<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 15, 2000
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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SYMYX TECHNOLOGIES, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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DELAWARE 8731 77-0397908
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
</TABLE>
SYMYX TECHNOLOGIES, INC.
3100 CENTRAL EXPRESSWAY
SANTA CLARA, CALIFORNIA 95051
(408) 764-2000
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------
STEVEN D. GOLDBY
CHIEF EXECUTIVE OFFICER
SYMYX TECHNOLOGIES, INC.
3100 CENTRAL EXPRESSWAY
SANTA CLARA, CALIFORNIA 95051
(408) 764-2000
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
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COPIES TO:
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<S> <C>
MARIO M. ROSATI, ESQ. STANTON D. WONG, ESQ.
CHRISTOPHER D. MITCHELL, ESQ. JOHN L. DONAHUE, ESQ.
ALEXANDER D. PHILLIPS, ESQ. WILLIAM A. HINES, ESQ.
PAUL G. CASTOR, ESQ. DAWN C. STEELE, ESQ.
RICHARD D. EDWARDS, ESQ. BLAIR M. WALTERS, ESQ.
WILSON SONSINI GOODRICH & ROSATI PILLSBURY MADISON & SUTRO LLP
PROFESSIONAL CORPORATION 2550 HANOVER STREET
650 PAGE MILL ROAD PALO ALTO, CALIFORNIA 94304
PALO ALTO, CA 94304 (650) 233-4500
(650) 493-9300
</TABLE>
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act,
check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ] ________
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ] ________
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ] ________
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
CALCULATION OF REGISTRATION FEE
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PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO BE AGGREGATE OFFERING AGGREGATE OFFERING AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED(1) PRICE PER SHARE(2) PRICE(2) REGISTRATION FEE
- --------------------------------------------------------------------------------------------------------------------------
Common stock, $0.001 par value........ 3,162,500 $56.88 $179,883,000 $47,490
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</TABLE>
(1) Includes 412,500 shares which the underwriters have the option to purchase
to cover over-allotments, if any.
(2) Estimated solely for the purpose of computing the amount of the registration
fee pursuant to Rule 457(c) under the Securities Act of 1933, as amended,
based on the average of the high and low sale prices of the common stock on
the Nasdaq National Market on March 14, 2000, as reported in The Wall Street
Journal.
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
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<PAGE> 2
THE INFORMATION IN THIS PRELIMINARY PROSPECTUS IS NOT COMPLETE AND MAY
BE CHANGED. THESE SECURITIES MAY NOT BE SOLD UNTIL THE REGISTRATION
STATEMENT FILED WITH THE SECURITIES AND EXCHANGE COMMISSION IS
EFFECTIVE. THIS PRELIMINARY PROSPECTUS IS NOT AN OFFER TO SELL NOR DOES
IT SEEK AN OFFER TO BUY THESE SECURITIES IN ANY JURISDICTION WHERE THE
OFFER OR SALE IS NOT PERMITTED.
SUBJECT TO COMPLETION, DATED MARCH 15, 2000
2,750,000 Shares
[SYMYX LOGO]
Common Stock
------------------
We are selling 1,250,000 shares of common stock and the selling
stockholders are selling 1,500,000 shares of common stock. We will not receive
any of the proceeds from the shares of common stock sold by the selling
stockholders.
Our common stock is quoted on The Nasdaq Stock Market's National Market
under the symbol "SMMX." The last reported sale price of the common stock on
March 14, 2000 was $58.00.
The underwriters have an option to purchase a maximum of 412,500 additional
shares to cover over-allotments of shares.
INVESTING IN THE COMMON STOCK INVOLVES RISKS. SEE "RISK FACTORS" ON PAGE 6.
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<CAPTION>
UNDERWRITING PROCEEDS TO
PRICE TO DISCOUNTS AND PROCEEDS TO SELLING
PUBLIC COMMISSIONS SYMYX STOCKHOLDERS
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<S> <C> <C> <C> <C>
Per Share............................................ $ $ $ $
Total................................................ $ $ $ $
</TABLE>
Delivery of the shares of common stock will be made on or about
, 2000.
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.
CREDIT SUISSE FIRST BOSTON
CHASE H & Q
ING BARINGS
INVEMED ASSOCIATES
The date of this prospectus is , 2000.
<PAGE> 3
TABLE OF CONTENTS
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PAGE
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Prospectus Summary.............. 3
Risk Factors.................... 6
Forward-Looking Statements...... 15
Use of Proceeds................. 15
Price Range of Common Stock..... 16
Dividend Policy................. 16
Trademarks...................... 16
Capitalization.................. 17
Dilution........................ 18
Selected Financial Data......... 19
Management's Discussion and
Analysis of Financial
Condition and Results of
Operations.................... 20
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PAGE
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Business........................ 27
Management...................... 39
Related Party Transactions...... 48
Principal and Selling
Stockholders.................. 50
Description of Capital Stock.... 53
Shares Eligible for Future
Sale.......................... 56
Underwriting.................... 58
Notice to Canadian Residents.... 61
Legal Matters................... 62
Experts......................... 62
Additional Information.......... 62
Index to Financial Statements... F-1
</TABLE>
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS DOCUMENT OR TO
WHICH WE HAVE REFERRED YOU. WE HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH
INFORMATION THAT IS DIFFERENT. THIS DOCUMENT MAY ONLY BE USED WHERE IT IS LEGAL
TO SELL THESE SECURITIES. THE INFORMATION IN THIS DOCUMENT MAY ONLY BE ACCURATE
ON THE DATE OF THIS DOCUMENT.
<PAGE> 4
PROSPECTUS SUMMARY
The following summary highlights information we present more fully
elsewhere in this prospectus. This prospectus contains forward-looking
statements that involve risks and uncertainties. Our actual results could differ
materially from those anticipated in the forward-looking statements as a result
of factors described under the heading "Risk Factors" and elsewhere in this
prospectus.
SYMYX TECHNOLOGIES, INC.
We are a pioneer of high-speed technologies for the discovery of new
materials. Materials and their diverse properties contribute in a vital way to
many of the products we use everyday. Examples include catalysts used in the
manufacture of major chemicals, pharmaceuticals, plastics and rubbers, the
plastics in many of our household goods, phosphorescent materials in x-rays and
computer screens, and polymers on the bottom of sneakers.
The life science, chemical and electronics companies that produce these
materials often face heightened pressure to achieve growth targets and increase
profitability. As a result, these companies need to reduce costs, increase
innovation, and create new businesses based on proprietary materials. We believe
that we can assist life science, chemical and electronics companies by
discovering new materials faster and in a more productive and cost-effective
manner than by using traditional methods.
Our proprietary technologies, including instruments, software and methods,
represent complete processes designed to cost-effectively accelerate and
fundamentally change materials discovery. We create hundreds to thousands of
unique materials at one time and screen those materials rapidly and
automatically for desired properties. Our process of simultaneously making and
then screening large numbers of different materials is called the
"combinatorial" approach. We believe our combinatorial approach is up to 100
times faster than traditional research methods and reduces the cost per
experiment to as low as 1% of traditional research methods.
We apply our proprietary combinatorial technologies to discover materials
both for ourselves in our Symyx Proprietary Materials business and in
collaboration with major companies under our Industry Collaborations programs.
Most of these companies are in the life science, chemical and electronics
industries. Our current partners include Agfa, BASF, Bayer, Celanese, Ciba
Specialty Chemicals, Dow Chemical, Osram OS (an affiliate of Siemens), PE
Biosystems and Unilever. These partners, government agencies and other
collaborators have committed a total of over $90 million in near-term research
funding, of which we have recognized revenue of $49 million through December 31,
1999. If we discover a new material and our partner commercializes the material,
we generally will receive either royalties or milestone payments.
We are applying our technology to discover a wide range of materials,
including catalysts to manufacture a broad array of chemicals and
pharmaceuticals, polymers for DNA separation and genomics testing, and materials
for electronic applications. These areas all represent substantial worldwide
markets. In addition to our alliances, we are seeking to meet the growing demand
for combinatorial technologies by offering selective access to some of our
equipment and technologies, through our Discovery Tools(TM) Technology Access
program.
3
<PAGE> 5
Dr. Alejandro Zaffaroni and Dr. Peter Schultz founded Symyx in 1994. Dr.
Zaffaroni is also a founder of ALZA, Affymax, Affymetrix, Maxygen and DNAX
Research Institute. The conceptual basis for Symyx draws from Affymax and
Affymetrix, which commercialized the use of high-speed combinatorial methods for
pharmaceutical and genetic research, respectively.
As a pioneer of high-speed materials discovery, we have focused on building
a strong competitive position through both our people and our intellectual
property. We have assembled a diverse technical and scientific team to enable us
to create, validate and apply high-speed discovery technologies. Our team
includes chemists, physicists, engineers and programmers. We have eight issued
United States patents and an additional two patent applications allowed in the
United States. In addition, we have over 90 patent applications pending in the
United States and over 50 foreign patent applications pending, covering
combinatorial methodologies, instruments and software and novel materials.
Our main facility is located at 3100 Central Expressway, Santa Clara, CA
95051 and our telephone number is (408) 764-2000. We were incorporated in
California in September 1994 and reincorporated in Delaware in February 1999.
ACHIEVEMENTS SINCE OUR INITIAL PUBLIC OFFERING
Since completing our initial public offering in November 1999, we have made
progress in advancing both our technology and each of our business areas. Our
key accomplishments include:
- execution of our first Proprietary Materials license and development
agreement;
- completion of the sale and first shipment of a Discovery Tools system;
- transfer of a lead compound to a partner in our Industry Collaborations
business;
- expansion of our validated technology platforms from 17 to 20;
- identification of three additional development candidates, two in life
science and one in chemicals; and
- issuance of three U.S. patents covering our high speed discovery
methodologies.
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<PAGE> 6
THE OFFERING
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Common stock offered by Symyx............. 1,250,000 shares
Common stock offered by the selling
stockholders............................ 1,500,000 shares
Common stock to be outstanding after this
offering................................ 30,951,014 shares
Use of proceeds........................... General corporate purposes, including working
capital.
Nasdaq National Market symbol............. SMMX
</TABLE>
Common stock to be outstanding after this offering is based on 29,701,014
shares of common stock outstanding as of March 3, 2000. It does not include:
- 4,025,772 shares subject to stock options outstanding as of March 3,
2000;
- 834,819 shares available for future grant or issuance under our stock
plan as of March 3, 2000; and
- 596,386 shares available for issuance under our employee stock purchase
plan as of March 3, 2000.
Except as otherwise indicated, all of the information in this prospectus
assumes no exercise of the underwriters' over-allotment option.
SUMMARY FINANCIAL INFORMATION
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
See Note 1 of Notes to Financial Statements for an explanation of the
method used to determine the number of shares used in computing per share data
below.
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YEAR ENDED DECEMBER 31,
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1995 1996 1997 1998 1999
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STATEMENTS OF OPERATIONS DATA:
Revenue.............................. $ -- $ -- $ 4,806 $13,787 $30,497
Operating expenses................... 508 3,050 10,893 22,328 34,252
Loss from operations................. (508) (3,050) (6,087) (8,541) (3,755)
Net loss............................. (508) (2,681) (5,596) (8,155) (2,147)
Pro forma basic and diluted net loss
per share.......................... (0.46) (0.10)
======= =======
Shares used in computing pro forma
basic and diluted net loss per
share.............................. 17,737 22,167
======= =======
</TABLE>
In the "as adjusted" column below, we have adjusted the actual balance
sheet data to give effect to receipt of the net proceeds from the sale in this
offering of the 1,250,000 shares of common stock being offered by us at an
assumed public offering price of $ per share, after deducting the estimated
underwriting discounts and commissions and estimated offering expenses.
<TABLE>
<CAPTION>
DECEMBER 31, 1999
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ACTUAL AS ADJUSTED
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BALANCE SHEET DATA:
Cash, cash equivalents and investments.................. $119,270 $
Working capital......................................... 33,299
Total assets............................................ 148,305
Long-term obligations, net of current portion........... 6,729 6,729
Total stockholders' equity.............................. 119,943
</TABLE>
5
<PAGE> 7
RISK FACTORS
You should carefully consider the following risk factors and all other
information contained in this prospectus before purchasing our common stock.
Investing in our common stock involves a high degree of risk. Risks and
uncertainties, in addition to those we describe below, that are not presently
known to us or that we believe are immaterial may also impair our business
operations. These risks could, if they occur, harm our business and our
operating results. In addition, the trading price of our common stock could
decline due to the occurrence of any of these risks, and you may lose all or
part of your investment.
WE ARE DEPLOYING NEW TECHNOLOGY IN A NEW BUSINESS AND, AS A RESULT, WE MAY NOT
BE ABLE TO ACHIEVE PROFITABILITY
Our combinatorial materials discovery technologies and processes are new.
To date, our partners have not successfully commercialized as products any
materials that we have discovered using these technologies and processes.
Discovery and development of new materials is a highly uncertain process.
Accordingly, because of these uncertainties, our discovery process may not
result in the identification of development candidates we or our partners will
commercialize. If we are not able to use our technologies to discover new
materials with significant commercial potential, we will be unable to achieve
our objectives or build a sustainable or profitable business.
WE ARE DEPENDENT UPON ACCEPTANCE OF OUR TECHNOLOGY AND APPROACH BY CUSTOMERS,
AND IF WE CANNOT ACHIEVE MARKET ACCEPTANCE FROM POTENTIAL CUSTOMERS, WE WILL BE
UNABLE TO BUILD A SUSTAINABLE OR PROFITABLE BUSINESS
Our ability to succeed is also dependent upon the acceptance by potential
customers of our high throughput screening technology as an effective tool in
the discovery of new materials. Historically, life science and chemical
companies have conducted materials research and discovery activities internally
using traditional manual discovery methods. In order for us to achieve our
business objectives, we must convince these companies that our technology and
capabilities justify outsourcing part of their basic research and discovery
programs. If we cannot convince companies in the chemical industry of the
effectiveness of our automated discovery methods, we may be unable to keep our
existing customers or attract additional customers on acceptable terms or
develop a sustainable, profitable business.
WE ARE DEPENDENT ON THE RESEARCH AND DEVELOPMENT ACTIVITIES OF COMPANIES IN THE
LIFE SCIENCE AND CHEMICAL INDUSTRIES, AND DECLINES OR REDUCTIONS IN RESEARCH AND
DEVELOPMENT ACTIVITIES IN THESE INDUSTRIES COULD HARM OUR BUSINESS
The market for our discovery services and instrumentation within the life
science and chemical industries depends on our customers' ability and
willingness to invest in research and development. Substantially all of our
revenues are attributable to our research collaborations. Our future revenues
will also be dependent on sales of Discovery Tools and other instrumentation
primarily to chemical companies.
In particular, many companies in the chemical industry have, in the past
several years, experienced declining profitability. In addition, many chemical
products have become commodity products which compete primarily on the basis of
price. As a result, some chemical companies have reduced their research and
development activities. If commoditization of chemical products and other
pressures affecting the industry continue in the
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<PAGE> 8
future, more companies could adopt strategies that involve significant
reductions in their research and development programs. Although we believe that
our approach can help life science and chemical companies increase the
efficiency of their research and development activities, our efforts to convince
them of this value may be unsuccessful. To the extent that life science and
chemical companies reduce their research and development activities, they would
be less likely to do business with us. Decisions by these companies to reduce
their research and development activities could therefore reduce our revenues
and harm our business and operating results.
WE CANNOT PREDICT THE PACE, QUALITY OR NUMBER OF DISCOVERIES WE MAY GENERATE,
AND ANY INABILITY OF OURS TO GENERATE A SIGNIFICANT NUMBER OF DISCOVERIES WOULD
REDUCE OUR REVENUES AND HARM OUR BUSINESS
Our future revenues and profitability are dependent upon our ability to
achieve discoveries. Because of the inherently uncertain nature of research
activities, we cannot predict with a high level of precision the pace with which
we may generate discoveries or the quality of any discoveries that we may
generate. Due to the uncertain nature of materials discovery, in which several
hundred thousand compounds must often be screened to identify a single
development candidate, we may not generate the number of discoveries that we
would expect to generate from a given number of experiments. In addition, our
development candidates may not result in products having the commercial
potential we or our collaborators anticipate. In either case, our future
revenues from our research collaborations and from commercialization of products
would likely decline. In addition, our existing and potential new customers may
become reluctant to renew or enter into new agreements with us. As a result, our
failure to generate discoveries and development candidates would reduce our
revenues and harm our business and operating results.
WE ARE DEPENDENT ON OUR COLLABORATIONS WITH MAJOR COMPANIES, AND THE FAILURE OF
OUR COLLABORATIVE PARTNERS TO SUCCESSFULLY COMMERCIALIZE PRODUCTS WOULD REDUCE
OUR REVENUES AND HARM OUR BUSINESS
To date, substantially all of our revenues have come from collaborative
arrangements with chemical, electronics and life science companies. These
contracts generally expire after a fixed period of time. If they are not renewed
or if we do not enter into new collaborative arrangements, our business and
operating results may be harmed. For example, our contracts with the B.F.
Goodrich Company and Hoechst AG were terminated by mutual agreement as these
companies shifted their business away from chemicals.
For us to achieve and sustain a significant level of profitability, we must
achieve discoveries with significant commercial potential, and our collaborators
must successfully commercialize products based on our discoveries. We will not
receive royalties on sales of products by our collaborators until the
collaborator has commenced commercial sales of a product resulting from the
collaboration. We are dependent upon our collaborative partners to successfully
commercialize products resulting from our collaborations. The failure of our
partners to commercialize development candidates resulting from our research
efforts would reduce our revenues and would harm our business and operating
results.
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WE INTEND TO CONDUCT PROPRIETARY RESEARCH PROGRAMS, AND ANY CONFLICTS WITH OUR
COLLABORATORS OR ANY INABILITY TO COMMERCIALIZE DEVELOPMENT CANDIDATES RESULTING
FROM THIS RESEARCH WOULD HARM OUR BUSINESS
Our strategy involves conducting proprietary research programs. These
programs are focused on discovery of products for specialty markets that have
fewer barriers to entry for an emerging company. In general, our collaborative
research programs are focused on commodity chemical markets, which are larger
than fine chemical and specialty chemical markets that are the focus of our
proprietary programs. We believe that this differentiation of focus will enable
us to minimize conflicts with our collaborators relating to rights to
potentially overlapping leads developed through our proprietary programs and
through programs funded by a collaborator. However, conflicts between us and a
collaborator could potentially arise, particularly if we were to discover a
material in one of our proprietary programs that was a potential target of one
of our collaborative programs. In this event, we may become involved in a
dispute with our collaborator regarding the material. Disputes of this nature
could harm the relationship between us and our collaborator, and concerns
regarding our proprietary research programs could also affect our ability to
enter into new collaborative relationships. If circumstances surrounding our
proprietary research programs were to affect our existing collaborative
relationships or our ability to enter into new relationships, our revenues and
operating results would decline.
In addition, we will either commercialize development candidates resulting
from our proprietary programs directly or through licensing to other companies.
In order for us to commercialize these development candidates directly, we would
need to develop, or obtain through outsourcing arrangements, the capability to
manufacture, market and sell chemical products. We do not have this capability,
and we may not be able to develop or otherwise obtain the requisite
manufacturing, marketing and sales capabilities. If we are unable to
successfully commercialize products resulting from our proprietary research
efforts, our revenues and operating results would decline.
WE HAVE CONTRACTS FOR ONLY TWO DISCOVERY TOOLS SYSTEMS, AND WE CANNOT ASSURE YOU
THAT WE WILL BE ABLE TO BUILD A SUSTAINABLE BUSINESS RELATED TO THE SALE OF
ADDITIONAL SYSTEMS
We have contracts for only two of our Discovery Tools systems. Because of
the high cost and complexity of these systems, the sales cycle for them is
likely to be long. Sales of these systems will require us to educate our
potential customers about the full benefits of these systems, which may require
significant time. Due to these factors, sales of Discovery Tools systems will be
subject to a number of significant risks over which we have little or no
control, including:
- customers' budgetary constraints and internal acceptance review
procedures; and
- potential downturns in general or in industry specific economic
conditions.
If the cycle for Discovery Tools systems lengthens unexpectedly, it could
adversely affect the timing of our revenues.
WE WILL NEED TO DEVELOP MANUFACTURING, SALES AND MARKETING CAPABILITIES FOR
DISCOVERY TOOLS, AND IF WE ARE UNABLE TO DO SO, WE WILL BE UNABLE TO BUILD OUR
DISCOVERY TOOLS BUSINESS
In order to successfully market and sell these systems, we will need to
develop the capability to manufacture, market and sell large capital equipment
items. Although we have several business development professionals with
experience in this area, we may need
8
<PAGE> 10
to hire additional personnel. We may not be able to develop the necessary
manufacturing capability or to sell additional systems and we may not be able to
build a sustainable business related to the sale of these systems. Factors that
could impact our ability to manufacture and commercialize our Discovery Tools
include:
- manufacturing difficulties involving quality control, quality assurance
and shortage of qualified personnel;
- complexity of our systems and difficulties we may encounter in meeting
individual customer specifications and commitments on a timely basis;
- the fact that there may be only a limited number of customers that are
willing to pay several million dollars for our systems; and
- a long sales cycle that involves substantial human and capital resources.
If we are not able to build the business infrastructure to support our
Discovery Tools business, we will be unable to expand this business. Because we
expect future revenue growth from the sale of Discovery Tools, our revenues may
decline or not grow as anticipated if we are unable build the infrastructure to
support this business.
WE INTEND TO COMMERCIALIZE OUR MANUAL LABORATORY INSTRUMENTS THROUGH A THIRD
PARTY ARRANGEMENT, AND IF THIS THIRD PARTY DOES NOT PERFORM EFFECTIVELY, OUR
ABILITY TO GENERATE REVENUE FROM THE SALE OF THESE PRODUCTS WILL BE HARMED
We intend to commercialize our manual laboratory instruments through our
relationship with Argonaut Technologies. The commercial success of these
instruments will depend in large part on their features and price as compared to
competing products and on their ability to achieve market acceptance. In
addition, our ability to realize significant commercial sales of these
instruments will also depend on the efforts of Argonaut in promoting, marketing
and selling these instruments. Argonaut's efforts in this regard will be outside
of our control. Accordingly, to the extent that Argonaut fails to effectively
promote, market and sell our manual instruments, our revenues from the sales of
these instruments, and therefore our operating results, would be harmed.
WE EXPECT THAT OUR QUARTERLY RESULTS OF OPERATIONS WILL FLUCTUATE, AND THIS
FLUCTUATION COULD CAUSE OUR STOCK PRICE TO DECLINE, CAUSING INVESTOR LOSSES
Our quarterly operating results have fluctuated in the past and are likely
to do so in the future. These fluctuations could cause our stock price to
fluctuate significantly or decline. Revenues in future fiscal periods may be
greater or less than revenues in the immediately preceding period or in the
comparable period of the prior year. Some of the factors which could cause our
operating results to fluctuate include:
- expiration of research contracts with major chemical companies, which may
not be renewed or replaced with contracts with other companies;
- the success rate of our discovery efforts associated with milestones and
royalties;
- the timing and willingness of partners to commercialize our discoveries
which would result in royalties;
- the size and timing of customer orders for, and shipments of, Discovery
Tools instrumentation; and
- general and industry specific economic conditions, which may affect our
customers' capital investment levels.
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A large portion of our expenses, including expenses for facilities,
equipment and personnel, are relatively fixed in nature. Accordingly, in the
event revenues decline or do not grow as anticipated due to expiration of
research contracts, failure to obtain new contracts or other factors, we may not
be able to correspondingly reduce our operating expenses. In addition, we plan
to significantly increase operating expenses in 2000. Failure to achieve
anticipated levels of revenues could therefore significantly harm our operating
results for a particular fiscal period.
Due to the possibility of fluctuations in our revenues and expenses, we
believe that quarter-to-quarter comparisons of our operating results are not a
good indication of our future performance. Our operating results in some
quarters may not meet the expectations of stock market analysts and investors.
In that case, our stock price would probably decline, and investors would
experience a decline in the value of their investment.
THE LOSS OF KEY PERSONNEL OR THE INABILITY TO ATTRACT AND RETAIN ADDITIONAL
PERSONNEL COULD HAVE A MATERIAL ADVERSE EFFECT ON OUR RESULTS OF OPERATIONS
We believe our future success will depend upon our ability to attract and
retain highly skilled personnel, including W. Henry Weinberg, our Senior Vice
President and Chief Technical Officer, and other key scientific and managerial
personnel. We do not have any key-person life insurance relating to our key
personnel. These employees are at-will and not subject to employment contracts.
We may not be successful in attracting and retaining key personnel in the
future.
As we seek to expand our operations, the hiring of qualified scientific and
technical personnel will be difficult due to the limited availability of
qualified professionals. The number of people with experience in the fields of
combinatorial materials science and combinatorial chemistry is limited, and we
face intense competition for these types of employees. We have in the past
experienced difficulty in recruiting qualified personnel. Failure to attract and
retain personnel, particularly scientific and technical personnel, would impair
our ability to grow our business and pursue new discovery initiatives and
collaborative arrangements.
COMPETITION COULD INCREASE, AND COMPETITIVE DEVELOPMENTS COULD RENDER OUR
TECHNOLOGIES OBSOLETE OR NONCOMPETITIVE, WHICH WOULD REDUCE OUR REVENUES AND
HARM OUR BUSINESS
The field of combinatorial materials science is increasingly competitive.
We are aware of several companies that are applying their expertise in
combinatorial chemistry to materials research and development. We are also aware
of some chemical companies that have internal combinatorial programs. For
example, Shell Chemicals is participating in a consortium in The Netherlands and
BASF is funding a new start-up company in Heidelberg, Germany named HTE. BASF is
also one of our collaborative partners. In addition, academic and research
institutions may seek to develop technologies that would be competitive with our
systems for materials discovery. Because combinatorial materials science is an
emerging field, competition from additional entrants may increase.
Many of our current and potential competitors have greater financial,
manufacturing, marketing and sales resources than we do. In addition, some of
our existing competitors may, individually or together with companies affiliated
with them, have greater human and scientific resources than we do. Our
competitors could develop technologies and methods for materials research and
discovery that render our technologies and systems obsolete or less competitive.
Any competitive developments of this nature would make our technologies and
methodologies less competitive. Accordingly, if competitors introduce new
10
<PAGE> 12
materials discovery technologies that are faster or more cost-effective than our
technologies, customers may switch to these new technologies. We would then
experience a decline in our revenues and operating results.
ANY INABILITY OF OURS TO KEEP PACE WITH TECHNOLOGICAL ADVANCES AND EVOLVING
INDUSTRY STANDARDS WOULD HARM OUR BUSINESS
The market for our products is characterized by continuing technological
development, evolving industry standards and changing customer requirements. Due
to increasing competition in our field, it is likely that the pace of innovation
and technological change will increase. The introduction of products by our
direct competitors or others embodying new technologies, the emergence of new
industry standards or changes in customer requirements could render our existing
products obsolete, unmarketable or less competitive. Our success depends upon
our ability to enhance existing products and services and to respond to changing
customer requirements. Failure to develop and introduce new products and
services, or enhancements to existing products, in a timely manner in response
to changing market conditions or customer requirements will harm our future
revenues and our business and operating results.
OUR INABILITY TO ADEQUATELY PROTECT OUR PROPRIETARY TECHNOLOGY COULD HAVE A
MATERIAL ADVERSE EFFECT ON OUR BUSINESS
The success of our business depends on our ability to protect our
intellectual property portfolio and obtain patents without infringing the
proprietary rights of others. If we do not effectively protect our intellectual
property, our business and operating results could be harmed.
Patents may not issue from our applications. Even if we are able to obtain
patents covering our technology, the patents may be challenged, circumvented,
invalidated or unenforceable. Competitors may develop similar technology or
design around any patents issued to us or our other intellectual property
rights. Our competitors would then be able to offer research services and
develop, manufacture and sell products which compete directly with our research
services and products. In that case, our revenues and operating results would
decline.
We also seek to protect our technology and processes in part by
confidentiality agreements with our collaborators, employees and consultants. We
also do not provide broad access to our proprietary technologies and processes
to collaborators. However, confidentiality agreements might be breached by
collaborators, former employees or others, and in that event, we might not have
adequate remedies for the breach. Further, our trade secrets might otherwise
become known or be independently discovered by competitors. Unauthorized
disclosure of our trade secrets could enable competitors to use some of our
proprietary technologies. This would harm our competitive position and could
cause our revenues and operating results to decline.
LITIGATION OR OTHER PROCEEDINGS OR THIRD PARTY CLAIMS OF INFRINGEMENT COULD
REQUIRE US TO SPEND TIME AND MONEY AND COULD SHUT DOWN SOME OF OUR OPERATIONS
We may receive communications from others in the future asserting that our
business or technologies infringe their intellectual property rights. If we
became involved in litigation or interference proceedings declared by the United
States Patent and Trademark Office, or oppositions or other intellectual
property proceedings outside of the United States, to defend our intellectual
property rights or as the result of alleged infringement of
11
<PAGE> 13
the rights of others, we might have to spend significant amounts of money. The
litigation or proceedings could divert our management's time and efforts. An
adverse ruling, including an adverse decision as to the priority of our
inventions, would undercut or invalidate our intellectual property position. An
adverse ruling could also subject us to significant liability for damages or
prevent us from using or marketing systems, processes or products. Any of these
events would have a negative impact on our business and operating results. Even
unsuccessful claims could result in significant legal fees and other expenses,
diversion of management's time and disruptions in our business. Uncertainties
resulting from the initiation and continuation of any patent or related
litigation could harm our ability to compete, pending resolution of the disputed
matter.
We believe we have taken adequate measures to assess the validity of our
intellectual property rights. We are not currently involved in any disputes with
third parties regarding intellectual property rights. However, we may become
involved in intellectual property disputes or receive communications from others
in the future asserting that our business or technologies infringe their
intellectual property rights. To settle these disputes, we may need to obtain
licenses to patents or other proprietary rights held by others. However, these
licenses might not be available on acceptable terms, or at all. In that event,
we could encounter delays in system, process or product introductions while we
attempt to design around the patents. Our redesigned systems, processes or
products may be inferior to our original designs or we may be unable to continue
system, process or product development in the particular field. In either case,
our competitive position, business, revenues and operating results would likely
suffer.
WE USE HAZARDOUS MATERIALS IN OUR BUSINESS, AND ANY CLAIMS RELATING TO IMPROPER
HANDLING, STORAGE OR DISPOSAL OF THESE MATERIALS COULD SUBJECT US TO SIGNIFICANT
LIABILITIES
Our business involves the use of a broad range of hazardous chemicals and
materials. Environmental laws impose stringent civil and criminal penalties for
improper handling, disposal and storage of these materials. In addition, in the
event of an improper or unauthorized release of, or exposure of individuals to,
hazardous materials, we could be subject to civil damages due to personal injury
or property damage caused by the release or exposure. A failure to comply with
environmental laws could result in fines and the revocation of environmental
permits, which could prevent us from conducting our business. Accordingly, any
violation of environmental laws or failure to properly handle, store or dispose
of hazardous materials could result in restrictions on our ability to operate
our business and could require us to incur potentially significant costs for
personal injuries, property damage and environmental cleanup and remediation.
WE HAVE EXPERIENCED SIGNIFICANT GROWTH, AND WE MUST IMPROVE OUR OPERATIONAL,
FINANCIAL AND MANAGEMENT CONTROLS AND SYSTEMS TO KEEP PACE WITH OUR GROWTH
We have experienced a period of rapid and substantial growth that has
placed and, if such growth continues, will continue to place a strain on our
human and capital resources. If we are unable to manage this growth effectively,
our business, results of operations or financial condition may be materially
adversely affected. We increased the number of our employees from 28 at December
31, 1996 to 170 at December 31, 1999. Our revenues increased from $4.8 million
in 1997 to $13.8 million in 1998 and $30.5 million in 1999. Our ability to
manage our operations and growth effectively requires us to continue to improve
our operational, financial and management controls, reporting systems and
procedures and hiring programs. Due to the pace of our growth, we may be unable
to successfully
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<PAGE> 14
implement improvements to our management information and control systems in an
efficient or timely manner and may discover deficiencies in existing systems and
controls.
SOME OF OUR EXISTING STOCKHOLDERS CAN EXERT CONTROL OVER US, AND MAY NOT MAKE
DECISIONS THAT ARE IN THE BEST INTERESTS OF ALL STOCKHOLDERS
After this offering, our officers, directors and principal stockholders
(greater than 5% stockholders) will together control approximately % of our
outstanding common stock. As a result, these stockholders, if they act together,
will be able to exert a significant degree of influence over our management and
affairs and over matters requiring stockholder approval, including the election
of directors and approval of significant corporate transactions. This
concentration of ownership may have the effect of delaying or preventing a
change in control of Symyx and might affect the market price of our common
stock, even when such a change may be in the best interests of all stockholders.
OUR STOCK PRICE HAS BEEN AND MAY CONTINUE TO BE VOLATILE
The market price of our common stock since our initial public offering has
increased dramatically and has been highly volatile. Volatility in the market
price for our common stock will be affected by a number of factors, including
the following:
- the announcement of new products or services by us or our competitors;
- quarterly variations in our or our competitors' results of operations;
- failure to achieve operating results projected by securities analysts;
- changes in earnings estimates or recommendations by securities analysts;
- developments in our industry; and
- general market conditions and other factors, including factors unrelated
to our operating performance or the operating performance of our
competitors.
These factors and fluctuations, as well as general economic, political and
market conditions, may materially adversely affect the market price of our
common stock.
OUR FACILITIES ARE LOCATED NEAR KNOWN EARTHQUAKE FAULT ZONES, AND THE OCCURRENCE
OF AN EARTHQUAKE OR OTHER CATASTROPHIC DISASTER COULD CAUSE DAMAGE TO OUR
FACILITIES AND EQUIPMENT AND HARM OUR BUSINESS
Our facilities are located in the Silicon Valley near known earthquake
fault zones and are vulnerable to damage from earthquakes. In October 1989, a
major earthquake that caused significant property damage and a number of
fatalities struck this area. We are also vulnerable to damage from other types
of disasters, including fire, floods, power loss, communications failures and
similar events. If any disaster were to occur, our ability to operate our
business at our facilities would be seriously, or potentially completely,
impaired. In addition, the unique nature of our research activities and of much
of our equipment could make it difficult for us to recover from a disaster. The
insurance we maintain may not be adequate to cover our losses resulting from
disasters or other business interruptions. Accordingly, an earthquake or other
disaster could harm our business and operating results.
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<PAGE> 15
POTENTIAL SALES OF SHARES ELIGIBLE FOR FUTURE SALE AFTER THIS OFFERING COULD
CAUSE OUR STOCK PRICE TO DECLINE
If our stockholders sell substantial amounts of our common stock (including
shares issued upon the exercise of outstanding options and warrants) in the
public market following this offering, the market price of our common stock
could 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. The shares sold in this offering will be freely tradable
immediately upon completion of this offering. In addition, on May 17, 2000,
approximately million shares of our common stock held by existing
stockholders will become freely tradable, subject in some instances to the
volume and other limitations of Rule 144, and 91 days following the date of this
prospectus, an additional approximately million shares of our common
stock held by existing stockholders will also be freely tradable, subject in
some instances to the volume and other limitations of Rule 144. Sales of these
shares and other shares of common stock held by existing stockholders could
cause the market price of our common stock to decline.
PROVISIONS OF OUR CHARTER DOCUMENTS MAY HAVE ANTI-TAKEOVER EFFECTS THAT COULD
PREVENT A CHANGE IN OUR CONTROL, EVEN IF THIS WOULD BE BENEFICIAL TO
STOCKHOLDERS
Provisions of our amended and restated certificate of incorporation, bylaws
and Delaware law could make it more difficult for a third party to acquire us,
even if doing so would be beneficial to our stockholders. These provisions
include:
- a classified board of directors, in which our board is divided into three
classes with three year terms with only one class elected at each annual
meeting of stockholders, which means that a holder of a majority of our
common stock will need two annual meetings of stockholders to gain
control of the board;
- a provision which prohibits our stockholders from acting by written
consent without a meeting;
- a provision which permits only the board of directors, the president or
the chairman to call special meetings of stockholders; and
- a provision which requires advance notice of items of business to be
brought before stockholders meetings.
These provisions can be amended only with the vote of the holders of
66 2/3% of our outstanding capital stock.
AS A NEW INVESTOR, YOU WILL EXPERIENCE IMMEDIATE AND SUBSTANTIAL DILUTION
If you purchase shares of our common stock in this offering, you will incur
immediate dilution of $ per share in pro forma net tangible book value. If
the holders of outstanding options exercise those options, you will incur
further dilution. See "Dilution."
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<PAGE> 16
FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements within the meaning of
the federal securities laws that relate to future events or our future financial
performance. In some cases, you can identify forward-looking statements by
terminology such as "may," "will," "should," "expects," "plans," "anticipates,"
"believes," "estimates," "predicts," "intend," "potential" or "continue."
In addition, these forward-looking statements include, but are not limited
to, statements regarding the following:
- our combinatorial materials discovery technologies and processes;
- our ability to realize commercially valuable discoveries in our
collaborations with life science, chemical and electronics companies and
in our proprietary programs;
- our plans to develop our Discovery Tools and instrumentation businesses;
- our intellectual property portfolio; and
- our business strategies and plans.
These statements are only predictions.
Although we believe that the expectations reflected in the forward-looking
statements are reasonable, we cannot guarantee future results, levels of
activity, performance or achievements. Moreover, neither we nor any other person
assumes responsibility for the accuracy and completeness of these statements. We
are under no duty to update any of the forward-looking statements after the date
of this prospectus or to conform these statements to actual results.
USE OF PROCEEDS
We expect to receive net proceeds of approximately $ million from the
sale of the 1,250,000 shares of common stock, we are offering, at an assumed
public offering price of $ per share, after deducting the estimated
underwriting discounts and commissions and estimated offering expenses. We will
not receive any of the proceeds from the sale of shares by the selling
stockholders. If the underwriters' over-allotment option is exercised in full,
our estimated net proceeds will be $ million.
We are conducting this offering primarily to increase our equity capital,
to create a larger public float for our common stock and to allow for the
orderly liquidation of the investments made by some of our stockholders. We
expect to use the net proceeds of the offering for research and development,
capital expenditures, working capital and other general corporate purposes. The
amounts and timing of our actual expenditures will depend upon numerous factors,
including the status of our product development and commercialization efforts,
the amount of proceeds actually raised in this offering, the amount of cash
generated by our operations, competition, and sales and marketing activities.
Pending use of the net proceeds of this offering, we intend to invest the net
proceeds in interest-bearing, investment-grade securities.
A portion of the net proceeds may be used to acquire or invest in
complementary businesses or products or to obtain the right to use complementary
technologies. From time to time, in the ordinary course of business, we may
evaluate potential acquisitions of these businesses, products or technologies.
We have no current plans, agreements or
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<PAGE> 17
commitments, and are not currently engaged in any negotiations regarding any
such transaction.
PRICE RANGE OF COMMON STOCK
Our common stock is traded on the Nasdaq National Market under the symbol
of SMMX. The following table sets forth, for the period indicated, the low and
high sale prices per share for our common stock as reported by the Nasdaq
National Market.
<TABLE>
<CAPTION>
HIGH LOW
------ ------
<S> <C> <C>
Fourth Quarter 1999 (from November 18, 1999)... $35.81 $18.00
First Quarter 2000 (through March 14, 2000).... $80.00 $29.25
</TABLE>
On March 14, 2000, the last reported sale price of our common stock on the
Nasdaq National Market was $58.00 per share. As of March 3, 2000, we had
outstanding 29,701,014 shares of common stock held by approximately 510 holders
of record.
DIVIDEND POLICY
We have never declared or paid any dividends on our capital stock. We
currently expect to retain future earnings, if any, to support the development
of our business and do not anticipate paying any cash dividends in the
foreseeable future.
TRADEMARKS
Symyx(R) is our registered trademark, and Symyx Technologies(TM), Discovery
Tools(TM), Library Studio(TM), PPR(TM), Endeavor(TM) and the Symyx logo are our
trademarks. Other service marks, trademarks and trade names referred to in this
prospectus are the property of their respective owners.
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<PAGE> 18
CAPITALIZATION
The following table sets forth our capitalization as of December 31, 1999:
- on an actual basis; and
- on an as adjusted basis to reflect the sale of 1,250,000 shares of common
stock being offered by us at an assumed public offering price of
$ per share and the application of the net proceeds, after
deducting estimated underwriting discounts and commissions and estimated
offering expenses.
You should read this table in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and our financial
statements and related notes thereto included elsewhere in this prospectus.
<TABLE>
<CAPTION>
DECEMBER 31, 1999
----------------------
AS
ACTUAL ADJUSTED
--------- ---------
(IN THOUSANDS, EXCEPT
SHARE AND PER SHARE
DATA)
<S> <C> <C>
Long-term obligations.................................... $ 6,729 $ 6,729
Stockholders' equity:
Preferred stock, $0.001 par value, 10,000,000 shares
authorized, issuable in series; no shares issued and
outstanding
Common stock, $0.001 par value, 100,000,000 shares 31
authorized, 29,638,562 shares issued and outstanding
(30,888,562 shares outstanding as adjusted)............ 30
Additional paid-in capital............................... 142,048
Stockholder notes receivable............................. (731) (731)
Deferred stock compensation.............................. (2,128) (2,128)
Unrealized gain (loss) on investments.................... (189) (189)
Accumulated deficit...................................... (19,087) (19,087)
-------- --------
Total stockholders' equity..................... 119,943
-------- --------
Total capitalization........................... $126,672 $
======== ========
</TABLE>
This table excludes the following shares:
- 2,838,498 shares subject to stock options outstanding as of December 31,
1999;
- 872,855 shares reserved for issuance under our stock option plan as of
December 31, 1999;
- 300,000 shares available for issuance under our employee stock purchase
plan as of December 31, 1999;
- 1,185,542 shares added to those reserved for issuance under our stock
option plan on January 1, 2000; and
- 296,386 shares added to those available for issuance under our employee
stock purchase plan on January 1, 2000.
For additional information regarding these shares, see Note 4 of Notes to
Financial Statements.
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<PAGE> 19
DILUTION
If you invest in our common stock, your interest will be diluted to the
extent of the difference between the public offering price per share of our
common stock and the net tangible book value per share of our common stock after
this offering.
The net tangible book value of Symyx at December 31, 1999, was $119.9
million, or $4.05 per share of common stock. Net tangible book value per share
represents total tangible assets less total liabilities, divided by the number
of outstanding shares of common stock. After giving effect to the sale of the
1,250,000 shares of common stock being offered by us at an assumed public
offering price of $ per share, and after deducting estimated underwriting
discounts and commissions and estimated offering expenses, our adjusted net
tangible book value at December 31, 1999, would be $ million or $ per share.
This represents an immediate increase in the net tangible book value of $ per
share to existing stockholders and an immediate dilution of $ per share to
new investors, or approximately % of the offering price of $ per share.
The following table illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Assumed public offering price per share..................... $
Net tangible book value per share at December 31, $4.05
1999..................................................
Increase per share attributable to this offering.......
-----
Net tangible book value per share after this offering.......
-----
Dilution per share to new investors......................... $
=====
</TABLE>
The above table assumes that no options were exercised after December 31,
1999. As of December 31, 1999, we had outstanding options to purchase a total of
2,838,498 shares at a weighted average exercise price of $5.80. We also had
872,855 shares reserved for future issuance under our stock option plans and
300,000 shares reserved for issuance under our employee stock purchase plan. To
the extent outstanding options are exercised, there would be additional dilution
to investors in this offering.
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<PAGE> 20
SELECTED FINANCIAL DATA
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 are
derived from our financial statements, which have been audited by Ernst & Young
LLP, independent auditors and are included elsewhere in this prospectus. The
statement of operations data for the years ended December 31, 1995 and 1996 and
the balance sheet data as of December 31, 1995, 1996 and 1997 are derived from
audited financial statements not included in this prospectus. When you read this
selected financial data, it is important that you also read the historical
financial statements and related notes included in this prospectus, as well as
the section of this prospectus related to "Management's Discussion and Analysis
of Financial Condition and Results of Operations." Historical results are not
necessarily indicative of future results. See Note 1 of Notes to Financial
Statements for an explanation of the method used to determine the number of
shares used in computing pro forma net loss per share.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------
1995 1996 1997 1998 1999
------ ------- ------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Revenue from collaborations.......... $ -- $ -- $ 4,806 $13,787 $30,497
Operating expenses:
Research and development........... 27 2,483 8,764 17,640 23,964
General and administrative......... 481 567 2,129 4,500 6,494
Amortization of deferred
compensation.................... -- -- -- 188 3,794
------ ------- ------- ------- -------
Total operating expenses........ 508 3,050 10,893 22,328 34,252
------ ------- ------- ------- -------
Loss from operations................. (508) (3,050) (6,087) (8,541) (3,755)
Interest income...................... -- 375 843 1,117 2,542
Interest and other expense........... -- (6) (352) (731) (934)
------ ------- ------- ------- -------
Net loss............................. $ (508) $(2,681) $(5,596) $(8,155) $(2,147)
====== ======= ======= ======= =======
Basic and diluted net loss per
share.............................. $(0.40) $ (1.24) $ (1.97) $ (2.13) $ (0.27)
====== ======= ======= ======= =======
Shares used in computing basic and
diluted net loss per share......... 1,269 2,168 2,845 3,829 8,087
====== ======= ======= ======= =======
Pro forma basic and diluted net loss
per share.......................... $ (0.46) $ (0.10)
======= =======
Shares used in computing pro forma
basic and diluted net loss per
share.............................. 17,737 22,167
======= =======
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------------------------
1995 1996 1997 1998 1999
----- ------ ------- ------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash, cash equivalents and
investments........................ $ 15 $9,349 $20,614 $35,121 $119,270
Working capital (deficit)............ (510) 8,789 9,860 15,701 33,299
Total assets......................... 19 10,674 34,861 52,903 148,305
Long-term obligations, net of current
portion............................ -- -- 4,455 7,591 6,729
Total stockholders' equity........... (506) 10,283 25,030 36,166 119,943
</TABLE>
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<PAGE> 21
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following Management's Discussion and Analysis of Financial Condition
and Results of Operations contains forward-looking statements based upon current
expectations that involve risks and uncertainties. When used in this prospectus,
the words "intend," "anticipate," "believe," "estimate," "plan" and "expect" and
similar expressions are included to identify forward-looking statements. Our
actual results and the timing of events could differ materially from those
anticipated in these forward-looking statements as a result of many factors,
including those set forth under "Risk Factors" and elsewhere in this prospectus.
OVERVIEW
Symyx was founded in September 1994 and began significant operations in
April 1996. To date, our revenues and cash flow have come from research
collaborations with large chemical and electronics companies and government
grants. Our current corporate collaborators are Agfa-Gevaert N.V., BASF AG,
Bayer AG, Celanese Ltd., Ciba Specialty Chemicals, Inc., The Dow Chemical
Company, Osram Opto Semiconductors GmbH & Co. OHG, PE Corporation, Inc. through
its PE Biosystems Group and Unilever UK Central Resources Ltd. These agreements
are generally for a two to three year guaranteed term. Four of our research
contracts commenced in 1999, representing approximately half of our committed
revenue. We expect that our revenues and cash flows for 2000 and 2001 will be
comprised in large part of payments to be made under these agreements. Four of
our research contracts may end by their terms in 2000.
We have invested heavily in establishing the technology, instrumentation
and informatics necessary to pursue high throughput discovery for proprietary
materials. These materials include:
- catalysts to manufacture commodity chemicals and polyolefins;
- catalysts and polymers for life science applications; and
- new electronic materials.
These investments contributed to revenue increases from $4.8 million in
1997 to $13.8 million in 1998 to $30.5 million in 1999. Operating expenses
increased from $10.9 million in 1997 to $22.3 million in 1998 to $34.3 million
in 1999. Our total headcount increased from 76 employees at the end of 1997 to
108 employees at the end of 1998 and to 170 employees at the end of 1999.
We expect to continue to make significant investments in research and
development, including the development of new instruments and software, to
enhance our technologies. In addition, an important part of our strategy is to
expand our operations and employee base, and to build our resources for research
and development, business development and marketing.
We have incurred significant losses since our inception. As of December 31,
1999, our accumulated deficit was approximately $19.0 million. We expect to
incur additional operating losses over at least the next year as we continue to
expand staffing, equipment and facilities.
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<PAGE> 22
SOURCE OF REVENUES AND REVENUE RECOGNITION POLICY
We recognize revenues from research collaboration agreements and government
grants as earned upon achievement of the performance requirements of the
agreements and grants. Payments received that are related to future performance
are deferred and recognized as revenue as the performance requirements are
achieved. As of December 31, 1999, we have deferred revenues of approximately
$12.2 million. The terms of our collaboration agreements generally require us to
perform minimum levels of research. Our sources of potential revenue for the
next several years are likely to be:
- payments under existing and possible future collaborative arrangements;
- government research grants;
- royalties from our partners based on revenues received from any products
commercialized under those agreements;
- sales of Discovery Tools and other instruments; and
- sales of any products discovered in our internal research programs.
See Note 2 of Notes to Financial Statements.
DEFERRED COMPENSATION
Deferred compensation for options granted to employees has been determined
as the difference between the deemed fair market value of our common stock on
the date options were granted and the exercise price. Deferred compensation for
options granted to consultants has been determined in accordance with Statement
of Financial Accounting Standards No. 123 as the fair value of the equity
instruments issued. Deferred compensation for options granted to consultants is
periodically remeasured as the underlying options vest.
In connection with the grant of stock options to employees and consultants,
we recorded deferred stock compensation of approximately $5.4 million in the
year ended December 31, 1999 and $760,000 in the year ended December 31, 1998.
These amounts were initially recorded as a component of stockholders' equity and
are being amortized by charges to operations over the vesting period of the
options. We recorded amortization of deferred compensation of approximately $3.8
million for 1999 and $188,000 in 1998. The amortization expense relates to
options awarded to employees and consultants in all operating expense
categories. See Note 4 of Notes to Financial Statements.
RESULTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1998 AND 1999
Revenues
Our total revenues increased to $30.5 million in 1999, up 121% from $13.8
million in 1998. This increase was due primarily to the addition of new research
collaborations and the expansion of existing government grants. Bayer, Celanese
and The Dow Chemical Company accounted for 38%, 35% and no amount of total
revenue in 1998, and 32%, 12% and 18% of revenue in 1999, respectively. B.F.
Goodrich accounted for 6% of revenue in 1999. Our collaboration with B.F.
Goodrich was terminated by mutual agreement in April 1999 after B.F. Goodrich
merged with another company and changed its business focus from chemicals to
aerospace. B.F. Goodrich has returned to us all of the intellectual property
that was the subject of the collaboration agreement and has made termination
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<PAGE> 23
payments through December 1999 amounting to $1.3 million which have been
recognized as revenue in 1999.
Revenue from research collaborations exceeded research and development
expense for the year ended December 31, 1999. This increase in revenue was
primarily due to Technology Access Fees, which are being recognized over the
term of the agreements, and higher reimbursement rates under certain
collaboration agreements.
Research and Development Expenses
Our research and development expenses consist primarily of:
- salaries and other personnel-related expenses;
- facility costs;
- supplies; and
- depreciation of facilities and laboratory equipment.
Research and development expenses increased 36% from $17.6 million in 1998
to $24.0 million in 1999. The increase was due primarily to an increase in
salaries and other personnel costs to support our additional collaborative and
internal research efforts.
Research and development expenses represented 128% of total revenues in
1998 and 79% of total revenues in 1999. The decrease as a percentage of total
revenues was due primarily to the addition of significant contracts in 1999. Our
core business is research and development. Accordingly, we expect to continue to
devote substantial resources to research and development, and we expect that
research and development expenses will continue to increase in absolute dollars.
General and Administrative Expenses
Our general and administrative expenses consist primarily of personnel
costs for finance, human resources, business development, legal and general
management, as well as professional expenses, such as legal and accounting.
General and administrative expenses increased 44% from $4.5 million in 1998 to
$6.5 million in 1999. Expenses increased primarily due to increased staffing
necessary to manage and support our growth.
General and administrative expenses represented 33% of total revenues in
1998 and 21% of total revenues in 1999. The decrease as a percentage of our
total revenues was due primarily to the growth in our total revenues. We expect
that our general and administrative expenses will increase in absolute dollar
amounts as we:
- expand our business development and administrative staff;
- add facilities; and
- incur additional costs related to being a public company, including
directors' and officers' insurance, investor relations programs and
increased professional fees.
Net Interest Income (Expense)
Net interest income (expense) represents interest income earned on our cash
and cash equivalents net of interest expense on equipment financing loans.
Interest income increased from $1.1 million in 1998 to $2.5 million in 1999.
This increase was due to higher average cash balances. Interest expense
increased from $731,000 in 1998 to
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<PAGE> 24
$934,000 in 1999. This increase was due to additional equipment financing loans
used to partially fund our acquisition of equipment.
Provision for Income Taxes
Due to operating losses and the inability to recognize the benefits
therefrom, there is no provision for income taxes for the years ended December
31, 1998 and 1999.
As of December 31, 1999, we had a federal net operating loss carryforward
of approximately $11.3 million. We also had federal research and development
credit carryforwards of approximately $600,000. If not utilized, the net
operating losses and credit carryforwards will expire at various dates beginning
in 2010 through 2019. Utilization of the net operating losses and credits may be
subject to a substantial annual limitation due to the "change in the ownership"
provisions of the Internal Revenue Code of 1986, as amended, and similar state
provisions. The annual limitation may result in the expiration of net operating
losses and credit before utilization. See Note 5 of Notes to Financial
Statements.
YEARS ENDED DECEMBER 31, 1997 AND 1998
Revenues
Our total revenues for 1997 were $4.8 million and our total revenues for
1998 were $13.8 million. The increase was due primarily to the addition of new
research collaborations. Bayer, Hoechst, including its wholly-owned subsidiary
Celanese, and B.F. Goodrich accounted for 22%, 76% and 1% of revenue in 1997 and
38%, 35% and 12% of total revenue in 1998, respectively. Our collaboration with
Hoechst was terminated by mutual agreement in October 1998 following a change in
Hoechst's business focus away from chemicals. One project that was the subject
of the Hoechst collaboration agreement was transferred to Celanese, Hoechst's
wholly-owned subsidiary. Hoescht has returned to us all of the intellectual
property that was the subject of the collaboration agreement in the polyolefin
field. That field is the subject of subsequent agreements with Dow Chemical and
Bayer.
Research and Development Expenses
Research and development expenses increased from $8.8 million in 1997 to
$17.6 million in fiscal 1998. The increase was due primarily to an increase in
personnel-related costs. Research and development expenses represented 182% of
total revenues in 1997 and 128% of total revenues in 1998. The decrease as a
percentage of total revenues was due primarily to the growth in our total
revenues.
General and Administrative Expenses
General and administrative expenses increased from $2.1 million in 1997 to
$4.5 million in 1998. Expenses increased due primarily to increased
personnel-related costs resulting from additional staffing necessary to manage
and support our growth. General and administrative expenses represented 44% of
total revenues for 1997 and 33% of total revenues for 1998. The decrease as a
percentage of our total revenues was due primarily to the growth in our total
revenues.
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<PAGE> 25
Net Interest Income (Expense)
Interest income was $843,000 in 1997 and $1.1 million in 1998. Changes in
interest income were due primarily to changes in our cash balance during these
periods. Interest expense increased from $352,000 in 1997 to $731,000 in 1998
due to additional equipment financing loans used to partially fund leasehold
improvements and acquisition of equipment.
Provision for Income Taxes
We incurred net operating losses in 1997 and 1998 and consequently we did
not pay any federal, state or foreign income taxes.
LIQUIDITY AND CAPITAL RESOURCES
Since 1996, we have financed our operations primarily through net proceeds
from our initial public offering of $81.4 million and, prior to the initial
public offering, private placements of preferred stock, totaling $52.2 million,
research and development funding from collaborative partners and, to a lesser
extent, equipment financing loans. As of December 31, 1999, we had $119.3
million in cash, cash equivalents and investments and $3.7 million available
under an equipment financing line of credit.
Our operating activities provided $14.0 million of cash in 1999. The source
of cash for 1999 was primarily the receipt of research and development funding
from collaborative partners, partially offset by operating expenses. Cash used
in our operating activities was $2.9 million and $1.3 million for 1998 and 1997,
respectively. Uses of cash in operating activities were primarily to fund net
operating losses.
Net cash used in investing activities was $24.0 million in 1997, $10.2
million in 1998 and $81.2 million in 1999. The fluctuations from period to
period are due primarily to the timing of purchases, sales and maturity of
investment securities and the purchase of property and equipment. Purchases of
property and equipment were $13.2 million in 1997, $5.8 million in 1998 and
$11.5 million in 1999. We expect to continue to make significant investments in
the purchase of property and equipment to support our expanding operations.
Financing activities provided cash of $25.9 million in 1997, $23.3 million
in 1998 and $82.1 million in 1999. These amounts are primarily the proceeds we
received from our initial public offering and the sale of preferred stock, net
of issuance costs, equipment and leasehold improvement loan financings and
proceeds from the exercise of stock options. We will repay loan financings over
the next four years as follows: $3.3 million in 2000, $3.7 million in 2001, $2.5
million in 2002 and $534,000 in 2003.
Accounts receivable and other current assets increased significantly at
December 31, 1999 as compared to December 31, 1998. The increase in accounts
receivable was due to an increase in government sponsored research funding. The
increase in other current assets was primarily due to an increase in interest
receivable from investments resulting from the timing of interest payments.
Deferred revenue also increased significantly at December 31, 1999 as compared
to December 31, 1998. This increase was due to the timing of the receipt of
several advance payments under collaborative research programs.
As of December 31, 1998 and 1999, our principal commitments were $3.0
million and $6.6 million, respectively. Principal commitments consisted of our
obligations under operating leases. We will satisfy these obligations over the
next ten years.
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<PAGE> 26
We believe that the net proceeds from this offering, together with our
current cash balances and the cash flows generated by operations, will be
sufficient to satisfy our anticipated cash needs for working capital and capital
expenditures for at least the next 24 months. However, we may seek additional
financing within this time frame. We may raise additional funds through public
or private financing, collaborative relationships or other arrangements. We
cannot assure you that additional funding, if sought, will be available on terms
favorable to us. Further, any additional equity financing may be dilutive to
stockholders, and debt financing, if available, may involve restrictive
covenants. Collaborative arrangements may require us to relinquish our rights to
some of our technologies or products. Our failure to raise capital when needed
may harm our business and operating results.
A portion of our cash may be used to acquire or invest in complementary
businesses or products or to obtain the right to use complementary technologies.
From time to time, in the ordinary course of business, we may evaluate potential
acquisitions of such businesses, products or technologies. We have no current
plans, agreements or commitments, and are not currently engaged in any
negotiations with respect to any such transaction.
DISCLOSURE ABOUT MARKET RISK
Our exposure to market risk is principally confined to our cash, cash
equivalents and investments which have maturities of less than two years. We
maintain a non-trading investment portfolio of investment grade, liquid debt
securities that limits the amount of credit exposure to any one issue, issuer or
type of instrument. The securities in our investment portfolio are not
leveraged, are classified as available for sale and are therefore subject to
interest rate risk. We currently do not hedge interest rate exposure. If market
interest rates were to increase by 100 basis points, or 1%, from December 31,
1999 levels, the fair value of our portfolio would decline by approximately
$706,000. The modeling technique used measures the change in fair values arising
from an immediate hypothetical shift in market interest rates and assumes ending
fair values include principal plus accrued interest.
IMPACT OF YEAR 2000
In late 1999, we completed our Year 2000 remediation efforts and the
testing of our systems. As a result of those planning and implementation
efforts, we did not experience any disruptions in mission critical information
technology and non-information technology systems. We therefore believe that
these systems successfully responded to the Year 2000 date change. We incurred
expenses of approximately $50,000 during 1999 in connection with remediating our
systems. We are not aware of any material problems resulting from Year 2000
issues, either with our products, our internal systems, or the products and
services of third parties upon whom we are dependent. We intend to continue
monitoring our mission critical computer applications and those of our suppliers
and vendors throughout the year 2000 to ensure that any latent Year 2000 matters
that may arise are addressed promptly. At this time, we do not anticipate
incurring additional expenditures related to Year 2000 problems.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities" ("SFAS 133"), which will be effective for the year
ending 2001. This
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<PAGE> 27
Statement establishes accounting and reporting standards requiring that every
derivative instrument, including certain derivative instruments imbedded in
other contracts, be recorded in the balance sheet as either an asset or
liability measured at its fair value. The Statement also requires that changes
in the derivative's fair value be recognized in earnings unless specific hedge
accounting criteria are met. In July 1999, the FASB issued Statement of
Financial Accounting Standards No. 137, "Accounting for Derivative Instruments
and Hedging Activities -- Deferral of the Effective Date of FASB Statement No.
133." ("SFAS 137"). SFAS No. 137 deferred the effective date of SFAS No. 133
until fiscal years beginning after June 15, 2000. We will adopt SFAS No. 133
during our year ending December 31, 2001. To date, we have not engaged in
derivative or hedging activities. We are unable to predict the impact of
adopting SFAS No. 133 if we were to engage in derivative and hedging activity in
the future.
In March 1998, the American Institute of Certified Public Accountants
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. The adoption of SOP 98-1, as required in 1999,
resulted in the Company capitalizing $595,000 of software development costs
during the year ended December 31, 1999. We expense as incurred the costs
associated with developing software for use in research and development
activities in accordance with Statement of Financial Accounting Standards No. 2,
"Accounting for Research and Development Costs" and related interpretations.
In December 1999, the Securities and Exchange Commission ("SEC") issued
Staff Accounting Bulletin No. 101 "Revenue Recognition" ("SAB 101"), which
provides guidance on the recognition, presentation and disclosure of revenue in
financial statements filed with the SEC. SAB 101 outlines the basic criteria
that must be met to recognize revenue and provides guidance for disclosures
related to revenue recognition policies. We believe that our revenue recognition
policy is in compliance with the provisions of SAB 101 and that the impact of
SAB 101 will have no material effect on the financial position or results of
operations.
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<PAGE> 28
BUSINESS
We are a pioneer of high-speed technologies for the discovery of new
materials. Our proprietary technologies, including instruments, software and
methods, represent complete processes designed to cost-effectively accelerate
and fundamentally change materials discovery. We are able to generate hundreds
to thousands of unique materials at a time and screen those materials rapidly
and automatically for desired properties. We believe our approach is up to 100
times faster than traditional research methods and reduces the cost per
experiment to as low as 1% of traditional research methods.
We are applying our technology to discover materials for industrial
customers in the life science, chemicals and electronics industries. Our
discovery efforts encompass a broad range of materials, including x-ray storage
phosphors for mammography, polymers to speed DNA separation, thermoelectric
materials for cooling computers and telecommunications equipment, and catalysts
for the manufacture of pharmaceuticals, commodity chemicals, plastics and
rubbers.
Our commercialization strategy is to apply our proprietary technologies to
discover materials under our Industry Collaboration and Symyx Proprietary
Materials businesses, and to commercialize select instruments and software
through our Discovery Tools Technology Access business.
To support these business areas, we also continue to build our product
development pipeline. To date, we have screened over one million different
materials and through that process identified ten development candidates. Six of
these candidates are in Symyx Proprietary Materials programs, in fine chemicals,
specialty polymers and electronic materials, and four are in Industry
Collaborations programs, in catalysis and phosphors.
Our efforts can be grouped into three market areas:
- Commodity Chemicals and Polyolefins. These major chemicals, plastics and
rubbers include products such as ethylene glycol, acrylic acid, ethanol,
and polyolefins such as polyethylene, polypropylene and polystyrene.
According to various articles and publications (Townsend Tarnell 1999
Polyethylene Annual Report; Townsend Tarnell 1999 Polypropylene Annual
Report; U.S. Industry & Trade Outlook 1999; and Chemical & Engineering
News), the annual global market for commodity chemicals and polyolefins
is over $500 billion. Opportunities exist for us to add value within this
sector by discovering catalysts that reduce manufacturing costs through
the use of cheaper raw materials and by developing alternatives to the
current multi-step, energy and capital intensive processes. We may also
discover catalysts that create polyolefins with improved properties and
as a result are able to compete against more expensive materials.
- Life Science. Life science materials include catalysts for the
manufacture of fine chemicals, specialty polymers used in DNA separation
and as genomic probes, and some electronic materials, for example
phosphors for mammography. The largest of these markets is fine
chemicals, which are developed to achieve specific performance
characteristics and are incorporated into pharmaceutical and agricultural
products. According to Chemical Week and Chemical Marketing Reporter, the
annual worldwide market for fine chemicals is approximately $65 billion.
Within life science materials, we add value by rapidly discovering
diverse families of catalysts, improving production processes and by
discovering new polymer and electronic materials to enhance product
performance and to create new businesses.
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<PAGE> 29
- Electronic and Related Materials. Electronic and related materials
comprise a diverse group of functional materials. Examples include
phosphors for lighting, displays and radiography, thermoelectric
materials for cooling, fuel cells for automotive applications, and
magnetic materials for permanent magnets. According to various articles
and publications (Air Conditioning, Heating and Refrigeration News;
Advanced Materials: Emerging Markets for Today's Industries and
Tomorrow's Products; Fuel Cell Industry Review; Electronic Business; High
Tech Ceramics Reviews; Lamps to 2001; and Display Industry Review), the
annual worldwide market for these materials is estimated to be $37
billion. We seek to discover breakthrough materials with unique and
unmatched functional properties that will enable the creation of new
products or dramatically enhance the performance of existing products.
During 1999, we added four major new Industry Collaboration agreements,
including the addition of partnerships with BASF AG and the Dow Chemical
Company, and the second and third expansions of our collaboration with Bayer AG.
To date, our total committed research funding from collaborations and government
contracts is over $90 million of which we have recognized revenue of $49 million
through December 31, 1999.
One of our most advanced discovery efforts is the discovery of new x-ray
phosphors for mammography, achieved in our Agfa program. These materials have
been transferred to Agfa and it is their objective to have products based on
these materials on the market in 2001.
In January 2000, we signed a joint development and licensing agreement with
PE Biosystems to develop our proprietary polymer synthesis materials and methods
for use in the analysis of DNA. This collaboration was the first to result from
our internal efforts to discover, develop and commercialize Proprietary
Materials. Symyx and PE Biosystems will jointly design polymers as well as the
methods and instrumentation for screening those polymers. We will make and
screen the polymers for use in nucleic acid separations. PE Biosystems will
develop and commercialize successful polymer candidates. Under the terms of the
two-year agreement, we will receive payments for development funding and
royalties on any products commercialized as a result of this collaboration. In
addition, we received a payment in January 2000 for the transfer of existing
development compounds.
We executed sale agreements in November 1999 with the Dow Chemical Company
for a polyolefins Discovery Tools system and, in December 1999, with the
Instituto Mexicano del Petroleo for an initial module of our Discovery Tools
Heterogeneous Catalysis System. The first of these systems was shipped to
Instituto Mexicano del Petroleo in February 2000.
In August 1999, we established a manufacturing and commercialization
agreement with Argonaut Technologies, Inc. to manufacture and commercialize
small, manual instruments capable of performing 5 to 10 experiments a day. The
first product offering of this collaboration is Endeavor, an eight-cell
continuous-stirred parallel pressure reactor. We will earn royalties on the
sales of products by Argonaut which incorporate our technology.
INDUSTRY BACKGROUND
Materials and their diverse properties contribute in a vital way to many of
the products we use everyday. Examples include the catalysts used in the
manufacture of major chemicals, pharmaceuticals, plastics and rubbers, the
plastics in many of our
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household goods, phosphorescent materials in x-rays and computer screens, and
polymers on the bottom of sneakers. The life science, chemicals and electronics
companies that produce these materials often face heightened pressure to achieve
growth targets and increase profitability. New products and materials typically
carry higher prices and profit margins than the products and materials they
replace. New products and materials are also critical for attaining and
maintaining leading market positions, in creating barriers to entry and adding
value to customer relationships. The transformation of the existing polyethylene
industry by metallocene catalysis, a new catalyst technology which has enabled
the creation of tailored polyethylenes, is an example of a materials innovation
that has resulted in enhanced production flexibility and product performance
within a $50 billion industry.
Traditional materials discovery relies on an expensive and time-consuming
process of trial and error: making one material; testing it; then making a
different material; testing it and so on. Traditional discovery methods are not
fast enough to keep pace with product life cycles and growth expectations within
the chemicals, life science and electronics industries. As a result, these
companies need to reduce costs, increase innovation, and create new businesses
based on proprietary materials. We believe that we can assist life science,
chemical and electronics companies by discovering new materials in a more
productive and cost-effective manner than by using traditional methods.
The development of combinatorial synthesis and rapid screening methods have
the potential to cost-effectively accelerate materials discovery and
fundamentally change the way materials are discovered. We believe combinatorial
technologies leverage the full potential of personnel by increasing their
experimental productivity by a factor of 100 or more. This promise of a far more
efficient discovery method combined with a greater opportunity for product
innovation is attracting increased attention from the chemical and electronics
industries. We believe that few chemical and electronics companies employ
combinatorial synthesis techniques or have the necessary specialized equipment
available for such activities.
SYMYX SOLUTION
Our technology provides complete platforms for materials discovery. Using
our miniaturized, automated technology to execute hundreds to thousands of
experiments at a time, our scientists can dramatically increase the probability
of success and reduce the time and costs per experiment to discover new
materials. Using traditional trial and error methods, a team consisting of a
chemist plus a technician could perform 500 to 1,000 experiments per year. In
our labs, that same team could perform up to 50,000 experiments per year. As a
result, our scientists would generate significantly more data, increase the
possibility of discoveries within that timeframe, and reduce the associated
costs per experiment dramatically.
<TABLE>
<CAPTION>
TRADITIONAL RESEARCH APPROACH SYMYX DISCOVERY TECHNOLOGIES
----------------------------- ----------------------------
<S> <C> <C>
Team......................... 1 chemist + 1 technician 1 chemist + 1 technician
Cost/year.................... $500,000 $500,000
Experiments/year............. 500 - 1,000 20,000 - 50,000
Cost/experiment.............. $500 - $1,000 $10 - $25
</TABLE>
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<PAGE> 31
To achieve these efficiencies, we require extensive capabilities in
materials synthesis, screening and data analysis. A particular challenge is the
ability to screen materials for a wide range of properties. For example:
- to discover a new catalyst we need to screen how well it performs a
specific chemical reaction; and
- to discover a new polymer, we need to screen for physical, thermal and
mechanical properties such as molecular weight, glass transition
temperature and toughness.
As a pioneer in combinatorial materials science, we found no existing
technology capable of meeting our synthesis, screening and data analysis
requirements. To address this challenge, we assembled a team of people who have
expertise in the fields of inorganic, physical, polymer and organic chemistries,
physics, engineering and software programming. This team has successfully
designed, built and validated a powerful array of highly specialized proprietary
instruments and software. Our scientists can now synthesize a wide range of
materials and screen for properties including catalytic, chemical, physical,
mechanical, electronic and optical properties. In addition, we continue to
expand our capabilities through the development of new instruments and software
and enhanced versions of existing systems.
SYMYX STRATEGY
Our objective is to be the leading company using high-speed technologies
for the discovery of new materials with commercially valuable properties. We
have developed a strategy of three business approaches that we intend to follow
in pursuit of our objective:
- Industry Collaborations, in which we enter into collaborative research
and early-stage licensing agreements with corporate partners that provide
funding for research and discovery efforts, commercialize our materials
and pay royalties on commercial sales;
- Symyx Proprietary Materials, where we invest in our own materials
research efforts to discover materials with near-term commercial
potential and then enter into late-stage licensing arrangements or
commercialize materials directly; and
- Discovery Tools Technology Access, in which we sell and license selected
equipment and software to chemical and other industrial companies for
their own use.
Industry Collaborations
In collaboration with major chemical and other industrial companies, we
seek to discover for industrial applications, new:
- polymer formulations;
- catalysts; and
- pigments and phosphors.
We provide the platform technologies and effort, and our partners have
rights to develop and commercialize resulting materials within their predefined
field of exclusivity. Typically, we enter into collaborative arrangements to
discover materials that require considerable investment in product development
and manufacturing, as well as extensive marketing efforts. Our collaborative
partners have already developed the infrastructure to support these
requirements, and may therefore be in a strong position to commercialize our
discoveries.
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We receive funding from our collaborative partners through annual research
payments. These payments are made over the term of the research contract, which
is generally two to three years. If a new material is discovered and
commercialized, we will receive either royalties or milestone payments. We
believe that we have the potential for royalties ranging from 3% to 7% on sales
of products incorporating our materials, such as pigments, phosphors and
polymers and 1% to 3% on sales of end products manufactured using our catalysts,
such as high-volume commodity chemicals and polyolefins.
We currently have nine Industry Collaboration partners, including Bayer
which has expanded our collaboration three times to date. The table below
indicates, for each of our currently active collaborations, the collaborative
partner, date and field.
<TABLE>
<CAPTION>
DATE(S) OF
PARTNER ALLIANCE FIELD(S)
------- ---------- --------
<S> <C> <C>
Agfa........................... March 1998 X-ray phosphors for radiography
BASF........................... March 1999 Specialty polymers for
industrial formulations
Bayer.......................... March 1998, Polyolefins, commodity
May 1998, chemicals
January 1999,
September 1999
Celanese....................... August 1998 Commodity chemicals
Ciba Specialty Chemicals....... April 1998 Pigments
Dow Chemical................... January 1999 Polyolefins
Osram OS*...................... December 1998 Phosphors for lighting
PE Biosystems.................. January 2000 Polymers for use in nucleic
acid separations
Unilever....................... December 1998 Polymers for product
formulations
</TABLE>
- -------------------------
* an affiliate of Siemens
Our collaborations, together with government grants, provide for over $90
million in aggregate commitments for research payments. Through December 31,
1999, we had recognized revenue of $49 million under these agreements with the
remaining amounts scheduled to be paid through 2003. In order to maintain and
grow our research and product pipelines, we intend to continue to enter into new
collaborative arrangements. As a result of these new arrangements, and the
conclusion of existing collaborations upon completion of research or transfer of
development candidates to our collaborative partners for commercialization, our
portfolio of collaborations will change over time. We expect that new
collaborations will come from existing collaborative partners undertaking new
research initiatives as well as new collaborative partners.
One of our most advanced discovery efforts to date has resulted from our
collaboration with Agfa in the area of discovery of new x-ray phosphors for
radiography. Many groups have worked over the past fifteen years to find
alternative materials that perform better than existing materials. Under our
collaboration, we have made and screened over 50,000 phosphors, and we
discovered several that have shown the potential to provide higher resolution,
be easier to manufacture and have a longer shelf life than existing materials.
These materials have been transferred to Agfa, and we have been advised by
Agfa that their objective is to have products based on these materials on the
market during 2001.
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Symyx Proprietary Materials
We believe that the assets resulting from our investment in proprietary
research programs will be a significant contributor of future value. Our
proprietary research efforts are focused on discovery of products for specialty
markets with well-defined materials needs and short-term development and
commercialization cycles. To date, our efforts to develop Symyx Proprietary
Materials are in specialty polymers for life sciences applications, catalysts
for the manufacture of fine chemicals such as pharmaceutical intermediates, and
electronic materials.
Our first agreement for Symyx Proprietary Materials is with PE Biosystems
for polymers to increase resolution and speed DNA separation. Under this
agreement, PE Biosystems made a payment for the transfer of development
candidates, and will also pay us advance royalties and royalties upon
commercialization of materials.
Another Proprietary Materials program seeks to discover polymers to enhance
the sensitivity of biological assays by creating three-dimensional polymer
surfaces to increase probe surface area and allow precise engineering of those
surfaces.
We also have several programs in electronic materials, funded by ourselves
and by the U.S. Office of Naval Research Defense Advanced Research Projects
Agency (known as DARPA) and the United States Department of Energy. One 1999
DARPA program funded research relates to thermoelectric materials used for
refrigeration and applications requiring precise active cooling devices. These
applications include computer chips and missile guidance systems. A second 1999
DARPA program also funded research for magnetic materials used as permanent
magnets in applications including electro-magnetic motors. Our program with the
Department of Energy is funding research relating to materials for fuel cells
for potential use in automobiles. Funding under the DARPA and Department of
Energy programs is structured as grants, and we own the rights to commercialize
materials discovered under these programs.
We expect to commercialize development candidates discovered through our
proprietary materials programs either by manufacturing, marketing, and selling
the product ourselves or through late-stage licensing arrangements. We expect to
be able to obtain significantly higher royalty rates under these late-stage
licenses than under our collaborative agreements because we will have completed
essentially all development work at the time we license the product.
For fine chemicals, we also have developed a "quick-strike" licensing model
in which we would assume the research risk during a short, well-defined,
research period of approximately three months in exchange for the customer's
agreement to make milestone payments and enter into a license agreement upon
completion of research and technical validation. We expect that royalty rates
under these licenses will be in a range of 4% to 7% of sales, which is
attractive to us due to the breadth and number of projects which we believe we
can successfully complete annually.
Discovery Tools Technology Access
Our scientific and technical team has spent considerable time and resources
developing a broad array of instruments, software and know-how in support of our
research. In addition to our alliances, we are seeking to meet the growing
demand for combinatorial technologies by offering access to some of our
equipment and technology. We believe that these programs will enhance, not
detract from, our collaborative arrangement efforts by reinforcing our position
as the leading source for combinatorial
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<PAGE> 34
technology in materials science. To date, we have executed purchase orders for
Discovery Tools with The Dow Chemical Company and the Instituto Mexicano Del
Petroleo.
The Dow Chemical Company is the first customer of our Discovery Tools
business. Dow, an existing collaborative partner, has placed an order for a
system that provides capabilities to make and test polyolefin catalysts. We sell
our Discovery Tools together with a license to associated software, know-how and
patents. Our first offering, purchased by Dow, is a combination of a
multi-channel polymer reactor system together with two screening instruments.
Under the terms of Dow's purchase, Dow will pay us between $5.0 million and $8.5
million over three years for the manufacture, delivery and use of the system.
Additional systems will likely sell for several million dollars and will have a
long sales cycle involving both marketing the system and designing the system to
meet customer requirements.
The Instituto Mexicano Del Petroleo has purchased an initial module of our
Discovery Tools Heterogeneous Catalysis System, which we shipped in February
2000. This purchase will provide IMP with the capability to increase
experimental throughput significantly within its laboratories, and will be
directed to the development of refinery catalysts and other materials.
We have designed the Discovery Tools that we initially plan to sell to
perform an average of 100 experiments per day. We do not expect that our sale of
Discovery Tools will affect our ability to enter into new research
collaborations. Companies enter into collaborations with us to access all of our
technologies including our highest throughput screening equipment designed for
new materials discovery, as well as the expertise of our scientific and
technical staff and our libraries of catalysts and materials. We do not plan to
offer access to these resources as part of our Discovery Tools program.
In addition to the sale of Discovery Tools, we also believe that there is
significant commercial value in the nonautomated laboratory instruments that we
developed to perform small scale parallel synthesis of materials. We have formed
a collaboration with Argonaut Technologies, Inc. to capture this opportunity.
Argonaut is an instrument company that develops and commercializes synthesizers,
instruments, software and chemical resins and reagents to accelerate and
automate chemical synthesis. Argonaut will refine our designs for manual
benchtop instruments, manufacture the instruments and sell them worldwide. In
return, we will receive a portion of the profits from the sale of these
instruments. Our first product, sold with both the Argonaut and Symyx
trademarks, was introduced for sale in August 1999. This instrument, the
Endeavor, is an eight-channel manual reactor used to synthesize polymers and
other chemicals under high pressure. This instrument has a sale price of
approximately $60,000. We expect other manual bench instruments developed by us
and commercialized by Argonaut to have similar sales prices.
TECHNOLOGY
Our scientists begin the discovery process working with our collaborative
partners or our own business development staff to define the research objective
in terms of the specific properties a new material should have to meet the needs
of a given application. We then apply the components of our combinatorial
process, synthesis, screening and informatics, to discover materials that match
these criteria.
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[FLOW CHART]
Synthesis
The materials research process begins with chemists' theories about what
elements from the periodic table of elements might be combined to create new
materials with desired properties. However, while chemists working in
traditional labs have to choose the few experiments they will perform on a given
day, our chemists have the ability to perform hundreds or thousands of
experiments at once. Our chemists are therefore able to pursue their theories
both broadly -- across a wide range of elements -- and comprehensively --
creating materials with the same components in different ratios.
A Symyx chemist initiates the synthesis process by using Library Studio, a
computer software package created by our programmers to design the group, or
"library," of materials to be synthesized. These instructions, or "recipes," are
then relayed to automated synthesis instruments. These instruments create the
library on a single substrate such as a three-inch diameter silicon wafer or a
96-well plate. The quantity of each compound synthesized is very small,
generally ranging from micrograms to hundreds of milligrams. This contrasts
dramatically with traditional synthesis, where gram to kilogram quantities of a
material are usually necessary. Libraries synthesized on silicon wafers may
range from a few hundred different candidate materials to as many as 25,000,
depending on the type of material and the type of analysis to be done.
Each material synthesized represents a unique experiment and potential
discovery. The desired end result of these experiments is defined at the outset
of the experiment as a target material having specific performance properties.
Our scientists, in conjunction with our collaborative partners, or independently
for our proprietary discovery programs, set the specific performance properties
and define the desired performance attributes of the target material for a given
application or applications. Generally, these criteria are well beyond the
performance attributes of currently used materials.
Screening
Once created, the library is analyzed for desired properties. As with
synthesis, our technical staff has designed and built a broad array of
instruments and software to evaluate different properties under a wide variety
of process conditions. These properties include catalytic, physical, mechanical,
thermal, chemical, electronic and optical properties. In general, a Symyx
chemist can design, synthesize and screen a library in a single day.
To reach the point of commercialization, a candidate material must progress
through an increasingly exhaustive series of tests, or stages, known as hits,
leads and development candidates.
- Hits. First, we screen materials to identify those that have properties
defined for the target discovery, called "hits." Hits are subjected to
additional testing and optimization, to find a larger number of needed
properties. Hits also identify areas that merit further exploration, and
new libraries are created using this information.
34
<PAGE> 36
- Leads. Candidate materials that continue to meet or exceed the defined
criteria are then classified as "leads." Leads are then transferred to a
partner or processed internally for additional testing and scale up.
Leads are then tested on a larger scale, as bulk samples of 1 to 100
grams, to confirm that the materials still perform at this "bench scale"
level.
- Development Candidates. Once a lead has passed this bench scale testing
by either a collaborative partner or Symyx, it becomes a development
candidate. Finally, if all is successful, the decision will be made to
commercialize the material.
To date, we have screened over one million materials and identified ten
development candidates for a variety of applications. The table below summarizes
these development candidates, six of which we discovered in our Symyx
Proprietary Materials business.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------
Development Candidates Life Sciences Chemicals Electronics
- -----------------------------------------------------------------------------------
<S> <C> <C> <C>
Industry Collaboration 1 2 1
- -----------------------------------------------------------------------------------
Symyx Proprietary Materials 5 -- 1
- -----------------------------------------------------------------------------------
Total: 6 2 2
- -----------------------------------------------------------------------------------
</TABLE>
Once a material has been identified as a development candidate, the time to
the first sale or commercial usage may be as short as one to two years for many
life science and electronics applications. Catalysts used to produce high volume
commodity chemicals, on the other hand, may require five to seven or more years
to reach the market because of the extensive process development and capital
investment involved.
Informatics
A critical factor in our discovery process is the ability to retain and
access the huge amounts of data generated by our synthesis and screening
activities. Given the broad acceptance of high-speed combinatorial discovery in
pharmaceuticals, a number of applications exist to support organic chemistry.
However, those solutions were not sufficient to address the storage and
retrieval needs of our diverse array of inorganic, organometallic and polymer
chemistries. To that end, we have devoted considerable resources to build a
proprietary database capable of addressing our unique needs. Our chemists can
query this database to identify materials screened in the past that possess the
property or properties specified. We believe that this database will emerge as a
powerful tool in accelerating materials discovery by enabling our scientists to
benefit from the cumulative effect of all of our research. Although we typically
cannot use leads and development candidates identified in one collaborative
program for other collaborative programs or for our proprietary research,
materials screened in one program without success may have properties that make
them useful in other programs.
INTELLECTUAL PROPERTY AND OTHER PROPRIETARY RIGHTS
Our success depends upon our proprietary technology. There are five general
areas that may be patented using our combinatorial approach:
- library synthesis methods;
- the libraries themselves;
- screening or characterization methods;
- equipment and software; and
- new materials.
35
<PAGE> 37
We have over 90 patent applications pending in the United States, and over
50 foreign patent applications pending. In addition, we have eight issued United
States patents and an additional two patent applications allowed in the United
States. We co-own three of the issued United States patents and some of the
pending patent applications with Lawrence Berkeley National Laboratory, on
behalf of The Regents of the University of California. We have an exclusive
license to these patents and patent applications from Lawrence Berkeley National
Laboratory, which was agreed to upon formation of the Company. In addition to
patents, we rely on copyright, trademark and trade secret rights,
confidentiality procedures and licensing arrangements to establish and protect
our proprietary rights.
As part of our confidentiality and trade secret protection procedures, we
enter into non-disclosure agreements with our employees, consultants and
potential collaborative partners. Despite these precautions, third parties could
obtain and use our products or technology without authorization, or develop
similar technology independently. It is difficult for us to police unauthorized
use of our methods. Effective protection of intellectual property rights is
unavailable or limited in some foreign countries. The protection of our
proprietary rights may be inadequate and our competitors could independently
develop similar technology, duplicate our products or design around any patents
or other intellectual property rights we hold.
COMPETITION
We are aware of several companies that have stated interest in applying
their expertise in combinatorial chemistry to materials research and
development. We are also aware of some chemical companies with internal
combinatorial programs participating in materials research and development
consortiums. For example, Shell Chemicals is participating in a consortium in
The Netherlands and BASF is funding a start-up company in Heidelberg, Germany
named HTE. BASF is also one of our collaborative partners. In addition, academic
and research institutions may seek to develop technologies that would be
competitive with our systems for materials discovery. Because combinatorial
materials science is an emerging field, competition from additional entrants may
increase.
Some of our competitors may be addressing the same materials targets as
Symyx or our collaborative partners. Many of our current and potential
competitors, either alone or together with their collaborative partners, have
greater financial, manufacturing, marketing and sales resources than we do.
Accordingly, our competitors may succeed in obtaining patent protection or
commercializing products before us. If we commence commercial product sales, we
will be competing against companies with greater marketing, sales and
manufacturing capabilities, areas in which we have limited or no experience.
EMPLOYEES
As of December 31, 1999, we had a total of 170 employees, including 136
scientific and technical employees and 34 people in business development, legal
and general and administrative services. Of our scientific and technical staff,
124 have masters or doctorate degrees. None of our employees is represented by a
labor union, and we consider our employee relations to be good.
36
<PAGE> 38
LEGAL PROCEEDINGS
We are not currently a party to any material pending legal proceedings.
FACILITIES
Our facilities currently consist of an aggregate of approximately 104,300
square feet of office, research and laboratory space in several locations in
Santa Clara, California, pursuant to leases that expire from 2002 to 2010. These
facilities include a building of approximately 36,500 square feet, which we
expect will be ready for occupancy during the fourth quarter of 2000. We believe
that our existing facilities are adequate for our needs through at least the end
of 2000. We believe that any additional space we may need in the future will be
available on commercially reasonable terms.
SCIENTIFIC ADVISORS
We recruited several leading researchers in our fields of interest to serve
as scientific advisors. These advisors have fixed term contracts ranging from
one to three years. In general, they serve on an exclusive basis within a
defined field of collaboration. These advisors received option grants to
purchase our common stock. In addition, some may receive cash compensation, and
they are reimbursed for expenses.
The following individuals are scientific advisors in their respective areas
of specialization:
<TABLE>
<S> <C>
Chairman
Peter Schultz........................ Institute Director, Novartis Institute for
Functional Genomics, Professor of Chemistry at
the Scripps Research Institute
Technical Strategy
Alejandro Zaffaroni.................. Managing Director, Technogen Enterprises LLC, a
venture capital fund
George Whitesides.................... Mallinckrodt Professor of Chemistry, Harvard
University
Catalysis
Michel Boudart....................... Keck Professor of Chemical Engineering, Emeritus,
Stanford University
Stephen Buchwald..................... Camille Dreyfus Professor of Chemistry,
Massachusetts Institute of Technology
John Groves.......................... Hugh Stott Taylor Professor of Chemistry,
Princeton University
Robert Grubbs........................ Victor & Elizabeth Atkins Professor of Chemistry,
California Institute of Technology
Gregory Kovacs....................... Associate Professor, Electrical Engineering,
Stanford University
Fine Chemicals
Mark Gallop.......................... Vice President of Chemistry, XenoPort, Inc.
Abul Iqbal........................... Head of Global Research and Development, Colors
Division, Ciba Specialty Chemicals
Klaus Kuhlein........................ Director, Operative Research, Member of the
Management Committee of Aventis Research &
Technologies (member of the Hoechst Group),
Retired
</TABLE>
37
<PAGE> 39
<TABLE>
<S> <C>
David MacMillan...................... Assistant Professor, University of California,
Berkeley
Polymers
Jean Frechet......................... Professor of Chemistry, University of California,
Berkeley
Craig Hawker......................... Research Staff Member, IBM Almaden Research
Center
Virgil Percec........................ P. Roy Vagelos Chair and Professor of Chemistry,
University of Pennsylvania
Tom Russell.......................... Professor, Polymer Science and Engineering,
University of Massachusetts at Amherst
Owen Webster......................... DuPont Fellow, Retired
Electronic Materials
Frank DiSalvo........................ John A. Newman Professor of Physical Science,
Cornell University
Theodore Geballe..................... Professor of Applied Physics and of Materials
Science and Engineering, Emeritus, Stanford
University
</TABLE>
38
<PAGE> 40
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The following table sets forth certain information regarding our executive
officers and directors as of December 31, 1999:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Steven D. Goldby.......................... 59 Chairman of the Board and Chief
Executive Officer
Isy Goldwasser............................ 29 President and Chief Operating Officer
W. Henry Weinberg, Ph.D................... 55 Senior Vice President and Chief
Technical Officer
Jeryl L. Hilleman......................... 42 Senior Vice President and Chief
Financial Officer
Peter L. Brooks........................... 54 Senior Vice President, Business
Development
Thomas R. Baruch.......................... 61 Director
Samuel D. Colella......................... 60 Director
Martin Gerstel............................ 58 Director
Baron Gaulthaus Kraijenhoff............... 77 Director
Francois A. L'Eplattenier, Ph.D. ......... 60 Director
Kenneth J. Nussbacher..................... 46 Director
Mario M. Rosati........................... 53 Director
Peter G. Schultz, Ph.D.................... 43 Director
Isaac Stein............................... 53 Director
</TABLE>
Steven D. Goldby has served as our Chairman of the Board and Chief
Executive Officer since July 1998. Prior to joining Symyx, Mr. Goldby served as
Chief Executive Officer of MDL Information Systems, Inc. from 1987 to July 1998.
He held numerous management positions at ALZA Corporation from 1968 to 1981
including President of ALZA Pharmaceuticals and President of Dynapol, a
subsidiary of ALZA. Mr. Goldby joined MDL Information Systems in 1982 as a Chief
Operating Officer. He is a director of Aspect Development, Inc and PeopleSoft,
Inc. Mr. Goldby holds an A.B. from the University of North Carolina and a J.D.
from Georgetown University Law School.
Isy Goldwasser has served as our President and Chief Operating Officer
since February 1998. From February 1996 to February 1998, Mr. Goldwasser served
as our Vice President of Corporate Development. From the founding of Symyx until
February 1996, he held a business development position with us in which he was
responsible for applications development, financing and operations. Mr.
Goldwasser holds a B.S. from the Massachusetts Institute of Technology and an
M.S. from Stanford University.
W. Henry Weinberg has served as our Senior Vice President since August 1999
and our Chief Technical Officer since March 1996. Dr. Weinberg also previously
served as our Vice President from March 1996 to August 1999. Dr. Weinberg is
also Adjunct Professor of Chemical Engineering, Materials Engineering, and
Chemistry at the University of California, Santa Barbara. Dr. Weinberg was
Professor of Chemical Engineering, Materials Engineering, and Chemistry at the
University of California, Santa Barbara from 1989 through September 1999. Dr.
Weinberg is a member of the National Academy of Engineering. He holds a B.S.
from the University of South Carolina and a Ph.D. from the University of
California, Berkeley.
39
<PAGE> 41
Jeryl Lynn Hilleman has served as our Senior Vice President since August
1999 and our Chief Financial Officer since June 1997. Ms. Hilleman also
previously served as our Vice President from June 1997 to August 1999. From 1992
to 1997, Ms. Hilleman held several senior positions at Geron Corporation, a
biopharmaceutical company, including Vice President, Finance and Administration.
Ms. Hilleman holds an A.B. from Brown University and an M.B.A. from the Wharton
School of Business.
Peter L. Brooks has served as our Senior Vice President, Business
Development since November 1999. From 1972 to 1999, Dr. Brooks held various
management and scientific positions with Raychem Corporation, including vice
president of the Telecommunications Access Networks Division from 1997 to 1999,
and vice president of the PolySwitch Electronics Components Division from 1992
to 1996. Between 1983 and 1992, he served as general manager of three different
Raychem divisions. Mr. Brooks holds both a B.S. and a Ph.D. from the University
of London, England.
Thomas R. Baruch has served as one of our directors since May 1996. Since
1988, Mr. Baruch has been a general partner of CMEA Ventures, a venture capital
firm. From 1990 to 1996, Mr. Baruch also served as a special partner of New
Enterprise Associates. Mr. Baruch serves on the boards of directors of Netro
Corp. and Physiometrix Inc. Mr. Baruch holds a B.S. from Rensselaer Polytechnic
Institute and a J.D. from Capital University.
Samuel D. Colella has served as one of our directors since August 1997.
Since 1984, Mr. Colella has been a general partner of Institutional Venture
Partners. Mr. Colella also serves as Chairman of Onyx Pharmaceuticals. Mr.
Colella holds a B.A. and B.S. from the University of Pittsburgh and an M.B.A.
from Stanford University.
Martin S. Gerstel has served as one of our directors since February 1995.
Mr. Gerstel serves as Chairman of Compugen, Ltd. and Vice Chairman of Itamar
Medical Ltd. Previously, Mr. Gerstel participated in the founding of ALZA
Corporation, where he held numerous positions including President and Chief
Operating Officer from 1982 to 1987 and Co-Chairman and Chief Executive Officer
from 1987 to 1993. Mr. Gerstel is a director of Teva Pharmaceuticals. Mr.
Gerstel holds a B.S. from Yale University and an M.B.A. from Stanford
University.
Baron Gualthaus Kraijenhoff has been one of our directors since January
1996. Following his retirement in 1978, Baron Kraijenhoff served as President of
the Supervisory Council of AKZO N.V. since 1980. Baron Kraijenhoff also held
numerous other management positions with AKZO N.V. and its predecessor company,
KZO, including President of the Board of Management of AKZO N.V., President of
the Board of Management of KZO, and Member of the Board of Management of KZO.
Francois A. L'Eplattenier has served as one of our directors since October
1996. Since the merger of Ciba-Geigy with Sandoz to form Novartis in 1996, Dr.
L'Eplattenier has served as Chairman of the Novartis Venture Fund. Since 1988,
Dr. L'Eplattenier has served as a member of the Executive Committee of
Ciba-Geigy, where he is responsible for Research and Development of the Group
world-wide. From 1981 to 1988, Dr. L'Eplattenier served as Head of Research and
Development of Plastics, Pigments and Additives at Geigy. From 1977 to 1981, Dr.
L'Eplattenier served as Head of Central Research of Geigy. Dr. L'Eplattenier
presently is a member of the Board of the Swiss Federal Institute of Technology.
Dr. L'Eplattenier holds an M.S. and Ph.D. from the Swiss Federal Institute of
Technology.
40
<PAGE> 42
Kenneth J. Nussbacher has served as one of our directors since February
1995. Mr. Nussbacher has been Executive Vice President of Affymetrix since 1995
and was Chief Financial Officer of Affymetrix from 1995 to 1997. From 1989 to
1995, he held several management positions at Affymax, most recently as
Executive Vice President for Business and Legal Affairs and Managing Director of
Affymax Technologies N.V. Mr. Nussbacher holds a B.S. from Cooper Union and a
J.D. from Duke University.
Mario M. Rosati has served as one of our directors since September 1994.
Mr. Rosati has been with the Palo Alto, California law firm of Wilson Sonsini
Goodrich & Rosati, Professional Corporation, since 1971, first as an associate
and then as a member since 1975. Mr. Rosati also serves as a director of Aehr
Test Systems, Genus, Inc., MyPoints.com, Inc., Ross Systems, Inc., Sanmina
Corporation, The Management Network Group, Inc. and Vivus, Inc. Mr. Rosati holds
a B.A. from the University of California, Los Angeles and a J.D. from the
University of California, Berkeley, Boalt Hall School of Law.
Peter G. Schultz, Ph.D. has been one of our directors since January 1996
and is one of our founders. Since November 1998, Dr. Schultz has been Head of
the Novartis Institute for Functional Genomics. From 1985 to 1998, Dr. Schultz
was Professor of Chemistry at the Lawrence Berkeley Laboratories of the
University of California, Berkeley. He holds a B.S. and a Ph.D. from the
California Institute of Technology.
Isaac Stein has been one of our directors since October 1996. Since 1983,
Mr. Stein has been President of Waverley Associates, a private investment firm.
Mr. Stein is also a Managing Director of Technogen Enterprises, L.L.C., a
director of ALZA Corporation, the Benham Group of mutual funds, CV Therapeutics,
Inc. and Chairman of Maxygen, Inc. Mr. Stein holds an B.A. from Colgate
University and a J.D. and an M.B.A. from Stanford University.
BOARD OF DIRECTORS
We currently have ten directors. Our board of directors is divided into
three classes, each with staggered three-year terms. As a result, only one class
of directors will be elected at each annual meeting of our stockholders, with
the other classes continuing for the remainder of their respective three-year
terms.
Our class I directors, whose terms will expire at the 2000 annual meeting
of stockholders, are Thomas R. Baruch, Samuel D. Colella and Martin Gerstel. Our
class II directors, whose terms will expire at the 2001 annual meeting of
stockholders, are Steven D. Goldby, Baron Gaulthaus Kraijenhoff and Francois A.
L'Eplattenier Ph.D. Our class III directors, whose terms will expire at the 2002
annual meeting of stockholders, are Kenneth J. Nussbacher, Mario M. Rosati,
Peter G. Schulz, Ph.D. and Issac Stein.
BOARD COMMITTEES
Our board of directors currently has an audit committee and a compensation
committee. The audit committee consists of Thomas R. Baruch, Martin Gerstel and
Kenneth J. Nussbacher. The audit committee makes recommendations to the board of
directors regarding the selection of independent auditors, reviews the scope of
audit and other services by our independent auditors, reviews the accounting
principles and auditing practices and procedures to be used for our financial
statements and reviews the results of those audits.
41
<PAGE> 43
The compensation committee consists of Samuel D. Colella, Mario M. Rosati
and Isaac Stein. The compensation committee makes recommendations to the board
of directors regarding our stock plans and the compensation of officers.
DIRECTOR COMPENSATION
Our non-employee directors are reimbursed for expenses incurred in
connection with attending board and committee meetings but are not compensated
for their services as board or committee members. We have in the past granted
non-employee directors options to purchase our common stock pursuant to the
terms of our stock plans, and our board continues to have the discretion to
grant options to new non-employee directors. Beginning in 2000, our outside
directors will each annually receive automatic, nondiscretionary grants of
options to purchase 7,500 shares of our common stock.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
None of the members of the compensation committee is currently, or has ever
been at any time since our formation, one of our officers or employees. No
member of the compensation committee serves as a member of the board of
directors or compensation committee of any entity that has one or more officers
serving as a member of our board of directors or compensation committee.
EXECUTIVE OFFICERS
COMPENSATION
The following table sets forth the compensation paid by us during 1998 and
1999 to our Chief Executive Officer and our other executive officers who
received compensation of more than $100,000 during 1998 and 1999:
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL ------------------------
COMPENSATION RESTRICTED SECURITIES
------------ STOCK UNDERLYING OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY($) AWARDS($) OPTIONS(#) COMPENSATION($)
--------------------------- ---- ------------ ---------- ---------- ---------------
<S> <C> <C> <C> <C> <C>
Steven D. Goldby............... 1999 $262,584 -- 88,888 --
Chief Executive Officer and 1998 125,040(1) $200,250(2) -- --
Chairman of the Board
Isy Goldwasser................. 1999 194,250 -- 88,888 --
President and Chief Operating 1998 171,667 -- 186,666 --
Officer
W. Henry Weinberg, Ph.D........ 1999 255,717 -- 88,888 $ 60,000(4)
Senior Vice President and
Chief 1998 240,533 -- -- 218,620(3)
Technical Officer
Jeryl L. Hilleman.............. 1999 194,250 -- 88,888 --
Senior Vice President and
Chief 1998 181,667 -- 58,333 --
Financial Officer
Peter L. Brooks................ 1999 35,014(5) -- 175,000 --
Senior Vice President,
Business 1998 -- -- -- --
Development
</TABLE>
- -------------------------
(1) Mr. Goldby joined Symyx in July 1998. His 1998 annual salary was $250,080.
(2) Mr. Goldby purchased 525,000 shares of common stock at a purchase price of
approximately $0.58 per share. The aggregate purchase price was $303,750. If
Mr. Goldby's services to Symyx are terminated, Symyx has the option to
repurchase
42
<PAGE> 44
the shares at $0.58 per share. This option lapses as to a portion of the
shares over time. The repurchase option will lapse for all of the shares in
July 2002. The fair market value of our common stock as of December 31, 1998
was $0.96 per share as determined by the board of directors. The appreciated
value of Mr. Goldby's shares as of December 31, 1998 was $200,250. The
appreciated value is the difference between $0.58 and $0.96, $0.38,
multiplied by the number of shares, 525,000.
(3) Consists of a $71,250 housing allowance, $139,870 in relocation
reimbursement payments and $7,500 in imputed interest on an interest free
loan.
(4) Consists of housing allowance and relocation payments.
(5) Mr. Brooks joined Symyx in October 1999. His 1999 annual salary was
$240,000.
OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth information relating to stock options
granted during 1999 to our Chief Executive Officer and our other executive
officers who received salary compensation of more than $100,000. In accordance
with the rules of the Securities and Exchange Commission, also shown below is
the potential realizable value over the term of the option (the period from the
grant date to the expiration date) based on assumed rates of stock appreciation
of 5% and 10%, compounded annually. These amounts are mandated by the Securities
and Exchange Commission and do not represent our estimate of future stock price.
Actual gains, if any, on stock option exercises will depend on the future
performance of our common stock.
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
------------------------------------------------ POTENTIAL REALIZABLE
PERCENT OF VALUE AT ASSUMED
TOTAL ANNUAL RATES OF
NUMBER OF OPTIONS STOCK
SECURITIES GRANTED TO APPRECIATION FOR
UNDERLYING EMPLOYEES EXERCISE OPTION TERM
OPTIONS IN PRICE PER EXPIRATION -----------------------
NAME GRANTED(1) 1999(2) SHARE DATE 5% 10%
---- ---------- ---------- --------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Steven D. Goldby......... 38,888 1.76% $ 0.96 1/4/09 $ 23,576 $ 59,746
50,000 2.26 12.00 10/20/09 377,337 956,245
Isy Goldwasser........... 38,888 1.76 0.96 1/4/09 23,576 59,746
50,000 2.26 12.00 10/20/09 377,337 956,245
W. Henry Weinberg,
Ph.D. ................. 38,888 1.76 0.96 1/4/09 23,576 59,746
50,000 2.26 12.00 10/20/09 377,337 956,245
Jeryl L. Hilleman........ 38,888 1.76 0.96 1/4/09 23,576 59,746
50,000 2.26 12.00 10/20/09 377,337 956,245
Peter L. Brooks.......... 175,000 7.92 12.00 10/20/09 1,320,679 3,346,859
</TABLE>
43
<PAGE> 45
- -------------------------
(1) We granted the following options to executive officers in February 2000,
which have not been included in the above table. The options vest ratably
over the vesting period:
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES
UNDERLYING EXERCISE
OPTIONS PRICE PER EXPIRATION VESTING
NAME GRANTED SHARE DATE PERIOD
---- ---------- --------- ---------- ----------------
<S> <C> <C> <C> <C>
Steven D. Goldby.............. 216,724 $57.00 2/28/10 7/1/02 - 2/29/04
Isy Goldwasser................ 108,390 57.00 2/28/10 2/1/03 - 2/29/04
W. Henry Weinberg, Ph.D. ..... 270,890 57.00 2/28/10 2/1/02 - 2/29/04
Jeryl L. Hilleman............. 175,057 57.00 2/28/10 6/1/02 - 2/29/04
</TABLE>
- -------------------------
(2) We granted options to purchase a total of 2,209,817 shares of common stock
during 1999.
AGGREGATE OPTION EXERCISES IN 1999 AND YEAR-END OPTION VALUES
The following table sets forth information for our Chief Executive Officer
and our other executive officers who received salary compensation of more than
$100,000 in 1999, relating to option exercises in 1999 and the number and value
of securities underlying exercisable and unexercisable options held at December
31, 1999:
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS AT IN-THE-MONEY OPTIONS AT
SHARES DECEMBER 31, 1999 DECEMBER 31, 1999(2)
ACQUIRED ON VALUE --------------------------- ---------------------------
NAME EXERCISE REALIZED(1) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- ----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Steven D. Goldby..... -- -- 88,888 -- $2,029,308 --
Isy Goldwasser....... 155,555 -- 119,999 -- 2,932,771 --
W. Henry Weinberg.... -- -- 88,888 -- 2,029,308 --
Jeryl L. Hilleman.... 35,000 $19,950 88,888 -- 2,029,308 --
Peter L. Brooks...... -- -- 175,000 -- 3,150,000 --
</TABLE>
- -------------------------
(1) Value realized reflects the fair market value of our common stock underlying
the option on the date of exercise minus the aggregate exercise price of the
option.
(2) Value of unexercised in-the-money options are based on a value of $30.00 per
share, the last reported sale price of our common stock on the Nasdaq
National Market on December 31, 1999, minus the per share exercise price,
multiplied by the number of shares underlying the option.
STOCK PLANS
1996 STOCK PLAN AND 1997 STOCK PLAN
Our 1996 Stock Plan was adopted by our board of directors in January 1996.
This plan provided for the grant of incentive stock options to our employees and
nonstatutory stock options and stock purchase rights to our employees, directors
and consultants. We have reserved an aggregate of 1,032,222 shares of common
stock for issuance under this plan.
Our 1997 Stock Plan was adopted by our board of directors in January 1997.
This plan provides for the grant of incentive stock options to our employees and
nonstatutory stock options and stock purchase rights to our employees, directors
and consultants. As of
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<PAGE> 46
December 31, 1999, 5,467,778 shares of common stock were reserved for issuance
under this plan.
Of the shares under our 1996 and 1997 stock plans, 2,788,647 had been
issued upon exercise of stock options or stock purchase rights, 2,838,498 shares
were subject to outstanding options or stock purchase rights and 872,855 shares
were available for future grant at December 31, 1999.
In October 1999, our stockholders approved amendments to our stock plans
which provided that the number of shares reserved for issuance under the 1997
Stock Plan will increase by the following:
- any shares returned to the 1996 Stock Plan as a result of termination of
options or repurchase of stock purchase rights issued under the 1996
Plan; and
- beginning in fiscal year 2000, an annual increase equal to the lesser of
1.5 million shares, 4% of the outstanding shares on the date of the
annual increase, or a lesser amount determined by our board of directors.
The compensation committee of our board of directors administers the stock
plan and determines the terms of options granted, including the exercise price,
the number of shares subject to individual option awards and the vesting period
of options. The exercise price of nonstatutory options must generally be at
least 85% of the fair market value of the common stock on the date of grant. The
exercise price of incentive stock options cannot be lower than 100% of the fair
market value of the common stock on the date of grant and, in the case of
incentive stock options granted to holders of more than 10% of our voting power,
not less than 110% of the fair market value. The term of an incentive stock
option cannot exceed 10 years, and the term of an incentive stock option granted
to a holder of more than 10% of our voting power cannot exceed five years.
Options granted under our stock plan will accelerate and become fully
vested in the event we are acquired, unless the successor corporation assumes or
substitutes other options in their place. Our board of directors may not,
without the adversely affected optionee's prior written consent, amend, modify
or terminate the stock plan if the amendment, modification or termination would
impair the rights of optionees. Our stock plan will terminate in 2007 unless
terminated earlier by the board of directors.
1999 EMPLOYEE STOCK PURCHASE PLAN
Our stockholders approved the adoption of our 1999 Employee Stock Purchase
Plan in October 1999. This plan provides our employees with an opportunity to
purchase our common stock through accumulated payroll deductions.
A total of 300,000 shares of common stock has been reserved for issuance
under the purchase plan. In addition, the purchase plan provides for annual
increases in the number of shares available for issuance under the purchase plan
on the first day of each fiscal year, beginning with fiscal 2000, equal to the
lesser of 1% of the outstanding shares of common stock on the first day of the
fiscal year or 350,000 shares or such lesser amount as may be determined by the
board.
The board of directors or a committee appointed by the board administers
the purchase plan. The board or its committee has full and exclusive authority
to interpret the terms of the purchase plan and determine eligibility.
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<PAGE> 47
Employees are eligible to participate if they are customarily employed by
us or any participating subsidiary for at least 20 hours per week and more than
five months in any calendar year. However, an employee may not be granted an
option to purchase stock under the purchase plan if such an employee:
- immediately after grant owns stock possessing five percent or more of the
total combined voting power or value of all classes of the capital stock
of ours, or
- whose rights to purchase stock under all employee stock purchase plans of
ours accrues at a rate which exceeds $25,000 worth of stock for each
calendar year.
The purchase plan, which is intended to qualify under Section 423 of the
Internal Revenue Code of 1986, as amended, contains consecutive, overlapping
24-month offering periods. Each offering period includes four six-month purchase
periods. The offering periods generally start on the first trading day on or
after May 1 and November 1 of each year, except for the first such offering
period, and will end on the last trading day on or before October 31, 2001.
The purchase plan permits participants to purchase common stock through
payroll deductions of up to 10.0% of the participant's "compensation."
Compensation is defined as the participant's base straight time gross earnings
and commissions but excludes payments for overtime, shift premium payments,
incentive compensation, incentive payments, bonuses and other compensation. The
maximum number of shares a participant may purchase during a single offering
period is 5,000 shares.
Amounts deducted and accumulated by the participant are used to purchase
shares of common stock at the end of each offering period. The price of stock
purchased under the purchase plan is 85.0% of the lower of the fair market value
of the common stock at the beginning or end of the offering period. If the fair
market value at the end of a purchase period is less than the fair market value
at the beginning of the offering period, participants will withdraw from the
current offering period following the exercise and will automatically re-enroll
in a new offering period. Participants may end their participation at any time
during an offering period, and they will be paid their payroll deductions to
date. Participation ends automatically upon termination of employment with us.
A participant may not transfer rights granted under the purchase plan other
than by will, the laws of descent and distribution or as otherwise provided
under the purchase plan.
The purchase plan provides that, if we merge with or into another
corporation or conduct a sale of substantially all of our assets, a successor
corporation may assume or substitute for each outstanding purchase right. If the
successor corporation refuses to assume or substitute for the outstanding
purchase rights, the offering period then in progress will be shortened, and a
new exercise date will be set.
The purchase plan will terminate in 2009. However, the board of directors
has the authority to amend or terminate the purchase plan, except that, subject
to some exceptions described in the purchase plan, no such action may adversely
affect any outstanding rights to purchase stock under the purchase plan.
401(k) PLAN
In July 1997, our board of directors adopted a Retirement Savings and
Investment Plan covering our full-time employees located in the United States.
This plan is intended to qualify under Section 401(k) of the Internal Revenue
Code of 1986, as amended, so that contributions to this plan by employees, and
the investment earnings thereon, are not
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<PAGE> 48
taxable to employees until withdrawn. Pursuant to this plan, employees may elect
to reduce their current compensation by up to the lesser of 20% of their annual
compensation or the statutorily prescribed annual limit ($10,500 in 2000) and to
have the amount of such reduction contributed to this plan. We do not currently
make additional matching contributions on behalf of plan participants.
CHANGE OF CONTROL AGREEMENTS
We have entered into change of control agreements with Steven D. Goldby,
Isy Goldwasser, W. Henry Weinberg and Jeryl L. Hilleman. In the event of a
change of control of Symyx (as defined in the agreements) and the actual or
constructive termination of employment, without cause, of the executive within
18 months following the change of control, all outstanding stock options issued
to the executive will be accelerated and all of our rights to repurchase their
restricted stock will lapse. Under these agreements, constructive termination of
employment means the executive's resignation following a reduction in salary, a
material reduction in employment-related responsibilities or a requirement to
relocate outside the Silicon Valley area.
LIMITATIONS ON LIABILITY AND INDEMNIFICATION
Our certificate of incorporation limits the liability of directors to the
maximum extent permitted by Delaware law. Delaware law provides that directors
of a corporation will not be personally liable for monetary damages for breach
of their fiduciary duties as directors, except liability for the following:
- any breach of their duty of loyalty to the corporation or its
stockholders;
- acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law;
- unlawful payments of dividends or unlawful stock repurchases or
redemptions; or
- any transaction from which the director derived an improper personal
benefit.
This limitation of liability does not apply to liabilities arising under
the federal securities laws and does not affect the availability of equitable
remedies such as injunctive relief or rescission.
Our certificate of incorporation and bylaws provide that we shall indemnify
our directors and executive officers and may indemnify our other officers and
employees and other agents to the fullest extent permitted by law. We believe
that indemnification under our bylaws covers at least negligence and gross
negligence on the part of indemnified parties. Our bylaws also permit us to
secure insurance on behalf of any officer, director, employee or other agent for
any liability arising out of his or her actions in such capacity, regardless of
whether the bylaws would permit indemnification.
We have entered into agreements to indemnify our directors, executive
officers and controller, in addition to indemnification provided for in our
bylaws. These agreements, among other things, provide for indemnification of our
directors and executive officers for certain expenses (including attorneys'
fees), judgments, fines and settlement amounts incurred by any such person in
any action or proceeding, including any action by or in our rights, arising out
of such person's services as a director or executive officer to us, any of our
subsidiaries or any other company or enterprise to which the person provides
services at our request. We believe that these provisions and agreements are
necessary to attract and retain qualified persons as directors and executive
officers.
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<PAGE> 49
RELATED PARTY TRANSACTIONS
PREFERRED STOCK FINANCINGS
In February 1996, Symyx issued to one investor a total of 1,000,000 shares
of Series A preferred stock at a purchase price of $0.50 per share. In May 1996,
we issued to various investors a total of 8,600,687 shares of Series B preferred
stock at a purchase price of $1.50 per share. In July 1997, we issued to various
investors a total of 6,750,284 shares of Series C preferred stock at a purchase
price of $3.00 per share. In March, April, October and November 1998, we issued
to various investors a total of 4,210,185 shares of Series D preferred stock at
a purchase price of $4.50 per share.
The table below sets forth the directors and holders of more than 5% of our
outstanding stock who invested in, or are beneficial owners of our preferred
stock. The numbers in the table below are on an as converted to common stock
basis at a conversion ratio of 0.7778 shares of common stock for each share of
preferred stock.
<TABLE>
<CAPTION>
PREFERRED STOCK
---------------------------------------------
PREFERRED STOCKHOLDER SERIES A SERIES B SERIES C SERIES D
--------------------- -------- --------- -------- --------
<S> <C> <C> <C> <C>
Holders of More than 5%:
Institutional Venture Partners
Entities........................ -- 1,555,555 842,591 207,406
Venrock Associates Entities........ -- 1,037,036 518,517 120,987
Directors:
Thomas R. Baruch................... -- 272,222 136,111 172,839
Samuel D. Colella.................. -- 1,555,555 842,591 207,406
Baron Gaulthaus Kraijenhoff........ -- 50,555 25,277 9,202
Peter G. Schultz, Ph.D............. 194,444 -- 77,777 --
Isaac Stein........................ 116,665 38,888 19,444 --
</TABLE>
Holders of our preferred stock are entitled to registration rights with
respect to the shares of common stock that they will hold following this
offering. See "Description of Capital Stock -- Registration Rights."
LOANS TO OFFICERS
We have implemented a program under which our directors, executive officers
and a number of other key employees are permitted to purchase restricted stock
or to exercise their outstanding options as to both vested and unvested shares,
with unvested shares being subject to a right of repurchase at cost in favor of
Symyx in the event of termination of employment prior to vesting of all shares.
Under this program, the participants paid the exercise price for their
outstanding options pursuant to full recourse promissory notes. The notes bear
interest at rates between 4.6% and 6.0% per annum and are due and payable on the
earlier of 120 days after termination of the participant's employment with us,
or on various dates beginning in February 2003. The principal amounts of each
note payable by a director or executive officer are set forth below:
<TABLE>
<CAPTION>
DIRECTOR OR EXECUTIVE OFFICER NOTE AMOUNT
----------------------------- -----------
<S> <C>
Steven D. Goldby.................................. $303,750
Isy Goldwasser.................................... 50,000
W. Henry Weinberg, Ph.D........................... 80,000
Jeryl L. Hilleman................................. 13,500
</TABLE>
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<PAGE> 50
In addition, in January 1998, we lent $300,000 to W. Henry Weinberg, Ph.D.
in connection with his employment with us to assist him with relocation
expenses. This loan did not bear interest. Dr. Weinberg repaid this loan in full
in July 1998.
PAYMENTS TO OFFICERS
Since 1997, we have made the following housing allowance and relocation
payments to W. Henry Weinberg, Ph.D. in connection with his employment with us:
- in 1997, $70,752;
- in 1998, $211,120; and
- in 1999, $60,000.
OTHER TRANSACTIONS
Mario M. Rosati, one of our directors, is also a member of Wilson Sonsini
Goodrich & Rosati, Professional Corporation, which has served as our outside
corporate counsel since our formation.
POLICY REGARDING TRANSACTIONS WITH AFFILIATES
It is our policy that future transactions with affiliates, including any
loans we make to our officers, directors, principal stockholders or other
affiliates will be on terms no less favorable to us than we could have obtained
from unaffiliated third parties. These transactions will be approved by a
majority of our board of directors, including a majority of the independent and
disinterested members or, if required by law, a majority of our disinterested
stockholders.
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<PAGE> 51
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth information regarding the beneficial
ownership of our common stock, as of March 3, 2000, and as adjusted to reflect
the sale of the shares offered by this prospectus, by the following individuals
or groups:
- each person, or group of affiliated persons, whom we know beneficially
owns more than 5% of our outstanding stock;
- each of our executive officers;
- each of our directors;
- all of our directors and executive officers as a group; and
- the selling stockholders
Unless otherwise indicated, the address for each stockholder on this table
is c/o Symyx Technologies, Inc., 3100 Central Expressway, Santa Clara,
California 95051. Except as otherwise noted, and subject to applicable community
property laws, to the best of our knowledge, the persons named in this table
have sole voting and investing power for all of the shares of common stock held
by them.
This table lists applicable percentage ownership based on 29,701,014 shares
of common stock outstanding as of March 3, 2000, and also lists applicable
percentage ownership based on 30,951,014 shares of common stock outstanding
after completion of this offering. Options to purchase shares of our common
stock that are exercisable within 60 days of March 3, 2000 are deemed to be
beneficially owned by the persons holding these options 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. All of these options are immediately exercisable for common stock
that would be subject to repurchase by us. Shares underlying options 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."
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<PAGE> 52
<TABLE>
<CAPTION>
SHARES BENEFICIALLY
SHARES BENEFICIALLY OWNED OWNED
PRIOR TO OFFERING AFTER OFFERING
------------------------------------ --------------------
TOTAL SHARES SUBJECT SHARES TO BE TOTAL
BENEFICIAL OWNER NUMBER TO OPTIONS PERCENT SOLD NUMBER PERCENT
---------------- --------- -------------- ------- ------------ --------- --------
<S> <C> <C> <C> <C> <C> <C>
5% STOCKHOLDERS:
Institutional Venture Partners
Entities(1)..................... 2,897,216 -- 9.8% %
3000 Sand Hill Road
Building 2, Suite 290
Menlo Park, CA 94025
Venrock Associates Entities(2).... 1,695,983 -- 5.7
30 Rockefeller Plaza,
Room 5508
New York, NY 10122
EXECUTIVE OFFICERS AND DIRECTORS:
Steven D. Goldby(3)............... 760,612 305,612 2.6
Isy Goldwasser.................... 593,944 228,389 2.0
W. Henry Weinberg, Ph.D........... 1,040,333 359,778 3.5
Jeryl L. Hilleman(4).............. 477,582 263,945 1.6
Peter L. Brooks................... 175,000 175,000 * *
Thomas R. Baruch(5)............... 604,505 23,333 2.0
Samuel D. Colella(6).............. 2,897,216 -- 9.8
Martin Gerstel(7)................. 174,999 -- * *
Baron Gaulthaus Kraijenhoff....... 123,922 -- * *
Francois A. L'Eplattenier......... 38,888 -- * *
Kenneth J. Nussbacher............. 154,000 -- * *
Mario M. Rosati(8)................ 77,777 -- * *
Peter G. Schultz, Ph.D.(9)........ 1,211,953 -- 4.1
Isaac Stein(10)................... 353,888 23,333 1.2
All directors and executive
officers as a group (14
persons)........................ 8,684,619 1,379,390 29.3
OTHER SELLING STOCKHOLDERS:
</TABLE>
- -------------------------
* Less than 1% of the outstanding shares of common stock.
(1) Includes 2,723,387 shares held by Institutional Venture Partners VI, L.P.,
57,942 shares held by Institutional Venture Management VI, L.P. and 115,887
shares held by IVP Founders Fund I, L.P.
(2) Includes 1,030,942 shares held by Venrock Associates and 665,041 shares
held by Venrock Associates II, L.P. The general partners of Venrock
Associates and Venrock Associates II, L.P. are Anthony B. Evnin, David R.
Hathaway, Patrick F. Latterell, Ted H. McCourtney, Ray A. Rothrock,
Kimberly A. Rummelsburg and Anthony Sun.
(3) Includes 455,000 shares held by the Steven Goldby and Florence Goldby
Trust, of which Mr. Goldby is trustee.
(4) Includes 198,334 shares held by Jeryl L. Hilleman and William A. Albright,
Jr. as trustees of the Hilleman/Albright Family Trust. Also includes 3,888
shares held by Craig Albright as trustee of the Colin M. Albright 1991
Trust Agreement dated October 3, 1991, 7,777 shares held by Craig Albright
as trustee of the Caroline V. Albright 1995 Trust Agreement dated April 24,
1995, and 3,888 shares held by Craig Albright as trustee of the Evan M.
Albright 1991 Trust Agreement dated
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<PAGE> 53
October 3, 1991. Ms. Hilleman disclaims beneficial ownership of an
aggregate of 15,553 shares held in trust for the benefit of her children.
(5) Includes 408,333 shares held by Chemicals and Materials Enterprise
Associates Limited Partnership and 172,839 shares held by CMEA Life
Sciences Fund, L.P. Mr. Baruch is a general partner of each of these
entities and disclaims beneficial ownership of these shares, except to the
extent of his proportionate partnership interest therein.
(6) Includes 2,723,387 shares held by Institutional Venture Partners VI, L.P.,
57,942 shares held by Institutional Venture Management VI, L.P. and 115,887
shares held by IVP Founders Fund I, L.P. Mr. Colella is a general partner
of each of these entities and disclaims beneficial ownership of these
shares except to the extent of his individual partnership interests
therein.
(7) Includes 174,999 shares held by Shomar Corporation. Mr. Gerstel and his
wife are the sole owners of this entity.
(8) Includes 70,000 shares held by WS Investment Company 95A. Mr. Rosati is a
general partner of this entity and disclaims beneficial ownership of the
shares held by it, except to the extent of his proportionate partnership
interest therein.
(9) Includes 388,888 shares held by George E. Schultz as trustee of the Schultz
Children's Trust. Dr. Schultz disclaims beneficial ownership of these
shares. Dr. Schultz has expressed an interest in acquiring shares in the
offering.
(10) Includes 311,111 shares held by the Isaac Stein and Madeline Johnson Stein
Revocable Trust, of which Mr. Stein is a trustee, and 19,444 shares held by
Stein Partners, of which Mr. Stein is a general partner.
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<PAGE> 54
DESCRIPTION OF CAPITAL STOCK
GENERAL
Our amended and restated certificate of incorporation authorizes the
issuance of 100,000,000 shares of common stock, $0.001 par value, and authorizes
the issuance of 10,000,000 shares of undesignated preferred stock, no par value.
From time to time, our board of directors may establish the rights and
preferences of the preferred stock. As of March 3, 2000, 29,701,014 shares of
common stock were issued and outstanding and held by approximately 510
stockholders of record, and options to purchase 4,025,772 shares of common stock
were issued and outstanding and held by approximately 195 optionholders.
COMMON STOCK
Each holder of common stock is entitled to one vote for each share held on
all matters to be voted upon by the stockholders and there are no cumulative
voting rights. Subject to preferences that may be applicable to any outstanding
preferred stock, holders of common stock are entitled to receive ratably the
dividends, if any, that are declared from time to time by the board of directors
out of funds legally available for that purpose. See "Dividend Policy." In the
event of a liquidation, dissolution or winding up of Symyx, the holders of
common stock are entitled to share in our assets remaining after the payment of
liabilities and the satisfaction of any liquidation preference granted to the
holders of any outstanding shares of preferred stock. Holders of common stock
have no preemptive or conversion rights or other subscription rights. There are
no redemption or sinking fund provisions applicable to the common stock. All
outstanding shares of common stock are fully paid and nonassessable. The rights,
preferences and privileges of the holders of common stock are subject to, and
may be adversely affected by, the rights of the holders of shares of any series
of preferred stock that we may designate in the future.
PREFERRED STOCK
The board of directors has the authority, without action by the
stockholders, to designate and issue preferred stock in one or more series and
to designate the rights, preferences and privileges of each series, which may be
greater than the rights of the common stock. It is not possible to state the
actual effect of the issuance of any shares of preferred stock upon the rights
of holders of the common stock until the board of directors determines the
specific rights of the holders of this preferred stock. However, the effects
might include, among other things:
- restricting dividends on the common stock;
- diluting the voting power of the common stock;
- impairing the liquidation rights of the common stock; or
- delaying or preventing a change in control of Symyx without further
action by the stockholders.
At March 3, 2000, no shares of preferred stock were outstanding, and we
have no present plans to issue any shares of preferred stock.
REGISTRATION RIGHTS
Pursuant to a registration and information rights agreement entered into
between us and holders of 15,991,849 shares of common stock issued upon
conversion of our Series A,
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<PAGE> 55
Series B, Series C and Series D preferred stock, we are obligated, under limited
circumstances and subject to specified conditions and limitations, to use our
best efforts to register the registrable shares.
We must use our best efforts to register shares of the registrable shares:
- if we receive written notice from holders of 40% or more of the
registrable shares requesting that we effect a registration with respect
to not less than 80% of the registrable shares then held by the holders
requesting registration (or a lesser percentage where the reasonably
anticipated price to the public of the sale of the registrable shares
will exceed $10,000,000);
- if we decide to register our own securities (except in connection with
this offering); or
- if (1) we receive written notice from any holder or holders of the
registrable shares requesting that we effect a registration on Form S-3
(a shortened form of registration statement) with respect to shares of
the registrable shares, the reasonably anticipated price to the public of
which exceeds $500,000 and (2) we are then eligible to use Form S-3
(which at the earliest will occur twelve calendar months after the
closing of this offering).
However, in addition to certain other conditions and limitations, if
requested to register shares of registrable shares, we can delay registration
not more than once in any 12-month period and for not more than 90 days.
These registration rights terminate with respect to each registrable share
upon the first to occur of when the holder can transfer his or her registrable
shares pursuant to Rule 144 or five years after the closing of this offering. In
addition, the holders of these registration rights have entered into lockup
agreements and waived their registration rights until May 16, 2000.
ANTITAKEOVER EFFECTS OF PROVISIONS OF DELAWARE LAW AND OUR CHARTER AND BYLAWS
Provisions of Delaware law and our certificate of incorporation and bylaws
could make the following more difficult:
- the acquisition of Symyx by means of a tender offer;
- the acquisition of Symyx by means of a proxy contest or otherwise; or
- the removal of our incumbent officers and directors.
These provisions, summarized below, are expected to discourage certain
types of coercive takeover practices and inadequate takeover bids. These
provisions are also designed to encourage persons seeking to acquire control of
Symyx to negotiate first with our board. We believe that the benefits of
increased protection of its potential ability to negotiate with the proponent of
an unfriendly or unsolicited proposal to acquire or restructure Symyx outweigh
the disadvantages of discouraging these proposals because negotiation of any
proposals of this type could result in an improvement of their terms.
Election and Removal of Directors. Our board of directors is divided into
three classes. The directors in each class will serve for a three-year term,
with our stockholders electing one class each year. See "Management -- Board of
Directors." This system of electing and removing directors may tend to
discourage a third party from making a tender offer or otherwise attempting to
obtain control of Symyx because it generally makes it more difficult for
stockholders to replace a majority of the directors.
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<PAGE> 56
Stockholder Meetings. Under our bylaws, only the board of directors, the
chairman of the board or the president may call special meetings of
stockholders.
Requirements for Advance Notification of Stockholder Nominations and
Proposals. Our bylaws establish advance notice procedures for stockholder
proposals and for the nomination of candidates for election as directors, other
than nominations made by or at the direction of the board of directors or a
committee of the board.
Delaware Antitakeover Law. Symyx is subject to Section 203 of the Delaware
General Corporation Law, an antitakeover law. In general, Section 203 prohibits
a publicly held Delaware corporation from engaging in a business combination
with an interested stockholder for a period of three years following the date
the person became an interested stockholder, unless the business combination or
the transaction in which the person became an interested stockholder is approved
in the manner specified in Section 203. Generally, a business combination
includes a merger, asset or stock sale, or other transaction resulting in a
financial benefit to the interested stockholder. Generally, an interested
stockholder is a person who, together with affiliates and associates, owns or
within three years prior to the determination of interested stockholder status
did own 15% or more of a corporation's voting stock. The existence of this
provision may have an antitakeover effect by discouraging takeover attempts not
approved in advance by the board of directors, that might result in a premium
over the market price for the shares of common stock held by stockholders.
Elimination of Stockholder Action by Written Consent. Our certificate of
incorporation eliminates the right of stockholders to act by written consent
without a meeting.
No Cumulative Voting. Our certificate of incorporation and bylaws do not
provide for cumulative voting in the election of directors.
Undesignated Preferred Stock. The authorization of undesignated preferred
stock makes it possible for the board of directors to issue preferred stock with
voting or other rights or preferences that could impede the success of any
attempt to change control of Symyx. These and other provisions may have the
effect of deferring hostile takeovers or delaying changes in control or
management of Symyx.
Amendment of Charter Provisions. The amendment of any of the above
provisions would require approval by holders of at least 66 2/3% of the
outstanding common stock.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for our common stock is Norwest Bank
Minnesota, N.A. The telephone number for our transfer agent and registrar is
(800) 468-9716.
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<PAGE> 57
SHARES ELIGIBLE FOR FUTURE SALE
Future sales of substantial amounts of common stock, including shares
issued upon exercise of outstanding options and warrants, in the public market
following this offering could adversely affect market prices prevailing from
time to time and could impair our ability to raise capital through sale of our
equity securities.
Upon completion of this offering, we will have outstanding 30,951,014
shares of common stock, assuming the issuance of 1,250,000 shares of common
stock offered hereby, no exercise of the underwriters' over-allotment option and
no exercise of outstanding options after March 3, 2000. Of these shares, the
following shares are freely tradeable without restriction under the Securities
Act, except for any shares purchased by our "affiliates" as defined in Rule 144
under the Securities Act:
- The 2,750,000 shares sold in this offering; and
- The 6,368,700 shares sold in our initial public offering in November
1999.
Of the remaining 21,832,314 shares of common stock, are held
by the selling stockholders and by our executive officers, directors and
entities affiliated with them. These shares are subject to lockup agreements
with the underwriters providing that the stockholder will not offer to sell,
contract to sell or otherwise sell, dispose of, loan, pledge or grant any rights
to, any shares of common stock owned as of the date of this prospectus for a
period of 90 days after the date of this prospectus without the prior written
consent of Credit Suisse First Boston. All of these shares will be eligible for
sale in the public market upon expiration of the 90-day lockup agreement, except
that of such shares will be subject to volume limitations under
Rule 144. All of the remaining shares not held by selling
stockholders or by our executive officers, directors and affiliated entities are
subject to a lockup agreement entered into in connection with our initial public
offering. These agreements expire on May 16, 2000. Upon expiration of these
lockup agreements, an additional shares will become eligible for
sale in the public market, with of such shares subject to volume
limitations under Rule 144. In some cases, these shares are subject to
repurchase rights of Symyx. Credit Suisse First Boston may, in its sole
discretion and at any time without notice, release all or any portion of the
shares subject to the 180 day lock-up agreements entered into in connection with
our initial public offering or the 90 day lockup agreements entered into in
connection with this offering.
In general, under Rule 144, as currently in effect, a person who has
beneficially owned restricted shares for at least one year, including the
holding period of any prior owner and except an affiliate, would be entitled to
sell within any three-month period a number of shares that does not exceed the
greater of:
- 1% of the number of shares of common stock then outstanding, which will
equal approximately 309,510 shares immediately after this offering; or
- the average weekly trading volume of the common stock during the four
calendar weeks preceding the filing of a Form 144.
Sales under Rule 144 are also subject to certain manner of sale provisions
and notice requirements and to the availability of current public information
about Symyx. Under Rule 144(k), a person who is not deemed to have been an
affiliate of Symyx at any time during the three months preceding a sale, and who
has beneficially owned the shares proposed to be sold for at least two years
including the holding period of any prior owner
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<PAGE> 58
except an affiliate, is entitled to sell those shares without complying with the
manner of sale, public information, volume limitation or notice provisions of
Rule 144.
In March 2000 we filed a registration statement on Form S-8 registering
shares of common stock subject to outstanding options or reserved for future
issuance under our employee benefit plans. As of December 31, 1999, options to
purchase a total of 2,838,498 shares were outstanding and 872,855 shares were
reserved for future issuance under our stock plans. Common stock issued upon
exercise of outstanding vested options or issued pursuant to our employee stock
purchase plan, other than common stock issued to our affiliates, will be
available for immediate resale in the open market beginning May 17, 2000,
following expiration of the 180-day lock-up agreements.
Also beginning May 17, 2000, holders of restricted shares will
be entitled to registration rights on these shares for sale in the public
market. See "Description of Capital Stock -- Registration Rights." Registration
of these shares under the Securities Act would result in their becoming freely
tradable without restriction under the Securities Act immediately upon the
effectiveness of the registration.
57
<PAGE> 59
UNDERWRITING
Under the terms and subject to the conditions contained in an underwriting
agreement dated March , 2000 we and the selling shareholders have agreed to
sell to the underwriters named below, for whom Credit Suisse First Boston
Corporation, Chase Securities Inc., ING Barings LLC and Invemed Associates LLC
are acting as representatives, the following respective numbers of shares of
common stock:
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITER SHARES
----------- ----------
<S> <C>
Credit Suisse First Boston Corporation.............
Chase Securities Inc. .............................
ING Barings LLC....................................
Invemed Associates LLC.............................
----------
Total.................................... 2,750,000
==========
</TABLE>
The underwriting agreement provides that the underwriters are obligated to
purchase all the shares of common stock in the offering if any are purchased,
other than those shares covered by the over-allotment option described below.
The underwriting agreement also provides that if an underwriter defaults the
purchase commitments of non-defaulting underwriters may be increased or the
offering of common stock may be terminated.
We have granted to the underwriters a 30-day option to purchase on a pro
rata basis up to 412,500 additional shares of common stock at the public
offering price less the underwriting discounts and commissions. The option may
be exercised only to cover any over-allotments of common stock.
The underwriters propose to offer the shares of common stock initially at
the public offering price on the cover page of this prospectus and to selling
group members at that price less a concession of $ per share. The
underwriters and selling group members may allow a discount of $ per
share on sales to other broker/dealers. After the public offering, the public
offering price and concession and discount to broker/dealers may be changed by
the representatives.
The following table summarizes the compensation we and the selling
stockholders will pay:
<TABLE>
<CAPTION>
PER SHARE TOTAL
------------------------------- -------------------------------
WITHOUT WITH WITHOUT WITH
OVER-ALLOTMENT OVER-ALLOTMENT OVER-ALLOTMENT OVER-ALLOTMENT
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Underwriting Discounts and
Commissions paid by us... $ $ $ $
Underwriting Discounts and
Commissions paid by
selling stockholders..... $ $ $ $
</TABLE>
We estimate that the out-of-pocket expenses for us and the selling
stockholders for this offering will be approximately $500,000. We have agreed
with the selling stockholders to pay all such out-of-pocket expenses.
We, our executive officers, directors, the selling stockholders and certain
other stockholders with respect to an aggregate of shares, have agreed
that we and they will not offer, sell, contract to sell, pledge or otherwise
dispose of, directly or indirectly, or file with the Securities and Exchange
Commission a registration statement under the
58
<PAGE> 60
Securities Act relating to any additional shares of our common stock or
securities convertible into or exchangeable or exercisable for any shares of our
common stock, enter into a transaction which would have the same effect, or
enter into any swap, hedge or other agreement that transfers, in whole or in
part, any of the economic consequences of ownership of our common stock, whether
any such transaction is to be settled by delivery of our common stock or such
other securities, in cash or otherwise, or publicly disclose the intention to
make any such offer, sale, pledge, disposition or filing, or enter into any such
transaction, swap, hedge or other arrangement without, in each case, the prior
written consent of Credit Suisse First Boston Corporation for a period of 90
days after the date of this prospectus. In addition, certain of our stockholders
remain subject to 180 day lockup agreements entered into in connection with our
initial public offering. These lockup agreements expire on May 16, 2000. These
lockup restrictions do not apply to securities issued by us pursuant to our
employee benefit plans or securities issued by us in connection with acquisition
transactions, provided that the recipients of such securities agree not to
dispose of or hedge any of such securities for the same 90 day period. See
"Shares Eligible for Future Sale" for a discussion of transfer restrictions.
We and the selling stockholders have agreed to indemnify the underwriters
against liabilities under the Securities Act, or to contribute to payments which
the underwriters may be required to make in that respect.
Our common stock is quoted on The Nasdaq Stock Market's National Market
under the symbol "SMMX."
The representatives may engage in over-allotment, stabilizing transactions,
syndicate covering transactions, penalty bids and passive market making in
accordance with Regulation M under the Securities Exchange Act of 1934:
- Over-allotment involves syndicate sales in excess of the offering size,
which creates a syndicate short position.
- Stabilizing transactions permit bids to purchase the underlying security
so long as the stabilizing bids do not exceed a specified maximum.
- Syndicate covering transactions involve purchases of the common stock in
the open market after the distribution has been completed in order to
cover syndicate short positions.
- Penalty bids permit the representatives to reclaim a selling concession
from a syndicate member when the common stock originally sold by such
syndicate member is purchased in a stabilizing or syndicate covering
transaction to cover syndicate short positions.
- In passive market making, market makers in the common stock who are
underwriters or prospective underwriters may, subject to limitations,
make bids for or purchases of the common stock until the time, if any, at
which a stabilizing bid is made.
These stabilizing transactions, syndicate covering transactions and penalty
bids may cause the price of the common stock to be higher than it would
otherwise be in the absence of such transactions. These transactions may be
effected on The Nasdaq Stock Market's National Market or otherwise and, if
commenced, may be discontinued at any time.
A prospectus in electronic format may be made available on the web sites
maintained by one or more of the underwriters participating in this offering.
The representatives may agree to allocate a number of shares to underwriters for
sale to their online brokerage
59
<PAGE> 61
account holders. Internet distribution will be allocated by the underwriters
that will make Internet distributions on the same basis as other allocations.
Other than the prospectus in electronic format, the information contained
on any underwriter's web site and any information contained on any other web
site maintained by an underwriter is not part of this prospectus or the
registration statement of which this prospectus forms a part, has not been
approved or endorsed by us or any underwriter in its capacity as an underwriter
and should not be relied upon by investors.
Entities and individuals associated with Invemed Associates LLC are record
holders of 1,015,210 shares of our stock.
60
<PAGE> 62
NOTICE TO CANADIAN RESIDENTS
RESALE RESTRICTIONS
The distribution of the common stock in Canada is being made only on a
private placement basis exempt from the requirement that we and the selling
stockholders prepare and file a prospectus with the securities regulatory
authorities in each province where trades of common stock are effected.
Accordingly, any resale of the common stock in Canada must be made in accordance
with applicable securities laws which will vary depending on the relevant
jurisdiction, and which may require resales to be made in accordance with
available statutory exemptions or pursuant to a discretionary exemption granted
by the applicable Canadian securities regulatory authority. Purchasers are
advised to seek legal advice prior to any resale of the common stock.
REPRESENTATIONS OF PURCHASERS
Each purchaser of common stock in Canada who receives a purchase
confirmation will be deemed to represent to us, the selling stockholders and the
dealer from whom the purchase confirmation is received that (i) such purchaser
is entitled under applicable provincial securities laws to purchase such common
stock without the benefit of a prospectus qualified under the securities laws,
(ii) where required by law, that the purchaser is purchasing as principal and
not as agent, and (iii) such purchaser has reviewed the text above under "Resale
Restrictions."
RIGHTS OF ACTION (ONTARIO PURCHASERS)
The securities being offered are those of a foreign issuer and Ontario
purchasers will not receive the contractual right of action prescribed by
Ontario securities law. As a result, Ontario purchasers must rely on other
remedies that may be available, including common law rights of action for
damages or rescission or rights of action under the civil liability provisions
of the U.S. federal securities laws.
ENFORCEMENT OF LEGAL RIGHTS
All of the issuer's directors and officers as well as the experts named
herein and the selling stockholders may be located outside of Canada and, as a
result, it may not be possible for Canadian purchasers to effect service of
process within Canada upon the issuer or such persons. All or a substantial
portion of the assets of the issuer and such persons may be located outside of
Canada and, as a result, it may not be possible to satisfy a judgment against
the issuer or such persons in Canada or to enforce a judgment obtained in
Canadian courts against such issuer or such persons outside of Canada.
NOTICE TO BRITISH COLUMBIA RESIDENTS
A purchaser of common stock to whom the Securities Act (British Columbia)
applies is advised that the purchaser is required to file with the British
Columbia Securities Commission a report within ten days of the sale of any
common stock acquired by such purchaser pursuant to this offering. Such report
must be in the form attached to British Columbia Securities Commission Blanket
Order BOR #95/17, a copy of which may be obtained from us. Only one such report
must be filed in respect of common stock acquired on the same date and under the
same prospectus exemption.
61
<PAGE> 63
TAXATION AND ELIGIBILITY FOR INVESTMENT
Canadian purchasers of common stock should consult with their own legal and
tax advisors with respect to the tax consequences of an investment in the common
stock in their particular circumstances and with respect to the eligibility of
the common stock for investment by the purchaser under relevant Canadian
legislation.
LEGAL MATTERS
The validity of the common stock offered hereby will be passed upon for
Symyx by Wilson Sonsini Goodrich & Rosati, Professional Corporation, Palo Alto,
California. Pillsbury Madison & Sutro LLP, Palo Alto, California, is acting as
counsel for the underwriters in connection with selected legal matters relating
to the shares of common stock offered by this prospectus. As of December 31,
1999, an investment partnership and a member of Wilson Sonsini Goodrich & Rosati
beneficially owned an aggregate of 77,777 shares of common stock of Symyx. Mario
M. Rosati, one of our directors and our secretary, and Christopher D. Mitchell,
one of our assistant secretaries, are members of Wilson Sonsini Goodrich &
Rosati.
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 upon the authority of
such firm as experts in accounting and auditing.
ADDITIONAL INFORMATION
We have filed with the Securities and Exchange Commission a Registration
Statement on Form S-1. This prospectus, which forms a part of the Registration
Statement, does not contain all the information included in the Registration
Statement. Certain information is omitted and you should refer to the
Registration Statement and its exhibits. With respect to references made in this
prospectus to any contract or other document of Symyx, such references are not
necessarily complete and you should refer to the exhibits attached to the
Registration Statement for copies of the actual contract or document. You may
review a copy of the Registration Statement, including exhibits and schedule
filed therewith, at the Securities and Exchange Commission's public reference
facilities in Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington,
D.C. 20549, and at the regional offices of the Securities and Exchange
Commission located at 7 World Trade Center, Suite 1300, New York, New York
10048, and Citicorp Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661. You may also obtain copies of such materials from the Public
References Section of the Securities and Exchange Commission, Room 1024,
Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed
rates. The Securities and Exchange Commission maintains a Web site
(http://www.sec.gov) that contains reports, proxy and information statements and
other information regarding registrants, such as Symyx, that file electronically
with the Securities and Exchange Commission.
62
<PAGE> 64
SYMYX TECHNOLOGIES, INC.
INDEX TO FINANCIAL STATEMENTS
CONTENTS
<TABLE>
<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> 65
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Board of Directors and Stockholders
Symyx Technologies, Inc.
We have audited the accompanying balance sheets of Symyx Technologies, 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 Symyx Technologies, 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.
/S/ ERNST & YOUNG LLP
Palo Alto, California
January 28, 2000.
F-2
<PAGE> 66
SYMYX TECHNOLOGIES, INC.
BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE INFORMATION)
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1998 1999
-------- --------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.............................. $ 14,043 $ 28,943
Short-term investments................................. 9,339 21,533
Accounts receivable.................................... 626 962
Prepaid expenses....................................... 288 1,555
Other current assets................................... 551 1,939
-------- --------
Total current assets........................... 24,847 54,932
Property and equipment, net.............................. 16,110 23,879
Long-term investments.................................... 11,739 68,794
Other assets............................................. 207 700
-------- --------
$ 52,903 $148,305
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and other accrued liabilities......... $ 1,676 $ 4,951
Accrued compensation and employee benefits............. 416 711
Deferred rent.......................................... 446 478
Deferred revenue....................................... 4,172 12,189
Current portion of equipment and facility loans........ 2,436 3,304
-------- --------
Total current liabilities...................... 9,146 21,633
Equipment and facility loans............................. 7,591 6,729
Commitments
Stockholders' equity:
Preferred stock, $0.001 par value, 23,650,000 and
10,000,000 shares authorized at December 31, 1998 and
1999, respectively, issuable in series; 20,561,156
shares and no shares issued and outstanding at December
31, 1998 and 1999, respectively........................ 21 --
Common stock, $0.001 par value, 50,000,000 and
100,000,000 shares authorized at December 31, 1998 and
1999, respectively; 6,225,475 and 29,638,562 shares
issued and outstanding at December 31, 1998 and 1999,
respectively........................................... 6 30
Additional paid-in capital............................... 54,093 142,048
Stockholder notes receivable............................. (398) (731)
Deferred stock compensation.............................. (572) (2,128)
Unrealized gain (loss) on investments.................... (44) (189)
Accumulated deficit...................................... (16,940) (19,087)
-------- --------
Total stockholders' equity..................... 36,166 119,943
-------- --------
Total liabilities and stockholders' equity..... $ 52,903 $148,305
======== ========
</TABLE>
See accompanying notes.
F-3
<PAGE> 67
SYMYX TECHNOLOGIES, INC.
STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------
1997 1998 1999
------- ------- -------
<S> <C> <C> <C>
Revenue from collaborations and grants........... $ 4,806 $13,787 $30,497
Operating costs and expenses:
Research and development......................... 8,764 17,640 23,964
General and administrative....................... 2,129 4,500 6,494
Amortization of deferred compensation............ -- 188 3,794
------- ------- -------
Total operating expenses......................... 10,893 22,328 34,252
------- ------- -------
Income (loss) from operations.................... (6,087) (8,541) (3,755)
Interest income.................................. 843 1,117 2,542
Interest and other expense....................... (352) (731) (934)
------- ------- -------
Net income (loss)................................ $(5,596) $(8,155) $(2,147)
======= ======= =======
Basic and diluted net loss per share............. $ (1.97) $ (2.13) $ (0.27)
======= ======= =======
Shares used in computing basic and diluted net
loss per share................................. 2,845 3,829 8,087
======= ======= =======
</TABLE>
See accompanying notes.
F-4
<PAGE> 68
SYMYX TECHNOLOGIES, INC.
STATEMENT OF STOCKHOLDERS' EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
UNREALIZED
PREFERRED STOCK COMMON STOCK ADDITIONAL STOCKHOLDER DEFERRED GAIN
---------------- --------------- PAID-IN NOTES STOCK (LOSS) ON
SHARES AMOUNT SHARES AMOUNT CAPITAL RECEIVABLE COMPENSATION INVESTMENTS
------- ------ ------ ------ ---------- ----------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1996....... 9,601 $ 10 3,425 $ 3 $ 13,459 $ -- $ -- $ --
Issuance of common stock........... -- -- 471 1 103 -- -- --
Issuance of Series C preferred
stock for cash, net of issuance
costs of $19..................... 6,750 7 -- -- 20,225 -- -- --
Repurchase of common stock (19
shares) and Class B Common stock
(23 shares)...................... -- -- (43) -- (1) -- -- --
Comprehensive income (loss):
Net income (loss) for the year
ended December 31, 1997.......... -- -- -- -- -- -- -- --
Unrealized gain (loss) on
available-for-sale securities.... -- -- -- -- -- -- -- 8
Comprehensive loss.................
------- ---- ------ --- -------- ----- ------- -----
Balance at December 31, 1997....... 16,351 17 3,853 4 33,786 -- -- 8
Issuance of Series D preferred
stock for cash, net of issuance
costs of $36..................... 4,143 4 -- -- 18,606 -- -- --
Issuance of common stock........... -- -- 1,532 1 642 (398) -- --
Conversion of Class B common stock
to common stock on a 1:10
basis............................ -- -- 840 1 (1) -- -- --
Issuance of Series D preferred
stock as consideration for
technology rights................ 67 -- -- -- 300 -- -- --
Deferred stock compensation........ -- -- -- -- 760 -- (760) --
Amortization of deferred stock
compensation..................... -- -- -- -- -- -- 188 --
Comprehensive income (loss):
Net income (loss) for the year
ended December 31, 1998.......... -- -- -- -- -- -- -- --
Unrealized gain (loss) on
available-for-sale securities.... -- -- -- -- -- -- -- (52)
Comprehensive income (loss)........
------- ---- ------ --- -------- ----- ------- -----
Balance at December 31, 1998....... 20,561 21 6,225 6 54,093 (398) (572) (44)
Issuance of common stock........... -- -- 7,440 8 82,413 (361) -- --
Repurchase of common stock......... -- -- (43) -- (35) 28 -- --
Issuance of common stock in
exchange for services............ -- -- 25 -- 222 -- -- --
Conversion of preferred stock to
common stock on a 7 for 9
basis............................ (20,561) (21) 15,992 16 5 -- -- --
Deferred stock compensation........ -- -- -- -- 5,350 -- (5,350) --
Amortization of deferred stock
compensation..................... -- -- -- -- -- -- 3,794 --
Comprehensive income (loss):
Net income (loss) for the year
ended December 31, 1999.......... -- -- -- -- -- -- -- --
Unrealized gain (loss) on available
for sale securities.............. -- -- -- -- -- -- -- (145)
Comprehensive income (loss)........
------- ---- ------ --- -------- ----- ------- -----
Balance as of December 31, 1999.... -- $ -- 29,639 $30 $142,048 $(731) $(2,128) $(189)
======= ==== ====== === ======== ===== ======= =====
<CAPTION>
TOTAL
ACCUMULATED STOCKHOLDERS'
DEFICIT EQUITY
----------- -------------
<S> <C> <C>
Balance at December 31, 1996....... $ (3,189) $ 10,283
Issuance of common stock........... -- 104
Issuance of Series C preferred
stock for cash, net of issuance
costs of $19..................... -- 20,232
Repurchase of common stock (19
shares) and Class B Common stock
(23 shares)...................... -- (1)
Comprehensive income (loss):
Net income (loss) for the year
ended December 31, 1997.......... (5,596) (5,596)
Unrealized gain (loss) on
available-for-sale securities.... -- 8
--------
Comprehensive loss................. (5,588)
-------- --------
Balance at December 31, 1997....... (8,785) 25,030
Issuance of Series D preferred
stock for cash, net of issuance
costs of $36..................... -- 18,610
Issuance of common stock........... -- 245
Conversion of Class B common stock
to common stock on a 1:10
basis............................ -- --
Issuance of Series D preferred
stock as consideration for
technology rights................ -- 300
Deferred stock compensation........ -- --
Amortization of deferred stock
compensation..................... -- 188
Comprehensive income (loss):
Net income (loss) for the year
ended December 31, 1998.......... (8,155) (8,155)
Unrealized gain (loss) on
available-for-sale securities.... -- (52)
--------
Comprehensive income (loss)........ (8,207)
-------- --------
Balance at December 31, 1998....... (16,940) 36,166
Issuance of common stock........... -- 82,060
Repurchase of common stock......... -- (7)
Issuance of common stock in
exchange for services............ -- 222
Conversion of preferred stock to
common stock on a 7 for 9
basis............................ -- --
Deferred stock compensation........ -- --
Amortization of deferred stock
compensation..................... -- 3,794
Comprehensive income (loss):
Net income (loss) for the year
ended December 31, 1999.......... (2,147) (2,147)
Unrealized gain (loss) on available
for sale securities.............. -- (145)
--------
Comprehensive income (loss)........ (2,292)
-------- --------
Balance as of December 31, 1999.... $(19,087) $119,943
======== ========
</TABLE>
See accompanying notes.
F-5
<PAGE> 69
SYMYX TECHNOLOGIES, INC.
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------
1997 1998 1999
-------- -------- --------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income (loss).......................................... $ (5,596) $ (8,155) $ (2,147)
Adjustments to reconcile net loss to net cash provided by
(used in) operating activities:
Depreciation and amortization............................ 1,031 3,091 4,248
Deferred compensation amortization....................... -- 188 3,794
Issuance of preferred stock as consideration for
technology rights...................................... -- 300 --
Changes in assets and liabilities:
Accounts receivable.................................... -- (626) (336)
Prepaid expenses....................................... (153) (16) (1,267)
Other current assets................................... (462) 42 (1,388)
Accounts payable and other current liabilities......... 1,540 (212) 3,275
Deferred revenue....................................... 1,884 2,288 8,017
Accrued compensation and employee benefits............. 160 213 295
Deferred rent.......................................... 287 159 31
Other long-term assets................................. (7) (146) (492)
-------- -------- --------
Net cash provided by (used in) operating activities........ (1,316) (2,874) 14,030
-------- -------- --------
INVESTING ACTIVITIES
Purchase of property and equipment, net.................... (13,218) (5,809) (11,535)
Purchase of investments.................................... (35,036) (20,053) (84,204)
Proceeds from sales of investments......................... 12,917 1,275 --
Proceeds from maturities of investments.................... 11,333 14,350 14,550
-------- -------- --------
Net cash provided by (used in) investing activities........ (24,004) (10,237) (81,189)
-------- -------- --------
FINANCING ACTIVITIES
Proceeds from issuance of preferred stock, net of issuance
costs.................................................... 20,231 18,610 --
Proceeds from issuance of common stock, net of
repurchases.............................................. 103 245 82,053
Principal payments on equipment and facility loans......... (430) (1,166) (2,709)
Proceeds from equipment and facility loans................. 6,000 5,624 2,715
-------- -------- --------
Net cash provided by financing activities.................. 25,904 23,313 82,059
-------- -------- --------
Net increase (decrease) in cash and cash equivalents....... 584 10,202 14,900
Cash and cash equivalents at beginning of period........... 3,257 3,841 14,043
-------- -------- --------
Cash and cash equivalents at end of period................. $ 3,841 $ 14,043 $ 28,943
======== ======== ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Interest paid.............................................. $ 406 $ 733 $ 1,090
======== ======== ========
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING
ACTIVITIES
Exercise of stock options for notes receivable............. $ -- $ 398 $ 333
======== ======== ========
Common shares issued and contribution of capital in
consideration of services rendered....................... $ -- $ -- $ 222
======== ======== ========
</TABLE>
See accompanying notes.
F-6
<PAGE> 70
SYMYX TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION AND BUSINESS
Symyx Technologies, Inc. (the "Company"), was incorporated on September 20,
1994 in the state of California to research, develop, manufacture and market
products through the application of combinatorial technologies in the area of
materials science. In February 1999, the Company completed a reincorporation in
the state of Delaware. As a result, the accompanying financial statements have
been retroactively adjusted to reflect the issuance of $.001 par value preferred
stock and common stock. To date, the Company's operations have involved research
and development activities, a significant portion of which has been funded by
collaborative partners. The Company has had no revenues from product sales
through December 31, 1999.
On November 18, 1999, the Company completed an initial public offering of
its shares pursuant to which it issued 6,368,700 common shares for net proceeds
of approximately $81,420,000. Immediately prior to the closing of the initial
public offering, each outstanding share of preferred stock was converted to
common stock on a seven-for-nine shares basis.
On October 22, 1999, the stockholders approved a seven-for-nine reverse
split of the Company's common stock. All share and per share amounts in the
accompanying financial statements have been adjusted retroactively.
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. Actual
results could differ from these estimates.
CASH AND CASH EQUIVALENTS, SHORT-TERM AND LONG-TERM INVESTMENTS
The Company considers all highly liquid investments purchased with original
maturities of three months or less to be cash equivalents; investments with
maturities between three and twelve months from the date of purchase are
considered to be short-term investments; investments with maturities greater
than twelve months from the date of purchase are considered to be long-term
investments. By policy, the Company restricts its investments to instruments
with maturities of less than twenty-four months.
The Company invests its excess cash primarily in deposits with banks and
short-term and medium-term marketable securities. These investments primarily
include corporate notes, money market funds and U.S. treasury notes. By policy,
the Company restricts its investments to long-term bank obligations rated "A" or
higher and short-term obligations rated "P1" or higher by Moody's or "A1" or
higher by Standard & Poor's ("S&P"), and corporate obligations, including
intermediate term notes rated "A" or higher and commercial paper rated "P1" or
higher by Moody's, or "A1" or higher by S&P.
Management determines the appropriate classification of debt securities at
the time of purchase and reevaluates such determination as of each balance sheet
date. Through December 31, 1999, the Company has classified its entire
investment portfolio as available-
F-7
<PAGE> 71
SYMYX TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
for-sale. Available-for-sale securities are carried at fair value with
unrealized gains and losses reported as a separate component of stockholders'
equity. The estimated fair value amounts have been determined by the Company
using available market information and commonly used valuation methodologies.
The amortized cost of debt securities is adjusted for amortization of
premiums and accretion of discounts to maturity. Such amortization is included
in interest income. Realized gains and losses and declines in value judged to be
other-than-temporary on available-for-sale securities are also included in
interest income. The cost of securities sold is based on the specific
identification method. Interest and dividends are included in interest income.
The following is a summary of the fair value of available-for-sale
securities (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1998 1999
------- --------
<S> <C> <C>
Money market funds................................ $11,242 $ 9,994
U.S. Corporate securities......................... 21,268 107,745
------- --------
Total................................... $32,510 $117,739
======= ========
</TABLE>
Above amounts are included in the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1998 1999
------- --------
<S> <C> <C>
Cash and cash equivalents......................... $11,432 $ 27,412
Short-term investments............................ 9,339 21,533
Long-term investments............................. 11,739 68,794
------- --------
Total................................... $32,510 $117,739
======= ========
</TABLE>
Following is a reconciliation of cash and cash equivalents:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1998 1999
------- -------
<S> <C> <C>
Available-for-sale securities...................... $11,432 $27,412
Cash and bank accounts............................. 2,611 1,531
------- -------
Total cash and cash equivalents.......... $14,043 $28,943
======= =======
</TABLE>
Unrealized gains and losses are not material, and have, therefore, not been
shown separately; however, they have been included as a separate component in
the statement of stockholders' equity. Gross realized gains and losses on sales
of available-for-sale securities were immaterial.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation is computed on the
straight-line method using a life of three to five years. Leasehold improvements
are amortized over the shorter of the lease term or the estimated useful life of
the assets.
F-8
<PAGE> 72
SYMYX TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Property and equipment consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1998 1999
------- -------
<S> <C> <C>
Machinery and equipment............................ $ 7,128 $10,699
Computers and software............................. 1,469 2,736
Leasehold improvements............................. 10,413 11,030
Construction in progress........................... 347 5,981
Furniture and fixtures............................. 461 689
------- -------
19,818 31,135
Less accumulated depreciation and amortization..... (3,708) (7,256)
------- -------
Property and equipment, net........................ $16,110 $23,879
======= =======
</TABLE>
At December 31, 1998 and 1999, property and equipment collateralized was
$13,180,000 and $15,938,000 with accumulated depreciation of $3,060,000 and
$6,102,000, respectively.
REVENUE RECOGNITION
The Company recognizes revenues from research collaboration agreements and
government grants as earned based upon the performance requirements of the
agreements. Payments received prior to performance are deferred and recognized
as revenue when earned over future performance periods. Collaboration agreements
generally specify minimum levels of research effort required to be performed by
the Company. Payments received under research collaboration agreements are not
refundable if the research effort is not successful.
Non-refundable up-front payments received in connection with research and
development collaboration agreements, including technology access fees, are
deferred and recognized on a straight-line basis over the relevant periods
specified in the agreement, generally the research term.
RESEARCH AND DEVELOPMENT
Research and development expenditures, including direct and allocated
expenses, are charged to operations as incurred.
STOCK-BASED COMPENSATION
The Company generally grants stock options to its employees for a fixed
number of shares with an exercise price equal to the fair value of the shares on
the date of grant. As allowed under the Statement of Financial Accounting
Standards No. 123, "Accounting for Stock-Based Compensation" ("SFAS 123"), the
Company has elected to follow Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" ("APB 25") and related
interpretations in accounting for stock awards to employees. Accordingly, no
compensation expense is recognized in the Company's financial statements in
connection with stock options granted to employees with exercise prices not less
than fair value. Deferred compensation for options granted to employees is
determined as the
F-9
<PAGE> 73
SYMYX TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
difference between the deemed fair market value of the Company's common stock on
the date options were granted and the exercise price.
Deferred compensation for options granted to non-employees has been
determined in accordance with SFAS 123 as the fair value of the consideration
received or the fair value of the equity instruments issued, whichever is more
reliably measured. Deferred compensation for options granted to non-employees is
periodically re-measured as the underlying options vest.
NET LOSS PER SHARE
Basic and diluted net loss per common share are presented in conformity
with the Statement of Financial Accounting Standards No. 128, "Earnings per
Share," ("SFAS 128"), for all periods presented. Following the guidance given by
the Securities and Exchange Commission Staff Accounting Bulletin No. 98, common
stock and convertible preferred stock that has been issued or granted for
nominal consideration prior to the anticipated effective date of the initial
public offering must be included in the calculation of basic and diluted net
loss per common share as if these shares had been outstanding for all periods
presented. To date, the Company has not issued or granted shares for nominal
consideration.
In accordance with SFAS 128, basic and diluted net loss per share has been
computed using the weighted-average number of shares of common stock outstanding
during the period, less shares subject to repurchase. Pro forma basic and
diluted net loss per common share, as presented in the following table, has been
computed for the years ended December 31, 1998 and 1999 as described above, and
also gives effect to the conversion of the convertible preferred stock, which
converted to common stock immediately prior to the completion of the Company's
initial public offering, (using the if-converted method) from the original date
of issuance.
F-10
<PAGE> 74
SYMYX TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
The following table presents the calculation of basic, diluted, and pro
forma basic and diluted net loss per share (in thousands, except per share
data):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------
1997 1998 1999
------- ------- -------
<S> <C> <C> <C>
Net loss................................. $(5,596) $(8,155) $(2,147)
======= ======= =======
Basic and diluted:
Weighted-average shares of common stock
outstanding......................... 3,474 4,659 9,599
Less: weighted-average shares subject
to repurchase....................... (629) (830) (1,512)
------- ------- -------
Weighted-average shares used in
computing basic and diluted net loss
per share........................... 2,845 3,829 8,087
======= ======= =======
Basic and diluted net loss per share..... $ (1.97) $ (2.13) $ (0.27)
======= ======= =======
Pro forma:
Net loss............................... $(8,155) $(2,147)
======= =======
Shares used above...................... 3,829 8,087
Pro forma adjustment to reflect
weighted effect of assumed
conversion of convertible preferred
stock............................... 13,908 14,080
------- -------
Shares used in computing pro forma
basic and diluted net loss per
share............................... 17,737 22,167
======= =======
Pro forma basic and diluted net loss
per share........................... $ (0.46) $ (0.10)
======= =======
</TABLE>
The Company has excluded all convertible preferred stock, outstanding stock
options, and shares subject to repurchase from the calculation of diluted loss
per common share because all such securities are anti-dilutive for all
applicable periods presented. The total number of shares excluded from the
calculations of diluted net loss per share, prior to application of the treasury
stock method for options, was 15,558,813, 18,862,072 and 4,218,304 for the years
ended December 31, 1997, 1998 and 1999, respectively. Such securities, had they
been dilutive, would have been included in the computations of diluted net loss
per share. See Note 4 for further information on these securities.
COMPREHENSIVE INCOME (LOSS)
The Company has adopted Statement of Financial Accounting Standards No.
130, "Reporting Comprehensive Income". The only component of other comprehensive
income (loss) is unrealized gains and losses on available-for-sale securities.
Comprehensive loss has been disclosed in the statement of stockholders' equity
for all periods presented.
SEGMENT REPORTING
Effective January 1998, the Company adopted Statement of Financial
Accounting Standards No. 131, "Disclosure about Segments of an Enterprise and
Related
F-11
<PAGE> 75
SYMYX TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Information" ("SFAS 131"). SFAS 131 establishes annual and interim reporting
standards for an enterprise's operating segments and related disclosures about
its products, services, geographic areas and major customers. The Company has
determined that it operates in only one segment. Accordingly, the adoption of
this Statement had no impact on the Company's financial statements.
EFFECT OF NEW ACCOUNTING STANDARDS
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities" ("SFAS 133"), which will be effective for the year
ending 2001. This Statement establishes accounting and reporting standards
requiring that every derivative instrument, including certain derivative
instruments imbedded in other contracts, be recorded in the balance sheet as
either an asset or liability measured at its fair value. The Statement also
requires that changes in the derivative's fair value be recognized in earnings
unless specific hedge accounting criteria are met. In July 1999, the FASB issued
Statement of Financial Accounting Standards No. 137, "Accounting for Derivative
Instruments and Hedging Activities -- Deferral of the Effective Date of FASB
Statement No. 133." ("SFAS 137"). SFAS No. 137 deferred the effective date of
SFAS No. 133 until fiscal years beginning after June 15, 2000. We will adopt
SFAS No. 133 during our year ending December 31, 2001. To date, we have not
engaged in derivative or hedging activities. We are unable to predict the impact
of adopting SFAS No. 133 if we were to engage in derivative and hedging activity
in the future.
In March 1998, the American Institute of Certified Public Accountants
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. The adoption of SOP 98-1, as required in 1999,
resulted in the Company capitalizing $595,000 of software development costs
during the year ended December 31, 1999. The Company expenses as incurred the
costs associated with developing software for use in research and development
activities in accordance with Statement of Financial Accounting Standards No. 2,
"Accounting for Research and Development Costs" and related interpretations.
In December 1999, the Securities and Exchange Commission ("SEC") issued
Staff Accounting Bulletin No. 101 "Revenue Recognition" ("SAB 101"), which
provides guidance on the recognition, presentation and disclosure of revenue in
financial statements filed with the SEC. SAB 101 outlines the basic criteria
that must be met to recognize revenue and provides guidance for disclosures
related to revenue recognition policies. Management believes that the Company's
revenue recognition policy is in compliance with the provisions of SAB 101 and
that the adoption of SAB 101 will have no material effect on the financial
position or results of operations of the Company.
2. RESEARCH AND DEVELOPMENT ARRANGEMENTS
In March 1998, the Company entered into a collaboration agreement with
Bayer AG that was subsequently expanded in May 1998, January 1999 and September
1999. The January 1999 portion of the expanded collaboration is a new three year
agreement. The September 1999 amendment expands the term of the March 1998
agreement through
F-12
<PAGE> 76
SYMYX TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
December 2000. The agreements are noncancellable other than for material breach
or certain other conditions. The collaboration is focused on the discovery of
catalysts, polymers, and electronic materials, including x-ray phosphors. The
Company is responsible for performing research at levels defined in the
agreement, including synthesis, screening and informatics. Bayer is entitled to
develop and commercialize materials discovered in or under the collaboration
within the defined field. Under the terms of the expanded agreement, the Company
will receive $36,000,000 in guaranteed research funding and up to $60,000,000 if
extended through mutual agreement. Bayer makes quarterly research payments to
the Company in accordance with the collaboration agreement. In addition, in 1998
Bayer Innovation, a corporate venture fund of Bayer AG, made an investment of
$5,000,000 in the Company's Series D convertible preferred stock on the same
terms as other financial investors. The Company will also receive royalties or
milestone payments on the sale of any products developed out of the
collaboration. The agreement contains procedures by which the Company and Bayer
will determine royalty rates for the sale or license of products produced under
the agreement. During the years ending December 31, 1998 and 1999, the Company
recognized net revenue of $5,242,000 and $9,650,000, respectively, in connection
with this collaboration. Revenue in 1997 included $1,042,000 earned under a
related interim agreement with Bayer.
In September 1998, the Company entered into a three-year collaborative
research agreement with Celanese Ltd. ("Celanese"). The agreement is
noncancellable other than for material breach or in certain other conditions.
With sufficient notice, Celanese has the right to extend its period of
exclusivity with respect to the field of research covered by the agreement.
Symyx may receive up to $20,000,000 of research funding under the terms of this
agreement. The collaboration is focused on heterogeneous catalysis for commodity
chemical applications, a program that began as part of a February 1997 broad
research collaboration with Hoechst AG. The program was transferred from Hoechst
to its chemical and acetate products subsidiary, Celanese, in keeping with
Hoechst's decision to focus exclusively on life sciences. The Company is
responsible for performing research at levels defined in the agreement,
including synthesis, screening and informatics. Celanese is entitled to develop
and commercialize materials discovered in or under collaboration within the
defined field. The Company will receive royalties on the sale of any products
commercialized under this agreement. The agreement contains procedures by which
the Company and Celanese will determine royalty rates for the sale or license or
products under the agreement. During the year ended December 31, 1998 and 1999,
the Company recognized net revenue of $4,783,000 and $3,688,000, respectively,
in connection with the Celanese/Hoechst collaboration. The Company previously
had a collaboration with Hoechst pursuant to which approximately $3,667,000 of
research revenue was earned in 1997. Separately, in 1998 Hoechst's subsidiary,
Aventis Research and Technologies, made an equity investment of $1,800,000 in
the Company's Series D convertible preferred stock on the same terms as other
financial investors. Included in this amount was 51,993 shares of Series D
convertible preferred stock valued at $300,000 that was granted in consideration
for the transfer of certain rights to technology, the value of which was
included in research and development expense.
During 1998, the Company was awarded grants from the U.S. Office of Naval
Research Defense Advanced Research Projects Agency (DARPA) and the U.S.
Department of Energy. During the year ended December 31, 1999, the Company was
F-13
<PAGE> 77
SYMYX TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
awarded one additional grant from both the U.S. Office of Naval Research Defense
Advanced Research Projects Agency (DARPA) and the U.S. Department of Energy.
Under these collaboration arrangements, the Company will be reimbursed for
research costs over various periods as specified in the agreements. During the
years ended December 31, 1997, 1998 and 1999, revenue recognized in the
aggregate under these grants was approximately $60,000, $1,011,000 and,
$2,811,000, respectively.
In January 1999, the Company entered into a three-year collaboration
agreement with the Dow Chemical Company to develop polyolefin catalysts
primarily directed toward the identification of new catalyst systems for the
production of a wide range of plastic products. The agreement is noncancellable
other than for material breach or in certain other conditions. The Company is
responsible for performing research at levels defined in the agreement,
including synthesis screening and information. Dow is entitled to develop and
commercialize materials discovered in or under the collaboration within the
defined field. Under the terms of the agreement, the Company will receive
$18,000,000 in guaranteed research payments and fees, as well as royalties from
polyolefin products sales resulting from the collaboration. During the year
ended December 31, 1999, the Company has recognized $5,500,000 in connection
with this collaboration.
In December 1997, the Company entered into a six-month interim research
funding agreement with The B.F. Goodrich Company to research polymers. The
Company received $1,005,000 of research funding under the terms of this
agreement. In August 1998, the interim agreement was expanded to a two-year
collaborative research agreement. Under the terms of the expanded agreement, the
Company would receive $3,810,000 of research funding of which $1,417,000 was
received. The collaboration agreement was terminated by mutual agreement in
April 1999. In consideration of the early termination of the agreement, the
Company received $1,273,000 in three payments through December 1999, which were
recognized as revenue during the year ended December 31, 1999. During the years
ended December 31, 1998 and December 31, 1999 the Company recognized $1,722,000
and $1,935,000 respectively, in connection with the interim, collaboration and
termination agreements.
During 1998 and 1999, the Company entered into multiyear research
agreements with several additional corporations. Under these collaboration
agreements, the Company will receive research funding over various periods and
would be entitled to milestone payments or royalties for any products developed
out of the collaboration. Revenue recognized in aggregate under these
collaborations was approximately $1,029,000 and $6,913,000 during the years
ended December 31, 1998 and 1999, respectively.
3. FACILITY LEASE AND OTHER COMMITMENTS
The Company entered into an 11 year operating lease agreement for its
facility commencing February 1, 1997, with rent payments commencing July 1,
1998. In May 1999, the Company entered into an eight-and-a-half-year operating
lease agreement for an additional facility commencing October 1999.
F-14
<PAGE> 78
SYMYX TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Rent expense, which is being recognized on a straight-line basis over the
lease terms, was approximately $348,000, $308,000, and $426,000 for the years
ended December 31, 1997, 1998 and 1999, respectively. Future commitments under
the operating leases for the facilities are as follows (in thousands):
<TABLE>
<S> <C>
2000.............................................. $ 684
2001.............................................. 718
2002.............................................. 752
2003.............................................. 786
2004.............................................. 820
Thereafter........................................ 2,873
------
$6,633
======
</TABLE>
In connection with the build out of the Company's facility, the Company
entered into a loan and security agreement in January 1997 for up to $6,000,000
(of which $5,000,000 may be used for leasehold improvements). Amounts drawn
under the loan bear a weighted-average interest rate of 13.9%, have a term of 48
months and are secured by the building improvements financed. The Company issued
155,555 shares of common stock to the lender at $0.19 per share in January 1997
in connection with this arrangement. As of December 31, 1999, the Company has
drawn the full amount available under the arrangement.
In December 1998, the Company entered into loan and security arrangements
for up to $10,000,000 with Transamerica Business Credit and LMSI Venture
Finance. Amounts drawn under the loans will bear interest rates of approximately
8.5% to 10.0%, have a term of 48 months, and are secured by equipment financed
by proceeds under the agreements. Under these agreements, $5,624,000 was drawn
in 1998 and an additional $2,715,000 was drawn in 1999. Due to a partial
repayment of these loans during 1998 and 1999, the Company had available an
additional $3,740,000 at December 31, 1999.
Future principal payments under the loan agreements are as follows as of
December 31, 1999 (in thousands):
<TABLE>
<S> <C>
2000.................................................. $ 3,305
2001.................................................. 3,720
2002.................................................. 2,468
2003.................................................. 534
-------
Total principal payments.............................. $10,027
=======
</TABLE>
The carrying value of these loans approximates their fair value based on a
comparison to debt arrangements with similar terms and conditions.
4. STOCKHOLDERS' EQUITY
CONVERTIBLE PREFERRED STOCK
In September 1999, the board of directors approved an amendment to the
Company's articles of incorporation to authorize 10,000,000 shares of
undesignated preferred stock, for which the board of directors is authorized to
fix the designation, powers, preferences and
F-15
<PAGE> 79
SYMYX TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
rights and an increase in the authorized number of shares of common stock to
100,000,000 shares.
Immediately prior to closing of the initial public offering in November
1999, all 20,561,156 outstanding shares of Series A, B, C and D Convertible
preferred stock of the Company were converted into 15,991,849 shares of common
stock.
COMMON STOCK
Included in the common shares outstanding at December 31, 1998 and 1999 are
1,141,539 and 1,379,806 shares of common stock subject to repurchase rights,
which generally expire ratably over four or five years from date of issuance.
Certain of these shares were issued pursuant to full-recourse notes receivable,
which bear interest at rates between 4.6% and 6.0% per annum and are due and
payable on the earlier of 120 days after termination of the participant's
employment with the Company, or on various dates beginning in February 2003. In
1998, the Company sold 525,000 shares of common stock to its Chief Executive
Officer concurrent with the commencement of his employment. The shares are
subject to the Company's right of repurchase, in the event of termination, which
lapses over a four year period.
As of December 31, 1999, the Company has reserved 3,711,353 shares of
common stock for future issuance in relation to the Company's Stock option
plans.
STOCK OPTION PLANS
The Company's 1996 Stock Option Plan was adopted in March 1996 and provided
for the issuance of options for up to 1,153,444 shares of common stock to
employees and consultants.
During 1997, the Company's board of directors approved the adoption of the
1997 Stock Option Plan with terms and conditions the same as those of the 1996
Stock Option Plan (collectively, the "Plans"). The 1997 Stock Option Plan
provides for the issuance of options for up to 5,346,556 shares of common stock
to employee and consultants. In October 1999, the Company's stockholders
approved an annual increase, beginning in fiscal year 2000, in the number of
shares of common stock reserved for issuance under the 1997 Stock Plan equal to
the lesser of 1,500,000 shares, 4% of the outstanding shares on the date of the
annual increase, or a lesser amount as determined by the board of directors.
Stock options granted under the Plans may be either incentive stock options
or nonstatutory stock options. Incentive stock options may be granted to
employees with exercise prices of no less than the fair value and nonstatutory
options may be granted to employees or consultants at exercise prices of no less
than 85% of the fair value of the common stock on the grant date, as determined
by the board of directors. The options expire no more than 10 years after the
date of grant or earlier if employment or relationship as a director or
consultant is terminated. If, at the time the Company grants an option, the
optionee owns stock representing more than 10% of the total combined voting
power of all classes of stock of the Company, the option price shall be at least
110% of the fair value on the date of grant and shall not be exercisable more
than five years after the date of grant. The board of directors shall determine
the times during the term when the options may be exercised and the number of
shares for which an option may be
F-16
<PAGE> 80
SYMYX TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
granted. Options may be granted with different vesting terms from time to time
but will provide for annual vesting of at least 20% of the total number of
shares subject to the option. The Company allows early exercise of options,
subject to repurchase rights until such options are fully vested.
A summary of activity under the Stock Option Plans is as follows:
<TABLE>
<CAPTION>
OUTSTANDING STOCK OPTIONS
-----------------------------------------
WEIGHTED-
AVERAGE
NUMBER OF EXERCISE EXERCISE
SHARES PRICE PRICE
---------- -------------- ---------
<S> <C> <C> <C>
Balance at December 31, 1996.... 892,218 $0.01 - $ 0.19 $0.19
Options granted................. 1,611,997 $0.19 - $ 0.39 $0.32
Options exercised............... (315,643) $0.01 - $ 0.39 $0.23
Options canceled................ (46,988) $ 0.19 $0.19
----------
Balance at December 31, 1997.... 2,141,584 $0.01 - $ 0.39 $0.28
Options granted................. 1,205,430 $0.39 - $ 0.96 $0.71
Options exercised............... (1,162,909) $0.19 - $ 0.96 $0.28
Options canceled................ (229,885) $0.19 - $ 0.58 $0.26
----------
Balance at December 31, 1998.... 1,954,220 $0.19 - $ 0.96 $0.54
Options granted................. 2,209,817 $0.96 - $33.00 $7.50
Options exercised............... (1,071,580) $0.19 - $12.00 $0.93
Options canceled................ (253,959) $0.19 - $ 1.93 $0.64
----------
Balance at December 31, 1999.... 2,838,498 $0.19 - $33.00 $5.80
==========
</TABLE>
At December 31, 1998 and 1999, vested and outstanding options for 282,412,
and 580,476 shares were exercisable at weighted-average exercise prices of
$0.35, and $1.84, respectively. The weighted-average grant date fair value of
options granted during the years ended December 31, 1997, 1998 and 1999 was
$0.16, $0.35, and $4.01, respectively. At December 31, 1999, options for shares
of common stock available for future grants under the 1997 Stock Option Plan are
872,855.
An analysis of options outstanding at December 31, 1999 is as follows:
<TABLE>
<CAPTION>
OPTIONS VESTED
WEIGHTED- -----------------------------
OPTIONS AVERAGE WEIGHTED- OPTIONS
OUTSTANDING AT REMAINING AVERAGE VESTED AT WEIGHTED-
EXERCISE DECEMBER 31, CONTRACTUAL EXERCISE PRICE DECEMBER 31, AVERAGE
PRICE 1999 LIFE (IN YEARS) 1999 EXERCISE PRICE
- -------------- -------------- ----------- -------------- ------------ --------------
<S> <C> <C> <C> <C> <C>
$ 0.19 - $ 0.39 556,900 7.40 $ 0.32 175,223 $ 0.19
$ 0.58 - $ 0.96 542,286 8.66 $ 0.96 296,484 $ 0.38
$ 1.93 - $ 6.43 695,268 9.24 $ 3.73 67,051 $ 0.58
$11.57 - $12.00 1,003,156 9.66 $11.97 41,718 $ 0.96
$23.50 - $33.00 40,888 9.78 $28.59 -- $28.59
--------- -------
2,838,498 8.92 $ 5.80 580,476 $ 1.84
========= =======
</TABLE>
F-17
<PAGE> 81
SYMYX TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Pro forma net loss information is required by SFAS 123, computed as if the
Company had accounted for its employee stock options granted under the fair
value method of that Statement. The fair value for options granted prior to the
Company's initial public offering in November 1999 were estimated at the date of
grant using the minimum value method with the following weighted-average
assumptions listed below. Options granted following the Company's November 1999
initial public offering have been valued using the Black-Scholes method with an
expected stock volatility of 0.7 and the weighted-average assumptions:
<TABLE>
<CAPTION>
1997 1998 1999
------- ------- ---------
<S> <C> <C> <C>
Expected dividend yield.................. 0% 0% 0%
Risk-free interest rate.................. 6.11% 5.25% 5.5%
Expected life............................ 5 years 5 years 3.5 years
</TABLE>
Had the Company valued its stock options according to the fair value
provisions of SFAS 123, pro forma net income (loss) and pro forma net income
(loss) per share would have been as follows (in thousands):
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------
1997 1998 1999
------- ------- -------
<S> <C> <C> <C>
Net income (loss):
As reported.................................... $(5,596) $(8,155) $(2,147)
======= ======= =======
Pro forma for SFAS 123......................... $(5,640) $(8,226) $(3,031)
======= ======= =======
Basic and diluted net income (loss) per share:
As reported.................................... $ (1.97) $ (2.13) $ (0.27)
======= ======= =======
Pro forma for SFAS 123......................... $ (1.98) $ (2.15) $ (0.37)
======= ======= =======
</TABLE>
During the years ended December 31, 1998 and 1999, in connection with the
grant of certain share options to employees, the Company recorded deferred stock
compensation of $605,000 and $4,070,000, respectively, representing the
difference between the exercise price and the deemed fair value of the Company's
common stock on the date such stock options were granted. During the years ended
December 31, 1998 and 1999, the Company also recorded deferred compensation with
respect to stock options granted to consultants totaling $155,000 and
$1,502,000, respectively. Options granted to consultants are generally variable
awards and are revalued at the end of each accounting period in accordance with
SFAS 123 and EITF 96-18 using a Black-Scholes model and the following
weighted-average assumptions for 1998 and 1999: estimated volatility between 0.5
and 0.7, risk-free interest rate of 5.0%, no dividend yield; and an expected
life of the option equal to the full term, generally ten years from the date of
grant. The resulting values are charged to expense as they are earned. Deferred
compensation is included as a reduction of stockholders' equity and is being
amortized to expense on a graded vesting method. During the years ended December
31, 1998 and 1999, the Company recorded amortization of deferred stock
compensation expense of approximately $188,000 and $3,794,000, respectively. At
December 31, 1999, the Company had a total of approximately $2.1 million
remaining to be amortized over the corresponding vesting period of each
respective option, generally five years.
F-18
<PAGE> 82
SYMYX TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
The amortization of deferred stock compensation, combined with the expense
associated with stock options granted to non-employees, relates to the following
items in the accompanying statements of operations (in thousands):
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------
1997 1998 1999
----- ----- -------
<S> <C> <C> <C>
Research and development....................... $-- $173 $2,664
General and administrative..................... -- 15 1,130
--- ---- ------
Total................................ $-- $188 $3,794
=== ==== ======
</TABLE>
STOCK PURCHASE PLAN
In October 1999, the Company's stockholders approved the adoption of the
1999 Employee Stock Purchase Plan (the "Purchase Plan"). A total of 300,000
shares of the Company's common stock have been reserved for issuance under the
Purchase Plan. The Purchase Plan permits eligible employees to purchase common
stock at a discount, but only through payroll deductions, during concurrent
24-month offering periods. Each offering period will be divided into four
consecutive six-month purchase periods. The price at which stock is purchased
under the Purchase Plan is equal to 85% of the fair market value of the common
stock on the first or last day of the offering period, whichever is lower. The
initial offering period commenced on November 18, 1999. In addition, the
Purchase Plan provides for annual increases in the number of shares available
for issuance under the Purchase Plan on the first day of each fiscal year,
beginning with fiscal 2000, equal to the lessor of 1% of the outstanding shares
of common stock on the first day of the fiscal year, 350,000 shares, or a lesser
amount as determined by the board of directors.
5. INCOME TAXES
Due to operating losses and the inability to recognize the benefits
therefrom, there is no provision for income taxes for the years ended December
31, 1997, 1998 and 1999.
As of December 31, 1999, the Company had a federal net operating loss
carryforward of approximately $11.3 million. The Company also had federal
research and development credit carryforwards of approximately $600,000 The net
operating loss and credit carryforwards will expire at various dates beginning
in 2010 through 2019, if not utilized.
Utilization of the net operating losses and credits may be subject to a
substantial annual limitation due to the "change in ownership" provisions of the
Internal Revenue Code of 1986 and similar state provisions. The annual
limitation may result in the expiration of net operating losses and credits
before utilization.
F-19
<PAGE> 83
SYMYX TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Deferred tax assets and liabilities reflect the net tax effects of net
operating loss and credit carryforwards and of temporary differences between the
carrying amounts of assets and liabilities for financial reporting and the
amounts used for income tax purposes. Significant components of the Company's
deferred tax assets and liabilities are as follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1998 1999
------- -------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards................... $ 5,800 $ 4,000
Tax credit carryforwards........................... 800 1,500
Deferred revenue................................... -- 600
Capitalized research and development............... 300 200
Other.............................................. 500 700
------- -------
Total deferred tax assets.......................... 7,400 7,000
Valuation allowance for deferred tax assets........ (7,400) (7,000)
------- -------
Net deferred tax assets............................ $ -- $ --
======= =======
</TABLE>
SFAS No. 109 provides for the recognition of deferred tax assets if
realization of such assets is more likely than not. Based upon the weight of
available evidence, which includes the Company's historical operating
performance and the reported cumulative net losses in all prior year, the
Company has provided a full valuation allowance against its net deferred tax
assets.
The net valuation allowance increased by $1,200,000 and $4,000,000 during
the years ended December 31, 1997 and 1998, respectively.
6. RELATED PARTY TRANSACTIONS
The Company has implemented a program under which directors, executive
officers and certain other employees are permitted to purchase restricted stock
or to exercise stock options pursuant to full recourse promissory notes. The
notes bear interest between 4.6% and 6.0% per annum and are due and payable on
the earlier of 120 days after termination of employment or on various dates
beginning February 2003. In 1998 and 1999, loans were made in the amount of
$397,750 and $333,600, respectively, pursuant to this program. In addition, in
1998, the Company loaned $300,000 to an officer in connection with certain
relocation expenses. The loan was repaid in full in July 1999.
7. SUBSEQUENT EVENTS (UNAUDITED)
In January 2000 the Company signed a strategic collaboration with PE
Biosystems, a PE Corporation business, to develop the Company's proprietary
polymer synthesis materials and methods for use in the analysis of DNA. This
collaboration is the first to result from the Company's internal efforts to
discover, develop and commercialize proprietary materials in the areas of
specialty polymers, fine chemical catalysts and electronic materials. Under the
collaboration agreement, the Company and PE Biosystems will jointly design
polymers as well as the methods and instrumentation for screening those
polymers. Also, under the terms of the two year agreement, the Company will
receive
F-20
<PAGE> 84
SYMYX TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
payments for development funding and late stage licensing royalties on any
products commercialized as a result of this collaboration. In addition, the
Company received a payment for the transfer of existing development compounds.
In February 2000, the Company exercised an option to license certain patent
rights and know-how relating to synthesis and screening of diverse materials in
connection with combinatorial materials science research. Symyx paid an amount
of $750,000 and issued 16,262 shares of common stock to acquire these rights.
The License Agreement also provides for Symyx to pay up to an additional
$1,500,000 subject to the achievement of certain milestones. The exercise of
this option will be accounted for as an acquisition of technology and the
associated costs will be amortized over the expected useful life of the
technology.
In February 2000, the Company entered into an agreement to lease an
additional approximately 36,500 square feet of office space in Sunnyvale,
California. The lease will commence on October 1, 2000 and has an initial term
of ten years with an option to extend the initial term for an additional five
years. The base rent will commence at approximately $91,000 per month and
escalate to approximately $130,000 per month over the initial term of the lease.
F-21
<PAGE> 85
LOGO
<PAGE> 86
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth all fees and expenses payable by Symyx in
connection with the registration of the common stock hereunder. All of the
amounts shown are estimates except for the SEC registration fee, the NASD filing
fee and the Nasdaq National Market listing fee.
<TABLE>
<CAPTION>
AMOUNT TO
BE PAID
---------
<S> <C>
SEC Registration Fee........................................ $ 47,490
NASD Filing Fee............................................. 18,489
Nasdaq National Market Filing Fee........................... 17,500
Printing and Engraving Expenses............................. 150,000
Legal Fees and Expenses..................................... 150,000
Accounting Fees and Expenses................................ 75,000
Transfer Agent and Registrar Fees and Expenses.............. 25,000
Miscellaneous Expenses...................................... 16,521
--------
Total............................................. $500,000
========
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the Delaware General Corporation Law allows for the
indemnification of officers, directors and any corporate agents in terms
sufficiently broad to indemnify such persons under certain circumstances for
liabilities (including reimbursement for expenses incurred) arising under the
Securities Act. Our certificate of incorporation and our bylaws provide for
indemnification of our directors, officers, employees and other agents to the
extent and under the circumstances permitted by the Delaware General Corporation
Law. We have also entered into agreements with our directors and executive
officers that require Symyx, among other things, to indemnify them against
certain liabilities that may arise by reason of their status or service as
directors and executive officers to the fullest extent permitted by Delaware
law. We have also purchased directors and officers liability insurance, which
provides coverage against certain liabilities including liabilities under the
Securities Act.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
(a) Within the last three years, and through March 3, 2000, we have issued
and sold the following unregistered securities:
(1) Since our inception, we have issued and sold an aggregate of
4,694,330 shares of common stock to the founding officers and directors of
Symyx and to certain other individuals at purchase prices ranging from
$0.001 to $14.00 per share.
(2) Since our inception, we have granted options to purchase 7,441,898
shares of common stock to employees, directors and consultants under our
1996 and 1997 stock plans at exercise prices ranging from $0.01 to $62.63
per share. Of the 7,441,898 shares granted, 4,025,772 remain outstanding,
2,821,912 shares of common
II-1
<PAGE> 87
stock have been purchased pursuant to exercises of stock options and
594,214 shares have been canceled and returned to the 1996 and 1997 stock
plans.
(3) In February 1996, we sold 1,000,000 shares of Series A preferred
stock at a price of $0.50 per share to one investor.
(4) In May 1996, we sold an aggregate of 8,600,687 shares of Series B
preferred stock at a price of $1.50 per share to approximately 101
investors.
(5) In July 1997, we sold an aggregate of 6,750,284 shares of Series C
preferred stock at a price of $3.00 per share to approximately 108
investors.
(6) In March, April, October and November 1998, we sold an aggregate
of 4,210,185 shares of Series D preferred stock at a price of $4.50 per
share to approximately 74 investors.
The sales and issuances of securities in the transactions described above
were deemed to be exempt from registration under the Securities Act in reliance
upon Section 4(2) of the Securities Act, Regulation D promulgated thereunder or
Rule 701 promulgated under Section 3(b) of the Securities Act, as transactions
by an issuer not involving any public offering or transactions pursuant to
compensatory benefit plans and contracts relating to compensation as provided
under Rule 701. The recipients of securities in each transaction represented
their intentions to acquire the securities for investment only and not with a
view to or for sale in connection with any distribution thereof and appropriate
legends were affixed to the securities issued in such transactions. All
recipients had adequate access, through their relationship with Symyx, to
information about us.
(b) There were no underwritten offerings employed in connection with any of
the transactions set forth in Item 15(a).
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- ------- -----------------------
<C> <S>
O1.1 Form of Underwriting Agreement
#3.1 Amended and Restated Certificate of Incorporation
+3.2 Amended and Restated Bylaws of Symyx
*4.1 Specimen Common Stock Certificate
O5.1 Opinion of Wilson Sonsini Goodrich & Rosati, Professional
Corporation
*10.1 Restated Investors Rights Agreement dated March 27, 1998
*10.2 1996 Stock Plan and forms of agreements thereunder
*10.3 1997 Stock Plan and forms of agreements thereunder
*10.4 1999 Employee Stock Purchase Plan
*10.5 Form of Director and Executive Officer Indemnification
Agreement
*10.6 Form of Change of Control Agreement between Symyx and the
following individuals: Steven D. Goldby, Isy Goldwasser,
Jeryl L. Hilleman, and W. Henry Weinberg
*10.7 Standard Industrial/Commercial Single-Tenant Lease dated
November 15, 1996 between Symyx and Patrick and Bette Ng,
Co-Trustees for The Ng Living Trust, for office space
located at 3100 Central Expressway, Santa Clara, California,
and addenda and inserts thereto
*10.7(a) First Amendment to Lease between Symyx and Patrick and Bette
Ng, Co-Trustees for The Ng Living Trust
</TABLE>
II-2
<PAGE> 88
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- ------- -----------------------
<C> <S>
*10.8 Collaboration Agreement dated March 1, 1998 between Symyx
and Bayer AG
*10.8(a) Amendment No. 1 dated May 1, 1998 to Collaboration Agreement
between Symyx and Bayer AG
*10.8(b) Amendment No. 2 dated November 1, 1998 to Collaboration
Agreement between Symyx and Bayer AG
*10.8(c) Amendment No. 3 dated January 1, 1999 to Collaboration
Agreement between Symyx and Bayer AG
*10.8(d) Amendment No. 4 dated September 15, 1999 to Collaboration
Agreement between Symyx and Bayer AG
*10.9 Celanese-Symyx Collaboration Agreement dated August 1, 1998
between Symyx and Celanese Ltd.
*10.10 Collaborative Research and License Agreement dated January
1, 1999 between Symyx and The Dow Chemical Company
*10.11 License Agreement dated June 22, 1995 between Symyx and
Lawrence Berkeley Laboratory, on behalf of The Regents of
the University of California
*10.12 License and Supply Agreement effective August 6, 1999
between Symyx and Argonaut Technologies, Inc.
23.1 Consent of Ernst & Young LLP, Independent Auditors
O23.2 Consent of Counsel (included in exhibit 5.1)
24.1 Power of Attorney (see page II-5)
</TABLE>
- -------------------------
O To be filed by amendment.
# Incorporated by reference to exhibit 3.1(b) filed with Registrant's
Registration Statement on Form S-1 (File No. 333-87453), as amended.
+ Incorporated by reference exhibit 3.2(b) filed with Registrant's Registration
Statement on Form S-1 (File No. 333-87453), as amended.
* Incorporated by reference to the same number exhibit filed with Registrant's
Registration Statement on Form S-1 (File No. 333-87453), as amended.
(b) FINANCIAL STATEMENT SCHEDULES
All schedules for which provision is made in the applicable accounting
regulations of the Securities and Exchange Commission are not required under the
related instructions or are inapplicable, and therefore have been omitted.
ITEM 17. UNDERTAKINGS
Insofar as indemnification by Symyx for liabilities arising under the
Securities Act may be permitted to directors, officers and controlling persons
of Symyx, we have been advised that in the opinion of the Securities and
Exchange Commission, such indemnification is against public policy as expressed
in the Securities Act and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
Symyx of expenses incurred or paid by a director, officer or controlling person
of Symyx in the successful defense of any action, suit or proceeding) is
asserted by a director, officer or controlling person in connection with the
securities being registered, we will, unless in the opinion of our counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by Symyx is
against public policy as expressed in the Securities Act and will be governed by
the final adjudication of such issue.
II-3
<PAGE> 89
We hereby undertake that:
(a) For purposes of determining any liability under the Securities
Act, the information omitted from the form of prospectus filed as part of a
registration statement in reliance upon Rule 430A and contained in the form
of prospectus filed by Symyx pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act shall be deemed to be part of the registration
statement as of the time it was declared effective.
(b) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
II-4
<PAGE> 90
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
Symyx Technologies, Inc. has duly caused this Registration Statement on Form S-1
to be signed on its behalf by the undersigned, thereunto duly authorized, in the
City of Santa Clara, State of California, on the 14th day of March, 2000.
SYMYX TECHNOLOGIES, INC.
By: /s/ STEVEN D. GOLDBY
-----------------------------------
Steven D. Goldby
Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE POWER OF ATTORNEY PRESENTS, that each person
whose signature appears below hereby constitutes and appoints Steven D. Goldby
and Jeryl L. Hilleman, and each of them acting individually, as his or her true
and lawful attorneys-in-fact and agents, each with full power of substitution,
for him or her in any and all capacities, to sign any and all amendments to this
Registration Statement (including post-effective amendments or any abbreviated
registration statement and any amendments thereto filed pursuant to Rule 462(b)
increasing the number of securities for which registration is sought), and to
file the same, with exhibits thereto and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents, with full power of each to act alone, full power
and authority to do and perform each and every act and thing requisite and
necessary to be done in connection therewith, as fully for all intents and
purposes as he or she might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents, or his or their
substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended this
Registration Statement on Form S-1 has been signed by the following persons in
the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <C> <S>
/s/ STEVEN D. GOLDBY Chief Executive Officer and March 14, 2000
- --------------------------------------------- Chairman of the Board
Steven D. Goldby (Principal Executive Officer)
/s/ JERYL L. HILLEMAN Senior Vice President and March 14, 2000
- --------------------------------------------- Chief Financial Officer
Jeryl L. Hilleman (Principal Financial and
Accounting Officer)
/s/ THOMAS R. BARUCH Director March 14, 2000
- ---------------------------------------------
Thomas R. Baruch
Director
- ---------------------------------------------
Samuel D. Colella
</TABLE>
II-5
<PAGE> 91
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <C> <S>
/s/ MARTIN GERSTEL Director March 14, 2000
- ---------------------------------------------
Martin Gerstel
/s/ BARON GAULTHAUS KRAIJENHOFF Director March 14, 2000
- ---------------------------------------------
Baron Gaulthaus Kraijenhoff
/s/ FRANCOIS A. L'EPLATTENIER Director March 14, 2000
- ---------------------------------------------
Francois A. L'Eplattenier
/s/ KENNETH J. NUSSBACHER Director March 14, 2000
- ---------------------------------------------
Kenneth J. Nussbacher
/s/ MARIO M. ROSATI Director March 14, 2000
- ---------------------------------------------
Mario M. Rosati
/s/ PETER G. SCHULTZ Director March 14, 2000
- ---------------------------------------------
Peter G. Schultz
/s/ ISAAC STEIN Director March 14, 2000
- ---------------------------------------------
Isaac Stein
</TABLE>
II-6
<PAGE> 92
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- ------- -----------------------
<C> <S>
O1.1 Form of Underwriting Agreement
#3.1 Amended and Restated Certificate of Incorporation
+3.2 Amended and Restated Bylaws of Symyx
*4.1 Specimen Common Stock Certificate
O5.1 Opinion of Wilson Sonsini Goodrich & Rosati, Professional
Corporation
*10.1 Restated Investors Rights Agreement dated March 27, 1998
*10.2 1996 Stock Plan and forms of agreements thereunder
*10.3 1997 Stock Plan and forms of agreements thereunder
*10.4 1999 Employee Stock Purchase Plan
*10.5 Form of Director and Executive Officer Indemnification
Agreement
*10.6 Form of Change of Control Agreement between Symyx and the
following individuals: Steven D. Goldby, Isy Goldwasser,
Jeryl L. Hilleman, and W. Henry Weinberg
*10.7 Standard Industrial/Commercial Single-Tenant Lease dated
November 15, 1996 between Symyx and Patrick and Bette Ng,
Co-Trustees for The Ng Living Trust, for office space
located at 3100 Central Expressway, Santa Clara, California,
and addenda and inserts thereto
*10.7(a) First Amendment to Lease between Symyx and Patrick and Bette
Ng, Co-Trustees for The Ng Living Trust
*10.8 Collaboration Agreement dated March 1, 1998 between Symyx
and Bayer AG
*10.8(a) Amendment No. 1 dated May 1, 1998 to Collaboration Agreement
between Symyx and Bayer AG
*10.8(b) Amendment No. 2 dated November 1, 1998 to Collaboration
Agreement between Symyx and Bayer AG
*10.8(c) Amendment No. 3 dated January 1, 1999 to Collaboration
Agreement between Symyx and Bayer AG
*10.8(d) Amendment No. 4 dated September 15, 1999 to Collaboration
Agreement between Symyx and Bayer AG
*10.9 Celanese-Symyx Collaboration Agreement dated August 1, 1998
between Symyx and Celanese Ltd.
*10.10 Collaborative Research and License Agreement dated January
1, 1999 between Symyx and The Dow Chemical Company
*10.11 License Agreement dated June 22, 1995 between Symyx and
Lawrence Berkeley Laboratory, on behalf of The Regents of
the University of California
*10.12 License and Supply Agreement effective August 6, 1999
between Symyx and Argonaut Technologies, Inc.
23.1 Consent of Ernst & Young LLP, Independent Auditors
O23.2 Consent of Counsel (included in exhibit 5.1)
24.1 Power of Attorney (see page II-5)
</TABLE>
- -------------------------
O To be filed by amendment.
# Incorporated by reference to exhibit 3.1(b) filed with Registrant's
Registration Statement on Form S-1 (File No. 333-87453), as amended.
+ Incorporated by reference exhibit 3.2(b) filed with Registrant's Registration
Statement on Form S-1 (File No. 333-87453), as amended.
* Incorporated by reference to the same number exhibit filed with Registrant's
Registration Statement on Form S-1 (File No. 333-87453), as amended.
<PAGE> 1
EXHIBIT 23.1
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the reference to our firm under the captions "Selected
Financial Data" and "Experts" and to the use of our report dated January 28,
2000, in the Registration Statement (Form S-1) and related Prospectus of Symyx
Technologies, Inc. for the registration of 3,162,500 shares of its common stock.
/s/ Ernst & Young LLP
Palo Alto, California
March 15, 2000
