determined by the board.
3.7 Special Meetings: Special meetings of the board may be called by the
----------------
president without notice to each director; special meetings shall be called by
the president or secretary in like manner and on like notice on the written
request of two directors unless the board consists of only one director; in
which case special meetings shall be called by the president or secretary in
like manner and on like notice on the written request of the sole director.
3.8 Quorum; Vote Necessary: At all meetings of the board, a majority of
----------------------
the directors shall constitute a quorum for the transaction of business and the
act of a majority of the directors present at any meeting at which there is a
quorum shall be the act of the board of directors, except as may be otherwise
specifically provided by statute or by the certificate of incorporation. If a
quorum shall not be present at any meeting of the board of directors the
directors present thereat may adjourn the meeting from time to time, without
notice other than announcement at the meeting, until a quorum shall be present.
3.9 Action Without Meeting: Unless otherwise restricted by the
----------------------
certificate of incorporation or these bylaws, any action required or permitted
to be taken at any meeting of the board of directors or of any committee thereof
may be taken without a meeting, if all members of the board or committee, as the
case may be, consent thereto in writing, and the writing or writings are filed
with the minutes of proceedings of the board or committee.
3.10 Telephonic Communications: Unless otherwise restricted by the
-------------------------
certificate of incorporation or these bylaws, members of the board of directors,
or any committee designated by the board of directors, may participate in a
meeting of the board of directors, or any committee, by means of conference
telephone or similar communications equipment by means of which all persons
participating in the meeting can hear each other, and such participation in a
meeting shall constitute presence in person at the meeting.
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<PAGE>
3.11 Committees of Directors: The board of directors may, by resolution
-----------------------
passed by a majority of the whole board, designate one or more committees, each
committee to consist of one or more of the directors of the corporation. The
board may designate one or more directors as alternate members of any committee,
who may replace any absent or disqualified member at any meeting of the
committee.
In the absence or disqualification of a member of a committee, the
member or members thereof present at any meeting and not disqualified from
voting, whether or not he or they constitute a quorum, may unanimously appoint
another member of the board of directors to act at the meeting in the place of
any such absent or disqualified member.
Any such committee, to the extent provided in the resolution of the
board of directors, shall have and may exercise all the powers and authority of
the board of directors in the management of the business and affairs of the
corporation, and may authorize the seal of the corporation to be affixed to all
papers which may require it; but no such committee shall have the power or
authority in reference to amending the certificate of incorporation, adopting an
agreement of merger or consolidation, recommending to the stockholders the sale,
lease or exchange of all or substantially all of the corporation's property and
assets, recommending to the stockholders a dissolution of the corporation or a
revocation of a dissolution, or amending the bylaws of the corporation; and,
unless the resolution or the certificate of incorporation expressly so provide,
no such committee shall have the power or authority to declare a dividend or to
authorize the issuance of stock. Such committee or committees shall have such
name or names as may be determined from time to time by resolution adopted by
the board of directors.
3.12 Minute of Committees: Each committee shall keep regular minutes of
--------------------
its meetings and report the same to the board of directors when required.
3.13 Compensation of Directors: Unless otherwise restricted by the
-------------------------
certificate of incorporation or these bylaws, the board of directors shall have
the authority to fix the compensation of directors. The directors may be paid
their expenses, if any, of attendance at each meeting of the board of directors
and may be paid a fixed sum for attendance at each meeting of the board of
directors or a stated salary as director. No such payment shall preclude any
director from serving the corporation in any other capacity and receiving
compensation therefor. Members of special or standing committees may be allowed
like compensation for attending committee meetings.
3.14 Removal of Directors: Unless otherwise restricted by the certificate
--------------------
of incorporation or by law, any director or the entire board of directors may be
removed, with or without cause, by the holders of a majority of shares entitled
to vote at an election of directors.
ARTICLE IV NOTICES
-------------------
4.1 Form: Whenever, under the provisions of the statutes or of the
----
certificate of incorporation or of these bylaws, notice is required to be given
to any director or stockholder, it shall
-5-
<PAGE>
not be construed to mean personal notice, but such notice may be given in
writing, by mail, addressed to such director or stockholder, at his address as
it appears on the records of the corporation, with postage thereon prepaid, and
such notice shall be deemed to be given at the time when the same shall be
deposited in the United States mail. Notice to directors may also be given by
telegram.
4.2 Waiver: Whenever any notice is required to be given under the
------
provisions of the statutes or of the certificate of incorporation or of these
bylaws, a waiver thereof in writing, signed by the person or persons entitled to
said notice, whether before or after the time stated therein, shall be deemed
equivalent thereto.
ARTICLE V OFFICERS
-------------------
5.1 Officers Required: The officers of the corporation shall be chosen by
-----------------
the board of directors and shall be a president, a vice-president, a secretary
and a treasurer. The board of directors may also choose additional vice-
presidents, and one or more assistant secretaries and assistant treasurers. Any
number of offices may be held by the same person, unless the certificate of
incorporation or these bylaws otherwise provide.
5.2 Election by Directors: The board of directors at its first meeting
---------------------
after each annual meeting of stockholders shall choose a president, one or more
vice-presidents, a secretary and a treasurer.
5.3 Other Officers: The board of directors may appoint such other
--------------
officers and agents as it shall deem necessary who shall hold their offices for
such terms and shall exercise such powers and perform such duties as shall be
determined from time to time by the board.
5.4 Salaries: The salaries of all officers and agents of the corporation
--------
shall be fixed by the board of directors.
5.5 Term; Removal; Vacancy: The officers of the corporation shall hold
----------------------
office until their successors are chosen and qualify. Any officer elected or
appointed by the board of directors may be removed at any time by the
affirmative vote of a majority of the board of directors. Any vacancy occurring
in any office of the corporation shall be filled by the board of directors.
5.6 President's General Duties: The president shall be the chief
--------------------------
executive officer of the corporation, shall preside at all meetings of the
stockholders and the board of directors, shall have general and active
management of the business of the corporation and shall see that all orders and
resolutions of the board of directors are carried into effect.
5.7 President's Execution of Contracts: He shall execute bonds, mortgages
----------------------------------
and other contracts requiring a seal, under the seal of the corporation, except
where required or permitted by
-6-
<PAGE>
law to be otherwise signed and executed and except where the signing and
execution thereof shall be expressly delegated by the board of directors to some
other officer or agent of the corporation.
5.8 Vice-President's Duties: In the absence of the president or in the
-----------------------
event of his inability or refusal to act, the vice-president (or in the event
there be more than one vice-president, the vice-presidents in the order
designated by the directors, or in the absence of any designation, then in the
order of their election) shall perform the duties of the president, and when so
acting, shall have all the powers of and be subject to all the restrictions upon
the president. The vice-presidents shall perform such other duties and have
such other powers as the board of directors may from time to time prescribe.
5.9 Secretary's Duties: The secretary shall attend all meetings of the
------------------
board of directors and all meetings of the stockholders and record all the
proceedings of the meetings of the corporation and of the board of directors in
a book to be kept for that purpose and shall perform like duties for the
standing committees when required. He shall give, or cause to be given, notice
of all meetings of the stockholders and special meetings of the board of
directors, and shall perform such other duties as may be prescribed by the board
of directors or president, under whose supervision he shall be. He shall have
custody of the corporate seal of the corporation and he, or an assistant
secretary, shall have authority to affix the same to any instrument requiring it
and when so affixed, it may be attested by his signature or by the signature of
such assistant secretary. The board of directors may give general authority to
any other officer to affix the seal of the corporation and to attest the
affixing by his signature.
5.10 Assistant Secretary's Duties: The assistant secretary, or if there be
----------------------------
more than one, the assistant secretaries in the order determined by the board of
directors (or if there be no such determination, then in the order of their
election) shall, in the absence of the secretary or in the event of his
inability or refusal to act, perform the duties and exercise the powers of the
secretary and shall perform such other duties and have such other powers as the
board of directors may from time to time prescribe.
5.11 Treasurer's General Duties: The treasurer shall have the custody of
--------------------------
the corporate funds and securities and shall keep full and accurate accounts of
receipts and disbursements in books belonging to the corporation and shall
deposit all monies and other valuable effects in the name and to the credit of
the corporation in such depositories as may be designated by the board of
directors.
5.12 Treasurer to Disburse Funds: He shall disburse the funds of the
---------------------------
corporation as may be ordered by the board of directors, taking proper vouchers
for such disbursements, and shall render to the president and the board of
directors, at its regular meetings, or when the board of directors so requires,
an account of all his transactions as treasurer and of the financial condition
of the corporation.
5.13 Treasurer's Bond: If required by the board of directors, he shall
----------------
give the corporation a bond (which shall be renewed every six years) in such sum
and with such surety or sureties as shall be satisfactory to the board of
directors for the faithful performance of the duties of his office and
-7-
<PAGE>
for the restoration to the corporation, in case of his death, resignation,
retirement or removal from office, of all books, papers, vouchers, money and
other property of whatever kind in his possession or under his control belonging
to the corporation.
5.14 Assistant Treasurer's Duties: The assistant treasurer, or if there
----------------------------
shall be more than one, the assistant treasurers in the order determined by the
board of directors (or if there be no such determination, then in the order of
their election), shall, in the absence of the treasurer or in the event of his
inability or refusal to act, perform the duties and exercise the powers of the
treasurer and shall perform such other duties and have such other powers as the
board of directors may from time to time prescribe.
ARTICLE VI
----------
6.1 Certificate of Stock: Every holder of stock in the corporation shall
--------------------
be entitled to have a certificate, signed by, or in the name of the corporation
by, the chairman or vice-chairman of the board of directors, or the president or
a vice-president and the treasurer or an assistant treasurer, or the secretary
or an assistant secretary of the corporation, certifying the number of shares
owned by him in the corporation.
Certificates may be issued for partly paid shares and in such case
upon the face or back of the certificates issued to represent any such partly
paid shares, the total amount of the consideration to be paid therefor, and the
amount paid thereon shall be specified.
If the corporation shall be authorized to issue more than one class of
stock, or more than one series of any class, the powers, designations,
preferences and relative, participating, optional or other special rights of
each class of stock or series thereof and the qualifications, limitations or
restrictions of such preferences and/or rights shall be set forth in full or
summarized on the face or back of the certificate which the corporation shall
issue to represent such class or series of stock, provided that, except as
otherwise provided in Section 202 of the General Corporation Law of Delaware, in
lieu of the foregoing requirements, there may be set forth on the face or back
of the certificate which the corporation shall issue to represent such class or
series of stock, a statement that the corporation will furnish without charge to
each stockholder who so requests the powers, designations, preferences and
relative, participating, optional or other special rights or each class of stock
or series thereof and the qualifications, limitations or restrictions of such
preferences and/or rights.
6.2 Signatures: Any of or all the signatures on the certificate may be
----------
facsimile. In case any officer, transfer agent or registrar who has signed or
whose facsimile signature has been placed upon a certificate shall have ceased
to be such officer, transfer agent or registrar before such certificate is
issued, it may be issued by the corporation with the same effect as if he were
such officer, transfer agent or registrar at the date of issue.
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<PAGE>
6.3 Lost Certificates: The board of directors may direct a new
-----------------
certificate or certificates to be issued in place of any certificate or
certificates theretofore issued by the corporation alleged to have been lost,
stolen or destroyed, upon the making of an affidavit of that fact by the person
claiming the certificate of stock to be lost, stolen or destroyed. When
authorizing such issue of a new certificate or certificates, the board of
directors may, in its discretion and as a condition precedent to the issuance
thereof, require the owner of such lost, stolen or destroyed certificate or
certificates, or his legal representative, to advertise the same in such manner
as it shall require and/or to give the corporation a bond in such sum as it may
direct as indemnity against any claim that may be made against the corporation
with respect to the certificate alleged to have been lost, stolen or destroyed.
6.4 Transfer of Stock: Upon surrender to the corporation or the transfer
-----------------
agent of the corporation of a certificate for shares duly endorsed or
accompanied by proper evidence of succession, assignation or authority to
transfer, it shall be the duty of the corporation to issue a new certificate to
the person entitled thereto, cancel the old certificate and record the
transaction upon its books.
6.5 Fixing Record Date: In order that the corporation may determine the
------------------
stockholders entitled to notice of or to vote at any meeting of stockholders or
any adjournment thereof, or to express consent to corporate action in writing
without a meeting, or entitled to receive payment of any dividend or other
distribution or allotment of any rights, or entitled to exercise any rights in
respect of any change, conversion or exchange of stock or for the purpose of any
other lawful action, the board of directors may fix, in advance, a record date,
which shall not be more than sixty nor less than ten days before the date of
such meeting, nor more than sixty days prior to any other action. A
determination of stockholders of record entitled to notice of or to vote at a
meeting of stockholders shall apply to any adjournment of the meeting; provided,
however, that the board of directors may fix a new record date for the adjourned
meeting.
6.6 Registered Stockholders: The corporation shall be entitled to
-----------------------
recognize the exclusive right of a person registered on its books as the owner
of shares to receive dividends, and to vote as such owner, and to hold liable
for calls and assessments a person registered on its books as the owner of
shares, and shall not be bound to recognize any equitable or other claim to or
interest in such share or shares on the part of any other person, whether or not
it shall have express or other notice thereof, except as otherwise provided by
the laws of Delaware.
ARTICLE VII GENERAL PROVISIONS
-------------------------------
7.1 Dividends: Dividends upon the capital stock of the corporation,
---------
subject to the provisions of the certificate of incorporation, if any, may be
declared by the board of directors at any regular or special meeting, pursuant
to law. Dividends may be paid in cash, in property, or in shares of the capital
stock, subject to the provisions of the certificate of incorporation.
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<PAGE>
7.2 Reserves: Before payment of any dividend, there may be set aside out
--------
of any funds of the corporation available for dividends such sum or sums as the
directors from time to time, in their absolute discretion, think proper as a
reserve or reserves to meet contingencies, or for equalizing dividends, or for
repairing or maintaining any property of the corporation, or for such other
purpose as the directors shall think conducive to the interest of the
corporation, and the directors may modify or abolish any such reserve in the
manner in which it was created.
7.3 Annual Statement: The board of directors shall present at each annual
----------------
meeting, and at any special meeting of the stockholders when called for by vote
of the stockholders, a full and clear statement of the business and condition of
the corporation.
7.4 Checks: All checks or demands for money and notes of the corporation
------
shall be signed by such officer or officers or such other person or persons as
the board of directors may from time to time designate.
7.5 Fiscal Year: The fiscal year of the corporation shall be determined
-----------
by the Board of Directors.
7.6 Seal: The corporate seal shall have inscribed thereon the name of the
----
corporation, the year of its organization and the words "Corporate Seal,
Delaware." The seal may be used by causing it or a facsimile thereof to be
impressed or affixed or reproduced or otherwise.
ARTICLE VIII INDEMNIFICATION
-----------------------------
8.1 Actions By Third Parties: The corporation shall indemnify any person
------------------------
who was or is a party or is threatened to be made a party to any threatened,
pending or completed action, suit or proceeding, whether civil, criminal,
administrative or investigative (other than an action by or in the right of the
corporation) by reason of the fact that he is or was a director, officer,
employee or agent of the corporation, or is or was serving at the request of the
corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, against expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred by him in connection with such action, suit or
proceeding if he acted in good faith and in a manner he reasonably believed to
be in or not opposed to the best interests of the corporation, and, with respect
to any criminal action or proceeding, had no reasonable cause to believe his
conduct was unlawful. The termination of any action, suit or proceeding by
judgment, order, settlement, conviction or upon a plea of nolo contendere or its
equivalent, shall not, of itself, create a presumption that the person did not
act in good faith and in a manner which he reasonably believed to be in or not
opposed to the best interests of the corporation, and, with respect to any
criminal action or proceeding, had reasonable cause to believe that his conduct
was unlawful.
8.2 Actions By or In the Right of the Corporation: The corporation shall
---------------------------------------------
indemnify any person who was or is a party or is threatened to be made a party
to any threatened, pending or completed action or suit by or in the right of the
corporation to procure a judgment in its favor by reason of the fact that he is
or was a director, officer, employee or agent of the corporation, or is or
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<PAGE>
was serving at the request of the corporation as a director, officer, employee
or agent of another corporation, partnership, joint venture, trust or other
enterprise against expenses (including attorneys' fees) actually and reasonably
incurred by him in connection with the defense or settlement of such action or
suit if he acted in good faith and in a manner he reasonably believed to be in
or not opposed to the best interests of the corporation and except that no
indemnification shall be made in respect of any claim, issue or matter as to
which such person shall have been adjudged to be liable for negligence or
misconduct in the performance of his duty to the corporation unless and only to
the extent that the Court of Chancery or the court in which such action or suit
was brought shall determine upon application that, despite the adjudication of
liability but in view of all the circumstances of the case, such person is
fairly and reasonably entitled to indemnity for such expenses which the Court of
Chancery or such other court shall deem proper.
8.3 Expenses of Successful Defense: To the extent that a director,
------------------------------
officer, employee or agent of a corporation has been successful on the merits or
otherwise in defense of any action, suit or proceeding referred to in Sections
8.l and 8.2 of these bylaws, or in defense of any claim, issue or matter
therein, he shall be indemnified against expenses (including attorneys' fees)
actually and reasonably incurred by him in connection therewith.
8.4 Determination That Indemnification Is Proper: Any indemnification
--------------------------------------------
under Sections 8.1 and 8.2 of these bylaws, (unless ordered by a court) shall be
made by the corporation only as authorized in the specific case upon a
determination that indemnification of the director, officer, employee or agent
is proper in the circumstances because he has met the applicable standard of
conduct set forth in Sections 8.1 and 8.2 of these bylaws. Such determination
shall be made (l) by the board of directors by a majority vote of a quorum
consisting of directors who were not parties to such action, suit or proceeding,
or (2) if such a quorum is not obtainable, or, even if obtainable a quorum of
disinterested directors so directs, by independent legal counsel in a written
opinion, or (3) by the stockholders.
8.5 Advances: Expenses incurred in defending a civil or criminal action,
--------
suit or proceeding may be paid by the corporation in advance of the final
disposition of such action, suit or proceeding as authorized by the board of
directors in the specific case upon receipt of an undertaking by or on behalf of
the director, officer, employee or agent to repay such amount unless it shall
ultimately be determined that he is entitled to be indemnified by the
corporation as authorized in this section.
8.6 Provisions Not Exclusive: The indemnification provided by this
------------------------
Article VIII shall not be deemed exclusive of any other rights to which those
seeking indemnification may be entitled under any bylaw, agreement, vote of
stockholders or disinterested directors or otherwise, both as to action in his
official capacity and as to action in another capacity while holding such
office, and shall continue as to a person who has ceased to be a director,
officer, employee or agent and shall inure to the benefit of the heirs,
executors and administrators of such a person.
8.7 Insurance: The corporation may purchase and maintain insurance on
---------
behalf of any person who is or was a director, officer, employee or agent of the
corporation, or is or was serving
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<PAGE>
at the request of the corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise
against any liability asserted against him and incurred by him in any such
capacity, or arising out of his status as such, whether or not the corporation
would have the power to indemnify him against such liability under the
provisions of this Article VIII.
8.8 Constituent Corporation: For purposes of this Article VIII,
-----------------------
references to "the corporation" shall include, in addition to the resulting
corporation, any constituent corporation (including any constituent of a
constituent) absorbed in a consolidation or merger which, if its separate
existence had continued, would have had power and authority to indemnify the
directors, officers, and employees or agents, so that any person who is or was a
director, officer, employee or agent of such constituent corporation, or is or
was serving at the request of such constituent corporation as a director,
officer, em[Bployee or agent of another corporation, partnership, joint venture,
trust or other enterprise, shall stand in the same position under the provisions
of this Article VIII with respect to the resulting or surviving corporation as
he would have with respect to such constituent corporation if its separate
existence had continued.
8.9 Other Enterprises; Fines; Services: For purposes of this Article
----------------------------------
VIII, references to "other enterprises" shall include employee benefit plans;
references to "fines" shall include any excise taxes assessed on a person with
respect to any employee benefit plan; and references to "serving at the request
of the corporation" shall include any service as a director, officer, employee
or agent of the corporation which imposes duties on, or involves services by,
such director, officer, employee, or agent with respect to an employee benefit
plan, its participants or beneficiaries; and a person who acted in good faith
and in a manner he reasonably believed to be in the interest of the participants
and beneficiaries of an employee benefit plan shall be deemed to have acted in a
manner "not opposed to the best interest of the corporation" as referred to in
this Article VIII.
8.10 Continuation of Indemnification and Advancement of Expenses: The
-----------------------------------------------------------
indemnification and advancement of expenses provided by, or granted pursuant to,
this Article VIII shall, unless otherwise provided when authorized or ratified,
continue as to a person who has ceased to be a director, officer, employee or
agent and shall inure to the benefit of the heirs, executors and administrators
of such a person.
ARTICLE IX AMENDMENTS
----------------------
9.1 Amendments by Stockholders or Directors: These bylaws may be altered,
---------------------------------------
amended or repealed or new bylaws may be adopted by the stockholders or by the
board of directors, when such power is conferred upon the board of directors by
the certificate of incorporation at any regular meeting of the stockholders or
of the board of directors or at any special meeting of the stockholders or of
the board of directors if notice of such alteration, amendment, repeal or
adoption of new bylaws be contained in the notice of such special meeting. If
the power to adopt, amend or repeal bylaws is conferred upon the board of
directors by the certificate of incorporation it shall not divest or limit the
power of the stockholders to adopt, amend or repeal bylaws.
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<PAGE>
Exhibit 5.1
Letterhead of Pepper Hamilton LLP
June 11, 1999
Careside, Inc.
6100 Bristol Boulevard
Culver City, CA 90230
Re: Registration Statement on Form S-1 (Registration No. 333-69207)
---------------------------------------------------------------
Ladies and Gentlemen:
We have acted as counsel to Careside, Inc., a Delaware corporation
(the "Company"), in connection with the registration under the Securities Act of
1933, as amended (the "Act"), of a public offering (the "Offering") of up to (i)
2,000,000 units of the Company (the "Primary Units"), each unit consisting of
one share of common stock (the "Unit Shares"), $.01 par value per share (the
"Common Stock"), and one redeemable warrant (the "Warrants") to purchase one
share of Common Stock (such units being herein referred to as the "Units"), (ii)
300,000 additional Units (the "Over-Allotment Units") which are the subject of
an option which may be exercised by the underwriters of the Offering to cover
over-allotments, (iii) 200,000 warrants to be granted to representatives of the
underwriters in connection with the Offering (the "Representatives' Warrants");
(iv) 200,000 Units issuable upon exercise of the Representatives' Warrants (the
"Representatives' Units"); and (v) 2,500,000 shares of Common Stock issuable
upon exercise of Warrants included in the Primary Units, the Over-Allotment
Units and the Representatives' Units (collectively, the "Warrant Shares", and
together with the Unit Shares, the "Shares").
The opinion is delivered in accordance with the requirements of Item
601(b)(5) of Regulation S-K under the Act.
We have examined originals or copies, certified or otherwise
identified to our satisfaction, of the following documents:
(i) the Registration Statement on Form S-1 originally filed under
the Act with the Securities and Exchange Commission (the
"Commission") on December 18, 1998, together with the following
Amendments thereto:
<PAGE>
Careside, Inc.
Page 2
June 11, 1999
. No. 1 (filed with the Commission on February 1, 1999),
. No. 2 (filed with the Commission on February 11, 1999),
. No. 3 (filed with the Commission on February 18, 1999),
. No. 4 (filed with the Commission on March 8, 1999),
. No. 5 (filed with the Commission on March 16, 1999),
. No. 6 (filed with the Commission on March 19, 1999),
. No. 7 (filed with the Commission on May 5, 1999),
. No. 8 (filed with the Commission on May 25, 1999) and
. No. 9 (filed with the Commission on June 11, 1999)
(as so amended, the "Registration Statement");
(ii) the form of Underwriting Agreement, filed as Exhibit 1.1 to the
Registration Statement (the "Underwriting Agreement"), to be
entered into among the Company, Paulson Investment Company,
Inc. ("Paulson"), Millennium Financial Group, Inc. and marion
bass securities corporation (collectively, the
"Representatives");
(iii) the form of Warrant Agreement, filed as Exhibit 4.6 to the
Registration Statement, to be entered into between Paulson, on
behalf of the Representatives and the Company (the
"Representatives' Warrant Agreement");
(iv) the form of Warrant Agreement, filed as Exhibit 4.7 of the
Registration Statement, to be entered into between the Company
and American Stock Transfer & Trust Company, as Warrant Agent
(the "Warrant Agreement");
(v) the form of Warrant Certificate, filed as Exhibit 4.2a of the
Registration Statement, evidencing the Warrants;
(vi) the Company's Amended and Restated Certificate of Incorporation
and By-Laws, as in effect on the date hereof;
(vii) the form of the Company's Certificate of Amendment of the
Certificate of Incorporation filed as Exhibit 3.1b to the
Registration Statement to be filed with the Secretary of State
of the State of Delaware on the date the Commission declares
the Registration Statement effective;
(viii) the forms of the Company's Amended and Restated Certificate of
Incorporation and the Company's Certificate of Designations
with respect
<PAGE>
Careside, Inc.
Page 3
June 11, 1999
to the Company's Series A Convertible Preferred Stock (the
"Certificate of Designations") filed as Exhibits 3.1c and 3.1d,
respectively, to the Registration Statement, each to become
effective immediately prior to the completion of the Offering;
(ix) the Company's Amended and Restated By-Laws filed as Exhibit
3.2b to the Registration Statement to become effective upon
completion of the Offering;
(x) certain minutes of meetings of, and resolutions adopted by, the
Board of Directors of the Company (the "Board") relating to,
among other things, the issuance of the Units, Warrants,
Representative Warrants and Shares; and
(xi) such other documents as we have deemed necessary or appropriate
as a basis for the opinions set forth below.
In our examination, we have assumed the legal capacity of all natural
persons, the genuineness of all signatures, the authenticity of all documents
submitted to us as certified or photostatic copies and the authenticity of the
originals of such latter documents. As to any facts material to the opinions
expressed herein which were not independently established or verified, we have
relied upon statements and representations of officers and other representatives
of the Company and others. In addition, we have assumed that on and prior to
completion of the Offering, the Certificate of Amendment of the Certificate of
Incorporation in the form filed as Exhibit 3.1b to the Registration Statement,
the Amended and Restated Certificate of Incorporation in the form filed as
Exhibit 3.1c to the Registration Statement, and the Certificate of Designations
in the form filed as Exhibit 3.1d to the Registration Statement, are properly
filed with the Secretary of State of the State of Delaware.
We express no opinion as to the laws of any jurisdiction other than
the General Corporation Law of the State of Delaware and the Business
Corporation Law of the State of New York, and all other relevant Delaware and
New York statutes, and their underlying rules and regulations, and judicial and
regulatory determinations and interpretations thereof
Based upon and subject to the foregoing, we are of the opinion that,
when
(i) the Board or the Pricing Committee of the Board authorizes the
price per Unit;
<PAGE>
Careside, Inc.
Page 4
June 11, 1999
(ii) the duly appointed officers of the Company execute and deliver
the Underwriting Agreement, the Representatives' Warrant
Agreement and the Warrant Agreement;
(iii) the Primary Units and Over-Allotment Units, and the shares of
Common Stock and Warrants included therein, are duly executed,
issued and delivered against payment therefor in accordance
with the terms and conditions of the Underwriting Agreement;
(iv) the Representatives' Warrants are duly executed, issued and
delivered in accordance with the terms and conditions of the
Underwriting Agreement and the Representatives' Warrant
Agreement;
(v) the Representatives' Units are duly executed, issued and
delivered against payment of the exercise price of the
Representatives' Warrants in accordance with the terms and
conditions of the Representatives' Warrant Agreement; and
(vi) the Warrant Shares are issued and delivered against payment of
the exercise price of the Warrants or Representatives' Warrants
in accordance with the terms and conditions of the Warrant
Agreement and Representatives' Warrant Agreement:
1. the Primary Units, the Over-Allotment Units, the
Representatives' Warrants, the Representatives' Units and the Shares will be
duly authorized, legally issued, fully paid and nonassessable; and
2. each of the Warrant Agreement and the Representatives' Warrant
Agreement will be the legal, valid and binding obligation of the Company,
enforceable in accordance with its terms and the Warrants and the
Representatives' Warrants will constitute legal, valid and binding obligations
of the Company to issue and sell, upon due and proper exercise thereof and
payment of the exercise price therefor by the holder, all in accordance with the
terms of the Warrants, the number and type of securities covered thereby.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the reference to this firm under the caption
"Legal Experts" in the prospectus filed as part of the Registration Statement.
In giving such consent, we do not thereby admit that we are in the category of
persons whose consent is required under Section 7 of the Act or the Rules and
Regulations promulgated thereunder.
<PAGE>
Careside, Inc.
Page 5
June 11, 1999
This opinion is furnished by us, as your counsel, in connection with
the filing of the Registration Statement.
Very truly yours,
/S/ Pepper Hamilton LLP
Pepper Hamilton LLP
<PAGE>
EXHIBIT 10.39
SUPPLY AGREEMENT
THIS AGREEMENT made and entered into this 13th day of April, 1999 by
and between Fuji Photo Film Co., Ltd., a corporation organized and existing
under the laws of Japan and having its principal office at 26-30, Nishiazabu 2-
chome, Minato-ku, Tokyo, Japan (hereinafter referred to as "FUJI") and CARESIDE,
Inc., a corporation organized and existing under the laws of the State of
Delaware and having its principal office at 6100 Bristol Parking, Culver City,
90230 California, the United States of America (hereinafter referred to as
"CARESIDE"),
WITNESSETH THAT:
WHEREAS, FUJI has been engaged in, among other business, the
manufacturing and marketing of DRI-CHEM films, and owns proprietary technology
and know-how relating thereto;
WHEREAS, CARESIDE has been engaged in developing for commercial sale a
human diagnostic testing so-called Point of Care Testing system and owns
proprietary technology and know-how relating thereto;
WHEREAS, FUJI and Exigent Diagnostics, Inc., the predecessor of
CARESIDE, entered into the Agreement on August 23, 1996 concerning the supply of
FUJI's DRI-CHEM films, film-based chemistry tests and immunodiagnostic tests and
exchange of various technology for the development of CARESIDE POCT System (as
defined below) (hereinafter referred to as "Development Agreement"), and
CARESIDE has been developing test cartridge of CARESIDE POCT System
incorporating the DRI-CHEM films; and
WHEREAS, CARESIDE is desirous of purchasing from FUJI the DRI-CHEM
films for the commercial manufacturing and marketing of such test cartridge, and
FUJI is willing
<PAGE>
to supply CARESIDE with the DRI-CHEM films for such purpose subject to the terms
and conditions hereinafter set forth;
NOW, THEREFORE, in consideration of the premises and mutual covenants
hereinafter set forth, both parties agree as follows:
ARTICLE 1
DEFINITION
----------
For the purpose of this Agreement, the following terms have the
following meanings respectively:
1.1 The term "POCT" (Point of Care Testing) shall mean a human or
animal diagnostic testing performed anywhere, excluding any diagnostics testing
performed at a central fixed laboratory within hospitals, other health care
facilities or commercial laboratories.
1.2 The term "FDC Film" shall mean films used in FUJI's DRI-CHEM
system applicable to the tests listed in Schedule A.
1.3 The term "CARESIDE POCT System" shall mean collectively a system
and products thereof developed by or for CARESIDE for POCT, including but not
limited to chemistry, immunochemistry and coagulation, and optionally,
hematology tests (initially in a separate device), test cartridge for, among
other things, separating blood and metering samples, analyzer(s) for the said
tests including data management components and software in the analyzer.
1.4 The term "CARESIDE POCT Cartridge" shall mean a test cartridge
used in CARESIDE POCT System incorporating FDC Film supplied by FUJI.
-2-
<PAGE>
1.5 The term "CARESIDE Materials" shall mean the immunodiagnostic and
coagulation testing reagents, which utilize any of the technology CARESIDE has
developed, or develops or acquires in the future, including but not limited to
technology as to tests in Hemoglobin Alc, Digoxin and HCG.
1.6 The term "Competing Instruments" shall mean diagnostic
instruments and the disposables they use, which instruments and disposables are
designed for use in POCT and which directly compete with CARESIDE POCT System.
1.7 The term "FUJI Technology" shall mean FUJI's technology relating
to FDC Film which is limited to the specifications of FDC Film, its quality
assurance and other information listed in Schedule B attached hereto as amended
from time to time by agreement between the parties.
1.8 The term "FUJI's Affiliates" shall mean any and all companies,
corporations or other entities in which FUJI owns or controls directly or
indirectly a substantial portion of the nominal value or number of units of the
outstanding stocks with the right to vote at general meeting, to elect a
majority of the board of directors thereof, or to appoint or remove the
management thereof.
ARTICLE 2
SUPPLY OF FDC FILM
------------------
2.1 FUJI shall supply CARESIDE with and CARESIDE shall purchase from
FUJI FDC Film for use in the manufacturing and marketing of CARESIDE POCT
Cartridge.
-3-
<PAGE>
2.2 FUJI shall supply FUJI Technology to CARESIDE, and CARESIDE may
use FUJI Technology only for the purpose of the manufacturing and marketing of
CARESIDE POCT Cartridge, and shall not use it for any other purpose.
2.3 During the term of this Agreement, including the term extended
according to Article 13.2 hereof, FUJI shall supply CARESIDE exclusively with
FDC Film for the purpose of use for CARESIDE POCT system; provided that such
exclusive supply shall be changed to non-exclusive supply if CARESIDE fails to
obtain approvals from the Food and Drug Administration ("FDA") which should be
necessary for the marketing of CARESIDE POCT System using FDC Film in the United
States of America to professional market in accordance with the following
requirements:
The tests itemized in Schedule A-1, 2 and 3 ((1) to (10)):
Thirty-one (31) or more of the tests approved by December 31, 1999
The tests itemized in Schedule A-3 ((1) to (15)):
Ten (10) or more of the tests approved by December 31, 2000
2.4 In case of a non-exclusive supply as stipulated in Article 2.3,
FUJI and CARESIDE shall discuss and agree upon the terms and conditions that
shall apply to such non-exclusive supply.
2.5 During the period of the exclusive supply of FDC Film as provided
in Article 2.3, FUJI shall not supply FDC Film to any third party which the both
parties hereto agree may develop and sell Competing Instruments; provided that
FUJI may supply FDC Film to any third party:
-4-
<PAGE>
(i) in the form of slide for use on an instrument manufactured by
FUJI; and
(ii) in the form of slide for use on an instrument manufactured
by any other party than FUJI which can measure up to ten (10) FDC test menu.
2.6 CARESIDE shall use FDC Film supplied by FUJI hereunder only for
the manufacturing and marketing of CARESIDE POCT System and shall not supply FDC
Film to or for use by any third party for any purpose.
2.7 CARESIDE agrees that it shall use only FDC Film in CARESIDE POCT
System for those tests listed in Schedule A. CARESIDE shall not be supplied by
any third party with any chemistry reagents for the manufacturing of CARESIDE
POCT System or performance of the tests listed in Schedule A, so long as FUJI
continues to supply CARESIDE exclusively with FDC Film in accordance with the
terms and conditions set forth in this Agreement. For CARESIDE POCT System's
tests other than those listed in Schedule A, CARESIDE may manufacture or
purchase from others its needs for reagents or technologies for carrying out
those tests.
2.8 Nothing in this Article shall be construed to prohibit or
otherwise affect:
(i) FUJI's development for or distribution to any third party of
FDC Film for use with any products other than Competing Instruments, or
(ii) the development, manufacture or distribution by or for FUJI
or FUJI's Affiliates of any product or service which competes with CARESIDE POCT
System, whether or not such product or service uses FDC Film. FUJI and CARESIDE
further confirms that FUJI DRI-CHEM systems and their disposables shall in no
event be construed as Competing
-5-
<PAGE>
Instruments and that FUJI shall in no way be restricted to market FUJI DRI-CHEM
Systems and their disposables.
ARTICLE 3
PURCHASE PROCEDURE
------------------
3.1 CARESIDE shall submit to FUJI annual purchase plan, semi-annual
revised purchase plan and quarterly revised purchase plan in accordance with the
procedure detailed in Schedule C attached hereto.
3.2 CARESIDE shall submit to FUJI a firm purchase order of FDC Film
in an agreed form by 1st day of the month two month preceding the desired date
of shipment, and FUJI, so long as such purchase order has been made in
accordance with the procedure detailed in Schedule C, shall issue its acceptance
in writing to CARESIDE within ten (10) days of the receipt of the purchase
order. If the purchase order is not acceptable to FUJI, then both parties shall
discuss a solution in good faith to reach an agreement by the twentieth (20th)
day after the receipt of the purchase order by FUJI.
3.3 Each individual purchase contract for FDC Film hereunder
(hereinafter referred to as "Individual Contract") shall become effective and
binding only when CARESIDE's firm purchase order is accepted by FUJI in writing.
ARTICLE 4
PURCHASE PRICE
--------------
The purchase prices of FDC Film shall be as listed in Schedule D,
which are indicated on the basis of CIF Los Angeles Airport.
-6-
<PAGE>
ARTICLE 5
SHIPMENT
--------
It is expressly agreed that no estimate of delivery time made by FUJI
will constitute a guaranty of delivery or deliveries by such dates, that all
shipping and delivery dates will be approximate, and the FUJI will not be liable
for any damages, consequential or otherwise, for delays in delivery, except to
the extent of FUJI's own gross negligence or willful misconduct.
ARTICLE 6
SPECIFICATIONS
--------------
The specifications of FDC Films shall be as detailed in Schedule E.
ARTICLE 7
INSPECTION
----------
7.1 FUJI shall, prior to the shipment, inspect FDC Film in accordance
with the Inspection Manual attached hereto at Schedule F.
7.2 Upon the receipt of FDC Film supplied by FUJI, CARESIDE shall
complete the inspection of FDC Film within ten (10) days of the receipt thereof,
in accordance with the Inspection Manual attached hereto as Schedule F. Such
inspection by CARESIDE shall be considered as final.
7.3 In the event that during CARESIDE's inspection stipulated in
Article 7.2 above any FDC Film supplied by FUJI to CARESIDE hereunder is found
to have a defect which CARESIDE believes is attributable to FUJI and caused
before shipment thereof, CARESIDE shall, within ten (10) days of the receipt
thereof, so notify FUJI and return to FUJI, with a written statement explaining
the nature of the defect, the defective FDC Film, and FUJI shall inspect the
-7-
<PAGE>
same to determine the cause of the defect. If FUJI determines that the defect
should be attributed to it, FUJI shall replace such defective FDC Film with non-
defective FDC Film without cost to CARESIDE. It is agreed that in such case
CARESIDE shall bear the cost of returning to FUJI the defective FDC Film, and
that FUJI shall reimburse CARESIDE for such cost by means of crediting the
amount against the next FUJI's invoice if the defect is determined by FUJI to be
attributed to it. It is expressly agreed and understood that for such defective
FDC Film FUJI shall assume no other or further liability of any kind whatsoever
other than that expressly undertaken by it in this Article 7.3.
ARTICLE 8
PAYMENT
-------
Except as otherwise agreed upon by and between the parties hereto, all
payments for FDC Film supplied to CARESIDE by FUJI hereunder shall be made in
Japanese Yen, and shall be remitted, within forty-five (45) days of the custom
clearance of FDC Film, by bank-to-bank telegraphic transfer to FUJI's account
with such bank in Tokyo as designated by FUJI.
ARTICLE 9
CONFIDENTIALITY
---------------
9.1 Each party shall hold in confidence this Agreement and any and
all proprietary technical and business information furnished or disclosed by the
other party hereunder, and shall not use such information for any other purpose
than that provided herein.
9.2 The confidentiality obligation provided in Article 9.1 shall not
apply to any information that:
-8-
<PAGE>
(i) is known to the public or generally available to the public
prior to the receipt thereof;
(ii) is known to the receiving party prior to the receipt
thereof;
(iii) becomes known to the public or generally available to the
public after the receipt thereof through no fault of the receiving party;
(iv) the receiving party obtains without restriction on
disclosure from a third party having a bona fide right to disclose such
information; or
(v) must be disclosed by law or regulation in order to obtain
approval to sell CARESIDE POCT System, or otherwise required to be disclosed by
law, regulation or court order.
9.3 Notwithstanding the foregoing provisions of this Article 9, the
existence of this Agreement and a summary of its terms may be disclosed by
CARESIDE to its investors, in connection with the public offering of CARESIDE's
common stock, or to federal and state regulators regulating the public or
private offer or sale of securities, in each case to the extent required by law
(which shall be determined by CARESIDE in consultation with its legal advisors)
or such regulators; provided CARESIDE shall consult with FUJI and obtain FUJI's
prior approval upon such disclosure, which approval FUJI shall not unreasonably
withhold.
ARTICLE 10
REGULATORY APPROVALS
--------------------
10.1 FUJI shall comply with FDA's Good Manufacturing Practice in
manufacturing and supplying FDC Film to CARESIDE hereunder.
-9-
<PAGE>
10.2 If FUJI is granted an exclusive right to distribute CARESIDE
POCT System in certain countries, FUJI shall obtain all regulatory approvals
required for marketing CARESIDE POCT System in such countries.
10.3 CARESIDE shall obtain all regulatory approvals required for
marketing CARESIDE POCT System in any country that it will market, excluding the
countries for which FUJI has been granted an exclusive right to distribute
CARESIDE POCT System.
ARTICLE 11
INDEMNIFICATION
---------------
11.1 FUJI shall indemnify and hold CARESIDE harmless from and against
any damages and costs incurred by CARESIDE which arises out of any claim or
legal action threatened or taken by any third party alleging that CARESIDE's use
and/or sales of FDC Film supplied by FUJI under this Agreement constitutes an
infringement of any intellectual property right of such third party, provided
that CARESIDE shall promptly notify FUJI of such claim or legal action in
writing, give FUJI sole control and authority with respect to the defense or
settlement of any such claim or legal action, and give FUJI reasonable
assistance with respect to the defense or settlement of any such claim or legal
action. FUJI shall have the right, with respect to any FDC Film supplied to
CARESIDE under this Agreement which becomes or is likely to become the subject
of such claim or legal action, to replace or modify such FDC Film, or in case
injunction is granted by court or FTC to withhold further shipment of such FDC
Film.
11.2 The provision of Article 11.1 shall not apply in case where the
infringement exists as a result of:
-10-
<PAGE>
(i) any combination of FDC Film with other material(s), part(s)
or product(s) which is not supplied by FUJI;
(ii) any use of FDC Film which is not intended by FUJI;
(iii) any modification of FDC Film made by any third party other
than FUJI; or
(iv) CARESIDE's breach of this Agreement, or negligence of
CARESIDE, its employee or agent.
11.3 Notwithstanding the provision of Article 11.1, FUJI shall in no
event be liable to CARESIDE hereunder for:
(i) consequential or incidental damages; or
(ii) labor costs or lost profits.
11.4 CARESIDE shall indemnify and hold FUJI harmless from and against
any damages and costs incurred by FUJI which arises out of any claim or legal
action threatened or taken by any third party alleging that any use and/or sales
of CARESIDE Materials manufactured by CARESIDE constitutes an infringement of
any intellectual property right of such third party, provided that FUJI shall
promptly notify CARESIDE of such claim or legal action in writing, give CARESIDE
sole control and authority with respect to the defense or settlement of any such
claim or legal action, and give CARESIDE reasonable assistance with respect to
the defense or settlement of any such claim or legal action. CARESIDE shall
have the right, with respect to any CARESIDE Materials supplied by CARESIDE
which becomes or is likely to become the subject of such claim or legal action,
to replace or modify such CARESIDE Materials, or in case
-11-
<PAGE>
injunction is granted by court or FTC to withhold further shipment of such
CARESIDE Materials.
11.5 The provision of Article 11.4 shall not apply in case where the
infringement exists as a result of:
(i) any combination of CARESIDE Materials with other material(s),
part(s) or product(s) which is not supplied by CARESIDE;
(ii) any use of CARESIDE Materials which is not intended by
CARESIDE ;
(iii) any modification of CARESIDE Materials made by any third
party other than CARESIDE; or
(iv) FUJI's breach of this Agreement, or negligence of FUJI, its
employee or agent.
11.6 Notwithstanding the provision of Article 11.4, CARESIDE shall in
no event be liable to FUJI hereunder for:
(i) consequential or incidental damages; or
(ii) labor costs or lost profits.
ARTICLE 12
LIMITATION OF LIABILITY
-----------------------
Except as provided for in Article 7.3 and limited by Article 11, FUJI
makes NO REPRESENTATION OR WARRANTY OF ANY KIND, WHETHER EXPRESS, STATUTORY, OR
IMPLIED REGARDING FDC FILM INCLUDING, BUT NOT LIMITED
-12-
<PAGE>
TO, THE IMPLIED WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR
PURPOSE.
ARTICLE 13
TERM
----
13.1. This Agreement shall come into effect on the date first above
set forth and continue in full force and effect until December 31, 2003.
13.2. Notwithstanding the provision of Article 13.1 hereof, the term
of this Agreement may be extended for additional term(s) of one (1) year each if
the parties hereto reach the agreement upon such extension through the
discussion in good faith, which discussion shall occur in the last six (6)
months of the then current term, and in which discussion the parties shall
consider primarily the actual purchase volume of FDC Film by CARESIDE during the
current year.
ARTICLE 14
TERMINATION
-----------
14.1. In the event the FUJI decides to discontinue manufacturing FDC
Film, FUJI may terminate this Agreement by giving a written one (1) year notice
to CARESIDE, provided that to protect the welfare of the customers of CARESIDE
POCT Systems sold by CARESIDE before such termination, FUJI shall consult with
CARESIDE and establish the necessary measures to be taken, to ensure that
CARESIDE has continued access to FDC Film and FUJI Technology before such
termination.
14.2. In the event that either party is adjudicated bankrupt or
insolvent, or enters into an agreement for the benefit of creditors, or in the
event that a petition in bankruptcy or for
-13-
<PAGE>
corporate reorganization or for any similar relief shall be filled by or against
either party hereto or receiver is appointed with respect to any of the assets
of either party, or if all or a significant part of the assets or either party
are transferred to a third party, then the other party hereto may immediately
terminate this Agreement by giving such party a written notice to that effect.
14.3 In the event that there arises a material change in
directorship, control or ownership of either party or material change in or
discontinuation of production of FDC Film which would adversely affect the
transaction hereunder between the parties hereto, including as regards an
acquisition of a party by either (i) a competitor of the other party whose
resulting access to the trade secrets, confidential information, know-how or
intellectual property rights of the acquired party would result in a loss of
competitive advantage, or (ii) a competitor that sells competing dry film
technology for chemistry tests, the other party may, at its sole discretion,
immediately terminate this Agreement by giving such party a written notice to
such party.
14.4 In the event that either party breaches or fails to perform any
of the material obligations, terms or conditions of this Agreement or an
Individual Contract and fails to cure such breach or default within thirty (30)
days after its receipt from the other party of written notice specifying the
nature of such breach or default, the other party may, without prejudice to any
other remedies available to it hereunder or under law or otherwise, terminate
this Agreement effective immediately by giving the defaulting party written
notice to that effect.
14.5 Termination of this Agreement shall not affect or diminish in
any way either party's rights, duties or obligations under any other agreements
between the parties, nor shall the breach or cancellation of any other
agreements between the parties affect or diminish in any way either party's
rights, duties or obligations under this Agreement.
-14-
<PAGE>
ARTICLE 15
FORCE MAJEURE
-------------
Neither party hereto shall in any way be held liable to the other
party for any loss or damage sustained by the other party due to any failure or
delay on its part in performance of this Agreement caused by force majeure, such
as but not limited to strikes, lock-outs, sabotage, fires, explosions, floods,
elements, acts of God, wars, hostilities, civil commotions, riots, acts,
regulations or orders of any governmental agency or authority, epidemics, and
any other circumstances, whether similar or dissimilar to any of the foregoing,
beyond the reasonable control of the first party.
ARTICLE 16
GENERAL PROVISIONS
------------------
16.1 If any provision of this Agreement is held to be ineffective,
unenforceable or illegal for any reason by court or any other governmental
authority, such decision shall not affect the validity or enforceability or any
or all of the remaining portions hereof.
16.2 This Agreement constitutes the entire agreement between the
parties as to the subject matter hereof, and supersedes and replaces all prior
or contemporaneous agreement, written or oral, regarding the subject matter.
16.3 No amendment or modification of this Agreement shall be valid
unless set forth in a writing stating that it is such an amendment or
modification and signed by an authorized representative of each of the parties
hereto.
16.4 This Agreement shall inure to the benefit of and be binding upon
any successors or assigns of either party hereto; however either party may
transfer or assign this
-15-
<PAGE>
Agreement or any of its rights or obligations hereunder without the prior
written consent of the other party.
16.5 Any and all disputes, controversies or differences arising
between the parties hereto out of or in relation to this Agreement or for any
breach thereof which cannot be amicably settled between the parties hereto shall
be finally settled by arbitration to be conducted in Tokyo, Japan in accordance
with the Rules of Conciliation and Arbitration of the International Chamber of
Commerce. Any award of the arbitration shall be final and conclusive and
binding upon the parties hereto.
16.6 This Agreement and its validity, performance and interpretation
shall be governed by the laws of Japan.
16.7 Any notice required or permitted by either party hereunder shall
be made in writing and shall be delivered in person, sent by registered mail or
sent by facsimile with confirmation by registered mail within ten (10) days to
the respective party as follows:
If to FUJI:
Fuji Photo Film Co., Ltd.
Asaka Research Laboratory
11-46, Senzui 3-chome
Asaka-shi, Saitama 351-0024, Japan
Attention: Motohiko Tsubota (General Manager of Asaka
Research Laboratory)
Fax number: 81-468-468-2307
-16-
<PAGE>
If to CARESIDE:
CARESIDE, Inc.
6100 Bristol Parking
Culver City, 90230 California,
USA
Attention: W.V. Stoughton
Fax number: 310-338-6989
ARTICLE 17
SURVIVING PROVISIONS
--------------------
The provisions of Articles 7.3, 9, 10, 11, 12, 14.4, 14.5, 16.4, 16.5,
16.6, and 16.7 shall survive expiration or any termination of this Agreement.
Also, rights of credit or obligations of debt between the parties hereto shall
not be affected by expiration or any termination of this Agreement and shall
remain in full force until such accounts are settled.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed as of the day and year first above written.
Fuji Photo Film, Co., Ltd. CARESIDE, Inc.
/s/ Motohiko Tsubota /s/ W.Vickery Stoughton
- --------------------- -----------------------
Motohiko Tsubota W. Vickery Stoughton
General Manager of Asaka Research Chairman & CEO
Laboratory
-17-
<PAGE>
Schedule A The tests to which FDC Film is applicable
1. The tests to which FDC Colorimetric Film is applicable
a. Total Bilirubin
b. Hemoglobin
c. Uric Acid
d. Ammonia
e. AST
f. GGT
g. LDH
h. ALT
i. LAP
j. Amylase
k. Alkaline Phosphatase
l. Creatine Kinase
m. Total Calcium
n. Triglycerides
o. Cholesterol
p. HDL Cholesterol
q. Glucose
r. Total Protein
s. Albumin
t. Creatinine
u. Urea Nitrogen
v. Inorganic Phosphorus
w. Magnesium
x. DBIL
y. CKMB
2. The tests to which FDC Electrolyte Slide is applicable
a. Sodium
b. Potassium
c. Chloride
3. CARESIDE POCT System tests other than the above
a. Theophylline
b. Digoxin
c. Phenytoin
d. Phenobarbital
e. T4
f. Thyroid Uptake
g. PT
-1-
<PAGE>
h. APTT
i. Valpronic acid
j. Carbamazepyn
k. HCG
l. Troponin
m. Myoglobin
n. PSA
o. Hemoglobin Alc
-2-
<PAGE>
Schedule B FUJI Technology
1. Quality control system
a. Quality control standards of FDC Film (slide)
b. Pre-calibration QC system
2. Handling and assembling conditions of FDC Film
a. Archival properties in reel and slide form
b. Room conditions of handling FDC Film
c. Mechanical handling conditions
3. Specific comments on each test and measuring instrument
-3-
<PAGE>
Schedule C Procedure for purchase plan and order
. A fiscal year begins on April 1 and ends on March 31, unless otherwise
indicated herein.
1. Annual purchase plan
Submitted by November 10 of the preceding year Purchase volume
indicated by items and by months, which does not exceed 40,000,000
pieces per annum
2. Semi-annual revised purchase plan
Applicable only to an annual purchase plan for the period of October 1
to March 31
Submitted by May 10
Purchase volume by items and by months
Allowance of revision: Not 30% more or less in total of each
Colorimetric film and Electrolyte slide than
the volume indicated in the applicable annual
purchase plan
3. Quarterly revised purchase plan
Applicable only to an annual purchase plan of Colorimetric film for
the period of July 1 to September 30 and to a semi-annual revised
purchase plan of Colorimetric film for the period of January 1 to
March 31
Submitted by April 10 and October 10
Purchase volume by items and by months
Allowance of revision: Not 30% more or less in each item of
Colorimetric film than the volume indicated
in the applicable annual purchase plan or
semi-annual revised purchase plan
Restriction: Total volume of Colorimetric film may not be revised.
4. Firm purchase order
Submitted by 1st day of the month two month preceding the desired date
of shipment
Purchase volume by items
Allowance of revision to purchase plan: Not 10% more or less in each
item of Colorimetric film
than the volume indicated in
the applicable purchase pla n
Restriction: Total volume of Colorimetric film may not be revised.
-4-
<PAGE>
5. Acceptance by FUJI
FUJI may refuse to accept CARESIDE's firm purchase order only for
Colorimetric film to the extent not 10% more or less in each item of
Colorimetric film than the volume indicated in the applicable purchase
plan; provided that the total volume of Colorimetric film may not be
revised.
Notwithstanding the foregoing, FUJI shall use reasonable efforts
to accept CARESIDE's firm purchase order which is made beyond the above
allowance during the first year of release of CARESIDE POCT System.
-5-
<PAGE>
Schedule D Prices of FDC Film
1. Colorimetric film
-----------------
[Omitted pursuant to a request for confidential treatment. The material
has been filed separately with the Securities and Exchange Commission.]
2. Electrolyte slide
-----------------
[Omitted pursuant to a request for confidential treatment. The material
has been filed separately with the Securities and Exchange Commission.]
3. The prices applied
------------------
The prices applied shall be tentatively determined based on the volume
indicated in a half-year estimate (annual purchase volume is estimated by
doubling the half-year estimate). The adjustment shall be made based on
the actual purchase volume, and be credited or debited to the payment
amount for the month of November and May.
-6-
<PAGE>
Schedule E Specifications
Specifications of FDC colorimetric film is reel form and FDC electrolyte slides
FDC colorimetric film
1. The length of the slit film
1.1 The length of the slit film will be longer than 40m.
1.2 When required volume from CARESIDE is shorter than 40m or coated film is
shorter than 40m, the film length will be determined after negotiation with
two parties
2. Shipping form and description
2.1 One reel of the film is packed in the bag individually to prevent humidity.
2.2 Test name, lot number and sealed date are described on each bag.
2.3 Several bags are packed in one large box. In some cases different film
will be packed in one box.
3. Splicing
3.1 Both the beginning and the end of the FDC film are spliced with the
transparent PET film. This transparent film is called guide base.
The length of the guide base is longer than 1m. The final film is wound
around the plastic core. The terminal of the outer guide base is adhered
by plastic tape.
3.2 The number of the junction is smaller than one per 10m in average.
The splicing is done by using aluminum laminated or plastic adhesive tape.
This junction is black marked by specific ink.
4. Core of the film reel
4.1 The core is the same one as domestic use.
4.2 The shape and diameter of the outer part and material may be changed.
4.3 The width of the core is 13mm. But this will be changed to 12mm.
5. Stains (not defects, no Fuji's liability under Article 7.3)
Black marking
5.1 In rare cases some slit film has stains. The stains are marked by specific
markers. Black ink is used for this marking.
5.2 The cut film with black marking has to be taken off from the assembly line.
The principle of detection and pick-out system will be suggested by Fuji.
5.3 The shape of the stains are mixture of dots, line and others. The number
of the stains in unite length is not predictable. The length of the line-
shaped stains should be shorter than 1m/10m.
-7-
<PAGE>
Blue spots;
5.4 In rare cases blue spots are observed in FDC ammonia and creatinine film.
5.5 Blue spots larger than the criteria should be detected and discarded from
assembly line like black markings.
5.6 The number of the spots are not predictable.
5.7 The blue spots and black marked portion is included in this length.
5.8 It will be determined about the price of the stained portion.
FDC electrolyte slides
6.1 900 slides are packed in the tray. The slides are covered with cushion
sheet and upper cover to prevent free moving during delivery.
6.2 The periphery of the tray is sealed with adhesive tape.
6.3 The tray is put into the bag to protect humidity.
6.4 The bags are stacked and put into the carton. The number of bags are
agreed between two parties.
(6.1, 6.2 and 6.3 will be changed in the near future;
6.1 500 slides will be packed in the tray.
6.2 This tray will be covered with the lid.
6.3 Two trays (500 x 2 = 1000 slides) are put into the bag to protect
humidity.)
Both FDC colorimetric film and FDC electrolyte slides
7. Shelf life of the FDC slides
The shelf life of the FDC slides is listed in the table 1.
The delivery time is about 2 months.
It is recommended the cartridge assembly should be done within 2 months.
-8-
<PAGE>
Shelf life of the FDC slides
<TABLE>
<CAPTION>
<S> <C>
Delivery; Shelf life of the FDC slides is 9-18
months from the predetermined date
2 months prior to the of slide assembly, depending on tests
recommended date of (See the table 1)
cartridge assembly
Shipment of the Predetermined date of slide assembly
FDC film and
electrolyte slides
</TABLE>
The shelf life (expiring time) of FDC slides is guaranteed under the condition
that these are stored at 2-8 degree C. The shelf life of individual FDC test is
listed in the table 1.
-9-
<PAGE>
Table 1
Shelf life of FDC slide after the
predetermined date of assembly
Test name Shelf life (months)
- -------------------------------
GLU-P 18 These slides must be stored at
- ------------------------------- 2 to 8 degrees C.
BUN-PII 18
- -------------------------------
Hb-W 24
- -------------------------------
UA-P 18
- -------------------------------
TCHO-PII 18
- -------------------------------
NH3-PII 18
- -------------------------------
TG-P 18
- -------------------------------
CRE-PII 18
- -------------------------------
TP-P 18
- -------------------------------
ALB-P 18
- -------------------------------
TBIL-P 18
- -------------------------------
HDLC-P 18
- -------------------------------
Ca-PII 18
- -------------------------------
IP-P 18
- -------------------------------
GGT-P 18
- -------------------------------
GOT-P 18
- -------------------------------
GPT-P 18
- -------------------------------
CPK-P 18
- -------------------------------
LDH-P 18
- -------------------------------
ALP-P 18
- -------------------------------
AMYL-P 18
- -------------------------------
LAP-P 18
- -------------------------------
CKMB-P 12
- -------------------------------
CHE-P 12
- -------------------------------
Mg-P 10
- -------------------------------
DBIL-P 9
- -------------------------------
- -------------------------------
Na 16
- -------------------------------
K 16
- -------------------------------
Cl 16
- -------------------------------
-10-
<PAGE>
Schedule F Inspection Manual
Material sampling and inspection
1. Colorimetric slides
1.1 Sampling the beginning (outer part) part of each reel for shipment.
1.2 Assembling slides using the sample above.
(20 slides for Fuji, 20 slides for CARESIDE)
1.3 Inspection by Fuji
Measuring sample slides using controls.
Control Low :n=5
Control High :n=5
Evaluating accuracy (using average) and precision.
1.4 Inspection by CARESIDE
Measuring sample slides which is sent with reels of film
using controls.
Control Low :n=5
Control High :n=5
Evaluating accuracy (using average) and precision.
2. Electrolyde slides
2.1 Sampling representative part of assembled slides of each lot for shipment.
(10 slides for Fuji, 10 slides for CARESIDE)
2.2 Inspection by Fuji
Measuring sample slides using a control.
Control (QE) :n=5
Evaluating accuracy (using average) and precision.
2.3 Inspection by CARESIDE
Measuring sample slides using a control
Control (QE) :n=5
Evaluating accuracy (using average) and precision
(Criteria is summarized in table2)
-11-
<PAGE>
Inspection Manual for Colorimetric Films (in detail)
- ----------------------------------------------------
<TABLE>
<CAPTION>
<S> <C> <C>
1. Scheme of Inspection
1.1 Inspection by Fuji prior to Shipment
(1) Sample :The representative part of the lot in slide form
(2) Specimen :QP-L, H (control serum for FDC slides)
(3) Analyzer :FDC5500 or FDC3000
1.2 Inspection by CARESIDE after delivery
(1) Sample :The representative part of the lot in slide form provided by Fuji
(2) Specimen :QP-L, H (control serum for FDC slides)
(3) Analyzer :FDC3000
(4) Method of inspection :According to the operation manual provided by Fuji.
2. Operation Manual
2.1 Preparation
(1) FDC3000
(2) FUJI Clean Tips
(3) QP-L, H (store at 20/0/C)
Reconstitute them according to the instruction below.
a) Remove aluminum cap and rubber stopper.
b) Fill each vial with 3ml of either distilled or deionized water.
The water must be kept at 25.0+0.3/0/C
-
c) Put the stopper on the vial.
d) Allow the vial to stand at 25/0/C for 15 minutes.
e) Swirl gently to mix contents for 15 minutes.
f) Use within 3 hours.
(4) FDC slides for inspection
Take out the slides from the refrigerator and allow them to stand for
at least five minutes so that they can reach room temperature.
2.2 Turning on FDC3000
(1) Switch on.
When power is turning on, the analyzer emits a short beep and the
printer prints out the indication "FUJI DRI-CHEM FDC3000 V2.1-P02E."
Analyzer begins initialization to check operation.
(2) Empty out the disposal box.
2.3 Measurement method
(1) Confirm that the LCD reads "READY."
(2) Press keys in the following sequence.
a) "Mode," "00," "enter"
b) Input passwords. "7536," "Enter"
c) "1"
d) "Mode," "109," "Enter"
e) "1"
</TABLE>
-12-
<PAGE>
f) "1"
g) Input the slide code of the sample slide (e.g. "1050," "Enter"
for GLU slides)
(3) Insert the slides to be measured into the cartridge. Then make sure to
put the slide weight on top.
(4) Orient the cartridge properly and set it at the set position.
(5) Insert the sample tube and Clean Tip into the rack and set it at the
set position.
(6) Press the START key.
(7) After measurement is finished, the results are printed out.
3. Evaluation
Evaluate accuracy (using average) and precision.
-13-
<PAGE>
Inspection Manual for Electrolyte Slides (in detail)
- ----------------------------------------------------
<TABLE>
<CAPTION>
<C> <S> <C>
1. Scheme of Inspection
1.1 Inspection by Fuji prior to Shipment
(1) Sample :The representative part of the lot in slide form
(2) Specimen :QE (control liquid for FDC electrolyte slides)
(3) Analyzer :FDC800
(4) Method of inspection :According to the operation manual provided by Fuji
1.2 Inspection by CARESIDE after delivery
(1) Sample :The representative part of the lot in slide form provided by Fuji
(2) Specimen :QE (control liquid for FDC electrolyte slides)
(3) Analyzer :FDC800
2. Operation Manual
2.1 Preparation
(1) FDC800
(2) FUJI Clean Tips
(3) QE (control liquid for FDC electrolyte slides :store at 2 to 8/0/C)
(4) RE (reference liquid for FDC electrolyte slides :store at 2 to 8/0/C)
(5) FDC slides for inspection
Take out the slides, QE and RE from the refrigerator and allow them to
stand for at least five minutes so that they can reach room
temperature.
2.2 Turning on FDC800
(1) Switch on.
When the display on the panel changes from "WAIT" to "READY," the
instrument is ready for measurement.
(2) Press the sample key until the indication lamp on the panel indicates
SERUM.
2.3 Measurement method
(1) Set a slides into the pipetting area. The arrow mark on the slide must
be directed to forward direction.
(2) Set the FUJI Clean Tip properly to the FDC800 pipette.
(3) Lower the open/close lever of the FDC800 pipette to the bottom to widen
the space between two nozzles.
(4) Suck the RE liquid with pipette marked "reference" (blue).
The RE liquid can be sucked by pressing and then releasing the blue
lever. If the remaining reference is allowed to stand with the bottle
uncovered for extended periods, it will evaporate, resulting in a
change in concentration.
(5) Suck the QE liquid with the pipette marked "sample" (pink).
Use a new ample of control in each series of measurement.
(6) Set the open/close lever to the uppermost position to minimize the
space between the two nozzles.
</TABLE>
-14-
<PAGE>
(7) Apply the tips to the pipetting guide of the analyzer, and adjust the
ends of the tips to meet two spotting holes of the slides.
(8) Press the blue lever and pink lever simultaneously to drop the liquid
into the spotting holes of the slide.
(9) After complete spotting, press the START key promptly. The slides is
automatically transferred to the incubator and one minutes later, the
values of Na, K and Cl are displayed in mEq/l units and printed out.
After measurement, the slides is automatically discharged into the
slides receiver box.
*To measure the next slides, repeat step (1) to (9).
3. Evaluation
Evaluate accuracy (using average) and precision.
-15-
<PAGE>
Table 2
Criteria of accuracy and
precision
<TABLE>
<CAPTION>
unit control L control H
- ---------------------------------------------------------------------------------------------------------------
std. val. accuracy precision std. val. accuracy precision
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
GLU mg/dl 107.0 + 15% CV less than 3.0% 315.0 + 15% CV less than /= 3.0%
- -
- ---------------------------------------------------------------------------------------------------------------
BUN mg/dl 16.1 + 15% CV less than /= 3.5% 51.7 + 15% CV less than /= 3.0%
- -
- ---------------------------------------------------------------------------------------------------------------
Hb g/dl 10.0* + 15% CV less than/= 3.0%
-
- ---------------------------------------------------------------------------------------------------------------
UA mg/dl 3.40 + 0.9 CV less than/= 3.5% 10.4 + 12% CV less than/= 3.0%
- -
- ---------------------------------------------------------------------------------------------------------------
TCHO mg/dl 120.3 + 18% CV less than/= 3.5%
-
- ---------------------------------------------------------------------------------------------------------------
NH3 /u/g/dl 90.1 + 60 SD less than/= 7.0 /u/g/dl
-
- ---------------------------------------------------------------------------------------------------------------
TG mg/dl 107.7 + 30 CV less than/= 3.0% 168.0 + 30 CV less than/= 3.0%
- -
- ---------------------------------------------------------------------------------------------------------------
CRE mg/dl 1.29 + 0.7 SD less than/= 0.15mg/dl 5.5 + 30% CV less than/= 3.0%
- -
- ---------------------------------------------------------------------------------------------------------------
TP g/dl 5.53 + 0.9 CV less than/= 3.0% 7.10 + 0.9 CV less than/= 3.0%
- -
- -----------------------------------------------------------------------------------------------------------------
ALB g/dl 3.14 + 0.9 SD less than/= 0.15g/dl 4.00 + 0.9 SD less than/= 0.15g/dl
- -
- ------------------------------------------------------------------------------------------------------------------
TBIL mg/dl 1.00 + 0.3 R less than/= 0.3mg/dl 4.50 + 1.2 SD less than/= 0.25mg/dl
- -
- ------------------------------------------------------------------------------------------------------------------
HDLC mg/dl 26.4 + 9.0 SD less than/= 1.5mg/dl
-
- ------------------------------------------------------------------------------------------------------------------
Ca mg/dl 9.71 + 1.2 CV less than/= 2.5% 12.6 + 1.5 CV less than/= 2.5%
- -
- ------------------------------------------------------------------------------------------------------------------
IP mg/dl 3.32 + 0.6 SD less than/= 0.15mg/dl 4.90 + 18% CV less than/= 3.5%
- -
- ------------------------------------------------------------------------------------------------------------------
Mg mg/dl 1.54 + 40% CV less than/= 4.5% 4.35 + 30% CV less than/= 3.5%
- -
- ------------------------------------------------------------------------------------------------------------------
DBIL mg/dl 0.31 + 0.6 SD less than/= 0.1mg/dl 2.74 + 21% CV less than/= 4.0%
- -
- ------------------------------------------------------------------------------------------------------------------
GGT U/1 48.8 + 12.6 SD less than/= 2.5U/1 457.0 + 21% CV less than/= 4.0%
- -
- ------------------------------------------------------------------------------------------------------------------
GOT/AST U/1 25.2 + 7.2 SD less than/= 2.5U/1 84.0 + 15% CV less than/= 3.5%
- -
- ------------------------------------------------------------------------------------------------------------------
GPT/ALT U/1 25.6 + 7.2 SD less than/= 2.5U/1 82.0 + 15% CV less than/= 3.5%
- -
- ------------------------------------------------------------------------------------------------------------------
CPK U/1 74.9 + 21 SD less than/= 4.0U/1 262.0 + 21% CV less than/= 4.0%
- -
- ------------------------------------------------------------------------------------------------------------------
LDH U/1 154.5 + 21% SD less than/= 4.0U/1 389.0 + 21% CV less than/= 4.0%
- -
- ------------------------------------------------------------------------------------------------------------------
ALP U/1 114.1 + 48 SD less than/= 8.5U/1 353.0 + 21.6% CV less than/= 4.0%
- -
- ------------------------------------------------------------------------------------------------------------------
AMYL U/1 92.6 + 15% SD less than/= 3.0U/1 348.0 + 15% CV less than/= 3.0%
- -
- ------------------------------------------------------------------------------------------------------------------
LAP U/1 44.2 + 21.6 SD less than/= 4.0U/1 73.0 + 21.6% SD less than/= 4.0U/1
- -
- ------------------------------------------------------------------------------------------------------------------
CKMB U/1 10.0 + 21.6 SD less than/= 2.5U/1 24.0 + 21.6% SD less than/= 2.5U/1
- -
- ------------------------------------------------------------------------------------------------------------------
CHE U/1 236.6 + 15% CV less than/= 3.5%
-
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
unit std. val. accuracy precision
- -----------------------------------------------------
<S> <C> <C> <C> <C>
Na mEq/1 139.7 + 2.5 CV less than/= 1.5%
-
- -----------------------------------------------------
K mEq/1 4.20 + 0.25 CV less than/= 2.5%
-
- -----------------------------------------------------
Cl mEq/1 96.7 + 3.5 CV less than/= 2.0%
-
- -----------------------------------------------------
</TABLE>
*Standard value of Hb is changed at each inspection because Hb is tested with
whole blood.
Accuracy is evaluated with mean value.
When either the lot number of the standard solution and type of the slide is
changed, the value in the table 2 should be replaced.
When new test menu is added, this table will be revised.
New list will be provided by Fuji.
<PAGE>
Exhibit 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our
reports and to all references to our Firm included in or made a part of this S-
1 Registration Statement.
Arthur Andersen llp
Philadelphia, Pa.,
June 11, 1999
<PAGE>
Exhibit 23.3
[LETTERHEAD OF OPPENHEIMER WOLFF & DONNELLY LLP]
CONSENT OF PATENT COUNSEL
We hereby consent to the reference of our firm under the caption "Experts"
regarding patent matters, as set forth in this Amendment No. 9 to Form S-1
Registration Statement of Careside, Inc., and the prospectus which forms a part
thereof.
/s/ Oppenheimer Wolff & Donnelly LLP
Oppenheimer Wolff & Donnelly LLP
Los Angeles, California
June 11, 1999
