<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 17, 2000
REGISTRATION NO. 333-30896
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 2
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
VIROLOGIC, INC.
(NAME OF ISSUER IN ITS CHARTER)
<TABLE>
<S> <C> <C>
DELAWARE 8734 94-3234479
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (IRS EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
</TABLE>
270 EAST GRAND AVENUE
SOUTH SAN FRANCISCO, CA 94080
(650) 635-1100
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------
WILLIAM D. YOUNG
CHIEF EXECUTIVE OFFICER
VIROLOGIC, INC.
270 EAST GRAND AVENUE
SOUTH SAN FRANCISCO, CA 94080
(650) 635-1100
(NAME, ADDRESS, TELEPHONE NUMBER OF AGENT FOR SERVICE)
------------------------
COPIES TO:
<TABLE>
<S> <C>
FREDERICK T. MUTO, ESQ. MARK J. MIHANOVIC, ESQ.
CHRISTOPHER J. KEARNS, ESQ. MARC A. JONES, ESQ.
DANIEL P. DILLON, ESQ. MCDERMOTT, WILL & EMERY
COOLEY GODWARD LLP 2049 CENTURY PARK EAST
4365 EXECUTIVE DRIVE, SUITE 1100 SUITE 3400
SAN DIEGO, CALIFORNIA 92121 LOS ANGELES, CA 90067
(858) 550-6000 (310) 277-4110
</TABLE>
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after the Registration Statement becomes effective.
------------------------
If any of the securities being registered on this Form are being offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ] ______
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ] ______
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ] ______
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 2
SUBJECT TO COMPLETION, DATED APRIL 17, 2000
THE INFORMATION CONTAINED IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED.
THESE SECURITIES MAY NOT BE SOLD 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.
5,000,000 SHARES
[VIROLOGIC LOGO]
COMMON STOCK
$ PER SHARE
- --------------------------------------------------------------------------------
This is an initial public offering of common stock of ViroLogic, Inc.
We expect that the price to the public in the offering will be between $14.00
and $16.00 per share. The market price of the shares after the offering may be
higher or lower than the offering price.
We have applied to include the common stock on the Nasdaq National Market under
the symbol "VLGC."
INVESTING IN THE COMMON STOCK INVOLVES RISKS. SEE "RISK FACTORS" BEGINNING ON
PAGE 10.
<TABLE>
<CAPTION>
PER SHARE TOTAL
--------- -----------
<S> <C> <C>
Price to the public.................................. $ $
Underwriting discount................................
Proceeds to ViroLogic................................
</TABLE>
We have granted an over-allotment option to the underwriters. Under this option,
the underwriters may elect to purchase a maximum of 750,000 additional shares
from us within 30 days following the date of this prospectus to cover
over-allotments.
- --------------------------------------------------------------------------------
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS
PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
CIBC WORLD MARKETS
ING BARINGS
PRUDENTIAL VECTOR HEALTHCARE
A UNIT OF PRUDENTIAL SECURITIES
The date of this prospectus is , 2000.
<PAGE> 3
<TABLE>
<S> <C> <C>
PhenoSense HIV is a test that directly TEXT: PhenoSense HIV Test Procedure TEXT: 8. Analyze data and generate
measures the resistance of HIV to anti- patient report
viral drugs. When making HIV treatment
decisions, PhenoSense HIV provides TEXT: 1. Obtain a blood sample from TEXT: Blue curves represent drug-sensitive
direction and guidance toward the most patient control virus. Red curves represent
effective drugs. patient's virus.
ARTWORK: Picture of blood in vial
ARTWORK: Compass in a human hand TEXT: For example, patient's virus is
TEXT: 2. Isolate virus resistant to Lamivudine
TEXT: PhenoSense HIV Assay
ARTWORK: Picture of virus TEXT: Susceptible to Saquinavir
TEXT: Choosing the path of least
resistance TEXT: 3. Copy of viral genes TEXT: More susceptible to Efavirenz
ARTWORK: Picture representing vector ARTWORK: Picture of print-out report of
with indicator test results
TEXT: 4. Insert genes into our TEXT: PhenoSense HIV Assay
proprietary viral gene set
Choosing the path of least resistance
ARTWORK: Picture of resistance test
vector
TEXT: 5. Introduce gene set into
cells to produce virus
ARTWORK: Picture of assembled vector
inserted into cell
TEXT: 6. Add anti-viral drugs that
block virus reproduction or . . .
add anti-viral drugs that block
cell infection
TEXT: 7. Measure reproduction
indicator to evaluate drug
resistance
TEXT: Reduced drug effectiveness
indicated by greater reproduction
ARTWORK: Bar containing multiple
samples
TEXT: Increasing drug concentrations
</TABLE>
<PAGE> 4
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.......................................... 6
Risk Factors................................................ 10
Forward-Looking Statements.................................. 17
Use of Proceeds............................................. 18
Dividend Policy............................................. 18
Capitalization.............................................. 19
Dilution.................................................... 20
Selected Financial Data..................................... 21
Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 22
Business.................................................... 26
Management.................................................. 39
Principal Stockholders...................................... 48
Related Party Transactions.................................. 50
Description of Capital Stock................................ 51
Shares Eligible for Future Sale............................. 54
Underwriting................................................ 56
Legal Matters............................................... 58
Experts..................................................... 58
Where You Can Find More Information......................... 58
Index to Financial Statements............................... F-1
</TABLE>
5
<PAGE> 5
PROSPECTUS SUMMARY
This summary highlights information contained in other parts of this prospectus.
Because it is a summary, it does not contain all of the information that you
should consider before investing in the shares. You should read the entire
prospectus carefully.
THE COMPANY
We are a biotechnology company developing and marketing innovative products to
guide and improve treatment of viral diseases. We have developed a practical way
of directly measuring the impact of genetic mutations on drug resistance and
using this information to guide therapy. We have a proprietary technology,
called PhenoSense, for testing drug resistance in viruses that cause serious
diseases such as AIDS, hepatitis B and hepatitis C. We believe our products have
the potential to revolutionize the way physicians treat these diseases.
Our first product, PhenoSense HIV, is a test that directly and quantitatively
measures resistance of a patient's HIV to anti-viral drugs. The results help
physicians select appropriate drugs for their HIV patients. When a physician
requests a PhenoSense HIV test for a patient, a clinical laboratory or a
hospital draws a blood sample from the patient and then sends this sample to us.
We receive the sample and perform the test ourselves in our clinical laboratory
which contains all the equipment necessary to perform the test. We then send a
report detailing the results to the physician and invoice and receive payment
from the clinical laboratory or hospital that sent the blood sample to us. The
clinical laboratory or hospital is responsible for billing the patient or the
patient's insurance company, as appropriate. We began actively marketing
PhenoSense HIV to physicians in November 1999.
We are also developing PhenoSense products for other viral diseases.
Additionally, we are developing an interactive database built from the results
of our PhenoSense tests and other clinical data, which we call the Therapy
Guidance System. We intend to make the Therapy Guidance System available to
physicians via the Internet as a tool to guide patient therapy.
VIRAL DRUG RESISTANCE
Physicians treat viruses like HIV with drugs that inhibit the virus'
reproduction and therefore slow the progression of disease. However, during
reproduction, viruses often change slightly, or mutate. As a result, anti-viral
drugs are typically effective for only a limited time because viruses develop
resistance through mutation. To address this problem, physicians must use
anti-viral drugs in combination, to simultaneously attack different targets
within a virus and slow the development of drug resistance. However, even the
most potent drug combinations eventually fail in the majority of patients. A
physician who is able to select drugs that maximally suppress viral reproduction
and to avoid drugs to which a patient's virus is resistant is better positioned
to achieve long term clinical benefit for the patient. As a result, physicians
critically need products that can directly measure viral drug resistance.
Drug resistance in HIV is a serious crisis despite the availability of 14
approved drugs. HIV infection cannot be cured with these drugs, requiring
lifelong treatment with complex drug combinations. When these combinations fail,
which can occur multiple times per year for many patients, physicians must make
difficult treatment decisions to select effective alternative drugs. A panel led
by the Department of Health and Human Services has recently issued guidelines
that recommend routine use of resistance tests for HIV patients.
OUR SOLUTION
PhenoSense is our proprietary phenotypic drug resistance testing technology.
Phenotypic drug resistance tests directly measure the susceptibility of a
patient's virus to anti-viral drugs by adding a drug to a virus sample and
determining whether the virus reproduces. We believe that we are revolutionizing
phenotypic testing by avoiding the need to grow, or "culture," viruses during
testing, thereby dramatically shortening the time required to perform the tests
and improving the
6
<PAGE> 6
consistency and accuracy of the tests. Also, we can perform our tests in large
numbers, making them practical for routine use in managing patient care.
OUR PRODUCTS
PhenoSense HIV. PhenoSense HIV is a patented phenotypic drug resistance test
that directly measures the resistance of HIV to all approved HIV drugs.
Phenotypic resistance tests measure resistance by adding each drug to a virus
sample and determining whether the virus can reproduce in the presence of the
drug. Phenotypic resistance tests differ from genotypic tests, which attempt to
predict drug resistance by identifying certain mutations in a virus' genes that
may be associated with drug resistance.
HIV infects nearly one million people in the United States, of whom
approximately 300,000 are currently receiving anti-viral therapy. Assuming
resistance testing becomes widely accepted, we believe these treated patients
would require a total of at least 500,000 tests per year. We are marketing the
product to physicians in the United States through our own sales force,
initially focusing on the 1,000 leading physicians who treat 80% of the total
HIV/AIDS patient population.
When developing new drugs, overcoming resistance to existing drugs is a critical
objective. In November 1999, the FDA Antiviral Drugs Advisory Committee
emphatically recommended that resistance tests should be utilized in the
development of new anti-viral drugs for HIV. To date, we have signed testing
agreements with the following pharmaceutical and biotechnology companies
involved in AIDS drug development: Abbott Laboratories, Agouron, Bristol-Myers
Squibb, Gilead Sciences, Glaxo Wellcome and Merck.
In addition to increasing the use of PhenoSense HIV in clinical trials, we
intend to form collaborations with pharmaceutical companies for the application
of our viral resistance technology to the discovery and development of new
anti-viral drugs.
PhenoSense HBV. We are currently developing PhenoSense HBV for hepatitis B
virus. HBV infects over one million people in the United States, and we estimate
that approximately half of those infected would benefit from anti-viral drug
therapy. Pharmaceutical companies are developing additional drugs for treatment
of HBV infection, of which more than 15 drugs are in the preclinical or clinical
stage of development. Just as with HIV, we believe our PhenoSense HBV drug
resistance testing will play a significant role in guiding HBV treatment and in
clinical trials for new HBV drugs.
PhenoSense HCV. We have designed and intend to develop PhenoSense HCV, for
hepatitis C virus. HCV infects approximately four million people in the United
States, of whom we estimate that approximately 75% could benefit from anti-viral
drug therapy. Pharmaceutical companies are developing additional drugs for
treatment of HCV, many of which are in the preclinical or clinical stage of
development. We expect PhenoSense HCV will be used to assist in the discovery
and development of HCV drugs and, in the longer term, the assessment of drug
resistance in HCV patients.
Other Products. We are developing and marketing a number of additional products.
We sell GeneSeq HIV, a genotypic test. We are also developing a test to measure
viral fitness, a measure of a virus' ability to reproduce and infect new cells.
Therapy Guidance System. We are building a proprietary database of test results
and other patient information that we expect to combine with sophisticated data
mining and outcome modeling software to build our Therapy Guidance System. Our
Therapy Guidance System will be a computer tool designed to help physicians
select optimal therapies for each patient. We expect to provide our Therapy
Guidance System as a fee-based service over the Internet.
GENERAL INFORMATION
We were incorporated in Delaware in November 1995. Our principal executive
offices are located at 270 East Grand Avenue, South San Francisco, CA 94080. Our
telephone number is (650) 635-1100. Our website is located at
"www.virologic.com." We do not intend the information on our website to be
considered a part of or incorporated by reference into this prospectus.
7
<PAGE> 7
THE OFFERING
Common stock offered...................... 5,000,000 shares
Common stock to be outstanding after the
offering.................................. 19,687,397 shares
Use of proceeds........................... We intend to use the net proceeds
from this offering for sales and
marketing, capital expenditures
including the expansion of our
clinical laboratory capabilities,
research and development, and
general corporate purposes.
Proposed Nasdaq National Market symbol.... VLGC
The number of shares of common stock to be outstanding after the offering in the
table above is based on the number of shares outstanding as of March 24, 2000.
The number excludes:
- 1,434,028 shares of common stock issuable upon exercise of options
outstanding as of March 24, 2000, at a weighted average exercise price of
$3.45 per share
- 742,082 shares of common stock issuable upon exercise of warrants to
purchase our common stock or preferred stock outstanding as of March 24,
2000, at a weighted average exercise price of $4.82 per share
ViroLogic, the ViroLogic logo, PhenoSense, GeneSeq, Therapy Guidance System, TGS
and Choosing the Path of Least Resistance are trademarks of ViroLogic. All other
product names, trade names and trademarks included in this prospectus are the
property of their respective owners.
Unless otherwise stated, all information contained in this prospectus assumes:
- no exercise of the over-allotment option granted to the underwriters
- a one for two reverse stock split of our common stock, which was effected on
April 17, 2000
- the conversion of all outstanding shares of our preferred stock into shares
of common stock
8
<PAGE> 8
SUMMARY FINANCIAL INFORMATION
(in thousands, except per share data)
<TABLE>
<CAPTION>
PERIOD FROM
INCEPTION
(NOVEMBER 14,
1995) TO YEAR ENDED DECEMBER 31,
DECEMBER 31, ----------------------------
1996 1997 1998 1999
------------- ------- ------- --------
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenue...................................... $ -- $ -- $ 102 $ 1,069
Operating costs and expenses:
Cost of revenue............................ -- -- 17 627
Research and development................... 867 2,458 5,977 9,588
General and administrative................. 510 858 1,782 6,804
Sales and marketing........................ -- -- 484 1,196
------- ------- ------- --------
Total costs and operating expenses........... 1,377 3,316 8,260 18,215
------- ------- ------- --------
Operating loss............................... (1,377) (3,316) (8,158) (17,146)
Interest income.............................. 116 262 302 249
Interest expense............................. (13) (83) (198) (243)
------- ------- ------- --------
Net loss..................................... (1,274) (3,137) (8,054) (17,140)
Deemed dividend to preferred stockholders.... -- -- -- 3,100
------- ------- ------- --------
Net loss allocable to common stockholders.... $(1,274) $(3,137) $(8,054) $(20,240)
======= ======= ======= ========
Basic and diluted net loss per common
share...................................... $ (0.74) $ (1.21) $ (1.71) $ (4.24)
======= ======= ======= ========
Shares used in computing basic and diluted
net loss per common share.................. 1,720 2,591 4,700 4,772
Pro forma basic and diluted net loss per
common share............................... $ (2.53)
========
Shares used in computing pro forma basic and
diluted net loss per common share.......... 8,015
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1999
----------------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
-------- ------------ --------------
<S> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents........................ $ 2,208 $17,862 $85,912
Restricted cash.................................. 950 950 950
Working capital.................................. 522 16,176 84,226
Total assets..................................... 9,777 25,431 93,481
Long term obligations, less current portion...... 1,051 1,051 1,051
Total stockholders' equity....................... 4,698 20,352 88,402
</TABLE>
See notes to the financial statements for a description of the number of shares
used in the computation of the basic and diluted net loss per common share and
pro forma basic and diluted net loss per common share.
The pro forma balance sheet data above reflects the January and February 2000
sale of our Series C preferred stock for proceeds of approximately $15.7
million.
The pro forma as adjusted balance sheet data above gives effect to our sale of
5,000,000 shares to be sold in the initial public offering at an assumed
offering price of $15.00 per share, less underwriters' discounts and offering
expenses.
9
<PAGE> 9
RISK FACTORS
You should carefully consider the following factors and other information in
this prospectus before deciding to invest in the shares.
WE EXPECT TO INCUR FUTURE OPERATING LOSSES AND MAY NOT ACHIEVE PROFITABILITY,
WHICH MAY CAUSE OUR STOCK PRICE TO FALL.
We have experienced significant and increasing operating losses each year since
our inception and expect to incur substantial additional operating losses for at
least the next two years. We experienced net losses of approximately $3.1
million in 1997, $8.1 million in 1998 and $17.1 million in 1999. As of December
31, 1999, we had an accumulated deficit of approximately $29.6 million. We
expect to continue to incur substantial operating losses for the foreseeable
future primarily as a result of expected increases in expenses for:
- sales and marketing
- expanding patient sample processing capabilities
- research and product development costs
- acquisition of additional office space and other necessary facilities
- general and administrative costs
If our history of operating losses continues, our stock price may fall and you
may lose part or all of your investment.
OUR PHENOSENSE TESTING PRODUCTS MAY NOT ACHIEVE MARKET ACCEPTANCE, WHICH COULD
LIMIT OUR FUTURE REVENUE.
Our ability to establish phenotypic resistance testing as the standard of care
to guide and improve the treatment of viral diseases will depend on physicians'
and clinicians' acceptance and use of phenotypic resistance testing. Phenotypic
resistance testing is new. We cannot predict the extent to which physicians and
clinicians will accept and use phenotypic resistance testing. They may prefer
competing technologies and products such as genotypic testing. The commercial
success of phenotypic resistance testing will require demonstrations of its
advantages and potential economic value in relation to the current standard of
care, as well as to genotypic testing.
We have introduced only one product using our proprietary PhenoSense technology,
PhenoSense HIV, which we began actively marketing in November 1999. We are still
in the early stages of development of new testing products applying our
PhenoSense technology to other viral diseases. If PhenoSense HIV is not accepted
in the marketplace, our ability to sell other PhenoSense products would be
undermined. Market acceptance will depend on:
- our marketing efforts and continued ability to demonstrate the utility of
PhenoSense in guiding anti-viral drug therapy
- our ability to demonstrate the advantages and potential economic value of
our PhenoSense testing products over current treatment methods and other
resistance tests
If the market does not accept phenotic resistance testing, or our PhenoSense
products in particular, our ability to generate revenue will be limited.
OUR REVENUES WILL BE DIMINISHED IF PAYORS DO NOT AUTHORIZE REIMBURSEMENT FOR OUR
PRODUCTS.
Government and third-party payors, which reimburse patients and healthcare
providers for medical expenses, are attempting to contain or reduce the costs of
healthcare. This could limit the price that we can charge for our products and
hurt our ability to generate revenues.
In the United States, federal and state government healthcare programs have been
attempting to reduce costs and otherwise implement government control of
healthcare costs. In addition, increasing emphasis on managed care in the United
States will continue to put pressure on the pricing of healthcare products.
Significant uncertainty exists as to the reimbursement status of new medical
products like PhenoSense HIV. Third-party payors, including state payors and
Medicare, are challenging the prices charged for medical products and services.
If government and other
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<PAGE> 10
third-party payors do not provide adequate coverage and reimbursement for
PhenoSense HIV or other phenotypic testing products, our revenues will be
reduced.
IF WE ARE UNABLE TO EXPAND OUR SALES AND MARKETING CAPABILITIES, WE MAY NOT BE
ABLE TO EFFECTIVELY COMMERCIALIZE OUR PRODUCTS.
We currently have only five sales people and limited marketing capability. In
order to commercialize our products effectively, we must expand our sales and
marketing capabilities or arrange with a third party to perform these services.
We may not be able to do this successfully. If we enter into co-promotion or
other marketing arrangements, our share of product revenues is likely to be
lower than if we directly marketed and sold our products through our own sales
force. If we fail to effectively commercialize our products our revenue will be
reduced.
WE HAVE LIMITED EXPERIENCE PROCESSING PATIENT SAMPLES FOR OUR PHENOSENSE HIV
TEST AND MAY ENCOUNTER PROBLEMS OR DELAYS IN EXPANDING OUR AUTOMATED TESTING
SYSTEMS, WHICH COULD RESULT IN LOST SALES REVENUE.
We have only recently begun to process a significant number of patient samples
and are continuing to develop our quality-control procedures. In order to meet
the projected demand for PhenoSense HIV and other future phenotypic resistance
testing products, we will have to process many more patient samples than we are
currently processing. Thus, we need to develop and implement additional
automated systems to perform our tests. We also need to develop more
sophisticated software to support the automated tests, analyze the data
generated by our tests, and report the results. We may not be able to do this.
Further, as we attempt to scale up our processing of patient samples, processing
or quality-control problems may arise.
If we are unable to consistently process patient samples on a timely basis
because of these or other factors, or if we encounter problems with our
automated processes, our revenues will be limited.
WE FACE INTENSE COMPETITION, AND IF OUR COMPETITORS' EXISTING PRODUCTS OR NEW
PRODUCTS ARE MORE EFFECTIVE THAN OUR PRODUCTS, THE COMMERCIAL OPPORTUNITY FOR
OUR PRODUCTS WILL BE REDUCED OR ELIMINATED.
The commercial opportunity for our products will be reduced or eliminated if our
competitors develop and market new testing products that are superior to, or are
less expensive than, PhenoSense HIV or other phenotypic resistance testing
products we develop using our proprietary PhenoSense technology.
The biotechnology industry evolves at a rapid pace and is highly competitive.
Our major competitors include manufacturers and distributors of phenotypic drug
resistance technology, such as Virco N.V. We also compete with makers of
genotypic tests such as PE Biosystems Group of PE Corporation and Visible
Genetics Inc. Each of these competitors is attempting to establish its test as
the standard of care. Virco's phenotypic test and genotypic tests have been
commercially available for a longer time than has PhenoSense HIV. Genotypic
tests are cheaper and generally faster than our phenotypic resistance tests.
We hold a license from Roche Molecular Systems, Inc. for technology that we use
in our PhenoSense testing products. This license is non-exclusive. We believe
that many of our competitors, including Virco and other resistance testing
companies, also license this technology on non-exclusive terms.
Our competitors may successfully develop and market other testing products that
are either superior to those that we may develop or that are marketed prior to
marketing of our testing products. Some of our competitors have substantially
greater financial resources and research and development staffs than we do. In
addition, some of our competitors have significantly greater experience in
developing products, and in obtaining the necessary regulatory approvals of
products and processing and marketing products.
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<PAGE> 11
WE ARE DEPENDENT ON A LICENSE FOR TECHNOLOGY WE USE IN OUR PHENOSENSE TESTING,
AND OUR BUSINESS WOULD SUFFER IF THE LICENSE WAS TERMINATED OR NOT RENEWED.
We license technology that we use in our PhenoSense testing products from Roche
Molecular Systems, Inc. We hold this non-exclusive license for the patent term
of the licensed patents. In order to maintain this license, however, we must pay
royalties, make a semi-annual royalty report and participate in proficiency
testing. If Roche were to terminate this license or this license were not
renewed, we would have to change a portion of our testing methodology, which
would halt our testing, at least temporarily, and cause us to incur substantial
additional expenses.
THE INTELLECTUAL PROPERTY UNDERLYING OUR PHENOSENSE TECHNOLOGY AND TRADE SECRETS
MAY NOT BE ADEQUATE, ALLOWING THIRD PARTIES TO USE OUR PHENOSENSE TECHNOLOGY OR
SIMILAR TECHNOLOGIES, AND THUS REDUCING OUR ABILITY TO COMPETE IN THE MARKET.
The strength of our intellectual property protection is uncertain. In
particular, we cannot ensure that:
- we were the first to invent the technologies covered by our patent or
pending patent applications
- we were the first to file patent applications for these inventions
- others will not independently develop similar or alternative technologies or
duplicate any of our technologies
- any of our pending patent applications will result in issued patents
- any patents issued to us will provide a basis for commercially viable
products or will provide us with any competitive advantages or will not be
challenged by third parties
Other companies may have patents or patent applications relating to products or
processes similar to, competitive with or otherwise related to our products.
Patent law relating to the scope of claims in the technology fields in which we
operate, including biotechnology and information technology, is still evolving
and, consequently, patent positions in our industry are generally uncertain. We
cannot assure you that we will prevail in any of these lawsuits or that, if
successful, we will be awarded commercially valuable remedies. In addition, it
is possible that we will not have the required resources to pursue such
litigation or to otherwise protect our patent rights.
We also rely on unpatented trade secrets to protect our proprietary technology.
Other companies may independently develop or otherwise acquire equivalent
technology or gain access to our proprietary technology.
OUR PRODUCTS COULD INFRINGE ON THE INTELLECTUAL PROPERTY RIGHTS OF OTHERS, WHICH
MAY CAUSE US TO ENGAGE IN COSTLY LITIGATION AND, IF WE ARE NOT SUCCESSFUL, COULD
CAUSE US TO PAY SUBSTANTIAL DAMAGES AND PROHIBIT US FROM SELLING OUR PRODUCTS.
Third parties may assert infringement or other intellectual property claims
against us based on their patents or other intellectual property claims. We may
have to pay substantial damages, possibly including treble damages, for past
infringement if it is ultimately determined that our products infringe a third
party's patents. Further, we may be prohibited from selling our products before
we obtain a license, which, if available at all, may require us to pay
substantial royalties. Even if infringement claims against us are without merit,
defending a lawsuit takes significant time, may be expensive and may divert
management attention from other business concerns.
WE MAY BE UNABLE TO BUILD BRAND LOYALTY BECAUSE OUR TRADEMARKS AND TRADE NAMES
MAY NOT BE PROTECTED.
Our registered or unregistered trademarks or trade names such as the name
PhenoSense, may be challenged, canceled, infringed, circumvented or declared
generic or determined to be infringing on other marks. We may not be able to
protect our rights to these trademarks and trade names, which we need to build
brand loyalty. Brand recognition is critical to our short-term and long term
marketing strategies especially as we commercialize future enhancements to our
products.
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<PAGE> 12
IF WE DO NOT SUCCESSFULLY INTRODUCE NEW PRODUCTS USING OUR PHENOSENSE
TECHNOLOGY, WE MAY NOT ACHIEVE PROFITABILITY.
We may not be able to develop and market phenotypic resistance testing products
for viral diseases other than HIV, including hepatitis B and hepatitis C.
Demand for these products will depend in part on the development by others of
additional anti-viral drugs to fight these diseases. Physicians will likely use
our resistance tests to determine which drug is best for a particular patient
only if there are multiple drug treatment options. Several anti-viral drugs are
in development but we cannot assure you that they will be approved for
marketing, or if these drugs are approved that there will be a need for our
resistance tests.
If we are unable to develop and market phenotypic resistance test products for
other viral diseases, or if an insufficient number of anti-viral drug products
are approved for marketing, we may not achieve profitability.
OUR BUSINESS OPERATIONS AND THE OPERATION OF OUR CLINICAL LABORATORY FACILITY
ARE SUBJECT TO STRINGENT REGULATIONS AND IF WE ARE UNABLE TO COMPLY WITH THEM,
WE MAY BE PROHIBITED FROM ACCEPTING PATIENT SAMPLES OR MAY INCUR ADDITIONAL
EXPENSE TO ATTAIN AND MAINTAIN COMPLIANCE.
The operation of our clinical laboratory facility is subject to a stringent
level of regulation under the Clinical Laboratory Improvement Amendments of
1988. Laboratories must meet various requirements, including requirements
relating to quality assurance, quality control and personnel standards. Our
laboratory is also subject to regulation by the State of California and various
other states. We have received accreditation by the College of American
Pathologists and therefore are subject to their requirements and evaluation. Our
failure to comply with applicable requirements could result in various
penalties, including loss of certification or accreditation.
We believe that the FDA will not at this time seek to fully regulate our
PhenoSense products under our current labeling and marketing plans. However, we
cannot predict the extent of future FDA regulation, and we might be subject in
the future to greater regulation, or different regulations, that could have a
material effect on our finances and operations.
We also believe that the FDA will not require that phenotypic testing conducted
at a clinical laboratory be subject to premarketing clearance. Although the FDA
has stated in the past that it believes that its jurisdiction extends to tests
generated in a clinical laboratory, the agency has said it will allow the home
brewed tests to be run and the results commercialized without FDA premarket
approval. We cannot be sure, however, that the FDA will not in the future
require premarket clearance, and clinical data demonstrating the sensitivity and
specificity, of our PhenoSense products.
If we do not comply with existing or additional regulations, or if we incur
penalties, it could increase our expenses, prevent us from increasing revenues,
or hinder our ability to conduct our business. In addition, changes in existing
regulations or new regulations may delay or prevent us from marketing our
products.
CLINICIANS OR PATIENTS USING OUR PRODUCTS OR SERVICES MAY SUE US AND OUR
INSURANCE MAY NOT SUFFICIENTLY COVER ALL CLAIMS BROUGHT AGAINST US WHICH WILL
INCREASE OUR EXPENSES.
Clinicians, patients and others may at times seek damages from us if drugs are
incorrectly prescribed for a patient based on testing errors or similar claims.
Although we have obtained liability insurance coverage, we cannot guarantee that
liability insurance will continue to be available to us on acceptable terms or
that our coverage will be sufficient to protect us against all claims that may
be brought against us. We may incur significant legal defense expenses in
connection with a liability claim, even one without merit or for which we have
coverage.
OUR LACK OF OPERATING EXPERIENCE MAY CAUSE US DIFFICULTY IN MANAGING OUR GROWTH
AND ATTRACTING AND RETAINING SKILLED PERSONNEL, WHICH COULD HINDER OUR RESEARCH
AND DEVELOPMENT EFFORTS AND IMPAIR OUR ABILITY TO COMPETE.
.
We have limited experience selling our products and processing patient samples.
To grow, we will need to improve and expand our operational and financial
systems. If our management is unable to manage our growth effectively, it is
possible that
13
<PAGE> 13
our systems and our facilities may become inadequate.
Our success also depends on our continued ability to attract and retain highly
qualified management and scientific personnel. Competition for personnel is
intense. We believe stock options are a critical component of motivating and
retaining our key employees. Stock options granted shortly after the completion
of the offering may be less attractive to potential candidates for our
management and scientific positions, and, therefore, it may be more difficult to
fill those positions. If we cannot successfully attract and retain qualified
personnel, our research and development efforts could be hindered and our
ability to run our business effectively and compete with others in our industry
will be harmed.
IF WE NEED TO RAISE ADDITIONAL CAPITAL TO BUILD OUR BUSINESS AND IT IS NOT
AVAILABLE ON COMMERCIALLY REASONABLE TERMS, OUR ABILITY TO COMPETE MAY BE
DIMINISHED.
We anticipate that our existing capital resources and the net proceeds from this
offering will enable us to maintain currently planned operations for at least
two years. However, we may need additional funding sooner than anticipated. Our
inability to raise capital would seriously harm our business and product
development efforts. In addition, we may choose to raise additional capital due
to market conditions or strategic considerations even if we believe we have
sufficient funds for our current or future operating plans. To the extent that
additional capital is raised through the sale of equity or convertible debt
securities, the issuance of these securities could result in dilution to our
stockholders.
We currently have no credit facility or committed sources of capital. To the
extent operating and capital resources are insufficient to meet future
requirements, we will have to raise additional funds to continue the development
and commercialization of our technologies. These funds may not be available on
favorable terms, or at all. If adequate funds are not available on attractive
terms, we may be required to curtail operations significantly or to obtain funds
by entering into financing, supply or collaboration agreements on unattractive
terms.
WE MAY BE SUBJECT TO LITIGATION, WHICH WOULD BE TIME CONSUMING AND DIVERT OUR
RESOURCES AND THE ATTENTION OF OUR MANAGEMENT.
We were involved in a dispute with Dr. Daniel Capon, a significant stockholder
and former employee. We settled the dispute in November 1999. In connection with
the settlement, we purchased shares of our common stock held by him for $225,000
in cash, and allowed him to retain other shares that we had a right to
repurchase. In 1999, we recorded $1.9 million in legal fees and costs related to
this settlement, including a non-cash charge related to the common stock
retained by him. In the future, our stockholders or former employees may bring
further claims and we may have to spend significant additional resources and
time. Even if we are eventually successful in our defense of any such claim, the
time and money spent may prevent us from operating our business effectively or
profitably or may distract our management.
OUR OPERATING RESULTS MAY FLUCTUATE FROM QUARTER TO QUARTER, MAKING IT LIKELY
THAT, IN SOME FUTURE QUARTER OR QUARTERS, WE WILL FAIL TO MEET ANALYSTS'
ESTIMATES OF OPERATING RESULTS OR FINANCIAL PERFORMANCE, CAUSING OUR STOCK PRICE
TO FALL.
If revenue declines in a quarter, our losses will likely increase or our
earnings will likely decline because many of our expenses are relatively fixed.
In the first year following the initial sales of our product in November 1999,
our revenues may fluctuate significantly as we build the market for our product.
In particular, research and development, sales and marketing and general and
administrative expenses are not affected directly by variations in revenue. In
addition, our cost of revenue could also fluctuate significantly due to
variations in the initial demand for our product and the relatively fixed costs
to produce it. We cannot accurately predict how volatile our future operating
results will be because our past and present operating results, which reflect
little sales activity, are not indicative of what we might expect in the future.
It is likely that in some future quarter or quarters, our operating results will
be below the expectations of securities analysts or investors. In this event,
the market price of our common stock may fall abruptly and significantly.
Because our revenue and operating results are difficult to
14
<PAGE> 14
predict, we believe that period-to-period comparisons of our results of
operations are not a good indication of our future performance.
IF A NATURAL DISASTER STRIKES OUR CLINICAL LABORATORY FACILITY WE WOULD BE
UNABLE TO PROCESS OUR CUSTOMERS' SAMPLES FOR A SUBSTANTIAL AMOUNT OF TIME AND WE
WOULD LOSE REVENUE.
We rely on a single clinical laboratory facility to process patient samples for
our PhenoSense HIV test and have no alternative facilities. We will also use
this facility for conducting other tests we develop, and even if we move into
different or additional facilities they will likely be in close proximity to our
current clinical laboratory. Our clinical laboratory and some pieces of
processing equipment are difficult to replace and could require substantial
replacement lead-time. Our processing facility may be affected by natural
disasters such as earthquakes and floods. Earthquakes are of particular
significance since our clinical laboratory is located in South San Francisco,
California, an earthquake-prone area. In the event our existing clinical
laboratory facility or equipment is affected by man-made or natural disasters,
we would be unable to process patient samples and meet customer demands or sales
projections. If our patient sample processing operations were curtailed or
ceased, we would not be able to perform our tests and we would lose revenue.
WE HAVE BROAD DISCRETION OVER THE USE OF THE NET PROCEEDS FROM THE OFFERING.
We have broad discretion to allocate the net proceeds of the offering. The
timing and amount of our actual expenditures are subject to change and will be
based on many factors, including:
- success of our sales and marketing efforts
- competitive market developments
- progress in and scope of our research and development activities
Our management will determine, in its sole discretion without the need for
stockholder approval, how to allocate these proceeds. If we do not wisely
allocate the proceeds, we will not be able to carry out or business plan and our
share price will fall.
CONCENTRATION OF OWNERSHIP AMONG OUR EXISTING EXECUTIVE OFFICERS, DIRECTORS AND
PRINCIPAL STOCKHOLDERS MAY PREVENT NEW INVESTORS FROM INFLUENCING SIGNIFICANT
CORPORATE DECISIONS.
Following this offering our directors, entities affiliated with our directors
and our executive officers will beneficially own, in the aggregate,
approximately 43.2% of our outstanding common stock. These stockholders as a
group will be able to substantially influence our management and affairs. If
acting together, they would be able to influence most matters requiring the
approval by our stockholders, including the election of directors, any merger,
consolidation or sale of all or substantially all of our assets and any other
significant corporate transaction. The concentration of ownership may also delay
or prevent a change in our control at a premium price if these stockholders
oppose it.
NEW INVESTORS IN OUR COMMON STOCK WILL EXPERIENCE IMMEDIATE AND SUBSTANTIAL
DILUTION.
Investors purchasing common stock in this offering will pay a price per share
that substantially exceeds the value per share of our assets, after subtracting
our liabilities. In addition, new investors will have contributed 60.5% of the
total amount we will have received from sales of our stock since our inception
but will own only 25.4% of the shares outstanding.
OUR STOCK PRICE MAY BE VOLATILE, AND YOUR INVESTMENT IN OUR STOCK COULD DECLINE
IN VALUE.
Prior to this offering, there has been no public market for our common stock. An
active public market for our common stock may not develop or be sustained after
the offering. The initial public offering price will be determined by
negotiation between the representatives of the underwriters and us and may not
be indicative of future market prices. Among the factors to be considered in
determining the initial public offering price of the common stock, in addition
to prevailing market conditions, will be:
- estimates of our business potential and earnings prospects
- an assessment of our management
- the consideration of the above factors in relation to market valuations of
companies in related businesses
15
<PAGE> 15
The market prices for securities of biotechnology companies in general have been
highly volatile and may continue to be highly volatile in the future. The
following factors, in addition to other risk factors described in this section,
may have a significant adverse impact on the market price of our common stock:
- announcements of technological innovations or new commercial products by our
competitors
- developments concerning proprietary rights, including patents
- publicity regarding actual or potential medical results relating to products
under development by our competitors
- regulatory developments in the United States and foreign countries
- litigation
- economic and other external factors or other disaster or crisis
- period-to-period fluctuations in financial results
IF OUR STOCKHOLDERS SELL SUBSTANTIAL AMOUNTS OF OUR COMMON STOCK AFTER THE
OFFERING, THE MARKET PRICE OF OUR COMMON STOCK MAY FALL.
If our stockholders sell substantial amounts of our common stock, including
shares issued upon the exercise of outstanding options and warrants, the market
price of our common stock may fall. These sales also might make it more
difficult for us to sell equity or equity-related securities in the future at a
time and price that we deem appropriate.
At March 24, 2000, approximately 14,687,397 shares of common stock, representing
74.6% of our common stock outstanding after the offering, were unregistered and
eligible for sale, subject to compliance with Rule 144 or Rule 701 under the
Securities Act.
The holders of all of these shares are subject to lock-up for 180 days after
this offering. All or any portion of these shares may be released from this
lock-up by CIBC World Markets Corp. and us. In addition, sales of a substantial
number of shares could occur at any time after the expiration of the 180-day
period. This may have an adverse effect on the price of our common stock and may
impair our ability to raise capital in the future.
PROVISIONS OF OUR CHARTER DOCUMENTS AND DELAWARE LAW MAY INHIBIT A TAKEOVER,
WHICH COULD LIMIT THE PRICE INVESTORS MIGHT BE WILLING TO PAY IN THE FUTURE FOR
OUR COMMON STOCK.
Provisions in our certificate of incorporation and bylaws may have the effect of
delaying or preventing an acquisition, or merger in which we are not the
surviving company or changes in our management. In addition, because we are
incorporated in Delaware, we are governed by the provisions of Section 203 of
the Delaware General Corporation Law. These provisions could discourage
acquisitions or other changes in our control and otherwise limit the price that
investors might be willing to pay in the future for our common stock.
16
<PAGE> 16
FORWARD-LOOKING STATEMENTS
Some of the information in this prospectus contains forward-looking statements
within the meaning of the federal securities laws. You can find these statements
under "Prospectus Summary," "Risk Factors," "Use of Proceeds," "Management's
Discussion and Analysis of Financial Condition and Results of Operations,"
"Business" and elsewhere in this prospectus.
We typically identify forward-looking statements by using terms such as "may,"
"will," "should," "could," "expect," "plan," "anticipate," "believe,"
"estimate," "predict," "potential," "continue" and similar words, although we
express some forward-looking statements differently. You should be aware that
actual events could differ materially from those suggested in the
forward-looking statements due to a number of factors, including:
- failure to successfully commercialize our products
- competitive factors
- general economic conditions
- uncertainty regarding our patents and patent rights (including the risk that
we may be forced to engage in costly litigation to protect such patent
rights and the material harm to us if there were an unfavorable outcome of
any such litigation)
- technological change
- government regulation
- changes in industry practice
- one-time events
You should also consider carefully the statements under "Risk Factors" and other
sections of this prospectus, which address additional factors that could cause
our actual results to differ from those set forth in the forward-looking
statements. We expressly qualify all subsequent written and oral forward-
looking statements attributed to us or persons acting on our behalf in their
entirety by the applicable cautionary statements. We have no plans to update
these forward-looking statements.
17
<PAGE> 17
USE OF PROCEEDS
We estimate that our net proceeds from the sale of the shares of common stock we
are offering will be approximately $68.1 million. If the underwriters fully
exercise their over-allotment option, we estimate that our net proceeds from the
offering will be $78.5 million. "Net proceeds" are what we expect to receive
after paying the underwriting discount and other expenses of the offering. For
the purpose of estimating net proceeds, we are assuming that the initial public
offering price will be $15.00 per share.
We intend to use the net proceeds of this offering primarily for:
- expanding our sales and marketing activities
- capital expenditures, including the expansion of our clinical laboratory
capabilities
- research and development
- general corporate purposes
The timing and amount of our actual expenditures are subject to change and will
be based on many factors, including:
- success of our sales and marketing efforts
- competitive market developments
- progress in and scope of our research and development activities
These or other factors may result in our making changes in the use of these
proceeds. Our management has broad discretion as to the allocation of the net
proceeds of this offering.
Until we use the net proceeds of the offering, we will invest the funds in
short-term, investment grade, interest-bearing securities.
DIVIDEND POLICY
We have never paid any cash dividends on our capital stock. We anticipate that
we will retain earnings to support operations and to finance our business growth
and development. Therefore, we do not expect to pay cash dividends in the
foreseeable future.
18
<PAGE> 18
CAPITALIZATION
The following table shows:
- our actual capitalization on December 31, 1999
- on a pro forma basis to reflect:
- the sale of 8,461,645 shares of Series C preferred stock in January and
February 2000 for aggregate proceeds of $15.7 million that will convert
into 4,230,823 shares of common stock
- the conversion of all 9,749,265 shares of our outstanding preferred stock
as of December 31, 1999, and the preferred shares sold in January and
February 2000, into 9,587,769 shares of common stock, which will occur
upon the closing of this offering
- our pro forma as adjusted capitalization on December 31, 1999, assuming the
pro forma adjustments described above and the completion of the offering at
an assumed initial public offering price of $15.00 per share
<TABLE>
<CAPTION>
DECEMBER 31, 1999
---------------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
-------- -------------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
Long term loan, less current portion................ $ 1,051 $ 1,051 $ 1,051
-------- -------- --------
Stockholders' equity:
Preferred stock; $0.001 par value; 13,959,459
shares authorized, 9,749,265 shares issued and
outstanding (5,356,946 common shares on an
as-if converted basis), actual; no shares
issued and outstanding, pro forma; 5,000,000
shares authorized, no shares issued and
outstanding, pro forma as adjusted............. 10 -- --
Common stock; $0.001 par value; 30,000,000, shares
authorized, 5,096,628 shares issued and
outstanding, actual; 14,684,397 shares issued
and outstanding, pro forma; 60,000,000 shares
authorized, 19,684,397 shares issued and
outstanding, pro forma as adjusted............. 5 15 20
Additional paid-in capital........................ 38,812 54,466 122,511
Deferred compensation............................. (4,478) (4,478) (4,478)
Notes receivable from officers and employees...... (46) (46) (46)
Accumulated deficit............................... (29,605) (29,605) (29,605)
-------- -------- --------
Total stockholders' equity................... 4,698 20,352 88,402
-------- -------- --------
Total capitalization...................... $ 5,749 $ 21,403 $ 89,453
======== ======== ========
</TABLE>
The number of shares of common stock outstanding in the table above is based on
the number of shares outstanding as of December 31, 1999 and excludes:
- 1,240,867 shares of common stock issuable upon exercise of options
outstanding as of December 31, 1999, at a weighted average exercise price of
$3.47 per share
- 745,082 shares of common stock issuable upon exercise of warrants to
purchase our common or preferred stock outstanding as of December 31, 1999,
at a weighted average exercise price of $4.83 per share
19
<PAGE> 19
DILUTION
Our tangible book value of our common stock as of December 31, 1999 was $4.7
million, or approximately $0.45 per share. Net tangible book value per share
represents the amount of our stockholders' equity, less intangible assets,
divided by 10,453,574 shares of common stock outstanding after giving effect to
the conversion of all outstanding shares of preferred stock into shares of
common stock upon completion of this offering.
Subsequent to December 31, 1999, we issued 8,461,645 shares of Series C
preferred stock for aggregate proceeds of $15.7 million that will convert into
4,230,823 shares of common stock upon the completion of this offering. This
subsequent issuance increased our net tangible book value per share by $0.94,
assuming the conversion of these preferred shares into common stock.
Net tangible book value dilution per share to new investors represents the
difference between the amount per share paid by purchasers of shares of common
stock in this offering and the pro forma net tangible book value per share of
common stock immediately after completion of this offering. After giving effect
to our sale of 5,000,000 shares of common stock in this offering, after
deducting the underwriting discounts and offering expenses and the application
of the estimated net proceeds, our pro forma net tangible book value as of
December 31, 1999 would have been $10.51 per share to existing stockholders and
an immediate dilution in net tangible book value of $4.49 per share to
purchasers of common stock in this offering, as illustrated in the following
table:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............. $15.00
------
Net tangible book value per share as of December 31, 1999... $ 0.45
Increase per share attributable to sales of Series C
preferred stock in January and February 2000.............. 0.94
Increase in net tangible book value per share attributable
to the offering........................................... 3.10
------
Pro forma net tangible book value per share as of December
31, 1999, after giving effect to the offering............. 4.49
------
Dilution per share to new investors in the offering......... $10.51
======
</TABLE>
The following table shows the total consideration paid and the average price per
share paid by the existing stockholders and by new investors, after deducting
underwriting discounts and offering expenses payable by us, at an assumed
initial public offering price of $15.00 per share.
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
--------------------- ----------------------- PRICE PER
NUMBER PERCENT AMOUNT PERCENT SHARE
---------- ------- ------------ ------- ---------
<S> <C> <C> <C> <C> <C>
Existing stockholders........ 14,684,397 74.6% $ 48,877,790 39.5% $ 3.33
New investors................ 5,000,000 25.4 75,000,000 60.5 15.00
---------- ----- ------------ -----
Total................... 19,684,397 100.0% $123,877,790 100.0%
========== ===== ============ =====
</TABLE>
The number of shares of common stock outstanding in the table above is based on
the number of shares outstanding as of December 31, 1999 and excludes:
- 1,240,867 shares of common stock issuable upon exercise of options
outstanding as of December 31, 1999, at a weighted average exercise price of
$3.47 per share
- 745,082 shares of common stock issuable upon the exercise of warrants to
purchase our common or preferred stock, outstanding as of December 31, 1999,
at a weighted average exercise price of $4.83 per share
20
<PAGE> 20
SELECTED FINANCIAL DATA
This section presents our historical financial data. You should read carefully
the financial statements included in this prospectus, including the notes to the
financial statements. We do not intend the selected data in this section to
replace the financial statements.
We derived the statement of operations data for the years ended December 31,
1997, 1998 and 1999 and the balance sheet data as of December 31, 1998 and 1999
from the audited financial statements in this prospectus, which Ernst & Young
LLP, independent auditors, audited. We derived the statement of operations data
for the period from our inception to December 31, 1996 and the balance sheet
data as of December 31, 1996 and 1997 from audited financial statements that are
not included in this prospectus. Historical results are not necessarily
indicative of results that may be expected in the future.
<TABLE>
<CAPTION>
PERIOD FROM
INCEPTION
(NOVEMBER 14,
1995) TO YEAR ENDED DECEMBER 31,
DECEMBER 31, ------------------------------
1996 1997 1998 1999
------------- ------- ------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenue....................................... $ -- $ -- $ 102 $ 1,069
Operating costs and expenses:
Cost of revenue............................. -- -- 17 627
Research and development.................... 867 2,458 5,977 9,588
General and administrative.................. 510 858 1,782 6,804
Sales and marketing......................... -- -- 484 1,196
------- ------- ------- --------
Total costs and operating expenses............ 1,377 3,316 8,260 18,215
------- ------- ------- --------
Operating loss................................ (1,377) (3,316) (8,158) (17,146)
Interest income............................... 116 262 302 249
Interest expense.............................. (13) (83) (198) (243)
------- ------- ------- --------
Net loss...................................... (1,274) (3,137) (8,054) (17,140)
Deemed dividend to preferred stockholders..... -- -- -- 3,100
------- ------- ------- --------
Net loss allocable to common stockholders..... $(1,274) $(3,137) $(8,054) $(20,240)
======= ======= ======= ========
Basic and diluted net loss per common share... $ (0.74) $ (1.21) $ (1.71) $ (4.24)
======= ======= ======= ========
Shares used in computing basic and diluted net
loss
per common share............................ 1,720 2,591 4,700 4,772
Pro forma basic and diluted net loss per
common share................................ $ (2.53)
========
Shares used in computing basic and diluted pro
forma net loss per common share............. 8,015
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------------
1996 1997 1998 1999
------- ------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash, cash equivalents and short-term
investments................................. $ 3,141 $ 3,986 $ 9,564 $ 2,208
Restricted cash............................... -- -- -- 950
Working capital............................... 2,966 3,315 7,398 522
Total assets.................................. 3,911 5,598 13,275 9,777
Long term loan, less current portion.......... 488 470 1,948 1,051
Accumulated deficit........................... (1,274) (4,411) (12,465) (29,605)
Total stockholders' equity.................... 3,191 4,336 8,830 4,698
</TABLE>
See notes to the financial statements for a description of the number of shares
used in the computation of net loss per common share and pro forma net loss per
common share.
21
<PAGE> 21
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
You should read this discussion together with the financial statements and other
financial information included in this prospectus.
OVERVIEW
We are a biotechnology company developing and marketing innovative products to
guide and improve treatment of viral diseases. We have a proprietary technology,
called PhenoSense, for testing drug resistance in viruses that cause serious
diseases such as AIDS, hepatitis B and hepatitis C. Our first product,
PhenoSense HIV, is a test that directly and quantitatively measures resistance
of a patient's HIV to anti-viral drugs. We believe our products have the
potential to revolutionize the way physicians treat many serious viral diseases.
Historically our revenues have consisted primarily of sales of PhenoSense HIV to
pharmaceutical companies utilizing our tests in their clinical trials and
preclinical studies. Recently we began generating revenue from PhenoSense HIV
tests sold to physicians for use in treating their patients. We expect sales of
PhenoSense HIV for patient care to grow due to increased sales and marketing
activity, increasing awareness of the benefits of phenotypic testing, and the
recent publication of guidelines recommending the use of resistance testing in
treating HIV patients. We also expect these revenues to increase substantially
relative to revenues from test sales for clinical trials.
Since our inception, we have incurred significant losses. As of December 31,
1999, our accumulated deficit was $29.6 million. Our losses have resulted
principally from costs incurred in research and development, clinical laboratory
scale-up, and from general and administrative costs associated with our
operations. We expect to continue to incur substantial costs in these areas, as
well as in sales and marketing.
RESULTS OF OPERATIONS
Year Ended December 31, 1999 Compared to Year Ended December 31, 1998
Revenue. Revenue increased to $1.1 million in 1999 from $102,000 in 1998, an
increase of $967,000. This increase was primarily attributable to revenue
recognized from sales in the second half of 1999 to major pharmaceutical
companies, with the balance attributable to revenue recognized from sales to
physicians. In 1998, revenue was solely attributable to sales to pharmaceutical
companies. Our gross margin was approximately 40% in 1999 and approximately 80%
in 1998. Our expenses increased significantly in 1999 to support the expansion
of our manufacturing activities related to our initiation of commercial sales of
PhenoSense HIV tests to physicians in November 1999. Particularly during the
first year of commercial sales, we expect fluctuations in our gross margins.
This is most notably attributable to variations in demand, manufacturing
capacity and processes, and the mix of our customers.
Cost of revenue. Cost of revenue increased to $627,000 in 1999 from $17,000 in
1998. The increase was due to the higher volume of test sales in 1999. Included
in these costs are materials, supplies, and labor and overhead related to the
tests.
Research and development. Research and development expense increased to $9.6
million in 1999 from $6.0 million in 1998, an increase of $3.6 million. The
increase was primarily the result of increasing capacity and automation for our
PhenoSense HIV test. We also increased our spending on clinical trials of
PhenoSense HIV. We expect research and development spending to increase
significantly over the next several years as we expand our research, product
development and automation efforts.
General and administrative. General and administrative expense increased to $6.8
million in 1999 from $1.8 million in 1998, an increase of $5.0 million. The
increase was related primarily to expanding our executive team, as well as
consulting expense and the settlement of litigation. Non-cash compensation
expense related to
22
<PAGE> 22
granting stock and options increased to $1.1 million in 1999, as discussed
below, from no charge in 1998. We recorded legal expenses in 1999 of
approximately $1.9 million for settlement and other costs arising from a lawsuit
brought by a former officer and stockholder, which was settled in November 1999.
Stock based compensation. Deferred compensation for options granted to employees
is the difference between the exercise price and the deemed fair value for
financial reporting purposes of our common stock on the date options were
granted. In connection with the grant of stock options to employees, we recorded
deferred stock compensation of approximately $5.0 million during the year ended
December 31, 1999, of which $490,000 was amortized as a general and
administrative expense in 1999. We also granted a director a stock award of
150,000 shares of fully vested common stock in September 1999. We reflected the
deemed fair value of these shares, $555,000, as a compensation charge in general
and administrative expense in the quarter ended December 31, 1999.
We determined compensation for options granted to non-employees in accordance
with Statement of Financial Accounting Standards No. 123 and the Emerging Issues
Task Force Consensus No. 96-18 as the fair value of the equity instruments
issued. We record compensation for options granted to non-employees as the
related services are rendered, and the value of the compensation may be
periodically remeasured and the expense adjusted accordingly as the underlying
options vest. We recorded an aggregate of $48,000 as a general and
administrative expense in the year ended December 31, 1999 for non-employee
stock based compensation. The aggregate value of $654,000, based on the deemed
fair value of our common stock at December 31, 1999, will be recorded as a
general and administrative expense over the period of the related services,
which is generally three months to four years.
In January and February 2000, we granted employees additional stock options to
purchase 199,193 shares of common stock at $3.70 per share. We will record
additional deferred stock compensation of approximately $1.6 million in the
quarter ending March 31, 2000 to account for the difference between the exercise
price of these employee grants and the deemed fair value for financial reporting
purposes of our common stock on the date of grant. We expect to record
amortization of deferred compensation of approximately $3.6 million as a general
and administrative expense in 2000 related to the employee stock options granted
in 1999 and February 2000. The remaining $2.5 million will be amortized through
January 2004.
In January and February 2000, we also granted non-employees options to purchase
45,000 common shares at $3.70 per share. We will recognize general and
administrative expense related to non-employee stock options recognized over the
respective consultants' service periods and that expense will be based on the
fair value of the stock option using the Black Scholes option valuation model.
The aggregate option fair value of $383,000, based on the fair value of our
common stock as of February 29, 2000, will be recorded over the period of the
related services, which is generally three months to four years. The value may
be periodically remeasured and the expense adjusted accordingly as the
underlying options vest.
Sales and marketing. Sales and marketing expense increased to $1.2 million in
1999 from $484,000 in 1998, an increase of $712,000. This increase was primarily
attributable to hiring our sales force and commencing sales and marketing
activities. In addition, we increased spending on public relations and marketing
materials.
Interest income. Interest income decreased to $249,000 in 1999 from $302,000 in
1998, a decrease of $53,000. This decrease was due to lower average cash and
investment balances in 1999.
Interest expense. Interest expense increased to $243,000 in 1999 from $198,000
in 1998, an increase of $45,000. This increase was due to additional debt
incurred in the second half of 1998 resulting in additional interest expense for
only six months of 1998 compared to the entire year in 1999.
Deemed dividend. In November and December 1999, we sold 1,675,621 shares of
Series C preferred stock for proceeds of $3.1 million. In January and February
2000, we sold an additional 8,461,645 shares of Series C preferred stock for
proceeds of approximately $15.7 million. After reevaluating the fair value of
our common stock in contemplation of this offering, we determined that the
issuance of the Series C preferred stock resulted in a beneficial conversion
feature of approximately $3.1 million in 1999 and $15.7 million in 2000,
calculated in accordance with Emerging Issues Task Force Consensus No. 98-5,
"Accounting for Convertible Securities with
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Beneficial Conversion Features." The beneficial conversion feature was reflected
as a deemed dividend in the Statement of Operations of $3.1 million for the year
ended December 31, 1999 and will be reflected as a deemed dividend of $15.7
million in the first quarter of 2000.
Year Ended December 31, 1998 Compared to Year Ended December 31, 1997
Revenue. Revenue increased to $102,000 in 1998 while no revenue were recognized
in 1997. The 1998 revenue was from the sale of PhenoSense HIV tests to one
pharmaceutical company.
Cost of revenue. Cost of revenue was $17,000 in 1998. There was no cost of
revenue in 1997.
Research and development. Research and development expense increased to $6.0
million in 1998 from $2.5 million in 1997, an increase of $3.5 million. The
increase was due primarily to increased staffing and other personnel-related
costs.
General and administrative. General and administrative expense increased to $1.8
million in 1998 from $858,000 in 1997, an increase of $924,000. The increase was
primarily due to increasing our staff in support of our expanding operations. We
recorded legal expenses of approximately $162,000 in 1998 for litigation related
costs.
Sales and marketing. Sales and marketing expense increased to $484,000 in 1998
from no costs incurred in 1997. The cost was related to establishing a sales and
marketing effort as well as incurring market research and promotional expenses
in connection with marketing PhenoSense HIV to pharmaceutical companies which
commenced in late 1998.
Interest income. Interest income increased to $302,000 in 1998 from $262,000 in
1997, an increase of $40,000. This increase was due to higher average cash and
investment balances in 1998.
Interest expense. Interest expense increased to $198,000 in 1998 from $83,000 in
1997, an increase of $115,000. This increase was due to higher average debt
outstanding during 1998.
LIQUIDITY AND CAPITAL RESOURCES
We have financed our operations since inception primarily through private sales
of preferred stock and equipment financing arrangements. As of December 31,
1999, we had received net proceeds of $31.8 million from issuance of preferred
stock. Through December 31, 1999, we financed equipment purchases and leasehold
improvements totaling approximately $3.5 million. Recently we entered into an
additional $2.25 million equipment financing arrangement of which we had used
$807,970 as of March 31, 2000. We issued two warrants to purchase a total of
53,585 shares of our Series C preferred stock in connection with this
arrangement. As of December 31, 1999, we had approximately $3.2 million in cash,
cash equivalents and restricted cash. In January and February 2000, we sold
Series C preferred stock for aggregate proceeds of $15.7 million. On a pro forma
basis, accounting for the Series C preferred stock proceeds received in January
and February 2000, we had cash, cash equivalents and restricted cash of $18.8
million as of December 31, 1999.
Our cash balance decreased from $9.6 million as of December 31, 1998 to $3.2
million as of December 31, 1999. This $6.4 million net decrease resulted from
the combination of $13.4 million used in operating activities, $3.9 million used
in investing activities including $2.6 million in capital expenditures, and
$10.0 million provided by financing 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 flow from operations, will be sufficient to support our
operations for at least the next two years. Our actual future capital
requirements will depend on many factors, including the following:
- success of our sales and marketing efforts
- competitive market developments
- progress in and scope of our research and development activities
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Future capital requirements will also depend on the extent to which we acquire
or invest in businesses, products and technologies. If we should require
additional financing due to unanticipated developments, additional financing may
not be available when needed or, if available, we may not be able to obtain this
financing on terms favorable to us or to our stockholders. Insufficient funds
may require us to delay, scale back or eliminate some or all of our research and
development programs, or may adversely affect our ability to operate as a going
concern. If additional funds are raised by issuing equity securities,
substantial dilution to existing stockholders may result.
Subsequent to the commencement of our initial public offering process, we
re-evaluated the deemed fair value of our common stock as of January and
February 2000 and determined it to be $11.90 per share. The difference between
the fair value and the price at which the preferred stock was sold is deemed to
be the equivalent of a preferred stock dividend. Accordingly, for Series C
preferred stock sold for $3.70 per share on an as-if converted basis in January
and February 2000, we will record a deemed dividend of $15.7 million in the
quarter ended March 31, 2000. This represents 100% of the proceeds received for
issuing the beneficially convertible preferred stock, the limit established
under the Emerging Issues Task Force Consenses No. 98-5. The deemed dividend
will increase the loss attributed to common stockholders in the quarter ended
March 31, 2000 and will have no impact on our balance sheet.
Income taxes. We incurred net operating losses in 1997, 1998 and 1999 and
consequently we did not pay any federal, state or foreign income taxes. At
December 31, 1999, we had federal and state net operating loss carryforwards of
approximately $27.3 million and $13.8 million, respectively. The federal net
operating loss and credit carryforwards will expire at various dates during 2010
through 2019, if not utilized. The state of California net operating losses will
begin to expire in 2003.
RECENTLY ISSUED ACCOUNTING STANDARDS
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities," as amended,
which will be effective for our fiscal year 2001. SFAS 133 establishes
accounting and reporting standards requiring that every derivative instrument,
including certain derivative instruments embedded in other contracts, be
recorded in the balance sheet as either an asset or liability measured at its
fair value. SFAS 133 also requires that changes in the derivative's fair value
be recognized in earnings unless specific hedge accounting criteria are met. We
believe the adoption of SFAS 133 will not have a material effect on our
financial statements, since we currently do not hold derivative instruments or
engage in hedging activities.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The primary objective of our investment activities is to preserve principal
while at the same time maximizing the income we receive from our investments
without significantly increasing risk. Some of the securities that we invest in
may have market risk. This means that a change in prevailing interest rates may
cause the principal amount of the investment to fluctuate. For example, if we
hold a security that was issued with a fixed interest rate at the
then-prevailing rate and the prevailing interest rate later rises, the principal
amount of our investment will probably decline. To minimize this risk in the
future, we intend to maintain our portfolio of cash equivalents and short-term
investments in a variety of securities, including commercial paper, money market
funds, government and non-government debt securities. The average duration of
all of our investments in 1999 was less than one year. Due to the short-term
nature of these investments, we believe we have no material exposure to interest
rate risk arising from our investments. Therefore we have not included
quantitative tabular disclosure in this prospectus.
We have operated primarily in the United States and all sales to date have been
made in U.S. dollars. Accordingly, we have not had any material exposure to
foreign currency rate fluctuations.
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BUSINESS
We are a biotechnology company developing and marketing innovative products to
guide and improve treatment of viral diseases. We have developed a practical way
of directly measuring the impact of genetic mutations on drug resistance and
using this information to guide therapy. We have a proprietary technology,
called PhenoSense, for testing drug resistance in viruses that cause serious
diseases such as AIDS, hepatitis B and hepatitis C. Our first product,
PhenoSense HIV, is a test that directly and quantitatively measures resistance
of a patient's HIV to anti-viral drugs. The results help physicians select
appropriate drugs for their HIV patients. We are also developing PhenoSense
products for other serious viral diseases and are collecting PhenoSense test
results and related clinical data in an interactive database that we plan to
make available to physicians for use in therapy guidance. We believe our
products have the potential to revolutionize the way physicians treat many
serious viral diseases.
BACKGROUND
Viruses
Viruses are microorganisms that must infect living cells to reproduce, or
replicate. Many viruses cause disease in people. These viruses infect human
cells and replicate, making new viruses that can infect other cells. There are
many different types of viruses, but all viruses share structural and functional
characteristics associated with their ability to replicate. During the
replication cycle, viruses often change slightly, or mutate. For example, in an
untreated HIV patient, as many as ten billion new viruses are produced each day,
and at least one quarter of the new viruses have errors, or mutations, in their
genes. At any given time there can be many different variants of the virus
present within the body, each with a slightly different genetic sequence.
The Viral Drug Resistance Crisis
Viruses are so adaptive that the drugs used to fight them can become
ineffective, making many serious viral diseases almost impossible to cure.
Currently available anti-viral drugs interfere with key viral functions to
prevent viruses from replicating, and therefore slow the progression of disease.
However, these drugs are typically effective for only a limited time because
viruses develop resistance to them through mutation, making the therapy less
effective. A resistant virus is one that is less sensitive to the drug that is
administered. Mutant viruses resistant to a particular drug therapy continue to
replicate while the others are eliminated. Over time the mutant, resistant virus
predominates, and the drug therapy fails. In response to this effect, physicians
now use anti-viral drugs in combination, attacking different targets within a
virus simultaneously. Combination therapy slows replication more effectively
than a single drug, further delaying the development of drug resistance. In the
short term, combination therapy has helped many patients. However, even
combination drug therapy eventually fails in a great majority of patients, due
in large part to the fact that the virus becomes resistant to some or all of the
drugs used in combination.
This drug resistance crisis is most serious in HIV/AIDS. There are currently 14
FDA-approved drugs used in various combinations to treat HIV infections.
Combination therapy requires each drug in the combination to be active for
therapy to be most effective. If any of the drugs are not active, the therapy
will likely fail more quickly. To make matters worse, each treatment failure
increases the risk that the next drug combination will not work, and leaves the
patient with fewer future treatment options. And, not surprisingly, drug
resistant viruses are being transmitted to newly infected individuals,
increasing the risk that initial treatment will not work. New drugs with
increased potency and activity against drug resistant viruses are not becoming
available in time to overcome this crisis. Consequently, physicians are faced
with the challenge of tailoring therapy to individual patients without the tools
necessary to assess drug resistance. In fact, physicians face this challenge
numerous times per year for many patients.
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Resistance Testing
When anti-viral therapy does not completely suppress viral replication, drug
resistant variants can emerge rapidly, within days to weeks. If left unchecked,
patients may be at greater risk of becoming more seriously ill unless effective
drugs are promptly administered. Until recently, physicians chose drugs based on
a patient's treatment history and assumptions regarding drug resistance of the
patient's virus. Without drug resistance tests, physicians select drugs not
knowing which drugs the patient's virus is resistant to, and frequently change
all drugs in a treatment regimen even when some may still be effective. When
physicians select ineffective drugs, patients become more seriously ill, suffer
toxic side effects, and unnecessarily bear the costs of the drugs.
To achieve long term clinical benefit, physicians must select drugs that
maximally suppress viral replication and avoid drugs to which a patient's virus
is resistant. We believe that long term solutions will rely on drug resistance
tests and information systems that can guide physicians in selecting the most
effective drugs against the patient's virus and avoiding drugs to which the
patient's virus is resistant. The need for resistance testing was affirmed in
recent guidelines from a panel led by the U.S. Department of Health and Human
Services recommending that resistance tests be routinely used when treating HIV
patients. Resistance tests can also assist pharmaceutical companies in the
development of drugs to target resistant viruses. In fact, a recent FDA advisory
committee recommended emphatically that resistance testing be used in the
development of all new anti-viral drugs for HIV.
Phenotypic tests determine "phenotype," which refers to an organism's outward
appearance or functional characteristics. For example, eye color is a phenotype.
One viral phenotype is the ability to replicate in the presence of anti-viral
drugs, also referred to as "drug resistance." Phenotypic drug resistance tests
directly measure the sensitivity of a patient's virus to anti-viral drugs by
adding a drug to a virus sample and determining whether the virus is able to
replicate in the presence of the drug. These tests eliminate much of the
guesswork in making treatment decisions by providing the physician with
information about drug resistance of a patient's virus.
Early phenotypic tests required culturing, or growing viruses in the laboratory.
These tests were slow, labor intensive and not easily automated. Since viruses
mutate while growing in culture, the process could produce inaccurate results
since the virus in culture may be different from the virus in the patient. As a
result, early phenotypic testing was impractical for patient management. In the
absence of practical phenotypic drug resistance tests, clinicians began to use
genotypic tests in an attempt to predict drug resistance indirectly. Genotypic
tests detect mutations in the underlying gene sequence, or genotype, and attempt
to correlate these mutations with drug resistance. However, the relationship
between genotype and phenotype is complex and not easily interpreted.
OUR SOLUTION
Our PhenoSense technology has revolutionized viral drug resistance testing. Our
technology uses a genetically engineered virus that replicates only once. As a
result, we avoid the need to culture viruses during testing, which makes the
tests more consistent and accurate and dramatically shortens the time required
to complete them. Also, our tests can be automated and performed in large
numbers, making them practical for routine use in clinical management of
patients. We believe that our tests and the information that we collect from
these tests have the potential to significantly change the way physicians treat
viral diseases.
We believe our PhenoSense technology meets the needs of physicians and patients
because it is:
- DIRECT: detects drug resistance of viruses without need for complex
interpretation of mutations
- QUANTITATIVE: measures the degree of drug resistance and susceptibility,
providing more than a "yes" or "no" answer
- RELIABLE: results are accurate and reproducible
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- COMPREHENSIVE: can evaluate drug resistance to all currently available
anti-viral drugs
- VERSATILE: can be modified to evaluate new classes of anti-viral drugs
- USER-FRIENDLY: results are easy to read and understand
- RAPID: can be performed in eight to ten days, much faster than other
phenotypic resistance tests
The cornerstone of our PhenoSense technology is a proprietary vector, which we
call the "resistance test vector." This vector is a strand of viral genes that
replicates when introduced into a living cell. Our vector includes two key
elements. The first is a gene that produces a protein that can be easily
detected, which we call an "indicator." An example of an indicator we use is
luciferase, which is responsible for the glow of fireflies. The second key
element is one or more specific genes derived from the patient's virus. These
genes correspond to the targets of the antiviral drugs being tested. For
example, many HIV drugs target an enzyme called protease that is needed for HIV
to replicate. We incorporate the gene that makes protease into the vector for
our HIV drug resistance test.
[RESISTANCE TEST VECTOR DIAGRAM]
ARTWORK: Diagram of resistance test vector with labels.
TEXT: Resistance Test Vector.
Construction of a resistance test vector for use in PhenoSense tests involves:
- the insertion of the specific genes from a patient's virus that correspond
to the targets of anti-viral drugs.
- the inclusion of an indicator, like luciferase, to allow measurement of
replication.
To perform our PhenoSense tests, we:
- obtain a blood sample from the patient
- isolate and inactivate the virus
- copy the viral genes corresponding to the drug targets
- insert these genes into the vector
- introduce the assembled vector into living cells in a test tube
- add anti-viral drugs to the cells
- allow the vector to complete a single round of replication
- measure the replication of the vector using the indicator
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The amount of indicator we detect is used to measure drug resistance. For
example, we measure the amount of light produced by luciferase in our PhenoSense
HIV test. If the virus is sensitive to the drug being tested, less light is
detected. If the virus is resistant to the drug, more light is detected.
We report our resistance test results using curve diagrams, as shown below. We
plot the amount of luciferase, which corresponds to the amount of virus
replication, on the vertical axis against the amount of drug tested on the
horizontal axis. We generate curves for both a patient's virus and a
drug-sensitive control virus, and compare the two curves to quantitatively
measure drug resistance. Viruses with increased resistance require more drug to
inhibit replication. We produce curves for each available drug.
[DRUG SUSCEPTIBILITY CURVES DIAGRAM]
ARTWORK: Two charts with curves, one labeled "susceptible" and one labeled
"resistant."
TEXT: Drug Susceptibility Curves.
Test results are reported using curve diagrams. Solid curves represent the
patient's virus and dotted curves represent a drug-sensitive control virus.
- Susceptible. When the patient curve closely aligns with the control
curve, the patient's virus is sensitive to the drug
- Resistant. When the patient curve shifts to the right of the control
curve, the patient's virus is demonstrating increased resistance. The
greater the curve shift to the right, the greater is the degree of
resistance
OUR STRATEGY
Our objective is to be the leader in developing and commercializing products and
information systems to guide anti-viral therapy. Key elements of our strategy
are to:
- Establish PhenoSense HIV as the Standard of Care. We plan to aggressively
market PhenoSense HIV to physicians directly and through scientific
publications, clinical trials and scientific meetings, and to patients
through direct-to-patient advertising. We intend to rapidly expand our
physician customer base by marketing the product directly to physicians in
the United States through our own sales force, initially focusing on the
1,000 leading physicians who treat 80% of the total HIV/AIDS
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patient population. Numerous pharmaceutical companies are already using
PhenoSense HIV in their clinical trials, which we expect will further
establish the value of our product in treating HIV patients. We also plan to
expand the use of our tests by pharmaceutical companies in their clinical
trials.
- Expand Our PhenoSense Technology to Other Serious Viral Diseases. Using our
proprietary PhenoSense technology, we intend to develop phenotypic drug
resistance testing products for other viral diseases. We are developing a
resistance test for hepatitis B and intend to develop one for hepatitis C.
- Apply Our PhenoSense Technology to Drug Discovery and Development. We are
developing our PhenoSense technology for use in high throughput screening
applications and other drug discovery efforts. We are also assembling a
library of resistance test vectors for testing of drug compounds and
candidates. We intend to enter into corporate partnerships to jointly
discover and develop drug candidates for the treatment of viral diseases.
- Develop Computer-Based Therapy Guidance Tools. We believe that the data
generated from our resistance tests and related patient information will be
useful in guiding treatment decisions. We are assembling a proprietary
database and developing software to enable the use of this information by
physicians and other healthcare providers to guide individual therapy.
- Maintain a Strong Intellectual Property Portfolio. We have patent coverage
for our PhenoSense HIV product and patent applications directed to our other
PhenoSense products. As we expand into new areas and diversify our business,
we intend to build strong intellectual property positions to maintain our
competitive advantage.
PRODUCTS
PHENOSENSE HIV
PhenoSense HIV is a phenotypic drug resistance test that measures the resistance
of HIV to all available anti-viral drugs. When a physician orders a PhenoSense
HIV test, a blood sample is drawn from the patient. This sample is sent to us to
perform the test in our clinical laboratory located in South San Francisco,
California. We then send a report detailing the results of the test to the
physician, typically within two weeks. We began sales and marketing activity for
PhenoSense HIV in November 1999.
HIV now affects nearly one million people in the United States and over 33
million people worldwide. Fourteen anti-viral drugs are FDA-approved for
treatment of HIV infection and more than 20 additional drugs are currently being
tested in clinical trials. Despite the availability of anti-viral drugs, HIV is
difficult to treat effectively because it replicates rapidly and becomes
resistant to individual anti-viral drugs. Selecting the right drugs when
treating HIV patients is often difficult because physicians have limited
information about the susceptibility to specific anti-viral drugs of the HIV
infecting an individual patient. We estimate that the 300,000 HIV/AIDS patients
in the United States currently receiving anti-viral therapy will require an
aggregate of at least 500,000 resistance tests per year.
Physicians are increasingly using resistance testing because drug resistance in
HIV/AIDS treatment has become a serious crisis. New guidelines for the
management of patients with HIV, issued by a panel led by the U.S. Department of
Health and Human Services, recommend that resistance tests be routinely used for
HIV patients. The guidelines also state that it is reasonable to use resistance
testing when selecting an initial anti-viral drug regimen because transmission
of drug resistant strains of HIV has now been documented. In addition, the FDA
Antiviral Drugs Advisory Committee in November 1999 emphatically recommended
that resistance tests should be utilized in the development of new anti-viral
drugs for HIV.
All currently FDA-approved HIV drugs target one of two important steps in the
replication cycle of HIV. One group of drugs, called "reverse transcriptase
inhibitors," blocks the virus from copying its genetic material. Another group,
called "protease inhibitors," blocks the formation of viral proteins that are
necessary for the virus to infect other cells. The vectors used in our
PhenoSense HIV test incorporate the protease and reverse transcriptase gene
segments from the virus of the patient being tested. Based on our
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knowledge of the mechanism of action of all of the HIV drugs currently in
development, we believe we will be able to incorporate appropriate genes
corresponding to the targets of the new drugs into our PhenoSense HIV vector.
Three prospective clinical trials have demonstrated that the use of resistance
testing to guide selection of anti-viral drug treatment regimens leads to
significantly better treatment outcomes than therapy selection without
resistance testing. These trials included patients who had failed a standard
combination therapy regimen. Patients in these trials who had their therapy
guided by resistance tests had, on average, significantly lower amounts of virus
in their blood; and a significantly higher percentage of those patients had
undetectable levels of virus in their blood after therapy.
We have, with our collaborators, performed numerous retrospective clinical
studies that support the conclusion that resistance testing of HIV patients
improves their treatment outcomes. A retrospective study of 20 patients who were
treated with a new drug combination after failing a previous combination regimen
found that those patients whose new regimen included a greater number of
susceptible drugs, as determined using PhenoSense HIV, had a significantly
greater reduction in viral load for a longer period of time than those patients
whose new regimen included fewer susceptible drugs. Another retrospective study
of 71 HIV-infected patients found that PhenoSense HIV was a significantly better
predictor of treatment outcome after failure of multiple treatment regimens than
patient treatment history or other clinical factors. Two additional studies
using PhenoSense HIV detected reduced drug susceptibility in the virus strains
infecting approximately 25% of newly infected and untreated patients,
demonstrating the value of resistance testing for these patients.
We are conducting a prospective clinical trial to reaffirm the usefulness of
PhenoSense HIV. The trial involves 256 patients who are not responding to their
current combination therapy and is measuring treatment outcomes, in the form of
viral suppression, after their treatment regimen changes. One group of patients
is tested using PhenoSense HIV prior to treatment changes. The control group is
not tested. Patient enrollment for the trial is complete. Additional clinical
trials are evaluating the role of PhenoSense HIV in guiding treatment decisions
in newly infected adult patients, in patients treated previously with one
treatment regimen and in patients treated previously with multiple treatment
regimens. We expect these trials to demonstrate the potential benefits of using
PhenoSense HIV at different stages of HIV therapy.
PHENOSENSE HBV
We are currently developing our PhenoSense technology to analyze drug resistance
of hepatitis B virus, or HBV. HBV infection is a leading cause of liver disease
and liver cancer, and leads to more than one million deaths worldwide each year.
The Center for Disease Control and Prevention estimates that there are over one
million people in the United States chronically infected with HBV, and over 350
million people chronically infected worldwide, mostly in Asia. We estimate that
approximately half of those chronically infected would benefit from anti-viral
drug therapy.
As in the case of HIV, drug resistance is a problem when treating HBV. Similar
to the treatment of HIV infection, effective therapy of chronic HBV infection
will likely require complex combinations of anti-viral drugs. As more drugs
become available, physicians will face increasing difficulty selecting the most
appropriate drug combinations for HBV patients. Therefore, we believe drug
resistance testing will play a significant role in guiding HBV treatment.
The FDA has approved two drugs for the treatment of HBV infection and more than
15 drugs are in preclinical or clinical stages of development. Many of these
drugs target HBV reverse transcriptase, which acts in a manner similar to HIV
reverse transcriptase, to prevent the virus from copying its genes. Research
efforts are ongoing to discover drugs that target other aspects of HBV's life
cycle, such as the assembly of HBV viruses, or the entry of HBV into liver
cells. Based on our knowledge of the mechanism of action of these drugs in
research, we believe that we will be able to incorporate genes corresponding to
the targets of these drugs into our PhenoSense HBV vectors.
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As the use of HBV drugs increases, we expect the demand for PhenoSense HBV to
grow dramatically. Prior to that time, we expect PhenoSense HBV will be used in
discovery and development of new HBV drugs.
PHENOSENSE HCV
We have designed and intend to develop our PhenoSense technology to analyze drug
resistance of hepatitis C virus, or HCV. HCV infection causes liver disease and
liver cancer, similar to HBV. The CDC estimates that four million people in the
United States and more than 170 million people worldwide are infected with HCV.
We estimate that approximately 75% of patients infected with HCV may benefit
from anti-viral drug therapy.
HCV replicates and mutates at extremely high rates inside an infected patient,
similar to HIV and HBV. The virus is likely to develop resistance to drugs being
developed for treatment. Complex combinations of drugs may then be required to
increase the success of treatment. As a result, a number of major pharmaceutical
companies are discovering and developing new drugs for HCV.
HCV drugs are in development that target many different aspects of HCV's life
cycle. Similar to HIV drugs, there are efforts to develop HCV protease
inhibitors as well as drugs that block the replication of the genetic material
of HCV or the production of HCV proteins. Based on our knowledge of the
mechanism of action of these drugs in research, we believe we will be able to
incorporate appropriate genes that correspond to the targets of these drugs into
our PhenoSense HCV vector.
We expect PhenoSense HCV will be utilized to assist in the discovery and
development of HCV drugs and the assessment of drug resistance in HCV patients.
As effective treatments for HCV become more widely available, we intend to offer
PhenoSense HCV to assist physicians in drug treatment decisions.
OTHER PRODUCTS
GeneSeq HIV. We have developed a genotypic test, GeneSeq HIV. Genotypic tests
identify gene sequence mutations that may be associated with resistance to
certain drugs. We have developed GeneSeq HIV as a tool to examine and evaluate
the genetic sequences of patients' HIV. We intend to use this genetic sequence
information as a component of the database supporting our Therapy Guidance
System described below. In addition, we also sell GeneSeq HIV to physicians who
request genotypic testing and pharmaceutical companies that are developing new
drugs.
Viral Fitness Test. We are developing a modified version of our PhenoSense
technology to measure viral fitness. Viral fitness is a measure of a virus'
ability to replicate and infect new cells. It is different from resistance in
that it is a measure of ability to replicate, rather than of activity relative
to a particular drug. While this technology is new, we believe that there will
be numerous applications for this test. For example, in a heavily treated
patient infected with a resistant strain of virus with low viral fitness, a
physician may choose to maintain that patient on the regimen even though it does
not fully suppress the virus. We also believe that viral fitness will be an
important data category in our Therapy Guidance System.
THERAPY GUIDANCE SYSTEM
We are developing a proprietary database derived from the results of the
PhenoSense HIV and other tests that we perform, as well as from data we obtain
from other sources. We expect to combine this database with highly sophisticated
data mining and outcome modeling software to build our Therapy Guidance System.
Our Therapy Guidance System database will include genetic and physical
characteristics of viruses, including their drug resistance patterns and genetic
mutations. In addition, we will incorporate other clinical data including viral
load, drug interactions, patient demographic data, drug side effects and
cost-benefit data. We expect our Therapy Guidance System to give doctors an
interactive computer tool that can be used to help them select optimal therapies
based on both virus and patient characteristics. We expect to provide our
Therapy Guidance System as a fee-based service over the Internet.
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DRUG DISCOVERY AND DEVELOPMENT
Drug and Vaccine Screening. We are developing our PhenoSense technology for use
in high throughput screening applications to evaluate large libraries of
potential drugs or vaccines. We believe our drug resistance screening technology
can provide more extensive information about the activity of chemical compounds
than conventional assays. We expect to enter into corporate partnerships to
jointly discover and develop drug candidates for the treatment of viral diseases
as well as potential vaccines. We will evaluate the activity of compounds or
vaccines against viruses selected from our extensive collection of patient
samples.
Clinical Trials. Because clinical trials are the most expensive part of drug
development, pharmaceutical companies are trying to improve the outcomes of
clinical trials by using the methods of "pharmacogenomics," the scientific
discipline focused on how genetic differences among patients determine or
predict responsiveness or adverse reactions to particular drugs. In a similar
way, pharmaceutical companies are applying our PhenoSense technology to help
select patients for clinical trials. This selection process may allow companies
to guide important drug development decisions before large resource commitments
are made. To date, we have signed testing agreements with the following
pharmaceutical companies involved in AIDS drug development: Agouron, Abbott,
Bristol-Myers Squibb, Gilead Sciences, GlaxoWellcome and Merck. We intend to
grow our clinical research business by applying our technology and expertise to
other serious viral diseases.
We are also involved in more than 30 trials with leading government and academic
organizations evaluating a number of HIV drugs and drug regimens including: the
NIH/AIDS Clinical Trials Group, the University of California, San Francisco, the
University of California, San Diego, the Aaron Diamond AIDS Research Center, and
the University of Colorado. We expect these trials will further support the
utility of PhenoSense HIV resistance testing.
SALES AND MARKETING
We commenced sales and marketing activity for PhenoSense HIV in November 1999.
We currently have five experienced sales representatives promoting PhenoSense
HIV and focus on several major U.S. markets -- New York, San Francisco, Los
Angeles, Chicago, Washington, D.C. and Miami. Within these regions, we are
initially targeting the 1,000 leading HIV physicians who treat 80% of the
HIV/AIDS patients in the United States. We plan to aggressively expand our
direct sales force over the coming months. Outside the United States, we intend
to enter into relationships with other companies to serve these markets.
We employ a wide range of public relations and communications channels to
promote our products. Our marketing strategies focus on physician, patient and
payor education in order to increase market awareness of PhenoSense HIV and
resistance testing. We are sponsoring and participating in conferences and
scientific meetings, advertising in relevant journals and publications, and
continuing to develop literature and sales support tools. Additionally we target
patients directly through advertising.
We have implemented a reimbursement strategy relating to PhenoSense HIV. We have
a toll free hotline to assist customers in obtaining reimbursement or
pre-approval for testing services from healthcare payors. We are also actively
educating both private and public payors about ongoing clinical research in drug
resistance testing to maximize reimbursement.
In addition, we plan to make PhenoSense HIV more broadly available through
multiple national and regional reference laboratories and hospitals. We
currently have distribution agreements with national reference laboratories
including Quest Diagnostics, Laboratory Corporation of America, Specialty
Laboratories and American Medical Laboratories. Under these agreements, these
entities perform numerous services for us including collection of samples,
shipping the samples to us, billing and reporting the results to doctors.
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PATENTS AND PROPRIETARY RIGHTS
We will be able to protect our technology from unauthorized use by third parties
only to the extent that our proprietary rights are covered by valid and
enforceable patents or are effectively maintained as trade secrets. Patents and
other proprietary rights are an essential element of our business. We have an
issued U.S. patent, with claims to the method of carrying out our PhenoSense HIV
test and composition of matter claims for our HIV resistance test vector. As of
December 1999, we have filed nine patent applications in the United States and
corresponding foreign patent applications. Our policy is to file patent
applications and to protect technology, inventions and improvements to
inventions that are commercially important to the development of our business.
Our commercial success will depend in part on obtaining this patent protection.
We also seek protection through confidentiality and proprietary information
agreements. Some of the intellectual property we use is owned by a third party.
We license it on a non-exclusive basis. Other companies may have patents or
patent applications relating to products or processes similar to, competitive
with or otherwise related to our products. These products and processes include
technologies relating to hepatitis C virus. Patents covering these technologies
may adversely impact our ability to commercialize one or more of our PhenoSense
products.
Roche License
We license technology for performing a step in our PhenoSense test from Roche
Molecular Systems, Inc. This license is non-exclusive and lasts for the life of
the patent term of the last licensed Roche patent. In general, newly-issued
patents have a term of twenty years. In addition, if Roche develops or acquires
additional patents covering technology related to the technology we license from
Roche, we have the option of licensing that additional technology under the
terms of this agreement. In exchange for the license, we have agreed to pay
Roche a royalty based on net revenues we receive from our products. At least
sixty days prior to introducing a new product utilizing the Roche technology, we
must notify Roche of that introduction. If we fail to notify Roche, we would
have to pay a higher royalty. We also agreed to participate in proficiency
testing in accordance with applicable quality assurance standards and to comply
with all relevant regulations and standards. Further, we have agreed to give
Roche a reasonable opportunity to negotiate for a license to use any technology
we develop related to the reaction technology we license from Roche, such as the
automation of the method for performing the reaction. To date, we have paid
Roche a total of $26,135 under this license.
COMPETITION
We face, and will continue to face, competition from organizations such as other
biotechnology companies and commercial laboratories, as well as academic and
research institutions.
Our major competitors include manufacturers and distributors of phenotypic drug
resistance technology, such as Virco, and makers of genotypic tests and
instrumentation, such as PE Biosystems and Visible Genetics. Each of these
competitors is attempting to establish its test as the standard of care among
opinion leaders. Although genotypic tests are currently cheaper and faster, we
believe that PhenoSense HIV is superior because it eliminates guesswork when
evaluating test results by providing:
- a direct measure which does not rely on correlation between genetic
mutations and drug resistance
- a quantitative measure of the degree of drug resistance
Some of our competitors have substantially greater financial resources and
larger research and development staffs than we do. In addition, they may have
significantly greater experience in developing products, obtaining the necessary
regulatory approvals of products, and the processing and marketing of products.
Our ability to compete successfully will depend, in part, on our ability to:
- demonstrate the degree of clinical benefit of our products relative to their
costs
- develop proprietary products
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<PAGE> 34
- develop and maintain products that reach the market first
- develop products that are technologically superior to other products in the
market
- obtain patent or other proprietary protection for our products and
technologies
- obtain reimbursement coverage from payors
- attract and retain scientific and product development personnel
REGULATION AND REIMBURSEMENT
Regulation of Clinical Laboratory Operations
The Clinical Laboratory Improvement Amendments of 1988, extends federal
oversight to virtually all clinical laboratories by requiring that laboratories
be certified by the federal government, by a federally-approved accreditation
agency or by a state that has been deemed exempt from the regulation's
requirements. Pursuant to these Federal clinical laboratory regulations,
clinical laboratories must meet quality assurance, quality control and personnel
standards. Labs also must undergo proficiency testing and inspections. Standards
are based on the complexity of the method of testing performed by the
laboratory.
These regulations categorize our laboratory as high complexity, and we believe
we are in compliance with the more stringent standards applicable to high
complexity testing for personnel, quality control, quality assurance and patient
test management. Our clinical laboratory holds a Certificate of Registration
under these regulations, which allows us to conduct testing pending
determination of compliance through a survey. Our clinical laboratory recently
was surveyed by the College of American Pathologists, a federally-approved
accreditation agency, which has accredited our clinical laboratory.
In addition to the Federal laboratory regulations, states, including California,
may require laboratory licensure and may adopt regulations that are more
stringent than federal law. We believe we are in material compliance with
California and other applicable state laws and regulations.
The sanctions for failure to comply with Federal or state clinical laboratory
regulations, or accreditation requirements of federally-approved agencies, may
be suspension, revocation or limitation of a laboratory's certificate or
accreditation. There also could be fines and criminal penalties. The suspension
or loss of a license, failure to achieve or loss of accreditation, imposition of
a fine, or future changes in applicable federal or state laws or regulations or
in the interpretation of current laws and regulations, could have a material
adverse effect on our business.
Medical Waste and Radioactive Materials
We are subject to licensing and regulation under federal, state and local laws
relating to the handling and disposal of medical specimens and hazardous waste
and radioactive materials as well as to the safety and health of laboratory
employees. Our clinical laboratory is operated in material compliance with
applicable federal and state laws and regulations relating to disposal of all
laboratory specimens. We utilize the outside vendors for disposal of specimens.
Although we believe that we are currently in compliance in all material respects
with such federal, state and local laws, failure to comply could subject us to
denial of the right to conduct business, fines, criminal penalties and other
enforcement actions.
Occupational Safety
In addition to its comprehensive regulation of safety in the workplace, the
federal Occupational Safety and Health Administration, has established extensive
requirements relating to workplace safety for healthcare employers, including
clinical laboratories, whose workers may be exposed to blood-borne pathogens
such as HIV and the hepatitis B virus. These regulations, among other things,
require work practice controls,
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<PAGE> 35
protective clothing and equipment, training, medical follow-up, vaccinations and
other measures designed to minimize exposure to chemicals and transmission of
the blood-borne and airborne pathogens.
Specimen Transportation
Regulations of the Department of Transportation, the Public Health Service and
the Postal Service apply to the surface and air transportation of clinical
laboratory specimens.
Regulation of Coverage and Reimbursement
Revenues for clinical laboratory testing services come from a variety of
sources, including Medicare and Medicaid programs; other third-party payors,
including commercial insurers, Blue Cross Blue Shield plans, health maintenance
and other managed care organizations; and patients, physicians, hospitals and
other laboratories. We have applied to become a Medicare laboratory services
provider. We have submitted Medicaid provider applications in certain key
states. Medicare, Medicaid and most other third party payors do not cover
services they deem to be still investigational or otherwise not reasonable and
necessary for diagnosis or treatment. While recently issued guidelines of the
Department of Health and Human Services recommend drug resistance testing for
HIV patients, this does not assure coverage by Medicare or any other payors.
We are unable to predict whether and under what circumstances Medicare, Medicaid
and other payors will cover resistance testing services. Denial of such coverage
by payors would have a material adverse impact on our business.
Since 1984, Congress has periodically lowered the ceilings on Medicare
reimbursement for clinical laboratory services from previously authorized
levels. In addition, state Medicaid programs are prohibited from paying more
than Medicare for clinical laboratory tests. In most instances, they pay
significantly less. Similarly, other payors, including managed care
organizations, have sought on an ongoing basis to reduce the costs of healthcare
by limiting utilization and payment rates. Actions by Medicare or other payors
to reduce reimbursement rates or limit coverage or utilization of resistance
testing will have a direct adverse impact on our revenues and cash flows. We
cannot predict whether reductions or limitations will occur, though we feel some
reductions are likely.
Fraud and Abuse Regulation
Existing federal laws governing Medicare and Medicaid and other federal
healthcare programs, as well as similar state laws, impose a variety of broadly
described fraud and abuse prohibitions on healthcare providers, including
clinical laboratories. Multiple government agencies enforce these laws. The
Health Insurance Portability and Accountability Act of 1996 provides for the
establishment of a program to coordinate federal, state and local law
enforcement programs. Over the last several years, the clinical laboratory
industry has also been the focus of major government enforcement actions.
One set of fraud and abuse laws, the federal anti-kickback laws, prohibits
clinical laboratories from, among other things, making payments or furnishing
other benefits intended to induce the referral of patients for tests billed to
Medicare, Medicaid, or certain other federally funded programs. California also
has its own Medicaid anti-kickback law, as well as an anti-kickback law that
prohibits payments made to physicians to influence the referral of any patients.
California laws also limit the ability to use a non-employee sales force.
Under another federal provision, known as the "Stark" law or "self-referral"
prohibition, physicians who have an investment or compensation relationship with
a clinical laboratory may not, unless a statutory exception applies, refer
Medicare or Medicaid patients for testing to the laboratory. In addition, a
laboratory may not bill Medicare, Medicaid or any other party for testing
furnished pursuant to a prohibited referral. There is a California self-referral
law, as well, which applies to all patient referrals.
Currently, we have a financial relationship with one referring physician, who
serves as part-time medical director at our clinical laboratory. Very few of
this physician's patients, if any, are federal healthcare program patients. In
addition, we do not bill for services furnished to any patients referred by this
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<PAGE> 36
physician. The California anti-kickback law may have exceptions applicable to
our relationship with this physician. We plan to seek a written opinion from
California officials to determine whether this relationship is appropriate.
There are a variety of other types of federal and state anti-fraud and abuse
laws, including laws prohibiting submission of false or otherwise improper
claims to federal healthcare programs, and laws limiting the extent of any
differences between charges to Medicare and Medicaid and charges to other
parties. We seek to structure our business to comply with the federal and state
anti-fraud and abuse laws. We cannot predict, however, how these laws will be
applied in the future, and we cannot be sure arrangements will not be found in
violation of them. Sanctions for violations of these laws may include exclusion
from participation in Medicare, Medicaid and other federal healthcare programs,
criminal and civil fines and penalties, and loss of license. Any of these could
have a material adverse effect on us.
EMPLOYEES
As of March 24, 2000, we had 110 employees, of whom 10 hold PhD or MD degrees
and 18 hold other advanced degrees. Approximately 41 employees are engaged in
clinical laboratory operations, including 15 licensed healthcare professionals.
There are 25 employees in research and development, and 33 in sales, marketing,
information systems, finance and other administrative functions. We believe we
maintain excellent relations with our employees.
FACILITIES
We currently lease 27,000 square feet of office and laboratory space in South
San Francisco, California. In May 2000, we will begin leasing an additional
40,000 square feet of office and laboratory space at a South San Francisco
location. In July 2001 we will begin leasing a building adjacent to this space,
adding 54,000 square feet of space. We believe these facilities will meet our
space requirements for clinical reference laboratory operations, research and
development, and administration for the next several years. Our lease on our
current and future facilities expire in the years 2004 and 2010, respectively.
All leases provide options to extend.
LEGAL PROCEEDINGS
We are not a party to any legal proceedings.
SCIENTIFIC ADVISORY BOARD
We have established an internationally renowned Scientific Advisory Board to
provide specific expertise in areas of research and development relevant to our
business. Our Scientific Advisory Board meets periodically with our scientific
and development personnel and management to discuss our present and long-term
research and development activities. Scientific Advisory Board members include
the following leaders in scientific and clinical HIV research:
STEPHEN P. GOFF, PHD -- Higgens Professor of Biochemistry and Molecular
Biophysics at the College of Physicians and Surgeons of Columbia University, and
an Investigator of the Howard Hughes Medical Institute
DAVID D. HO, MD -- Scientific Director and Chief Executive Officer of the Aaron
Diamond AIDS Research Center, and a Professor of The Rockefeller University.
STEPHEN H. HUGHES, PHD -- Chief, Retrovirus Replication Laboratory and Head,
Vector Design and Replication Section of the HIV Drug Resistance Program at the
National Cancer Institute -- Frederick Cancer Research and Development Center
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DOUGLAS D. RICHMAN, MD -- Professor of Pathology and Medicine (Infectious
Diseases) at the University of California, San Diego School of Medicine
ROBERT T. SCHOOLEY, MD -- Gill Professor of Medicine and Head of the Infectious
Disease Division at the University of Colorado Health Sciences Center
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<PAGE> 38
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The following table sets forth, as of March 24, 2000, certain information
concerning our executive officers and directors:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
William D. Young................ 55 Chairman, Chief Executive Officer and Director
Martin H. Goldstein............. 50 President and Director
Frank Barker.................... 57 Vice President, Information Technology and
Chief Information Officer
Nicholas S. Hellmann, MD........ 41 Vice President, Clinical Research
Christos J. Petropoulos, PhD.... 46 Vice President, Research and Development
Robin M. Toft................... 39 Vice President, Sales and Marketing
Patricia A. Wray................ 43 Vice President, Human Resources
Richard M. Beleson(1)(2)........ 46 Director
Anders Hove, MD(1).............. 34 Director
Cristina H. Kepner(2)........... 54 Director
Albert L. Zesiger(1)(2)......... 70 Director
</TABLE>
- -------------------------
(1) Member of the compensation committee.
(2) Member of the audit committee.
WILLIAM D. YOUNG has served as our Chief Executive Officer since November 1999
and has served as the Chairman of the Board since May 1999. From March 1997 to
October 1999, Mr. Young was Chief Operating Officer at Genentech, Inc., a
biotechnology company. As COO at Genentech, Mr. Young was responsible for all of
the company's development, operations and commercial functions. Mr. Young joined
Genentech in 1980 as Director of Manufacturing and Process Sciences and held
various positions prior to becoming COO. Prior to joining Genentech, Mr. Young
was employed by Eli Lilly and Company for 14 years. Mr. Young is a member of the
board of directors of IDEC Pharmaceuticals, Inc., VaxGen, Inc. and Energy
Biosystems, Inc. He received his BS in chemical engineering from Purdue
University and his MBA from Indiana University.
MARTIN H. GOLDSTEIN has served as our President since May 1996 and as a director
since November 1995. Mr. Goldstein was one of our co-founders in 1995 and has
served in other executive officer positions, including Chief Executive Officer
and Chief Operating Officer, since that time. From 1993 to May 1996, Mr.
Goldstein was a consultant to privately held biotechnology companies in the
areas of patents and licensing. From 1991 to 1993, Mr. Goldstein was Vice
President, General Counsel and Secretary of Epimmune, Inc., a biotechnology
company. From 1989 to 1991, Mr. Goldstein was Vice President, General Counsel
and Secretary of Xoma Corporation, a biotechnology company. From 1985 to 1989,
Mr. Goldstein was Patent Counsel at Genentech. From 1983 to 1985, he was a
patent attorney at Hoffmann-LaRoche, a pharmaceutical company. He received his
MS in physiology from the University of Florida School of Medicine and a JD from
Cardozo School of Law of Yeshiva University.
FRANK BARKER has served as our Vice President, Information Technology and Chief
Information Officer since November 1999. From 1996 until January 2000, Mr.
Barker was Senior Vice President and Chief Information Officer for HealthCor,
Inc., a home healthcare provider. From 1993 to 1996, Mr. Barker was Vice
President of Client Services for Antrim, Corp., a laboratory information systems
vendor. From 1993 to 1996, he was Chief Operating Officer for CHC, Inc., a
hospital and laboratory information systems vendor.
NICHOLAS S. HELLMANN, MD has served as our Vice President, Clinical Research
since September 1997. From 1995 to 1997, Dr. Hellmann was Director of Clinical
Research at Gilead Sciences, Inc., a biopharmaceutical company. In 1995 he was
employed as a clinical scientist at Genentech. From 1993 to
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<PAGE> 39
1995, he was Associate Director of Antiviral Clinical Research at Bristol-Myers
Squibb, a pharmaceutical company. Dr. Hellmann has been involved with clinical
care of patients with infectious diseases, especially HIV infection, and
infectious disease research since 1982. He received his MD degree from the
University of Kentucky and completed his internal medicine residency and
infectious diseases fellowship training at the University of California, San
Francisco.
CHRISTOS J. PETROPOULOS, PHD has served as our Director of Research and
Development since August 1996, became Senior Director of Research and
Development in September 1997 and was named our Vice President, Research and
Development in November 1999. From 1992 to 1996, Dr. Petropoulos was a scientist
at Genentech where he headed the Molecular Virology Laboratory and the Research
Virology and Molecular Detection Laboratories from 1994 to 1996. Dr. Petropoulos
received his PhD in molecular and cell biology from Brown University.
ROBIN M. TOFT has served as our Vice President, Sales and Marketing since May
1998. From 1996 to May 1998 Ms. Toft was employed with Laboratory Corporation of
America, or LabCorp, a national clinical laboratory, first as national sales
director and then as Associate Vice President of Business Development. From 1991
through 1996, Ms. Toft worked in sales for National Health Laboratories, a
clinical laboratory, which merged with Roche Biomedical Laboratories to form
LabCorp in 1995. Ms. Toft received her BS in medical technology from Michigan
State University.
PATRICIA A. WRAY has served as our Senior Director of Human Resources since
September 1998 and was named our Vice President of Human Resources in November
1999. From 1997 until September 1998, Ms. Wray operated her own human resources
consulting business. From 1989 to 1997, Ms. Wray was an internal consultant and
director with Genentech. She received her MS from Michigan State University.
RICHARD M. BELESON has served on our board of directors since May 1996. Mr.
Beleson is Senior Vice President for Capital Research Company, an investment
company. Prior to joining Capital Research in 1984, he was a research analyst
for Boettcher & Company.
ANDERS HOVE, MD has served on our board of directors since August 1998. Dr. Hove
has been a member of the Bellevue Group in Zurich, Switzerland since 1996, which
focuses on investing in public and private biotechnology companies in the United
States and in Europe. Dr. Hove is also a director of The Medicines Company. From
1992 to 1996, Dr. Hove held various corporate positions in clinical development
and marketing at Ciba-Geigy Pharmaceuticals Division, Basel, Switzerland.
CRISTINA H. KEPNER has served on our board of directors since May 1996. Ms.
Kepner is Director, Executive Vice President and Corporate Finance Director at
Invemed Associates LLC, an investment banking firm which she joined in 1978. Ms.
Kepner serves on the board of directors of Quipp, Inc.
ALBERT L. ZESIGER has served on our board of directors since August 1999. Mr.
Zesiger is a founding Principal of Zesiger Capital Group LLC, an investment
advisory firm. He has been in the money management business for over 30 years.
He also serves on the board of directors of Durect Corporation, Eos
Biotechnology, Inc., Hayes Medical Inc., and Praecis Pharmaceuticals Inc. and is
Co-Chair of Asphalt Green, Inc., a non-profit corporation.
BOARD COMPOSITION
Upon the closing of this offering, in accordance with the terms of our restated
certificate of incorporation, the terms of office of the board of directors will
be divided into three classes:
- Class I directors, whose term will expire at the annual meeting of
stockholders to be held in 2001
- Class II directors, whose term will expire at the annual meeting of
stockholders to be held in 2002
- Class III directors, whose term will expire at the annual meeting of
stockholders to be held in 2003
Our Class I directors will be Messrs. Beleson and Young, our Class II directors
will be Mr. Goldstein and Ms. Kepner, and our Class III directors will be Dr.
Hove and Mr. Zesiger. At each annual meeting of
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stockholders after the initial classification, 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 following election. 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 directors. This classification of the board of
directors may have the effect of delaying or preventing changes in control or
management of our company.
COMMITTEES OF THE BOARD OF DIRECTORS
The audit committee of the board of directors reviews our internal accounting
procedures and consults with and reviews the services provided by our
independent accountants.
Our compensation committee reviews and makes recommendations to the board
concerning compensation and benefits of all of our executive officers,
administers our stock option plan and establishes and reviews general policies
relating to compensation and benefits of our employees.
DIRECTOR COMPENSATION
Our directors do not currently receive any cash compensation for services on the
board of directors or any committee thereof, but directors may be reimbursed for
certain expenses in connection with attendance at board and committee meetings.
In addition, all directors are eligible to participate in our 2000 Equity
Incentive Plan.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During the fiscal year ended December 31, 1999, Messrs. Beleson, Hove and Young
served as members of our compensation committee. None of our executive officers
serves as a member of the board of directors or compensation committee of any
entity that has one or more executive officers serving on our board of directors
or compensation committee.
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EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth the compensation awarded or paid to, or earned or
accrued for services rendered to us in all capacities during 1999 by our chief
executive officer, and the four other most highly compensated officers whose
total compensation exceeded $100,000 during 1999. The compensation described in
the table does not include medical, group life insurance or other benefits
which, in the aggregate, are available generally to all our salaried employees
and perquisites and other personal benefits which do not exceed the lesser of
$50,000 or 10% of the executive officer's salary disclosed in this table. We
refer to these executive officers as our "named executive officers" in other
parts of this prospectus.
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
AWARDS
ANNUAL COMPENSATION --------------------
------------------------------- NUMBER OF SECURITIES
NAME AND PRINCIPAL POSITION SALARY BONUS OTHER UNDERLYING OPTIONS
--------------------------- -------- -------- ------- --------------------
<S> <C> <C> <C> <C>
William D. Young................. $ 51,868 $825,000(1) -- 650,000(2)
Chairman of the Board and
Chief Executive Officer
Martin H. Goldstein.............. $258,310 -- -- 13,612(3)
President and Director
Nicholas S. Hellmann............. $182,676 $ 45,000 -- --
Vice President, Clinical
Research
Christos J. Petropoulos.......... $130,912 $ 7,421 -- 5,775(3)
Vice President, Research and
Development
Robin M. Toft.................... $158,339 -- $48,084(4) --
Vice President, Sales and
Marketing
</TABLE>
- ---------------------------
(1) Consists of a stock bonus granted to Mr. Young prior to his employment with
us in consideration of his service as our Chairman of the Board. At the time
of grant, these shares had an aggregate fair value of $555,000. For a more
detailed discussion of this grant, see "Employment Agreements -- William D.
Young." Also includes $270,000 in cash bonuses accrued in 1999 that will be
paid in 2000.
(2) For a detailed description of these option grants, see "-- Employment
Agreements -- William D. Young."
(3) This option is intended to be an incentive stock option. The shares
underlying this option vest monthly over 48 months beginning on April 30,
1999. The exercise price of this option is $5.40 per share.
(4) Includes a housing allowance of $20,074 and forgiveness of $28,010 owed to
us by Ms. Toft.
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1999 OPTION GRANTS
The following table sets forth information concerning stock options granted to
each of our named executive officers during 1999:
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE VALUE
PERCENTAGE AT ASSUMED ANNUAL
NUMBER OF OF TOTAL RATES OF STOCK
SECURITIES OPTIONS PRICE APPRECIATION
UNDERLYING GRANTED TO EXERCISE FOR OPTION TERM
OPTIONS EMPLOYEES IN PRICE EXPIRATION ---------------------------
NAME GRANTED YEAR 1999 PER SHARE DATE 5% 10%
---- ---------- ------------ --------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
William D. Young.......... 250,000(1)(2) 26.7% $3.14 11/11/09 $5,323,355 $8,941,534
250,000(1)(2) 26.7 3.14 11/11/09 5,323,355 8,941,534
150,000(2) 16.0 3.14 11/11/09 3,194,013 5,364,921
Martin H. Goldstein....... 13,612(3) 1.5 5.40 3/30/09 259,083 456,086
Christos J. Petropoulos... 5,775(3) 0.6 5.40 3/30/09 109,918 193,498
</TABLE>
- ---------------------------
(1) These options were granted outside of our equity incentive plans.
(2) For a description of the vesting of these options, see "-- Employment
Agreements -- William D. Young."
(3) One forty-eighth of the underlying shares vest each month beginning on April
30, 1999.
Except where noted, the figures in the table above represent options granted
under our 2000 Equity Incentive Plan. We granted options to purchase 1,019,675
shares of our common stock in 1999. The percentage of total options in the table
above was calculated based on options to purchase an aggregate of 936,087 shares
of our common stock granted to our employees in 1999. All options were granted
at an exercise price equal to the fair value of the common stock on the date of
grant as determined by our board of directors.
The exercise price of the options listed in the table above is equal to the fair
value of our common stock on the date of grant, as determined by the board of
directors. Because there has been no public market for our common stock, in
determining the fair value, the board of directors gives consideration to a
number of factors, including the following:
- - the available cash and financial condition of our company and our difficulty
raising capital in 1999
- - the share price in our most recent round of preferred stock financing
- - the material differences between the rights, preferences and privileges of the
most-recently issued series of preferred stock and the rights of the common
stock
- - the stage of development of our company
- - the valuations of other companies in our industry at similar stages of
development
- - other factors that the board of directors deems relevant
In view of the variety of factors considered by the board in determining the
fair market value of our common stock on any given date, the board does not
believe it is practicable to quantify or otherwise assign relative weight to the
specific factors considered in determining fair market value.
You should note the disparity between the exercise price of the options in the
table above and the assumed public offering price. Because of this disparity, we
have used the assumed public offering price to compute the potential realizable
option values in the table above.
The potential realizable value represents amounts, net of exercise price before
taxes, that may be realized upon exercise of the options immediately prior to
the expiration of their terms assuming appreciation of 5% and 10% over the
option term. The 5% and 10% are calculated based on rules promulgated by the
Securities and Exchange Commission and an assumed initial public offering price
of $15.00 per share and do not reflect our estimate of future stock price
growth. The actual value realized may be greater or less than the potential
realizable value set forth in the table.
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<PAGE> 43
1999 OPTION VALUES
The following table sets forth information concerning the number and value of
exercisable and unexercisable options held by each of the named executive
officers as of December 31, 1999. The value of unexercised in-the-money options
at December 31, 1999 represents an amount equal to the difference between the
assumed initial public offering price of $15.00 per share and the option
exercise price, multiplied by the number of unexercised in-the-money options. An
option is in-the-money if the fair value of the underlying shares exceeds the
exercise price of the options.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS AT IN-THE-MONEY OPTIONS
DECEMBER 31, 1999 AT DECEMBER 31, 1999
---------------------------- ----------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
William D. Young.................. 533,125 129,375 $6,315,800 $1,513,200
Martin H. Goldstein............... 2,552 11,060 24,499 106,176
Christos J. Petropoulos........... 5,925 7,350 79,933 83,207
Robin M. Toft..................... 19,791 42,709 233,534 503,966
</TABLE>
As of December 31, 1999, 500,000 of the shares subject to options held by
William D. Young would, if exercised, be subject to a repurchase right in our
favor that lapses over time as described in "-- Employment Agreements -- William
D. Young."
EMPLOYEE BENEFIT PLANS
2000 Equity Incentive Plan
In November 1995, our board of directors adopted our 1996 Stock Plan, and the
plan was approved by our stockholders on May 1996. In February 2000, we approved
an amendment and restatement of the plan, and re-named the plan the "2000 Equity
Incentive Plan." As amended, a total of 4,200,000 shares of common stock are
authorized for issuance under the plan. Shares subject to stock awards that have
expired or otherwise terminated without having been exercised in full again
become available for grant.
The plan permits the grant of options to our directors, executive officers, key
employees and consultants and certain of our advisors. Options may be either
incentive stock options to employees within the meaning of Section 422 of the
Internal Revenue Code or non-statutory stock options. In addition, the plan
permits the grant of stock bonuses and rights to purchase restricted stock.
Except in specified circumstances, no person may be granted options covering
more than 1,000,000 shares of common stock in any calendar year.
The plan is administered by the board of directors or a committee appointed by
the board. The board has delegated the authority to administer the plan to our
compensation committee. Subject to the limitations set forth in the plan, the
compensation committee and the administrator have the authority to select the
eligible persons to whom award grants are to be made, to designate the number of
shares to be covered by each award, to determine whether an option is to be an
incentive stock option or a non-statutory stock option, to establish vesting
schedules, to specify the exercise price of options and the type of
consideration to be paid upon exercise and, subject to specified restrictions,
to specify other terms of awards.
The maximum term of options granted under the plan is ten years. Incentive stock
options granted under the plan generally are non-transferable. Non-statutory
stock options generally are non-transferable, although the applicable option
agreement may permit some transfers. Options generally expire from one to three
months after the termination of an optionholder's service. However, if an
optionholder is permanently disabled or dies during his or her service, that
person's options generally may be exercised up to 12 months following disability
or death.
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<PAGE> 44
The exercise price of options granted under the plan is determined by the board
of directors or committee in accordance with the guidelines set forth in the
plan. The exercise price of an incentive stock option cannot be less than 100%
of the fair value of the common stock on the date of grant. The exercise price
of a non-statutory stock option cannot be less than 85% of the fair market value
of the common stock on the date of grant.
Options granted under the plan vest at the rate determined by the board of
directors or committee and specified in the option agreement. The terms of any
stock bonuses or restricted stock purchase awards granted under the plan will be
determined by the board of directors or committee. The purchase price of
restricted stock under any restricted stock purchase agreement will be
determined by the board of directors or committee and will not be less than 85%
of the fair value of our common stock on the date of grant. Stock bonuses and
restricted stock purchase agreements awarded under the plan are generally non-
transferable, although the applicable award agreement may permit some transfers.
In the event of a change in control in our ownership as defined in our plan, all
outstanding stock awards under the plan must either be assumed or substituted by
the surviving entity. In the event the surviving entity does not assume or
substitute such stock awards, then the vesting and exercisability of outstanding
awards will accelerate prior to the change in control and such awards will
terminate to the extent not exercised prior to the change in control. The board
of directors may amend or terminate the plan at any time. Amendments will
generally be submitted for stockholder approval to the extent required by
applicable law.
As of December 31, 1999, we had issued and outstanding under the plan options to
purchase 740,867 shares of common stock and 394,253 shares had been purchased
upon the exercise of previously held options. The per share exercise prices of
these outstanding options range from $0.32 to $5.40. In February 2000, we
granted to our employees and non-employees stock options to purchase 244,193
shares of common stock at an exercise price of $3.70 per share.
2000 Employee Stock Purchase Plan
In February 2000, we adopted the 2000 Employee Stock Purchase Plan. A total of
500,000 shares of common stock has been reserved for issuance under the purchase
plan. The purchase plan is intended to qualify as an employee stock purchase
plan within the meaning of Section 423 of the Internal Revenue Code. Under the
purchase plan, the board of directors may authorize participation by eligible
employees, including executive officers, in periodic offering following the
commencement of the purchase plan. The initial offering under the purchase plan
will commence on the effective date of this offering and terminate on January
31, 2002.
Unless otherwise determined by the board of directors, employees are eligible to
participate in the purchase plan only if they are employed by us or one of our
subsidiaries designated by the board of directors for at least 20 hours per week
and are customarily employed for at least five months per calendar year.
Employees who participate in an offering may have up to 15% of their earnings
withheld pursuant to the purchase plan. The amount withheld is then used to
purchase shares of common stock on specified dates determined by the board of
directors. The price of common stock purchased under the purchase plan will be
equal to 85% of the lower of the fair value of the common stock at the
commencement date of each offering period or the relevant purchase date.
Employees may end their participation in the offering at any time during the
offering period, and participation ends automatically on termination of
employment.
In the event of a merger, reorganization, consolidation or liquidation, the
board of directors has discretion to provide that each right to purchase common
stock will be assumed or an equivalent right substituted by the successor
corporation or the board of directors may provide for all sums collected by
payroll deductions to be applied to purchase stock immediately prior to such
merger or other transaction. The board of directors has the authority to amend
or terminate the purchase plan, provided, however, that no such action may
adversely affect any outstanding rights to purchase common stock.
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<PAGE> 45
EMPLOYMENT AGREEMENTS
William D. Young
We have an agreement with William D. Young governing his employment as our Chief
Executive Officer. Our employment agreement provides for a base salary of
$300,000 per year, plus a yearly incentive bonus as part of our bonus program
based on objectives established by the board of directors after consultation
with Mr. Young, plus a yearly special bonus of between $50,000 and $100,000,
grossed up for tax purposes. In addition, the agreement contains a
non-solicitation agreement.
As required by the agreement, prior to the commencement of Mr. Young's
employment, we also granted him a stock bonus award of 150,000 fully vested
shares of our common stock, in consideration of his past service as our Chairman
of the Board prior to becoming our chief executive officer. The agreement also
provides for the following:
- a cash bonus in the gross amount of $180,000, granted on January 15, 2000,
and an additional cash bonus in the gross amount of $180,000, to be granted
on April 15, 2000
- an incentive stock option under our 2000 Equity Incentive Plan covering
150,000 shares of our common stock, to vest as to 30,000 shares on December
31, 1999 and as to an additional 2,500 shares at the end of each month
thereafter
- a non-statutory stock option, granted outside of our 2000 Equity Incentive
Plan, covering 250,000 shares of our common stock, to vest as to 25% after
the first year of employment and the remaining 75% in equal installments
over the next three years. This option may be exercised prior to vesting,
but unvested portions acquired will be subject to a repurchase right by us
that will expire gradually consistent with the vesting schedule
- a non-statutory stock option, granted outside of our 2000 Equity Incentive
Plan, covering 250,000 shares of our common stock. This option vests 100%
after the five years of employment, unless either one of the following
occurs before that date:
- a merger or acquisition or initial public offering where the per share
valuation of our common stock is imputed to be more than $18.50, in which
case 125,000 shares shall immediately vest
- our product revenue for any fiscal year exceeds $20.0 million, in which
case 125,000 shares shall immediately vest
This option may also be exercised prior to vesting, subject to our repurchase
right.
Any of these options may be exercised by delivery of a promissory note, and each
of the options immediately becomes fully vested if, within one year of a change
in our control or liquidation, Mr. Young is terminated without cause or resigns
for good reason.
Our agreement with Mr. Young specifies that Mr. Young's employment is at-will.
If we terminate his employment for any reason other than for cause, however, or
if his employment is terminated as a result of death or permanent disability, we
have also agreed to continue to pay him, or his estate, his base salary, at the
level in effect at the time of termination, for an additional 12 months. Also,
we have agreed that in any of these events the vesting of his options shall
accelerate, either for an additional 12 months or, after he has been employed
for more than two years, in full.
Martin H. Goldstein
We have an agreement with Martin H. Goldstein governing his employment as our
President. The agreement provided that the stock options granted to Mr.
Goldstein under the agreement were to vest over four years. These options are
now fully vested.
Our agreement with Mr. Goldstein specifies that Mr. Goldstein's employment is
at-will. If we terminate his employment for any reason other than for cause,
however, or if his employment is terminated as a
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<PAGE> 46
result of death or permanent disability, we have also agreed to continue to pay
him, or his estate, his base salary, at the level in effect at the time of
termination, for an additional six months.
LIMITATION ON LIABILITY AND INDEMNIFICATION MATTERS
Our certificate of incorporation limits the liability of directors to the
maximum extent permitted by Delaware law. In addition, our bylaws require us to
indemnify our directors and executive officers, and allow us to indemnify our
other employees and agents, to the fullest extent permitted by law. We have also
entered into agreements to indemnify some of our directors and executive
officers. We believe that these provisions and agreements are necessary to
attract and retain qualified directors and executive officers. At present, there
is no pending litigation or proceeding involving any director, executive
officer, employee or agent where indemnification will be required or permitted.
We are not aware of any threatened litigation or proceeding that might result in
a claim for such indemnification. Insofar as indemnification for liabilities
arising under the Securities Act may be permitted to directors, executive
officers or persons controlling our company pursuant to the foregoing
provisions, we have been informed that, in the opinion of the Securities and
Exchange Commission, such indemnification is against public policy as expressed
in the Securities Act and is therefore unenforceable.
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<PAGE> 47
PRINCIPAL STOCKHOLDERS
The following table sets forth information regarding beneficial ownership of our
common stock as of March 24, 2000, by:
- each of our directors
- each of our named executive officers
- each person who beneficially owns more than five percent of the outstanding
shares of common stock
- all of our directors and executive officers as a group
Beneficial ownership is determined according to the rules of the Securities and
Exchange Commission, and generally means that a person has beneficial ownership
of a security and warrants if he or she possesses sole or shared voting or
investment power of that security, and includes options and warrants 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 14,687,397 shares of
common stock outstanding as of March 24, 2000, and also lists applicable
percentage ownership based on 19,687,397 shares of common stock outstanding
after completion of this offering. Options and warrants to purchase shares of
our common stock that are exercisable within 60 days of March 24, 2000, are
deemed to be beneficially owned by the persons holding these options and
warrants for the purpose of computing percentage ownership of that person, but
are not treated as outstanding for the purpose of computing any other person's
ownership percentage. Shares underlying options and warrants that are deemed
beneficially owned are listed in this table separately in the column labeled
"Shares Subject to Options." These shares are included in the number of shares
listed in the column labeled "Total Number."
Unless otherwise indicated, the address for each person or entity named below is
ViroLogic, Inc., 270 East Grand Avenue, South San Francisco, California 94080.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY OWNED
---------------------------------------------------------------
SHARES SUBJECT
TOTAL TO OPTIONS PERCENT BEFORE PERCENT AFTER
NAME OF BENEFICIAL OWNER NUMBER AND WARRANTS OFFERING OFFERING
------------------------ ---------- -------------- -------------- -------------
<S> <C> <C> <C> <C>
Anders Hove(1)......................... 3,804,710 199,705 25.6% 19.1%
Biotech Growth S.A.
Albert L. Zesiger(2)................... 2,676,598 -- 18.2 13.6
Zesiger Capital Group
Richard M. Beleson(3).................. 955,157 631 6.5 4.9
Capital Management Services, Inc.
Martin H. Goldstein(4)................. 464,813 4,324 3.2 2.4
Cristina H. Kepner(5).................. 360,937 59,445 2.4 1.8
Invemed Associates, Inc.
William D. Young....................... 193,125 43,125 1.3 *
Christos J. Petropoulos................ 82,459 7,459 * *
Nicholas S. Hellmann................... 75,292 292 * *
Robin M. Toft.......................... 25,000 25,000 * *
Daniel Capon(6)........................ 1,807,420 -- 12.3 9.2
All directors and executive officers as
a group (11 persons)(7).............. 8,648,283 350,173 57.5 43.2
</TABLE>
(footnotes on next page)
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<PAGE> 48
- ---------------------------
* Represents beneficial ownership of less than 1%.
(1) Includes 3,605,005 shares held by Biotech Growth S.A., a fully owned
subsidiary of BB Biotech A.G., and 199,705 shares that Biotech Growth may
acquire on or before May 23, 2000 by exercising warrants that it holds. Mr.
Hove disclaims beneficial ownership of these shares and warrants. Mr. Hove's
business address is c/o Bellevue Research, 1 Cambridge Center, 9th Floor,
Cambridge, MA 02142.
(2) Includes 2,614,098 shares held by entities for whom Zesiger Capital Group
acts as an investment advisor. The largest of these entities is the State of
Oregon Public Employee Retirement system which owns 968,750 shares,
representing approximately 6.6% and 4.9% of the total number of shares
outstanding before and after the offering, respectively. Mr. Zesiger shares
voting and investment power over shares held by these entities and disclaims
beneficial ownership of these shares except to the extent of his pecuniary
interest therein. Mr. Zesiger's business address is c/o Zesiger Capital
Group, 320 Park Avenue, New York, NY 10022.
(3) Includes 941,026 shares held by Capital Management Services, Inc. and 631
shares that Capital Management Services may acquire on or before April 15,
2000 by exercising warrants that it holds. Mr. Beleson shares voting and
investment power over the shares and warrants held by Capital Management
Services and disclaims beneficial ownership of these shares and warrants
except to the extent of his pecuniary interest therein. Mr. Beleson's
business address is c/o Capital Group, One Market, Stewart Tower, Suite
1800, San Francisco, CA 94105.
(4) Includes 50,000 shares held in trust by Mr. Goldstein for his children. Also
includes 8,239 shares held in our 401(k) plan of which Mr. Goldstein serves
as a trustee. Mr. Goldstein disclaims beneficial ownership of these shares.
(5) Includes 267,060 shares held by Invemed Associates, Inc. Ms. Kepner shares
voting and investment power over the shares held by Invemed and disclaims
beneficial ownership of these shares except to the extent of her pecuniary
interest therein. Ms. Kepner's business address is c/o Invemed Associates,
375 Park Avenue, Suite 2205, New York, NY 10152.
(6) Includes 25,000 shares held by Dr. Capon in trust for his children as well
as 150,000 shares held by his wife, Miriam Siekevitz. Dr. Capon disclaims
beneficial ownership of these shares. The business address of Dr. Capon, our
Chairman Emeritus, is 1324 Rollins Road, Burlingame, CA 94010.
(7) Includes:
- shares listed in footnotes 1 through 5
- 10,192 shares acquirable by an executive officer not listed separately in
the table above on or before May 23, 2000 by exercising vested stock
options
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<PAGE> 49
RELATED PARTY TRANSACTIONS
The following is a description of transactions since inception to which we have
been a party, in which the amount involved exceeds $60,000 and in which any
director, executive officer or holder of more than 5% of our capital stock had
or will have a direct or indirect material interest, other than compensation
arrangements which are described under "Management."
The following persons or entities purchased securities in the amounts set forth,
on an as-converted to common basis, in the chart below. We sold shares of our
Series A preferred stock between May 1996 and May 1997. We sold shares of our
Series B preferred stock in August 1998. We sold shares of our Series C
preferred stock between August 1999 and February 2000.
<TABLE>
<CAPTION>
COMMON SERIES A SERIES B SERIES C
PURCHASER(1) STOCK FINANCING FINANCING FINANCING WARRANTS
------------ --------------- ----------- --------- ----------- --------------
<S> <C> <C> <C> <C> <C>
DIRECTORS AND PRINCIPAL STOCKHOLDERS
Richard M. Beleson.................... -- 843,750 97,276 13,500 631
Capital Management Services, Inc.
Cristina H. Kepner.................... -- 101,562 4,864 195,066 59,445
Invemed Associates, Inc.
Anders Hove........................... -- -- 2,237,354 1,756,756 241,748
Biotech Growth S.A.
Albert L. Zesiger..................... -- 1,124,998 -- 1,676,600 --
Zesiger Capital Group,
Daniel Capon.......................... 1,387,500 -- -- 892,920 --
EXECUTIVE OFFICERS
William D. Young...................... 150,000 -- -- -- --
Martin H. Goldstein................... 402,250 -- -- 50,000 --
Nicholas S. Hellmann.................. 75,000 -- -- -- --
Christos J. Petropoulos............... 75,000 -- -- -- --
OTHER TRANSACTION INFORMATION
Price per share....................... $0.002 to $3.70 $3.20 $6.40 $3.70 $0.02 to $8.00
</TABLE>
- -------------------------
(1) See "Principal Stockholders" for more detail on shares held by these
purchasers.
We were involved in a dispute with Dr. Daniel Capon, a significant stockholder
and former employee. We settled the dispute in November 1999. In connection with
this settlement we purchased shares of our common stock held by him for $225,000
in cash and allowed Dr. Capon to retain 100,000 shares of our common stock that
we had the right to repurchase.
We have entered into an Amended and Restated Investor Rights Agreement with each
of the purchasers of our preferred stock pursuant to which these and other
stockholders will have registration rights following this offering with respect
to their shares of common stock issued upon conversion of their preferred stock.
We have entered into, or prior to this offering will enter into, indemnification
agreements with our directors and executive officers for the indemnification of
and advancement of expenses to these persons to the fullest extent permitted by
law. We also intend to enter into these agreements with our future directors and
executive officers.
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<PAGE> 50
DESCRIPTION OF CAPITAL STOCK
GENERAL
Immediately following the closing of this offering, our authorized capital stock
will consist of 60,000,000 shares of common stock, $0.001 par value per share,
and 5,000,000 shares of preferred stock, $0.001 par value per share.
This summary does not purport to be complete and is subject to, and qualified in
its entirety by: the provisions of our certificate of incorporation, as amended
and restated; various documents and agreements evidencing warrants and
registration rights, all of which are included as exhibits to the registration
statement which this prospectus is a part; and applicable provisions of Delaware
law.
COMMON STOCK
As of March 24, 2000, and assuming the conversion of all outstanding preferred
stock into common stock upon the closing of this offering, there were
outstanding 14,687,397 shares of common stock held of record by 152
stockholders, options to purchase 1,434,028 shares of common stock and warrants
to purchase 742,082 shares of common stock. The holders of common stock are
entitled to one vote per share on all matters to be voted on by the
stockholders. Subject to preferences that may be applicable to any outstanding
shares of preferred stock, holders of common stock are entitled to receive
ratably such dividends as may be declared by the board of directors out of funds
legally available therefor. In the event of our liquidation, dissolution or
winding up, holders of common stock are entitled to share ratably in all assets
remaining after payment of liabilities and the liquidation preferences of any
outstanding shares of preferred stock. Holders of common stock have no
preemptive, conversion, subscription or other rights. There are no redemption or
sinking fund provisions applicable to the common stock. All outstanding shares
of common stock are, and all shares of common stock to be outstanding upon
completion of this offering will be, fully paid and nonassessable.
PREFERRED STOCK
As of March 24, 2000, assuming the closing of this offering, all outstanding
shares of preferred stock would have been converted into 9,587,769 shares of
common stock. See Note 5 to financial statements for a description of the
currently outstanding preferred stock. Following the conversion, our certificate
of incorporation will be amended and restated to delete all references to such
shares of preferred stock. The certificate of incorporation, as restated, gives
to the board of directors the authority, without further action by stockholders,
to issue up to 5,000,000 shares of preferred stock in one or more series and to
fix the rights, preferences, privileges, qualifications and restrictions granted
to or imposed upon such preferred stock, including dividend rights, conversion
rights, voting rights, rights and terms of redemption, liquidation preference
and sinking fund terms, any or all of which may be greater than the rights of
the common stock. The issuance of preferred stock could:
- adversely affect the voting power of holders of common stock and reduce the
likelihood that such holders will receive dividend payments and payments
upon liquidation
- decrease the market price of our common stock
- delay, deter or prevent a change in our control
We have no present plans to issue any shares of preferred stock.
In November 1997, all of our outstanding shares of Series A preferred stock were
converted into shares of common stock. No shares of Series A preferred stock
remain outstanding.
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<PAGE> 51
WARRANTS
In connection with the private placement of our Series A preferred stock, in May
1996, we issued warrants which are now exercisable for up to 396,093 shares of
common stock, all of which remain unexercised as of March 24, 2000. The exercise
price of these warrants is $3.68 per share.
In connection with the private placement of our Series B preferred stock in
August, 1998, we issued warrants to purchase shares of our common stock and
preferred stock which, after the offering, will be exercisable for 243,122
shares of common stock, of which 243,106 remain unexercised as of March 24,
2000. The exercise prices of these warrants range from $0.02 to $5.91 per share
of common stock.
In connection with leases for our facilities and financing agreements between
May 1998 and August 1998, we issued warrants to purchase 105,883 shares of our
common stock, 102,883 of which remain unexercised as of March 24, 2000. The
exercise prices of these warrants range from $3.68 to $8.00 per share.
The exercise price of each of our outstanding warrants is subject to customary
adjustments upon stock splits, stock dividends or subdivisions. Additionally,
the warrants are subject to customary adjustments upon a sale of all or
substantially all of our assets or upon our reorganization, reclassification,
consolidation or merger. The exercise prices of the warrants are also subject to
adjustment in the event of our subsequent issuance of common stock at a price
per share less than their respective exercise prices. None of our warrants
confer upon the holder any voting or any other rights of our stockholders, and
are subject to certain registration rights agreements described below.
REGISTRATION RIGHTS
Pursuant to the Amended and Restated Investor Rights Agreement, as amended, and
individual warrant agreements between us and some of our investors, the
investors, holding an aggregate of 12,965,690 shares of our common stock issued
or issuable upon conversion of our outstanding preferred stock and upon exercise
of outstanding warrants to purchase common stock, have registration rights
pertaining to the securities they hold, exercisable any time following 180 days
after the effective date of this offering. If we propose to register any of our
securities under the Securities Act for our own account or the account of any of
our stockholders other than these holders of registrable shares, holders of such
registrable shares are entitled to notice of the registration and are entitled
to include registrable shares therein, provided, among other conditions, that
the underwriters of any such offering have the right to limit the number of
shares included in such registration. In addition, commencing 180 days after the
effective date of the registration statement of which this prospectus is a part,
we may be required to prepare and file a registration statement under the
Securities Act at our expense if requested to do so by the holders of at least
30% of the registrable shares, or by holders who propose to register securities,
the aggregate offering price of which, net of underwriting discounts and
commissions, equals or exceeds $10.0 million. We are required to use our best
efforts to effect such registration. We are not obligated to effect more than
three of such stockholder-initiated registrations. Further, holders of
registrable securities may require us to file additional registration statements
on Form S-3.
We are required to bear substantially all costs incurred in connection with any
such registrations, other than underwriting discounts and commissions. The
foregoing registration rights could result in substantial future expenses for us
and adversely affect any future equity offerings.
ANTI-TAKEOVER PROVISIONS
Delaware Law
We are governed by the provisions of Section 203 of the Delaware General
Corporation Law. In general, Section 203 prohibits a public Delaware corporation
from engaging in a "business combination" with an "interested stockholder" for a
period of three years after the date of the transaction in which the person
became an interested stockholder, unless the business combination is approved in
a prescribed manner. A
52
<PAGE> 52
"business combination" includes mergers, asset sale or other transactions
resulting in a financial benefit to the stockholder. An "interested stockholder"
is a person who, together with affiliates and associates, owns, or within three
years did own, 15% or more of the corporation's voting stock. The statute could
have the effect of delaying, deferring or preventing a change in our control.
Certificate of Incorporation and Bylaw Provisions
Our certificate of incorporation, which will become effective shortly following
the closing of this offering, provides that our board of directors will be
divided into three classes of directors, with each class serving a staggered
three-year term. The classification system of electing directors may tend to
discourage a third party from making a tender offer or otherwise attempting to
obtain control of us and may maintain the composition of our current board of
directors, as the classification of the board of directors generally increases
the difficulty of replacing a majority of directors. Our certificate of
incorporation provides that any action required or permitted to be taken by our
stockholders must be effected at a duly called annual or special meeting of
stockholders and may not be effected by any consent in writing. In addition, our
bylaws provide that special meetings of our stockholders may be called only by
the chairman of the board, our president, our chief executive officer, or by the
board of directors pursuant to a resolution adopted by a majority of the total
number of authorized directors.
Our certificate of incorporation also specifies that the authorized number of
directors may be changed only by resolution of the board of directors and does
not include a provision for cumulative voting for directors. Under cumulative
voting, a minority stockholder holding a sufficient percentage of a class of
shares may be able to ensure the election of one or more directors. These and
other provisions contained in our certificate of incorporation and bylaws could
delay or discourage certain types of transactions involving an actual or
potential change in control or change in our management, including transactions
in which stockholders might otherwise receive a premium for their shares over
then current prices. These provisions may also limit the ability of stockholders
to remove current management or approve transactions that stockholders may deem
to be in their best interests and, therefore, could adversely affect the price
of our common stock.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for our common stock is American Stock Transfer
& Trust.
LISTING
We have applied to list our common stock on the Nasdaq National Market under the
symbol "VLGC."
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<PAGE> 53
SHARES ELIGIBLE FOR FUTURE SALE
When the offering is completed, we will have a total of 19,687,397 shares of
common stock outstanding. The 5,000,000 shares offered by this prospectus will
be freely tradeable unless they are purchased by our "affiliates," as defined in
Rule 144 under the Securities Act. Shares purchased by affiliates may generally
only be sold pursuant to an effective registration statement under the
Securities Act or in compliance with Rule 144. The remaining 14,687,397 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 generally be resold only through
registration under the Securities Act or under an available exemption from
registration, such as provided through Rule 144.
RULE 144
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:
- one percent of the number of shares of common stock then outstanding, which
based on the shares outstanding as of March 24, 2000, will equal
approximately 196,874 shares; or
- the average weekly trading volume of the common stock on the Nasdaq National
Market during the four calendar weeks preceeding the filing of the notice on
Form 144 with respect to the sale.
Rule 144 provides limitation as 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 sale, public information, volume limitation or
notice provisions of Rule 144. Therefore, unless otherwise restricted, including
by a lock-up agreement, a person who has been a non-affiliate for at least two
years may sell his or her shares in the open market.
One hundred eighty days after the date of this prospectus, 9,464,722 shares of
our common stock will be eligible for sale under Rule 144 or Rule 701. Of the
shares eligible for sale under Rule 144, 2,595,214 shares are eligible for sale
under Rule 144(k). The remaining shares will become eligible for sale under Rule
144 or Rule 701 from time to time during the 180 days thereafter.
RULE 701
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 requirement 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.
REGISTRATION RIGHTS
The holders of 12,291,658 shares of common stock and of warrants exercisable for
674,032 shares of common stock will be entitled to certain rights with respect
to the registration of these shares under the Securities Act. After these shares
are registered, they will be freely tradable.
54
<PAGE> 54
LOCK-UP AGREEMENTS
All of our stockholders have entered into lock-up agreements with us prohibiting
them from offering, selling, pledging or otherwise disposing of their shares for
a period of 180 days after the date of this prospectus. In addition, our
directors and officers and other stockholders who together own 10,822,517 shares
of common stock have agreed to similar lock-up agreements with the underwriters
prohibiting them from offering, selling, pledging or otherwise disposing of
these shares for the same 180-day period. This generally means that the
stockholders cannot sell these shares during the 180 days following the date of
this prospectus. See "Underwriting" for additional details.
55
<PAGE> 55
UNDERWRITING
We have entered into an underwriting agreement with the underwriters named
below. CIBC World Markets Corp., ING Barings LLC and Prudential Securities
Incorporated are acting as representatives of the underwriters.
The underwriting agreement provides for the purchase of a specific number of
shares of common stock by each of the underwriters. The underwriters'
obligations are several, which means that each underwriter is required to
purchase a specified number of shares, but is not responsible for the commitment
of any other underwriter to purchase shares. Subject to the terms and conditions
of the underwriting agreement, each underwriter has severally agreed to purchase
the number of shares of common stock set forth opposite its name below:
<TABLE>
<CAPTION>
UNDERWRITER NUMBER OF SHARES
----------- ----------------
<S> <C>
CIBC World Markets Corp. ...................................
ING Barings LLC.............................................
Prudential Securities Incorporated..........................
-----------------
Total..................................................... 5,000,000
=================
</TABLE>
The underwriters have agreed to purchase all of the shares offered by this
prospectus (other than those covered by the over-allotment option described
below) if any are purchased. Under the underwriting agreement, if an underwriter
defaults in its commitment to purchase shares, the commitments of non-
defaulting underwriters may be increased or the underwriting agreement may be
terminated, depending on the circumstances.
The shares should be ready for delivery on or about , 2000 against
payment in immediately available funds. The representatives have advised us that
the underwriters propose to offer the shares directly to the public at the
public offering price that appears on the cover page of this prospectus. In
addition, the representatives may offer some of the shares to other securities
dealers at such price less a concession of $ per share. The underwriters may
also allow, and such dealers may reallow, a concession not in excess of
$ per share to other dealers. After the shares are released for sale to the
public, the representatives may change the offering price and other selling
terms at various times.
We have granted the underwriters an over-allotment option. This option, which is
exercisable for up to 30 days after the date of this prospectus, permits the
underwriters to purchase a maximum of 750,000 additional shares from us to cover
over-allotments. If the underwriters exercise all or part of this option, they
will purchase shares covered by the option at the initial public offering price
that appears on the cover page of this prospectus, less the underwriting
discount. If this option is exercised in full, the total price to public will be
$ , and the total proceeds to us will be $ . The underwriters
have severally agreed that, to the extent the over-allotment option is
exercised, they will each purchase a number of additional shares proportionate
to the underwriter's initial amount reflected in the foregoing table.
The following table provides information regarding the amount of the discount to
be paid to the underwriters by us:
<TABLE>
<CAPTION>
TOTAL WITHOUT EXERCISE OF TOTAL WITH FULL EXERCISE OF
PER SHARE OVER-ALLOTMENT OPTION OVER-ALLOTMENT OPTION
--------- ---------------------------- ---------------------------
<S> <C> <C> <C>
ViroLogic...................... $ $ $
</TABLE>
We estimate that our total expenses of the offering, excluding the underwriting
discount, will be approximately $1.7 million.
We have agreed to indemnify the underwriters against certain liabilities,
including liabilities under the Securities Act.
56
<PAGE> 56
We, our officers and directors and some other stockholders have agreed to a
180-day "lock up" with respect to 10,822,517 shares of common stock that they
beneficially own, including securities that are convertible into shares of
common stock and securities that are exchangeable or exercisable for shares of
common stock. This means that for a period of 180 days following the date of
this prospectus, we and such persons may not offer, sell, pledge or otherwise
dispose of these securities without the prior written consent of CIBC World
Markets Corp.
The representatives have informed us that they do not expect discretionary sales
by the underwriters to exceed five percent of the shares offered by this
prospectus.
The underwriters have reserved for sale up to 250,000 shares for employees,
directors and other persons associated with us. These reserved shares will be
sold at the initial public offering price that appears on the cover page of this
prospectus. The number of shares available for sale to the general public in the
offering will be reduced to the extent reserved shares are purchased by such
persons. The underwriters will offer to the general public, on the same terms as
other shares offered by this prospectus, any reserved shares that are not
purchased by such persons.
There is no established trading market for the shares. The offering price for
the shares has been determined by us and the representatives, based on the
following factors:
- estimates of our business potential and earnings prospects
- an assessment of our management
- consideration of the above factors in relation to market valuations of
companies in related businesses
Rules of the Securities and Exchange Commission may limit the ability of the
underwriters to bid for or purchase shares before the distribution of the shares
is completed. The underwriters may, however, engage in the following activities
in accordance with the rules:
- Stabilizing transactions -- The representatives may make bids or purchases
for the purpose of pegging, fixing or maintaining the price of the shares,
so long as stabilizing bids do not exceed a specified maximum.
- Over-allotments and syndicate covering transactions -- The underwriters may
create a short position in the shares of as much as 15 - 20% by selling more
shares than are set forth on the cover page of this prospectus. A prospectus
will be delivered to each purchaser of shares in these "short sales," and we
understand that each such purchaser will be entitled to the same remedies
under the Securities Act as if the purchaser purchased shares in this
offering in a transaction that is not a short sale. If a short position is
created in connection with the offering, the representatives may engage in
syndicate covering transactions by purchasing shares in the open market. The
representatives may also elect to reduce any short position by exercising
all or part of the over-allotment option.
- Penalty bids -- If the representatives purchase shares in the open market in
a stabilizing transaction or syndicate covering transaction, they may
reclaim a selling concession from the underwriters and selling group members
who sold those shares as part of this offering.
Stabilization and syndicate covering transactions may cause the price of the
shares to be higher than it would be in the absence of such transactions. The
imposition of a penalty bid might also have an effect on the price of the shares
if it discourages resales of the shares.
Neither we nor the underwriters makes any representation or prediction as to the
effect that the transactions described above may have on the price of the
shares. These transactions may occur on the Nasdaq National Market or otherwise.
If such transactions are commenced, they may be discontinued without notice at
any time.
One of the representatives, Prudential Securities Incorporated, facilitates the
making of new issues online through its Prudential Securities.com division.
Clients of Prudential Advisors(SM) may view offering terms and a prospectus
online and place orders through their financial advisors. Other than the
prospectus in electronic format, the information on the Prudential Securities
Incorporated website is not part of this prospectus or the registration
statement of which this prospectus forms a part and has not been approved or
endorsed by us or any underwriter in such capacity and should not be relied on
by prospective investors.
57
<PAGE> 57
LEGAL MATTERS
Certain legal matters with respect to the legality of the issuance of shares of
common stock offered by this prospectus will be passed upon for us by Cooley
Godward LLP, San Diego, California. Certain legal matters will be passed upon
for the underwriters by McDermott, Will & Emery.
EXPERTS
Ernst & Young LLP, independent auditors, have audited our financial statements
at December 31, 1998 and 1999, and for each of the three years in the period
ended December 31, 1999, as set forth in their report. We have included our
financial statements in the prospectus and elsewhere in the registration
statement in reliance on Ernst & Young LLP's report, given on their authority as
experts in accounting and auditing.
WHERE YOU CAN FIND MORE INFORMATION
We have filed a registration statement on Form S-1 with the Securities and
Exchange Commission in connection with this offering. In addition, upon
completion of the offering, we will be required to file annual, quarterly and
current reports, proxy statements and other information with the Securities and
Exchange Commission. You may read and copy the registration statement and any
other documents filed by us at the Securities and Exchange Commission's Public
Reference Room at 450 Fifth Street, N.W., Washington, D.C. 20549. Please call
the Securities and Exchange Commission at 1-800-SEC-0330 for further information
on the Public Reference Room. Our Securities and Exchange Commission filings are
also available to the public at the Securities and Exchange Commission's
Internet site at "http://www.sec.gov."
This prospectus is part of the registration statement and does not contain all
of the information included in the registration statement. Whenever a reference
is made in this prospectus to any contract or other document of ViroLogic, 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.
After the offering, we expect to provide annual reports to our stockholders that
include financial statements examined and reported on by our independent
auditors.
58
<PAGE> 58
INDEX OF FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Ernst & Young LLP, Independent Auditors........... F-2
Balance Sheets.............................................. F-3
Statements of Operations.................................... F-4
Statement of Stockholders' Equity........................... F-5
Statements of Cash Flows.................................... F-6
Notes to Financial Statements............................... F-7
</TABLE>
F-1
<PAGE> 59
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
To the Board of Directors and Stockholders
ViroLogic, Inc.
We have audited the accompanying balance sheets of ViroLogic, Inc. as of
December 31, 1998 and 1999 and the related statements of operations,
stockholders' equity, and cash flows for each of the three years in the period
ended December 31, 1999. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of ViroLogic, 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.
Palo Alto, California
February 4, 2000, except as to Notes 1 and 9
for which the date is April 17, 2000
/s/ ERNST & YOUNG LLP
F-2
<PAGE> 60
VIROLOGIC, INC.
BALANCE SHEETS
(in thousands, except par value per share)
<TABLE>
<CAPTION>
PRO FORMA
STOCKHOLDERS'
DECEMBER 31, EQUITY AT
-------------------- DECEMBER 31,
1998 1999 1999
-------- -------- -------------
(Unaudited)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............................... $ 9,564 $ 2,208
Accounts receivable, net of allowance for bad debts of
$63.................................................. -- 550
Inventory............................................... -- 287
Restricted cash......................................... -- 950
Other current assets.................................... 100 310
-------- --------
Total current assets................................. 9,664 4,305
Property and equipment, net............................... 3,538 5,028
Other assets.............................................. 73 444
-------- --------
Total assets......................................... $ 13,275 $ 9,777
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable........................................ $ 586 $ 1,457
Accrued compensation.................................... 163 560
Other accrued liabilities............................... 568 788
Deferred revenue........................................ 148 81
Current portion of loan................................. 801 897
-------- --------
Total current liabilities............................ 2,266 3,783
Long term portion of loan................................. 1,948 1,051
Long term deferred rent................................... 231 245
Commitments and contingencies
Stockholders' equity:
Preferred stock, $0.001 par value, 13,959 shares
authorized; issuable in series; 3,935 and 9,749
shares issued and outstanding at December 31, 1998
and 1999, respectively, (2,450 and 5,357,
respectively, on an as-if converted basis) (none-pro
forma); aggregate liquidation preference of $23,349
at December 31, 1999 (none -- pro forma)............. 4 10 $ --
Common stock, $0.001 par value, 30,000 shares
authorized; 4,810 and 5,097 shares issued and
outstanding at December 31, 1998 and 1999,
respectively (10,454 shares -- pro forma)............ 5 5 10
Additional paid-in capital.............................. 21,381 38,812 38,817
Notes receivable from officers and employees............ (95) (46) (46)
Deferred compensation................................... -- (4,478) (4,478)
Accumulated deficit..................................... (12,465) (29,605) (29,605)
-------- -------- --------
Total stockholders' equity........................... 8,830 4,698 $ 4,698
======== ======== ========
Total liabilities and stockholders' equity........... $ 13,275 $ 9,777
======== ========
</TABLE>
See accompanying notes.
F-3
<PAGE> 61
VIROLOGIC, INC.
STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1997 1998 1999
------- ------- --------
<S> <C> <C> <C>
Revenue..................................................... $ -- $ 102 $ 1,069
Operating costs and expenses:
Cost of revenue........................................... -- 17 627
Research and development.................................. 2,458 5,977 9,588
General and administrative................................ 858 1,782 6,804
Sales and marketing....................................... -- 484 1,196
------- ------- --------
Total costs and operating expenses..................... 3,316 8,260 18,215
------- ------- --------
Operating loss.............................................. (3,316) (8,158) (17,146)
Interest income............................................. 262 302 249
Interest expense............................................ (83) (198) (243)
------- ------- --------
Net loss.................................................... (3,137) (8,054) (17,140)
Deemed dividend to preferred stockholders................... -- -- 3,100
------- ------- --------
Net loss allocable to common stockholders................... $(3,137) $(8,054) $(20,240)
Basic and diluted net loss per common share................. $ (1.21) $ (1.71) $ (4.24)
======= ======= ========
Shares used in computing basic and diluted net loss per
common share.............................................. 2,591 4,700 4,772
======= ======= ========
Pro forma basic and diluted net loss per common share
(unaudited)............................................... $ (2.53)
========
Shares used in computing pro forma basic and diluted net
loss per common share (unaudited)......................... 8,015
========
</TABLE>
See accompanying notes.
F-4
<PAGE> 62
VIROLOGIC, INC.
STATEMENT OF STOCKHOLDERS' EQUITY
(in thousands, except shares and per share data)
<TABLE>
<CAPTION>
NOTES
CONVERTIBLE RECEIVABLE
PREFERRED STOCK COMMON STOCK ADDITIONAL FROM
------------------- ------------------- PAID-IN OFFICERS & DEFERRED
SHARES AMOUNT SHARES AMOUNT CAPITAL EMPLOYEES COMPENSATION
---------- ------ ---------- ------ ---------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance as of December 31, 1996.... 2,733,596 $ 3 2,287,500 $ 2 $ 4,531 $ (71) $ --
Issuance of Series A convertible
preferred stock.................. 2,674,216 2 -- -- 4,275 -- --
Conversion of Series A preferred
stock to common stock............ (5,407,812) (5) 2,703,906 3 -- -- --
Repurchase of common stock......... -- -- (265,625) -- 2 -- --
Issuance of common stock in
exchange for notes............... -- -- 106,750 -- 72 (72) --
Exercise of stock options.......... -- -- 3,749 -- 1 -- --
Repayment of notes receivable...... -- -- -- -- -- 4 --
Net loss........................... -- -- -- -- -- -- --
---------- --- ---------- --- ------- ----- -------
Balance as of December 31, 1997.... -- -- 4,836,280 5 8,881 (139) --
Issuance of Series B convertible
preferred stock.................. 3,935,158 4 -- -- 12,508 -- --
Repurchase of common stock......... -- -- (6,666) -- (2) -- --
Exercise of common stock options... -- -- 15,000 -- 5 (4) --
Repurchase of restricted common
shares........................... -- -- (34,375) -- (11) 11 --
Exercise of common stock warrant... -- -- 12 -- -- -- --
Repayment of note receivable....... -- -- -- -- -- 37 --
Net loss........................... -- -- -- -- -- -- --
---------- --- ---------- --- ------- ----- -------
Balance as of December 31, 1998.... 3,935,158 4 4,810,251 5 21,381 (95) --
Exercise of stock options, net of
repurchases...................... -- -- 25,004 -- 44 -- --
Issuance of Series C convertible
preferred stock.................. 5,814,107 6 -- -- 10,729 -- --
Issuance of common stock........... -- -- 111,373 -- 1,087 -- --
Stock award to officer............. -- -- 150,000 -- 555 -- --
Repayment of note receivable....... -- -- -- -- -- 16 --
Forgiveness of note receivable..... -- -- -- -- -- 33 --
Deferred compensation.............. -- -- -- -- 4,968 -- (4,968)
Amortization of deferred
compensation..................... -- -- -- -- -- -- 490
Stock-based compensation related to
consultant options............... -- -- -- -- 48 -- --
Net loss........................... -- -- -- -- -- -- --
Deemed dividend to preferred
stockholders..................... -- -- -- -- (3,100) -- --
-- -- -- -- 3,100 -- --
---------- --- ---------- --- ------- ----- -------
Balance as of December 31, 1999.... 9,749,265 $10 5,096,628 $ 5 $38,812 $ (46) $(4,478)
========== === ========== === ======= ===== =======
<CAPTION>
TOTAL
ACCUMULATED STOCKHOLDERS'
DEFICIT EQUITY
----------- -------------
<S> <C> <C>
Balance as of December 31, 1996.... $ (1,274) $ 3,191
Issuance of Series A convertible
preferred stock.................. -- 4,277
Conversion of Series A preferred
stock to common stock............ -- (2)
Repurchase of common stock......... -- 2
Issuance of common stock in
exchange for notes............... -- --
Exercise of stock options.......... -- 1
Repayment of notes receivable...... -- 4
Net loss........................... (3,137) (3,137)
-------- --------
Balance as of December 31, 1997.... (4,411) 4,336
Issuance of Series B convertible
preferred stock.................. -- 12,512
Repurchase of common stock......... -- (2)
Exercise of common stock options... -- 1
Repurchase of restricted common
shares........................... -- --
Exercise of common stock warrant... -- --
Repayment of note receivable....... -- 37
Net loss........................... (8,054) (8,054)
-------- --------
Balance as of December 31, 1998.... (12,465) 8,830
Exercise of stock options, net of
repurchases...................... -- 44
Issuance of Series C convertible
preferred stock.................. -- 10,735
Issuance of common stock........... -- 1,087
Stock award to officer............. -- 555
Repayment of note receivable....... -- 16
Forgiveness of note receivable..... -- 33
Deferred compensation.............. -- --
Amortization of deferred
compensation..................... -- 490
Stock-based compensation related to
consultant options............... -- 48
Net loss........................... (17,140) (17,140)
Deemed dividend to preferred
stockholders..................... -- (3,100)
-- 3,100
-------- --------
Balance as of December 31, 1999.... $(29,605) $ 4,698
======== ========
</TABLE>
See accompanying notes.
F-5
<PAGE> 63
VIROLOGIC, INC.
STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1997 1998 1999
------- -------- --------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net loss.................................................. $(3,137) $ (8,054) $(17,140)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization.......................... 173 517 1,135
Non-cash stock-based compensation...................... -- -- 2,227
Changes in assets and liabilities:
Accounts receivable.................................. -- -- (550)
Inventory............................................ -- -- (287)
Other current assets................................. (64) 21 (210)
Accounts payable..................................... 394 151 871
Accrued compensation................................. 57 62 397
Other accrued liabilities............................ 30 502 223
Deferred rent........................................ 20 222 11
Deferred revenue..................................... -- 148 (67)
------- -------- --------
Net cash used in operating activities............. (2,527) (6,431) (13,390)
INVESTING ACTIVITIES
Purchases of short-term investments......................... (6,534) (14,500) --
Maturities and sales of short-term investments.............. 5,254 18,423 --
Other assets................................................ 19 (52) (371)
Restricted cash............................................. -- -- (950)
Capital expenditures........................................ (969) (2,585) (2,625)
------- -------- --------
Net cash (used in) provided by investing
activities...................................... (2,230) 1,286 (3,946)
FINANCING ACTIVITIES
Principal payments on long term debt........................ (164) (540) (801)
Borrowings under long term debt............................. 204 2,639 --
Proceeds from issuance of common stock, net of common stock
repurchases............................................... 1 (1) 30
Repayments of notes receivable.............................. 4 37 16
Net proceeds from issuance of preferred stock............... 4,277 12,512 10,735
------- -------- --------
Net cash provided by financing activities......... 4,322 14,647 9,980
------- -------- --------
Net increase (decrease) in cash and cash
equivalents..................................... (435) 9,502 (7,356)
Cash and cash equivalents at beginning of year.............. 497 62 9,564
------- -------- --------
Cash and cash equivalents at end of year.................... $ 62 $ 9,564 $ 2,208
======= ======== ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid for interest...................................... $ 83 $ 198 $ 243
======= ======== ========
SCHEDULE OF NONCASH FINANCING AND INVESTING ACTIVITIES
Notes receivable issued to officers and employees for common
stock purchase............................................ $ 72 $ 4 $ --
======= ======== ========
Deferred stock compensation................................. $ -- $ -- $ 4,968
======= ======== ========
</TABLE>
See accompanying notes.
F-6
<PAGE> 64
VIROLOGIC, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization and Basis of Presentation
ViroLogic, Inc., a biotechnology company, was incorporated in the state of
Delaware on November 14, 1995. ViroLogic is developing and marketing innovative
products to guide and improve treatment of viral diseases. ViroLogic has
developed a way of directly measuring the impact of genetic mutations on drug
resistance and using this information to guide therapy. ViroLogic has a
proprietary technology, called PhenoSense, for testing drug resistance in
viruses that cause serious viral diseases such as AIDS, hepatitis B and
hepatitis C. Through December 31, 1998, ViroLogic was in the development stage.
ViroLogic commenced commercial operations in 1999, and therefore ceased to be in
the development stage during 1999 for financial reporting purposes.
Management's Plans
As of December 31, 1999, ViroLogic had an accumulated deficit of approximately
$29.6 million. Management expects to continue to incur substantial operating
losses for the foreseeable future primarily as a result of expected increases in
expenses for:
- sales and marketing
- expanding patient sample processing capabilities
- research and product development costs
- acquisition of additional office space and other necessary facilities
- general and administrative costs
In January and February 2000, ViroLogic consummated the sale of an additional
8,461,645 shares of Series C convertible preferred stock, or 4,230,823 shares of
common stock on an as-if converted basis, from which ViroLogic received proceeds
of approximately $15.7 million. ViroLogic may need additional funding.
ViroLogic currently does not have a credit facility or committed sources of
capital. To the extent operating and capital resources are insufficient to meet
future requirements, ViroLogic will have to raise additional funds to continue
the development and commercialization of future technologies. These funds may
not be available on favorable terms, or at all. If adequate funds are not
available on attractive terms, ViroLogic may be required to curtail operations
significantly or to obtain funds by entering into financing, supply or
collaboration agreements on unattractive terms. In addition, ViroLogic may
choose to raise additional capital due to market conditions or strategic
considerations even if it has sufficient funds for current or future operating
plans.
ViroLogic believes that its available cash, cash equivalents and restricted cash
of $3.2 million as of December 31, 1999 along with the $15.7 million net
proceeds of its January and February 2000 sales of Series C convertible
preferred stock and available borrowing capacity under existing equipment
financing arrangements will be adequate to fund its operations through at least
December 31, 2000.
Unaudited Pro Forma Stockholders' Equity
If ViroLogic consummates its initial public offering as described in Note 9, all
of the convertible preferred stock outstanding will automatically convert into
common stock. ViroLogic has adjusted the unaudited pro
F-7
<PAGE> 65
VIROLOGIC, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
forma stockholders' equity at December 31, 1999 for the assumed conversion of
preferred stock based on the shares of preferred stock outstanding at December
31, 1999 and excluding the sales of preferred stock in January and February
2000.
Reverse Stock Split
On February 21, 2000, ViroLogic's board of directors approved a one for two
reverse split of its common stock. The accompanying financial statements have
been adjusted retroactively to reflect the reverse split. The conversion ratios
of the respective series of convertible preferred stock were automatically
adjusted to reflect the reverse split.
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 amounts reported in the financial statements and accompanying notes.
Actual results could differ from those estimates.
Cash Equivalents
ViroLogic considers all highly liquid investments with original maturities of
three months or less from the date of purchase to be cash equivalents.
Management determines the appropriate classification of its cash equivalents and
investment securities at the time of purchase and reevaluates such determination
as of each balance sheet date. Management has classified ViroLogic's marketable
securities as available-for-sale securities in the accompanying financial
statements. Available-for-sale securities are carried at fair value, with
unrealized gains and losses reported in a separate component of stockholders'
equity, when material. Interest income includes realized gains and losses. The
cost of securities sold is based on the specific identification method.
ViroLogic invests its excess cash in U.S. government and agency securities, debt
instruments of financial institutions and corporations and money market funds
with strong credit ratings. ViroLogic has established guidelines regarding
diversification of its investments and their maturities which should maintain
safety and liquidity.
Inventory
Inventory is stated at the lower of standard cost, which approximates actual
cost, or market. At December 31, 1999, inventories consisted mainly of raw
materials used in the performance of tests.
Property and Equipment
Property and equipment are recorded at cost and are depreciated using the
straight-line method over the estimated useful lives of the assets, generally
five years. Computer hardware and software are generally depreciated over three
years. Furniture and equipment acquired under equipment financing is amortized
over the shorter of the useful lives of the furniture or equipment or the
applicable financing period. Leasehold improvements are amortized over the
shorter of the estimated useful life of the assets or the lease term.
F-8
<PAGE> 66
VIROLOGIC, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
Impairment of Long-Lived Assets
In accordance with the provisions of Statement of Financial Accounting Standards
No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of" (SFAS 121), ViroLogic reviews long-lived assets,
including property and equipment, for impairment whenever events or changes in
business circumstances indicate that the carrying amount of the assets may not
be fully recoverable. Under SFAS 121, ViroLogic would recognize an impairment
loss when estimated undiscounted future cash flows expected to result from the
use of the asset and its eventual disposition are less than the asset's carrying
amount. Impairment, if any, is assessed using discounted cash flows. Through
December 31, 1999, there have been no such losses.
Revenue Recognition
ViroLogic currently recognizes revenue solely from sales of its tests upon the
delivery of test results to customers. Deferred revenue relates to cash received
in advance of delivery of the test results.
Research and Development
ViroLogic expenses research and development costs as incurred. Research and
development expenses consist primarily of salaries and related personnel costs,
material, supply costs for prototypes and expenses related to clinical trials to
validate ViroLogic's testing processes and procedures and related overhead
expenses.
Stock-Based Compensation
ViroLogic accounts for employee stock option grants using the intrinsic value
method in accordance with Accounting Principles Board Opinion No. 25 (APB 25),
which does not require the recognition of compensation expense for options
granted to employees with exercise prices equal to the fair value of the common
stock at the date of grant. Note 5 includes the fair value disclosures required
by Statement of Financial Accounting Standards Board Statement No. 123,
"Accounting for Stock-Based Compensation" (SFAS 123). SFAS No. 123 requires the
disclosure of pro forma information regarding net loss and net loss per share as
if ViroLogic had accounted for its stock options under the fair value method.
ViroLogic accounts for stock option grants to non-employees in accordance with
the Emerging Issues Task Force Consensus No. 96-18, "Accounting for Equity
Instruments That Are Issued to Other Than Employees for Acquiring, or in
Conjunction with Selling, Goods or Services," which requires the options subject
to vesting to be periodically re-valued and expensed over their vesting periods.
Comprehensive Income (Loss)
As of January 1, 1998, ViroLogic adopted Statement of Financial Accounting
Standards No. 130, "Reporting Comprehensive Income" (SFAS 130). SFAS 130
requires ViroLogic to include in other comprehensive income unrealized gains or
losses on available-for-sale securities. Comprehensive loss equalled net loss
for the years ended December 31, 1997, 1998 and 1999.
Segment Reporting
Effective in January 1998, ViroLogic adopted Statement of Financial Accounting
Standards No. 131, "Disclosure about Segments of an Enterprise and Related
Information" (SFAS 131). SFAS 131
F-9
<PAGE> 67
VIROLOGIC, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
establishes annual and interim reporting standards for an enterprise's operating
segments and related disclosures about its products, services, geographic areas
and major customers. ViroLogic has determined that it operates in only one
segment. Accordingly, the adoption of SFAS 131 had no impact on ViroLogic's
financial statements.
Net Loss Per Share
Basic earnings per share is calculated based on the weighted-average number of
common shares outstanding during the periods presented, less the
weighted-average shares outstanding which are subject to ViroLogic's right of
repurchase. Diluted earnings per share give effect to the dilutive effect of
common stock equivalents consisting of convertible preferred stock and stock
options and warrants, calculated using the treasury stock method. Potentially
dilutive securities have been excluded from the diluted earnings per share
computations, as they have an antidilutive effect due to ViroLogic's net loss.
The computation of pro forma net loss per share includes shares issuable upon
the conversion of outstanding shares of convertible preferred stock, using the
as-if converted method, from the original date of issuance.
A reconciliation of shares used in the calculations is as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------
1997 1998 1999
---------- ---------- -----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
Actual:
Net loss allocable to common shares.................. $(3,137) $(8,054) $(20,240)
======= ======= ========
Weighted-average shares of common stock
outstanding........................................ 2,671 4,826 4,856
Less: weighted-average shares subject to
repurchase......................................... (80) (126) (84)
------- ------- --------
Weighted-average shares used in basic and diluted net
loss per common share.............................. 2,591 4,700 4,772
======= ======= ========
Basic and diluted net loss per common share.......... $ (1.21) $ (1.71) $ (4.24)
======= ======= ========
Pro forma:
Net loss........................................... $(20,240)
========
Shares used above.................................... 4,772
Adjusted to reflect weighted-average effect of
assumed conversion of preferred stock
(unaudited)........................................ 3,243
--------
Weighted-average shares used in pro forma basic and
diluted net loss per common share (unaudited)...... 8,015
========
Pro forma basic and diluted net loss per common share
(unaudited)........................................ $ (2.53)
========
</TABLE>
F-10
<PAGE> 68
VIROLOGIC, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
The following outstanding options and warrants, prior to the application of the
treasury stock method, and convertible preferred stock, on an as-converted
basis, were excluded from the computation of diluted net loss per share, as they
had an antidilutive effect:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------
1997 1998 1999
----- ------ ------
(IN THOUSANDS)
<S> <C> <C> <C>
Convertible preferred stock (as-if converted basis)......... -- 2,450 5,357
Stock options............................................... 215 357 1,241
Warrants to purchase common stock........................... 457 518 518
Warrants to purchase preferred stock (as-if converted
basis).................................................... -- 227 227
</TABLE>
Significant Concentrations
Financial instruments that potentially subject ViroLogic to concentrations of
credit risk primarily consist of cash equivalents and marketable securities (see
Note 2).
In 1998, one company represented 100% of total revenues. In 1999, two customers
represented 41% and 33% of total revenues, respectively. The accounts receivable
balances as of December 31, 1999 were $196,289 and $159,825 for these two
customers, respectively.
ViroLogic relies on a few companies as the sole source of various materials in
its testing process. Any extended interruption in the supply of these materials
could result in the failure to meet customer demand.
Recent Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Financial
Instruments and for Hedging Activities" (SFAS 133), which provides a
comprehensive and consistent standard for the recognition and measurement of
derivatives and hedging activities. SFAS 133 is effective for fiscal years
beginning after June 15, 2000 and is not anticipated to have an impact on
ViroLogic's results of operations or financial condition when adopted, as
ViroLogic holds no derivative financial instruments and does not currently
engage in hedging activities.
In March 1998, the AICPA issued Statement of Position 98-1, "Accounting for the
Costs of Computer Software Developed or Obtained for Internal Use" (SOP 98-1).
SOP 98-1 requires that entities capitalize certain costs related to internal use
software once certain criteria have been met. ViroLogic adopted the provisions
of SOP 98-1 on January 1, 1999. ViroLogic capitalized costs totaling $222,000
related to laboratory information software placed in service during 1999 in
accordance with SOP 98-1. The expected asset life is 17 months and accumulated
amortization of $104,000 was recorded in 1999.
F-11
<PAGE> 69
VIROLOGIC, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
2. CASH EQUIVALENTS
The following is a summary of cash equivalents at December 31, 1998 and 1999:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------
1998 1999
------ ------
(IN THOUSANDS)
<S> <C> <C>
Money market fund........................................... $1,985 $2,111
Corporate notes............................................. 7,538 --
------ ------
$9,523 $2,111
====== ======
</TABLE>
As of December 31, 1998 and 1999, the fair value approximated the amortized cost
of available-for-sale securities. As of December 31, 1998 and 1999, the average
portfolio duration was less than 90 days.
There were no material gross realized gains or losses from sales of securities
or material unrealized gains or losses on investments at December 31, 1998 and
1999.
3. PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1998 1999
------- -------
(IN THOUSANDS)
<S> <C> <C>
Machinery, equipment and furniture.......................... $ 4,266 $ 6,489
Leasehold improvements...................................... 45 447
------- -------
4,311 6,936
Accumulated depreciation and amortization................... (773) (1,908)
------- -------
Property and equipment, net................................. $ 3,538 $ 5,028
======= =======
</TABLE>
4. EQUIPMENT FINANCING AND RENTAL COMMITMENTS
ViroLogic executed an operating lease agreement in December 1997 for its
laboratory and office space. The operating lease provides for two successive
extensions of three and four years, respectively. The lease term expires in
November 2004.
In January 1998, ViroLogic executed a tenant improvement agreement for the
construction of laboratory and office improvements of up to $1.0 million. An
additional obligation of approximately $18,300 per month for 83 months
commencing February 1998 has been added to the operating lease commitment.
In May and November 1999, ViroLogic entered into two operating lease agreements
for two additional facilities. Each lease has a term of 10 years from the lease
commencement date of March 2000 and July 2001, respectively. Each of the leases
provide for two additional successive five-year extensions at the then-
prevailing rate.
In connection with the facility lease executed in May 1999, ViroLogic has a
$950,000 deposit which secures a standby letter of credit expiring in August
2000. This balance has been recorded in the balance sheet as "restricted cash".
F-12
<PAGE> 70
VIROLOGIC, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
As of December 31, 1999, ViroLogic had $3.5 million of property and equipment
financed through long-term equipment financing obligations. The obligations
under the equipment financings are secured by the equipment financed, bear
interest at a weighted-average fixed rate of approximately 10.4% and are due in
monthly installments through November 2002. Some of these equipment financing
agreements require a balloon payment at the end of their respective loan terms.
As of December 31, 1999, future minimum lease payments under operating and
capital leases and principal payments on equipment loans are as follows:
<TABLE>
<CAPTION>
OPERATING EQUIPMENT
LEASES LOANS
--------- ---------
(IN THOUSANDS)
<S> <C> <C>
Year ending December 31:
2000...................................................... $ 1,308 $1,054
2001...................................................... 2,247 823
2002...................................................... 2,961 303
2003...................................................... 3,042 --
2004...................................................... 3,068 --
Thereafter................................................ 15,391 --
------- ------
Total minimum lease and principal payments........ $28,017 2,180
=======
Amount representing interest................................ (232)
------
Present value of future payments............................ 1,948
Current portion of equipment financing...................... (897)
------
Noncurrent portion of equipment financing................... $1,051
======
</TABLE>
Rental expense was approximately $207,000, $827,000 and $851,000 for the years
ended December 31, 1997, 1998 and 1999, respectively.
5. STOCKHOLDERS' EQUITY
Convertible Preferred Stock
Convertible preferred stock is issuable in series, with rights and preferences
designated by series. The shares designated and outstanding are as follows (in
thousands, except per share amounts):
<TABLE>
<CAPTION>
"AS-IF"
CONVERTED
ISSUED AND COMMON DIVIDEND CONVERSION LIQUIDATION
AUTHORIZED OUTSTANDING SHARES RATE RATIO VALUE
---------- ----------- --------- -------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
Series B............................ 4,500 3,935 2,450 $0.256 0.623 $12,593
Series C............................ 9,459 5,814 2,907 0.148 0.500 10,756
------ ----- ------ -------
Total............................. 13,959 9,749 5,357 $23,349
====== ===== ====== =======
</TABLE>
The holders of Series B and C preferred stock are entitled to receive
noncumulative dividends, when and if declared, at a rate of $0.256 per share, or
$0.411 per common share on an as-if converted basis, and $0.148 per share, or
$0.296 per common share on an as-if converted basis, per year, respectively, if
F-13
<PAGE> 71
VIROLOGIC, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
declared, prior to and in preference to the payment of dividends to holders of
common stock. At December 31, 1999, no such dividends had been declared.
Each share of Series B and C preferred stock is convertible into common stock at
the option of the holder, subject to adjustments for antidilution purposes.
Series B and C preferred shares are automatically converted into common stock at
the earlier of (i) the closing of ViroLogic's initial underwritten public
offering which is at a price to the public of at least $14.00 per share and
which results in aggregate proceeds to ViroLogic of at least $15.0 million or
(ii) a vote or written consent of a majority of the shares of preferred stock
then outstanding, voting together as a single class. All preferred shares have
voting rights equal to common stock on an as-if-converted basis.
As long as 2,000,000 shares of Series B preferred stock remain outstanding, the
holders of Series B preferred stock, voting as a separate class, are entitled to
elect two members of the board of directors. The holders of the common stock,
voting together as a separate class, shall be entitled to elect three members of
the board of directors. The holders of Series B and C preferred stock and common
stock, voting together as a class, are entitled to elect the remaining members
to the board of directors.
Series B and C preferred stockholders are entitled to receive, upon liquidation,
a distribution of $3.20 per share and $1.85 per share, respectively, subject to
adjustment for a recapitalization, plus all declared but unpaid dividends, in
preference to common stockholders. Thereafter, the remaining assets and funds,
if any, shall be distributed among common stockholders.
Deemed Dividend
In November and December 1999, ViroLogic consummated the sale of 1,675,621
shares of Series C convertible preferred stock, or 837,810 shares of common
stock at an as-if converted basis, from which ViroLogic received proceeds of
approximately $3.1 million or $1.85 per share, or $3.70 per share on an as-if
converted basis. At the date of issuance, ViroLogic believed the per share price
of $1.85, or $3.70 per share on an as-if converted basis, represented the fair
value of the preferred stock. Subsequent to the commencement of ViroLogic's
initial public offering process, ViroLogic re-evaluated the fair value of its
common stock as of November and December 1999 and deemed it to be $10.50 per
share, for financial reporting purposes. Accordingly, the increase in fair value
has resulted in a beneficial conversion feature of $3.1 million, that has been
recorded as a deemed dividend to preferred stockholders in 1999. ViroLogic
recorded the deemed dividend at the date of issuance by offsetting charges and
credits to additional paid-in-capital, without any effect on total stockholders'
equity. The preferred stock dividend increases the loss applicable to common
stockholders in the calculation of basic and diluted net loss per common share
for the year ended December 31, 1999. The guidelines set forth in the Emerging
Issues Task Force Consensus No. 98-5 limit the amount of the deemed dividend to
the amount of the proceeds of the related financing.
Warrants
In connection with the May 1996 sale of Series A preferred stock, ViroLogic
issued to four investors warrants to purchase an aggregate of 792,188 shares of
Series A preferred stock at a price of $1.84 per share. The warrants expire on
May 30, 2001. Pursuant to the conversion of all Series A preferred stock in
November 1997, these warrants are now exercisable for 396,093 shares of common
stock at an exercise price of $3.68 per share. The value of the warrant was
deemed to be insignificant and, therefore, no value was recorded.
F-14
<PAGE> 72
VIROLOGIC, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
In connection with the loan agreement signed in October 1996, ViroLogic issued
the lender a warrant to purchase an aggregate of 11,050 shares of ViroLogic's
common stock for $3.68 per share. The warrant expires on October 16, 2002. The
value of the warrant was deemed to be insignificant and, therefore, no value was
recorded.
Pursuant to the operating lease, ViroLogic issued the landlord a warrant to
purchase an aggregate of 100,000 shares of Series A preferred stock, which
converted into 50,000 shares of common stock, for $8.00 per share. The warrant
expires on August 2002. The value of the warrant was deemed to be insignificant
and, therefore, no value was recorded.
In connection with the loan agreement signed in January 1998, ViroLogic issued
the lender a warrant to purchase an aggregate of 34,833 shares of common stock
at a price of $8.00 per share. The warrant is exercisable immediately and
expires on the later of January 2008 or five years subsequent to an initial
public offering. The value of the warrant was deemed to be insignificant and,
therefore, no value was recorded.
In connection with the tenant improvement financing entered into in August 1998,
ViroLogic issued the landlord a warrant to purchase up to an aggregate of 10,000
shares of common stock at a price of $8.00 per share. The warrant term is five
years. The value of the warrant was deemed to be insignificant and, therefore,
no value was recorded.
In connection with the Series B preferred stock issuance in August 1998,
ViroLogic issued to Series B investors warrants to purchase up to 15,890 shares
of common stock at a price of $0.02 per share. The warrant term is 10 years and
was valued at $85,000. ViroLogic issued warrants to purchase 365,000 shares of
Series B preferred stock, or 227,232 shares of common stock on an as-if
converted basis, at a price of $3.68 per share, or $5.91 per common share on an
as-if converted basis. The warrant term is 10 years and was valued at $383,000.
The fair values of these warrants were determined using the Black-Scholes option
valuation model with the following assumptions: risk free interest rate of 5.5%;
term of 10 years; dividend yield of 0%; and expected volatility of ViroLogic's
common stock of .01%.
Common Stock Subject to Repurchase
Stock options granted pursuant to the 1996 Stock Plan may be exercised prior to
vesting, subject to ViroLogic's right to repurchase at the original exercise
price if the holder terminates employment. The right to repurchase lapses over
the original option vesting period, which is generally four years. From
inception through December 31, 1999, employees purchased 344,250 shares of
common stock, of which 66,417 shares are unvested and remain subject to
repurchase. ViroLogic has repurchased 41,040 shares in accordance with its
repurchase rights.
Stock Option and Stock Award to Chief Executive Officer
Pursuant to the employment agreement with the chief executive officer, ViroLogic
granted:
- a stock award of 150,000 shares of fully-vested common stock. ViroLogic
recorded compensation expense of $555,000 for this award in 1999,
representing the fair value of the common stock on the grant date
- an incentive stock option under the Plan covering 150,000 shares of common
stock at an exercise price of $3.14. This option vested as to 30,000 shares
on December 31, 1999 and as to an additional
F-15
<PAGE> 73
VIROLOGIC, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
2,500 shares at the end of each month thereafter. Deferred compensation of
$1.1 million was recorded on the date of grant. The amount will be
recognized ratably over the vesting period
- a non-statutory stock option, granted outside of the Plan, covering 250,000
shares of common stock at an exercise price of $3.14 per share. This option
vests 25% after the first year of employment and the remaining 75% in equal
monthly installments over the next three years, and may be exercised prior
to vesting. Virologic recorded deferred compensation of $1.8 million on the
date of grant. The amount will be recognized ratably over the vesting period
- a non-statutory stock option, granted outside of the Plan, covering 250,000
shares of common stock at an exercise price of $3.14 per share. Virologic
recorded deferred compensation of $1.8 million on the date of grant and such
amount will be amortized over the five-year period unless the milestones
below are achieved. This option vests 100% after five years of employment,
unless either one of the following occurs before that date:
- a merger or acquisition or initial public offering where the per share
valuation of common stock is imputed to be more than $18.50, in which
case 125,000 shares shall immediately vest, or
- when product revenue for any fiscal year exceeds $20.0 million, in which
case 125,000 shares shall immediately vest
The chief executive officer may exercise any of these options prior to vesting
by either cash or by delivery of a promissory note, and each of the options
immediately becomes fully vested if, within one year of a change in our control
or liquidation, the chief executive officer is terminated without cause or
resigns for good reason.
Stock Option Plans
On May 20, 1996, ViroLogic's board of directors and stockholders adopted the
1996 Stock Plan, which was amended and restated and renamed the 2000 Equity
Incentive Plan in February 2000. This Plan provides for the granting of options
to purchase common stock and other stock awards to employees, officers,
directors and consultants of ViroLogic. ViroLogic generally grants shares of
common stock for issuance under this Plan at no less than the fair value of the
stock on the grant date; however, management is permitted to grant non-statutory
stock options at a price not lower than 85% of the fair value of common stock on
the date of grant. Options granted under this Plan generally vest over four
years at a rate of 25% one year from the grant date and ratably monthly
thereafter.
F-16
<PAGE> 74
VIROLOGIC, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
A summary of activity under the Plan is as follows:
<TABLE>
<CAPTION>
OUTSTANDING STOCK OPTIONS/STOCK RIGHTS
--------------------------------------
WEIGHTED-AVERAGE
SHARES AVAILABLE NUMBER OF SHARES PRICE PER SHARE
---------------- ----------------- -----------------
<S> <C> <C> <C>
Balances at December 31, 1996........ 190,000 22,500 $0.32
Additional shares authorized....... 375,000 -- --
Options/rights granted............. (305,800) 305,800 1.36
Options/rights exercised........... -- (110,499) 0.66
Options/rights forfeited........... 2,501 (2,501) 0.32
-------- --------
Balances at December 31, 1997........ 261,701 215,300 1.62
Options/rights granted............. (170,880) 170,880 3.98
Options/rights exercised........... -- (15,000) 0.38
Options/rights forfeited........... 14,250 (14,250) 0.98
Options/rights repurchased......... 41,040 -- 0.32
-------- --------
Balances at December 31, 1998........ 146,111 356,930 2.83
Additional shares authorized....... 375,000 -- --
Options/rights granted............. (519,675) 519,675 3.98
Options/rights exercised........... -- (31,254) 2.04
Options/rights forfeited........... 104,484 (104,484) 2.68
Options/rights repurchased......... 6,250 -- 3.20
-------- --------
Balances at December 31, 1999........ 112,170 740,867 3.69
======== ========
</TABLE>
In connection with options granted in 1999, ViroLogic recorded deferred
stock-based compensation of $4,968,000, representing the difference between the
exercise price and the deemed fair value of the Company's common stock at the
date of grant. The amount is being amortized over the vesting period for the
individual options. Amortization of deferred stock-based compensation of
$490,000 was recognized during 1999. In addition, ViroLogic recorded stock-based
compensation of $48,000 in 1999 for services rendered by non-employees.
In January and February 2000, ViroLogic granted employees additional stock
options to purchase 199,193 shares of common stock at $3.70 per share. ViroLogic
will record additional deferred stock compensation of approximately $1.6 million
in the quarter ending March 31, 2000 to account for the difference between the
exercise price of these employee grants and the deemed fair value for financial
reporting purposes of our common stock on the date of grant.
In January and February 2000, ViroLogic also granted non-employees options to
purchase 45,000 common shares at $3.70 per share. ViroLogic will recognize
general and administrative expense related to non-employee stock options over
the respective consultants' service periods, and that expense will be based on
the fair value of the stock option using the Black Scholes option valuation
model. The aggregate value of $383,000, is based on the fair value of
ViroLogic's common stock as of February 29, 2000, will be recorded over the
period of the related services, which is generally three months to four years.
That value may be periodically remeasured as the underlying options vest.
Options were exercisable to purchase 68,291 shares, at a weighted-average
exercise price of $1.58 per share, and 161,035 shares, at a weighted-average
exercise price of $3.08 per share, at December 31, 1998 and 1999, respectively.
F-17
<PAGE> 75
VIROLOGIC, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
The following table summarizes information about the stock options outstanding
under the Plan at December 31, 1999:
<TABLE>
<CAPTION>
OUTSTANDING OPTIONS
------------------------------------------------------------
NUMBER OF WEIGHTED-AVERAGE REMAINING NUMBER OF OPTIONS
EXERCISE PRICE OPTIONS CONTRACTUAL LIFE EXERCISABLE
-------------- --------- -------------------------- -----------------
<S> <C> <C> <C>
$0.32............................ 5,000 6.75 5,000
0.64............................ 39,000 7.30 25,182
0.80............................ 12,500 7.59 9,375
3.14............................ 326,050 9.85 31,430
3.20............................ 118,780 8.26 51,907
5.40............................ 239,537 9.19 38,141
------- -------
740,867 9.19 161,035
======= =======
</TABLE>
Pro Forma Information
SFAS 123 requires pro forma information regarding net loss, which has been
determined as if ViroLogic accounted for its employee stock options under the
fair value method of SFAS 123. ViroLogic estimates the fair value of these
options at the date of grant using the minimum value method with the following
weighted-average assumptions: risk-free interest rate of 5.5% for grants made in
1998 and 1999; a weighted-average expected life of the option from grant date of
four years; and a dividend yield of zero in 1998 and 1999. The weighted-average
fair value of stock options granted in 1998 and 1999 was $1.17 and $6.90,
respectively.
For pro forma purposes, the estimated fair value of ViroLogic's stock-based
awards to its employees is amortized ratably over the options vesting period.
ViroLogic's pro forma information is as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------------
1997 1998 1999
-------- -------- ---------
(IN THOUSANDS, EXCEPT PER SHARE
AMOUNTS)
<S> <C> <C> <C>
As reported:
Net loss........................................... $(3,137) $(8,054) $(20,240)
======= ======= ========
Net loss per common share.......................... $ (1.21) $ (1.71) $ (4.24)
======= ======= ========
Proforma:
Net loss........................................... $(3,162) $(8,153) $(20,491)
======= ======= ========
Net loss per common share.......................... $ (1.22) $ (1.73) $ (4.29)
======= ======= ========
</TABLE>
Because the SFAS No. 123 method of accounting has not been applied to options
granted prior to 1996 and the vesting period of option grants is four years, the
above pro forma effect may not be representative of the pro forma effect to be
expected in future years.
F-18
<PAGE> 76
VIROLOGIC, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
Reserved Shares
As of December 31, 1999, ViroLogic had reserved shares of common stock for
future issuance as follows:
<TABLE>
<CAPTION>
SHARES RESERVED
---------------
(IN THOUSANDS)
<S> <C>
Stock options............................................... 1,353
Warrants.................................................... 745
Preferred stock............................................. 5,357
-----
7,455
=====
</TABLE>
6. 401(k) PLAN
During 1996, ViroLogic adopted a 401(k) Plan, and matching contributions in the
form of ViroLogic common shares equaling 2.5% of the employee's contributions to
the 401(k) Plan were made by ViroLogic in both 1996 and 1997. ViroLogic amended
the Plan in 1998 to increase the matching percentage to 5%. The matching
contribution vests ratably over four years. ViroLogic recorded compensation
expense of $37,000 in 1999. ViroLogic has issued an aggregate of 8,254 shares
under the 401(k) Plan through December 31, 1999.
7. INCOME TAXES
As of December 31, 1999 and 1998, ViroLogic had federal and state net operating
loss carryforwards of approximately $27.3 million and $13.8 million,
respectively. ViroLogic also had research and other tax credit carryforwards of
approximately $1.0 million. The federal net operating loss and credit
carryforwards will expire at various dates beginning in the year 2010 through
2019, if not utilized. The State of California net operating losses will start
to expire in the year 2003, if not utilized.
Utilization of the federal and state net operating loss and credit carryforwards
may be subject to a substantial annual limitation due to the "change in
ownership" provisions of the Internal Revenue Code of 1986. The annual
limitation may result in the expiration of net operating losses and credits
before utilization.
F-19
<PAGE> 77
VIROLOGIC, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets for financial reporting purposes and the
amount used for income tax purposes. Significant components of ViroLogic's
deferred tax assets for federal and state income taxes are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1998 1999
------- --------
(IN THOUSANDS)
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards.......................... $ 4,700 $ 10,100
Research and other credits................................ 300 1,000
Capitalized research and development...................... 100 400
Other..................................................... 300 200
------- --------
Total deferred tax assets................................... 5,400 11,700
Valuation allowance......................................... (5,400) (11,700)
------- --------
Net deferred taxes.......................................... $ -- $ --
======= ========
</TABLE>
Due to ViroLogic's lack of earnings history, the net deferred tax assets have
been fully offset by a valuation allowance. The valuation allowance increased by
$2.0 million, $3.4 million and $6.3 million during the years ended December 31,
1997, 1998 and 1999, respectively.
8. LEGAL MATTER
On August 12, 1998, a former officer and stockholder filed a complaint against
ViroLogic. In November 1999, ViroLogic settled the claim. The settlement
included a cash payment of $225,000 and the right to retain 100,000 shares of
ViroLogic's common stock that ViroLogic previously had a right to repurchase.
The right to retain the shares triggered a new measurement date for accounting
purposes. In 1999, ViroLogic recorded $1.9 million of legal fees and settlement
related costs, including the non-cash charge related to the retained common
stock.
9. SUBSEQUENT EVENTS (UNAUDITED)
In January 2000, ViroLogic's board of directors authorized management to file a
registration statement with the Securities and Exchange Commission to permit
ViroLogic to sell its common stock to the public.
In January and February 2000, ViroLogic consummated the sale of an additional
8,461,645 shares of Series C convertible preferred stock, or 4,230,823 shares of
common stock on an as-if converted basis, from which ViroLogic received proceeds
of approximately $15.7 million or $1.85 per share, or $3.70 per share on an
as-if converted basis.
At the date of issuance, ViroLogic believed the per share price of $1.85, or
$3.70 per share on an as if converted basis, represented the fair value of the
preferred stock. Subsequent to the commencement of the initial public offering
process, ViroLogic re-evaluated the fair value of its common stock as of January
and February 2000 and deemed it to be $11.90 per share. Accordingly, the
increase in fair value has resulted in a beneficial conversion feature of $15.7
million which will be recorded as a deemed dividend to preferred stockholders in
the quarter ending March 31, 2000 by offsetting charges and credits to
additional paid-in capital without any effect on total stockholders' equity. The
preferred stock dividend will increase the net loss allocable to common
stockholders in the calculation of basic and diluted net loss per common share
in
F-20
<PAGE> 78
VIROLOGIC, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
the quarter ending March 31, 2000. The amount of the deemed dividend is limited
to the amount of the proceeds of the related financing pursuant to the
guidelines set forth in the Emerging Issues Task Force Consensus No. 98-5.
In February 2000, the board of directors amended and restated the 1996 Stock
Plan, which was renamed the 2000 Equity Incentive Plan, and increased the shares
reserved for issuance by an additional 3,000,000 shares, subject to stockholder
approval. In February 2000, ViroLogic granted stock options to employees and
non-employees to purchase 244,193 shares of common stock at an exercise price of
$3.70 per share. ViroLogic will record additional deferred compensation of $1.6
million in the quarter ending March 31, 2000 related to the employee stock
option grants.
In February 2000, the board of directors adopted, subject to stockholder
approval which was obtained in April 2000, the 2000 Employee Stock Purchase
Plan. ViroLogic has reserved a total of 500,000 shares of common stock for
issuance under the 2000 Purchase Plan. The 2000 Purchase Plan permits eligible
employees to acquire shares of ViroLogic's common stock through payroll
deductions of up to 15% of their base compensation. The initial offering period
will begin on the effective date of the initial public offering.
In February 2000, the board of directors approved a one for two reverse split of
its common stock, which was effected on April 17, 2000. All common stock,
options and warrants to purchase common stock and per share amounts in the
accompanying financial statements have been adjusted retroactively to reflect
the reverse split. The conversion ratios of the respective series of convertible
preferred stock were automatically adjusted to reflect the reverse split.
F-21
<PAGE> 79
- --------------------------------------------------------------------------------
[ViroLogic LOGO]
VIROLOGIC, INC.
5,000,000 SHARES
COMMON STOCK
---------------------------
PROSPECTUS
---------------------------
, 2000
CIBC WORLD MARKETS
ING BARINGS
PRUDENTIAL VECTOR HEALTHCARE
A UNIT OF PRUDENTIAL SECURITIES
- --------------------------------------------------------------------------------
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS PROSPECTUS. NO DEALER,
SALESPERSON OR OTHER PERSON IS AUTHORIZED TO GIVE INFORMATION THAT IS NOT
CONTAINED IN THIS PROSPECTUS. THIS PROSPECTUS IS NOT AN OFFER TO SELL NOR IS IT
SEEKING AN OFFER TO BUY THESE SECURITIES IN ANY JURISDICTION WHERE THE OFFER OR
SALE IS NOT PERMITTED. THE INFORMATION CONTAINED IN THIS PROSPECTUS IS CORRECT
ONLY AS OF THE DATE OF THIS PROSPECTUS, REGARDLESS OF THE TIME OF THE DELIVERY
OF THIS PROSPECTUS OR ANY SALE OF THESE SECURITIES.
UNTIL , 2000 (25 DAYS AFTER THE COMMENCEMENT OF THE OFFERING), ALL
DEALERS THAT EFFECT TRANSACTIONS IN THESE SECURITIES, WHETHER OR NOT
PARTICIPATING IN THIS OFFERING, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS
IN ADDITION TO THE DEALERS' OBLIGATION TO DELIVER A PROSPECTUS WHEN ACTING AS
UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
<PAGE> 80
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth all expenses payable by the Registrant in
connection with the sale of the common stock being registered. All the amounts
shown are estimates except for the SEC registration fee and the NASD filing fee.
<TABLE>
<S> <C>
Registration fee............................................ $ 24,288
NASD filing fee............................................. 10,000
Nasdaq National Market listing fee.......................... 80,000
Printing and engraving expenses............................. 200,000
Legal fees and expenses..................................... 550,000
Accounting fees and expenses................................ 350,000
Blue Sky fees and expenses.................................. 10,000
Transfer agent and registrar fees........................... 12,000
Directors' and officers' insurance.......................... 325,000
Miscellaneous............................................... 138,712
----------
Total.................................................. $1,700,000
==========
</TABLE>
- ---------------------------
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Under Section 145 of the General Corporation Law of Delaware (the "Delaware
Law"), we have broad powers to indemnify our directors and officers against
liabilities they may incur in such capacities, including liabilities under the
Securities Act of 1933, as amended (the "Securities Act").
Our certificate of incorporation and bylaws include provisions to (i) eliminate
the personal liability of its directors for monetary damages resulting from
breaches of their fiduciary duty to the extent permitted by Section 102(b)(7) of
the Delaware Law and (ii) require us to indemnify its directors and officers to
the fullest extent permitted by Section 145 of the Delaware Law, including
circumstances in which indemnification is otherwise discretionary. Pursuant to
Section 145 of the Delaware Law, a corporation generally has the power to
indemnify its present and former directors, officers, employees and agents
against expenses incurred by them in connection with any suit to which they are,
or are threatened to be made, a party by reason of their serving in such
positions so long as they acted in good faith and in a manner they reasonably
believed to be in or not opposed to, the best interests of the corporation and,
with respect to any criminal action, had no reasonable cause to believe their
conduct was unlawful. We believe that these provisions are necessary to attract
and retain qualified persons as directors and officers. These provisions do not
eliminate the directors' duty of care, and, in appropriate circumstances,
equitable remedies such as injunctive or other forms of non-monetary relief will
remain available under Delaware Law. In addition, each director will continue to
be subject to liability for breach of the director's duty of loyalty to us, for
acts or omissions not in good faith or involving intentional misconduct, for
knowing violations of law, for acts or omissions that the director believes to
be contrary to our best interests or the best interests of our stockholders, for
any transaction from which the director derived an improper personal benefit,
for acts or omissions involving a reckless disregard for the director's duty to
us or our stockholders when the director was aware or should have been aware of
a risk of serious injury to us or its stockholders, for acts or omissions that
constitute an unexcused pattern of inattention that amounts to an abdication of
the director's duty to us or our stockholders, for improper transactions between
the director and us and for improper distributions to stockholders and loans to
directors and officers. The provision also does not affect a director's
responsibilities under any other law, such as the federal securities law or
state or federal environmental laws.
II-1
<PAGE> 81
We have entered into indemnity agreements with each of our directors and
executive officers that require us to indemnify such persons against expenses,
judgments, fines, settlements and other amounts incurred (including expenses of
a derivative action) in connection with any proceeding, whether actual or
threatened, to which any such person may be made a party by reason of the fact
that such person is or was one of our directors or executive officers or any of
our affiliated enterprises, provided that such person acted in good faith and in
a manner such person reasonably believed to be in or not opposed to our best
interests and, with respect to any criminal proceeding, had no reasonable cause
to believe his conduct was unlawful. The indemnification agreements also set
forth certain procedures that will apply in the event of a claim for
indemnification thereunder.
At present, there is no pending litigation or proceeding involving any of our
directors or officers as to which indemnification is being sought nor are we
aware of any threatened litigation that may result in claims for indemnification
by any officer or director.
We have an insurance policy covering our officers and directors with respect to
certain liabilities, including liabilities arising under the Securities Act or
otherwise.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
Since inception, we have sold and issued the following unregistered securities:
(a) On February 7, 1996 we issued and sold 2,037,500 shares of common
stock for an aggregate purchase price of $4,075.00 to three of our
founders, four consultants and three accredited investors. For these
issuances we relied on the exemptions provided by Section 4(2) of the
Securities Act and Rule 701 promulgated thereunder.
(b) On May 9, 1996 we issued and sold 12,500 shares of common stock
for an aggregate purchase price of $25.00 to one of our consultants. For
these issuances we relied on the exemption provided by Section 4(2) of the
Securities Act and Rule 701 promulgated thereunder.
(c) On May 23, 1996 we issued and sold 2,689,846 shares of Series A
preferred stock for an aggregate purchase price of $4,303,753.60 to 36
accredited investors. For these issuances we relied on the exemption
provided by Section 4(2) of the Securities Act.
(d) On May 23, 1996 we issued warrants to purchase 792,188 shares of
Series A preferred stock at an exercise price purchase price of $1.84 per
share to four accredited investors. For these issuances we relied on the
exemption provided by Section 4(2) of the Securities Act.
(e) On August 26, 1996 we issued and sold 92,500 shares of common
stock to three of our employees for an aggregate purchase price of
$29,600.00. For these issuances we relied on the exemption provided by
Section 4(2) of the Securities Act and Rule 701 promulgated thereunder.
(f) On September 17, 1996 we issued and sold 43,750 shares of Series A
preferred stock for a purchase price of $70,000.00 to the Notkin Living
Trust, an accredited investor. For these issuances we relied on the
exemption provided by Section 4(2) of the Securities Act.
(g) In September and October 1996 we issued and sold 145,000 shares of
common stock to six of our employees for an aggregate purchase price of
$46,400.00. For these issuances we relied on the exemption provided by
Section 4(2) of the Securities Act and Rule 701 promulgated thereunder.
(h) On October 16, 1996 we issued a warrant to purchase 11,050 shares
of common stock at an exercise price of $3.68 per share to Lease Management
Services, Inc. For these issuances we relied on the exemption provided by
Section 4(2) of the Securities Act.
(i) On December 31, 1996 we issued 2,206 shares of common stock to the
ViroLogic, Inc. 401(k) Profit Sharing Plan for an aggregate of $706.08. For
these issuances we relied on the exemption provided by Section 4(2) of the
Securities Act.
(j) On March 3, 1997 we issued and sold 25,000 shares of common stock
to one of our employees for an aggregate purchase price of $8,000.00. For
these issuances we relied on the exemption provided by Section 4(2) of the
Securities Act and Rule 701 promulgated thereunder.
II-2
<PAGE> 82
(k) On May 2, 1997 we issued and sold 2,674,216 shares of Series A
preferred stock for an aggregate purchase price of $4,278,745.60 to 35
accredited investors. For these issuances we relied on the exemption
provided by Section 4(2) of the Securities Act.
(l) In August and September 1997 we issued and sold 81,750 shares of
common stock to one of our employees for a purchase price of $64,320.00.
For these issuances we relied on the exemption provided by Section 4(2) of
the Securities Act and Rule 701 promulgated thereunder.
(m) On August 22, 1997 we issued a warrant to purchase 100,000 shares
of Series A preferred stock at an exercise price of $4.00 per share to
Britannia Pointe Grand Limited Partnership. For these issuances we relied
on the exemption provided by Section 4(2) of the Securities Act.
(n) On December 31, 1997 we issued and sold 625 shares of common stock
to the ViroLogic, Inc. 401(k) Profit Sharing Plan for an aggregate of
$2,001.60. For these issuances we relied on the exemption provided by
Section 4(2) of the Securities Act.
(o) On January 30, 1998 we issued a warrant to purchase 34,833 shares
of common stock at an exercise price of $8.00 per share to MMC/GATX
Partnership No. 1. For these issuances we relied on the exemption provided
by Section 4(2) of the Securities Act.
(p) In August 1998, we issued a warrant to purchase 10,000 shares of
common stock at an exercise price of $8.00 per share to Britannia Pointe
Grand Limited Partnership. For these issuances we relied on the exemption
provided by Section 4(2) of the Securities Act.
(q) On August 25, 1998 we issued warrants to purchase 15,890 shares of
common stock at an exercise price purchase price of $0.02 per share to 19
accredited investors. For these issuances we relied on the exemption
provided by Section 4(2) of the Securities Act.
(r) On August 25, 1998 we issued and sold 3,935,158 shares of Series B
preferred stock for an aggregate purchase price of $12,592,505.60 to 13
accredited investors. For these issuances we relied on the exemption
provided by Section 4(2) of the Securities Act.
(s) On August 25, 1998 we issued warrants to purchase 365,000 shares
of Series B preferred stock at an exercise price purchase price of $3.68
per share to two accredited investors. For these issuances we relied on the
exemption provided by Section 4(2) of the Securities Act.
(t) On December 31, 1998 we issued and sold 1,376 shares of common
stock to the ViroLogic, Inc. 401(k) Profit Sharing Plan for an aggregate of
$7,430.40. For these issuances we relied on the exemption provided by
Section 4(2) of the Securities Act.
(u) On August 23, 1999 we issued and sold 4,138,486 shares of Series C
preferred stock for an aggregate purchase price of $7,656,199.10 to 21
accredited investors. For these issuances we relied on the exemption
provided by Section 4(2) of the Securities Act and Regulation D promulgated
thereunder.
(v) On September 29, 1999 we issued and sold 150,000 shares of our
common stock as a stock bonus award to William D. Young. For these
issuances we relied on the exemption provided by Section 4(2) of the
Securities Act and Rule 701 promulgated thereunder.
(w) In November and December 1999 we issued and sold 1,675,621 shares
of Series C preferred stock for an aggregate purchase price of
$3,099,898.85 to four accredited investors. For these issuances we relied
on the exemption provided by Section 4(2) of the Securities Act and
Regulation D promulgated thereunder.
(x) On December 31, 1999 we issued and sold 4,046 shares of common
stock to the ViroLogic, Inc. 401(k) Profit Sharing Plan for an aggregate of
$12,704.44. For these issuances we relied on the exemption provided by
Section 4(2) of the Securities Act.
(y) In January and February 2000 we issued and sold 8,461,630 shares
of Series C preferred stock for an aggregate purchase price of $15,654,015
to 42 accredited investors. For these issuances we relied on the exemption
provided by Section 4(2) of the Securities Act and Regulation D promulgated
thereunder.
II-3
<PAGE> 83
(z) On March 31, 2000 we issued and sold warrants to purchase 53,585
shares of our Series C preferred stock at an exercise price of $2.12 per
share to Pentech Financial Services, Inc. an accredited investor. For these
issuance we relied on the exemption provided by Section 4(2) of the
Securities Act.
(aa) We have a program of granting a single share of our common stock
to children born to our employees. Under this program we have granted one
share to each of five children of our employees. For these issuances we
rely on the exemption provided by Section 4(2) of the Securities Act.
(bb) From time to time since inception, we have issued and sold shares
of our common stock to employees and consultants upon exercise of stock
options held by them. As of March 24, 2000, we had issued a total of 43,753
shares of common stock as a result of these exercises for an aggregate
exercise price of $47,616.28. For these issuances we relied on the
exemption provided by Section 4(2) of the Securities Act and Rule 701
promulgated thereunder.
(cc) Since inception we have issued and sold 12 shares of our common
stock and 3,000 shares of our Series A preferred stock upon exercise of
outstanding warrants. For these issuances we relied on the exemption
provided by Section 4(2) of the Securities Act.
The recipients of the above-mentioned securities represented their intention to
acquire the securities for investment only and not with a view to distribution
thereof. Appropriate legends were affixed to the stock certificates in such
transactions. All recipients had adequate access, through employment or other
relationships, to information about us.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- ------- -----------------------
<C> <S>
1.1 Form of Underwriting Agreement.
3.1 Amended and Restated Certificate of Incorporation, as
currently in effect.(2)
3.2 Bylaws, as currently in effect.(2)
3.3 Amended and Restated Certificate of Incorporation.(2)
3.4 Bylaws.(2)
3.5 Amended and Restated Certificate of Incorporation, to be
filed and become effective after the closing of this
offering.(2)
4.1 Reference is made to Exhibits 3.1, 3.2, 3.3, 3.4 and 3.5.
4.2 Specimen Stock Certificate.(2)
4.3 Amended and Restated Investors Rights Agreement by and among
the Company and certain stockholders of the Company dated
August 23, 1999.(2)
4.4 Form of Indemnity Agreement between the Company and its
directors and officers.(2)
4.5 Warrant Agreement by and between ViroLogic and Lease
Management Services, Inc. dated as of October 16, 1996.(2)
4.6 Warrant Agreement by and between ViroLogic and MMC/GATX
Partnership No. 1 dated as of January 30, 1998.(2)
4.7 Form of Warrant to purchase Common Stock.(2)
4.8 Form of Warrant to purchase Common Stock.(2)
4.9 Form of Warrant to Series A Preferred Stock.(2)
4.10 Form of Warrant to Series A Preferred Stock.(2)
4.11 Form of Warrant to Series B Preferred Stock.(2)
4.12 2000 Equity Incentive Plan.(2)
4.13 Form of Stock Option Agreement under the 2000 Equity
Incentive Plan for options granted prior to the
effectiveness of this Registration Statement.(2)
4.14 Form of Stock Option Agreement Pursuant to the 2000 Equity
Incentive Plan for options granted after the effectiveness
of this Registration Statement.(2)
4.15 2000 Employee Stock Purchase Plan and related offering
documents.(2)
</TABLE>
II-4
<PAGE> 84
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- ------- -----------------------
<C> <S>
4.16 Form of Warrant to Purchase Series C Preferred Stock.
5.1 Opinion of Cooley Godward LLP.(2)
10.1+ Agreement with Roche Molecular Systems, Inc. dated July 29,
1997.
10.2 Office Lease by and between ViroLogic and Oyster Point Tech
Center LLC dated as of May 25, 1999.(2)
10.3 Office Lease by and between ViroLogic and Trammell Crow
Northern California Development, Inc. dated as of November
23, 1999.(2)
10.4 Equipment Financing Agreement by and between ViroLogic and
Lease Management Services, Inc. dated as of October 16,
1996.(2)
10.5 Loan and Security Agreement by and between ViroLogic and
MMC/GATX Partnership No. 1 dated as of January 30, 1998.(2)
10.6 Employment Agreement by and between ViroLogic and William D.
Young dated September 29, 1999.(2)
10.7 Employment Agreement by and between ViroLogic and Martin H.
Goldstein dated , 1996.(2)
10.8 Equipment Financing Agreement dated March 28, 2000 with
Pentech Financial Services, Inc.
23.1 Consent of Ernst & Young LLP, Independent Auditors.
23.3 Consent of Cooley Godward LLP. Reference is made to Exhibit
5.1
24.1 Power of Attorney. Reference is made to page II-6.
27 Financial Data Schedule.(2)
</TABLE>
- ---------------------------
(1) To be filed by amendment.
(2) Previously filed.
+ Confidential treatment has been requested with respect to certain portions
of this exhibit. Omitted portions have been filed separately with the
Securities and Exchange Commission.
ITEM 17. UNDERTAKINGS.
The undersigned registrant hereby undertakes to provide to the underwriters at
the closing specified in the underwriting agreement certificates in such
denominations and registered in such names as required by the underwriters to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Act may be
permitted to directors, officers and controlling persons of the registrant
pursuant to provisions described in Item 14 or otherwise, the registrant has
been advised that in the opinion of the 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:
(1) That, for purposes of determining any liability under the Act, the
information omitted from the form of prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form
of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or
497 (h) under the Act shall be deemed to be part of this Registration
Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Act, each
post-effective amendment that contains a form of prospectus shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
II-5
<PAGE> 85
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
registrant has duly caused this Amendment No. 2 to the Registration Statement to
be signed on its behalf by the undersigned, thereunto duly authorized, in the
City of South San Francisco, County of San Mateo, State of California, on, April
17, 2000.
By: /s/ WILLIAM D. YOUNG
------------------------------------
William D. Young
Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ WILLIAM D. YOUNG Chief Executive Officer April 17, 2000
- ----------------------------------------------------- and Chairman
William D. Young (Principal Executive Officer;
Principal Financial and
Accounting Officer)
* President and Director April 17, 2000
- -----------------------------------------------------
Martin H. Goldstein
* Director April 17, 2000
- -----------------------------------------------------
Richard M. Beleson
* Director April 17, 2000
- -----------------------------------------------------
Anders Hove
* Director April 17, 2000
- -----------------------------------------------------
Cristina Kepner
* Director April 17, 2000
- -----------------------------------------------------
Albert L. Zesiger
*By: /s/ WILLIAM D. YOUNG
------------------------------------------------
(William D. Young)
(Attorney-in-fact)
</TABLE>
II-6
<PAGE> 86
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- ------- -----------------------
<C> <S>
1.1 Form of Underwriting Agreement.
3.1 Amended and Restated Certificate of Incorporation, as
currently in effect.(2)
3.2 Bylaws, as currently in effect.(2)
3.3 Amended and Restated Certificate of Incorporation.(2)
3.4 Bylaws.(2)
3.5 Amended and Restated Certificate of Incorporation, to be
filed and become effective after the closing of this
offering.(2)
4.1 Reference is made to Exhibits 3.1, 3.2, 3.3, 3.4 and 3.5.
4.2 Specimen Stock Certificate.(2)
4.3 Amended and Restated Investors Rights Agreement by and among
the Company and certain stockholders of the Company dated
August 23, 1999.(2)
4.4 Form of Indemnity Agreement between the Company and its
directors and officers.(2)
4.5 Warrant Agreement by and between ViroLogic and Lease
Management Services, Inc. dated as of October 16, 1996.(2)
4.6 Warrant Agreement by and between ViroLogic and MMC/GATX
Partnership No. 1 dated as of January 30, 1998.(2)
4.7 Form of Warrant to purchase Common Stock.(2)
4.8 Form of Warrant to purchase Common Stock.(2)
4.9 Form of Warrant to Series A Preferred Stock.(2)
4.10 Form of Warrant to Series A Preferred Stock.(2)
4.11 Form of Warrant to Series B Preferred Stock.(2)
4.12 2000 Equity Incentive Plan.(2)
4.13 Form of Stock Option Agreement under the 2000 Equity
Incentive Plan for options granted prior to the
effectiveness of this Registration Statement.(2)
4.14 Form of Stock Option Agreement Pursuant to the 2000 Equity
Incentive Plan for options granted after the effectiveness
of this Registration Statement.(2)
4.15 2000 Employee Stock Purchase Plan and related offering
documents.(2)
4.16 Form of Warrant to purchase Series C Preferred Stock.
5.1 Opinion of Cooley Godward LLP.(2)
10.1+ Agreement with Roche Molecular Systems, Inc. dated July 29,
1997.
10.2 Office Lease by and between ViroLogic and Oyster Point Tech
Center LLC dated as of May 25, 1999.(2)
10.3 Office Lease by and between ViroLogic and Trammell Crow
Northern California Development, Inc. dated as of November
23, 1999.(2)
10.4 Equipment Financing Agreement by and between ViroLogic and
Lease Management Services, Inc. dated as of October 16,
1996.(2)
10.5 Loan and Security Agreement by and between ViroLogic and
MMC/GATX Partnership No. 1 dated as of January 30, 1998.(2)
10.6 Employment Agreement by and between ViroLogic and William D.
Young dated September 29, 1999.(2)
10.7 Employment Agreement by and between ViroLogic and Martin H.
Goldstein dated , 1996.(2)
10.8 Equipment Financing Agreement dated March 28, 2000 with
Pentech Financial Services, Inc.
23.1 Consent of Ernst & Young LLP, Independent Auditors.
23.3 Consent of Cooley Godward LLP. Reference is made to Exhibit
5.1
24.1 Power of Attorney. Reference is made to page II-6.
27 Financial Data Schedule.(2)
</TABLE>
- ---------------------------
(1) To be filed by amendment.
(2) Previously filed.
+ Confidential treatment has been requested with respect to certain portions
of this exhibit. Omitted portions have been filed separately with the
Securities and Exchange Commission.
<PAGE> 1
EXHIBIT 1.1
5,000,000 Shares
VIROLOGIC, INC.
Common Stock
UNDERWRITING AGREEMENT
April __, 2000
CIBC WORLD MARKETS CORP.
ING BARINGS LLC
PRUDENTIAL SECURITIES INCORPORATED
on behalf of the Several
Underwriters named on
Schedule I attached hereto
c/o CIBC World Markets Corp.
One World Financial Center
New York, New York 10281
Ladies and Gentlemen:
ViroLogic, Inc., a Delaware corporation (the "Company"), proposes, subject
to the terms and conditions contained herein, to sell to you and the other
underwriters named on Schedule I to this Agreement (the "Underwriters"), for
whom you are acting as Representatives (the "Representatives"), an aggregate of
5,000,000 shares (the "Firm Shares") of the Company's Common Stock, with a par
value of $0.001 per share (the "Common Stock"). The respective amounts of the
Firm Shares to be purchased by each of the several Underwriters are set forth
opposite their names on Schedule I attached hereto. In addition, the Company
proposes to grant to the Underwriters an option to purchase up to an additional
750,000 shares (the "Option Shares") of Common Stock from the Company for the
sole purpose of covering over-allotments in connection with the sale of the Firm
Shares. The Firm Shares and the Option Shares are together called the "Shares."
As part of the offering contemplated by this Agreement, the Representatives
have agreed to reserve out of the Firm Shares purchased by them up to 250,000
shares (the "Directed Shares") for sale to the Company's directors, officers,
employees and other parties associated with the Company, as determined by the
Company (each, individually a "Participant" and, collectively, the
"Participants") under the terms of the friends and family directed sales program
(the "Friends and Family Program"). Shares to be sold pursuant to the Friends
and Family Program shall be sold pursuant to this Agreement at the public
offering price. Any Directed Shares not confirmed for purchase by a Participant
by 5:00 p.m. (New York time) on the date of this Agreement will be offered to
the public by the Representatives as set forth in the Prospectus (as such term
is hereinafter defined).
<PAGE> 2
1. Sale and Purchase of the Shares.
On the basis of the representations, warranties and agreements contained
in, and subject to the terms and conditions of, this Agreement:
(a) The Company agrees to sell to each of the Underwriters, and each
of the Underwriters agrees, severally and not jointly, to purchase from the
Company, at a price of $_____ per share (the "Initial Price"), the number
of Firm Shares set forth opposite the name of such Underwriter under the
column "Number of Firm Shares to be Purchased from the Company" on Schedule
I to this Agreement, subject to adjustment in accordance with Section 10
hereof.
(b) The Company grants to the several Underwriters an option to
purchase, severally and not jointly, all or any part of the Option Shares
at the Initial Price. The number of Option Shares to be purchased by each
Underwriter shall be the same percentage (adjusted by the Representatives
to eliminate fractions) of the total number of Option Shares to be
purchased by the Underwriters as such Underwriter is purchasing of the Firm
Shares. Such option may be exercised only to cover over-allotments in the
sales of the Firm Shares by the Underwriters and may be exercised in whole
or in part at any time on or before 12:00 noon, New York City time, on the
business day before the Firm Shares Closing Date (as defined below), and
from time to time thereafter within 30 days after the date of this
Agreement, in each case upon written, facsimile or telegraphic notice, or
verbal or telephonic notice confirmed by written, facsimile or telegraphic
notice, by the Representatives to the Company no later than 12:00 noon, New
York City time, on the business day before the Firm Shares Closing Date or
at least two business days before the Option Shares Closing Date (as
defined below), as the case may be, setting forth the number of Option
Shares to be purchased and the time and date (if other than the Firm Shares
Closing Date) of such purchase.
2. Delivery and Payment. Delivery by the Company of the Firm Shares to the
Representatives for the respective accounts of the Underwriters, and payment of
the purchase price by certified or official bank check or checks payable in New
York Clearing House (same day) funds drawn to the order of the Company for the
shares purchased from the Company, against delivery of the respective
certificates therefor to the Representatives, shall take place at the offices of
CIBC World Markets Corp., One World Financial Center, New York, New York 10281,
at 10:00 a.m., New York City time, on the third business day following the date
of this Agreement, or at such time on such other date, not later than 10
business days after the date of this Agreement, as shall be agreed upon by the
Company and the Representatives (such time and date of delivery and payment are
called the "Firm Shares Closing Date").
In the event the option with respect to the Option Shares is exercised in
whole or in part on one or more occasions, delivery by the Company of the Option
Shares to the Representatives for the respective accounts of the Underwriters
and payment of the purchase price thereof in immediately available funds by wire
transfer or by certified or official bank check or checks payable in New York
Clearing House (same day) funds to the Company shall take place at the offices
of CIBC World Markets Corp. specified above at the time and on the date (which
may be the same date as, but in no event shall be earlier than, the Firm Shares
Closing Date) specified in the notice referred to in Section 1(b) hereof (such
time and date of delivery and payment are called the "Option Shares
2
<PAGE> 3
Closing Date"). The Firm Shares Closing Date and the Option Shares Closing Date
are called, individually, a "Closing Date" and, together, the "Closing Dates."
Certificates evidencing the Shares shall be registered in such names and
shall be in such denominations as the Representatives shall request at least two
full business days before the Firm Shares Closing Date or, in the case of Option
Shares, on the day of notice of exercise of the option as described in Section
l(b) hereof and shall be made available to the Representatives for checking and
packaging, at such place as is designated by the Representatives, on the full
business day before the Firm Shares Closing Date (or the Option Shares Closing
Date in the case of the Option Shares).
3. Registration Statement and Prospectus; Public Offering. The Company has
prepared and filed in conformity with the requirements of the Securities Act of
1933, as amended (the "Securities Act"), and the published rules and regulations
thereunder (the "Rules") adopted by the Securities and Exchange Commission (the
"Commission") a Registration Statement (as hereinafter defined) on Form S-1 (No.
333-30896), including a preliminary prospectus relating to the Shares, and such
amendments thereof as may have been required to the date of this Agreement.
Copies of such Registration Statement (including all amendments thereof) and of
the related Preliminary Prospectus (as hereinafter defined) have heretofore been
delivered by the Company to you. The term "Preliminary Prospectus" means any
preliminary prospectus (as described in Rule 430 of the Rules) included at any
time as a part of the Registration Statement or filed with the Commission by the
Company with the consent of the Representatives pursuant to Rule 424(a) of the
Rules. The term "Registration Statement" as used in this Agreement means the
initial registration statement (including all exhibits, financial schedules and
information deemed to be a part of the Registration Statement through
incorporation by reference or otherwise), as amended at the time and on the date
it becomes effective (the "Effective Date") including the information (if any)
deemed to be part thereof at the time of effectiveness pursuant to Rule 430A of
the Rules. If the Company has filed an abbreviated registration statement to
register additional Shares pursuant to Rule 462(b) under the Rules (the "462(b)
Registration Statement") then any reference herein to the Registration Statement
shall also be deemed to include such 462(b) Registration Statement. The term
"Prospectus" as used in this Agreement means the prospectus in the form included
in the Registration Statement at the time of effectiveness or, if Rule 430A of
the Rules is relied on, the term Prospectus shall also include the final
prospectus filed with the Commission pursuant to Rule 424(b) of the Rules.
The Company understands that the Underwriters propose to make a public
offering of the Shares, as set forth in and pursuant to the Prospectus, as soon
after the Effective Date and the date of this Agreement as the Representatives
deem advisable. The Company hereby confirms that the Underwriters and dealers
have been authorized to distribute or cause to be distributed the Preliminary
Prospectus, dated as of March 27, 2000, and are authorized to distribute the
Prospectus (as from time to time amended or supplemented if the Company
furnishes amendments or supplements thereto to the Underwriters).
4. Representations and Warranties of the Company. The Company hereby
represents and warrants to each Underwriter as follows:
(a) On the Effective Date, the Registration Statement complied, and on
the date of the Prospectus, the date any post-effective amendment to the
Registration Statement becomes effective, the date any supplement or
amendment to the Prospectus is filed with the
3
<PAGE> 4
Commission and each Closing Date, the Registration Statement and the
Prospectus (and any amendment thereof or supplement thereto) will comply,
in all material respects, with the applicable provisions of the Securities
Act and the Rules. The Registration Statement did not, as of the Effective
Date, contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary in order to make
the statements therein not misleading; and on the Effective Date and the
other dates referred to above neither the Registration Statement nor the
Prospectus, nor any amendment thereof or supplement thereto, will contain
any untrue statement of a material fact or will omit to state any material
fact required to be stated therein or necessary in order to make the
statements therein not misleading. When any related preliminary prospectus
was first filed with the Commission (whether filed as part of the
Registration Statement or any amendment thereto or pursuant to Rule 424(a)
of the Rules) and when any amendment thereof or supplement thereto was
first filed with the Commission, such preliminary prospectus as amended or
supplemented complied in all material respects with the applicable
provisions of the Securities Act and the Rules and did not contain any
untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary in order to make the statements
therein not misleading except as may have been corrected in all material
respects by subsequent amendment or supplement prior to or as a part of the
Registration Statement and Prospectus. Notwithstanding the foregoing, none
of the representations and warranties in this Section 4(a) shall apply to
statements in, or omissions from, the Registration Statement or the
Prospectus made in reliance upon, and in conformity with, information
herein or otherwise furnished in writing by the Representatives on behalf
of the several Underwriters for use in the Registration Statement or the
Prospectus. With respect to the preceding sentence, the Company
acknowledges that the only information furnished in writing by the
Representatives on behalf of the several Underwriters for use in the
Registration Statement or the Prospectus is the paragraph with respect to
stabilization on the inside front cover page of the Prospectus and the
statements contained under the caption "Underwriting" in the Prospectus.
(b) The Registration Statement is effective under the Securities Act
and no stop order preventing or suspending the effectiveness of the
Registration Statement or suspending or preventing the use of the
Prospectus has been issued and no proceedings for that purpose have been
instituted or are threatened under the Securities Act. Any required filing
of the Prospectus and any supplement thereto pursuant to Rule 424(b) of the
Rules has been or will be made in the manner and within the time period
required by such Rule 424(b).
(c) The financial statements of the Company (including all notes and
schedules thereto) included in the Registration Statement and Prospectus
present fairly the financial position, the results of operations, the
statements of cash flows and the statements of stockholders' equity and the
other information purported to be shown therein of the Company at the
respective dates and for the respective periods to which they apply; and
such financial statements and related schedules and notes have been
prepared in conformity with generally accepted accounting principles,
consistently applied throughout the periods involved, and all adjustments
necessary for a fair presentation of the results for such periods have been
made. The "Summary Financial Data" and "Selected Financial Data" included
in the Prospectus present fairly the information shown therein as at the
respective dates and for the respective periods specified and the summary
and selected financial data have been
4
<PAGE> 5
presented on a basis consistent with the consolidated financial statements
so set forth in the Prospectus and other financial information.
(d) Ernst & Young LLP, whose reports are filed with the Commission as
a part of the Registration Statement, are and, during the periods covered
by their reports, were independent public accountants as required by the
Securities Act and the Rules.
(e) The Company is a corporation duly organized, validly existing and
in good standing under the laws of the State of Delaware. The Company has
no subsidiary or subsidiaries and does not control, directly or indirectly,
any corporation, partnership, joint venture, association or other business
organization. The Company is duly qualified to do business and is in good
standing as a foreign corporation in each jurisdiction in which the nature
of the business conducted by it or location of the assets or properties
owned, leased or licensed by it requires such qualification, except for
such jurisdictions where the failure to so qualify would not have a
material adverse effect on the assets or properties, business, results of
operations or financial condition of the Company (a "Material Adverse
Effect"). The Company does not own, lease or license any asset or property
or conduct any business outside the United States of America. The Company
has all requisite corporate power and authority, and all necessary
authorizations, approvals, consents, orders, licenses, certificates and
permits of and from all governmental or regulatory bodies or any other
person or entity (collectively, the "Permits"), to own, lease and license
its assets and properties and conduct its business, all of which are valid
and in full force and effect, as described in the Registration Statement
and the Prospectus, except where the lack of such Permits, individually or
in the aggregate, would not have a Material Adverse Effect. The Company has
fulfilled and performed in all respects all of its obligations with respect
to such Permits and no event has occurred that allows, or after notice or
lapse of time would allow, revocation or termination thereof or results in
any other impairment of the rights of the Company thereunder except for
such failure to fulfill and for such events as would not, individually or
in the aggregate, have a Material Adverse Effect. Except as may be required
under the Securities Act and state and foreign Blue Sky laws, no other
Permits are required to enter into, deliver and perform this Agreement and
to issue and sell the Shares.
(f) The Company owns or possesses adequate and enforceable rights to
use all patent, patent applications, trademarks, trademark applications,
trade names, service marks, copyrights, copyright applications, licenses,
know-how and other similar rights and proprietary knowledge (collectively,
"Intangibles") described in the Prospectus as being owned by it reasonably
necessary for the conduct of its business. The Company has not received any
notice of, or is not aware of, any infringement of or conflict with
asserted rights of others with respect to any Intangibles. No departed
employee of the Company has a right of reverter, or any other interest,
with respect to any Intangible.
(g) The Company has good and marketable title in fee simple to all
items of real property and good and marketable title to all personal
property described in the Prospectuses as being owned by it except where
the lack of such good and marketable title would not have a Material
Adverse Effect. Any real property and buildings described in the
Prospectuses as being held under lease by the Company is held by it under
valid, existing and enforceable leases, free and clear of all liens,
encumbrances, claims, security interests and defects, except
5
<PAGE> 6
such as are described in the Registration Statement and the Prospectus or
where the failure to have such leases would not have a Material Adverse
Effect.
(h) There are no litigation or governmental proceedings to which the
Company is subject or which is pending or, to the knowledge of the Company,
threatened, against the Company, which, individually or in the aggregate,
might have a Material Adverse Effect, prevent or delay the consummation of
this Agreement or which is required to be disclosed in the Registration
Statement and the Prospectus that is not so disclosed.
(i) Subsequent to the respective dates as of which information is
given in the Registration Statement and the Prospectus, except as described
therein, (a) there has not been any loss or adverse change with regard to
the assets or properties, business, results of operations or financial
condition of the Company except as would not have a Material Adverse
Effect; (b) the Company has not sustained any loss or interference with its
assets, businesses or properties (whether owned or leased) from fire,
explosion, earthquake, flood or other calamity, whether or not covered by
insurance, or from any labor dispute or any court or legislative or other
governmental action, order or decree which would have a Material Adverse
Effect; and (c) since the date of the latest balance sheet included in the
Registration Statement and the Prospectus, except as reflected therein, the
Company has not (i) issued any securities or incurred any liability or
obligation, direct or contingent, for borrowed money, except such
liabilities or obligations incurred in the ordinary course of business,
(ii) entered into any material transaction not in the ordinary course of
business or (iii) declared or paid any dividend or made any distribution on
any shares of its stock or redeemed, purchased or otherwise acquired or
agreed to redeem, purchase or otherwise acquire any shares of its stock.
(j) There is no document, contract or other agreement of a character
required to be described in the Registration Statement or Prospectus or to
be filed as an exhibit to the Registration Statement which is not described
or filed as required by the Securities Act or Rules. Each description of a
contract, document or other agreement in the Registration Statement and the
Prospectus accurately reflects in all respects the terms of the underlying
document, contract or agreement. Each agreement described in the
Registration Statement and Prospectus or listed in the Exhibits to the
Registration Statement or incorporated by reference is in full force and
effect and is valid and enforceable by and against the Company in
accordance with its terms. Neither the Company, nor to the Company's
knowledge, any other party is in default in the observance or performance
of any term or obligation to be performed by it under any such agreement,
and no event has occurred which with notice or lapse of time or both would
constitute such a default, in any such case which default or event,
individually or in the aggregate, would have a Material Adverse Effect. No
default exists, and no event has occurred which with notice or lapse of
time or both would constitute a default, in the due performance and
observance of any term, covenant or condition, by the Company of any other
agreement or instrument to which the Company is a party or by which it or
its properties or business may be bound or affected which default or event,
individually or in the aggregate, would have a Material Adverse Effect.
6
<PAGE> 7
(k) The Company is not in violation of any term or provision of its
charter or by-laws or of any franchise, license, permit, judgment, decree,
order, statute, rule or regulation, where the consequences of any such
violation, individually or in the aggregate, would have a Material Adverse
Effect.
(l) Neither the execution, delivery and performance of this Agreement
by the Company nor the consummation of any of the transactions contemplated
hereby (including, without limitation, the issuance and sale by the Company
of the Shares) will give rise to a right to terminate or accelerate the due
date of any payment due under, or conflict with or result in the breach of
any term or provision of, or constitute a default (or an event which with
notice or lapse of time or both would constitute a default) under, or
require any consent or waiver under, or result in the execution or
imposition of any lien, charge or encumbrance upon any properties or assets
of the Company pursuant to the terms of, any indenture, mortgage, deed of
trust or other agreement or instrument to which the Company is a party or
by which it or any of its properties or businesses is bound, or any
franchise, license, permit, judgment, decree, order, statute, rule or
regulation applicable to the Company or violate any provision of the
charter or by-laws of the Company, except for such consents or waivers
which have already been obtained and are in full force and effect.
(m) The Company's authorized and outstanding capital stock conforms in
all material respects to the description thereof contained under the
caption "Capitalization" in the Prospectus. The certificates evidencing the
Shares are in due and proper legal form and have been duly authorized for
issuance by the Company. All of the issued and outstanding shares of Common
Stock have been duly and validly issued and are fully paid and
nonassessable. There are no statutory preemptive or other similar rights to
subscribe for or to purchase or acquire any shares of Common Stock of the
Company or any such rights pursuant to its Certificate of Incorporation or
by-laws or, except for any rights which do not apply to the transactions
contemplated hereby and which will expire on the Firm Shares Closing Date,
any agreement or instrument to or by which the Company is a party or bound.
The Shares, when issued and sold pursuant to this Agreement, will be duly
and validly issued, fully paid and nonassessable and none of them will be
issued in violation of any preemptive or other similar right. Except as
disclosed in the Registration Statement and the Prospectus, there is no
outstanding option, warrant or other right calling for the issuance of, and
there is no commitment, plan or arrangement to issue, any share of stock of
the Company or any security convertible into, or exercisable or
exchangeable for, such stock. The Common Stock and the Shares conform in
all material respects to all statements in relation thereto contained under
the heading "Description of Capital Stock" in the Registration Statement
and the Prospectus.
(n) No holder of any security of the Company has the right to have any
security owned by such holder included in the Registration Statement or to
demand registration of any security owned by such holder during the period
ending 180 days after the date of this Agreement, except for such rights as
have been waived. Each five percent stockholder, director and executive
officer of the Company, and each person listed on Schedule 4(n) attached
hereto, has delivered to the Representatives such person's enforceable
written lock-up agreement in the form attached to this Agreement ("Lock-Up
Agreement").
7
<PAGE> 8
(o) All necessary corporate action has been duly and validly taken by
the Company to authorize the execution, delivery and performance of this
Agreement and the issuance and sale of the Shares by the Company. This
Agreement has been duly and validly authorized, executed and delivered by
the Company and constitutes and will constitute the legal, valid and
binding obligation of the Company enforceable against the Company in
accordance with its terms, except as the enforceability thereof may be
limited by (i) bankruptcy, insolvency, reorganization, moratorium or other
similar laws affecting the enforcement of creditors' rights generally and
(ii) general principles of equity (regardless of whether such enforcement
is considered in a proceeding in equity or at law).
(p) The Company is not involved in any labor dispute nor, to the
knowledge of the Company, is any such dispute threatened, which dispute
would have a Material Adverse Effect. The Company is not aware of any
existing or imminent labor disturbance by the employees of any of its
principal suppliers or contractors which would have a Material Adverse
Effect. The Company is not aware of any threatened or pending litigation
between the Company and any of its executive officers which, if adversely
determined, could have a Material Adverse Effect and, to the knowledge of
the Company, no such officer has a present intention to leave the
employment of the Company.
(q) No transaction has occurred between or among the Company and any
of its officers or directors or five percent stockholders or any affiliate
or affiliates of any such officer or director or five percent stockholder
that is required to be described in and is not described in the
Registration Statement and the Prospectus.
(r) The Company has not taken, nor will it take, directly or
indirectly, any action designed to or which might reasonably be expected to
cause or result in, or which has constituted or which might reasonably be
expected to constitute, under the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), the stabilization or manipulation of the
price of the Common Stock to facilitate the sale or resale of any of the
Shares.
(s) The Company has filed all Federal, state, local and foreign tax
returns which are required to be filed through the date hereof, or has
received extensions thereof, and has paid all taxes shown on such returns
and all assessments received by it to the extent that the same are material
and have become due. There are no tax audits or investigations pending,
which if adversely determined would have a Material Adverse Effect; nor are
there any material proposed additional tax assessments against the Company.
(t) The Shares have been duly authorized for quotation on the National
Association of Securities Dealers Automated Quotation ("Nasdaq") National
Market System, subject to official Notice of Issuance. A registration
statement has been filed on Form 8-A pursuant to Section 12 of the Exchange
Act, which registration statement complies in all material respects with
the Exchange Act.
(u) The books, records and accounts of the Company accurately and
fairly reflect, in reasonable detail, the transactions in, and dispositions
of, the assets of, and the results of operations of, the Company. The
Company maintains a system of internal accounting controls sufficient to
provide reasonable assurances that (i) transactions are executed in
8
<PAGE> 9
accordance with management's general or specific authorizations, (ii)
transactions are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting principles and
to maintain asset accountability, (iii) access to assets is permitted only
in accordance with management's general or specific authorization and (iv)
the recorded accountability for assets is compared with the existing assets
at reasonable intervals and appropriate action is taken with respect to any
differences.
(v) The Company is insured by insurers of recognized financial
responsibility against such losses and risks and in such amounts as are
customary in the businesses in which it is engaged or propose to engage
after giving effect to the transactions described in the Prospectus; all
policies of insurance and fidelity or surety bonds insuring the Company or
any of its subsidiaries or the Company's or its subsidiaries' respective
businesses, assets, employees, officers and directors are in full force and
effect; the Company and each of its subsidiaries are in compliance with the
terms of such policies and instruments in all material respects; and the
Company has no reason to believe that it will not be able to renew its
existing insurance coverage as and when such coverage expires or to obtain
similar coverage from similar insurers as may be necessary to continue its
business at a cost that would not have a Material Adverse Effect. The
Company has not been denied any insurance coverage which it has sought or
for which it has applied.
(w) Each approval, consent, order, authorization, designation,
declaration or filing of, by or with any regulatory, administrative or
other governmental body necessary in connection with the execution and
delivery by the Company of this Agreement and the consummation of the
transactions herein contemplated required to be obtained or performed by
the Company (except such additional steps as may be required by the
National Association of Securities Dealers, Inc. (the "NASD") or may be
necessary to qualify the Shares for public offering by the Underwriters
under the state securities or Blue Sky laws) has been obtained or made and
is in full force and effect.
(x) There are no affiliations with the NASD among the Company's
officers, directors or, to the knowledge of the Company, any five percent
or greater stockholder of the Company, except as set forth in the
Registration Statement or otherwise disclosed in writing to the
Representatives.
(y) (i) The Company is in compliance in all material respects with all
rules, laws and regulations relating to the use, treatment, storage and
disposal of toxic substances and protection of health or the environment
("Environmental Law") which are applicable to its business; (ii) the
Company has not received any notice from any governmental authority or
third party of an asserted claim under Environmental Laws; (iii) the
Company has received all permits, licenses or other approvals required of
it under applicable Environmental Laws to conduct its business and is in
compliance with all terms and conditions of any such permit, license or
approval; (iv) to the Company's knowledge, no facts currently exist that
will require the Company to make future material capital expenditures to
comply with Environmental Laws; and (v) no property which is or has been
owned, leased or occupied by the Company has been designated as a Superfund
site pursuant to the Comprehensive Environmental Response, Compensation of
Liability Act of 1980, as amended (42 U.S.C. Section 9601, et. seq.) or
otherwise designated as a contaminated site under applicable state
9
<PAGE> 10
or local law. The Company has not been named as a "potentially responsible
party" under the Comprehensive Environmental Response, Compensation of
Liability Act of 1980, as amended (42 U.S.C. Section 9601, et. seq.).
(z) In the ordinary course of its business, the Company has
periodically conducted a reasonable due diligence investigation of the
effect of Environmental Laws on the business, operations and properties of
the Company to identify and evaluate associated costs and liabilities
(including, without limitation, any capital or operating expenditures
required for clean-up, closure of properties or compliance with
Environmental Laws, or any permit, license or approval, any related
constraints on operating activities and any potential liabilities to third
parties). On the basis of such investigation, the Company has reasonably
concluded that such associated costs and liabilities would not,
individually or in the aggregate, have a Material Adverse Effect.
(aa) The Company is not and, after giving effect to the offering and
sale of the Shares and the application of proceeds thereof as described in
the Prospectus in the Section titled "Use of Proceeds," will not be subject
to registration as an "investment company" within the meaning of the
Investment Company Act of 1940, as amended (the "Investment Company Act").
(bb) The Company or any other person associated with or acting on
behalf of the Company including, without limitation, any director, officer,
agent or employee of the Company has not, directly or indirectly, while
acting on behalf of the Company (i) used any corporate funds for unlawful
contributions, gifts, entertainment or other unlawful expenses relating to
political activity; (ii) made any unlawful payment to foreign or domestic
government officials or employees or to foreign or domestic political
parties or campaigns from corporate funds; (iii) violated any provision of
the Foreign Corrupt Practices Act of 1977, as amended; or (iv) made any
bribe, unlawful rebate, payoff, influence payment, kickback or other
unlawful payment in connection with the business of the Company.
(cc) (i) The Company has no reason to believe that the Year 2000
Problem has had or will have a Material Adverse Effect on the business or
operations of the Company. The Year 2000 Problem, as used herein, means
computer or other technological problems resulting from the transition from
December 31, 1999 to January 1, 2000.
(dd) Neither the Company nor any other person associated with or
acting on behalf of the Company, including, without limitation, any
director, officer, agent or employee of the Company has offered or caused
the Underwriters to offer any of the Shares to any person pursuant to the
Friends and Family Program with the specific intent to unlawfully influence
(i) a customer or supplier of the Company to alter the customer's or
supplier's level or type of business with the Company or (ii) a trade
journalist or publication to write or publish favorable information about
the Company or its products.
(ee) The Company has not distributed and, prior to the later of (i)
the Closing Date or (ii) the completion of the distribution of the Shares,
will not distribute any offering material in connection with the offering
and sale of the Shares other than the Registration
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<PAGE> 11
Statement or any amendment thereto, any Preliminary Prospectus or the
Prospectus or any amendment or supplement thereto, or other materials, if
any permitted by the Act.
5. Conditions of the Underwriters' Obligations. The obligations of the
Underwriters under this Agreement are several and not joint. The respective
obligations of the Underwriters to purchase the Shares are subject to each of
the following terms and conditions:
(a) Notification that the Registration Statement has become effective
shall have been received by the Representatives and the Prospectus shall
have been timely filed with the Commission in accordance with Section 6(a)
of this Agreement.
(b) No order preventing or suspending the use of any preliminary
prospectus or the Prospectus shall have been or shall be in effect and no
order suspending the effectiveness of the Registration Statement shall be
in effect and no proceedings for such purpose shall be pending before or
threatened by the Commission, and any requests for additional information
on the part of the Commission (to be included in the Registration Statement
or the Prospectus or otherwise) shall have been complied with to the
satisfaction of the Commission and the Representatives.
(c) The representations and warranties of the Company contained in
this Agreement and in the certificates delivered pursuant to Section 5(d)
shall be true and correct when made and on and as of each Closing Date as
if made on such date. The Company shall have performed all covenants and
agreements and satisfied all the conditions contained in this Agreement
required to be performed or satisfied by it at or before such Closing Date.
(d) The Representatives shall have received on each Closing Date a
certificate, addressed to the Representatives and dated such Closing Date,
of the chief executive or chief operating officer and the chief financial
officer or chief accounting officer of the Company to the effect that (i)
the signers of such certificate have carefully examined the Registration
Statement, the Prospectus and this Agreement and that the representations
and warranties of the Company in this Agreement are true and correct on and
as of such Closing Date with the same effect as if made on such Closing
Date and the Company has performed all covenants and agreements and
satisfied all conditions contained in this Agreement required to be
performed or satisfied by it at or prior to such Closing Date, and (ii) no
stop order suspending the effectiveness of the Registration Statement has
been issued and to the best of their knowledge, no proceedings for that
purpose have been instituted or are pending under the Securities Act.
(e) The Representatives shall have received, at the time this
Agreement is executed and on each Closing Date a signed letter from Ernst &
Young LLP addressed to the Representatives and dated, respectively, the
date of this Agreement and each such Closing Date, in form and substance
reasonably satisfactory to the Representatives, confirming that they are
independent accountants within the meaning of the Securities Act and the
Rules, that the response to Item 10 of the Registration Statement is
correct insofar as it relates to them and stating in effect that:
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<PAGE> 12
(i) in their opinion the audited financial statements and
financial statement schedules included or incorporated by reference in
the Registration Statement and the Prospectus and reported on by them
comply as to form in all material respects with the applicable
accounting requirements of the Securities Act and the Rules;
(ii) on the basis of a reading of the amounts included in the
Registration Statement and the Prospectus under the headings "Summary
Financial Information" and "Selected Financial Data," carrying out
certain procedures (but not an examination in accordance with
generally accepted auditing standards) which would not necessarily
reveal matters of significance with respect to the comments set forth
in such letter, a reading of the minutes of the meetings of the
stockholders and directors of the Company, and inquiries of certain
officials of the Company who have responsibility for financial and
accounting matters of the Company as to transactions and events
subsequent to the date of the latest audited financial statements,
except as disclosed in the Registration Statement and the Prospectus,
nothing came to their attention which caused them to believe that:
(A) the amounts in "Summary Financial Information," and
"Selected Financial Data" included in the Registration Statement
and the Prospectus do not agree with the corresponding amounts in
the audited and unaudited financial statements from which such
amounts were derived; or
(B) with respect to the Company, there were, at a specified
date not more than three business days prior to the date of the
letter, any increases in the current liabilities and long-term
liabilities of the Company or any decreases in net income or in
working capital or the stockholders' equity in the Company, as
compared with the amounts shown on the Company's audited balance
sheet for the fiscal year ended December 31, 1999;
(iii) they have performed certain other procedures as may be
permitted under Generally Acceptable Auditing Standards as a result of
which they determined that certain information of an accounting,
financial or statistical nature (which is limited to accounting,
financial or statistical information derived from the general
accounting records of the Company) set forth in the Registration
Statement and the Prospectus and reasonably specified by the
Representatives agrees with the accounting records of the Company; and
(iv) based upon the procedures set forth in clauses (ii) and
(iii) above and a reading of the amounts included in the Registration
Statement under the headings "Summary Financial Information" and
"Selected Financial Data" included in the Registration Statement and
Prospectus and a reading of the financial statements from which
certain of such data were derived, nothing has come to their attention
that gives them reason to believe that the "Summary Financial
Information" and "Selected Financial Data" included in the
Registration Statement and Prospectus do not comply as to the form in
all material respects with the applicable accounting requirements of
the Securities Act and the Rules or that the information set forth
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<PAGE> 13
therein is not fairly stated in relation to the financial statements
included in the Registration Statement or Prospectus from which
certain of such data were derived are not in conformity with generally
accepted accounting principles applied on a basis substantially
consistent with that of the audited financial statements included in
the Registration Statement and Prospectus.
References to the Registration Statement and the Prospectus in
this paragraph (e) are to such documents as amended and supplemented
at the date of the letter.
(f) The Representatives shall have received on each Closing Date from
Cooley Godward LLP, counsel for the Company, an opinion, addressed to the
Representatives and dated such Closing Date, and stating in effect that:
(i) The Company has been duly incorporated and is validly
existing as a corporation in good standing under the laws of the State
of Delaware. To the best of such counsel's knowledge, the Company has
no subsidiary and does not control, directly or indirectly, any
corporation, partnership, joint venture, association or other business
organization. The Company is duly qualified and in good standing as a
foreign corporation in California, and to such counsel's knowledge, in
each other jurisdiction in which the character or location of its
assets or properties (owned or leased) or the nature of its businesses
makes such qualification necessary, except for such jurisdictions
where the failure to so qualify, individually or in the aggregate,
would not have a Material Adverse Effect.
(ii) The Company has all requisite corporate power to own, lease
and license its assets and properties and conduct its business as now
being conducted and as described in the Registration Statement and the
Prospectus and to enter into, deliver and perform this Agreement and
to issue and sell the Shares, other than those required under the
state and foreign securities laws (as to which such counsel need
express no opinion).
(iii) The Company has authorized and issued (as of the dates
indicated) capital stock as set forth in the Registration Statement
and the Prospectus under the caption "Capitalization"; the
certificates evidencing the Shares are in due and proper legal form
and have been duly authorized for issuance by the Company; all of the
outstanding shares of Common Stock of the Company have been duly and
validly authorized and issued and are fully paid and nonassessable
and, to the best of such counsel's knowledge, none of them was issued
in violation of any preemptive or other similar right. The Shares when
issued and sold for the stated consideration pursuant to this
Agreement will be duly and validly issued, outstanding, fully paid and
nonassessable and, to the best of such counsel's knowledge, none of
them will have been issued in violation of any preemptive or other
similar right. To the best of such counsel's knowledge, except as
disclosed in the Registration Statement and the Prospectus, there are
no preemptive or other rights to subscribe for or to purchase, or any
restriction upon the voting or transfer of, any securities of the
Company pursuant to (a) the Company's Certificate of Incorporation or
by-laws, or (b) except
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<PAGE> 14
for any rights which do not apply to the transactions contemplated
hereby and which will expire on the Firm Shares Closing Date, other
governing documents or any agreements or other instruments to which
the Company is a party or by which it is bound. To the best of such
counsel's knowledge, except as disclosed in the Registration Statement
and the Prospectus, there is no outstanding option, warrant or other
right calling for the issuance of, and no commitment, plan or
arrangement to issue, any share of stock of the Company or any
security convertible into, exercisable for, or exchangeable for stock
of the Company.
(iv) This Agreement has been duly and validly authorized,
executed and delivered by the Company.
(v) Neither the execution, delivery and performance of this
Agreement by the Company nor the consummation of any of the
transactions contemplated hereby (including, without limitation, the
issuance and sale by the Company of the Shares) will give rise to a
right to terminate or accelerate the due date of any payment due
under, or conflict with or result in the breach of any term or
provision of, or constitute a default (or any event which with notice
or lapse of time, or both, would constitute a default) under, or
require consent or waiver under, or result in the execution or
imposition of any lien, charge, claim, security interest or
encumbrance upon any properties or assets of the Company pursuant to
the terms of any indenture, mortgage, deed of trust, note or other
agreement or instrument filed as an Exhibit to the Registration
Statement and to which the Company is a party or by which it or any of
its properties or businesses is bound, or violate (a) any franchise,
license, permit, judgment, decree or order known to such counsel, or
(b) any statute, rule or regulation, or (c) any provision of the
charter or by-laws of the Company.
(vi) No consent, approval, authorization or order of any court or
governmental agency or regulatory body is required for the execution,
delivery or performance of this Agreement by the Company or the
consummation of the transactions contemplated hereby or thereby,
except such as have been obtained under the Securities Act and such as
may be required under state or foreign securities laws in connection
with the purchase and distribution of the Shares by the several
Underwriters (as to which such counsel need express no opinion).
(vii) To the best of such counsel's knowledge, there is no
litigation or governmental or other proceeding or investigation,
before any court or before or by any public body or board pending or
threatened against, or involving the assets, properties or businesses
of, the Company which would have a Material Adverse Effect.
(viii) The statements in the Prospectus under the captions
"Description of Capital Stock" and "Shares Eligible for Future Sale,"
insofar as such statements constitute a summary of documents referred
to therein or matters of law, are fair summaries in all material
respects of such documents or matters of law.
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<PAGE> 15
(ix) The Registration Statement and the Prospectus and each
amendment or supplement thereto (except for the financial statements
and schedules and other financial and statistical data included
therein, as to which such counsel expresses no opinion) comply as to
form in all material respects with the requirements of the Securities
Act and the Rules.
(x) The Registration Statement is effective under the Securities
Act and, to the best of such counsel's knowledge, no stop order
suspending the effectiveness of the Registration Statement has been
issued and no proceedings for that purpose have been instituted or are
threatened, pending or contemplated. Any required filing of the
Prospectus and any supplement thereto pursuant to Rule 424(b) under
the Securities Act has been made in the manner and within the time
period required by such Rule 424(b).
(xi) The Shares have been approved, upon issuance as contemplated
by this Agreement, for quotation on the Nasdaq National Market.
(xii) The capital stock of the Company conforms in all material
respects to the description thereof contained in the Prospectus under
the caption "Description of Capital Stock."
(xiii) The Company is not an "investment company" or an entity
controlled by an "investment company" as such terms are defined in the
Investment Company Act of 1940, as amended.
To the extent deemed advisable by such counsel, they may rely as to
matters of fact on certificates of responsible officers of the Company and
public officials. Such counsel shall not be obligated to opine as to any
opinions of other counsel or laws other than the laws of the State of
California, the General Corporation Law of the State of Delaware and the Federal
laws of the United States.
In addition, such counsel shall state that such counsel has
participated in conferences with officers and other representatives of the
Company, representatives of the Representatives and their counsel, and
representatives of the independent certified public accountants of the Company,
at which conferences the contents of the Registration Statement and the
Prospectus and related matters were discussed and, although such counsel has not
verified and is not passing upon and does not assume any responsibility for the
accuracy, completeness or fairness of the statements contained in the
Registration Statement and the Prospectus (except as specified in the foregoing
opinion), on the basis of the foregoing, no facts have come to the attention of
such counsel which lead such counsel to believe that the Registration Statement
at the time it became effective (except with respect to the financial statements
and notes and schedules thereto and other statistical and financial data, as to
which such counsel need express no belief) contained any untrue statement of a
material fact or omitted to state a material fact required to be stated therein
or necessary to make the statements therein not misleading, or that the
Prospectus as amended or supplemented (except with respect to the financial
statements, notes and schedules thereto and other statistical and financial
data, as to which such counsel need make no statement) on the date thereof
contained any untrue statement of
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<PAGE> 16
a material fact or omitted to state a material fact necessary in order to make
the statements therein, in the light of the circumstances under which they were
made, not misleading.
(g) The Representatives shall have received on each Closing Date from
Cooper & Dunham LLP, special patent counsel to the Company, an opinion,
addressed to the Representatives and dated such Closing Date, in
substantially the form attached hereto as Exhibit 5(g).
(h) All proceedings taken in connection with the sale of the Firm
Shares and the Option Shares as herein contemplated shall be reasonably
satisfactory in form and substance to the Representatives, and their
counsel and the Underwriters shall have received from McDermott, Will &
Emery a favorable opinion, addressed to the Representatives and dated such
Closing Date, with respect to the Shares, the Registration Statement and
the Prospectus, and such other related matters, as the Representatives may
reasonably request, and the Company shall have furnished to McDermott, Will
& Emery such documents as they may reasonably request for the purpose of
enabling them to pass upon such matters.
(i) The Representatives shall have received copies of the Lock-up
Agreements executed by each entity or person described in Section 4(n).
(j) The Company shall have furnished or caused to be furnished to the
Representatives such further certificates or documents as the
Representatives shall have reasonably requested.
6. Covenants of the Company.
(a) The Company covenants and agrees as follows:
(i) The Company will use its best efforts to cause the
Registration Statement, if not effective at the time of execution of
this Agreement, and any amendments thereto, to become effective as
promptly as possible. The Company shall prepare the Prospectus in a
form approved by the Representatives and file such Prospectus pursuant
to Rule 424(b) under the Securities Act within the prescribed time
period and will provide evidence satisfactory to you of such timely
filing.
(ii) The Company shall promptly advise the Representatives in
writing (i) when any amendment to the Registration Statement shall
have become effective, (ii) of any request by the Commission for any
amendment of the Registration Statement or the Prospectus or for any
additional information, (iii) of the prevention or suspension of the
use of any preliminary prospectus or the Prospectus or of the issuance
by the Commission of any stop order suspending the effectiveness of
the Registration Statement or the institution or threatening of any
proceeding for that purpose and (iv) of the receipt by the Company of
any notification with respect to the suspension of the qualification
of the Shares for sale in any jurisdiction or the initiation or
threatening of any proceeding for such purpose. The Company shall not
file any amendment of the Registration Statement or supplement to the
Prospectus unless the Company has furnished the Representatives a copy
for its review prior to filing and shall not file any such proposed
amendment or supplement to which the
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<PAGE> 17
Representatives reasonably object. The Company shall use its best
efforts to prevent the issuance of any such stop order and, if issued,
to obtain as soon as possible the withdrawal thereof.
(iii) If, at any time when a prospectus relating to the Shares is
required to be delivered under the Securities Act and the Rules, any
event occurs as a result of which the Prospectus as then amended or
supplemented would include any untrue statement of a material fact or
omit to state any material fact necessary to make the statements
therein in the light of the circumstances under which they were made
not misleading, or if it shall be necessary to amend or supplement the
Prospectus to comply with the Securities Act or the Rules, the Company
promptly shall prepare and file with the Commission, subject to the
second sentence of paragraph (ii) of this Section 6(a), an amendment
or supplement which shall correct such statement or omission or an
amendment which shall effect such compliance.
(iv) The Company shall make generally available to its security
holders and to the Representatives as soon as practicable, but not
later than 45 days after the end of the 12-month period beginning at
the end of the fiscal quarter of the Company during which the
Effective Date occurs (or 90 days if such 12-month period coincides
with the Company's fiscal year), an earning statement (which need not
be audited) of the Company, covering such 12-month period, which shall
satisfy the provisions of Section 11(a) of the Securities Act or Rule
158 of the Rules.
(v) The Company shall furnish to the Representatives and counsel
for the Underwriters, without charge, signed copies of the
Registration Statement (including all exhibits thereto and amendments
thereof) and to each other Underwriter a copy of the Registration
Statement (without exhibits thereto) and all amendments thereof and,
so long as delivery of a prospectus by an Underwriter or dealer may be
required by the Securities Act or the Rules, as many copies of any
preliminary prospectus and the Prospectus and any amendments thereof
and supplements thereto as the Representatives may reasonably request.
(vi) The Company shall cooperate with the Representatives and
their counsel in endeavoring to qualify the Shares for offer and sale
in connection with the offering under the laws of such jurisdictions
as the Representatives may designate and shall maintain such
qualifications in effect so long as required for the distribution of
the Shares; provided, however, that the Company shall not be required
in connection therewith, as a condition thereof, to qualify as a
foreign corporation or to execute a general consent to service of
process in any jurisdiction or subject itself to taxation as doing
business in any jurisdiction in which it is not now so required.
(vii) Without the prior written consent of CIBC World Markets
Corp., on behalf of the Underwriters, for a period of 180 days after
the date of this Agreement, the Company and each of its individual
directors and executive officers shall not issue, sell or register
with the Commission (other than on Form S-8 or on any successor form),
or otherwise dispose of, directly or indirectly, any equity securities
of the Company (or any securities convertible into, exercisable for or
exchangeable
17
<PAGE> 18
for equity securities of the Company), except for the issuance of the
Shares pursuant to the Registration Statement and the issuance of
shares pursuant to the Company's existing stock plans or bonus plan as
described in the Registration Statement and the Prospectus. In the
event that during this period, (i) any shares are issued pursuant to
the Company's existing stock plans or bonus plan that are exercisable
during such 180 day period or (ii) any registration is effected on
Form S-8 or on any successor form relating to shares that are
exercisable during such 180 period, the Company shall obtain the
written agreement of such grantee or purchaser or holder of such
registered securities that, for a period of 180 days after the date of
this Agreement, such person will not, without the prior written
consent of CIBC World Markets Corp., on behalf of the Underwriters,
offer for sale, sell, distribute, grant any option for the sale of, or
otherwise dispose of, directly or indirectly, or exercise any
registration rights with respect to, any shares of Common Stock (or
any securities convertible into, exercisable for, or exchangeable for
any shares of Common Stock) owned by such person.
(viii) On or before completion of the offering of the Shares, the
Company shall make all filings required under applicable securities
laws and by the Nasdaq National Market (including any required
registration under the Exchange Act).
(ix) The Company will apply the net proceeds to the Company from
the offering of the Shares in the manner set forth under "Use of
Proceeds" in the Prospectus.
(x) The Company will comply with all applicable securities laws
and other applicable laws, rules and regulations in each foreign
jurisdiction in which the Directed Shares are offered in connection
with the Friends and Family Program.
(xi) The Company will ensure that the Directed Shares will be
restricted, to the extent required by the NASD or the NASD rules, from
sale, transfer, assignment, pledge or hypothecation for a period of
three months following the date of the effectiveness of the
Registration Statement. The Representatives will notify the Company as
to which Participants will need to be so restricted. The Company shall
direct the transfer agent to place stop transfer restrictions upon
such securities for such period of time.
(b) The Company agrees to pay, or reimburse if paid by the
Representatives, whether or not the transactions contemplated hereby are
consummated or this Agreement is terminated, all costs and expenses
incident to the public offering of the Shares and the performance of the
obligations of the Company under this Agreement including those relating
to: (i) the preparation, printing, filing and distribution of the
Registration Statement including all exhibits thereto, each preliminary
prospectus, the Prospectus, all amendments and supplements to the
Registration Statement and the Prospectus, and the printing, filing and
distribution of this Agreement; (ii) the preparation and delivery of
certificates for the Shares to the Underwriters; (iii) the registration or
qualification of the Shares for offer and sale under the securities or Blue
Sky laws of the various jurisdictions referred to in Section 6(a)(vi),
including the reasonable fees and disbursements of counsel for the
Underwriters in
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<PAGE> 19
connection with such registration and qualification and the preparation,
printing, distribution and shipment of preliminary and supplementary Blue
Sky memoranda, if any; (iv) the furnishing (including costs of shipping and
mailing) to the Representatives and to the Underwriters of copies of each
preliminary prospectus, the Prospectus and all amendments or supplements to
the Prospectus, and of the several documents required by this Section to be
so furnished, as may be reasonably requested for use in connection with the
offering and sale of the Shares by the Underwriters or by dealers to whom
Shares may be sold; (v) the filing fees of the NASD in connection with its
review of the terms of the public offering and reasonable fees and
disbursements of counsel for the Underwriters in connection with such
review; (vi) inclusion of the Shares for quotation on the Nasdaq National
Market; (vii) all transfer taxes, if any, with respect to the sale and
delivery of the Shares by the Company to the Underwriters; and (viii)
payments to counsel for costs incurred by the Underwriters in connection
with the Friends and Family Program and payment of any stamp duties,
similar taxes or duties or other taxes, if any, incurred by the
Underwriters in connection with the Friends and Family Program. Subject to
the provisions of Section 9 hereof, the Underwriters agree to pay, whether
or not the transactions contemplated hereby are consummated or this
Agreement is terminated, all costs and expenses incident to the performance
of the obligations of the Underwriters under this Agreement not payable by
the Company pursuant to the preceding sentence, including, without
limitation, the fees and disbursements of counsel for the Underwriters.
(c) If at any time during the 25-day period after the Registration
Statement becomes effective or the period prior to the Option Shares
Closing Date, any rumor, publication or event relating to or affecting the
Company shall occur as a result of which in the Representatives' opinion
the market price of the Common Stock has been or is likely to be materially
affected (regardless of whether such rumor, publication or event
necessitates a supplement to or amendment of the Prospectus and any
integrated prospectus), the Company will, after notice from the
Representatives advising the Company to the effect set forth above,
forthwith prepare, consult with the Representatives concerning the
substance of, and disseminate a press release or other public statement,
reasonably satisfactory to the Representatives, responding to or commenting
on such rumor, publication or event.
7. Indemnification.
(a) The Company agrees to indemnify and hold harmless each Underwriter
and each person, if any, who controls any Underwriter within the meaning of
Section 15 of the Securities Act or Section 20 of the Exchange Act against
any and all losses, claims, damages and liabilities, joint or several
(including any reasonable investigation, legal and other expenses incurred
in connection with, and any amount paid in settlement of, any action, suit
or proceeding or any claim asserted), to which they, or any of them, may
become subject under the Securities Act, the Exchange Act or other Federal
or state law or regulation, at common law or otherwise, insofar as such
losses, claims, damages or liabilities arise out of or are based upon (i)
any untrue statement or alleged untrue statement of a material fact
contained in any preliminary prospectus, the Registration Statement or the
Prospectus or any amendment thereof or supplement thereto, or arise out of
or are based upon any omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the
statements therein not misleading, (ii) in whole or in part upon any breach
of the
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<PAGE> 20
representations and warranties set forth in Section 4 hereof, (iii) in
whole or in part upon any failure of the Company to perform any of its
obligations hereunder or under law or (iv) any untrue statement of any
material fact contained in any audio or visual materials prepared by the
Company or based upon written information furnished by or on behalf of the
Company, including (without limitation) slides, videos, films, tape
recordings used in connection with the marketing of the Shares, including
(without limitation) statements communicated to securities analysts
employed by the Underwriters; provided, however, that such indemnity shall
not inure to the benefit of any Underwriter (or any person controlling such
Underwriter) on account of any losses, claims, damages or liabilities
arising from the sale of the Shares to any person by such Underwriter if
such untrue statement or omission or alleged untrue statement or omission
was made in such preliminary prospectus, the Registration Statement or the
Prospectus, or such amendment or supplement thereto, in reliance upon and
in conformity with information furnished in writing to the Company by the
Representatives on behalf of any Underwriter specifically for use therein.
This indemnity agreement will be in addition to any liability which the
Company may otherwise have. Notwithstanding the foregoing, with regard to
any preliminary prospectus, the benefit of this Section 7(a) will not
accrue to any Underwriter from whom the person asserting the loss purchased
the shares if such person was not delivered the final prospectus by such
Underwriter (when such Underwriter was delivered the final prospectus in a
timely manner by the Company).
The Company agrees to indemnify and hold harmless the Representatives
and each person, if any, who controls any Representative within the meaning
of Section 15 of the Securities Act or Section 20 of the Exchange Act
against any and all losses, claims, damages, expenses and liabilities
(including any reasonable investigation, legal and other expenses incurred
in connection with, and any amount paid in settlement of, any action, suit
or proceeding or any claim asserted) (i) arising out of or based upon any
untrue statement or alleged untrue statement of a material fact contained
in any material prepared by or with the consent of the Company for
distribution to Participants in connection with the Friends and Family
Program or arising out of or based upon any omission or alleged omission to
state therein a material fact required to be stated therein or necessary to
make the statements therein not misleading, (ii) arising out of or based
upon the failure of any Participant to pay for and accept delivery of
Directed Shares otherwise reserved for such Participant pursuant to the
Friends and Family Program, and (iii) related to, arising out of, or in
connection with the Friends and Family Program, other than losses, claims,
damages or liabilities (or expenses relating thereto) that are finally
judicially determined to have resulted from the bad faith or gross
negligence of the Representatives.
(b) Each Underwriter agrees, severally and not jointly, to indemnify
and hold harmless the Company and each person, if any, who controls the
Company within the meaning of Section 15 of the Securities Act or Section
20 of the Exchange Act, each director of the Company, and each officer of
the Company who signs the Registration Statement, to the same extent as the
foregoing indemnity from the Company to each Underwriter, but only insofar
as such losses, claims, damages or liabilities arise out of or are based
upon any untrue statement or omission or alleged untrue statement or
omission which was made in any preliminary prospectus, the Registration
Statement or the Prospectus, or any amendment thereof or supplement
thereto, contained in the (i) concession and reallowance figures appearing
under the caption "Underwriting" and (ii) the stabilization information
contained
20
<PAGE> 21
under the caption "Underwriting" in the Prospectus; provided, however, that
the obligation of each Underwriter to indemnify the Company (including any
controlling person, director or officer thereof) shall be limited to the
net proceeds received by the Company from such Underwriter.
(c) Any party that proposes to assert the right to be indemnified
under this Section will, promptly after receipt of notice of commencement
of any action, suit or proceeding against such party in respect of which a
claim is to be made against an indemnifying party or parties under this
Section, notify each such indemnifying party of the commencement of such
action, suit or proceeding, enclosing a copy of all papers served. No
indemnification provided for in Section 7(a) or 7(b) shall be available to
any party who shall fail to give notice as provided in this Section 7(c) if
the party to whom notice was not given was unaware of the proceeding to
which such notice would have related and was prejudiced by the failure to
give such notice but the omission so to notify such indemnifying party of
any such action, suit or proceeding shall not relieve it from any liability
that it may have to any indemnified party for contribution or otherwise
than under this Section. In case any such action, suit or proceeding shall
be brought against any indemnified party and it shall notify the
indemnifying party of the commencement thereof, the indemnifying party
shall be entitled to participate in, and, to the extent that it shall wish,
jointly with any other indemnifying party similarly notified, to assume the
defense thereof, with counsel reasonably satisfactory to such indemnified
party, and after notice from the indemnifying party to such indemnified
party of its election so to assume the defense thereof and the approval by
the indemnified party of such counsel, the indemnifying party shall not be
liable to such indemnified party for any legal or other expenses, except as
provided below and except for the reasonable costs of investigation
subsequently incurred by such indemnified party in connection with the
defense thereof. The indemnified party shall have the right to employ its
counsel in any such action, but the fees and expenses of such counsel shall
be at the expense of such indemnified party unless (i) the employment of
counsel by such indemnified party has been authorized in writing by the
indemnifying parties, (ii) the indemnified party shall have been advised by
counsel that there may be one or more legal defenses available to it which
are different from or in addition to those available to the indemnifying
party (in which case the indemnifying parties shall not have the right to
direct the defense of such action on behalf of the indemnified party) or
(iii) the indemnifying parties shall not have employed counsel to assume
the defense of such action within a reasonable time after notice of the
commencement thereof, in each of which cases the fees and expenses of
counsel shall be at the expense of the indemnifying parties. An
indemnifying party shall not be liable for any settlement of any action,
suit, proceeding or claim effected without its written consent, which
consent shall not be unreasonably withheld or delayed.
8. Contribution. In order to provide for just and equitable contribution in
circumstances in which the indemnification provided for in Section 7(a) or 7(b)
is due in accordance with its terms but for any reason is held to be unavailable
to or insufficient to hold harmless an indemnified party under Section 7(a) or
7(b), then each indemnifying party shall contribute to the aggregate losses,
claims, damages and liabilities (including any investigation, legal and other
expenses reasonably incurred in connection with, and any amount paid in
settlement of, any action, suit or proceeding or any claims asserted, but after
deducting any contribution received by any person entitled hereunder to
contribution from any person who may be liable for contribution) to which the
indemnified party
21
<PAGE> 22
may be subject in such proportion as is appropriate to reflect the relative
benefits received by the Company and the Underwriters from the offering of the
Shares or, if such allocation is not permitted by applicable law or
indemnification is not available as a result of the indemnifying party not
having received notice as provided in Section 7 hereof, in such proportion as is
appropriate to reflect not only the relative benefits referred to above but also
the relative fault of the Company and the Underwriters in connection with the
statements or omissions which resulted in such losses, claims, damages,
liabilities or expenses, as well as any other relevant equitable considerations.
The relative benefits received by the Company and the Underwriters shall be
deemed to be in the same proportion as (x) the total proceeds from the offering
(net of underwriting discounts but before deducting expenses) received by the
Company, as set forth in the table on the cover page of the Prospectus, bear to
(y) the underwriting discounts received by the Underwriters, as set forth in the
table on the cover page of the Prospectus. The relative fault of the Company or
the Underwriters shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material fact related to
information supplied by the Company or the Underwriters and the parties'
relative intent, knowledge, access to information and opportunity to correct or
prevent such statement or omission. The Company and the Underwriters agree that
it would not be just and equitable if contribution pursuant to this Section 8
were determined by pro rata allocation (even if the Underwriters were treated as
one entity for such purpose) or by any other method of allocation which does not
take account of the equitable considerations referred to above. Notwithstanding
the provisions of this Section 8, (i) in no case shall any Underwriter (except
as may be provided in the Agreement Among Underwriters) be liable or responsible
for any amount in excess of the underwriting discount applicable to the Shares
purchased by such Underwriter hereunder and (ii) the Company shall be liable and
responsible for any amount in excess of such underwriting discount; provided,
however, that no person guilty of fraudulent misrepresentation (within the
meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation. For purposes of this Section 8, each person, if any, who
controls an Underwriter within the meaning of Section 15 of the Securities Act
or Section 20(a) of the Exchange Act shall have the same rights to contribution
as such Underwriter, and each person, if any, who controls the Company within
the meaning of the Section 15 of the Securities Act or Section 20(a) of the
Exchange Act, each officer of the Company who shall have signed the Registration
Statement and each director of the Company shall have the same rights to
contribution as the Company, subject in each case to clauses (i) and (ii) in the
immediately preceding sentence of this Section 8. Any party entitled to
contribution will, promptly after receipt of notice of commencement of any
action, suit or proceeding against such party in respect of which a claim for
contribution may be made against another party or parties under this Section 8,
notify such party or parties from whom contribution may be sought, but the
omission so to notify such party or parties from whom contribution may be sought
shall not relieve the party or parties from whom contribution may be sought from
any other obligation it or they may have hereunder or otherwise than under this
Section. No party shall be liable for contribution with respect to any action,
suit, proceeding or claim settled without its written consent, which consent
shall not be unreasonably withheld. The Underwriter's obligations to contribute
pursuant to this Section 8 are several in proportion to their respective
underwriting commitments and not joint.
9. Termination. This Agreement may be terminated with respect to the Shares
to be purchased on a Closing Date by the Representatives by notifying the
Company at any time:
22
<PAGE> 23
(a) in the absolute discretion of the Representatives at or before any
Closing Date: (i) if on or prior to such date, any domestic or
international event or act or occurrence has materially disrupted, or in
the opinion of the Representatives will in the future materially disrupt,
the securities markets; (ii) if there has occurred any new outbreak or
material escalation of hostilities or other calamity or crisis the effect
of which on the financial markets of the United States is such as to make
it, in the judgment of the Representatives, inadvisable to proceed with the
offering; (iii) if there shall be such a material adverse change in general
financial, political or economic conditions or the effect of international
conditions on the financial markets in the United States is such as to make
it, in the judgment of the Representatives, inadvisable or impracticable to
market the Shares; (iv) if trading in the Shares has been suspended by the
Commission or trading generally on the New York Stock Exchange, Inc., on
the American Stock Exchange, Inc. or the Nasdaq National Market has been
suspended or limited, or minimum or maximum ranges for prices for
securities shall have been fixed, or maximum ranges for prices for
securities have been required, by said exchanges or by order of the
Commission, the National Association of Securities Dealers, Inc., or any
other governmental or regulatory authority; or (v) if a banking moratorium
has been declared by any state or Federal authority; or (vi) if, in the
judgment of the Representatives, there has occurred a Material Adverse
Effect, or
(b) at or before any Closing Date, that any of the conditions
specified in Section 5 hereof shall not have been fulfilled when and as
required by this Agreement.
If this Agreement is terminated pursuant to any of its provisions, the
Company shall be under no liability to any Underwriter, and no Underwriter
shall be under any liability to the Company, except that (y) if this
Agreement is terminated by the Representatives or the Underwriters because
of any failure, refusal or inability on the part of the Company to comply
with the terms or to fulfill any of the conditions of this Agreement, the
Company will reimburse the Underwriters for all out-of-pocket expenses
(including the reasonable fees and disbursements of their counsel) incurred
by them in connection with the proposed purchase and sale of the Shares or
in contemplation of performing their obligations hereunder and (z) no
Underwriter who shall have failed or refused to purchase the Shares agreed
to be purchased by it under this Agreement, without some reason sufficient
hereunder to justify cancellation or termination of its obligations under
this Agreement, shall be relieved of liability to the Company or to the
other Underwriters for damages occasioned by its failure or refusal.
10. Substitution of Underwriters. If one or more of the Underwriters shall
fail (other than for a reason sufficient to justify the cancellation or
termination of this Agreement under Section 9) to purchase on any Closing Date
the Shares agreed to be purchased on such Closing Date by such Underwriter or
Underwriters, the Representatives may find one or more substitute underwriters
to purchase such Shares or make such other arrangements as the Representatives
may deem advisable or one or more of the remaining Underwriters may agree to
purchase such Shares in such proportions as may be approved by the
Representatives, in each case upon the terms set forth in this Agreement. If no
such arrangements have been made by the close of business on the business day
following such Closing Date,
23
<PAGE> 24
(a) if the number of Shares to be purchased by the defaulting
Underwriters on such Closing Date shall not exceed 10% of the Shares that
all the Underwriters are obligated to purchase on such Closing Date, then
each of the nondefaulting Underwriters shall be obligated to purchase such
Shares on the terms herein set forth in proportion to their respective
obligations hereunder; provided, that in no event shall the maximum number
of Shares that any Underwriter has agreed to purchase pursuant to Section 1
hereof be increased pursuant to this Section 10 by more than one-ninth of
such number of Shares without the written consent of such Underwriter, or
(b) if the number of Shares to be purchased by the defaulting
Underwriters on such Closing Date shall exceed 10% of the Shares that all
the Underwriters are obligated to purchase on such Closing Date, then the
Company shall be entitled to two additional business days within which it
may, but is not obligated to, find one or more substitute underwriters
reasonably satisfactory to the Representatives to purchase such Shares upon
the terms set forth in this Agreement.
In any such case, either the Representatives or the Company shall have
the right to postpone the applicable Closing Date for a period of not more
than five business days in order that necessary changes and arrangements
(including any necessary amendments or supplements to the Registration
Statement or Prospectus) may be effected by the Representatives and the
Company. If the number of Shares to be purchased on such Closing Date by
such defaulting Underwriter or Underwriters shall exceed 10% of the Shares
that all the Underwriters are obligated to purchase on such Closing Date,
and none of the nondefaulting Underwriters or the Company shall make
arrangements pursuant to this Section within the period stated for the
purchase of the Shares that the defaulting Underwriters agreed to purchase,
this Agreement shall terminate with respect to the Shares to be purchased
on such Closing Date without liability on the part of any nondefaulting
Underwriter to the Company and without liability on the part of the
Company, except in both cases as provided in Sections 6(b), 7, 8 and 9.
Notwithstanding the foregoing, if any default occurs with respect to the
Option Shares Closing Date, this Agreement will not terminate with respect
to the Firm Shares purchased prior to such time. The provisions of this
Section 10 shall not in any way affect the liability of any defaulting
Underwriter to the Company or the nondefaulting Underwriters arising out of
such default. A substitute underwriter hereunder shall become an
Underwriter for all purposes of this Agreement.
11. Miscellaneous. The respective agreements, representations, warranties,
indemnities and other statements of the Company, or its officers, and of the
Underwriters set forth in or made pursuant to this Agreement shall remain in
full force and effect, regardless of any investigation made by or on behalf of
any Underwriter or the Company or any of the officers, directors or controlling
persons referred to in Sections 7 and 8 hereof, and shall survive delivery of
and payment for the Shares. The provisions of Sections 6(b), 7, 8 and 9 hereof
shall survive the termination or cancellation of this Agreement.
This Agreement has been and is made for the benefit of the Underwriters,
the Company and their respective successors and assigns, and, to the extent
expressed herein, for the benefit of persons controlling any of the
Underwriters, or the Company, and directors and officers of the Company, and
their respective successors and assigns, and no other person shall acquire or
24
<PAGE> 25
have any right under or by virtue of this Agreement. The term "successors and
assigns" shall not include any purchaser of Shares from any Underwriter merely
because of such purchase.
All notices and communications hereunder shall be in writing and mailed or
delivered or by telephone or telegraph if subsequently confirmed in writing, (a)
if to the Representatives, c/o CIBC World Markets Corp., One World Financial
Center, New York, New York 10281 Attention: Michael Fekete, with a copy to
McDermott, Will & Emery, 2049 Century Park East, Suite 3400, Los Angeles,
California 90067, Attention: Mark J. Mihanovic, Esq. and (b) if to the Company,
to its agent for service as such agent's address appears on the cover page of
the Registration Statement with a copy Cooley Godward LLP, 4365 Executive Drive,
Suite 1100, San Diego, California 92121, Attention: Fredrick T. Muto, Esq.
This Agreement shall be governed by and construed in accordance with the
laws of the State of New York without regard to principles of conflict of laws.
This Agreement may be signed in any number of counterparts, each of which
shall be an original, with the same effect as if the signatures thereto and
hereto were upon the same instrument.
25
<PAGE> 26
Please confirm that the foregoing correctly sets forth the agreement among
us.
Very truly yours,
VIROLOGIC, INC.
By:
Title:
Confirmed:
CIBC WORLD MARKETS CORP.
ING BARINGS LLC
PRUDENTIAL SECURITIES INCORPORATED Acting severally on behalf of themselves and
as representatives of the several Underwriters named on Schedule I attached
hereto
By: CIBC WORLD MARKETS CORP.
By:
Title:
26
<PAGE> 27
SCHEDULE I
<TABLE>
<CAPTION>
Number of
Firm Shares to
Name Be Purchased
<S> <C>
CIBC World Markets Corp.
ING Barings LLC
Prudential Securities Incorporated
</TABLE>
--------------
TOTAL
<PAGE> 28
EXHIBIT 5(H) TO UNDERWRITING AGREEMENT
LEGAL OPINION OF COOPER & DUNHAM LLP
STATEMENTS:
We have acted as patent counsel to the Company with respect to the
patent matters reflected on Schedule A attached hereto (the "Relevant
Patent Matters").
We have read the Registration Statement and the Prospectus, including
in particular the portions of the Registration Statement and the
Prospectus under the captions "Risk Factors The intellectual property
underlying our PhenoSense technology may not be adequate, allowing
third parties to use our PhenoSense technology and thus reducing our
ability to compete in the market" and "Business - Background, Our
Solution, Our Strategy and Patents and Proprietary Rights" (such
portions being referred to herein, collectively, as the "Technology
Portions").
OPINIONS:
1. The statements in the Technology Portions are accurate and fairly
present the matters of law and legal conclusions stated therein.
2. Nothing has come to our attention which has caused us to believe that
the Technology Portions contain any untrue statement of a material
fact with respect to the patent position of the Company, or omit to
state any material fact relating to the patent position of the
Company.
3. Nothing has come to our attention which has caused us to believe that
(a) any patent application referred to in the Relevant Patent Matters
was not properly prepared and filed, in accordance with all applicable
legal and procedural requirements, or is not in good standing, (b) the
issued patent (the "Issued Patent") referred to in the Relevant Patent
Matters was not properly obtained, in accordance with all applicable
legal and procedural requirements, or is not in good standing, (c)
that any invention described in any patent application or the issued
patent is not held by the Company, or (d) any [relevant] prior art has
not been disclosed promptly to the appropriate governmental agency.
4. To our knowledge, the Company has not received any notice asserting
any ownership rights contrary to those of the Company in any of the
Relevant Patent Matters.
5. To our knowledge, the Company has not received any notice challenging
the validity or enforceability of any Relevant Patent Matter.
6. To our knowledge, the Company has not received any notice of
infringement of, or conflict with, rights or claims of others with
respect to any patent, trademark, service mark, trade name, copyright
or know-how.
<PAGE> 29
7. To our knowledge, other than proceedings (except re-examination,
reissue or interference proceedings) of the various patent and
trademark offices, there are no legal or governmental proceedings
pending relating to any patent, patent application, trade secret,
trademark, service mark or other proprietary information or materials
of the Company and, to our knowledge, no such proceedings are
threatened or contemplated by governmental authorities or others.
<PAGE> 30
SCHEDULE 4(n)
1. Viridian Capital, L.P.
2. CMEA Life Sciences Fund, L.P.
3. Zesiger Capital Group LLC
4. BioTech Growth S.A.
5. Cristina H. Kepner
6. Palm Finance Corporation
7. Daniel J. Capon
8. Richard M. Beleson
9. Capital Management Services
10. Albert L. Zesiger
11. Reijer Lenstra for Bank Invest
12. Harbinger / Aurora QP Venture Fund
13. Harbinger / Aurora Venture Fund
14. Aurora Ventures, LLC
15. Invemed Associates LLC
16. Zesiger Capital Group
17. William D. Young
18. Martin H. Goldstein
19. Nicholas S. Hellman
20. Robin Toft
21. Christos Petropolous
22. Stuart Weisbrod
23. Merlin Biomed, LP
24. Merlin Biomed International
25. Wiliam Piedement
26. West Coast & Co./State of Oregon
<PAGE> 1
Exhibit 4.16
THIS WARRANT AND THE UNDERLYING SECURITIES HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"). THEY MAY NOT BE SOLD, OFFERED
FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
STATEMENT AS TO SUCH SECURITIES UNDER THE ACT OR AN OPINION OF COUNSEL
SATISFACTORY TO THE CORPORATION THAT SUCH REGISTRATION IS NOT REQUIRED.
VIROLOGIC, INC.
WARRANT TO PURCHASE SERIES C PREFERRED STOCK
NO. PCW- MARCH 31, 2000
VOID AFTER MARCH 31, 2010
THIS CERTIFIES THAT, for value received, Pentech Financial Services,
Inc., with its principal office at 310 West Hamilton Avenue, Campbell,
California 95008 or assigns (the "Holder"), is entitled to subscribe for and
purchase at the Exercise Price (defined below) from ViroLogic, Inc., a Delaware
corporation, with its principal office at 270 East Grant Avenue, South San
Francisco, CA 94080 (the "Corporation") up to shares of the Series C
Preferred Stock of the Corporation (the "Preferred Stock").
1. DEFINITIONS. As used herein, the following terms shall have
the following respective meanings:
(a) "Exercise Period" shall mean the period commencing with
the date hereof and ending ten years from the date hereof, unless sooner
terminated as provided below.
(b) "Exercise Price" shall mean $2.12 per share, subject to
adjustment pursuant to Section 5 below.
(c) "Exercise Shares" shall mean the shares of the
Corporation's Preferred Stock issuable upon exercise of this Warrant.
2. EXERCISE OF WARRANT. The rights represented by this Warrant
may be exercised in whole or in part at any time during the Exercise Period, by
delivery of the following to the Corporation at its address set forth above (or
at such other address as it may designate by notice in writing to the Holder):
(a) An executed Notice of Exercise in the form attached
hereto;
(b) Payment of the Exercise Price either (i) in cash or by
check, or (ii) by cancellation of indebtedness; and
(c) This Warrant.
1
<PAGE> 2
Upon the exercise of the rights represented by this Warrant, a
certificate or certificates for the Exercise Shares so purchased, registered in
the name of the Holder or persons affiliated with the Holder, if the Holder so
designates, shall be issued and delivered to the Holder within a reasonable time
after the rights represented by this Warrant shall have been so exercised.
The person in whose name any certificate or certificates for Exercise
Shares are to be issued upon exercise of this Warrant shall be deemed to have
become the holder of record of such shares on the date on which this Warrant was
surrendered and payment of the Exercise Price was made, irrespective of the date
of delivery of such certificate or certificates, except that, if the date of
such surrender and payment is a date when the stock transfer books of the
Corporation are closed, such person shall be deemed to have become the holder of
such shares at the close of business on the next succeeding date on which the
stock transfer books are open.
2.1. NET EXERCISE. Notwithstanding any provisions herein to the contrary, if
the fair market value of one share of the Corporation's Preferred Stock is
greater than the Exercise Price (at the date of calculation as set forth below),
in lieu of exercising this Warrant by payment of cash, the Holder may elect to
receive shares equal to the value (as determined below) of this Warrant (or the
portion thereof being canceled) by surrender of this Warrant at the principal
office of the Corporation together with the properly endorsed Notice of Exercise
in which event the Corporation shall issue to the Holder a number of shares of
Preferred Stock computed using the following formula:
X = Y (A-B)
A
Where X = the number of shares of Preferred Stock to be issued to
the Holder
Y = the number of shares of Preferred Stock
purchasable under the Warrant or, if only a portion
of the Warrant is being exercised, the portion of
the Warrant being canceled (at the date of such
calculation)
A = the fair market value of one share of the
Corporation's Preferred Stock (at the date of such
calculation)
B = Exercise Price (as adjusted to the date of such
calculation)
For purposes of the above calculation, the fair market value of one
share of Preferred Stock shall be determined by the Corporation's Board of
Directors in good faith; provided, however, that in the event that this Warrant
is exercised pursuant to this Section 2.1 at a time when the Corporation's
Common Stock is traded in a public market, the fair market value per share shall
be closing sales price of the Common Stock as reported by such market for the
business day immediately proceeding the date of exercise multiplied by (i) one,
if the Warrant is exercisable for Common Stock, or (ii) the number of shares of
Common Stock into which each share of the class of stock issuable pursuant to
this Warrant is convertible at the time of such exercise, if the Warrant is
exercisable for shares of the Corporation's capital stock other than Common
Stock.
2
<PAGE> 3
3. COVENANTS OF THE CORPORATION.
3.1. COVENANTS AS TO EXERCISE SHARES. The Corporation covenants and agrees
that all Exercise Shares that may be issued upon the exercise of the rights
represented by this Warrant will, upon issuance, be validly issued and
outstanding, fully paid and nonassessable, and free from all taxes, liens and
charges with respect to the issuance thereof. The Corporation further covenants
and agrees that the Corporation will at all times during the Exercise Period,
have authorized and reserved, free from preemptive rights, a sufficient number
of shares of its Preferred Stock to provide for the exercise of the rights
represented by this Warrant. If at any time during the Exercise Period the
number of authorized but unissued shares of Preferred Stock shall not be
sufficient to permit exercise of this Warrant, the Corporation will take such
corporate action as may, in the opinion of its counsel, be necessary to increase
its authorized but unissued shares of Preferred Stock to such number of shares
as shall be sufficient for such purposes.
3.2. NO IMPAIRMENT. Except and to the extent as waived or consented to by
the Holder, the Corporation will not, by amendment of its Articles of
Incorporation or through any reorganization, transfer of assets, consolidation,
merger, dissolution, issue or sale of securities or any other voluntary action,
avoid or seek to avoid the observance or performance of any of the terms to be
observed or performed hereunder by the Corporation, but will at all times in
good faith assist in the carrying out of all the provisions of this Warrant and
in the taking of all such action as may be necessary or appropriate in order to
protect the exercise rights of the Holder against impairment.
3.3. NOTICES OF RECORD DATE. In the event of any taking by the Corporation
of a record of the holders of any class of securities for the purpose of
determining the holders thereof who are entitled to receive any dividend (other
than a cash dividend which is the same as cash dividends paid in previous
quarters) or other distribution, the Corporation shall mail to the Holder, at
least ten (10) days prior to the date specified herein, a notice specifying the
date on which any such record is to be taken for the purpose of such dividend or
distribution.
3.4. NO CONFLICTS. The due execution and delivery of this Warrant are not,
and the issuance of the Exercise Shares upon the exercise of the rights
represented by this Warrant in accordance with the terms hereof will not,
conflict with the Certificate of Incorporation or Bylaws of the Corporation,
each as amended to the date of issuance hereof.
4. REPRESENTATIONS OF HOLDER.
4.1. ACQUISITION OF WARRANT FOR PERSONAL ACCOUNT. The Holder represents and
warrants that it is acquiring the Warrant solely for its account for investment
and not with a view to or for sale or distribution of said Warrant or any part
thereof. The Holder also represents that the entire legal and beneficial
interests of the Warrant and Exercise Shares the Holder is acquiring is being
acquired for, and will be held for, its account only.
4.2. SECURITIES ARE NOT REGISTERED.
(a) The Holder understands that the Warrant and the Exercise
Shares have not been registered under the Securities Act of 1933, as amended
(the "Act") on the basis that no
3
<PAGE> 4
distribution or public offering of the stock of the Corporation is to be
effected. The Holder realizes that the basis for the exemption may not be
present if, notwithstanding its representations, the Holder has a present
intention of acquiring the securities for a fixed or determinable period in the
future, selling (in connection with a distribution or otherwise), granting any
participation in, or otherwise distributing the securities. The Holder has no
such present intention.
(b) The Holder recognizes that the Warrant and the Exercise
Shares must be held indefinitely unless they are subsequently registered under
the Act or an exemption from such registration is available. The Holder
recognizes that the Corporation has no obligation to register the Warrant or the
Exercise Shares of the Corporation, or to comply with any exemption from such
registration.
(c) The Holder is aware that neither the Warrant nor the
Exercise Shares may be sold pursuant to Rule 144 adopted under the Act unless
certain conditions are met, including, among other things, the existence of a
public market for the shares, the availability of certain current public
information about the Corporation, the resale following the required holding
period under Rule 144 and the number of shares being sold during any three month
period not exceeding specified limitations. Holder is aware that the conditions
for resale set forth in Rule 144 have not been satisfied and that the
Corporation presently has no plans to satisfy these conditions in the
foreseeable future.
4.3. DISPOSITION OF WARRANT AND EXERCISE SHARES.
(a) The Holder further agrees not to make any disposition
of all or any part of the Warrant or Exercise Shares in any event unless and
until:
(i) The Corporation shall have received a letter
secured by the Holder from the Securities and Exchange Commission stating that
no action will be recommended to the Commission with respect to the proposed
disposition; or
(ii) There is then in effect a registration statement
under the Act covering such proposed disposition and such disposition is made in
accordance with said registration statement; or
(iii) The Holder shall have notified the Corporation
of the proposed disposition and shall have furnished the Corporation with a
detailed statement of the circumstances surrounding the proposed disposition,
and if reasonably requested by the Corporation, the Holder shall have furnished
the Corporation with an opinion of counsel, reasonably satisfactory to the
Corporation, for the Holder to the effect that such disposition will not require
registration of such Warrant or Exercise Shares under the Act or any applicable
state securities laws.
4
<PAGE> 5
(b) The Holder understands and agrees that all certificates
evidencing the shares to be issued to the Holder may bear the following legend:
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED (THE "ACT"). THEY MAY NOT BE SOLD, OFFERED FOR SALE,
PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
STATEMENT AS TO THE SECURITIES UNDER THE ACT OR AN OPINION OF COUNSEL
SATISFACTORY TO THE CORPORATION THAT SUCH REGISTRATION IS NOT REQUIRED.
5. ADJUSTMENT OF EXERCISE PRICE. In the event of changes in the
outstanding Preferred Stock of the Corporation by reason of stock dividends,
split-ups, recapitalizations, reclassifications, combinations or exchanges of
shares, separations, reorganizations, liquidations, or the like, the number and
class of shares available under the Warrant in the aggregate and the Exercise
Price shall be correspondingly adjusted to give the Holder of the Warrant, on
exercise for the same aggregate Exercise Price, the total number, class, and
kind of shares as the Holder would have owned had the Warrant been exercised
prior to the event and had the Holder continued to hold such shares until after
the event requiring adjustment. The form of this Warrant need not be changed
because of any adjustment in the number of Exercise Shares subject to this
Warrant.
6. FRACTIONAL SHARES. No fractional shares shall be issued upon
the exercise of this Warrant as a consequence of any adjustment pursuant hereto.
All Exercise Shares (including fractions) issuable upon exercise of this Warrant
may be aggregated for purposes of determining whether the exercise would result
in the issuance of any fractional share. If, after aggregation, the exercise
would result in the issuance of a fractional share, the Corporation shall, in
lieu of issuance of any fractional share, pay the Holder otherwise entitled to
such fraction a sum in cash equal to the product resulting from multiplying the
then current fair market value of an Exercise Share by such fraction.
7. REGISTRATION RIGHTS. The Corporation grants registration
rights to the Holder for any common stock of the Corporation obtained upon
exercise hereof, comparable to the registration rights granted to the investors
in that certain ViroLogic, Inc. Investor's Rights Agreement dated as of August
23, 1999, as amended through the date hereof, (the "REGISTRATION RIGHTS
AGREEMENT"), with the following exceptions:
(1) The Holder will have no demand registration rights;
(2) The Holder will be subject to the same provisions regarding
indemnification as contained in the Registration Rights Agreement; and
(3) The registration rights shall not be available to the Holder
in connection with the Corporation's first sale of its common stock to the
public
5
<PAGE> 6
pursuant to an effective registration statement filed under the Securities Act
of 1933.
8. MARKET STAND-OFF AGREEMENT. Holder shall not sell, dispose of,
transfer, make any short sale of, grant any option for the purchase of, or enter
into any hedging or similar transaction with the same economic effect as a sale,
any Common Stock (or other securities) of the Corporation held by Holder, for a
period of time specified by the managing underwriter(s) (not to exceed one
hundred eighty (180 days) following the effective date of a registration
statement of the Corporation filed under the Securities Act of 1933. Holder
agrees to execute and deliver such other agreements as may be reasonably
requested by the Corporation and/or the managing underwriter(s) which are
consistent with the foregoing or which are necessary to give further effect
thereto, including the form of Lock-Up Agreement attached hereto as EXHIBIT A.
In order to enforce the foregoing covenant, the Corporation may impose
stop-transfer instructions with respect to such Common Stock (or other
securities) until the end of such period.
9. NO STOCKHOLDER RIGHTS. This Warrant in and of itself shall not
entitle the Holder to any voting rights or other rights as a stockholder of the
Corporation.
10. TRANSFER OF WARRANT. Subject to applicable laws, the
restriction on transfer set forth on the first page of this Warrant, this
Warrant and all rights hereunder are transferable, by the Holder in person or by
duly authorized attorney, upon delivery of this Warrant and the form of
assignment attached hereto to any transferee designated by Holder. The
transferee shall sign an investment letter in form and substance satisfactory to
the Corporation.
11. LOST, STOLEN, MUTILATED OR DESTROYED WARRANT. If this Warrant
is lost, stolen, mutilated or destroyed, the Corporation may, on such terms as
to indemnity or otherwise as it may reasonably impose (which shall, in the case
of a mutilated Warrant, include the surrender thereof), issue a new Warrant of
like denomination and tenor as the Warrant so lost, stolen, mutilated or
destroyed. Any such new Warrant shall constitute an original contractual
obligation of the Corporation, whether or not the allegedly lost, stolen,
mutilated or destroyed Warrant shall be at any time enforceable by anyone.
12. NOTICES, ETC. All notices and other communications required or
permitted hereunder shall be in writing and shall be sent by telex, telegram,
express mail or other form of rapid communications, if possible, and if not then
such notice or communication shall be mailed by first-class mail, postage
prepaid, addressed in each case to the party entitled thereto at the following
addresses: (a) if to the Corporation, to ViroLogic, Inc., Attention: President,
270 East Grant Avenue, South San Francisco, CA 94080 and (b) if to the Holder,
to President, 310 West Hamilton Avenue, Campbell, California 95008 or at such
other address as one party may furnish to the other in writing. Notice shall be
deemed effective on the date dispatched if by personal delivery, telecopy, telex
or telegram, two days after mailing if by express mail, or three days after
mailing if by first-class mail.
13. ACCEPTANCE. Receipt of this Warrant by the Holder shall
constitute acceptance of and agreement to all of the terms and conditions
contained herein.
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<PAGE> 7
14. GOVERNING LAW. This Warrant and all rights, obligations and
liabilities hereunder shall be governed by the laws of the State of California.
<PAGE> 8
IN WITNESS WHEREOF, the Corporation has caused this Warrant to be
executed by its duly authorized officer as of March 31, 2000.
VIROLOGIC, INC.
By /s/ Martin Goldstein
_______________________________
Martin Goldstein
President
<PAGE> 9
NOTICE OF EXERCISE
TO: VIROLOGIC, INC.
(1) |_| The undersigned hereby elects to purchase ________ shares
of the Series C Preferred Stock of ViroLogic, Inc. (the "Company") pursuant to
the terms of the attached Warrant, and tenders herewith payment of the exercise
price in full, together with all applicable transfer taxes, if any.
|_| The undersigned hereby elects to purchase ________ shares
of the Series C Preferred Stock of ViroLogic, Inc. (the "Company") pursuant to
the terms of the net exercise provisions set forth in Section 2.1 of the
attached Warrant, and shall tender payment of all applicable transfer taxes, if
any.
(2) Please issue a certificate or certificates representing said
shares of Series C Preferred Stock in the name of the undersigned or in such
other name as is specified below:
------------------------
(Name)
------------------------
------------------------
(Address)
(3) The undersigned represents that (i) the aforesaid shares of
Series C Preferred Stock are being acquired for the account of the undersigned
for investment and not with a view to, or for resale in connection with, the
distribution thereof and that the undersigned has no present intention of
distributing or reselling such shares; (ii) the undersigned is aware of the
Company's business affairs and financial condition and has acquired sufficient
information about the Company to reach an informed and knowledgeable decision
regarding its investment in the Company; (iii) the undersigned is experienced in
making investments of this type and has such knowledge and background in
financial and business matters that the undersigned is capable of evaluating the
merits and risks of this investment and protecting the undersigned's own
interests; (iv) the undersigned understands that the shares of Series C
Preferred Stock issuable upon exercise of this Warrant have not been registered
under the Securities Act of 1933, as amended (the "Securities Act"), by reason
of a specific exemption from the registration provisions of the Securities Act,
which exemption depends upon, among other things, the bona fide nature of the
investment intent as expressed herein, and, because such securities have not
been registered under the Securities Act, they must be held indefinitely unless
subsequently registered under the Securities Act or an exemption from such
registration is available; (v) the undersigned is aware that the aforesaid
shares of Series C Preferred Stock may not be sold pursuant to Rule 144 adopted
under the Securities Act unless certain conditions are met and until the
undersigned has held the shares for the number of years prescribed by Rule 144,
that among the conditions for use of the Rule is the availability of current
information to the public about the Company and the Company has not made such
information available and has no present plans to do so; (vi) the undersigned
agrees not to make any disposition of all or any part of the aforesaid shares of
Series C Preferred Stock unless and until there is then in effect a registration
statement under the Securities Act covering such proposed disposition and such
disposition is made in accordance with said registration statement, or the
undersigned has provided the Company with an opinion of counsel satisfactory to
the Company, stating that such registration is not required; and (vii) the
undersigned agrees to abide by the Market Stand-off Agreement set forth in
Section 8 of the attached Warrant.
- ----------------------- ----------------------------
(Date) (Signature)
----------------------------
(Print name)
<PAGE> 10
ASSIGNMENT FORM
(To assign the foregoing Warrant, execute
this form and supply required information.
Do not use this form to purchase shares.)
FOR VALUE RECEIVED, the foregoing Warrant and all rights evidenced
thereby are hereby assigned to
Name:
--------------------------------------------------------------------------
(Please Print)
Address:
------------------------------------------------------------------------
(Please Print)
Dated:
---------------------
Holder's
Signature:
------------------------------------------------
Holder's
Address:
------------------------------------------------
NOTE: The signature to this Assignment Form must correspond with the name as it
appears on the face of the Warrant, without alteration or enlargement or any
change whatever. Officers of corporations and those acting in a fiduciary or
other representative capacity should file proper evidence of authority to assign
the foregoing Warrant.
<PAGE> 11
EXHIBIT A
FORM OF LOCK-UP AGREEMENT
<PAGE> 1
EXHIBIT 10.1
[***] CONFIDENTIAL TREATMENT REQUESTED UNDER 17 C.F.R. SECTIONS 200.80(b)(4),
200.83 AND 230.406. CONFIDENTIAL PORTIONS HAVE BEEN FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION.
AGREEMENT
This Agreement is made by and between Roche Molecular Systems, Inc.
("RMS"), having an office at 1080 U.S. Highway 202, Branchburg Township,
Somerville, New Jersey 08876-3771 and Virologic, Inc. ("VLI"), South San
Francisco, California, hereafter collectively referred to as "The Parties".
BACKGROUND
A. RMS has the right to grant immunities from suit under certain United
States Patents describing and claiming, inter alia, a nucleic acid
amplification process known as the polymerase chain reaction ("PCR") technology.
B. VLI has attained substantial expertise in developing, validating,
documenting and performing sophisticated in vitro susceptibility/resistance
diagnostic procedures.
C. VLI desires to obtain an immunity from suit from RMS to practice PCR
Technology to perform human in vitro clinical laboratory services, and RMS is
willing to grant such an immunity, on the terms and subject to the conditions
provided exclusively in this Agreement.
NOW, THEREFORE, for and in consideration of the mutual covenants contained
herein, RMS and VLI agree as follows:
1. Definitions
For the purpose of this Agreement, and solely for that purpose, the
terms set forth hereinafter shall be defined as follows:
1.1 The term "Affiliate" of a designated party to this Agreement
shall mean:
a) an organization of which fifty percent (50%) or more of the
voting stock is controlled or owned directly or indirectly
by either party to this Agreement;
b) an organization which directly or indirectly owns or
controls fifty percent (50%) or more of the voting stock of
either party to this Agreement;
c) an organization, the majority ownership of which is directly
or indirectly common to the majority ownership of either
party to this Agreement; and
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<PAGE> 2
d) an organization under (a), (b), or (c) above in which the
amount of said ownership is less than fifty percent (50%)
and that amount is the maximum amount permitted pursuant to
the law governing the ownership of said organization.
It is understood and agreed, however, that the term "AFFILIATE" shall not
include Genentech Inc., a Delaware Corporation.
1.2 "COMBINATION SERVICE" shall mean a LICENSED SERVICE offered in
combination with [***] as part of a package, where the LICENSED SERVICE is not
separately billed.
1.3 "DIAGNOSTIC PRODUCT" shall mean an assemblage of reagents, including
but not limited to reagents packaged in the form of a kit, useful in
performing a LICENSED SERVICE.
1.4 "EFFECTIVE DATE" shall mean the date on which the last signatory to
this Agreement signs the Agreement.
1.5 "LICENSED FIELD" shall mean the field of human in vitro diagnostics
solely for the detection of genetic diseases, genetic pre-disposition to
disease, cancer, tissue transplant typing, Parentage, and microorganisms
associated with infectious diseases.
1.6 "LICENSED SERVICES" shall mean the performance by VLI of an in vitro
diagnostic procedure utilizing PCR TECHNOLOGY to detect the presence, absence
or quantity of a nucleic acid sequence associated with a specific human disease
or condition within the LICENSED FIELD. LICENSED SERVICES include but are not
limited to, any combination of the steps of collecting a sample for analysis,
isolating nucleic acid sequences therein, amplifying one or more desired
sequences, analyzing the amplified material and reporting the results.
1.7 "NET SERVICE REVENUES" shall mean gross invoice price for the
LICENSED SERVICES performed by VLI (or the fair market value for any
nonmonetary consideration which VLI agree to receive in exchange for LICENSED
SERVICES), less the following deductions where they are factually applicable
and are not already reflected in the gross invoice price:
i) discounts allowed and taken, in amounts customary in the
trade (which shall include the difference between the dollar
amount charged by VLI for a LICENSED SERVICE and the
Medicare and/or Medicaid Limits of Allowance and/or
reimbursement limitations of a THIRD PARTY insurance
program); and
[***] CONFIDENTIAL TREATMENT REQUESTED.
2
<PAGE> 3
ii) government imposed transportation taxes, sales taxes and
other taxes to the extent they are separately identified on
the invoice; and
iii) actual bad debt, up to 2% of gross invoice price for
LICENSED SERVICES, which bad debt VLI can prove and document
that it was reasonable and diligent in its efforts to
collect payment.
No allowance or deduction shall be made for commissions or collections, by
whatever name known.
It is hereby understood and agreed that LICENSED SERVICES and COMBINATION
SERVICES shall at all times be invoiced, listed and billed by VLI as a separate
item in VLI's invoices, bills and reports to customers. NET SERVICE REVENUES for
determining royalties on a LICENSED SERVICE which is part of a COMBINATION
SERVICE shall be determined by [***] in Attachment I hereto. The [***] specified
in Attachment I for a particular LICENSED SERVICE shall be set my RMS after
consultation with VLI, [***] by the LICENSED SERVICE to the [***] of the
COMBINATION SERVICE as offered by VLI. Attachment I hereto shall be modified as
new COMBINATION SERVICES are identified and new royalty-bearing fractions set.
The NET SERVICE REVENUES of the LICENSED SERVICES that are performed
by VLI for any person, firm or corporation controlling, controlled by, or under
common control with VLI, or enjoying a special course of dealing with VLI,
shall be determined by reference to the NET SERVICE REVENUES which would be
applicable under this Section in an arm's length transaction by VLI to a THIRD
PARTY other than such person, firm or corporation.
1.8 "PARENTAGE" shall mean analysis of human genetic material to
ascertain whether two or more individuals are biologically related, but
specifically excludes analysis of forensic evidence for a sexual assault
investigation.
1.9 "PCR TECHNOLOGY" shall mean polymerase chain reaction technology
covered by United States Patent Nos. B2 4,683,195, B1 4,683,202 and 4,965,188
and any reissue or reexamination patents thereof.
1.10 "THIRD PARTY" shall mean a party other than an AFFILIATE of The
Parties to this Agreement.
2. Grant
2.1 Upon the terms and subject to the conditions of this Agreement,
RMS hereby grants to VLI, and VLI hereby accepts from RMS, a royalty-bearing,
non-exclusive immunity from suit under PCR TECHNOLOGY solely to perform LICENSED
SERVICES within the United States and its possessions and the Commonwealth of
Puerto Rico.
[***] CONFIDENTIAL TREATMENT REQUESTED.
3
<PAGE> 4
2.2 PCR Technology hereunder may be practiced solely for the
performance of Licensed Services and for no other purpose whatsoever, and no
other right, immunity or license is granted expressly, impliedly or by estoppel.
2.3 VLI expressly acknowledges and agrees that the immunity from
suit pursuant to this Agreement is personal to VLI alone and VLI shall have no
right to sublicense, assign or otherwise transfer or share its rights under the
foregoing immunity from suit and further agrees that LICENSED SERVICES will be
performed, offered, marketed and sold only by VLI and VLI shall not authorize
any other party, including AFFILIATES, to practice the PCR TECHNOLOGY, nor
shall it practice the PCR TECHNOLOGY in conjunction with any other party.
2.4 For each COMBINATION SERVICE that VLI offers pursuant to this
immunity from suit, VLI agrees that it will notify RMS at least sixty (60) days
before it commences offering said COMBINATION SERVICE. COMBINATION SERVICES
claimed by VLI on royalty reports which have not met the sixty (60) day notice
requirement and for which RMS has not set an appropriate royalty bearing
fraction, shall be royalty bearing at one hundred percent (100%) of the package
price, less applicable deductions. As to all other LICENSED SERVICES offered by
VLI which are not part of a COMBINATION SERVICE, VLI agrees to inform RMS of the
availability from VLI of each such LICENSED SERVICE within 30 days after VLI
commences offering the LICENSED SERVICE.
2.5 RMS hereby grants to VLI the right and VLI accepts and agrees to
credit RMS as the source of PCR TECHNOLOGY rights in VLI's promotional
materials and any other materials intended for distribution to THIRD PARTIES as
follows:
"This PCR portion of this test is performed pursuant to a license agreement
with Roche Molecular Systems, Inc."
3. Acknowledgement and Agreement on Diagnostic Products
3.1 VLI acknowledges and agrees that the immunity from suit granted
hereunder is for the performance of LICENSED SERVICES only and does not include
any right to make, have made, import, offer or sell any products, including
devices, PCR reagents, kits or DIAGNOSTIC PRODUCTS. VLI specifically
acknowledges that it does not by virtue of this agreement acquire any rights
under RMS' U.S. Patent Nos. 4,889,818, 5,079,352 or any other polymerase
patent. VLI further acknowledges and agrees that RMS Affiliates are in the
business of providing clinical laboratory testing services and the commercial
sale of diagnostic testing systems and therefore may compete directly with
VLI's business.
4. Royalties, Records and Reports
4.1 Royalties. For the rights and privileges granted under this
Agreement, VLI shall pay to RMS earned royalties equal to [***] percent [***] of
VLI's NET SERVICE REVENUES for each LICENSED SERVICE performed.
[***] CONFIDENTIAL TREATMENT REQUESTED.
4
<PAGE> 5
4.2 VLI shall keep full, true and accurate books of account containing all
particulars which may be necessary for the purpose of showing the amount
payable to RMS by way of royalty or by way of any other provision under this
Agreement. Such books and the supporting data shall be open at all reasonable
times, for three (3) years following the end of the calendar year to which they
pertain (and access shall not be denied thereafter, if reasonably available),
to the inspection of RMS or an independent certified public accountant retained
by RMS for the purpose of verifying VLI's royalty statements or VLI's
compliance in other respects with this Agreement. If in dispute, such records
shall be kept until the dispute is settled. The inspection of records shall be
at RMS' sole cost and expense, unless the inspector concludes that royalties
reported by VLI for the period being audited are understated by five percent
(5%) or more from actual royalties, in which case the costs and expenses of
such inspection shall be paid by VLI.
4.3 VLI shall within sixty (60) days after the first day of January and
July of each year deliver to RMS a true and accurate royalty report. Such
report shall cover the preceding six (6) calendar months; and shall be
submitted either i) on the "Summary Royalty Report", a copy of which is
attached hereto as Attachment II, or ii) on a form generated by VLI which
duplicates the format of the Summary Royalty Report; and shall include at least
the following:
a) the name of each LICENSED SERVICE and COMBINATION SERVICE and the
number performed during those six (6) months;
b) compilation of billings thereon and the allowable deductions
therefrom;
c) NET SERVICE REVENUES and the calculation of total royalties
thereon; and
d) the calculation of the net royalty payable to RMS. If no royalties
are due, its shall be so reported.
The correctness and completeness of each such report shall be attested to
in writing by the responsible financial officer of VLI's organization or by
VLI's external auditor or by the chair or other head of VLI's internal audit
committee.
Simultaneously with the delivery of each such report, VLI shall pay to RMS
the royalty due under this Agreement for the period covered by such report. All
payments due RMS hereunder shall be sent together with the royalty report by the
due date to the following address:
Roche Molecular Systems, Inc.
P.O. Box 18139
Newark, New Jersey 07191
or to any address that RMS may advise in writing.
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<PAGE> 6
4.4 All amounts payable hereunder by VLI to RMS shall be
payable in United States currency.
4.5 VLI's obligation to pay royalties pursuant to this
Agreement shall terminate upon a final holding of invalidity or
unenforceability of all of the patents identified in Section 1.9, supra, by a
court of appellate jurisdiction or by a trial court from which no appeal is or
can be taken.
4.6 If VLI shall fail to pay any amount specified under this
Agreement after the due date thereof, the amount owed shall bear interest at the
Citibank NA base lending rate ("prime rate") plus [***] % from the due date
until paid, provided, however, that if this interest rate is held to be
unenforceable for any reason, the interest rate shall be the maximum rate
allowed by law at the time the payment is due.
5. Performance of Licensed Services
5.1 The Parties agree that quality assurance is of utmost
importance in the performance of LICENSED SERVICES. To that end, VLI agrees
that it will:
a) participate in at least one independent proficiency
testing program for each LICENSED SERVICE when such
program(s) becomes available; and
b) comply with all Medicare, Medicaid and/or CLIA standards
for diagnostic testing as well as all other applicable
federal, state and local regulations applicable to human
diagnostic testing.
6. Technology Notification
6.1 With respect to any invention, improvement or discovery
(hereinafter referred to as "Discoveries" in this Article) of VLI made after
entering into this Agreement, resulting from work conducted under this
Agreement and being applicable to PCR, if VLI decides to license that Discovery
to THIRD PARTIES, then VLI agrees to provide to RMS, unless not possible due to
VLI's previous commitments to THIRD PARTIES relating to said Discoveries, a
reasonable opportunity to negotiate a license to use said Discoveries in
PCR-based DIAGNOSTIC PRODUCTS and services. Such Discoveries include, but are
not limited to, improvements of the PCR process or in the performance of
LICENSED SERVICES, modifications to or new methods of performing the LICENSED
SERVICES, including the automation of the PCR process or of the LICENSED
SERVICES.
6.2 Any agreement reached between The Parties as a result
of VLI's notification to RMS of a Discovery pursuant to Section 6.1 hereto
shall be upon terms and conditions negotiated in good faith by The Parties.
[***] CONFIDENTIAL TREATMENT REQUESTED.
6
<PAGE> 7
7. Diligence
VLI shall exercise reasonable diligence in developing, testing,
validating, documenting, promoting and selling the LICENSED SERVICES. In the
course of such diligence, VLI shall take appropriate steps including, upon
reasonable written request of RMS, furnish RMS with representative copies of
all promotional material relating to the LICENSED SERVICES.
8. TERM AND TERMINATION
8.1 The immunity from suit granted to VLI herein shall commence on
the EFFECTIVE DATE and terminate on the date of expiration of the last to expire
of the patents included within the PCR TECHNOLOGY, which patent contains at
least one claim covering the performance of LICENSED SERVICES.
8.2 If in the course of performing and offering LICENSED SERVICES,
VLI fails to comply with the quality assurance provisions of Article 5, VLI
shall so notify RMS immediately upon such failure and shall have thirty (30)
days from receipt of such notice to cure all defects of which it is notified.
If VLI does not cure all such defects within the designated thirty (30) days,
RMS may then in its sole discretion terminate this Agreement in its entirety,
or any portion thereof immediately. For the purposes of this Section and this
Agreement, VLI's failure to provide an accurate and correct test result when
participating in an independent proficiency testing program pursuant to Section
5.1 (a), on two consecutive evaluations, shall automatically be deemed a
failure to comply with Article 5 and shall be a material breach of this
Agreement.
8.3 Notwithstanding any other Section of this Agreement, VLI may
terminate this Agreement for any reason on thirty (30) days' written notice to
RMS.
8.4 The decision of a court or administrative body finding RMS
liable for culpable due to VLI's performance of LICENSED SERVICES shall give
RMS the right to terminate this Agreement immediately upon notification to RMS
of said decision.
8.5 The immunity granted hereunder to VLI shall automatically
terminate upon (i) adjudication of VLI as bankrupt or insolvent, or VLI's
admission in writing of its inability to pay its obligations as they mature;
(ii) or an assignment by VLI for the benefit of creditors; (iii) or VLI's
applying for or consenting to the appointment of a receiver, trustee or similar
officer for any substantial part of its property; (iv) such receiver, trustee
or similar officers appointment without the application or consent of VLI, if
such appointment shall continue undischarged for a period of ninety (90) days;
or VLI's instituting (by petition, application, answer, consent or otherwise)
any bankruptcy, insolvency arrangement, or similar proceeding relating to VLI
under the laws of any jurisdiction; (v) or the institution of any such
proceeding (by petition, application or otherwise) against VLI, if such
proceeding shall remain undismissed for a period of ninety (90) days or the
issuance or levy of any judgment, writ, warrant of attachment or execution or
similar process against a substantial part of the property of VLI, if such
judgment, writ, or similar process shall not
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<PAGE> 8
be released, vacated or fully bonded within ninety (90) days after its issue or
levy; (vi) loss of VLI's federal or state licenses permits or accreditation
necessary for operation of VLI as a health care institution.
8.6 RMS shall have the right to terminate this Agreement by written
notice to VLI upon any change in the ownership or control of VLI or of its
assets. Termination under this Section shall be effective immediately upon
receipt by VLI of RMS' notice of termination. For such purposes, a "change in
ownership or control" shall mean that 30% or more of the voting stock of VLI
become subject to the control of a person or entity, or any related group of
persons or entities acting in concert, which person(s) or entity(ies) did not
control such proportion of voting stock as of the EFFECTIVE DATE of the
Agreement. Analogously, RMS shall have the right to terminate this Agreement
upon any transfer or sale of 30% or more of the assets of VLI to another party.
8.7 BREACH. Upon any breach of or default of a material term under this
Agreement by VLI, RMS may terminate this Agreement upon thirty (30) days'
written notice to VLI. Said notice shall become effective at the end of the
thirty-day (30) period, unless during said period VLI fully cures such breach
or default and notifies RMS of such a cure.
8.8 Upon termination of this Agreement as provided herein, all immunities
and rights granted to VLI hereunder shall revert to or be retained by RMS. To
the extent RMS has LICENSED TECHNOLOGY or know-how of VLI pursuant to Article 6
hereto, those licenses shall remain in force according to their terms.
8.9 VLI's obligations to report to RMS and to pay royalties to RMS as to
the LICENSED SERVICES performed under the Agreement prior to termination or
expiration of the Agreement shall survive such termination or expiration.
9. Confidentiality-Publicity
9.1 Except as otherwise specifically provided in Section 2.5, VLI agrees
to obtain RMS' approval before distributing any written information, including
but not limited to promotional and sales materials, to THIRD PARTIES which
contains references to RMS or this Agreement. RMS' approval shall not be
unreasonably withheld or delayed and, in any event, RMS' decision shall be
rendered within three (3) weeks of receipt of the written information. Once
approved, such materials, or abstracts of such materials, which do not
materially alter the context of the material originally approved may be
reprinted during the term of the Agreement without further approval by RMS
unless RMS has notified VLI in writing of its decision to withdraw permission
for such use.
9.2 Each Party agrees that any financial, legal or business information
or any technical information disclosed to it (the "Receiving Party") by the
other (the "Disclosing Party") in connection with this Agreement shall be
considered confidential and proprietary and the Receiving
8
<PAGE> 9
Party shall not disclose same to any THIRD PARTY and shall hold it in
confidence for a period of five (5) years and will not use it other than as
permitted under this Agreement provided, however, that any information,
know-how or data which is orally disclosed to the Receiving Party shall not be
considered confidential and proprietary unless such oral disclosure is reduced
to writing and given to the Receiving Party in written form within thirty (30)
days after oral disclosure thereof. Such confidential and proprietary
information shall include, without limitation, marketing and sales information,
commercialization plans and strategies, research and development work plans,
and technical information such as patent applications, inventions, trade
secrets, systems, methods, apparatus, designs, tangible material, organisms and
products and derivatives thereof.
9.3 The above obligations of confidentiality shall not be applicable
to the extent:
a. such information is general public knowledge or, after
disclosure hereunder, becomes general or public
knowledge through no fault of the Receiving Party; or
b) such information can be shown by the Receiving Party by
its written records to have been in its possession prior
to receipt thereof hereunder; or
c) such information is received by the Receiving Party from
any THIRD PARTY for use or disclosure by the Receiving
Party without any obligation to the Disclosing Party
provided, however, that information received by the
Receiving Party from any THIRD PARTY funded by the
Disclosing Party (e.g. consultants, subcontractors,
etc.) shall not be released from confidentiality under
this exception; or
d) the disclosure of such information is reasonably needed
for use in connection with performing, offering and
selling LICENSED SERVICES; or
e) the disclosure of such information is required or
desirable to comply with or fulfill governmental
requirements, submissions to governmental bodies, or the
securing of regulatory approvals.
9.4 With the exception of Section 2.5, each party shall, to the
extent reasonably practicable, maintain the confidentiality of the provisions
of this Agreement and shall refrain from making any public announcement or
disclosure of the terms of this Agreement without the prior consent of the
other party, except to the extent a party concludes in good faith that such
disclosure is required under applicable law or regulations, in which case the
other party shall be notified in advance.
9
<PAGE> 10
10. Compliance
In exercising any and all rights and in performing its obligations
hereunder, VLI shall comply fully with any and all applicable laws, regulations
and ordinances and shall obtain and keep in effect licenses, permits and other
governmental approvals, whether at the federal, state or local levels, necessary
or appropriate to carry on its activities hereunder. VLI further agrees to
refrain from any activities that would have an adverse effect on the business
reputation of RMS. RMS will advise VLI of any such activities and VLI will have
thirty (30) days to correct such activity.
11. Assignment
This Agreement shall not be assigned or transfered by VLI (including
without limitation any purported assignment or transfer that would arise from a
sale or transfer of VLI's business) without the express written consent of RMS.
RMS may assign all or any part of its rights and obligations under this
Agreement at any time without the consent of VLI. VLI agrees to execute such
further acknowledgements or other instruments as RMS may reasonably request in
connection with such assignment.
12. Negation of Warranties and Indemnity
12.1 Nothing in this Agreement shall be construed as:
a) a warranty or representation by RMS as to the validity or
scope of any PCR TECHNOLOGY;
b) a warranty or representation that the practice of the PCR
TECHNOLOGY is or will be free from infringement of patents
of THIRD PARTIES;
c) an obligation to bring or prosecute actions or suits against
THIRD PARTIES for infringement;
d) except as expressly set forth herein, conferring the right
to use in advertising, publicity or otherwise any trademark,
trade name, or names, or any contraction, abbreviation,
simulation or adaptation thereof, of RMS;
e) conferring by implication, estoppel or otherwise any
license, right or immunity under any patents or patent
applications of RMS other than those specified in PCR
TECHNOLOGY, regardless of whether
10
<PAGE> 11
such patents and patent applications are dominant or
subordinate to those in PCR TECHNOLOGY;
f) an obligation to furnish any know-how not provided in PCR
TECHNOLOGY; or
g) creating any agency, partnership, joint venture or similar
relationship between RMS and VLI.
12.2 RMS MAKES NO EXPRESS OR IMPLIED WARRANTIES OF MERCHANTABILITY OR
FITNESS FOR A PARTICULAR PURPOSE
12.3 VLI acknowledges that the technology licensed hereby is newly
developed, and agrees to take all reasonable precautions to prevent death,
personal injury, illness and property damage from the use of such technology.
VLI shall assume full responsibility for its use of the PCR TECHNOLOGY and shall
defend, indemnify and hold RMS harmless from and against all liability,
demands, damages, expenses (including attorneys' fees) and losses for death,
personal injury, illness, property damage or any other injury or damage,
including any damages or expenses arising in connection with state or federal
regulatory action (collectively "Damages"), resulting from the use by VLI,
including its officers, directors, agents and employees, of the PCR TECHNOLOGY
except, and to the extent that such Damages are caused by the negligence or
willful misconduct of RMS.
13. GENERAL
13.1 This Agreement constitutes the entire agreement between The
Parties as to the subject matter hereof, and all prior negotiations,
representations, agreements and understandings are merged into, extinguished by
and completely expressed by it. This Agreement may be modified or amended only
by a writing executed by authorized officers of each of The Parties.
13.2 Any notice required or permitted to be given by this Agreement
shall be given by postpaid, first class, registered or certified mail, or by
courier, properly addressed to the other party at the respective address as
shown below:
If to RMS: Roche Molecular Systems, Inc.
340 Kingsland Street
Nutley, New Jersey 07110
Attn: Corporate Secretary
with a copy to: Roche Molecular Systems, Inc.
1145 Atlantic Avenue, Suite 100
Alameda, California 94501
Attn: Licensing Manager
11
<PAGE> 12
If to VLI: ViroLogic, Inc.
270 East Grand Avenue
South San Francisco, CA 94080
Attn: Martin H. Goldstein, President & COO
Either party may change its address by providing notice to the other
party. Unless otherwise specified herein, any notice given in accordance with
the foregoing shall be deemed given within four (4) full business days after
the day of mailing, or one full day after the date of delivery to the courier,
as the case will be.
13.3 Governing Law and Venue. This Agreement and its effect are subject to
and shall be construed and enforced in accordance with the law of the State of
New Jersey, U.S.A., except as to any issue which by the law of New Jersey
depends upon the validity, scope or enforceability of any patent within the PCR
TECHNOLOGY, which issue shall be determined in accordance with the applicable
patent laws of the United States. The Parties agree that the exclusive
jurisdiction and venue for any dispute or controversy arising from this
Agreement shall be in the United States District Court for the District of New
Jersey if federal jurisdiction exists, and if no federal jurisdiction exists,
then in the Superior Court of New Jersey.
13.4 Arbitration. Notwithstanding the provisions of Section 13.3 above, any
dispute concerning solely the determination of facts such as, but not limited
to, (i) the value of a COMBINATION SERVICE and a LICENSED SERVICE pursuant to
Section 1.7; (ii) a determination of royalty rate payments owed pursuant to
Section 4.1; (iii) compliance with quality assurance pursuant to Article 5; or
(iv) good faith compliance with Article 6; and which dispute does not involve a
question of law, shall be settled by final and binding arbitration at a mutually
convenient location in the State of New Jersey pursuant to the commercial
arbitration rules of the American Arbitration Association, in accordance with
the following procedural process:
a) The arbitration tribunal shall consist of three arbitrators. In
the request for arbitration and the answer thereto, each party
shall nominate one arbitrator and the two arbitrators so named
will then jointly appoint the third arbitrator as chairman of the
arbitration tribunal.
b) The decision of the arbitration tribunal shall be final and
judgment upon such decision may be entered in any competent court
for juridical acceptance of such an award and order of
enforcement. Each party hereby submits itself to the jurisdiction
of the courts of the place of arbitration, but only for the entry
of judgment with respect to the decision of the arbitrators
hereunder.
12
<PAGE> 13
13.5 Nothing in this Agreement shall be construed so as to require
the commission of any act contrary to law, and wherever there is any conflict
between any provision of this Agreement or concerning the legal right of The
Parties to enter into this contract and any statute, law, ordinance or treaty,
the latter shall prevail, but in such event the affected provisions of the
Agreement shall be curtailed and limited only to the extent necessary to bring
it within the applicable legal requirements.
13.6 If any provision of this Agreement is held to be unenforceable
for any reason, it shall be adjusted rather than voided, if possible, in order
to achieve the intent of the parties to the extent possible. In any event, all
other provisions of this Agreement shall be deemed valid and enforceable to the
full extent possible.
IN WITNESS WHEREOF, The Parties hereto have set their hands and seals and
duly executed this Agreement on the date(s) indicated below, to be effective on
EFFECTIVE DATE as defined herein.
ROCHE MOLECULAR SYSTEMS, INC. VIROLOGIC, INC.
By: /s/ KATHY ORDONEZ By: /s/ MARTIN H. GOLDSTEIN
-------------------------------- --------------------------------
Name: Kathy Ordonez Name: Martin H. Goldstein
Title: President Title: President & CEO
Date: July 21, 1997 Date: Aug. 4, 1997
------------------------------ ------------------------------
Apprv'd As To Form
LAW DEPT.
By [initials]
----------------
13
<PAGE> 14
ATTACHMENT I
COMBINATION SERVICES
<TABLE>
<CAPTION>
PERCENT OF NET SERVICE
REVENUES FOR COMBINATION
SERVICES WHICH IS
ATTRIBUTABLE TO LICENSED
LICENSED SERVICES SERVICES
- ----------------- ------------------------
<S> <C>
Drug Susceptibility and Resistance Test [***]
</TABLE>
[TO BE DETERMINED]
[***] CONFIDENTIAL TREATMENT REQUESTED.
<PAGE> 15
ATTACHMENT II
SUMMARY ROYALTY REPORT
for the Period _________ to __________
Licensee: Virologic, Inc. Field of Use: In Vitro Human Diagnostic Services
Effective Date: Royalty Rate: 18%
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
AMOUNT NUMBER OF COMPILATION COMBINATION
BILLED PER Lic. SERVICES OF DEDUCTION SERVICE % NEW SERVICE EARNED
LICENSED SERVICE Lic. SERVICE PERFORMED BILLINGS ALLOWED (FROM ATT. I) REVENUES ROYALTY
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------
ROYALTY PAYMENT DUE
--------------------------------------------------------------------------------
</TABLE>
* Please attach, to this form, documentation or supplemental data for
"Deductions Allowed."
** Combination Service %'s must be previously agreed upon. To confirm that a
Combination Service % has been established or to propose this status, please
contact Roche Licensing Dept. @ (510) 814-2984.
CHECK HERE IF THERE WERE NO LICENSED SERVICES PERFORMED FOR THIS REPORT
PERIOD: ____
I hereby certify the information set forth above is correct and complete with
respect to the amounts due under the applicable license agreement.
By:____________________________ Title: _____________________ Date: _____________
(authorized signature)
Name (please print):__________________________________
________________________________________________________________________________
Mail completed form to: Roche Molecular Systems, Inc., P.O. Box 18139, Newark,
New Jersey 07191
<PAGE> 16
RIDER CONCERNING SUPPLEMENTAL PATENT RIGHTS TO
DIAGNOSTIC SERVICES AGREEMENT
The purpose of this rider is to set forth the agreement of Virologic, Inc.
("VLI") and Roche Molecular Systems, Inc. ("RMS") concerning the supplemental
rights to additional patents relating to PCR technology which RMS offers and
the parties agree to add the rights granted to VLI by the Agreement between the
parties, dated ________________ (the "Diagnostic Services Agreement").
1. It is understood by the parties that RMS may, from time to time, come into
possession or control of additional patents or claims of patents relating
to PCR technology rights to which RMS may decide to offer to add to the
Diagnostic Services Agreement and which VLI may desire to accept.
Accordingly, appended hereto as APPENDIX A is a list of such additional
patents or claims of patents as RMS is currently offering to which VLI, by
its authorized representative, has indicated its acceptance thereof in
accordance with the rights of use and all other pertinent obligations,
restrictions and limitations as set forth in the Diagnostic Services
Agreement.
2. APPENDIX A may be amended by mutual agreement of the parties in writing so
as to add additional patent rights being offered by RMS. Accordingly, a new
APPENDIX A signed and dated by both parties shall supersede any prior
APPENDIX A and shall become a part of this rider.
3. It is expressly understood and agreed by the parties that the grant of
additional patent rights herein does not in any way otherwise modify the
Diagnostic Services Agreement and that all provisions of that Agreement
shall remain in full force and effect as originally set forth therein. The
term of the Diagnostic Services Agreement shall control the enjoyment of
rights hereunder and is not extended by the rights granted hereby nor shall
there be any additional royalty obligation to RMS beyond that set forth in
said Agreement.
4. In consideration of the further rights being granted hereunder, VLI agrees
to remain in good faith compliance with the applicable terms of the
Diagnostic Services Agreement, including reporting and payment of royalties
and the limitation on use of PCR technology strictly for the performance of
licensed services and not to make products.
5. In the event that VLI's obligation to pay royalties under the Diagnostic
Services Agreement for its rights to use the PCR technology shall cease for
any reason, whether by termination, expiry, invalidation or otherwise, then
the parties agree that this rider shall become null and void and the rights
granted hereunder terminated without notice and the parties shall be free
to negotiate a new agreement with respect to the patent rights listed on
APPENDIX A.
Accepted and Agreed,
ROCHE MOLECULAR SYSTEMS, INC. VIROLOGIC, INC.
By: /s/ KATHY ORDONEZ By: /s/ MARTIN H. GOLDSTEIN
-------------------------------- --------------------------------
Kathy Ordonez Martin H. Goldstein
Title: President Title: President & CEO
Date: July 21, 1997 Date: Aug. 4, 1997
------------------------------ ------------------------------
Apprv'd As To Form
LAW DEPT.
By: [initials]
-----------
<PAGE> 17
APPENDIX A TO RIDER
Additional Patents
U.S. Patent Number 5,008,182
U.S. Patent Number 5,176,995
U.S. Patent Number 5,219,727
U.S. Patent Number 5,110,920
ROCHE MOLECULAR SYSTEMS, INC. VIROLOGIC, INC.
By: /s/ KATHY ORDONEZ By: /s/ MARTIN H. GOLDSTEIN
------------------------- -------------------------
Name: Kathy Ordonez Name: Martin H. Goldstein
Title: President Title: President and CFO
Date: July 21, 1997 Date: Aug. 4, 1997
----------------------- -----------------------
Apprv'd As To Form
LAW DEPT.
By [INITIALS]
-------------
<PAGE> 1
Exhibit 10.8
PENTECH FINANCIAL SERVICES, INC.
MASTER EQUIPMENT LEASE COMMITMENT
Subject to the conditions set forth in this Master Equipment Lease
Commitment ("Commitment"), the following leasing transaction is agreed to by and
between PENTECH FINANCIAL SERVICES, INC., a California corporation ("Lessor")
and VIROLOGIC, INC. a Delaware corporation ("Lessee"), in connection with the
terms and conditions of Master Equipment Lease No. 300601 (the "Lease").
1. MASTER EQUIPMENT LEASE with effective date of 3/28/00.
2. EQUIPMENT (all Equipment is to be acceptable to Lessor):
(all Equipment is to be acceptable to Lessor): computers, test
equipment, office furniture and other related equipment to be approved by
Lessor. A percentage equal to 20% of the line amount but not more than 25% of
any individual schedule may be used for "soft cost" exclusions listed below.
EXCLUSIONS: custom use equipment, software, installation and delivery
costs, purchase tax, tooling equipment, tenant improvements and items generally
considered fungible or expendable.
3. COMMITMENT AMOUNT. 1,000,000.00.
4. LEASE SUPPLEMENTS. This is a Master Equipment Lease transaction
whereby Supplements may be funded as Equipment is delivered. Supplements
scheduling Equipment to be subject to the Lease will each be for the term and
on the conditions set out herein. No individual Supplement shall be for less
than $50,000.
5. TERM. Each Supplement under the Lease will be for an initial term of
36 months commencing on the first day of the calendar month following delivery
and acceptance of the Equipment on the Supplement.
6. MONTHLY RENT PAYMENT. 3.144% of original Equipment cost, payable
monthly in advance.
7. COMMENCEMENT DATE. Monthly rent for each Supplement will commence on
the first day of the calendar month following delivery and acceptance of the
Equipment on the Supplement.
8. INTERIM RENT. Interim rent will be charged for the period commencing
on delivery and acceptance of the Equipment on any particular Supplement and
ending the last day in that month, and will be the daily equivalent of the
Monthly Rent Payment, computed on a thirty (30) day month.
9. COMMITMENT EXPIRATION DATE. December 31, 2000.
Lessee acknowledges that Lessor will have no further obligations hereunder
as to any item of Equipment not included on any Supplement under the Lease
after the Commitment Expiration Date.
<PAGE> 2
10. RATE ADJUSTMENT. The Monthly Lease Rate Factor will be indexed to the
thirty (30) day London Inter Bank Offer Rate ("LIBOR") (the "Index Instrument")
which on the date of the proposal was 5.78125% (Wall Street Journal dated
January 14, 2000). The Monthly Lease Rate Factor shall be adjusted to provide
for any increase or decrease, with a floor of 5.78125%. At the Commencement
Date of each Supplement, the Monthly Lease Rate Factor shall be fixed for the
initial term of such Supplement.
11. DOCUMENTATION. Prior to the Lessor issuing a purchase order for any
item of Equipment, Lessee will comply with, procure and/or execute, have
executed, acknowledge, have acknowledged, deliver to Lessor, record and file
any documents, or produce such evidence, facts or figures as set forth in
Exhibit A accompanying this Commitment, and will do likewise as to any further
documents, evidence, facts or figures that Lessor and its counsel may now or
hereafter deem necessary or advisable to protect Lessor's rights under the
Lease and Supplements and its interest in the Equipment. Lessee will pay as
directed by Lessor, or will reimburse Lessor on demand, for all reasonable
out-of-pocket costs, including legal, appraisal, due diligence, title and lien
searches, UCC recording, documentation and other charges incurred by Lessor in
connection with the Lease and Supplements. The form, substance and sufficiency
of all documents employed in documenting the Lease and Supplements contemplated
hereby must be acceptable to Lessor and its counsel. Such costs and charges not
to exceed $5,000 in the aggregate for all Leases and Supplements.
12. TERMINATION. Lessor, in its sole discretion, retains the right to
delay or to cancel lease funding commitments if adverse change in Lessee's
financial condition occurs which has, in Lessor's sole discretion, materially
impacted or which may materially impact Lessee's credit capability. Lessor may,
at its option, terminate its obligation to Lessee hereunder (a) at or
subsequent to the Commitment Expiration Date; (b) upon the advent of a material
adverse change, in Lessor's sole discretion, in Lessee's financial condition or
Lessee's probable ability to perform its obligations under the Lease and
Supplements; (c) if the Lease, any Supplement, or any other agreement under
which Lessee has the obligation to Lessor is in default or an event which would
constitute a default under the Lease, any Supplement or any other agreement has
occurred and is continuing; or (d) with respect to any item if the shipping
costs, installation charges and design costs applicable thereto exceed more
than fifteen percent (15%) of its total cost to Lessor. Termination shall occur
upon Lessor's giving three (3) days written notice of termination to Lessee. In
the event Lessor elects to terminate its obligation to Lessee as described
herein, Lessee will purchase all of Lessor's right, title and interest in the
Equipment subject to the Lease and Supplements thereto for the amount Lessor
has paid or has become obligated to pay on account thereof, plus interest on
amounts actually paid at the rate of eighteen percent (18%) per annum, or such
greater or lesser contract rate as may be applicable to Lessor, from the date
paid to the date of Lessee's repurchase. Lessee acknowledges that Lessee will,
upon demand by Lessor, pay directly to the appropriate party the amount of any
invoice which may be furnished to Lessor subsequent to inclusion of the
applicable item of Equipment on a Supplement.
ACCEPTED AND AGREED to on 3/28/00.
LESSOR: LESSEE:
PENTECH FINANCIAL SERVICES, INC. VIROLOGIC, INC.
a California corporation a Delaware corporation
By: By: /s/ Martin H. Goldstein
------------------------- -----------------------
Benjamin E. Millerbis Name Martin H. Goldstein
-----------------------
Its: President Its: President
-----------------------
<PAGE> 3
EXHIBIT A TO MASTER EQUIPMENT LEASE COMMITMENT
These provisions hereby become part of the Master Equipment Lease Commitment
for Master Equipment Lease No. 300601 with effective date of 3/28/00 between
PENTECH FINANCIAL SERVICES, INC., Lessor, and VIROLOGIC INC., Lessee, as
supplemented by the terms described in that certain proposal letter from Lessor
to Lessee dated February 24, 2000, executed by Lessee as of March 2, 2000.
In addition to the terms of the Master Equipment Lease Agreement (the
"Agreement"), Lessee further agrees to the following additional provisions:
1. UCC SEARCH/RELEASES: The Lessor may search all public records and filings
of Lessee to locate and identify any conflicting liens against the Equipment.
UCC releases from any intervening parties holding a security interest in said
Equipment shall be required prior to funding any Supplement.
2. TYPE OF LEASE: This is a net lease transaction whereby maintenance,
insurance, property taxes, and all items of a similar nature are solely for the
account of the Lessee.
3. EXPENSES: All expenses associated with the lease transaction contemplated
hereby including, but not limited to, UCC filing fees and searches,
documentation costs, legal expenses, and equipment verification costs are
solely for the account of the Lessee, provided that such expense shall not
exceed $5,000 in the aggregate for all Supplements.
4. LEASE DEPOSIT: Lessee shall provide Lessor a Lease Deposit in the amount
of $10,000, receipt of which is hereby acknowledged. This deposit shall be
applied to Lessee's first monthly rent payment on a prorated basis for each
Supplement funded under the Lease. The balance of any unapplied Lease Deposit
as of the Commitment Expiration Date shall be deemed to have been earned by
Lessor as of that date.
5. COMMITMENT EXPIRATION: The Commitment Expiration Date may be extended, in
Lessor's sole discretion, upon review by Lessor of the Lessee's then current
financial condition. Lessee agrees to provide Lessor such financial and other
information as Lessor may reasonably request to evaluate Lessee's financial
condition for purposes of granting such extension.
ADDITIONAL EQUIPMENT LEASE COMMITMENT PROVISIONS:
A. MONTHLY FINANCIAL STATEMENTS: Lessee agrees that for so long as any item
of equipment shall be leased under the Agreement, Lessee will deliver or cause
to be delivered to Lessor (a) as soon as practicable after the end of each
month, monthly financial statements for the month just closed, including
balance sheet, and related statements of income and expense for such month, all
in reasonable detail prepared in accordance with generally accepted accounting
principles consistently applied throughout the period involved and certified by
Lessee's chief financial officer; and (b) as soon as practicable, and in any
event within 120 days after the close of each fiscal year of Lessee, the
audited balance sheet of Lessee as of the end of such fiscal year together with
the related statements of income and expense for such fiscal year together with
the related statements of income and expense for such fiscal year, all in
reasonable detail, prepared in accordance with generally accepted accounting
principles consistently applied throughout the period involved and certified by
an independent certified public accountant acceptable to Lessor.
B. ANNUAL FINANCIAL STATEMENTS: Lessee agrees to provide Lessor with Lessee's
annually audited financial statements within 120 days of the close of Lessee's
fiscal year end.
C. ADVANCE PAYMENTS: The first and last month's rent under any Supplement
will be payable prior to the Commencement Date of the Supplement.
D. PURCHASE OPTION: Lessee shall purchase all but not less than all of the
equipment under any lease schedule at a price equal to 11% of its original cost
at the end of the Initial Term ("Purchase Option").
E. ADVERTISING: During the term of any schedule or supplement under this
Master Lease line, Lessor may publish, for the purpose of its own advertising
and promotion only, via print and/or electronic media, the name and the logo of
Lessee, together with the total amount of the Master Lease Line.
F. WARRANTS: Lessee shall issue to Lessor a Warrant to purchase 23,585 shares
of Virologic, Inc. Series C Preferred Stock at a strike price of $2.12 per
share. The Warrant shall have an exercise term of 10 years from the date of
issue and shall contain standard anti-dilution provisions. The Warrant may be
exchanged without the payment of any additional consideration for stock based
upon the value of the common or preferred stock at the exchange, i.e., net
issuance.
<PAGE> 4
CERTIFICATE OF SECRETARY
AS TO ADOPTION OF RESOLUTIONS
The undersigned, _________________________________ (Corporate Secretary)
hereby certifies that he/she is now, and at all times herein mentioned has
been, the duly elected, qualified and acting Secretary of Virologic, Inc., a
Delaware corporation, a duly organized and existing corporation, and in charge
of the minute book and corporate records of said corporation; that the
following is a full, true and correct copy of certain resolutions adopted by
the Board of Directors of said corporation at a meeting thereof duly held on
__________________ (Date), at which meeting a quorum of said Board was at all
times present and acting; and that said resolutions have not been modified nor
rescinded and are at the date of this Certificate in full force and effect:
WHEREAS it is in the best interest of this corporation to enter into a certain
Equipment Lease Agreement, Equipment Financing Agreement or other financing
agreement with PENTECH FINANCIAL SERVICES, INC. ("Lessor/Secured Party") and,
where appropriate, commitments, now or hereafter contemplating the receipt by
this corporation of financial accommodation from Lessor/Secured Party under the
terms and conditions of said Equipment Lease Agreement, Equipment Financing
Agreement or other financing agreement and may in the future be in this
corporation's best interests to enter into such agreements or other financing
agreements with Lessor/Secured Party.
NOW THEREFORE BE IT RESOLVED: That the officers of this corporation listed
below, and each of them, are hereby authorized and directed to execute,
acknowledge and deliver in the name of and on behalf of this corporation said
Equipment Lease Agreement, Equipment Financing Agreement or other financing
agreement, commitments and any such further agreement.
RESOLVED FURTHER: That the officers, agents and employees of this corporation
be and each of them is hereby authorized and empowered to do and perform such
other acts and things, and to make, execute, acknowledge, procure and deliver
all such other instruments and documents on behalf of this corporation as may
be necessary or be by such officer, agent or employee deemed appropriate to
comply with, or to evidence compliance with, the terms, conditions or
provisions of said Equipment Lease Agreement, Equipment Financing Agreement or
other financing agreement, any commitment or any further agreement and to
consummate the transactions from time to time contemplated thereby.
RESOLVED FURTHER: That this corporation hereby ratifies and confirms the acts
of the officer, agents or employees of this corporation in heretofore entering
into any Equipment Lease Agreement, Equipment Financing Agreement, commitment
or other agreement with Lessor/Secured Party together with any other acts
performed in relation thereto.
RESOLVED FURTHER: That the Secretary of this corporation be and he/she is
hereby authorized and directed to execute, acknowledge and deliver a certified
copy of these resolutions to Lessor/Secured Party and any other person or
agency which may require a copy of these resolutions.
RESOLVED FURTHER: That the following are the true names and specimen signatures
of the incumbent officers of this corporation authorized by these resolutions
to so execute, acknowledge and deliver said Equipment Lease Agreement,
Equipment Financing Agreement or other agreement, commitment and further
agreements.
(Typed Name) (Specimen Signature)
__________________________, President /s/ Martin H. Goldstein
__________________________, Vice Pres. ________________________________
__________________________, Secretary ________________________________
__________________________, CFO ________________________________
RESOLVED FURTHER: That Lessor/Secured Party is authorized to act upon these
resolutions until written notice of the revocation thereof is delivered to
Lessor/Secured Party, any such revocation in no way to affect the obligations
of this corporation to Lessor/Secured Party under any agreements entered into
by this corporation pursuant to the terms of these resolutions prior to receipt
by Lessor/Secured Party of such notice of revocation.
IN WITNESS WHEREOF, the undersigned has executed this Certificate as of March
__, 2000.
____________________________________
(Secretary)
<PAGE> 5
PENTECH FINANCIAL SERVICES, INC.
EQUIPMENT FINANCING AGREEMENT
EFA#200371
THIS EQUIPMENT FINANCING AGREEMENT ("Agreement") with effective date of 3/28/00
("Effective Date"), is entered into by and between PENTECH FINANCIAL SERVICES,
INC., a California corporation ("Secured Party") and VIROLOGIC, INC., a
Delaware corporation ("Debtor").
1. EQUIPMENT; SECURITY INTEREST. The terms and conditions of this Agreement
cover each item of machinery, equipment and other property (individually an
"Item" or "Item of Equipment" and collectively the "Equipment") described in a
schedule now or hereafter executed by the parties hereto and made a part hereof
(individually a "Schedule" and collectively the "Schedules"). Debtor hereby
grants Secured Party a security interest in and to all Debtor's right, title
and interest in and to the Equipment under the Uniform Commercial Code, such
grant with respect to an Item of Equipment to be effective as of Debtor's
execution of a related equipment financing commitment referencing this
Agreement or, if Debtor then has no interest in such Item, as of such
subsequent time as Debtor acquires an interest in the Item. Such security
interest is granted by Debtor to secure performance by Debtor of Debtor's
obligations to Secured Party hereunder and under any other agreements under
which Debtor has or may hereafter have obligations to Secured Party. Debtor
will ensure that such security interest will be and remain a sole and valid
first lien security interest subject only to the lien of current taxes and
assessments not in default but only if such taxes are entitled to priority as a
matter of law.
2. DEBTOR'S OBLIGATIONS. The obligations of Debtor under this Agreement
respecting an Item of Equipment, except the obligation to pay installment
payments with respect thereto which will commence as set forth in paragraph 3
below, commence upon the grant to Secured Party of a security interest in the
Item. Debtor's obligations hereunder with respect to an Item of Equipment and
Secured Party's security interest therein will continue until payment of all
amounts due, and performance of all terms and conditions required, hereunder
with respect thereto; provided, however, that if this Agreement is then in
default said obligations and security interest will continue during the
continuance of said default. Upon termination of Secured Party's security
interest in an Item of Equipment, Secured Party will execute such release of
interest with respect thereto as Debtor reasonably requests.
3. INSTALLMENT PAYMENTS AND OTHER PAYMENTS. Debtor will repay advances Secured
Party makes on account of the Equipment together with interest in installment
payments in the amounts and at the times set forth in the Schedules, whether or
not Secured Party has rendered an invoice therefor, at the office of Secured
Party set forth at the foot hereof, or to such person and/or at such other
place as Secured Party may from time to time designate on notice to Debtor. Any
other amounts required to be paid Secured Party by Debtor hereunder are due
upon Debtor's receipt of Secured Party's invoice therefor and will be payable
as directed in the invoice. Payments under this Agreement may be applied to
Debtor's then accrued obligations to Secured Party in such order as Secured
Party may choose.
4. NET AGREEMENT; NO OFFSET; SURVIVAL. This Agreement is a net agreement, and
Debtor will not be entitled to any abatement of installment payments or other
payments due hereunder or any reduction thereof under any circumstances or for
any reason whatsoever. Debtor hereby waives any and all existing and future
claims, as offsets, against any installment payments or other payments due
hereunder and agrees to pay the installment payments and other amounts due
hereunder as and when due regardless of any offset or claim which may be
asserted by Debtor or on its behalf. The obligations and liabilities of Debtor
hereunder will survive the termination of this Agreement.
5. FINANCING AGREEMENT. THIS AGREEMENT IS SOLELY A FINANCING AGREEMENT. DEBTOR
ACKNOWLEDGES THAT THE EQUIPMENT HAS OR WILL HAVE BEEN SELECTED AND ACQUIRED
SOLELY BY DEBTOR FOR DEBTOR'S PURPOSES, THAT SECURED PARTY IS NOT AND WILL NOT
BE THE VENDOR OF ANY EQUIPMENT AND THAT EXCEPT FOR SECURED PARTY'S WARRANTY OF
QUIET ENJOYMENT IN THE EQUIPMENT SECURED PARTY HAS NOT MADE AND WILL NOT MAKE
ANY AGREEMENT, REPRESENTATION OR WARRANTY WITH RESPECT TO THE MERCHANTABILITY,
CONDITION, QUALIFICATION OR FITNESS FOR A PARTICULAR PURPOSE OR VALUE OF THE
EQUIPMENT OR ANY OTHER MATTER WITH RESPECT THERETO IN ANY RESPECT WHATSOEVER.
6. NO AGENCY. DEBTOR ACKNOWLEDGES THAT NO AGENT OF THE MANUFACTURER OR OTHER
SUPPLIER OF AN ITEM OF EQUIPMENT OR OF ANY FINANCIAL INTERMEDIARY IN CONNECTION
WITH THIS AGREEMENT IS AN AGENT OF SECURED PARTY. SECURED PARTY IS NOT BOUND BY
A REPRESENTATION OF ANY SUCH PARTY AND, AS CONTEMPLATED IN PARAGRAPH 27 BELOW,
THE ENTIRE AGREEMENT OF SECURED PARTY AND DEBTOR CONCERNING THE FINANCING OF
THE EQUIPMENT IS CONTAINED IN THIS AGREEMENT AS IT MAY BE AMENDED AS PROVIDED
IN THAT PARAGRAPH.
7. ACCEPTANCE. Execution by Debtor and Secured Party of a Schedule covering
the Equipment or any Items thereof will conclusively establish that such
Equipment has been included under and will be subject to all the terms and
conditions of this Agreement. If Debtor has not furnished Secured Party with a
Schedule by the earlier of fourteen (14) days after receipt thereof or
expiration of the commitment period set forth in the applicable equipment
financing commitment, Secured Party may terminate its obligation to advance
funds as to the applicable Equipment.
8. LOCATION; INSPECTION; USE. Debtor will keep, or in the case of motor
vehicles, permanently garage and not remove from the United States, as
appropriate, each Item of Equipment in Debtor's possession and control at the
Equipment Location designated in the applicable Schedule, or at such other
location to which such Item of Equipment may have been moved with the prior
written consent of Secured Party. Whenever requested by Secured Party, Debtor
will advise Secured Party as to the exact location of an Item of Equipment.
Secured Party will have the right to inspect the Equipment and observe its use
during normal business hours and to enter into and upon the premises where the
Equipment may be located upon reasonable notice to Debtor, for such purpose.
The Equipment will at all times be used solely for commercial or business
purposes and operated in a careful and proper manner and in compliance with all
applicable laws, ordinances, rules and regulations, all conditions and
requirements of the policy or policies of insurance required to be carried by
Debtor under the terms of this Agreement and all manufacturer's instructions
and warranty requirements. Any modifications or additions to the Equipment
required by any such governmental edict or insurance policy will be promptly
made by Debtor.
9. ALTERATIONS; SECURITY INTEREST COVERAGE. Without the prior written consent
of Secured Party, Debtor will not make any alterations, additions or
improvements to any Item of Equipment which detract from its economic value or
functional utility, except as may be required pursuant to paragraph 8 above.
Secured Party's security interest in the Equipment will include all
modifications and additions thereto and replacements
<PAGE> 6
and substitutions therefor, in whole or in part. Such reference to replacements
and substitutions will not grant Debtor greater rights to replace or substitute
than are provided in paragraph 11 below or as may be allowed upon the prior
written consent of Secured Party.
10. MAINTENANCE. Debtor will maintain the Equipment in good repair, condition
and working order. Debtor also will cause each Item of Equipment for which a
service contract is generally available to the covered by such a contract which
provides coverages typical as to property of the type involved and is issued by
a competent servicing entity.
11. LOSS AND DAMAGE; CASUALTY VALUE. In the event of the loss of, theft of,
requisition of, damage to or destruction of an Item of Equipment ("Casualty
Occurrence") Debtor will give Secured Party prompt notice thereof and will
thereafter place such Item in good repair, condition and working order;
provided, however, that if such Item is determined by Secured Party to be lost,
stolen, destroyed or damaged beyond repair, is requisitioned or suffers a
constructive total loss as defined in any applicable insurance policy carried
by Debtor in accordance with paragraph 14 below, Debtor, at Secured Party's
option, will (a) replace the Item with like equipment in good repair, condition
and working order whereupon such replacement equipment will be deemed such Item
for all purposes hereof or (b) pay Secured Party the "Casualty Value" of such
Item which will equal the total of (i) all installment payments and other
amounts due from Debtor to Secured Party at the time of such payment and (ii)
each future installment payment due with respect to such Item with each such
payment other than any final uneven payment discounted at eight percent (8%)
per annum simple interest from the date due to the date of such payment. Any
final uneven payment will be due without discount. The discounting contemplated
in this paragraph will be in accordance with the Financial Compound Interest
and Annuity Tables, Sixth Edition published by the Financial Publishing
Company. Upon such replacement or payment, as appropriate, this Agreement and
Secured Party's security interest will terminate with, and only with, respect
to the Item of Equipment so replaced or as to which such payment is made in
accordance with paragraph 2 above.
12. TITLING; REGISTRATION. Each Item of Equipment subject to title registration
laws will at all times be titled and/or registered by Debtor as Secured Party's
agent and attorney-in-fact with full power and authority to register (but
without power to affect title to) the Equipment in such manner and in such
jurisdiction or jurisdictions as Secured Party directs. Debtor will promptly
notify Secured Party of any necessary or advisable retitling and/or
reregistration of an Item of Equipment in a jurisdiction other than one in which
such Item is then titled and/or registered. Any and all documents of title
will be furnished or caused to be furnished Secured Party by Debtor within
sixty (60) days of the date any titling or registering or retitling or
reregistering, as appropriate, is directed by Secured Party.
13. TAXES. Debtor will make all filings as to and pay when due all personal
property and other ad valorem taxes and all other taxes, fees, charges and
assessments based on the ownership or use of the Equipment and will pay as
directed by Secured Party or reimburse Secured Party for all taxes, including,
but not limited to, gross receipts taxes (exclusive of federal and state taxes
based on Secured Party's net income, unless such net income taxes are in
substitution for or relieve Debtor from any taxes which Debtor would otherwise
be obligated to pay under the terms of this paragraph 13), fees, charges and
assessments whatsoever, however designated, whether based on the installment
payments or other amounts due hereunder, levied, assessed or imposed upon the
Equipment or otherwise related hereto or to the Equipment, now or hereafter
levied, assessed or imposed under the authority of a federal, state or local
taxing jurisdiction, regardless of when and by whom payable. Filings with
respect to such other amounts will, at Secured Party's option, be made by
Secured Party or by Debtor as directed by Secured Party.
14. INSURANCE. Debtor will procure and continuously maintain all risk insurance
against loss of or damage to the Equipment from any cause whatsoever for not
less than the full replacement value thereof naming Secured Party as Loss Payee.
Such insurance must be in a form and with insurers as are customary for
businesses similar to Debtor's, must provide at least thirty (30) days advance
written notice to Secured Party of cancellation, change or modification in any
term, condition or amount of protection provided therein, must provide full
breach of warranty protection and must provide that the coverage is "primary
coverage" (does not require contribution from any other applicable coverage).
Debtor will provide Secured Party with an original policy or certificate
evidencing such insurance. In the event of an assignment of this Agreement by
Secured Party of which Debtor has notice, Debtor will cause such insurance to
provide the same protection to the assignee as its interest may appear. The
proceeds of such insurance, at the option of Secured Party or such assignee, as
appropriate, will be applied toward (a) the repair or replacement of the
appropriate Item or Items of Equipment, (b) payment of the Casualty Value
thereof or (c) payment of, or as provision for, satisfaction of any other
accrued obligations of Debtor hereunder. Debtor hereby appoints Secured Party
as Debtor's attorney-in-fact with full power and authority to do all things,
including, but not limited to, making claims, receiving payments and endorsing
documents, checks or drafts, necessary to secure payments due under any policy
contemplated hereby on account of a Casualty Occurrence. Debtor and Secured
Party contemplate that the jurisdictions where the Equipment will be located
will not impose any liability upon Secured Party for personal injury and/or
property damage resulting out of the possession, use, operation or condition of
the Equipment. In the event Secured Party determines that such is not or may
not be the case with respect to a given jurisdiction, Debtor will provide
Secured Party with public liability and property damage coverage applicable to
the Equipment in such amounts and in such form as Secured Party requires.
15. SECURED PARTY'S PAYMENT. If Debtor fails to pay any amounts due hereunder
or to perform any of its other obligations under this Agreement, Secured Party
may, at its option, but without any obligation to do so, pay such amounts or
perform such obligations, and Debtor will reimburse Secured Party the amount of
such payment or cost of such performance.
16. INDEMNITY. Debtor does hereby assume liability for and does agree to
indemnify, defend, protect, save and keep harmless Secured Party from and
against any and all liabilities, losses, damages, penalties, claims, actions,
suits, costs, expenses and disbursements, including court costs and legal
expenses, of whatever kind and nature, imposed on, incurred by or asserted
against Secured Party and not resulting from the gross negligence or willful
misconduct of Secured Party (whether or not also indemnified against by any
other person) in any way relating to or arising out of this Agreement or the
manufacture, financing, ownership, delivery, possession, use, operation,
condition or disposition of the Equipment by Secured Party or Debtor,
including, without limitation, any claim alleging latent and other defects,
whether or not discoverable by Secured Party or Debtor, and any other claim
arising out of strict liability in tort, whether or not in either instance
relating to an event occurring while Debtor remains obligated under this
Agreement, and any claim for patent, trademark or copyright infringement.
Debtor agrees to give Secured Party and Secured Party agrees to give Debtor
notice of any claim or liability hereby indemnified against promptly following
learning thereof.
17. DEFAULT. Any of the following will constitute an event of default here
under: (a) Debtor's failure to pay when due any installment payment or other
amount due hereunder, which failure continues for ten (10) days after the due
date thereof; (b) Debtor's default in performing any other obligation, term or
condition of this Agreement or any other agreement between Debtor and Secured
Party or default under any further agreement providing security for the
performance by Debtor of its obligations hereunder, provided such default has
continued for more than twenty (20) days, except as provided in (c) and (d)
hereinbelow, or, without limiting the generality of subparagraph (1)
hereinbelow, default under any lease or any mortgage or other instrument
contemplating the provision of financial accommodation applicable to the real
estate where an Item of Equipment is located; (c) any writ or order of
attachment or execution or other legal process being levied on or charged
against any Item of Equipment and not being released or satisfied within
forty-five (45) days; (d) Debtor's failure to comply with its obligations under
paragraph 14 above or any transfer by Debtor in violation of paragraph 21 below;
(e) a non-appealable judgment for the payment of money in excess of $100,000
being rendered by a court of record against Debtor which Debtor does not
discharge or make provision for discharge in accordance with the terms thereof
within ninety (90) days from the date of entry thereof; (f) death or judicial
declaration of incompetency of Debtor, if an individual; (g) the filing by
Debtor of a petition under the Bankruptcy Act or any amendment thereto or under
any other insolvency law or law providing for the relief of debtors, including,
without limitation, a petition for reorganization, arrangement or extension, or
the commission by Debtor of an act of bankruptcy; (h) the filing against Debtor
of any such petition not dismissed or permanently stayed within (60) days of the
filing thereof; (i) the voluntary or involuntary making of an assignment of
substantial portion of its assets by Debtor for the benefit of creditors,
appointment of a receiver or trustee for Debtor or for any of Debtor's assets,
institution by or against Debtor
2
<PAGE> 7
or any other type of insolvency proceeding (under the Bankruptcy Code or
otherwise) or of any formal or informal proceeding for dissolution,
liquidation, settlement of claims against or winding up of the affairs of
Debtor, Debtor's cessation of business activities or the making by Debtor of a
transfer of all or a material portion of Debtor's assets or inventory not in
the ordinary course of business; (j) the occurrence of any event described in
parts (e), (f), (g), (h) or (i) hereinabove with respect to any guarantor or
other party liable for payment or performance of this Agreement; (k) any
certificate statement, representation, warranty or audit heretofore or
hereafter furnished with respect hereto by or on behalf of Debtor or any
guarantor or other party liable for payment or performance of this Agreement
proving to have been false in any material respect at the time as of which the
facts therein set forth were stated or certified or having omitted any
substantial contingent or unliquidated liability or claim against Debtor or any
such guarantor or other party; (l) breach by Debtor of any lease or agreement
providing financial accommodation under which Debtor or its property is bound
or (m) a transfer of effective control of Debtor, if an organization.
18. REMEDIES. Upon the occurrence of an event of default, Secured Party will
have the rights, options, duties and remedies of a secured party, and Debtor
will have the rights and duties of a debtor, under the Uniform Commercial Code
(regardless of whether such Code or a law similar thereto has been enacted in a
jurisdiction wherein the rights or remedies are asserted) and, without limiting
the foregoing, Secured Party may exercise any one or more of the following
remedies: (a) declare the Casualty Value or such lesser amount as may be set by
law immediately due and payable with respect to any or all Items of Equipment
without notice or demand to Debtor; (b) sue from time to time for and recover
all installment payments and other payments then accrued and which accrue
during the pendency of such action with respect to any or all Items of
Equipment; (c) take possession of and, if deemed appropriate, render unusable
any or all Items of Equipment, without demand or notice, wherever same may be
located, without any court order or other process of law and without liability
for any damages occasioned by such taking of possession and remove, keep and
store the same or use and operate or lease the same until sold; (d) require
Debtor to assemble any or all Items of Equipment at the Equipment Location
therefor, such location to which such Equipment may have been moved with the
written consent of Secured Party or such other location in reasonable proximity
to either of the foregoing as Secured Party designates; (e) upon ten days
notice to Debtor or such other notice as may be required by law, sell or
otherwise dispose of any Item of Equipment, whether or not in Secured Party's
possession, in a commercially reasonable manner at public or private sale at
any place deemed appropriate and apply the net proceeds of such sale, after
deducting all costs of such sale, including, but not limited to, costs of
transportation, repossession, storage, refurbishing, advertising and broker's
fees, to the obligations of Debtor to Secured Party hereunder or otherwise,
with Debtor remaining liable for any deficiency and with any excess being
returned to Debtor; (f) upon thirty (30) days notice to Debtor, retain any
repossessed or assembled Items of Equipment as Secured Party's own property in
full satisfaction of Debtor's liability for the installment payments due
hereunder with respect thereto, provided that Debtor will have the right to
redeem such Items by payment in full of its obligations to Secured Party
hereunder or otherwise or to require Secured Party to sell or otherwise dispose
of such Items in the manner set forth in subparagraph (e) hereinabove upon
notice to Secured Party within such thirty (30) day period or (g) utilize any
other remedy available to Secured Party under the Uniform Commercial Code or
similar provision of law or otherwise at law or in equity.
No right or remedy conferred herein is exclusive of any other right or remedy
conferred herein or by law; but all such remedies are cumulative of every other
right or remedy conferred hereunder or at law or in equity, by statute or
otherwise, and may be exercised concurrently or separately from time to time.
Any sale contemplated by subparagraph (e) of this paragraph 18 may be adjourned
from time to time by announcement at the time and place appointed for such
sale, or for any such adjourned sale, without further published notice, and
Secured Party may bid and become the purchaser at any such sale. Any sale of
an Item of Equipment, whether under said subparagraph or by virtue of judicial
proceedings, will operate to divest all right, title, interest, claim and
demand whatsoever, either at law or in equity, of Debtor in and to said Item
and will be a perpetual bar to any claim against such Item, both at law and in
equity, against Debtor and all persons claiming by, through or under Debtor.
19. DISCONTINUANCE OF REMEDIES. If Secured Party proceeds to enforce any right
under this Agreement and such proceedings are discontinued or abandoned for any
reason or are determined adversely, then and in every such case Debtor and
Secured Party will be restored to their former positions and rights thereunder.
20. SECURED PARTY'S EXPENSES. Debtor will pay Secured Party all costs and
expenses, including reasonable attorney's fees and court costs and sales costs
not offset against sales proceeds under paragraph 18 above, incurred by Secured
Party in exercising any of its rights or remedies hereunder or enforcing any of
the terms, conditions or provisions hereof. This obligation includes the
payment or reimbursement of all such amounts whether an action is ultimately
filed and whether an action filed is ultimately dismissed.
21. ASSIGNMENT. Without the prior written consent of Secured Party, Debtor will
not sell, lease, pledge or hypothecate, except as provided in this Agreement, an
Item of Equipment or any interest therein or assign, transfer, pledge or
hypothecate this Agreement or any interest in this Agreement or permit the
Equipment to be subject to any lien, charge or encumbrance of any nature except
the security interest of Secured Party contemplated hereby. Debtor's interest
herein is not assignable and will not be assigned or transferred by operation
of law. Consent to any of the foregoing prohibited acts applies only in the
given instance and is not a consent to any subsequent like act by Debtor or any
person.
All rights of Secured Party hereunder may be assigned, pledged, mortgaged,
transferred or otherwise disposed of, either in whole or in part, without
notice to Debtor but always, however, subject to the rights of Debtor under
this Agreement. If Debtor is given notice of any such assignment, Debtor will
acknowledge receipt thereof in writing. In the event Secured Party assigns this
Agreement or the installment payments due or to become due hereunder or any
other interest herein, whether as security for any of its indebtedness or
otherwise, no breach or default by Secured Party hereunder or pursuant to any
other agreement between Secured Party and Debtor, should there be one, will
excuse performance by Debtor of any provision hereof, it being understood that
in the event of such default or breach by Secured Party that Debtor will pursue
any rights on account thereof solely against Secured Party. No such assignee,
unless such assignee agrees in writing, will be obligated to perform any duty,
covenant or condition required to be performed by Secured Party in connection
with this Agreement.
Subject always to the foregoing, this Agreement insures to the benefit of, and
is binding upon, the heirs, legatees, personal representatives, successors and
assigns of the parties hereto.
22. MARKINGS; PERSONAL PROPERTY. If Secured Party supplies Debtor with labels,
plates, decals or other markings stating that Secured Party has an interest in
the Equipment, Debtor will affix and keep the same prominently displayed on the
Equipment or will otherwise make the Equipment or its then location or
locations, as appropriate, at Secured Party's request to indicate Secured
Party's security interest in the Equipment. The Equipment is, and at all times
will remain, personal property notwithstanding that the Equipment or any Item
thereof may now be, or hereafter become, in any manner affixed or attached to,
or embedded in, or permanently resting upon real property or any improvement
thereof or attached in any manner to what is permanent as by means of cement,
plaster, nails, bolts, screws or otherwise. If requested by Secured Party,
Debtor will obtain and deliver to Secured Party waivers of interest or liens in
recordable form satisfactory to Secured Party from all persons claiming any
interest in the real property on which an Item of Equipment is or is to be
installed or located.
23. LATE CHARGE. If Debtor fails to pay any installment payment or any other
sum to be paid by Debtor to Secured Party when due, Debtor will pay to Secured
Party (a) a late charge equal to 5% of the installment payment, (b) Secured
Party's collection costs paid third parties relevant to the collection thereof
and (c) interest on such unpaid installment or other amount at the rate of
eighteen percent (18%) per annum, or at such greater or lesser contract rate as
may be applicable, computed from the date due to the date paid.
3
<PAGE> 8
24. NON-WAIVER. No covenant or condition of this Agreement can be waived
except by the written consent of Secured Party. Forbearance or indulgence by
Secured Party in regard to any breach hereunder will not constitute a waiver of
the related covenant or condition to be performed by Debtor.
25. ADDITIONAL DOCUMENTS. In connection with and in order to perfect and
evidence the security interest in the Equipment granted Secured Party hereunder
Debtor will execute and deliver to Secured Party such financing statements and
similar documents as Secured Party reasonably requests. Debtor authorizes
Secured Party where permitted by law to make filings of such financing
statements without Debtor's signature. Debtor further will furnish Secured
Party (a) a fiscal year end financial statement including balance sheet and
profit and loss statement within one hundred twenty (120) days of the close of
each fiscal year, (b) any other information normally provided by Debtor to the
public and (c) such other financial data or information relative to this
Agreement and the Equipment, including, without limitation, copies of vendor
proposals and purchase orders and agreements, listings of serial numbers or
other identification data and confirmations of such information, as Secured
Party may from time to time reasonably request. Debtor will procure and/or
execute, have executed, acknowledge, have acknowledged, deliver to Secured
Party, record and file such other documents and showings as Secured Party deems
necessary or desirable to protect its interest in and rights under this
Agreement and interest in the Equipment. Debtor will pay as directed by Secured
Party or reimburse Secured Party for all filing, search, title report, legal
and other fees incurred by Secured Party in connection with any documents to be
provided by Debtor pursuant to this paragraph or paragraph 22 and any further
similar documents Secured Party may procure.
26. DEBTOR'S WARRANTIES. Debtor certifies and warrants that the financial data
and other information which Debtor has submitted, or will submit, to Secured
Party in connection with this Agreement is, or will be at time of delivery, as
appropriate, a true and complete statement of the matters therein contained.
Debtor further certifies and warrants that (a) this Agreement has been duly
authorized by Debtor and when executed and delivered by the person signing on
behalf of Debtor below will constitute the legal, valid and binding obligation,
contract and agreement of Debtor enforceable against Debtor in accordance with
its respective terms; (b) this Agreement and each and every showing provided by
or on behalf of Debtor in connection herewith may be relied upon by Secured
Party in accordance with the terms thereof notwithstanding the failure of
Debtor or other applicable party to ensure proper attestation thereto, whether
by absence of a seal or acknowledgment or otherwise; (c) Debtor has the right,
power and authority to grant a security interest in the Equipment to Secured
Party for the uses and purposes herein set forth and (d) each Item of Equipment
will, at the time such Item becomes subject hereto, be in good repair,
condition and working order.
27. ENTIRE AGREEMENT. This Agreement, the Equipment Financing Commitment and
Exhibit A thereto, the Schedule to Equipment Financing Agreement, the
Disbursement Authorization, the Corporate Resolution, the UCC Form 1, the
proposal from Secured Party to Debtor dated February 24, 2000 and executed by
Debtor on March 2, 2000 and any and all other documents referenced in any of
the foregoing documents, and any and all other documents and agreements
executed by Debtor in connection with the equipment financing constitute
together the entire agreement between Secured Party and Debtor. Neither this
Agreement, nor any of the other documents constituting the entire agreement
between the parties can be modified or amended in any way except by written
agreement signed and dated by both Secured Party and Debtor.
28. NOTICES. Notices under this Agreement must be in writing and must be
mailed by United States mail, certified mail with return receipt requested,
duly addressed, with postage prepaid, to the party involved at its respective
address set forth at the foot hereof or at such other address as such party may
provide on notice to the other from time to time. Notices will be effective
when deposited. Each party will promptly notify the other of any change in the
first party's address.
29. GENDER; NUMBER; JOINT AND SEVERAL LIABILITY. Whenever the context of this
Agreement requires, the neuter gender includes the feminine or masculine and
the singular number includes the plural; and whenever the words "Secured Party"
are used herein, they include all assignees of Secured Party, it being
understood that specific reference to "assignee" in paragraph 14 above is for
further emphasis. If there is more than one Debtor named in this Agreement, the
liability of each will be joint and several.
30. TITLES. The titles to the paragraphs of this Agreement are solely for the
convenience of the parties and are not an aid in the interpretation of the
instrument.
31. GOVERNING LAW; VENUE. This Agreement will be governed and construed in
accordance with the law of the State of California. Venue for any action
related to this Agreement will be in an appropriate court in Santa Clara
County, California, to which Debtor consents, or in another court selected by
Secured Party which has jurisdiction over the parties. In the event any
provision hereof is declared invalid, such provision will be deemed severable
from the remaining provisions of this Agreement which will remain in full force
and effect.
32. TIME. Time is of the essence of this Agreement and each and all of its
provisions.
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of 3/28/00.
PENTECH FINANCIAL SERVICES, INC (Secured Party) (Debtor)
By: By: /s/ Martin H. Goldstein
---------------------------- ------------------------
Benjamin E. Millerbis Name: Martin H. Goldstein
Title: President Title: President
Address: 310 West Hamilton Ave. Suite 202 Address: 270 E. Grand Ave.
Campbell, CA 95008 S. San Francisco, CA 94080
4
<PAGE> 9
PENTECH FINANCIAL SERVICES, INC.
EQUIPMENT FINANCING COMMITMENT
EQUIPMENT FINANCING AGREEMENT No. 200371 with Effective date of 3/28/00
Subject to the terms set forth in this commitment, the following equipment
financing transaction is agreed to by ("Debtor") and PENTECH FINANCIAL
SERVICES, INC. ("Secured Party") as part of the Equipment Financing Agreement
herein referenced (the "Agreement"). The terms set out herein are hereby made a
part of and incorporated into the Equipment Financing Agreement as fully as
though set forth at length therein.
EQUIPMENT (ALL EQUIPMENT TO BE ACCEPTABLE TO SECURED PARTY): The equipment may
include: computers, test equipment, office furniture and other
related equipment to be approved by Lender. A percentage equal to
20% of line amount (but not more than 25% of any individual
schedule) may be used for "soft cost" exclusions listed below.
Exclusions: Custom use equipment, software, installation
and delivery costs, purchase tax, tooling equipment, tenant
improvements and items generally considered fungible or
expendable.
COMMITMENT AMOUNT: $1,250,000
INSTALLMENT PAYMENTS: 36 payments of 3.190% (the "Monthly Rate Factor") of
advance amount payable monthly in advance, plus a final payment equal to 11% of
the advance amount.
Rate Adjustment. The Monthly Rate Factor will be indexed to the thirty
(30) day London Inter Bank Offer Rate ("LIBOR") (the "Index Instrument")
effective on the date of the proposal of 5.78125% (Wall Street Journal dated
January 14, 2000). The Monthly Rate Factor shall be adjusted to provide for any
increase or decrease, with a floor of 5.78125%. At the Commencement Date of
each Schedule, the Monthly Rate Factor shall be fixed for the initial term of
such Schedule.
First such payments are due at time of scheduling.
COMMITMENT EXPIRATION DATE:
As more fully explained below, Secured Party has no obligation to make any
advance with respect to Equipment not covered by a Schedule to the Agreement
executed by Secured Party and Debtor on or prior to the Commitment Expiration
Date.
Debtor will comply with, procure, execute and/or have executed,
acknowledge, have acknowledged, deliver to Secured Party, record and file any
documents set forth in Exhibit A or accompanying this commitment. The form,
substance and sufficiency of all documents and showings employed in documenting
the contemplated financing transaction must be acceptable to Secured Party and
its counsel. Debtor will do likewise as to such further documents and showings
as Secured Party and its counsel may now or hereafter deem necessary or
advisable to protect Secured Party's rights under the Agreement, and to protect
its interest in the Equipment. Debtor will pay as directed by Secured Party or
reimburse Secured Party for all searches, filings, title reports, attorney's
services and other charges incurred by Secured Party in connection with all
such documents and showings and any similar documents and showings Secured
Party may procure.
Secured Party may, at its option, terminate its obligations to Debtor
hereunder with respect to any and all unscheduled Items of Equipment: (a) at or
subsequent to the Commitment Expiration Date, (b) upon the advent of a material
adverse change in Debtor's financial condition or Debtor's probable ability to
perform its obligations under the Agreement, (c) if the Agreement or any other
agreement under which Debtor has obligations to Secured Party is in default or
an event which with the giving of notice or lapse of time or both would
constitute such a default has occurred and is continuing or (d) with respect to
which more than fifteen percent (15%) would be advanced for shipping costs,
installation charges and design costs by giving Debtor written notice of such
termination.
ACCEPTED AND AGREED to as of 3/28/00
SECURED PARTY: DEBTOR:
PENTECH FINANCIAL SERVICES, INC. VIROLOGIC, INC.
a California corporation a Delaware corporation
By: By: /s/ Martin H. Goldstein
----------------------------- -----------------------------
Benjamin E. Millerbis
Name: Martin H. Goldstein
Title: President ---------------------------
Address: 310 West Hamilton Avenue, Title: President
Suite 202 --------------------------
Campbell, CA 95008
Address: 290 E. Grand Ave.
S. San Francisco, CA 94080
<PAGE> 10
EXHIBIT A TO EQUIPMENT FINANCING COMMITMENT
These provisions hereby become part of the Equipment Financing Commitment
between PENTECH FINANCIAL SERVICES, INC., Secured Party, and VIROLOGIC, INC.,
Debtor., with Effective Date of 3/28/00.
In addition to the terms of the Agreement, Debtor further agrees to the
following additional provisions:
1. UCC SEARCH/RELEASES
The Secured Party may search all public records of Debtor to locate and
identify any conflicting liens against the above referenced Equipment. Releases
from any intervening parties holding a security interest in said Equipment
shall be required prior to funding provided herein.
2. TYPE OF FINANCING
This is a net equipment financing transaction whereby maintenance,
insurance, property taxes, and all items of a similar nature are for the
account of the Debtor.
3. EXPENSES
All expenses associated with the completion of this Agreement including,
but not limited to, UCC filing fees and searches, documentation costs, legal
expenses, and equipment verification costs are for the account of the debtor,
provided that such expenses shall not exceed $5,000 in the aggregate for all
schedules.
4. MASTER AGREEMENT
This is a Master Equipment Financing Agreement whereby Schedules may be
funded as equipment is delivered, or upon request of Debtor. Schedules
scheduling Equipment to be subject to the Equipment Financing Agreement will
each be for the term and on the conditions set out therein. No individual
Schedule shall be for less than $50,000.
5. COMMITMENT EXPIRATION DATE
The commitment expiration date of December 31, 2000 may be extended, upon
such terms and under such conditions as deemed appropriate in Secured Party's
sole discretion, upon review by Secured Party of the Debtor's then current
financial condition, and any other information Secured Party may reasonably
request to evaluate Debtor's financial condition for purposes of granting such
extension. Debtor agrees to provide Security Party such information as may be
requested by Secured Party for such purpose.
6. COMMITMENT FEE DEPOSIT
Debtor shall provide Secured Party a $12,500 commitment fee deposit,
receipt of which is hereby acknowledged. This deposit shall be applied
proportionally to the advance payments due for each Schedule funded under this
Agreement. Any unapplied balance as of the commitment expiration date may be
retained by Secured Party.
7. MONTHLY FINANCIAL STATEMENTS
Debtor agrees to provide Secured Party with Debtor's internally prepared
financial statements on an ongoing basis as soon as practicable after the close
of each month of Debtor's fiscal year. Upon request by Secured Party, Debtor
also agrees to provide any other pertinent and reasonable information as
Secured Party may deem necessary to evaluate Debtor's present or future
financial condition.
8. ANNUAL FINANCIAL STATEMENTS
Debtor agrees to provide Secured Party the Debtor's annual financial
statements within 120 days of the close of Debtor's fiscal year end.
9. SCHEDULES
There shall be Schedule(s) to the Agreement, each of which shall cover
equipment with a minimum aggregate cost of $50,000.00, all of which together
shall cover equipment with a maximum aggregate cost of $300,000.
A percentage equal to 20% of the line amount (but not more than 25% of any
individual schedule) may be used for "soft cost" exclusions listed below.
Exclusions: Custom use equipment, installation and delivery costs,
purchase tax, tooling equipment, tenant improvements, software and items
generally considered fungible or expendable.
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PENTECH FINANCIAL SERVICES, INC.
Lease No. 300601
MASTER EQUIPMENT LEASE
This is a Master Equipment Lease between PENTECH FINANCIAL SERVICES, INC., a
California corporation, whose principal office is located at 310 West Hamilton
Avenue, Suite 202, Campbell, California 95008 ("Lessor") and VIROLOGIC, INC., a
Delaware corporation, whose principal office address is 270 East Grand Avenue,
South San Francisco, California 94080 ("Lessee"), with effective date of
3/28/00 ("Effective Date").
1. LEASE. Lessor agrees to lease to Lessee and Lessee agrees to lease from
Lessor, subject to the terms and conditions of this Master Equipment Lease
("Lease"), the personal property ("Equipment") described in each Acceptance
Supplement ("Supplement") executed and delivered by Lessor and Lessee pursuant
to the terms of this Lease. Each Supplement shall be in the form prescribed by
Lessor and, upon execution and delivery, shall constitute a part of this Lease
to the same extent as if the provisions thereof were set forth in full in this
Lease document; the terms "Agreement", "hereof", "herein", and "thereunder",
when used in this Lease shall mean this Lease, each Supplement and each Schedule
as hereinafter defined. This Agreement constitutes an agreement to lease.
Ownership of the Equipment remains with Lessor and nothing herein contained
shall be construed as convoying to Lessee any right, title or interest in the
equipment except as a Lessee only.
2. SELECTION OF EQUIPMENT. Lessee acknowledges that it has selected the type,
quantity and supplier of the Equipment referred to herein and that it has
requested Lessor to purchase the same for leasing to Lessee. Lessee agrees that
the Equipment and each part or unit thereof is of a design, size, quality and
capacity required by Lessee and is suitable for its purposes. Lessee
acknowledges that Lessor has informed or advised Lessee, in writing either
previously or by this Lease, of the following: (i) the identity of the
supplier; (ii) that the Lessee may have rights under the Supply Contract; and
(iii) that the Lessee may contact the supplier for a description of any such
rights Lessee may have under the Supply Contract. Lessor hereby assigns to
Lessee all rights which Lessor has or may acquire against any manufacturer,
supplier, or contractor with respect to any warranty or representation relating
to the Equipment leased hereunder.
3. EQUIPMENT TO REMAIN PERSONAL PROPERTY; LOCATION, IDENTIFICATION; INSPECTION.
Lessee represents that the Equipment shall be and at all times remain
separately identifiable personal property. Lessee shall, at its own expense,
take such action as may be necessary to prevent any third party from acquiring
any right to or interest in the Equipment by virtue of the Equipment being
deemed to be real property or a part of other personal property, and shall
indemnify Lessor against any loss which it may sustain by reason of Lessee's
failure to do so. The Equipment may not be removed from the location specified
in the Supplement pertaining thereto without Lessor's prior written consent. If
requested by Lessor, Lessee shall attach to and maintain on each item of
Equipment a conspicuous plate or marking disclosing Lessor's ownership thereof.
Lessor or its representatives may, after reasonable notice to Lessee, inspect
the Equipment during normal business hours. Lessee shall promptly advise Lessor
of any circumstances which may materially affect any item of Equipment or in
any manner affect Lessor's title thereto.
4. EXECUTION OF FURTHER DOCUMENTATION. Lessee will, at its own expense,
promptly execute and deliver to Lessor such further documentation and
assurances and take such further action as Lessor may from time to time
reasonably require in order to more effectively carry out the intent and
purpose of this Agreement so as to establish and protect the rights, interests
and remedies intended to be created in favor of Lessor hereunder, including,
without limitation, the execution and filing of financing statements and
continuation statements with respect to the Equipment and Agreement. Lessee
authorizes Lessor to effect any such filing (including the filing of any
financing statements without the signature of Lessee). Any and all reasonable
expenses incurred by Lessor in connection with any filings under this paragraph
shall be payable by Lessee on demand.
5. DISCLAIMER OF IMPLIED WARRANTIES. THE EQUIPMENT WILL BE LEASED "AS IS" AND
"WHERE IS". (A) OTHER THAN THE WARRANTY OF QUIET ENJOYMENT, THE LESSOR HAS NOT
MADE, MAY NOT BE CONSIDERED TO HAVE MADE, AND SPECIFICALLY DISCLAIMS,:
(1) ANY EXPRESS OR IMPLIED REPRESENTATION OR WARRANTY WITH RESPECT TO THE
EQUIPMENT, REGARDING TITLE, CONDITION, DESIGN, OPERATION, MERCHANTABILITY,
FREEDOM FROM CLAIMS OF INFRINGEMENT OR THE LIKE, FITNESS FOR USE FOR A
PARTICULAR PURPOSE, QUALITY OF MATERIALS OR WORKMANSHIP, ABSENCE OF
DISCOVERABLE OR NONDISCOVERABLE DEFECTS, OR THAT THE EQUIPMENT IS IN COMPLIANCE
WITH ANY APPLICABLE GOVERNMENT REQUIREMENTS OR REGULATIONS; AND
(2) ANY OTHER EXPRESS OR IMPLIED REPRESENTATION OR WARRANTY WITH RESPECT TO THE
EQUIPMENT (INCLUDING ANY IMPLIED WARRANTY ARISING FROM A COURSE OF PERFORMANCE,
COURSE OF DEALING, OR USAGE OF TRADE); AND
(3) ANY EXPRESS OR IMPLIED REPRESENTATION OR WARRANTY REGARDING THE
CHARACTERIZATION OF THIS LEASE FOR TAX, ACCOUNTING OR OTHER PURPOSES.
THE LESSEE WAIVES, RELEASES, RENOUNCES, AND DISCLAIMS EXPECTATION OF OR
RELIANCE ON ANY SUCH WARRANTY OR WARRANTIES.
(B) THE LESSOR WILL NOT HAVE ANY RESPONSIBILITY OR LIABILITY TO THE LESSEE OR
ANY OTHER PERSON, WHETHER IN CONTRACT OR TORT, ARISING OUT OF ANY ORDINARY
NEGLIGENCE OR STRICT LIABILITY OF THE LESSOR OR OTHERWISE, FOR:
(1) ANY LIABILITY, LOSS, OR DAMAGE CAUSED OR ALLEGED TO BE CAUSED DIRECTLY OR
INDIRECTLY BY THE EQUIPMENT; BY ANY INADEQUACY, DEFICIENCY OR DEFECT OF THE
EQUIPMENT; OR BY ANY OTHER CIRCUMSTANCES IN CONNECTION WITH THIS LEASE;
(2) THE USE, OPERATION, OR PERFORMANCE OF THE EQUIPMENT OR ANY RISKS RELATING
TO IT;
(3) ANY CONSEQUENTIAL DAMAGES, INCLUDING THOSE FOR INTERRUPTION OF SERVICE,
LOSS OF BUSINESS, OR ANTICIPATED PROFITS; OR
(4) THE DELIVERY, OPERATION, MAINTENANCE, REPAIR, IMPROVEMENT, OR REPLACEMENT
OF THE EQUIPMENT.
6. TERM; ACCEPTANCE; RENT; RETURN. The term of lease of each item of Equipment
shall commence on the Commencement Date specified in the Supplement pertaining
to such Equipment and, unless earlier terminated pursuant to the provisions
hereof, shall continue for the term specified in such Supplement. Lessee's
execution and deliver of each Supplement shall constitute Lessee's irrevocable
acceptance of the equipment covered thereby for all purposes of this Agreement.
Lessee shall pay to Lessor, at the addresses specified above or at such other
address as may be provided by Lessor from time to time, rent as specified in
each Supplement. Each date on which an installment of rent is payable is
designated herein as "Rent Payment Date". As to each Supplement, the first Rent
Payment Date shall be the Rent Payment Date set forth therein, with the
succeeding Rent payment Date on the corresponding day of each month thereafter.
In addition, if applicable, Lessee shall pay interim rent for the period
between the actual commencement of the rent under each Supplement and the date
designated as the Rent Payment Date, based on a 30 day month and the number of
days between the actual commencement date and the first Rent Payment Date.
Should any payment not be made by Lessee within 5 business days after the
applicable Rent Payment Date, Lessor shall be entitled to a late payment charge
in addition to the actual rent due of 5% of the late rent and any other amount
due but unpaid under this Agreement. Upon the expiration or earlier termination
of the term of lease of each item of Equipment leased thereunder, Lessee shall
at its own expense return such item to Lessor at such location as Lessor may
designate, in the condition required to be maintained by Paragraph 9 hereof.
7. LESSEE'S OBLIGATIONS IRREVOCABLE. The Lessee's obligation to pay all rent
will be absolute and unconditional and, subject to Lessee's right of quiet
enjoyment to the Equipment, will not be affected or reduced by any
circumstance, including:
(1) Any setoff, counterclaim, recoupment, defense, or other right that the
Lessee may have for any reason against the Lessor, the manufacturer, any seller
of the Equipment, or any person providing services with respect to the
Equipment;
(2) Any defect in the title, condition, design, operation, or fitness for use
of the Equipment; any damage to, or loss or destruction of, the Equipment; or
any interruption or cessation in its use or possession by the Lessee for any
reason, whether arising out of or related to an act or omission of the Lessor
or any other person;
(3) Any items with respect to the Equipment;
(4) The invalidity or unenforceability of this Agreement or any absence of
right, power or authority of the Lessor or Lessee to enter into this lease;
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(5) Any insolvency, bankruptcy, reorganization, or similar proceedings by or
against the Lessor or Lessee; or
(6) Any other circumstance or occurrence of any nature, whether or not similar
to any of the foregoing.
It is the express intention of the Lessor and Lessee that all rent payable
under this Agreement will be payable in all events, unless the obligation to
pay is terminated under the express provisions of this Agreement.
The Lessee hereby waives, to the extent permitted by law, all rights that it
may now have or later acquire, by order or otherwise, to terminate this
Agreement or any obligation imposed on the Lessee in relation to this Agreement.
Nothing in this Agreement may be construed as a waiver of the Lessee's right to
seek a separate recovery of any payment of rent that is not due and payable
under this Agreement. The Lessee retains any right it may have to seek damages,
specific performance, or any other remedy at law or in equity, separately or in
combination, against the Lessor or any other person, on account of the Lessor's
or other person's failure to perform its obligations under this Agreement.
8. RESTRICTIONS ON TRANSFER. THE LESSEE MAY NOT SUBLET OR TRANSFER POSSESSION
OF THE EQUIPMENT WITHOUT THE PRIOR WRITTEN CONSENT OF THE LESSOR WHICH WILL NOT
BE UNREASONABLY WITHHELD. THE LESSEE MAY NOT ASSIGN, PLEDGE, OR OTHERWISE
ENCUMBER THIS LEASE.
With respect to any sublease or transfer of possession of the Equipment, the
rights of the sublessee or transferee will be subject and subordinate to all
the terms of this Agreement, including the Lessor's right of repossession on
the occurrence of an event of default. The Lessee will remain primarily liable
for the performance of all the terms of this Agreement to the same extent as if
the sublease or transfer of possession had not occurred.
The Lessor will have the right, at its sole expense, to assign, sell, or
encumber any part of its interest in the Equipment or in this Agreement and any
proceeds of the disposition of that interest, subject to the Lessee's rights
under this lease. To effect or facilitate such assignment, sale or encumbrance,
the Lessee agrees to provide all agreements, consents, conveyances or documents
that may be reasonably requested by the Lessor, including an unrestricted
release of the Lessor from its obligations under this Agreement. That release
will not release the Lessor from any liability that arose before the assignment
or sale.
Any person who succeeds to the rights and interests of the Lessor under this
clause will agree to be bound by the terms of this Agreement without alteration.
The Lessee acknowledges that an assignment, sale, or encumbrance of the Lessor's
interest would not materially change the Lessee's duties under the Agreement or
materially increase its burdens or risks. Even if such a transfer could be
deemed to have that effect, the Lessee agrees that the assignment, sale or
encumbrance will nevertheless be permitted.
Without prejudice to any rights that the Lessee may have against the Lessor,
the Lessee agrees that it will not assert against an assignee any claim or
defense that it may have against the Lessor.
The agreements, covenants, obligations and liabilities contained in this
clause, including but not limited to, all obligations to pay rent and to
indemnify each indemnitee, are made for the benefit of the indemnities and
their respective successors and assigns.
9. MAINTENANCE COVENANT. The Lessee will:
(1) Furnish all labor and parts required for maintaining, repairing, and
replacing component parts of the Equipment to keep it in good operating
condition and appearance;
(2) Use, operate, maintain, and store the Equipment in a careful and proper
manner;
(3) Protect the Equipment from deterioration;
(4) Comply with the manufacturer's operating procedures and warranty
restrictions and all laws, ordinances, and regulations applicable to the
Equipment or its use and in compliance with the insurance policies required to
be maintained thereunder;
(5) Put the Equipment only to the use contemplated by the manufacturer; and
(6) Maintain accurate and complete records of all repairs and maintenance of
the Equipment and allow the Lessor to inspect those records at any time.
(7) Comply with the maintenance requirements of any maintenance schedule
recommended by the manufacturer or attached as a part of this agreement.
The Lessee will not make any alterations, additions, or improvements to the
Equipment without the Lessor's prior written consent. All repairs, replacement
parts, additions, alterations, and improvements made to the Equipment by the
Lessee will be considered to be the Lessor's property and subject to the terms
of this Agreement.
10. RISK OF LOSS COVENANT. The Lessee will bear the entire risk of
destruction, loss, theft, regulation of title, or use, confiscation, taking, or
damage (collectively, casualty loss) of the Equipment from any cause during the
period commencing when the Equipment is placed in transit to the Lessee and
ending when the Equipment is returned to the Lessor or its designee following
termination as provided herein. If during that period the Equipment suffers any
casualty loss, the Lessee will notify the Lessor in writing within five days
following the casualty loss. On demand by the Lessor, the Lessee will:
(1) If the damage constituting the casualty loss is repairable, repair the
Equipment to the condition in which the Equipment is required to be maintained
under this Agreement;
(2) If the damaged Equipment is not repairable, replace the Equipment at the
Lessee's sole expense with like Equipment approved by the Lessor and take all
actions and make all payments that may be required to vest in the Lessor title
to the replacement Equipment, free and clear of all liens, encumbrances, or
security interests; or
(3) Pay to the Lessor the casualty value (as defined below) and all other
amounts then due under this Agreement.
"Casualty value" is, at any given date, the stipulated loss value as shown on
the applicable Schedule to each Supplement, and is computed to be the sum of:
(1) The discounted value at that time, of the aggregate unpaid monthly rent
payments to be paid through the then remaining term of this Agreement,
discounting that amount at an annual discount rate of 8 percent; and
(2) The Lessor's reasonable estimate, at that time, of the fair market value of
the Equipment at the end of the term of this Agreement, discounted at an annual
discount rate of 8 percent.
11. INSURANCE. Lessee shall maintain at all times on the equipment, at
Lessee's expense, property damage, direct damage, and liability insurance in
such amounts, against such risks, and in such form and with such insurers as
are customary for businesses substantially similar to Lessee's. The required
insurance shall be as specified in the applicable Supplement; provided,
however, that the amount of direct damage insurance shall not on any date be
less than the greater of the full replacement value or the Stipulated Loss
Value of the Equipment as of such date. Each insurance policy will name Lessor
as additional insured and as loss payee, and shall contain a clause requiring
the insurer to give to Lessor at least 30 days prior written notice of any
alteration in or cancellation of the terms of such policy. Lessee shall furnish
to Lessor a certificate or other evidence satisfactory to Lessor that such
insurance coverage is in effect, provided, however, that Lessor shall be under
no duty to ascertain the existence or adequacy of such insurance.
12. TAXES; INDEMNITY. Lessee agrees to pay, and to indemnify and hold Lessor
harmless from, all license fees, assessments, and sales, use, property, excise,
and other taxes and charges (other than federal income taxes and taxes imposed
by any other jurisdiction which are based on, or measured by, the net income of
Lessor for reasons other than the ownership or leasing of the Equipment in such
jurisdiction) imposed upon or with respect to (a) the Equipment or any part
thereof arising out of or in connection with the shipment of Equipment or the
possession, ownership, use or operation thereof, or (b) this Agreement or the
consummation of the transactions herein contemplated. The agreements and
indemnities contained in this paragraph shall survive the expiration or earlier
termination of this Agreement.
13. DEPRECIATION INDEMNITY.
(1) Lessor, as the owner of the Equipment, shall be entitled to such
deductions, credits and other benefits as are provided by the Internal Revenue
Code of 1985, as amended (IRC), to an owner of property.
(2) Lessee agrees that neither it nor any corporation controlled by it, in
control of it, or under common control with it, directly or indirectly, will at
any time take any action or file any returns or other documents inconsistent
with the foregoing and that each of such corporations will file such returns,
take such action, and execute such documents as may be reasonable and necessary
to facilitate accomplishment of the intent thereof. Lessee agrees to copy and
make available for inspection and copying by Lessor such records as will enable
Lessor to determine whether it is entitled to the benefit of any amortization
or depreciation deduction, or other deduction or credit which may be available
from time to time with respect to the Equipment.
(3) If Lessor, under any circumstances or for any reason whatsoever, except for
acts of Lessor or future changes in the IRC, shall lose or shall not have the
right to claim or there shall be disallowed or recaptured, all or any portion
of the federal tax depreciation deductions with respect to any item of
Equipment based on depreciation of the Lessor's full cost of such item of
Equipment and computed on the basis of a method of depreciation provided by the
IRC as Lessor in its complete discretion may select, then Lessee agrees to pay
Lessor upon demand an amount which, after deduction of all taxes required to be
paid by Lessor in respect of the receipt thereof under the laws of any federal,
state, or local government or taxing authority of the United States or of any
taxing authority or government subsidiary of any foreign country, shall be
equal to the sum of (i) an amount equal to the additional income taxes paid or
payable by Lessor in consequence of the failure to obtain the benefit of a
depreciation deduction, and (ii) any interest and/or penalty which may be
assessed in connection with any of the foregoing.
The provisions of this paragraph shall survive the expiration or earlier
termination of this Agreement.
14. INDEMNIFICATION COVENANT. The Lessee agrees to indemnify, reimburse, and
hold harmless Lessor and its successors and assigns ("Indemnities"), from and
against all claims, damages, losses, liabilities, demands, suits, judgments,
causes of action, civil and criminal legal proceedings, penalties, fines and
other sanctions, and any attorney fees and other reasonable costs and expenses,
arising or imposed under circumstances not involving Lessor's gross negligence
or willful misconduct (collectively, "claims"), relating to or arising in any
manner out of:
(1) This Agreement or the breach of any representation, warranty, or covenant
made by the Lessee under this Agreement;
(2) Manufacture, purchase, lease, delivery, nondelivery, acceptance, rejection,
ownership, possession, use, operation, return, or disposition of the Equipment;
(3) The Equipment's condition or any discoverable or nondiscoverable defect in
it arising from its design, testing, or construction; any article used in the
Equipment; or any maintenance, service, or repair, whether or not the Equipment
is in the Lessee's possession and regardless of where the Equipment is located;
or (4) Any transaction, approval, or document, contemplated by this Agreement.
The Leasee waives and releases indemnities from any existing or future claims in
any way connected with injury to or death of the Lessee's personal, loss or
damage of the Lessee's property, or loss of use of any property, which may:
(a) Result from or arise in any manner out of the ownership, leasing, condition,
use or operation of the Equipment; or
(b) Be caused by any defect in the Equipment: its design, testing or
construction, any article used in the Equipment; or any maintenance, service, or
repair, whether or not the Equipment is in the Lessee's possession and
regardless of where the Equipment is located. The Indemnities described in this
clause will continue in full force and effect notwithstanding the expiration or
other termination of this Agreement and are expressly made for the benefit and
will be enforceable by such indemnitee.
15. COVENANT TO KEEP FREE OF LIENS. The Leases will not directly or indirectly
create, incur, assume, or suffer to exist any lien on the Equipment, its title,
or any interest therein, except for:
(1) The respective rights of the Lessor and Lessee under this Agreement;
(2) Liens granted by the Lessor with respect to the Equipment;
(3) Liens for taxes either not yet due or being contested in good faith by the
Leasee as long as adequate reserves are maintained with respect to those liens
and the Equipment is not, in the Lessor's reasonable opinion, in danger of being
sold, confiscated, forfeited, or seized as a result of the liens; and
(4) Inchoate materialmen's, mechanics', workmen's, repairmen's, employees', or
other like liens arising in the ordinary course of business, which either are
not delinquent or are being contested in good faith by the Lessee, as long as
the Equipment is not, in the Lessor's reasonable opinion, in danger of being
sold, confiscated, forfeited, or seized as a result of the liens.
The Lessee will promptly, at its sole expense, take any action that may be
necessary to discharge any lien except for the liens referred to in paragraphs
(1) and (2) arising at any time with respect to the Equipment.
16. WAIVER OF CONSEQUENTIAL DAMAGES. The Lessee will not be entitled to
recover, and hereby disclaims and waives any right that it may otherwise have to
recover, consequential damages as a result of any breach or alleged breach by
the Lessor of
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any of the agreements, representations, or warranties of the Lessor contained
in this Agreement.
17. LESSOR'S RIGHT TO PERFORM. If Lessee fails to make any payment required to
be made hereunder or fails to comply with any other provisions of this
Agreement, Lessor may make such payment or comply with such provisions, and the
amount of such payment and the reasonable expenses of Lessor incurred in
connection with such payment or compliance, shall be immediately payable by
Lessee to Lessor.
18. DEFAULT. Any one of the following occurrences shall, in the Lessor's sole
discretion, constitute a material default by Lessee of this Agreement:
(1) Failure by Lessee to make any payment of rent or other amount owing
hereunder when due;
(2) Failure of Lessee to perform or observe any other covenant, agreement, or
condition hereunder;
(3) Any representation or warranty made by Lessee herein or in any document or
certificate furnished to Lessor in connection herewith shall prove to be
incorrect at any time;
(4) Lessee shall become insolvent or make an assignment for the benefit of
creditors or consent to the appointment of a trustee or receiver, or a trustee
or receiver shall be appointed for Lessee or for a substantial part of its
property or for the Equipment, or reorganization, arrangement, insolvency,
dissolution, or liquidation proceedings shall be instituted by or against
Lessee.
In such event, Lessor may declare this Agreement to be in default, and may
proceed in accordance with the provisions of Paragraph 19 hereof.
19. REMEDIES.
(1) Remedies. On the occurrence of any event of default and at any time
afterwards as long as it continues, the Lessor may, at its option and without
notice to the Lessee, declare this Agreement to be in default and exercise one
or more of the following remedies:
(a) Declare the then Stipulated Loss Value immediately due and payable with
respect to any or all Items of Equipment without notice or demand to Lessee;
(b) Sue for and recover all rent and other payments, then accrued or thereafter
accruing, with respect to any or all Items of Equipment;
(c) Take possession of and render unusable any or all Items of Equipment,
without demand or notice, wherever same may be located, without any court order
or other process of law and without liability for any damages occasioned by
such taking of possession (any such taking of possession will not constitute a
termination of this lease as to any or all Items of Equipment unless Lessor
expressly so notifies Lessee in writing);
(d) Require Lessee to assemble any or all Items of Equipment at the original
equipment location, such location to which the equipment may have been moved
with the prior written consent of Lessor, or such other location in reasonable
proximity to either of the foregoing as Lessor designates;
(e) Sell or otherwise dispose of any or all Items of Equipment whether or not
in Lessor's possession, in a commercially reasonable manner at public or
private sale and with or without notice to Lessee and apply the net proceeds of
such sale, after deducting all costs of such sale, including, but not limited
to, costs of transportation, repossession, storage, refurbishing, advertising
and broker's fees, to the obligations of Lessee thereunder with Lessee
remaining liable for any deficiency and with any excess being retained by
Lessor;
(f) Retain any repossessed items of Equipment and credit the reasonable value
thereof, after deducting all such sales related costs incurred to the date of
crediting, to the obligations of Lessee hereunder with Lessee remaining liable
for any deficiency and with Lessor having no obligation to reimburse Lessee on
account of any excess of such reasonable value over such obligations;
(g) Terminate this lease as to any or all items of Equipment;
(h) Utilize any other remedy available to Lessor at law or in equity.
In each case, plus the amount, if any, as reasonably calculated by the Lessor,
required for the Lessor to receive the same after tax economic return from this
lease that the Lessor would have received if the Lessee had performed all of
its obligations under this Agreement through the end of the lease term.
In addition to the foregoing, the Lessee will be liable for interest on unpaid
amounts at an annual interest rate of 18 percent from the date the same became
due until payment in full, and for all reasonable legal fees and other
reasonable costs and expenses incurred by the Lessor in connection with the
occurrence of any event of default or the exercise of its remedies.
A termination hereunder will occur only upon written notice by Lessor to Lessee
and only with respect to such items of Equipment as to which Lessor
specifically elects to terminate in such notice. Except as to such items with
respect to which there is a termination, this lease will remain in full force
and effect and Lessee will be and remain liable for the full performance of all
its obligations hereunder.
No right or remedy conferred herein is exclusive of any right or remedy
conferred herein or by law; but all such rights and remedies are cumulative of
every other right or remedy conferred hereunder or at law or in equity, by
statute or otherwise, and may be exercised concurrently or separately from time
to time.
(2) In effecting any repossession, the Lessor and its representatives and
agents, to the extent permitted by law, will:
(a) Have the right to enter on any premises where the Lessor reasonably
believes the Equipment is located;
(b) Not be liable, in conversion or otherwise, for the taking of any personal
property of the Lessee that is in or attached to the repossessed Equipment as
long as the Lessor promptly returns that property to the Lessee;
(c) Not be liable in any manner for any damage to any of the Lessee's property
in repossessing and holding the Equipment, except for damage caused by the
Lessor's gross negligence or willful misconduct; and
(d) Have the right to maintain possession of and dispose of the Equipment on
any premises owned by the Lessee or under the Lessee's control.
If reasonably required by the Lessor, the Lessee, at its sole expense, will
assemble and make the Equipment available at a place designated by the Lessor.
If the Equipment is returned to or repossessed by the Lessor, any rights in any
express or implied warranty previously assigned to the Lessee or otherwise held
by it will without further act, notice, or writing be assigned or reassigned to
the Lessor, if assignable. The Lessee will be liable to the Lessor for all
reasonable expenses, costs, and fees incurred in (1) repossessing, storing,
preserving, shipping, maintaining, repairing, and refurbishing the Equipment to
the condition required by this Agreement; and (2) preparing the Equipment for
sale or lease, advertising the sale or lease, and selling or re-letting the
Equipment.
No remedy referred to in this paragraph is intended to be exclusive, but, to
the extent permissible under applicable law, each will be cumulative and
operate in addition to any other remedy referred to above or otherwise
available to the Lessor at law or in equity. The exercise or beginning of
exercise by the Lessor of any one or more of its remedies will not preclude the
simultaneous or later exercise by the Lessor of any other remedies.
No express or implied waiver by the Lessor of any default or event of default
will be construed as a waiver of any future or subsequent default or event of
default.
20. CONDITIONS PRECEDENT. The obligation of Lessor contained in paragraph 1 of
this Agreement shall be subject to the following conditions precedent:
(1) There shall have occurred no material adverse change in the business or the
financial condition of Lessee from the date hereof until the Commencement Date
of any Supplement;
(2) Lessee shall have furnished Lessor with a certificate or other evidence
satisfactory to Lessor that insurance coverage as required by this Agreement is
in effect as to the Item of Equipment desired to be leased;
(3) Unless specifically waived by Lessor, Lessee shall have furnished Lessor
waivers, in form and substance acceptable to Lessor, of all rights in or to the
Equipment of any landlord or mortgagee of any real property upon which the
Equipment is or is to be situated; and
(4) All other instruments and legal and corporate proceedings in connection
with the transactions contemplated by this Agreement shall be satisfactory in
form and substance to Lessor, and counsel to Lessor shall have received copies
of all documents which it may have requested in connection therewith.
If any of the above conditions is not satisfied at the time Lessee submits any
Supplement, Lessor, in its sole discretion, shall have no obligation under this
Agreement to lease the Equipment covered thereby to Lessee.
21. FINANCIALS. Lessee agrees that for so long as any item of equipment shall
be leased under the Agreement, Lessee will deliver or cause to be delivered to
Lessor (a) as soon as practicable after the end of each month, monthly
financial statements for the month just closed, including balance sheet, and
related statements of income and expense for such month, all in reasonable
detail prepared in accordance with generally accepted accounting principles
consistently applied throughout the period involved and certified by Lessee's
chief financial officer; and (b) as soon as practicable, and in any event
within 120 days after the close of each fiscal year of Lessee, the audited
balance sheet of Lessee as of the end of such fiscal year together with the
related statements of income and expense for such fiscal year, all in
reasonable detail, prepared in accordance with generally accepted accounting
principles consistently applied throughout the period involved and certified by
an independent certified public accountant acceptable to Lessor.
22. REPRESENTATIONS, WARRANTIES AND COVENANTS. As a material inducement to
Lessor entering into this Agreement with Lessee, Lessee represents, warrants,
and covenants as follows:
(1) If Lessee is a corporation, or a limited liability company, Lessee is duly
organized and validly existing and is in good standing under the laws of the
state of its incorporation, and is duly qualified and licensed to do business
as a foreign corporation and is in good standing in those jurisdictions where
such qualifications are necessary to authorize Lessee to carry on its present
business and operations, and to own its properties or to perform its
obligations thereunder.
(2) If Lessee is a partnership, Lessee is duly organized and validly existing
under the partnership laws of its state of domicile and is duly authorized in
any foreign jurisdiction where such qualification is necessary to authorize
Lessee to carry on its present business and operations and to own its
properties and to perform its obligations thereunder;
(3) Lessee has full power, authority, and legal right to execute, deliver, and
carry out as Lessee the terms and provisions of this Agreement, and any other
necessary documents in connection with this transaction;
(4) If Lessee is a corporation, Lessee's execution, delivery, and performance
of this Agreement and the other documents and agreements referred to herein,
and the performance of its obligations under this Agreement have all been
authorized by all necessary corporate action, do not require the approval or
consent of stockholders, or of any trustee or holders of any indebtedness or
obligation of Lessee and will not violate any law, governmental rule,
regulation or order binding upon Lessee or any provision of any indenture,
mortgage, contract, or other agreement to which Lessee is a party or by which
it is bound or to which it is subject, and will not violate any provision of
the Certificate or Articles of Incorporation, Bylaws, or any preferred stock
agreement of Lessee;
(5) If Lessee is a partnership, Lessee's execution, delivery and performance of
this Agreement and the other documents and agreements referred to herein, and
the performance of its obligations under this Agreement have all been
authorized by all necessary partnership actions;
(6) There are no pending or threatened investigations, actions, or proceedings
before any court or administrative agency or other tribunal body, which seek to
question or set aside any of the transactions contemplated by this Agreement,
or which, if adversely determined, would materially affect the condition,
business, or operation of Lessee;
(7) Lessee is not in default in any material manner in the payment or
performance of any of its obligations or in the performance of any contract,
agreement, or other instrument to which it is a party or by which it or any of
its assets may be bound;
(8) The balance sheet of Lessee as of the end of its most recent fiscal year
and the related profit and loss statement of the Lessor for the fiscal year
ended on said date, including the related schedules and notes, together with
the report of an independent certified public accountant, heretofore delivered
to Lessor, are all true and correct and present fairly (i) the financial
position of Lessee as of the date of said balance sheet and (ii) the results of
the operations of Lessee for said fiscal year;
(9) All proceedings required to be taken to authorize the lease of the
Equipment from Lessor and to protect Lessor's interest in such Equipment, free
and clear of all liens and encumbrances whatsoever, have been taken;
(10) Lessee has not significant liabilities (contingent or otherwise) which are
not disclosed by or reserved against the financial statements referred to in
(8) above;
(11) All the financial statements referred to in (8) above have been prepared
in accordance with generally accepted accounting principles and practices
applied on a basis consistently maintained throughout the period involved;
(12) There has been no change which would have a material adverse effect on the
business or financial condition of Lessee from that set forth in the balance
sheet referred to in (8) above;
(13) No authorization, consent, approval, license, exemption of or filing or
registration with any court, governmental unit or department, commission,
board, bureau, agency, instrumentality or the like is required or necessary for
the valid execution and delivery of the Agreement, any bill of sale, and the
other documents and agreements referred to herein;
(14) This Master Lease, the Supplements, and any accompanying documents, having
been duly authorized, executed and delivered to Lessor, constitute legal, valid
and binding obligations of Lessee, enforceable against Lessee in accordance
with the terms hereof except
3
<PAGE> 14
as such terms may be limited by bankruptcy, insolvency, or similar laws
affecting the enforcement of creditor's rights generally;
(15) Each Item of Equipment will constitute unused "new Section 28 property" in
the hands of Lessor within the meaning of the Internal Revenue Code of 1966, as
amended, on the Commencement Date specified in the Supplement pertaining to
said Item of Equipment;
(16) The Equipment is personal property and neither real property nor a fixture;
(17) The Equipment will be used for commercial operations only, not for
personal, family, or household purposes.
(18) As of the Commencement Date of each Item of Equipment, a reasonable
estimate of the estimated fair market value of such Item of Equipment at the
end of the lease term thereof will be at least 20% of the Lessor's cost
therefor (without including in such value any increase or decrease for
inflation or deflation, and after subtracting from such value any cost for
removal and delivery of possession of Equipment to Lessor at the end of the
lease term thereof); and
(19) As of the Commencement Date of each Item of Equipment, a reasonable
estimate of the estimated useful life of such Item of Equipment at the end of
the original lease term will be at least two years beyond the lease term
thereof.
23. PURCHASE OPTION. Lessor and Lessee hereby agree that so long as no default
shall have occurred and be continuing, Lessee shall have the option (and Lessor
shall have the right to obligate Lessee) to purchase the Equipment at the
expiration of the lease term for the purchase option price set forth in the
applicable Supplement. In order to exercise the option with respect to all of
the Equipment, Lessee must give Lessor written notice at least 90 days prior to
the expiration of the lease term with respect thereto, and remit the purchase
price in cash to Lessor or its assigns on or before said expiration date. After
receipt of the purchase price in accordance with this paragraph, Lessor will
transfer to Lessee all of its right, title and interest in the Equipment
purchased, as-is, where-is, without recourse, representation or warranty of any
kind, express or implied. Fair Market Sales Value for the purpose of this
paragraph only shall be determined on the basis of and be equal in amount to
the value that would be obtained in a transaction between an informed and
willing buyer and an informed and willing seller, and the cost of moving the
Equipment from the location of current use shall not be a deduction from such
value.
24. CHOICE OF LAW. The rights and liabilities of the parties under this
Agreement, and each Supplement, shall be interpreted, enforced and governed in
all respects by the laws of the State of California. Lessee hereby consents and
subjects itself to the jurisdiction of every local, state, and federal court
within the State of California, and agrees that except as otherwise required by
law, Lessee shall never file or maintain any action or proceeding in connection
with this Agreement, or any Supplement in any court outside the State of
California. Lessee hereby agrees that service of process in connection with
any such action upon Lessee may be in the manner provided by the laws of the
State of California.
25. ATTORNEY FEES AND COSTS. Lessee will pay or reimburse Lessor for all costs
and expenses, including repossession, equipment disposition and court costs and
attorney's fees not offset against amounts recovered or credited as
contemplated in paragraph 19, incurred by Lessor in exercising any of its
rights or remedies thereunder or enforcing any of the terms, conditions or
provisions hereof. This obligation includes the payment or reimbursement of all
such amounts whether an action is ultimately filed and whether an action filed
is ultimately dismissed.
26. HEADINGS FOR CONVENIENCE ONLY. The headings for the paragraphs and
provisions in this Master Lease, as well as the other documents constituting
the Agreement, are intended solely for convenience of reference and are not
intended nor shall they be used to construe, explain, modify or place any
meaning upon any provisions hereof.
27. MODIFICATION. Neither this Master Lease or any other document or Supplement
constituting the Agreement can be modified or amended except by written
agreement signed and dated by both Lessor and Lessee.
28. COUNTERPARTS. This Master Lease and any other document or Supplement
constituting the Agreement may be executed in any number of counterparts. Any
document executed in counterparts shall remain one document. Each counterpart
is an original instrument.
29. PROVISIONS SEVERABLE. Should any provision of the Agreement be determined
to be invalid or unenforceable, such invalidity or unenforceability shall not
affect the remaining provisions hereof.
30. ENTIRE AGREEMENT. This Master Lease, the Supplements, the Proposal
accepted by Lessee on March 28, 2000 and all other documents constituting the
Agreement constitute the entire agreement between the parties and no other
representation or statements shall be deemed binding, nor shall there be any
reliance by either Lessor or Lessee upon any representations, agreements,
statements, promises, understandings, or inducements made which are not
embodied in the written Agreement.
Executed on March 28, 2000, at SSF, California.
By execution hereof, the undersigned hereby certifies that he has
read this Agreement, and that he is duly authorized to execute
this Master Equipment Lease on behalf of Lessee.
LESSEE:
VIROLOGIC, INC.
a Delaware corporation
By: /s/ Martin H. Goldstein
----------------------------
Name Martin H. Goldstein
----------------------------
Title President
----------------------------
LESSOR:
PENTECH FINANCIAL SERVICES, INC.,
a California corporation
By:
----------------------------
Benjamin E. Millerbis
Title: President
4
<PAGE> 15
PENTECH FINANCIAL SERVICES, INC.
SCHEDULE NO. 03 TO EQUIPMENT FINANCING AGREEMENT NO. 200371
BETWEEN PENTECH FINANCIAL SERVICES, INC., SECURED PARTY,
AND VIROLOGIC, INC., DEBTOR,
WITH EFFECTIVE DATE OF MARCH 28, 2000.
SECURED PARTY AND DEBTOR HEREBY ACKNOWLEDGE THAT THE ITEMS OF EQUIPMENT
DESCRIBED IN THIS SCHEDULE ARE COVERED BY THE EQUIPMENT FINANCING AGREEMENT
("THE AGREEMENT") AND THAT THE FOLLOWING IS A DESCRIPTION OF SAID ITEMS, THE
ADVANCE AMOUNT ON ACCOUNT THEREOF, THE INSTALLMENT PAYMENTS APPLICABLE THERETO,
THE EQUIPMENT LOCATION, AND IF SPECIFIED, CERTAIN FURTHER RELATED INFORMATION.
1. Equipment Description: as more fully described on Equipment Schedule
Exhibit A
2. Advance Amount: $312,229.80
3. Installment Payments: Except as otherwise provided in the Agreement or in
this Schedule, the Advance Amount will be repaid in
installments commencing April 1, 2000 as follows:
36 consecutive installments of $10,006.97 each,
payable monthly in advance, plus a final payment of
$34,345.28. First and last payments are due upon
execution hereof.
4. Equipment Location: Per attached Equipment Schedule Exhibit A.
5. Other Provisions: None
ACCEPTED and APPROVED on March 29, 2000, as Schedule 003 to and made a part of
the Agreement.
PENTECH FINANCIAL SERVICES, INC. VIROLOGIC, INC.
A California corporation, A Delaware corporation
(Secured Party) (Debtor)
By: By: /s/ Martin H. Goldstein
------------------------------ ------------------------------
Title: Title: President
------------------------------ ---------------------------
Address: 310 West Hamilton Avenue, Suite 202 Address: 270 East Grand Ave.
Campbell, Ca 95008 South San Francisco, CA
94080
<PAGE> 16
ViroLogic, Inc.
Pentech Leaseline Schedule #3
<TABLE>
<CAPTION>
City Description/ Ck
Ref. # Vendor Model # P.O.# Invoice # Serial# Cost Total Check# Date Soft Costs
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
40 Scitec Consultants 1 Infection System 41569 99-140 288,434.00
Sales Tax 23,795.80 5801 04/13/99 23,795.80
312,229.80 6162 06/12/99
Total 312,229.80 23,795.80
</TABLE>
<TABLE>
<S> <C>
SECURED PARTY: PENTECH FINANCIAL SERVICES, INC. DEBTOR: VIROLOGIC, INC.
a California corporation a Delaware corporation
By: By: /s/ Martin H. Goldstein
----------------------------------------- --------------------------------------------
Name: Benjamin E. Millerbis Name: MARTIN H. GOLDSTEIN
-------------------------------------- -----------------------------------------
Title: President Title: President
------------------------------------- ----------------------------------------
Date: March 29, 2000 Date: March 29, 2000
------------------------------------- ----------------------------------------
</TABLE>
<PAGE> 17
055759 IMPORTANT -- READ INSTRUCTIONS ON BACK BEFORE FILLING OUT FORM -- DO NOT
DETACH STUB
THIS SPACE FOR USE OF FILING OFFICER
FINANCING STATEMENT -- FOLLOW INSTRUCTIONS
CAREFULLY
This Financing Statement is presented for
filing pursuant to the Uniform Commercial
Code and will remain effective, with
certain exceptions, for 6 years from the
date of filing.
<TABLE>
<S> <C>
- -----------------------------------------------------------------------------------------
A. NAME & TEL. # OF CONTACT AT FILER (optional) B. FILING OFFICE ACCT. # (optional)
- -----------------------------------------------------------------------------------------
C. RETURN COPY TO: (Name and Mailing Address)
PENTECH FINANCIAL SERVICES, INC.
310 WEST HAMILTON AVE.
SUITE 202
CAMPBELL, CA 95008
- ------------------------------------------------------------------------------------------------------
D. OPTIONAL, DESIGNATION (if applicable): [ ] LESSOR/LESSEE [ ] CONSIGNOR/CONSIGNEE [ ] NON-UCC FILING
</TABLE>
<TABLE>
<S> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------------
1. DEBTOR'S EXACT FULL LEGAL NAME -- Insert only one debtor name (1a or 1b)
---------------------------------------------------------------------------------------------------------------------------------
1a. ENTITY'S NAME
VIROLOGIC, INC., A DELAWARE CORPORATION
OR ---------------------------------------------------------------------------------------------------------------------------------
1b. INDIVIDUAL'S LAST NAME FIRST NAME MIDDLE NAME SUFFIX
- ------------------------------------------------------------------------------------------------------------------------------------
1c. MAILING ADDRESS CITY STATE COUNTRY POSTAL CODE
270 EAST GRAND AVE. SOUTH SAN FRANCISCO CA USA 94080
- ------------------------------------------------------------------------------------------------------------------------------------
1d. S.S. OR TAX I.D. # OPTIONAL 1e. TYPE OF ENTITY 1f. ENTITY'S STATE 1g. ENTITY'S ORGANIZATIONAL I.D. #, if any
ADD'NL INFO RE OR COUNTY OF
94-3234479 ENTITY DEBTOR ORGANIZATION [ ] NONE
- ------------------------------------------------------------------------------------------------------------------------------------
2. ADDITIONAL DEBTOR'S EXACT FULL LEGAL NAME -- Insert only one debtor name (2a or 2b)
---------------------------------------------------------------------------------------------------------------------------------
2a. ENTITY'S NAME
OR ---------------------------------------------------------------------------------------------------------------------------------
2b. INDIVIDUAL'S LAST NAME FIRST NAME MIDDLE NAME SUFFIX
- ------------------------------------------------------------------------------------------------------------------------------------
2c. MAILING ADDRESS CITY STATE COUNTRY POSTAL CODE
- ------------------------------------------------------------------------------------------------------------------------------------
2d. S.S. OR TAX I.D. # OPTIONAL 2e. TYPE OF ENTITY 2f. ENTITY'S STATE 2g. ENTITY'S ORGANIZATIONAL I.D. #, if any
ADD'NL INFO RE OR COUNTY OF
ENTITY DEBTOR ORGANIZATION [ ] NONE
- ------------------------------------------------------------------------------------------------------------------------------------
3. SECURED PARTY'S (ORIGINAL S/P or ITS TOTAL ASSIGNEE) EXACT FULL LEGAL NAME -- Insert only one secured party name (3a or 3b)
---------------------------------------------------------------------------------------------------------------------------------
3a. ENTITY'S NAME
PENTECH FINANCIAL SERVICES, INC.
OR ---------------------------------------------------------------------------------------------------------------------------------
3b. INDIVIDUAL'S LAST NAME FIRST NAME MIDDLE NAME SUFFIX
- ------------------------------------------------------------------------------------------------------------------------------------
3c. MAILING ADDRESS CITY STATE COUNTRY POSTAL CODE
310 WEST HAMILTON AVE., SUITE 202 CAMPBELL CA USA 95008
- ------------------------------------------------------------------------------------------------------------------------------------
4. This FINANCIAL STATEMENT covers the following types or items of property:
SEE ATTACHED SCHEDULE 3
EFA NO. 200371
SCHEDULE NO. 4
- ------------------------------------------------------------------------------------------------------------------------------------
5. CHECK BOX [ ] This FINANCING STATEMENT is signed by the Secured Party instead of the 7. If filed in Florida (check one)
(if applicable) Debtor to perfect a security interest (a) In collateral already subject [ ] Documentary [ ] Documentary stamp
to a security interest in another jurisdiction when it was brought into stamp tax paid tax not applicable
this state, or when the debtor's location was changed to this state, or
(b) in accordance with other statutory provisions (additional information
may be required)
- ------------------------------------------------------------------------------------------------------------------------------------
6. REQUIRED SIGNATURE 8. [ ] This FINANCING STATEMENT is to be filed (for record)
(or recorded) in the REAL ESTATE RECORDS
/s/ MARTIN H. GOLDSTEIN Attach Addendum (if applicable)
- ------------------------------------------------------------------------------------------------------------------------------------
9. Check to REQUEST SEARCH CERTIFICATE(S) on Debtor(s)
(ADDITIONAL FEE)
(optional) [ ] All Debtors [ ] Debtor 1 [ ] Debtor 2
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 18
REGISTRE, INC. DETACH COPY ONE AND SEND TO FILING OFFICE WITHOUT CARBONS
214 PIERCE ST.
P.O. BOX 218 02979
ANOKA, MN 55202
(612) 421-1710 N
STATE OF DELAWARE
UNIFORM COMMERCIAL CODE - FINANCING STATEMENT - FORM UCC - 1
- --------------------------------------------------------------------------------
THIS FINANCING STATEMENT IS PRESENTED TO A FILING OFFICER FOR FILING PURSUANT
TO THE UNIFORM COMMERCIAL CODE.
IF TO BE FILED WITH RECORDER OF DEEDS INDICATE TAX PARCEL NO.(S).
-------------
NO. OF ADDITIONAL SHEETS PRESENTED 1 .
-------------
- --------------------------------------------------------------------------------
PARTIES
- --------------------------------------------------------------------------------
Debtor (or Assignor) (last name first if individual) and mailing address:
VIROLOGIC, INC., A DELAWARE CORPORATION
270 EAST GRAND AVE.
SOUTH SAN FRANCISCO, CA 94080
- --------------------------------------------------------------------------------
Debtor (or Assignor) (last name first if individual) and mailing address:
- --------------------------------------------------------------------------------
This statement is filed without the Debtor's signature to perfect a security
interest in collateral (check X in applicable box(es))
/ / Already subject to a security interest in another jurisdiction when it was
brought into this State.
/ / Already subject to a security interest in another jurisdiction when the
Debtor's location changed to this State.
/ / Which is proceeds of the original collateral described below in which a
security interest is perfected.
/ / Acquired after a change of name, identity or corporate structure of Debtor.
/ / As to which the filing has lapsed.
- --------------------------------------------------------------------------------
By:
----------------------------------------------------------------------------
SIGNATURE OF SECURED PARTY(IES) TITLE
(REQUIRED ONLY IF ITEM IS CHECKED)
- --------------------------------------------------------------------------------
PARTIES
- --------------------------------------------------------------------------------
Secured Party(ies) (last name first if individual) and address:
PENTECH FINANCIAL SERVICES, INC.
310 WEST HAMILTON AVE., SUITE 202
CAMPBELL, CA 95008
- --------------------------------------------------------------------------------
Assignee (if any) of Secured Party(ies) and address of Assignee:
- --------------------------------------------------------------------------------
Special Types of Parties (check X in applicable box(es))
/ / The terms "Debtor" and "Secured Party" mean "Lessee" and "Lessor",
respectively.
/ / The terms "Debtor" and "Secured Party" mean "Consignee" and "Consignor",
respectively.
/ / Debtor is a Transmitting Utility.
/ / Debtor is acting in representative capacity (e.g., as trustee).
- --------------------------------------------------------------------------------
Filed With: SECRETARY OF STATE
- --------------------------------------------------------------------------------
Prepared By (Name and Address):
PENTECH FINANCIAL SERVICES, INC.
310 WEST HAMILTON, AVE., SUITE 202
CAMPBELL, CA 95008
- --------------------------------------------------------------------------------
/ / Check to request Continuation Statement notice for additional fee.
- --------------------------------------------------------------------------------
This Financing Statement covers the following types (or items) of property:
Check only if applicable: / / Products of collateral are also covered.
SEE ATTACHED SCHEDULE 4
EFA NO. 200371
SCHEDULE NO. 4
- --------------------------------------------------------------------------------
If the collateral is crops, the crops are growing or to be grown on the
following described real estate:
- --------------------------------------------------------------------------------
If the collateral is (a) goods that are or are to become fixtures; (b) timber
to be cut; or (c) minerals or the like (including oil and gas) or accounts
resulting from the sale thereof at the wellhead or minehead, the description of
the real estate concerned is: (check X in applicable box(es))
/ / Fixtures / / Timber / / Minerals or accounts resulting from sale
thereof at wellhead or minehead
And this Financing Statement is to be filed in the real estate records where a
mortgage on such real estate would be recorded. If the Debtor does not have an
interest of record, the name of a record owner is:
- --------------------------------------------------------------------------------
VIROLOGIC, INC., A DELAWARE CORPORATION
- ---------------------------------------
By: /s/ Martin H. Goldstein President
-----------------------------------------------
Signature of Debtor (or Assignor) Title
- --------------------------------------------------------------------------------
THIS SPACE FOR USE OF FILING OFFICER
(DATE, TIME, NUMBER, FILING OFFICER)
<PAGE> 19
PENTECH FINANCIAL SERVICES, INC.
EQUIPMENT FINANCING AGREEMENT NO. 200371
SCHEDULE NO. 003
SCHEDULE C
STIPULATED LOSS PERCENTAGE VALUE
Terms defined in the Agreement shall have the same meanings when used herein.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
Rent Payment Stipulated Loss Rent Payment Stipulated Loss Rent Payment Stipulated Loss
Value Percentage Value Percentage Value Percentage
<S> <C> <C> <C>
1 120.00 22 78.00
2 118.00 23 76.00
3 116.00 24 74.00
4 114.00 25 72.00
5 112.00 26 70.00
6 110.00 27 68.00
7 108.00 28 66.00
8 106.00 29 64.00
9 104.00 30 62.00
10 102.00 31 60.00
11 100.00 32 58.00
12 98.00 33 56.00
13 96.00 34 54.00
14 94.00 35 52.00
15 92.00 36 50.00
16 90.00
17 88.00
18 86.00
19 84.00
20 82.00
21 80.00
</TABLE>
Dated: March 29, 2000
--------------
PENTECH FINANCIAL SERVICES, INC. VIROLOGIC, INC., a Delaware corporation
SECURED PARTY DEBTOR
The undersigned affirms that he is duly
authorized to execute and deliver this
Schedule on behalf of Debtor.
By: By: /s/ Martin H. Goldstein
------------------------------ ------------------------------
Title: President Title: President
--------------------------- ---------------------------
<PAGE> 20
FROM: ViroLogice, Inc.
270 East Grand Ave.
South San Francisco, CA 94080
TO: Woodruff Sawyer
220 Bush St., 7th Floor
San Francisco, CA 98104-3509
Contact: Steve Sawyer
--------------------------
Phone: (415) 399-6329
--------------------------
Fax:
--------------------------
Dear Steve:
We have entered into an Equipment Financing Agreement arranged by PENTECH
FINANCIAL SERVICES, INC. for the equipment shown on the attached Equipment
Schedule, Exhibit A ("Schedule").
Equipment Location: See attached Schedule
Equipment Description: See attached Schedule
PLEASE PROVIDE AN INSURANCE CERTIFICATE WITH THE FOLLOWING ENDORSEMENTS:
LENDER'S LOSS PAYABLE ENDORSEMENT
EQUIPMENT FINANCING AGREEMENT NO. 200371, SCHEDULE 003
EQUIPMENT COST $312,299.80
Please fax a copy of the Certificate of Insurance to PENTECH FINANCIAL
SERVICES, INC., facsimile number (408) 378-3304, and forward the original to
PENTECH FINANCIAL SERVICES, INC., 310 West Hamilton Avenue, Suite 202,
Campbell, CA 95008.
Very truly yours,
ViroLogic, Inc.
a Delaware corporation
By: /s/ Martin H. Goldstein
----------------------------------
Name: MARTIN H. GOLDSTEIN
---------------------------------
Title: President
--------------------------------
<PAGE> 21
DISBURSEMENT AUTHORIZATION
TO: PENTECH FINANCIAL SERVICES, INC.
The undersigned hereby certifies that all the property described below
(the "Equipment"), which is to be financed for the undersigned pursuant to the
Equipment Financing Agreement No. 200371 with effective date of March 28, 2000,
(the "Agreement") and its Schedule No. 003 thereunder dated April 1, 2000,
between PENTECH FINANCIAL SERVICES, INC. ("PENTECH") and the undersigned as
Debtor, has been furnished to the undersigned, that delivery and installation
of the Equipment have been fully completed and that all the Equipment is
acceptable in all respects to the undersigned.
In view of the above, the undersigned hereby authorizes and requests
PENTECH to pay for the Equipment in accordance with the terms of any purchase
orders the undersigned may have issued for the same and/or to pay the
undersigned the advance amount to the extent the undersigned has previously
paid for the Equipment, as appropriate. The undersigned acknowledges that you
are relying upon this executed Disbursement Authorization in so doing. Debtor
authorizes PENTECH to disburse the total advance as follows:
$312,229.80 To: ViroLogic, Inc.
Total: $312,229.80
Equipment
SEE EQUIPMENT SCHEDULE EXHIBIT A
ATTACHED HERETO AND MADE A PART HEREOF.
The undersigned recognizes that by executing this Disbursement
Authorization the undersigned's non-terminable installation payment obligation
under the Agreement will commence. The undersigned reaffirms its understanding
that the Agreement is solely a financing agreement and that, accordingly,
PENTECH FINANCIAL SERVICES, INC. has made no warranties, express or implied, as
to the Equipment or any other matter and that there are no warranties, express
or implied, created by law and further that, accordingly, the undersigned's
obligation to pay amounts due under the Agreement will not be affected by any
problems the undersigned may experience with the Equipment or any similar or
dissimilar occurrence as more fully set forth in the Agreement.
Date Equipment accepted by Debtor: March 29, 2000
DEBTOR VIROLOGIC, Inc.
a Delaware corporation
By: /s/ Martin H. Goldstein
-----------------------------
Name: Martin H. Goldstein
---------------------------
Title: President
--------------------------
<PAGE> 22
PENTECH FINANCIAL SERVICES, INC.
310 W. Hamilton Ave.
Suite 202
Campbell, CA 95008
INVOICE
ViroLogic, Inc.
270 East Grand Ave.
South San Francisco, CA 94080
- --------------------------------------------------------------------------------
EFA No. 200371, Schedule No. 003 March 29, 2000
Advance Payment 2 @ $10,006.97 $20,013.94
Documentation Fee $ 250.00
UCC Fee $ 100.00
----------
$20,363.94
- --------------------------------------------------------------------------------
Deposit Applied $ 2,500.00
- --------------------------------------------------------------------------------
BALANCE DUE UPON RECEIPT $17,863.94
==========
<PAGE> 23
PENTECH FINANCIAL SERVICES, INC.
SCHEDULE NO. 005 TO EQUIPMENT FINANCING AGREEMENT NO. 200371
BETWEEN PENTECH FINANCIAL SERVICES, INC., SECURED PARTY,
AND VIROLOGIC, INC., DEBTOR,
WITH EFFECTIVE DATE OF MARCH 28, 2000.
SECURED PARTY AND DEBTOR HEREBY ACKNOWLEDGE THAT THE ITEMS OF EQUIPMENT
DESCRIBED IN THIS SCHEDULE ARE COVERED BY THE EQUIPMENT FINANCING AGREEMENT
("THE AGREEMENT") AND THAT THE FOLLOWING IS A DESCRIPTION OF SAID ITEMS, THE
ADVANCE AMOUNT ON ACCOUNT THEREOF, THE INSTALLMENT PAYMENTS APPLICABLE THERETO,
THE EQUIPMENT LOCATION, AND IF SPECIFIED, CERTAIN FURTHER RELATED INFORMATION.
1. Equipment Description: as more fully described on Equipment Schedule
Exhibit A
2. Advance Amount: $130,163.36
3. Installment Payments: Except as otherwise provided in the Agreement or in
this Schedule, the Advance Amount will be repaid in
installments commencing April 1, 2000 as follows:
36 consecutive installments of $4,171.74 each,
payable monthly in advance, plus a final payment of
$14,317.97. First and last payment(s) are due upon
execution hereof.
4. Equipment Location: Per attached Equipment Schedule Exhibit A.
5. Other Provisions: None
ACCEPTED and APPROVED on April 1, 2000, as Schedule 005 to and made a part of
the Agreement.
PENTECH FINANCIAL SERVICES, INC. VIROLOGIC, INC.
A California corporation, A Delaware corporation
(Secured Party) (Debtor)
By: By: /s/ Martin H. Goldstein
------------------------------ ------------------------------
Title: Title: President
------------------------------ ---------------------------
Address: 310 West Hamilton Avenue, Suite 202 Address: 270 East Grand Avenue
Campbell, Ca 95008 South San Francisco, CA
94080
<PAGE> 24
ViroLogic, Inc.
Pentech Leaseline Schedule #005
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
Ref. # Vendor Qty Description/Model # P.O. # Invoice #
______ ______ ___ ___________________ ______ _________
1 Ofagen Inc 1 Centrifgue 4-15 41267 90182717
1 Plate Rotor 2x96
Freight
Sales Tax
2 Wallac Inc 1 Stacker/Robotic Victor2 41261 110773
1 Injector Module
1 Dual Fuel Bon Barcode Reader
Freight
Sales Tax
3 WWR Scientific 1 Beckman Microfuge 18 41458 19243770
Sales Tax
4 Beckman Coulter 1 Coulter Z1 Dual Threshold 41336 107876FL01
Packed
Counter vipZ Pack Starter Kit
Sales Tax
5 WWR Scientific 2 Biohil Electronic Pipeter 41499 20015780
0.2-10 ul
1 Biohil Electronic Pipeter
& Channel 50-1200 ul
Sales Tax
6 Qiagen Inc 1 Qlaptep 96 Plasnrid Mini Prep 41498 90199964
Freight
Sales Tax
7 Mchfaster Care 1 15 Gallon Wet/Dry Hepa Vacuum 41514 6442936
Supply Co Freight
Sales Tax
8 WWR Scientific 1 Eppendorf Thermomixer 41563 21648891
1 Thermobile for Thermomixer
Sales Tax
9 Forma Scientific 6 Biosafety Cabinet Exhaust Fans 51308 2790660
Freight
Sales Tax
<CAPTION>
<S> <C> <C> <C> <C> <C>
Serial # Cost Total Check # Ck Date Soft Costs
________ __________ ________ _______ _______ __________
63421 7,281.75
1,577.00
5.00 5.00
731.27 731.27
9,595.02 4582 10/28/98
42D0631 31,800.00
29981188 9,945.00
2,890.20
201.77 207.87
3,682.40 3,682.40
48,519.37 4697 11/18/98
MFA98F04 2,137.50
176.35 176.35
2,313.85 4885 12/03/98
AB40050 12,675.00
357.00
1,075.97 1,075.97
14,117.97 4903 12/15/98
972.00
864.00
151.47 151.47
1,987.47 4953 12/15/98
N/A 2,420.00
20.07 20.07
199.66 199.66
2,639.73 4942 12/15/98
S8291231182 1,023.51
22.85 22.85
84.44 84.44
1,130.80 4928 12/15/98
1,831.47
355.58 355.58
180.43 180.43
2,357.48 5271 01/27/99
2,916.00
285.99 285.99
240.57 240.57
3,442.56 5719 03/31/99
</TABLE>
<PAGE> 25
ViroLogic, Inc.
Pentech Leaseline Schedule #005
<TABLE>
<CAPTION>
Ref.# Vendor Qty Description/Model # P.O.# Invoice# Serial# Cost Total Check# Ck Date Soft Costs
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Subtotal - Lab Equipment 66,114.25 7,419.92
10 Flash
Telecommunications 1 Legend Expansion Cabinet
w/12 Port Analog St 41639 5262 2,754.10
2,754.10 5191 01/21/99
11 Bl Office
Products 1 4 Drawer Lateral File
Cabinet 41665 26377550 653.67
1 Overfile Cabinet 303.75
1 Overfile Cabinet Lock
Kit 24.30
Sales Tax 81.00 81.00
1,062.72 5155 01/13/99
12 Ciber Network
Services 1 LP725 Data/Video/Zoom
LCD Projector 51193 516983 1S2PW8430431 4,358.00
Freight 8.75 8.75
Sales Tax 359.54 359.54
4,726.29 5538 03/10/99
13 Quality Systems 20 Workstations 1727-99 32,800.00 7095 09/27/99
Sales Tax 2,706.00 7186 10/04/99 2,706.00
7251 10/12/99
35,506.00 7291 10/21/99
Subtotal - Office Equipment 44,049.11 3,155.29
130,163.36 10,575.21
</TABLE>
SECURED PARTY: Pentech Financial Services, Inc. VIROLOGIC, INC.
a California corporation a Delaware Corporation
By: By: Martin H. Goldstein
------------------------------------------ ---------------------------
Name: Benjamin E. Millerbis Name: Martin H. Goldstein
---------------------------------------- ---------------------------
Title: President Title: President
---------------------------------------- ---------------------------
Date: April 1, 2000 Date: 4/14/00
---------------------------------------- ---------------------------
<PAGE> 26
DISBURSEMENT AUTHORIZATION
TO: PENTECH FINANCIAL SERVICES, INC.
The undersigned hereby certifies that all the property described below
(the "Equipment"), which is to be financed for the undersigned pursuant to the
Equipment Financing Agreement No. 200371 with effective date of March 28, 2000,
(the "Agreement") and its Schedule No. 005 thereunder dated April 1, 2000,
between PENTECH FINANCIAL SERVICES, INC. ("PENTECH") and the undersigned as
Debtor, has been furnished to the undersigned, that delivery and installation
of the Equipment have been fully completed and that all the Equipment is
acceptable in all respects to the undersigned.
In view of the above, the undersigned hereby authorizes and requests
PENTECH to pay for the Equipment in accordance with the terms of any purchase
orders the undersigned may have issued for the same and/or to pay the
undersigned the advance amount to the extent the undersigned has previously
paid for the Equipment, as appropriate. The undersigned acknowledges that you
are relying upon this executed Disbursement Authorization in so doing. Debtor
authorizes PENTECH to disburse the total advance as follows:
$130,163.36 To: ViroLogic, Inc.
Total: $130,163.36
Equipment
SEE EQUIPMENT SCHEDULE EXHIBIT A
ATTACHED HERETO AND MADE A PART HEREOF.
The undersigned recognizes that by executing this Disbursement
Authorization the undersigned's non-terminable installation payment obligation
under the Agreement will commence. The undersigned reaffirms its understanding
that the Agreement is solely a financing agreement and that, accordingly,
PENTECH FINANCIAL SERVICES, INC. has made no warranties, express or implied, as
to the Equipment or any other matter and that there are no warranties, express
or implied, created by law and further that, accordingly, the undersigned's
obligation to pay amounts due under the Agreement will not be affected by any
problems the undersigned may experience with the Equipment or any similar or
dissimilar occurrence as more fully set forth in the Agreement.
Date Equipment accepted by Debtor: March 29, 2000
DEBTOR VIROLOGIC, Inc.
a Delaware corporation
By: /s/ Martin H. Goldstein
-----------------------------
Name: Martin H. Goldstein
---------------------------
Title: President
--------------------------
<PAGE> 27
FROM: ViroLogice, Inc.
270 East Grand Ave.
South San Francisco, CA 94080
TO: Woodruff Sawyer
220 Bush St., 7th Floor
San Francisco, CA 98104-3509
Contact: Steve Sawyer
--------------------------
Phone: (415) 399-6329
--------------------------
Fax:
--------------------------
Dear Steve:
We have entered into an Equipment Financing Agreement arranged by PENTECH
FINANCIAL SERVICES, INC. for the equipment shown on the attached Equipment
Schedule, Exhibit A ("Schedule").
Equipment Location: See attached Schedule
Equipment Description: See attached Schedule
PLEASE PROVIDE AN INSURANCE CERTIFICATE WITH THE FOLLOWING ENDORSEMENTS:
LENDER'S LOSS PAYABLE ENDORSEMENT
EQUIPMENT FINANCING AGREEMENT NO. 200371, SCHEDULE 005
EQUIPMENT COST $130,163.36
Please fax a copy of the Certificate of Insurance to PENTECH FINANCIAL
SERVICES, INC., facsimile number (408) 378-3304, and forward the original to
PENTECH FINANCIAL SERVICES, INC., 310 West Hamilton Avenue, Suite 202,
Campbell, CA 95008.
Very truly yours,
ViroLogic, Inc.
a Delaware corporation
By: /s/ Martin H. Goldstein
----------------------------------
Name: MARTIN H. GOLDSTEIN
---------------------------------
Title: President
--------------------------------
<PAGE> 28
PENTECH FINANCIAL SERVICES, INC.
EQUIPMENT FINANCING AGREEMENT NO. 200371
SCHEDULE NO. 005
SCHEDULE C
STIPULATED LOSS PERCENTAGE VALUE
Terms defined in the Agreement shall have the same meanings when used herein.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
Rent Payment Stipulated Loss Rent Payment Stipulated Loss Rent Payment Stipulated Loss
Value Percentage Value Percentage Value Percentage
<S> <C> <C> <C>
1 120.00 22 78.00
2 118.00 23 76.00
3 116.00 24 74.00
4 114.00 25 72.00
5 112.00 26 70.00
6 110.00 27 68.00
7 108.00 28 66.00
8 106.00 29 64.00
9 104.00 30 62.00
10 102.00 31 60.00
11 100.00 32 58.00
12 98.00 33 56.00
13 96.00 34 54.00
14 94.00 35 52.00
15 92.00 36 50.00
16 90.00
17 88.00
18 86.00
19 84.00
20 82.00
21 80.00
</TABLE>
Dated: April 1, 2000
-------------
PENTECH FINANCIAL SERVICES, INC. VIROLOGIC, INC., a Delaware corporation
SECURED PARTY DEBTOR
The undersigned affirms that he is duly
authorized to execute and deliver this
Schedule on behalf of Debtor.
By: By: /s/ Martin H. Goldstein
------------------------------ ------------------------------
Title: President Title: President
--------------------------- ---------------------------
<PAGE> 29
REGISTRE, INC. DETACH COPY ONE AND SEND TO FILING OFFICE WITHOUT CARBONS
214 PIERCE ST.
P.O. BOX 218 02988
ANOKA, MN 55202
(612) 421-1710 N
STATE OF DELAWARE
UNIFORM COMMERCIAL CODE - FINANCING STATEMENT - FORM UCC - 1
- --------------------------------------------------------------------------------
THIS FINANCING STATEMENT IS PRESENTED TO A FILING OFFICER FOR FILING PURSUANT
TO THE UNIFORM COMMERCIAL CODE.
IF TO BE FILED WITH RECORDER OF DEEDS INDICATE TAX PARCEL NO.(S)
-------------
NO. OF ADDITIONAL SHEETS PRESENTED .
-------------
- --------------------------------------------------------------------------------
PARTIES
- --------------------------------------------------------------------------------
Debtor (or Assignor) (last name first if individual) and mailing address:
VIROLOGIC, INC.,
270 E. Grand Avenue
South San Francisco, CA 94080
- --------------------------------------------------------------------------------
Debtor (or Assignor) (last name first if individual) and mailing address:
- --------------------------------------------------------------------------------
This statement is filed without the Debtor's signature to perfect a security
interest in collateral (check X in applicable box(es))
/ / Already subject to a security interest in another jurisdiction when it was
brought into this State.
/ / Already subject to a security interest in another jurisdiction when the
Debtor's location changed to this State.
/ / Which is proceeds of the original collateral described below in which a
security interest is perfected.
/ / Acquired after a change of name, identity or corporate structure of Debtor.
/ / As to which the filing has lapsed.
- --------------------------------------------------------------------------------
By:
----------------------------------------------------------------------------
SIGNATURE OF SECURED PARTY(IES) TITLE
(REQUIRED ONLY IF ITEM IS CHECKED)
- --------------------------------------------------------------------------------
PARTIES
- --------------------------------------------------------------------------------
Secured Party(ies) (last name first if individual) and address:
PENTECH FINANCIAL SERVICES, INC.
310 W. Hamilton Ave., Suite 202
Campbell, CA 95008
- --------------------------------------------------------------------------------
Assignee (if any) of Secured Party(ies) and address of Assignee:
- --------------------------------------------------------------------------------
Special Types of Parties (check X in applicable box(es))
/ / The terms "Debtor" and "Secured Party" mean "Lessee" and "Lessor",
respectively.
/ / The terms "Debtor" and "Secured Party" mean "Consignee" and "Consignor",
respectively.
/ / Debtor is a Transmitting Utility.
/ / Debtor is acting in representative capacity (e.g., as trustee).
- --------------------------------------------------------------------------------
Filed With: Secretary of State
- --------------------------------------------------------------------------------
Prepared By (Name and Address):
Pentech Financial Services, Inc.
310 W. Hamilton, Ave., Suite 202
Campbell, CA 95008
- --------------------------------------------------------------------------------
/ / Check to request Continuation Statement notice for additional fee.
- --------------------------------------------------------------------------------
This Financing Statement covers the following types (or items) of property:
Check only if applicable: / / Products of collateral are also covered.
See Attached Equipment Schedule Exhibit A
Virologic, Inc. EFA No. 200371
Schedule No. 5
- --------------------------------------------------------------------------------
If the collateral is crops, the crops are growing or to be grown on the
following described real estate:
- --------------------------------------------------------------------------------
If the collateral is (a) goods that are or are to become fixtures; (b) timber
to be cut; or (c) minerals or the like (including oil and gas) or accounts
resulting from the sale thereof at the wellhead or minehead, the description of
the real estate concerned is: (check X in applicable box(es))
/ / Fixtures / / Timber / / Minerals or accounts resulting from sale
thereof at wellhead or minehead
And this Financing Statement is to be filed in the real estate records where a
mortgage on such real estate would be recorded. If the Debtor does not have an
interest of record, the name of a record owner is:
- --------------------------------------------------------------------------------
VIROLOGIC, INC., A DELAWARE CORPORATION
- ---------------------------------------
By: /s/ Martin H. Goldstein President
-----------------------------------------------
Signature of Debtor (or Assignor) Title
- --------------------------------------------------------------------------------
THIS SPACE FOR USE OF FILING OFFICER
(DATE, TIME, NUMBER, FILING OFFICER)
<PAGE> 30
055738 IMPORTANT -- READ INSTRUCTIONS ON BACK BEFORE FILLING OUT FORM -- DO NOT
DETACH STUB
THIS SPACE FOR USE OF FILING OFFICER
FINANCING STATEMENT -- FOLLOW INSTRUCTIONS
CAREFULLY
This Financing Statement is presented for
filing pursuant to the Uniform Commercial
Code and will remain effective, with
certain exceptions, for 6 years from the
date of filing.
<TABLE>
<S> <C>
- -----------------------------------------------------------------------------------------
A. NAME & TEL. # OF CONTACT AT FILER (optional) B. FILING OFFICE ACCT. # (optional)
- -----------------------------------------------------------------------------------------
C. RETURN COPY TO: (Name and Mailing Address)
Pentech Financial Services, Inc.
310 W. Hamilton Ave., Suite 202
Campbell, CA 95008
- ------------------------------------------------------------------------------------------------------
D. OPTIONAL, DESIGNATION (if applicable): [ ] LESSOR/LESSEE [ ] CONSIGNOR/CONSIGNEE [ ] NON-UCC FILING
</TABLE>
<TABLE>
<S> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------------
1. DEBTOR'S EXACT FULL LEGAL NAME -- Insert only one debtor name (1a or 1b)
---------------------------------------------------------------------------------------------------------------------------------
1a. ENTITY'S NAME
ViroLogic, Inc.
OR ---------------------------------------------------------------------------------------------------------------------------------
1b. INDIVIDUAL'S LAST NAME FIRST NAME MIDDLE NAME SUFFIX
- ------------------------------------------------------------------------------------------------------------------------------------
1c. MAILING ADDRESS CITY STATE COUNTRY POSTAL CODE
270 E. Grand Ave. S. San Francisco CA USA 94080
- ------------------------------------------------------------------------------------------------------------------------------------
1d. S.S. OR TAX I.D. # OPTIONAL 1e. TYPE OF ENTITY 1f. ENTITY'S STATE 1g. ENTITY'S ORGANIZATIONAL I.D. #, if any
ADD'NL INFO RE OR COUNTY OF
94-3234479 ENTITY DEBTOR ORGANIZATION [ ] NONE
- ------------------------------------------------------------------------------------------------------------------------------------
2. ADDITIONAL DEBTOR'S EXACT FULL LEGAL NAME -- Insert only one debtor name (2a or 2b)
---------------------------------------------------------------------------------------------------------------------------------
2a. ENTITY'S NAME
OR ---------------------------------------------------------------------------------------------------------------------------------
2b. INDIVIDUAL'S LAST NAME FIRST NAME MIDDLE NAME SUFFIX
- ------------------------------------------------------------------------------------------------------------------------------------
2c. MAILING ADDRESS CITY STATE COUNTRY POSTAL CODE
- ------------------------------------------------------------------------------------------------------------------------------------
2d. S.S. OR TAX I.D. # OPTIONAL 2e. TYPE OF ENTITY 2f. ENTITY'S STATE 2g. ENTITY'S ORGANIZATIONAL I.D. #, if any
ADD'NL INFO RE OR COUNTY OF
ENTITY DEBTOR ORGANIZATION [ ] NONE
- ------------------------------------------------------------------------------------------------------------------------------------
3. SECURED PARTY'S (ORIGINAL S/P or ITS TOTAL ASSIGNEE) EXACT FULL LEGAL NAME -- Insert only one secured party name (3a or 3b)
---------------------------------------------------------------------------------------------------------------------------------
3a. ENTITY'S NAME
Pentech Financial Services, Inc.
OR ---------------------------------------------------------------------------------------------------------------------------------
3b. INDIVIDUAL'S LAST NAME FIRST NAME MIDDLE NAME SUFFIX
- ------------------------------------------------------------------------------------------------------------------------------------
3c. MAILING ADDRESS CITY STATE COUNTRY POSTAL CODE
310 W. Hamilton Ave., Suite 202 Campbell CA USA 95008
- ------------------------------------------------------------------------------------------------------------------------------------
4. This FINANCING STATEMENT covers the following types or items of property:
See Attached Equipment Schedule Exhibit A
ViroLogic, Inc., EFA No. 200371
Schedule No. 5
- ------------------------------------------------------------------------------------------------------------------------------------
5. CHECK BOX [ ] This FINANCING STATEMENT is signed by the Secured Party instead of the 7. If filed in Florida (check one)
(if applicable) Debtor to perfect a security interest (a) in collateral already subject [ ] Documentary [ ] Documentary stamp
to a security interest in another jurisdiction when it was brought into stamp tax paid tax not applicable
this state, or when the debtor's location was changed to this state, or
(b) in accordance with other statutory provisions (additional data
may be required)
- ------------------------------------------------------------------------------------------------------------------------------------
6. REQUIRED SIGNATURE(S) 8. [ ] This FINANCING STATEMENT is to be filed (for record)
(or recorded) in the REAL ESTATE RECORDS
/s/ MARTIN H. GOLDSTEIN Attach Addendum (if applicable)
- ------------------------------------------------------------------------------------------------------------------------------------
9. Check to REQUEST SEARCH CERTIFICATE(S) on Debtor(s)
ViroLogic, Inc. (ADDITIONAL FEE)
(optional) [ ] All Debtors [ ] Debtor 1 [ ] Debtor 2
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 31
PENTECH FINANCIAL SERVICES, INC.
310 W. Hamilton Ave.
Suite 202
Campbell, CA 95008
INVOICE
ViroLogic, Inc.
270 E. Grand Avenue
South San Francisco, CA 94080
- --------------------------------------------------------------------------------
LEASE No. 200371, Supplement 5 April 1, 2000
Advance Payment 2 @ $4,171.74 $ 8,343.48
Documentation Fee $ 250.00
UCC Fees $ 100.00
----------
$ 8,693.48
- --------------------------------------------------------------------------------
BALANCE DUE UPON RECEIPT $ 8,693.48
==========
<PAGE> 1
EXHIBIT 23.1
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the references to our firm under the captions "Selected Financial
Data" and "Experts" and to the use of our report dated February 4, 2000, except
as to Notes 1 and 9, for which the date is April 17, 2000, in Amendment No. 2
to the Registration Statement (Form S-1, No. 333-30896) and related Prospectus
of ViroLogic, Inc. for the registration of 5,750,000 shares of its common stock.
/s/ ERNST & YOUNG LLP
Palo Alto, California
April 17, 2000
