<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 14, 2000
REGISTRATION NO. 333-31680
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------
AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
------------------
CELLOMICS, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
DELAWARE 8731 25-1763831
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
</TABLE>
635 WILLIAM PITT WAY
PITTSBURGH, PENNSYLVANIA 15238
(412) 826-3600
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
------------------
D. LANSING TAYLOR, PH.D.
PRESIDENT AND CHIEF EXECUTIVE OFFICER
635 WILLIAM PITT WAY
PITTSBURGH, PENNSYLVANIA 15238
(412) 826-3600
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
------------------
COPIES TO:
<TABLE>
<S> <C>
WILLIAM R. NEWLIN RODD M. SCHREIBER
LEWIS U. DAVIS, JR. SKADDEN, ARPS, SLATE, MEAGHER & FLOM (ILLINOIS)
RONALD W. SCHULER 333 WEST WACKER DRIVE
BUCHANAN INGERSOLL PROFESSIONAL CORPORATION SUITE 2100
ONE OXFORD CENTRE CHICAGO, ILLINOIS 60606
301 GRANT STREET
PITTSBURGH, PENNSYLVANIA 15219
</TABLE>
------------------
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 of
1933, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
CALCULATION OF REGISTRATION FEE
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AGGREGATE OFFERING AMOUNT OF
SECURITIES TO BE REGISTERED PRICE(1) REGISTRATION FEE(2)
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Common Stock, $.01 par value per share...................... $117,300,000 $30,967.20
- ------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(o) under the Securities Act.
(2) On March 3, 2000, Cellomics paid $26,400 of this $30,967.20 in connection
with its initial filing on Form S-1. On the date hereof, Cellomics has paid
an additional $607.20, which, together with the balance remaining in
Cellomics' account of the SEC, is equal to the additional $4,567.20 required
to cover the registration fee associated with the additional shares being
registered hereunder.
------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 2
THE INFORMATION IN THIS PRELIMINARY PROSPECTUS IS NOT COMPLETE AND MAY
BE CHANGED. CELLOMICS 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 -- APRIL 14, 2000
PROSPECTUS
- --------------------------------------------------------------------------------
6,000,000 Shares
CELLOMICS LOGO
Common Stock
- --------------------------------------------------------------------------------
Cellomics, Inc. is offering 6,000,000 shares of its common stock in an initial
public offering. Prior to this offering, there has been no public market for our
common stock.
Cellomics is developing and commercializing products in the emerging field of
cellomics in an effort to extend the recent advances in genomics, the study of
genes, and proteomics, the study of proteins.
It is anticipated that the public offering price will be between $16.00 and
$18.00 per share. Application has been made to include the shares for quotation
in the Nasdaq National Market under the symbol "CLMX".
<TABLE>
<CAPTION>
Per Share Total
<S> <C> <C>
Public offering price............................ $ $
Underwriting discounts and commissions........... $ $
Proceeds, before expenses, to Cellomics.......... $ $
</TABLE>
SEE "RISK FACTORS" ON PAGES 7 TO 16 FOR FACTORS THAT SHOULD BE CONSIDERED BEFORE
INVESTING IN THE SHARES OF CELLOMICS.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Neither the Securities and Exchange Commission nor any state securities
commission has
approved or disapproved of these securities or passed upon the accuracy or
adequacy of this
prospectus. Any representation to the contrary is a criminal offense.
- --------------------------------------------------------------------------------
The underwriters may, under certain circumstances, purchase up to 900,000
additional shares from Cellomics at the public offering price, less underwriting
discounts and commissions. Delivery and payment for the shares will be on
, 2000.
PRUDENTIAL VECTOR HEALTHCARE
A UNIT OF PRUDENTIAL SECURITIES
ING BARINGS
DAIN RAUSCHER WESSELS
, 2000
<PAGE> 3
[Diagrams depicting our complete solution in applying cellomics products and
technologies to the life sciences markets, including products that generate
data, extract information and create cellular knowledge.]
<PAGE> 4
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary................. 3
Risk Factors....................... 7
Forward-Looking Statements......... 16
Use of Proceeds.................... 17
Dividend Policy.................... 17
Capitalization..................... 18
Dilution........................... 19
Selected Financial Data............ 20
Management's Discussion and
Analysis of Financial Condition
and Results of Operations........ 22
Business........................... 27
Management......................... 41
Certain Transactions............... 50
Principal Stockholders............. 53
Description of Capital Stock....... 56
Shares Eligible for Future Sale.... 60
Underwriting....................... 62
Legal Matters...................... 63
Experts............................ 63
Where You Can Find More
Information...................... 64
Index to Financial Statements...... F-1
</TABLE>
- --------------------------------------------------------------------------------
ArrayScan(R) is our registered trademark. We have applied for registration
of the following trademarks: Cellomics, the Cellomics logo, CellChip, HitKit,
and PharmacoCellomics. This prospectus also includes trademarks and tradenames
of other companies.
- --------------------------------------------------------------------------------
You should rely only on the information contained in this prospectus. We
have not authorized anyone to provide you with different information. We are not
making an offer of these securities in any jurisdiction where the offer or sale
is not permitted. You should not assume that the information contained in this
prospectus is accurate as of any date other than the date on the front cover of
this prospectus.
2
<PAGE> 5
PROSPECTUS SUMMARY
This summary highlights information contained elsewhere in this prospectus.
This summary does not contain all the information that you should consider
before investing in our common stock. You should read the entire prospectus
carefully.
OUR COMPANY
We are a pioneer in the emerging field of cellomics. We believe the field
of cellomics will extend the recent advances in genomics, the study of genes,
and proteomics, the study of proteins. Cellomics refers to the study of all the
molecules comprising a cell, as well as their interactions in space and over
time, that bring about cellular functions. Normal genes and proteins coordinate
and perform life functions and abnormal genes and proteins cause disease at the
cellular level. We offer products that are designed to provide in-depth
knowledge about cells and cellular functions in order to aid researchers in drug
discovery, basic biomedical research and clinical diagnostics. We design our
products to:
- measure the physical position and activity over time of cells and
cellular components;
- extract information about cells, cellular components and their functions;
and
- create new knowledge about cells and enable researchers to access a
digital "virtual cell."
We developed our initial products starting in 1997 through early technology
access programs with Johnson & Johnson, Merck & Co., Inc. and Warner-Lambert
Company. We currently have four products on the market, and a number of products
in various stages of development. We are developing a number of our products in
collaboration with third parties, including Carl Zeiss Jena GmbH, one of the
world's leading optical engineering and manufacturing companies, as well as
ACLARA Biosciences, Inc. and Molecular Probes, Inc.
OUR PRODUCTS
Our products and products in development include:
- High Content Screening Products. We refer to information about time,
space and activity of cells and cellular components as high content
cellular information. We have designed our high content screening
products to provide this information to researchers. We introduced our
first automated system, the ArrayScan II, in late 1999, and have
additional automated systems in development. Our customers can expand the
capabilities of our automated systems through follow-on purchases of our
software tools and tests for specific cellular reactions. We are also
developing a miniaturized screening system, called the CellChip System.
We believe the CellChip System will permit researchers to perform cell
experiments more quickly and at lower cost.
- Informatics Products. We refer to software programs that archive, manage
and extract large quantities of information about cells, cellular
components and their functions as informatics products. We began
commercialization of our first informatics product, Cellomics Store, in
1999. We are designing our informatics products to provide our customers
with a user-friendly, web-based environment built on top of industry
standard database tools, together with data and pattern analysis tools
and open interfaces for easy data exchange.
- Cellular Bioinformatics Products. We refer to searchable databases of
cellular information and related software as cellular bioinformatics
products. We are designing these products to enable researchers to
perform computer-based searches of cellular information to identify new
knowledge about cells and cellular functions. We are also developing a
database that we believe has the potential to personalize drug discovery
based on the response of an individual's cells to drugs in much the same
way that genomics databases have begun to personalize drug discovery
based on the genetic make-up of individual patients.
We believe our products can enhance the productivity of the drug discovery
process by offering insights into the cellular properties of drug candidates
prior to initiating pre-clinical and human clinical trials. We believe that, in
this way, our products may allow researchers to more accurately identify and
select those candidates that have a higher chance of successfully completing the
drug development process. In addition to our products, we market Zeiss' Ultra
High Throughput Screening System in North America on an exclusive basis.
3
<PAGE> 6
OUR INITIAL TARGET MARKETS
We are initially targeting our products to pharmaceutical and biotechnology
companies and academic and government laboratories engaged in drug discovery.
According to industry sources, the pharmaceutical industry spent approximately
$24 billion on research and development in 1999. Industry sources estimate that
only 20% of new drug candidates ever become marketed drugs, and only about 30%
of drugs ever recoup their development costs. We believe that researchers must
understand how cells work in order to develop effective drugs or therapies.
Present drug discovery techniques, however, do not provide information about the
physical position and activity over time of cells and cellular components. The
current drug discovery process therefore makes assumptions about the
specificity, effectiveness and toxicity of potential drug candidates. These
assumptions must then be validated through expensive and time consuming
pre-clinical and human clinical trials. In addition, advances in some aspects of
the drug discovery process, such as genomics, proteomics and high throughput
screening, have led to a proliferation in the number of potential drug
candidates and a corresponding bottleneck in selecting candidates for further
development. We estimate that the drug discovery market for our products
includes approximately 140 pharmaceutical companies, 2,000 biotechnology
companies and over 1,000 academic and government laboratories.
OUR STRATEGY
Our objective is to be a leader in the field of cellomics. Key elements of
our strategy are to:
- establish high content screening as the standard for drug discovery;
- offer a broad menu of software tools and tests for specific cellular
reactions to generate recurring revenues;
- expand into additional segments of the life sciences market, including
basic biomedical research, clinical diagnostics and agriculture;
- migrate our high content screening system to the miniaturized CellChip
System;
- construct a powerful predictive tool by creating a searchable repository
of cellular information and by linking this information to existing
genomics and proteomics databases; and
- combine our strengths with the strengths of strategic corporate partners
to access complementary technologies and strengthen our commercialization
capabilities.
ABOUT US
We were originally formed in Pennsylvania in 1995, and reincorporated in
Delaware in 1998. We have had revenues from operations of approximately $6.5
million since our inception, including $3.4 million in 1999. We have incurred
operating losses in each of the years since our inception. As of December 31,
1999, we had an accumulated deficit of approximately $17.1 million.
Our principal offices and manufacturing facilities are located at 635
William Pitt Way, Pittsburgh, Pennsylvania 15238 and our telephone number is
(412) 826-3600.
4
<PAGE> 7
THE OFFERING
Shares offered by Cellomics......... 6,000,000 shares
Total shares outstanding after this
offering............................ 19,579,170 shares
Use of proceeds..................... For technology research and product and
services development, scale-up of sales
and marketing, capital expenditures,
working capital and general corporate
purposes.
Proposed Nasdaq National Market
symbol.............................. CLMX
The number of shares of common stock to be outstanding after this offering
is based on the number of shares outstanding on March 31, 2000. This number
includes 9,396,155 shares of common stock that will be issued on the conversion
of all of our outstanding shares of convertible preferred stock and excludes:
- 2,623,923 shares of common stock reserved for issuance under our stock
option plans, of which 1,762,581 shares were subject to outstanding
options as of March 31, 2000, at a weighted average exercise price of
$0.50;
- 1,575,166 shares of common stock issuable upon exercise of outstanding
warrants as of March 31, 2000, at a weighted average exercise price of
$2.18; and
- up to 900,000 shares that the underwriters may purchase if they exercise
their over-allotment option in full.
Unless otherwise indicated, information in this prospectus assumes the
following:
- the conversion of all of our outstanding shares of convertible preferred
stock into shares of common stock upon the closing of this offering;
- a 3.532-for-1 stock split which will be completed immediately prior to
the offering, with all references to preferred stock outstanding prior to
the conversion to common stock reflecting the stock split; and
- the filing of our amended and restated certificate of incorporation.
RISK FACTORS
You should consider the risk factors and the impact of various events that
could adversely affect our business before investing in our common stock.
5
<PAGE> 8
SUMMARY FINANCIAL DATA
The following summary statement of operations data for the years ended
December 31, 1997, 1998 and 1999 are derived from our audited financial
statements.
The pro forma net loss per share presented below for the year ended
December 31, 1999 assumes conversion of the Series A preferred stock outstanding
at December 31, 1999 into common stock on a one-for-one basis on January 1,
1999, or the date of issuance if later. The Series A preferred stock will
automatically convert into common stock upon the closing of this offering.
The pro forma balance sheet data presented below give effect to the sale of
our Series B preferred stock completed after December 31, 1999 for aggregate
proceeds of approximately $6.5 million, the conversion of $1.8 million in demand
notes, plus accrued interest, into our Series B preferred stock, and the
conversion of our Series A and Series B preferred stock into common stock upon
the closing of this offering, as if such conversion had occurred at December 31,
1999. The pro forma as adjusted balance sheet data reflect the sale of 6,000,000
shares of common stock in this offering at an assumed initial public offering
price of $17.00 per share, after deducting underwriting discounts and
commissions and estimated offering expenses. You should read the summary
financial data together with our financial statements and the related notes and
the sections of this prospectus entitled "Capitalization" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------
1997 1998 1999
-------- -------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues.................................................... $ 395 $ 2,273 $ 3,390
Operating costs and expenses................................ 2,820 5,782 13,847
Loss from operations........................................ (2,425) (3,509) (10,457)
Net loss.................................................... (2,438) (3,495) (10,618)
Net loss attributable to common stockholders................ (2,438) (4,013) (11,551)
Net loss per share--basic and diluted....................... $ (0.61) $ (0.99) $ (2.77)
Shares used to compute basic and diluted net loss per
share..................................................... 3,986 4,070 4,175
Pro forma net loss per share................................ $ (0.97)
Shares used to compute pro forma net loss per share......... 10,990
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1999
------------------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
-------- --------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents............................... $ 1,341 $ 7,872 $101,482
Working capital (deficit)............................... (1,223) 3,984 97,594
Total assets............................................ 5,860 12,379 105,989
Total long-term debt less current maturities............ 3,745 2,036 2,036
Mandatorily redeemable convertible preferred stock...... 12,153 -- --
Total stockholders' equity (deficit).................... (15,734) 3,334 96,944
</TABLE>
RECENT DEVELOPMENTS
On February 23, 2000, we issued 1,911,102 shares of our preferred stock for
gross proceeds to us of approximately $6.5 million. In addition, on the same
day, $1.8 million of our convertible demand notes, plus accrued interest on
those notes, were automatically converted in accordance with their original
terms into an additional 538,958 shares of our preferred stock.
Based on the fair market value of our common stock on February 23, 2000,
these securities contain a beneficial conversion feature. As a result, we expect
to incur a non-recurring charge to net loss applicable to common stockholders in
an amount of approximately $6.5 million in the first quarter of 2000 that will
increase basic net loss per share.
6
<PAGE> 9
RISK FACTORS
You should carefully consider the following risk factors, in addition to
other information set forth in this prospectus, before purchasing shares of our
common stock. Each of these risk factors could adversely affect our business,
financial condition and operating results, as well as the value of an investment
in our common stock. This investment involves a high degree of risk.
RISKS RELATED TO OUR BUSINESS
WE ARE AN EARLY STAGE COMPANY AND FACE MANY RISKS INHERENT IN OPERATING A
NEW BUSINESS. IF WE ARE NOT ABLE TO OVERCOME THESE RISKS, WE MAY NOT
SUCCEED OR BECOME PROFITABLE.
We are subject to the risks inherent in operating a new business, such as:
- difficulties and delays often encountered in developing, producing and
commercializing new, complex technologies;
- developing the markets for our high content screening, informatics and
cellular bioinformatics products and technologies;
- transitioning our research and development efforts to commercializing
technologies; and
- attracting and retaining qualified management, sales, technical and
scientific staff.
We cannot assure you that we will be able to address these risks
effectively. Therefore, we are uncertain about the extent of our future losses
and the time required to achieve and maintain profitability. Further, we cannot
assure you that we will ever be able to generate sufficient revenue or achieve
or maintain profitability.
WE HAVE HAD A LIMITED OPERATING HISTORY AND HAVE INCURRED SIGNIFICANT
LOSSES TO DATE. WE EXPECT TO CONTINUE TO INCUR LOSSES IN THE FORESEEABLE
FUTURE AND WE MAY NEVER ACHIEVE OR MAINTAIN PROFITABILITY.
We have incurred operating losses in each of the years since our inception.
As of December 31, 1999, we had an accumulated deficit of approximately $17.1
million. Our losses have primarily been the result of research and development
and selling, general and administrative expenses associated with our operations.
Since our inception, we have recognized limited revenue from the sale of our
products, technology and services. We have financed our operations principally
from private placements of our common and preferred stock, collaboration
agreements and grants. We expect to continue to experience significant operating
losses in the foreseeable future as we continue to expand our research and
development efforts and our marketing and sales force in an effort to
commercialize more of our products. We expect that losses will continue until
such time, if ever, that we are able to generate sufficient revenues from the
sale of our products, technologies and services to cover our expenses. Our
ability to achieve and maintain long-term profitability is dependent on
successfully commercializing our products and technologies. We cannot assure you
that we will be able to achieve any of the foregoing or that we will be
profitable even if we successfully commercialize our products.
IF WE FAIL TO SUCCESSFULLY DEVELOP OR COMMERCIALIZE OUR TECHNOLOGIES, OR IF
OUR PRODUCTS DO NOT BECOME WIDELY ACCEPTED METHODS IN DRUG DISCOVERY, WE
MAY NOT GENERATE SUFFICIENT REVENUES OR ACHIEVE PROFITABILITY.
We may encounter problems in connection with the commercial development of
our technologies and products. The commercialization of our high content
screening, informatics and cellular bioinformatics products and technologies is
a complex process, which in some cases requires the combination of
instrumentation, cellular analysis products, software and databases. We cannot
assure you that we will be able to successfully develop our products and
technologies to perform at the quality and capacity levels required for
commercial success. Unforeseen complications could cause product development
delays and increased
7
<PAGE> 10
development costs. If we fail to successfully commercialize our products in
development, we will not generate sufficient revenues and will not achieve or
maintain profitability.
We expect in the future that a substantial portion of our revenues will be
derived from the sale and licensing of consumables, such as reagents, which are
substances used to detect and measure cellular structure and activities, and
cellular analysis kits. We have limited experience in the development,
manufacture and marketing of these products. We intend to continue to license
cellular analysis technologies from third parties and to use these licenses to
develop reagents and cellular analysis kits internally. We cannot guarantee that
we will succeed in licensing any additional cellular analysis technologies on
acceptable terms, if at all, or that we will successfully commercialize any
reagents that we license or develop.
Our current and future planned products represent novel tools for drug
discovery and they may not achieve market acceptance. Market acceptance of our
products will depend on many factors, including our ability to demonstrate the
advantages and potential economic value of high content screening, informatics
and cellular bioinformatics products and technologies over well-established
alternative products and technologies.
The market for high content screening, informatics and cellular
bioinformatics products and technologies is new and undefined, and the use of
these technologies by pharmaceutical and biotechnology companies and academic
and government laboratories is currently very limited. Because our initial
products have been in operation for only a limited period of time, their ease of
use and commercial value have not been fully established. In addition, operators
using these systems may require substantial new technical skills and training.
If our customers do not accept our products and technologies because these
systems fail to generate the expected quantities and quality of data, are too
difficult or costly to use or are otherwise deficient, then market acceptance of
our products will suffer and we may not be able to generate further sales.
Additionally, to date, our technologies have never been utilized in the
discovery of any compound that has ultimately become a commercialized drug. If
our products and technologies are not successful or are perceived as ineffective
in assisting others in discovering commercially viable drug compounds, then our
ability to generate revenues will be affected and our stock price may decline.
If there is a lack of demand for our high content screening and informatics and
cellular bioinformatics products and technologies, we may not generate
sufficient revenues or achieve or maintain profitability.
IF OUR OPERATING RESULTS FLUCTUATE SIGNIFICANTLY, WE FAIL TO MEET FINANCIAL
EXPECTATIONS OR THE FINANCIAL MARKETS EXPERIENCE GENERAL VOLATILITY, OUR
STOCK PRICE MAY DECLINE SUBSTANTIALLY.
Our operating results may fluctuate in the future. Some of the factors that
could cause our operating results to fluctuate include:
- the length and unpredictability of our sales cycles;
- the relatively high purchase price of many of our products;
- changes in exchange rates between the U.S. dollar and the German Deutsche
mark we pay for some of the components of our systems and systems we
resell; and
- research and development spending budgets of pharmaceutical companies.
- the timing, release and competitiveness of our or our competitors'
products.
If revenues decline in a period, whether due to a delay in recognizing
expected revenues or otherwise, our earnings, if any, will decline. In
particular, research and development and a majority of selling, general and
administrative expenses are fixed costs and will continue to be so regardless of
variations in revenues. Due to fluctuations in our revenues and operating
expenses, we believe that period-to-period comparisons of our results of
operations are not a good indication of our future performance. If our operating
results in some future quarter or quarters are below the expectations of
securities analysts or investors, our stock price could fluctuate and
substantially decline.
8
<PAGE> 11
In addition, historically the stock markets have experienced extreme price
and volume fluctuations based on, among other things, general economic
conditions. In particular, the market prices of the securities of life sciences
companies have been especially volatile, and often these fluctuations have been
unrelated to operating performance. These broad fluctuations may adversely
affect the trading price of our common stock, regardless of our actual operating
performance.
In the past, following periods of market volatility, security holders have
instituted class action litigation. If the market value of our stock experiences
adverse fluctuations and we become involved in this type of litigation, we could
incur substantial legal costs and management's attention could be diverted,
which could materially harm our business or cause the market price of our stock
to further decline.
WE RELY HEAVILY ON ZEISS TO MANUFACTURE SOME OF OUR KEY PRODUCTS. IF EITHER
WE OR ZEISS FAIL TO PERFORM UNDER OUR AGREEMENTS, OUR ABILITY TO GENERATE
REVENUES WILL BE SIGNIFICANTLY IMPAIRED.
In February 2000, we entered into a development, manufacturing and supply
agreement with Zeiss. Under that agreement, Zeiss is, until September 2002, the
sole developer and manufacturer of our ArrayScan Kinetics Workstation and
ArrayScan Kinetics Reader. Our ability to develop, manufacture and obtain a
sufficient supply of these products will depend significantly on Zeiss'
performance under this agreement. If Zeiss experiences manufacturing or
development difficulties, or does not otherwise perform under this agreement,
our ability to generate revenues from sales of our ArrayScan Kinetics
Workstation and ArrayScan Kinetics Reader will be dramatically reduced.
The Zeiss development, manufacturing and supply agreement terminates in
December 2005. However, in some instances, this agreement may be terminated
prior to 2005. If this agreement is terminated, we will be required to find one
or more alternative developers, suppliers and manufacturers for these products
or experience increased capital requirements to undertake development and
manufacturing at our own expense. We cannot assure you that we would be able to
find an alternative source to develop or manufacture our products on a timely
basis or on terms acceptable to us, if at all. We also cannot assure you that we
would be able to develop or manufacture these instruments on our own.
Additionally, if this agreement is terminated, it is possible that Zeiss could
begin to develop its own competing technologies or seek other collaborators that
develop products that are competitive with our products.
IF WE CANNOT SUCCESSFULLY COMMERCIALIZE ZEISS' ULTRA HIGH THROUGHPUT
SCREENING SYSTEM IN NORTH AMERICA, THEN OUR NEAR-TERM REVENUES WILL BE
MATERIALLY REDUCED.
In February 2000, we also entered into a sales and marketing agreement with
Zeiss under which we agreed to sell and market Zeiss' Ultra High Throughput
Screening System and related products. Under the agreement, we are the exclusive
distributor of these Zeiss products in North America. We expect to generate a
significant portion of our near-term revenues from these products. If either we
or Zeiss fail to perform under our agreement, or we cannot successfully
commercialize these products, our revenues and net income, if any, would be
significantly lower and business would be materially harmed. This agreement
terminates in December 2005. However, in some instances, this agreement may be
terminated prior to December 2005. If this agreement is terminated, our
near-term and future revenues and net income, if any, would be lower.
IF WE FAIL TO FIND SUITABLE COLLABORATION PARTNERS TO DEVELOP, MANUFACTURE,
MARKET AND DISTRIBUTE OUR PRODUCTS, OR IF OUR PARTNERS FAIL TO PERFORM, OUR
ABILITY TO GENERATE REVENUES WILL BE SIGNIFICANTLY IMPAIRED AND WE MAY NOT
ACHIEVE OR MAINTAIN PROFITABILITY.
We will rely on existing and future collaboration partners for developing,
manufacturing, commercializing and marketing our products. In many cases,
components, subassemblies software and reagents used in our products are
obtained from single suppliers or a limited number of suppliers. For example, we
purchase optical components from Zeiss for our ArrayScan II and reagent supplies
from Molecular Probes that are
9
<PAGE> 12
used in our cellular analysis kits, the loss of which would result in
significant production delays and increased expenditures.
Our reliance on collaboration partners and outside vendors, including a
sole or a limited group of suppliers in particular, involves several risks,
including:
- the inability to obtain an adequate supply of required components due to
manufacturing capacity constraints, a discontinuance of a product by a
third-party manufacturer or other supply constraints;
- reduced control over quality and pricing of components;
- delays and long lead times in receiving materials;
- disputes may arise, leading to delays in or termination of the research,
development or commercialization of our products or resulting in
significant litigation or arbitration;
- our partners could independently develop, or develop with third parties,
products or technologies that compete with our products;
- our partners may not pursue or commit enough resources to successfully
develop, commercialize or distribute our products or technologies; and
- the terms of our contracts with our partners may not be favorable to us
in the future.
If we are unable to enter into future collaboration agreements or maintain
existing collaborations, we would experience increased capital requirements,
encounter significant delays in commercializing our products and the
development, manufacture or sale of our products may be adversely affected.
IF, AS A RESULT OF OUR LIMITED MANUFACTURING CAPABILITIES, WE ENCOUNTER
MANUFACTURING PROBLEMS OR DELAYS, WE MAY HAVE LOWER REVENUES.
In order to be successfully commercialized, our products must be
manufactured in commercial quantities at an acceptable cost, either by us or by
our collaboration partners. To date, we have produced only a limited number of
our products and we have no experience in manufacturing commercial quantities of
our products. Our customers expect that we comply with standard manufacturing
practices that we may not be able to meet. We have one manufacturing facility
located in Pittsburgh, Pennsylvania. To achieve the production levels necessary
for successful commercialization of our products, we will need to scale-up our
manufacturing facilities, establish more automated manufacturing capabilities
and maintain adequate levels of inventory. We cannot assure you that we can
develop the necessary manufacturing capability or that we will be able to fund
or build an adequate commercial manufacturing facility to provide adequate
commercial supplies of our products on a timely basis. Moreover, we may not be
able to manufacture sufficient quantities to meet market demand or may not be
able to maintain acceptable quality standards while producing commercial
quantities. If we cannot achieve the required level and quality of production,
we may need to outsource production or rely on licensing and other arrangements
with third parties who possess sufficient manufacturing facilities and
capabilities. This could reduce our gross margins and expose us to the risks
inherent in relying on others. We may not be able to successfully outsource our
production or enter into licensing or other arrangements with these third
parties, which could adversely affect our business. We cannot assure you that
we, acting alone or with the assistance of others, will be able to successfully
make the transition to commercial production.
IF WE ENCOUNTER DIFFICULTIES IN COMMERCIALIZING OUR PRODUCTS ON A MASS
SCALE AS A RESULT OF OUR LIMITED SALES FORCE AND MARKETING EXPERIENCE, THEN
OUR REVENUES AND PROFITABILITY WILL DECLINE.
We have a limited sales force and limited experience in selling, marketing,
servicing and supporting our products. Our direct sales force may not be
sufficiently large to successfully penetrate our target markets. We may not be
able to expand our direct sales force to meet our commercial objectives. In
addition, our sales force may not be able to address complex scientific and
technical issues raised by our customers. Our
10
<PAGE> 13
customer support personnel may also lack the broad range of technical expertise
required to adequately train our customers and service and support our products
in the field.
WE EXPECT THAT THE MARKET FOR CELL-BASED TOOLS AND TECHNOLOGIES WILL BE
HIGHLY COMPETITIVE AND SUBJECT TO RAPID TECHNOLOGICAL CHANGES. IF WE ARE
UNABLE TO SUCCESSFULLY COMPETE IN THIS MARKET, THEN WE WILL NOT BECOME
PROFITABLE.
The biotechnology industry and the market for tools and technologies for
drug discovery are highly competitive and subject to rapid technological
changes. We compete with companies in the United States and abroad that are
engaged in the development and production of products to assist pharmaceutical
companies and other researchers in developing commercial drugs. Our competitors
include biotechnology, pharmaceutical, chemical and other companies, academic
and scientific institutions, government agencies and public and private research
organizations. We have begun to encounter competition from companies that offer
one or more components of high content screening, including integrated reagents,
kits, applications, instrumentation and informatics.
Many of our competitors have much greater financial, technical, research,
marketing, sales, distribution, service and other resources than we do.
Moreover, our competitors may offer broader product lines and have greater name
recognition than we do. If our competitors develop or market technologies or
products that are more effective or commercially attractive than our current or
future products, our technologies and products would become obsolete.
WE USE SIGNIFICANTLY MORE CASH THAN WE GENERATE. IF WE CANNOT OBTAIN
REQUIRED CAPITAL, THEN OUR BUSINESS WOULD BE SIGNIFICANTLY HARMED.
Since our inception, our operating and research and development activities
have used more cash than we have generated. Our current and anticipated
development projects require substantial additional cash. We expect that the net
proceeds from this offering, together with our existing assets and revenues from
operations, will be sufficient to fund our operations through 2001. However, we
may need to raise additional capital in the future to meet our operating and
research and development cash requirements. We do not have committed external
sources of funding and cannot assure you that we will be able to obtain
additional funds on acceptable terms, if at all. If adequate funds are not
available, we may be required to:
- delay, reduce the scope of, or eliminate the development or
commercialization of one or more of our products;
- obtain funds through arrangements with collaboration partners or others
that may require us to relinquish rights to technologies or products that
we would otherwise seek to develop or commercialize ourselves;
- license rights to technologies or products on terms that are less
favorable to us than might otherwise be available;
- raise funds by issuing additional stock, which could have rights superior
to existing stockholders or otherwise dilute our stockholders' interest.
IF OUR INTELLECTUAL PROPERTY RIGHTS ARE NOT ADEQUATE, THEN THIRD PARTIES
MAY BE ABLE TO USE OUR TECHNOLOGIES AND OUR ABILITY TO COMPETE MAY BE
SIGNIFICANTLY IMPAIRED.
Our success will depend in part on our ability to obtain patents, maintain
trade secret protection and operate our business without infringing the
proprietary rights of others. We are dependent, in part, on the patent rights
licensed from third parties with respect to our technologies. There can be no
assurance that patent applications filed by us or our licensors will result in
patents being issued, that the claims of such patents will offer significant
protection for our technology, or that any patents issued to or licensed by us,
will not be challenged, narrowed, invalidated or circumvented.
11
<PAGE> 14
Our patent positions and those of other biotechnology product companies are
uncertain and involve complex legal and factual questions. In addition, the
coverage sought to be claimed in a patent application can be significantly
reduced before the patent is issued. Consequently, we cannot assure you that our
patent applications or those of our licensors will result in patents being
issued or that any issued patents will provide protection against competitive
technologies or will be held valid if challenged or circumvented. Others may
independently develop products similar to ours or design around or otherwise
circumvent patents issued to us.
We may be subject to legal proceedings that result in the revocation of
patent rights owned by or licensed to us, and as a result, competitors may
practice the patent or licensed technology. We are aware of third party patents
that contain issued claims that could be construed to cover certain aspects of
our technologies. We cannot assure you that we will not be required to license
any such patents to produce products or that such licenses would be available on
commercially reasonable terms, if at all. Any action against us claiming damages
and seeking to enjoin commercial activities relating to the affected
technologies could subject us to potential liability for damages. We could incur
substantial costs in defending patent infringement claims, obtaining patent
licenses, engaging in interference and opposition proceedings or other
challenges to our patent rights or intellectual property rights made by third
parties, or in bringing such proceedings or enforcing any of our patent rights.
Any of these proceedings would be expensive and time-consuming and divert
management's time and attention from other concerns.
We also rely on trade secret and copyright law and employee and third party
nondisclosure agreements to protect our intellectual property rights in our
products and technology. We cannot assure you that these agreements and measures
will provide meaningful protection of our trade secrets, copyrights, know-how or
other proprietary information in the event of any unauthorized use,
misappropriation or disclosure, or that others will not independently develop
substantially equivalent proprietary technologies. Litigation to protect our
trade secrets or copyrights would result in significant costs to us as well as
diversion of management time. Adverse determinations in any such proceedings or
unauthorized disclosure of our trade secrets could have a material adverse
effect on our business, financial condition and operating results. In addition,
the laws of certain foreign countries do not protect our intellectual property
rights to the same extent as the laws of the United States. We cannot assure you
that we will be able to protect our intellectual property in these markets.
The patent protection of biotechnology companies is highly uncertain,
involves complex legal and factual questions, and has been the subject of much
litigation. No consistent policy has emerged from the U.S. Patent and Trademark
Office or the courts regarding the breach of claims allowed or the degree of
protection offered under biotechnology patents. In addition, there is a
substantial backlog of biotechnology patent applications at the U.S. Patent and
Trademark Office and the approval or rejection of a patent application could
take several years.
OUR SUCCESS WILL DEPEND PARTLY ON OUR ABILITY TO OPERATE WITHOUT INFRINGING
ON OR UTILIZING THE PROPRIETARY RIGHTS OF OTHERS.
We may be sued for infringing on the patent rights of others. Intellectual
property litigation is costly, and, even if we prevail, the cost of such
litigation could adversely affect our business, financial condition and
operating results. In addition, litigation is time consuming and could divert
management attention and resources away from our business. If we do not prevail
in any litigation, in addition to any damages we might have to pay, we could be
required to stop the infringing activity or obtain a license. Any required
license may not be available to us on acceptable terms, if at all. In addition,
some licenses may be non-exclusive, and therefore, our competitors may have
access to the same technology licensed to us. If we fail to obtain a required
license or are unable to design around a patent, we may be unable to sell some
of our products, which would reduce our revenues and net income, if any.
12
<PAGE> 15
IF WE DO NOT EFFECTIVELY MANAGE OUR RAPID GROWTH, OUR BUSINESS WOULD BE
SIGNIFICANTLY HARMED.
Since our inception in 1995, we have grown from six to 85 employees as of
December 31, 1999. In addition, we have significantly increased our development,
manufacturing and operational facilities. In order to implement our business
strategy we expect continued rapid growth. Growth in our business has placed,
and management believes will continue to place, a significant strain on our
management, operational and financial resources. To manage such growth, we must
expand our facilities, augment our operational, financial and management systems
and hire and train additional qualified personnel. If we fail to manage growth
effectively, we may be unable to pursue new business opportunities or maintain
existing business relationships which would reduce our revenues and lower our
net income, if any, and our business would be significantly harmed.
WE DEPEND ON OUR KEY PERSONNEL, THE LOSS OF WHOM WOULD ADVERSELY AFFECT OUR
OPERATIONS. IF WE ARE UNABLE TO ATTRACT AND RETAIN THE TALENT REQUIRED FOR
OUR BUSINESS, THEN OUR REVENUES AND PROFITABILITY WILL BE REDUCED.
We are highly dependent on principal members of our management and
scientific staff, including Dr. D. Lansing Taylor, President and Chief Executive
Officer, the loss of whose services would impede product introduction and
achievement of our strategic objectives. Our success will depend on our ability
to retain key employees and our scientific staff and our continuing ability to
attract and retain highly qualified scientific, technical and managerial
personnel. There is intense competition for qualified staff and we cannot assure
you that we will be able to retain existing personnel or attract and retain
qualified staff in the future. We do not maintain, and do not currently intend
to obtain, key employee global life insurance on any of our personnel other than
on the life of Dr. Taylor. If we fail to hire and retain personnel in key
positions, we may be unable to develop or commercialize our products in a timely
manner which would reduce our revenue and harm our profitability.
IF WE INCUR PRODUCT LIABILITY CLAIMS, AND IF WE DO NOT HAVE ADEQUATE
INSURANCE AGAINST THOSE CLAIMS, THEN OUR CASH RESERVES WILL BE REDUCED OR
ELIMINATED.
Our business exposes us to potential product liability claims that are
inherent in the life sciences field. We may be held liable if any product we
develop, or any product that is made with the use of or incorporation of any of
our technologies, causes injury or is found otherwise unsuitable during
manufacturing, marketing or sale. We cannot assure you that we will be able to
avoid product liability exposure. We have obtained product liability insurance
coverage in the amount of $6.0 million. However, we cannot assure you that our
present insurance coverage is or will continue to be adequate. Any product
liability claim in excess of our insurance coverage would have to be paid out of
our cash reserves, which would have a detrimental effect on our financial
condition. Also, we cannot assure you that we can or will maintain our insurance
policies on commercially acceptable terms, if at all.
IF OUR GOVERNMENT GRANTS ARE REDUCED, WITHDRAWN OR TERMINATED, THEN OUR
REVENUES WILL BE REDUCED.
We have received and expect to continue to receive funds from various U.S.
government research and technology development programs. The government may
significantly reduce funding in the future for a number of reasons that are
beyond our control. For example, some programs are subject to a yearly
appropriation process in Congress, and may be eliminated due to budget
reductions. Additionally, we may not receive funds under existing or future
grants because of budget constraints of the agency administering the program.
The loss of our current or future government grants would decrease our near-term
revenues and increase our net losses.
13
<PAGE> 16
IF THE CURRENCY EXCHANGE RATE BETWEEN U.S. DOLLARS AND DEUTSCHE MARKS
FLUCTUATES, THEN OUR SALES MAY BE LOWER AND OUR COSTS MAY BE INCREASED.
We expect that a significant portion of our revenue over the next few years
will be derived from our sale in North America of Zeiss' Ultra High Throughput
Screening System. We will be paying for this Zeiss equipment in Deutsche marks,
and we will be selling the equipment to our customers in U.S. dollars. If
adverse fluctuations in the currency exchange rate between the U.S. dollar and
the Deutsche mark occur, we could lose sales because these products would be
disadvantageously priced compared to competitive products that are priced only
in dollars. In addition, we buy components from Zeiss for our ArrayScan II,
ArrayScan Kinetics Workstation and ArrayScan Kinetics Reader in Deutsche marks.
If adverse fluctuations in the currency exchange rate between the U.S. dollar
and the Deutsche mark occur, our costs could materially increase. We will
recognize foreign currency gains or losses arising from our operations in the
period incurred. As a result, currency fluctuations between the U.S. dollar and
the currencies in which we do business will cause foreign currency translation
gains and losses. We cannot predict the effects of exchange rate fluctuations
upon our future operating results because of the variability of currency
exposure and the potential volatility of currency exchange rates. We may use
hedging instruments, including forward contracts, to minimize any foreign
currency rate fluctuation exposure. We cannot assure you that any hedging
transaction will adequately protect us against currency rate fluctuations or
that these transactions will not result in losses to us.
RISKS RELATED TO THIS OFFERING
SOME OF OUR EXISTING STOCKHOLDERS CAN EXERT SIGNIFICANT INFLUENCE OVER US.
IF THEY MAKE DECISIONS THAT ARE NOT IN THE BEST INTERESTS OF ALL
STOCKHOLDERS, THEN OUR STOCK PRICE MAY DECLINE.
Immediately following this offering, our directors and executive officers
and their affiliates will beneficially own, in the aggregate, approximately 37%
of our outstanding common stock, or 35% if the underwriters' over-allotment
option is exercised in full. As a result, these stockholders as a group will be
able to substantially influence our management and affairs and any matter
submitted to our stockholders for approval, including the election of directors,
any merger, consolidation or sale of all or substantially all of our assets and
any other significant corporate transaction. If these stockholders acted
together, they could cause a result which may not be in the best interest or
interests of all stockholders. In addition, the interests of this concentration
of ownership may not always coincide with our interests or the interests of
other stockholders and accordingly, this concentration could cause us to enter
into transactions or agreements which we would not otherwise consider. The
concentration of ownership may also delay or prevent a change of control of
Cellomics. As a result, the stock could be adversely affected.
YOUR INVESTMENT IN OUR STOCK MAY DECLINE IN VALUE FROM THE INITIAL PUBLIC
OFFERING PRICE.
The initial public offering price will be determined by negotiations
between the representatives of the underwriters and us, and may not be
indicative of future market prices. Among many factors which we and the
representatives may consider in determining the initial public offering price of
the common stock are estimates of our business potential and the market
valuations of other biotechnology companies. In the event that these estimates
are inaccurate or market prices for biotechnology companies experience
volatility after the offering, your investment in our stock may be worth less in
the future than it was worth when you made your investment.
THERE IS A LARGE NUMBER OF SHARES THAT MAY BE SOLD IN THE MARKET FOLLOWING
THIS OFFERING, WHICH MAY DEPRESS THE MARKET PRICE OF OUR COMMON STOCK.
Sales of a substantial number of shares of our common stock in the public
market following this offering or the perception that such sales could occur
could cause the market price of our common stock to decline or adversely affect
our future ability to raise capital through an offering of equity securities.
The number of
14
<PAGE> 17
shares of common stock available for sale in the public market is limited by
restrictions under federal securities law and under lock-up agreements that our
stockholders have entered into with the underwriters and with us. Our officers,
directors and stockholders have entered into lock-up agreements under which they
have agreed not to offer or sell shares of common stock or securities
convertible into or exchangeable for shares of common stock for a period of 180
days after the date of this prospectus without the prior written consent of
Prudential Securities Incorporated. Prudential Securities Incorporated may, at
any time and without notice waive any of the terms of these lock-up agreements.
The following table indicates approximately when the 13,579,170 shares of
our common stock that are not being sold in the offering but which were
outstanding as of March 31, 2000 will be eligible for sale into the public
market:
<TABLE>
<CAPTION>
NUMBER OF
SHARES AVAILABILITY FOR RESALE INTO PUBLIC MARKET
- ------------ ------------------------------------------------------------
<C> <S>
11,129,110 180 days after the date of this prospectus due to lock-up
agreements substantially all of our stockholders have
entered into with Prudential Securities Incorporated (except
35,320 shares eligible for resale on the date of this
prospectus)
2,450,060 Between 180 and 365 days after the date of this prospectus
due to requirements of the federal securities laws.
</TABLE>
OUR MANAGEMENT WILL HAVE BROAD DISCRETION TO ALLOCATE THE NET PROCEEDS OF
THIS OFFERING AND THE USE OF THESE PROCEEDS MAY NOT YIELD FAVORABLE
RETURNS.
Our management will retain broad discretion allocating the proceeds of this
offering. Although we plan to use these proceeds as described under "Use of
Proceeds" on page 17, we may also use a portion of the net proceeds of this
offering for the acquisition of or investment in companies, technologies or
assets that complement our business. We have no specific allocations for
approximately 80% of the net proceeds of this offering. Consequently, management
will retain a significant amount of discretion over the allocation of these
proceeds. Our management may utilize these proceeds in ways that do not yield
favorable returns.
AS A NEW INVESTOR IN OUR COMMON STOCK, YOU WILL EXPERIENCE IMMEDIATE AND
SUBSTANTIAL DILUTION IN THE BOOK VALUE OF YOUR SHARES.
The initial public offering price will be substantially higher than the net
tangible book value per share of our common stock which, as of December 31, 1999
on a pro forma basis for our issuance of Series B preferred stock in February
2000, was $0.25 per share. If you purchase our common stock in this offering you
will incur immediate and substantial dilution of $12.05 per share, based on an
assumed public offering price of $17.00 per share. You will incur additional
dilution upon the exercise of outstanding stock options and warrants.
SOME PROVISIONS OF OUR CERTIFICATE OF INCORPORATION AND BYLAWS AND DELAWARE
LAW MAY DELAY OR PREVENT A TAKEOVER AND SUPPRESS OUR STOCK PRICE.
Some provisions in our certificate of incorporation and bylaws may have the
effect of delaying, deferring or preventing an acquisition, merger or other
change of control of our company, despite the possible benefits to our
stockholders, or otherwise adversely affect the price of our common stock. These
provisions include the following:
- the ability of our board of directors to issue shares of preferred stock
and to determine the price and other terms, including preferences and
voting rights, of those shares without stockholder approval;
- a staggered board of directors and the limited ability of stockholders to
remove our directors;
- a limitation on who may call special meetings of stockholders; and
15
<PAGE> 18
- advance notice requirements for nomination for election to our board of
directors or for proposing matters that can be acted on by stockholders
at stockholder meetings.
In addition to these provisions, we are subject to certain Delaware laws,
including one that prohibits us from engaging in a business combination with any
interested stockholder for a period of three years from the date the person
became an interested stockholder unless certain conditions are met. The
provisions of our certificate of incorporation and bylaws and Delaware law may
discourage potential takeover attempts, discourage bids for our common stock at
a premium over market price or could adversely affect the market price of, and
the voting and other rights of the holders of, our common stock. As a result,
the market price of our common stock could be adversely affected.
FORWARD-LOOKING STATEMENTS
This prospectus includes forward-looking statements. We have based these
forward-looking statements largely on our current expectations and projections
about future events and financial trends affecting the financial condition of
our business. These forward-looking statements are subject to a number of
factors, including, among other things:
- failure to successfully commercialize our products and technologies;
- market acceptance of our products and technologies;
- relationships with our collaboration partners;
- ability to enter into future collaboration agreements;
- general economic and business conditions, both nationally and in our
markets;
- our expectations and estimates concerning future financial performance
and financing plans;
- competition and technological change;
- future regulations that may affect our business; and
- other factors set forth under "Risk Factors" in this prospectus.
In addition, in this prospectus, the words "believe," "may," "will,"
"estimate," "continue," "anticipate," "intend," "expect," "predicts,"
"potential" and similar expressions, as they relate to Cellomics, Inc., our
business and our management, are intended to identify forward-looking
statements. In light of these risks and uncertainties, the forward-looking
events and circumstances discussed in this prospectus may not occur and actual
results could differ materially from those anticipated or implied in the
forward-looking statements.
16
<PAGE> 19
USE OF PROCEEDS
We estimate that our net proceeds from the sale of the shares of common
stock in this offering will be approximately $93.6 million, or $107.8 million if
the underwriters exercise their over-allotment option in full, assuming a public
offering price of $17.00 per share after deducting underwriting discounts and
commissions and estimated offering expenses of approximately $1.25 million.
We intend to use these net proceeds primarily for:
- technology research and product and services development;
- scale-up of sales and marketing;
- capital expenditures;
- working capital; and
- general corporate purposes.
We currently anticipate that over the next two years, we will use
approximately one-fifth of the net proceeds from this offering for research and
development expenses to expand our technologies and products. We also intend to
use $1.7 million for the payment of dividend arrearages to all of our preferred
stockholders in accordance with the terms of our preferred stock. We may also
use a portion of the net proceeds for the acquisition of, or investment in,
companies, technologies, products or assets that complement our business. The
amounts and timing of our actual expenditures will depend upon numerous factors,
including the status of our product development and commercialization efforts,
the amount of proceeds actually raised in this offering, the amount of cash
generated by our operations, competitive forces, sales and marketing activities,
changes in or termination of existing collaboration and licensing arrangements
and our need for manufacturing capacity. We have no present understandings,
commitments or agreements to enter into any potential acquisitions or
investments. Other than the approximately $1.7 million for the payment of
dividend arrearages and the proceeds we have identified for research and
development, we have not determined the amounts we plan to spend on any of the
areas listed above or the timing of these expenditures. As a result, our
management will have broad discretion to allocate the net proceeds of this
offering. Pending such uses, we intend to invest the net proceeds of this
offering in short-term, investment-grade interest-bearing securities or
guaranteed obligations of the U.S. government.
DIVIDEND POLICY
We have never declared or paid and do not anticipate declaring or paying
any cash dividends on our common stock in the near future. Any future
determination as to the declaration and payment of dividends, if any, will be at
the discretion of our board of directors and will depend on then existing
conditions, including our financial condition, operating results, contractual
restrictions, capital requirements, business prospects and other factors our
board of directors may deem relevant.
17
<PAGE> 20
CAPITALIZATION
The following table shows:
- our capitalization and short-term debt on December 31, 1999;
- our capitalization and short-term debt on December 31, 1999, on a pro
forma basis giving effect to the sale of our Series B preferred stock
completed after December 31, 1999 for aggregate proceeds of $6.5 million,
the conversion of $1.8 million in demand notes, plus accrued interest,
into our Series B preferred stock, and the conversion of our Series A and
Series B preferred stock into common stock; and
- our capitalization and short-term debt on December 31, 1999, on a pro
forma as adjusted basis, giving further effect to the sale of 6,000,000
shares of our common stock in this offering, assuming an initial public
offering price of $17.00 per share and the receipt and application of the
net proceeds from this offering.
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1999
-----------------------------------------------
PRO PRO FORMA
ACTUAL FORMA AS ADJUSTED (1)
---------- ---------- -----------------
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<S> <C> <C> <C>
Current maturities of long-term debt.................. $ 911 $ 911 $ 911
======== ======== ========
Long-term debt less current maturities................ $ 3,745 $ 2,036 $ 2,036
-------- -------- --------
Mandatorily redeemable convertible preferred stock,
$.01 par value; 7,150,534 shares authorized,
6,946,095 shares issued and outstanding, actual; no
shares authorized, issued, or outstanding pro forma
and pro forma as adjusted........................... 12,153 -- --
-------- -------- --------
Stockholders' equity (deficit):
Preferred stock, $.01 par value; no shares
authorized, issued or outstanding, actual and pro
forma; 17,660,000 shares authorized, no shares
issued and outstanding, pro forma as adjusted.... -- -- --
Common stock, $.01 par value, 17,660,000 shares
authorized, 4,183,015 shares issued and
outstanding, actual, 13,579,169 shares issued and
outstanding pro forma; 176,600,000 shares
authorized, 19,579,170 shares issued and
outstanding, pro forma as adjusted............... 42 136 196
Additional paid-in capital.......................... 3,263 22,237 115,787
Deferred compensation............................... (1,907) (1,907) (1,907)
Accumulated deficit................................. (17,132) (17,132) (17,132)
-------- -------- --------
Total stockholders' equity (deficit)................ (15,734) 3,334 96,944
-------- -------- --------
Total capitalization................................ $ 164 $ 5,370 $ 98,980
======== ======== ========
</TABLE>
- ---------------
(1) The number of shares pro forma as adjusted for this offering excludes:
- 2,623,923 shares of common stock reserved for issuance under our stock
option plans, of which 1,762,581 shares were subject to outstanding
options as of March 31, 2000, at a weighted average exercise price of
$0.50; and
- 1,575,166 shares of common stock issuable on exercise of outstanding
warrants as of March 31, 2000, at a weighted average exercise price of
$2.18.
18
<PAGE> 21
DILUTION
You will experience immediate and substantial dilution in the net tangible
book value of your common stock. Net tangible book value is our total assets
minus the sum of our total liabilities, mandatorily redeemable convertible
preferred stock and intangible assets. Net tangible book value per share is net
tangible book value divided by the number of shares of common stock outstanding.
At December 31, 1999, we had net tangible book value (deficit) of $(15.7)
million, or $(3.76) per share of common stock. The assumed conversion of our
Series A preferred stock upon the closing of this offering will increase net
tangible book value by $10.8 million or $3.32 per share. The sale of our Series
B preferred stock for aggregate proceeds of $6.5 million and the conversion of
$1.8 million in demand notes, plus accrued interest, into Series B preferred
stock, both of which transactions were completed after December 31, 1999,
followed by the assumed conversion of the Series B preferred stock upon the
closing of this offering will increase net tangible book value by $8.3 million
or $0.69 per share. Pro forma net tangible book value after giving effect to the
conversion of the Series A and Series B preferred stock is $3.3 million or $0.25
per share. After giving effect to the sale of shares of common stock in this
offering at an assumed initial public offering price of $17.00 per share and
receipt and application of the net proceeds therefrom after deducting
underwriting discounts and commissions and estimated offering expenses, our pro
forma net tangible book value at December 31, 1999 would have been $96.9
million, or $4.95 per share. This represents an immediate increase in net
tangible book value of $4.70 per share to existing stockholders and an immediate
and substantial dilution of $12.05 per share to new investors purchasing our
common stock in this offering. The following table illustrates this per share
dilution.
<TABLE>
<S> <C> <C>
Assumed initial public offering price....................... $17.00
------
Net tangible book value (deficit) per share as of
December 31, 1999..................................... $ (3.76)
Increase attributable to conversion of Series A
preferred stock....................................... 3.32
Increase attributable to the issuance of Series B
preferred stock and subsequent conversion............. 0.69
-------
Pro forma net tangible book value as of December 31,
1999................................................ 0.25
Increase in net tangible book value attributable to new
investors............................................. $ 4.70
-------
Pro forma net tangible book value as of December 31, 1999,
after giving effect to this offering...................... 4.95
------
Dilution to new investors................................... $12.05
======
</TABLE>
The following table shows the difference between existing stockholders and
new investors in this offering with respect to the number of shares of common
stock purchased from us, the total consideration paid and the average price paid
per share, before deducting underwriting discounts and commissions and offering
expenses.
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
--------------------- ----------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
---------- ------- ------------ ------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders......... 13,579,170 69.4% $ 21,392,092 17.3% $ 1.58
New investors................. 6,000,000 30.6 102,000,000 82.7 17.00
---------- ----- ------------ -----
Total.................. 19,579,170 100.0% $123,392,092 100.0%
========== ===== ============ =====
</TABLE>
The discussion and tables above assume no exercise of outstanding options
or warrants to purchase shares of common stock. As of December 31, 1999, there
were 1,518,760 shares of common stock authorized for issuance under our stock
option plans, of which 1,184,633 shares were subject to outstanding options, at
a weighted average exercise price of $0.16, and 1,575,166 shares of common stock
issuable upon exercise of outstanding warrants as of December 31, 1999, at a
weighted average exercise price of $2.18. To the extent that any outstanding
options or warrants are exercised, there will be further dilution to new
investors.
19
<PAGE> 22
SELECTED FINANCIAL DATA
The statement of operations data for each of the years ended December 31,
1997, 1998 and 1999 and the balance sheet data as of December 31, 1998 and 1999
have been derived from our financial statements included elsewhere in this
prospectus which have been audited by PricewaterhouseCoopers LLP, independent
accountants. The statements of operations data for the period from May 3, 1995,
the date of inception, to December 31, 1995 and the year ended December 31,
1996, and the balance sheet data as of December 31, 1995, 1996 and 1997 have
been derived from our audited financial statements not included in this
prospectus. Our historical results are not necessarily indicative of results to
be expected for any future period. The data presented below have been derived
from financial statements that have been prepared in accordance with accounting
principles generally accepted in the United States and should be read with our
financial statements, including the notes, and with "Management's Discussion and
Analysis of Financial Condition and Results of Operations" included elsewhere in
this prospectus.
The pro forma net loss per share for the year ended December 31, 1999
assumes conversion of the Series A preferred stock outstanding at December 31,
1999 into common stock on a one for one basis on January 1, 1999, or the date of
issuance if later. The Series A preferred stock will automatically convert into
common stock upon the closing of this offering.
The pro forma balance sheet data presented below give effect to the sale of
shares of our Series B preferred stock after December 31, 1999 for aggregate
proceeds of approximately $6.5 million, the conversion of $1.8 million in demand
notes, plus accrued interest, into Series B preferred stock, and the conversion
of our Series A and Series B preferred stock into common stock upon the closing
of this offering, as if such sale and conversions had occurred at December 31,
1999. The pro forma as adjusted balance sheet data reflect the sale of 6,000,000
shares of common stock in this offering at an assumed initial public offering
price of $17.00 per share, after giving effect to the receipt and application of
the net proceeds from the offering. You should read the selected financial data
together with our financial statements and the sections of this prospectus
entitled "Capitalization" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
<TABLE>
<CAPTION>
FROM DATE
OF INCEPTION YEAR ENDED DECEMBER 31,
(MAY 3, 1995) TO -------------------------------------------------
DECEMBER 31, 1995 1996 1997 1998 1999
----------------- ---------- ---------- ---------- ----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues......................................... $ 36 $ 363 $ 395 $ 2,273 $ 3,390
Operating costs and expenses:
Costs of product sales......................... -- -- -- -- 405
Research and development....................... 57 257 1,486 3,948 9,509
Selling, general and administrative............ 83 578 1,334 1,834 3,933
-------- ---------- ---------- ---------- ----------
Total operating costs and expenses........... 140 835 2,820 5,782 13,847
Loss from operations............................. (104) (472) (2,425) (3,509) (10,457)
Interest income (expense), net................... (1) (5) (13) 14 (161)
-------- ---------- ---------- ---------- ----------
Net loss......................................... $ (105) $ (477) $ (2,438) $ (3,495) $ (10,618)
Accrued dividends and accretion on mandatorily
redeemable convertible preferred stock (1)..... -- -- -- (518) (933)
-------- ---------- ---------- ---------- ----------
Net loss attributable to common stockholders..... $ (105) $ (477) $ (2,438) $ (4,013) $ (11,551)
======== ========== ========== ========== ==========
Net loss per share-basic and diluted............. $ (0.05) $ (0.13) $ (0.61) $ (0.99) $ (2.77)
======== ========== ========== ========== ==========
Shares used to compute basic and diluted net loss
per share...................................... 1,917 3,588 3,986 4,070 4,175
======== ========== ========== ========== ==========
Pro forma net loss per share (2)................. $ (0.97)
==========
Shares used to compute pro forma net loss per
share (2)...................................... 10,990
==========
</TABLE>
- ---------------
(1) The increase in net loss attributable to common stockholders due to
accretion on mandatorily redeemable convertible preferred stock will not
occur after this offering because all of the outstanding preferred stock
will be converted to common stock upon the closing of this offering.
(2) See Note 9 to our financial statements for an explanation of the number of
shares used in computing pro forma net loss per share and the pro forma net
loss attributable to common stockholders.
20
<PAGE> 23
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
-----------------------------------------------------------------------
1995 1996 1997 1998 1999
---- ------- ------- ------- ----------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
-------- --------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents............. $ 3 $ 1,389 $ 319 $ 662 $ 1,341 $ 7,872 101,482
Working capital (deficit)............. (8) 1,375 (806) 409 (1,223) 3,984 97,594
Total assets.......................... 72 1,679 745 3,963 5,860 12,379 105,989
Total long-term debt less current
maturities.......................... -- -- 500 653 3,745 2,036 2,036
Mandatorily redeemable convertible
preferred stock..................... -- -- -- 6,252 12,153 -- --
Total stockholders' equity
(deficit)........................... 36 1,385 (1,053) (4,994) (15,734) 3,334 96,944
</TABLE>
21
<PAGE> 24
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with
the "Selected Financial Data," and the accompanying financial statements and
related notes included elsewhere in this prospectus. This discussion and other
parts of this prospectus contain forward-looking statements which involve risks
and uncertainties. Our actual results may differ materially from the results
discussed in these forward-looking statements. Factors that might cause such a
difference include those discussed in "Risk Factors" and elsewhere in the
prospectus.
OVERVIEW
Since inception, we have been devoted primarily to the development of high
content screening products consisting of instrumentation, fluorescence-based
reagents and cellular analysis products, data and information management
software and cellular bioinformatics. We are producing technologies and products
that are designed to extend the power of genomics by defining the cellular
functions of genes and proteins. Our initial commercialization focus is the
pharmaceutical and biotechnology industries. To fund in part our product
development, we entered into collaboration agreements with Johnson & Johnson,
Merck & Co. and Warner-Lambert. Under these agreements, we received funding for
the development of prototype instrumentation and cellular analysis products for
initial testing. To date, our revenues have been principally derived from these
collaboration agreements and from grants. In November 1999, we sold our first
commercial products, the ArrayScan II and Cellomics Store. We are now selling
these products as well as our HitKits, custom cellular analysis product
development contracts and we expect to generate additional revenue from the
release of new products.
Since our inception, we have incurred losses each year. Through December
31, 1999, we had an accumulated deficit of approximately $17.1 million. Our
losses have resulted principally from costs incurred in research and
development, and from selling, general and administrative costs associated with
our operations. We expect to make significant expenditures in further
commercializing our products and in the research and development of future
products. Therefore, we expect to incur additional operating losses over at
least the next several years as we continue to commercialize our products and
fund future research and development expenses.
RESULTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1999 AND 1998
Revenues. We recognize revenues from product sales upon shipment of the
product to the customer. We recognize development and collaboration agreement
and grant revenues on a straight-line basis over the contract period or as work
is performed. Where prototype instruments are delivered under collaboration
agreements, we recognize revenues when the prototype is shipped to the customer.
When payment for revenues under maintenance, support or cellular analysis
product development contracts is received in advance of the services performed,
we record deferred revenue related to these agreements. Revenues increased to
$3.4 million for the year ended December 31, 1999 compared to $2.3 million for
1998. The increase was attributable to our sales of ArrayScan II and Cellomics
Store products beginning in November 1999. In addition, we recognized increased
revenues associated with a grant awarded in September 1998 by the Defense
Advanced Research Project Agency, or DARPA, due to a full year of activity
during 1999.
Costs of Product Sales. Costs of product sales consist primarily of labor
and material costs. Costs of product sales were $405,000 for the year ended
December 31, 1999 due to the sale of commercial products beginning in November
1999. There were no commercial product sales or costs related to product sales
in 1998.
Research and Development Expenses. Research and development expenses
consist primarily of salaries and related personnel costs, materials costs,
amounts paid to consultants and contractors and other expenses related to the
design, development, testing and enhancement of our products. We expense
research and
22
<PAGE> 25
development costs as they are incurred. Research and development expenses
increased to $9.5 million for the year ended December 31, 1999 compared to $3.9
million for 1998. The increase was primarily attributable to increased costs
associated with the development of prototype instrument products under a
development and manufacturing agreement with Zeiss, hiring of additional
personnel in product development and a full year of costs associated with the
DARPA grant. We expect our research and development costs to increase over the
next several years as we expand our research and development efforts.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses consist of salaries and related personnel costs for
executive, sales, marketing, customer support, finance and other administrative
personnel, marketing expenses, recruiting expenses, professional fees, facility
costs, legal expenses associated with intellectual property and other corporate
expenses including business development. Selling, general and administrative
expenses increased to $3.9 million for the year ended December 31, 1999 compared
to $1.8 million for 1998. The increase was attributable primarily to the hiring
of senior management and sales personnel, marketing costs associated with the
commercialization of our initial products and other general costs necessary to
support the expansion of our business. We expect selling, general and
administrative expenses to continue to increase over the next several years to
support the commercialization of our products and our growing business
activities.
Amortization of Deferred Compensation. Deferred compensation for options
granted to employees represents the difference between the fair value of our
common stock and the exercise price of the options at the date of grant. This
amount is initially recorded as a reduction of stockholders' equity and is being
amortized over the vesting period of the options, generally four years, using an
accelerated method. We account for stock-based employee compensation
arrangements in accordance with provisions of Accounting Principles Board
Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB 25") and comply
with disclosure provisions of Statement of Financial Accounting Standards No.
123, "Accounting for Stock-Based Compensation" ("SFAS 123"). Deferred
compensation for options granted to consultants has been determined in
accordance with SFAS 123 as the fair value of the equity instruments issued. For
the years ended December 31, 1998 and 1999, we recorded unamortized deferred
stock compensation of $259,000 and $2.4 million, respectively. We amortized
deferred compensation of $71,000 and $690,000 for the years ended December 31,
1998 and 1999, respectively. The amortization expense is included in the
respective categories of expense in the statement of operations. At December 31,
1999, unamortized deferred stock compensation was $1.9 million. For options
granted during the first quarter of 2000, we have recorded additional
unamortized deferred compensation of $6.5 million for an unamortized total of
$8.4 million. We expect to amortize deferred stock compensation of approximately
$5.1 million in 2000, $2.1 million in 2001, $1.0 million in 2002 and $246,000 in
2003, relating to options granted in 1997, 1998, 1999 and through the first
quarter of 2000. The amount of deferred compensation to be amortized in future
periods may differ from these amounts if the unvested options for which deferred
compensation has been recorded are subsequently cancelled or accelerated.
Interest Income (Expense), Net. Interest expense for the year ended
December 31, 1999 increased to $302,000 from $44,000 in 1998, due primarily to
additional borrowing under equipment financing lines of credit and a senior term
note. Interest and other income for the year ended December 31, 1999 increased
to $141,000 from $59,000 in 1998. The increase is due to higher average cash
balances in 1999.
Provision for Income Taxes. We incurred net operating losses for the year
ended December 31, 1998 and 1999 and consequently, we did not pay any federal,
state or foreign income taxes. As of December 31, 1999, we had federal and state
net operating loss carryforwards of approximately $15.5 million. We also had
federal research and development tax credit carryforwards of approximately
$725,000. If not fully utilized, the net operating losses and credit
carryforwards will expire at various dates beginning in 2015 through 2019. If
not fully utilized, the state of Pennsylvania net operating losses will expire
at various dates beginning in 2005 through 2009. Utilization of net operating
losses and credit carryforwards will be subject to an annual limitation due to
the change in ownership provisions of the Internal Revenue Code of 1986 and
similar state provisions. The annual limitation will likely result in the
expiration of net operating losses and credits before utilization. Management
believes that there is sufficient uncertainty regarding the realization of
deferred tax assets such that a full valuation allowance is appropriate.
23
<PAGE> 26
YEARS ENDED DECEMBER 31, 1998 AND 1997
Revenues. Revenues increased to $2.3 million for the year ended December
31, 1998 compared to $394,935 for 1997. The increase was primarily derived from
revenues from collaboration agreements with Johnson & Johnson, Merck and
Warner-Lambert and from work performed under the DARPA grant awarded to us in
September 1998.
Research and Development Expenses. Research and development expenses
totaled $3.9 million for the year ended December 31, 1998 compared to $1.5
million for 1997. The increase was primarily attributable to increased costs
associated with the collaboration agreements as well as additional costs
associated with the DARPA project.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses totaled $1.8 million for the year ended December 31,
1998 compared to $1.3 million for 1997. The increase was primarily due to
increased personnel and facility costs to support our growth, increased legal
expenses associated with intellectual property and increased corporate expenses
associated with business development.
Amortization of Deferred Compensation. We recorded deferred compensation of
$259,344 and amortization of deferred compensation of $71,242 for the year ended
December 31, 1998. For the year ended December 31, 1997, we recorded no deferred
compensation or amortization of deferred compensation. Amortization of deferred
compensation is included in the respective categories of expense in the
statement of operations.
Interest Income (Expense), Net. Interest expense for the year ended
December 31, 1998 increased to $43,944 from $37,950 in 1997 due primarily to the
interest expense associated with our equipment financing line of credit.
Interest and other income for the year ended December 31, 1998 increased to
$58,555 from $25,309 in 1997. The increase was due to higher average cash
balances in 1998.
Provision for Income Taxes. We incurred net operating losses for the year
ended December 31, 1998, and consequently we did not pay any federal, state or
foreign income taxes. As of December 31, 1998, we had federal and state net
operating loss carryforwards of $6.2 million. We also had federal research and
development tax credit carryforwards of approximately $283,000.
LIQUIDITY AND CAPITAL RESOURCES
We have financed our operations from inception primarily from the sale of
common and preferred stock, collaboration agreements and grants, equipment
financing arrangements, a senior term loan and recently from revenues from
initial product sales. Through December 31, 1999, we had received proceeds of
$13.0 million from the issuances of equity securities and $6.4 million from
product sales, collaboration agreements and grants. In addition, we received
$5.1 million from debt financings.
As of December 31, 1999, we had cash and cash equivalents of $1.3 million
and borrowing availability of $2.8 million under an equipment financing
arrangement. Cash used in operating activities increased to $7.2 million for
1999 compared to $4.3 million in 1998. The increase was primarily due to
increased losses associated with the expansion of the business partially offset
by revenues from product sales and collaboration agreements and grants.
Capital expenditures for property and equipment were $205,421, $1.4 million
and $1.1 million in 1997, 1998 and 1999, respectively. We expect to continue to
make significant investments in the purchase of property and equipment to
support our expanding operations.
We received $6.1 million and $9.2 million from financing activities in 1998
and 1999, respectively, which consisted principally of net proceeds of $10.2
million from the sale of preferred stock and $5.6 million from proceeds from
debt financings. In September 1998, we entered into a $1.5 million non-revolving
equipment financing line of credit. At December 31, 1999, we had borrowed
approximately $1.5 million under the line of credit and, net of repayments,
approximately $1.2 million was outstanding with interest rates at 12.7% to
12.9%. In June 1999, we entered into a $1.5 million senior term loan payable in
thirty equal monthly installments commencing after a six-month interest-only
period. The term loan is secured by our
24
<PAGE> 27
assets including all of our intellectual property but excluding $5.0 million in
equipment acquired under separate equipment financing facilities. Upon the
closing of this offering, the liens on our intellectual property will be
released. At December 31, 1999, $1.5 million was outstanding under the term loan
at an interest rate of 12.5%. In July 1999, we entered into a $3.0 million
non-revolving equipment financing facility. At December 31, 1999, we had
borrowed approximately $227,000 under that facility with interest rates at 11.0%
to 12.0%. As of December 31, 1999, we had approximately $52,000 in capitalized
lease obligations outstanding.
On February 23, 2000, we issued Series B preferred stock for gross proceeds
of $6.5 million. In addition, $1.8 million of demand notes, plus accrued
interest, converted by their original terms and conditions into Series B
preferred stock.
On February 3, 2000, we entered into a development, manufacturing and
supply agreement with Zeiss which supersedes an agreement we entered into in
April 1998. Additionally, we have capital expenditure commitments to Zeiss of
$1.2 million during 2000. In connection with this agreement, we agreed to
reimburse Zeiss for an additional $2.0 million for development costs incurred by
Zeiss through December 31, 1999. These amounts are to be repaid during 2000 and
2001 in equal installments of $1.0 million.
Our capital requirements depend on numerous factors, including the status
of our product development and commercialization efforts, the amount of proceeds
actually raised in this offering, the amount of cash generated by our
operations, competitive factors, sales and marketing activities, changes in, or
termination of, existing licensing arrangements and our need for manufacturing
capacity. We expect to devote substantial capital resources to continue our
research and development efforts, to expand our support and product development
activities and for other general corporate activities. We believe that the net
proceeds of this offering, together with existing cash and marketable
securities, borrowings under equipment financing arrangements and anticipated
cash generated from product sales, will be sufficient to support our operations
through 2001. We could require additional financing in the future which may not
be available when needed or under favorable terms and conditions. Our failure to
raise capital when needed may harm our business and operating results. To the
extent that we raise additional capital by issuing equity securities,
stockholders will experience dilution.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued Statement No.
133 (SFAS 133), "Accounting for Derivative Instruments and Hedging Activities,"
which provides a comprehensive and consistent standard for the recognition and
measurement of derivatives and hedging activities. Under the statement, every
derivative is recorded in the balance sheet as either an asset or a liability
measured at its fair value. The statement requires that changes in the fair
value of a derivative be recognized currently in earnings unless specific hedge
accounting criteria are met. SFAS 133 is effective for fiscal years beginning
after June 15, 2000 and is not anticipated to have a material impact on our
results of operations or financial condition.
DISCLOSURE ABOUT MARKET RISK
INTEREST RATE RISK
We currently maintain an investment portfolio of primarily money market
investments and certificates of deposits with maturities of less than 90 days.
The securities in our investment portfolio are not leveraged and, due to their
short-term nature, are subject to minimal interest rate risk. Therefore, we
currently do not hedge interest rate exposure. Due to the short term maturities
of these investments, we do not believe that an increase in market rates would
have any significant negative impact on the realized value of our investment
portfolio. However, an increase in interest rates may negatively impact the
interest expense on undrawn equipment financing.
25
<PAGE> 28
FOREIGN CURRENCY RATE FLUCTUATIONS
Our commitments to Zeiss described above are denominated in Deutsche marks.
Also, under our agreement with Zeiss, the ArrayScan Kinetics Workstation,
ArrayScan Kinetics Reader and Zeiss' Ultra High Throughput Screening System will
be sold to us at a transfer price denominated in Deutsche marks. This will
create an exposure to foreign currency rate fluctuations. Any foreign currency
revenues and expenses are translated using monthly average exchange rates
prevailing during the year and any transaction gains and losses are included in
net income. We may use hedging instruments including forward contracts to
minimize any foreign currency rate fluctuation exposure. We cannot assure you
that any hedging transaction will adequately protect us against currency rate
fluctuations or that these transactions will not result in losses to us.
YEAR 2000 COMPLIANCE
The Year 2000 issue refers generally to the problems that some software may
have in distinguishing whether "00" means 1900 or 2000 and the potential for the
creation of erroneous data or systems failures which could disrupt normal
business activities. Due to the fact that we are a relatively new company and
have planned for Year 2000 effects, we have not incurred material expenses
associated with Year 2000 compliance.
Many of our products contain our software or third party software programs.
Our software programs were designed to be Year 2000 compliant and as of March 3,
2000, we have not experienced any material difficulties. Nevertheless, we do use
and rely on a wide variety of information technologies, computer systems and
scientific and manufacturing equipment containing computer-related components
(such as programmable logic controllers and other embedded systems). As a
result, time-sensitive functions of those software programs and equipment may
yet misinterpret dates after January 1, 2000 to refer to the twentieth century
rather than the twenty-first century. Although we do not anticipate any material
problems, we could suffer system or equipment shutdowns, failures or
miscalculations. Such conditions could result in inaccuracies in computer output
or disruptions of operations, including, among other things, inaccurate
processing of financial information and/or temporary inabilities to process
transactions, manufacture products, or engage in similar normal business
activities.
In addition, although all of our significant suppliers and our significant
service providers indicated that they were or expected to be Year 2000 compliant
by December 31, 1999, and although as of the date of this prospectus we are not
aware of any material Year 2000 compliance problems with these third parties'
systems, we cannot be certain that the representations of these third parties
were accurate or that their systems are or will continue to be Year 2000
compliant. If any of our significant suppliers or significant service providers
experience Year 2000 compliance problems and we are unable to replace them with
alternate sources, our business would be harmed.
26
<PAGE> 29
BUSINESS
OVERVIEW
We are a pioneer in the emerging field of cellomics. We believe that the
field of cellomics will extend the recent advances in genomics and proteomics.
We design our products to:
- measure the physical position and activity over time of cells and
cellular components;
- extract information about cells, cellular components and their functions;
and
- create new knowledge about cells and enable researchers to access a
digital "virtual cell."
We are working to commercialize our product platform as an integrated
solution to address the current bottlenecks in drug discovery. We believe that
our products and technologies will provide the pharmaceutical and biotechnology
industries with extensive information about cellular structure and function, in
an automated fashion. Our products are intended to seamlessly link the
generation of data, the extraction of information and the creation of knowledge
of the workings of the cell. In addition to drug discovery, we believe our
products are applicable to basic biomedical research, clinical diagnostics and
agriculture.
INDUSTRY BACKGROUND
THE CELL
The cell is the fundamental unit of life and the building block of all
living organisms. The components of cells, such as genes and proteins, do not
independently reproduce themselves or respond to changes in their environment,
and are not, themselves, alive. The cell is the most basic biological unit with
these abilities. The adult human has trillions of cells of approximately 200
types, each with a different function, but all with similar structures and
internal workings. Every cell contains a copy of an organism's genetic
blueprint, as well as the machinery required to turn the blueprint into
proteins. These proteins perform the majority of cellular functions. In addition
to proteins, cells also contain a variety of other molecules that are also vital
for cellular function.
The breakdown of normal cellular function as a result of abnormalities in
genes and the expression of proteins causes all disease. Research aimed at
understanding how cells work may lead to the development of new drugs or
therapies addressing disease at the cellular level. In addition, this
understanding may lead to advances in other areas of life sciences including
basic biomedical research, diagnostics and agriculture markets. A detailed
knowledge of the workings of the cell builds on our present understanding of
genomics and proteomics.
GENOMICS AND PROTEOMICS
Genomics is the study of deoxyribonucleic acid, or DNA, and messenger
ribonucleic acid, or mRNA, which are the biomolecules that contain and convey
the information required for protein production and for all cellular functions.
DNA contains the genetic blueprint of all organisms. The complete sequence of an
organism's DNA is called the genome. Interest in understanding the relationships
between genes and disease has generated a worldwide effort to identify and
sequence genes, leading to the identification of new targets for drug discovery
and gene therapy. The introduction of automated DNA sequencers and searchable
DNA sequence databases helped to create the field of genomics.
Proteomics is the study of the structures, chemical modifications and
functions of an organism's complete collection of proteins, the major targets
for drug discovery. Proteins are the molecular machines of the cell that are
responsible for performing the majority of cellular functions. The complete set
of proteins within an organism is called the proteome. Interest in understanding
the relationships between protein functions and disease has generated a global
initiative to define the structure and function of every protein. This task is
challenging because any given cell type expresses only ten to twenty percent of
all genes. Furthermore, selected proteins are present only during a portion of
the life cycle of a cell.
Both genomics and proteomics provide important components of understanding
cellular function and disease, but they do not provide a complete understanding
of cellular function. Understanding how different
27
<PAGE> 30
genes and proteins act in tandem to perform functions at the cellular level is
critical to improving productivity in drug discovery and other life sciences
applications. Drugs affect target proteins involved in disease at the cellular
level and novel therapies should be directed at this level.
THE EMERGING FIELD OF CELLOMICS
We define cellomics as the study of all the molecules comprising a cell, as
well as their interactions in space and over time, that bring about cellular
functions. The cellome is the complete collection of an organism's cells and
cellular components, including genes and proteins. Unlike genomics and
proteomics, cellomics seeks to develop a complete description of all the
characteristics, actions and interactions of cellular components. We believe
that more fully understanding cellular function through cellomics will enable
the more efficient, productive and cost-effective discovery and development of
novel drugs and therapies, and improve the diagnosis and management of disease.
We believe that the introduction of automated cell analysis instruments and
searchable cellular databases may lead to the creation of the field of
cellomics. The following diagram illustrates the cell as a functional machine
which includes a number of components that are responsible for performing
cellular functions:
THE GENE-TO-CELL CONTINUUM
[GRAPHIC SHOWING HOW DNA, RNA AND PROTEINS ARE PART OF THE CELLULAR FUNCTIONAL
MACHINE]
THE CURRENT DRUG DISCOVERY PROCESS AND ITS LIMITATIONS
Drug development has historically been fueled by growing research and
development investments by the pharmaceutical and biotechnology industries. Drug
discovery and development is an expensive, time-consuming and risky process. The
Pharmaceutical Research and Manufacturing Association estimates that
pharmaceutical companies spent approximately $24 billion, or 20% of sales, in
research and development during 1999. This represented a 14.1% increase from
1998. Of the potentially hundreds of thousands of compounds screened in a drug
discovery program, less than 1 in 1,000 will become new drug candidates and only
about 20% of these will complete human clinical trials and receive regulatory
approval. Only about 30% of drugs that are commercialized ever recover their
development costs. Pharmaceutical and biotechnology companies have realized
that, to stay competitive and meet their goals for growth, they will have to
significantly increase the number of new drugs introduced each year. Because
government agencies rigidly define and highly regulate the pre-clinical and
clinical trial phases of the development of new drugs, companies can impose
little control over the costs of these phases. As a result, drug companies
increasingly focus their efforts on the drug discovery stage to enhance
productivity and reduce costs.
The drug discovery process is comprised of four steps: target
identification, target validation, primary screening and lead optimization.
- Target identification characterizes the role a particular protein plays
in cellular function in order to determine whether it might be a target
for drug discovery. While target identification has historically
28
<PAGE> 31
been a bottleneck in drug discovery, this step has been minimized by the
dramatic increase in gene discovery, largely due to the emergence of
genomics technology.
- Target validation demonstrates that affecting the function of a
particular target has a potential effect on the course of a disease.
Traditional target validation depends primarily upon manual, benchtop
biological research, which is expensive and slow. Target validation has
not kept pace with increased productivity in target identification.
- Primary screening tests a large collection of chemical compounds, or
libraries, against validated targets to find "hits" or members of the
library that affect the function of a particular target. During primary
screening, hundreds of thousands of compounds may be screened for a
single, simple measure of a target's biological activity. Over the last
decade, automated high throughput and ultra high throughput screening
systems have been introduced. These systems are capable of performing
over 100,000 cellular analyses per day.
- Lead optimization is the process of sorting through hits that emerge from
primary screening to find compounds likely to have appropriate drug
properties, including efficacy and low toxicity. Because of the improved
efficiency in primary screening, lead optimization is now the major
bottleneck in the drug discovery process. Traditionally, lead
optimization has been based on manual, benchtop biological research that
includes secondary screens, studies of the relationship between the
structure and activity of compounds and cellular toxicity measurements.
This slow and expensive process usually employs single measurements of
biological activity without capturing both time and space data from
cells. Time and space data, which we call high content data, is important
to the understanding of complex cell functions. Without cellular analysis
systems which provide high content data on cell functions, the
pharmaceutical and biotechnology industries have historically been
focused on a narrow range of targets, primarily the receptors on the
surface of cells. However, cell functions involve not only the number and
distribution of specific receptors localized on the surface of cells, but
also the distribution and activity of other molecules on and within the
cells. For example, the cycle of internalization of receptors to the
inside of cells and back to the surface that regulates the responsiveness
of many cells, involves numerous proteins in different locations within
cells and exhibits different activities. The ability to measure the time
and space activities of these proteins in relationship to specific cell
functions, such as receptor-based stimulation, is an important challenge
for lead optimization.
Pharmaceutical and biotechnology companies strive to improve productivity
in all four steps of the drug discovery process. To date, substantial
improvements have been made at the target identification and the primary
screening steps through significant investments in genomics and high throughput
screening technologies. We believe that the key to relieving the bottleneck at
the lead optimization step will be the development of products and technologies
that produce high content data, information and ultimately knowledge of cellular
functions. We also believe that the application of cellomics will make target
validation more efficient. In addition, we believe that the large amount of time
and space data that will be produced in high content, cell-based measurements
will require automation of the process from the level of instrumentation,
management and mining of data, to the identification of lead compounds based on
knowledge of the role of targets in cellular functions.
OUR SOLUTION
We are pioneering an approach to the field of cellomics in an effort to
increase the productivity of the drug discovery process. We believe our products
will allow researchers to narrow the focus of their discovery effort to more
accurately identify and select compounds that have a higher chance of
successfully completing the drug development process. Our solution involves the
following elements:
Create High Content Screening Technologies and Products. We have developed
a high content screening technology that consists of instrumentation,
fluorescent dyes and biological molecules that we call reagents, protocols, and
data and information management software. Together, this integrated platform
provides high content biological information about time, space and activity of
cells and cellular components, as it relates to
29
<PAGE> 32
a drug candidate's physiological impact on specific cellular targets within, on
and between cells. We are designing our high content screening platform to
provide insights into the potential efficacy and toxicity of a drug candidate on
cells prior to initiating expensive pre-clinical testing and human clinical
trials, in order to enable pharmaceutical companies to increase productivity. We
believe that we are the first company to develop and deliver high content
screening products to the pharmaceutical industry. We have developed a high
content screen that measures the internalization of specific receptors from the
surface of the cell and defines their dynamic re-distribution within the cell,
including their return to the cell surface. We believe our products and
technologies will enable our customers to define the specific role that proteins
play in cell functions such as receptor cycling. Furthermore, we believe our
high content screening platform has broad applications across many segments of
the life sciences industry.
We believe the use of high content screening during lead optimization will
significantly enhance the process of further qualifying hits resulting from high
throughput screening. High throughput screening products for cell-based analysis
presently used in the primary screening step of drug discovery cannot produce
time and space activity information required for high content screening. Our
high content screening products directly measure the time and space activity of
fluorescently-labeled targets and other cellular components on, in and even
between cells.
Automate High Content Screening. We designed our high content screening
products and technologies to automate the instrumentation, cellular analysis
tools and information management tools required to analyze cells. Just as the
proliferation of automated DNA sequencing instruments led to a dramatic increase
in the generation of vast amounts of genomic data and information, we believe
that automation of high content screening systems will lead to a dramatic
increase in cell-based data and information, thereby improving the productivity
of the drug discovery process. Until now, most cell analysis methods used manual
experimentation that did not keep pace with the automation of primary screening.
In addition, due to the large volume of data generated in high throughput
screening and high content screening, we believe it is essential to use an
automated system to identify the compounds that have the most desirable effects
on targets within cells. We designed our products to automatically link together
all of the results from the discovery process with the compounds, biological
targets and cellular processes that are part of the screen. We believe this
enables all of the higher level linkages to chemical informatics systems and
bioinformatics tools that will permit the creation of new knowledge.
Access, Manage and Mine Data for Decision Support. We are developing
software tools and products to archive data from high content screens, perform
data analysis, manage large numbers of measurements in the total screening
process and perform data mining on large data sets. We believe the life sciences
industry's most pressing issues include the effective management and use of the
volume of data being generated. In addition, to fully exploit the potential of
our high content screening systems, researchers need innovative informatics
tools to manage, analyze and mine the large volume of data being generated. We
are designing our informatics products to provide an integrated informatics
solution. To this end, our product design will offer a user-friendly, web-based
environment built on top of industry standard database tools, together with data
and pattern analysis tools and open interfaces for easy data exchange. In
addition, our informatics products are designed to take advantage of a web
browser-based interface that enables seamless access and integration of
proprietary and public domain databases, including genomics, proteomics and the
Cellomics Knowledgebase. We believe our informatics tools provide a platform for
developing a more effective understanding of the cell, and increasing
productivity in the drug discovery process.
Create a Database which Leads to a Better Understanding of the Cellome. We
are developing a searchable database of the molecular components and their
interactions that occur in the cell. We are developing the Cellomics
Knowledgebase, our proprietary, web-based, searchable database of the
biochemical and molecular interactions that produce normal and abnormal cell
functions. Our Cellomics Knowledgebase will consist of a densely populated
database of public domain "prior knowledge" in cell biology that can be
abstracted using our proprietary search software, and proprietary knowledge
generated from our high content screening systems.
We are working to create a digital virtual cell through the integration of
the Cellomics Knowledgebase with the continuum of our data-generating and
information-extracting products. We believe the Cellomics
30
<PAGE> 33
Knowledgebase can become a powerful predictive tool to permit better decisions
on what targets to screen, what cell functions to measure and what types of
chemical compounds to screen, as well as define potentially new cellular
pathways.
STRATEGY
Our mission is to be a leader in the field of cellomics in order to extend
the power of genomics and proteomics by defining the cellular functions of genes
and proteins. Our strategy involves developing and commercializing products
designed to make life sciences research, including drug discovery, more
productive and cost-effective. Key elements of our strategy are as follows:
Establish High Content Screening as the Standard for Drug Discovery. We
currently market our high content screening systems primarily to the
pharmaceutical and biotechnology industries. Our strategy is to make high
content screening an important tool for drug discovery by penetrating
pharmaceutical, biotechnology and other research laboratories engaged in drug
discovery. We have designed our instruments, cellular analysis products and
informatics products to meet the immediate needs and current standards of this
market segment. We believe this segment provides the most immediate opportunity
due to the large investment in research and development and the need to improve
the productivity of drug discovery.
Broaden Our Cellular Analysis Products Menu. We are developing a series of
new classes of the consumable reagents and software tools used in high content
screening. The consumable reagents are sold in kits called reagent kits and
consist of a combination of fluorescent dyes that specifically bond to cellular
components and biological molecules that have fluorescent dyes attached by a
variety of methods. These molecules permit the proteins and other cellular
components to be detected and measured by the screening instrumentation. We
design software tools for the different types of cellular analysis. Each major
cellular process will require a new class of cellular analysis products
including its own software tool and will utilize multiple reagent kits. For
example, the receptor internalization class of cellular analysis products
includes many different types of receptors, each requiring their own kit. We
believe there are dozens of classes of cellular analysis products each requiring
multiple reagent kits that have the potential to generate follow-on sales.
Expand into New Market Segments. We intend to use our proprietary cellular
analysis products to expand high content screening into multiple markets. These
markets include target validation in drug discovery, basic biomedical research,
clinical diagnostics and agriculture. We also intend to use our high content
screening platform to study the physiological impact of drugs on cells
collected, or derived, from humans with individual genetic make-ups. In
addition, we believe this approach, which we call PharmacoCellomics Profiling,
will allow for pre-testing the response of a patient's cells to an accepted
protocol or drug candidate, and better focus clinical trials on the optimal
population of patients.
Migrate to the CellChip System. We are currently developing the CellChip
System. We believe the CellChip System is a revolutionary platform,
incorporating the precision of high content screening into a miniaturized, more
versatile product. We are designing the CellChip System to increase the
productivity of the drug discovery process by combining high throughput
screening and high content screening onto the same miniaturized platform. We
believe that our CellChip System will permit pre-packaged, complex cellular
analysis to be performed simply, quickly and at less cost per measurement than
presently performed using microplates and will accelerate the use of cell-based
measurements in all fields of life sciences.
Create the Leading Searchable Repository of Cellomics Knowledge. We are
striving to create the leading searchable repository of knowledge of the cellome
by populating our Cellomics Knowledgebase with high content screening
information and information obtained from the public domain. We intend to
continually edit and refine our Cellomics Knowledgebase through reviews by a
panel of scientists in the field of cell biology. We believe our Cellomics
Knowledgebase may add significant value to researchers' understanding of the
cellome, thereby increasing the productivity of the drug discovery process. We
intend to commercialize the Cellomics Knowledgebase through the sale of
subscriptions.
31
<PAGE> 34
Combine Our Strengths with the Strengths of Strategic Corporate
Partners. We intend to continue to enter into strategic partnerships to combine
our core expertise in cell and molecular biology, imaging science, information
management software, cellular bioinformatics and cell patterning, with the
strengths of corporate partners. Through these collaborations, we intend to
access complementary technologies and strengthen our commercialization
capabilities. We believe that strategic relationships with partners who have
strong, existing market positions and development track records will speed
market introduction, maintain high barriers to entry and reduce our research and
development risk and capital outlay. For example, we have established a
strategic relationship with Zeiss relating to our ArrayScan products and Zeiss'
Ultra High Throughput Screening System. In addition, we have entered into a
collaboration with ACLARA to incorporate their technologies for the control of
very small fluid volumes into our CellChip System. We also have exclusively
licensed some key fluorescence technologies from Molecular Probes to incorporate
into our reagent kits for the high content screening market.
OUR PRODUCTS
Our products initially target a market segment consisting of approximately
140 pharmaceutical companies which are involved in discovery research and
development. The pharmaceutical industry spent approximately $24 billion in
research and development in 1999. Within this initial market segment we are
focusing on screening and toxicology where the pharmaceutical industry spent
approximately $1.5 billion in 1999 and information management and bioinformatics
tools where the pharmaceutical industry spent approximately $800 million in
1999. We believe our products have potential application in other life sciences
markets. Our products are designed to seamlessly integrate the generation of
data to the extraction of information, and ultimately create cellular knowledge.
We generate cellular data using our proprietary instruments and cellular
analysis products, including software tools and reagent kits. The data generated
is then stored, managed, analyzed and mined using our proprietary informatics
products. Our cellular bioinformatics products, coupled with internally and
externally generated information, are designed to build a virtual cell which
maps the complex network of cellular components and their interactions. Our
knowledge products aim to systematize, in a searchable, electronic format, our
continuously evolving understanding of cellular biology. Our existing products
and our products in development are highlighted on the following page.
HIGH CONTENT SCREENING PRODUCTS TO GENERATE DATA
ArrayScan II. The ArrayScan II is an automated, high content screening
instrument comprised of optics, automation hardware and software that scans
standard microplates and analyzes fields of cells based on multi-color
fluorescence imaging. Our ArrayScan II analyzes drug candidate interactions
within, on and between cells with multi-color fluorescence measurements taken at
a single point in time. The system contains microplate scanning hardware,
fluorescence excitation and emission optics, a solid state camera, a Pentium-
based PC with powerful software-based analyses, a plate stacker for automated
screens and database management capabilities. The system can control the
temperature, humidity and other environmental parameters for simple live cell
experimental analysis. We offer a number of versions of the ArrayScan II which
have different software tools for various levels of analysis.
ArrayScan Kinetics Workstation. We are developing our ArrayScan Kinetics
Workstation to allow researchers to perform complete, automated high content
screening on multiple plates of living cells. We have a working version of our
ArrayScan Kinetics Workstation that is undergoing pre-product testing. The
ArrayScan Kinetics Workstation is designed to operate under controlled growth
conditions with random access compound delivery where time, or kinetic,
information is critical. Random access compound delivery enables researchers to
test the effects of drug candidates in cells at multiple points in time and
under various growth conditions to assess interaction between drugs and cells or
cell components, which may be useful in understanding toxicity and efficacy.
This proprietary workstation includes many of the features of the ArrayScan II,
as well as an advanced plate reader, 30-plate incubator stacker, on-board fluid
addition, compound storage, and automatic plate handling. Zeiss manufactures our
ArrayScan Kinetics Workstation to our specifications under the terms of our
collaboration. The ArrayScan Kinetics Workstation is designed to operate as a
standalone screening workstation or in connection with Zeiss' Ultra High
Throughput Screening System.
32
<PAGE> 35
OUR PRODUCTS AND PRODUCTS IN DEVELOPMENT
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRODUCT CATEGORIES PRODUCT DESCRIPTION STATUS(1)
- ------------------------ ---------------------------- -------------------------------------- --------------
<S> <C> <C> <C>
HIGH CONTENT SCREENING ArrayScan II Automated, high content screening Commercialized
PRODUCTS TO GENERATE instrument and software for single
DATA point-in- time cellular analysis
ArrayScan Kinetics Automated, fully integrated high In development
Workstation content screening system with reader, (Pre-product
fluid addition station, and testing)
environmental control for multiple
point-in-time analyses
ArrayScan Kinetics Reader Automated high content screening In development
instrument and software designed for (Pre-product
use with existing high throughput testing)
screening automation systems, to allow
them to perform multiple point-in-time
analyses
Software Tools and HitKit Software tools and reagent kits Commercialized
Reagents optimized for high content screening 12 kits;
on our ArrayScan systems others in
development
Custom Cellular Analysis Cellular analysis development services Commercialized
Development for customers
CellChip System Miniaturized cell analysis platform In development
utilizing small volume fluid control (Proof of
technology in collaboration with concept of
ACLARA whole system;
Prototype of
microscopic
cell grids and
fluid control
technologies)
INFORMATICS PRODUCTS TO Cellomics Store Data management software for managing, Commercialized
EXTRACT INFORMATION archiving and viewing massive volumes
of cell data
Cellomics Screen Process management and data analysis In development
software intended to allow hits and (Pre-product
leads to be easily identified and testing)
verified
Cellomics Discover Data visualization and mining software In development
incorporating a web browser-based (Prototype
interface and seamless drill-down to products)
examine data in Cellomics Screen and
Cellomics Store, as well as retrieve
data from both proprietary and public
databases
CELLULAR BIOINFORMATICS Cellomics Knowledgebase Web-based, searchable database of In development
PRODUCTS TO CREATE cellular biochemical and molecular (Proof of
KNOWLEDGE interactions designed to create a concept)
digital virtual cell
PharmacoCellomics Profiling Searchable database that contains In development
individual patient's cell responses to (Proof of
lead compounds and complements concept)
genomics to personalize drug discovery
</TABLE>
(1) Products in development are defined in four stages: (a) the planning
stage -- where concept of product is defined; (b) proof of concept -- which
involves testing components of prototypes successfully; (c) prototype
products -- partially functional system tested against performance
specifications and; (d) pre-product testing -- the testing of pre-product to
finalize performance specifications before commercialization.
33
<PAGE> 36
ArrayScan Kinetics Reader. We have designed our ArrayScan Kinetics Reader
to allow researchers to integrate our high content screening system into the
existing installed base of high throughput screening systems. We have working
prototypes of our ArrayScan Kinetics Reader that are undergoing pre-product
testing. Our ArrayScan Kinetics Reader includes proprietary optics, hardware,
environmental controls and software that have been optimized for kinetic
measurements. As part of our collaboration with Zeiss, Zeiss manufactures our
ArrayScan Kinetics Reader according to our specifications.
Software Tools and HitKit Reagents. We have a growing list of proprietary
classes of cellular analysis products, including software tools and reagent kits
optimized for our ArrayScan systems. We presently have commercialized 12 reagent
kits. Our cellular analysis products are designed to be used to monitor drug
effects in a variety of diseases such as cancer, diabetes and infectious
disease, as well as toxicity testing at the cellular level. The process of
developing a new cellular analysis product includes the selection of cell types,
targets, fluorescence-based reagents, protocols and software programs. The
complete kit incorporates the necessary reagents and protocols to run the
analysis. We are developing new Software tools for the new classes of cellular
analysis products being developed. We anticipate selling the Software tools as
software plug-ins to our ArrayScan systems.
Our reagent kits, which we call HitKits, include combinations of cells,
multi-color fluorescence-based reagents and other consumables such as validated
microplates, in order to understand a drug candidate's effect on a cell. Our
first commercialized HitKits are designed to measure transcription factor
activation, cell viability, receptor internalization, apoptosis, or cell death,
and cytotoxicity, or the toxic effect on cells. We are expanding our
commercialized list of cellular analysis products.
Custom Cellular Analysis Development. We provide screen development
services on a contractual basis to support customers in the design, development
and implementation of high content screening cellular analysis tools that are
not already offered as finished HitKits and software tools. We offer custom
cellular analysis tools through screen development support services, including
the development of specific fluorescence-based reagents, software tools for
analysis, and sample preparation and screening protocols.
CellChip System. We are developing our CellChip System as a miniaturized,
next-generation platform for combining high content screening and high
throughput screening. Our CellChip System combines the organization of specific
cells in very small grids of cells, with technologies which control very small
fluid volumes. We believe our CellChip System will represent a significant
advance over the industry standard microplates. We are collaborating with ACLARA
to develop our CellChip System by incorporating their small volume fluid control
technologies. Our CellChip System utilizes small wafers of glass or plastic that
are patterned with chemical and molecular domains which organize specific cells
in microscopic grids. Our CellChip System is being designed to permit more
rapid, sophisticated and cost-effective cell analyses than presently permitted
by the current microplate format.
INFORMATICS PRODUCTS TO EXTRACT INFORMATION
Cellomics Store. We currently market Cellomics Store, a software package
that manages and archives the large volume of cell data and images that can be
generated during screening. Cellomics Store allows for the visualization of
biologically rich data generated from our ArrayScan instrument line, as well as
existing high throughput screening instruments.
Cellomics Screen. We are developing Cellomics Screen, a software package
designed to manage the screening process and data analysis. Cellomics Screen
analyzes screening runs, allowing hits and leads to be easily identified and
verified. We are currently in pre-product testing of this product.
Cellomics Discover. We are developing Cellomics Discover, a software
package that includes a web browser-based interface. We have designed Cellomics
Discover to provide data visualization and mining capabilities, and information
retrieval from both proprietary and public databases. We have also designed
Cellomics Discover to provide seamless drill-down to examine data in Cellomics
Screen and Cellomics Store. Cellomics Discover will also automate quality
assessment of screening data, and correlate high content
34
<PAGE> 37
screening and high throughput screening data with data from other databases such
as genomics, proteomics and our Cellomics Knowledgebase. We are currently
working with a prototype product.
CELLULAR BIOINFORMATICS PRODUCTS TO CREATE KNOWLEDGE
Cellomics Knowledgebase. We are developing our Cellomics Knowledgebase as a
web browser-based product designed to facilitate the discovery of cellular
knowledge about new targets, the interaction of targets within cellular pathways
and cellular functions. Our Cellomics Knowledgebase is intended to be for the
cell, what searchable genomics databases have been with respect to the discovery
of new genes from DNA sequences. The core of the Cellomics Knowledgebase will
consist of a biochemical and molecular wiring diagram of cells, which is the
complex, interactive network of cellular components. We believe queries of the
Cellomics Knowledgebase will allow new knowledge to be discovered concerning
molecular interactions, pathway connections, cell functions and relationships
among cell components across cell types and species. The complex results of
queries could be displayed using a virtual cell visualization tool under
development. In addition, we believe that proprietary databases derived from the
Cellomics Knowledgebase could contain profiling information on the impact of
classes of compounds on targets, pathways, cell functions and cytotoxicity. We
also intend the Cellomics Knowledgebase to integrate information from genomics,
proteomics and gene expression profiles. We are designing the first volume of
the Cellomics Knowledgebase to organize around human cell types, but be
expandable and searchable across species, cell functions, cell pathways and
specific proteins and other cellular components. The design of the Cellomics
Knowledgebase should systematize, in a searchable, electronic format, our
continuously evolving understanding of cellular biology, encompassing not only
cellular components, but also their complex interactions and interdependencies.
PharmacoCellomics Profiling. We are developing a searchable database that
will combine our high content screening products, informatics software and
Cellomics Knowledgebase, to create a total platform to profile cells of specific
patients. PharmacoCellomics complements genomics profiling, which is the
profiling of the human population to define genetic subsets of the population
that would be likely candidates for specific drugs. Our PharmacoCellomics
product will contain an individual patient's cell responses to lead compounds,
which we believe will significantly increase the potential of personalizing drug
discovery. We are initially exploring cancer, where patient tumor cells can be
accessed and used in high content screening to define the effect of experimental
compounds.
PRODUCTS WE MARKET FOR ZEISS
As part of our strategic relationship with Zeiss, we have entered into an
agreement to sell and market their Ultra High Throughput Screening System in
North America. Zeiss' Ultra High Throughput Screening System is a fully
automated platform capable of screening over 100,000 compounds per day in the
primary screening step of drug discovery. The system optimizes all process steps
using advanced technologies for optical detection and automation to achieve high
speed, flexibility and reliability. The system is modular and can be rapidly
reconfigured for distinct types of screens. Our ArrayScan Kinetics Workstation
could be directly coupled to Zeiss' system to shorten the drug discovery process
by running primary cell-based screens and lead optimization screens in series.
SALES AND MARKETING
We sell our products to pharmaceutical and biotechnology companies. We
believe our products are applicable to a broader range of life sciences markets.
We sell our products in North America and Europe through a direct sales force
experienced in selling capital equipment, reagents and development contracts to
the pharmaceutical, biotechnology and other life sciences markets. The pre-sale
and post-sale processes are supported by an executive business development team
and a scientific and applications support staff. In addition, we sell access to
our future products through technology access programs. We provide our customers
with a standard one year replacement warranty on our products. Our standard
payment terms for our products are 30 days from date of shipment.
35
<PAGE> 38
In addition to our own products, we provide exclusive marketing, sales,
service and support for Zeiss' Ultra High Throughput Screening System in North
America. Under this agreement, Zeiss ships directly its Ultra High Throughput
Screening System to our customers in North America thereby limiting the amount
of inventory required by us. Zeiss also provides standard industry warranties of
one year to replace parts. Our standard payment terms are 30 days from date of
shipment.
We identify potential customers through a comprehensive marketing program,
coupled with personal lead development by our field sales force, executive
management and scientists, as well as our scientific advisors. Led by an
experienced marketing and product management staff, our marketing program
includes direct mail programs, advertisements in market-specific journals,
production of detailed product and technology literature, trade show exhibits,
speaking engagements at scientific meetings, seminars, public relations and
internet-based website marketing.
CORPORATE COLLABORATIONS AND TECHNOLOGY ACCESS PROGRAMS
We rely on Zeiss for optical components for our ArrayScan II and on
Molecular Probes for reagent supplies that are used in our cellular analysis
kits. We expect to rely on ACLARA for some of the technologies to be used in our
CellChip Systems.
Carl Zeiss Jena, GmbH. In April 1998, we formed a collaboration with Zeiss,
one of our early stockholders, relating to the development, manufacture and
supply of the ArrayScan Kinetics Reader and the ArrayScan Kinetics Workstation.
In February 2000, we entered into two new agreements with Zeiss that amend and
restate our 1998 agreement. These agreements are a development, manufacturing
and supply agreement and a sales and marketing agreement.
Under the new development, manufacturing and supply agreement, Zeiss is
responsible for the exclusive manufacture of our ArrayScan Kinetics Workstation
and ArrayScan Kinetics Reader. Under the terms of our agreement, Zeiss will
manufacture these products to our specifications. The arrangement also provides
that both we and Zeiss cooperatively develop software interfaces designed to
make Zeiss' Ultra High Throughput Screening System compatible with our data
analysis and management software. Under the terms of the agreement, we are
responsible for marketing, selling and servicing our products. The agreement
sets forth the prices we will pay Zeiss for products they manufacture subject to
renegotiation every two years. Under the agreement, we are the owner of all
intellectual property of components specifically developed and manufactured for
the ArrayScan products. In consideration for our agreement to purchase such
products from Zeiss, Zeiss is prohibited from incorporating such technology into
competing products. The agreement expires in January 2005, subject to early
termination by either party after January 2002. In connection with entering into
the February 2000 agreement, we agreed to reimburse Zeiss for $2.0 million
development costs incurred through December 1999. We have agreed to pay Zeiss
the development costs under the terms of the February 2000 agreement during 2000
and 2001 in equal installments of $1.0 million. In addition, the increase in our
research and development expenses for the year ended December 31, 1999 from $3.9
million in 1998 to $9.5 million was primarily attributable to increased costs
associated with the development of prototype instrument products under this
agreement.
Under the terms of our sales and marketing agreement with Zeiss, we are
responsible for the exclusive sale and marketing of Zeiss' Ultra High Throughput
Screening System and related products in North America. We are also responsible
for providing shipping, installation and other support activities, at our
expense, for products sold in North America. During the term of the agreement,
we may not sell in North America any products that compete with Zeiss' Ultra
High Throughput Screening System or other related products developed by Zeiss.
In the event that we do not comply with this provision of the agreement, Zeiss
is entitled to terminate our exclusivity immediately. Under the terms of the
agreement, we have agreed to purchase a minimum number of Zeiss products
pursuant to the terms of the agreement. If we do not fulfill our requirements
specified in the agreement, Zeiss has the right to either terminate our
exclusivity or terminate the agreement in its entirety. We are free, under the
terms of the agreement, to sell the Zeiss products in North America at a sales
price we establish. We will retain all revenues from our sales of Zeiss'
products in North America. The agreement expires in December 2005; however,
either party may terminate
36
<PAGE> 39
the agreement on the occurrence of material breach by the other party or if the
other party comes under control of a competitor of the terminating party.
ACLARA Biosciences, Inc. In October 1999, we entered into an exclusive
collaboration with ACLARA for the development of our CellChip System utilizing
our cell patterning technologies and ACLARA's proprietary technology for
controlling very small volumes of fluids. Each of us will own all intellectual
property in which we had the sole role in inventing, and will jointly own all
intellectual property which was co-invented by both of us. During the term of
the agreement, we may not seek another partner for small volume fluid control
technologies, and ACLARA may not partner with another entity for technology to
organize specific cells into very small grids using its small volume fluid
control technologies. We have established proprietary development budgets with
ACLARA for the first year of the agreement and have agreed to develop budgets
for succeeding years in good faith. In the event that we receive revenues from
early access programs or commercialization of our products, we will enter into
good-faith negotiations to determine division of those revenues. In the event
the CellChip System is commercialized, we are responsible for manufacturing
commercialized CellChip Systems. Further, ACLARA has agreed to enter into a
supply agreement in the event the CellChip System is ultimately commercialized.
Either party may terminate this agreement on the material breach of the other
party. Under some circumstances, licenses that were granted between the parties
during the term of the agreement may survive any termination of the agreement.
Further, each party has the right to license from the other party additional
technology related to the CellChip if requested within two years of termination.
Molecular Probes, Inc. In April 1999, we entered into a license and supply
agreement with Molecular Probes under which it licensed to us select proprietary
fluorescence-based reagents on an exclusive worldwide basis for use in high
content screening. We also obtained a non-exclusive worldwide license to sell
these proprietary fluorescence-based reagents for use in ultra high throughput
screening. Under the terms of the agreement, we are required to meet certain
conditions to maintain exclusivity. We will also purchase all of our
requirements for particular fluorescence-based reagents for use in high content
screening and ultra high throughput screening from Molecular Probes, unless
Molecular Probes is unable to meet our requirements. We paid Molecular Probes an
up-front license fee of $90,000 and agreed to pay continuing royalties based on
specified annual sales revenues.
Pharmaceutical Company Collaborations. We enter into technology access
programs through which we give customers early access to our new products, along
with technical support, training and individualized services. Through our
technology access programs, we collaborate with our customers during the product
development process in order to create products that closely meet the needs of
the market. Our technology access programs assist us in focusing our technology
and development efforts on areas that we believe will have the most impact on
the market. To date, Johnson & Johnson, Merck and Warner-Lambert have
participated in our technology access programs. Typically, for the term of a
technology access agreement, our customers will have non-exclusive or
limited-time exclusive access to particular products in development.
We have received approximately $1.8 million to date and expect to receive
an additional $300,000 from the collaborators above related to the achievement
of milestones, research and development funding and license fees. We have also
paid approximately $244,000 to date and we are committed to pay approximately
$3.6 million to the collaborators above relating to capital expenditure, the
achievement of milestones, research and development funding and license fees.
MANUFACTURING
We currently maintain a manufacturing facility for instrumentation,
software products, and reagent kit production. Our manufacturing of the
ArrayScan II predominantly involves a final assembly and testing activity using
commercially available optical, mechanical and computer components combined with
custom mounting assemblies and proprietary software. The ArrayScan Kinetics
Workstation and ArrayScan Kinetics Reader manufacturing will involve software
integration and testing of the electromechanical and optical system manufactured
for us by Zeiss. We manufacture HitKits in our facility with a combination of
our proprietary reagents and those we have exclusively licensed from Molecular
Probes. We dispense, finish and
37
<PAGE> 40
test our products on site using our processes and to our specifications.
Similarly, we manufacture our informatics and bioinformatics software products
using industry standard procedures.
COMPETITION
The biotechnology and pharmaceutical industries are characterized by
rapidly evolving technology and intense competition. Currently, we compete with
many companies, including major pharmaceutical, chemical and biotechnology
companies that perform drug discovery and development and related tasks using
alternative technologies. We have begun to encounter competition from companies
which offer one or more components of high content screening, including
integrated reagents, kits, applications, instrumentation and informatics. We
expect to encounter intense competition from companies providing conventional
drug discovery and development products based on established technologies and
companies developing their own cellular analysis technologies.
In order to compete against vendors of conventional products, we will need
to demonstrate the advantages of our products and technologies over
well-established alternative products and technologies. Moreover, we will need
to demonstrate the potential economic value of our products relative to these
conventional technologies and products. We will also need to compete effectively
with companies developing their own cellular analysis technologies and products.
Our future success will depend in large part on our ability to establish and
maintain a competitive position in these and future technologies which we may
not be able to do. Rapid technological development may result in our products or
technologies becoming obsolete. Products offered by us could be made obsolete
either by less expensive or more effective products based on similar or other
technologies.
Many of our competitors have or will have greater corporate, financial,
operational, sales and marketing resources, and more experience in research and
development than we have. Moreover, competitors may have greater name
recognition than we do, and may offer discounts as a competitive tactic. We
cannot assure you that our competitors will not succeed in developing or
marketing technologies or products that are more effective or commercially
attractive than our products or that would render our technologies and products
obsolete. Also, we may not have the financial resources, technical expertise or
marketing, distribution or support capabilities to compete successfully in the
future. Our success will depend in large part on our ability to maintain a
competitive position with our technologies.
Our competitive position also depends on our ability to:
- attract and retain qualified personnel;
- obtain patent protection or otherwise develop proprietary products or
processes;
- discover new technologies that improve the productivity of the drug
discovery process; and
- secure sufficient capital resources to complete product development and
commercialization processes.
INTELLECTUAL PROPERTY RIGHTS
We seek patent protection on cell-based screening analysis tools and kits,
cell array technologies, reagents, instrumentation, informatics technologies and
bioinformatics. We currently own one issued U.S. patent and one allowed U.S.
patent, and have over 40 U.S. patent applications pending, of which over 30 are
provisional patent applications. In addition, we have patents pending in other
countries and jurisdictions.
Our patents and applications are directed at various technological areas
which we believe are valuable to our business, including:
- a wide variety of cell screening analysis tools;
- fluorescence-based reagents for cell screening;
- cell grid platforms;
- devices for the control of small fluid volumes;
38
<PAGE> 41
- informatics software;
- bioinformatics software; and
- cell screening instrumentation, devices, and operating software.
We hold one exclusive license covering nine issued U.S. patents for
fluorescence-based reagents for high content screening, as well as two
non-exclusive licenses for such reagents.
We also rely upon trade secrets, know-how, trademarks, copyright
protection, and continuing technological and licensing opportunities to develop
and maintain our competitive position. Our practice is to require our employees,
consultants, and outside scientific collaborators and consultants to execute
confidentiality agreements upon the commencement of employment or consulting
relationships with us. In the case of employees, the agreement provides that all
inventions conceived by the individual while employed by us will be our
exclusive property. These agreements also provide that all confidential
information developed by or made known to the individual during the course of
the individual's relationship with us is to be kept confidential and not
disclosed to third parties, subject to limited exceptions.
Patents may provide some degree of protection for our intellectual
property. However, the assertion of patent protection involves complex legal and
factual determinations and is therefore uncertain. In addition, the laws
governing patentability and the scope of patent coverage continue to evolve,
particularly in the areas of technology of interest to us. As a result, there
can be no assurance that patents will issue from any of our patent applications
or from applications licensed to us. The scope of any of our issued patents may
not be sufficiently broad to offer meaningful protection. In addition, our
issued patent or patents licensed to us may be successfully challenged,
invalidated, circumvented or unenforceable so that our patent rights would not
create an effective competitive barrier. Moreover, the laws of some foreign
countries may not protect our proprietary rights to the same extents as do the
laws of the United States. In view of these factors, our intellectual property
positions bear some degree of uncertainty.
Although we are not currently a party to any legal proceedings relating to
our intellectual property, in the future, third parties may file claims
asserting that our technologies or products infringe on their intellectual
property. We cannot predict whether third parties will assert such claims
against us or against the licensors of technology licensed to us, or whether
those claims will harm our business. If we are forced to defend against such
claims, whether they are with or without any merit, whether they are resolved in
favor of or against us or our licensors, we may face costly litigation and
diversion of management's attention and resources. As a result of such disputes,
we may have to develop costly non-infringing technology, or enter into licensing
agreements. These agreements, if necessary, may be unavailable on terms
acceptable to us, if at all, which could seriously harm our business or
financial condition.
EMPLOYEES
As of December 31, 1999, we had 85 full-time employees, eight in sales and
marketing, 21 in informatics/bioinformatics, 26 in cellular analysis tools/kit
development/manufacturing, 19 in research and development and 11 in
administration. None of our employees are covered by collective bargaining
agreements, nor have we experienced any work stoppage. We consider our relations
with our employees to be good.
SCIENTIFIC ADVISORY BOARD
An important component of our scientific strategy is to establish
collaborative relationships with researchers in our fields of interest. Our
scientific advisors attend periodic meetings of our Scientific Advisory Board.
None of our scientific advisors is employed by us, and they may have commitments
to or consulting or advisory agreements with other entities that may limit their
availability to us. These companies may also
39
<PAGE> 42
compete with us. In general, our scientific advisors hold stock options, own our
stock and/or receive financial remuneration for their services. The following
are the members of our scientific advisory board:
Alan S. Waggoner, Ph.D. is the Director, Science and Technology Center at
Carnegie Mellon University. He is a founder of Cellomics.
Harold Craighead, Ph.D. is Director of the Nanobiotechnology Center and a
Professor of Applied and Engineering Physics at Cornell University where he also
served as Director of the National Nanofabrication Facility from 1989 to 1995.
Richard Haugland, Ph.D. is the founder and since 1975 has been the
President of Molecular Probes, Inc.
Susan Henry, Ph.D. has been the Dean-Mellon College of Science of Carnegie
Mellon University since 1991 and is also a Professor-Department of Biological
Sciences, at Carnegie Mellon University since 1987.
Takeo Kanade, Ph.D. is a computer scientist/electrical engineer, a member
of the National Academy of Sciences, and the Director of the Robotics Institute
at Carnegie Mellon University.
John S. Lazo, Ph.D. is a Professor and Chairman of Pharmacology at the
University of Pittsburgh School of Medicine. He is also Co-Director of the
Experimental Therapeutics Program at the Pittsburgh Cancer Institute and
Visiting Scientist, Imperial Cancer Research Fund, University of Oxford, Oxford,
U.K.
Milan Mrksich, Ph.D. is Assistant Professor of Chemistry at the University
of Chicago.
Franklyn Prendergast, MD, Ph.D. is the Edmond and Marion Guggenheim
Professor of Biochemistry and Molecular Biology and Director of the Mayo Clinic
Cancer Center where he has also served as the Chairman of the Biochemistry
Department and a member of the Board of Governors of the Mayo Clinic and
Foundation.
Felix de la Iglesia, MD is the Vice President, Pathology and Experimental
Toxicology, at Warner Lambert/Parke-Davis Pharmaceutical Research since 1983.
George N. Pavlakis, MD, Ph.D. is the Head of the Human Retrovirus Section
at the National Cancer Institute.
FACILITIES
Our research and development, manufacturing and administrative facilities
are currently located in approximately 37,000 square feet of leased space in
Pittsburgh, Pennsylvania. Leases for this space initially expire in April and
June 2001. We believe that our current facilities are adequate to meet our
immediate needs. Additional space will be required as we expand our research and
development activities and production capabilities. We do not anticipate any
significant difficulties in obtaining additional facilities, as necessary.
LEGAL PROCEEDINGS
We are not currently party to any legal proceedings. However, we may from
time to time become a party to various legal proceedings arising in the ordinary
course of our business.
40
<PAGE> 43
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
Our directors and executive officers, their ages and positions as of March
31, 2000 are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
D. Lansing Taylor, Ph.D. .......................... 53 President and Chief Executive Officer, Director
R. Terry Dunlay.................................... 41 Executive Vice President and Chief Information Officer
L. Robert Johnston, Jr. ........................... 40 Vice President and Chief Financial Officer
Michael A. Nemzek.................................. 40 Chief Business Officer
Alan W. Seadler, Ph.D. ............................ 51 Chief Operating Officer
William Busa, Ph.D. ............................... 48 Vice President, Bioinformatics
Jeff W. Paslay, Ph.D. ............................. 53 Senior Vice President, Pharmaceutical Technology
Albert H. Gough, Ph.D. ............................ 47 Vice President, Research and Development
John M. Boles...................................... 63 Chairman of the Board and Director
Alan Mendelson..................................... 52 Director
Arnold L. Oronsky, Ph.D. .......................... 59 Director
James A. Sharp..................................... 45 Director
</TABLE>
D. Lansing Taylor, Ph.D. has served as our President and Chief Executive
Officer since October 1996. Dr. Taylor is a founder of Cellomics. Dr. Taylor was
a Professor of Biological Sciences and Vice-Dean of the Division of Molecular
Sciences at Carnegie Mellon University from 1982 to 1998. He was also the
Director of the Center for Fluorescence Research and Director of the National
Science Foundation Center for Light Microscope Imaging and Biotechnology. Dr.
Taylor co-founded Biological Detection Systems, Inc., a reagents and instruments
company, in 1990 where he served as a director and a consultant. Prior to
Carnegie Mellon University, Dr. Taylor was a Professor of Biology at Harvard
University, where he pioneered fluorescence ratio imaging techniques. Dr. Taylor
received his B.S. degree in Zoology from the University of Maryland and his
Ph.D. in Cell Biology from the State University of New York, Albany.
R. Terry Dunlay has served as our Executive Vice President and Chief
Information Officer since February 2000. From October 1996 to February 2000, he
served as our Executive Vice President. Mr. Dunlay is a founder of Cellomics.
Mr. Dunlay held various positions, including President and Chief Executive
Officer at Biological Detection, Inc., a software company, from 1996 to 1997 and
Vice President of Engineering/ Director of Engineering at Biological Detection
Systems, Inc., a reagents and instrumentation company, from 1992 to 1996. Mr.
Dunlay received his B.S. degree in Electrical Engineering from the University of
Pittsburgh and his M.S. degree in Electrical Engineering from Arizona State
University.
L. Robert Johnston, Jr. has served as our Vice President and Chief
Financial Officer since November 1998. Prior to joining our company, Mr.
Johnston was Senior Vice President, Finance and Chief Financial Officer at
Oncormed, Inc., a cancer genetics biotech company, from 1994 to 1998. Prior to
Oncormed, Mr. Johnston held various positions including Assistant Treasurer at
American Mobile Satellite Corporation, a telecommunications company in Reston,
Virginia from 1990 to 1994. Mr. Johnston received his B.A. degree from the
University of Virginia and his M.B.A. from the Darden Graduate School of
Business at the University of Virginia.
Michael A. Nemzek has served as our Chief Business Officer since February
2000. From December 1998 to February 2000, he was our Senior Vice President of
Sales and Marketing. Prior to joining our company, Mr. Nemzek was previously
Vice President, Marketing - Tropix Center of Excellence, PE Biosystems Division
of Perkin Elmer Corporation, a life sciences company, from 1996 to 1998. Prior
to Perkin Elmer, Mr. Nemzek was Vice President of Sales and Marketing at Genosys
Biotechnologies, Inc., a manufacturer of custom synthetic DNA, peptides, genes
and kit products from 1994 to 1996 and Vice President of Sales and
41
<PAGE> 44
Marketing for Tropix, Inc., a manufacturer of non-isotopic reagents from 1991 to
1994. Mr. Nemzek received his B.A. degree in Chemistry from the University of
North Carolina at Charlotte, his M.Sc. degree in Analytical Chemistry from North
Carolina State University and his Master of General Administration in Marketing
Management from the University of Maryland.
Alan W. Seadler, Ph.D. has served as our Chief Operating Officer since
February 2000. From January 1999 to February 2000, Dr. Seadler was our Vice
President, Manufacturing and Operations. Dr. Seadler was Vice President for
Technology Development and Reagent Manufacturing at Visible Genetics, Inc., a
reagent/kit diagnostic company, from 1996 to 1999. Prior to Visible Genetics, he
was a Site Manager for Amersham Life Science, Inc., a biomedical research and
manufacturing firm, from 1995 to 1996. Dr. Seadler was the Vice President,
Operations, General Manager at Biological Detection Systems, Inc., a reagents
company, from 1991 to 1995. Dr. Seadler received his B.A. degree in Biology and
Chemistry and his Ph.D. in Biology from the Case Western Reserve University.
William Busa, Ph.D. has served as our Vice President of Bioinformatics
since September 1999. Prior to joining our company, Dr. Busa was the consulting
editor for the American Association for the Advancement of Science, Knowledge
Environment Development Program from 1998 to 1999. Dr. Busa was also President
of Memex Press, Inc., a technical publisher, from 1996 to 1999. Dr. Busa also
served on the faculty of Johns Hopkins University for eleven years. Dr. Busa
received his B.S. degree in the fields of Biological, Information and Computer
Sciences at the University of California at Irvine and his Ph.D. in Zoology from
the University of California at Davis.
Jefferson W. Paslay, Ph.D. has served as our Senior Vice President
Pharmaceutical Technologies since September 1998. Prior to joining our company,
Dr. Paslay held various positions including General Manager at MDS-Panlabs, a
screening services organization, from 1994 to 1998. Prior to MDS-Panlabs, he
held various positions including Director, Chemical and Biological Screening at
the Upjohn Company from 1981 to 1994. Dr. Paslay received his B.Sc. degree in
Biology from the University of Mississippi, his M.Sc. degree in Microbiology
(Immunology) from the University of Mississippi and his Ph.D. in Molecular Cell
Biology (Immunology) from the University of Alabama, Birmingham.
Albert Gough, Ph.D. has served as our Vice President Research and
Development since May 1999. From December 1998 to May 1999, he served as our
Vice President of Systems Engineering and from November 1996 to December 1998,
he served as our Director of Drug Discovery Systems. Prior to joining our
company, Dr. Gough was the Director of Imaging Technology at Carnegie Mellon
University where he directed a project in the development of automated imaging
systems for scientific research applications from 1993 to 1996. Dr. Gough
received his B.S. degree in Biology from the University of Michigan and his
Ph.D. in Biophysics from Carnegie Mellon University.
John M. Boles has served as a director and the Chairman of our Board since
our inception in 1995. Mr. Boles is a founder of our company. Mr. Boles has been
engaged in the investment banking business since 1972 and has served for the
last five years as Managing Partner of Boles Knop & Company LLC, an investment
banking firm. Mr. Boles received his undergraduate degree from Lake Forest
College, his M.S. from the University of Toronto and his M.B.A. from the
University of Michigan.
Alan Mendelson has served as a director since 1998. He is a co-founder and
partner of Axiom Ventures, a venture capital firm which focuses on investing in
biotech/hi-tech companies, for more than the past five years. Mr. Mendelson
received his B.A. degree in Economics from Trinity College and his law degree
from the University of Connecticut. Mr. Mendelson is a director of Ziplink Inc.,
a publicly traded company.
Arnold L. Oronsky, Ph.D. has served as a director since 1998. He has been a
general partner in InterWest Partners, a venture capital firm investing in the
medical technology sector, since 1994. Dr. Oronsky received his B.A. degree from
New York University and his Ph.D. from Columbia University, College of
Physicians & Surgeons. Dr. Oronsky is a director of Corita Corporation, a
publicly traded company and Coulter Pharmaceutical, Inc., a publicly traded
company.
James A. Sharp has served as a director since 1996. He has been the
President, Microscopy Division of Carl Zeiss, Inc., a subsidiary of Carl Zeiss
Jena, GmbH, since October 1999. From 1995 to 1999, Mr. Sharp
42
<PAGE> 45
was a Senior Vice President of Carl Zeiss Jena, GmbH, a manufacturer of optical,
scientific and industrial instruments. Mr. Sharp received a degree from The
DeVry Institute of Technology.
COMPOSITION OF THE BOARD
Our amended and restated certificate of incorporation and bylaws provide
that our board of directors be divided into three classes of nearly equal
number: Classes A, B and C. The term of office of directors comprising Class A
expires at the next annual meeting of stockholders; the term of office of
directors comprising Class B expires at the second annual meeting of
stockholders; and the term of office of directors comprising Class C expires at
the third annual meeting of stockholders. At each annual meeting of stockholders
thereafter, the successors to directors whose terms will then expire will be
elected to serve from the time of election and qualification until the third
annual meeting of stockholders following election and until a successor will
have been duly elected and will have qualified.
Our bylaws authorize our board of directors to fix the number of directors
at not less than one. The board of directors currently has five members. The
board of directors has no present plans to increase the number of directors.
There are no family relationships among any of our directors or executive
officers.
Our amended and restated certificate of incorporation requires the
affirmative vote of holders of 80% of the issued and outstanding shares of
common stock entitled to vote for the election of directors to remove any
director or the entire board of directors. Under Delaware law, our directors can
only be removed for "cause."
BOARD COMMITTEES
Our board of directors currently has two committees: an audit committee and
a compensation committee.
The audit committee was established on March 18, 1998, and reviews, acts on
and reports to our Board of Directors with respect to various auditing and
accounting matters, including the recommendation of our independent accountants,
the scope of the annual audits, the fees to be paid to the independent
accountants, the performance of our independent accountants and our accounting
practices. The members of the audit committee are Messrs. Boles and Mendelson
and Dr. Oronsky.
The compensation committee was established on March 18, 1998, and
recommends, reviews and oversees the salaries, benefits, granting of options and
stock plans for our employees, consultants and directors. The compensation
committee also administers our compensation plans. The members of the
compensation committee are Messrs. Boles and Mendelson and Dr. Oronsky.
DIRECTOR COMPENSATION
All of our directors are reimbursed for the reasonable expenses of
attending the meetings of our board of directors or committees. Under our 2000
Stock Option Plan, each non-employee member of our Board of Directors will
receive an option to purchase 11,772 shares of our common stock in March 2000.
That option will vest in two installments commencing in March 2000, and the
first yearly anniversary of that date, respectively, for our then current
non-employee directors. In the case of first time directors, vesting will occur
in three installments beginning on the date that he or she joins our board and
on the first and second yearly anniversaries of that date. Other than the
forgoing, the directors receive no other compensation for their services as
directors.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Our compensation committee currently consists of Messrs. Boles and
Mendelson and Dr. Oronsky. No member of the compensation committee has been an
officer or employee of ours at any time. No interlocking relationship exists
between any member of our board of directors or our compensation committee and
any member of our board of directors or compensation committee of any other
corporation. Prior to the formation
43
<PAGE> 46
of the compensation committee on March 18, 1998, our board of directors as a
whole made decisions relating to compensation of our executive officers.
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth the annual compensation earned during 1999
by our chief executive officer and the four highest paid executive officers
whose total annual salary and bonus exceeded $100,000. These individuals are
referred to as the "named executive officers" here and elsewhere in this
prospectus.
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
------------------------------------
OTHER ANNUAL
NAME AND PRINCIPAL POSITION SALARY BONUS COMPENSATION
--------------------------- -------- ------- -------------
<S> <C> <C> <C>
D. Lansing Taylor, Ph.D................................. $255,000 $40,000 --
President and Chief Executive Officer
R. Terry Dunlay......................................... 135,000 22,950 --
Executive Vice President and Chief Information Officer
L. Robert Johnston, Jr.................................. 173,147 29,240 $53,837(1)
Vice President and Chief Financial Officer
Michael Nemzek.......................................... 170,567 47,600 73,457(2)
Senior Vice President of Sales and Marketing
Alan Seadler............................................ 100,000 35,000 --
Chief Operating Officer
</TABLE>
- ---------------
(1) Mr. Johnston's other annual compensation for 1999 reflects a relocation
allowance.
(2) Mr. Nemzek's other annual compensation for 1999 reflects a relocation
allowance.
44
<PAGE> 47
1999 OPTION GRANTS
The following table sets forth information regarding options granted to
each of our named executive officers during the year 1999. The percentage of
options granted is based on an aggregate of 454,745 options granted by us during
1999. The amounts shown as potential realizable value are based on assumed 5%
and 10% annual rates of stock price appreciation from the date of grant to the
end of the option term and are provided in accordance with rules of the SEC.
They do not represent our estimate or projections of the future common stock
price. Actual gains, if any, on stock option exercise are dependent on the
future performance of our common stock, overall market conditions and the option
holder's continued employment during the vesting period. All options in this
table were granted under our Cellomics, Inc. Stock Plan, have ten year terms,
will terminate before their expiration dates if the optionee leaves his
employment with us, and, unless otherwise noted, vest over a period of four
years. We have not granted any stock appreciation rights. In estimating the gain
realized by these option holders, we have deducted the option exercise price,
but have not deducted taxes or any other expenses payable upon the exercise of
the option or the sale of the common stock underlying the option.
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
------------------------------------------------------------- POTENTIAL REALIZABLE VALUE AT
NUMBER OF ASSUMED ANNUAL RATES OF STOCK
SECURITIES PERCENT OF TOTAL PRICE APPRECIATION FOR OPTION
UNDERLYING OPTIONS GRANTED TO TERM(1)
OPTIONS EMPLOYEES IN EXERCISE PRICE EXPIRATION ------------------------------------
NAME GRANTED FISCAL YEAR 1999 PER SHARE DATE 0% 5% 10%
---- ---------- ------------------ -------------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
D. Lansing Taylor,
Ph.D. ................ -- -- -- -- -- -- --
R. Terry Dunlay......... 35,320(2) 8% $0.16 1/1/09 $ 592,768 $ 974,731 $1,021,146
L. Robert Johnston,
Jr.................... 17,660(3) 4 0.16 11/9/09 296,384 487,365 510,573
Michael Nemzek.......... 17,660(4) 4 0.16 12/9/09 296,384 487,365 510,573
Alan Seadler............ 52,980(5) 12 0.16 1/18/09 889,152 1,462,096 1,531,719
17,660(6) 4 0.16 6/25/09 296,384 487,365 510,573
</TABLE>
- ---------------
(1) The potential realizable values have been calculated using an assumed
initial public offering price of $17.00 per share.
(2) The vesting start date for the options to purchase 35,320 shares of common
stock granted to Mr. Dunlay is January 15, 1998.
(3) The vesting start date for the options to purchase 17,660 shares of common
stock granted to Mr. Johnston is November 9, 1998.
(4) The vesting start date for the options to purchase 17,660 shares of common
stock granted to Mr. Nemzek is December 2, 1998.
(5) The vesting start date for options to purchase 52,980 shares of common
stock granted to Mr. Seadler is January 18, 1999.
(6) The vesting start date for the options to purchase 17,660 shares of common
stock granted to Mr. Seadler is June 25, 1999.
1999 OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS
AT DECEMBER 31, 1999 AT DECEMBER 31, 1999(1)
------------------------------- -----------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ------------ -------------- ----------- -------------
<S> <C> <C> <C> <C>
D. Lansing Taylor, Ph.D.............. 105,960 70,640 $1,784,366 $1,189,578
R. Terry Dunlay...................... 8,830 26,490 148,697 446,092
L. Robert Johnston, Jr............... 30,905 92,715 520,440 1,561,321
Michael Nemzek....................... 30,905 92,715 520,440 1,561,321
Alan Seadler......................... -- 70,640 -- 1,189,578
</TABLE>
- ---------------
(1) The value of unexercised in-the-money options at December 31, 1999 has
been calculated using an assumed initial public offering price of $17.00
per share.
There were no options exercised during the year ended December 31, 1999.
45
<PAGE> 48
1998 STOCK PLAN
Our stock plan was adopted by our board of directors on April 2, 1998. As
of March 31, 2000, there were options to purchase 1,458,363 shares of common
stock granted under this plan. The board of directors adopted a resolution
prohibiting further grants under this plan.
The stock plan provides for the grant of incentive stock options to
employees, non-qualified stock options, stock awards, stock appreciation rights
and stock purchases. The stock plan provides that it will be administered by our
board of directors, or a committee appointed by the board, which determines
recipients and types of awards to be granted, including number of shares under
the award and the vesting of the award. As of the date of this prospectus, all
awards granted under the stock plan have been made to our employees, directors
and consultants and have been in the form of non-qualified stock options. All
awards under the stock plan terminate not more than 10 years from the date of
grant, subject to the earlier termination upon or after a fixed period following
an optionee's death or termination of employment with us. The vesting provisions
of each outstanding option was determined by our board of directors and those
options are not generally assignable or otherwise transferable except by will or
the laws of descent and distribution. In the event of a change in control and in
other circumstances described in the stock plan, our board of directors can
substitute on an equitable basis our securities with securities of the successor
or surviving entity in the change of control, require that the unexercised
awards be exercised within a certain period of time, or allow the unexercised
portions of the awards to be purchased by the successor entity at the then fair
market value.
2000 STOCK PLAN
We have adopted a new stock plan known as the 2000 Stock Plan. We have
reserved 1,165,350 shares of our common stock for issuance upon exercise of
awards under the 2000 Stock Plan. The following is a description of the material
features and provisions of the 2000 Stock Plan.
Awards
Under the 2000 Stock Plan, we may grant incentive stock options intended to
qualify for special tax treatment, non-qualified stock options, stock grants,
stock appreciation rights and stock purchase rights. Each option or appreciation
right will expire within 10 years of the original grant date, unless the grantee
owns more than 10% of our stock, in which case the option or appreciation rights
will expire within 5 years of the original grant date. Incentive options may not
have exercise prices less than the fair market value at the time of grant. If
the grantee owns more than 10% of our stock, the option may not have an exercise
price less than 110% of the fair market value at the time of grant. Upon
exercise, an option grantee may pay for the shares with cash, other shares,
shares deducted from the total granted under the option or other compensation
acceptable to the administrator of the plan.
If a grantee's employment is terminated, the grantee may, within 90 days
after termination, exercise his or her option or appreciation right to the
extent that the option has vested by the date of termination. If a grantee is
disabled, the grantee may, within 12 months after becoming disabled, exercise
his or her option or appreciation right to the extent that the option has vested
by the date of becoming disabled. If a grantee dies, the grantee's estate may,
within 12 months of the grantee's death, exercise the grantee's option or
appreciation right to the extent that the option has vested by the date of the
grantee's death. In each case, the option terminates with respect to the shares
that had not vested. Other than by will or other transfer on death, options and
appreciation rights are not transferrable.
Administration
The 2000 Stock Plan may be administered either by our board of directors,
or by a committee appointed by our board. The administrator, whether our board
or a committee, will have the authority to determine the fair market value of
the common stock for the purposes of making an award select the eligible persons
to whom awards may be granted, make the awards, determine the number of shares
to be covered by each award, offer to buy out for cash or shares a granted
option or appreciation right and determine the form, terms and conditions of any
agreement by which any award is made. The administrator may also determine
46
<PAGE> 49
whether an option or appreciation right will be paid in cash rather than stock,
whether and to what extent payment of an award may be deferred, whether under
certain circumstances to reduce the exercise price of an award and the
restrictions applicable to any stock grants or purchase rights. The 2000 Stock
Plan will expire on March 1, 2010.
Eligibility
Under the terms of the 2000 Stock Plan, nonstatutory options may be granted
to our employees, non-employee directors and consultants. Incentive stock
options may be granted only to our employees. Incentive stock options may not
exceed $100,000 to any one person in one year. If an incentive stock option does
exceed $100,000, the excess is considered to be a non-statutory option.
Adjustments
If a reorganization, recapitalization, stock dividend, merger,
consolidation or other change in corporate structure affecting the number of
issued shares of our common stock occurs, then the administrator of the plan can
make equitable adjustments to the terms of the 2000 Stock Plan. In particular,
the administrator can make an equitable adjustment in the number and type of
shares authorized by the plan, the number and type of shares covered by
outstanding awards under the plan, the exercise prices of the awards and, in the
case of a merger or consolidation, the date of exercisability if the award is
not assumed by the other entity. After the adjustments, any incentive stock
options granted under the plan must continue to qualify as incentive stock
options. The board of directors can amend or terminate this plan any time,
although certain amendments require stockholder approval and an amendment or
termination cannot adversely affect any rights under an outstanding grant
without the grantee's consent.
Change in Control
The 2000 Stock Plan includes change in control provisions which may result
in the accelerated vesting of outstanding option grants and stock issuances. If
we are acquired by merger or asset sale, each outstanding option under the
discretionary option grant program which is not to be assumed by the successor
corporation will immediately become exercisable for all the option shares, and
all outstanding unvested shares will immediately vest, except to the extent our
repurchase rights with respect to those shares are to be assigned to the
successor corporation. Our compensation committee has the discretion to, on a
change in control, vest and make exercisable any option granted under the plan.
In addition, our compensation committee may grant options and structure
repurchase rights so that the shares subject to those options or repurchase
rights will immediately vest in connection with a successful tender offer for
more than 50% of our outstanding voting stock or a change in control of our
board through one or more contested elections. Such accelerated vesting may
occur either at the time of such transaction or upon the subsequent termination
of the individual's service.
EMPLOYEE STOCK PURCHASE PLAN
Our board of directors intends to adopt a new employee stock purchase plan
to present to our stockholders for approval prior to the completion of this
offering. If adopted, our Employee Stock Purchase Plan will provide our
employees with an opportunity to purchase our common stock through accumulated
payroll deductions and at a discount from fair market value. The total number of
shares of common stock with respect to which purchases may be made under the
plan will be 1,059,600, which amount shall be adjusted in accordance with the
terms of the plan. The Employee Stock Purchase Plan will be administered by our
compensation committee. Eligible employees may purchase up to a maximum fair
market value of $25,000 for all purchases ending within the same calendar year
under this plan. Our employees will be eligible to participate if they are
employed by us for at least 20 hours per week, for more than five months in any
calendar year and do not own 5% or more of our voting stock. The initial
offering period under the plan will commence on the date that the registration
statement with respect to this offering is declared effective by the SEC, and
will end on or about December 31, 2000. We intend to have new offering periods
commence every six months after the ending date of the initial period. The
purchase price per share for our common
47
<PAGE> 50
stock under the plan will be equal to the lower of 85% of the fair market value
of our common stock on the first or last day of each purchase period. Employees
may end their participation under the plan at any time prior to the exercise
date of any one purchase period and, generally, such participation will be
automatically terminated on termination of employment. In the event we are the
surviving corporation in a merger, reorganization or other business combination,
options to purchase shares issued under the plan will be assumed. A dissolution
or liquidation or a merger or consolidation in which we are not the surviving
entity will cause each option then outstanding to terminate. Generally, our
board of directors will have the power to amend, modify or terminate the plan at
any time, provided the rights of plan participants are not impaired. The plan
will terminate on December 31, 2005 unless earlier terminated by our board of
directors.
EMPLOYMENT AND SEVERANCE AGREEMENTS
All of our current employees have entered into agreements with us that
contain covenants relating to the protection of our confidential information,
assignment of inventions, restrictions on competition and soliciting our
customers, employees or independent contractors. We also have employment
agreements with our chief executive officer and each of the named executive
officers.
Dr. Taylor serves as our President and Chief Executive Officer. Dr.
Taylor's employment agreement is for a period of three years ending September
30, 2001. If Dr. Taylor is terminated without cause, as that term is defined in
the agreement, he is entitled to receive all earned salary, bonuses and fringe
benefits through the date of notice of termination, 12 months' salary following
the date of notice, and automatic acceleration of all options held at that date.
At the discretion of our board, Dr. Taylor's base salary is subject to annual
adjustment increases of $5,000 and $10,000 in each of the last two years,
respectively, of this agreement. In each year of the agreement, Dr. Taylor is
also entitled to receive an incentive bonus up to a maximum of twenty percent of
his base salary in that year, based on a formula agreed to with our board of
directors. However, our board of directors subsequently approved an increase in
Dr. Taylor's potential annual performance bonus for 2000 from twenty percent to
thirty percent, and may award other bonuses in its discretion. In addition,
options held by Dr. Taylor as of December 31, 1999 vest on October 1 of each
year of his continued employment.
Under an agreement with us dated February 2, 1999, Mr. Dunlay serves as our
Executive Vice-President of Development. He is entitled to receive an initial
annual salary of $135,000 and annual performance bonuses up to twenty percent of
his salary subject to review and approval by our board of directors. The term of
Mr. Dunlay's agreement is for a one year period that automatically renews unless
we terminate the agreement prior to ninety days before the beginning of the next
term. If we terminate Mr. Dunlay, unless that termination is for cause, as
defined in the agreement, we are obligated to pay him an amount equal to six
months of his base salary.
Under an agreement with us dated October 15, 1998, Mr. Johnston serves as
our Vice-President and Chief Financial Officer. He is entitled to an annual
salary of $172,000, subject to adjustment by the Board of Directors. He is also
eligible to receive annual performance bonuses up to twenty percent of his
salary subject to review and approval by our board of directors. However, our
board of directors subsequently approved an increase in Mr. Johnston's potential
annual performance for 2000 from twenty percent to twenty-five percent and may
award other bonuses in its discretion. Mr. Johnston was also provided with a
relocation allowance of $53,837. All of Mr. Johnston's unvested options will
vest on a change of control and if Mr. Johnston is terminated by constructive
termination, as defined in the agreement, fifty percent of his unvested option
will vest on the date of termination. If we terminate Mr. Johnston, unless that
termination is for cause, as defined in the agreement, we are obligated to pay
him an amount equal to six months of his base salary.
Under an agreement with us dated November 9, 1998, Mr. Nemzek serves as our
Senior Vice-President for Sales and Marketing. He is entitled to an annual
salary of $170,000, subject to adjustment by the Board of Directors. He is also
eligible to receive annual performance bonuses up to thirty-five percent of his
salary subject to review and approval by our board of directors. Mr. Nemzek was
also provided with a relocation allowance of $73,457. If we terminate Mr.
Nemzek, unless that termination is for cause, as defined in the agreement, we
are obligated to pay him an amount equal to six months of his base salary.
48
<PAGE> 51
Under an agreement with us dated October 12, 1998, Mr. Seadler serves as
our Chief Operating Officer. He is entitled to receive an initial annual salary
of $100,000 and annual performance bonuses up to twenty percent of his salary
subject to review and approval by our board of directors. Mr. Seadler was also
provided an additional $10,000 signing bonus upon his start date. If we
terminate Mr. Seadler, unless that termination is for cause, as defined in the
agreement, we are obligated to pay him an amount equal to six months of his base
salary.
LIMITATION OF LIABILITY AND INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the Delaware General Corporation Law authorizes a
corporation's board of directors to grant indemnity to directors and officers in
terms sufficiently broad to permit such indemnification under certain
circumstances for liabilities arising under the Securities Act, including
reimbursement for expenses incurred.
As permitted by Delaware law, our amended and restated certificate of
incorporation limits the liability of directors for monetary damages for breach
of their fiduciary duties as directors, except liability for:
- any breach of their duty of loyalty to us or our stockholders;
- acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law;
- unlawful payments of dividends or unlawful stock repurchases or
redemptions; or
- any transaction from which the director derived an improper personal
benefit.
Our amended and restated certificate of incorporation and bylaws provide
that we shall indemnify our directors, officers, employees and agents to the
fullest extent permitted by law, and that we will advance expenses to our
directors and officers in connection with a legal proceeding, subject to an
undertaking to repay our costs, should the indemnified person lose the
proceeding.
Prior to the completion of this offering, we intend to enter into
indemnification agreements with each of our officers and directors to give them
additional contractual assurances regarding the scope of the indemnification
provided in our amended and restated certificate of incorporation and bylaws,
and to provide additional procedural protections.
There is currently no pending litigation or proceeding involving any of our
directors, officers, employees or agents where indemnification will be required
or permitted. We are not aware of any pending or threatened litigation or
proceeding that might result in a claim for such indemnification.
49
<PAGE> 52
CERTAIN TRANSACTIONS
REGISTRATION RIGHTS
Some of our stockholders, some of whom own more than 10% of our common
stock, have certain registration rights which they may exercise after this
offering. They may request that we register their shares for sale with the
Securities and Exchange Commission, and, if all of the conditions that are
contained in our agreements with them are met, we must register their shares. We
would be required to bear all the expenses of a registration. For a more
detailed description see also "Description of Capital Stock -- Registration
Rights."
PRIOR FINANCINGS
January 1998 and 1999 Series A Preferred Financing
In January 1998 we sold an aggregate of 3,477,222 shares of our Series A
preferred stock at a price of $1.59 per share and issued warrants to purchase an
aggregate of 942,705 shares of common stock with exercise prices ranging from
$1.59 to $1.87.
In that private placement we sold:
- 1,142,560 and 35,822 shares of Series A preferred stock and issued
warrants to purchase 228,513 and 7,163 shares of our common stock to
InterWest Partners VI, L.P. and InterWest Investors VI, L.P.,
respectively;
- 864,146 shares of Series A preferred stock and issued warrants to
purchase an additional 172,828 shares of our common stock to Axiom
Venture Partners II Limited Partnership;
- 771,693 and 13,895 shares of Series A preferred stock and issued warrants
to purchase 154,338 and 2,780 shares of our common stock to Delphi
Ventures III, L.P. and Delphi BioInvestments III, L.P., respectively;
- 179,623 and 134,612 shares of our Series A preferred stock and issued
warrants to purchase 35,924 and 26,924 shares of our common stock to
Oxford Bioscience Partners II, L.P. and Oxford Bioscience Partners
(Bermuda) II Limited Partnership, respectively; and
- 314,235 shares of Series A preferred stock, to Komasta Properties, Ltd.
In addition, we converted a $450,000 note plus accrued interest into
314,235 shares of Series A preferred stock and issued warrants to purchase an
aggregate of 188,542 shares of our preferred stock with an exercise price of
$2.39 to Komasta Properties, Ltd.
In January 1999 as a subsequent closing we sold an aggregate of 3,142,350
shares of our Series A preferred stock at a price of $1.59 per share.
In that private placement we sold:
- 1,142,560 and 35,822 shares of Series A preferred stock to InterWest
Partners VI, L.P. and InterWest Investors VI, L.P., respectively;
- 864,146 shares of Series A preferred stock to Axiom Venture Partners II
Limited Partnership;
- 771,693 and 13,895 shares of Series A preferred stock to Delphi Ventures
III, L.P. and Delphi BioInvestments III, L.P., respectively; and
- 179,623 and 134,612 shares of our Series A preferred stock to Oxford
Bioscience Partners II, L.P. and Oxford Bioscience Partners (Bermuda) II
Limited Partnership, respectively.
November 1999 Convertible Debt Financing
In November 1999, we issued convertible promissory notes in the aggregate
principal amount of $1.8 million. These notes carried an interest rate of 10.0%
per year. On February 24, 2000, the outstanding
50
<PAGE> 53
principal and interest on each of these convertible notes converted into 538,958
shares of our Series B preferred stock at a price of $3.42 per share, and we
issued warrants to purchase an aggregate of 289,624 shares of our common stock.
These warrants were issued at an exercise price of $3.42.
In this transaction, the demand notes were converted into:
- 217,751 and 6,824 shares of our Series B preferred stock and warrants to
purchase 117,015 and 3,666 shares of common stock to InterWest Partners
VI, L.P. and InterWest Investors VI, L.P., respectively;
- 88,240 and 1,586 shares of our Series B preferred stock and warrants to
purchase 47,417 and 851 shares of common stock to Delphi Ventures III,
L.P. and Delphi BioInvestments III, L.P., respectively;
- 164,665 shares of our Series B preferred stock and warrants to purchase
88,501 shares of common stock to Axiom Venture Partners II Limited
Partnership; and
- 21,923, 16,427 and 21,517 shares of our Series B preferred stock and
warrants to purchase 11,783, 8,826 and 11,564 shares of common stock to
Oxford Biosciences Partners II, L.P., Oxford Biosciences Partners
(Bermuda) II Limited Partnership and Oxford Biosciences Partners
(GS-Adjunct) II, L.P., respectively.
February 2000 Series B Preferred Financing
In February 2000, we sold an aggregate of 1,911,102 shares of our Series B
preferred stock at a price of $3.42 per share.
In that private placement we sold:
- 855,931 and 285,311 shares of our Series B preferred stock to Vector
Later-Stage Equity Fund II (QP), L.P. and Vector Later-Stage Equity Fund
II, L.P., respectively;
- 157,919 and 4,952 shares of Series B preferred stock to InterWest
Partners VI, L.P. and InterWest Investors VI, L.P., respectively;
- 146,620 shares of our Series B preferred stock and warrants to purchase
18,649 shares of common stock to Komasta Properties, Ltd.;
- 114,981 and 2,070 shares of our Series B preferred stock to Delphi
Ventures III, L.P. and Delphi BioInvestments III, L.P., respectively;
- 95,731, 71,742 and 93,962 shares of our Series B preferred stock to
Oxford Bioscience Partners II, L.P., Oxford Bioscience Partners (Bermuda)
II Limited Partnership and Oxford Biosciences Partners (GS-Adjunct) II,
L.P., respectively; and
- 73,158 shares of Series B preferred stock to Axiom Venture Partners.
Conversion of Preferred Stock
Our preferred stock will convert into common stock upon the closing of this
offering on a one-to-one basis. We must pay to the holders of the preferred
stock the dividend arrearages on their shares which presently aggregate
approximately $1.7 million as a result of the conversion of the preferred stock.
Thus, we will be paying the following amounts to the indicated preferred
stockholder:
- InterWest Partners VI, L.P. and InterWest Investors VI, L.P. will be paid
approximately $537,000 and $17,000, respectively;
- Axiom Venture Partners II Limited Partnership will be paid approximately
$404,000;
- Delphi Ventures III, L.P. and Delphi BioInvestments III, L.P. will be
paid approximately $359,000 and $6,000, respectively;
51
<PAGE> 54
- Oxford Bioscience Partners II, L.P., Oxford Bioscience Partners (Bermuda)
II Limited Partnership, Oxford Biosciences Partners (GS-Adjunct) II, L.P.
will be paid approximately $85,000, $64,000 and $3,000, respectively;
- Komasta Properties, Ltd. will be paid approximately $186,000; and
- Vector Later-Stage Equity Fund II (QP), L.P. and Vector Later-Stage
Equity Fund II, L.P. will be paid approximately $26,000.
Arnold L. Oronsky, Ph.D., a member of our board of directors, is a general
partner of InterWest Partners, an affiliate of InterWest Partners VI, L.P. and
InterWest Investors VI, L.P. Mr. Mendelson, a member of our board of directors,
is general partner of Axiom Ventures, an affiliate of Axiom Venture Partners.
ZEISS AGREEMENTS
In April 1998 we entered into a collaboration agreement with Zeiss, which
holds in excess of 5% of our common stock. The collaboration agreement was
amended and restated by two agreements, a Development, Manufacturing and Supply
Agreement and a Sales and Marketing Agreement for UHTS Products in February
2000.
Under the Development, Manufacturing and Supply Agreement, by which we
engaged Zeiss to cooperate in the development of our ArrayScan Kinetics Reader
and ArrayScan Kinetics Workstation products to our specifications, we have
capital expenditure commitments to Zeiss of $1.2 million during 2000 and have
agreed to reimburse Zeiss for an additional $2.0 million for development costs
incurred by Zeiss through December 31, 1999. We intend to repay the development
costs during 2000 and 2001 in equal installments of $1.0 million. We also
purchased approximately $317,000 and $165,000 of components from Zeiss for our
products in 1999 and 1998. Under the Agreement, we are the owner of all
intellectual property of components specifically developed and manufactured for
the ArrayScan products and Zeiss is prohibited from incorporating such
technology into competing products in consideration for our agreement to
purchase such products from Zeiss. Moreover, Zeiss has agreed to manufacture for
us high content screening instruments on an exclusive basis for a limited period
of time. Unless terminated earlier by either party after December 2002, the
Agreement shall remain in effect until December 31, 2005.
Under the Sales and Marketing Agreement for UHTS Products, Zeiss has
appointed us to be Zeiss' exclusive dealer and distributor within North America
of certain ultra-high throughput screening systems manufactured by Zeiss which
are complementary with our products until December 31, 2005. We are free, under
the terms of the agreement, to sell the Zeiss products in North America at a
sales price we establish. We will retain all revenues from our sales of Zeiss'
products in North America.
TRANSACTIONS WITH DIRECTORS
Mr. Boles, a member of our board, entered into a consulting agreement with
us in December, 1996. Under this agreement Mr. Boles was paid $5,000 per month.
The term of the agreement was for a period of two years from the date of its
execution. Under the agreement, Mr. Boles agreed to refrain from competing with
us in the full field of luminescence-based tools for drug discovery or
toxicology for a period of five years from the date of the agreement.
In each transaction set forth above where executive officers, directors,
five percent or greater stockholders or affiliates of any of these persons
purchased shares, these shares were purchased at the same price, and on the same
terms, as share purchased by other investors at those times.
52
<PAGE> 55
PRINCIPAL STOCKHOLDERS
The following table sets forth as of March 31, 2000, as adjusted to give
effect to the sale of common stock offered hereby, certain information regarding
beneficial ownership of our common stock by:
- each person or group of affiliated persons known by us to be the
beneficial owner of more than 5% of the outstanding shares of common
stock;
- each director;
- each named executive officer; and
- all directors and named executive officers as a group.
Beneficial ownership is determined according to the rules of the SEC, and
generally means that a person has beneficial ownership of a security if he or
she possesses sole or shared voting or investment power of that security, and
includes options that are currently exercisable or exercisable within 60 days.
Information with respect to beneficial ownership has been furnished to us by
each director, officer or 5% or more stockholder, as the case may be. Except as
otherwise indicated, we believe that the beneficial owners of the common stock
listed below, based on the information each of them has given to us, have sole
investment and voting power with respect to their shares, except where community
property laws may apply.
This table lists applicable percentage ownership based on 13,579,170 shares
of common stock outstanding as of March 31, 2000, and also lists applicable
percentage ownership based on 19,579,170 shares of common stock outstanding
after the completion of this offering. Options to purchase shares of our common
stock that are exercisable within 60 days of March 31, 2000 are deemed to be
beneficially owned by the persons holding these options for the purpose of
computing any other person's ownership percentage.
The address for each officer who is a 5% holder is c/o Cellomics, Inc., 635
William Pitt Way, Pittsburgh, Pennsylvania 15238.
<TABLE>
<CAPTION>
PERCENTAGE
OF COMMON STOCK
------------------------------
SHARES SUBJECT PERCENT BEFORE PERCENT AFTER
NAME AND ADDRESS OF BENEFICIAL OWNER TOTAL NUMBER TO OPTIONS OFFERING OFFERING
- ------------------------------------ ------------ -------------- -------------- -------------
<S> <C> <C> <C> <C>
DIRECTORS AND NAMED OFFICERS
D. Lansing Taylor, Ph.D. ............... 830,020 105,960 6.1% 4.2%
R. Terry Dunlay......................... 480,352 21,192 3.5 2.5
L. Robert Johnston, Jr. ................ 30,905 30,905 * *
Michael A. Nemzek....................... 30,905 30,905 * *
Alan W. Seadler, Ph.D. ................. 13,245 13,245 * *
John M. Boles........................... 731,908 7,848 5.4 3.7
Alan Mendelson.......................... 2,235,317(1) 7,848 16.1 11.3
James A. Sharp.......................... 7,848 7,848 * *
Arnold Oronsky, Ph.D. .................. 3,108,414(2) 7,848 22.3 15.6
All executive officers and directors as
a group (9 persons)................... 7,468,915 233,599 51.8 36.6
</TABLE>
53
<PAGE> 56
<TABLE>
<CAPTION>
PERCENTAGE
OF COMMON STOCK
------------------------------
SHARES SUBJECT PERCENT BEFORE PERCENT AFTER
NAME AND ADDRESS OF BENEFICIAL OWNER TOTAL NUMBER TO OPTIONS OFFERING OFFERING
- ------------------------------------ ------------ -------------- -------------- -------------
<S> <C> <C> <C> <C>
5% STOCKHOLDERS
InterWest Management VI LLC............. 3,100,566(3) 22.2% 15.6%
Axiom Venture Partners II Limited
Partnership........................... 2,227,469(4) 16.1 11.2
Delphi Management III, L.L.C. .......... 1,983,439(5) 14.4 10.0
Vector Fund Management, L.P. ........... 1,141,242(6) 8.4 5.8
OBP Management II L.P. ................. 651,648(7) 4.8 3.3
OBP Management (Bermuda) II Limited
Partnership........................... 393,145(8) 2.9 2.0
Komasta Properties, Ltd. ............... 982,281(9) 7.1 5.0
Carl Zeiss Holding Co., Inc. ........... 703,995(10) 5.2 3.6
Alan S. Waggoner........................ 688,740(11) 5.1 3.5
</TABLE>
- ---------------
* Less than 1%.
(1) Includes 1,966,141 shares of common stock that are held by Axiom Venture
Partners II Limited Partnership and immediately exercisable warrants to
purchase 172,828 and 88,501 shares of common stock at exercise prices of
$1.87 and $3.42 per share, respectively. Axiom Venture Associates II
Limited Liability Company is the general partner of Axiom Venture Partners
II Limited Partnership. Mr. Mendelson shares voting control with the other
three managing members of Axiom Venture Associates II Limited Liability
Company, Samuel McKay and Linda Sonntag. Each managing members' address is
c/o Axiom Venture Partners II Limited Partnership, City Place II, 185
Asylum Street, 17th Floor, Hartford, Connecticut 06103.
(2) Includes 2,660,790 shares of common stock held InterWest Partners VI, L.P.
and 83,419 held by InterWest Investors VI, L.P. Also includes immediately
exercisable warrants to purchase 228,513 and 117,015 shares of common stock
at exercise prices of $1.87 and $3.42 per share, respectively, held by
InterWest Partners VI, L.P. and immediately exercisable warrants to
purchase for 7,163 and 3,666 shares of common stock at exercise prices of
$1.87 and $3.42, respectively held by InterWest Investors VI, L.P.
InterWest Management Partners VI, LLC is the general partner of both
InterWest Partners, L.P. and InterWest Investors, VI. Dr. Oronsky is a
managing director of InterWest Management Partners VI, LLC. Dr. Oronsky
shares voting control over securities held by InterWest Partners, VI L.P.
and InterWest Investor, VI, L.P. with the other managing directors of
InterWest Management Partners VI, LLC, Berry Cash, Alan Crites, Philip
Gianos, Scott Hedrick, Stephen Holmes, Bob Momsen and the venture member
Gil Kliman. Dr. Oronsky and all other managing directors and members
disclaim beneficial ownership of these shares, except to the extent they
have pro rata interests in them. The managing directors' and the venture
member's addresses are c/o InterWest Partners, 3000 Sand Hill Road, Menlo
Park, California 94025.
(3) Includes 2,660,790 shares of common stock held InterWest Partners VI, L.P.
and 83,419 held by InterWest Investors VI, L.P. Also includes immediately
exercisable warrants to purchase 228,513 and 117,015 shares of common stock
at exercise prices of $1.87 and $3.42 per share, respectively held by
InterWest Partners VI, L.P. and immediately exercisable warrants to
purchase for 7,163 and 3,666 shares of common stock at exercise prices of
$1.87 and $3.42, respectively held by InterWest Investors VI, L.P.
InterWest Management Partners VI, LLC is the general partner of InterWest
Partners, L.P. and InterWest Investors, VI. Dr. Oronsky, Berry Cash, Alan
Crites, Philip Gianos, Scott Hedrick, Stephen Holmes and Bob Momsen are the
managing directors of InterWest Management Partners VI, LLC and share
voting control with the venture member Gil Kliman. The address of the
various InterWest partnerships is 3000 Sand Hill Road, Menlo Park,
California 94025.
(4) Includes 1,966,141 shares of common stock that are held by Axiom Venture
Partners II Limited Partnership and immediately exercisable warrants to
purchase 172,828 and 88,501 shares of common
54
<PAGE> 57
stock at exercise prices of $1.87 and $3.42 per share, respectively. Axiom
Venture Associates II Limited Liability Company is the general partner of
Axiom Venture Partners II Limited Partnership. Mr. Mendelson shares voting
control with the other managing members of Axiom Venture Associates II
Limited Liability Company, Samuel McKay and Linda Sonntag. Their address is
c/o Axiom Venture Partners II Limited Partnership, City Place II, 185
Asylum Street, 17th Floor, Hartford, Connecticut 06103.
(5) Includes 1,746,606 shares of common stock held by Delphi Ventures III, L.P.
and 31,445 shares of common stock held by Delphi BioInvestments III, L.P.
Also includes immediately exercisable warrants to purchase 154,338 and
47,417 shares of common stock of exercise prices of $1.87 and $3.42 per
share, respectively, held by Delphi Ventures III, L.P. and immediately
exercisable warrants to purchase 2,780 and 851 shares of common stock at
exercise prices of $1.87 and $3.42, respectively, held by Delphi
BioInvestments III, L.P. Delphi Management Partners III, L.L.C. is the
general partner of Delphi Ventures III, L.P. and Delphi BioInvestments III,
L.P. The managing members of Delphi Management Partners III, L.L.C., James
Bochnowski, David Douglas, and Donald Lothrop, share voting control and
disclaim beneficial ownership except to the extent their pecuniary interest
arises from their partnership interests. The address of the various Delphi
partnerships is 3000 Sand Hill Road, Bldg. 3, 135, Menlo Park, CA 94025.
(6) Includes 855,931 shares of common stock held by Vector Later-Stage Equity
Fund II (QP), L.P. and 285,311 shares of common stock held by Vector
Later-Stage Equity Fund II, L.P. The general partner of each fund is Vector
Fund Management, LLC, which has appointed Vector Fund Management, L.P. as
the manager of the shares. There is no single person at the funds that
exercises voting or investment control over the shares held by the funds.
Voting and investment of the shares is conducted by an internal investment
committee of Vector Fund Management, L.P. The address of the funds is 1751
Lake Cook Road, Deerfield, IL 60015.
(7) Includes 476,901 and 115,479 shares of common stock held by Oxford
BioScience Partners II, L.P. and Oxford BioScience Partners (GS-Adjunct)
II, L.P., respectively. Also includes warrants to purchase 35,924 and
11,783 shares of common stock at exercise prices of $1.87 and $3.42,
respectively held by Oxford BioScience Partners II, L.P. and a warrant to
purchase 11,564 shares of common stock at an exercise price of $3.42 held
by Oxford BioSciences Partners (GS-Adjunct) II, L.P. OBP - Management II
L.P. is the general partner of Oxford BioScience Partners II, L.P. and
Oxford BioScience Partners (GS-Adjunct) II, L.P. OBP - Management II L.P.
and OBP Management (Bermuda) II Limited Partnership are controlled by the
same individuals, Alan G. Walton, Cornelius P. Ryan, Edmund M. Olivier, and
Jonathan J. Fleming. The address of the Oxford partnerships is 315 Post Rd
West, Suite 2, Westport, CT 06880-4739.
(8) Includes 357,392 shares of common stock held by Oxford Bioscience Partners
(Bermuda) Limited Partnership, warrants to purchase 26,924 and 8,826 shares
of common stock at exercise prices of $1.87 and $3.42, respectively held by
Oxford Biosciences Partners (Bermuda) II Limited Partnership. OBP
Management (Bermuda) II Limited Partnership. OBP - Management II L.P. is
the general partner of Oxford BioScience Partners II, L.P. and Oxford
BioScience Partners (GS-Adjunct) II, L.P. OBP - Management II L.P. and OBP
Management (Bermuda) II Limited Partnership are controlled by the same
individuals, Alan G. Walton, Cornelius P. Ryan, Edmund M. Olivier, and
Jonathan J. Fleming. The address of the Oxford partnerships is 315 Post Rd
West, Suite 2, Westport, CT 06880-4739.
(9) Includes 775,090 shares of common stock and immediately exercisable
warrants to purchase 188,542 shares of Series A preferred stock and 18,649
shares of common stock at exercise prices per share of $2.39 and $3.42,
respectively. Komasta Properties, Ltd.'s address is 21 Sderot Shaul
Hamelech, Tel Aviv, 64367, Israel.
(10) Zeiss' address is 1 Zeiss Drive, Thornwood, New York 10594.
(11) Mr. Waggoner's address is 234 Lytton Avenue, Pittsburgh, Pennsylvania
15213.
55
<PAGE> 58
DESCRIPTION OF CAPITAL STOCK
GENERAL
In accordance with our amended and restated certificate of incorporation,
we are authorized to issue up to 176,600,000 shares of common stock, par value
$.01 per share, and 17,660,000 shares of undesignated preferred stock, par value
$.01 per share. As of March 31, 2000 there were 13,579,170 shares of common
stock outstanding held by 23 stockholders of record, and no shares of preferred
stock were outstanding.
The following summary description of our capital stock is not intended to
be complete and is qualified by reference to the provisions of applicable law
and to our amended and restated certificate of incorporation and our bylaws,
filed as exhibits to the registration statement of which this prospectus is a
part.
COMMON STOCK
Based on the number of shares outstanding as of March 31, 2000, and giving
effect to the issuance of the 6,000,000 shares of common stock offered pursuant
to this prospectus, there will be 19,579,170 shares of common stock outstanding
upon completion of this offering. This includes the conversion of all
outstanding shares of Series A preferred stock and Series B preferred stock upon
the consummation of this offering. In addition, as of March 31, 2000, there were
outstanding stock options to purchase 1,762,581 shares of common stock.
The holders of our common stock are entitled to one vote for each share
held of record upon such matters and in such manner as may be provided by law.
Subject to preferences applicable to any outstanding shares of preferred stock,
the holders of common stock are entitled to receive ratably dividends, if any,
as may be declared by the board of directors out of funds legally available for
dividend payments. In the event we liquidate, dissolve or wind up, the holders
of common stock are entitled to share ratably in all assets remaining after
payment of liabilities and liquidation preferences of any outstanding shares of
the preferred stock. Holders of common stock have no preemptive rights, or
rights to convert, their common stock into any other securities. There are no
redemption or sinking fund provisions applicable to the common stock. All
outstanding shares of common stock are fully paid and nonassessable.
PREFERRED STOCK
We have no present plans to issue any additional shares of preferred stock.
However, the preferred stock is issuable from time to time in one or more series
and with such designations, preferences and other rights for each series as
shall be stated in the resolutions providing for the designation and issue of
each such series adopted by our board of directors. Our board of directors is
authorized by our amended and restated certificate of Incorporation to
determine, among other things, the voting, dividend, redemption, conversion,
exchange and liquidation powers, rights and preferences and the limitations
thereon pertaining to such series. Our board of directors, without stockholder
approval, may issue preferred stock with voting and other rights that could
adversely affect the voting power of the holders of the common stock and that
could have certain anti-takeover effects. The ability of our board of directors
to issue preferred stock without stockholder approval could have the effect of
delaying, deferring or preventing a change in control of us or the removal of
existing management.
56
<PAGE> 59
WARRANTS
As of December 31, 1999, the following warrants for the purchase of equity
securities were outstanding:
<TABLE>
<CAPTION>
NUMBER OF SHARES
OF COMMON STOCK
FOR WHICH PER SHARE
WARRANT IS EXERCISE
EXPIRATION DATE EXERCISABLE PRICE
----------------- ---------------- ---------
<S> <C> <C> <C>
Common stock warrants issued January 21,
1998........................................ January 21, 2002 628,470 $1.87
Common stock warrants issued January 21,
1998........................................ January 20, 2003 314,235 1.59
Series A preferred stock purchase warrant
issued January 21, 1998..................... June 18, 2002 15,710 1.59
Series A preferred stock purchase warrant
issued January 21, 1998..................... July 31, 2002 188,542 2.39
Common stock subscription warrant issued June
30, 1999(1)................................. June 30, 2004 114,790 1.87
Common stock subscription warrant issued
August 30, 1999(1).......................... August 30, 2004 1,515 1.87
Common stock subscription warrant issued
October 4, 1999(1).......................... October 4, 2004 1,335 1.87
Common stock subscription warrant issued
December 14, 1999(1)........................ December 14, 2004 1,187 1.87
</TABLE>
- ---------------
(1) These warrants may be exercised for a reduced number of shares without
making a cash payment.
Each warrant provides for adjustment of the exercise price and the number
of securities issuable upon exercise of the warrant in the event of a
reorganization of our capital structure or a stock split. In addition, the
exercise price and number of shares issuable upon exercise of the warrants for
the purchase of 1,575,166 shares of common stock will be adjusted if we issue
stock at prices below the exercise price of such warrants. These rights for
readjustment will terminate on the closing of this offering. Finally, we have
granted the holders of the warrants for the purchase of 1,142,104 shares of
common stock rights to register the common stock issuable upon exercise of the
warrants.
ANTI-TAKEOVER EFFECTS OF VARIOUS PROVISIONS OF DELAWARE LAW AND OUR AMENDED AND
RESTATED CERTIFICATE OF INCORPORATION AND BYLAWS
Section 203 of the Delaware General Corporation Law. We are subject to
Section 203 of the Delaware General Corporation Law, which regulates corporate
acquisitions. In general, Section 203 prohibits a publicly-held Delaware
corporation from engaging in a "business combination" with an "interested
stockholder" for a period of three years following the date the person became an
interested stockholder, unless:
- before the date of the business combination, the transaction is approved
by our board of directors of the corporation;
- upon consummation of the transaction that resulted in the stockholder's
becoming an interested stockholder, he or she owned at least 85% of the
voting stock of the corporation outstanding at the time the transaction
commenced; or
- on or subsequent to such date, the business combination is approved by
our board of directors and authorized at an annual or special meeting of
stockholders by the affirmative vote of at least 66 2/3% of the
corporation's voting stock not owned by the interested stockholder.
A "business combination" includes a merger, sale of assets or stock, or
other transaction resulting in a financial benefit to the interested
stockholder. In general, an "interested stockholder" is a person who, together
with affiliates and associates, owns, or within three years prior to the
determination of interested
57
<PAGE> 60
stockholder status, did own, 15% or more of a corporation's voting stock. This
statute could prohibit or delay the accomplishment of mergers or other takeover
or change of control attempts with respect to us and, accordingly, may
discourage attempts to acquire our company.
In addition, various provisions of our amended and restated certificate of
incorporation, our bylaws and our 2000 Stock Plan, which provisions will be in
effect immediately after the completion of this offering and are summarized in
the following paragraphs, may be deemed to have an anti-takeover effect and may
delay, defer or prevent a tender offer or takeover attempt that a stockholder
might consider in its best interest, including those attempts that might result
in a premium over the market price for the shares held by stockholders.
Classified Board of Directors. Our bylaws provide that, effective upon the
closing of this offering, the terms of office of the members of our board of
directors will be divided into three classes: Class A, whose term will expire at
the annual meeting of stockholders to be held in 2001, Class B, whose term will
expire at the annual meeting of stockholders to be held in 2002, and Class C,
whose term will expire at the annual meeting of stockholders to be held in 2003.
At each annual meeting of stockholders after the initial classification, the
successors to directors whose term will then expire will be elected to serve
from the time of election and qualification until the third annual meeting
following election. Our bylaws permit our board of directors to increase or
decrease the size of our board of directors. Any additional directorships
resulting from an increase in the number of directors will be distributed among
the three classes so that, as nearly as possible, each class will consist of
one-third of the total number of directors. Our amended and restated certificate
of incorporation requires the affirmative vote of holders of 80% of the issued
and outstanding shares of common stock entitled to vote for the election of
directors to remove any director or the entire board of directors. Under
Delaware law, our directors can only be removed for "cause." This removal
provision and the classification of our board of directors may have the effect
of delaying or preventing changes in control or our management.
Amendment of Bylaws. Under our amended and restated certificate of
incorporation, the affirmative vote of the holders of at least 80% of the voting
power of all outstanding shares of our capital stock of Cellomics shall be
required to adopt, amend or repeal any provision of our bylaws.
Prohibition on Written Consents. Under our amended and restated certificate
of incorporation, upon the closing of this offering, our stockholders may not
take action by written consent.
Limitations on Special Meetings. Under our amended and restated certificate
of incorporation, upon the closing of this offering, special meetings of
stockholders may be called only by our president, the chairman of our board of
directors or a majority of our board of directors. Also, business transacted at
any special meeting must be limited to matters relating to the purposes set
forth in the notice of such special meeting.
Board Discretion in Decision Making. Under our amended and restated
certificate of incorporation, our board of directors, when evaluating an offer
related to a tender offer or other business combination, is authorized to give
due consideration to any relevant factors, including the social, legal and
economic effects upon employees, suppliers, customers, creditors, the community
in which we conduct business, and the economy of the state, region and nation.
Limitations on Amending Director Liability Limitation. Under our amended
and restated certificate of incorporation, the affirmative vote of at least 80%
of the voting power of all outstanding shares of our capital stock shall be
required to amend the limitations on liability of directors contained in our
amended and restated certificate of incorporation.
Acceleration of Options on Change of Control. Under our 2000 Stock Plan, in
the event of certain mergers, a reorganization or consolidation of Cellomics
with or into another corporation or the sale of all or substantially all of our
assets or all of our capital stock wherein the successor corporation does not
assume outstanding options or issue equivalent options, our board of directors
is required to accelerate vesting of options outstanding.
58
<PAGE> 61
REGISTRATION RIGHTS
After the completion of this offering, the holders of approximately
10,100,150 shares of common stock held by purchasers of our preferred stock and
approximately 1,142,104 shares of common stock issuable upon conversion of
outstanding warrants will be entitled to rights to register these shares under
the Securities Act of 1933. Under the terms of the Series A Preferred Stock and
Warrant Purchase Agreement dated January 31, 1998, and the Series B Preferred
Stock Purchase Agreement dated February 23, 2000, whenever we propose to file a
registration statement under the Securities Act, the holders of registrable
securities are entitled to notice of the registration and have the right,
subject to limitations that the underwriters may impose on the number of shares
included in the registration, to include their registrable shares in the
registration.
Additionally, beginning after January 1, 2001, stockholders who acquired
their shares of common stock upon conversion of our Series A preferred stock and
warrants issued in connection with our Series A financing have the right, upon
request by more than 50% of them, to require us to file a registration statement
covering their registrable securities on Forms S-1 or S-2 or any other
applicable form. Also, stockholders who acquired their shares upon conversion of
our Series B preferred stock or the exercise of warrants issued in connection
with our Series B financing have the right, upon request by more than 50% of
them, to require us to file a registration statement covering their registrable
shares on Forms S-1 or S-2 or any other applicable form. Under these rights,
each series of registrable shares can require us to register their shares if the
proposed public offering price of the shares held by those requesting
registration is at least $10,000,000. These registration rights are exercisable
only once per series if all registered securities are sold. We have also
provided that each of Series A and Series B stockholders have two additional
demand registration rights to register their shares on Form S-3 for each series.
These rights are limited to shares having an excess market value of $500,000. We
have also provided both of these series of holders incidental registration
rights which apply when our company or other stockholders register shares. We
will pay expenses for the demand registration and the two registrations on Form
S-3 for each registrable series, and for the incidental registrations for each
series.
The agreement provides that, in connection with our initial public
offering, each stockholder agrees not to sell or otherwise dispose of any
securities without the prior written consent of us or the underwriters for a
period of up to 180 days if all other parties having registration rights and all
members of our board and our officers agree to be similarly restricted. The
rights of the holders of registrable shares terminate upon the earlier of five
years from the date of the closing of this offering or as to any single holder
on the date when all of that holder's registrable securities may be sold within
a three month period under Rule 144 of the Securities Act.
LISTING
Application has been made to include our common stock for quotation in the
Nasdaq National Market under the symbol "CLMX."
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the common stock is American Stock
Transfer & Trust Company.
59
<PAGE> 62
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has been no public market for our common
stock. Future sales of substantial amounts of common stock in the public market,
or the perception that sales could occur, could adversely affect the market
price of our common stock and our ability to sell equity securities.
Upon completion of this offering, we will have a total of 19,579,170 shares
of common stock outstanding, or 20,479,170 shares if the underwriters exercise
their over-allotment option in full. Of these shares, the 6,000,000 shares sold
in the offering, or 6,900,000 shares if the underwriters exercise their over-
allotment option in full, will be freely tradable unless they are purchased by
our "affiliates," under the Securities Act. The remaining 13,579,170 outstanding
shares are "restricted," which means they were originally sold in offerings that
were not subject to a registration statement filed with the Securities and
Exchange Commission. These restricted shares may be resold only through
registration under the Securities Act unless an exemption from registration is
available, such as the exemption afforded by Rule 144.
The following table indicates approximately when 13,579,170 shares of our
common stock that are not being sold in the offering but which were outstanding
as of March 31, 2000 will be eligible for sale into the public market:
<TABLE>
<CAPTION>
NUMBER OF
SHARES AVAILABILITY FOR RESALE INTO PUBLIC MARKET
- ------------ ------------------------------------------------------------
<C> <S>
11,129,110 180 days after the date of this prospectus due to lock-up
agreements substantially all of our stockholders have
entered into with Prudential Securities Incorporated (except
35,320 shares eligible for resale on the date of this
prospectus)
2,450,060 Between 180 and 365 days after the date of this prospectus
due to requirements of the federal securities laws.
</TABLE>
We, our directors and officers and stockholders have entered into lock-up
agreements under which we and they have agreed not to offer or sell any shares
of common stock or securities convertible into or exchangeable or exercisable
for shares of common stock for a period of 180 days after the date of this
prospectus without the prior written consent of Prudential Securities
Incorporated, on behalf of the underwriters. Prudential Securities Incorporated
may at any time and without notice, waive any of the terms of these lock-up
agreements specified in the Underwriting Agreement.
Generally, Rule 144 as currently in effect provides that, beginning 90 days
after the first date of this prospectus, a person who has beneficially owned
shares of our common stock for at least one year would be entitled to sell
within any three-month period, a number of shares that does not exceed the
greater of:
- 1% of the number of shares of common stock then outstanding, which, based
on the shares of outstanding as of March 31, 2000 will equal
approximately 195,792 shares; or
- the average weekly trading volume of the common stock on the Nasdaq
National Market during the four calendar weeks preceding the filing of
the notice on Form 144 with respect to the sale.
Rule 144 provides limitations in the manner of sales and imposes
requirements as to notice and the availability of current public information
about us.
Under Rule 144(k), a person who has not been one of our affiliates at any
time during the 90 days preceding a sale, and who has beneficially owned the
shares proposed to be sold for at least two years, may sell his or her shares
without complying with the manner of the sale, public information, volume
limitation or notice provisions of Rule 144. Therefore, unless otherwise
restricted, a person who has been a non-affiliate for at least two years may
sell his or her shares in the open market immediately after the lock-up
agreements expire.
Rule 701 permits any of our employees, officers, directors or consultants
who purchased their shares under a compensatory stock or option plan or other
written agreement prior to the effective date of this offering to sell such
shares under Rule 144 without complying with the holding period, public
information, volume limitation or notice requirements of Rule 144. All holders
of Rule 701 shares may not sell their
60
<PAGE> 63
Rule 701 shares until 90 days after the date of this prospectus. However,
substantially all shares of our common stock issued under Rule 701 are subject
to lock-up agreements described above.
Shortly following the date of this prospectus, we intend to file a
registration statement on Form S-8 under the Securities Act covering shares of
our common stock reserved for issuance under our stock option plans. Shares
registered under this registration statement will, subject to Rule 144 volume
limitations applicable to our affiliates, be available for sale in the open
market immediately after the lock-up agreements expire. As of March 31, 2000, an
aggregate of 1,762,581 shares of common stock were subject to outstanding
options.
As of the close of this offering, holders of 10,100,150 shares of common
stock and warrants exercisable to purchase 1,142,104 shares of common stock will
be entitled to certain rights with respect to the registration of those shares
under the Securities Act. After these shares are registered, they will be freely
tradable. For a description of these rights, see "Description of Capital Stock."
61
<PAGE> 64
UNDERWRITING
We have entered into an underwriting agreement with the underwriters named
below for whom Prudential Securities Incorporated, ING Barings LLC and Dain
Rauscher Incorporated are acting as representatives. We are obligated to sell,
and the underwriters are obligated to purchase, all of the shares offered on the
cover page of this prospectus, if any are purchased. Subject to certain
conditions of the underwriting agreement, each underwriter has severally agreed
to purchase the shares indicated opposite its name:
<TABLE>
<CAPTION>
NUMBER
OF SHARES
UNDERWRITERS ----------
------------
<S> <C>
Prudential Securities Incorporated..........................
ING Barings LLC.............................................
Dain Rauscher Incorporated..................................
----------
Total.................................................. 6,000,000
==========
</TABLE>
The underwriters may sell more shares than the total number of shares
offered on the cover page of this prospectus and they have, for a period of 30
days from the date of this prospectus, an over-allotment option to purchase up
to 900,000 additional shares from us. If any additional shares are purchased,
the underwriters will severally purchase the shares in the same proportion as
per the table above.
The representatives of the underwriters have advised us that the shares
will be offered to the public at the offering price indicated on the cover page
of this prospectus. The underwriters may allow to selected dealers a concession
not in excess of $ per share and such dealers may reallow a concession not
in excess of $ per share to certain other dealers. After the shares are
released for sale to the public, the representatives may change the offering
price and the concessions.
We have agreed to pay to the underwriters the following fees, assuming both
no exercise and full exercise of the underwriters' over-allotment option to
purchase additional shares.
<TABLE>
<CAPTION>
TOTAL FEES
-------------------------------------------------
FEE WITHOUT EXERCISE OF FULL EXERCISE OF
PER SHARE OVER-ALLOTMENT OPTION OVER-ALLOTMENT OPTION
--------- --------------------- ------------------------
<S> <C> <C> <C>
Fees paid by us......................... $ $ $
</TABLE>
In addition, we estimate that we will spend approximately $1,250,000 in
expenses for this offering. We have agreed to indemnify the underwriters against
certain liabilities, including liabilities under the Securities Act, or
contribute to payments that the underwriters may be required to make in respect
of these liabilities.
We, our officers and directors and substantially all of our stockholders
have entered into lock-up agreements under which we and they have agreed not to
offer or sell any shares of common stock or securities convertible into or
exchangeable or exercisable for shares of common stock for a period of 180 days
from the date of this prospectus without the prior written consent of Prudential
Securities Incorporated, on behalf of the underwriters. Prudential Securities
Incorporated may, at any time and without notice, waive the term of these
lock-up agreements specified in the underwriting agreement.
Prior to this offering, there has been no public market for the common
stock of Cellomics. The public offering price, negotiated among us and the
representatives, is based upon various factors such as our financial and
operating history and condition, our prospects, the prospects for the industry
we are in and prevailing market conditions.
62
<PAGE> 65
Prudential Securities Incorporated, on behalf of the underwriters, may
engage in the following activities in accordance with applicable securities
rules:
- Over-allotments involving sales in excess of the offering size, creating
a short position. Prudential Securities may elect to reduce this short
position by exercising some or all of the over-allotment option.
- Stabilizing and short covering: stabilizing bids to purchase the shares
are permitted if they do not exceed a specified maximum price. After the
distribution of shares has been completed, short covering purchases in
the open market may also reduce the short position. These activities may
cause the price of the shares to be higher than would otherwise exist in
the open market.
- Penalty bids permitting the representatives to reclaim concessions from a
syndicate member for the shares purchased in the stabilizing or short
covering transactions.
Such activities, which may be commenced and discontinued at any time, may
be effected on the Nasdaq National Market, in the over-the-counter market or
otherwise.
Each underwriter has represented that it has complied and will comply with
all applicable laws and regulations in connection with the offer, sale or
delivery of the shares and related offering materials in the United Kingdom,
including:
- the Public Offers of Securities Regulations 1995;
- the Financial Services Act 1986; and
- the Financial Services Act 1986, (Investment Advertisements) (Exemptions)
Order 1996 (as amended).
We have asked the underwriters to reserve shares for sale at the same
offering price directly to our officers, directors, employees and other business
affiliates or related third parties. The number of shares available for sale to
the general public in the offering will be reduced to the extent such persons
purchase the reserved shares.
Prudential Securities Incorporated facilitates the marketing of new issues
online through its Prudential Securities.com division. Clients of Prudential
Advisor(SM), a full service brokerage firm program, may view offering terms and
a prospectus online and place orders through their financial advisors.
Some employees of Prudential Securities Incorporated indirectly own 19,058
shares of our Series B preferred stock. Under the rules of the National
Association of Securities Dealers, Inc., these shares may not be offered or sold
for a period of one year from the date of this prospectus.
LEGAL MATTERS
Certain legal matters with respect to the legality of the issuance of the
shares of the common stock offered by this prospectus will be passed upon for us
by Buchanan Ingersoll Professional Corporation, Pittsburgh, Pennsylvania.
Certain legal matters in connection with this offering will be passed upon for
the underwriters by Skadden, Arps, Slate, Meagher & Flom (Illinois), Chicago,
Illinois.
EXPERTS
The financial statements as of December 31, 1998 and 1999 and for each of
the three years in the period ended December 31, 1999 included in this
Prospectus and the financial statement schedule included in the Registration
Statement have been so included in reliance on the report of
PricewaterhouseCoopers LLP, independent accountants, given on the authority of
said firm as experts in auditing and accounting.
Certain legal matters with respect to the statements in this prospectus
under the captions "Risk Factors--The rights we rely on to protect our
intellectual property underlying our products may not be adequate, which could
enable third parties to use our technology and would reduce our ability to
compete in the market,"
63
<PAGE> 66
"--Our success will depend partly on our ability to operate without infringing
on or utilizing the proprietary rights of others" and "Business--Intellectual
Property Rights" have been reviewed and approved by McDonnell Boehnen Hulbert &
Berghoff, our patent counsel who are experts in these matters and are subject to
an opinion to be rendered to the underwriters. We are including this information
relying on their review and approval.
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the SEC a registration statement on Form S-1 in
connection with this offering. This prospectus does not contain all the
information in the registration statement. In addition, upon completion of the
offering, we will be required to file annual, quarterly and current reports,
proxy statements and other information with the Securities and Exchange
Commission. Whenever a reference is made in this prospectus to any contract or
other document of ours, the reference may not be complete and you should refer
to the exhibits that are a part of the registration statement for a copy of the
contract or document.
The registration statement and the exhibits and schedules thereto may be
inspected without charge at the Public Reference Room of the Commission at Room
1024, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the regional
offices of the Commission located at Seven World Trade Center, Suite 1300, New
York, New York 10048 and Citicorp Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661-2511. Copies of these documents may be obtained from the
Public Reference Room of the Commission at prescribed rates. This material also
may be obtained on the Commission's website at "http://www.sec.gov." Information
regarding the operation of the Public Reference Room may be obtained by calling
the Commission at 1(800) SEC-0330.
We intend to furnish our stockholders with annual reports containing our
audited financial statements and make available quarterly reports containing
unaudited financial information for the first three quarters of each year.
64
<PAGE> 67
CELLOMICS, INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Report of Independent Accountants........................... F-2
Balance Sheets as of December 31, 1998 and 1999............. F-3
Statement of Operations for the years ended December 31,
1997, 1998 and 1999....................................... F-4
Statement of Stockholders' Equity for the years ended
December 31, 1997, 1998 and 1999.......................... F-5
Statement of Cash Flows for the years ended December 31,
1997, 1998 and 1999....................................... F-6
Notes to Financial Statements............................... F-7
</TABLE>
F-1
<PAGE> 68
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
and Stockholders of
Cellomics, Inc.
The stock split described in the last paragraph of Note 14 to the financial
statements has not been consummated at April 13, 2000. When it has been
consummated, we will be in a position to furnish the following report.
"In our opinion, the accompanying balance sheets and the related
statements of operations, of stockholders' equity, and of cash flows
present fairly, in all material respects, the financial position of
Cellomics, Inc. at December 31, 1998 and 1999, and the results of its
operations and its cash flows for each of the three years in the period
ended December 31, 1999, in conformity with accounting principles
generally accepted in the United States. These financial statements are
the responsibility of the company's management; our responsibility is to
express an opinion on these financial statements based on our audits. We
conducted our audits of these financial statements in accordance with
auditing standards generally accepted in the United States which require
that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management,
and evaluating the overall financial statement presentation. We believe
that our audits provide a reasonable basis for the opinion expressed
above."
PricewaterhouseCoopers LLP
Pittsburgh, Pennsylvania
March 3, 2000
F-2
<PAGE> 69
CELLOMICS, INC.
BALANCE SHEETS
AS OF DECEMBER 31, 1998 AND 1999
<TABLE>
<CAPTION>
DECEMBER 31, 1999
DECEMBER 31, PRO FORMA
----------------------------- STOCKHOLDERS'
1998 1999 EQUITY (NOTE 1)
----------- ------------ -----------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................. $ 662,454 $ 1,341,333
Accounts receivable (Note 3).............. 1,357,733 1,572,282
Inventories............................... 335,500 224,536
Prepaid expenses and other current
assets.................................. 105,267 335,221
----------- ------------
Total current assets........................... 2,460,954 3,473,372
Property and equipment, net (Note 4)........... 1,501,790 2,386,555
----------- ------------
Total assets................................... $ 3,962,744 $ 5,859,927
=========== ============
LIABILITIES, MANDATORILY REDEEMABLE
PREFERRED STOCK AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................... $ 644,429 $ 1,341,520
Accrued expenses (Note 5)................. 1,067,099 915,339
Deferred revenue.......................... 182,393 528,480
Payable to related party (Note 11)........ -- 1,000,000
Current maturities of long-term debt (Note
6)...................................... 157,626 911,035
----------- ------------
Total current liabilities...................... 2,051,547 4,696,374
Long-term debt less current maturities (Note
6)........................................... 653,180 3,744,546
Payable to related party (Note 11)............. -- 1,000,000
----------- ------------
Total liabilities.............................. 2,704,727 9,440,920
----------- ------------
Commitments and contingencies (Notes 7 and
11).......................................... -- --
Mandatorily redeemable convertible preferred
stock (Note 9)............................... 6,252,356 12,152,654 --
----------- ------------ -----------
Stockholders' equity (deficit):
Common stock, $.01 par value; 17,660,000
shares authorized in 1998 and 1999;
21,192,000 shares authorized, pro forma;
4,076,670 and 4,183,015 shares issued
and outstanding in 1998 and 1999;
11,129,109 shares issued and outstanding
pro forma............................... 40,767 41,830 111,291
Additional paid-in capital................ 1,667,537 3,263,298 14,027,699
Deferred compensation (Note 9)............ (188,102) (1,906,431) (1,906,431)
Accumulated deficit....................... (6,514,541) (17,132,344) (17,132,344)
----------- ------------ -----------
Total stockholders' equity (deficit)........... (4,994,339) (15,733,647) (4,899,785)
----------- ------------ ===========
Total liabilities, mandatorily redeemable
preferred stock and stockholders' equity..... $ 3,962,744 $ 5,859,927
=========== ============
</TABLE>
The accompanying notes are an integral part of these financial statements
F-3
<PAGE> 70
CELLOMICS, INC.
STATEMENT OF OPERATIONS
YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999
<TABLE>
<CAPTION>
1997 1998 1999
----------- ----------- ------------
<S> <C> <C> <C>
Revenues:
Product sales............................ $ -- $ -- $ 1,350,041
Development and collaboration agreement
and grant revenues.................... 394,935 2,273,082 2,040,410
----------- ----------- ------------
Total revenues 394,935 2,273,082 3,390,451
----------- ----------- ------------
Operating costs and expenses:
Costs of product sales (including related
party amounts of $0, $0, and $100,697;
see Note 11).......................... -- -- 404,785
Research and development (including
related party amounts of $0, $0, and
$2,165,334; see Note 11).............. 1,486,156 3,948,309 9,509,177
Selling, general and administrative
(including related party amounts of
$10,809, $168,998 and $110,617; see
Note 11).............................. 1,334,014 1,834,044 3,933,687
----------- ----------- ------------
Total operating costs and
expenses.......................... 2,820,170 5,782,353 13,847,649
----------- ----------- ------------
Loss from operations......................... (2,425,235) (3,509,271) (10,457,198)
Interest income (expense):
Interest expense......................... (37,950) (43,944) (302,040)
Interest income.......................... 25,309 58,555 141,435
----------- ----------- ------------
Loss before income taxes..................... (2,437,876) (3,494,660) (10,617,803)
Provision for income taxes (Note 8).......... -- -- --
----------- ----------- ------------
Net loss..................................... (2,437,876) (3,494,660) (10,617,803)
Accrued dividends and accretion on
mandatorily redeemable convertible
preferred stock............................ -- (518,017) (933,232)
----------- ----------- ------------
Net loss attributable to common
stockholders............................... $(2,437,876) $(4,012,677) $(11,551,035)
=========== =========== ============
Net loss per share - basic and diluted (Note
10)........................................ $ (0.61) $ (0.99) $ (2.77)
=========== =========== ============
Shares used to compute basic and diluted net
loss per share............................. 3,986,392 4,069,726 4,174,835
=========== =========== ============
Pro forma net loss per share (Note 10)....... $ (0.97)
============
Shares used to compute pro forma net loss per
share...................................... 10,989,999
============
</TABLE>
The accompanying notes are an integral part of these financial statements
F-4
<PAGE> 71
CELLOMICS, INC.
STATEMENT OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL DEFERRED TOTAL
------------------- PAID-IN STOCK ACCUMULATED STOCKHOLDERS'
SHARES AMOUNT CAPITAL COMPENSATION DEFICIT EQUITY
--------- ------- ---------- ------------ ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1997..... 3,986,392 $39,864 $1,927,113 $ -- $ (582,005) $ 1,384,972
Net loss......................... -- -- -- -- (2,437,876) (2,437,876)
--------- ------- ---------- ----------- ------------ ------------
Balance at December 31, 1997... 3,986,392 39,864 1,927,113 -- (3,019,881) (1,052,904)
Issuance of common stock for
anti-dilution rights........... 90,278 903 (903) -- -- --
Issuance of stock options to
employees...................... -- -- 259,344 (259,344) -- --
Amortization of deferred
compensation................... -- -- -- 71,242 -- 71,242
Dividends and accretion accrued
on mandatorily redeemable
convertible preferred stock.... -- -- (518,017) -- -- (518,017)
Net loss......................... -- -- -- -- (3,494,660) (3,494,660)
--------- ------- ---------- ----------- ------------ ------------
Balance at December 31, 1998... 4,076,670 40,767 1,667,537 (188,102) (6,514,541) (4,994,339)
Issuance of common stock for
anti-dilution rights........... 106,345 1,063 (1,063) -- -- --
Issuance of stock purchase
warrants....................... -- -- 121,847 -- -- 121,847
Issuance of stock options to
employees...................... -- -- 2,408,209 (2,408,209) -- --
Amortization of deferred
compensation................... -- -- -- 689,880 -- 689,880
Dividends and accretion accrued
on mandatorily redeemable
convertible preferred stock.... -- -- (933,232) -- -- (933,232)
Net loss......................... -- -- -- -- (10,617,803) (10,617,803)
--------- ------- ---------- ----------- ------------ ------------
Balance at December 31, 1999... 4,183,015 $41,830 $3,263,298 $(1,906,431) $(17,132,344) $(15,733,647)
========= ======= ========== =========== ============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements
F-5
<PAGE> 72
CELLOMICS, INC.
STATEMENT OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999
<TABLE>
<CAPTION>
1997 1998 1999
----------- ----------- ------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss......................................... $(2,437,876) $(3,494,660) $(10,617,803)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization............... 79,475 143,487 486,008
Amortization of deferred compensation....... -- 71,242 689,880
Increase (decrease) in cash from changes in:
Accounts receivable......................... 158,722 (1,357,733) (214,549)
Inventories................................. (119,770) (215,730) (147,036)
Prepaid expenses and other current assets... (33,045) (67,473) (241,711)
Accounts payable and accrued expenses....... 538,644 883,600 545,331
Payable to related party.................... -- -- 2,000,000
Deferred revenue............................ 450,000 (267,607) 346,087
----------- ----------- ------------
Net cash used in operating activities.... (1,363,850) (4,304,874) (7,153,793)
----------- ----------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures.......................... (205,421) (1,377,681) (1,070,554)
----------- ----------- ------------
Net cash used in investing activities.... (205,421) (1,377,681) (1,070,554)
----------- ----------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from sale of mandatorily redeemable
convertible preferred stock................. -- 5,214,788 4,967,066
Proceeds from issuance of convertible notes
and stock purchase warrants................. 500,000 -- 1,800,000
Borrowings under term note and equipment
financing facilities........................ -- 879,762 2,415,952
Repayment of term note and equipment financing
facilities borrowings....................... -- (68,956) (279,792)
----------- ----------- ------------
Net cash provided by financing
activities............................. 500,000 6,025,594 8,903,226
----------- ----------- ------------
Net increase (decrease) in cash and cash
equivalents...................................... (1,069,271) 343,039 678,879
CASH AND CASH EQUIVALENTS:
Beginning of year............................. 1,388,686 319,415 662,454
----------- ----------- ------------
End of year................................... $ 319,415 $ 662,454 $ 1,341,333
=========== =========== ============
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for interest........................ $ -- $ 17,487 $ 252,794
=========== =========== ============
NON-CASH FINANCING ACTIVITIES:
Conversion of notes to mandatorily redeemable
convertible preferred stock................. $ -- $ 519,550 $ --
=========== =========== ============
Dividends and accretion on mandatorily
redeemable convertible preferred stock...... $ -- $ 518,017 $ 933,232
=========== =========== ============
</TABLE>
The accompanying notes are an integral part of these financial statements
F-6
<PAGE> 73
CELLOMICS, INC.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999
1. ORGANIZATION AND BASIS OF PRESENTATION
Organization
Cellomics, Inc. (the "Company" or "Cellomics") was incorporated in Delaware
on January 16, 1998 as the successor company to BioDx Inc. which was formed
on May 3, 1995. Cellomics is in the business of extending the power of
genomics and proteomics by defining the cellular functions of genes and
proteins in order to make life sciences research, including drug discovery,
more productive and cost effective. Cellomics offers an array of products
designed to seamlessly integrate the generation of data to the extraction of
information, and ultimately create cellular knowledge. Cellomics generates
cellular data using its proprietary portfolio of instruments, assays and
reagents. The data generated is then stored, managed and analyzed using its
proprietary information products. Cellomics uses its information products,
coupled with internally and externally generated informatics, to build a
virtual cell which maps the complex interactive network of cellular
components and their interactions, thereby generating knowledge. Cellomics
knowledge products aim to systematize, in a searchable, electronic format,
our continuously evolving understanding of cellular biology.
The Company will require additional financing to fund currently planned
operating levels in 2000. On February 23, 2000, the Company received $6.5
million in cash from the sale of Series B Mandatorily Redeemable Convertible
Preferred Stock ("Series B Preferred Stock") and exchanged $1.8 million of
convertible notes, plus accrued interest, for Series B Preferred Stock (see
Note 14). In the event an initial public offering of common stock is not
completed as planned (see Note 14), management will pursue a number of
alternative sources to secure their funding. These alternatives include
additional private placements of equity or debt securities or strategic
equity investments. In addition, certain Series A preferred stockholders
have committed to provide funding of up to $2.0 million. In the event that
these sources are not sufficient or available when needed, management will
curtail certain activities, including various research and development
programs.
Unaudited Pro Forma Balance Sheet
As described in Note 14, the Company plans to complete an initial public
offering of common stock during the second quarter of 2000. If the initial
public offering is consummated as presently anticipated, all shares of
Series A and Series B preferred stock (see Notes 9 and 14) will
automatically convert into an equal number of shares of common stock. The
unaudited pro forma balance sheet reflects the subsequent conversion of
Series A preferred stock into common stock as if such conversion had
occurred as of December 31, 1999. The unaudited pro forma balance sheet does
not include the sale of Series B preferred stock in February 2000 for gross
proceeds of $6.5 million or the simultaneous conversion of $1.8 million of
convertible demand notes, plus accrued interest, into Series B preferred
stock.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Cash and Cash Equivalents
Highly liquid investments with an original maturity of 90 days or less are
classified as cash equivalents. The Company's cash and cash equivalents are
maintained in deposit accounts, certificates of deposit and money market
accounts.
Concentrations of Credit Risks
Substantially all of the Company's cash and cash equivalents are maintained
at one financial institution.
F-7
<PAGE> 74
CELLOMICS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999
The Company's accounts receivable are primarily from the United States
government and pharmaceutical customers located in the United States and the
United Kingdom. During fiscal years 1997, 1998 and 1999, approximately 97%,
60% and 93%, respectively, of revenues was concentrated with three customers
in 1997 and 1998 and four customers in 1999. At December 31, 1999, amounts
due from three customers represented 95% of gross trade receivables.
Inventories
Inventories, which consist primarily of microscope and camera components
used in the Company's high content screening instrumentation platform, are
stated at the lower of average cost or market.
Income Taxes
Deferred income taxes are recorded using the liability method. Under this
method, deferred tax assets and liabilities are determined based on the
differences between the financial statement and tax bases of assets and
liabilities using enacted tax rates in effect in the years in which the
differences are expected to reverse. Valuation allowances are established
when necessary to reduce deferred tax assets to the amount expected to be
realized.
Property and Equipment
Property and equipment is carried at cost. Depreciation is computed using
the straight-line method over the estimated useful lives of the assets,
generally ranging from three years for software and up to seven years for
furniture and fixtures. Repairs and maintenance are charged to expense as
incurred.
Certain laboratory and computer equipment used by the Company could be
subject to technological obsolescence in the event that significant
advancement is made in competing or developing equipment technologies.
Management continually reviews the estimated useful lives of technologically
sensitive equipment and believes that those estimates appropriately reflect
the current useful life of its assets. In the event that a currently unknown
significantly advanced technology became commercially available, the Company
would re-evaluate the value and estimated useful lives of its existing
equipment, possibly having a material impact on the financial statements.
The Company periodically reviews all long-lived assets for impairment.
Assets are written down to the fair market value when the carrying costs
exceed the gross undiscounted cash flows expected to be generated by such
assets. To date, there have been no asset impairments that would warrant a
write-down.
Revenue Recognition
Revenue from product sales is recognized upon shipment of the product to the
customer. Revenue from service contracts are recorded as deferred service
contract revenues and reflected in product revenues over the term of the
contract, generally one year.
The Company recognizes development and collaboration agreement and grant
revenues on a straight-line basis over the contract period or as work is
performed. Billings, and revenue recognition, under the Company's
collaboration and grant arrangements generally coincide with the work
performed and costs incurred. However, when payment for revenues under these
agreements is received in advance of the services performed, the company
records deferred revenue related to these agreements. Revenue recognized
under collaboration agreements and grants are non-refundable.
In connection with some development and collaboration agreements, prototype
products are also sold to customers. Such prototypes are priced separately
from the underlying development and collaboration
F-8
<PAGE> 75
CELLOMICS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999
agreements. Revenue related to the prototype is recognized when the
prototype is shipped to the customer in accordance with the collaboration
agreement and is included in development and collaboration agreement and
grant revenue.
Advertising
Media placement costs are expensed in the month that the advertising
appears. Total advertising expenses were $118,616 in 1999. No advertising
costs were incurred in 1997 and 1998.
Research and Development
Research and development costs are expensed as incurred.
Software Development Costs
Software development costs incurred subsequent to the establishment of
technological feasibility are capitalized in accordance with Statement of
Financial Standards ("SFAS") No. 86, "Accounting for the Costs of Computer
Software to Be Sold, Leased, or Otherwise Marketed." Amortization of
capitalized software development costs is the greater of the amount computed
using (a) the ratio of current revenues to the total of current and
anticipated future revenues or (b) the straight-line method over the
estimated economic life of the product. To date, the period of time, and
accordingly, costs incurred between the achievement of technological
feasibility and availability for general release, are not significant. As
such, no amounts have been capitalized to date.
In March 1998, the AICPA issued Statement of Position 98-1, "Accounting for
the Cost of Computer Software Developed or Obtained for Internal Use" ("SOP
98-1"). SOP 98-1 requires entities to capitalize certain costs related to
internal use software once certain criteria have been met. The Company
adopted the provisions of SOP 98-1 on January 1, 1999. To date, the Company
has not capitalized any costs related to internal use software.
Stock-Based Compensation
As permitted by the provisions of SFAS No. 123, "Accounting for Stock-Based
Compensation" (SFAS No. 123), the Company has elected to measure stock-based
compensation under the provisions of Accounting Principles Board Opinion No.
25, "Accounting for Stock Issued to Employees" (APB No. 25), and to adopt
the disclosure-only alternative described in SFAS No. 123. For stock options
granted at exercise prices less than fair value, the Company records
deferred stock-based compensation. Such deferred stock-based compensation is
amortized over the vesting period of each individual award using the
accelerated basis in accordance with Financial Accounting Standards Board
("FASB") Interpretation No. 28.
Foreign Currency
Foreign currency transaction gains and losses are included in other income
in the statement of operations during the period in which they arise.
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
the disclosure of contingent assets and liabilities at the date of the
financial statements.
F-9
<PAGE> 76
CELLOMICS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999
Estimates also affect the amounts of revenues and expenses during the
reported periods. Actual results could differ from the estimates.
Comprehensive Income (Loss)
During 1997, 1998, and 1999, the Company had no other comprehensive income
items. Accordingly, the comprehensive loss for each of these periods is
equal to the net loss.
Recent Accounting Pronouncements
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities," which provides a comprehensive and
consistent standard for the recognition and measurement of derivatives and
hedging activities. Under the statement, every derivative is recorded in the
balance sheet as either an asset or liability measured at its fair value.
The statement requires that changes in the fair value of a derivative be
recognized currently in earnings unless specific hedge accounting criteria
are met. SFAS No. 133 is effective for fiscal years beginning after June 15,
2000 and is not anticipated to have a material impact on our results of
operations or financial position.
3. ACCOUNTS RECEIVABLE
Accounts receivable consisted of:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1998 1999
---------- ----------
<S> <C> <C>
Product receivables......................................... $ -- $1,233,995
Development and collaboration agreement receivables......... 919,338 --
Grant receivables........................................... 438,395 338,287
---------- ----------
$1,357,733 1,572,282
========== ==========
</TABLE>
4. PROPERTY AND EQUIPMENT
Property and equipment consisted of:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1998 1999
---------- ----------
<S> <C> <C>
Computer equipment and software............................. $ 471,672 $ 930,930
Laboratory equipment........................................ 1,172,083 1,894,762
Furniture and fixtures...................................... 137,152 208,820
Leased assets and leasehold improvements.................... -- 74,950
---------- ----------
Property and equipment, cost........................... 1,780,907 3,109,462
Less: accumulated depreciation.............................. 279,117 722,907
---------- ----------
Net property and equipment............................. $1,501,790 $2,386,555
========== ==========
</TABLE>
During 1999, $258,000 of inventory was transferred to property and
equipment.
F-10
<PAGE> 77
CELLOMICS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999
5. ACCRUED EXPENSES
Accrued expenses consisted of:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1998 1999
---------- --------
<S> <C> <C>
Incentive compensation and other employee costs............. $ 275,000 $422,081
Professional services....................................... 420,634 98,500
Due to subcontractors....................................... 158,986 191,119
Other....................................................... 212,479 203,639
---------- --------
$1,067,099 $915,339
========== ========
</TABLE>
6. LONG-TERM DEBT
Long-term debt consisted of:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1998 1999
-------- ----------
<S> <C> <C>
Equipment financing line of credit - 1998................... $810,806 $1,185,975
Equipment financing line of credit - 1999................... -- 209,277
Senior term loan............................................ -- 1,499,523
Convertible notes payable to related parties................ -- 1,708,615
Capital lease obligations................................... -- 52,191
-------- ----------
Total long-term debt and capital lease obligations..... 810,806 4,655,581
Less: current maturities............................... 157,626 911,035
-------- ----------
Long-term debt less current maturities...................... $653,180 $3,744,546
======== ==========
</TABLE>
On September 11, 1998, the Company entered into a $1.5 million non-revolving
equipment financing line of credit agreement (the "1998 Equipment Financing
Line"). Borrowings against the 1998 Equipment Financing Line can be in
increments of not less than $75,000 in the form of a note and are
collateralized by the equipment purchased. The notes are payable in 48 equal
monthly installments with a 10% balloon payment at the end of the term and
bear interest ranging from 12.7% to 12.9%. Borrowings under this facility
are fully utilized.
On June 30, 1999, the Company entered into a $1.5 million Senior Term Debt
Financing Facility (the "Term Debt Agreement") that is collateralized by all
of the Company's assets except for $5.0 million of existing or future
financed equipment. The borrowings may be used for working capital purposes
and have a six-month interest-only period followed by 30 equal monthly
installments of principal and interest. The note bears interest at 12.5%.
On July 21, 1999, the Company entered into a $3.0 million non-revolving
equipment financing line of credit agreement (the "1999 Equipment Financing
Line"). Borrowings against the 1999 Equipment Financing Line are
collateralized by the equipment purchased. The notes are payable in 48 equal
monthly installments. Available borrowings remaining under this facility at
December 31, 1999 are $2,773,345. The notes bear interest ranging from 11.0%
to 12.0%.
The scheduled maturities of the lines of credit, the senior term loan and
the capital leases during each of the next five years are $911,035 in 2000,
$1,036,262 in 2001, $839,623 in 2002, $160,046 in 2003 and $0 in 2004.
F-11
<PAGE> 78
CELLOMICS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999
On November 30, 1999, certain Series A preferred stockholders loaned $1.8
million in convertible demand notes ("Convertible Demand Notes") to the
Company. The Convertible Demand Notes bear interest at 10% per annum. In the
event the Company completes a Qualified Financing (defined as the sale by
the Company of $1,000,000 or more in convertible debt or equity securities),
the Convertible Demand Notes plus any accrued interest convert into
preferred stock at the price of the Qualified Financing. The Convertible
Demand Notes are payable upon demand in the event the Company has not
completed a Qualified Financing by April 1, 2000. In connection with the
Convertible Demand Notes, the holders received common stock purchase
warrants. The total proceeds of $1.8 million were allocated between the
notes and the warrants based upon their relative fair values at the date of
issuance. The resulting discount of $121,847 on the convertible notes is
being amortized to interest expense over the period from November 30, 1999
to April 1, 2000. The convertible demand notes have been classified as
long-term debt on the basis that they have been converted to Series B
Preferred Stock on February 23, 2000 (see Note 14).
7. COMMITMENTS
The Company leases office space and office equipment under operating leases
expiring through 2001. Total rent expense amounted to $95,758, $176,998 and
$292,655 for 1997, 1998 and 1999, respectively. Minimum lease commitments
for facilities and equipment at December 31, 1999 are as follows:
<TABLE>
<CAPTION>
CAPITAL OPERATING
YEAR LEASES LEASES
- ---- -------- ---------
<S> <C> <C>
2000........................................................ $ 20,405 $342,099
2001........................................................ 20,329 173,981
2002........................................................ 14,375 --
2003........................................................ 9,176 --
2004........................................................ -- --
-------- --------
Total minimum lease payments........................... $ 64,285 $516,080
========
Less: amounts representing interest.................... (12,094)
--------
Present value of minimum capital lease payments........ $ 52,191
========
</TABLE>
The Company has other commitments in the ordinary course of business
totaling approximately $375,000 during 2000.
8. INCOME TAXES
As of December 31, 1999, the Company had federal and state net operating
loss carryforwards totaling approximately $15.5 million. The Company also
had research and development tax credit carryforwards of approximately
$725,000. The federal net operating loss and credit carryforwards will
expire at various dates beginning in the year 2015 through 2019, if not
utilized. The Commonwealth of Pennsylvania net operating losses will expire
at various dates beginning in 2005 through 2009, if not utilized.
Utilization of the Company's net operating loss carryforwards and credits
may be subject to an annual limitation due to the change in ownership
provisions of the Internal Revenue Code of 1986 and similar state
provisions. The annual limitation may result in the expiration of net
operating losses and credits before utilization.
F-12
<PAGE> 79
CELLOMICS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets for financial reporting and the amount
used for income tax purposes. Significant components of the Company's
deferred taxes for federal and state income taxes are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1998 1999
----------- -----------
<S> <C> <C>
Deferred tax assets (liabilities):
Net operating loss carryforwards..................... $ 2,719,358 $ 6,309,067
Research and development credits..................... 282,995 725,060
Other, net........................................... (10,021) 72,534
----------- -----------
Total deferred tax assets................................. 2,992,332 7,106,661
Valuation allowance....................................... (2,992,332) (7,106,661)
----------- -----------
Net deferred tax assets................................... $ -- $ --
=========== ===========
</TABLE>
The net valuation allowance increased by $1.9 million and $4.1 million for
the fiscal years ended December 31, 1998 and 1999, respectively, principally
due to the Company's operating losses. Management believes that there is
sufficient uncertainty regarding the realization of deferred tax assets such
that a full valuation allowance is appropriate.
9. MANDATORILY REDEEMABLE CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY
(ALL SHARE AND PER SHARE AMOUNTS STATED ON A POST-SPLIT EQUIVALENT BASIS,
SEE NOTE 14)
Mandatorily Redeemable Convertible Preferred Stock
On January 8, 1998, the Company's board of directors authorized 7,150,534
shares of $.01 par value preferred stock.
On January 21, 1998, through a private placement offering, the Company,
issued 3,477,222 shares of Series A Mandatorily Redeemable Convertible
Preferred Stock ("Series A Preferred Stock") for gross proceeds of $5.5
million. Additionally, the holders of $500,000 of outstanding convertible
notes converted the notes plus accrued interest of $19,550 for 326,523
shares of Series A Preferred Stock. On January 15, 1999, the Company
received a second investment related to the January 21, 1998 private
placement offering. The second investment resulted in the issuance of an
additional 3,142,350 shares of Series A Preferred Stock for gross proceeds
of $5 million. At December 31, 1998 and 1999, 3,803,745 and 6,946,095
shares, respectively, were outstanding.
Series A Preferred Stock is convertible into common stock on a one for one
basis. Shares of Series A Preferred Stock have voting rights equal to common
stock on an as-if-converted basis. Shares of Series A Preferred Stock are
automatically converted into shares of common stock at the closing of an
initial public offering at a price per share to the public of at least three
times the original Series A Preferred Stock conversion price per share, as
defined, and which results in gross proceeds to the Company of at least
$15.0 million.
The Series A preferred stockholders are entitled to receive annual dividends
at a rate equal to $0.1274 per annum per share. Dividends shall accrue on
each share beginning on the date of issuance and shall be payable each
January 1 for the period then ended. Dividends, which to date have not been
declared or paid, may be settled either in cash, or in common stock at the
option of the Company. At December 31, 1998 and 1999, cumulative dividends
due Series A preferred stockholders were equal to $458,067 and $1.3 million,
respectively. In addition, costs related to the issuance of the Series A
Preferred Stock were recorded as a discount from the redemption value and
are being accreted through periodic charges in a manner similar to the
accrued dividends over the period up to the date of redemption. The
cumulative
F-13
<PAGE> 80
CELLOMICS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999
dividends and the accreted redemption value are included in the carrying
amount of mandatorily redeemable convertible preferred stock.
Series A preferred stockholders are entitled to receive, upon liquidation, a
distribution of $1.59 per share, the issuance price, plus any accrued
dividends in preference to the Common stockholders. Thereafter, the
remaining assets and funds, if any, shall be distributed ratably on a per
share basis among all preferred and common stockholders.
At any time subsequent to January 21, 2003, the Company is required to
redeem, upon written request from the holders of a majority of the then
outstanding shares of Series A Preferred Stock, all of the outstanding
shares of Series A Preferred Stock by paying in cash the sum of $1.59 per
share, the issuance price, plus any accrued and unpaid dividends. Redemption
occurs in four equal installments beginning on the initial date of
redemption and three successive anniversary dates thereafter.
The Series A preferred stockholders have anti-dilution price protection and
certain preemptive rights to participate in the issuance of new securities.
These rights terminate upon conversion.
Common Stock
On January 8, 1998, the number of authorized shares of common stock was
decreased from 353,200,000 to 17,660,000. On February 23, 2000, the number
of authorized shares of common stock was increased to 21,192,000.
Carl Zeiss, Inc. ("Carl Zeiss"), an existing stockholder, received a total
of 196,623 shares of common stock in 1998 and 1999 under anti-dilution
rights acquired from a previous investment. Carl Zeiss has certain
anti-dilution and registration rights similar to the Series A preferred
stockholders.
Stock Purchase Warrants
In connection with the Series A private placement offering in 1998, the
Company issued 628,470 common stock purchase warrants to the investors. The
warrants are exercisable by the holders at any time at an exercise price of
$1.87 per share. The warrants terminate at the earlier of January 21, 2002
or, under certain conditions, at the date of a qualified public offering. In
addition, the Company issued 314,235 common stock purchase warrants to the
private placement advisors, which may be exercised any time prior to the
termination date of January 20, 2003 at an exercise price of $1.59 per
share. The holders of the $500,000 convertible notes also received warrants
to purchase 204,252 shares of preferred stock prior to the termination date
of June 18, 2002 at exercise prices ranging from $1.87 to $2.39 per share,
respectively. Based on the fair value of the underlying common stock
compared to the exercise price of the related warrants, these warrants were
determined to have no value.
In connection with the Convertible Demand Notes, the holders received
warrants to purchase 289,624 shares of common stock. The warrants are
exercisable by the holders at any time prior to the earlier of November 30,
2003, or, under certain conditions, at the date of a public offering of
common stock. See Notes 6 and 14 for additional discussion of these
warrants.
Stock Option Plan
On April 2, 1998, the Company adopted the Stock Plan (the "1998 Plan") under
which 529,800 shares of the Company's common stock were reserved for
issuance to directors, officers, consultants or employees of the Company, as
approved by the board of directors. On July 17, 1998, February 15, 1999 and
February 4, 2000, the 1998 Plan was amended and approved by the board of
directors (and subsequently the stockholders) and the number of shares
reserved for issuance was increased to
F-14
<PAGE> 81
CELLOMICS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999
1,059,600, 1,518,760 and 2,578,360, respectively. The 1998 Plan, which
expires in March 2003, provides for the grant of nonstatutory stock options,
stock bonuses, stock appreciation rights and restricted stock purchase
rights.
Options granted under the 1998 Plan are for ten-year terms. Exercise prices
of the nonstatutory stock options are determined by the board of directors.
Options under the 1998 Plan are generally subject to vesting in installments
over a four-year period commencing on the grant date.
The following table summarizes activity under the Plan:
<TABLE>
<CAPTION>
SHARES UNDER WEIGHTED AVERAGE
OPTION EXERCISE PRICE
------------ ----------------
<S> <C> <C>
Outstanding at December 31, 1997.......................... -- --
Granted................................................. 800,528 $0.16
Exercised............................................... -- --
Canceled................................................ -- --
---------
Outstanding at December 31, 1998.......................... 800,528 0.16
Granted................................................. 454,745 0.16
Exercised............................................... -- --
Canceled................................................ -- --
---------
Outstanding at December 31, 1999.......................... 1,255,273 0.16
=========
</TABLE>
Deferred compensation for options granted to employees is recorded when the
exercise price of an option is less than the fair value of the underlying
stock on the date of grant. Deferred compensation of $259,344 and $2.4
million was recorded on these options in 1998 and 1999, respectively.
Deferred compensation is amortized to compensation expense on an accelerated
basis.
In addition, in April 1998, the Company granted options to non-employees to
purchase a total of 42,384 shares of common stock at an exercise price of
$0.16 per share. Deferred compensation of $14,871 was recorded on these
options, based on the estimated fair value of the options granted using the
Black-Scholes model.
The Company has adopted the disclosure-only provisions of SFAS No. 123.
Accordingly, compensation expense has been determined based on the intrinsic
value of the options at the date of award. Had compensation cost for the
1998 Plan been determined based on the fair value of the options at the
dates of grant, the impact on the Company's net loss for the years ended
December 31, 1997, 1998 and 1999 would have been as follows:
<TABLE>
<CAPTION>
1997 1998 1999
----------- ----------- ------------
<S> <C> <C> <C>
Net loss:
As reported............................... $(2,437,876) $(3,494,660) $(10,617,803)
Pro forma................................. (2,437,876) (3,500,368) (10,632,516)
Earnings per share - basic and diluted:
As reported............................... $ (0.61) $ (0.99) $ (2.77)
Pro forma................................. (0.61) (0.99) (2.77)
</TABLE>
The value of these options has been estimated on the date of grant using the
Black-Scholes model under the minimum value method. The assumptions used in
computing the minimum value of options granted during 1998 and 1999 were a
risk-free interest rate of 5% and a weighted average expected life of each
option of four years.
F-15
<PAGE> 82
CELLOMICS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999
The weighted average fair value of the options granted, determined using the
minimum value method, in 1998 and 1999 was $0.35 and $0.49, respectively.
The weighted average remaining term of the options outstanding at December
31, 1999 was 8.8 years.
10. NET LOSS PER SHARE
The following table sets forth the computation of basic and diluted net
loss per share:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------------
1999
1997 1998 1999 PRO FORMA
----------- ----------- ------------ ------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Numerator:
Net loss....................... $(2,437,876) $(3,494,660) $(10,617,803) $(10,617,803)
Less: preferred stock
dividends.................... -- (518,017) (933,232) --
----------- ----------- ------------ ------------
Net loss attributable to common
stockholders................. $(2,437,876) $(4,012,677) $(11,551,035) $(10,617,803)
=========== =========== ============ ============
Denominator:
Weighted average shares -
basic........................ 3,986,392 4,069,726 4,174,835 4,174,835
Dilutive potential common stock
- Series A preferred stock... -- -- -- 6,815,164
Dilutive potential common stock
- options and warrants....... -- -- -- --
----------- ----------- ------------ ------------
Weighted average shares -
diluted...................... 3,986,392 4,069,726 4,174,835 10,989,999
=========== =========== ============ ============
Basic and diluted net loss per
share.......................... $ (0.61) $ (0.99) $ (2.77) $ (0.97)
=========== =========== ============ ============
</TABLE>
Pro forma loss per share is computed assuming conversion of the Series A
Preferred Stock outstanding at December 31, 1999 into common stock on a one
for one basis on January 1, 1999 or the date of issuance if later. The
Series A Preferred Stock will automatically convert to common stock upon the
completion of an initial public offering (see Note 14).
For 1997, 1998 and 1999, 0, 3,755,039, and 7,491,743 shares, respectively,
of potential common stock were excluded because their effect was
anti-dilutive.
11. RELATED PARTY TRANSACTIONS
Zeiss
On April 14, 1998, the Company entered into an exclusive, worldwide,
Co-Marketing, Manufacturing, Sales and Support and Development Agreement
(the "Original Zeiss Agreement") with Carl Zeiss Jena GmbH ("Zeiss"), a
stockholder, to deliver integrated screening systems and services for the
optimization of the drug discovery process. As part of the Original Zeiss
Agreement, Zeiss will manufacture a high content screening kinetics system
exclusively for the Company using the Company's proprietary software. The
Company is responsible for marketing, selling and servicing this high
content screening system.
On February 3, 2000, a Development, Manufacturing and Supply Agreement (the
"New Zeiss Agreement") was entered into between the Company and Zeiss which
supersedes the Original Zeiss Agreement. This agreement principally
provides for the manufacture and supply of products as described above for
a five-year term, and includes provisions whereby the Company agrees to
reimburse
F-16
<PAGE> 83
CELLOMICS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999
Zeiss for an additional $2.0 million for development costs incurred by
Zeiss through December 31, 1999. These amounts are to be repaid during 2000
and 2001 in equal installments of $1.0 million. The total of $2.0 million
has been reflected in the balance sheet as a payable to related party.
Additionally, the Company has capital expenditure commitments to Zeiss of
$1.2 million during 2000.
On February 21, 2000 the Company and Zeiss entered into a sales and
marketing agreement for ultra-high throughput screening products whereby
the Company will be the exclusive dealer and distributor for high
throughput and ultra-high throughput screening systems and related products
in the United States and Canada through December 31, 2005.
The Company also purchases components from Zeiss for other products
assembled by the Company. Total purchases for 1998 and 1999 approximated
$160,500 and $317,000, respectively.
QED Imaging
On May 1, 1999, the Company entered into an agreement with QED Imaging
("QED"). The term of this agreement is one year. The agreement provides for
monthly payments by the Company based upon services performed with the
potential for a bonus, subject to satisfactory performance and completion
of the milestones. Costs incurred under this contract which have been
charged to research and development expense, amounted to $165,334 in 1999.
A QED principal is a stockholder of the Company.
Other
A stockholder of the Company is a partner of a law firm that provides
services to the Company. During 1997, 1998 and 1999, the services provided
by his firm were $10,809, $168,998 and $110,617, respectively.
12. GRANTS
On March 9, 1998, the Company received a component of a five-year program
project grant entitled Combinatorial Approaches for Novel Anticancer
Agents. The Company, working as a subcontractor, will receive approximately
$1.0 million of an approximately $4.2 million, five-year program project
grant that is being funded by the National Cancer Institute Special
Emphasis Panel.
On April 28, 1998, the Company received a Small Business Information
Research grant for $700,000 over a two-year period from the National
Institutes of Health to develop a cytotoxicity assay. Lawrence Livermore
National Laboratory is a subcontractor.
On September 16, 1998, the Company entered into a $16.4 million Defense
Advanced Research Project Agency ("DARPA") cost-sharing contract for the
development of the CellChip System and the Fluorotox Database to detect
toxins. During the first phase (September 13, 1998 through September 12,
2000) of the contract, the Company will receive $2.4 million from the
government and provide matching funds of in-kind costs of $5.2 million. The
matching funds of in-kind costs are primarily costs associated with other
Company projects, which indirectly benefit the DARPA project. Through
December 31, 1999, the Company has recognized $1.6 million in revenues of
which $1.4 million has been received. The remaining $182,763 has been
billed to the government and is recorded in accounts receivable. The
Company has incurred $3.4 million of "in-kind" costs under the program
which have been recorded as research and development expenses. Billings
occur monthly based on the costs incurred and the stipulated percentage of
total project costs representing the government's share.
The government has an option for a second phase (September 13, 2000 through
September 13, 2002) of the contract. If the option is exercised, the
Company will receive an additional $4.6 million during
F-17
<PAGE> 84
CELLOMICS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999
phase II and will provide matching funds of in-kind costs of $4.2 million.
The Company has hired subcontractors to perform services under this
contract totaling $758,000 in phase I and, subject to the government
exercising its option, $1.9 million in phase II.
Total grant revenues were $584,000 and $1.8 million in 1998 and 1999,
respectively. There were no grant revenues in 1997. Included in research
and development expenses in the statement of operations are direct costs of
$545,646 and $1.7 million in 1998 and 1999, respectively.
13. EMPLOYEE BENEFITS
The Company maintains a defined contribution retirement savings plan
covering substantially all employees and permits participants to make
contributions by salary deduction pursuant to Section 401(k) of the
Internal Revenue Code. Such amounts may be matched by the Company under
certain conditions. Also, the Company may make, at its discretion,
additional contributions to the plan. The Company did not make any
contributions to the plan during 1997, 1998 or 1999.
14. SUBSEQUENT EVENTS
Series B Mandatorily Redeemable Convertible Preferred Stock Offering (share
and per share amounts stated on a post-split equivalent basis, see "Stock
Split" below)
On February 23, 2000, the Company issued 1,911,102 shares of Series B
mandatorily redeemable convertible preferred stock for gross proceeds of
$6.5 million. In addition, $1.8 million of Convertible Demand Notes, plus
accrued interest of $41,868, converted by their original terms and
conditions into 538,958 shares of Series B Preferred Stock. The holders of
Series B Preferred Stock are entitled to receive annual dividends at a rate
of 8.0%. The Series B Preferred Stock has substantially the same provisions
as the Series A Preferred Stock, including the automatic conversion upon a
qualified public offering (see Note 9). Based upon the estimated fair
market value of the Company's common stock on commitment date, these
securities contain a beneficial conversion feature. A deemed dividend of
$6.5 million to the Series B preferred stockholders, which will increase
basic net loss per share, will be recorded in the first quarter of 2000.
Also, in connection with the sale of the Series B Preferred Stock, the
Company issued additional common stock purchase warrants to the convertible
demand noteholders. The issuance of these warrants will result in an
additional non-cash interest charge of $1.7 million related to the
Convertible Demand Notes during the first quarter of 2000.
Initial Public Offering
On March 1, 2000, the Company's board of directors approved management's
plans to file a registration statement for its initial public offering
with the Securities and Exchange Commission in March 2000 and to complete
its initial public offering during the second quarter of 2000. Anticipated
proceeds from the initial public offering will be used to continue to fund
the growth of the business. There is no assurance that the planned initial
public offering will be successfully completed.
Supplemental Pro Forma Balance Sheet Data (unaudited)
The following summary pro forma balance sheet data illustrates the effect
of the Series B Preferred Stock transactions and the conversion of the
Series A and Series B preferred stock to common stock
F-18
<PAGE> 85
CELLOMICS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999
upon the closing of the initial public offering as if these transactions
had occurred on December 31, 1999:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31, 1999
1999 PRO FORMA
------------ -----------------
(UNAUDITED)
<S> <C> <C>
Cash................................................ $ 1,341,333 $ 7,872,196
Long-term debt less current maturities.............. 3,744,546 2,035,931
Mandatorily redeemable convertible preferred
stock............................................. 12,152,654 --
Common stock........................................ 41,830 135,792
Additional paid-in capital.......................... 3,263,298 22,237,429
</TABLE>
2000 Stock Plan
On March 1, 2000, the board of directors approved the 2000 Stock Plan (the
"2000 Plan"). All options outstanding under the 1998 Plan continue in
effect. The 2000 Plan provides for issuance of stock options to employees,
directors and consultants. The total options authorized under the 1998 Plan
and the 2000 Plan increased to 742,900. Under the 1998 Plan and the 2000
Plan, options to purchase 71,032 shares have been granted from January 1,
2000 through March 1, 2000. The issuance of these options will create a
significant charge to deferred compensation in the first quarter of 2000.
Stock Split
On April 11, 2000 the board of directors approved a 3.532-for-1 stock split
effective immediately prior to the initial public offering. All common
stock and potential common stock share and per share data in these
financial statements have been retroactively adjusted to reflect this
change.
F-19
<PAGE> 86
[PHOTOGRAPHS AND DESCRIPTIONS OF OUR CURRENT PRODUCTS]
<PAGE> 87
- --------------------------------------------------------------------------------
Until , all dealers effecting transactions in these securities,
whether or not participating in this offering, may be required to deliver a
prospectus. This is in addition to the obligation of dealers to deliver a
prospectus when acting as underwriters and with respect to their unsold
allotments or subscriptions.
- --------------------------------------------------------------------------------
CELLOMICS LOGO
PRUDENTIAL VECTOR HEALTHCARE
A UNIT OF PRUDENTIAL SECURITIES
ING BARINGS
DAIN RAUSCHER WESSELS
- --------------------------------------------------------------------------------
<PAGE> 88
PART II
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth all expenses, other than underwriting
discounts and commissions, payable by the Registrant in connection with the sale
of the common stock being registered. All amounts are estimated except the
Securities and Exchange Commission registration fee and the NASD filing fee.
<TABLE>
<S> <C>
Registration fee............................................ $ 31,000
NASD filing fee............................................. 10,500
Nasdaq National Market listing fee.......................... 90,000
Printing and engraving expenses............................. 250,000
Legal fees and expenses..................................... 350,000
Accounting fees and expenses................................ 315,000
Transfer Agent and registrar fees........................... 10,000
Premium for directors and officers insurance................ 185,000
Miscellaneous............................................... 8,500
----------
Total.................................................. $1,250,000
==========
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Our Amended and Restated Certificate of Incorporation requires us to
indemnify our directors and officers against liabilities they may incur in these
capacities, including liabilities under the Securities Act, to the maximum
extent permitted by Section 145 of the Delaware General Corporation Law.
Our bylaws require that we indemnify each of our directors and officers for
the judgments, fines and amounts paid in settlement, and the expenses reasonably
incurred, in connection with any type of threatened, pending or completed
action, suit or proceeding, whether or not bought by us or on our behalf. We
must also advance all expenses incurred once we have received a commitment from
the indemnified person to repay the amount if they should lose the action. We
may, and have, purchased and maintained insurance on behalf of our directors and
officers to the extent permitted by Delaware law.
Our Amended and Restated Certificate of Incorporation provides that our
directors shall not be personally liable either to us or to any stockholder for
monetary damages for breach of fiduciary duty as a director, except (i) for any
breach of the director's duty of loyalty to us or our stockholders, or (ii) for
acts or omissions which are not in good faith or which involve intentional
misconduct or knowing violation of the law, or (iii) for any matter in respect
of which such director shall be liable under Section 174 of Title 8 of the
Delaware General Corporation Law or any amendment thereto or successor provision
thereto, or (iv) for any transaction from which the director shall have derived
an improper personal benefit.
Reference is also made to Section [ ] of the underwriting agreement
contained in Exhibit 1.1 hereto, indemnifying our officers and directors against
certain liabilities.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
Since March 1, 1997, the Company has made sales of the following
unregistered securities:
Common Stock. (i) On January 21, 1998, in connection with the sale of
Series A Preferred Stock as described below (see "Preferred Stock," (i)), the
Company issued 90,278 shares of common stock to an existing stockholder pursuant
to anti-dilution rights held by such stockholder in accordance with its previous
investment. No underwriters were involved and no commission was paid. The shares
were issued in reliance on the exemption from registration contained in Section
4(2) of the Securities Act for transactions not involving a public offering.
(ii) On January 15, 1999, in connection with the sale of Series A Preferred
Stock as described below (see "Preferred Stock," (ii)), the Company issued
106,345 shares of common stock to an existing stockholder
II-1
<PAGE> 89
pursuant to anti-dilution rights held by such stockholder in accordance with its
previous investment. No underwriters were involved and no commission was paid.
The shares were issued in reliance on the exemption from registration contained
in Section 4(2) of the Securities Act for transactions not involving a public
offering.
Options. (i) From March 1, 1997 to the present, the Company has issued
employee stock options to purchase a total of 1,762,581 shares of common stock
to 107 employees, directors and consultants of the Company at an exercise prices
ranging from $.16 to $2.12 which represents a discount from fair market value.
The grants of such options were exempt from registration pursuant to Rule 701 of
the Securities Act.
Warrants. (i) On June 18, 1997, in connection with the sales of convertible
notes as described below (see "Convertible Notes," (i)), the Company issued a
warrant to one entity with certain concomitant rights to purchase shares of
preferred stock of the Company for the exercise price of $25,000. On January 8,
1998, these warrants were canceled and replaced with the warrants dated January
21, 1998 to purchase 15,710 shares of preferred stock of the Company as
described in (iv) below. No underwriters were involved and no commission was
paid. The warrants were sold in reliance on the exemption from registration
contained in Section 4(2) of the Securities Act for transactions not involving a
public offering.
(ii) On August 1, 1997, in connection with the sales of convertible notes
as described below (see "Convertible Notes," (ii)), the Company issued a warrant
to one entity for the purchase of 188,542 shares of preferred stock of the
Company at an exercise price of $2.39. On January 16, 1998, this warrant was
canceled and replaced with the warrant issued on January 21, 1998 to purchase
188,542 shares of preferred stock of the Company as described in (v) below. No
underwriters were involved and no commission was paid. The warrants were sold in
reliance on the exemption from registration contained in Section 4(2) of the
Securities Act for transactions not involving a public offering.
(iii) On January 21, 1998, in connection with the sale of Series A
Preferred Stock as described below (see "Preferred Stock," (i)), the Company
issued warrants to 7 persons or entities for the purchase of 628,470 shares of
common stock of the Company at an exercise price of $1.87. The warrants were
issued with the shares of Series A Preferred Stock for an aggregate purchase
price of $5,532,839. The Company also issued warrants to purchase 314,235 shares
of common stock to 2 persons or entities with an exercise price of $1.59, as
compensation for financial and advisory services performed in connection with
the transaction. The warrants were sold in reliance on the exemption from
registration contained in Section 4(2) of the Securities Act for transactions
not involving a public offering.
(iv) On January 21, 1998, in connection with the sales of convertible notes
as described below (see "Convertible Notes," (i)), the Company issued a warrant
to one entity for the purchase of 15,710 shares of Series A Preferred Stock of
the Company at an exercise price of $1.59. The warrants were issued in reliance
on the exemption from registration contained in Section 4(2) of the Securities
Act for transactions not involving a public offering.
(v) On January 21, 1998, in connection with the sales of convertible notes
as described below (see "Convertible Notes," (ii)), the Company issued a warrant
to one entity for the purchase of 188,542 shares of Series A Preferred Stock of
the Company at an exercise price of $2.39. The warrants were issued in reliance
on the exemption from registration contained in Section 4(2) of the Securities
Act for transactions not involving a public offering.
(vi) On June 30, 1999, the Company issued a warrant for the purchase of
114,790 shares of common stock at an exercise price of $1.87 to one financial
institution as partial consideration for the issuance of a $1.5 million senior
term loan to the Company. The warrants were sold in reliance on the exemption
from registration contained in Section 4(2) of the Securities Act for
transactions not involving a public offering.
(vii) On August 30, 1999, October 4, 1999 and December 14, 1999, the
Company issued warrants for the purchase of 1,515, 1,335 and 1,187 shares of
common stock at an exercise price of $1.87, respectively, to one financial
institution as partial consideration for extending a $3 million equipment
financing line of credit to the Company. No underwriters were involved and no
commission was paid. The warrants were sold in
II-2
<PAGE> 90
reliance on the exemption from registration contained in Section 4(2) of the
Securities Act for transactions not involving a public offering.
(viii) On February 23, 2000, the Company issued warrants to purchase
289,624 shares of common stock with an exercise price of $3.42 to 8 persons or
entities in connection with the sale of convertible demand notes as described
below (see "Convertible Notes" (iii)). No underwriters were involved and no
commission was paid. The warrants were sold in reliance on the exemption from
registration contained in Section 4(2) of the Securities Act for transactions
not involving a public offering.
(iv) On February 23, 2000, in connection with the sale of convertible notes
as described below (see "Convertible Notes" (iii)), the Company issued warrants
to purchase 19,758 shares of common stock with an exercise price of $3.42 to 2
persons or entities pursuant to pre-emptive rights held by such persons or
entities. No underwriters were involved and no commission was paid. The warrants
were sold in reliance on the exemption from registration contained in Section
4(2) of the Securities Act for transactions not involving a public offering.
Convertible Notes: (i) On June 18, 1997, the Company issued to one entity a
convertible note for $50,000. No underwriters were involved and no commission
was paid. The note was sold in reliance on the exemption from registration
contained in Section 4(2) of the Securities Act for transactions not involving a
public offering.
(ii) On August 1, 1997, the Company issued to one entity a convertible note
for $450,000. No underwriters were involved and no commission was paid. The note
was sold in reliance on the exemption from registration contained in Section
4(2) of the Securities Act for transactions not involving a public offering.
(iii) On November 30, 1999, the Company issued to 8 persons or entities
$1.8 million of convertible demand notes. No underwriters were involved and no
commission was paid. The notes were sold in reliance on the exemption from
registration contained in Section 4(2) of the Securities Act for transactions
not involving a public offering.
Preferred Stock: (i) On January 21, 1998, the Company sold 3,477,222 shares
of Series A Preferred Stock to 8 persons or entities, along with the warrants
described above (see "Warrants" (iii)) for an aggregate purchase price of
$5,532,839. As noted above in "Warrants," the Company also issued 314,235
warrants to purchase common stock to 2 entities or persons, with an exercise
price of $1.59 as compensation for financial and advisory services performed in
connection with the transaction. In addition, 2 entities converted $500,000 of
notes plus accrued interest of $19,550 into 326,523 shares of Series A Preferred
Stock. The shares were issued in reliance on the exemption from registration
contained in Section 4(2) of the Securities Act for transactions not involving a
public offering, and in accordance with Regulation D.
(ii) On January 15, 1999, 7 entities purchased 3,142,350 shares of Series A
Preferred Stock for an aggregate purchase price of $5,000,000. No underwriters
were involved and no commission was paid. The notes were sold in reliance on the
exemption from registration contained in Section 4(2) of the Securities Act for
transactions not involving a public offering, and in accordance with Regulation
D.
(iv) On February 23, 2000, 11 persons or entities purchased 1,911,102
shares of Series B Preferred Stock from the Company for an aggregate purchase
price of $6,530,863. In addition, $1.8 million of convertible demand notes,
issued to 8 persons or entities on November 30, 1999 as described above (see
"Convertible Notes," (iii) above)), plus accrued interest of $41,863, were
converted into 538,958 shares of Series B Preferred Stock. No underwriters were
involved and no commission was paid. The shares were sold in reliance on the
exemption from registration contained in Section 4(2) of the Securities Act for
transactions not involving a public offering, and in accordance with Regulation
D.
All sales of common stock made pursuant to the exercise of stock options
were made in reliance on Rule 701 under the Securities Act or Section 4(2) of
the Securities Act. All other sales were made in reliance on Section 4(2) of the
Securities Act and/or Regulation D promulgated under the Securities Act. These
sales were made without general solicitation or advertising, to investors who
were sophisticated and who had
II-3
<PAGE> 91
access to all relevant information necessary to evaluate the investment, and who
represented the Registrant that they were acquiring the Securities for
investment and appropriate legends were affixed to the share certificates in
such transactions.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENTS
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION OF EXHIBIT
- ----------- ----------------------
<S> <C>
1.1 Form of Underwriting Agreement**
3.1 Amended and Restated Certificate of Incorporation of
Cellomics*
3.2 Bylaws of Cellomics*
4.1 Loan and Security Agreement with Transamerica Business
Credit Corporation, including warrant, dated June 30, 1999*
4.2 Master Loan and Security Agreement with Oxford Venture
Finance, LLC, including warrant, dated July 21, 1999*
4.3 Series A Preferred Stock and Warrant Purchase Agreement by
and among certain purchasers listed and Cellomics, Inc.,
dated January 21, 1998*
4.4 Series B Preferred Stock Purchase Agreement by and among
certain purchasers listed and Cellomics, Inc., dated
February 23, 2000*
4.5 Form of Stock Certificate for shares of Common Stock
5.1 Form of Opinion of Buchanan Ingersoll Professional
Corporation**
10.1 Lease Agreement with University of Pittsburgh, dated July 1,
1996, for lease of office and laboratory space*
10.2 Form of Proprietary Information and Property Agreement*
10.3 License and Supply Agreement with Molecular Probes, Inc.,
dated April 5, 1999*
10.4 Employment Agreement between Biological Detection, Inc. and
D. Lansing Taylor, dated October 1, 1998*
10.5 Employment Offer Letter for R. Terry Dunlay, dated February
2, 1999*
10.6 Employment Offer Letter for L. Robert Johnston, dated
October 15, 1998*
10.7 Employment Offer Letter for Michael A. Nemzek, dated
November 9, 1998*
10.8 Employment Offer Letter for Alan W. Seadler, dated October
12, 1998*
10.9 Form of Key Employee Non-Compete Agreement*
10.10 Development, Manufacturing and Supply Agreement with Carl
Zeiss Jena GmbH, dated February 3, 2000*
10.11 Award/Contract issued by the Office of Naval Research, dated
September 14, 1998*
10.12 Alliance Agreement with ACLARA BioSciences, Inc., dated
October 26, 1999*
10.13 Subcontract with University of Pittsburgh, dated May 5,
1998*
10.14 Patent License Agreement with Public Health Service (NIH),
dated September 26, 1997*
10.15 Sales and Marketing Agreement with Carl Zeiss Jena GmbH,
dated February 21, 2000*
10.16 Cellomics, Inc. 2000 Stock Plan*
21.1 List of subsidiaries of Cellomics*
23.1 Consent of PricewaterhouseCoopers LLP
</TABLE>
II-4
<PAGE> 92
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION OF EXHIBIT
- ----------- ----------------------
<S> <C>
23.2 Consent of Buchanan Ingersoll Professional Corporation
(contained in the opinion filed as Exhibit 5 to the
Registration Statement)**
24 Powers of Attorney of certain officers and directors of
Cellomics (contained on the signature page of this
Registration Statement)*
27 Financial Data Schedule*
</TABLE>
- ---------------
* Previously filed.
** To be filed by amendment.
(b) Financial Statement Schedules
The following financial statement schedule is filed herewith--Schedule
II--Valuation and Qualifying Accounts.
ITEM 17. UNDERTAKINGS
We hereby undertake that:
(1) Insofar as indemnification for liabilities arising under the Securities
Act may be permitted as to directors, officers and controlling persons of
Cellomics pursuant to the provisions described in Item 14, or otherwise, we have
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 Cellomics of expenses
incurred or paid by a director, officer or controlling person of Cellomics 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, we will, unless in the opinion of our 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.
(2) 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 Cellomics 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.
(3) For the purpose of determining any liability under the Securities Act,
each post-effective amendment that contains a form of prospectus shall be deemed
to be a new registration statement relating to the securities offered therein,
and the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
(4) At the closing, specified in the underwriting agreement, we shall
provide the underwriters certificates in such denominations and registered in
such names as required by the underwriters to permit prompt delivery to each
purchaser.
II-5
<PAGE> 93
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Company has duly caused Amendment No. 1 to this Registration Statement on Form
S-1 to be signed on its behalf by the undersigned, thereunto duly authorized, in
the City of Pittsburgh, Commonwealth of Pennsylvania, on the 12th day of April,
2000.
CELLOMICS, INC.
By: *
------------------------------------
D. Lansing Taylor, Ph.D.
President and Chief Executive
Officer
POWER OF ATTORNEY
Pursuant to the requirements of the Securities Act of 1933, as amended,
Amendment No. 1 to this Registration Statement has been signed by the following
persons in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
* President and Chief Executive April 12, 2000
- --------------------------------------------- Officer and Director (Principal
D. Lansing Taylor, Ph.D. Executive Officer)
/s/ L. ROBERT JOHNSTON, JR. Vice President Chief Financial April 12, 2000
- --------------------------------------------- Officer (Principal Financial and
L. Robert Johnston, Jr. Accounting Officer)
* Chairman of the Board of Directors April 12, 2000
- ---------------------------------------------
John M. Boles
* Director April 12, 2000
- ---------------------------------------------
Alan Mendelson
* Director April 12, 2000
- ---------------------------------------------
James A. Sharp
* Director April 12, 2000
- ---------------------------------------------
Arnold Oronsky, Ph.D.
* /s/ L. ROBERT JOHNSTON, JR.
------------------------------------------
L. Robert Johnston, Jr., Attorney-in-fact
Dated: April 12, 2000
</TABLE>
II-6
<PAGE> 94
REPORT OF INDEPENDENT ACCOUNTANTS ON
FINANCIAL STATEMENT SCHEDULE
To the Board of Directors
and Stockholders of Cellomics, Inc.:
Our audits of the financial statements referred to in our report dated March 3,
2000, appearing in this Registration Statement on Form S-1 for Cellomics, Inc.
also included an audit of the financial statement schedule listed in Item 16(b)
of this Registration Statement on Form S-1. In our opinion, this financial
statement schedule presents fairly, in all material respects, the information
set forth therein when read in conjunction with the related financial
statements.
PricewaterhouseCoopers LLP
Pittsburgh, Pennsylvania
March 3, 2000
II-7
<PAGE> 95
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
ADDITIONS
-----------------------
BALANCE AT CHARGED TO CHARGED BALANCE
BEGINNING COSTS AND TO OTHER AT END
DESCRIPTION OF PERIOD EXPENSES ACCOUNTS DEDUCTIONS OF PERIOD
----------- ---------- ---------- -------- ---------- ---------
<S> <C> <C> <C> <C> <C>
For the year ending December 31, 1997
Deferred tax valuation allowance.... $ 234,000 $ 840,000 $-- $-- $1,074,000
========== ========== === === ==========
For the year ending December 31, 1998
Deferred tax valuation allowance.... $1,074,000 $1,918,332 $-- $-- $2,992,332
========== ========== === === ==========
For the year ending December 31, 1999
Deferred tax valuation allowance.... $2,992,332 $4,114,329 $-- $-- $7,106,661
========== ========== === === ==========
</TABLE>
II-8
<PAGE> 96
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION OF EXHIBIT
- ----------- ----------------------
<S> <C>
1.1 Form of Underwriting Agreement**
3.1 Amended and Restated Certificate of Incorporation of
Cellomics*
3.2 Bylaws of Cellomics*
4.1 Loan and Security Agreement with Transamerica Business
Credit Corporation, including warrant, dated June 30, 1999*
4.2 Master Loan and Security Agreement with Oxford Venture
Finance, LLC, including warrant, dated July 21, 1999*
4.3 Series A Preferred Stock and Warrant Purchase Agreement by
and among certain purchasers listed and Cellomics, Inc.,
dated January 21, 1998*
4.4 Series B Preferred Stock Purchase Agreement by and among
certain purchasers listed and Cellomics, Inc., dated
February 23, 2000*
4.5 Form of Stock Certificate for shares of Common Stock
5.1 Form of Opinion of Buchanan Ingersoll Professional
Corporation**
10.1 Lease Agreement with University of Pittsburgh, dated July 1,
1996, for lease of office and laboratory space*
10.2 Form of Proprietary Information and Property Agreement*
10.3 License and Supply Agreement with Molecular Probes, Inc.,
dated April 5, 1999*
10.4 Employment Agreement between Biological Detection, Inc. and
D. Lansing Taylor, dated October 1, 1998*
10.5 Employment Offer Letter for R. Terry Dunlay, dated February
2, 1999*
10.6 Employment Offer Letter for L. Robert Johnston, dated
October 15, 1998*
10.7 Employment Offer Letter for Michael A. Nemzek, dated
November 9, 1998*
10.8 Employment Offer Letter for Alan W. Seadler, dated October
12, 1998*
10.9 Form of Key Employee Non-Compete Agreement*
10.10 Development, Manufacturing and Supply Agreement with Carl
Zeiss Jena GmbH, dated February 3, 2000*
10.11 Award/Contract issued by the Office of Naval Research, dated
September 14, 1998*
10.12 Alliance Agreement with ACLARA BioSciences, Inc., dated
October 26, 1999*
10.13 Subcontract with University of Pittsburgh, dated May 5,
1998*
10.14 Patent License Agreement with Public Health Service (NIH),
dated September 26, 1997*
10.15 Sales and Marketing Agreement with Carl Zeiss Jena GmbH,
dated February 21, 2000*
10.16 Cellomics, Inc. 2000 Stock Plan*
21.1 List of subsidiaries of Cellomics*
23.1 Consent of PricewaterhouseCoopers LLP*
23.2 Consent of Buchanan Ingersoll Professional Corporation
(contained in the opinion filed as Exhibit 5 to the
Registration Statement)**
24 Powers of Attorney of certain officers and directors of
Cellomics (contained on the signature page of this
Registration Statement)*
27 Financial Data Schedule*
</TABLE>
- ---------------
* Previously filed.
** To be filed by amendment.
+ The schedules or exhibits to this document are not being filed herewith
because we believe that the information contained therein should not be
considered material to an investment decision in Cellomics or such
information is otherwise adequately disclosed in this Registration Statement
on Form S-1. We agree to furnish supplementally a copy of any schedule or
exhibit to the Commission upon request.
<PAGE> 1
Exhibit 4.5
COUNTERSIGNED AND REGISTERED
AMERICAN STOCK TRANSFER & TRUST COMPANY
TRANSFER AGENT
AND REGISTRAR
BY
AUTHORIZED SIGNATURE
[CELLOMICS(TM) LOGO]
CELLOMICS, INC.
INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE
THIS CERTIFICATE IS TRANSFERABLE SEE REVERSE FOR
IN NEW YORK, N.Y. CERTAIN DEFINITIONS
CUSIP
THIS CERTIFIES THAT
IS THE OWNER OF
FULLY PAID AND NON-ASSESSABLE COMMON SHARES $.01 PAR VALUE OF
CELLOMICS, INC.
(hereinafter called the "Corporation"), transferable on the books of the
Corporation by the holder hereof in person or by duly authorized attorney upon
surrender of this certificate property endorsed. This certificate and the shares
represented hereby are issued and shall be held subject to all of the
provisions of the Articles of Incorporation and the Bylaws of the Corporation,
as restated or amended, or as same may be restated or amended hereafter (a copy
of which is on file with the Transfer Agent and Co. Transfer Agent), to all of
which the holder hereof by acceptance hereof agrees and assents.
This certificate is not valid until countersigned and registered by the Transfer
Agent and Registrar.
WITNESS the facsimile seal of the Corporation and the facsimile signatures of
its duly authorized officers.
Dated
[CELLOMICS SEAL]
/s/ LEROY METZ /s/ D. LANSING TAYLOR
SECRETARY PRESIDENT AND CHIEF
EXECUTIVE OFFICER
<PAGE> 2
CELLOMICS, INC.
THE CORPORATION WILL FURNISH WITHOUT CHARGE TO EACH STOCKHOLDER WHO SO
REQUESTS THE POWERS, DESIGNATIONS, PREFERENCES AND RELATIVE, PARTICIPATING,
OPTIONAL OR OTHER SPECIAL RIGHTS OF EACH CLASS OF STOCK OR SERIES THEREOF OF
THE CORPORATION AND THE QUALIFICATIONS, LIMITATIONS OR RESTRICTIONS OF SUCH
PREFERENCES AND/OR RIGHTS. SUCH REQUEST MAY BE MADE TO THE TREASURER OF THE
CORPORATION, OR TO THE TRANSFER AGENT OF THE CORPORATION.
The following abbreviations, when used in the inscription on the face of
this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
<TABLE>
<S> <C>
TEN COM -- as tenants in common UNIF GIFT MIN ACT -- CUSTODIAN
TEN ENT -- as tenants by the entireties ------------- --------------
JT TEN -- as joint tenants with right of (Cust) (Minor)
survivorship and not as tenants under Uniform Gifts to Minors
in common Act
---------------------------------
(State)
UNIF TRF MIN ACT -- CUSTODIAN (until age )
------------ ---
(Cust.)
------------under Uniform Transfers
(Minor)
to Minors Act
----------------------
(State)
</TABLE>
Additional abbreviations may also be used though not in the above list.
FOR VALUE RECEIVED,___________________hereby sell, assign and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
______________________________________
________________________________________________________________________________
________________________________________________________________________________
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE)
________________________________________________________________________________
________________________________________________________________________________
__________________________________________________________________________Shares
of common stock represented by the within Certificate, and do hereby irrevocably
constitute and appoint__________________________________________________Attorney
to transfer the said stock on the books of the within named Corporation with
full power of substitution in the premises.
Date_____________________________________
X ________________________________________________
X ________________________________________________
NOTICE THE SIGNATURE TO THIS ASSIGNMENT MUST CORRESPOND
WITH THE NAMES(S) AS WRITTEN UPON THE FACE OF
THE CERTIFICATE IN EVERY PARTICULAR, WITHOUT
ALTERATION OR ENLARGEMENT OR ANY CHANGE
WHATEVER.
Signature(s) Guaranteed
By______________________________________________
THE SIGNATURE(S) MUST BE GUARANTEED BY AN
ELIGIBLE GUARANTOR INSTITUTION (BANKS,
STOCKBROKERS, SAVINGS AND LOAN ASSOCIATIONS AND
CREDIT UNIONS WITH MEMBERSHIP IN AN APPROVED
SIGNATURE GUARANTEE MEDALLION PROGRAM) PURSUANT
TO SEC RULE 17Ad-15.
<PAGE> 1
Exhibit 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in this Registration Statement on Form S-1 of our
reports dated March 3, 2000, relating to the financial statements and financial
statement schedule of Cellomics, Inc., which appear in such Registration
Statement. We also consent to the references to us under the headings "Experts"
and "Selected Financial Data" in such Registration Statement.
PricewaterhouseCoopers LLP
Pittsburgh, Pennsylvania
April 13, 2000
