<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 14, 2000
REGISTRATION NO. 333-31680
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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AMENDMENT NO. 4
TO
FORM S-1
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
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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)
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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)
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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>
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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. [ ]
------------------
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.
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<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 -- DECEMBER 14, 2000
PROSPECTUS
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6,000,000 Shares
CELLOMICS LOGO
Common Stock
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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
Cellomics' 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 $8.00 and
$10.00 per share. The shares of Cellomics have been approved for quotation on
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 5 TO 14 FOR FACTORS THAT SHOULD BE CONSIDERED BEFORE
INVESTING IN THE SHARES OF CELLOMICS.
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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 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................. 1
Risk Factors....................... 5
Forward-Looking Statements......... 14
Use of Proceeds.................... 15
Dividend Policy.................... 15
Capitalization..................... 16
Dilution........................... 17
Selected Financial Data............ 18
Management's Discussion and
Analysis of Financial Condition
and Results of Operations........ 20
Business........................... 26
Management......................... 41
Certain Transactions............... 50
Principal Stockholders............. 54
Description of Capital Stock....... 58
Shares Eligible for Future Sale.... 62
Underwriting....................... 64
Legal Matters...................... 65
Experts............................ 66
Where You Can Find More
Information...................... 66
Index to Financial Statements...... F-1
</TABLE>
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ArrayScan(R) and Cellomics(R) are our registered trademarks. We have
applied for registration of the following trademarks: the Cellomics logo,
CellChip, HitKit, and PharmacoCellomics. This prospectus also includes
trademarks and tradenames of other companies.
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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.
<PAGE> 5
PROSPECTUS SUMMARY
This summary highlights information contained elsewhere in this prospectus.
This summary does not contain all of 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 we design 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;
- 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 market five products and have a number of products in
various stages of development. We currently develop 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. In addition, in June 2000,
we entered into a strategic relationship with Beckman Coulter, Inc. This
relationship includes a global distribution agreement for some of our high
content screening and informatics products. Beckman Coulter has also purchased
$5.8 million of our common stock.
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 design 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 and have recently released our second informatics product, Cellomics
Screen. We design 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 for easy
data exchange.
- Cellular Bioinformatics Products. We refer to searchable databases of
cellular information and related software as cellular bioinformatics
products. We design these products to enable researchers to perform
computer-based searches of cellular information to identify new knowledge
about cells and cellular functions. We believe our database under
development 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.
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<PAGE> 6
OUR INITIAL TARGET MARKETS
We initially target 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
We aim to be a leader in the field of cellomics. Key elements of our
strategy include:
- establishing high content screening as the standard for drug discovery;
- offering a broad menu of software tools and tests for specific cellular
reactions to generate recurring revenues;
- expanding into additional segments of the life sciences market, including
basic biomedical research, clinical diagnostics and agriculture;
- migrating our high content screening system to the miniaturized CellChip
System;
- constructing a powerful predictive tool by creating a searchable
repository of cellular information and by linking this information to
existing genomics and proteomics databases; and
- combining our strengths with the strengths of strategic corporate
partners to access complementary technologies and strengthen our
commercialization capabilities.
ABOUT US
We were originally incorporated in Pennsylvania in 1995, and reincorporated
in Delaware in 1998. Our revenues from operations totaled approximately $13.3
million since our inception, including $3.4 million in 1999 and $6.8 million for
the nine months ended September 30, 2000. We have incurred operating losses in
each of the years since our inception. As of September 30, 2000, our accumulated
deficit was approximately $30.0 million.
Our principal offices and facilities are at 635 William Pitt Way,
Pittsburgh, Pennsylvania 15238, and our telephone number is (412) 826-3600.
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<PAGE> 7
THE OFFERING
Shares offered by Cellomics......... 6,000,000 shares
Total shares outstanding after this
offering............................ 24,925,800 shares
Use of proceeds..................... For technology research and product and
services development, scale-up of sales
and marketing, facilities expansion,
capital expenditures, working capital
and general corporate purposes.
Nasdaq National Market symbol....... CLMX
We based the number of shares of common stock to be outstanding after this
offering on the number of shares outstanding on October 31, 2000. This number
includes 14,485,923 shares of common stock issuable on the conversion of all of
our outstanding shares of convertible preferred stock but excludes:
- 3,636,600 shares of our common stock reserved for issuance under our stock
option plans, including options to purchase 1,553,393 shares of our common
stock that are outstanding, as of October 31, 2000, at a weighted average
exercise price of $0.53 per share, and options to purchase up to 1,350,000
shares of our common stock that we expect to grant on or about the closing
of this offering, at an exercise price equal to the initial public
offering price;
- 1,425,031 shares of common stock issuable on exercise of outstanding
warrants, as of October 31, 2000, at a weighted average exercise price of
$2.41 per share; and
- up to 900,000 shares of our common stock 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 14,485,923 shares of our common stock on the closing of this
offering;
- a 3.19-for-1 stock split of our common stock; and
- the filing of our amended and restated certificate of incorporation.
For a more detailed discussion of the terms of the conversion of our
preferred stock, please refer to "Certain Transactions."
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.
3
<PAGE> 8
SUMMARY FINANCIAL DATA
We derived the following summary statement of operations data for the years
ended December 31, 1997, 1998 and 1999 from our audited financial statements.
We derived the statement of operations data for the nine months ended
September 30, 1999 and 2000 from our unaudited interim financial statements.
The pro forma net loss per share presented below for the year ended
December 31, 1999 and the nine months ended September 30, 2000 includes the
assumed conversion of our Series A, Series B and Series C preferred stock
actually outstanding at the end of each period into common stock at the
beginning of each period, or the date of issuance during that period, if later.
The pro forma balance sheet data presented below give effect to:
- the sale of 411,409 shares of our Series C preferred stock in October
2000, which will convert into 1,499,894 shares of our common stock upon
the closing of this offering, for aggregate gross proceeds to us of $7.5
million;
- the payment of $2.0 million in transaction costs in October 2000, related
to the sale of our Series C preferred stock;
- the sale of 168,148 shares of our common stock to Beckman Coulter in
October 2000, for aggregate gross proceeds to us of $960,922; and
- the conversion of our Series A, Series B and Series C preferred stock
into 14,485,923 shares of our common stock on the closing of this
offering, as if such conversion had occurred at September 30, 2000.
The pro forma as adjusted balance sheet data presented below give effect
to:
- the sale of 6,000,000 shares of our common stock in this offering at an
assumed initial public offering price of $9.00 per share, after deducting
underwriting discounts and commissions and estimated offering expenses,
and paying accrued dividends through September 30, 2000 of $2.4 million
to the holders of our outstanding preferred stock.
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>
NINE MONTHS
ENDED
SEPTEMBER 30,
YEAR ENDED DECEMBER 31, ---------------------
---------------------------------- (UNAUDITED)
1997 1998 1999 1999 2000
------- ------- -------- ------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues.................................................... $ 395 $ 2,273 $ 3,390 $ 1,517 $ 6,796
Operating costs and expenses................................ 2,820 5,782 13,847 9,482 17,774
Loss from operations........................................ (2,425) (3,509) (10,457) (7,965) (10,978)
Net loss.................................................... (2,438) (3,495) (10,618) (7,910) (12,891)
Net loss attributable to common stockholders................ (2,438) (4,013) (11,551) (8,603) (43,047)
Net loss per share--basic and diluted....................... $ (0.68) $ (1.09) $ (3.06) $ (2.28) $ (10.96)
Shares used to compute basic and diluted net
loss per share............................................ 3,600 3,676 3,771 3,768 3,926
Pro forma net loss per share................................ $ (1.07) $ (3.36)
Shares used to compute pro forma net loss per share......... 9,899 12,459
</TABLE>
<TABLE>
<CAPTION>
SEPTEMBER 30, 2000
----------------------------------
(UNAUDITED)
PRO FORMA
AS
ACTUAL PRO FORMA ADJUSTED
-------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................................... $ 23,034 $ 29,455 $ 76,532
Working capital (deficit)................................... 19,395 25,463 74,433
Total assets................................................ 32,052 38,473 85,050
Total long-term debt less current maturities................ 1,356 1,356 1,356
Mandatorily redeemable convertible preferred stock.......... 41,521 -- --
Total stockholders' equity (deficit)........................ (19,718) 27,871 76,841
</TABLE>
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<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
AS AN EARLY STAGE COMPANY, WE FACE MANY RISKS INHERENT IN OPERATING A NEW
BUSINESS. IF WE DO NOT OVERCOME THESE RISKS, WE MAY NOT SUCCEED OR BECOME
PROFITABLE.
The risks inherent in operating a new business such as ours include:
- 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, uncertainty exists 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 to achieve
or maintain profitability.
WE HAVE 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 incurred operating losses in each of the years since our inception. As
of September 30, 2000, our accumulated deficit was approximately $30.0 million.
Our losses primarily result from research and development and selling, general
and administrative expenses associated with our operations. Since our inception,
we have generated 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, our marketing and
sales force and our facilities in an effort to commercialize more of our
products. We expect to incur additional losses until such time, if ever, that
our revenues from the sale of our products, technologies and services cover our
expenses. Achieving and maintaining long-term profitability depends 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.
WE USE SIGNIFICANTLY MORE CASH THAN WE GENERATE. IF WE FAIL TO OBTAIN
SUFFICIENT CAPITAL, THEN OUR BUSINESS WOULD BE SIGNIFICANTLY HARMED.
Since our inception, our operating and research and development activities
consumed more cash than we 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 at least 2002.
However, we may need to raise additional capital before that time or in the
future to meet our operating and research and development cash requirements. The
amounts and timing of our actual expenditures and our need to raise additional
funds will depend on numerous factors, including the scope, status and success
of our product development and commercialization
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<PAGE> 10
efforts, the amount of proceeds actually raised in this offering, the amount of
cash generated by our operations, competitive developments, the scope and
success of our sales and marketing activities, changes in or termination of
existing collaboration and licensing arrangements, costs of acquisitions of or
investments in companies, technologies, products or assets and our need for
manufacturing capacity. We lack committed external sources of funding and cannot
assure you that we will be able to obtain additional funds on acceptable terms,
if at all. The unavailability of adequate funds may require us 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;
or
- discontinue operations.
IF WE FAIL TO SUCCESSFULLY DEVELOP OR COMMERCIALIZE OUR TECHNOLOGIES OR TO
GAIN ACCESS TO TECHNOLOGIES OF THIRD PARTIES, 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 commercially developing our technologies and
products. The complex process of commercializing our high content screening,
informatics and cellular bioinformatics products and technologies requires in
some cases the combination of instrumentation, cellular analysis products,
software and databases and our continued access to technologies of third
parties.
We have limited experience with commercializing and marketing products. We
intend to rely on existing and future collaboration partners, including Zeiss
and Beckman Coulter, for developing, commercializing or marketing our products.
We cannot assure you that we, even with the assistance of our collaboration
partners, can 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 development
costs. We also expect in the future to derive a substantial portion of our
revenues 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 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 reliance on collaboration partners, including Zeiss and Beckman
Coulter, and outside vendors, including a sole or a limited group of suppliers
in particular, also creates several risks, including:
- 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, market or distribute our products or
technologies; and
- the terms of our contracts, including pricing with our partners, may not
be favorable to us in the future.
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<PAGE> 11
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.
Our tools for high content screening, informatics and cellular
bioinformatics products and technologies target a new and undefined market.
Pharmaceutical and biotechnology companies and academic and government
laboratories currently use very little of these technologies. To date, our
technologies have never been utilized in the discovery of any compound that has
ultimately become a commercialized drug. 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
or are perceived as failing 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 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 because the prices we pay for some of the components of systems we
resell are denominated in deutsche marks;
- research and development spending budgets of pharmaceutical companies;
and
- 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 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.
In addition, historically, extreme price and volume fluctuations in the
stock markets have occurred based on, among other things, general economic
conditions. In particular, extreme fluctuations occurred in the market prices of
the securities of life sciences companies, often without regard to their
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 of
companies that are similar to us have instituted class action litigation. If the
market value of our stock experiences adverse fluctuations and if litigation
results, 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. That agreement obligates Zeiss to develop and manufacture
our ArrayScan Kinetics Workstation and ArrayScan Kinetics Reader until 2002. Our
ability to develop, manufacture and obtain a sufficient supply of these
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<PAGE> 12
products depends significantly on Zeiss' performance under this agreement. If
Zeiss experiences manufacturing or development difficulties, or delays or
difficulties in adapting to design changes 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. Termination of this agreement would require us 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, upon termination of this agreement, 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 exclusively
distribute 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, will be
significantly lower and our business will be materially harmed. This agreement
terminates in December 2005. However, in some instances, this agreement may be
terminated prior to December 2005. Termination of this agreement would lower our
near-term and future revenues, and net income, if any.
IF, AS A RESULT OF OUR LIMITED MANUFACTURING CAPABILITIES, WE ENCOUNTER
MANUFACTURING PROBLEMS OR DELAYS, WE MAY HAVE LOWER REVENUES.
Successful commercialization requires the manufacture of our products 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. We manufacture in one 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, maintain adequate levels of inventory
and rely on collaboration partners for components. In many cases, we obtain and
intend to obtain components, subassemblies, software and reagents used in our
products 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 used in our cellular analysis kits, the loss of
which would result in significant production delays and increased expenditures.
We have recently begun to examine various options for expanding our facilities.
We cannot assure you that we can develop the necessary manufacturing capability
in compliance with manufacturing standards, or that we will be able to fund or
build an adequate commercial manufacturing facility to provide adequate
commercial supplies of quality products on a timely basis. 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. Even if we could
outsource needed production or enter into licensing or other third party
arrangements, this could reduce our gross margins and expose us to the risks
inherent in relying on others. We also cannot assure you that our collaboration
partners will deliver an adequate supply of required components on a timely
basis. Failure to obtain these components on a timely basis would disrupt our
manufacturing and increase our costs. We cannot assure you that we, acting alone
or with the assistance of others, will successfully make the transition to
commercial production.
8
<PAGE> 13
IF WE ENCOUNTER DIFFICULTIES IN COMMERCIALIZING OUR PRODUCTS ON A MASS
SCALE AS A RESULT OF OUR LIMITED SALES FORCE AND MARKETING EXPERIENCE OR
BECKMAN COULTER'S FAILURE TO PERFORM, THEN OUR REVENUES AND PROFITABILITY
WILL DECLINE.
We have a limited sales force and limited experience in selling, marketing,
servicing and supporting our products. Successful penetration of our target
markets requires a larger sales force or distribution partner able to address
complex scientific and technical issues raised by our customers. We recently
entered into a distribution agreement with Beckman Coulter under which they will
distribute our ArrayScan II as well as our Cellomics Store and Cellomics Screen
informatics products. Beckman Coulter will become our exclusive worldwide
distributor of these products and of our ArrayScan Kinetics Reader high content
screening product upon completion of the ArrayScan Kinetics Reader's development
and our certifying to Beckman Coulter that we can deliver it in commercial
quantities. Beckman Coulter will also market our test kits. Under the terms of
our agreement, Beckman Coulter may terminate our agreement for any reason on
12-months' prior written notice to us. If Beckman Coulter does not perform under
this agreement, or in the event that Beckman Coulter terminates this agreement,
our ability to generate revenues from sales of our existing ArrayScan II and
related software tools and test kits as well as from our ArrayScan Kinetics
Reader, Cellomics Store and Cellomics Screen informatics products will be
dramatically reduced. We also need customer support personnel with a broad range
of technical expertise to adequately train our customers and service and support
our products in the field. If we fail to develop a larger sales force or
customer support team or to obtain a distribution partner with the necessary
expertise, then our revenues and profitability will decline.
WE EXPECT THAT THE MARKET FOR CELL-BASED TOOLS AND TECHNOLOGIES WILL BE
HIGHLY COMPETITIVE AND SUBJECT TO RAPID TECHNOLOGICAL CHANGES. IF WE FAIL
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 develop
and produce 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 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 more effective or
commercially attractive technologies or products than our current or future
products, our technologies and products would become obsolete and our revenues
and profitability would be adversely affected.
IF OUR INTELLECTUAL PROPERTY RIGHTS ARE NOT ADEQUATE, THEN THIRD PARTIES
COULD USE OUR TECHNOLOGIES AND SIGNIFICANTLY IMPAIR OUR ABILITY TO COMPETE.
Our success depends in part on our ability to obtain patents, maintain
trade secret protection and operate our business without infringing the
proprietary rights of others. We depend, in part, on the patent rights licensed
from third parties with respect to our technologies. We cannot assure you 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.
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 issuance of the patent. 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
9
<PAGE> 14
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.
IF WE DO NOT EFFECTIVELY MANAGE OUR RAPID GROWTH, OUR BUSINESS WILL BE
SIGNIFICANTLY HARMED.
Since our inception in 1995, the number of our employees increased from six
to 129, as of October 31, 2000. In addition, we have significantly increased our
development, manufacturing and operational facilities. In order to implement our
business strategy we expect continued rapid growth. Previous growth in our
business has strained, and expected future growth will significantly strain our
management, operational and financial resources. To manage such growth, we must
expand our facilities, augment our operational, financial
10
<PAGE> 15
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 FAIL TO ATTRACT AND RETAIN THE TALENT REQUIRED FOR OUR
BUSINESS, THEN OUR REVENUES AND PROFITABILITY, IF ANY, WILL BE REDUCED.
We depend to a great extent 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 depends 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. Intense competition exists 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 revenues 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. Liability exists for any product we
develop, or any product made with the use of or incorporation of any of our
technologies, which 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 of the
present or future adequacy of our insurance coverage. We must pay any product
liability claim in excess of our insurance coverage, 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 THE GOVERNMENT REDUCES, WITHDRAWS OR TERMINATES OUR GRANTS, 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, a yearly appropriation process in the U.S.
Congress applies to some programs, and they 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.
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 revenues over the next few
years will be derived from our sale in North America of Zeiss' Ultra High
Throughput Screening System. We must pay for this Zeiss equipment in German
deutsche marks, although our customers will pay us 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
11
<PAGE> 16
increase. We 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
35.2% of our outstanding common stock, or approximately 34.0% if the
underwriters' over-allotment option is exercised in full. As a result, these
stockholders as a group could 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 market price of our common 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 these estimates are
inaccurate or if market prices for biotechnology companies experience volatility
after the offering, your investment in our common stock may be worth less in the
future than it was worth when you made your investment.
A LARGE NUMBER OF SHARES COULD 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.
Federal securities law and lock-up agreements that our stockholders have entered
into with the underwriters and with us limit the number of shares of common
stock available for sale in the public market. Our officers, directors and
stockholders have agreed in these lock-up agreements 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, 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.
In addition, on December 13, 2000, some of our stockholders entered into an
agreement with each other and with us pursuant to which these stockholders
agreed not to offer or sell an aggregate of 14,005,411 shares of our common
stock until October 6, 2001, without our prior consent and the prior consent of
each of the other stockholders that are party to the agreement. We and the other
parties to this agreement may, at any
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<PAGE> 17
time and without notice, waive any of the terms of this agreement. The
restrictions under this agreement are in addition to those under the lock-up
agreements with Prudential Securities Incorporated.
The following table indicates approximately when the 18,925,800 shares of
our common stock that are not being sold in the offering but which were
outstanding as of October 31, 2000 will be eligible for sale into the public
market, except for 31,900 shares eligible for resale on the date of this
prospectus:
<TABLE>
<CAPTION>
NUMBER OF
SHARES DATE OF ELIGIBILITY FOR RESALE INTO PUBLIC MARKET
------------ ------------------------------------------------------------
<C> <S>
4,231,454 180 days after the date of this prospectus due to lock-up
agreements substantially all of our stockholders have
entered into with Prudential Securities Incorporated.
14,662,446 Between 180 and 365 days after the date of this prospectus
due to requirements of the federal securities laws and to
lock-up agreements some of our stockholders have entered
into with each other and with us.
</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 15, 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 substantially exceeds the pro forma net
tangible book value per share of our common stock which, as of September 30,
2000 was $1.47 per share. If you purchase our common stock in this offering you
will incur immediate and substantial dilution of $5.92 per share, based on an
assumed initial public offering price of $9.00 per share. You will incur
additional dilution upon the exercise of outstanding stock options and warrants.
SOME PROVISIONS OF OUR CERTIFICATE OF INCORPORATION, BYLAWS AND DELAWARE
LAW MAY DELAY OR PREVENT A TAKEOVER OR MAKE IT DIFFICULT FOR OUR
STOCKHOLDERS TO CHANGE OUR THEN-CURRENT BOARD OF DIRECTORS.
Some provisions in our certificate of incorporation and bylaws may have the
effect of delaying or preventing an acquisition, merger or other change of
control of our company or make it difficult for our stockholders to change our
then-current board of directors, despite the possible benefits to our
stockholders. 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
- 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
make takeover attempts more difficult and limit the ability of stockholders to
change members of our then-current board of directors.
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<PAGE> 18
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," "predict," "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.
14
<PAGE> 19
USE OF PROCEEDS
We estimate our net proceeds to be approximately $49.5 million, or $57.0
million if the underwriters exercise their over-allotment option in full, from
the sale of the shares of common stock in this offering, assuming a public
offering price of $9.00 per share and after deducting underwriting discounts and
commissions and estimated offering expenses of approximately $1.3 million,
$500,000 of which we have paid as of September 30, 2000.
We intend to use these net proceeds primarily for:
- technology research and product and services development;
- scale-up of sales and marketing;
- facilities expansion;
- 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 approximately $3.2 million for the payment of dividend arrearages at the
anticipated closing date of this offering 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 and our need to raise additional funds will
depend on numerous factors, including the scope, status and success 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 developments, the scope and success of our 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 material
potential acquisitions or investments. Other than the approximately $3.2 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.
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<PAGE> 20
CAPITALIZATION
The following table shows:
- our capitalization, dividends payable and short-term debt, as of
September 30, 2000;
- our capitalization, dividends payable and short-term debt, as of
September 30, 2000, on a pro forma basis, giving effect to:
- the sale of 411,409 shares of our Series C preferred stock in
October 2000, which will convert into 1,499,894 shares of our
common stock upon the closing of this offering, for aggregate gross
proceeds to us of $7.5 million;
- the sale of 168,148 shares of our common stock to Beckman Coulter
in October 2000, for aggregate gross proceeds to us of $960,922;
and
- the conversion of our Series A, Series B and Series C preferred
stock into 14,485,923 shares of our common stock on the closing of
this offering, as if such conversion had occurred at September 30,
2000; and
- our capitalization, dividends payable and short-term debt, as of
September 30, 2000, on a pro forma as adjusted basis, giving effect to
the sale of 6,000,000 shares of our common stock in this offering
assuming an initial public offering price of $9.00 per share, and the
receipt and application of the net proceeds from this offering.
For a more detailed discussion of the terms of the conversion of our
preferred stock, please refer to "Certain Transactions."
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30, 2000
----------------------------------
(UNAUDITED)
PRO PRO FORMA
ACTUAL FORMA AS ADJUSTED
-------- --------- -----------
(IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C> <C>
Dividends payable(1)........................................ $ -- $ 2,393 $ --
======== ======== ========
Current maturities of long-term debt........................ $ 1,035 $ 1,035 $ 1,035
======== ======== ========
Long-term debt less current maturities...................... $ 1,356 $ 1,356 $ 1,356
-------- -------- --------
Mandatorily redeemable convertible preferred stock, $.01 par
value; 4,374,500 shares authorized, 3,894,523 shares
issued and outstanding, actual; no shares authorized,
issued, or outstanding, pro forma and pro forma, as
adjusted.................................................. 41,521 -- --
-------- -------- --------
Stockholders' equity (deficit):
Preferred stock, $.01 par value; no shares authorized,
issued or outstanding, actual and pro forma; 5,000,000
shares authorized, no shares issued and outstanding pro
forma, as adjusted...................................... -- -- --
Common stock, $.01 par value, 25,520,000 shares
authorized, 4,270,054 shares issued and outstanding,
actual; 25,520,000 shares authorized, 18,924,125 shares
issued and outstanding, pro forma; 50,000,000 shares
authorized, 24,924,125 shares issued and outstanding,
pro forma, as adjusted.................................. 42 189 249
Additional paid-in capital................................ 14,656 62,098 111,008
Deferred compensation..................................... (4,392) (4,392) (4,392)
Accumulated deficit....................................... (30,024) (30,024) (30,024)
-------- -------- --------
Total stockholders' equity (deficit)...................... (19,718) 27,871 76,841
-------- -------- --------
Total capitalization...................................... $ 23,159 $ 29,227 $ 78,197
======== ======== ========
</TABLE>
---------------
(1)Dividends payable on a pro forma basis represent dividends accrued through
September 30, 2000. We expect to accrue an additional $841,000 in dividends
on our preferred stock from October 1, 2000 through the anticipated closing
of this offering. This amount is not included in dividends payable on a pro
forma basis.
The outstanding share information in the table above is as of September 30,
2000, and excludes:
- 3,636,600 shares of our common stock reserved for issuance under our stock
option plans, including options to purchase 1,555,067 shares of our common
stock that were outstanding, as of September 30, 2000, at a weighted
average exercise price of $0.53 per share; and options to purchase up to
1,350,000 shares of our common stock that we expect to grant on or about
the closing of this offering, at an exercise price equal to the initial
public offering price; and
- 1,422,645 shares of common stock issuable on exercise of outstanding
warrants, as of September 30, 2000, at a weighted average exercise price
of $2.41 per share.
16
<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 September 30, 2000, we had net tangible book value (deficit) of $(19.7
million), or $(4.62) per share of common stock. The sale of 411,409 shares of
our Series C preferred stock, which will convert into 1,499,894 shares of our
common stock upon the closing of this offering, for aggregate gross proceeds to
us of $7.5 million in October 2000 has no effect on net tangible book value. The
sale of 168,148 shares of our common stock for net proceeds of $960,922 after
September 30, 2000 would increase net tangible book value by $960,922, or $0.39
per share. The assumed conversion of our Series A, Series B, and Series C
preferred stock (including the shares of Series C preferred stock sold in
October 2000) that will occur on the closing of this offering would increase net
tangible book value by $46.6 million or $5.70 per share at September 30, 2000 on
a pro forma basis. The pro forma net tangible book value after giving effect to
the sale of our common stock and the conversion of our Series A, Series B and
Series C preferred stock into common stock, is $27.9 million or $1.47 per share.
After giving effect to the sale of 6,000,000 shares of our common stock in this
offering at an assumed initial public offering price of $9.00 per share and
receipt and application of the net proceeds therefrom after deducting
underwriting discounts and commissions and estimated offering expenses, our pro
forma as adjusted net tangible book value at September 30, 2000 would have been
$76.8 million, or $3.08 per share. This represents an immediate increase in net
tangible book value of $1.61 per share to existing stockholders and an immediate
and substantial dilution of $5.92 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....................... $ 9.00
Net tangible book value (deficit) as of September 30,
2000.................................................. $ (4.62)
Increase attributable to sale of common stock after
September 30, 2000 but prior to this offering......... 0.39
Increase attributable to conversion of Series A, Series
B and Series C preferred stock........................ 5.70
-------
Pro forma net tangible book value as of September 30,
2000.................................................. 1.47
Increase in net tangible book value attributable to new
investors............................................. 1.61
-------
Pro forma net tangible book value as of September 30, 2000,
as adjusted to give effect to this offering............... 3.08
------
Dilution to new investors................................... $ 5.92
======
</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 assuming the conversion of all of our outstanding
preferred stock into common stock, 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......... 18,925,800 75.9% $ 57,153,845 51.4% $ 3.02
New investors................. 6,000,000 24.1 54,000,000 48.6 9.00
---------- ----- ------------ -----
Total.................. 24,925,800 100.0% $111,153,845 100.0%
========== ===== ============ =====
</TABLE>
---------------
The outstanding share information set forth above is as of October 31, 2000, and
excludes:
- 3,636,600 shares of our common stock reserved for issuance under our stock
option plans, including options to purchase 1,553,393 shares of our common
stock that were outstanding, as of October 31, 2000, at a weighted average
exercise price of $0.53 per share; and options to purchase up to 1,350,000
shares of our common stock that we expect to grant on or about the closing
of this offering, at an exercise price equal to the initial public
offering price; and
- 1,425,031 shares of common stock issuable on exercise of outstanding
warrants, as of October 31, 2000, at a weighted average exercise price of
$2.41 per share.
To the extent that any outstanding options or warrants are exercised, new
investors will experience further dilution.
17
<PAGE> 22
SELECTED FINANCIAL DATA
We derived 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 from our financial statements included elsewhere in this
prospectus which have been audited by PricewaterhouseCoopers LLP, independent
accountants. We derived 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 from our audited financial statements not included in this prospectus. The
statements of operations data set forth below for the nine-month period ended
September 30, 1999 and 2000 and the balance sheet data as of September 30, 2000
have been derived from our unaudited interim financial statements which are
included elsewhere in this prospectus. The interim financial information has
been prepared on a basis consistent with that of the audited financial
statements and, in the opinion of our management, includes all adjustments,
consisting only of normal recurring adjustments, necessary for a fair
presentation of results of operations and financial position. Our historical
results are not necessarily indicative of results to be expected for any future
period. We derived the data presented below 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 and
nine-month period ended September 30, 2000 includes the assumed conversion of
our Series A, Series B and Series C preferred stock actually outstanding at the
end of each period into common stock at the beginning of each period, or the
date of issuance during that period, if later. For a more detailed discussion of
the terms of the conversion of our preferred stock, please refer to "Certain
Transactions."
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."
18
<PAGE> 23
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
FROM DATE SEPTEMBER 30,
OF INCEPTION YEAR ENDED DECEMBER 31, (UNAUDITED)
(MAY 3, 1995) TO -------------------------------------- ------------------
DECEMBER 31, 1995 1996 1997 1998 1999 1999 2000
----------------- ------- ------- ------- -------- ------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Revenues.................... $ 36 $ 363 $ 395 $ 2,273 $ 3,390 $ 1,517 $ 6,796
Operating costs and
expenses:
Costs of product sales.... -- -- -- -- 405 -- 2,190
Research and
development............. 57 257 1,486 3,948 9,509 6,532 9,988
Selling, general and
administrative.......... 83 578 1,334 1,834 3,933 2,950 5,596
------- ------- ------- ------- -------- ------- --------
Total operating costs
and expenses.......... 140 835 2,820 5,782 13,847 9,482 17,774
Loss from operations........ (104) (472) (2,425) (3,509) (10,457) (7,965) (10,978)
Interest income (expense),
net....................... (1) (5) (13) 14 (161) 55 (1,913)
------- ------- ------- ------- -------- ------- --------
Net loss.................... $ (105) $ (477) $(2,438) $(3,495) $(10,618) $(7,910) $(12,891)
Accrued and deemed dividends
and accretion on
mandatorily redeemable
convertible preferred
stock (1)................. -- -- -- (518) (933) (693) (30,156)
------- ------- ------- ------- -------- ------- --------
Net loss attributable to
common stockholders....... $ (105) $ (477) $(2,438) $(4,013) $(11,551) $(8,603) $(43,047)
======= ======= ======= ======= ======== ======= ========
Net loss per share-basic and
diluted................... $ (0.06) $ (0.15) $ (0.68) $ (1.09) $ (3.06) $ (2.28) $ (10.96)
======= ======= ======= ======= ======== ======= ========
Shares used to compute basic
and diluted net loss per
share..................... 1,731 3,240 3,600 3,676 3,771 3,768 3,926
======= ======= ======= ======= ======== ======= ========
Pro forma net loss per share
(2)....................... $ (1.07) $ (3.36)
======== ========
Shares used to compute pro
forma net loss per share
(2)....................... 9,899 12,459
======== ========
</TABLE>
---------------
(1) See Note 9 to our financial statements for an explanation of the increase
in net loss attributable to common stockholders due to dividends and
accretion on mandatorily redeemable convertible preferred stock.
(2) See Note 10 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.
<TABLE>
<CAPTION>
AS OF DECEMBER 31, AS OF
-------------------------------------------- SEPTEMBER 30,
1995 1996 1997 1998 1999 2000
---- ------ ------- ------- -------- -------------
(IN THOUSANDS) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents...................... $ 3 $1,389 $ 319 $ 662 $ 1,341 $ 23,034
Working capital (deficit)...................... (8) 1,375 (806) 409 (1,223) 19,395
Total assets................................... 72 1,679 745 3,963 5,860 32,052
Total long-term debt less current maturities... -- -- 500 653 3,745 1,356
Mandatorily redeemable convertible preferred
stock........................................ -- -- -- 6,252 12,153 41,521
Total stockholders' equity (deficit)........... 36 1,385 (1,053) (4,994) (15,734) (19,718)
</TABLE>
19
<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 primarily focused on 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. Our technologies and products are designed
to extend the power of genomics by defining the cellular functions of genes and
proteins. Our initial commercialization efforts focus on 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.
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 and
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 September
30, 2000, we had an accumulated deficit of approximately $30.0 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
NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999 (UNAUDITED)
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 we deliver prototype instruments under collaboration
agreements, we recognize revenues when the prototype is shipped to the customer.
When we receive payment for revenues under maintenance, support or cellular
analysis product development contracts in advance of the services performed, we
record deferred revenue related to these agreements. Revenues increased to $6.8
million for the nine months ended September 30, 2000 compared to $1.5 million
for the same period in 1999. The increase was primarily attributable to sales of
the ArrayScan II and Cellomics Store products. There were no commercial product
sales for the nine months ended September 30, 1999.
Costs of Product Sales. Costs of product sales consist primarily of labor
and material costs. Costs of product sales were $2.2 million for the nine months
ended September 30, 2000 due to the sale of commercial products. There were no
commercial product sales or costs related to product sales for the nine months
ended September 30, 1999.
Research and Development Expenses. Research and development expenses
consist primarily of salaries and related personnel costs, materials costs,
amounts paid to consultants and contractors, depreciation, facility costs and
other expenses related to the design, development, testing and enhancement of
our products. We expense research and development costs as incurred. Research
and development expenses increased to $10.0 million for the nine months ended
September 30, 2000 compared to $6.5 million for the same period in
20
<PAGE> 25
1999. Research and development expenses increased primarily as a result of
increased personnel costs related to product development. 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 $5.6 million for the nine months ended September 30, 2000
compared to $3.0 million for the same period in 1999. Selling, general and
administrative expenses increased due to the hiring of senior management and
sales personnel, amortization of deferred compensation associated with the
issuance of stock options, 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. We
initially record this amount as a charge to stockholders' equity with an
offsetting credit to additional paid-in-capital and amortize it 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
the provisions of Accounting Principles Board Opinion No. 25, "Accounting for
Stock Issued to Employees" ("APB 25") as amended by FASB Interpretation No. 44
(FIN 44) "Accounting for Certain Transactions Involving Stock Compensation - an
interpretation of APB 25," and comply with disclosure provisions of Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" ("SFAS 123"). We determine deferred compensation for options
granted to consultants and other non-employees in accordance with SFAS 123 as
the fair value of the equity instruments issued when such fair value is more
readily determinable than the value of the services rendered. We include
amortization expense in the respective categories of expense in the statement of
operations. For the nine months ended September 30, 2000 and 1999, respectively,
as a result of the grant of additional options, we recorded unamortized deferred
stock compensation of $6.5 million and $714,218, respectively. We recorded
amortization of deferred compensation of $3.5 million and $392,124 for the nine
months ended September 30, 2000 and 1999, respectively. At September 30, 2000,
unamortized deferred stock compensation was $4.4 million. We expect to record
amortization of deferred compensation of approximately $1.4 million over the
last quarter of 2000, $1.9 million in 2001, $870,000 in 2002 and $204,000 in
2003, relating to options granted in 1997, 1998, 1999 and through the third
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 nine-month period
ended September 30, 2000 was approximately $2.1 million compared to $156,909 for
the same period in 1999. Interest expense increased primarily due to a $1.7
million one-time non-cash charge related to common stock purchase warrants
issued during the first half in connection with the convertible demand notes
dated November 30, 1999 as well as increased borrowings under equipment
financing lines of credit and a senior term note. Interest income for the
nine-month period ended September 30, 2000 was $151,015 compared to $212,198 for
the same period in 1999.
Provision for Income Taxes. We incurred a net operating loss for the
nine-month period ended September 30, 2000 and consequently, we did not accrue
or pay any federal, state or foreign income taxes. As of September 30, 2000, we
had federal and state net operating loss carryforwards of approximately $23.6
million. The net operating losses and credit carryforwards expire at various
dates beginning in 2015 through 2019. The Commonwealth 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 limitations will
likely result in the expiration of net operating losses and
21
<PAGE> 26
credits before utilization. Management believes that there is sufficient
uncertainty regarding the realization of deferred tax assets such that a full
valuation allowance has been provided against these assets.
Deemed Dividend Upon Issuance of Convertible Preferred Stock. On February
23, 2000, we issued convertible preferred stock which contained a beneficial
conversion feature resulting in a non-cash deemed dividend charge of $6.5
million. On September 28, 2000, we issued Series C convertible preferred stock
which contained a similar beneficial conversion feature resulting in a non-cash
deemed dividend of $22.5 million. We recorded these deemed dividends by
offsetting charges and credits to additional paid-in capital, without any effect
on total stockholders' equity. The deemed dividends increased the loss
attributable to common stockholders in the calculation of basic net loss per
share for the nine-month period ended September 30, 2000. Also, in connection
with the sale of additional shares of our Series C preferred stock in October
2000, a deemed dividend of $7.5 million will be recorded in a similar manner
during the fourth quarter.
YEARS ENDED DECEMBER 31, 1999 AND 1998
Revenues. 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 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
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.
Selling, General and Administrative Expenses. 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.
Amortization of Deferred Compensation. For the years ended December 31,
1998 and 1999, we recorded unamortized deferred stock compensation of $259,000
and $2.2 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.
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.
22
<PAGE> 27
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
From inception, we have financed our operations 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 September 30, 2000, we received gross proceeds of
$46.4 million from the issuances of equity securities and $13.3 million from
product sales, collaboration agreements and grants. In addition, we received
$5.6 million from debt financings, of which $2.3 million was subsequently
converted into equity.
On September 28, 2000, we sold 1,234,230 shares of our Series C preferred
stock (which will be converted into 4,449,694 shares of our common stock upon
the closing of this offering) for aggregate gross proceeds to us of $22.5
million. In October 2000, we sold an additional 411,409 shares of our Series C
preferred stock (which will be converted into 1,499,894 shares of our common
stock upon the closing of this offering) for aggregate gross proceeds to us of
$7.5 million. We also paid $2.5 million in expenses related to the offering of
all of the shares of Series C preferred stock.
As of September 30, 2000, we had cash and cash equivalents of $23.0 million
and borrowing availability of $2.7 million under an equipment financing
arrangement. Cash used in operating activities increased to $9.6 million for the
nine-month period ended September 30, 2000 compared to $4.8 million for the same
period in 1999 and $7.2 million for 1999 compared to $4.3 million in 1998. The
increases were primarily due to increased costs 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, $1.1 million and $1.9 million in 1997, 1998, 1999 and for the
nine-month period ended September 30, 2000, respectively. We
23
<PAGE> 28
expect to continue to make significant investments in the purchase of property
and equipment to support our expanding operations and increases in our
manufacturing capacity.
Net cash provided by financing activities amounted to $500,000, $6.0
million, $8.9 million and $33.1 million in 1997, 1998, 1999 and for the
nine-month period ended September 30, 2000, respectively, which consisted
principally of net proceeds of $39.1 million from the sale of preferred stock,
$5.6 million from proceeds from debt financings and $4.8 million from the sale
of common stock. In September 1998, we entered into a $1.5 million non-revolving
equipment financing line of credit. At September 30, 2000, we had borrowed
approximately $1.5 million under the line of credit and, net of repayments,
approximately $960,000 was outstanding with interest rates ranging from 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. Our assets secure the term loan and include all of our intellectual
property but exclude $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 September 30, 2000, $1.1 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
September 30, 2000, we had net borrowings outstanding under that facility of
approximately $253,000 with interest rates at 11.0% to 12.0%. As of September
30, 2000, we had approximately $78,569 in capitalized lease obligations
outstanding.
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. In connection with this agreement, 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 of development costs incurred by Zeiss
through December 31, 1999. Through September 30, 2000, we have made capital
expenditures under this agreement totalling $300,000. In addition, we have
reimbursed Zeiss for one-half of the development costs with the remaining
balance of $1.0 million due during 2001.
Our capital requirements depend on numerous factors, including the scope,
status and success 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 developments, the scope and success of
our sales and marketing activities, changes in, or termination of, existing
collaboration and licensing arrangements, costs of acquisitions of or
investments in companies, technologies, products or assets 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, expand our facilities, 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 at least 2002. We may be required
to raise additional funds before that time or in the future and we cannot assure
you that additional financings will 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. We do not expect the adoption of SFAS 133 to have a
material impact on our results of operations or financial condition.
In December 1999, the SEC issued Staff Accounting Bulletin 101, or SAB 101,
Revenue Recognition, which outlines the basic criteria that must be met to
recognize revenue and provides guidance for presentation
24
<PAGE> 29
of revenue and for disclosure related to revenue recognition policies in
financial statements filed with the SEC. The application of SAB 101 had no
impact on our financial position or results of operations.
DISCLOSURE ABOUT MARKET RISK
INTEREST RATE RISK
We currently maintain an investment portfolio of primarily money market
investments and certificates of deposit 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.
FOREIGN CURRENCY EXCHANGE RATE FLUCTUATIONS
Our commitments to Zeiss described above are denominated in German 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 exchange rate fluctuations. Any foreign
currency revenues and expenses are translated into U.S. dollars 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 exchange rate fluctuation
exposure. We cannot assure you that any hedging transaction will adequately
protect us against currency exchange rate fluctuations or that these
transactions will not result in losses to us.
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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 products 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
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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
Growing research and development investments by the pharmaceutical and
biotechnology industries have historically fueled drug development. 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 expenditure 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 following four steps comprise the drug discovery process: 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. The dramatic increase in gene discovery,
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largely due to the emergence of genomics technology, has alleviated the
previous bottleneck in drug discovery of target identification.
- 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, some companies have introduced automated high throughput and
ultra high throughput screening systems. These systems can perform 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 utilizes 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 in the target identification and the primary screening steps have
occurred 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 approach
provides high content biological information about time, space and activity of
cells and cellular components, as it relates to a drug candidate's physiological
impact on specific cellular targets within, on and between cells. We are
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designing our high content screening products 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 products
have 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 for easy data exchange. In addition, we design our
informatics products 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 for the development of 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, searchable using
our proprietary 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 Knowledgebase can
become a powerful predictive tool to permit better decisions on what targets to
screen,
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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 follow:
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 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. We sell these consumable
reagents in kits called reagent kits. 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 products 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 approach,
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 into the same miniaturized format. 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 test plates 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.
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,
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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 and with Beckman Coulter relating to
marketing various of our products and automation for our CellChip 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. Our proprietary
informatics products then store, manage, analyze and mine the cellular data
generated. We are designing our cellular bioinformatics products, coupled with
internally and externally generated information, 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 test plates 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 test plate scanning hardware, using
fluorescence, a solid state camera, a Pentium-based PC with powerful software to
perform cellular 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. The ArrayScan Kinetics Workstation is
designed to allow researchers to perform complete, automated high content
screening on multiple plates of living cells. A working version of our ArrayScan
Kinetics Workstation is in 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.
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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 16 kits;
on our ArrayScan systems others in
development
(Pre-product
testing)
Custom Cellular Analysis Cellular analysis development services Commercialized
Development for customers
CellChip System Miniaturized cell analysis utilizing In development
small volume fluid control technology (Proof of
in collaboration with ACLARA concept of
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 Commercialized
software intended to allow hits and
leads to be identified and verified
Cellomics Discover Data visualization and mining software In development
incorporating a web browser-based (Prototype
interface to examine data in Cellomics products)
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 (Prototype
KNOWLEDGE interactions designed to create a products)
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.
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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 16 reagent
kits. We design our cellular analysis products for use in monitoring drug
effects in a variety of diseases such as cancer, diabetes and infectious
disease, as well as for 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
test plates, in order to understand a drug candidate's effect on a cell. We
designed our first commercialized HitKits 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 product 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 test plates. 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. We are designing our CellChip System to permit more rapid,
sophisticated and cost-effective cell analyses than presently permitted by the
current test plate 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 currently market 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 identified and verified.
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 examine data in Cellomics Screen and Cellomics Store.
Cellomics Discover will also automate quality assessment of screening data, and
correlate high content screening and high throughput
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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. We believe our Cellomics Knowledgebase will 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. We are developing our
virtual cell visualization tool to display the complex results of queries. 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 an integrated system capable of profiling
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 high
content screening can access and use patient tumor cells 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 product 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. As of October
31, 2000, we had 25 employees in sales and marketing, including five that are
dedicated sales people. Our executive business development team and a scientific
and applications support staff support the pre-sale and post-sale processes. In
June 2000, we formed a strategic relationship with Beckman Coulter which
includes a distribution agreement for some of our products. We describe this
relationship, including the distribution agreement, under "Corporate
Collaborations and Technology Access Programs" below.
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We also 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.
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 we require. Zeiss also provides standard industry warranties of one
year to replace parts. Our standard payment terms for the Zeiss products 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 Beckman Coulter for marketing some of our products
and to assist us in the development of our CellChip System. We also expect to
rely on ACLARA for some of the technologies to be used in our CellChip System.
Carl Zeiss Jena, GmbH. In April 1998, we formed a collaboration with Zeiss,
one of our early stockholders, relating to developing, manufacturing and
supplying 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
exclusively manufactures 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 market, sell and
service these products. The term of the overall agreement sets forth the prices
we will pay Zeiss for products they manufacture subject to renegotiation every
two years. Under the agreement, we own all intellectual property of components
specifically developed and manufactured for the ArrayScan products. Zeiss has
agreed not to use or incorporate this technology into competing products. The
initial exclusive supply period extends through September 2002 and can be
renewed for one additional year by mutual agreement. Under the terms of the
agreement, to maintain exclusivity, we must purchase a minimum of $3.3 million
in products from Zeiss by September 2001. 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 of development costs incurred through December 1999. Under the
terms of the February 2000 agreement, we have agreed to pay Zeiss the
development costs during 2000 and 2001, in equal installments of $1.0 million.
We have reimbursed Zeiss for $1.0 million of these development costs.
Under the terms of our sales and marketing agreement with Zeiss, we
exclusively sell and market Zeiss' Ultra High Throughput Screening System and
related products in North America. We also provide, at our expense, shipping,
installation and other support activities 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 may terminate our exclusivity immediately.
Under the terms of the agreement, we have agreed to purchase a minimum of
approximately $3.8 million and $6.0 million of Zeiss products for the 12 month
periods ending September 2001 and 2002, respectively. If we
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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 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.
Beckman Coulter, Inc. In June 2000, we entered into a strategic
relationship agreement with Beckman Coulter. We appointed Beckman Coulter as our
commission sales representative for North America and a number of countries in
Europe to sell our ArrayScan II high content screening product and our Cellomics
Store and Cellomics Screen informatics products. They will become our exclusive
distributor for these products as well as for our ArrayScan Kinetics Reader upon
completion of its development and our certifying that we can deliver it in
commercial quantities. We also appointed Beckman Coulter as our commission sales
representative in North America and a number of European countries primarily for
large volume purchasers of our HitKit reagents for high content screening.
Beckman Coulter has the right to expand its territory to include Japan. We are
free to sell our other products that we are developing such as our Knowledgebase
bioinformatics product. To maintain exclusivity, Beckman Coulter will have to
meet sales objectives for the first two years, and thereafter will have to meet
sales objectives that we negotiate with them in the future. We will provide
marketing, training, technical and customer assistance to Beckman Coulter and
are responsible for customer warranties for the first year. We have also granted
Beckman Coulter a right to fund and acquire the exclusive license for a future
version of our Cellomics Store and Cellomics Screen informatics products that we
are developing for high throughput screening in exchange for royalty payments.
Apart from the distribution arrangements, Beckman Coulter has agreed to provide
automation design for our CellChip product. If we complete development of our
CellChip product and, if at that point in time the parties have mutually agreed
to proceed forward and, if Beckman Coulter is the developer of the automation
portion of this product, Beckman Coulter shall manufacture the automation
portion and exclusively distribute the CellChip System and related informatics
products with the right to distribute (co-exclusively with us) CellChip
consumables in the fields of clinical research and in vitro diagnostics. We will
retain rights for the distribution of CellChip consumables in all markets.
Beckman Coulter can obtain a non-exclusive license to use our Knowledgebase
bioinformatics product which is under development. We intend to explore joint
programs with the potential of cross licensing key technologies upon terms to be
mutually agreed to by both parties for the fields of high content screening,
flow cytometry and of high throughput screening. We and Beckman Coulter will
also each contribute $1.0 million in funds, products or resources to
universities and nonprofit research institutes for cell research during the term
of the agreement. The strategic relationship agreement has a ten year term,
although Beckman Coulter has the right to terminate it for any reason with 12
months' prior written notice to us. In the event of such notice, Beckman
Coulter, under certain conditions, cannot manufacture, sell, distribute or
service products that compete with our products which they distributed, and we
cannot manufacture, sell distribute or service products that compete with
specified Beckman Coulter products for a defined period of time. Under a
separate agreement, Beckman Coulter purchased approximately $5.8 million of our
common stock.
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 owns 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. ACLARA has
agreed to enter into a supply agreement with us upon commercialization of the
CellChip System. 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
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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 must commercialize a licensed
fluorescence-based reagent within three years and generate royalties of $50,000
per year for each specific fluorescence-based reagent within five years. In the
event we do not meet these conditions, the exclusive license immediately becomes
non-exclusive. 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 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 $3.4 million to date and expect to receive
an additional $45,000 from the collaborators referenced above related to the
achievement of milestones, research and development funding and license fees. We
have also paid approximately $2.1 million to date and we are committed to pay
approximately $1.9 million to the collaborators referenced above relating to
capital expenditures, the achievement of milestones, research and development
funding and license fees. In addition, in connection with our strategic
relationship agreement with Beckman Coulter, we have committed to contribute
$1.0 million in funds, products or resources to universities and nonprofit
research institutes for cell research.
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 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
Rapidly evolving technology and intense competition characterize the
biotechnology and pharmaceutical industries. 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.
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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 render our products or
technologies obsolete. Less expensive or more effective products of our
competitors based on similar or other technologies could also render our
products obsolete.
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 two issued U.S. patents and have over 40 U.S.
patent applications pending, of which over 15 are provisional patent
applications. In addition, we have patents pending in other countries and
jurisdictions.
We direct our patents and applications 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 grids;
- devices for the control of small fluid volumes;
- informatics software;
- bioinformatics software; and
- cell screening instrumentation, devices, and operating software.
We hold one exclusive license covering 14 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. We require our employees, consultants,
and outside scientific collaborators to execute confidentiality agreements upon
commencing employment or consulting relationships with us. In the case of
employees, the agreement provides that all inventions they conceive during
employment will be our exclusive property.
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Patents may provide some degree of protection for our intellectual
property. However, 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, we cannot assure you
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 October 31, 2000, we had 129 full-time employees, 25 in sales and
marketing, including five that are dedicated sales people, 35 in
informatics/bioinformatics, 40 in cellular analysis tools/kit development/
manufacturing, 16 in research and development and 13 in administration. We have
no collective bargaining agreements. We have not 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.
We do not employ any of our scientific advisors, 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 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 the 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. is the Ronald P. Lynch Dean of Agriculture and Life
Sciences at Cornell University.
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 an Associate Professor of Chemistry at the
University of Chicago.
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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 recently retired from his position as the Vice
President, Pathology and Experimental Toxicology, at Warner Lambert/Parke-Davis
Pharmaceutical Research. He is currently Professor of Pathology and Director,
Cell Toxicity Laboratory, Department of Pathology, The University of Michigan
Medical School, Ann Arbor, Michigan.
George N. Pavlakis, MD, Ph.D. is the Head of the Human Retrovirus Section
at the National Cancer Institute.
FACILITIES
We lease approximately 51,000 square feet of leased space in Pittsburgh,
Pennsylvania for our research and development, manufacturing and administrative
facilities. Our leases initially expire in April and June 2001. We believe that
our current facilities are adequate to meet our immediate needs. We will require
additional space as we expand our research and development activities and
production capabilities. We are currently exploring options for meeting our
future facilities needs. 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.
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MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
Our directors and executive officers, and their ages and positions as of
October 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.............................. 42 Executive Vice President and Chief Information Officer
L. Robert Johnston, Jr. ..................... 40 Executive Vice President and Chief Financial Officer
Michael A. Nemzek............................ 40 Chief Business Officer
Alan W. Seadler, Ph.D. ...................... 52 Chief Operating Officer
William Busa, Ph.D. ......................... 48 Chief Scientific Officer
Jefferson W. Paslay, Ph.D. .................. 54 Senior Vice President, Pharmaceutical Technology
Albert H. Gough, Ph.D. ...................... 47 Vice President, Research and Development
Paul Kinnon.................................. 37 Vice President, Sales
Terence M. Brady............................. 41 Vice President, Human Resources
John M. Boles................................ 64 Chairman of the Board and Director
Alan Mendelson............................... 52 Director
Arnold L. Oronsky, Ph.D. .................... 60 Director
Barclay Phillips............................. 38 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 Executive Vice President and
Chief Financial Officer since September 2000. From November 1998 to August 2000
he was our Vice President and Chief Financial Officer. Prior to joining our
company, Mr. Johnston was Senior Vice President, 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,
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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 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 Chief Scientific Officer since August
2000. From September 1999 to August 2000, Dr. Busa served as our Vice President
of Bioinformatics. 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.
Paul Kinnon has served as our Vice President, Sales since March 2000. From
September 1999 to March 2000, Mr. Kinnon served as our European Manager of
Sales. Prior to joining our company, he was the Sales and Marketing Director of
Porvair Sciences, Ltd., an original equipment manufacturer of microplates for
use in biotechnology research. Mr. Kinnon received his baccalaureate degree from
the Coventry University in Coventry, United Kingdom and a graduate degree from
the College for Distributed Trades in London.
Terence M. Brady has served as our Vice President, Human Resources since
October 2000. From August 1999 to October 2000, he served as our Director of
Human Resources, and from August 1998 to August 1999, he served as our Manager
of Human Resources. Prior to joining us, Mr. Brady was the Director of
Administration/Human Resources at City Source Associates, Inc., a non-profit
organization dedicated to promoting the Pittsburgh, Pennsylvania region. Mr.
Brady received a baccalaureate degree from the Indiana University of
Pennsylvania.
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John M. Boles has served as a director and our Chairman of the 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 served as the Managing
Partner of Boles Knop & Company LLC, an investment banking firm from 1996 until
August 2000. Mr Boles is currently the principal in Boles and 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.
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 Corixa Corporation, a
publicly traded company and Coulter Pharmaceutical, Inc., a publicly traded
company.
Barclay "Buck" Phillips has served as a Managing Director of Vector Fund
Management since 1999. Prior to joining Vector Fund Management, Mr. Phillips was
Director of Private Placements and Biotechnology Analyst for INVESCO Funds
Group, Inc. from 1991 to 1999. Mr. Phillips has in the past, and currently
serves as a director of a number of privately-held companies in the health care
industry. Mr. Phillips received his B.A. degree in Economics from the University
of Colorado in Boulder.
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 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, when
effective, will 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 will authorize our board of directors to fix the number of
directors at not less than one. The board of directors currently has six
members. The board of directors plans to increase the number of directors from
six to seven members following the offering.
There are no family relationships among any of our directors or executive
officers.
Our amended and restated certificate of incorporation will require 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,
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<PAGE> 48
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 was
granted an option to purchase 10,632 shares of our common stock in March 2000.
These options vest in two installments, on March 1, 2000 and March 1, 2001, for
our 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. Mr. Boles, our chairman, is an employee of Cellomics.
Neither Mr. Mendelson nor Dr. Oronsky 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 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)
Executive 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.
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<PAGE> 49
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 439,423 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........... -- -- -- -- -- -- --
L. Robert Johnston, Jr.... 15,950(2) 4% $0.18 11/9/09 $140,750 $218,349 $331,881
Michael Nemzek............ 15,950(3) 4 0.18 12/9/09 140,750 218,349 331,881
Alan Seadler.............. 47,850(4) 11 0.18 1/18/09 422,250 687,801 1,095,208
15,950(5) 4 0.18 6/25/09 140,750 229,267 365,069
</TABLE>
---------------
(1) The potential realizable values have been calculated using an assumed
initial public offering price of $9.00 per share.
(2) The vesting start date for the options to purchase 15,950 shares of common
stock granted to Mr. Johnston is November 9, 1998.
(3) The vesting start date for the options to purchase 15,950 shares of common
stock granted to Mr. Nemzek is December 2, 1998.
(4) The vesting start date for options to purchase 47,850 shares of common
stock granted to Mr. Seadler is January 18, 1999.
(5) The vesting start date for the options to purchase 15,950 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.............. 95,700 127,600 $844,500 $1,126,000
R. Terry Dunlay...................... 35,320 28,480 311,680 251,320
L. Robert Johnston, Jr............... 27,913 83,738 246,313 738,938
Michael Nemzek....................... 27,913 83,738 246,313 738,938
Alan Seadler......................... -- 79,750 -- 703,750
</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 $9.00
per share.
There were no options exercised during the year ended December 31, 1999.
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<PAGE> 50
1998 STOCK PLAN
Our stock plan was adopted by our board of directors on April 2, 1998. As
of October 31, 2000, there were outstanding options granted under this plan to
purchase 1,317,151 shares of our common stock. 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 were determined by our board of directors.
Outstanding 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 2,319,449 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.
As of October 31, 2000, we had granted options to purchase 1,553,393 shares
of our common stock at a weighted average exercise price of $0.53 per share. On
or about the closing of this offering, we expect to grant options to purchase an
aggregate of up to 1,350,000 shares of our common stock at an exercise price
equal to the initial public offering price.
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.
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<PAGE> 51
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 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, non-statutory 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 957,000, which amount shall be
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<PAGE> 52
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 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 bonus 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
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<PAGE> 53
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.
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, when made effective immediately prior to the completion of this
offering, will limit 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 will
provide that we will 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.
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<PAGE> 54
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
The following list sets forth our prior capital raising financings that
involved amounts in excess of $60,000 and that involved persons or a group of
affiliated persons known by us to be a record or beneficial owner of more than
five percent of the outstanding shares of our common stock, any of our directors
or any entity that is an affiliate of one of our directors, any of our named
executive officers or any affiliate of our named executive officers or any
member of the immediate family of any of the foregoing during the last three
years:
In each transaction set forth below 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.
January 1998 and 1999 Series A Preferred Financing
In January 1998, we sold 984,491 shares of our Series A preferred stock,
which will convert into 3,140,526 shares of our common stock upon the closing of
this offering, at a price of $1.76 per common share on an as-if-converted basis,
and issued warrants to purchase an aggregate of 851,424 shares of common stock
with exercise prices ranging from $1.76 to $2.07 per share, including:
- shares of Series A preferred stock convertible upon the closing of this
offering into 1,031,927 and 32,353 shares, and warrants to purchase
206,387 and 6,469 shares, of our common stock to InterWest Partners VI,
L.P. and InterWest Investors VI, L.P., respectively;
- shares of Series A preferred stock convertible upon the closing of this
offering into 780,472 shares, and warrants to purchase an additional
156,093 shares, of our common stock to Axiom Venture Partners II Limited
Partnership;
- shares of Series A preferred stock convertible upon the closing of this
offering into 696,970 and 12,549 shares, and warrants to purchase 139,393
and 2,511 shares, of our common stock to Delphi Ventures III, L.P. and
Delphi BioInvestments III, L.P., respectively; and
- shares of Series A preferred stock convertible upon the closing of this
offering into 162,231 and 121,577 shares, and warrants to purchase 32,445
and 24,317 shares, of our common stock to Oxford Bioscience Partners II,
L.P. and Oxford Bioscience Partners (Bermuda) II Limited Partnership,
respectively.
In January 1999, as a subsequent closing, we sold 889,680 shares of our
Series A preferred stock, which will convert into 2,838,079 shares of our common
stock on the closing of this offering at a price of $1.76 per share, including
shares of Series A preferred stock convertible upon the closing of this offering
into:
- 1,031,927 and 32,353 shares of our common stock to InterWest Partners VI,
L.P. and InterWest Investors VI, L.P., respectively;
- 780,472 shares of our common stock to Axiom Venture Partners II Limited
Partnership;
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- 696,970 and 12,549 shares of our common stock to Delphi Ventures III,
L.P. and Delphi BioInvestments III, L.P., respectively; and
- 162,231 and 121,577 shares of our common 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 23, 2000, the outstanding principal and interest on these
notes were exchanged for 152,593 shares of our Series B preferred stock, which
will convert into 486,772 shares of our common stock upon the closing of this
offering, at a price of $3.78 per common share on an as-if-converted basis, and
we issued warrants to purchase an aggregate of 261,580 shares of our common
stock. These warrants were issued at an exercise price of $3.78 per share.
The shares of Series B preferred stock and warrants issued in connection
with the conversion of the promissory notes included:
- shares of Series B preferred stock convertible upon the closing of this
offering into 196,667 and 6,163 shares, and warrants to purchase 105,682
and 3,314 shares, of common stock issued to InterWest Partners VI, L.P.
and InterWest Investors VI, L.P., respectively;
- shares of Series B preferred stock convertible upon the closing of this
offering into 79,696 and 1,432 shares, and warrants to purchase 42,827
and 772 shares, of common stock issued to Delphi Ventures III, L.P. and
Delphi BioInvestments III, L.P., respectively;
- shares of Series B preferred stock convertible upon the closing of this
offering into 148,743 shares, and warrants to purchase 79,929 shares, of
common stock issued to Axiom Venture Partners II Limited Partnership; and
- 19,800, 14,837 and 19,433 shares, and warrants to purchase 10,639, 7,975
and 10,443 shares, of common stock issued to Oxford Bioscience Partners
II L.P., Oxford Bioscience Partners (Bermuda) II Limited Partnership and
Oxford Bioscience Partners (GS-Adjunct) II L.P., respectively.
February 2000 Series B Preferred Financing
In February 2000, we sold 541,082 shares of our Series B preferred stock,
which will convert into 1,726,052 shares of our common stock upon the closing of
this offering, at a price of $3.78 per common share on an as-if-converted basis,
including shares of Series B preferred stock convertible upon the closing of
this offering into:
- 773,052 and 257,685 shares of our common stock to Vector Later-Stage
Equity Fund II (QP), L.P. and Vector Later-Stage Equity Fund II, L.P.,
respectively;
- 142,628 and 4,472 shares of our common stock to InterWest Partners VI,
L.P. and InterWest Investors VI, L.P., respectively;
- 103,847 and 1,869 shares of our common stock to Delphi Ventures III, L.P.
and Delphi BioInvestments III, L.P. respectively;
- 86,462, 64,795 and 84,864 shares of our common stock to Oxford Bioscience
Partners II, L.P., Oxford Bioscience Partners (Bermuda) II Limited
Partnership and Oxford Bioscience Partners (GS-Adjunct) II, L.P.,
respectively; and
- 66,074 shares to Axiom Venture Partners.
September 2000 and October 2000 Series C Preferred Financing
In September and October 2000, we sold 1,645,639 shares of our Series C
preferred stock, which will convert into 5,999,588 shares of our common stock
upon the closing of this offering, at a price of $5.71 per
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common share on an as-if-converted basis, including shares of Series C preferred
stock convertible upon the closing of this offering into:
- 1,399,902 shares of our common stock to Invesco Global Health Sciences
Fund;
- 449,969 and 149,990 shares of our common stock to Vector Later-Stage
Equity Fund II (QP), L.P. and Vector Later-Stage Equity Fund II, L.P.,
respectively;
- 366,646, 366,642, 366,642 and 299,972 shares of our common stock to
Amerindo Technology Growth Fund II Inc., Amerindo Internet Fund PLC,
Emerging Technology Portfolio and Litton Master Trust, respectively; and
- 299,980 shares to InterWest Partners VI, L.P.
Conversion of Preferred Stock
Our preferred stock will convert into 14,485,923 shares of our common stock
upon the closing of this offering. We must pay to all of the holders of the
preferred stock the dividend arrearages on their shares which are expected to
approximate $3.2 million as of the closing of this offering. Upon the closing of
this offering we expect to pay the following amounts to the indicated preferred
stockholders:
- InterWest Partners VI, L.P. and InterWest Investors VI, L.P. will be paid
approximately $810,458 and $24,605, respectively;
- Axiom Venture Partners II Limited Partnership will be paid approximately
$583,314;
- Delphi Ventures III, L.P. and Delphi BioInvestments III, L.P. will be
paid approximately $518,870 and $9,342, respectively;
- Oxford Bioscience Partners II, L.P., Oxford Bioscience Partners (Bermuda)
II Limited Partnership, Oxford Bioscience Partners (GS-Adjunct) II, L.P.
will be paid approximately $104,824, $78,556 and $80,793, respectively;
- Vector Later-Stage Equity Fund II (QP), L.P. and Vector Later-Stage
Equity Fund II, L.P. will be paid approximately $228,230 and $76,077,
respectively;
- Amerindo Internet Fund PLC, Amerindo Technology Growth Fund II Inc.,
Emerging Technology Portfolio and Litton Master Trust will be paid
approximately $31,343, $31,343, $31,343 and $25,643, respectively; and
- Invesco Global Health Sciences Fund will be paid approximately $113,534.
In connection with this offering, we amended our amended and restated
certificate of incorporation to provide for a reduction in the conversion price
of our Series C preferred stock, in the event that the initial public offering
price of our common stock is equal to or greater that $8.00 per share but less
than $11.43 per share and that offering is closed on or before January 15, 2001.
This reduction in the conversion price would result in the issuance of an
additional 750,000 shares of common stock to the holders or our Series C
preferred stock on conversion of their preferred stock upon the completion of
this offering. Without this amendment, our Series C preferred stock would have
automatically convert only on the initial public offering of our common stock at
an initial public offering price of our common stock equal to or greater than
$11.43 per share. The 14,485,923 shares of our common stock issuable on the
conversion of all of our outstanding shares of preferred stock includes these
additional 750,000 shares of common stock issuable to the holders of our Series
C preferred stock.
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. Alan Mendelson, a member of our board of directors,
is general partner of Axiom Ventures, an affiliate of Axiom Venture Partners.
Barclay Phillips, a member of our board of directors, is a Managing Director of
Vector Fund Management, an affiliate of Vector Later-Stage Equity Fund II (QP),
L.P. and Vector Later-Stage Fund II, L.P.
52
<PAGE> 57
ZEISS AGREEMENTS
In April 1998, we entered into a collaboration agreement with Zeiss. 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 of development costs
incurred by Zeiss through December 31, 1999. We have reimbursed Zeiss for $1.0
million of these development costs. Through September 30, 2000, we have made
capital expenditures under this agreement totaling $300,000. We also purchased
approximately $317,000 and $165,000 of components from Zeiss for our products in
1999 and 1998. Under this 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 remains 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.
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<PAGE> 58
PRINCIPAL STOCKHOLDERS
The following table sets forth, as of October 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 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 18,925,800 shares
of common stock outstanding as of October 31, 2000, assuming the conversion of
all of our outstanding shares of preferred stock, and also lists applicable
percentage ownership based on 24,925,800 shares of common stock outstanding
after the completion of this offering. Options to purchase shares of our common
stock that are exercisable or will become exercisable within 60 days of October
31, 2000 are deemed to be outstanding for the purpose of computing the
percentage of ownership of the persons or entity holding these options but are
not treated as outstanding for the purpose of computing any other person's or
entity'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. ............... 781,550 127,600 4.1% 3.1%
R. Terry Dunlay......................... 450,020 35,320 2.4 1.8
L. Robert Johnston, Jr. ................ 55,825 55,825 * *
Michael A. Nemzek....................... 55,825 55,825 * *
Alan W. Seadler, Ph.D. ................. 15,950 15,950 * *
John M. Boles........................... 661,038 7,088 3.5 2.7
Alan Mendelson.......................... 2,018,871(1) 7,088 10.7 8.1
James A. Sharp.......................... 7,088 7,088 * *
Arnold Oronsky, Ph.D. .................. 3,107,409(2) 7,088 16.4 12.5
Barclay Phillips........................ 1,630,696(3) -- 8.6 6.5
All executive officers and directors as
a group (15 persons).................. 8,943,374 477,973 46.1 35.2
</TABLE>
54
<PAGE> 59
<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............. 3,100,321(4) -- 16.4% 12.4%
Axiom Venture Partners II Limited
Partnership........................... 2,011,783(5) -- 10.6 8.1
Delphi Management III, L.L.C. .......... 1,791,387(6) -- 9.5 7.2
Vector Fund Management, L.P. ........... 1,630,696(3) -- 8.6 6.5
Invesco Global Health Sciences Fund..... 1,399,902(7) -- 7.4 5.6
Amerindo Technology Growth Fund II...... 366,642(8) -- 1.9 1.5
Amerindo Internet Fund.................. 366,646(9) -- 1.9 1.5
Emerging Technology Portfolio........... 366,642(10) -- 1.9 1.5
Litton Master Trust..................... 299,972(11) -- 1.6 1.2
OBP Management II, L.P.................. 675,938(12) -- 3.6 2.7
OBP Management (Bermuda) II Limited
Partnership........................... 267,689(13) -- 1.4 1.1
</TABLE>
---------------
* Less than 1%.
(1) Includes 1,775,761 shares of common stock beneficially owned by Axiom
Venture Partners II Limited Partnership and immediately exercisable
warrants to purchase 156,093 and 79,929 shares of common stock at exercise
prices of $2.07 and $3.78 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 2,703,128 shares of common stock beneficially owned by InterWest
Partners VI, L.P. and 75,341 shares of common stock beneficially owned by
InterWest Investors VI, L.P. Also includes immediately exercisable warrants
to purchase 206,387 and 105,682 shares of common stock at exercise prices
of $2.07 and $3.78 per share, respectively, held by InterWest Partners VI,
L.P. and immediately exercisable warrants to purchase 6,469 and 3,314
shares of common stock at exercise prices of $2.07 and $3.78 per share,
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 members' addresses are c/o InterWest
Partners, 3000 Sand Hill Road, Menlo Park, California 94025.
(3) Includes 1,223,021 shares of common stock beneficially owned by Vector
Later-Stage Equity Fund II (QP), L.P. and 407,675 shares of common stock
beneficially owned 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. Mr. Phillips is a Managing Director of Vector Fund Management. The
address of the funds is 1751 Lake Cook Road, Deerfield, Illinois 60015.
(4) Includes 2,703,128 shares of common stock beneficially owned InterWest
Partners VI, L.P. and 75,341 beneficially owned by InterWest Investors VI,
L.P. Also includes immediately exercisable warrants to
55
<PAGE> 60
purchase 206,387 and 105,682 shares of common stock at exercise prices of
$2.07 and $3.78 per share, respectively held by InterWest Partners VI, L.P.
and immediately exercisable warrants to purchase for 6,469 and 3,314 shares
of common stock at exercise prices of $2.07 and $3.78 per share,
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.
(5) Includes 1,775,761 shares of common stock that are beneficially owned by
Axiom Venture Partners II Limited Partnership and immediately exercisable
warrants to purchase 156,093 and 79,929 shares of common stock at exercise
prices of $2.07 and $3.78 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.
(6) Includes 1,577,484 shares of common stock beneficially owned by Delphi
Ventures III, L.P. and 28,401 shares of common stock held by Delphi
BioInvestments III, L.P. Also includes immediately exercisable warrants to
purchase 139,393 and 42,827 shares of common stock of exercise prices of
$2.07 and $3.78 per share, respectively, held by Delphi Ventures III, L.P.
and immediately exercisable warrants to purchase 2,511 and 772 shares of
common stock at exercise prices of $2.07 and $3.78 per share, 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. 1, Suite 135,
Menlo Park, California 94025.
(7) The address of the Invesco Global Health Sciences Fund is 7800, E. Union
Ave., Denver, Colorado, 80237.
(8) Voting and dispositive power are shared with Amerindo Investment Advisors,
Inc., a Panamanian corporation which is the investment advisor of Amerindo
Technology Growth Fund II, Inc. and Alberto W. Vilar and Gary A. Tanaka,
who are the only shareholders and directors of Amerindo Investment
Advisors, Inc. All of the above-referenced persons disclaim membership of
any group. Amerindo Investment Advisors, Inc. and each of Messrs. Vilar and
Tanaka each disclaim beneficial ownership of the above-referenced shares.
The address of the Amerindo Technology Growth Fund II is c/o Amerindo
Investment Advisors, 399 Park Avenue, 22nd Floor, New York, NY 10022.
(9) Voting and dispositive power are shared with Amerindo Investment Advisors
Inc., a California corporation, which is the manager of Amerindo Internet
Fund and Alberto W. Vilar and Gary A. Tanaka, who are the only shareholders
and directors of Amerindo Investment Advisors Inc. All of the
above-referenced persons disclaim membership of any group. Amerindo
Investment Advisors Inc. and each of Messrs. Vilar and Tanaka each disclaim
beneficial ownership of the above-referenced shares. The address of the
Amerindo Internet Fund is c/o Amerindo Investment Advisors, 399 Park
Avenue, 22nd Floor, New York, NY 10022.
(10) Voting and dispositive power are shared with Amerindo Investment Advisors
Inc., a California corporation which is the investment manager of Emerging
Technology Portfolio and Alberto W. Vilar and Gary A. Tanaka, who are the
only shareholders and directors of Amerindo Investment Advisors Inc. All of
the above-referenced persons disclaim membership of any group. Amerindo
Investment Advisors Inc. and each of Messrs. Vilar and Tanaka each disclaim
beneficial ownership of the above-referenced shares. The address of the
Emerging Technology Portfolio is c/o Amerindo Investment Advisors, 399 Park
Avenue, 22nd Floor, New York, NY 10022.
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<PAGE> 61
(11) Voting and dispositive power are shared with Amerindo Investment Advisors
Inc., a California corporation, which is the investment advisor of Litton
Master Trust and Alberto W. Vilar and Gary A. Tanaka, who are the only
shareholders and directors of Amerindo Investment Advisors Inc. All of the
above-referenced persons disclaim membership of any group. Amerindo
Investment Advisors Inc. and each of Messrs. Vilar and Tanaka each disclaim
beneficial ownership of the above-referenced shares. The address of the
Litton Master Trust is c/o Amerindo Investment Advisors, 399 Park Avenue,
22nd Floor, New York, NY 10022.
(12) Includes 314,110 and 308,301 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 32,445 and
10,639 shares of common stock at exercise prices of $2.07 and $3.78,
respectively held by Oxford BioScience Partners II, L.P. and a warrant to
purchase 10,443 shares of common stock at an exercise price of $3.78 held
by Oxford BioScience 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, Connecticut 06880-4739.
(13) Includes 235,396 shares of common stock held by Oxford Bioscience Partners
(Bermuda) Limited Partnership, warrants to purchase 24,317 and 7,975 shares
of common stock at exercise prices of $2.07 and $3.42, respectively held by
Oxford Bioscience Partners (Bermuda) II Limited Partnership. OBP Management
(Bermuda) II Limited Partnership is the general partner of Oxford
Bioscience Partners (Bermuda) II Limited Partnership. 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, Connecticut 06880-4739.
57
<PAGE> 62
DESCRIPTION OF CAPITAL STOCK
GENERAL
In accordance with our amended and restated certificate of incorporation,
which will be effective upon the closing of this offering, we are authorized to
issue up to 50,000,000 shares of common stock, par value $.01 per share, and
5,000,000 shares of undesignated preferred stock, par value $.01 per share. As
of October 31, 2000, assuming the conversion of all outstanding shares of Series
A, Series B and Series C preferred stock into common stock upon the consummation
of this offering, there were 18,925,800 shares of common stock outstanding held
by 37 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 October 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 24,925,800 shares of common stock
outstanding upon completion of this offering. This includes the conversion of
all outstanding shares of Series A, Series B and Series C preferred stock into
common stock upon the consummation of this offering. In addition, as of October
31, 2000, there were outstanding stock options to purchase 1,553,393 shares of
common stock.
On or about the closing of this offering, we expect to grant options to
purchase an aggregate of up to 1,350,000 shares of our common stock at an
exercise price equal to the initial public offering price.
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 will
be 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 or preventing a change in control of us or the removal of existing
management.
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<PAGE> 63
WARRANTS
As of October 31, 2000, 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 567,616 $2.07
Common stock warrants issued January 21,
1998........................................ January 20, 2003 283,808 1.76
Series A preferred stock purchase warrant
issued January 21, 1998..................... June 18, 2002 14,189 1.76
Series A preferred stock purchase warrant
issued January 21, 1998..................... July 31, 2002 170,285 2.65
Common stock subscription warrant issued June
30, 1999(1)................................. June 30, 2004 103,675 2.07
Common stock subscription warrant issued
August 30, 1999(1).......................... August 30, 2004 1,369 2.07
Common stock subscription warrant issued
October 4, 1999(1).......................... October 4, 2004 1,206 2.07
Common stock subscription warrant issued
December 14, 1999(1)........................ December 14, 2004 1,072 2.07
Common stock subscription warrant issued
October 31, 2000(1)......................... October 31, 2005 2,386 2.07
Common stock warrants issued February 23,
2000........................................ February 23, 2004 279,425 3.79
</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 1,425,031 shares of common stock will be adjusted if we issue
stock at prices below the exercise price of such warrants. Finally, we have
granted the holders of the warrants for the purchase of 1,031,515 shares of
common stock rights to register the common stock issuable upon exercise of the
warrants. We have agreed to issue warrants to a financial institution as partial
consideration for its extension of credit to us. If we borrow all of the
available credit under the agreement, we would issue warrants to purchase
approximately 34,321 shares of our common stock exerciseable at a price of $2.07
per share.
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
59
<PAGE> 64
- 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 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
60
<PAGE> 65
outstanding options or issue equivalent options, our board of directors is
required to accelerate vesting of options outstanding.
REGISTRATION RIGHTS
After the completion of this offering, the holders of approximately
15,778,785 shares of common stock held by purchasers of our preferred stock and
approximately 1,031,515 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, the Series B Preferred Stock
Purchase Agreement dated February 23, 2000, and the Series C Preferred Stock
Purchase Agreement dated September 27, 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 (i) 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; (ii) 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; and (iii) upon conversion of our Series C preferred
stock have the right, upon the request of more than 50% of them, to require us
to file a registration statement covering their registerable securities on Form
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, Series B and Series C 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
further provided each of these groups of stockholders 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 preferred stock purchase agreements provide 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 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.
STOCKHOLDERS AGREEMENT
In addition, on December 2000, some of our stockholders entered into an
agreement with each other and with us pursuant to which these stockholders
agreed not to offer or sell an aggregate of 14,005,411 shares of our common
stock until October 6, 2001, without our prior consent and the prior consent of
each of the other stockholders that are party to the agreement. We and the other
parties to this agreement may, at any time and without notice, waive any of the
terms of this agreement. The restrictions under this agreement are in addition
to those under the lock-up agreements with Prudential Securities Incorporated.
As part of this stockholders agreement, D. Lansing Taylor, R. Terry Dunlay
and John M. Boles have each agreed not to offer or sell 653,950, 414,700 and
653,950 shares of our common stock, respectively, until October 6, 2001, which
represent all of outstanding shares of our common stock held of record on the
date of this prospectus by these stockholders. Additionally, InterWest
Management VI LLC, Axiom Venture Partners II Limited Partnership, Delphi
Management III, L.L.C., Vector Fund Management, L.P., Invesco Global Health
Sciences Fund, Amerindo Technology Growth Fund II, Amerindo Internet Fund,
Emerging
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<PAGE> 66
Technology Portfolio, Litton Master Trust, OBP Management II, L.P., OBP
Management (Bermuda) II Limited Partnership, and other stockholders who are not
affiliates of the Company, have each agreed not to offer or sell 2,158,846,
1,065,456, 802,942, 1,373,011, 1,399,902, 366,646, 366,642, 366,642, 299,972,
622,411 and 235,396 shares of our common stock, respectively, which are held
beneficially by these stockholders, until October 6, 2001.
LISTING
Our common stock has been approved for quotation on 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.
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 24,925,800 shares
of common stock outstanding, or 25,825,800 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 18,925,800 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 the 18,925,800 shares of
our common stock that are not being sold in the offering but which were
outstanding as of October 31, 2000 will be eligible for sale into the public
market, except for 31,900 shares eligible for resale on the date of this
prospectus:
<TABLE>
<CAPTION>
NUMBER OF
SHARES DATE OF ELIGIBILITY FOR RESALE INTO PUBLIC MARKET
------------ ------------------------------------------------------------
<C> <S>
4,231,454 180 days after the date of this prospectus due to lock-up
agreements substantially all of our stockholders have
entered into with Prudential Securities Incorporated.
14,662,446 Between 180 and 365 days after the date of this prospectus
due to requirements of the federal securities laws and to
lock-up agreements some of our stockholders have entered
into with each other and with us.
</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.
In addition, on December 2000, some of our stockholders entered into an
agreement with each other and with us pursuant to which these stockholders
agreed not to offer or sell an aggregate of 14,005,411 shares of our common
stock until October 6, 2001, without our prior consent and the prior consent of
each of the other stockholders that are party to the agreement. We and the other
parties to this agreement may, at any time and without notice, waive any of the
terms of this agreement. The restrictions under this agreement are in addition
to those under the lock-up agreements with Prudential Securities Incorporated.
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<PAGE> 67
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, upon
completion of this offering, based on the shares of common stock
outstanding as of October 31, 2000 and assuming that the underwriters
exercise their over-allotment option in full, will equal approximately
258,300 shares; or
- the average weekly trading volume of the common stock on the Nasdaq
National Market during the four calendar weeks preceding the filing with
the Securities and Exchange Commission 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 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 eligible for sale in the open
market immediately after the lock-up agreements expire. As of October 31, 2000,
an aggregate of 1,553,393 shares of common stock were subject to outstanding
options. Additionally, on or about the closing of this offering, we expect to
grant options to purchase an aggregate of up to 1,350,000 shares of our common
stock at an exercise price equal to the initial public offering price.
As of the close of this offering, holders of 15,778,785 shares of common
stock and warrants exercisable to purchase 1,031,515 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."
63
<PAGE> 68
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.
Prudential Securities Incorporated, on behalf of the underwriters, may
engage in the following activities in accordance with applicable securities
rules:
- Create a syndicate short position by making short sales of our common
stock and may purchase our common stock on the open market to cover
syndicate short positions created by short sales. Short sales involve the
sale by the underwriters of a greater number of shares of common stock
than they
64
<PAGE> 69
are required to purchase in the offering. Short sales can be either
"covered" or "naked." "Covered" short sales are sales made in an amount
not greater than the underwriters' over-allotment option to purchase
additional shares in the offering. "Naked" short sales are sales in
excess of the over-allotment option. A naked short position is more
likely to be created if the underwriters are concerned that there may be
downward pressure on the price of the common stock in the open market
after pricing that could adversely affect investors who purchase in the
offering.
- Stabilizing and short covering. Stabilizing bids to purchase the shares
are permitted if they do not exceed a specified maximum price. Prudential
Securities Incorporated, on behalf of the underwriters, may close out any
covered short position by either exercising the over-allotment option or
purchasing shares in the open market and must close out any naked short
position by purchasing shares in the open market. In determining the
source of shares to close out the covered short position, Prudential
Securities Incorporated, on behalf of the underwriters, will consider,
among other things, the price of shares available for purchase in the
open market as compared to the price shares may be purchased through the
over-allotment option. 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 of 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 up to 300,000 shares of the
offering shares for sale at the same offering price directly to our officers,
directors, 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 17,213
shares of our Series B preferred stock and 27,966 shares of our Series C
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.
Prudential Securities Incorporated acted as the exclusive placement agent
in connection with the offer and sale of our Series C preferred stock. In
connection with their engagement as placement agent, Prudential Securities
Incorporated received customary fees based on a percentage of the gross proceeds
from the offering, in addition to the reimbursement of certain costs and
expenses related to the offering.
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.
65
<PAGE> 70
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 reports 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--Risks Related To Our Business--If our
intellectual property rights are not adequate, then third parties could use our
technologies and significantly impair our ability to compete," "Risk
Factors--Risks Related To Our Business--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 SEC. 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 SEC at 450 Fifth
Street, N.W., Room 1024, Washington, D.C. 20549, and at the regional offices of
the SEC 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. Information regarding the
operation of the Public Reference Room may be obtained by calling the SEC at
1-800-SEC-0330. The SEC maintains an Internet site that contains reports, proxy
and information statements and other information regarding issuers, like
Cellomics, that file information electronically with the SEC. The address of the
SEC's Internet site is http://www.sec.gov.
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.
66
<PAGE> 71
CELLOMICS, INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Report of Independent Accountants........................... F-2
Balance Sheets as of December 31, 1998 and 1999 and as of
September 30, 2000........................................ F-3
Statement of Operations for the years ended December 31,
1997, 1998 and 1999 and for the nine-month periods ended
September 30, 1999 and 2000............................... F-4
Statement of Stockholders' Equity for the years ended
December 31, 1997, 1998 and 1999 and for the nine-month
periods ended September 30, 1999 and 2000................. F-5
Statement of Cash Flows for the years ended December 31,
1997, 1998 and 1999 and for the nine-month periods ended
September 30, 1999 and 2000............................... F-6
Notes to Financial Statements............................... F-7
</TABLE>
F-1
<PAGE> 72
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
and Stockholders of
Cellomics, Inc.
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 of America. 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 of America 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 our opinion.
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Pittsburgh, Pennsylvania
March 3, 2000 except as to the
fourth paragraph of Note 9 which is
as of October 5, 2000, and Note 14
which is as of December 13, 2000
F-2
<PAGE> 73
CELLOMICS, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
SEPTEMBER 30, 2000
DECEMBER 31, PRO FORMA
--------------------------- SEPTEMBER 30, STOCKHOLDERS'
1998 1999 2000 EQUITY (NOTE 1)
----------- ------------ ------------- ------------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............ $ 662,454 $ 1,341,333 $ 23,034,134
Accounts receivable (Note 3)......... 1,357,733 1,572,282 3,137,446
Inventories.......................... 335,500 224,536 594,419
Prepaid expenses and other current
assets............................. 105,267 335,221 1,521,143
----------- ------------ ------------
Total current assets..................... 2,460,954 3,473,372 28,287,142
Property and equipment, net (Note 4)..... 1,501,790 2,386,555 3,764,603
----------- ------------ ------------
Total assets............................. $ 3,962,744 $ 5,859,927 $ 32,051,745
=========== ============ ============
LIABILITIES, MANDATORILY REDEEMABLE
PREFERRED STOCK AND STOCKHOLDERS'
EQUITY
Current liabilities:
Accounts payable..................... $ 644,429 $ 1,341,520 $ 2,800,933
Accrued expenses (Note 5)............ 1,067,099 915,339 3,117,868
Deferred revenue..................... 182,393 528,480 1,033,125
Payable to related party (Note 11)... -- 1,000,000 905,400
Current maturities of long-term debt
(Note 6)........................... 157,626 911,035 1,034,967
----------- ------------ ------------
Total current liabilities................ 2,051,547 4,696,374 8,892,293
Long-term debt less current maturities
(Note 6)............................... 653,180 3,744,546 1,356,463
Payable to related party (Note 11)....... -- 1,000,000 --
----------- ------------ ------------
Total liabilities........................ 2,704,727 9,440,920 10,248,756
----------- ------------ ------------
Commitments and contingencies (Notes 7
and 11)................................ -- -- --
Mandatorily redeemable convertible
preferred stock (Note 9)............... 6,252,356 12,152,654 41,521,247 --
----------- ------------ ------------
Stockholders' equity (deficit):
Common stock, $.01 par value;
15,950,000 shares authorized,
December 31, 1998 and 1999;
25,520,000 shares authorized,
September 30, 2000 and pro forma;
3,681,930, 3,777,978 and 4,270,054
shares issued and outstanding,
December 31, 1998 and 1999 and
September 30, 2000; 16,693,582
shares issued and outstanding, pro
forma.............................. 36,819 37,779 42,700 166,936
Additional paid-in capital........... 1,671,485 3,038,446 14,655,524 53,659,698
Deferred compensation (Note 9)....... (188,102) (1,677,528) (4,392,649) (4,392,649)
Accumulated deficit.................. (6,514,541) (17,132,344) (30,023,833) (30,023,833)
----------- ------------ ------------ -----------
Total stockholders' equity (deficit)..... (4,994,339) (15,733,647) (19,718,258) 19,410,152
----------- ------------ ------------ ===========
Total liabilities, mandatorily redeemable
preferred stock and stockholders'
equity................................. $ 3,962,744 $ 5,859,927 $ 32,051,745
=========== ============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements
F-3
<PAGE> 74
CELLOMICS, INC.
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
--------------------------
1997 1998 1999 1999 2000
----------- ----------- ------------ ----------- ------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues:
Product sales....................... $ -- $ -- $ 1,350,041 $ -- $ 5,390,006
Development and collaboration
agreement and grant revenues...... 394,935 2,273,082 2,040,410 1,517,688 1,406,349
----------- ----------- ------------ ----------- ------------
Total revenues................. 394,935 2,273,082 3,390,451 1,517,688 6,796,355
----------- ----------- ------------ ----------- ------------
Operating costs and expenses:
Costs of product sales (including
related party amounts of $100,697
in 1999; see Note 11)............. -- -- 404,785 -- 2,190,050
Research and development (including
related party amounts of
$2,165,334 in 1999; see Note
11)............................... 1,486,156 3,948,309 9,509,177 6,532,375 9,988,443
Selling, general and administrative
(including related party amounts
of $10,809, $168,998 and $110,617
in 1997, 1998 and 1999; see Note
11)............................... 1,334,014 1,834,044 3,933,687 2,950,011 5,596,065
----------- ----------- ------------ ----------- ------------
Total operating costs and
expenses..................... 2,820,170 5,782,353 13,847,649 9,482,386 17,774,558
----------- ----------- ------------ ----------- ------------
Loss from operations.................... (2,425,235) (3,509,271) (10,457,198) (7,964,698) (10,978,203)
Interest income (expense):
Interest expense.................... (37,950) (43,944) (302,040) (156,909) (2,064,301)
Interest income..................... 25,309 58,555 141,435 212,198 151,015
----------- ----------- ------------ ----------- ------------
Loss before income taxes................ (2,437,876) (3,494,660) (10,617,803) (7,909,409) (12,891,489)
Provision for income taxes (Note 8)..... -- -- -- -- --
----------- ----------- ------------ ----------- ------------
Net loss................................ (2,437,876) (3,494,660) (10,617,803) (7,909,409) (12,891,489)
Accrued and deemed dividends and
accretion on mandatorily redeemable
convertible preferred stock........... -- (518,017) (933,232) (693,170) (30,155,745)
----------- ----------- ------------ ----------- ------------
Net loss attributable to common
stockholders.......................... $(2,437,876) $(4,012,677) $(11,551,035) $(8,602,579) $(43,047,234)
=========== =========== ============ =========== ============
Net loss per share - basic and diluted
(Note 10)............................. $ (0.68) $ (1.09) $ (3.06) $ (2.28) $ (10.96)
=========== =========== ============ =========== ============
Shares used to compute basic and diluted
net loss per share.................... 3,600,394 3,675,658 3,770,590 3,768,373 3,926,103
=========== =========== ============ =========== ============
Pro forma net loss per share (Note
10)................................... $ (1.07) $ (3.36)
============ ============
Shares used to compute pro forma net
loss
per share............................. 9,898,982 12,458,747
============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements
F-4
<PAGE> 75
CELLOMICS, INC.
STATEMENT OF STOCKHOLDERS' EQUITY
<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........ 3,600,394 $36,004 $ 1,930,973 $ -- $ (582,005) $ 1,384,972
Net loss............................ -- -- -- -- (2,437,876) (2,437,876)
---------- ------- ----------- ----------- ------------ ------------
Balance at December 31, 1997...... 3,600,394 36,004 1,930,973 -- (3,019,881) (1,052,904)
Issuance of common stock for
anti-dilution rights.............. 81,536 815 (815) -- -- --
Issuance of stock options to
employees......................... -- -- 259,344 (259,344) -- --
Amortization of deferred
compensation...................... -- -- -- 71,242 -- 71,242
Accrued dividends and accretion on
mandatorily redeemable convertible
preferred stock................... -- -- (518,017) -- -- (518,017)
Net loss............................ -- -- -- -- (3,494,660) (3,494,660)
---------- ------- ----------- ----------- ------------ ------------
Balance at December 31, 1998...... 3,681,930 36,819 1,671,485 (188,102) (6,514,541) (4,994,339)
Issuance of common stock for
anti-dilution rights.............. 96,048 960 (960) -- -- --
Issuance of stock purchase
warrants.......................... -- -- 121,847 -- -- 121,847
Issuance of stock options to
employees......................... -- -- 2,179,306 (2,179,306) -- --
Amortization of deferred
compensation...................... -- -- -- 689,880 -- 689,880
Accrued dividends and accretion on
mandatorily redeemable convertible
preferred stock................... -- -- (933,232) -- -- (933,232)
Net loss............................ -- -- -- -- (10,617,803) (10,617,803)
---------- ------- ----------- ----------- ------------ ------------
Balance at December 31, 1999...... 3,777,978 37,779 3,038,446 (1,677,528) (17,132,344) (15,733,647)
Issuance of stock purchase warrants
(unaudited)....................... -- -- 1,715,504 -- -- 1,715,504
Beneficial conversion feature on
issuance of mandatorily redeemable
preferred stock (unaudited)....... -- -- 29,030,861 -- -- 29,030,861
Deemed dividend related to
beneficial conversion feature of
preferred stock (unaudited)....... -- -- (29,030,861) -- -- (29,030,861)
Issuance of stock options to
employees (unaudited)............. -- -- 6,467,182 (6,467,182) -- --
Exercise of stock options
(unaudited)....................... 3,190 32 528 -- -- 560
Issuance of common stock
(unaudited)....................... 488,886 4,889 4,795,089 -- -- 4,799,978
Forfeitures of stock options
(unaudited)....................... -- -- (236,341) 102,614 -- (133,727)
Amortization of deferred
compensation (unaudited).......... -- -- -- 3,649,447 -- 3,649,447
Accrued dividends and accretion on
mandatorily redeemable convertible
preferred stock (unaudited)....... -- -- (1,124,884) -- -- (1,124,884)
Net loss (unaudited)................ -- -- -- -- (12,891,489) (12,891,489)
---------- ------- ----------- ----------- ------------ ------------
Balance at September 30, 2000
(unaudited)..................... 4,270,054 $42,700 $14,655,524 $(4,392,649) $(30,023,833) $(19,718,258)
========== ======= =========== =========== ============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements
F-5
<PAGE> 76
CELLOMICS, INC.
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE NINE MONTHS
ENDED SEPTEMBER 30,
---------------------------
1997 1998 1999 1999 2000
----------- ----------- ------------ ----------- -------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss................................... $(2,437,876) $(3,494,660) $(10,617,803) $(7,909,409) $ (12,891,489)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization.......... 79,475 143,487 486,008 274,514 736,024
Amortization of deferred
compensation......................... -- 71,242 689,880 392,124 3,515,720
Interest charge related to convertible
notes................................ -- -- -- -- 1,715,504
Increase (decrease) in cash from changes
in:
Accounts receivable.................... 158,722 (1,357,733) (214,549) 1,208,445 (1,565,155)
Inventories............................ (119,770) (215,730) (147,036) (300,146) (369,883)
Prepaid expenses and other current
assets............................... (33,045) (67,473) (241,711) (95,559) (1,703,116)
Accounts payable and accrued
expenses............................. 538,644 883,600 545,331 238,520 1,588,804
Payable to related party............... -- -- 2,000,000 1,500,000 (1,094,600)
Deferred revenue....................... 450,000 (267,607) 346,087 (142,243) 504,645
----------- ----------- ------------ ----------- -------------
Net cash used in operating
activities......................... (1,363,850) (4,304,874) (7,153,793) (4,833,754) (9,563,546)
----------- ----------- ------------ ----------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures..................... (205,421) (1,377,681) (1,070,554) (869,796) (1,868,612)
----------- ----------- ------------ ----------- -------------
Net cash used in investing
activities......................... (205,421) (1,377,681) (1,070,554) (869,796) (1,868,612)
----------- ----------- ------------ ----------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from sale of mandatorily
redeemable convertible preferred
stock.................................. -- 5,214,788 4,967,066 4,967,066 28,880,055
Proceeds from issuance of convertible
notes and stock purchase warrants...... 500,000 -- 1,800,000 -- --
Proceeds from the sale of common stock... -- -- -- -- 4,800,538
Borrowings under term note and equipment
financing facilities................... -- 879,762 2,415,952 2,282,995 137,094
Repayment of term note and equipment
financing facilities borrowings........ -- (68,956) (279,792) (189,392) (692,728)
----------- ----------- ------------ ----------- -------------
Net cash provided by financing
activities......................... 500,000 6,025,594 8,903,226 7,060,669 33,124,959
----------- ----------- ------------ ----------- -------------
Net (decrease) increase in cash and cash
equivalents................................ (1,069,271) 343,039 678,879 1,357,119 21,692,801
CASH AND CASH EQUIVALENTS:
Beginning of period...................... 1,388,686 319,415 662,454 662,454 1,341,333
----------- ----------- ------------ ----------- -------------
End of period............................ $ 319,415 $ 662,454 $ 1,341,333 $ 2,019,573 $ 23,034,134
=========== =========== ============ =========== =============
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for interest................... $ -- $ 17,487 $ 252,794 $ 156,909 $ 267,869
=========== =========== ============ =========== =============
NON-CASH TRANSACTIONS:
Conversion of notes and accrued interest
to mandatorily redeemable convertible
preferred stock........................ $ -- $ 519,550 $ -- $ -- $ 1,841,863
=========== =========== ============ =========== =============
Accrued and deemed dividends and
accretion on mandatorily redeemable
convertible preferred stock............ $ -- $ 518,017 $ 933,232 $ 693,170 $ 30,155,745
=========== =========== ============ =========== =============
Deferred compensation on options granted
to employees........................... $ -- $ 259,344 $ 2,179,306 $ 714,218 $ 6,467,182
=========== =========== ============ =========== =============
</TABLE>
The accompanying notes are an integral part of these financial statements
F-6
<PAGE> 77
CELLOMICS, INC.
NOTES TO FINANCIAL STATEMENTS
(INFORMATION AS OF SEPTEMBER 30, 2000 AND FOR THE NINE-MONTH PERIODS ENDED
SEPTEMBER 30, 1999 AND 2000 IS UNAUDITED)
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.
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 fourth 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.
Unaudited Pro Forma Stockholders' Equity
If the initial public offering is consummated as presently anticipated, all
shares of Series A, Series B and Series C preferred stock outstanding at
September 30, 2000 will convert into 12,423,528 shares of common stock (see
Note 9). The unaudited pro forma stockholders' equity reflects the assumed
conversion of all shares of Series A, Series B, and Series C preferred
stock into common stock as if such conversion had occurred as of September
30, 2000, at the conversion price then in effect.
Unaudited Interim Financial Statements
The unaudited balance sheet as of September 30, 2000, the unaudited
statement of stockholders' equity for the nine-month period ended September
30, 2000 and the unaudited statements of operations and cash flows for the
nine-month periods ended September 30, 1999 and 2000, in the opinion of
management, have been prepared on the same basis as the accompanying
audited financial statements, and include all adjustments necessary for the
fair presentation of the results of the interim period. All adjustments
reflected in the interim financial statements are of a normal recurring
nature. The data disclosed in the notes to the interim financial statements
for these periods are also unaudited. As permitted under Article 10 of
Regulation S-X, the notes to these financial statements do not include
certain disclosures relating to the interim periods.
F-7
<PAGE> 78
CELLOMICS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF SEPTEMBER 30, 2000 AND FOR THE NINE-MONTH PERIODS ENDED
SEPTEMBER 30, 1999 AND 2000 IS UNAUDITED)
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.
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 and 1998, approximately 97%
and 60% of revenues were concentrated with three customers. During fiscal
year 1999, approximately 93% of revenues were concentrated with four
customers. For the nine-month period ending September 30, 2000, 31% of our
revenue was concentrated with two customers. No other customer accounted
for more than 10% of our revenue.
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.
F-8
<PAGE> 79
CELLOMICS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF SEPTEMBER 30, 2000 AND FOR THE NINE-MONTH PERIODS ENDED
SEPTEMBER 30, 1999 AND 2000 IS UNAUDITED)
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 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
F-9
<PAGE> 80
CELLOMICS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF SEPTEMBER 30, 2000 AND FOR THE NINE-MONTH PERIODS ENDED
SEPTEMBER 30, 1999 AND 2000 IS UNAUDITED)
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 the statement
of operations during the period in which they arise and are classified
according to the classification of the underlying transaction.
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. 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, 1999 and for the nine months ended September 30, 1999
and 2000, 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, based on the present nature of our
operations, is not anticipated to have a material impact on our results of
operations or financial position.
In December 1999, the SEC issued Staff Accounting Bulletin 101, or SAB 101,
Revenue Recognition, which outlines the basic criteria that must be met to
recognize revenue and provides guidance for presentation of revenue and for
disclosure related to revenue recognition policies in financial statements
filed with the SEC. The application of SAB 101 had no impact on our
financial position or results of operations.
F-10
<PAGE> 81
CELLOMICS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF SEPTEMBER 30, 2000 AND FOR THE NINE-MONTH PERIODS ENDED
SEPTEMBER 30, 1999 AND 2000 IS UNAUDITED)
3. ACCOUNTS RECEIVABLE
Accounts receivable consisted of:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------ SEPTEMBER 30,
1998 1999 2000
---------- ---------- -------------
<S> <C> <C> <C>
Product receivables............................ $ -- $1,233,995 $2,075,028
Development and collaboration agreement
receivables.................................. 919,338 -- 45,538
Grant receivables.............................. 438,395 338,287 1,016,880
---------- ---------- ----------
$1,357,733 $1,572,282 $3,137,446
========== ========== ==========
</TABLE>
Amounts receivable under grants include amounts billed under the contracts
as well as amounts for which invoices have not yet been rendered. Such
amounts are fully collectible under the contracts and do not include any
balances which are collectible beyond one year from the balance sheet date.
4. PROPERTY AND EQUIPMENT
Property and equipment consisted of:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------ SEPTEMBER 30,
1998 1999 2000
---------- ---------- -------------
<S> <C> <C> <C>
Computer equipment and software................ $ 471,672 $ 930,930 $1,713,187
Laboratory equipment........................... 1,172,083 1,894,762 2,708,118
Furniture and fixtures......................... 137,152 208,820 354,888
Leased assets and leasehold improvements....... -- 74,950 240,934
---------- ---------- ----------
Property and equipment, at cost........... 1,780,907 3,109,462 5,017,127
Less: accumulated depreciation................. 279,117 722,907 1,252,524
---------- ---------- ----------
Property and equipment, net............... $1,501,790 $2,386,555 $3,764,603
========== ========== ==========
</TABLE>
During 1999, $258,000 of inventory was transferred to property and
equipment.
5. ACCRUED EXPENSES
Accrued expenses consisted of:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------- SEPTEMBER 30,
1998 1999 2000
---------- -------- -------------
<S> <C> <C> <C>
Incentive compensation and other employee
costs......................................... $ 275,000 $422,081 $ 483,861
Professional services........................... 420,634 98,500 270,278
Preferred stock issuance costs.................. -- -- 2,040,000
Due to subcontractors........................... 158,986 191,119 9,492
Other........................................... 212,479 203,639 314,237
---------- -------- ----------
$1,067,099 $915,339 $3,117,868
========== ======== ==========
</TABLE>
F-11
<PAGE> 82
CELLOMICS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF SEPTEMBER 30, 2000 AND FOR THE NINE-MONTH PERIODS ENDED
SEPTEMBER 30, 1999 AND 2000 IS UNAUDITED)
6. LONG-TERM DEBT
Long-term debt consisted of:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------- SEPTEMBER 30,
1998 1999 2000
-------- ---------- -------------
<S> <C> <C> <C>
Equipment financing line of credit - 1998...... $810,806 $1,185,975 $ 960,009
Equipment financing line of credit - 1999...... -- 209,277 252,786
Senior term loan............................... -- 1,499,523 1,100,066
Convertible notes payable to related parties... -- 1,708,615 --
Capital lease obligations...................... -- 52,191 78,569
-------- ---------- ----------
Total long-term debt and capital lease
obligations............................. 810,806 4,655,581 2,391,430
Less: current maturities.................. 157,626 911,035 1,034,967
-------- ---------- ----------
Long-term debt less current maturities......... $653,180 $3,744,546 $1,356,463
======== ========== ==========
</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 and September 30, 2000 are $2,773,345 and $2,678,962,
respectively. The notes bear interest ranging from 11.0% to 12.0%.
As of December 31, 1999, the scheduled maturities of the lines of credit,
the senior term loan and the capital leases during each of the next five
years were $911,035 in 2000, $1,036,262 in 2001, $839,623 in 2002, $160,046
in 2003 and $0 in 2004.
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
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 was amortized to interest expense over the period from November 30,
1999 to April 1, 2000. 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 resulted in
an additional non-cash interest charge of $1.7 million related to the
Convertible Demand Notes during the first nine months of 2000. The
convertible notes were converted into Series B preferred stock on February
23, 2000 (see Note 9).
F-12
<PAGE> 83
CELLOMICS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF SEPTEMBER 30, 2000 AND FOR THE NINE-MONTH PERIODS ENDED
SEPTEMBER 30, 1999 AND 2000 IS UNAUDITED)
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,
$292,655, $217,236 and $317,485 for 1997, 1998, 1999 and for the nine
months ended September 30, 1999 and 2000, respectively. Minimum lease
commitments for facilities and equipment as of December 31, 1999 were 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 during
2000 totaling approximately $375,000.
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.
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 $ 7,066,305
Research and development credits..................... 282,995 703,469
Other, net........................................... (10,021) 51,380
----------- -----------
Total deferred tax assets................................. 2,992,332 7,821,154
Valuation allowance....................................... (2,992,332) (7,821,154)
----------- -----------
Net deferred tax assets................................... $ -- $ --
=========== ===========
</TABLE>
F-13
<PAGE> 84
CELLOMICS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF SEPTEMBER 30, 2000 AND FOR THE NINE-MONTH PERIODS ENDED
SEPTEMBER 30, 1999 AND 2000 IS UNAUDITED)
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 COMMON STOCK 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 2,024,500
shares of $.01 par value preferred stock. On February 23, 2000, the number
of authorized shares was increased to 2,724,500.
On January 21, 1998, through a private placement offering, the Company,
issued 984,491 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 92,447
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 889,680 shares of Series A Preferred Stock for gross proceeds of
$5 million.
On February 23, 2000, the Company issued 541,082 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 (see
Note 6), plus accrued interest of $41,868, converted by their original
terms and conditions into 152,593 shares of Series B Preferred Stock. The
Series B convertible preferred stock contains a beneficial conversion
feature resulting in a non-cash deemed dividend of $6.5 million which has
been recorded in the nine-month period ended September 30, 2000 by
offsetting charges and credits to additional paid-in capital. Although this
deemed dividend increased the loss attributable to common stockholders in
the calculation of basic net and diluted loss per share for the nine-month
period ended September 30, 2000, it has no effect on total stockholders'
equity.
On September 28, 2000, the Company issued 1,234,230 shares of Series C
mandatorily redeemable convertible preferred stock for gross proceeds of
$22.5 million. In October 2000, the Company issued 411,409 shares of Series
C mandatorily redeemable convertible preferred stock for gross proceeds of
$7.5 million. The Series C convertible preferred stock contains a
beneficial conversion feature resulting in a non-cash deemed dividend of
$30.0 million, of which $22.5 million has been recorded in the nine-month
period ended September 30, 2000 by offsetting charges and credits to
additional paid-in capital. The remaining $7.5 million will be recorded in
a similar manner during the fourth quarter of 2000. Although this deemed
dividend increases the net loss attributable to common stockholders in the
calculation of basic and diluted net loss per share, it has no effect on
total stockholders' equity.
Shares of Series A, Series B and Series C preferred stock are convertible
into common stock at the respective conversion prices for each series upon
the occurrence of specified future events. Shares of Series A, Series B and
Series C 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. Shares of Series B 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 two and one-half times the
original Series B Preferred Stock conversion price per
F-14
<PAGE> 85
CELLOMICS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF SEPTEMBER 30, 2000 AND FOR THE NINE-MONTH PERIODS ENDED
SEPTEMBER 30, 1999 AND 2000 IS UNAUDITED)
share, as defined, and which results in gross proceeds to the Company of at
least $20 million. Shares of Series C 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 two times the
original Series C preferred stock conversion price per share, as defined,
which results in gross proceeds to the Company of at least $20 million. The
conversion price of the Series C preferred stock was subsequently amended
(See Note 14).
The Series A, Series B and Series C preferred stockholders are entitled to
receive annual dividends at a rate of 8%. 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 and September 30, 2000,
cumulative dividends due Series A, Series B and Series C preferred
stockholders were equal to $458,067, $1.3 million and $2.4 million,
respectively. In addition, costs related to the issuance of the Series A,
Series B and Series C 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 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 $5.62 per share, the issuance price, plus any accrued
dividends in preference to the Common stockholders. Series B preferred
shareholders are entitled to receive, upon liquidation, a distribution of
$12.07 per share, the issuance price, plus any accrued dividends in
preference to the Common stockholders. Series C preferred stockholders are
entitled to receive, upon liquidation, a distribution of $18.23 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, Series B and Series C preferred stock, all
of the outstanding shares of Series A, Series B and Series C preferred
stock by paying in cash the sum of $5.62, $12.07 and $18.23 per share,
respectively, 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, Series B and Series C 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 319,000,000 to 15,950,000. On February 23, 2000, the number
of authorized shares of common stock was increased to 19,140,000. On
September 28, 2000, the number of authorized shares of common stock was
increased to 25,520,000.
Carl Zeiss, Inc. ("Carl Zeiss"), an existing stockholder, received a total
of 177,584 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.
F-15
<PAGE> 86
CELLOMICS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF SEPTEMBER 30, 2000 AND FOR THE NINE-MONTH PERIODS ENDED
SEPTEMBER 30, 1999 AND 2000 IS UNAUDITED)
On July 3, 2000, the Company sold 488,886 shares of common stock for net
proceeds of $4.8 million to Beckman Coulter, Inc.
Stock Purchase Warrants
In connection with the Series A private placement offering in 1998, the
Company issued 567,616 common stock purchase warrants to the investors. The
warrants are exercisable by the holders at any time at an exercise price of
$2.07 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 283,808 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 $1.76 per
share. The holders of the $500,000 convertible notes also received warrants
to purchase 57,829 shares of preferred stock prior to the termination date
of June 18, 2002 at exercise prices ranging from $5.62 to $8.42 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 $1.5 million Senior Term Debt Facility in June of
1999, the company issued warrants for the purchase of 103,675 shares of
common stock to the lender. The warrants are exercisable by the holder at
any time at an exercise price of $2.07 per share. The warrants expire on
June 30, 2004.
In connection with the July 1999 equipment financing line, the Company
agreed to issue warrants to the lender up to a maximum of 34,075 warrants
if the Company borrows the maximum under the facility. The warrants, when
issued, are exercisable for 5 years at an exercise price of $2.07 per
share. Through December 31, 1999, 3,646 warrants had been issued under this
facility.
In connection with the Convertible Demand Notes (Note 6), the holders
received warrants to purchase 261,580 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.
Stock Option Plans
1998 Plan
On April 2, 1998, the Company adopted the Stock Plan (the "1998 Plan")
under which 478,500 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 957,000, 1,371,700 and 2,328,700,
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. On March 1, 2000, in
connection with the adoption of the 2000 Stock Plan (see below), the board
of directors adopted a resolution prohibiting further grants under the 1998
Plan.
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.
F-16
<PAGE> 87
CELLOMICS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF SEPTEMBER 30, 2000 AND FOR THE NINE-MONTH PERIODS ENDED
SEPTEMBER 30, 1999 AND 2000 IS UNAUDITED)
2000 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. All shares reserved for issuance which were not granted under the
1998 Plan, as well as 41,151 additional shares, are reserved for awards
under the 2000 Plan. The 2000 Plan provides for issuance of stock-based
awards to employees, directors and consultants and expires March 1, 2010.
The total shares subject to awards authorized under the 1998 Plan and the
2000 Plan were 2,369,851 as of September 30, 2000.
The following table summarizes activity under the Plans:
<TABLE>
<CAPTION>
SHARES UNDER WEIGHTED AVERAGE
OPTION EXERCISE PRICE
------------ ----------------
<S> <C> <C>
Outstanding at December 31, 1997.......................... -- --
Granted................................................. 694,303 $0.18
Exercised............................................... -- --
Canceled................................................ -- --
---------
Outstanding at December 31, 1998.......................... 694,303 0.18
Granted................................................. 439,423 0.18
Exercised............................................... -- --
Canceled................................................ -- --
---------
Outstanding at December 31, 1999.......................... 1,133,726 0.18
Granted................................................. 450,211 $1.51
Exercised............................................... -- --
Cancelled............................................... (28,870) 1.33
---------
Outstanding at September 30, 2000......................... 1,555,067 $ .53
=========
</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, $2.2 million
and $6.5 million was recorded on these options in 1998, 1999, and for the
nine months ended September 30, 2000, 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 38,280 shares of common stock at an exercise price of
$0.18 per share. Deferred compensation of $14,890 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
F-17
<PAGE> 88
CELLOMICS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF SEPTEMBER 30, 2000 AND FOR THE NINE-MONTH PERIODS ENDED
SEPTEMBER 30, 1999 AND 2000 IS UNAUDITED)
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............................... $ (0.68) $ (1.09) $ (3.06)
Pro forma................................. (0.68) (1.09) (3.06)
</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.
The weighted average fair value of the options granted, determined using the
minimum value method, in 1998 and 1999 were $0.39 and $4.67, 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>
FOR THE NINE MONTHS
YEAR ENDED DECEMBER 31, ENDED SEPTEMBER 30,
------------------------------------------------------- -----------------------------------------
1999 2000
1997 1998 1999 PRO FORMA 1999 2000 PRO FORMA
----------- ----------- ------------ ------------ ----------- ------------ ------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
Numerator:
Net loss............... $(2,437,876) $(3,494,660) $(10,617,803) $(10,617,803) $(7,909,409) $(12,891,489) $(12,891,489)
Less: preferred stock
dividends............ -- (518,017) (933,232) -- (693,170) (30,155,745) (29,030,861)
----------- ----------- ------------ ------------ ----------- ------------ ------------
Net loss attributable
to common
stockholders......... $(2,437,876) $(4,012,677) $(11,551,035) $(10,617,803) $(8,602,579) $(43,047,234) $(41,922,350)
=========== =========== ============ ============ =========== ============ ============
Denominator:
Weighted average shares
- basic and
diluted.............. 3,600,394 3,675,658 3,770,590 9,898,982 3,768,373 3,926,103 12,458,747
=========== =========== ============ ============ =========== ============ ============
Basic and diluted net
loss per share......... $ (0.68) $ (1.09) $ (3.06) $ (1.07) $ (2.28) $ (10.96) $ (3.36)
=========== =========== ============ ============ =========== ============ ============
</TABLE>
Pro forma loss per share for the year ended December 31, 1999 and nine-month
period ended September 30, 2000 is computed assuming conversion of
convertible preferred stock outstanding at the end of each period into
common stock at the beginning of each period, or the date of issuance if
later. The convertible preferred stock will automatically convert to common
stock upon the completion of an initial public offering.
For 1997, 1998, 1999 and the nine months ended September 30, 1999 and 2000,
0, 3,546,451, 7,023,679, 6,631,198 and 10,674,850 shares, respectively, of
potential common stock were excluded because their effect was anti-dilutive.
On a pro forma basis for 1999 and the nine months ending September 30, 2000,
963,055 and 2,219,991 shares, respectively, of potential common stock
related to options and warrants were excluded because their effect was
anti-dilutive.
F-18
<PAGE> 89
CELLOMICS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF SEPTEMBER 30, 2000 AND FOR THE NINE-MONTH PERIODS ENDED
SEPTEMBER 30, 1999 AND 2000 IS UNAUDITED)
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 Zeiss for an additional DM 4.0 million ($2.0 million as of
December 31, 1999) for development costs incurred by Zeiss through December
31, 1999. During September, 2000, the Company paid $1.0 million of the
development costs. The remaining amounts are to be paid during 2001. The
total U.S. dollar equivalent of $2.0 million has been reflected in the
balance sheet at December 31, 1999 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.
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.
F-19
<PAGE> 90
CELLOMICS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF SEPTEMBER 30, 2000 AND FOR THE NINE-MONTH PERIODS ENDED
SEPTEMBER 30, 1999 AND 2000 IS UNAUDITED)
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 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
Sale of Common Stock
In October 2000, under its existing maintenance rights relating to its
earlier purchase of the Company's common stock and in conjunction with the
sale of Series C preferred stock, Beckman Coulter purchased 168,148 shares
of the Company's common stock for total proceeds of $960,922.
Sale of Preferred Stock
In October 2000, the Company issued an additional 411,409 shares of Series C
preferred stock for aggregate gross proceeds of $7.5 million and paid $2.0
million in placement agent fees associated with the sale of all of our
shares of Series C preferred stock. (See Note 9).
The following unaudited pro forma balance sheet information illustrates the
impact of the sales of common stock and Series C preferred stock subsequent
to September 30, 2000, as well as the conversion
F-20
<PAGE> 91
CELLOMICS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF SEPTEMBER 30, 2000 AND FOR THE NINE-MONTH PERIODS ENDED
SEPTEMBER 30, 1999 AND 2000 IS UNAUDITED)
of the Series A, Series B and Series C preferred stock into 14,485,923
shares of common stock upon the closing of the initial public offering as if
such transactions had occurred at September 30, 2000:
<TABLE>
<CAPTION>
SEPTEMBER 30, SEPTEMBER 30, 2000
2000 PRO FORMA
------------- ------------------
<S> <C> <C>
Cash..................................... $ 23,034,134 $29,455,022
Mandatorily redeemable convertible
preferred stock........................ 41,521,247 --
Common stock............................. 42,700 189,240
Additional paid-in capital............... 14,655,524 62,098,281
Total stockholders' equity (deficit)..... (19,718,258) 27,871,040
</TABLE>
Authorization of Shares for Employee Options
On November 10, 2000, the board of directors increased the number of shares
reserved for issuance under the 2000 Stock Option Plan by 479,001 bringing the
total number of shares reserved for issuance under the Company's stock option
plans to 2,848,852. In addition, the board adopted a resolution which will
further increase the number of shares reserved for issuance to 3,636,600 upon
the effectiveness of the Company's registration statement.
Stock Split
On December 7, 2000, the board of directors of the Company declared a 3.19-for-1
common stock split. All common stock and potential common stock share and per
share data in these financial statements have been retroactively adjusted to
reflect this change. In conjunction with the stock split and in accordance with
the terms of the preferred stock agreements, the conversion prices of the Series
A, Series B, and Series C preferred stock were adjusted to $1.76, $3.78, and
$5.71 per share, respectively.
Amendment to Preferred Stock Conversion Price
On December 13, 2000, the board of directors and stockholders adopted a
resolution decreasing the Series C conversion price to $5.00 per share if the
initial public offering is completed as anticipated prior to January 15, 2001.
The reduction in the conversion price will result in the issuance of an
additional 750,000 shares of common stock. The fair value of these additional
shares of $6.8 million will be reflected as a one-time non-cash dividend to the
Series C preferred stockholders during the fourth quarter. This deemed dividend
will increase the loss attributable to common stockholders' in the calculation
of basic and diluted earnings per share but will have no effect on total
stockholders' equity.
F-21
<PAGE> 92
[PHOTOGRAPHS AND DESCRIPTIONS OF OUR CURRENT PRODUCTS]
<PAGE> 93
--------------------------------------------------------------------------------
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> 94
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, when filed, will
require 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, when effective, will 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, when filed, will
provide 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
Unless otherwise indicated, the information in Item 15 assumes a 3.19-for-1
stock split of our common stock. 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 sold 81,536 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 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 January 15, 1999, in connection with the sale of Series A preferred
stock as described below (see "Preferred Stock," (ii)), the Company sold 96,048
shares of common stock to an existing stockholder
II-1
<PAGE> 95
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 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 July 3, 2000, the Company sold 488,887 shares of our common stock
to Beckman Coulter for aggregate proceeds to Cellomics of $4.8 million. On
October 25, 2000, and in connection with the July 3, 2000 agreement, we sold an
additional 168,148 shares of our common stock to Beckman Coulter for aggregate
proceeds to Cellomics of $960,922. 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.
Options. (i) From March 1, 1997 to the present, the Company has granted
employee stock options to purchase a total of 1,587,127 shares of common stock
to 107 employees, directors and consultants of the Company at an exercise prices
ranging from $.18 to $2.35 per share, respectively 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 issuance 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, this warrant was canceled and replaced with a warrant dated
January 21, 1998 to purchase 4,448 shares of preferred stock of the Company as
described in (iv) below. No underwriters were involved and no commission was
paid. 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.
(ii) On August 1, 1997, in connection with the issuance of convertible
notes as described below (see "Convertible Notes," (ii)), the Company issued a
warrant to one entity for the purchase of 53,381 shares of Series A preferred
stock of the Company at an exercise price of $8.43 per share of preferred stock
(or the equivalent of warrants to purchase 170,285 shares of our common stock
which will be issued upon the conversion of shares of our Series A preferred
stock at an exercise price of $2.64 per share of common stock). On January 16,
1998, this warrant was canceled and replaced with the warrant issued on January
21, 1998 to purchase 53,381 shares of preferred stock of the Company as
described in (v) below. No underwriters were involved and no commission was
paid. 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.
(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 seven persons or entities for the purchase of 567,616 shares
of common stock of the Company at an exercise price of $2.07 per share. 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 283,808 shares of common stock to two persons or entities with an
exercise price of $1.76 per share, as compensation for financial and advisory
services performed in connection with the transaction. 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.
(iv) On January 21, 1998, in connection with the issuance of convertible
notes as described below (see "Convertible Notes," (i)), the Company issued a
warrant to one entity for the purchase of 4,448 shares of Series A preferred
stock of the Company at an exercise price of $5.62 per share of preferred stock
(or the equivalent of warrants to purchase 14,189 shares of our common stock
which will be issued upon the conversion of shares of our Series A preferred
stock at an exercise price of $1.76 per share of common stock). 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 issuance of convertible
notes as described below (see "Convertible Notes," (ii)), the Company issued a
warrant to one entity for the purchase of 53,381 shares of Series A preferred
stock of the Company at an exercise price of $8.43 per share of preferred stock
(or the
II-2
<PAGE> 96
equivalent of warrants to purchase 170,285 shares of our common stock which will
be issued upon the conversion of shares of our Series A preferred stock at an
exercise price of $2.64 per share of common stock). 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
103,675 shares of common stock at an exercise price of $2.07 per share to one
financial institution as partial consideration for the issuance of a $1.5
million senior term loan to the Company. 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.
(vii) On August 30, 1999, October 4, 1999 and December 14, 1999, the
Company issued warrants for the purchase of 1,369, 1,206 and 1,072 shares of
common stock at an exercise price of $2.07 per share, 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 issued in 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
261,581 shares of common stock with an exercise price of $3.78 per share to
eight 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 issued in reliance on the
exemption from registration contained in Section 4(2) of the Securities Act for
transactions not involving a public offering.
(ix) On February 23, 2000, in connection with the issuance of convertible
notes as described below (see "Convertible Notes" (iii)), the Company issued
warrants to purchase 17,845 shares of common stock with an exercise price of
$3.78 per share to two 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 issued 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 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 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 issued 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 eight persons or entities
$1.8 million of convertible demand notes. No underwriters were involved and no
commission was paid. The notes 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.
Preferred Stock: (i) On January 21, 1998, the Company sold 1,069,130 shares
of Series A preferred stock (or the equivalent of 3,410,526 shares of our common
stock which will be issued upon the conversion of the shares of our Series A
preferred stock) to eight 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 283,808 warrants to purchase
common stock to two entities or persons, with an exercise price of $1.76 per
share as compensation for financial and advisory services performed in
connection with the transaction. In addition, two entities converted $500,000 of
notes plus accrued interest of $19,550 into 92,447 shares of Series A preferred
stock (or the equivalent of 294,906 shares of our common stock which will be
issued upon the conversion of the shares of our 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-3
<PAGE> 97
(ii) On January 15, 1999, eight entities purchased 889,680 shares of Series
A preferred stock (or the equivalent of 2,838,079 shares of our common stock
which will be issued upon the conversion of the shares of our 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 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.
(iii) On February 23, 2000, 12 persons or entities purchased 541,082 shares
of Series B preferred stock (or the equivalent of 1,726,052 shares of our common
stock which will be issued upon the conversion of the shares of our 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 eight persons
or entities on November 30, 1999 as described above (see "Convertible Notes,"
(iii) above)), plus accrued interest of $41,863, were converted into 152,593
shares of Series B preferred stock (or the equivalent of 486,772 shares of our
common stock which will be issued upon the conversion of the shares of our
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.
(iv) On September 27, 2000 and October 2, 2000, 14 qualified institutional
buyers (as such term is defined in Rule 144A under the Securities Act) and one
large institutional accredited investor purchased 1,645,639 shares of Series C
preferred stock (or the equivalent of 5,999,588 shares of our common stock which
will be issued upon the conversion of the shares of our Series C preferred
stock) from the Company for an aggregate purchase price of approximately
$30,000,000 before deducting commissions of approximately $1,865,000. The shares
were sold in reliance on the exemption from registration contained in Section
4(2) of the Securities Act for transactions not including a public offering, and
in accordance with Regulation D. Prudential Vector Healthcare, a unit of
Prudential Securities Incorporated, acted as placement agent for the offering.
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, who had access to all relevant information necessary to
evaluate the investment and who represented to 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(a ) Amended and Restated Certificate of Incorporation of
Cellomics*
3.1(b ) Amended and Restated Certificate of Incorporation of
Cellomics, as amended, being replaced by Exhibit 3.1(a)
above upon the consummation of Cellomics' initial public
offering of its common stock
3.2(a ) Bylaws of Cellomics*
3.2(b ) Bylaws of Cellomics being replaced by Exhibit 3.2(a) above
upon the consummation of Cellomics' initial public offering
of its common stock
4.1 Loan and Security Agreement with Transamerica Business
Credit Corporation, including warrant, dated June 30, 1999*
</TABLE>
II-4
<PAGE> 98
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION OF EXHIBIT
----------- ----------------------
<S> <C>
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 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.
("MPI"), dated April 5, 1999 (the "MPI Agreement")
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*
10.17 License and Supply Agreement Amendment, made as of April 5,
2000, by and between MPI and Cellomics amending the MPI
Agreement
10.18 Common Stock Purchase Agreement by and between Beckman
Coulter, Inc. and Cellomics, Inc., dated as of June 9, 2000
(the "Beckman Stock Purchase Agreement")*
10.19 Strategic Relationship Agreement by and between Cellomics,
Inc. and Beckman Coulter, Inc. as amended by Amendment No.
1, dated October 19, 2000, and Amendment No. 2, dated
October 18, 2000
10.20 Series C Preferred Stock Purchase Agreement by and among the
Purchasers listed on Exhibit A thereto and Cellomics, Inc.,
dated as of September 27, 2000*
10.21 First Amendment to the Beckman Stock Purchase Agreement,
dated as of October 25, 2000*
10.22 Notice of Sale, dated October 2, 2000, under the Beckman
Stock Purchase Agreement*
10.23 Amendment to the ACLARA Agreement, dated August 7, 2000
10.24 Cellomics, Inc. Employee Stock Purchase Plan
10.25 Cellomics, Inc. Stock Plan
10.26 Stockholders Lock-up Agreement, dated December 13, 2000**
21.1 List of subsidiaries of Cellomics*
</TABLE>
II-5
<PAGE> 99
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION OF EXHIBIT
----------- ----------------------
<S> <C>
23.1 Consent of PricewaterhouseCoopers LLP
23.2 Consent of Buchanan Ingersoll Professional Corporation
(contained in the opinion filed as Exhibit 5.1 to the
Registration Statement)**
24 Powers of Attorney of certain officers and directors of
Cellomics*
24.1 Power of Attorney of Barclay Phillips*
27 Financial Data Schedule*
27.1 Financial Data Schedule (Restated)*
</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.
II-6
<PAGE> 100
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, except as to the fourth paragraph of Note 9 which is as of October 5, 2000
and Note 14 which is as of December 13, 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 except as to the
fourth paragraph of Note 9 which is
as of October 5, 2000 and Note 14
which is as of December 13, 2000
II-7
<PAGE> 101
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
ADDITIONS
----------------------
BALANCE AT CHARGED TO CHARGED BALANCE AT
BEGINNING OF COSTS AND TO OTHER END OF
DESCRIPTION PERIOD EXPENSES ACCOUNTS DEDUCTIONS PERIOD
--------------------------------------- ------------ ----------- -------- ---------- ----------
<S> <C> <C> <C> <C> <C>
For the year ended December 31, 1997
Deferred tax valuation allowance..... $ 234,000 $ 840,000 $-- $-- $1,074,000
========== ========== === === ==========
For the year ended December 31, 1998
Deferred tax valuation allowance..... $1,074,000 $1,918,332 $-- $-- $2,992,332
========== ========== === === ==========
For the year ended December 31, 1999
Deferred tax valuation allowance..... $2,992,332 $4,114,329 $-- $-- $7,106,661
========== ========== === === ==========
</TABLE>
II-8
<PAGE> 102
ITEM 17. UNDERTAKINGS
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
The undersigned registrant hereby undertakes that:
(i) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part
of this registration statement in reliance upon Rule 430A and contained in
a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(ii) For the purpose of determining any liability under the Securities
Act of 1933, 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.
The undersigned registrant hereby undertakes to provide to the underwriter
at the closing specified in the underwriting agreements, certificates in such
denominations and registered in such names as required by the underwriter to
permit prompt delivery to each purchaser.
II-9
<PAGE> 103
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Company has duly caused Amendment No. 4 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 14th day of
December, 2000.
CELLOMICS, INC.
By: *
------------------------------------
D. Lansing Taylor, Ph.D.
President and Chief Executive
Officer
Pursuant to the requirements of the Securities Act of 1933, as amended,
Amendment No. 4 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 December 14, 2000
--------------------------------------------- Officer and Director (Principal
D. Lansing Taylor, Ph.D. Executive Officer)
/s/ L. ROBERT JOHNSTON, JR. Executive Vice President and Chief December 14, 2000
--------------------------------------------- Financial Officer (Principal
L. Robert Johnston, Jr. Financial and Accounting
Officer)
* Chairman of the Board of Directors December 14, 2000
---------------------------------------------
John M. Boles
* Director December 14, 2000
---------------------------------------------
Alan Mendelson
* Director December 14, 2000
---------------------------------------------
James A. Sharp
* Director December 14, 2000
---------------------------------------------
Arnold Oronsky, Ph.D.
* Director December 14, 2000
---------------------------------------------
Barclay Phillips
* /s/ L. ROBERT JOHNSTON, JR.
------------------------------------------
L. Robert Johnston, Jr., Attorney-in-fact
Dated: December 14, 2000
</TABLE>
II-10
<PAGE> 104
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION OF EXHIBIT
----------- ----------------------
<S> <C>
1.1 Form of Underwriting Agreement**
3.1(a ) Amended and Restated Certificate of Incorporation of
Cellomics*
3.1(b ) Amended and Restated Certificate of Incorporation of
Cellomics as amended, being replaced by Exhibit 3.1(a) above
upon the consummation of Cellomics' initial public offering
of its common stock
3.2(a ) Bylaws of Cellomics*
3.2(b ) Bylaws of Cellomics being replaced by Exhibit 3.2(a) above
upon the consummation of Cellomics' initial public offering
of its common stock
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 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.
("MPI"), dated April 5, 1999 (the "MPI Agreement")+
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 (the "ACLARA Agreement")+*
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*
10.17 License and Supply Agreement Amendment, made as of April 5,
2000, by and between MPI and Cellomics amending the MPI
Agreement+
10.18 Common Stock Purchase Agreement by and between Beckman
Coulter, Inc. and Cellomics, Inc., dated as of June 9, 2000
(the "Beckman Stock Purchase Agreement")*
10.19 Strategic Relationship Agreement by and between Cellomics,
Inc. and Beckman Coulter, Inc. as amended by Amendment No.
1, dated October 9, 2000, and Amendment No. 2, dated October
18, 2000+
10.20 Series C Preferred Stock Purchase Agreement by and among the
Purchasers listed on Exhibit A thereto and Cellomics, Inc.,
dated as of September 27, 2000*
10.21 First Amendment to the Beckman Stock Purchase Agreement,
dated as of October 25, 2000*
10.22 Notice of Sale, dated October 2, 2000, under the Beckman
Stock Purchase Agreement*
10.23 Amendment to the ACLARA Agreement, dated August 7, 2000+
10.24 Cellomics, Inc. Employee Stock Purchase Plan
10.25 Cellomics, Inc. Stock Plan
10.26 Stockholders Lock-up Agreement, dated December 13, 2000**
21.1 List of subsidiaries of Cellomics*
23.1 Consent of PricewaterhouseCoopers LLP
</TABLE>
<PAGE> 105
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION OF EXHIBIT
----------- ----------------------
<S> <C>
23.2 Consent of Buchanan Ingersoll Professional Corporation
(contained in the opinion filed as Exhibit 5.1 to the
Registration Statement)**
24 Powers of Attorney of certain officers and directors of
Cellomics*
24.1 Power of Attorney of Barclay Phillips*
27 Financial Data Schedule*
27.1 Financial Data Schedule (Restated)*
</TABLE>
---------------
* Previously filed.
**To be filed by amendment.
+ Portions of this exhibit have been omitted pursuant to a request for
confidential treatment.
