<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 7, 1997
REGISTRATION NO. 333-
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- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
----------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------------
CYTYC CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 3826 02-0407755
(STATE OR OTHER (PRIMARY STANDARD (I.R.S.
JURISDICTION OF INDUSTRIAL EMPLOYER IDENTIFICATION
INCORPORATION OR CLASSIFICATION CODE NUMBER)
ORGANIZATION) NUMBER)
85 SWANSON ROAD
BOXBOROUGH, MA 01719
(508) 263-8000
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
----------------
PATRICK J. SULLIVAN
PRESIDENT AND CHIEF EXECUTIVE OFFICER
CYTYC CORPORATION 85
SWANSON ROAD BOXBOROUGH, MA 01719
(508) 263-8000
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
----------------
COPIES TO:
JONATHAN M. MOULTON, ESQ. ELLEN B. CORENSWET, ESQ.
MINNIE P. JOUNG, ESQ. ALAN P. BLAUSTEIN, ESQ.
TESTA, HURWITZ & THIBEAULT, LLP BROBECK, PHLEGER & HARRISON LLP
HIGH STREET TOWER, 125 HIGH STREET 1633 BROADWAY
BOSTON, MASSACHUSETTS 02110 NEW YORK, NEW YORK 10019
(617) 248-7000 (212) 581-1600
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this registration statement becomes effective.
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act of 1933, please check the
following box and list the Securities Act registration 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 of 1933, check the following box and list the
Securities Act registration 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
under the Securities Act of 1933, check the following box. [_]
----------------
CALCULATION OF REGISTRATION FEE
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<TABLE>
<CAPTION>
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE PER AGGREGATE OFFERING AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED(1) SHARE(2) PRICE(2) REGISTRATION FEE(2)
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, $0.01 par value... 3,450,000 $26.375 $90,993,750 $27,574
- -----------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------
</TABLE>
(1) Includes 450,000 shares which the Underwriters have the option to purchase
from the Company to cover over-allotments, if any.
(2) Estimated solely for the purpose of calculating the amount of the
registration fee in accordance with Rule 457(c) of the Securities Act of
1933 based upon the average of the high and low prices of the Common Stock
as reported on the Nasdaq National Market on January 6, 1997.
----------------
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>
SUBJECT TO COMPLETION, DATED JANUARY 7, 1997
LOGO
3,000,000 SHARES
COMMON STOCK
Of the 3,000,000 shares of Common Stock offered hereby, 2,000,000 shares are
being offered for sale by Cytyc Corporation ("Cytyc" or the "Company") and
1,000,000 shares are being offered for sale by the Selling Stockholders. The
Company will not receive any of the proceeds from the sale of shares by the
Selling Stockholders. See "Principal and Selling Stockholders." On January 6,
1997, the last reported sale price for the Common Stock, as reported on the
Nasdaq National Market, was $25.75 per share. See "Price Range of Common
Stock." The Common Stock is traded on the Nasdaq National Market under the
symbol "CYTC."
-----------
THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK. SEE "RISK
FACTORS" BEGINNING ON PAGE 7.
-----------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
UNDERWRITING PROCEEDS TO
PRICE TO DISCOUNTS AND PROCEEDS TO SELLING
PUBLIC COMMISSIONS COMPANY(1) STOCKHOLDERS(1)
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per Share................... $ $ $ $
- --------------------------------------------------------------------------------
Total(2).................... $ $ $ $
</TABLE>
- --------------------------------------------------------------------------------
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(1) Before deducting expenses payable by the Company estimated at $500,000.
(2) The Company has granted the Underwriters a 30-day option to purchase up to
an additional 450,000 shares of Common Stock solely to cover over-
allotments, if any. See "Underwriting." If such option is exercised in
full, the total Price to Public, Underwriting Discounts and Commissions and
Proceeds to Company will be $ , $ and $ , respectively.
-----------
The Common Stock is offered by the Underwriters as stated herein, subject to
receipt and acceptance by them and subject to their right to reject any order
in whole or in part. It is expected that delivery of such shares will be made
through the offices of Robertson, Stephens & Company LLC ("Robertson, Stephens
& Company"), San Francisco, California, on or about , 1997.
ROBERTSON, STEPHENS & COMPANY
MONTGOMERY SECURITIES
PIPER JAFFRAY INC.
The date of this Prospectus is , 1997
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF
ANY SUCH STATE.
<PAGE>
[Inside Front Cover]
[Heading "ThinPrep (R) 2000 Sample Preparation System" above a box containing
photographs of the ThinPrep 2000 Processor, a PreservCyt Solution vial and
a diagram of the Company's patented filtration process. The box contains
the following text:]
The ThinPrep System has been approved by the United States Food and Drug
Administration for cervical cancer screening as a replacement for the
conventional Pap smear.
The ThinPrep System employs a fluid-based collection method in which
the patient's cervical sample is deposited into preservative solution by
the health care provider. Once in the laboratory, the patient's sample
is placed in the ThinPrep 2000 Processor, which gently agitates the
solution to separate mucus, blood and debris from the cervical cells.
The ThinPrep 2000 Processor utilizes a patented filtration process to
produce a thin, uniform layer of cells that are deposited on a glass
slide. The Company believes that the result is optimal cell preservation
and preparation consistency.
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK OF
THE COMPANY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ NATIONAL MARKET OR
OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
IN CONNECTION WITH THIS OFFERING, CERTAIN UNDERWRITERS AND SELLING GROUP
MEMBERS OR THEIR AFFILIATES MAY ENGAGE IN PASSIVE MARKET TRANSACTIONS IN THE
COMMON STOCK OF THE COMPANY ON THE NASDAQ NATIONAL MARKET IN ACCORDANCE WITH
RULE 10b-6A UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. SEE
"UNDERWRITING."
<PAGE>
[Inside Gatefold]
[Centered over the gatefold is the following text:
"A medical professional examines cells on the microscope slide for
precancerous signs, indicated by the presence of subtle changes in cell
shape, size and structure"]
[Left side of gatefold includes photographs of the conventional Pap smear under
magnification (400x) and in a tray of slides, along with the following
text:
Pap Smear Slide
With the conventional Pap smear method, cells can be damaged by air
drying or obscured by mucus, blood and nondiagnostic debris.
A tray of conventional Pap smear slides ready for microscopic
examination by a medical professional. The conventional Pap smear method
results in significant variability from slide to slide.
[Right side of gatefold has the heading:
"ThinPrep(R) Slide" and has photographs of a ThinPrep slide under
magnification (400x) and a tray of ThinPrep slides, along with the
following text:
ThinPrep(R) Slide
The ThinPrep System preserves the cells and minimizes cell overlap, mucus,
blood and nondiagnostic debris.
A tray of ThinPrep prepared slides ready for microscopic examination by a
medical professional. Automated control of the preparation process provides
slide uniformity and standardization.
<PAGE>
NO DEALER, SALES REPRESENTATIVE OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO
GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS IN CONNECTION WITH THIS
OFFERING OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR MADE,
SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY OR ANY UNDERWRITER. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, ANY
SECURITIES OTHER THAN THE REGISTERED SECURITIES TO WHICH IT RELATES OR AN
OFFER TO, OR SOLICITATION OF, ANY PERSON IN ANY JURISDICTION IN WHICH SUCH AN
OFFER OR SOLICITATION WOULD BE UNLAWFUL. NEITHER THE DELIVERY OF THIS
PROSPECTUS NOR ANY OFFER OR SALE MADE HEREUNDER SHALL, UNDER ANY
CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE
AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT THE INFORMATION CONTAINED
HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF.
----------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Summary................................................................ 4
Risk Factors........................................................... 7
Use of Proceeds........................................................ 19
Dividend Policy........................................................ 19
Price Range of Common Stock............................................ 20
Capitalization......................................................... 21
Dilution............................................................... 22
Selected Consolidated Financial Data................................... 23
Management's Discussion and Analysis of Financial Condition and Results
of Operations......................................................... 24
Business............................................................... 28
Management............................................................. 45
Certain Transactions................................................... 52
Principal and Selling Stockholders..................................... 54
Description of Capital Stock........................................... 56
Shares Eligible for Future Sale........................................ 58
Underwriting........................................................... 60
Legal Matters.......................................................... 61
Experts................................................................ 61
Additional Information................................................. 61
Index to Consolidated Financial Statements............................. F-1
</TABLE>
----------------
Cytyc(R), the Cytyc logo, ThinPrep(R), TransCyt(R), PreservCyt(R),
EnhanCyt(R) and CytoLyt(R) are registered trademarks of the Company. All other
trademarks and registered trademarks used in this Prospectus are the property
of their respective owners.
3
<PAGE>
SUMMARY
This Prospectus contains forward-looking statements which involve risks and
uncertainties. The Company's actual results could differ materially from those
anticipated in these forward-looking statements as a result of certain factors,
including those set forth under "Risk Factors" and elsewhere in this
Prospectus.
The following summary is qualified in its entirety by the more detailed
information, including "Risk Factors" and the Consolidated Financial Statements
and Notes thereto, appearing elsewhere in this Prospectus.
THE COMPANY
Cytyc Corporation designs, develops, manufactures and markets a sample
preparation system for medical diagnostic applications. The ThinPrep sample
preparation system ("ThinPrep System") allows for the automated preparation of
cervical cell specimens on microscope slides for use in cervical cancer
screening ("ThinPrep Pap Test"), as well as for the automated preparation of
other cell specimens on microscope slides for use in non-gynecological testing
applications. On May 20, 1996, the Company received premarket approval ("PMA")
from the United States Food and Drug Administration ("FDA") to market the
ThinPrep System for cervical cancer screening as a replacement for the
conventional Pap smear method. On November 6, 1996, the FDA cleared expanded
product labeling for the ThinPrep System to include the claim that the ThinPrep
System is significantly more effective in detecting Low Grade Squamous
Intraepithelial Lesions ("LGSIL") and more severe lesions than the conventional
Pap smear method in a variety of patient populations. The expanded labeling
also indicates that the specimen quality using the ThinPrep System is
significantly improved over that of the conventional Pap smear method. The
Company believes that the ThinPrep System improves accuracy in the detection of
cervical cancer and precancerous lesions by making the slide more
representative of the patient's clinical condition, improving preservation of
the sample, standardizing the presentation of cells on the slide, and reducing
the presence of mucus, blood and other obscuring debris. The Company intends to
commence the full-scale commercial launch of the ThinPrep System for cervical
cancer screening in the first quarter of 1997.
Cervical cancer is one of the most common cancers among women throughout the
world, with approximately 440,000 new cases reported annually. The American
Cancer Society estimates that approximately 15,800 new cases of invasive
cervical cancer and 65,000 new cases of carcinoma in situ, a precancerous
condition, were diagnosed in the United States in 1995. In the same year, an
estimated 4,800 women died of cervical cancer in the United States. The Pap
smear is currently the most widely-used test for the early detection of cancer
in the United States. In the United States, widespread and regular use of the
Pap smear as a screening test has contributed to a greater than 70% decrease in
mortality from cervical cancer in the past 45 years. In 1994, clinical
laboratories in hospitals, commercial laboratories and privately-owned
reference laboratories in the United States processed over 50 million Pap
smears. The Company believes that laboratories outside the United States
processed at least 50 million additional Pap smears in 1994.
In spite of the success of the conventional Pap smear method in reducing
deaths due to cervical cancer, the test has significant limitations, including
inadequacies in sample collection and slide preparation, slide interpretation
errors and the inability to use the specimen for additional diagnostic tests.
These limitations result in a substantial number of inaccurate test results,
including false negative diagnoses (abnormal cells present in the patient that
are missed by screening). These inaccurate test results may subject the patient
to a more expensive and invasive course of treatment and to the inconvenience
and anxiety of return office visits and repeat testing. The Company believes
these inaccurate test results ultimately lead to significant unnecessary costs
to the health care system.
In October 1995, in support of its PMA application, the Company completed a
clinical trial of 6,747 patients at six clinical sites in the United States,
including three screening centers and three hospital sites. The clinical trial
was designed to rigorously compare the effectiveness of the ThinPrep System to
the conventional Pap smear method for the detection of cancerous and
precancerous lesions of the cervix. Combining the results of all six clinical
sites, the ThinPrep method demonstrated an 18% improvement in the detection of
disease as compared to
4
<PAGE>
the conventional Pap smear. The results from the three screening centers
indicated a 65% improvement in the detection of disease, while in the three
hospital sites in which patients had historically exhibited high prevalence
rates of cervical abnormalities, the ThinPrep method demonstrated a 6%
improvement.
The Company is currently focusing on activities related to the full-scale
commercial launch of the ThinPrep System for cervical cancer screening in the
United States. The Company's strategy is to achieve market acceptance of the
ThinPrep System through the use of a direct marketing and sales organization.
This organization will focus on health care providers, third-party payors and
clinical laboratories to stimulate demand for the ThinPrep Pap Test, to
facilitate reimbursement and to demonstrate the economic and clinical benefits
of the ThinPrep System. On November 20, 1996, United HealthCare Corporation
("United HealthCare") announced that it will expand its health care coverage to
include the ThinPrep Pap Test, however, the applicable rate of reimbursement
has yet to be negotiated between United HealthCare or its various plans and the
specific clinical laboratories servicing such plans. There can be no assurance
that third-party payors will provide such coverage, that reimbursement levels
will be adequate or that health care providers or clinical laboratories will
use the ThinPrep System for cervical cancer screening in lieu of the
conventional Pap smear method. The Company has marketed the ThinPrep System for
use in non-gynecological testing applications since 1991.
The ThinPrep System, consisting of the ThinPrep 2000 Processor and related
disposable reagents, filters and other supplies, is also designed to allow for
additional diagnostic testing from a single patient sample. The ability to
perform multiple tests from a single sample would allow additional testing
without the expense, inconvenience and anxiety associated with return office
visits. For example, in collaboration with Digene Corporation ("Digene"), the
Company completed a joint clinical trial in August 1996 designed to demonstrate
that the Company's PreservCyt Solution is an effective transport medium for use
in the testing of cervical cell specimens using Digene's Hybrid Capture human
papillomavirus ("HPV") test. While the Company and Digene have submitted PMA
supplements with respect to this use, the ThinPrep System has not been approved
by the FDA for such use or any additional diagnostic testing procedures, and no
assurance can be given that any such approvals could be obtained on a timely
basis, if at all.
Cytyc's objective is to establish the ThinPrep System as the standard of care
for the collection, preservation and slide preparation of cervical cell
specimens. The key elements of this strategy are to: (i) continue to promote
the clinical and patient care benefits of the ThinPrep System; (ii) expand
marketing and sales programs to health care providers, third-party payors and
clinical laboratories; (iii) establish adequate levels of reimbursement by
third-party payors; (iv) expand and leverage the Company's worldwide installed
customer base of over 450 ThinPrep 2000 Processors and predecessor instruments;
and (v) expand the applications of the ThinPrep technology for use in
diagnostic testing.
The Company was incorporated in Delaware in 1987. The Company's offices are
located at 85 Swanson Road, Boxborough, MA 01719. The Company's telephone
number is (508) 263-8000.
RISK FACTORS
In addition to the other information contained in this Prospectus, the
discussion of risk factors on pages 7 to 17 of this Prospectus should be
considered carefully in evaluating an investment in the Common Stock. The risks
of investing in the Common Stock include the following factors: "Dependence on
a Single Product," "Uncertainty of Market Acceptance and Additional Cost,"
"Limited Marketing and Sales Experience," "Dependence on Third-Party
Reimbursement," "Limited Number of Customers and Lengthy Sales Process,"
"Limited Operating History; Uncertainty of Profitability," "Risks Associated
With Commercialization," "Intense Competition," "Limited Manufacturing
Experience and Capacity," "History of Losses," "Potential Fluctuations in
Future Quarterly Results," "Rapid Technological Change," "Extensive Government
Regulation," "Uncertainty of Additional Applications," "Dependence on Key
Personnel," "Dependence on Patents, Copyrights, Licenses and Proprietary
Rights; Risk of Third-Party Claims of Infringement," "International Sales and
Operations Risks," "Dependence on Single Source Suppliers," "Future Capital
Needs and Uncertainty of Availability of Additional Financing," "Uncertainty of
Possible Negative Effects of Health Care Reform," "Potential Volatility of
Stock Price," "Environmental Regulation," "Anti-Takeover Considerations,"
"Shares Eligible for Future Sale," "Immediate and Substantial Dilution," "Broad
Management Discretion in Use of Proceeds" and "Lack of Dividends."
5
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Common Stock Offered by the Company...... 2,000,000 shares
Common Stock Offered by the Selling
Stockholders............................ 1,000,000 shares
Common Stock Outstanding after the
Offering................................ 16,013,002 shares (1)
Use of Proceeds.......................... To implement full-scale marketing and
sales activities for the ThinPrep
System for cervical cancer screening
in the United States, to establish
international marketing, sales and
customer support capabilities, with
the remainder to be used for working
capital and other general corporate
purposes. See "Use of Proceeds."
Nasdaq National Market Symbol............ CYTC
</TABLE>
SUMMARY CONSOLIDATED FINANCIAL DATA
(in thousands, except per share data)
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
-------------------------------------------- ----------------
1991 1992 1993 1994 1995 1995 1996
------- ------- -------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales.................... $ 628 $ 2,589 $ 3,441 $ 2,920 $ 4,273 $ 2,751 $ 5,485
Gross profit................. (187) 509 (1,647) 695 1,860 1,249 2,383
Income (loss) from
operations.................. (4,588) (5,355) (10,379) (4,154) (6,162) (4,321) (9,569)
Net income (loss)............ $(4,338) $(5,135) $(10,271) $(4,266) $(5,915) $(4,206) $(8,060)
======= ======= ======== ======= ======= ======= =======
Net income (loss) per
share (2)................... $ (0.62) $ (0.65) $ (1.22) $ (0.48) $ (0.54) $ (0.39) $ (0.63)
======= ======= ======== ======= ======= ======= =======
Weighted average shares
outstanding (2)............. 7,038 7,849 8,409 8,954 10,868 10,868 12,737
</TABLE>
<TABLE>
<CAPTION>
SEPTEMBER 30, 1996
------------------------
ACTUAL AS ADJUSTED(3)
-------- --------------
<S> <C> <C>
BALANCE SHEET DATA:
Cash, cash equivalents and short-term investments...... $ 43,814 $ 92,034
Total assets........................................... 52,772 100,992
Accumulated deficit.................................... (43,248) (43,248)
Total stockholders' equity............................. 50,191 98,411
</TABLE>
- --------
(1) Excludes 204,048 shares of Common Stock issued upon the exercise of stock
options between October 1, 1996 and December 31, 1996, at a weighted-
average exercise price of $1.30 per share; 1,710,526 shares of Common Stock
issuable upon the exercise of stock options outstanding as of December 31,
1996 granted under the Company's Stock Option Plans, at a weighted-average
exercise price of $7.95 per share; and 2,000 shares of Common Stock
issuable upon the exercise of an outstanding warrant at an exercise price
of $10.00 per share. See Note 10 of Notes to Consolidated Financial
Statements.
(2) Computed on the basis described in Note 2 of Notes to Consolidated
Financial Statements.
(3) Adjusted to reflect the sale of 2,000,000 shares of Common Stock offered by
the Company hereby at an assumed public offering price of $25.75 per share
and the application of the estimated net proceeds therefrom. See "Use of
Proceeds."
Except as otherwise indicated, the information contained in this Prospectus
assumes no exercise of the Underwriters' over-allotment option.
6
<PAGE>
RISK FACTORS
This Prospectus contains forward-looking statements which involve risks and
uncertainties. The Company's actual results could differ materially from those
anticipated in these forward-looking statements as a result of certain
factors, including those set forth in the following risk factors and elsewhere
in this Prospectus.
In addition to the other information in this Prospectus, the following risk
factors should be considered carefully in evaluating the Company and its
business before purchasing shares of the Common Stock offered hereby.
DEPENDENCE ON SINGLE PRODUCT
Substantially all of the Company's revenues to date have been derived from
sales of its ThinPrep 2000 Processor and predecessor instruments, and related
disposable reagents, filters and other supplies, for use in non-gynecological
testing applications. The Company expects in the future to derive
substantially all of its revenue from sales of its ThinPrep System for
cervical cancer screening. Although the Company received clearance from the
FDA to market its ThinPrep System for cervical cancer screening on May 20,
1996, to date the Company has not initiated full-scale marketing and sales
efforts for the ThinPrep System for cervical cancer screening. In addition,
the Company does not expect to establish full-scale commercial production
capability of the ThinPrep System for cervical cancer screening before the
second quarter of 1997. The Company has very limited experience in
manufacturing, marketing and selling the ThinPrep System for cervical cancer
screening. The Company's inability to successfully commercialize the ThinPrep
System for cervical cancer screening or to obtain adequate third-party
reimbursement coverage, among other factors, would have a material adverse
effect on the Company's business, financial condition and results of
operations. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and "Business -- The ThinPrep System."
UNCERTAINTY OF MARKET ACCEPTANCE AND ADDITIONAL COST
The Company's success and growth will depend on market acceptance of the
ThinPrep System for cervical cancer screening by health care providers, third-
party payors and clinical laboratories. Market acceptance will depend on the
Company's ability to demonstrate to these parties that there are limitations
in the conventional Pap smear method of sample collection and slide
preparation, and that the Company's ThinPrep System can substantially mitigate
these shortcomings without adversely affecting diagnostic accuracy. The
laboratory cost of using the ThinPrep System for cervical cancer screening is
higher than that of a conventional Pap smear. Due in part to increased
competitive pressures in the health care industry to reduce costs, the
Company's ability to gain market acceptance of the ThinPrep System for
cervical cancer screening will depend on the Company's ability to demonstrate
that the higher cost of using the ThinPrep System will be offset by a
reduction in costs often associated with conventional Pap smears, including
inaccurate diagnoses and the need for repeat Pap tests. There can be no
assurance that the Company will be able to successfully demonstrate that use
of the ThinPrep System for cervical cancer screening is cost competitive
compared to the use of the conventional Pap smear method. In addition, the
Company believes that many clinical laboratories offer Pap tests at lower
gross margins than other tests in order to receive orders for other, higher
margin, laboratory tests. As a result, clinical laboratories may be reluctant
or unwilling to accept the additional costs related to installing and
utilizing the higher-priced ThinPrep System. In addition, the Company's
clinical trials were conducted using a "broom-like" sampling device, and the
Company believes that only a small percentage of the market uses this type of
a sampling device. There can be no assurance that the "broom-like" sampling
device will be accepted by the market. Although the Company has filed a
supplement to its PMA to expand its labeling claims to include the more
commonly used endocervical brush sampling device, there can be no assurance
that such supplement will be approved by the FDA. Recently, other companies
have introduced systems for rescreening Pap smears that they claim will
substantially improve the likelihood of an accurate diagnosis. The widespread
adoption of such systems could impair the Company's ability to market the
ThinPrep System and would have a material adverse effect on the Company's
7
<PAGE>
business, financial condition and results of operations. There can be no
assurance that health care providers, third-party payors or clinical
laboratories will choose to accept the ThinPrep System as a replacement to
current laboratory Pap smear collection and slide preparation practices. Even
if the ThinPrep System were to gain market acceptance, sales of ThinPrep
System products would depend to a large extent on the availability and level
of reimbursement from third-party payors such as private insurance plans,
managed care organizations, and Medicare and Medicaid. See "Business --
Marketing and Sales" and "-- Third-Party Reimbursement."
LIMITED MARKETING AND SALES EXPERIENCE
Although the Company received clearance from the FDA to market its ThinPrep
System for cervical cancer screening on May 20, 1996, to date the Company has
not initiated full-scale marketing and sales efforts for the ThinPrep System.
In order to effectively market the ThinPrep System for cervical cancer
screening, the Company will need to substantially increase its marketing and
sales capabilities. Although the Company has recently expanded its direct
sales and field support organization in the United States and is evaluating
other marketing and sales channels, both domestic and international, including
contract sales organizations, distributors and marketing partners, no
assurance can be given that the Company's direct sales force will succeed in
promoting the ThinPrep System to health care providers, third-party payors or
clinical laboratories, or that additional marketing and sales channels will be
successfully established. In addition, due to limited market awareness of the
ThinPrep System, the Company believes that the sales effort will be a lengthy
process, requiring the Company to educate health care providers and third-
party payors regarding the clinical benefits and cost-effectiveness of the
ThinPrep System. There can be no assurance that the Company will be able to
recruit and retain skilled marketing, sales, service or support personnel or
foreign distributors, or that the Company's marketing and sales efforts will
be successful. Failure to successfully expand its marketing and sales
capabilities in the United States and establish its marketing and sales
organization internationally would have a material adverse effect on the
Company's business, financial condition and results of operations. The
Company's marketing success in the United States and abroad will depend on
whether it can obtain required regulatory approvals, successfully demonstrate
the cost-effectiveness of the ThinPrep System, further develop its direct
sales capabilities and establish arrangements with contract sales
organizations, distributors and marketing partners. Failure by the Company to
successfully market its products would have a material adverse effect on the
Company's business, financial condition and results of operations. See
"Business -- Marketing and Sales."
DEPENDENCE ON THIRD-PARTY REIMBURSEMENT
Successful sales of the ThinPrep System for cervical cancer screening in the
United States and other countries will depend on the availability of adequate
reimbursement from third-party payors such as private insurance plans, managed
care organizations, and Medicare and Medicaid. There is significant
uncertainty concerning third-party reimbursement for the use of any medical
device incorporating new technology. Although United HealthCare has recently
announced that it will expand its health care coverage to include the ThinPrep
Pap Test, the applicable rate of reimbursement has yet to be negotiated
between United HealthCare or its various plans and the specific clinical
laboratories servicing such plans. There can be no assurance that additional
third-party payors will provide such coverage, that reimbursement levels will
be adequate, or that health care providers or clinical laboratories will use
the ThinPrep System for cervical cancer screening in lieu of the conventional
Pap smear method. The Company believes that laboratories using the ThinPrep
System for cervical cancer screening will charge more to third-party payors
than would be charged for using a conventional Pap test. There can be no
assurance that the higher cost of using the ThinPrep System will be offset by
a reduction in costs often associated with conventional Pap smears including
inaccurate diagnoses and the need for repeat Pap tests. Reimbursement by a
third-party payor depends on a number of factors, including the level of
demand by physicians and the payor's determination that use of the ThinPrep
System represents a clinical advance compared to current technology, is safe
and effective, medically necessary, appropriate for the specific patient
populations and cost-effective. Since reimbursement approval is required from
each payor individually, seeking such approvals is a time-consuming and costly
process which requires the Company to provide scientific and clinical data to
support the use of the ThinPrep System to each payor separately. There can be
no assurance that third-party reimbursement will be available for the
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ThinPrep System or any other products that may be developed by the Company, or
that such third-party reimbursement, if obtained, will be adequate. A key
component in the reimbursement decision by most private insurers and the
United States Health Care Financing Administration, which administers
Medicare, is the assignment of a Current Procedural Terminology ("CPT") code
which is used in the submission of claims to insurers for reimbursement for
medical services. CPT codes are assigned, maintained and revised by the CPT
editorial board administered by the American Medical Association. Although the
Company has commenced sales of the ThinPrep Pap Test, reimbursement has only
been obtained through use of a non-specific CPT code. The Company has
petitioned the CPT editorial board to modify an existing code or to establish
a separate code for the ThinPrep System for cervical cancer screening. The
Company believes that the CPT editorial board will render a decision on the
Company's petition at its regularly scheduled meeting in the second quarter of
1997 and, if approved, such code will not be available for use prior to 1998.
Failure to secure a modification to an existing code or secure the
establishment of a separate code from the CPT editorial board could have a
material adverse effect on the Company's business, financial condition and
results of operations. The Company has very limited experience in obtaining
reimbursement for its products in the United States or other countries. In
addition, third-party payors are routinely limiting reimbursement coverage for
medical devices and in many instances are exerting significant pressure on
medical suppliers to lower their prices. Lack of or inadequate reimbursement
by government and other third-party payors for the Company's products would
have a material adverse effect on the Company's business, financial condition
and results of operations. Further, outside the United States health care
reimbursement systems vary from country to country, and there can be no
assurance that third-party reimbursement will be made available at an adequate
level, if at all for the ThinPrep Pap Test under any other reimbursement
system. See "Business -- Third-Party Reimbursement."
LIMITED NUMBER OF CUSTOMERS AND LENGTHY SALES PROCESS
Due in part to a recent trend toward consolidation of clinical laboratories,
the Company expects that the number of potential domestic customers for its
products will decrease. Due to the relative size of the largest United States
laboratories, it is likely that a significant portion of ThinPrep System sales
will be concentrated among a relatively small number of large clinical
laboratories. The Company will need to foster an awareness of and acceptance
by these potential customers of the ThinPrep System for cervical cancer
screening and the benefits of this system over the conventional sample
collection and slide preparation method. Further, in order to generate demand
for the ThinPrep Pap Test among clinical laboratories, the Company will be
required to educate physicians and health care providers regarding the
clinical benefits and cost-effectiveness of the ThinPrep System as well as to
demonstrate to such parties that adequate levels of reimbursement will be
available for the ThinPrep Pap Test, a process which the Company believes will
require a lengthy sales effort. The Company's dependence on sales to large
laboratories may strengthen the purchasing leverage of these potential
customers. There can be no assurance that the Company will be successful in
selling the ThinPrep System to these large laboratories or that any such sales
will result in sufficient revenue to allow the Company to become profitable.
See "Business -- Marketing and Sales."
LIMITED OPERATING HISTORY; UNCERTAINTY OF PROFITABILITY
The Company has a limited operating history and, to date, has focused on
product development, clinical trials, obtaining regulatory approvals, the
expansion of manufacturing facilities and the establishment of marketing and
sales capabilities for its ThinPrep System for cervical cancer screening in
the United States. Substantially all of the Company's revenues to date have
been derived from sales of its ThinPrep 2000 Processor and predecessor
instruments, and related disposable reagents, filters and other supplies for
non-gynecological testing applications. Consequently, the Company has very
limited experience in marketing and selling its products for cervical cancer
screening. There can be no assurance that the Company will be able to
effectively market and sell the ThinPrep System for cervical cancer screening.
The Company's future revenues and profitability are critically dependent on
the Company's ability to successfully market and sell the ThinPrep System for
cervical cancer screening. In the past, the Company has offered discounts to
stimulate demand for the ThinPrep System and may elect to do so in the future,
which discounts could have a material adverse
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effect on the Company's business, financial condition and results of
operations. There can be no assurance that profitability will ever be
achieved. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and "Business -- Marketing and Sales."
RISKS ASSOCIATED WITH COMMERCIALIZATION
In connection with the full-scale commercialization of the ThinPrep System
for cervical cancer screening, the Company has significantly expanded its
facilities and intends to continue to significantly increase the number of its
marketing and sales, engineering, and financial personnel, and enhance or
replace its management information systems. Such activities are likely to
place significant strain on the Company's management, operations and systems.
Whether the Company can successfully manage the transition to a large-scale
commercial enterprise will depend, in part, upon substantial expansion of its
domestic and establishment of its international marketing and sales
distribution networks, successful expansion and maintenance of its
manufacturing capability, and strengthening of its financial and management
systems and procedures. Failure to make such a transition successfully would
have a material adverse effect on the Company's business, financial condition
and results of operations. The Company's ability to compete effectively will
depend, in part, upon its ability to revise, improve and effectively utilize
its operational, management, marketing, sales and financial systems
necessitated by changes in the Company's business. There can be no assurance
that the Company will be able to effectively manage such changes and any
failure to do so would have a material adverse effect on the Company's
business, financial condition and results of operations. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
"Business -- Marketing and Sales."
INTENSE COMPETITION
The Company faces direct competition from a number of publicly-traded and
privately-held companies, including other manufacturers of thin layer slide
preparation systems. Many of the Company's existing and potential competitors
have substantially greater financial, marketing, sales, distribution and
technical resources than the Company, and more experience in research and
development, clinical trials, regulatory matters, manufacturing and marketing.
In addition, many of these companies may have established third-party
reimbursement for their products. Several established medical device
manufacturers produce thin layer slide preparation systems for use in non-
gynecological testing applications, at least one of which has achieved brand-
name recognition and significant penetration in the non-gynecological cytology
market. The Company believes that another competitor, AutoCyte, Inc., is
conducting clinical trials of a system for the production and automated
analysis of thin layer slides, a potential alternative to the conventional Pap
smear and the ThinPrep Pap Test. The development, FDA approval and commercial
marketing of such systems for cervical cancer screening could have a material
adverse effect on the Company's business, financial condition and results of
operations. In addition to direct competition, the Company faces indirect
competition primarily from two companies, Neopath, Inc. ("Neopath") and
Neuromedical Systems, Inc., both of which currently market imaging systems to
re-examine or re-screen conventional Pap smears previously diagnosed as
negative. The Company believes that these rescreening systems, as currently
sold, could not be used with the ThinPrep System and, therefore, if either of
such systems is installed at or used by hospitals or clinical laboratories,
the Company's ability to market its products to such hospitals or laboratories
could be materially adversely affected. In addition, if either company
receives FDA approval of its system as a primary screening system to replace
some or all of the manual screening of conventional Pap smears, marketing of
these systems for such purpose could have a material adverse effect on the
Company's business, financial condition and results of operations. See
"Business -- Competition."
LIMITED MANUFACTURING EXPERIENCE AND CAPACITY
The Company has limited manufacturing experience, and there can be no
assurance that the Company will be able to recruit and retain a sufficient
number of skilled manufacturing personnel or manufacture and supply the
ThinPrep System including the related disposable reagents, filters and other
supplies in a timely manner, or at a cost or in quantities necessary to make
them commercially viable. In June 1996, the Company
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moved from a 17,500 square foot facility to a 51,000 square foot facility. The
Company believes that its existing manufacturing system is inadequate to meet
the full-scale production demands for the ThinPrep System for cervical cancer
screening. The Company is currently installing new custom-built automated
equipment for the high-volume manufacture of disposable filters for use in
connection with the ThinPrep System, which the Company expects will be fully
operational in the first half of 1997. The Company's manufacturing process is
subject to pervasive and continuing regulation by the FDA, including the FDA's
Good Manufacturing Practices ("GMP") requirements. Failure to comply with such
regulations or any failure of the custom-built equipment to perform to the
Company's specifications or expectations, or any other delay in the full
implementation of such equipment due to necessary training of the Company's
personnel or otherwise, could impair the Company's ability to establish full-
scale commercial production capability in a timely manner, if at all. If the
Company is unable to achieve commercial-scale production capability on a
timely basis, or to sustain such capability, the acceptance by the market of
the Company's ThinPrep System could be impaired and such inability would have
a material adverse effect on the Company's business, financial condition and
results of operations. Further, the Company has limited manufacturing
experience with the ThinPrep System for cervical cancer screening and,
accordingly, there can be no assurance that the Company's ThinPrep System for
cervical cancer screening will perform adequately in the field when subjected
to use under a variety of laboratory conditions and as a result may be subject
to total or partial suspension of production, withdrawal of approval, and
recall or seizure of products in the event of product malfunction or failure.
In addition, prior to international commercialization, the Company will need
to comply with ISO 9001 standards. There can be no assurance that the Company
will be able to maintain compliance with GMP requirements or attain or
maintain ISO 9001 standards. Failure to either attain or maintain compliance
with the applicable manufacturing requirements of various regulatory agencies
would have a material adverse effect on the Company's business, financial
condition and results of operations. See "Business -- Manufacturing" and "--
Government Regulation."
HISTORY OF LOSSES
The Company has incurred substantial losses since its inception and, as of
September 30, 1996, the Company had an accumulated deficit of approximately
$43.2 million. Such losses have resulted primarily from expenses associated
with obtaining FDA approval of the Company's ThinPrep System for cervical
cancer screening, engineering and development efforts related to the ThinPrep
System, expansion of the Company's manufacturing facilities, and the
establishment of a marketing and sales organization. The Company expects such
losses to continue for the foreseeable future due to expansion of its
marketing and sales activities, both domestic and international, its product
development efforts, and commencement of full-scale commercial manufacturing.
See "Management's Discussion and Analysis of Financial Condition and Results
of Operations."
POTENTIAL FLUCTUATIONS IN FUTURE QUARTERLY RESULTS
The Company expects that its operating results will fluctuate significantly
from quarter to quarter in the future and will depend on a number of factors,
many of which are outside the Company's control. These factors include: the
extent to which the Company's products gain market acceptance; the rate and
size of expenditures incurred as the Company expands its domestic and
establishes its international sales and distribution networks; the timing of
any approvals of the ThinPrep System for reimbursement by third-party payors;
the timing and size of sales; the likelihood and timing of FDA approval of PMA
supplements related to the ThinPrep System; the timing and size of
expenditures incurred in the research and development of new products; and the
introduction and market acceptance of competing products or technologies. The
Company is currently installing new custom-built automated equipment for the
high-volume manufacture of disposable filters for use in connection with the
ThinPrep System, which the Company expects will be fully operational in the
first half of 1997. Any delay or difficulty in commencing full-scale
commercial production using such new equipment would have a material adverse
effect on the Company's business, financial condition and results of
operations. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and "Business -- Manufacturing."
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RAPID TECHNOLOGICAL CHANGE
The medical device industry is characterized by rapid product development
and technological advances. The Company's products could be rendered obsolete
or uneconomical by the introduction and market acceptance of competing
products, by technological advances of the Company's current or potential
competitors or by other approaches. The Company competes on the basis of a
number of factors in areas in which the Company currently has limited
experience, including manufacturing efficiency, marketing and sales
capabilities and customer service and support. There can be no assurance that
the Company will be able to compete successfully against current or future
competitors or that competition, including the development and
commercialization of new products and technology, will not have a material
adverse effect on the Company's business, financial condition or results of
operations. See "Business -- Competition."
EXTENSIVE GOVERNMENT REGULATION
The manufacture and sale of medical diagnostic devices intended for
commercial use are subject to extensive government regulation in the United
States and in other countries. The process of obtaining FDA and other required
regulatory approvals can be time-consuming, expensive and uncertain,
frequently requiring several years from the commencement of clinical trials to
the receipt of regulatory approval. There can be no assurance that the Company
will be able to obtain necessary regulatory approvals or clearances or comply
with regulatory requirements applicable to the ThinPrep System for cervical
cancer screening or other applications in the United States or internationally
on a timely basis, or at all. Delays in receipt of or failure to receive such
approvals or clearances, the loss of previously received approvals or
clearances or failure to comply with existing or future regulatory
requirements would have a material adverse effect on the Company's business,
financial condition and results of operations.
The FDA's regulations require agency approval of a PMA supplement for
certain changes if they affect the safety and effectiveness of the device,
including, but not limited to, new indications for use; the use of a different
facility or establishment to manufacture, process or package the device;
changes in manufacturing methods or quality control systems; changes in
performance or design specifications; and labeling changes. Any such change
will require supplemental FDA approval. The ThinPrep System for cervical
cancer screening is a Class III device that received PMA approval in May 1996
for cervical cancer screening. The Company anticipates that other applications
for the ThinPrep System will require FDA approval of a PMA supplement or a new
PMA application. There can be no assurance that such approvals will be
obtained on a timely basis, if at all.
Regulatory approvals, if granted, may include significant limitations on the
intended uses for which a product may be marketed. FDA enforcement policy
strictly prohibits the promotion by the Company and any of its distributors of
approved medical devices for off-label uses. In addition, product approvals
may be withdrawn for failure to comply with regulatory standards or the
occurrence of unforeseen problems following initial marketing. Manufacturers
of medical devices are subject to strict federal regulations regarding
validation and the quality of manufacturing, including compliance with GMP
regulations relating to testing, control and documentation. The Company's
existing and future manufacturing facilities and manufacturing processes for
the ThinPrep System for cervical cancer screening or other applications will
be required to comply with these and all other applicable FDA regulations, and
with regulations imposed by other governments. Ongoing compliance with GMP and
other applicable regulatory requirements is monitored through periodic
inspections by state and federal agencies, including the FDA, and by
comparable agencies in other countries. Failure to comply with applicable
United States and international regulatory requirements can result in failure
of the relevant government agency to grant premarket approval for devices,
withdrawal of approval, total or partial suspension of production, fines,
injunctions, civil penalties, recall or seizure of products, and criminal
prosecution. Furthermore, changes in existing regulations or adoption of new
regulations or policies could prevent the Company from obtaining, or affect
the cost and timing of, future regulatory approvals or clearances.
The Company is currently installing new custom-built automated manufacturing
equipment which incorporates new materials handling procedures. Such equipment
is expected to be operational in the first
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half of 1997. The Company believes that this equipment does not require a PMA
supplement but will be reported to the FDA in the Company's May 1997 PMA
annual report, which must report changes made without filing a PMA supplement.
There can be no assurance, however, that the FDA will agree that the change
does not require approval of a new PMA supplement. If the FDA requires the
Company to submit a PMA supplement for the change, the Company will revert to
using its existing manufacturing equipment, which could have a material
adverse effect on the Company's business, financial condition and results of
operation.
In July 1996, the Company filed a PMA supplement requesting approval of the
ThinPrep System using the endocervical brush sampling device, which is a
commonly used method of collecting samples for conventional Pap smears. The
ThinPrep System is currently approved for use only with a "broom-like"
sampling device, which was developed more recently and is not as widely used
as the brush and spatula. There can be no assurance that the FDA will approve
the PMA supplement in a timely fashion, or at all. A delay in obtaining, or
failure to obtain, such approval could have a material adverse effect on the
Company's to gain market acceptance.
In September 1996, the Company submitted a PMA supplement requesting the
FDA's approval of certain manufacturing process and material changes (and
other related changes to the device, including a software modification). There
can be no assurance that the FDA will approve the PMA Supplement on a timely
basis, if at all.
In October 1996, the Company filed a PMA supplement requesting approval of
the use of PreservCyt Solution as an alternative transport medium for
gynecologic specimens tested with the Digene's Hybrid Capture HPV DNA test.
The approval of the PMA supplement is necessary in order for the Company to
promote the ThinPrep System as capable of conducting Digene's assay and
cervical cancer screening from a single specimen. There can be no assurance
that the FDA will agree that the clinical data from that study supports
approval of the PMA supplement, nor can there be any assurance that the FDA
will approve the PMA supplement in a timely fashion, if at all. A delay in
obtaining, or failure to obtain, such approval could have a material adverse
effect on the Company's ability to gain market acceptance based on the
ThinPrep System's capability of conducting multiple tests from a single
specimen.
In addition, the laboratories that would purchase the ThinPrep System are
subject to extensive regulation under the Clinical Laboratory Improvement
Amendments of 1988 (CLIA). The Company believes that it has designed the
ThinPrep System in order to enable laboratories purchasing the device to
comply with CLIA requirements applicable to the use of this device for
cervical cancer screening. However, there can be no assurance that it does
comply, or that it will comply with future changes in CLIA requirements. If
the ThinPrep System does not comply with CLIA requirements, there would be a
material adverse effect on sales of the device.
The Company is seeking ISO 9001 registration, an international quality
standard, and the "CE" mark for its ThinPrep System. The CE mark is recognized
by countries that are members of the European Union and the European Free
Trade Association and, effective in 1998, will be required to be affixed to
all medical devices sold in the European Union. No assurance can be given that
the Company will obtain the CE mark for the ThinPrep System, or satisfy ISO
9001 standards, or that any product which the Company may develop or
commercialize will obtain the CE mark, or will be able to obtain any other
required regulatory clearance or approval on a timely basis, or at all. See
"Business -- Government Regulation."
UNCERTAINTY OF ADDITIONAL APPLICATIONS
The Company intends to pursue licensing and collaboration arrangements with
other companies to perform diagnostic tests developed by these companies using
the original patient sample obtained by the ThinPrep System's controlled cell
collection and transfer process. For example, in August 1996, the Company
completed a joint clinical trial with Digene designed to demonstrate that the
Company's PreservCyt Solution
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is an effective transport medium for use in the testing of cervical cell
specimens using Digene's Hybrid Capture HPV test. While the Company has filed
a PMA supplement for this application, the ThinPrep System has not been
approved by the FDA for such use or any additional diagnostic testing
procedures, and there can be no assurance that any such approvals could be
obtained on a timely basis, if at all. The Company intends to continue to
evaluate additional diagnostic applications of its ThinPrep technology in
testing for the presence of other types of cancers and sexually transmitted
diseases. The Company has not yet determined which of these applications, if
any, it will seek to develop and commercialize. In addition, any additional
applications will require submission of a PMA application or supplement prior
to the marketing of the ThinPrep System for use in such applications. There
can be no assurance that the Company will be successful in establishing
relationships with companies developing tests that can benefit from the
ThinPrep technology, or developing, receiving regulatory approvals for,
introducing and marketing new applications, or that the Company will not
experience difficulties that could delay or prevent the successful
development, introduction or marketing of such applications. If the Company is
unable to develop new or expanded applications, or if the ThinPrep System for
such applications does not achieve market acceptance, the Company's business,
financial condition and results of operations could be materially adversely
affected. See "Business -- The ThinPrep System."
DEPENDENCE ON KEY PERSONNEL
The Company is highly dependent on the principal members of its management
and scientific staff, the loss of whose services might impede achievement of
its research and development or strategic objectives. The Company's success
will depend on its ability to retain key employees and to attract additional
qualified employees. In addition, the Company intends to hire a significant
number of additional engineering, sales and financial personnel in 1997 and
thereafter. Competition for such personnel is intense, and there can be no
assurance that the Company will be able to retain existing personnel and to
attract, assimilate or retain additional highly qualified employees in the
future. If the Company is unable to hire and retain qualified personnel in key
positions, such inability would have a material adverse effect on the
Company's business, financial condition and results of operations. See
"Business -- Employees" and "Management -- Executive Officers, Directors and
Key Employees."
DEPENDENCE ON PATENTS, COPYRIGHTS, LICENSES AND PROPRIETARY RIGHTS; RISK OF
THIRD-PARTY CLAIMS OF INFRINGEMENT
The Company relies on a combination of patents, trade secrets, copyrights
and confidentiality agreements to protect its proprietary technology, rights
and know-how. The Company holds seven issued United States patents, and has
three United States patent applications pending, relating to various aspects
of its ThinPrep technology. There can be no assurance, however, that pending
patent applications will ultimately issue as patents or that the claims
allowed in any of the Company's existing or future patents will provide
competitive advantages for the Company's products or will not be successfully
challenged or circumvented by competitors. Under current law, patent
applications in the United States are maintained in secrecy until patents are
issued and patent applications in foreign countries are maintained in secrecy
for a period after filing. The right to a patent in the United States is
attributable to the first to invent, not the first to file a patent
application. The Company cannot be sure that its products or technologies do
not infringe patents that may be granted in the future pursuant to pending
patent applications or that its products do not infringe any patents or
proprietary rights of third parties. In the event that any relevant claims of
third-party patents are upheld as valid and enforceable, the Company could be
prevented from selling its products or could be required to obtain licenses
from the owners of such patents or be required to redesign its products to
avoid infringement. There can be no assurance that such licenses would be
available or, if available, would be on terms acceptable to the Company or
that the Company would be successful in any attempt to redesign its products
or processes to avoid infringement. The Company's failure to obtain these
licenses or to redesign its products or processes would have a material
adverse effect on the Company's business, financial condition and results of
operations. There can be no assurance that the obligations of employees of the
Company and third parties with whom the Company has entered into
confidentiality agreements to maintain the confidentiality of trade secrets
and proprietary information will
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effectively prevent disclosure of the Company's confidential information or
provide meaningful protection for the Company's confidential information if
there is unauthorized use or disclosure, or that the Company's trade secrets
or proprietary information will not be independently developed by the
Company's competitors. In addition, the Company is the exclusive licensee of
certain patented technology from DEKA Products Limited Partnership ("DEKA")
for use in the field of cytology related to the fluid pumping system used in
the ThinPrep System. The Company is obligated to pay royalties equal to 1% of
net sales of the ThinPrep Processor, filter cylinder disposable products which
are used with the ThinPrep System, and improvements made by the Company
relating to such items. The license provides that it may be terminated (i) by
mutual written consent of both parties or (ii) by DEKA on written notice to
the Company in the event that the license is assigned without the consent of
DEKA. Failure by the Company to maintain rights to such technology could have
a material adverse effect on the Company's business, financial condition and
results of operations. The Company also holds unregistered copyrights on
documentation and operating software developed by it for the ThinPrep System.
There can be no assurance that any copyrights owned by the Company will
provide competitive advantages for the Company's products or will not be
challenged or circumvented by its competitors. Litigation may be necessary to
defend against claims of infringement, to enforce patents and copyrights of
the Company, or to protect trade secrets and could result in substantial cost
to, and diversion of efforts by, the Company. There can be no assurance that
the Company would prevail in any such litigation. In addition, the laws of
some foreign countries do not protect the Company's proprietary rights to the
same extent as do the laws of the United States. See "Business -- Patents,
Copyrights, Licenses and Proprietary Rights."
INTERNATIONAL SALES AND OPERATIONS RISKS
The Company plans to sell its ThinPrep System and any future products to
customers both in the United States and internationally. While the Company is
evaluating marketing and sales channels abroad, including contract sales
organizations, distributors and marketing partners, the Company currently has
very limited foreign sales channels in place at this time. There can be no
assurance that the Company will successfully develop international sales
capabilities or that, if the Company establishes such capabilities, the
Company will be successful in obtaining reimbursement or any regulatory
approvals required in foreign countries. International sales and operations
may be limited or disrupted by the imposition of government controls, export
license requirements, political instability, trade restrictions, changes in
tariffs or difficulties in staffing and managing international operations.
Foreign regulatory agencies often establish product standards different from
those in the United States and any inability to obtain foreign regulatory
approvals on a timely basis could have a material adverse effect on the
Company's international business operations. Additionally, if significant
international sales occur, the Company's business, financial condition and
results of operations could be adversely affected by fluctuations in currency
exchange rates as well as increases in duty rates. There can be no assurance
that the Company will be able to successfully commercialize the ThinPrep
System or any future products in any foreign market. See "Business --
Marketing and Sales," "-- Third-Party Reimbursement" and "-- Government
Regulation."
DEPENDENCE ON SINGLE SOURCE SUPPLIERS
Certain key components of the Company's ThinPrep System are currently
provided to the Company by single sources. In the event that the Company is
unable to obtain sufficient quantities of such components on commercially
reasonable terms, or in a timely manner, the Company would not be able to
manufacture its products on a timely and cost-competitive basis which would
have a material adverse effect on the Company's business, financial condition
and results of operations. See "Business -- Manufacturing."
FUTURE CAPITAL NEEDS AND UNCERTAINTY OF AVAILABILITY OF ADDITIONAL FINANCING
The Company believes that the anticipated net proceeds from this offering
together with interest thereon and the Company's existing capital resources
will be sufficient to fund its operations through at least 1998. However, the
Company's future liquidity and capital requirements will depend upon numerous
factors, including the resources required to further develop its marketing and
sales capabilities domestically and
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internationally, the resources required to expand manufacturing capacity, and
the extent to which the ThinPrep System for cervical cancer screening
generates market acceptance and demand. The Company's capital requirements
will also depend upon the progress of the Company's research and development
programs including clinical trials, the receipt of and the time required to
obtain regulatory clearances and approvals, and the resources the Company
devotes to developing, manufacturing and marketing its products. There can be
no assurance that the Company will not require additional financing or will
not in the future seek to raise additional funds through bank facilities, debt
or equity offerings or other sources of capital. Additional funding may not be
available when needed or on terms acceptable to the Company, which would have
a material adverse effect on the Company's business, financial condition and
results of operations. See "Use of Proceeds" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources."
UNCERTAINTY AND POSSIBLE NEGATIVE EFFECTS OF HEALTH CARE REFORM
The health care industry is undergoing fundamental changes that are the
result of political, economic and regulatory influences. In the United States,
comprehensive programs have been proposed that seek to control the escalation
of health care expenditures within the economy. Reforms that have been and may
be considered include controls on health care spending through limitations on
the increase in private health insurance premiums and Medicare and Medicaid
spending, the creation of large insurance purchasing groups and fundamental
changes to the health care delivery system. Health care reform could, for
example, result in a reduction in the recommended frequency of Pap tests or
limitations on reimbursement based on the frequency of tests, either of which
would have a material adverse effect on the Company's business, financial
condition and results of operations. The Company anticipates that Congress and
state legislatures will continue to review and assess cost containment
measures, alternative health care delivery systems and methods of payment, and
public debate of these issues will likely continue. Due to uncertainties
regarding the outcome of health care reform initiatives and their enactment
and implementation, the Company cannot predict what reforms will be proposed
or adopted or the effect such proposal or adoption may have on the Company.
There can be no assurance that future health care legislation or other changes
in the administration or interpretation of government health care or third-
party reimbursement programs will not have a material adverse effect on the
Company's business, financial condition and results of operations.
POTENTIAL VOLATILITY OF STOCK PRICE
The market price of the shares of Common Stock, like that of the common
stock of many other medical device companies, may be highly volatile. Factors
such as the results of clinical trials by the Company or its competitors,
concern as to the safety or efficacy of products of the Company or its
competitors, announcements of technological innovations or new products by the
Company or its competitors, governmental regulation, health care legislation,
developments in patent or other proprietary rights of the Company or its
competitors, fluctuations in the Company's operating results, comments made by
securities analysts and general market and economic conditions are likely to
have a significant impact on the future price of the Common Stock. In
addition, the stock market in general has experienced extreme price and volume
fluctuations which has resulted in substantial volatility of the stock price
of medical device companies that has often been unrelated to the operating
performance of these companies. These or other factors may adversely affect
the market price of the Company's Common Stock. See "Price Range of Common
Stock."
ENVIRONMENTAL REGULATION
The Company is subject to a variety of local, state and federal government
regulations relating to the storage, discharge, handling, emission,
generation, manufacture and disposal of toxic, infectious or other hazardous
substances used to manufacture the Company's products. The failure to comply
with current or future regulations could result in the imposition of
substantial fines against the Company, suspension of production, alteration of
its manufacturing processes or cessation of operations. There can be no
assurance
16
<PAGE>
that the Company will not be required to incur significant costs to comply
with any such laws and regulations in the future, or that such laws or
regulations will not have a material adverse effect on the Company's business,
financial condition and results of operations. Any failure by the Company to
control the use, disposal, removal or storage of, or to adequately restrict
the discharge of, or assist in the cleanup of, hazardous chemicals or
hazardous, infectious or toxic substances could subject the Company to
significant liabilities, including joint and several liability under certain
statutes. The imposition of such liabilities would have a material adverse
effect on the Company's business, financial condition and results of
operations.
ANTI-TAKEOVER CONSIDERATIONS
The Company's Board of Directors has the authority, without action by the
stockholders, to issue up to 5,000,000 shares of Preferred Stock and to fix
the rights and preferences of such Preferred Stock. The issuance of Preferred
Stock or of rights to purchase Preferred Stock could be used to discourage an
unsolicited acquisition proposal. In addition, the Company's Third Amended and
Restated Certificate of Incorporation provides for a staggered Board of
Directors. The Company's By-Laws specify procedures for director nominations
by stockholders and the submission of other proposals for consideration at
stockholder meetings. Certain provisions of Delaware law applicable to the
Company could also delay or make more difficult a merger, tender offer or
proxy contest involving the Company, including Section 203, which prohibits a
Delaware corporation from engaging in any business combination with any
interested stockholder for a period of three years unless certain conditions
are met. The possible issuance of Preferred Stock, the existence of a
staggered Board of Directors, the procedures required for director nominations
and stockholder proposals and Delaware law could have the effect of delaying,
deferring or preventing a change in control of the Company, including without
limitation, discouraging a proxy contest, making more difficult the
acquisition of a substantial block of the Company's Common Stock or limiting
the price that investors might be willing to pay in the future for shares of
the Company's Common Stock. See "Description of Capital Stock."
SHARES ELIGIBLE FOR FUTURE SALE
Sales of substantial amounts of the Company's Common Stock after this
offering or the prospect of such sales could adversely affect the market price
of the Common Stock and the Company's ability to raise additional equity
capital. The number of shares of Common Stock available for sale in the public
market is limited by restrictions under the Securities Act of 1933, as amended
(the "Securities Act"), and lock-up agreements ("Lock-Ups") under which the
holders of 2,413,351 shares have agreed not to sell or otherwise dispose of
any of their shares for a period of 90 days after the date of this Prospectus
without the prior written consent of Robertson, Stephens & Company. In its
sole discretion and at any time without notice, Robertson, Stephens & Company
may release all or any portion of the shares subject to Lock-Ups. Of the
16,006,980 shares of Common Stock that will be outstanding after this
offering, the 3,000,000 shares sold in this offering and the 3,450,000 shares
sold in the Company's initial public offering will be freely tradeable without
restriction or further registration under the Securities Act, except shares
owned by "affiliates" of the Company, as that term is defined in Rule 144
under the Securities Act ("Affiliates"), which shares may generally be sold in
compliance with the applicable provisions of Rule 144. Beginning 90 days after
the date of this Prospectus, approximately 894,168 additional shares subject
to Lock-Ups will become eligible for sale in the public market pursuant to
Rule 144. The Company has registered all the shares of Common Stock reserved
for issuance under the Company's stock option plans as of the date of this
Prospectus. As of December 31, 1996, the Company had reserved 2,520,654 shares
of Common Stock for issuance under the Company's stock option plans. In
addition, holders of approximately 4,859,912 shares of Common Stock will be
entitled to certain registration rights with respect to such shares. If such
holders, by exercising their registration rights, cause a large number of
shares to be registered and sold in the public market, such sales could have a
material adverse effect on the market price of the Company's Common Stock. In
addition, any demand of such holders to include such shares in Company-
initiated registration statements could have an adverse effect on the
Company's ability to raise needed capital. See "Description of Capital Stock,"
"Shares Eligible for Future Sale" and "Underwriting."
17
<PAGE>
IMMEDIATE AND SUBSTANTIAL DILUTION
Purchasers of shares of Common Stock in this offering will incur immediate
and substantial dilution in the pro forma net tangible book value per share
from the public offering price. In addition, investors purchasing shares in
this offering will incur additional dilution to the extent that stock options
and warrants (whether currently outstanding or subsequently issued or granted)
are exercised. See "Dilution."
BROAD MANAGEMENT DISCRETION IN USE OF PROCEEDS
The Company anticipates using approximately $25.0 million of the net
proceeds of this offering to implement full-scale marketing and sales of the
ThinPrep System for cervical cancer screening, supported by customer and
technical service representatives, in the United States, approximately $10.0
million of the net proceeds of this offering to establish international
marketing, sales and customer support capabilities, with the remainder to be
used for working capital and general corporate purposes. As a consequence, the
Company's management will have the discretion to allocate a significant
percentage of the net proceeds to uses that stockholders may not consider
desirable, and there can be no assurance that the net proceeds can or will be
invested to yield a significant return. See "Use of Proceeds."
LACK OF DIVIDENDS
The Company currently intends to retain all earnings, if any, for future
growth and, therefore, does not intend to pay cash dividends on its Common
Stock in the foreseeable future. See "Dividend Policy."
18
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 2,000,000 shares of
Common Stock offered by the Company hereby will be approximately $48.2 million
($55.5 million if the Underwriters' over-allotment option is exercised in
full), based on the assumed public offering price of $25.75 per share, after
underwriting discounts, commissions and estimated offering expenses.
The Company anticipates using approximately $25.0 million of the net
proceeds of this offering for the full-scale marketing and sales of the
ThinPrep System for cervical cancer screening, supported by customer and
technical service representatives, in the United States, approximately $10.0
million of the net proceeds of this offering to establish international
marketing, sales and customer support capabilities, with the remainder to be
used for working capital and general corporate purposes. The Company may also
use a portion of the net proceeds for the acquisition of businesses, products
and technologies that are complementary to those of the Company, although no
such acquisitions are currently being negotiated and no portion of the net
proceeds has been allocated for any specific acquisition. The Company will
have broad discretion over a significant portion of the proceeds of the
offering. The amounts and timing of the Company's expenditures may vary
significantly depending upon numerous factors, including market acceptance of
the ThinPrep System for cervical cancer screening, the timing of the
transition to full-scale manufacturing, the timing of expenditures required
for the Company's research and development programs, the results of clinical
trials for additional applications, the timing of regulatory actions, and the
availability of adequate reimbursement by third-party payors. Pending such
uses, the Company intends to invest the net proceeds in investment-grade,
interest-bearing securities.
DIVIDEND POLICY
The Company has not declared or paid any cash dividends since its inception.
The Company currently intends to retain its earnings for future growth and,
therefore, does not anticipate paying any cash dividends in the foreseeable
future. Future cash dividends, if any, will be determined by the Company's
Board of Directors.
19
<PAGE>
PRICE RANGE OF COMMON STOCK
The Company's Common Stock is traded on the Nasdaq National Market under the
symbol "CYTC." The following table sets forth, for the calendar periods
indicated since the Company's initial public offering in March 1996, the range
of high and low sales prices for the Common Stock of the Company on the Nasdaq
National Market. These prices do not include retail mark-up, mark-down or
commissions.
<TABLE>
<CAPTION>
HIGH LOW
---- ----
<S> <C> <C>
1996
First Quarter (from March 8, 1996)......................... $18 $15 7/8
Second Quarter............................................. 34 1/2 16
Third Quarter.............................................. 26 1/8 12
Fourth Quarter............................................. 29 3/4 11 3/4
1997
First Quarter (through January 6, 1997).................... 27 3/4 25 1/4
</TABLE>
As of January 6, 1997, there were 227 holders of record of the Company's
Common Stock. On January 6, 1997, the last sale price reported on the Nasdaq
National Market for the Company's Common Stock was $25.75 per share.
20
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company as of
September 30, 1996 and as adjusted to reflect the sale of the 2,000,000 shares
of Common Stock offered by the Company hereby, at an assumed public offering
price of $25.75 per share and the application of the estimated net proceeds
therefrom:
<TABLE>
<CAPTION>
SEPTEMBER 30, 1996
--------------------
ACTUAL AS ADJUSTED
------- -----------
(in thousands)
<S> <C> <C>
Stockholders' equity:
Preferred Stock, $0.01 par value; 5,000,000
shares authorized, no shares issued as adjusted......... $ -- $ --
Common Stock, $0.01 par value; 30,000,000
shares authorized, 13,802,932 shares issued and
outstanding;
and 15,802,932 shares issued and outstanding, as
adjusted (1)............................................ 138 158
Additional paid-in capital............................... 93,301 141,501
Accumulated deficit...................................... (43,248) (43,248)
------- --------
Total stockholders' equity............................ 50,191 98,411
------- --------
Total capitalization................................ $50,191 $98,411
======= ========
</TABLE>
- --------
(1) Excludes 204,048 shares of Common Stock issued upon the exercise of stock
options between October 1, 1996 and December 31, 1996, at a weighted-
average exercise price of $1.30 per share; 1,710,526 shares of Common
Stock issuable upon the exercise of stock options outstanding as of
December 31, 1996 granted under the Company's stock option plans, at a
weighted-average exercise price of $7.95 per share; and 2,000 shares of
Common Stock issuable upon the exercise of an outstanding warrant at an
exercise price of $10.00 per share. See Note 10 of Notes to Consolidated
Financial Statements.
21
<PAGE>
DILUTION
The net tangible book value of the Company as of September 30, 1996 was
approximately $50.1 million in the aggregate, or $3.63 per share of Common
Stock based upon 13,802,932 shares outstanding. After giving effect to the
sale by the Company of the 2,000,000 shares of Common Stock offered hereby, at
an assumed offering price of $25.75 per share and the receipt of net proceeds
therefrom (after deducting the underwriting discounts and commissions and
estimated offering expenses payable by the Company), the pro forma net
tangible book value of the Company as of September 30, 1996 would have been
approximately $98.3 million or $6.22 per share of Common Stock, based upon
15,802,932 shares outstanding. This represents an immediate increase in net
tangible book value of approximately $2.59 per share to existing stockholders
and an immediate dilution in net tangible book value of $19.53 per share to
new investors purchasing shares in this offering. The following table
illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Assumed offering price per share (1)........................... $25.75
Net tangible book value before offering (2)(3)............... $3.63
Increase attributable to new investors....................... 2.59
-----
Pro forma net tangible book value after offering (2)(3)........ 6.22
------
Dilution to new investors...................................... $19.53
======
</TABLE>
- --------
(1) Before deduction of the Underwriters' discounts and commissions and
estimated offering expenses payable by the Company.
(2) Net tangible book value per share is equal to total tangible assets of the
Company less total liabilities divided by the number of shares of Common
Stock outstanding.
(3) Based on shares outstanding as of September 30, 1996. Excludes 204,048
shares of Common Stock issued upon the exercise of stock options between
October 1, 1996 and December 31, 1996, at a weighted- average exercise
price of $1.30 per share; 1,710,526 shares of Common Stock issuable upon
the exercise of stock options outstanding as of December 31, 1996 granted
under the Company's stock option plans, at a weighted-average exercise
price of $7.95 per share; and 2,000 shares of Common Stock issuable upon
the exercise of an outstanding warrant at an exercise price of $10.00 per
share. See Note 10 of Notes to Consolidated Financial Statements.
22
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The selected consolidated financial data set forth below for each of the
years ended December 31, 1993, 1994 and 1995 and at December 31, 1994 and 1995
are derived from consolidated financial statements of the Company audited by
Arthur Andersen LLP, independent public accountants, which are included
elsewhere herein. The consolidated selected financial data for the years ended
December 31, 1991 and 1992 and at December 31, 1991, 1992 and 1993 are derived
from consolidated financial statements of the Company audited by Arthur
Andersen LLP which are not included in this Prospectus. The consolidated
statement of operations data for the nine months ended September 30, 1995 and
1996 and the consolidated balance sheet data as of September 30, 1996 have
been derived from unaudited financial statements which have been included
elsewhere herein. The unaudited financial statements include all adjustments
(consisting only of normal recurring adjustments) that the Company considers
necessary for a fair presentation of the financial information set forth
herein. The results for interim periods are not necessarily indicative of the
results expected for the full year or for any future period. The selected
consolidated financial data set forth below should be read in conjunction with
the Consolidated Financial Statements and related Notes thereto and with
Management's Discussion and Analysis of Financial Condition and Results of
Operations appearing elsewhere in this Prospectus.
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
----------------------------------------------- ----------------
1991 1992 1993 1994 1995 1995 1996
------- -------- -------- -------- -------- ------- -------
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales.................... $ 628 $ 2,589 $ 3,441 $ 2,920 $ 4,273 $ 2,751 $ 5,485
Cost of sales................ 815 2,080 5,088 2,225 2,413 1,502 3,102
------- -------- -------- -------- -------- ------- -------
Gross profit................. (187) 509 (1,647) 695 1,860 1,249 2,383
------- -------- -------- -------- -------- ------- -------
Operating expenses:
Research and development... 2,681 2,914 3,058 2,175 3,908 2,774 3,343
Marketing, sales and
customer support.......... 1,041 2,049 3,417 1,418 2,582 1,804 6,374
General and administrative. 679 901 2,257 1,256 1,532 992 2,235
------- -------- -------- -------- -------- ------- -------
Total operating expenses. 4,401 5,864 8,732 4,849 8,022 5,570 11,952
------- -------- -------- -------- -------- ------- -------
Income (loss) from
operations.................. (4,588) (5,355) (10,379) (4,154) (6,162) (4,321) (9,569)
Other income (expense), net.. 250 220 108 (112) 247 115 1,509
------- -------- -------- -------- -------- ------- -------
Net income (loss)........ $(4,338) $ (5,135) $(10,271) $ (4,266) $ (5,915) $(4,206) $(8,060)
======= ======== ======== ======== ======== ======= =======
Pro forma (1):
Net income (loss) per
share .................... $ (0.62) $ (0.65) $ (1.22) $ (0.48) $ (0.54) $ (0.39) $ (0.63)
======= ======== ======== ======== ======== ======= =======
Weighted average shares
outstanding............... 7,038 7,849 8,409 8,954 10,868 10,868 12,737
<CAPTION>
DECEMBER 31,
----------------------------------------------- SEPTEMBER 30,
1991 1992 1993 1994 1995 1996
------- -------- -------- -------- -------- ----------------
(in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash, cash equivalents and
short-term investments...... $ 1,123 $ 7,558 $ 1,662 $ 2,777 $ 7,902 $43,814
Total assets................. 2,875 10,190 3,217 3,851 11,025 52,772
Accumulated deficit.......... (9,601) (14,736) (25,007) (29,273) (35,188) (43,248)
Total stockholders' equity
(deficit)................... 2,461 9,380 (883) (2,112) 8,078 50,191
</TABLE>
- --------
(1) See Note 2 of Notes to Consolidated Financial Statements for an
explanation of the computation of per share data.
23
<PAGE>
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 which involve
risks and uncertainties. The Company's actual results could differ materially
from those anticipated in these forward-looking statements as a result of
certain factors, including those set forth under "Risk Factors" and elsewhere
in this Prospectus.
OVERVIEW
The Company designs, develops, manufactures and markets a sample preparation
system for medical diagnostic applications. The ThinPrep System consists of
the ThinPrep 2000 Processor, and related disposable reagents, filters and
other supplies. The Company has marketed the ThinPrep System for use in non-
gynecological testing applications since 1991. On May 20, 1996, the Company
received PMA approval from the FDA to market the ThinPrep System for cervical
cancer screening as a replacement for the conventional Pap smear method. On
November 6, 1996, the FDA cleared expanded product labeling for the ThinPrep
System to include the claim that the ThinPrep System is significantly more
effective in detecting LGSIL and more severe lesions than the conventional Pap
smear method in a variety of patient populations. The expanded labeling also
indicates that the specimen quality using the ThinPrep System is significantly
improved over that of the conventional Pap smear method. To date,
substantially all of the Company's revenues have been derived from sales of
the ThinPrep System for use in non-gynecological testing applications.
Since inception, the Company has incurred substantial losses, principally
from expenses associated with obtaining FDA approval of the Company's ThinPrep
System for cervical cancer screening, engineering and development efforts
related to the ThinPrep System, expansion of the Company's manufacturing
facilities, and the establishment of a marketing and sales organization. The
Company expects such losses to continue for the foreseeable future as it
expands its domestic and establishes its international marketing and sales
activities, continues its product development efforts, and commences full-
scale manufacturing of the ThinPrep System for cervical cancer screening. The
operating results of the Company have fluctuated significantly in the past on
an annual and a quarterly basis. The Company expects that its operating
results will fluctuate significantly from quarter to quarter in the future and
will depend on a number of factors, including the extent to which the
Company's products gain market acceptance, the rate and size of expenditures
incurred as the Company expands its domestic and establishes its international
sales and distribution networks, the timing of any approvals of the ThinPrep
System for reimbursement by third-party payors, and other factors, many of
which are outside the Company's control.
In June 1996, the Company moved from a 17,500 square foot facility to a
51,000 square foot facility. The Company believes that its existing
manufacturing system is inadequate to meet the full-scale production demands
for the ThinPrep System for cervical cancer screening. The Company is
currently installing new custom-built automated equipment for the high-volume
manufacture of disposable filters for use in connection with the ThinPrep
System. The Company expects that such new equipment will be fully operational
in the first half of 1997.
The Company believes that in the United States, the current rate of
reimbursement to laboratories from managed care organizations and other third-
party payors to screen conventional Pap smears ranges from $6.00 to $36.00 per
test, with $17.00 as the most common rate of reimbursement.
The Company has established a list price for the ThinPrep Pap Test,
including related disposable reagents, filters and supplies of $9.75 per test.
The Company believes that the $9.75 cost per ThinPrep Pap Test, plus a
laboratory mark-up, will be billed to third-party payors and result in a
higher cost than the current charge for conventional Pap tests. The list price
for the ThinPrep 2000 Processor is $39,000 per processor. In the past, the
Company has offered discounts to stimulate demand for the ThinPrep System and
may elect to do so in the future, which discounts could have a material
adverse effect on the Company's business, financial condition and results of
operations.
24
<PAGE>
The Company believes that its expanded FDA labeling supported by clinical
trial results may assist in the establishment of increased reimbursement for
the ThinPrep Pap Test. Although United HealthCare has recently announced that
it will expand its health care coverage to include the ThinPrep Pap Test, the
applicable rate of reimbursement has yet to be negotiated between United
HealthCare or its various plans and the specific clinical laboratories
servicing such plans. There can be no assurance that additional third-party
payors will provide such coverage, that reimbursement levels will be adequate,
or that health care providers or clinical laboratories will use the ThinPrep
System for cervical cancer screening in lieu of the conventional Pap smear
method.
The Company will continue to increase the amount of expenditures for
marketing, sales and customer support activities, principally in support of
the full-scale commercial launch of the ThinPrep System for cervical cancer
screening, which is expected to commence in early 1997. There can be no
assurance, however, that such investments will result in increased net sales
or that the Company's direct sales force will succeed in promoting the
ThinPrep System to health care providers, third-party payors or clinical
laboratories, or that additional marketing and sales channels will be
successfully established. The Company will continue to increase its
expenditures for research and development to fund development of follow-on
products and additional applications of the ThinPrep technology. The Company
will also continue to increase the amount of expenditures for administrative
activities, principally for the employment of additional administrative
personnel, increases in professional fees and the incremental costs associated
with being a publicly-held company.
RESULTS OF OPERATIONS
Nine Months Ended September 30, 1996 and September 30, 1995
Net sales increased to $5.5 million for the nine months ended September 30,
1996 from $2.8 million in the same period of 1995, an increase of 99.4%. This
increase in sales was primarily due to an increase in the number of ThinPrep
Processors sold, additional sales of related disposable reagents, filters and
other supplies for non-gynecological testing and sales of the Company's
ThinPrep Pap Test. The increase in net sales for the nine months ended
September 30, 1996 was also attributable to an initial shipment of ThinPrep
2000 Processors and ThinPrep Pap Test supplies of approximately $700,000 to
the Company's distributor in Australia. There can be no assurance that net
sales to Australia will continue or increase in future quarters. Gross profit
increased to $2.4 million for the nine months ended September 30, 1996 from
$1.2 million in the same period of 1995, an increase of 90.8%, and the gross
margin decreased to 43.4% for the nine months ended September 30, 1996 from
45.4% in the same period of 1995. Management attributes the decrease in gross
margin for the nine months ended September 30, 1996 to the lower unit margin
for unit sales to existing customers participating in the Company's trade-up
program by upgrading to the ThinPrep 2000 Processor and the expenses incurred
in moving the Company's operations to Boxborough, Massachusetts during the
quarter ended June 30, 1996.
Total operating expenses increased to $12.0 million for the nine months
ended September 30, 1996 from $5.6 million in the same period of 1995, an
increase of 114.6%. Research and development costs increased to $3.3 million
in 1996 from $2.8 million in 1995, an increase of 20.5%, as a result of the
employment of additional research and development personnel and engineering
consulting expenses related to the development of the ThinPrep 3000 Processor.
Marketing, sales and customer support increased to $6.4 million for the nine
months ended September 30, 1996 from $1.8 million in the same period of 1995,
an increase of 253.3%. The increase in marketing, sales and customer support
costs reflects the employment of additional sales and customer support
personnel, increased commissions, increased customer training requirements and
additional marketing consulting costs related to the anticipated full-scale
commercial launch of the ThinPrep System. Administrative costs increased to
$2.2 million for the nine months ended September 30, 1996 from $992,000 for
the nine months ended September 30, 1995, an increase of 125.3% due to the
employment of additional administrative personnel, increased business
insurance costs and expenses associated with being a publicly-held company.
Net interest income increased to $1.5 million for the nine months ended
September 30, 1996 from $129,000 for the nine months ended September 30, 1995,
due to the investment of funds from the Company's initial public offering.
25
<PAGE>
Years Ended December 31, 1995 and December 31, 1994
Net sales increased to $4.3 million in 1995 from $2.9 million in 1994, an
increase of 46.3%. This increase in sales was primarily due to an increase in
the number of ThinPrep Processors sold for non-gynecological applications, the
introduction of the ThinPrep 2000 Processor, which is marketed at a higher
gross margin, and, to a lesser extent, additional sales of related disposable
reagents, filters and other supplies. Gross profit increased to $1.9 million
in 1995 from $695,000 in 1994, an increase of 167.6%, and gross margin
increased to 43.5% in 1995 from 23.8% in 1994. Management attributes the
improvement in gross margin in 1995 to the introduction of the ThinPrep 2000
Processor and to improvements in manufacturing efficiency based on increased
volume.
Total operating expenses increased to $8.0 million in 1995 from $4.8 million
in 1994, an increase of 65.4%. Research and development costs increased to
$3.9 million in 1995 from $2.2 million in 1994, an increase of 79.7%, as a
result of increased clinical trial expenses and the employment of additional
research and development personnel. Sales, marketing and customer support
costs increased to $2.6 million in 1995 from $1.4 million in 1994, an increase
of 82.1%, as a result of hiring additional sales personnel, increased
commissions and additional consulting costs. Administrative costs increased to
$1.5 million in 1995 from $1.3 million in 1994, an increase of 22.0%, due to
the hiring of a consultant and additional administrative personnel.
Years Ended December 31, 1994 and December 31, 1993
Net sales decreased to $2.9 million in 1994 from $3.4 million in 1993, a
decrease of 15.1%. This decrease resulted from a reduction in the number of
ThinPrep Processors sold, partially offset by an increase in the amount of
sales of related disposable reagents, filters and other supplies. The
reduction in ThinPrep Processor sales in 1994 resulted from the Company's
decision to reduce sales and marketing efforts in 1994, including a reduction
in the number of sales personnel due to an effort to conserve cash. Gross
profit improved to $695,000 in 1994 from a negative gross profit of $1.6
million in 1993 and gross margin increased to 23.8% in 1994 from a negative
gross margin of 47.9% in 1993. Management attributes the improvement in gross
margin in 1994 to improvements in manufacturing efficiency.
Total operating expenses decreased to $4.8 million in 1994 from $8.7 million
in 1993, a decrease of 44.5%. Research and development costs decreased to $2.2
million in 1994 from $3.1 million in 1993, a decrease of 28.9%, as a result of
reductions in the number of research personnel, related research supplies and
the amount of consulting services. Sales, marketing and customer support costs
decreased to $1.4 million in 1994 from $3.4 million in 1993, a decrease of
58.5%, as a result of reductions in the number of sales and marketing
personnel, the amount of travel and supplies, and commissions expense as a
result of a reduction in the number of ThinPrep Processors sold in 1994.
Administrative costs decreased to $1.3 million in 1994 from $2.3 million in
1993, a decrease of 44.4%, as a result of reductions in the number of
administrative personnel and the amounts expended for travel, supplies and
consulting services.
LIQUIDITY AND CAPITAL RESOURCES
Since inception, the Company's expenses have significantly exceeded its
revenues, resulting in an accumulated deficit of $43.2 million as of September
30, 1996. The Company has funded its operations primarily through the private
placement of equity securities of $43.3 million in net proceeds and
approximately $50.0 million in net proceeds from its initial public offering
in 1996. As of September 30, 1996, the Company had cash, cash equivalents and
short-term investments of $43.8 million. Cash used in the Company's operations
was $5.6, $4.6 and $7.0 million for the years ended December 31, 1993, 1994
and 1995, respectively. The increase in cash used in operations in 1995 was
due to increased levels of research and development, clinical trial, marketing
and administrative expenditures. The Company used $9.7 million of cash during
the nine months ended September 30, 1996 for operating activities, primarily
for the expansion of its marketing, sales and customer support organizations.
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The Company's capital expenditures for the years ended December 31, 1993,
1994, 1995 and the nine months ended September 30, 1996 were $188,000,
$286,000, $663,000 and $3.8 million, respectively. The increase in capital
expenditures in the nine months ended September 30, 1996 was due primarily to
the Company's expenditures for new custom-built manufacturing equipment and
leasehold improvements for its new facility. Additionally, as of September 30,
1996, the Company had additional purchase commitments for manufacturing
equipment of approximately $780,000 and for leasehold improvements of
approximately $94,000.
The Company is the exclusive licensee of certain patented technology used in
the ThinPrep System. In consideration for this license, the Company has agreed
to pay a royalty equal to 1% of net sales of the ThinPrep Processor, filter
cylinder disposable products which are used with the ThinPrep System, and
improvements made by the Company relating to such items. There are no minimum
royalty payments in connection with this license.
Accounts receivable increased approximately $778,000 to approximately $2.1
million during the nine months ended September 30, 1996, due to increased
sales volume. Inventories increased approximately $440,000 to $1.2 million for
the nine months ended September 30, 1996, due primarily to the Company's
inventory build up of ThinPrep 2000 Processors and related disposable
reagents, filters and other supplies in anticipation of the Company's move to
its new facility in June 1996 and installation of new custom-built
manufacturing equipment. Stockholders' equity increased approximately $42.1
million for the nine months ended September 30, 1996, primarily due to the
sale of 3,450,000 shares of Common Stock in the Company's initial public
offering, partially offset by a net loss of $8.1 million for the nine months
ended September 30, 1996.
The Company believes that the anticipated net proceeds from this offering
together with interest thereon and the Company's existing capital resources
will be sufficient to fund its operations through at least 1998. However, the
Company's future liquidity and capital requirements will depend upon numerous
factors, including the resources required to further develop its marketing,
and sales capabilities domestically and internationally, the resources
required to expand manufacturing capacity, and the extent to which the
ThinPrep System for cervical cancer screening generates market acceptance and
demand. The Company's capital requirements will also depend upon the progress
of the Company's research and development programs including clinical trials,
the receipt of and the time required to obtain regulatory clearances and
approvals, and the resources the Company devotes to developing, manufacturing
and marketing its products. There can be no assurance that the Company will
not require additional financing or will not in the future seek to raise
additional funds through bank facilities, debt or equity offerings or other
sources of capital. Additional funding may not be available when needed or on
terms acceptable to the Company, which would have a material adverse effect on
the Company's business, financial condition and results of operations.
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BUSINESS
The following Business section contains forward-looking statements which
involve risks and uncertainties. The Company's actual results could differ
materially from those anticipated in these forward-looking statements as a
result of certain factors including those set forth under "Risk Factors" and
elsewhere in this Prospectus.
THE COMPANY
Cytyc Corporation designs, develops, manufactures and markets a sample
preparation system for medical diagnostic applications. The Company's ThinPrep
System allows for the automated preparation of cervical cell specimens on
microscope slides for use in cervical cancer screening, as well as for the
automated preparation of other cell specimens on microscope slides for use in
non-gynecological testing applications. On May 20, 1996, the Company received
PMA approval from the FDA to market the ThinPrep System for cervical cancer
screening as a replacement for the conventional Pap smear method. On November
6, 1996, the FDA cleared expanded product labeling for the ThinPrep System to
include the claim that the ThinPrep System is significantly more effective in
detecting LGSIL and more severe lesions than the conventional Pap smear method
in a variety of patient populations. The expanded labeling also indicates that
the specimen quality using the ThinPrep System is significantly improved over
that of the conventional Pap smear method. The Company believes that the
ThinPrep System improves accuracy in the detection of cervical cancer and
precancerous lesions by making the slide more representative of the patient's
clinical condition, improving preservation of the sample, standardizing the
presentation of cells on the slide, and reducing the presence of mucus, blood
and other obscuring debris. The Company intends to commence the full-scale
commercial launch of the ThinPrep System for cervical cancer screening in the
first quarter of 1997.
CERVICAL CANCER
Cervical cancer is one of the most common cancers among women throughout the
world, with approximately 440,000 new cases reported annually. The American
Cancer Society estimates that approximately 15,800 new cases of invasive
cervical cancer and 65,000 new cases of carcinoma in situ, a precancerous
condition, were diagnosed in the United States in 1995. In the same year, an
estimated 4,800 women died of cervical cancer in the United States. Cervical
cancer is preceded by curable precancerous lesions that progress without
symptoms over a period of years until they become invasive, penetrating the
cervical epithelium (cellular covering) and entering the bloodstream or lymph
system. In order to detect these precancerous lesions, gynecologists in the
United States typically recommend annual screening examinations. If detected
in the precancerous stage, virtually all cervical cancer cases are
preventable. The treatment of cervical cancer after it reaches the invasive
stage may require surgery, including a hysterectomy, and chemotherapy or
radiation treatment, which are difficult, expensive and may not be successful.
The factors associated with the development of cervical cancer are believed
to include early sexual activity, multiple sexual partners, cigarette smoking
and immunosuppression. In addition, a number of recent studies have concluded
that cervical cancer is strongly correlated to the presence of certain types
of HPV. According to these studies, HPV DNA is present in most cases of
precancerous lesions and in more than 90% of cases of intraepithelial and
invasive cancer. Cervical lesions that are HPV-negative or lacking certain
types of HPV are less likely to progress to cervical cancer.
THE PAP SMEAR
The Market for Pap Smears
Cervical cancer screening has been conducted since the late 1940s using the
Pap smear, a test developed by Dr. George Papanicolaou. In the United States,
widespread and regular use of the Pap smear as a screening test has
contributed to a greater than 70% decrease in mortality from cervical cancer
in the past 45 years. The Pap smear is currently the most widely-used
screening test for the early detection of cancer in the United States. In
1994, clinical laboratories in hospitals, commercial laboratories and
privately-owned reference laboratories in the United States processed over 50
million Pap smears. The Company believes that laboratories outside of the
United States processed at least 50 million additional Pap smears in 1994.
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The Pap Smear Process
The Pap smear process involves the science of cytology, which is the
microscopic interpretation of precancerous, malignant and other changes in
cells. The conventional Pap smear process begins with the collection of a
cervical specimen during a gynecological examination. To obtain a cervical
cell sample, a sampling device, such as a brush, spatula or a "broom-like"
device, is used to scrape cells from the surface of the cervix. The sample is
then manually smeared onto a clean microscope slide by the physician who must
then spray the slide within a few seconds with a fixative agent to prevent
damage to the cell specimen from air drying. The slide is then submitted to a
clinical laboratory for manual microscopic examination.
At the laboratory, a cytotechnologist, a medical professional with special
training in the examination and interpretation of human cells, conducts a
microscopic review of a prepared slide to determine the adequacy of the sample
and the presence of abnormal cells. In determining slide adequacy,
cytotechnologists classify each slide in one of three categories: (i)
satisfactory for evaluation, (ii) satisfactory but limited by ("SBLB") certain
characteristics, or (iii) unsatisfactory for evaluation. The percentage of
unsatisfactory and SBLB slides varies widely from laboratory to laboratory. In
a 1991 study of 600 laboratories, it was reported that up to 20% of slides
were classified as unsatisfactory and up to 40% were classified as SBLB.
Frequent reasons for unsatisfactory or SBLB classifications include excess
blood or mucus that impairs viewing or too few cells per slide.
After determining the adequacy of the slide, the cytotechnologist manually
screens each Pap smear slide with a microscope to differentiate diseased or
abnormal cells from healthy cells based on size, shape and structural details
of the cells and nuclei. Typically, each Pap smear slide is then classified in
accordance with The Bethesda System for Reporting Cervical/Vaginal Cytologic
Diagnoses ("Bethesda System") into one of the following categories: (i)
Negative; (ii) Atypical Squamous Cells of Undetermined Significance/Atypical
Glandular Cells of Undetermined Significance ("ASCUS/AGUS"); (iii) LGSIL; (iv)
High Grade Squamous Intraepithelial Lesion ("HGSIL"); and (v) Carcinoma. Any
slide classified as other than negative is considered abnormal and may be
precancerous or cancerous. All abnormal slides are referred to a senior
cytotechnologist and pathologist for further review and final diagnosis.
Notwithstanding the classifications imposed by the Bethesda System, the
subjective nature of the classification of Pap smear specimens results in
diagnoses that vary widely among cytotechnologists, pathologists and
laboratories. In 1988, to address accuracy and quality control concerns,
Congress adopted the Clinical Laboratory Improvement Amendments of 1988
("CLIA"). CLIA requires cytology laboratories to perform proficiency testing
and quality control by testing cytotechnologists in order to assure a minimum
level of competence and expertise. In addition, the CLIA regulations currently
limit the number of slides screened per day by a cytotechnologist to 100.
Certain states have also adopted regulations further limiting the number of
slides which can be manually examined per day by a cytotechnologist. As a
further quality control measure, the CLIA regulations require that
laboratories manually rescreen at least 10% of the slides that are initially
classified as negative.
Other methods of rescreening are currently available, including computer
imaging technologies that select certain negative slides or portions of
negative slides for reexamination by the cytotechnologist. These computer
imaging technologies are intended to provide an additional quality control
measure to help identify false negative diagnoses.
Follow-Up Treatment of Abnormal Pap Smears
Women with abnormal Pap smears may have to return to their physician's
office for a repeat Pap smear or to undergo costly colposcopy and biopsy
procedures. A colposcopy involves the physician using a device to visually
examine the surface of the cervix, and if necessary, performing a biopsy.
Treatment of early-stage noninvasive cervical cancer may be accomplished by
procedures to remove the abnormal cells. Once the cancer reaches the invasive
stage, the patient's chances for recovery are diminished and more radical
treatment is typically required, such as a hysterectomy and chemotherapy or
radiation therapy. These procedures may expose the patient to risk and cost
and result in significant physical and psychological stress.
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PROBLEMS WITH THE CONVENTIONAL PAP SMEAR
In spite of the success of the Pap smear in reducing deaths due to cervical
cancer, the test has significant limitations, including inadequacies in sample
collection and slide preparation, slide interpretation errors and the
inability to use the specimen for additional diagnostic tests. These
limitations result in a substantial number of inaccurate test results,
including false negative diagnoses.
False Negative Diagnoses
The limitations of the conventional Pap smear method in sample collection,
slide preparation and interpretation result in a substantial number of
inaccurate test results in the form of false negative diagnoses. A false
negative diagnosis may allow the disease to progress to a later-stage of
development before being detected, thereby requiring a more expensive and
invasive course of treatment and diminishing the likelihood of successful
treatment. Reports of the false negative rate of the Pap test vary widely,
between 5% and 55%. Studies suggest that approximately 50% of false negative
diagnoses are attributable to inadequacies in sample collection and slide
preparation and approximately 50% are attributable to slide interpretation
errors.
Inadequacies in Sample Collection and Slide Preparation
There are a variety of difficulties with current methods of cell collection,
cell transfer and slide preparation. These difficulties include cell loss,
improper fixation of the cells (typically, from air drying), thick and uneven
smearing of cells on the slide, and excess blood, mucus and other obscuring
debris on the slide. A study published in the American Journal of Clinical
Pathology in February 1994 reported that as much as 80% of the sample taken
from a patient using the conventional Pap smear method is not transferred to
the microscope slide and remains on the discarded collection device. This
discarded portion of the sample may contain the abnormal cells necessary for
an accurate diagnosis. In addition to the problem of cell transfer, the
conventional Pap smear method produces inconsistent and non-uniform slides
with extreme variability in quality, making examination difficult. The Company
believes that these limitations are responsible for a large percentage of
slides being classified as SBLB. These slides are more difficult to interpret
and increase the uncertainty of an accurate diagnosis. Consequently, patients
are often subjected to the inconvenience and expense of return office visits
for repeat testing and to the anxiety resulting from the inconclusive nature
of the initial test. The Company believes that these repeat visits and
examinations also result in significant costs to the health care system.
Slide Interpretation Errors
The process of screening and interpreting a manually prepared Pap smear is
complex and tedious. This process requires constant vigilance, as
approximately 90% to 95% of all Pap smear diagnoses in the United States are
negative. In addition, the process is prone to error as a result of the
complexity of properly evaluating and categorizing subtle and minute changes
in cellular or nuclear detail. The screening process requires intense visual
review through a microscope of a large volume of slides, each of which
typically contains 50,000 to 300,000 cervical cells. The small percentage of
Pap smears that contain any abnormality may, in turn, contain only a small
number of abnormal cells among the vast number of normal cells.
Cytotechnologists generally review each slide for approximately five to 10
minutes and may review up to 100 slides per day. All of these factors
contribute to the incidence of false negative diagnoses.
Lack of Additional Testing Capability
The conventional Pap smear method does not permit additional or adjunct
testing from the original patient sample. The ability to produce multiple
slides from a single sample could be used by clinical laboratories for follow-
up testing, quality control or proficiency testing. Further, the conventional
Pap smear method requires the patient to be called back to the physician's
office to provide a second sample if additional testing, such as HPV testing,
is desired. Recent studies correlating the presence of certain types of HPV to
a higher risk of cervical cancer have suggested HPV testing as a follow-up
procedure for women with a Pap
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<PAGE>
smear classification of ASCUS/AGUS or LGSIL. These studies propose follow-up
HPV testing as an alternative to more expensive and extensive follow-up
procedures, since as many as 80% of these patients will not progress to high
grade lesions or cancer. The National Cancer Institute ("NCI") and the Kaiser
Foundation Research Institute are separately conducting clinical studies in
the United States, using the ThinPrep method of patient sample collection and
a Hybrid Capture HPV test developed by Digene, to demonstrate that
supplementing cervical cancer screening with HPV testing is a cost-effective
method for providing prognostic information for diagnoses that initially show
minor abnormalities. The NCI estimates that expenditures associated with
additional testing and care of patients with a Pap smear classification of
ASCUS/AGUS or LGSIL costs the United States health care system $3.6 billion
annually.
THE THINPREP SYSTEM
Cytyc developed the ThinPrep System to address the limitations of the
conventional Pap smear method. The ThinPrep System, which was cleared for
marketing as a replacement for the conventional Pap smear method for cervical
cancer screening by the FDA on May 20, 1996, consists of the ThinPrep 2000
Processor and related disposable reagents, filters and other supplies. The
ThinPrep System is designed to reduce the incidence of false negative
diagnoses, improve slide quality, reduce inconclusive SBLBs and enable a
single sample to be used for additional diagnostic testing. On November 6,
1996, the FDA cleared expanded product labeling for the ThinPrep System to
include the claim that the ThinPrep System is significantly more effective in
detecting LGSIL and more severe lesions than the conventional Pap smear method
in a variety of patient populations. This expanded labeling also indicates
that the specimen quality using the ThinPrep System is significantly improved
over that of the conventional Pap smear method.
The ThinPrep process begins with the patient's cervical sample being taken
by the physician using a cervical sampling device which, rather than being
smeared on a microscope slide, is rinsed in a vial filled with the Company's
proprietary PreservCyt Solution. This enables virtually all of the patient's
cell sample to be preserved before the cells can be damaged by air drying. The
ThinPrep specimen vial is then labeled and sent to a laboratory equipped with
a ThinPrep 2000 Processor for slide preparation and screening.
At the laboratory, the ThinPrep specimen vial is inserted into a ThinPrep
2000 Processor, a proprietary sample preparation device which automates the
process of preparing cervical specimens. Once the vial is inserted into the
ThinPrep 2000 Processor, a gentle dispersion step breaks up blood, mucus, non-
diagnostic debris and large sheets of cells and homogenizes the cell
population. The cells are then automatically collected on the Company's
proprietary TransCyt Filter, which incorporates an eight micron membrane
specifically designed to collect abnormal and cancerous cells. The ThinPrep
2000 Processor constantly monitors the rate of flow through the TransCyt
Filter during the collection process in order to prevent the cellular
presentation from being too scant or too dense. A thin layer of cells is then
transferred to a glass slide in a 20 mm-diameter circle and the slide is
automatically deposited into a preservative solution. The ThinPrep 2000
Processor allows for the processing of approximately 20 to 25 patient samples
per hour.
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THE THINPREP SAMPLE PREPARATION PROCESS
[Three diagrams depicting the ThinPrep Sample Preparation Process. The text
below accompanies each of the three diagrams:]
(1) Dispersion (2) Cell (3) Cell
Collection Transfer
A gentle vacuum After the cells
The TransCyt is created are collected on
Filter rotates within the the membrane,
within the TransCyt Filter, the TransCyt
sample vial, which collects Filter is
creating cells on the inverted and
currents in the exterior surface gently pressed
fluid that are of the membrane. against the
strong enough to Cell collection ThinPrep
separate debris is controlled by Microscope
and disperse the ThinPrep Slide. Natural
mucus, but 2000 Processor's attraction and
gentle enough to software that slight positive
have no adverse monitors the air pressure
effect on cell rate of flow cause the cells
appearance. through the to adhere to the
TransCyt Filter. ThinPrep
Microscope Slide
resulting in an
even
distribution of
cells in a
defined circular
area.
The Company's proprietary reagents and supplies include PreservCyt Solution
to collect and transport cervical samples to the laboratory for optimal cell
preservation and TransCyt Filters to collect cells and remove non-diagnostic
debris and mucus. The Company also sells ThinPrep Microscope Slides, high-
quality microscope slides manufactured to the Company's specifications, which
improve cell adhesion to the slide.
Additional ThinPrep System Applications
The Company believes that the ThinPrep System's controlled cell collection
and transfer process will permit multiple tests to be conducted from a single
sample without requiring the expense, inconvenience and anxiety associated with
return office visits. For example, in collaboration with Digene, the Company
completed a joint clinical trial in August 1996 designed to demonstrate that
the Company's PreservCyt Solution is an effective transport medium for use in
the testing of cervical cell specimens using Digene's Hybrid Capture HPV test.
Digene's Hybrid Capture assay is the only test cleared in the United States by
the FDA for the follow-up testing of equivocal cervical cell specimens. On
October 4, 1996, the Company submitted a PMA supplement to demonstrate that the
Company's PreservCyt Solution is an effective transport medium for Digene's
Hybrid Capture HPV test.
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BENEFITS OF THE THINPREP SYSTEM
On November 6, 1996, the FDA cleared expanded product labeling for the
ThinPrep System to include the claim that the ThinPrep System is significantly
more effective in detecting LGSIL and more severe lesions than the
conventional Pap smear method in a variety of patient populations. The
expanded labeling also indicates that the specimen quality using the ThinPrep
System is significantly improved over that of the conventional Pap smear
method. The Company believes that the benefits of the ThinPrep System include
the following:
Improved Accuracy
The Company believes that the ThinPrep System improves accuracy in the
detection of cervical cancer and precancerous lesions by making the slide more
representative of the patient's clinical condition, improving preservation of
the sample, standardizing the presentation of cells on the slide, and reducing
the presence of mucus, blood and other obscuring debris. With the ThinPrep
System, a thin, evenly dispersed 20 mm-diameter layer of cells is
automatically deposited onto a microscope slide from the cells collected on
the filter, which maximizes slide to slide uniformity and clarity. This
increased clarity reduces the number of slides classified as SBLB, thereby
resulting in a more definitive diagnosis and decreasing the need for calling
the patient back for repeat testing.
Standardization and Simplification of Sample Preparation Process
The ThinPrep System standardizes and simplifies the sample preparation
process. Rather than manually smearing the sample on a microscope slide and
being required to immediately spray the slide with a fixative agent, the
physician rinses the collection device into a vial of PreservCyt Solution.
This simplified cell collection technique maximizes preservation of cell
structure, minimizes cell damage due to air drying and eliminates problems
associated with inconsistent smearing of cells on slides. Using the ThinPrep
collection process, virtually all of the cell sample is deposited in the
PreservCyt Solution for sample processing. In contrast, as much as 80% of the
sample taken from the patient using the conventional Pap smear method is not
transferred to the microscope slide but remains on the discarded sample
device.
Multiple Tests from Single Sample
The conventional Pap smear only provides a single slide for interpretation.
A patient's sample collected in the Company's PreservCyt Solution vial could
be used for additional diagnostic testing, including HPV, chlamydia and other
sexually transmitted diseases. The ability to permit multiple tests to be
conducted from a single sample would allow additional testing without
requiring the expense, inconvenience and anxiety associated with return office
visits. This feature may also provide for laboratory implementation of quality
control and proficiency of testing methods. FDA approval of new PMA
applications or PMA supplements will be required before the Company may sell
or promote the ThinPrep System for additional diagnostic tests. See "--
Government Regulation."
Improved Productivity
The Company believes that the clear presentation of cells on slides prepared
with the ThinPrep System allows for more efficient screening by reducing
cytotechnologist fatigue and the amount of time required to examine each
slide. A reduction in screening time allows laboratory personnel to devote
more time to quality control, examination of additional samples or other
activities.
CLINICAL TRIAL RESULTS
In October 1995, the Company completed the clinical trial used to support
its PMA application, which was a blinded study performed at six clinical sites
in the United States, including three screening centers and three hospital
sites. This clinical trial was managed by an independent contract research
organization which monitored the clinical sites, compiled the data and
performed statistical analysis. The study was designed to rigorously compare
the effectiveness of the ThinPrep System to the conventional Pap smear method
for the detection of precancerous lesions of the cervix. Specimen adequacy was
also compared.
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The clinical trial protocol was designed as a split sample, matched pair
study, from which a conventional Pap smear was prepared first and the
remainder of the sample was rinsed into a vial of PreservCyt Solution. A
ThinPrep slide was then prepared from the vial. ThinPrep and conventional Pap
smear slides were processed independently. Different cytotechnologists
performed the initial screening of the ThinPrep and conventional slides.
Special reporting forms containing patient history as well as a checklist of
all possible categories of the Bethesda System were used to record the results
of the initial screening. An independent pathologist reviewed all discrepant,
borderline, positive and a random 5% of negative slides in a blinded fashion
to provide a further objective review of the results.
A total of 6,747 patients at six clinical sites in the United States,
including three hospital sites and three screening sites, were included in the
primary data analysis of the clinical trial. Combining the results of all six
sites, the ThinPrep System demonstrated a statistically significant 18%
improvement in the detection of disease (LGSIL or higher classification) as
compared to the conventional Pap smear. The results from the three screening
centers indicated a 65% improvement in the detection of disease, while in the
three hospital sites in which patients had historically exhibited high
prevalence rates of cervical abnormalities, the ThinPrep method demonstrated a
6% improvement. Based on the clinical trial results, the FDA cleared expanded
product labeling for the ThinPrep System to include that the ThinPrep System
is significantly more effective in detecting LGSIL and more severe lesions
than the conventional Pap smear method in a variety of patient populations.
The Company believes that the difference in the results of the screening
centers and the hospital sites was due to the characteristics of the patient
populations of the two groups. The screening centers serve a patient
population of primarily low to moderate risk patients. The three hospital
sites serve high risk, primarily inner city populations where the rates of
gynecological infection were as high as 49%. The Company believes that this
factor reduced the ability to discriminate between the performance of the
ThinPrep System and the conventional Pap smear method. Market data indicate
that approximately 97% of all samples taken for cervical cancer screening in
the United States are obtained from patients seen in clinics and physicians'
offices for routine examinations. Patients seen in hospital outpatient
departments or emergency rooms represent only approximately 3% of the total
Pap smears taken annually. The Company therefore believes that the screening
centers used in the clinical trial are more representative of the cervical
samples taken in routine examinations in the United States.
Slides from each patient were also evaluated for specimen adequacy.
Combining the results of all six sites, the ThinPrep System reduced the SBLB
classification rate of specimen adequacy by 29%, a statistically significant
reduction. The Company believes, based on data submitted with its PMA
application, that the ThinPrep System may reduce SBLB classifications by as
much as 50% if the immersion of the sampling device in the PreservCyt Solution
occurs directly after the sample is taken rather than after the preparation of
a conventional Pap smear slide. The direct immersion procedure reflects the
intended use of the ThinPrep System in clinical practice. Based on the
clinical trial results, the FDA cleared expanded product labeling for the
ThinPrep System to include that the specimen quality using the ThinPrep System
is significantly improved over that of the conventional Pap smear method.
NON-GYNECOLOGICAL CYTOLOGY
In May 1991, the Company began commercial shipments of the ThinPrep
Processor to cytology laboratories in the United States for use in non-
gynecological testing applications. There are currently over 450 ThinPrep 2000
Processors and predecessor instruments installed in clinical laboratories and
hospitals worldwide. Non-gynecological specimens include sputum; voided and
catheterized urine; body fluids such as peritoneal fluid, ascites fluid, or
cerebrospinal fluid; brushing of respiratory or gastrointestinal tracts; and
fine needle aspiration specimens obtained from a variety of sources such as
the breast, thyroid, lung or liver. These samples are evaluated in patients in
whom malignancy is strongly suspected or as follow-up information in patients
previously diagnosed and treated for cancer.
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BUSINESS STRATEGY
Cytyc's objective is to establish the ThinPrep System as the standard of
care for the collection, preservation and slide preparation of cervical cell
specimens. The key elements of the Company's strategy are:
Market to Health Care Providers, Third-Party Payors and Clinical
Laboratories. The Company's strategy is to achieve market acceptance of the
ThinPrep System for cervical cancer screening through the use of a direct
marketing and sales organization to promote the clinical and patient care
benefits of the ThinPrep System. This organization will focus on health care
providers, third-party payors and clinical laboratories to stimulate demand
for the ThinPrep Pap Test, to facilitate reimbursement and to demonstrate the
economic and clinical benefits of the ThinPrep System. As of December 31,
1996, the Company had 46 marketing, sales and customer support professionals,
and intends to substantially increase such number in the forseeable future. In
addition, the Company intends to expand educational and promotional activities
in major metropolitan areas in the United States.
Establish Reimbursement by Third-Party Payors. The Company plans to assist
clinical laboratories in obtaining reimbursement for the ThinPrep System for
cervical cancer screening from a broad range of third-party payors, including
managed care organizations, private insurers, and Medicare and Medicaid. The
Company believes that its clinical trial results and expanded product labeling
may assist in obtaining reimbursement for the ThinPrep Pap Test. While the
Company's customers are currently seeking reimbursement under a non-specific
CPT code, the Company is petitioning to modify an existing CPT code or to
establish a separate CPT code for third-party reimbursement for cervical
cancer screening tests using the ThinPrep System.
Expand and Leverage Installed Customer Base. The Company will seek to expand
and leverage its installed customer base of over 350 ThinPrep 2000 Processors
and 100 predecessor instruments so that existing customers will have the
capability to perform cervical cancer screening. Broadening its installed base
of systems will also expand the Company's opportunity to market and sell its
related disposable reagents, filters and other supplies.
Expand Applications of ThinPrep Technology. The Company believes that the
collection and preservation methods used in the ThinPrep System may be suited
for other types of diagnostic testing, including testing for HPV, chlamydia
and other sexually transmitted diseases. The Company intends to pursue
licensing and collaboration arrangements with other companies to perform
diagnostic tests developed by these companies using the original patient
sample obtained by the ThinPrep System's cell collection and transfer process.
For example, in collaboration with Digene, the Company completed a joint
clinical trial in August 1996 designed to demonstrate that the Company's
PreservCyt Solution is an effective transport medium for use in the testing of
cervical cell specimens using Digene's Hybrid Capture HPV test. On October 4,
1996, the Company submitted a PMA supplement to cover this additional
application of the ThinPrep technology. In addition, the Company believes that
the ability to make multiple slides from a single sample will allow the
Company to pursue quality control and proficiency testing applications of its
ThinPrep technology.
MARKETING AND SALES
The Company's marketing and sales strategy is to achieve broad market
acceptance of the ThinPrep System for cervical cancer screening. A critical
element of this strategy is to utilize the results of the Company's 1995
clinical trial and expanded FDA labeling to demonstrate the safety and
efficacy of the ThinPrep System to health care providers, third-party payors
and clinical laboratories. The Company believes that coordination of the
activity of these three market segments is necessary to achieve the desired
level of market penetration of the ThinPrep System. To accomplish this, the
Company is expanding its direct sales organization in the United States
supported by customer and technical service representatives.
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<PAGE>
Health Care Providers. The Company is expanding its direct marketing and
sales organization to promote the benefits of the ThinPrep System to health
care providers, primarily obstetricians and gynecologists, who perform a high
volume of Pap smear tests in targeted markets in the United States. This
direct sales activity will be supported by focused medical education events,
medical advertising and other promotional activities.
Third-Party Payors. The Company will employ a direct marketing and sales
organization to promote the clinical and economic benefits of the ThinPrep
System to medical and financial decision makers at national managed care
organizations, major private insurers and regional and local third-party
payors. The Company's marketing efforts will also include advertising and
promotional programs that specifically focus on the clinical and economic
benefits of the ThinPrep System.
Clinical Laboratories. The Company will continue to market directly to
clinical laboratories through its direct sales organization, as well as to
conduct promotional activities and provide customer support and service
programs. The Company also employs cytotechnologists who will conduct all
initial customer training and applications support. The Company's direct
marketing and sales organization will focus on the economic benefits of the
ThinPrep System for clinical laboratories.
As of December 31, 1996, the Company employed 46 persons in sales, marketing
and customer support. The Company is also evaluating the use of other
marketing and sales channels, both domestic and international, including
contract sales organizations, distributors and marketing partners. Due to
limited market awareness of the ThinPrep System, the Company believes that the
sales effort will involve a lengthy process, requiring the Company to educate
health care providers and third-party payors regarding the clinical benefits
and cost-effectiveness of the ThinPrep System. The Company's success and
growth will depend on market acceptance of the ThinPrep System among health
care providers, third-party payors and clinical laboratories.
The Company will continue to sell the ThinPrep 2000 Processor to customers
and charge separately for related disposable reagents, filters and supplies.
The Company has established domestic list prices for the ThinPrep 2000
Processor of $39,000 per processor and for the ThinPrep Pap Test, including
related disposable reagents, filters and supplies, of $9.75 per test. In the
past, the Company has offered discounts to stimulate demand for the ThinPrep
System and may elect to do so in the future, which discounts could have a
material adverse effect on the Company's business, financial condition and
results of operations.
In order to effectively market the ThinPrep System for cervical cancer
screening, the Company will need to substantially increase its marketing and
sales capabilities. No assurance can be given that the Company's direct sales
force will succeed in promoting the ThinPrep System to health care providers,
third-party payors or clinical laboratories, or that additional marketing and
sales channels will be successfully established. While the Company is
currently evaluating marketing and sales channels abroad, including contract
sales organizations, distributors and marketing partners, the Company has
established very limited foreign sales channels. There can be no assurance
that the Company will be able to recruit and retain skilled marketing, sales,
service or support personnel or foreign distributors, or that the Company's
marketing and sales efforts will be successful. Failure to successfully expand
its marketing and sales capabilities in the United States or establish its
international marketing and sales organization internationally would have a
material adverse effect on the Company's business, financial condition and
results of operations. The Company's marketing success in the United States
and abroad will depend on whether it can obtain required regulatory approvals,
successfully demonstrate the cost-effectiveness of the ThinPrep System,
further develop its direct sales capability and establish arrangements with
contract sales organizations, distributors and marketing partners. Failure by
the Company to successfully market its products would have a material adverse
effect on the Company's business, financial condition and results of
operations.
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RESEARCH AND DEVELOPMENT
The Company's research and development strategy is to continue to develop
innovative medical diagnostic applications of the ThinPrep technology and to
continue to enhance the ThinPrep System. The Company has established a program
to further enhance and automate the ThinPrep Processor. The Company's next
generation model, the ThinPrep 3000 Processor, is being designed to provide
batch processing and walk-away capability by increasing capacity to 80 sample
vials and more fully-automating the slide preparation process. There can be no
assurance that the ThinPrep 3000 will be successfully developed, receive
necessary regulatory approvals, or be successfully commercialized.
The Company is also evaluating additional diagnostic applications of its
ThinPrep technology in testing for the presence of other types of cancers and
sexually transmitted diseases. The Company has not yet determined which of
these applications, if any, it will seek to develop and commercialize. There
can be no assurance that the Company will be successful in developing or
marketing additional applications. Furthermore, any additional applications
will require submission of a PMA application or PMA supplement prior to the
marketing of such applications. There can be no assurance that the FDA would
approve such submissions on a timely basis, if at all. See "-- Government
Regulation."
In addition, the Company is evaluating the use of certain automated
rescreening methods in conjunction with the ThinPrep System. Such systems use
imaging technology to identify slides as more likely to contain cellular
abnormalities. On November 8, 1996, the Company and Neopath announced the
completion of a joint study of the feasibility of screening cervical specimens
using the ThinPrep System in conjunction with Neopath's AutoPap QC. Additional
development work would be required prior to application to the FDA for the use
of such systems in combination. There can be no assurance that either company
will conduct further development work with respect to this study or that the
Company will be able to integrate successfully the ThinPrep technology with
any automated rescreening technology.
As of December 31, 1996, the Company had 30 employees engaged in research
and development. The Company's expenditures for research and development
(which includes clinical trials, regulatory affairs and engineering) were
approximately $3.1 million, $2.2 million, $3.9 million and $3.3 million, for
the years ended December 31, 1993, 1994 and 1995 and the nine months ended
September 30, 1996, respectively.
THIRD-PARTY REIMBURSEMENT
The Company intends to focus on obtaining coverage and reimbursement from
major national and regional managed care organizations and insurance carriers
throughout the United States. Most of the third-party payor organizations
independently evaluate new diagnostic procedures by reviewing the published
literature or the Medicare coverage and reimbursement policy on the specific
diagnostic procedure. To assist the third-party payors in their respective
evaluations of the ThinPrep System, the Company provides scientific and
clinical data to support its claims of the safety and efficacy of the ThinPrep
System. The Company believes that the ThinPrep System will allow for earlier
detection of LGSIL and more severe lesions and result in less aggressive and
costly treatment procedures. In addition, the Company expects that the
ThinPrep System will significantly improve specimen adequacy, thereby reducing
repeat office visits and test procedures and thus overall management costs.
The Company will focus on earlier disease detection and cost savings benefits
in establishing reimbursement for the ThinPrep method for cervical cancer
screening.
In the United States, the current rate of reimbursement to laboratories from
managed care organizations and other third-party payors to screen conventional
Pap smears ranges from $6.00 to $36.00 per test, with $17.00 as the most
common rate of reimbursement. The Company has established a list price for the
ThinPrep Pap test, including related disposable reagents, filters and supplies
of $9.75 per test. The Company believes that the $9.75 cost per ThinPrep Pap
Test, plus a laboratory mark-up, will be billed to third-party payors and
result in a higher cost than the current charge for conventional Pap tests.
Successful sales of the ThinPrep System for cervical cancer screening in the
United States and other countries will depend on the availability of
reimbursement from third-party payors such as private insurance plans, managed
care organizations, and Medicare and Medicaid. On November 20, 1996, United
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HealthCare announced that it will expand its health care coverage to include
the ThinPrep Pap Test, however, the applicable rate of reimbursement has yet
to be negotiated between United HealthCare or its various plans and the
specific clinical laboratories servicing such plans. There can be no assurance
that additional third-party payors will provide such coverage, that
reimbursement levels will be adequate or that health care providers or
clinical laboratories will use the ThinPrep System for cervical cancer
screening in lieu of the conventional Pap smear method. There is significant
uncertainty concerning third-party reimbursement for the use of any medical
device incorporating new technology. Reimbursement by a third-party payor
depends on a number of factors, including the level of demand by health care
providers and the payor's determination that the use of the ThinPrep System
represents a clinical advance compared to current technology and is safe and
effective, medically necessary, appropriate for specific patient populations
and cost-effective. Since reimbursement approval is required from each payor
individually, seeking such approvals is a time-consuming and costly process
which requires the Company to provide scientific and clinical data to support
the use of the ThinPrep System to each payor separately. There can be no
assurance that third-party reimbursement will be available for the ThinPrep
System or any other products that may be developed by the Company, or that
such third-party reimbursement, if obtained, will be adequate.
A key component in the reimbursement decision by most private insurers and
the United States Health Care Financing Administration, which administers
Medicare, is the assignment of a CPT code which is used in the submission of
claims to insurers for reimbursement for medical services. CPT codes are
assigned, maintained and revised by the CPT editorial board administered by
the American Medical Association. Although the Company has commenced sales of
the ThinPrep Pap Test, to date reimbursement has only been obtained through
the use of a non-specific CPT code. The Company has petitioned the CPT
editorial board to modify an existing CPT code or to establish a separate CPT
code for the ThinPrep System for cervical cancer screening. The Company
believes that the CPT editorial board will render a decision on the Company's
petition at its regularly scheduled meeting to address such matters in the
second quarter of 1997, which if approved, such code will not be available for
use prior to 1998. Failure to secure a modification to an existing code or to
establish a separate code from the CPT editorial board could have a material
adverse effect on the Company on the Company's business, financial condition
and results of operations.
The Company has very limited experience in obtaining reimbursement for its
products in the United States or other countries. In addition, third-party
payors are routinely limiting reimbursement coverage for medical devices and
in many instances are exerting significant pressure on medical suppliers to
lower their prices. Lack of or inadequate reimbursement by government and
other third-party payors for the Company's products would have a material
adverse effect on the Company's business, financial condition and results of
operations. Further, outside of the United States health care reimbursement
systems vary from country to country, and there can be no assurance that
third-party reimbursement will be made available at an adequate level, if at
all, for the ThinPrep System under any other reimbursement system.
MANUFACTURING
The Company manufactures its ThinPrep 2000 Processors and filters and
purchases related disposable reagents and supplies from third parties. In June
1996, the Company moved from a 17,500 square foot facility to a 51,000 square
foot facility. The Company believes that its existing manufacturing system is
inadequate to meet the full-scale production demands for the ThinPrep System
for cervical cancer screening. The Company is currently installing new custom-
built automated equipment for the high-volume manufacture of disposable
filters for use in connection with the ThinPrep System, which the Company
expects will be fully operational in the first half of 1997.
The Company has limited manufacturing experience, and there can be no
assurance that the Company will be able to recruit and retain a sufficient
number of skilled manufacturing personnel or manufacture and supply the
ThinPrep System including the related disposable reagents, filters and other
supplies in a timely manner, or at a cost or in quantities necessary to make
them commercially viable. The Company's manufacturing process is subject to
pervasive and continuing regulation by the FDA, including the FDA's GMP
requirements. Failure to comply
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with such regulations would materially impair the Company's ability to achieve
or maintain commercial-scale production. Further, any failure of the custom-
built equipment to perform to the Company's specifications or expectations, or
any other delay in the full implementation of such equipment due to necessary
training of the Company's personnel or otherwise, could further impair the
Company's ability to establish full-scale production capability in a timely
manner, or at all. If the Company is unable to achieve full-scale production
capability on a timely basis, or to sustain such capability, the acceptance by
the market of the Company's ThinPrep System could be impaired and such
inability would have a material adverse effect on the Company's business,
financial condition and results of operations. Further, the Company has
limited manufacturing experience with the ThinPrep System and, accordingly,
there can be no assurance that the Company's ThinPrep System for cervical
cancer screening will perform adequately in the field when subjected to use
under a variety of conditions. As a result, the Company may be subject to
total or partial suspension of production, withdrawal of approval, and recall
or seizure or products in the event of product malfunction or failure.
The Company is seeking ISO 9001 registration, an international quality
standard, and is seeking the "CE" mark for its ThinPrep System. The CE mark is
recognized by countries that are members of the European Union and the
European Free Trade Association and, effective in 1998, will be required to be
affixed to all medical devices sold in the European Union. There can be no
assurance that the Company will be able to attain or maintain compliance with
GMP requirements, obtain the CE mark for the ThinPrep System, or satisfy ISO
9001 standards. Failure to either attain or maintain compliance with the
applicable manufacturing requirements of various regulatory agencies would
have a material adverse effect on the Company's business, financial condition
and results of operations.
Certain key components of the Company's ThinPrep System are currently
provided to the Company by single sources. In the event that the Company is
unable to obtain sufficient quantities of such components on commercially
reasonable terms, or in a timely manner, the Company would not be able to
manufacture its products on a timely and cost-competitive basis, which would
have a material adverse effect on the Company's business, financial condition
and results of operations.
GOVERNMENT REGULATION
The manufacture and sale of medical diagnostic devices intended for
commercial use are subject to extensive governmental regulation in the United
States and in other countries. The Company's existing products, including the
ThinPrep System, are regulated in the United States as medical devices by the
FDA under the Federal Food, Drug, and Cosmetic Act ("FDC Act") and generally
require premarket clearance or premarket approval prior to commercial
distribution. In addition, certain material changes or modifications to
medical devices also are subject to the FDA review and clearance or approval.
Pursuant to the FDC Act, the FDA regulates the research, testing, manufacture,
safety, labeling, storage, record keeping, advertising, distribution and
production of medical devices in the United States. Noncompliance with
applicable requirements can result in failure of the government to grant
premarket approval for devices, withdrawal of clearances or approvals, total
or partial suspension of production, fines, injunctions, civil penalties,
recall or seizure of products, and criminal prosecution.
Medical devices are classified into one of three classes, Class I, II or
III, on the basis of the controls deemed by the FDA to be necessary to
reasonably ensure their safety and effectiveness. Class I devices are subject
to general controls (e.g., labeling, premarket notification and adherence to
GMPs). Class II devices are subject to general controls and to special
controls (e.g., performance standards, postmarket surveillance, patient
registries and other FDA guidelines). Generally, Class III devices are those
which must receive premarket approval by the FDA to ensure their safety and
effectiveness (e.g., life-sustaining, life-supporting and implantable devices,
or new devices which have not been found substantially equivalent to legally
marketed devices), and require clinical testing to ensure safety and
effectiveness and FDA approval prior to marketing and distribution. The FDA
also has the authority to require clinical testing of Class I and II devices.
A PMA application must be filed if the proposed device is not substantially
equivalent to a legally marketed
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predicate device or if it is a Class III pre-amendment device for which the
FDA has called for such applications.
If human clinical trials of a device are required and the device presents a
"significant risk," the sponsor of the trial (usually the manufacturer or
distributor of the device) is required to file an investigational new device
("IDE") application prior to commencing human clinical trials. The IDE
application must be supported by data, typically including the results of
animal and laboratory testing. If the IDE application is approved by the FDA
and one or more appropriate institutional review boards ("IRBs"), clinical
trials may begin at a specified number of investigational sites with a
specific number of patients, as approved by the FDA. If the device presents a
"nonsignificant risk" to the patient or is an exempt diagnostic device, a
sponsor may begin the clinical trial after obtaining approval for the study
from one or more appropriate IRBs, but FDA approval is not required. Sponsors
of clinical trials are permitted to sell devices distributed in the course of
the study provided compensation does not exceed recovery of the cost of
manufacture, research, development and handling.
Generally, before a new device can be introduced into the market in the
United States, the manufacturer or distributor must obtain FDA clearance of a
510(k) premarket notification or approval of a PMA application. If a medical
device manufacturer or distributor can establish that a device is
"substantially equivalent" to a legally marketed Class I or Class II device,
or to a pre-amendment Class III device for which the FDA has not called for
PMA applications, the manufacturer or distributor may seek clearance from the
FDA to market the device by filing a 510(k) premarket notification. The 510(k)
notification may need to be supported by appropriate clinical data.
Following submission of a 510(k) premarket notification, the manufacturer or
distributor may not place the device into commercial distribution until an
order is issued by the FDA. No law or regulation specifies the time limit by
which the FDA must respond to a 510(k) premarket notification. An FDA order
may declare that the device is substantially equivalent to another legally
marketed device and allow the proposed device to be marketed in the United
States. The FDA, however, may determine that the proposed device is not
substantially equivalent or require further information, including clinical
data, to make a determination of substantial equivalence. Such determinations
or requests for additional information could prevent or delay market
introduction of the product that is the subject of the 510(k) premarket
notification.
In 1990, the FDA determined that the ThinPrep System when used for non-
gynecological applications is a Class I device, but the FDA exempted it from
the 510(k) requirement that ordinarily applies to a Class I device. The
ThinPrep System for non-gynecological applications remains subject to other
general controls, including GMP requirements, which include elaborate testing,
control, documentation and other quality assurance procedures. The FDA has
recently finalized changes to the GMP regulations, including design control
and service record requirements, that likely will increase the cost of
compliance. The Company does not at present have any other Class I or II
devices.
If a manufacturer or distributor of a proposed device cannot establish that
the device is substantially equivalent to a legally marketed device, the
manufacturer or distributor must seek marketing approval of the proposed
device through submission of a PMA application. A PMA application must be
supported by extensive data, including preclinical and clinical trial data, as
well as extensive literature to prove the safety and effectiveness of the
device.
Upon receipt of the PMA application, the FDA makes a threshold determination
as to whether the application is sufficiently complete to permit a substantive
review. If the FDA so determines, the FDA will "accept the PMA for filing." An
FDA review of a PMA application for medical devices typically takes from six
months to three years from the date the PMA application is filed, but may take
significantly longer. The review time is often significantly extended by
requests from the FDA for more information or clarification of information
already provided in the submission. During the review period, an advisory
committee, including clinicians, may be convened to review and evaluate the
application and provide recommendations to the FDA
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as to whether the device should be approved. In addition, the FDA will inspect
the applicant's manufacturing facility to ensure compliance with GMP
requirements prior to approval of a PMA application. The FDA also may conduct
bioresearch monitoring inspections of the clinical trial sites and the PMA
applicant to ensure data integrity, and that the studies were conducted in
compliance with the applicable FDA regulations.
The PMA process can be expensive, lengthy and uncertain. There can be no
assurance that the Company will be able to obtain necessary regulatory
approvals for any proposed future products. The loss of previously received
approvals, or failure to comply with existing or future regulatory
requirements, would have a material adverse effect on the Company's business,
financial condition and results of operations.
The FDA's regulations require agency approval of a PMA supplement for
certain changes if they affect the safety and effectiveness of the device,
including, but not limited to, new indications for use; labeling changes; the
use of a different facility or establishment to manufacture, process, or
package the device; changes in manufacturing facilities, methods, or quality
control systems; and changes in performance or design specifications.
The ThinPrep System for cervical cancer screening is a Class III device that
received PMA approval in May 1996. The Company anticipates that other
applications for the ThinPrep System will require FDA approval of a PMA
supplement or a new PMA application. There can be no assurance that such
approvals will be obtained on a timely basis, or at all.
The ThinPrep System is, and any other products manufactured or distributed
by the Company pursuant to an approved PMA application and supplements will be
subject to pervasive and continuing regulation by the FDA, including record-
keeping requirements, reporting of adverse experience with the use of the
device, postmarket surveillance, postmarket registry and other actions as
deemed necessary by the FDA. Product labeling and promotional activities are
also subject to scrutiny by the FDA and, in certain instances, by the Federal
Trade Commission. Products may only be promoted by the Company and any of its
distributors for their approved indications. No assurance can be given that
modifications to the labeling which may be required by the FDA in the future
will not adversely affect the Company's ability to market or sell the ThinPrep
Processor.
The Company also is subject to numerous federal, state and local laws
relating to such matters as safe working conditions, manufacturing practices,
environmental protection, fire hazard control and disposal of hazardous or
potentially hazardous substances. There can be no assurance that the Company
will not be required to incur significant costs to comply with such laws and
regulations in the future, or that such laws or regulations will not have a
material adverse effect upon the Company's business, financial condition and
results of operations.
Sales of medical devices outside of the United States are subject to foreign
regulatory requirements that vary widely from country to country. The time
required to obtain approval by a foreign country may be longer or shorter than
that required for FDA approval, and the requirements may differ. No assurance
can be given that such foreign regulatory approvals will be granted on a
timely basis, or at all. Exports of products subject to the 510(k)
notification requirements, but not yet cleared to market, are permitted
without FDA export approval provided certain requirements are met. Unapproved
products subject to the PMA requirements must receive prior FDA export
approval unless they are approved for use by any member country of the
European Union and certain other countries, including Australia, Canada,
Israel, Japan, New Zealand, Switzerland and South Africa, in which case they
can be exported to any country without prior FDA approval. There can be no
assurance that the Company will meet the FDA's export requirements or receive
FDA export approval when such approval is necessary, or that countries to
which the devices are to be exported will approve the devices for import.
Failure of the Company to meet the FDA's export requirements or obtain FDA
export approval when required to do so, or to obtain approval for import,
could have a material adverse effect on the Company's business, financial
condition and results of operations.
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The Company is currently installing new custom-built automated manufacturing
equipment which incorporates new materials handling procedures. Such equipment
is expected to be operational in the first half of 1997. The Company believes
that this equipment does not require a PMA supplement but will be reported to
the FDA in the Company's May 1997 PMA annual report, which must report changes
made without filing a PMA supplement. There can be no assurance, however, that
the FDA will agree that the change does not require approval of a new PMA
supplement. If the FDA requires the Company to submit a PMA supplement for the
change, the Company will revert to using its existing manufacturing equipment,
which could have a material adverse effect on the Company's business,
financial condition and results of operation.
In July 1996, the Company filed a PMA supplement requesting approval of the
ThinPrep System using the endocervical brush sampling device, which is a
commonly used method of collecting samples for conventional Pap smears. The
ThinPrep System is currently approved for use only with a "broom-like"
sampling device, which was developed more recently and is not as widely used
as the brush and spatula. There can be no assurance that the FDA will approve
the PMA supplement in a timely fashion, or at all. A delay in obtaining, or
failure to obtain, such approval could have a material adverse effect on the
Company's to gain market acceptance.
In September 1996, the Company submitted a PMA supplement requesting the
FDA's approval of certain manufacturing process and material changes (and
other related changes to the device, including a software modification). There
can be no assurance that the FDA will approve the PMA Supplement on a timely
basis, if at all.
In October 1996, the Company filed a PMA supplement requesting approval of
the use of PreservCyt Solution as an alternative transport medium for
gynecologic specimens tested with the Digene's Hybrid Capture HPV DNA test.
The approval of the PMA supplement is necessary in order for the Company to
promote the ThinPrep System as capable of conducting Digene's assay and
cervical cancer screening from a single specimen. There can be no assurance
that the FDA will agree that the clinical data from that study supports
approval of the PMA supplement, nor can there be any assurance that the FDA
will approve the PMA supplement in a timely fashion, if at all. A delay in
obtaining, or failure to obtain, such approval could have a material adverse
effect on the Company's ability to gain market acceptance based on the
ThinPrep System's capability of conducting multiple tests from a single
specimen.
In addition, the laboratories that would purchase the ThinPrep System are
subject to extensive regulation under the Clinical Laboratory Improvement
Amendments of 1988 (CLIA). The Company believes that it has designed the
ThinPrep System in order to enable laboratories purchasing the device to
comply with CLIA requirements applicable to the use of this device for
cervical cancer screening. However, there can be no assurance that it does
comply, or that it will comply with future changes in CLIA requirements. If
the ThinPrep System does not comply with CLIA requirements, there would be a
material adverse effect on sales of the device.
PATENTS, COPYRIGHTS, LICENSES AND PROPRIETARY RIGHTS
The Company relies on a combination of patents, trade secrets, copyrights
and confidentiality agreements to protect its proprietary technology, rights
and know-how. The Company holds seven issued United States patents, and has
three United States patent applications pending, relating to various aspects
of its ThinPrep technology. There can be no assurance, however, that pending
patent applications will ultimately issue as patents or that the claims
allowed in any of the Company's existing or future patents will provide
competitive advantages for the Company's products or will not be successfully
challenged or circumvented by competitors. Under current law, patent
applications in the United States are maintained in secrecy until patents are
issued and patent applications in foreign countries are maintained in secrecy
for a period after filing. The right to a patent in the United States is
attributable to the first to invent, not the first to file a patent
application. The Company cannot be sure that its products or technologies do
not infringe patents that may be granted in the
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future pursuant to pending patent applications or that its products do not
infringe any patents or proprietary rights of third parties. In the event that
any relevant claims of third-party patents are upheld as valid and
enforceable, the Company could be prevented from selling its products or could
be required to obtain licenses from the owners of such patents or be required
to redesign its products to avoid infringement. There can be no assurance that
such licenses would be available or, if available, would be on terms
acceptable to the Company or that the Company would be successful in any
attempt to redesign its products or processes to avoid infringement. The
Company's failure to obtain these licenses or to redesign its products would
have a material adverse effect on the Company's business, financial condition
and results of operations. There can be no assurance that the obligations of
employees of the Company and third parties with whom the Company has entered
into confidentiality agreements to maintain the confidentiality of such trade
secrets and proprietary information will effectively prevent disclosure of the
Company's confidential information or provide meaningful protection for the
Company's confidential information if there is unauthorized use or disclosure,
or that the Company's trade secrets or proprietary information will not be
independently developed by the Company's competitors. In addition, the Company
is the exclusive licensee of certain patented technology from DEKA for use in
the field of cytology related to the fluid pumping system used in the ThinPrep
System. The Company is obligated to pay royalties equal to 1% of net sales of
the ThinPrep Processor, filter cylinder disposable products which are used in
the ThinPrep System, and improvements made by the Company relating to such
items. The license provides that it may be terminated (i) by mutual written
consent of both parties or (ii) by DEKA on written notice to the Company in
the event that the license is assigned without the consent of DEKA. Failure by
the Company to maintain rights to such technology could have a material
adverse effect on the Company's business, financial condition and results of
operations. The Company also holds unregistered rights to copyrights on
documentation and operating software developed by it for the ThinPrep System.
There can be no assurance that any copyrights owned by the Company will
provide competitive advantages for the Company's products or will not be
challenged or circumvented by its competitors. Litigation may be necessary to
defend against claims of infringement, to enforce patents and copyrights of
the Company, or to protect trade secrets and could result in substantial cost
to, and diversion of effort by, the Company. There can be no assurance that
the Company would prevail in any such litigation. In addition, the laws of
some foreign countries do not protect the Company's proprietary rights to the
same extent as do the laws of the United States.
COMPETITION
The Company faces direct competition from a number of publicly-traded and
privately-held companies, including other manufacturers of thin layer slide
preparation systems. Many of the Company's existing and potential competitors
have substantially greater financial, marketing, sales, distribution and
technical resources than the Company, and more experience in research and
development, clinical trials, regulatory matters, manufacturing and marketing.
In addition, many of these companies may have established third-party
reimbursement for their products. Several established medical device
manufacturers produce thin layer slide preparation systems for use in non-
gynecological testing applications, at least one of which has achieved brand-
name recognition and significant penetration in the non-gynecological cytology
market. The Company believes that another competitor, AutoCyte, Inc., is
conducting clinical trials of a system for the production and automated
analysis of thin-layer slides, a potential alternative to the conventional Pap
smear and the ThinPrep Pap Test. The development, FDA approval and commercial
marketing of such systems for cervical cancer screening could have a material
adverse effect on the Company's business, financial condition and results of
operations. In addition to direct competition, the Company faces indirect
competition primarily from two companies, Neopath and Neuromedical Systems,
Inc., both of which currently market imaging systems to reexamine or rescreen
conventional Pap smears previously diagnosed as negative. The Company believes
that these rescreening systems, as currently sold, could not be used with the
ThinPrep System, and, therefore, if either of such systems is installed at or
used by hospitals and reference laboratories, the Company's ability to market
its products to such hospitals and laboratories could be materially adversely
affected. In addition, if either company receives FDA approval of its system
as a primary screening system to replace some or all of the manual screening
of conventional Pap smears, marketing of these systems for such purpose could
have a
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material adverse effect on the Company's business, financial condition and
results of operations. The medical device industry is characterized by rapid
product development and technological advances. The Company's products could
be rendered obsolete or uneconomical by the introduction and market acceptance
of competing products, by technological advances of the Company's current or
potential competitors or by other approaches. The Company competes on the
basis of a number of factors, including manufacturing efficiency, marketing
and sales capabilities and customer service and support, areas in which the
Company currently has limited experience. There can be no assurance that the
Company will be able to compete successfully against current or future
competitors or that competition, including the development and
commercialization of new products and technology, will not have a material
adverse effect on the Company's business, financial condition or results of
operations.
PRODUCT LIABILITY
Commercial use of any Company products may expose the Company to product
liability claims. The Company currently has limited product liability
insurance. The medical device industry has experienced increasing difficulty
in obtaining and maintaining reasonable product liability coverage, and
substantial increases in insurance premium costs in many cases have rendered
coverage economically impractical. There can be no assurance that the
Company's existing product liability insurance will be adequate or that
additional product liability insurance will be available to the Company when
needed at a reasonable cost or that any product liability claim would not have
a material adverse effect on the Company's business, financial condition and
results of operations.
EMPLOYEES
As of December 31, 1996, the Company employed 124 persons, including 30
persons in manufacturing, field service and quality assurance, 30 persons in
research and development, 46 persons in sales, marketing and customer support
and 18 persons in administrative capacities. The Company is not subject to any
collective bargaining agreements, has never experienced a work stoppage and
considers its relations with its employees to be good.
FACILITIES
The Company's executive offices and manufacturing operations are located in
Boxborough, Massachusetts in a leased facility consisting of approximately
51,000 square feet. The lease of this facility has a term of seven years, with
an option to extend the term for an additional five years. The Company
believes this facility will satisfy its principal facilities requirements for
the foreseeable future.
LEGAL PROCEEDINGS
The Company is not a party to any material legal proceedings and is not
aware of any threatened litigation that could have a material adverse effect
upon the Company's business, financial condition and results of operations.
44
<PAGE>
MANAGEMENT
EXECUTIVE OFFICERS, DIRECTORS AND KEY EMPLOYEES
The executive officers, directors and key employees of the Company are as
follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Patrick J. Sullivan............. 44 President, Chief Executive Officer and
Director
Joseph W. Kelly................. 52 Vice President, Chief Financial Officer,
Treasurer and Secretary
Daniel J. Levangie.............. 46 Vice President of Sales
Ted S. Geiselman................ 40 Vice President of Engineering and
Operations
Michael F. Adams................ 40 Vice President of Regulatory Affairs
David J. Zahniser, Ph.D. ....... 44 Vice President of Scientific Affairs
Victoria S. Robinson............ 39 Vice President of Service Operations
Robert J. Silverman............. 37 Vice President of Marketing
James Linder, M.D............... 41 Medical Director
Frederick R. Blume (1).......... 54 Director
Guy de Chazal (2)............... 49 Director
Janet G. Effland (1)............ 48 Director
Franklin J. Iris (2)............ 66 Director
Edwin M. Kania, Jr.............. 38 Director
C. William McDaniel (2)......... 56 Director
Monroe Trout, M.D. (1).......... 65 Director
</TABLE>
- --------
(1) Member of Compensation Committee.
(2) Member of Audit Committee.
Patrick J. Sullivan has served as President and Chief Executive Officer and
as a director of the Company since March 1994. From January 1991 to March
1994, Mr. Sullivan served as Vice President of Sales and Marketing and
subsequently as Senior Vice President. Prior to joining the Company, Mr.
Sullivan was employed in several marketing positions for five years by Abbott
Laboratories, a diversified health care company. Prior to that, Mr. Sullivan
was a consultant with McKinsey and Company, an international management
consulting firm. Mr. Sullivan is a graduate of the United States Naval Academy
and received an M.B.A. from Harvard University.
Joseph W. Kelly joined the Company in November 1995 as Vice President, Chief
Financial Officer, Treasurer and Secretary. From 1984 through March 1995, Mr.
Kelly held a variety of positions including Chairman, Chief Executive Officer
and Chief Financial Officer of Crop Genetics International, a publicly held
biotechnology company. From 1966 to 1983, Mr. Kelly held various positions,
including Partner, with Deloitte Haskins & Sells (now Deloitte & Touche), an
international consulting and accounting firm. Mr. Kelly is a Certified Public
Accountant and received his B.B.A. from Niagara University.
Daniel J. Levangie joined the Company in June 1992 as Director of Sales,
North America. In March 1994, Mr. Levangie was promoted to Vice President of
Sales and Marketing. From March 1994 to October 1996, Mr. Levangie served as
Vice President of Sales and Marketing and since October 1996, has served as
Vice President of Sales. Prior to joining the Company, Mr. Levangie held a
variety of sales and marketing positions with Abbott Laboratories, a
diversified health care company, from 1975 through 1992. Mr. Levangie received
a B.S. degree in Pharmacy from the College of Pharmacy & Allied Health
Sciences of Northeastern University.
Ted S. Geiselman joined the Company in October 1993 as Vice President of
Engineering. In April 1994, Mr. Geiselman assumed responsibility for
manufacturing operations. Prior to joining the Company, Mr. Geiselman was the
Director of Instrument Systems/Technology Management at Baxter Diagnostics, a
medical diagnostic company, from March 1991 through October 1993. Mr.
Geiselman received a B.S. in Mechanical Engineering from Pennsylvania State
University.
45
<PAGE>
Michael F. Adams joined the Company as Vice President of Regulatory Affairs
in November 1994. Prior to joining the Company, Mr. Adams held a variety of
positions for the USCI Division of C.R. Bard, a medical device manufacturer,
from February 1991 through November 1994, most recently as Vice President,
Regulatory Affairs-Interventional Cardiology. From 1986 to 1991, Mr. Adams was
the Manager, Regulatory Affairs and Quality Assurance for the Sterimatics
Division of Millipore Corporation, a biotechnology company. Mr. Adams is a
Certified Regulatory Affairs Professional and holds a B.S. degree in Applied
Chemistry from the University of Massachusetts-Lowell.
David J. Zahniser, Ph.D., joined the Company in February 1989 as Scientific
Director. In April 1993 he was promoted to Vice President of Scientific
Affairs. Prior to joining the Company, Dr. Zahniser was Associate Director of
the Image Analysis Laboratory at Tufts University Medical Center, from 1980
through 1989. Dr. Zahniser's research centered around the management and
development of biomedical image analysis techniques. Dr. Zahniser has
published over 50 articles covering cytology preparation and image analysis.
Dr. Zahniser received a Ph.D. in Biophysics at the University of Nijmegan in
the Netherlands. His thesis topic was "The Development of a Fully Automatic
System for the Prescreening of Cervical Smears: BioPEPR." This work involved
both improved preparation technology and computer imaging. Dr. Zahniser
received a B.S. and an M.S. in Physics from the Massachusetts Institute of
Technology.
Victoria S. Robinson joined the Company in May 1996 as Vice President of
Service Operations. Prior to joining the Company, Ms. Robinson served as Vice
President of Business Development for Occupational Health and Rehabilitation
Inc., a health care company from September 1994 to May 1996. Prior to that,
she served as Director of Marketing and Operations of Cytyc from June 1991 to
March 1994. Ms. Robinson received a B.S. from University of Texas and an
M.B.A. from Harvard University.
Robert J. Silverman joined the Company in October 1996 as Vice President of
Marketing. Prior to joining the Company, Mr. Silverman served as Vice
President of Marketing for Pasteur-Marieux-Connaught, Inc., a pharmaceutical
company, from August 1994 until September 1996. From May 1988 to July 1994, he
served as Director, New Product Development for the Pharmaceutical Products
Division of Abbott Laboratories. Mr. Silverman has also been a consultant with
Bain and Company, Inc., and a sales representative for the Upjohn Company. Mr.
Silverman is a graduate of the University of Michigan College of Pharmacy, and
he received an M.B.A from Northwestern University.
James Linder, M.D., joined the Company as Medical Director in March 1996 and
has served as a consultant to the Company from December 1995 to the present.
Since 1995, Dr. Linder has served as Associate Dean at the University of
Nebraska College of Medicine. From 1990 to 1995, Dr. Linder was a Professor
and Vice-Chair of the Department of Pathology at the University of Nebraska
and from 1983 to 1992, he served as the University's Director of
Cytopathology. He has published over 100 scientific articles and is the author
of two textbooks. He serves on the editorial boards of seven scientific
journals and is a member of the Board of Directors of the American Society of
Clinical Pathologists. Dr. Linder received his M.D. from the University of
Nebraska Medical Center and completed his post-degree training in Pathology at
Duke University Medical Center and the University of Nebraska Medical Center.
Frederick R. Blume became a director of the Company in 1989. Since 1985, Mr.
Blume has been a General Partner of Capital Health Management and Capital
Health Venture Partners, venture capital firms which manage American
Healthcare Fund and American Healthcare Fund II, L.P., respectively. Prior to
founding Capital Health Venture Partners, Mr. Blume served as a Managing
Director of PaineWebber Incorporated and as a Vice President of Kidder,
Peabody & Co., Incorporated. He is also a part-time member of the faculty of
the Carroll School of Management of Boston College and serves as a director of
US Servis, Inc., a health provider management service company, and Washington
National Corporation, an insurance company.
46
<PAGE>
Guy de Chazal became a director of the Company in 1995. Mr. de Chazal is a
Managing Director of Morgan Stanley & Co., Incorporated ("Morgan Stanley"), a
director and President of Morgan Stanley Venture Capital II, Inc., which is
the managing general partner of Morgan Stanley Venture Partners II, L.P., the
general partner of Morgan Stanley Venture Investors, L.P., Morgan Stanley
Venture Capital Fund II, L.P. and Morgan Stanley Venture Capital Fund II,
C.V., and is a general partner of Morgan Stanley Venture Partners II, L.P. He
joined Morgan Stanley, an investment banking firm, in 1986. Prior to joining
Morgan Stanley, Mr. de Chazal was a Vice President of Citicorp Venture Capital
from 1981 through 1985. From 1976 to 1981, he was a consultant with McKinsey &
Co. He is also a director of The Dodge Group, Inc., Milestone Healthcare,
Inc., PageMart Inc., PageMart Wireless, Inc., SPSS Inc. and Transcare Corp.
Janet G. Effland became a director of the Company in 1995. Since 1988, Ms.
Effland has served as a Vice President of Patricof & Co. Ventures, Inc., a
venture capital firm. Prior to joining Patricof & Co. Ventures, Inc., Ms.
Effland was the Managing Director of a portfolio of United States investments
for CIN Investment Company. While with CIN Investment Company, she was
President and Chief Executive Officer of a portfolio company which provides
software for inventory control and warehouse management. Ms. Effland is a
member of the Boards of Directors of Urologix, Inc. and several privately-held
companies.
Franklin J. Iris became a director of the Company in 1989. Since 1986, Mr.
Iris has served as the President of Iris and Associates, a firm providing
investment consulting services for venture capital and emerging growth
companies in the medical industry. He serves on the board of a number of
privately-held health care companies and institutions and also on the board of
a publicly-held company, Photon Technology International, Inc. Mr. Iris was
formerly a senior executive at Becton Dickinson and Company where, at various
times, he served as Group President, President of the Clay Adams Division and
Corporate Controller.
Edwin M. Kania, Jr. became a director of the Company in 1989. Since 1985,
Mr. Kania has been a Special Limited Partner of Morgan, Holland Partners,
L.P., which is the General Partner of Morgan, Holland Fund, L.P., a venture
capital fund. Mr. Kania also serves as a General Partner of Morgan, Holland
Fund II, L.P., a venture fund organized in 1988, and as Managing General
Partner of One Liberty Fund III, L.P., a venture fund organized in 1995. Mr.
Kania is a director of Anesta Corp., a pharmaceutical company, and PerSeptive
Biosystems, Inc., a supplier to the pharmaceutical and biotechnology
industries.
C. William McDaniel became a director of the Company in April 1987 and has
served as a consultant to the Company since April 1995. Mr. McDaniel served as
a consultant to and a director of CP Ventures, Inc., a venture capital firm,
from April 1995 to April 1996 and June 1996, respectively. From 1987 to March
1995, Mr. McDaniel was the President and a director of CP Ventures, Inc. He is
a director of Natural MicroSystems Corp., a corporation with core enabling
technology products for the call processing and mixed media market.
Monroe E. Trout, M.D., became a director of the Company in 1993. Following
his retirement from Amercian Healthcare Systems ("AmHS"), a major national
purchasing consortium of hospitals with over 1,100 members, in January 1995,
Dr. Trout was named Chairman Emeritus of AmHS. Prior to his retirement, from
1986 to January 1995, Dr. Trout held various positions with AmHS, including
Chairman, Chief Executive Officer and President. Prior to his leadership at
AmHS, Dr. Trout was a senior officer and a member of the Board of Directors of
Sterling Drug. Dr. Trout serves as a director of a number of privately-held
companies, as well as Baxter International, Inc. and The West Company,
Incorporated.
The Company's directors whose terms expire are elected by the stockholders
each year at the annual meeting of stockholders and until their successors are
duly elected and qualified, or their earlier resignation or removal. Under the
Company's Third Amended and Restated Certificate of Incorporation, the Board
of Directors of the Company is classified into three classes. See "Description
of Capital Stock -- Anti-Takeover Measures."
Executive officers of the Company are elected by the Board of Directors on
an annual basis and serve until their successors have been duly elected and
qualified. There are no family relationships among any of the executive
officers or directors of the Company.
47
<PAGE>
COMMITTEES OF THE BOARD OF DIRECTORS
In June 1995, the Board of Directors established a Compensation Committee
and, in September 1995, the Board of Directors established an Audit Committee.
The Compensation Committee makes recommendations concerning the salaries and
incentive compensation of employees of and consultants to the Company, and
oversees and administers the 1988 Stock Plan, the 1989 Stock Plan, the 1995
Stock Plan, the 1995 Non-Employee Director Stock Option Plan (the "1995
Director Option Plan") and the 1995 Employee Stock Purchase Plan (the "1995
Purchase Plan"). The Audit Committee is responsible for reviewing the results
and scope of audits and other services provided by the Company's independent
auditors, as well as providing recommendations to the Board of Directors with
respect to regulatory matters.
DIRECTOR COMPENSATION
Non-employee directors receive a fee of $1,000 for each meeting of the
Board, $500 for each committee meeting that they attend in person and are
reimbursed for their reasonable out-of-pocket expenses incurred in attending
such meetings. No director who is an employee of the Company will receive
separate compensation for services rendered as a director. Non-employee
directors are also eligible for participation in the Company's 1995 Director
Option Plan. See "Management -- Stock Plans" and "Certain Transactions --
Director Options" for information relating to grants of options to directors.
EXECUTIVE COMPENSATION
The following table sets forth certain information with respect to the
annual and long-term compensation of the Company's Chief Executive Officer and
each of the four other most highly compensated executive officers whose annual
salary and bonus for the year ended December 31, 1996 exceeded $100,000
(collectively, the "Named Executive Officers"):
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS
------------
ANNUAL COMPENSATION SECURITIES
-------------------- UNDERLYING
NAME AND PRINCIPAL POSITION (1) SALARY BONUS OPTIONS
------------------------------- ---------- --------- ------------
<S> <C> <C> <C>
Patrick J. Sullivan........................ $ 157,500 $80,000 40,000
Joseph W. Kelly............................ 140,000 50,000 30,000
Daniel J. Levangie......................... 137,900 40,000 30,000
Ted S. Geiselman........................... 127,500 50,000 30,000
Michael F. Adams........................... 113,750 30,000 60,000
</TABLE>
- --------
(1) See "Management -- Executive Officers, Directors and Key Employees" for
the title of the principal position held by each Named Executive Officer.
48
<PAGE>
The following table sets forth certain information concerning grants of
stock options made during the year ended December 31, 1996 by the Company to
the Named Executive Officers:
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
------------------------------------------
POTENTIAL
REALIZABLE VALUE AT
PERCENT OF ASSUMED ANNUAL
NUMBER OF TOTAL RATES OF STOCK
SECURITIES OPTIONS EXERCISE PRICE APPRECIATION
UNDERLYING GRANTED TO OR BASE FOR OPTION TERM(1)
OPTIONS EMPLOYEES PRICE EXPIRATION -------------------
NAME GRANTED IN 1996 PER SHARE DATE 5% 10%
---- ---------- ---------- --------- ---------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
Patrick J. Sullivan..... 40,000 7.46% $27.00 12/31/06 $679,206 $1,721,242
Joseph W. Kelly......... 30,000 5.59 27.00 12/31/06 509,405 1,290,931
Daniel J. Levangie...... 30,000 5.59 27.00 12/31/06 509,405 1,290,931
Ted S. Geiselman........ 30,000 5.59 27.00 12/31/06 509,405 1,290,931
Michael F. Adams........ 60,000 11.19 20.67 9/11/06 779,955 1,976,559
</TABLE>
- --------
(1) Amounts represent hypothetical gains that could be achieved for the
respective options if exercised at the end of the option term. These gains
are based on assumed rates of stock price appreciation of 5% and 10%
compounded annually from the date the respective options were granted to
their expiration date. These assumptions are not intended to forecast
future appreciation of the Company's stock price. The potential realizable
value computation does not take into account federal or state income tax
consequences of option exercises or sales of appreciated stock. This table
does not take into account any appreciation in the price of the Common
Stock to date.
YEAR-END OPTION TABLE
The following table sets forth certain information regarding the stock
options held at December 31, 1996 by each of the Named Executive Officers.
AGGREGATED OPTION EXERCISES IN 1996 AND YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT IN-THE-MONEY OPTIONS AT
DECEMBER 31, 1996 DECEMBER 31, 1996(1)
------------------------- -------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Patrick J. Sullivan...... 0 372,820 0 $8,747,854
Joseph W. Kelly.......... 0 186,000 0 3,822,000
Daniel J. Levangie....... 7,547 147,545 $195,829 3,080,448
Ted S. Geiselman......... 0 122,328 0 2,422,598
Michael F. Adams......... 0 72,000 0 696,200
</TABLE>
- --------
(1) Amounts calculated by subtracting the exercise price of the options from
the market value of the underlying Common Stock using the average of the
closing bid and ask price on the Nasdaq National Market of $25.625 per
share of Common Stock on December 31, 1996.
All of the stock options set forth in the table above become fully vested
and immediately exercisable upon a consolidation, merger or sale of
substantially all of the assets of the Company.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Prior to June 1995, the Company had no separate compensation or stock option
committee or other board committee performing equivalent functions, and these
functions were performed by the Company's Board of Directors. The Company's
Compensation Committee consists of Ms. Effland, Mr. Blume, and Dr. Trout. Mr.
Blume is a General Partner of Capital Health Management and Capital Health
Venture Partners, which manage American Healthcare Fund and American
Healthcare Fund II, L.P., principal stockholders of the Company, respectively.
Ms. Effland is a Vice President of Patricof & Co. Ventures, Inc., a firm
affiliated with certain principal stockholders of the Company.
49
<PAGE>
STOCK PLANS
1995 Stock Plan. The Company's 1995 Stock Plan (the "1995 Plan") was adopted
by the Board on December 13, 1995 and approved by the Company's stockholders
in December 1995. The 1995 Plan provides for the issuance of Common Stock
pursuant to the grant to employees of "incentive stock options" within the
meaning of the Internal Revenue Code of 1986, as amended, and the grant of
non-qualified stock options, stock awards or opportunities to make direct
purchases of stock in the Company to employees, consultants, directors and
officers of the Company. The aggregate number of shares of Common Stock which
may be issued pursuant to the 1995 Plan is 1,000,000 plus, effective as of the
first trading day of each calendar year beginning in 1997, the excess, if any,
of (i) the number of shares equal to five percent of the total number of
shares of Common Stock issued and outstanding as of the close of business on
December 31 of the preceding year or then reserved for issuance upon the
exercise or conversion of outstanding options, warrants or convertible
securities, over (ii) the number of shares then remaining reserved and
available for grant under the 1995 Plan, subject to certain adjustments,
provided, however, that in no event shall more than 2,000,000 shares of Common
Stock be issued pursuant to incentive stock options under the 1995 Plan.
The 1995 Plan is administered by the Compensation Committee of the Board of
Directors, which currently consists of three outside directors. Subject to the
provisions of the 1995 Plan, the Compensation Committee has the authority to
select the optionees and determine the terms of the options granted,
including: (i) the number of shares subject to each option, (ii) when the
option becomes exercisable, (iii) the exercise price of the option (which in
the case of an incentive stock option cannot be less than the market price of
the Common Stock as of the date of grant), (iv) the duration of the option and
(v) the time, manner and form of payment upon exercise of an option. An option
is not transferable by the optionholder except by will or by the laws of
descent and distribution. Generally, no incentive stock option may be
exercised more than three months following termination of employment. However,
in the event that termination is due to death or disability, the option is
exercisable for a maximum of 180 days after such termination. As of December
31, 1996, 470,850 options are outstanding under the 1995 Plan.
1995 Employee Stock Purchase Plan. The 1995 Purchase Plan was adopted by the
Board of Directors on December 13, 1995 and approved by the Company's
stockholders in December 1995. The 1995 Purchase Plan provides for the
issuance of a maximum of 140,000 shares of Common Stock pursuant to the
exercise of nontransferable options granted to participating employees.
The 1995 Purchase Plan is administered by the Compensation Committee of the
Board of Directors. All employees of the Company, except employees who own
five percent or more of the Company's stock, whose customary employment is 20
hours or more per week and who were employed by the Company as of December 31,
1995 or who have completed at least 90 days of employment are eligible to
participate in the 1995 Purchase Plan. Employees who own five percent or more
of the Company's Common Stock and directors who are not employees of the
Company may not participate in the 1995 Purchase Plan. To participate in the
1995 Purchase Plan, an employee must authorize the Company to deduct an amount
(not less than one percent nor more than ten percent of a participant's total
cash compensation) from his or her pay during six-month periods commencing on
January 1 and July 1 of each year (each a "Plan Period"), but in no case shall
an employee be entitled to purchase more than 300 shares in any Plan Period.
The exercise price for the option for each Plan Period is 85% of the lesser of
the average market price of the Common Stock on the first or last business day
of the Plan Period. If an employee is not a participant on the last day of the
Plan Period, such employee is not entitled to shares pursuant to the 1995
Purchase Plan, and the amount of his or her accumulated payroll deductions
will be refunded. An employee's rights under the 1995 Purchase Plan terminate
upon his or her voluntary withdrawal from the plan at any time or upon
termination of employment. As of December 31, 1996, rights to purchase 6,022
shares of Common Stock have been granted under the 1995 Purchase Plan.
1995 Non-Employee Director Stock Option Plan. The 1995 Director Option Plan
was adopted by the Board of Directors on December 13, 1995 and approved by the
Company's stockholders in December 1995.
50
<PAGE>
The 1995 Director Option Plan, administered by the Compensation Committee of
the Board of Directors, provides for the grant of options to purchase a
maximum of 250,000 shares of Common Stock of the Company to non-employee
directors of the Company.
Under the 1995 Director Option Plan, each director who is not an employee or
officer of the Company who serves on the Board on January 1, 1996 or is first
elected to the Board on or after January 1, 1996, receives an automatic one
time initial grant of an option vesting over three years to purchase 15,000
shares of Common Stock ("Initial Grant"); and each director who is not an
employee or officer of the Company and who has only expired options
outstanding on January 1 receives an automatic grant of an option vesting over
three years to purchase an additional 15,000 shares of Common Stock on January
1 ("Recurring Grant"). All options granted under the 1995 Director Option Plan
have an exercise price equal to the fair market value of the Common Stock on
the date of grant and become exercisable in twelve equal installments of 1,250
shares of Common Stock on the last day of each calendar quarter, provided that
the director has continuously served as a member of the Board through such
date. Options may not be assigned or transferred except by will or by the laws
of descent and distribution and are exercisable to the extent vested only
while the optionee is serving as a director of the Company or within 90 days
after the optionee ceases to serve as a director of the Company (except that
if a director dies or becomes disabled while he or she is serving as a
director of the Company, the option automatically becomes fully vested and is
exercisable until the scheduled expiration date of the option). In January
1996, the Company granted options to purchase an aggregate of 105,000 shares
of Common Stock to seven non-employee directors under the 1995 Director Option
Plan at an exercise price of $16.00 per share. Other than as described above,
no options have been granted to date under the 1995 Director Option Plan.
1989 Stock Plan. The Company's 1989 Stock Plan was approved by the Company's
Board of Directors on July 6, 1989 and by its stockholders on July 6, 1989.
The purpose of the 1989 Stock Plan is to provide incentives to employees,
officers, directors, and consultants of the Company by providing them with
opportunities to purchase stock in the Company pursuant to incentive and non-
qualified stock options granted thereunder. The 1989 Stock Plan is
administered by the Compensation Committee of the Board of Directors, and
provides for the accelerated vesting of options if the Company is to be
consolidated with or acquired by another entity in a merger or sale of all or
substantially all of the Company's assets. As of December 31, 1996, 1,134,676
options were outstanding under the 1989 Stock Plan. The Board of Directors
voted that no further options be granted under the 1989 Stock Plan after the
closing of the Company's initial public offering.
1988 Stock Plan. The Company's 1988 Stock Plan was approved by the Company's
Board of Directors on August 8, 1988 and by its stockholders on August 8,
1988. On July 6, 1989, the Board terminated granting further options under the
1988 Stock Plan. There are no options outstanding under the 1988 Stock Plan.
The authorized shares thereunder were aggregated with the authorized shares
under the 1989 Stock Plan, and both plans are administered by the Compensation
Committee of the Board of Directors.
51
<PAGE>
CERTAIN TRANSACTIONS
CONSULTING AGREEMENT
The Company entered into a two year management consulting agreement with C.
William McDaniel, a director of the Company, commencing March 1, 1995. Under
the consulting agreement, Mr. McDaniel has agreed to perform consulting and
advisory services as reasonably requested from time to time by the Board of
Directors. To date, Mr. McDaniel has provided consulting and advisory services
relating to a wide range of issues, including financing, regulatory and
strategic issues. Under the terms of the agreement, Mr. McDaniel receives cash
compensation of $8,333.33 per month, and has been granted non-qualified stock
options to purchase up to 37,500 shares of the Company's Common Stock at the
price of $0.625 per share under the Company's 1989 Stock Plan. The options
vest at a rate of 4,687.50 shares per calendar quarter. See "Principal and
Selling Stockholders."
SERIES A1 AND C1 FINANCINGS
On May 19, 1994, certain of the holders of the then existing Series A
Preferred Stock ("Series A Stock"), the Series B Preferred Stock ("Series B
Stock"), the Series C Preferred Stock ("Series C Stock") and the Series D
Preferred Stock ("Series D Stock") (collectively, the "Noteholders") acquired
an aggregate of $2,999,474 in original principal amount of the Company's 8%
Secured Promissory Notes (the "Notes") and certain Series A1 Preferred Stock
Purchase Warrants (the "Warrants") pursuant to a Securities Purchase Agreement
between the Company and the Noteholders. The Notes provided that the principal
amount thereof would automatically convert into shares of any equity security
issued in a subsequent equity financing of not less than $2,000,000. Pursuant
to the terms of the Warrants, all of the Warrants were exercised on
October 14, 1994 for an aggregate of 2,399,573 shares of Series A1 Convertible
Preferred Stock ("Series A1 Stock"). The exercise price of the Warrants was
$1.25 per share, resulting in aggregate proceeds to the Company of
approximately $3,000,000.
On June 13 and 21, 1995 the Company sold an aggregate of 3,809,383 shares of
Series C1 Convertible Preferred Stock ("Series C1 Stock") at $4.20 per share,
pursuant to the Series C1 Senior Convertible Preferred Stock Purchase
Agreement dated as of June 13, 1995 (the "Series C1 Financing"), of which
714,145 shares were issued as a result of the automatic conversion of the
Notes. At the time of the Series C1 Financing, the Noteholders waived the
right to receive any interest accrued on the Notes. Upon completion of the
Series C1 Financing, all of the outstanding shares of Series A Stock, Series B
Stock, Series C Stock and Series D Stock automatically converted into
3,569,370 shares of Series B1 Convertible Preferred Stock ("Series B1 Stock").
Pursuant to the Series C1 Financing, the Company granted certain demand,
"piggy-back" and S-3 registration rights to certain stockholders. See "--
Registration Rights." Pursuant to the Series C1 Financing, the Company also
entered into Indemnification Agreements with certain executive officers and
each of the directors (and related stockholders) under which the Company
agreed to indemnify each indemnitee to the fullest extent permitted by law.
Upon the closing of the Company's initial public offering, all of the
outstanding shares of Convertible Preferred Stock converted on a 1-for-1 basis
into shares of Common Stock. The following summarizes the number of shares of
Common Stock issued upon conversion of the Convertible Preferred Stock held by
the stockholders owning greater than five percent of the outstanding shares of
stock and the directors affiliated with them: (i) American Healthcare Fund
("American Healthcare") and American Healthcare Fund II, L.P. ("American
Healthcare II," and collectively with American Healthcare, the "American
Healthcare Funds"): 213,876 shares of Series A1 Stock, 313,873 shares of
Series B1 Stock and 63,653 shares of Series C1 Stock held by American
Healthcare, and 100,608 shares of Series A1 Stock, 135,907 shares of Series B1
Stock and 83,514 shares of Series C1 Stock held by American Healthcare II;
(ii) CP Ventures, Inc. holds 44,446 shares of Common Stock, 218,236 shares of
Series A1 Stock, 300,272 shares of Series B1 Stock, and 125,666 shares of
Series C1 Stock; (iii) Fostin Capital Associates ("Fostin") and APA/Fostin
Pennsylvania Venture Capital Funds ("APA/Fostin," and collectively with
Fostin, the "Fostin Funds"): 52,000 shares of Series A1 Stock, 173,165 shares
of Series B1 Stock and 7,142 shares of Series C1 Stock held by Fostin, and
240,000 shares of
52
<PAGE>
Series A1 Stock, 288,645 shares of Series B1 Stock and 132,353 shares of
Series C1 Stock held by APA/Fostin; (iv) Morgan, Holland Fund, L.P. holds
44,446 shares of Common Stock, 218,236 shares of Series A1 Stock, 320,272
shares of Series B1 Stock and 125,666 shares of Series C1 Stock; (v) Morgan
Stanley Venture Investors, L.P. ("MSVI"), Morgan Stanley Venture Capital Fund
II, C.V. ("MSVC II, C.V.") and Morgan Stanley Venture Capital Fund II, L.P.
("MSVC II, L.P.," and collectively with MSVI and MSVC II, C.V., the "Morgan
Stanley Funds"): 163,837 shares of Series C1 Stock held by MSVI, 157,273
shares of Series C1 Stock held by MSVC II, C.V. and 631,271 shares of Series
C1 Stock held by MSVC II, L.P.; (vi) Norwest Growth Fund, Inc. ("Norwest") and
Northwest Venture Partners ("Northwest," and collectively with Norwest, the
"Norwest Funds"): 135,634 shares of Series A1 Stock, 121,122 shares of Series
B1 Stock and 100,935 shares of Series C1 Stock held by Norwest, and 135,634
shares of Series A1 Stock, 121,122 shares of Series B1 Stock and 100,935
Shares of Series C1 Stock held by Northwest; and (vii) APA Excelsior IV, L.P.
("Excelsior IV"), APA Excelsior IV/Offshore, L.P. ("Excelsior IV/Offshore")
and APA/Fostin (collectively with Excelsior IV and Excelsior IV/Offshore, the
"Patricof Managed Funds"): 1,011,905 shares of Series C1 Stock held by
Excelsior IV, 178,571 shares of Series C1 Stock held by Excelsior IV/Offshore
and 240,000 shares of Series A1 Stock, 288,645 shares of Series B1 Stock and
132,353 shares of Series C1 Stock held by APA/Fostin. Frederick R. Blume, a
director of the Company, is a General Partner of Capital Health Management,
the General Partner of American Healthcare and is a General Partner of Capital
Health Venture Partners, the General Partner of American Healthcare II. C.
William McDaniel, a director of the Company, was a consultant to and director
of CP Ventures, Inc. from April 1995 to April 1996 and June 1996,
respectively. Janet G. Effland is a Vice President of Patricof & Co. Ventures,
Inc., the Investment Manager of Excelsior IV, Excelsior IV/Offshore and
APA/Fostin. Ms. Effland is also a Limited Partner of APA/Excelsior IV
Partners, L.P., a General Partner of Excelsior IV and Excelsior IV/Offshore
and is a General Partner of APA Pennsylvania Partners, a General Partner of
APA/Fostin. Edwin M. Kania, Jr., is a Special Limited Partner of Morgan,
Holland Partners, L.P. which is the General Partner of Morgan, Holland Fund,
L.P. Guy de Chazal, a director of the Company, is a director of Morgan Stanley
and is a director and President of Morgan Stanley Venture Capital II, Inc., a
General Partner of Morgan Stanley Venture Partners II, L.P., the Managing
General Partner of Morgan Stanley Funds.
DIRECTOR OPTIONS
In January 1996, the Company granted options to purchase an aggregate of
105,000 shares of Common Stock to seven non-employee directors under the 1995
Director Option Plan at an exercise price of $16.00 per share. Each of Messrs.
Blume, de Chazal, Iris, Kania, McDaniel, Dr. Trout and Ms. Effland received
options to purchase up to 15,000 shares of Common Stock, vesting over a period
of three years. On March 1, 1996, the Company granted options to purchase an
aggregate of 14,000 shares of Common Stock to seven non-employee directors
under the 1989 Plan at an exercise price of $15.00 per share. Such options are
exercisable in full as of the date of grant.
REGISTRATION RIGHTS
After the offering, the holders of 4,859,912 shares of Common Stock (the
"Holders") will be entitled to certain rights with respect to the registration
of such shares under the Securities Act. Under the terms of the agreement
between the Company and the Holders, if the Company proposes to register any
of its securities under the Securities Act, either for its own account or for
the account of other stockholders of the Company, the Holders are entitled to
notice of such registration and are entitled to include their shares of Common
Stock in such registration. The Holders may also require the Company on two
separate occasions to file a registration statement under the Securities Act
at the Company's expense with respect to their shares of Common Stock, and the
Company is required to use its reasonable efforts to effect such registration.
Further, at any time after the Company becomes eligible to file a registration
statement on Form S-3, the Holders may require the Company to file
registration statements under the Securities Act on Form S-3 at the Company's
expense with respect to their shares of Common Stock. These rights are subject
to certain conditions and limitations, among them the right of the
underwriters of an offering to limit the number of shares included in such
registration.
53
<PAGE>
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth certain information regarding beneficial
ownership of the Company's Common Stock as of December 31, 1996 and as
adjusted to reflect the sale of the Common Stock offered hereby (i) by each
person who is known by the Company to own beneficially more than 5% of the
outstanding shares of Common Stock, (ii) by each director and Named Executive
Officer of the Company, (iii) by all directors and executive officers of the
Company as a group and (iv) each Selling Stockholder. The information as to
each person has been furnished by such person and, unless otherwise indicated
in the footnotes to this table, the Company believes that all persons listed
below have sole voting and investment power with respect to their shares of
Common Stock, except to the extent authority is shared by spouses under
applicable law.
<TABLE>
<CAPTION>
PERCENTAGE OF SHARES
BENEFICIALLY OWNED (1)
SHARES SHARES TO BE --------------------------
BENEFICIALLY SOLD IN THIS PRIOR TO AFTER
BENEFICIAL OWNER OWNED(1) OFFERING OFFERING OFFERING
---------------- ------------ ------------ ----------- -----------
<S> <C> <C> <C> <C>
Patricof Managed
Funds (2)............... 1,651,474 552,376 11.79% 6.87%
445 Park Avenue
New York, NY 10022
Morgan Stanley Funds (3). 952,381 217,326 6.80% 4.59%
1221 Avenue of the
Americas, 33rd Floor
New York, N.Y. 10021
American Healthcare
Funds (4)............... 711,431 129,742 5.08% 3.63%
2084 So. Milwaukee
Street
Denver, CO 80210
Norwest Funds (5)........ 181,870 84,387 1.30% *
40 William Street, Suite
305
Wellesley, MA 02181
Morgan, Holland Fund,
L.P. ................... 53,572 15,383 * *
c/o OneLiberty Ventures
One Liberty Square, 2nd
Floor
Boston, MA 02109
Acadia Trust, N.A. and
Frederick E. Shaw, Jr.,
as Trustees (6)......... 11,694 786 * *
511 Congress Street
Portland, ME 04104
Patrick J. Sullivan (7).. 159,186 0 1.14% *
Daniel J. Levangie (8)... 12,737 0 * *
Ted S. Geiselman (9)..... 45,091 0 * *
Michael F. Adams (10).... 0 0 * *
David J. Zahniser,
Ph.D. (11).............. 24,305 0 * *
James Linder, M.D.(12)... 33,000 0 * *
Frederick R. Blume (13).. 731,736 129,742 5.22% 3.76%
Guy de Chazal (14)....... 7,000 0 * *
Janet G. Effland (15).... 1,658,474 552,376 11.83% 6.91%
Franklin J. Iris (16).... 24,519 0 * *
Edwin M. Kania, Jr. (17). 68,381 15,383 * *
C. William McDaniel (18). 35,691 0 * *
Monroe Trout, M.D. (19).. 31,576 0 * *
Joseph W. Kelly (20)..... 10,000 0 * *
Victoria S.
Robinson (21)........... 0 0 * *
Robert J. Silverman (22). 0 0 * *
All executive officers
and directors as a group
(16 persons)............ 2,841,696 697,501 20.28% 13.39%
</TABLE>
54
<PAGE>
- --------
* Represents beneficial ownership of less than one percent of the
outstanding Common Stock.
(1) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission. In computing the number of shares
beneficially owned by a person and the percentage ownership of that
person, shares of Common Stock subject to options or warrants held by
that person that are currently exercisable, or become exercisable within
60 days following December 31, 1996 are deemed outstanding. However, such
shares are not deemed outstanding for purposes of computing the
percentage ownership of any other person.
(2) Consists of 1,011,905 shares held by Excelsior IV, 178,571 shares held by
Excelsior IV/Offshore and 460,998 shares held by APA/Fostin.
(3) Consists of 163,837 shares held by MSVI, 157,273 shares held by MSVC II,
C.V. and 631,271 shares held by MSVC II, L.P.
(4) Consists of 491,402 shares held by American Healthcare and 220,029 shares
held by American Healthcare II.
(5) Consists of 90,935 shares held by Norwest and 90,935 shares held by
Northwest.
(6) Consists of 3,898 shares held by Abigail R. Shaw Trust, 3,898 shares held
by Benjamin J. Shaw Trust and 3,898 shares held by Eliza E. Shaw Trust.
(7) Includes 4,000 shares issuable pursuant to presently exercisable stock
options. Excludes 328,820 shares issuable pursuant to stock options that
are not presently exercisable.
(8) Includes 7,547 shares issuable pursuant to presently exercisable stock
options. Excludes 117,545 shares issuable pursuant to stock options that
are not presently exercisable.
(9) Excludes 92,328 shares issuable pursuant to stock options that are not
presently exercisable.
(10) Excludes 72,000 shares issuable pursuant to stock options that are not
presently exercisable.
(11) Excludes 49,236 shares issuable pursuant to stock options that are not
presently exercisable. Also includes an aggregate 2,000 shares held by
Mr. Zahniser's two minor children.
(12) Includes 30,000 shares issuable pursuant to presently exercisable stock
options. Excludes 60,000 shares issuable pursuant to stock options that
are not presently exercisable.
(13) Consists of 711,431 shares held by American Healthcare Funds and 7,911
shares held by Capital Health Management over which Mr. Blume may be
deemed to share voting and investment power. Mr. Blume disclaims
beneficial ownership of such shares except to the extent of his pecuniary
interest therein. Also includes 7,000 shares issuable pursuant to
presently exercisable non-qualified stock options. Excludes 10,000 shares
issuable pursuant to stock options that are not presently exercisable.
(14) Mr. de Chazal is a director and President of Morgan Stanley Venture
Capital II, Inc., the managing general partner of Morgan Stanley Venture
Partners II, L.P. which is the general partner of Morgan Stanley Funds,
and he is also a general partner of Morgan Stanley Venture Partners II,
L.P. and thus he may be deemed to have beneficial ownership of all the
shares owned by Morgan Stanley Funds. Mr. de Chazal disclaims beneficial
ownership of such shares except to the extent of his pecuniary interests
therein. Consists of 7,000 shares issuable pursuant to presently
exercisable non-qualified stock options. Excludes 10,000 shares issuable
pursuant to stock options that are not presently exercisable.
(15) Consists of 1,651,474 shares held by Excelsior IV, Excelsior IV/Offshore
and APA/Fostin, over which Ms. Effland may be deemed to share voting and
investment power. Ms. Effland disclaims beneficial ownership of such
shares except to the extent of her pecuniary interest therein. Also
includes 7,000 shares issuable pursuant to presently exercisable non-
qualified stock options.
(16) Includes 21,334 shares issuable pursuant to presently exercisable stock
options. Excludes 15,666 shares issuable pursuant to stock options that
are not presently exercisable.
(17) Consists of 53,572 shares held by Morgan, Holland Fund, L.P. over which
Mr. Kania may be deemed to share voting and investment power. Mr. Kania
disclaims beneficial ownership of such shares except to the extent of his
pecuniary interests therein. Also includes 7,000 shares issuable pursuant
to presently exercisable non-qualified stock options. Excludes 10,000
shares issuable pursuant to stock options that are not presently
exercisable.
(18) Includes 14,500 shares issuable pursuant to presently exercisable stock
options. Excludes 10,000 shares issuable pursuant to stock options not
presently exercisable.
(19) Consists of 31,576 shares held by the Trout Family Trust. Excludes 15,666
shares issuable pursuant to stock options that are not presently
exercisable.
(20) Excludes 156,000 shares issuable pursuant to stock options that are not
presently exercisable.
(21) Excludes 80,000 shares issuable pursuant to stock options that are not
presently exercisable.
(22) Excludes 100,000 shares issuable pursuant to stock options that are not
presently exercisable.
55
<PAGE>
DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of the Company consists of 30,000,000 shares of
Common Stock, $0.01 par value per share, and 5,000,000 shares of Preferred
Stock, $0.01 par value per share.
The following summary of certain provisions of the Common Stock and
Preferred Stock does not purport to be complete and is subject to, and
qualified in its entirety by, the provisions of the Company's Third Restated
Certificate of Incorporation (the "Certificate") which is included as an
exhibit to the Registration Statement, and by the provisions of applicable
law.
COMMON STOCK
Holders of Common Stock are entitled to one vote per share on matters to be
voted upon by the stockholders. There are no cumulative voting rights. Holders
of Common Stock are entitled to receive ratable dividends when, as and if
declared by the Board of Directors out of funds legally available therefor.
Upon the liquidation, dissolution or winding up of the Company, holders of
Common Stock share ratably in the assets of the Company available for
distribution to its stockholders, subject to the preferential rights of any
then outstanding Preferred Stock. Holders of Common Stock have no preemptive,
subscription, redemption or conversion rights. All shares of Common Stock
outstanding upon the effective date of this Prospectus, and the shares offered
hereby will, upon issuance and sale, be fully paid and nonassessable.
PREFERRED STOCK
The Company's Board of Directors has the authority to issue 5,000,000 shares
of Preferred Stock in one or more series and to fix the relative rights,
preferences, privileges, qualifications, limitations and restrictions thereof,
including dividend rights, dividend rates, conversion rights, voting rights,
terms of redemption, redemption prices, liquidation preferences and the number
of shares constituting any series or the designation of such series, without
further vote or action by the stockholders. The Board of Directors could,
without the approval of the stockholders, issue Preferred Stock having voting
or conversion rights that could adversely affect the voting power of the
holders of Common Stock, and the issuance of Preferred Stock could be used,
under certain circumstances, to render more difficult or discourage a hostile
takeover of the Company. The Company has no present plans to issue any shares
of Preferred Stock.
STOCK PURCHASE WARRANT
On June 22, 1994, the Company issued a Stock Purchase Warrant to purchase
shares of the Company's Common Stock to AmHS Purchasing Partners, L.P. The
exercise price per share is the fair market value of a share of the Company's
Common Stock on January 1, 1995, the date on which the shares vest. The Stock
Purchase Warrant is exercisable for 2,000 shares of Common Stock at an
exercise price of $10.00 per share. The warrant expires on January 1, 2005.
ANTI-TAKEOVER MEASURES
In addition to the directors' ability to issue shares of Preferred Stock in
one or more series, the Certificate and Bylaws of the Company contain several
other provisions that are commonly considered to have an anti-takeover effect.
The Company's Certificate includes a provision classifying the Board of
Directors into three classes with staggered three-year terms, a provision
prohibiting stockholder action by written consent except as otherwise provided
by law and provisions requiring 75% stockholder approval for the removal of
any or all of the directors without cause and 66- 2/3% stockholder approval
for certain other actions taken with respect to the Certificate. Under the
Company's Certificate and Bylaws, the directors may enlarge the size of the
Board and fill any vacancies on the Board. The Company's Bylaws provide that
nominations for directors may not be
56
<PAGE>
made by stockholders at any annual or special meeting unless the stockholder
intending to make a nomination notifies the Company of its intention a
specified period in advance and furnishes certain information. The Company's
Bylaws also provide that special meetings of the Company's stockholders may be
called only by the President or the directors and require advance notice of
business to be brought by a stockholder before the annual meeting.
In February 1988, a law regulating corporate takeovers (the "Anti-Takeover
Law") took effect in Delaware. In certain circumstances, the Anti-Takeover Law
prevents certain Delaware corporations, including those whose securities are
listed on the Nasdaq National Market, from engaging in a "business
combination" (which includes a merger or sale of more than 10% of the
corporation's assets) with any "interested stockholder" (a stockholder who
owns 15% or more of the corporation's outstanding voting stock) for three
years following the date on which such stockholder became an "interested
stockholder" subject to certain exceptions, unless the transaction is approved
by the board of directors and the holders of at least 66 2/3% of the
outstanding voting stock of the corporation (excluding shares held by the
interested stockholder). The statutory ban does not apply if, upon
consummation of the transaction in which any person becomes an interested
stockholder, the interested stockholder owns at least 85% of the outstanding
voting stock of the corporation (excluding shares held by persons who are both
directors and officers or by certain employee stock plans). A Delaware
corporation may "opt out" of the Anti-Takeover Law with an express provision
either in its original certificate of incorporation or in its certificate of
incorporation or by-laws resulting from a stockholders' amendment approved by
at least a majority of the outstanding voting shares. The Company is a
Delaware corporation that is subject to the Anti-Takeover Law and has not
"opted out" of its provisions.
The foregoing provisions of Delaware law and the Company's Certificate and
Bylaws could have the effect of discouraging others from attempting hostile
takeovers of the Company and, as a consequence, they may also inhibit
temporary fluctuations in the market price of the Common Stock that might
result from actual or rumored hostile takeover attempts. Such provisions may
also have the effect of preventing changes in the management of the Company.
It is possible that such provisions could make it more difficult to accomplish
transactions which stockholders may otherwise deem to be in their best
interests.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Common Stock is Boston EquiServe
Limited Partnership.
57
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this offering, the Company will have 16,006,980 shares of
Common Stock outstanding (based upon shares of Common Stock outstanding as of
December 31, 1996 and assuming no exercise of outstanding options or
warrants). Of these shares, the 3,000,000 shares sold in this offering and the
3,450,000 shares sold in the Company's initial public offering will be freely
tradable without restriction or further registration under the Securities Act,
except that any shares purchased by "affiliates" of the Company, as that term
is defined in Rule 144 ("Rule 144") under the Securities Act ("Affiliates"),
may generally only be sold in compliance with the limitations of Rule 144
described below. Of the remaining 9,556,980 shares of Common Stock 5,304,758
shares of Common Stock (the "Restricted Shares") held by existing stockholders
upon completion of this offering will be "restricted" securities within the
meaning of Rule 144 and may not be sold except in compliance with the
registration requirements of the Securities Act or an applicable exemption
under the Securities Act, including an exemption pursuant to Rule 144. No
predictions can be made as to the effect, if any, that market sales of shares
or the availability of shares for sale will have on the market price
prevailing from time to time. Nevertheless, sales of substantial amounts of
Common Stock in the public market could adversely affect the prevailing market
price.
SALES OF RESTRICTED SHARES
As of the date of this Prospectus, approximately 2,180,987 shares are
eligible for sale in the public market pursuant to Rule 144 or Rule 701 under
the Securities Act. Beginning 90 days after the date of this Prospectus,
approximately 894,168 additional shares subject to lock-up agreements between
the Underwriters and certain stockholders, including officers and directors,
will become eligible for sale in the public market pursuant to Rule 144. In
addition, 2,182,219 shares will become eligible for sale at various times
following such 90 day period in the public market pursuant to Rule 144. In
addition, certain existing holders of an aggregate of 4,859,912 shares of
Common Stock have the right to require registration of their shares under
certain circumstances. However, stockholders holding an aggregate of 2,413,351
shares of Common Stock have entered into lock-up agreements with respect to
all shares owned by them and not sold in this offering, which provide that
they will not sell or otherwise dispose of any shares of Common Stock (except
for shares sold in this offering) without the prior written consent of
Robertson, Stephens & Company LLC for a period of 90 days from the date of
this Prospectus. Robertson, Stephens & Company LLC may, in its sole discretion
and at any time without notice, release all or any portion of the securities
subject to lock-up agreements. See "Certain Transactions -- Registration
Rights".
In general, under Rule 144 as currently in effect, a person (or persons
whose shares are aggregated) including an Affiliate, who has beneficially
owned shares for at least two years (including the holding period of certain
prior owners), will be entitled to sell in "brokers' transactions" or to
market makers, within any three-month period commencing 90 days after the
Company becomes subject to the reporting requirements of Section 13 of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), a number of
shares that does not exceed the greater of (i) one percent of the then
outstanding shares of Common Stock (approximately 160,070 shares immediately
after this offering) or (ii) the average weekly trading volume in the Common
Stock during the four calendar weeks immediately preceding such sale, subject,
generally, to the filing of a Form 144 with respect to such sales and certain
other limitations and restrictions. In addition, a person (or person whose
shares are aggregated), who is not deemed to have been an Affiliate at any
time during the 90 days immediately preceding the sale and who has
beneficially owned the shares proposed to be sold for at least three years, is
entitled to sell such shares under Rule 144(k) without regard to the
limitations described above. Further, Rule 144A under the Securities Act as
currently in effect permits the immediate sale of restricted shares to certain
qualified institutional buyers without regard to the volume restrictions
described above.
The Company has filed a Registration Statement on Form S-8 to register
shares of Common Stock which have been reserved for issuance pursuant to
grants of options to purchase Common Stock under the Company's stock plans.
Shares issued on exercise of options after the effective date of the Form S-8
are
58
<PAGE>
eligible for sale by non-affiliates in the public market without limitation
and by affiliates subject to the provisions of Rule 144, except for the
holding period limitation of Rule 144. As of December 31, 1996 options to
purchase 1,710,526 shares of Common Stock were outstanding, of which
approximately 135,638 options were exercisable.
LOCK-UP AGREEMENTS
Certain securityholders and all executive officers and directors of the
Company, who in the aggregate hold 2,413,351 shares of Common Stock and
options to purchase 1,218,138 shares of Common Stock, have agreed, pursuant to
the Lock-Up Agreements, that they will not, without the prior written consent
of Robertson, Stephens & Company LLC, offer, sell, contract to sell or
otherwise dispose of any shares of Common Stock beneficially owned by them for
a period of 90 days from the date of this Prospectus.
59
<PAGE>
UNDERWRITING
The Underwriters named below, acting through their representatives,
Robertson, Stephens & Company LLC, Montgomery Securities and Piper Jaffray
Inc. (the "Representatives"), have severally agreed, subject to the terms and
conditions of the Underwriting Agreement, to purchase from the Company and the
Selling Stockholders the number of shares of Common Stock set forth opposite
their respective names below. The Underwriters are committed to purchase and
pay for all such shares if any are purchased:
<TABLE>
<CAPTION>
NUMBER
UNDERWRITERS OF SHARES
------------ ---------
<S> <C>
Robertson, Stephens & Company LLC .................................
Montgomery Securities..............................................
Piper Jaffray Inc. ................................................
</TABLE>
<TABLE>
<S> <C>
---------
Total............................................................ 3,000,000
=========
</TABLE>
The Company and the Selling Stockholders have been advised by the
Representatives that the Underwriters propose to offer the shares of Common
Stock to the public at the public offering price set forth on the cover page
of this Prospectus and to certain dealers at such price less a concession of
not more than $ per share, of which $ per share may be reallowed to other
dealers. After the public offering, the public offering price, concession and
reallowance to dealers may be reduced by the Representatives. No such
reduction shall change the amount of proceeds to be received by the Company
and the Selling Stockholders as set forth on the cover page of this
Prospectus.
The Company has granted to the Underwriters an option, exercisable during
the 30-day period after the date of this Prospectus, to purchase up to 450,000
additional shares of Common Stock at the same price per share as the Company
and the Selling Stockholders will receive for the 3,000,000 shares that the
Underwriters have agreed to purchase. To the extent that the Underwriters
exercise such option, each of the Underwriters will have a firm commitment to
purchase approximately the same percentage of such additional shares that the
number of shares of Common Stock to be purchased by it shown in the above
table represents as a percentage of the 3,000,000 shares to be offered hereby.
If purchased, such additional shares will be sold by the Underwriters on the
same terms as those on which the 3,000,000 shares are being sold. The Company
will be obligated, pursuant to the option, to sell shares to the Underwriters
to the extent the option is exercised. The Underwriters may exercise such
option only to cover over-allotments made in connection with the sale of
shares of Common Stock offered hereby.
The Underwriting Agreement contains covenants of indemnity among the
Underwriters, the Company and the Selling Stockholders against certain civil
liabilities, including liabilities under the Securities Act and liability
arising from breaches of representations and warranties contained in the
Underwriting Agreement.
The holders of approximately 2,413,351 shares of Common Stock have agreed
with the Representatives that, until 90 days from the date of this Prospectus,
subject to certain limited exceptions, they will not, directly or indirectly,
sell, offer, contract to sell, pledge, grant any option to purchase or
otherwise dispose of any shares of Common Stock or any securities convertible
into, or exchangeable for, or any rights to purchase or acquire, shares of
Common Stock, owned directly by such holders or with respect to which they
have the power of disposition, without the prior written consent of Robertson,
Stephens & Company LLC. Approximately 894,168 of such shares will be eligible
for immediate public sale following expiration of the lock-up period pursuant
to Rule 144. In addition, the Company has agreed that, until 90 days from the
date of this Prospectus, the Company will not, without the prior written
consent of Robertson, Stephens & Company LLC, subject to certain limited
exceptions, sell or otherwise dispose of, any shares of Common Stock, any
options or warrants to purchase any shares of Common Stock or any securities
convertible into, exercisable for or exchangeable for shares of Common Stock
other than the Company's sale of shares in this offering, the issuance of
Common Stock upon the exercise of the outstanding Warrant or options, or the
60
<PAGE>
Company's grant of options and issuance of stock under existing employee stock
option or stock purchase plans. See "Shares Eligible for Future Sale."
The Underwriters do not intend to confirm sales to accounts over which they
exercise discretionary authority.
In connection with the offering, certain Underwriters and members of the
selling group, if any, may engage in passive market making transactions in the
Common Stock on Nasdaq in accordance with Rule 10b-6A under the Exchange Act.
Passive market making consists of, among other things, displaying bids limited
by the bid prices of independent market makers and purchases limited by such
prices and effected in response to order flow. Net purchases by a passive
market maker on each day are limited to a specified percentage of the passive
market maker's average daily trading volume in the Common Stock during a
specified prior period and all possible market activity must be discontinued
when such limit is reached. Passive market making may stabilize the market
price of the Common Stock at a level above that which might otherwise prevail
and, if commenced, may be discontinued at any time.
LEGAL MATTERS
The validity of the shares of Common Stock offered hereby will be passed
upon for the Company by Testa, Hurwitz & Thibeault, LLP, Boston,
Massachusetts. As of the date of this Prospectus, certain attorneys of Testa,
Hurwitz & Thibeault, LLP, own an aggregate of 2,220 shares of the Company's
Common Stock. Certain legal matters in connection with this offering will be
passed upon for the Underwriters by Brobeck, Phleger & Harrison LLP, New York,
New York.
EXPERTS
The consolidated financial statements and five-year selected consolidated
financial data included in this Prospectus and elsewhere in this Registration
Statement have been audited by Arthur Andersen LLP, independent public
accountants, as indicated in their report with respect thereto, and are
included herein in reliance upon authority of said firm as experts in
accounting and auditing in giving said reports.
ADDITIONAL INFORMATION
The Company is subject to the informational requirements of the Exchange Act
and in accordance therewith files reports and other information with the
Securities and Exchange Commission (the "Commission"). Reports, proxy
statements and other information filed by the Company with the Commission
pursuant to the information requirements of the Exchange Act may be inspected
and copies at the public reference facilities maintained by the Commission at
450 Fifth Street, N.W., Washington, D.C. 20549 and at the Commission's
regional offices located at Seven World Trade Center, 13th Floor, New York,
New York 10048, and at Citicorp Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661, or may be obtained from the Commission's Internet
site on the world wide web at http://www.sec.gov. Copies of such materials
also may be obtained from the Public Reference Section of the Commission at
450 Fifth Street, N.W., Washington, D.C. 20549 at prescribed rates. The Common
Stock of the Company is quoted for trading on the Nasdaq National Market, and
the Registration Statement, reports and other information concerning the
Company may be inspected at the offices of the Nasdaq Stock Market located at
1735 K. Street, N.W., Washington, D.C. 20006-1500.
The Company has filed with the Commission a Registration Statement on Form
S-1 (including all amendments and exhibits thereto, the "Registration
Statement") under the Securities Act with respect to the Common Stock offered
hereby.
61
<PAGE>
As permitted by the rules and regulations of the Commission, the prospectus
omits certain information, exhibits, schedules and undertakings set forth in
the Registration Statement. For further information with respect to the
Company and the Common Stock, reference is hereby made to the Registration
Statement including exhibits, schedules and reports filed as a part thereof.
Statements contained in this Prospectus as to the contents of any contract or
other document filed as an exhibit to the Registration Statement referred to
herein set forth the material terms of such contract or other document but are
not necessarily complete, and in each instance reference is made to the copy
of such document filed as an exhibit to the Registration Statement, each such
statement being qualified in all respects by such reference. The Registration
Statement, including the exhibits and schedules thereto, may be inspected
without charge at the principal office of the Commission in Washington, D.C.
and copies of all or any part of which may be inspected and copied at the
public reference facilities maintained by the Commission at Room 1024, 450
Fifth Street, N.W., Washington, D.C. 20549, and at the Commission's Regional
Offices located at Citicorp Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661 and 7 World Trade Center, 13th Floor, New York, New
York 10048, or may be obtained through the Commission's Internet site on the
world wide web at http:/www.sec.gov. Copies of such material can also be
obtained at prescribed rates by mail from the Public Reference Section of the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549.
62
<PAGE>
CYTYC CORPORATION
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Public Accountants.................................. F-2
Consolidated Balance Sheets as of December 31, 1994 and 1995 and September
30, 1996 (Unaudited)..................................................... F-3
Consolidated Statements of Operations for the Years Ended December 31,
1993, 1994 and 1995 and for the Nine Months Ended September 30, 1995 and
1996 (Unaudited)......................................................... F-4
Consolidated Statements of Stockholders' Equity (Deficit) for the Years
Ended December 31, 1993, 1994 and 1995 and for the Nine Months Ended Sep-
tember 30, 1996 (Unaudited).............................................. F-5
Consolidated Statements of Cash Flows for the Years Ended December 31,
1993, 1994 and 1995 and for the Nine Months Ended September 30, 1995 and
1996 (Unaudited)......................................................... F-6
Notes to Consolidated Financial Statements................................ F-7
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders and Board of Directors of Cytyc Corporation:
We have audited the accompanying consolidated balance sheets of Cytyc
Corporation (a Delaware corporation) and subsidiary as of December 31, 1994
and 1995, and the related consolidated statements of operations, stockholders'
equity (deficit) and cash flows for each of the three years in the period
ended December 31, 1995. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Cytyc
Corporation and subsidiary as of December 31, 1994 and 1995, and the results
of their operations and their cash flows for each of the three years in the
period ended December 31, 1995, in conformity with generally accepted
accounting principles.
We have also audited, in accordance with generally accepted auditing
standards, the consolidated balance sheets as of December 31, 1991, 1992 and
1993 and the related consolidated statements of operations, stockholders'
equity (deficit) and cash flows for the two years ended December 31, 1992,
(none of which are presented herein) and have expressed an unqualified opinion
on those financial statements. In our opinion, the information set forth in
the selected consolidated financial data for each of the five years in the
period ended December 31, 1995, appearing in this prospectus, is fairly
stated, in all material respects, in relation to the financial statements from
which it has been derived.
Arthur Andersen LLP
Boston, Massachusetts
January 15, 1996
F-2
<PAGE>
CYTYC CORPORATION
CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share data)
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1994 1995 SEPTEMBER 30,1996
-------- -------- -----------------
(unaudited)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............... $ 2,777 $ 5,665 $ 29,645
Short-term investments ................. -- 2,237 14,169
Accounts receivable, net (Note 3)....... 453 1,323 2,101
Inventories (Note 4).................... 63 753 1,193
Prepaid expenses and other current
assets................................. 26 48 444
-------- -------- --------
Total current assets................... 3,319 10,026 47,552
Property and equipment, net (Note 5)..... 468 940 4,425
Other assets............................. 64 59 795
-------- -------- --------
Total assets........................... $ 3,851 $ 11,025 $ 52,772
======== ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable........................ $ 585 $ 1,254 $ 334
Accrued expenses (Note 6)............... 2,212 1,417 1,841
Deferred revenue........................ 167 276 406
Notes payable to stockholders (Note 7).. 2,999 -- --
-------- -------- --------
Total current liabilities.............. 5,963 2,947 2,581
-------- -------- --------
Commitments and contingencies (Note 12)
Stockholders' equity (deficit) (Note 9):
Preferred Stock, $0.01 par value --
Authorized -- 5,000,000 shares
Issued and outstanding -- none......... -- -- --
Convertible Preferred Stock, $0.01 par
value --
Authorized, issued in series and
outstanding -- 16,252,316 shares in
1994, 9,778,326 shares in 1995 and no
shares at September 30, 1996 (at
December 31, 1995 entitled to $35,533
preference in liquidation )........... 163 98 --
Common Stock, $0.01 par value--
Authorized -- 30,000,000 shares
Issued and outstanding -- 307,106
shares in 1994, 308,506 shares in 1995
and 13,802,932 shares at September 30,
1996................................... 3 3 138
Additional paid-in capital.............. 26,995 43,165 93,301
Accumulated deficit..................... (29,273) (35,188) (43,248)
-------- -------- --------
Total stockholders' equity (deficit)... (2,112) 8,078 50,191
-------- -------- --------
Total liabilities and stockholders'
equity (deficit)...................... $ 3,851 $ 11,025 $ 52,772
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE>
CYTYC CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
-------------------------- ------------------
1993 1994 1995 1995 1996
-------- ------- ------- -------- --------
(unaudited)
<S> <C> <C> <C> <C> <C>
Net sales...................... $ 3,441 $ 2,920 $ 4,273 $ 2,751 $ 5,485
Cost of sales.................. 5,088 2,225 2,413 1,502 3,102
-------- ------- ------- -------- --------
Gross profit................. (1,647) 695 1,860 1,249 2,383
-------- ------- ------- -------- --------
Operating expenses:
Research and development...... 3,058 2,175 3,908 2,774 3,343
Marketing, sales and customer
support...................... 3,417 1,418 2,582 1,804 6,374
General and administrative.... 2,257 1,256 1,532 992 2,235
-------- ------- ------- -------- --------
Total operating expenses..... 8,732 4,849 8,022 5,570 11,952
-------- ------- ------- -------- --------
Income (loss) from operations.. (10,379) (4,154) (6,162) (4,321) (9,569)
Other income (expense):
Interest income............... 131 43 371 238 1,523
Interest expense.............. -- (153) (109) (109) --
Other......................... (23) (2) (15) (14) (14)
-------- ------- ------- -------- --------
Total other income (expense). 108 (112) 247 115 1,509
-------- ------- ------- -------- --------
Net income (loss).............. $(10,271) $(4,266) $(5,915) $ (4,206) $ (8,060)
======== ======= ======= ======== ========
Pro forma:
Net income (loss) per share... $ (1.22) $ (0.48) $ (0.54) $ (0.39) $ (0.63)
======== ======= ======= ======== ========
Shares used in computing net
income (loss) per share...... 8,409 8,954 10,868 10,868 12,737
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE>
CYTYC CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
(in thousands, except share data)
<TABLE>
<CAPTION>
CONVERTIBLE
COMMON STOCK PREFERRED STOCK
---------------- ------------------
ADDITIONAL 7.25% NOTE TOTAL
NUMBER PAR NUMBER PAR PAID- ACCUMULATED RECEIVABLE STOCKHOLDERS'
OF SHARES VALUE OF SHARES VALUE IN CAPITAL DEFICIT FOR STOCK ISSUED EQUITY (DEFICIT)
---------- ----- ----------- ----- ---------- ----------- ---------------- ----------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31,
1992................... 240,266 $ 2 13,852,743 $ 139 $ 23,985 $(14,736) $ (10) $ 9,380
Exercise of stock
options................ 14,940 -- -- -- 8 -- -- 8
Net income (loss)....... -- -- -- -- -- (10,271) -- (10,271)
---------- ---- ----------- ----- -------- -------- ----- -------
Balance, December 31,
1993................... 255,206 2 13,852,743 139 23,993 (25,007) (10) (883)
Sale of Series A1
Convertible Preferred
Stock.................. -- -- 2,399,573 24 2,975 -- -- 2,999
Exercise of stock
options................ 51,900 1 -- -- 27 -- -- 28
Forgiveness of note
receivable............. -- -- -- -- -- -- 10 10
Net income (loss)....... -- -- -- -- -- (4,266) -- (4,266)
---------- ---- ----------- ----- -------- -------- ----- -------
Balance, December 31,
1994................... 307,106 3 16,252,316 163 26,995 (29,273) -- (2,112)
Sale of Series C1
Convertible Preferred
Stock, net of issuance
costs of $157.......... -- -- 3,095,238 31 12,812 -- -- 12,843
Conversion of notes,
including accrued
interest of $262, into
Series C1 Convertible
Preferred Stock........ -- -- 714,145 7 3,254 -- -- 3,261
Conversion of four prior
series of convertible
preferred stock into
Series B1 Convertible
Preferred Stock........ -- -- (10,283,373) (103) 103 -- -- --
Exercise of stock
options................ 1,400 -- -- -- 1 -- -- 1
Net income (loss)....... -- -- -- -- -- (5,915) -- (5,915)
---------- ---- ----------- ----- -------- -------- ----- -------
Balance, December 31,
1995................... 308,506 3 9,778,326 98 43,165 (35,188) -- 8,078
Conversion of
convertible preferred
stock into Common Stock
(unaudited)............ 9,778,326 98 (9,778,326) (98) -- -- -- --
Sale of 3,450,000 shares
of Common Stock in
Initial Public
Offering, net of
issuance costs of
$1,350,000 (unaudited). 3,450,000 34 -- -- 49,952 -- -- 49,986
Exercise of stock
options (unaudited).... 266,100 3 -- -- 184 -- -- 187
Net income (loss)
(unaudited)............ -- -- -- -- -- (8,060) -- (8,060)
---------- ---- ----------- ----- -------- -------- ----- -------
Balance, September 30,
1996 (unaudited)....... 13,802,932 $138 -- $ -- $ 93,301 $(43,248) $ -- $50,191
========== ==== =========== ===== ======== ======== ===== =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE>
CYTYC CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
-------------------------- -------------------------
1993 1994 1995 1995 1996
-------- ------- ------- ------- -------
(unaudited)
<S> <C> <C> <C> <C> <C> <C> <C>
Cash flows from operat-
ing activities:
Net income (loss)...... $(10,271) $(4,266) $(5,915) $(4,206) $(8,060)
Adjustments to
reconcile net income
(loss) to net cash
used in operating
activities --
Depreciation and
amortization......... 679 173 238 157 338
Forgiveness of note
receivable........... -- 10 -- -- --
Forgiveness of accrued
interest............. -- -- 109 -- --
Changes in assets and
liabilities --
Accounts receivable.. 353 284 (870) (392) (778)
Inventories.......... 308 303 (690) (581) (440)
Prepaid expenses and
other current
assets.............. 13 (2) (22) (39) (396)
Accounts payable..... 405 (39) 669 182 (920)
Accrued expenses..... 2,787 (1,113) (642) (164) 424
Deferred revenue..... 98 16 109 95 130
-------- ------- ------- ------- -------
Net cash used in
operating
activities......... (5,628) (4,634) (7,014) (4,948) (9,702)
-------- ------- ------- ------- -------
Cash flows from
investing activities:
Decrease (increase) in
other assets.......... (88) 9 (42) (28) (736)
Purchases of property
and equipment......... (188) (286) (663) (118) (3,822)
Purchases of short-term
investments........... -- -- (2,237) -- (20,097)
Proceeds from sale and
maturity of short term
investments........... -- -- -- -- 8,165
-------- ------- ------- ------- -------
Net cash used in
investing
activities......... (276) (277) (2,942) (146) (16,490)
-------- ------- ------- ------- -------
Cash flows from
financing activities:
Proceeds from notes
payable to
stockholders.......... -- 2,999 -- -- --
Proceeds from exercise
of stock options...... 8 28 1 -- 186
Proceeds from sale of
stock................. -- 2,999 12,843 12,915 49,986
-------- ------- ------- ------- -------
Net cash provided by
financing
activities......... 8 6,026 12,844 12,915 50,172
-------- ------- ------- ------- -------
Net increase (decrease)
in cash and cash
equivalents............ (5,896) 1,115 2,888 7,821 23,980
Cash and cash
equivalents, beginning
of period.............. 7,558 1,662 2,777 2,777 5,665
-------- ------- ------- ------- -------
Cash and cash
equivalents, end of
period................. $ 1,662 $ 2,777 $ 5,665 $10,598 $29,645
======== ======= ======= ======= =======
Supplemental disclosure
of noncash operating
and financing
activities:
Conversion of notes
payable, including
accrued interest, into
Series C1 Convertible
Preferred Stock....... $ -- $ -- $ 3,261 $ -- $ --
======== ======= ======= ======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE>
CYTYC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
(1) THE COMPANY
Cytyc Corporation (the Company) designs, develops, manufactures and markets
sample preparation systems for medical diagnostic applications. The Company's
principal product, the ThinPrep System, is an automated system for the
preparation of non-gynecological samples and cervical specimens on microscope
slides.
In 1991, the Company commenced commercial sales of ThinPrep Processors,
reagents, filters and related supplies for non- gynecological diagnostic
applications to clinical laboratories and hospitals. On May 20, 1996, the
Company received clearance from the FDA to market the ThinPrep System for
cervical cancer screening.
Revenues from sales of products have not generated sufficient cash to
support the Company's operations. Since inception, the Company has incurred
substantial losses, principally from expenses associated with obtaining FDA
approval of the ThinPrep System, engineering and development efforts related
to the ThinPrep System and the establishment of a sales and administrative
organization. The Company has funded its operations primarily through the
private placement of equity securities which resulted in $43.3 million of net
proceeds and the public sale of its Common Stock which resulted in $50.0
million of net proceeds. The Company continues to be subject to certain risks
common to medical device companies in similar stages of development including
the uncertainty of availability of additional financing, dependence on a
single product, extensive government regulation, uncertainty of market
acceptance, limited manufacturing, marketing and sales experience and
uncertainty of future profitability.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accompanying consolidated financial statements reflect the application
of certain significant accounting policies, as discussed below and elsewhere
in the notes to consolidated financial statements. The preparation of these
consolidated financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosures of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
(a) Principles of Consolidation
The accompanying consolidated financial statements for 1993 and 1994 include
the accounts of the Company and its wholly owned subsidiary, Cytyc SARL (a
French corporation). All material intercompany transactions and balances have
been eliminated in consolidation. Cytyc SARL ceased operations and was
formally dissolved in 1994.
(b) Revenue Recognition
The Company recognizes product revenue upon shipment, when customer
acceptance is assured and collection of the resulting receivable is probable.
(c) Cash and Cash Equivalents
Cash equivalents consist of money market mutual funds, commercial paper and
U.S. Government securities with original maturities of three months or less.
F-7
<PAGE>
CYTYC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
(d) Short-term Investments
Effective January 1, 1994, the Company adopted Statement of Financial
Accounting Standards ("SFAS") No. 115, Accounting for Certain Investments in
Debt and Equity Securities. The adoption of SFAS No. 115 had no material
impact on the Company's financial position.
Short-term investments consist of U.S. Government securities and commercial
paper with original maturities between three and twelve months. The Company
classifies these short-term investments as held-to-maturity, and accordingly,
they are carried at amortized cost, which approximates market.
(e) Concentration of Credit Risk
Financial instruments that potentially subject the Company to concentrations
of credit risk are principally cash, cash equivalents, short-term investments
and accounts receivable. The Company places its investments in highly rated
institutions. Concentration of credit risk with respect to accounts receivable
is limited to certain customers to whom the Company makes substantial sales.
To reduce risk, the Company routinely assesses the financial strength of its
customers and, as a consequence, believes that its accounts receivable credit
risk exposure is limited. The Company maintains an allowance for potential
credit losses but historically has not experienced any significant credit
losses related to an individual customer or groups of customers in any
particular industry or geographic area.
(f) Inventories
Inventories are stated at the lower of cost (first-in, first-out) or market.
(g) Depreciation and Amortization
The Company provides for depreciation and amortization by charges to
operations, on a straight-line basis, in amounts estimated to allocate the
cost of the assets over their estimated useful lives as follows:
<TABLE>
<CAPTION>
ESTIMATED
ASSET CLASSIFICATION USEFUL LIFE
-------------------- -------------
<S> <C>
Production equipment......................................... 3-7 Years
Research equipment........................................... 5-7 Years
Furniture and fixtures....................................... 5-7 Years
Computer equipment........................................... 3-5 Years
Leasehold improvements....................................... Life of lease
</TABLE>
(h) Other Assets
Other assets consist of long term lease receivables from the sale of
ThinPrep Processors, long term deposits and the cost of obtaining patents.
Patent costs are amortized over their estimated useful lives on a straight-
line basis.
(i) Research and Development Costs
The Company charges research and development costs to operations as
incurred.
(j) Foreign Currency Translation
Cytyc SARL's assets and liabilities were translated at the exchange rate in
effect at the balance sheet date. Revenue and expense accounts were translated
using a weighted average of exchange rates in effect during the year. Foreign
currency translation gains or losses in 1993 and 1994 were not significant and
were charged to operations.
F-8
<PAGE>
CYTYC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
(k) Computation of Pro Forma Net Income (Loss) per Share
Pro forma net income (loss) per share for the years ended December 31, 1993,
1994 and 1995 and for the nine months ended September 30, 1995 and 1996 was
computed based on the weighted average number of common shares outstanding and
gives effect to the following adjustments. Common equivalent shares are not
included in the per share calculations, as the effect of their inclusion would
be antidilutive, except that, in accordance with Securities and Exchange
Commission requirements, stock options granted and Common Stock equivalents,
consisting of Series C1 Convertible Preferred Stock, issued during the twelve-
month period prior to the filing of the initial public offering of Common
Stock described in Note (11) have been included in the calculation as if they
were outstanding for all periods presented using the treasury-stock method and
the public offering price. Also, all outstanding shares of Series A1
Convertible Preferred Stock are assumed to have been converted to Common Stock
at the time of issuance, and all outstanding shares of Series B1 Convertible
Preferred Stock are assumed to have been converted to Common Stock at the time
of issuance of each of the four prior series of convertible preferred stock,
which automatically converted into Series B1 Convertible Preferred Stock in
1995. Historical net loss per share has not been presented as such information
is not considered to be relevant or meaningful.
(l) Unaudited Interim Consolidated Financial Statements
The consolidated financial statements and interim information as of and for
the nine months ended September 30, 1995 and 1996, have been derived from the
Company's accounting records and have been prepared by the Company pursuant to
the Rules and Regulations of the Securities and Exchange Commission for
financial statements of interim periods. The information furnished reflects
all adjustments which, in the opinion of management, are necessary for a fair
presentation of results for interim periods. Such adjustments consisted only
of normal recurring items. The results for the interim periods are not
necessarily indicative of the results expected for the full year or for any
future period.
(m) Postretirement Benefits
The Company has no obligations for postretirement benefits.
(3) ALLOWANCE FOR DOUBTFUL ACCOUNTS
A summary of the allowance for doubtful accounts activity is as follow:
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
-----------------
1993 1994 1995 1996
---- ----- ---- -------------
(in thousands)
<S> <C> <C> <C> <C>
Balance, beginning of period................... $ 60 $ 929 $158 $148
Amounts charged to expense..................... 878 -- 50 --
Amounts written off............................ (9) (552) (60) (28)
Amounts reclassified to other accounts......... -- (219) -- --
---- ----- ---- ----
Balance, end of period......................... $929 $ 158 $148 $120
==== ===== ==== ====
</TABLE>
F-9
<PAGE>
CYTYC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
(4) INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
-------------
1994 1995 1996
------ ------ -------------
(in thousands)
<S> <C> <C> <C> <C>
Raw material and work-
in-process............. $ 6 $ 494 $ 591
Finished goods.......... 57 259 602
------ ------ ------
$ 63 $ 753 $1,193
====== ====== ======
(5) PROPERTY AND EQUIPMENT
Property and equipment is stated at cost and consists of the following:
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
-------------
1994 1995 1996
------ ------ -------------
(in thousands)
<S> <C> <C> <C> <C>
Production equipment.... $ 301 $ 325 $ 450
Research equipment...... 519 591 668
Furniture, fixtures and
computer equipment..... 369 569 1,116
Deposits on equipment... 28 377 1,831
Leasehold improvements.. 76 94 1,536
------ ------ ------
1,293 1,956 5,601
Less accumulated depre-
ciation and amortiza-
tion................... 825 1,016 1,176
------ ------ ------
$ 468 $ 940 $4,425
====== ====== ======
</TABLE>
(6) ACCRUED EXPENSES
Accrued expenses consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
-------------
1994 1995 1996
------ ------ -------------
(in thousands)
<S> <C> <C> <C>
Accrued warranty costs............................ $ 251 $ 251 $ 251
Accrued product upgrade costs..................... 1,320 648 402
Accrued compensation.............................. 169 204 405
Accrued taxes..................................... 157 147 161
Accrued consulting fees........................... -- -- 205
Other accruals.................................... 315 167 417
------ ------ ------
$2,212 $1,417 $1,841
====== ====== ======
</TABLE>
(7) NOTES PAYABLE TO STOCKHOLDERS
During 1994, certain holders of convertible preferred stock acquired an
aggregate of $2,999,000 of the Company's 8% Promissory Notes. In connection
with the sale of Series C1 Convertible Preferred Stock, the principal amount
of these notes was converted into 714,145 shares of Series C1 Convertible
Preferred Stock. In addition, the noteholders agreed to forgive approximately
$262,000 of accrued interest on these notes. This forgiveness of interest has
been reflected as a contribution to additional paid-in capital.
F-10
<PAGE>
CYTYC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
(8) INCOME TAXES
The Company records a deferred tax asset or liability based on the difference
between the financial statement and tax bases of assets and liabilities, as
measured by the enacted tax rates assumed to be in effect when these
differences reverse.
As of December 31, 1995, the Company has available net operating loss
carryforwards of approximately $27,861,000 and research and development credit
carryforwards of approximately $813,000 to reduce future federal and state
income taxes, if any. These carryforwards expire at various dates from 2002 to
2110 and are subject to review and possible adjustment by the Internal Revenue
Service.
The Internal Revenue Code contains provisions that may limit the amount of
net operating loss and credit carryforwards that the Company may utilize in any
one year in the event of certain cumulative changes in ownership over a three-
year period. In the event the Company has had a change of ownership, as
defined, utilization of the carryforwards may be restricted.
The approximate income tax effect of each type of temporary difference and
carryforward is as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------ ---
1994 1995
-------- --------
(in thousands)
<S> <C> <C> <C>
Net operating loss carryforwards........................ $ 8,424 $ 11,144
Research and development credit carryforwards........... 748 813
Capitalized research and development expenses........... 2,179 2,068
Nondeductible accruals.................................. 746 539
Other temporary differences............................. 169 114
-------- --------
Deferred tax asset...................................... $ 12,266 $ 14,678
Valuation allowance..................................... (12,266) (14,678)
-------- --------
Net deferred tax asset.................................. $ -- $ --
======== ========
</TABLE>
Due to the uncertainty surrounding the realization of the deferred tax asset,
the Company has provided a full valuation allowance against this amount.
(9) STOCKHOLDERS' EQUITY
(a) Common Stock Reserved
As of September 30, 1996, the Company has reserved 2,730,724 shares of Common
Stock for issuance, as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30,
1996
-------------
<S> <C> <C> <C>
Exercise of stock options................................. 2,588,724
Exercise of warrant....................................... 2,000
Employee stock purchase plan.............................. 140,000
--------- --- ---
2,730,724
========= === ===
</TABLE>
(b) Preferred Stock
In December 1995, the Board of Directors and stockholders authorized
5,000,000 shares of $.01 par value Preferred Stock, effective upon the closing
of the initial public offering of the Company's Common Stock described in Note
(11). The Board of Directors has the authority to issue such shares in one or
F-11
<PAGE>
CYTYC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
more series and to fix the relative rights and preferences without further
vote or action by the stockholders. The Board has no present plans to issue
any shares of Preferred Stock.
(c) Convertible Preferred Stock
Convertible Preferred Stock consists of the following:
<TABLE>
<CAPTION>
LIQUIDATION PAR VALUE
PREFERENCE AT ---------------------
DECEMBER 31, 1995 1994 1995
------------------ ---------- ---------
(in thousands,
except share and per share data)
<S> <C> <C> <C>
Series A1, $0.01 par value --
Authorized, issued and
outstanding -- 2,399,573 shares in
1994 and 1995....................... $ 3,135 $ 24 $24
Series B1, $0.01 par value --
Authorized, issued and
outstanding -- 3,569,370 shares in
1995................................ 15,672 -- 36
Series C1, $0.01 par value --
Authorized, issued and
outstanding -- 3,809,383 shares in
1995................................ 16,726 -- 38
Four prior series, $0.01 par value --
Authorized, issued and
outstanding -- 13,852,743 shares in
1994................................ -- 139 --
------------- ---------- ---------
$ 35,533 $ 163 $98
============= ========== =========
</TABLE>
In connection with the sale of Series C1 Convertible Preferred Stock in
1995, 13,852,743 shares of Convertible Preferred Stock issued in four prior
series automatically converted into 3,569,370 shares of Series B1 Convertible
Preferred Stock.
The Convertible Preferred Stock has the following rights and preferences.
(i) Conversion
Each share of Series A1, B1 and C1 Convertible Preferred Stock is
convertible, at the option of the holder, into one share of Common Stock,
adjusted for certain dilutive events, as defined. In addition, upon the
closing of the Company's initial public offering described in Note (11), all
outstanding shares of Convertible Preferred Stock converted into 9,778,326
shares of Common Stock.
(ii) Voting
Convertible preferred stockholders are entitled to vote on an as-converted
basis with Common Stockholders as one class.
(iii) Dividends
The Series A1, B1 and C1 Convertible Preferred Stock are entitled to
receive, when and as declared by the Board of Directors, annual dividends at a
rate of $0.10, $0.34 and $0.34, respectively. Dividends are cumulative, must
be paid before any dividends on Common Stock and accrue for liquidation
purposes whether or not earned or declared by the Board of Directors.
To date, the Board of Directors has not declared any dividends, and as such,
the Company has not accrued any dividends. Had all dividends been declared as
of December 31, 1995, $135,000, $681,000 and $727,000 would have been accrued
for Series A1, B1 and C1, respectively. These amounts are included in the
liquidation preference amounts in the above table.
F-12
<PAGE>
CYTYC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
(iv) Liquidation
In the event of a liquidation, dissolution or winding up of the Company, as
defined, the Convertible Preferred Stockholders have a preference over common
stockholders. The Series C1 Convertible Preferred Stockholders are entitled to
receive, in priority over the Series A1 and B1 Convertible Preferred
Stockholders, an amount equal to $4.20 per share plus any accrued but unpaid
dividends. The Series A1 Convertible Preferred Stockholders are entitled to
receive, in priority over the Series B1 Convertible Preferred Stockholders, an
amount equal to $1.25 per share plus any accrued but unpaid dividends. The
Series B1 Convertible Preferred Stockholders are entitled to receive an amount
equal to $4.20 per share plus any accrued but unpaid dividends.
(10) STOCK OPTION PLANS AND WARRANT
(a) 1989 Stock Option Plan
Under the 1989 Stock Option Plan, the Board of Directors may grant options
to purchase up to an aggregate of 1,900,000 shares of Common Stock. The
Company may grant incentive stock options to eligible employees and directors.
The exercise price of each incentive stock option may not be less than 100% of
the fair market value of Common Stock at the date of grant. Nonqualified stock
options may be granted to any employee, officer, director or consultant of the
Company. The exercise price of each nonqualified stock option is determined by
the Board of Directors. To date, all stock options have been granted with
exercise prices equal to the fair market value of the Company's Common Stock
at the time of grant. All stock options issued under this Plan become
exercisable over periods ranging from 2 to 5 years and expire within 10 years
from the date of grant.
The 1989 Stock Option Plan also allows the Company to grant awards of Common
Stock to directors, officers, employees and consultants of the Company. No
such awards had been granted as of December 31, 1995. Upon the closing of the
initial public offering of the Company's Common Stock described in Note (11),
no further grants may be issued under the 1989 Plan.
(b) 1995 Director Option Plan
During 1995, the Board of Directors and stockholders approved the 1995 Non-
Employee Director Stock Option Plan pursuant to which options to purchase up
to 250,000 shares of Common Stock were authorized for future issuance. In
January 1996, the Company granted options to purchase 105,000 shares of Common
Stock to seven directors under this Plan at an exercise price equal to $16.00
per share.
(c) 1995 Stock Option Plan
During 1995, the Board of Directors and stockholders approved, effective
upon the closing of the initial public offering of the Company's Common Stock
described in Note (11), the 1995 Stock Option Plan. The aggregate number of
shares of Common Stock that may be issued pursuant to this Plan is 1,000,000
plus, effective as of January 1, 1997 and each year thereafter, the excess, if
any, of (i) five percent of the total number of shares of Common Stock issued
and outstanding as of December 31 of the preceding year or then reserved for
issuance upon the exercise or conversion of outstanding options, warrants or
convertible securities, over (ii) the number of shares then remaining reserved
and available for grant under the 1995 Plan, subject to certain adjustments,
provided, however, that in no event shall more than 2,000,000 shares of Common
Stock be issued pursuant to incentive stock options under the 1995 Plan.
At September 30, 1996, the Company had 838,650 options available for future
grants under the 1995 Stock Option Plan and the 1995 Director Option Plan.
F-13
<PAGE>
CYTYC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
The following schedule summarizes the activity under the Company's stock
option plans for the three years ended December 31, 1995 and for the three
months ended September 30, 1996:
<TABLE>
<CAPTION>
NUMBER
OF SHARES OPTION PRICE
--------- ----------------
<S> <C> <C>
Outstanding, December 31, 1992. 234,847 $0.50 -- $ 0.85
Granted.................. 226,400 0.85 -- 1.25
Exercised................ (14,940) 0.50 -- 0.85
Canceled................. (23,060) 0.50 -- 0.85
--------- ----------------
Outstanding, December 31,
1993...................... 423,247 0.50 -- 1.25
Granted.................. 628,000 0.625 -- 1.25
Exercised................ (51,900) 0.50 -- 0.85
Canceled................. (278,900) 0.50 -- 1.25
--------- ----------------
Outstanding, December 31,
1994...................... 720,447 0.50 -- 1.25
Granted.................. 876,877 0.625 -- 10.00
Exercised................ (1,400) 0.50 -- 1.25
Canceled................. (22,800) 0.50 -- 1.25
--------- ----------------
Outstanding, December 31,
1995...................... 1,573,124 0.50 -- 10.00
Granted.................. 476,900 10.00 -- 33.50
Exercised................ (266,100) 0.50 -- 2.50
Canceled................. (33,850) 0.63 -- 32.00
--------- ----------------
Outstanding, September 30,
1996...................... 1,750,074 $0.50 -- $33.50
--------- ----------------
Exercisable................ 237,354 $0.50 -- $16.00
========= ================
</TABLE>
(d) 1995 Employee Stock Purchase Plan
During 1995, the Board of Directors and stockholders approved, effective upon
the closing of the initial public offering of the Company's Common Stock
described in Note (11), the 1995 Employee Stock Purchase Plan pursuant to which
140,000 shares of Common Stock were authorized for future issuance.
(e) Warrant
In June 1994, the Company issued to a stockholder a warrant to purchase
shares of Common Stock at an exercise price equal to the fair market value of
Common Stock at the time of vesting but not less than $5.00 per share. The
warrant expires ten years from the date of issuance. Vesting of the warrant was
contingent upon achievement of certain performance objectives in connection
with a purchasing agreement between the Company and the stockholder, which was
cancelled July 22, 1996. At September 30, 1996, such warrant was exercisable to
purchase 2,000 shares of Common Stock at an exercise price of $10.00 per share.
(11) INITIAL PUBLIC OFFERING
On March 8, 1996 the Company sold through an underwritten initial public
offering, 3,000,000 shares of its Common Stock at $16.00 per share. Upon the
closing of the Company's initial public offering, all outstanding shares of the
Convertible Preferred Stock were converted into 9,778,326 shares of Common
Stock. On April 4, 1996, the Underwriters of the Company's initial public
offering exercised their over-allotment option in full to purchase an
additional 450,000 shares of the Company's Common Stock at $16 per share.
(12) COMMITMENTS AND CONTINGENCIES
The Company rents a manufacturing and administrative facility under an
operating lease expiring in April 2003.
F-14
<PAGE>
CYTYC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
At September 30, 1996, future minimum annual lease payments under this lease
is as follows:
<TABLE>
<CAPTION>
AMOUNT
--------------
(in thousands)
<S> <C>
1996.................................... $ 139
1997.................................... 572
1998.................................... 572
1999.................................... 580
2000.................................... 585
Thereafter.............................. 1,336
-------
$ 3,784
=======
</TABLE>
Rent expense under operating leases totaled approximately $183,000,
$266,000, $270,000 and $420,000 in 1993, 1994, 1995 and the nine months ended
September 30, 1996, respectively.
At September 30, 1996, the Company has commitments for the purchase of
capital equipment costing approximately $780,000.
In addition, the Company is the exclusive licensee of certain patented
technology used in the ThinPrep System. In consideration for this license, the
Company has agreed to pay a royalty equal to 1% of net sales of the ThinPrep
Processor, filter cylinder disposable products which are used with the
ThinPrep System, and improvements made by the Company relating to such items.
There are no minimum royalty payments in connection with this license.
(13) EMPLOYEE BENEFIT PLAN
The Company maintains an employee benefit plan under Section 401(k) of the
Internal Revenue Code. The Plan allows for employees to defer a portion of
their salary up to the maximum allowed under IRS rules. While the Company has
the discretion to make contributions to this Plan, no such contributions have
been made to date.
F-15
<PAGE>
THINPREP 2000
SAMPLE PREPARATION SYSTEM
[PICTURES OF THE THINPREP 2000 PROCESSOR, A TRAY OF TRANS CYT /(R)/ FILTERS, AND
THINPREP DISPOSABLE REAGENTS, FILTERS AND SUPPLIES APPEARS HERE]
In addition to the ThinPrep 2000 Processor,
the ThinPrep System includes related
disposable reagents, filters
and other supplies.
<PAGE>
LOGO
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
Estimated expenses (other than underwriting discounts and commissions)
payable in connection with the sale of the Common Stock offered hereby are as
follows:
<TABLE>
<S> <C>
Registration fee................................................ $ 27,574
NASD filing fee................................................. 9,600
Nasdaq National Market listing fee.............................. 10,000
Printing and engraving expenses................................. 150,000
Legal fees and expenses......................................... 140,000
Accounting fees and expenses.................................... 50,000
Blue Sky fees and expenses (including legal fees)............... 5,000
Transfer agent and registrar fees and expenses.................. 3,000
Miscellaneous................................................... 104,826
--------
Total......................................................... $500,000
========
</TABLE>
The Company will bear all expenses shown above.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Delaware General Corporation Law and the Registrant's Third Amended and
Restated Certificate of Incorporation and the Amended and Restated By-Laws
provide for indemnification of the Registrant's directors and officers for
liabilities and expenses that they may incur in such capacities. In general,
directors and officers are indemnified with respect to actions taken in good
faith in a manner reasonably believed to be in, or not opposed to, the best
interests of the Registrant, and with respect to any criminal action or
proceeding, actions that the indemnitee had no reasonable cause to believe
were unlawful. Reference is made to the Registrant's Third Amended and
Restated Certificate of Incorporation and Amended and Restated By-Laws filed
as Exhibits 3.1 and 3.2 hereto, respectively.
The Underwriting Agreement provides that the Underwriters are obligated,
under certain circumstances, to indemnify directors, officers and controlling
persons of the Company against certain liabilities, including liabilities
under the Securities Act. Reference is made to the form of Underwriting
Agreement which will be filed by amendment.
As a condition of the Series C1 Financing, the Company entered into
Indemnification Agreements with each of the members of the Board of Directors,
related stockholders and executive officers, under which the Company agreed to
indemnify each indemnitee to the fullest extent permitted by law.
The Company has an existing policy of directors and officers liability
insurance and is in the process of obtaining additional directors and officers
liability insurance for the benefit of its directors and officers.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
In the three years preceding the filing of this registration statement, the
Company has issued the following securities that were not registered under the
Securities Act:
(a) Issuances of Capital Stock.
On May 19, 1994, the Company issued an aggregate of $2,999,474 in 8% Secured
Promissory Notes to certain stockholders of the Company (the "Noteholders").
All previously issued stock held by such
II-1
<PAGE>
Noteholders automatically converted to 3,569,370 shares of Series B1 Stock
upon the closing of the Company's Series C1 Financing and the Notes
automatically converted into 714,145 shares of Series C1 Stock upon the
closing of the Company's Series C1 Financing.
On May 19, 1994, the Company also issued warrants to the Noteholders to
purchase shares of the Company's Series A1 Stock at an exercise price of $1.25
per share. All warrants were exercised on October 14, 1994, resulting in
2,399,573 shares of Series A1 Stock being issued and outstanding.
On June 22, 1994, the Company issued a warrant to AmHS Purchasing Partners,
L.P. to purchase up to 18,000 shares of Common Stock, vesting over a five year
period commencing January 1, 1995, at a rate based on certain sales of the
Company's products. The exercise price per share shall be the fair market
value of the Company's Common Stock on the date the shares vest. Currently,
2,000 shares of Common Stock are exercisable pursuant to the warrant at an
exercise price per share of $10.00.
On June 13 and 21, 1995, the Company sold an aggregate of 3,809,383 shares
of its Series C1 Stock for $4.20 per share, of which 714,145 shares were
issued as a result of the conversion of the Notes.
(b) Certain Grants and Exercises of Stock Options.
From January 1, 1994 through the date of this Registration Statement, the
Company has issued options under its 1989 Stock Plan to purchase an aggregate
of 1,568,377 shares of Common Stock, exercisable at a weighted average price
of $2.03, and 523,448 shares have been issued upon exercise of stock options
which were granted pursuant to the 1988 and 1989 Stock Plans.
No underwriters were involved in the foregoing sales of securities. Such
sales were made in reliance upon an exemption from the registration provisions
of the Securities Act set forth in Section 4(2) thereof relative to sales by
an issuer not involving any public offering or the rules and regulations
thereunder, or, in the case of options to purchase Common Stock, Rule 701 of
the Securities Act. All of the foregoing securities are deemed restricted
securities for the purposes of the Securities Act.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits:
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<C> <S>
1.1 --Form of Underwriting Agreement.
3.1 --Third Amended and Restated Certificate of Incorporation.
3.2 --Amended and Restated By-Laws of the Company.
4.1 --Specimen certificate representing the Common Stock
(Incorporated by reference to Exhibit 4.1 of the Company's
Registration Statement on Form S-1 ("Registration Statement
No. 333 - 00300")).
5.1 --Opinion of Testa, Hurwitz & Thibeault, LLP.
10.1 --1988 Stock Plan (Incorporated by reference to Exhibit 10.1 of
Registration Statement No. 333-00300).
10.2 --1989 Stock Plan (Incorporated by reference to Exhibit 10.2 of
Registration Statement No. 333-00300).
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<C> <S>
10.3 --1995 Stock Plan, as amended (Incorporated by reference to
Exhibit 10.3 of Registration Statement No. 333-00300).
10.4 --1995 Non-Employee Director Stock Option Plan (Incorporated by
reference to Exhibit 10.4 of Registration Statement No. 333-
00300).
10.5 --1995 Employee Stock Purchase Plan, as amended (Incorporated by
reference to Exhibit 10.5 to Registration Statement No. 333-
00300).
10.6# --License Agreement between the Company and DEKA Products
Limited Partnership dated March 22, 1993 (Incorporated by
reference to Exhibit 10.6 of Registration Statement No. 333-
00300).
10.7 --Series C1 Senior Convertible Preferred Stock Purchase
Agreement dated as of June 13, 1995 (Incorporated by reference
to Exhibit 10.7 of Registration Statement No. 333-00300).
10.8 --Form of Indemnification Agreement (Incorporated by reference
to Exhibit 10.8 of Registration Statement No. 333-00300).
10.9 --Lease Agreement between the Company and Cedar Hill Associates
II of December 1990, as amended (Incorporated by reference to
Exhibit 10.9 of Registration Statement No. 333-00300).
10.10 --Lease Agreement between the Company and BFA Realty
Partnership, L.P. d/b/a BFA, Limited Partnership of February
1996 (Incorporated by reference to Exhibit 10.10 of
Registration Statement No. 333-00300).
11.1 --Computation of Pro Forma Weighted Average Shares Outstanding.
23.1 --Consent of Arthur Andersen LLP.
23.2 --Consent of Testa, Hurwitz & Thibeault, LLP (included in
Exhibit 5.1).
24.1 --Power of Attorney (see page II-5).
27.1 --Financial Data Schedule
</TABLE>
- --------
# Confidential treatment granted as to certain portions.
(b) Financial Statements Schedules:
Schedule XI -- Computation of Income Per Common Share
All other schedules for which provision is made in the applicable accounting
regulation 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 for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
registrant pursuant to provisions described in Item 14 above, or otherwise,
the registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Securities Act and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
the registrant of expenses incurred or paid by a director, officer or
controlling person of the registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling
person in connection with the securities being registered, the registrant
will, unless in the opinion of its
II-3
<PAGE>
counsel the matter has been settled by controlling precedent, submit to a
court of appropriate jurisdiction the question whether such indemnification by
it is against public policy as expressed in the Securities Act and will be
governed by the final adjudication of such issue.
The undersigned registrant hereby undertakes (1) that 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 the
registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities
Act shall be deemed to be part of this registration statement as of the time
it was declared effective; and (2) that 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>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
HAS DULY CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF BOXBOROUGH, THE
COMMONWEALTH OF MASSACHUSETTS, ON JANUARY 7, 1997.
CYTYC CORPORATION
/s/ Patrick J. Sullivan
By: _________________________________
PATRICK J. SULLIVAN PRESIDENT AND
CHIEF EXECUTIVE OFFICER
POWER OF ATTORNEY AND SIGNATURES
We, the undersigned officers and directors of Cytyc Corporation, hereby
severally constitute and appoint Patrick J. Sullivan and Joseph W. Kelly, and
each of them singly, our true and lawful attorneys, with full power to them and
each of them singly, to sign for us in our names in the capacities indicated
below, all pre-effective and post-effective amendments to this registration
statement, as well as, any registration statement filed pursuant to Rule 462(b)
of the Securities Act of 1933, as amended, and generally to do all things in
our names and on our behalf in such capacities to enable Cytyc Corporation to
comply with the provisions of the Securities Act of 1933, as amended, and all
requirements of the Securities and Exchange Commission.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS REGISTRATION
STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE CAPACITIES AND ON THE
DATES INDICATED.
SIGNATURE TITLE(S) DATE
/s/ Patrick J. Sullivan President, Chief January 7, 1997
- ------------------------------------- Executive Officer
PATRICK J. SULLIVAN and Director
(Principal
Executive Officer)
/s/ Joseph W. Kelly Vice President, January 7, 1997
- ------------------------------------- Chief Financial
JOSEPH W. KELLY Officer, Treasurer,
and Secretary
(Principal
Financial and
Accounting Officer)
/s/ Frederick R. Blume Director January 7, 1997
- -------------------------------------
FREDERICK R. BLUME
II-5
<PAGE>
SIGNATURE TITLE(S) DATE
/s/ Guy de Chazal Director January 7, 1997
- -------------------------------------
GUY DE CHAZAL
/s/ Janet G. Effland Director January 7, 1997
- -------------------------------------
JANET G. EFFLAND
/s/ Franklin J. Iris Director January 7, 1997
- -------------------------------------
FRANKLIN J. IRIS
/s/ Edwin M. Kania, Jr. Director January 7, 1997
- -------------------------------------
EDWIN M. KANIA, JR.
/s/ C. William McDaniel Director January 7, 1997
- -------------------------------------
C. WILLIAM MCDANIEL
/s/ Monroe Trout, M.D. Director January 7, 1997
- -------------------------------------
MONROE TROUT, M.D.
II-6
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT PAGE
NO. DESCRIPTION NO.
------- ----------- ----
<C> <S> <C>
1.1 --Form of Underwriting Agreement.
3.1 --Third Amended and Restated Certificate of Incorporation.
3.2 --Amended and Restated By-Laws of the Company.
4.1 --Specimen certificate representing the Common Stock
(Incorporated by reference to Exhibit 4.1 of the Company's
Registration Statement on Form S-1 ("Registration Statement
No. 333-00300")).
5.1 --Opinion of Testa, Hurwitz & Thibeault, LLP.
10.1 --1988 Stock Plan (Incorporated by reference to Exhibit 10.1 of
Registration Statement No. 333-00300).
10.2 --1989 Stock Plan (Incorporated by reference to Exhibit 10.2 of
Registration Statement No. 333-00300).
10.3 --1995 Stock Plan, as amended (Incorporated by reference to
Exhibit 10.3 of Registration Statement No. 333-00300).
10.4 --1995 Non-Employee Director Stock Option Plan (Incorporated by
reference to Exhibit 10.4 of Registration Statement No. 333-
00300).
10.5 --1995 Employee Stock Purchase Plan, as amended (Incorporated
by reference to Exhibit 10.5 of Registration Statement No.
333-00300).
10.6# --License Agreement between the Company and Deka Products
Limited Partnership dated March 22, 1993 (Incorporated by
reference to Exhibit 10.6 of Registration Statement No. 333-
00300).
10.7 --Series C1 Senior Convertible Preferred Stock Purchase
Agreement dated as of June 13, 1995 (Incorporated by reference
to Exhibit 10.7 of Registration Statement No. 333-00300).
10.8 --Form of Indemnification Agreement (Incorporated by reference
to Exhibit 10.8 of Registration Statement No. 333-00300).
10.9 --Lease Agreement between the Company and Cedar Hill Associates
II of December 1990, as amended (Incorporated by reference to
Exhibit 10.9 of Registration Statement No. 333-00300).
10.10 --Lease Agreement between the Company and BFA Realty
Partnership, L.P. d/b/a BFA, Limited Partnership of February
1996 (Incorporated by reference to Exhibit 10.10 of
Registration Statement No. 333-00300).
11.1 --Computation of Pro Forma Weighted Average Shares Outstanding.
23.1 --Consent of Arthur Anderson LLP.
23.2 --Consent of Testa, Hurwitz & Thibeault, LLP (included in
Exhibit 5.1).
24.1 --Power of Attorney (see page II-4).
27.1 --Financial Data Schedule
</TABLE>
- --------
#Confidential treatment granted as to certain portions.
<PAGE>
FORM OF UNDERWRITING AGREEMENT
------------------------------
[3,000,000] Shares/1/
CYTYC CORPORATION
Common Stock
UNDERWRITING AGREEMENT
----------------------
___________, 1997
ROBERTSON, STEPHENS & COMPANY LLC
MONTGOMERY SECURITIES
PIPER JAFFRAY INC.
As Representatives of the several Underwriters
c/o Robertson, Stephens & Company LLC
555 California Street
Suite 2600
San Francisco, California 94104
Ladies/Gentlemen:
Cytyc Corporation, a Delaware corporation (the "Company"), and certain
stockholders of the Company named in Schedule B hereto (herein collectively
----------
called the "Selling Stockholders"), address you as the Representatives of each
of the persons, firms and corporations listed in Schedule A hereto (herein
----------
collectively called the "Underwriters") and hereby confirm their respective
agreements with the several Underwriters as follows:
1. Description of Shares. The Company proposes to issue and sell [2,000,000]
---------------------
shares of its authorized and unissued Common Stock, par value $0.01 per share,
to the several Underwriters. The Selling Stockholders, acting severally and not
jointly, propose to sell an aggregate of [1,000,000] shares of the Company's
authorized and outstanding Common Stock, par value $0.01 per share, to the
several Underwriters. The [2,000,000] shares of Common Stock, par value $0.01
per share, of the Company to be sold by the Company are hereinafter called the
"Company Shares" and the [1,000,000] shares of Common Stock, par value $0.01 per
share, of the Company to be sold by the Selling Stockholders are hereinafter
called the "Selling Stockholder Shares." The Company Shares and the Selling
Stockholder Shares are hereinafter collectively referred to as the "Firm
Shares." The Company also proposes to grant to the Underwriters an option to
purchase up to [450,000] additional shares of the Company's Common Stock, par
value $0.01 per share (the "Option Shares"), as provided in Section 7 hereof.
As used in this Agreement, the term "Shares" shall include the Firm Shares and
the Option Shares. All shares of Common Stock, par value $0.01 per share, of
the Company to be outstanding after giving effect to the sales contemplated
hereby, including the Shares, are hereinafter referred to as "Common Stock."
- ------------------------------
/1/ Plus an option to purchase up to [450,000] additional shares from the
Company to cover over-allotments, if any.
<PAGE>
2. Representations, Warranties and Agreements of the Company and the Selling
-------------------------------------------------------------------------
Stockholders.
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I. The Company represents and warrants to and agrees with each
Underwriter and each Selling Stockholder that:
(a) A registration statement on Form S-1 (File No. 333-_______) with
respect to the Shares, including a prospectus subject to completion, has been
prepared by the Company in conformity with the requirements of the Securities
Act of 1933, as amended (the "Act"), and the applicable rules and regulations
(the "Rules and Regulations") of the Securities and Exchange Commission (the
"Commission") under the Act and has been filed with the Commission; such
amendments to such registration statement, such amended prospectuses subject to
completion and such abbreviated registration statements pursuant to Rule 462(b)
of the Rules and Regulations as may have been required prior to the date hereof
have been similarly prepared and filed with the Commission; and the Company will
file such additional amendments to such registration statement, such amended
prospectuses subject to completion and such abbreviated registration statements
as may hereafter be required. Copies of such registration statement and
amendments, of each related prospectus subject to completion (the "Preliminary
Prospectuses"), including all exhibits incorporated by reference therein, and of
any abbreviated registration statement pursuant to Rule 462(b) of the Rules and
Regulations have been delivered to you.
If the registration statement relating to the Shares has been declared
effective under the Act by the Commission, the Company will prepare and promptly
file with the Commission the information omitted from the registration statement
pursuant to Rule 430A(a) or, if Robertson, Stephens & Company LLC, on behalf of
the several Underwriters, shall agree to the utilization of Rule 434 of the
Rules and Regulations, the information required to be included in any term sheet
filed pursuant to Rule 434(b) or (c), as applicable, of the Rules and
Regulations pursuant to subparagraph (1), (4) or (7) of Rule 424(b) of the Rules
and Regulations or as part of a post-effective amendment to the registration
statement (including a final form of prospectus). If the registration statement
relating to the Shares has not been declared effective under the Act by the
Commission, the Company will prepare and promptly file an amendment to the
registration statement, including a final form of prospectus, or, if Robertson,
Stephens & Company LLC, on behalf of the several Underwriters, shall agree to
the utilization of Rule 434 of the Rules and Regulations, the information
required to be included in any term sheet filed pursuant to Rule 434(b) or (c),
as applicable, of the Rules and Regulations. The term "Registration Statement"
as used in this Agreement shall mean such registration statement, including
financial statements, schedules and exhibits, in the form in which it became or
becomes, as the case may be, effective (including, if the Company omitted
information from the registration statement pursuant to Rule 430A(a) or files a
term sheet pursuant to Rule 434 of the Rules and Regulations, the information
deemed to be a part of the registration statement at the time it became
effective pursuant to Rule 430A(b) or Rule 434(d) of the Rules and Regulations)
and, in the event of any amendment thereto or the filing of any abbreviated
registration statement pursuant to Rule 462(b) of the Rules and Regulations
relating thereto after the effective date of such registration statement, shall
also mean (from and after the effectiveness of such amendment or the filing of
such abbreviated registration statement) such registration statement as so
amended, together with any such abbreviated registration statement. The term
"Prospectus" as used in this Agreement shall mean the prospectus relating to the
Shares as included in such Registration Statement at the time it becomes
effective (including, if the Company omitted information from the Registration
Statement pursuant to Rule 430A(a) of the Rules and Regulations, the information
deemed to be a part of the Registration Statement at the time it became
effective pursuant to Rule 430A(b) of the Rules and Regulations); provided,
--------
however, that if in reliance on Rule 434 of the Rules and Regulations and with
- -------
the consent of Robertson, Stephens & Company LLC, on behalf of the several
Underwriters, the Company shall have provided to the Underwriters a term sheet
pursuant to Rule 434(b) or (c), as applicable, prior to the time that a
confirmation is sent or given for purposes of Section 2(10)(a) of the Act, the
term "Prospectus" shall mean the "prospectus subject to completion" (as defined
in Rule 434(g) of the Rules and Regulations) last provided to the Underwriters
by the Company and circulated by the Underwriters to all prospective purchasers
of the Shares (including the information deemed to be a part of the Registration
Statement at the time it became effective pursuant to Rule 434(d) of the Rules
and Regulations). Notwithstanding the foregoing, if any revised prospectus
shall be provided to the Underwriters by the Company for use in connection with
the offering of the Shares that differs from the prospectus referred to in the
immediately preceding sentence (whether or not such revised prospectus is
required to be filed with the Commission pursuant to Rule 424(b) of the Rules
and Regulations), the term "Prospectus" shall refer to such revised prospectus
from and after the time it is first provided to the Underwriters for such use.
If in reliance on Rule 434 of the Rules and Regulations and with the consent of
Robertson, Stephens & Company LLC, on behalf of the several Underwriters, the
Company shall have provided to the Underwriters a term sheet pursuant to Rule
434(b) or (c), as applicable, prior to the time that a confirmation is sent or
given for purposes of Section 2(10)(a) of the Act, the Prospectus and the term
sheet, together, will not be materially
-2-
<PAGE>
different from the prospectus in the Registration Statement.
(b) The Commission has not issued any order preventing or suspending
the use of any Preliminary Prospectus or instituted proceedings for that
purpose, and each such Preliminary Prospectus has conformed in all material
respects to the requirements of the Act and the Rules and Regulations and, as of
its date, has not included any untrue statement of a material fact or omitted to
state a material fact necessary to make the statements therein, in the light of
the circumstances under which they were made, not misleading; and at the time
the Registration Statement became or becomes, as the case may be, effective and
at all times subsequent thereto up to and on the Closing Date (hereinafter
defined) and on any later date on which Option Shares are to be purchased, (i)
the Registration Statement and the Prospectus, and any amendments or supplements
thereto, contained and will contain all material information required to be
included therein by the Act and the Rules and Regulations and will in all
material respects conform to the requirements of the Act and the Rules and
Regulations, (ii) the Registration Statement, and any amendments or supplements
thereto, did not and will not include any untrue statement of a material fact or
omit to state a material fact required to be stated therein or necessary to make
the statements therein not misleading, and (iii) the Prospectus, and any
amendments or supplements thereto, did not and will not include any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements therein, in the light of the circumstances under which they were
made, not misleading; provided, however, that none of the representations and
-------- -------
warranties contained in this subparagraph (b) shall apply to information
contained in or omitted from the Registration Statement or Prospectus, or any
amendment or supplement thereto, in reliance upon, and in conformity with,
written information relating to any Underwriter furnished to the Company by such
Underwriter specifically for use in the preparation thereof.
(c) Each of the Company and the Subsidiary (as defined below) has been
duly incorporated and is validly existing as a corporation in good standing
under the laws of the jurisdiction of its incorporation with full power and
authority (corporate and other) to own, lease and operate its properties and
conduct its business as described in the Prospectus; the Company does not own or
lease any property other than in the Commonwealth of Massachusetts; the Company
owns all of the outstanding capital stock of the Subsidiary free and clear of
any pledge, lien, security interest, encumbrance, claim or equitable interest;
each of the Company and the Subsidiary is duly qualified to do business as a
foreign corporation and is in good standing in each jurisdiction in which the
ownership or leasing of its properties or the conduct of its business requires
such qualification, except where the failure to be so qualified or be in good
standing would not have a material adverse effect on the condition (financial or
otherwise), earnings, operations, business or business prospects of the Company
and the Subsidiary considered as one enterprise; no proceeding has been
instituted in any such jurisdiction, revoking, limiting or curtailing, or
seeking to revoke, limit or curtail, such power and authority or qualification;
each of the Company and the Subsidiary is in possession of and operating in
compliance with all authorizations, licenses, certificates, consents, orders and
permits from state, federal and other regulatory authorities which are material
to the conduct of its business, all of which are valid and in full force and
effect; neither the Company nor the Subsidiary is in violation of its respective
charter or bylaws or in default in the performance or observance of any material
obligation, agreement, covenant or condition contained in any material bond,
debenture, note or other evidence of indebtedness, or in any material lease,
contract, indenture, mortgage, deed of trust, loan agreement, joint venture or
other agreement or instrument to which the Company or the Subsidiary is a party
or by which it or the Subsidiary or their respective properties may be bound;
and neither the Company nor the Subsidiary is in material violation of any law,
order, rule, regulation, writ, injunction, judgment or decree of any court,
government or governmental agency or body, domestic or foreign, having
jurisdiction over the Company or the Subsidiary or over their respective
properties of which it has knowledge. The Company does not own or control,
directly or indirectly, any corporation, association or other entity other than
Cytyc Securities Corporation, a Massachusetts corporation (the "Subsidiary"),
which is not a significant subsidiary, as such term is defined in Rule 1-02 of
Regulation S-X.
(d) The Company has full legal right, power and authority to enter
into this Agreement and perform the transactions contemplated hereby. This
Agreement has been duly authorized, executed and delivered by the Company and is
a valid and binding agreement on the part of the Company, enforceable in
accordance with its terms, except as rights to indemnification hereunder may be
limited by applicable law and except as the enforcement hereof may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium or other similar
laws relating to or affecting creditors' rights generally or by general
equitable principles; the performance of this Agreement and the consummation of
the transactions herein contemplated will not result in a material breach or
violation of any of the terms and provisions of, or constitute a default under,
(i) any bond, debenture, note or other evidence of indebtedness, or under any
lease, contract, indenture, mortgage, deed of trust, loan agreement, joint
venture or other agreement or instrument to which the Company or the Subsidiary
is a party or by which it or the Subsidiary or their respective properties may
be bound, (ii) the charter
-3-
<PAGE>
or bylaws of the Company or the Subsidiary, or (iii) to the knowledge of the
Company, any law, order, rule, regulation, writ, injunction, judgment or decree
of any court, government or governmental agency or body, domestic or foreign,
having jurisdiction over the Company or Subsidiary or over their respective
properties. No consent, approval, authorization or order of or qualification
with any court, government or governmental agency or body, domestic or foreign,
having jurisdiction over the Company or the Subsidiary or over their respective
properties is required for the execution and delivery of this Agreement and the
consummation by the Company or the Subsidiary of the transactions herein
contemplated, except such as may be required by the National Association of
Securities Dealers, Inc. (the "NASD") with respect to the listing of the
additional shares of Common Stock to be offered hereby on The Nasdaq National
Market or as may be required under the Act or under state or other securities or
Blue Sky laws, all of which requirements have been satisfied in all material
respects.
(e) There is not any pending or, to the best of the Company's
knowledge, threatened action, suit, claim or proceeding against the Company, the
Subsidiary or any of their respective officers or any of their respective
properties, assets or rights before any court, government or governmental agency
or body, domestic or foreign, having jurisdiction over the Company or the
Subsidiary or over their respective officers or properties or otherwise which
(i) might result in any material adverse change in the condition (financial or
otherwise), earnings, operations, business or business prospects of the Company
and the Subsidiary considered as one enterprise or might materially and
adversely affect their properties, assets or rights, (ii) might prevent
consummation of the transactions contemplated hereby or (iii) is required to be
disclosed in the Registration Statement or Prospectus and is not so disclosed;
and there are no agreements, contracts, leases or documents of the Company or
the Subsidiary of a character required to be described or referred to in the
Registration Statement or Prospectus or to be filed as an exhibit to the
Registration Statement by the Act or the Rules and Regulations which have not
been accurately described in all material respects in the Registration Statement
or Prospectus or filed as exhibits to the Registration Statement.
(f) All outstanding shares of capital stock of the Company (including
the Selling Stockholder Shares) have been duly authorized and validly issued and
are fully paid and nonassessable, have been issued in compliance with all
federal and state securities laws, were not issued in violation of or subject to
any preemptive rights or other rights to subscribe for or purchase securities,
and the authorized and outstanding capital stock of the Company is as set forth
in the Prospectus under the caption "Capitalization" and conforms in all
material respects to the statements relating thereto contained in the
Registration Statement and the Prospectus (and such statements correctly state
the substance of the instruments defining the capitalization of the Company);
the Company Shares to be purchased from the Company hereunder have been duly
authorized for issuance and sale to the Underwriters pursuant to this Agreement
and, when issued and delivered by the Company against payment therefor in
accordance with the terms of this Agreement, will be duly and validly issued and
fully paid and nonassessable, and will be sold free and clear of any pledge,
lien, security interest, encumbrance, claim or equitable interest; and no
preemptive right, co-sale right, registration right, right of first refusal or
other similar right of stockholders exists with respect to any of the Company
Shares to be purchased from the Company hereunder or the issuance and sale
thereof other than those that have been expressly waived prior to the date
hereof and those that will automatically expire upon, and will not apply to, the
consummation of the transactions contemplated on the Closing Date. No further
approval or authorization of any stockholder, the Board of Directors of the
Company or others is required for the issuance and sale or transfer of the
Shares except as may be required under the Act or under state or other
securities or Blue Sky laws and except that the official Notice of Issuance is
required with respect to the listing of the additional shares of Common Stock to
be offered hereby on The Nasdaq National Market. All issued and outstanding
shares of capital stock of the Subsidiary have been duly authorized and validly
issued and are fully paid and nonassessable, and were not issued in violation of
or subject to any preemptive right, or other rights to subscribe for or purchase
shares and are owned by the Company free and clear of any pledge, lien, security
interest, encumbrance, claim or equitable interest. Except as disclosed in the
Prospectus and the financial statements of the Company, and the related notes
thereto, included in the Prospectus, neither the Company nor the Subsidiary has
outstanding any options to purchase, or any preemptive rights or other rights to
subscribe for or to purchase, any securities or obligations convertible into, or
any contracts or commitments to issue or sell, shares of its capital stock or
any such options, rights, convertible securities or obligations. The
description of the Company's stock option, stock bonus and other stock plans or
arrangements, and the options or other rights granted and exercised thereunder,
set forth in the Prospectus accurately and fairly presents the information
required to be shown with respect to such plans, arrangements, options and
rights in all material respects.
(g) Arthur Andersen LLP, which has examined the consolidated financial
statements of the Company, together with the related schedules and notes, as of
December 31, 1996 and 1995 and for each of the years in the three (3) years
ended December 31, 1996 filed with the Commission as a part of the Registration
Statement, which
-4-
<PAGE>
are included in the Prospectus, are independent accountants within the meaning
of the Act and the Rules and Regulations; the audited consolidated financial
statements of the Company, together with the related schedules and notes, and
the unaudited consolidated financial information, forming part of the
Registration Statement and Prospectus, fairly present the financial position and
the results of operations of the Company and the Subsidiary at the respective
dates and for the respective periods to which they apply; and all audited
consolidated financial statements of the Company, together with the related
schedules and notes, and the unaudited consolidated financial information, filed
with the Commission as part of the Registration Statement, have been prepared in
accordance with generally accepted accounting principles consistently applied
throughout the periods involved except as may be otherwise stated therein. The
selected and summary financial and statistical data included in the Registration
Statement present fairly the information shown therein and have been compiled on
a basis consistent with the audited financial statements presented therein. No
other financial statements or schedules are required to be included in the
Registration Statement.
(h) Subsequent to the respective dates as of which information is
given in the Registration Statement and Prospectus, there has not been (i) any
material adverse change in the financial condition, earnings, operations,
business or business prospects of the Company and the Subsidiary considered as
one enterprise, (ii) any transaction that is material to the Company and the
Subsidiary considered as one enterprise, except transactions entered into in the
ordinary course of business, (iii) any obligation, direct or contingent, that is
material to the Company and the Subsidiary considered as one enterprise,
incurred by the Company or the Subsidiary, except obligations incurred in the
ordinary course of business, (iv) any change in the capital stock or outstanding
indebtedness of the Company or the Subsidiary that is material to the Company
and the Subsidiary considered as one enterprise, (v) any dividend or
distribution of any kind declared, paid or made on the capital stock of the
Company or the Subsidiary, or (vi) any loss or damage (whether or not insured)
to the property of the Company or the Subsidiary which has been sustained or
will have been sustained which has a material adverse effect on the financial
condition, earnings, operations, business or business prospects of the Company
and the Subsidiary considered as one enterprise.
(i) Except as set forth in the Registration Statement and Prospectus,
(i) each of the Company and the Subsidiary has good and marketable title to all
properties and assets described in the Registration Statement and Prospectus as
owned by it, free and clear of any pledge, lien, security interest, encumbrance,
claim or equitable interest, other than such as would not have a material
adverse effect on the financial condition, earnings, operations, business or
business prospects of the Company and the Subsidiary considered as one
enterprise, (ii) the agreements to which the Company or the Subsidiary is a
party described in the Registration Statement and Prospectus are valid
agreements, enforceable by the Company and the Subsidiary (as applicable),
except as the enforcement thereof may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium or other similar laws relating to or
affecting creditors' rights generally or by general equitable principles and, to
the best of the Company's knowledge, the other contracting party or parties
thereto are not in material breach or material default under any of such
agreements, and (iii) each of the Company and the Subsidiary has valid and
enforceable leases for all properties described in the Registration Statement
and Prospectus as leased by it, except as the enforcement thereof may be limited
by applicable bankruptcy, insolvency, reorganization, moratorium or other
similar laws relating to or affecting creditors' rights generally or by general
equitable principles. Except as set forth in the Registration Statement and
Prospectus, the Company owns or leases all such properties as are necessary to
its operations as now conducted or as proposed to be conducted.
(j) The Company and the Subsidiary have timely filed all necessary
federal, state and foreign income and franchise tax returns and have paid all
taxes shown thereon as due (other than such amounts as are currently being
disputed by the Company in good faith, which amounts are fully reserved on the
Company's consolidated financial statements as contained in the Registration
Statement), and there is no tax deficiency that has been or, to the Company's
knowledge, might be asserted against the Company or the Subsidiary that might
have a material adverse effect on the financial condition, earnings, operations,
business or business prospects of the Company and the Subsidiary considered as
one enterprise; and all tax liabilities are adequately provided for on the books
of the Company and the Subsidiary.
(k) The Company maintains insurance with insurers of recognized
financial responsibility of the types and in the amounts generally deemed
adequate for its business and consistent with insurance coverage maintained by
similar companies in similar businesses, including, but not limited to,
insurance covering real and personal property owned or leased, directly or
indirectly, by the Company against theft, damage, destruction, acts of vandalism
and all other risks customarily insured against, all of which insurance is in
full force and effect; neither the Company nor the Subsidiary has been refused
any insurance coverage sought or applied for: and neither the Company nor the
Subsidiary has
-5-
<PAGE>
any reason to believe that it will not be able to renew its existing insurance
coverage as and when such coverage expires or to obtain similar coverage from
similar insurers as may be necessary to continue its business at a cost that
would not materially and adversely affect the financial condition, earnings,
operations, business or business prospects of the Company and the Subsidiary
considered as one enterprise.
(l) To the best of Company's knowledge, no labor disturbance by the
employees of the Company or the Subsidiary exists or is imminent; and the
Company is not aware of any existing or imminent labor disturbance by the
employees of any of its principal suppliers, subassemblers, value added
resellers, subcontractors, original equipment manufacturers, authorized dealers
or international distributors that might be expected to result in a material
adverse change in the condition (financial or otherwise), earnings, operations,
business or business prospects of the Company and the Subsidiary considered as
one enterprise. No collective bargaining agreement exists with any of the
Company's employees and, to the best of the Company's knowledge, no such
agreement is imminent.
(m) Except as specifically disclosed in the Prospectus, each of the
Company and the Subsidiary owns or possesses adequate rights to use all patents,
patent rights, inventions, trade secrets, know-how, trademarks, service marks,
trade names and copyrights (collectively, "Intellectual Property Rights") which
are necessary to conduct its businesses as described in the Registration
Statement and Prospectus; the Company has not received any notice of, and has no
knowledge of, any infringement of or conflict with asserted rights of the
Company by others with respect to any Intellectual Property Rights; the Company
has not received any notice of, and has no knowledge of, any infringement of or
conflict with asserted rights of others with respect to any Intellectual
Property Rights which, singly or in the aggregate, if the subject of an
unfavorable decision, ruling or finding, might have a material adverse effect on
the financial condition, earnings, operations, business or business prospects of
the Company and the Subsidiary considered as one enterprise; and to the
knowledge of the Company, none of the patents owned by the Company are
unenforceable or invalid. The Company has duly and properly filed or caused to
be filed with the United States Patent and Trademark Office (the "PTO") and
applicable foreign and international patent authorities all patent applications
described or referred to in the Prospectus, and believes it has complied with
the PTO's duty of candor and disclosure for each of the United States patent
applications described or referred to in the Prospectus; the Company is unaware
of any facts which would preclude the grant of a patent from each of the patent
applications described or referred to in the Prospectus; and the Company has no
knowledge of any facts which would preclude it from having clear title to its
patent applications described or referred to in the Prospectus.
(n) The Common Stock is registered pursuant to Section 12(g) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act") and is listed
on The Nasdaq National Market, and the Company has taken no action designed to,
or likely to have the effect of, terminating the registration of the Common
Stock under the Exchange Act or delisting the Common Stock from The Nasdaq
National Market, nor has the Company received any notification that the
Commission or the NASD is contemplating terminating such registration or
listing.
(o) The Company has been advised concerning the Investment Company Act
of 1940, as amended (the "1940 Act"), and the rules and regulations thereunder,
and has in the past conducted, and intends in the future to conduct, its affairs
in such a manner as to ensure that it will not become an "investment company" or
a company "controlled" by an "investment company" within the meaning of the 1940
Act and such rules and regulations.
(p) The Company has not distributed and will not distribute prior to
the later of (i) the Closing Date, or any date on which Option Shares are to be
purchased, as the case may be, and (ii) completion of the distribution of the
Shares, any offering material in connection with the offering and sale of the
Shares other than any Preliminary Prospectuses, the Prospectus, the Registration
Statement and other materials, if any, permitted by the Act.
(q) Neither the Company nor the Subsidiary has at any time during the
last five (5) years (i) made any unlawful contribution to any candidate for
foreign office or failed to disclose fully any contribution in violation of law,
or (ii) made any payment to any federal or state governmental officer or
official, or other person charged with similar public or quasi-public duties,
other than payments required or permitted by the laws of the United States or
any jurisdiction thereof.
(r) The Company has not taken and will not take, directly or
indirectly, any action designed to or that might reasonably be expected to cause
or result in stabilization or manipulation of the price of the Common Stock to
facilitate the sale or resale of the Shares.
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<PAGE>
(s) Each officer and director of the Company, each Selling Stockholder
and each beneficial owner of 100,000 or more shares of Common Stock has agreed
in writing that such person will not, for a period of [90] days from the date
that the Registration Statement is declared effective by the Commission (the
"Lock-up Period"), offer, sell, contract to sell, grant any option to purchase,
pledge or otherwise dispose of or transfer (collectively, a "Disposition") any
shares of Common Stock or any securities convertible into or exercisable or
exchangeable for, or any rights to purchase or acquire, shares of Common Stock
(collectively, "Securities") now owned or hereafter acquired directly by such
person or with respect to which such person has or hereafter acquires the power
of disposition, otherwise than (i) as a bona fide gift or gifts, provided the
donee or donees thereof agree in writing to be bound by this restriction, (ii)
as a distribution to partners or stockholders of such person, provided that the
distributees thereof agree in writing to be bound by the terms of this
restriction, or (iii) with the prior written consent of Robertson, Stephens &
Company LLC. For the purposes of this Agreement, "Securities" shall not include
any shares of Common Stock acquired by such person in the public offering of the
Shares or in the public market following consummation of the public offering of
the Shares. The foregoing restriction has been expressly agreed to preclude the
holder of the Securities from engaging in any hedging or other transaction which
is designed to or reasonably expected to lead to or result in a Disposition of
Securities during the Lock-up Period, even if such Securities would be disposed
of by someone other than such holder. Such prohibited hedging or other
transactions would include, without limitation, any short sale (whether or not
against the box) or any purchase, sale or grant of any right (including, without
limitation, any put or call option) with respect to any Securities or with
respect to any security (other than a broad-based market basket or index) that
includes, relates to or derives any significant part of its value from
Securities. Furthermore, such person has also agreed and consented to the entry
of stop transfer instructions with the Company's transfer agent against the
transfer of the Securities held by such person except in compliance with this
restriction. The Company has provided to counsel for the Underwriters a
complete and accurate list of all securityholders of the Company and the number
and type of securities held by each securityholder. The Company has provided to
counsel for the Underwriters true, accurate and complete copies of all of the
agreements pursuant to which its officers, directors and stockholders have
agreed to such or similar restrictions (the "Lock-up Agreements") presently in
effect or effected hereby. The Company hereby represents and warrants that it
will not release any of its officers, directors or other stockholders from any
Lock-up Agreements currently existing or hereafter effected without the prior
written consent of Robertson, Stephens & Company LLC.
(t) Except as set forth in the Registration Statement and Prospectus,
(i) the Company is in compliance in all material respects with all rules, laws
and regulations relating to the use, treatment, storage and disposal of toxic
substances and protection of health or the environment ("Environmental Laws")
which are applicable to its business, (ii) the Company has received no notice
from any governmental authority or third party of an asserted claim under
Environmental Laws, which claim is required to be disclosed in the Registration
Statement and the Prospectus, (iii) to the knowledge of the Company, the Company
will not be required to make future material capital expenditures to comply with
Environmental Laws and (iv) no property which is owned, leased or occupied by
the Company has been designated as a Superfund site pursuant to the
Comprehensive Response, Compensation, and Liability Act of 1980, as amended (42
U.S.C. (S) 9601, et seq.), or otherwise designated as a contaminated site under
-- ----
applicable state or local law.
(u) Each of the Company and the Subsidiary maintain a system of
internal accounting controls sufficient to provide reasonable assurances that
(i) transactions are executed in accordance with management's general or
specific authorizations, (ii) transactions are recorded as necessary to permit
preparation of financial statements in conformity with generally accepted
accounting principles and to maintain accountability for assets, (iii) access to
assets is permitted only in accordance with management's general or specific
authorization, and (iv) the recorded accountability for assets is compared with
existing assets at reasonable intervals and appropriate action is taken with
respect to any differences.
(v) There are no outstanding loans, advances (except normal advances
for business expenses in the ordinary course of business) or guarantees of
indebtedness by the Company to or for the benefit of any of the officers or
directors of the Company or any of the members of the families of any of them,
except as disclosed in the Registration Statement and the Prospectus.
(w) The Company has complied with all provisions of Section 517.075,
Florida Statutes relating to doing business with the Government of Cuba or with
any person or affiliate located in Cuba.
II. Each Selling Stockholder, severally and not jointly, represents and
warrants to and agrees with each Underwriter and the Company that:
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<PAGE>
(a) Such Selling Stockholder now has and on the Closing Date will have
valid marketable title to the Shares to be sold by such Selling Stockholder,
free and clear of any pledge, lien, security interest, encumbrance, claim or
equitable interest other than pursuant to this Agreement; and upon delivery of
such Shares hereunder and payment of the purchase price as herein contemplated,
each of the Underwriters will obtain valid marketable title to the Shares
purchased by it from such Selling Stockholder, free and clear of any pledge,
lien, security interest pertaining to such Selling Stockholder or such Selling
Stockholder's property, encumbrance, claim or equitable interest, including any
liability for estate or inheritance taxes, or any liability to or claims of any
creditor, devisee, legatee or beneficiary of such Selling Stockholder.
(b) Such Selling Stockholder has duly authorized (if applicable),
executed and delivered, in the form heretofore furnished to the Representatives,
an irrevocable Power of Attorney (the "Power of Attorney") appointing Patrick J.
Sullivan and Joseph W. Kelly, as attorneys-in-fact (collectively, the
"Attorneys" and individually, an "Attorney") and a Letter of Transmittal and
Custody Agreement (the "Custody Agreement") with the Company, as custodian (the
"Custodian"); each of the Power of Attorney and the Custody Agreement
constitutes a valid and binding agreement on the part of such Selling
Stockholder, enforceable in accordance with its terms, except as the enforcement
thereof may be limited by applicable bankruptcy, insolvency, reorganization,
moratorium or other similar laws relating to or affecting creditors' rights
generally or by general equitable principles; and each of such Selling
Stockholder's Attorneys, acting alone, is authorized to execute and deliver this
Agreement and the certificate referred to in Section 6(j) hereof on behalf of
such Selling Stockholder, to determine the purchase price to be paid by the
several Underwriters to such Selling Stockholder as provided in Section 3
hereof, to authorize the delivery of the Selling Stockholder Shares pursuant to
the terms of this Agreement and to duly endorse (in blank or otherwise) the
certificate or certificates representing such Shares or a stock power or powers
with respect thereto, to accept payment therefor, and otherwise to act on behalf
of such Selling Stockholder in connection with this Agreement.
(c) All consents, approvals, authorizations and orders required for
the execution and delivery by such Selling Stockholder of the Power of Attorney
and the Custody Agreement, the execution and delivery by or on behalf of such
Selling Stockholder of this Agreement and the sale and delivery of the Selling
Stockholder Shares to be sold by such Selling Stockholder under this Agreement
(other than, at the time of the execution hereof (if the Registration Statement
has not yet been declared effective by the Commission), the issuance of the
order of the Commission declaring the Registration Statement effective and such
consents, approvals, authorizations or orders as may be necessary under state or
other securities or Blue Sky laws) have been obtained and are in full force and
effect; such Selling Stockholder, if other than a natural person, has been duly
organized and is validly existing in good standing under the laws of the
jurisdiction of its organization as the type of entity that it purports to be;
and such Selling Stockholder has full legal right, power and authority to enter
into and perform its obligations under this Agreement and such Power of Attorney
and Custody Agreement, and to sell, assign, transfer and deliver the Shares to
be sold by such Selling Stockholder under this Agreement.
(d) Such Selling Stockholder will not, during the Lock-up Period,
effect the Disposition of any Securities now owned or hereafter acquired
directly by such Selling Stockholder or with respect to which such Selling
Stockholder has or hereafter acquires the power of disposition, otherwise than
(i) as a bona fide gift or gifts, provided the donee or donees thereof agree in
writing to be bound by this restriction, (ii) as a distribution to partners or
stockholders of such Selling Stockholder, provided that the distributees thereof
agree in writing to be bound by the terms of this restriction, or (iii) with the
prior written consent of Robertson, Stephens & Company LLC. For purposes of
this Agreement, "Securities" shall not include any shares of Common Stock
acquired by such person in the public offering of the Shares or in the public
market following consummation of the public offering of the Shares. The
foregoing restriction is expressly agreed to preclude the holder of the
Securities from engaging in any hedging or other transaction which is designed
to or reasonably expected to lead to or result in a Disposition of Securities
during the Lock-up Period, even if such Securities would be disposed of by
someone other than the Selling Stockholder. Such prohibited hedging or other
transactions would including, without limitation, any short sale (whether or not
against the box) or any purchase, sale or grant of any right (including, without
limitation, any put or call option) with respect to any Securities or with
respect to any security (other than a broad-based market basket or index) that
includes, relates to or derives any significant part of its value from
Securities. Such Selling Stockholder also agrees and consents to the entry of
stop transfer instructions with the Company's transfer agent against the
transfer of the securities held by such Selling Stockholder except in compliance
with this restriction.
(e) Certificates in negotiable form for all Shares to be sold by such
Selling Stockholder
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<PAGE>
under this Agreement, together with a stock power or powers duly endorsed in
blank by such Selling Stockholder, have been placed in custody with the
Custodian for the purpose of effecting delivery hereunder.
(f) This Agreement has been duly authorized by each Selling
Stockholder that is not a natural person and has been duly executed and
delivered by or on behalf of such Selling Stockholder and is a valid and binding
agreement of such Selling Stockholder, enforceable in accordance with its terms,
except as rights to indemnification hereunder may be limited by applicable law
and except as the enforcement hereof may be limited by bankruptcy, insolvency,
reorganization, moratorium or other similar laws relating to or affecting
creditors' rights generally or by general equitable principles; and the
performance of this Agreement and the consummation of the transactions herein
contemplated will not result in a breach or violation of any of the terms and
provisions of or constitute a default under any bond, debenture, note or other
evidence of indebtedness, or under any lease, contract, indenture, mortgage,
deed of trust, loan agreement, joint venture or other agreement or instrument to
which such Selling Stockholder is a party or by which such Selling Stockholder,
or any Selling Stockholder Shares to be sold by such Selling Stockholder
hereunder, may be bound or, to the best of such Selling Stockholders' knowledge,
result in any violation of any law, order, rule, regulation, writ, injunction,
judgment or decree of any court, government or governmental agency or body,
domestic or foreign, having jurisdiction over such Selling Stockholder or over
the properties of such Selling Stockholder, or, if such Selling Stockholder is
other than a natural person, result in any violation of any provisions of the
charter, bylaws or other organizational documents of such Selling Stockholder.
(g) Such Selling Stockholder has not taken and will not take, directly
or indirectly, any action designed to or that might reasonably be expected to
cause or result in stabilization or manipulation of the price of the Common
Stock to facilitate the sale or resale of the Shares.
(h) Such Selling Stockholder has not distributed and will not
distribute offering material in connection with the offering and sale of the
Shares.
(i) All information furnished by or on behalf of such Selling
Stockholder relating to such Selling Stockholder and the Selling Stockholder
Shares that is contained in the representations and warranties of such Selling
Stockholder in such Selling Stockholder's Power of Attorney or set forth in the
Registration Statement or the Prospectus is, and at the time the Registration
Statement became or becomes, as the case may be, effective and at all times
subsequent thereto up to and on the Closing Date, and on any later date on which
Option Shares are to be purchased, was or will be, true, correct and complete,
and does not, and at the time the Registration Statement became or becomes, as
the case may be, effective and at all times subsequent thereto up to and on the
Closing Date (hereinafter defined), and on any later date on which Option Shares
are to be purchased, will not, contain any untrue statement of a material fact
or omit to state a material fact required to be stated therein or necessary to
make such information not misleading.
(j) Such Selling Stockholder will review the Prospectus and will
comply with all agreements and satisfy all conditions on its part to be complied
with or satisfied pursuant to this Agreement on or prior to the Closing Date, or
any later date on which Option Shares are to be purcahsed, as the case may be,
and will advise one of its Attorneys and Robertson, Stephens & Company LLC prior
to the Closing Date or such later date on which Option Shares are to be
purchased, as the case may be, if any statement to be made on behalf of such
Selling Stockholder in the certificate contemplated by Section 6(j) would be
inaccurate if made as of the Closing Date or such later date on which Option
Shares are to be purchased, as the case may be.
(k) Such Selling Stockholder does not have, or has waived prior to the
date hereof, any preemptive right, co-sale right or right of first refusal or
other similar right to purchase any of the Shares that are to be sold by the
Company or any of the other Selling Stockholders to the Underwriters pursuant to
this Agreement; such Selling Stockholder does not have, or has waived prior to
the date hereof, any registration right or other similar right to participate in
the offering made by the Prospectus, other than such rights of participation as
have been satisfied by the participation of such Selling Stockholder in the
transactions to which this Agreement relates in accordance with the terms of
this Agreement; and such Selling Stockholder does not own any warrants, options
or similar rights to acquire, and does not have any right or arrangement to
acquire, any capital stock, rights, warrants, options or other securities from
the Company, other than those described in the Registration Statement and the
Prospectus.
(l) Such Selling Stockholder is not aware that any of the
representations and warranties of the Company set forth in Section 2.I. above is
untrue or inaccurate in any material respect.
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<PAGE>
3. Purchase, Sale and Delivery of Shares. On the basis of the
-------------------------------------
representations, warranties and agreements herein contained, but subject to the
terms and conditions herein set forth, the Company and the Selling Stockholders
agree, severally and not jointly, to sell to the Underwriters, and each
Underwriter agrees, severally and not jointly, to purchase from the Company and
the Selling Stockholders, respectively, at a purchase price of $______ per
share, the respective number of Company Shares and Selling Stockholder Shares
set forth opposite the names of the Company and the Selling Stockholders in
Schedule B hereto. The obligation of each Underwriter to the Company and to
- ----------
each Selling Stockholder shall be to purchase from the Company or such Selling
Stockholder that number of Company Shares or Selling Stockholder Shares, as the
case may be, which (as nearly as practicable, as determined by you) is in the
same proportion to the number of Company Shares or Selling Stockholder Shares,
as the case may be, set forth opposite the name of the Company or such Selling
Stockholder in Schedule B hereto as the number of Firm Shares which is set forth
----------
opposite the name of such Underwriter in Schedule A hereto (subject to
----------
adjustment as provided in Section 10) is to the total number of Firm Shares to
be purchased by all the Underwriters under this Agreement.
The certificates in negotiable form for the Selling Stockholder Shares have
been placed in custody (for delivery under this Agreement) under the Custody
Agreement. Each Selling Stockholder agrees that the certificates for the
Selling Stockholder Shares of such Selling Stockholder so held in custody are
subject to the interests of the Underwriters hereunder, that the arrangements
made by such Selling Stockholder for such custody, including the Power of
Attorney is to that extent irrevocable and that the obligations of such Selling
Stockholder hereunder shall not be terminated by the act of such Selling
Stockholder or by operation of law, whether by the death or incapacity of such
Selling Stockholder or the occurrence of any other event, except as specifically
provided herein or in the Custody Agreement. If any Selling Stockholder should
die or be incapacitated, or if any other such event should occur, before the
delivery of the certificates for the Selling Stockholder Shares hereunder, the
Selling Stockholder Shares to be sold by such Selling Stockholder shall, except
as specifically provided herein or in the Custody Agreement, be delivered by the
Custodian in accordance with the terms and conditions of this Agreement as if
such death, incapacity or other event had not occurred, regardless of whether
the Custodian shall have received notice of such death or other event.
Delivery of definitive certificates for the Firm Shares to be purchased by
the Underwriters pursuant to this Section 3 shall be made against payment of the
purchase price therefor by the several Underwriters by wire transfer of Federal
funds to the account specified by the Company with regard to the Shares being
purchased from the Company, and to the account specified by an Attorney for the
respective accounts of the Selling Stockholders with regard to the Shares being
purchased from such Selling Stockholders, at the offices of Testa, Hurwitz &
Thibeault, High Street Tower, 22nd Floor, 125 High Street, Boston, MA 02110, (or
at such other place as may be agreed upon among the Representatives, the Company
and the Attorneys), at 7:00 A.M., San Francisco time (a) on the third (3rd) full
business day following the first day that the Shares are traded, (b) if this
Agreement is executed and delivered after 1:30 P.M., San Francisco time, the
fourth (4th) full business day following the day that this Agreement is executed
and delivered or (c) at such other time and date not later than seven (7) full
business days following the first day that Shares are traded as the
Representatives, the Company and the Attorneys may determine (or at such time
and date to which payment and delivery shall have been postponed pursuant to
Section 10 hereof), such time and date of payment and delivery being herein
called the "Closing Date;" provided, however, that if the Company has not made
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available to the Representatives copies of the Prospectus within the time
provided in Section 4(d) hereof, the Representatives may, in their sole
discretion, postpone the Closing Date until no later than two (2) full business
days following delivery of copies of the Prospectus to the Representatives. The
certificates for the Firm Shares to be so delivered will be made available to
you at such office or such other location including, without limitation, in New
York City, as you may reasonably request for checking at least one (1) full
business day prior to the Closing Date and will be in such names and
denominations as you may request, such request to be made at least two (2) full
business days prior to the Closing Date. If the Representatives so elect,
delivery of the Firm Shares may be made by credit through full fast transfer to
the accounts at The Depository Trust Company designated by the Representatives.
It is understood that you, individually, and not as the Representatives of
the several Underwriters, may (but shall not be obligated to) make payment of
the purchase price on behalf of any Underwriter or Underwriters whose check or
checks shall not have been received by you prior to the Closing Date for the
Firm Shares to be purchased by such Underwriter or Underwriters. Any such
payment by you shall not relieve any such Underwriter or Underwriters of any of
its or their obligations hereunder.
After the Registration Statement becomes effective, the several
Underwriters intend to make a public offering (as such term is described in
Section 11 hereof) of the Firm Shares at a public offering price of $______ per
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<PAGE>
share. After the public offering, the several Underwriters may, in their
discretion, vary the public offering price.
The information set forth in the last paragraph on the front cover page
(insofar as such information relates to the Underwriters), on the inside front
cover concerning stabilization and over-allotment by the Underwriters, and under
the [second] and [sixth] paragraphs under the caption "Underwriting" in any
Preliminary Prospectus and in the Prospectus constitutes the only information
furnished by the Underwriters to the Company for inclusion in any Preliminary
Prospectus, the Prospectus or the Registration Statement, and you, on behalf of
the respective Underwriters, represent and warrant to the Company and the
Selling Stockholders that the statements made therein do not include any untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading.
4. Further Agreements of the Company. The Company agrees with the several
---------------------------------
Underwriters that:
(a) The Company will use its best efforts to cause the Registration
Statement and any amendment thereof, if not effective at the time and date that
this Agreement is executed and delivered by the parties hereto, to become
effective as promptly as possible; the Company will use its best efforts to
cause any abbreviated registration statement pursuant to Rule 462(b) of the
Rules and Regulations as may be required subsequent to the date the Registration
Statement is declared effective to become effective as promptly as possible; the
Company will notify you, promptly after it shall receive notice thereof, of the
time when the Registration Statement, any subsequent amendment to the
Registration Statement or any abbreviated registration statement has become
effective or any supplement to the Prospectus has been filed; if the Company
omitted information from the Registration Statement at the time it was
originally declared effective in reliance upon Rule 430A(a) of the Rules and
Regulations, the Company will provide evidence satisfactory to you that the
Prospectus contains such information and has been filed, within the time period
prescribed, with the Commission pursuant to subparagraph (1) or (4) of Rule
424(b) of the Rules and Regulations or as part of a post-effective amendment to
such Registration Statement as originally declared effective which is declared
effective by the Commission; if the Company files a term sheet pursuant to Rule
434 of the Rules and Regulations, the Company will provide evidence satisfactory
to you that the Prospectus and term sheet meeting the requirements of Rule
434(b) or (c), as applicable, of the Rules and Regulations, have been filed,
within the time period prescribed, with the Commission pursuant to subparagraph
(7) of Rule 424(b) of the Rules and Regulations; if for any reason the filing of
the final form of Prospectus is required under Rule 424(b)(3) of the Rules and
Regulations, it will provide evidence satisfactory to you that the Prospectus
contains such information and has been filed with the Commission within the time
period prescribed; it will notify you promptly of any request by the Commission
for the amending or supplementing of the Registration Statement or the
Prospectus or for additional information; promptly upon your request, it will
prepare and file with the Commission any amendments or supplements to the
Registration Statement or Prospectus which, in the opinion of Brobeck, Phleger &
Harrison LLP, counsel for the several Underwriters ("Underwriters' Counsel"),
may be necessary or advisable in connection with the distribution of the Shares
by the Underwriters; it will promptly prepare and file with the Commission, and
promptly notify you of the filing of, any amendments or supplements to the
Registration Statement or Prospectus which may be necessary to correct any
statements or omissions, if, at any time when a prospectus relating to the
Shares is required to be delivered under the Act, any event shall have occurred
as a result of which the Prospectus or any other prospectus relating to the
Shares as then in effect would include any untrue statement of a material fact
or omit to state a material fact necessary to make the statements therein, in
the light of the circumstances under which they were made, not misleading; in
case any Underwriter is required to deliver a prospectus nine (9) months or more
after the effective date of the Registration Statement in connection with the
sale of the Shares, it will prepare promptly upon request, but at the expense of
such Underwriter, such amendment or amendments to the Registration Statement and
such prospectus or prospectuses as may be necessary to permit compliance with
the requirements of Section 10(a)(3) of the Act; and it will file no amendment
or supplement to the Registration Statement or Prospectus which shall not
previously have been submitted to you a reasonable time prior to the proposed
filing thereof or to which you shall reasonably object in writing, subject,
however, to compliance with the Act and the Rules and Regulations and the
provisions of this Agreement.
(b) The Company will advise you, promptly after it shall receive
notice or obtain knowledge, of the issuance of any stop order by the Commission
suspending the effectiveness of the Registration Statement or of the initiation
or threat of any proceeding for that purpose; and it will promptly use its best
efforts to prevent the issuance of any stop order or to obtain its withdrawal at
the earliest possible moment if such stop order should be issued.
(c) The Company will use its best efforts to qualify the Shares for
offering and sale under the securities laws of such jurisdictions as you may
designate and to continue such qualifications in effect for so long as
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<PAGE>
may be required for purposes of the distribution of the Shares, except that the
Company shall not be required in connection therewith or as a condition thereof
to qualify as a foreign corporation or to execute a general consent to service
of process in any jurisdiction in which it is not otherwise required to be so
qualified or to so execute a general consent to service of process. In each
jurisdiction in which the Shares shall have been qualified as above provided,
the Company will make and file such statements and reports in each year as are
or may be reasonably required by the laws of such jurisdiction so as to continue
such qualifications in effect for so long as may be required for purposes of the
distribution of the Shares.
(d) The Company will furnish to you, as soon as available, and, in the
case of the Prospectus and any term sheet or abbreviated term sheet under Rule
434, in no event later than the first (1st) full business day following the
first day that Shares are traded, copies of the Registration Statement (three of
which will be signed and which will include all exhibits), each Preliminary
Prospectus, the Prospectus and any amendments or supplements to such documents,
including any prospectus prepared to permit compliance with Section 10(a)(3) of
the Act, all in such quantities as you may from time to time reasonably request.
Notwithstanding the foregoing, if Robertson, Stephens & Company LLC, on behalf
of the several Underwriters, shall agree to the utilization of Rule 434 of the
Rules and Regulations, the Company shall provide to you copies of a Preliminary
Prospectus updated in all respects through the date specified by you in such
quantities as you may from time to time reasonably request.
(e) The Company will make generally available to its securityholders
as soon as practicable, but in any event not later than the forty-fifth (45th)
day following the end of the fiscal quarter first occurring after the first
anniversary of the effective date of the Registration Statement, an earnings
statement (which will be in reasonable detail but need not be audited) complying
with the provisions of Section 11(a) of the Act and covering a twelve (12) month
period beginning after the effective date of the Registration Statement.
(f) During a period of five (5) years after the date hereof, the
Company will furnish to its stockholders as soon as practicable after the end of
each respective period, annual reports (including financial statements audited
by independent certified public accountants) and unaudited quarterly reports of
operations for each of the first three quarters of the fiscal year, and will
furnish to you and the other several Underwriters hereunder, upon request (i)
concurrently with furnishing such reports to its stockholders, statements of
operations of the Company for each of the first three (3) quarters in the form
furnished to the Company's stockholders, (ii) concurrently with furnishing to
its stockholders, a balance sheet of the Company as of the end of such fiscal
year, together with statements of operations, of stockholders' equity, and of
cash flows of the Company for such fiscal year, accompanied by a copy of the
certificate or report thereon of independent certified public accountants, (iii)
as soon as they are available, copies of all reports (financial or other) mailed
to stockholders, (iv) as soon as they are available, copies of all reports and
financial statements furnished to or filed with the Commission, any securities
exchange or the NASD, (v) every material press release and every material news
item or article in respect of the Company or its affairs which was generally
released to stockholders or prepared by the Company or the Subsidiary, and (vi)
any additional information of a public nature concerning the Company or the
Subsidiary, or its business which you may reasonably request. During such five
(5) year period, if the Company shall have active subsidiaries, the foregoing
financial statements shall be on a consolidated basis to the extent that the
accounts of the Company and the Subsidiary are consolidated, and shall be
accompanied by similar financial statements for any significant subsidiary which
is not so consolidated.
(g) The Company will apply the net proceeds from the sale of the
Shares being sold by it in the manner set forth under the caption "Use of
Proceeds" in the Prospectus.
(h) The Company will maintain a transfer agent and, if necessary under
the jurisdiction of incorporation of the Company, a registrar (which may be the
same entity as the transfer agent) for its Common Stock.
(i) If the transactions contemplated hereby are not consummated by
reason of any failure, refusal or inability on the part of the Company or any
Selling Stockholder to perform any agreement on their respective parts to be
performed hereunder or to fulfill any condition of the Underwriters' obligations
hereunder, or if the Company shall terminate this Agreement pursuant to Section
11(a) hereof, or if the Underwriters shall terminate this Agreement pursuant to
Section 11(b)(i), the Company will reimburse the several Underwriters for all
reasonable out-of-pocket expenses (including fees and disbursements of
Underwriters' Counsel) incurred by the Underwriters in investigating or
preparing to market or marketing the Shares.
(j) If at any time during the ninety (90) day period after the
Registration Statement
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<PAGE>
becomes effective, any rumor, publication or event relating to or affecting the
Company shall occur as a result of which in your opinion the market price of the
Common Stock has been or is likely to be materially affected (regardless of
whether such rumor, publication or event necessitates a supplement to or
amendment of the Prospectus), the Company will, after written notice from you
advising the Company to the effect set forth above and subject to the reasonable
advice of counsel to the Company, forthwith prepare, consult with you concerning
the substance of and disseminate a press release or other public statement,
reasonably satisfactory to you, responding to or commenting on such rumor,
publication or event.
(k) During the Lock-up Period, the Company will not, without the prior
written consent of Robertson Stephens & Company LLC, effect the Disposition of,
directly or indirectly, any Securities other than (i) the sale of the Firm
Shares and the Option Shares hereunder, (ii) the issuance of Common Stock upon
the exercise of options outstanding on the date hereof and (iii) the issuance of
options or Common Stock under the Company's presently authorized 1988 Stock
Plan, 1989 Stock Plan, 1995 Stock Plan, 1995 Employee Stock Purchase Plan, and
1995 Non-Employee Director Stock Option Plan (herein collectively called the
"Option Plans"), which options or Common Stock, by their terms, vest after the
Lock-up Period.
(l) During a period of ninety (90) days from the effective date of the
Registration Statement, the Company will not file a registration statement
registering any additional shares under the Option Plan, or other employee
benefit plan.
5. Expenses.
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(a) The Company and the Selling Stockholders agree with each
Underwriter that:
(i) The Company and the Selling Stockholders will pay and bear
all costs and expenses in connection with the preparation, printing and filing
of the Registration Statement (including financial statements, schedules and
exhibits), Preliminary Prospectuses and the Prospectus and any amendments or
supplements thereto; the printing of this Agreement, the Agreement Among
Underwriters, the Selected Dealer Agreement, the Preliminary Blue Sky Survey and
any Supplemental Blue Sky Survey, the Underwriters' Questionnaire and Power of
Attorney, and any instruments related to any of the foregoing; the issuance and
delivery of the Shares hereunder to the several Underwriters, including transfer
taxes, if any, the cost of all certificates representing the Shares and transfer
agents' and registrars' fees; the fees and disbursements of counsel for the
Company; all fees and other charges of the Company's independent certified
public accountants; the cost of furnishing to the several Underwriters copies of
the Registration Statement (including appropriate exhibits), Preliminary
Prospectus and the Prospectus, and any amendments or supplements to any of the
foregoing; NASD filing fees and the cost of qualifying the Shares under the laws
of such jurisdictions as you may designate (including filing fees and reasonable
fees and disbursements of Underwriters' Counsel in connection with such NASD
filings and Blue Sky qualifications); and all other expenses directly incurred
by the Company and the Selling Stockholders in connection with the performance
of their obligations hereunder. Any additional expenses incurred as a result of
the sale of the Shares by the Selling Stockholders will be borne collectively by
the Company and the Selling Stockholders. The provisions of this Section 5(a)(i)
are intended to relieve the Underwriters from the payment of the expenses and
costs which the Selling Stockholders and the Company hereby agree to pay, but
shall not affect any agreement which the Selling Stockholders and the Company
may make, or may have made, for the sharing of such expenses and costs. Such
agreements shall not impair the obligations of the Company and the Selling
Stockholders hereunder to the several Underwriters.
(ii) In addition to its other obligations under Section 8(a)
hereof, the Company agrees that, as an interim measure during the pendency of
any claim, action, investigation, inquiry or other proceeding described in
Section 8(a) hereof, it will reimburse the Underwriters on a monthly basis for
all reasonable legal or other expenses incurred in connection with investigating
or defending any such claim, action, investigation, inquiry or other proceeding,
notwithstanding the absence of a judicial determination as to the propriety and
enforceability of the Company's obligation to reimburse the Underwriters for
such expenses and the possibility that such payments might later be held to have
been improper by a court of competent jurisdiction. To the extent that any such
interim reimbursement payment is so held to have been improper, the Underwriters
shall promptly return such payment to the Company together with interest,
compounded daily, determined on the basis of the prime rate (or other commercial
lending rate for borrowers of the highest credit standing) listed from time to
time in The Wall Street Journal which represents the base rate on corporate
loans posted by a substantial majority of the nation's thirty (30) largest banks
(the "Prime Rate"). Any such interim reimbursement payments which are not made
to the Underwriters within thirty (30) days of a request for reimbursement shall
bear interest at the Prime Rate from the date of such request.
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<PAGE>
(iii) In addition to their other obligations under Section 8(b)
hereof, each Selling Stockholder agrees that, as an interim measure during the
pendency of any claim, action, investigation, inquiry or other proceeding
described in Section 8(b) hereof relating to such Selling Stockholder, it will
reimburse the Underwriters on a monthly basis for all reasonable legal or other
expenses incurred in connection with investigating or defending any such claim,
action, investigation, inquiry or other proceeding, notwithstanding the absence
of a judicial determination as to the propriety and enforceability of such
Selling Stockholder's obligation to reimburse the Underwriters for such expenses
and the possibility that such payments might later be held to have been improper
by a court of competent jurisdiction. To the extent that any such interim
reimbursement payment is so held to have been improper, the Underwriters shall
promptly return such payment to the Selling Stockholders, together with
interest, compounded daily, determined on the basis of the Prime Rate. Any such
interim reimbursement payments which are not made to the Underwriters within
thirty (30) days of a request for reimbursement shall bear interest at the Prime
Rate from the date of such request.
(b) In addition to their other obligations under Section 8(c) hereof,
the Underwriters severally and not jointly agree that, as an interim measure
during the pendency of any claim, action, investigation, inquiry or other
proceeding described in Section 8(c) hereof, they will reimburse the Company and
each Selling Stockholder on a monthly basis for all reasonable legal or other
expenses incurred in connection with investigating or defending any such claim,
action, investigation, inquiry or other proceeding, notwithstanding the absence
of a judicial determination as to the propriety and enforceability of the
Underwriters' obligation to reimburse the Company and each such Selling
Stockholder for such expenses and the possibility that such payments might later
be held to have been improper by a court of competent jurisdiction. To the
extent that any such interim reimbursement payment is so held to have been
improper, the Company and each such Selling Stockholder shall promptly return
such payment to the Underwriters together with interest, compounded daily,
determined on the basis of the Prime Rate. Any such interim reimbursement
payments which are not made to the Company and each such Selling Stockholder
within thirty (30) days of a request for reimbursement shall bear interest at
the Prime Rate from the date of such request.
(c) It is agreed that any controversy arising out of the operation of
the interim reimbursement arrangements set forth in Sections 5(a)(ii), 5(a)(iii)
and 5(b) hereof, including the amounts of any requested reimbursement payments,
the method of determining such amounts and the basis on which such amounts shall
be apportioned among the reimbursing parties, shall be settled by arbitration
conducted under the provisions of the Constitution and Rules of the Board of
Governors of the New York Stock Exchange, Inc. or pursuant to the Code of
Arbitration Procedure of the NASD. Any such arbitration must be commenced by
service of a written demand for arbitration or a written notice of intention to
arbitrate, therein electing the arbitration tribunal. In the event the party
demanding arbitration does not make such designation of an arbitration tribunal
in such demand or notice, then the party responding to said demand or notice is
authorized to do so. Any such arbitration will be limited to the operation of
the interim reimbursement provisions contained in Sections 5(a)(ii), 5(a)(iii)
and 5(b) hereof and will not resolve the ultimate propriety or enforceability of
the obligation to indemnify for expenses which is created by the provisions of
Sections 8(a), 8(b) and 8(c) hereof or the obligation to contribute to expenses
which is created by the provisions of Section 8(e) hereof.
6. Conditions of Underwriters' Obligations. The obligations of the several
---------------------------------------
Underwriters to purchase and pay for the Shares as provided herein shall be
subject to the accuracy, as of the date hereof and the Closing Date and any
later date on which Option Shares are to be purchased, as the case may be, of
the representations and warranties of the Company and the Selling Stockholders
herein, to the performance by the Company and the Selling Stockholders of its
obligations hereunder and to the following additional conditions:
(a) The Registration Statement shall have become effective not later
than 2:00 P.M., San Francisco time, on the date following the date of this
Agreement, or such later date as shall be consented to in writing by you; and no
stop order suspending the effectiveness thereof shall have been issued and no
proceedings for that purpose shall have been initiated or, to the knowledge of
the Company, any Selling Stockholder or any Underwriter, threatened by the
Commission, and any request of the Commission for additional information (to be
included in the Registration Statement or the Prospectus or otherwise) shall
have been complied with to the satisfaction of Underwriters' Counsel.
(b) All corporate proceedings and other legal matters in connection
with this Agreement, the form of Registration Statement and the Prospectus, and
the registration, authorization, issue, sale and delivery of the Shares, shall
have been reasonably satisfactory to Underwriters' Counsel, and such counsel
shall have been furnished with such papers and information as they may
reasonably have requested to enable them to pass upon the matters referred to in
this Section.
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(c) Subsequent to the execution and delivery of this Agreement and
prior to the Closing Date, or any later date on which Option Shares are to be
purchased, as the case may be, there shall not have been any change in the
condition (financial or otherwise), earnings, operations, business or business
prospects of the Company and the Subsidiary considered as one enterprise from
that set forth in the Registration Statement or Prospectus, which, in your sole
judgment, is material and adverse and that makes it, in your sole judgment,
impracticable or inadvisable to proceed with the public offering of the Shares
as contemplated by the Prospectus.
(d) You shall have received on the Closing Date and on any later date
on which Option Shares are to be purchased, as the case may be, the following
opinion of Testa, Hurwitz & Thibeault, counsel for the Company and each of the
Selling Stockholders, dated the Closing Date or such later date on which Option
Shares are to be purchased addressed to the Underwriters and with reproduced
copies or signed counterparts thereof for each of the Underwriters, to the
effect that:
(i) Each of the Company and the Subsidiary has been duly
incorporated and is validly existing as a corporation in good standing
under the laws of the jurisdiction of its incorporation;
(ii) Each of the Company and the Subsidiary has the corporate
power and authority to own, lease and operate its properties and to conduct
its business as described in the Prospectus;
(iii) Each of the Company and the Subsidiary is duly qualified
to do business as a foreign corporation and is in good standing in each
jurisdiction, if any, in which the ownership or leasing of its properties
or the conduct of its business requires such qualification, except where
the failure to be so qualified or be in good standing would not have a
material adverse effect on the condition (financial or otherwise),
earnings, operations or business of the Company and the Subsidiary. To
such counsel's knowledge, the Company does not own or control, directly or
indirectly, any corporation, association or other entity other than Cytyc
Securities Corporation;
(iv) The authorized, issued and outstanding capital stock of
the Company is as set forth in the Prospectus under the caption
"Capitalization" as of the dates stated therein, the issued and outstanding
shares of capital stock of the Company (including the Selling Stockholder
Shares) have been duly and validly issued and are fully paid and
nonassessable.
(v) All issued and outstanding shares of capital stock of the
Subsidiary have been duly authorized and validly issued and are fully paid
and nonassessable, and, to such counsel's knowledge, have not been issued
in violation of or subject to any preemptive right, co-sale right,
registration right, right of first refusal or other similar right and are
owned by the Company free and clear of any pledge, lien, security interest,
encumbrance or claim;
(vi) The Firm Shares, as the case may be, to be issued by the
Company pursuant to the terms of this Agreement have been duly authorized
and, upon issuance and delivery against payment therefor in accordance with
the terms hereof, will be duly and validly issued and fully paid and
nonassessable, and will not have been issued in violation of or subject to
any preemptive right, co-sale right, registration right, right of first
refusal or other similar right (other than such rights as are duly and
validly waived);
(vii) The Company has the corporate power and authority to
enter into this Agreement and to issue, sell and deliver to the
Underwriters the Shares to be issued and sold by it hereunder;
(viii) This Agreement has been duly authorized by all necessary
corporate action on the part of the Company and has been duly executed and
delivered by the Company [and, assuming due authorization, execution and
delivery by you, is a valid and binding agreement of the Company,
enforceable in accordance with its terms, except insofar as indemnification
provisions may be limited by applicable law and except as enforceability
may be limited by bankruptcy, insolvency, reorganization, moratorium or
similar laws relating to or affecting creditors' rights generally or by
general equitable principles];
(ix) Such counsel has been orally advised by a member of the
Staff of the
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Commission that the Registration Statement has become effective under the
Act and, to such counsel's knowledge, no stop order suspending the
effectiveness of the Registration Statement has been issued and no
proceedings for that purpose have been instituted or are pending or
threatened under the Act;
(x) The Registration Statement and the Prospectus, and each
amendment or supplement thereto (other than the financial statements
(including the notes and supporting schedules) and financial and
statistical data derived therefrom as to which such counsel need express no
opinion), as of the effective date of the Registration Statement, complied
as to form in all material respects with the requirements of the Act and
the applicable Rules and Regulations;
(xi) The information in the Prospectus under the caption
"Description of Capital Stock," to the extent that it constitutes matters
of law or legal conclusions, has been reviewed by such counsel and is a
fair summary of such matters and conclusions; and the forms of certificates
evidencing the Common Stock and filed as exhibits to the Registration
Statement comply with Delaware law;
(xii) The description in the Registration Statement and the
Prospectus of the charter and bylaws of the Company and of statutes (other
than statutes described under the captions "Risk Factors -- Dependence on
Patents and Proprietary Rights," "Risk Factors -- Uncertainty of FDA
Approval," "Business -- Government Regulation" and "Business -- Patents,
Copyrights and Proprietary Information," as to which such counsel need
express no opinion) are accurate and fairly present the information
required to be presented by the Act and the applicable Rules and
Regulations;
(xiii) To such counsel's knowledge, there are no agreements,
contracts, leases or documents to which the Company is a party of a
character required to be described or referred to in the Registration
Statement or Prospectus or to be filed as an exhibit to the Registration
Statement which are not described or referred to therein or filed or
incorporated by reference as required;
(xiv) The performance of this Agreement and the consummation
of the transactions herein contemplated (other than performance of the
Company's indemnification obligations hereunder, concerning which no
opinion need be expressed) will not (a) result in any violation of the
Company's charter or bylaws or (b) to such counsel's knowledge, result in a
material breach or violation of any of the terms and provisions of, or
constitute a default under, any bond, debenture, note or other evidence of
indebtedness, or any lease, contract, indenture, mortgage, deed of trust,
loan agreement, joint venture or other agreement or instrument known to
such counsel to which the Company is a party or by which its properties are
bound, or any applicable statute, rule or regulation known to such counsel
(other than state securities or "blue sky" laws or the federal securities
laws, as to which such counsel need express no opinion except as otherwise
specified herein) or, to such counsel's knowledge, any order, writ or
decree of any court, government or governmental agency or body having
jurisdiction over the Company or the Subsidiary, or over any of their
properties or operations;
(xv) No consent, approval, authorization or order of or
qualification with any court, government or governmental agency or body
having jurisdiction over the Company or the Subsidiary, or over any of
their properties or operations is necessary in connection with the
consummation by the Company of the transactions herein contemplated, except
such as have been obtained under the Act or such as may be required under
state or other securities or Blue Sky laws in connection with the purchase
and the distribution of the Shares by the Underwriters;
(xvi) To such counsel's knowledge, there are no legal or
governmental proceedings pending or threatened against the Company or the
Subsidiary of a character required to be disclosed in the Registration
Statement or the Prospectus by the Act or the Rules and Regulations, other
than those described therein;
(xvii) To such counsel's knowledge, except as set forth in the
Registration Statement and Prospectus, no holders of Common Stock or other
securities of the Company have registration rights with respect to
securities of the Company and, except as set forth in the Registration
Statement and Prospectus, all holders of securities of the Company having
rights known to such counsel to registration of such shares of Common Stock
or other securities, because of the filing of the Registration Statement by
the Company
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<PAGE>
have, with respect to the offering contemplated thereby, waived such rights
or such rights have expired by reason of lapse of time following
notification of the Company's intent to file the Registration Statement;
(xviii) Each Selling Stockholder which is not a natural person
has full right, power and authority to enter into and to perform its
obligations under the Power of Attorney and Custody Agreement to be
executed and delivered by it in connection with the transactions
contemplated herein; the Power of Attorney and Custody Agreement of each
Selling Stockholder that is not a natural person has been duly authorized
by such Selling Stockholder; the Power of Attorney and Custody Agreement of
each Selling Stockholder has been duly executed and delivered by or on
behalf of such Selling Stockholder; and the Power of Attorney and Custody
Agreement of each Selling Stockholder constitutes the valid and binding
agreement of such Selling Stockholder, enforceable in accordance with its
terms, except as the enforcement thereof may be limited by bankruptcy,
insolvency, reorganization, moratorium or other similar laws relating to or
affecting creditors' rights generally or by general equitable principles;
(xix) Each of the Selling Stockholders has full right, power
and authority to enter into and to perform its obligations under this
Agreement and to sell, transfer, assign and deliver the Shares to be sold
by such Selling Stockholder hereunder;
(xx) This Agreement has been duly authorized by each Selling
Stockholder that is not a natural person and has been duly executed and
delivered by or on behalf of each Selling Stockholder; and
(xxi) Upon the delivery of and payment for the Shares as
contemplated in this Agreement, each of the Underwriters will receive valid
marketable title to the Shares purchased by it from such Selling
Stockholder, free and clear of any pledge, lien, security interest,
encumbrance, claim or equitable interest. In rendering such opinion, such
counsel may assume that the Underwriters are without notice of any defect
in the title of the Shares being purchased from the Selling Stockholders.
In addition, such counsel shall state that such counsel has
participated in conferences with officials and other representatives of the
Company, the Representatives, Underwriters' Counsel and the independent
certified public accountants of the Company, at which conferences the contents
of the Registration Statement and Prospectus and related matters were discussed,
and although they have not verified the accuracy or completeness of the
statements contained in the Registration Statement or the Prospectus, nothing
has come to the attention of such counsel which leads them to believe that, the
Registration Statement and any amendment or supplement thereto (other than the
financial statements including the notes, supporting schedules and other
financial and statistical information derived therefrom, as to which such
counsel need express no comment), at the time the Registration Statement or such
supplement or amendment became effective, contained any untrue statement of a
material fact or omitted to state a material fact required to be stated therein
or necessary to make the statements therein not misleading, or at the Closing
Date or any later date on which the Option Shares are to be purchased, as the
case may be, the Prospectus and any amendment or supplement thereto (except as
aforesaid) contained any untrue statement of a material fact or omitted to state
a material fact necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading.
Counsel rendering the foregoing opinion may rely as to questions of
law not involving the laws of the United States, the Commonwealth of
Massachusetts or the State of Delaware upon opinions of local counsel, and as to
questions of fact upon representations or certificates of officers of the
Company, the Selling Stockholders or officers of the Selling Stockholders (when
the Selling Stockholder is not a natural person), and of government officials,
in which case their opinion is to state that they are so relying and that they
have no knowledge of any material misstatement or inaccuracy in any such
opinion, representation or certificate. Copies of any opinion, representation
or certificate so relied upon shall be delivered to you, as Representatives of
the Underwriters, and to Underwriters' Counsel.
(e) You shall have received on the Closing Date and on any later date
on which Option Shares are purchased, as the case may be, the opinion of Lahive
& Cockfield, patent counsel to the Company, dated the Closing Date or such later
date on which Option Shares are purchased, as applicable, in form and substance
satisfactory to you, addressed to the Underwriters and with reproduced copies or
signed counterparts thereof for each of the Underwriters, to the effect that
they serve as patent counsel to the Company with respect to the Company's
Intellectual Property Rights, and addressing such other legal matters relating
to this Agreement and the transactions contemplated hereby as you may reasonably
require.
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<PAGE>
(f) You shall have received on the Closing Date and on any later date
on which Option Shares are purchased, as the case may be, the opinion of [ ],
special United States Food and Drug Administration ("FDA") regulatory counsel
to Company, dated the Closing Date or such later date on which Option Shares are
purchased, as applicable, in form and substance satisfactory to you, addressed
to the Underwriters and with reproduced copies or signed counterparts thereof
for each of the Underwriters, to the effect that they serve as special FDA
regulatory counsel to Company, and addressing such other legal matters relating
to this Agreement and the transactions contemplated hereby as you may reasonably
require.
(g) You shall have received on the Closing Date and on any later date
on which Option Shares are to be purchased, as the case may be, an opinion of
Underwriters' Counsel in form and substance satisfactory to you, with respect to
the sufficiency of all such corporate proceedings and other legal matters
relating to this Agreement and the transactions contemplated hereby as you may
reasonably require, and the Company shall have furnished to such counsel such
documents as they may have requested for the purpose of enabling them to pass
upon such matters.
(h) You shall have received on the Closing Date and on any later date
on which Option Shares are to be purchased, as the case may be, a letter from
Arthur Andersen LLP addressed to the Underwriters, dated the Closing Date or
such later date on which Option Shares are to be purchased, as the case may be,
confirming that they are independent certified public accountants with respect
to the Company within the meaning of the Act and the applicable published Rules
and Regulations and based upon the procedures described in such letter delivered
to you concurrently with the execution of this Agreement (herein called the
"Original Letter"), but carried out to a date not more than five (5) business
days prior to the Closing Date or such later date on which Option Shares are to
be purchased, as the case may be, (i) confirming, to the extent true, that the
statements and conclusions set forth in the Original Letter are accurate as of
the Closing Date or such later date on which Option Shares are to be purchased,
as the case may be, and (ii) setting forth any revisions and additions to the
statements and conclusions set forth in the Original Letter which are necessary
to reflect any changes in the facts described in the Original Letter since the
date of such letter, or to reflect the availability of more recent financial
statements, data or information. The letter shall not disclose any change in
the condition (financial or otherwise), earnings, operations, business or
business prospects of the Company and the Subsidiary considered as one
enterprise from that set forth in the Registration Statement or Prospectus,
which, in your sole judgment, is material and adverse and that makes it, in your
sole judgment, impracticable or inadvisable to proceed with the public offering
of the Shares as contemplated by the Prospectus. The Original Letter from
Arthur Andersen LLP shall be addressed to or for the use of the Underwriters in
form and substance satisfactory to the Underwriters and shall (i) represent, to
the extent true, that they are independent certified public accountants with
respect to the Company within the meaning of the Act and the applicable
published Rules and Regulations, (ii) set forth their opinion with respect to
their examination of the consolidated balance sheet of the Company as of
December 31, 1996 and related consolidated statements of operations,
stockholders' equity, and cash flows for the twelve (12) months ended December
31, 1996 [(iii) state that Arthur Andersen LLP has performed the procedures set
out in Statement on Auditing Standards No. 71 ("SAS 71") for a review of interim
financial information and providing the report of Arthur Andersen LLP as
described in SAS 71 on the financial statements for each of the quarters in the
[ ]-quarter period ended [ ] (the "Quarterly Financial Statements"),] (iv) state
that in the course of such review, nothing came to their attention that leads
them to believe that any material modifications need to be made to any of the
Quarterly Financial Statements in order for them to be in compliance with
generally accepted accounting principles consistently applied across the periods
presented, and (v) address other matters agreed upon by Arthur Andersen LLP and
you. In addition, you shall have received from Arthur Andersen LLP a letter
addressed to the Company and made available to you for the use of the
Underwriters stating that their review of the Company's system of internal
accounting controls, to the extent they deemed necessary in establishing the
scope of their examination of the Company's consolidated financial statements as
of December 31, 1996, did not disclose any weaknesses in internal controls that
they considered to be material weaknesses.
(i) You shall have received on the Closing Date and on any later date
on which Option Shares are to be purchased, as the case may be, a certificate of
the Company, dated the Closing Date or such later date on which Option Shares
are to be purchased, as the case may be, signed by the Chief Executive Officer
and Chief Financial Officer of the Company, to the effect that, and you shall be
satisfied that:
(i) The representations and warranties of the Company in this
Agreement are true and correct, as if made on and as of the Closing Date or
any later date on which Option Shares are to be purchased, as the case may
be, and the Company has complied with all the agreements and satisfied all
the conditions on its part to be performed or satisfied at or prior to the
Closing Date or any later date on which
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Option Shares are to be purchased, as the case may be;
(ii) No stop order suspending the effectiveness of the
Registration Statement has been issued and no proceedings for that purpose
have been instituted or are pending or threatened under the Act;
(iii) When the Registration Statement became effective and at
all times subsequent thereto up to the delivery of such certificate, the
Registration Statement and the Prospectus, and any amendments or
supplements thereto, contained all material information required to be
included therein by the Act and the Rules and Regulations and in all
material respects conformed to the requirements of the Act and the Rules
and Regulations, the Registration Statement, and any amendment or
supplement thereto, did not and does not include any untrue statement of a
material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein not misleading, the
Prospectus, and any amendment or supplement thereto, did not and does not
include any untrue statement of a material fact or omit to state a material
fact necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading, and, since the
effective date of the Registration Statement, there has occurred no event
required to be set forth in an amended or supplemented Prospectus which has
not been so set forth;
(iv) Subsequent to the respective dates as of which
information is given in the Registration Statement and Prospectus, there
has not been (a) any material adverse change in the financial condition,
earnings, operations, business or business prospects of the Company and the
Subsidiary considered as one enterprise, (b) any transaction that is
material to the Company and the Subsidiary considered as one enterprise,
except transactions entered into in the ordinary course of business, (c)
any obligation, direct or contingent, that is material to the Company and
the Subsidiary considered as one enterprise, incurred by the Company or the
Subsidiary, except obligations incurred in the ordinary course of business,
(d) any change in the capital stock or outstanding indebtedness of the
Company or the Subsidiary that is material to the Company and the
Subsidiary considered as one enterprise, (e) any dividend or distribution
of any kind declared, paid or made on the capital stock of the Company or
the Subsidiary, or (f) any loss or damage (whether or not insured) to the
property of the Company or the Subsidiary which has been sustained or will
have been sustained which has a material adverse effect on the financial
condition, earnings, operations, business or business prospects of the
Company and the Subsidiary considered as one enterprise; and
(v) The additional shares of Common Stock to be offered
pursuant to the terms of this Agreement has been approved for quotation on
The Nasdaq National Market and the official Notice of Issuance has been
received.
(j) You shall be satisfied that, and you shall have received a
certificate, dated the Closing Date, or any later date on which Option
Shares are to be purchased, as the case may be, from the Attorneys for each
Selling Stockholder to the effect that, as of the Closing Date, or any
later date on which Option Shares are to be purchased, as the case may be,
they have not been informed that:
(i) The representations and warranties made by such Selling
Stockholder herein are not true or correct in any material respect on the
Closing Date or on any later date on which Option Shares are to be
purchased, as the case may be; or
(ii) Such Selling Stockholder has not complied with any
obligation or satisfied any condition which is required to be performed or
satisfied on the part of such Selling Stockholder at or prior to the
Closing Date or any later date on which Option Shares are to be purchased,
as the case may be.
(k) The Company shall have obtained and delivered to Underwriters'
Counsel, prior to the date hereof, an agreement from each officer and director
of the Company, each Selling Stockholder and each beneficial owner of 100,000 or
more shares of Common Stock in writing prior to the date hereof that such person
will not, during the Lock-up Period, effect the Disposition of any Securities
now owned or hereafter acquired directly by such person or with respect to which
such person has or hereafter acquires the power of disposition, otherwise than
(i) as a bona fide gift or gifts, provided the donee or donees thereof agree in
writing to be bound by this restriction, (ii) as a distribution to partners or
stockholders of such person, provided that the distributees thereof agree in
writing to be bound by the terms
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of this restriction, or (iii) with the prior written consent of Robertson,
Stephens & Company LLC. For the purposes of this Agreement, "Securities" shall
not include any shares of Common Stock acquired by such person in the public
offering of the Shares or in the public market following consummation of the
public offering of the Shares. The foregoing restriction shall have been
expressly agreed to preclude the holder of the Securities from engaging in any
hedging or other transaction which is designed to or reasonably expected to lead
to or result in a Disposition of Securities during the Lock-up Period, even if
such Securities would be disposed of by someone other than the such holder. Such
prohibited hedging or other transactions would include, without limitation, any
short sale (whether or not against the box) or any purchase, sale or grant of
any right (including, without limitation, any put or call option) with respect
to any Securities or with respect to any security (other than a broad-based
market basket or index) that includes, relates to or derives any significant
part of its value from Securities. Furthermore, such person will have also
agreed and consented to the entry of stop transfer instructions with the
Company's transfer agent against the transfer of the Securities held by such
person except in compliance with this restriction.
(l) The Company the Selling Stockholders shall have furnished to you
such further certificates and documents as you shall reasonably request
(including certificates of officers of the Company, the Selling Stockholders or
officers of the Selling Stockholders (when the Selling Stockholder is not a
natural person), as to the accuracy of the representations and warranties of the
Company and the Selling Stockholders herein, as to the performance by the
Company of their respective obligations hereunder and as to the other conditions
concurrent and precedent to the obligations of the Underwriters hereunder.
All such opinions, certificates, letters and documents will be in
compliance with the provisions hereof only if they are reasonably satisfactory
to Underwriters' Counsel. The Company and the Selling Stockholders will furnish
you with such number of conformed copies of such opinions, certificates, letters
and documents as you shall reasonably request.
7. Option Shares.
-------------
(a) On the basis of the representations, warranties and agreements
herein contained, but subject to the terms and conditions herein set forth, the
Company hereby grants to the several Underwriters, for the purpose of covering
over-allotments in connection with the distribution and sale of the Firm Shares
only, a nontransferable option to purchase up to an aggregate of [450,000]
Option Shares at the purchase price per share for the Firm Shares set forth in
Section 3 hereof. Such option may be exercised by the Representatives on behalf
of the several Underwriters on one (1) or more occasions in whole or in part
during the period of thirty (30) days after the date on which the Firm Shares
are offered to the public, by giving written notice to the Company and the
Attorneys. The number of Option Shares to be purchased by each Underwriter upon
the exercise of such option shall be the same proportion of the total number of
Option Shares to be purchased by the several Underwriters pursuant to the
exercise of such option as the number of Firm Shares purchased by such
Underwriter (set forth in Schedule A hereto) bears to the total number of Firm
----------
Shares purchased by the several Underwriters (set forth in Schedule A hereto),
----------
adjusted by the Representatives in such manner as to avoid fractional shares.
Delivery of definitive certificates for the Option Shares to be
purchased by the several Underwriters pursuant to the exercise of the option
granted by this Section 7 shall be made against payment of the purchase price
therefor by the several Underwriters by wire transfer of Federal funds to the
account specified by the Company. Such delivery and payment shall take place at
the offices of Testa, Hurwitz & Thibeault, High Street Tower, 22nd Floor, 125
High Street, Boston, MA 02110, or at such other place as may be agreed upon
among the Representatives and the Company (i) on the Closing Date, if written
notice of the exercise of such option is received by the Company at least two
(2) full business days prior to the Closing Date, or (ii) on a date which shall
not be later than the third (3rd) full business day following the date the
Company receives written notice of the exercise of such option, if such notice
is received by the Company less than two (2) full business days prior to the
Closing Date.
The certificates for the Option Shares to be so delivered will be made
available to you at such office or such other location including, without
limitation, in New York City, as you may reasonably request for checking at
least one (1) full business day prior to the date of payment and delivery and
will be in such names and denominations as you may request, such request to be
made at least two (2) full business days prior to such date of payment and
delivery. If the Representatives so elect, delivery of the Option Shares may be
made by credit through full fast transfer to the accounts at The Depository
Trust Company designated by the Representatives.
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It is understood that you, individually, and not as the
Representatives of the several Underwriters, may (but shall not be obligated to)
make payment of the purchase price on behalf of any Underwriter or Underwriters
whose check or checks shall not have been received by you prior to the date of
payment and delivery for the Option Shares to be purchased by such Underwriter
or Underwriters. Any such payment by you shall not relieve any such Underwriter
or Underwriters of any of its or their obligations hereunder.
(b) Upon exercise of any option provided for in Section 7(a) hereof,
the obligations of the several Underwriters to purchase such Option Shares will
be subject (as of the date hereof and as of the date of payment and delivery for
such Option Shares) to the accuracy of and compliance with the representations,
warranties and agreements of the Company and the Selling Stockholders herein, to
the accuracy of the statements of the Company, the Selling Stockholders and
officers of the Company made pursuant to the provisions hereof, to the
performance by the Company and the Selling Stockholders of their respective
obligations hereunder, to the conditions set forth in Section 6 hereof, and to
the condition that all proceedings taken at or prior to the payment date in
connection with the sale and transfer of such Option Shares shall be
satisfactory in form and substance to you and to Underwriters' Counsel, and you
shall have been furnished with all such documents, certificates and opinions as
you may request in order to evidence the accuracy and completeness of any of the
representations, warranties or statements, the performance of any of the
covenants or agreements of the Company and the Selling Stockholders or the
satisfaction of any of the conditions herein contained.
8. Indemnification and Contribution.
--------------------------------
(a) The Company agrees to indemnify and hold harmless each Underwriter
against any losses, claims, damages or liabilities, joint or several, to which
such Underwriter may become subject (including, without limitation, in its
capacity as an Underwriter or as a "qualified independent underwriter" within
the meaning of Schedule E of the Bylaws of the NASD), under the Act, the
Exchange Act or otherwise, specifically including, but not limited to, losses,
claims, damages or liabilities (or actions in respect thereof) arising out of or
based upon (i) any breach of any representation, warranty, agreement or covenant
of the Company herein contained, (ii) any untrue statement or alleged untrue
statement of any material fact contained in the Registration Statement or any
amendment or supplement thereto, or the omission or alleged omission to state
therein a material fact required to be stated therein or necessary to make the
statements therein not misleading, or (iii) any untrue statement or alleged
untrue statement of any material fact contained in any Preliminary Prospectus or
the Prospectus or any amendment or supplement thereto, or the omission or
alleged omission to state therein a material fact required to be stated therein
or necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading, and agrees to reimburse each
Underwriter for any legal or other expenses reasonably incurred by it in
connection with investigating or defending any such loss, claim, damage,
liability or action; provided, however, that the Company shall not be liable in
-------- -------
any such case to the extent that any such loss, claim, damage, liability or
action arises out of or is based upon an untrue statement or alleged untrue
statement or omission or alleged omission made in the Registration Statement,
such Preliminary Prospectus or the Prospectus, or any such amendment or
supplement thereto, in reliance upon, and in conformity with, written
information relating to any Underwriter furnished to the Company by such
Underwriter, directly or through you, specifically for use in the preparation
thereof and, provided further, that the indemnity agreement provided in this
-------- -------
Section 8(a) with respect to any Preliminary Prospectus shall not inure to the
benefit of any Underwriter from whom the person asserting any losses, claims,
damages, liabilities or actions based upon any untrue statement or alleged
untrue statement of material fact or omission or alleged omission to state
therein a material fact purchased Shares, if a copy of the Prospectus in which
such untrue statement or alleged untrue statement or omission or alleged
omission was corrected had not been sent or given to such person within the time
required by the Act and the Rules and Regulations, unless such failure is the
result of noncompliance by the Company with Section 4(d) hereof.
The indemnity agreement in this Section 8(a) shall extend upon the
same terms and conditions to, and shall inure to the benefit of, each person, if
any, who controls any Underwriter within the meaning of the Act or the Exchange
Act. This indemnity agreement shall be in addition to any liabilities which the
Company may otherwise have.
(b) Each Selling Stockholder, severally and not jointly, agrees to
indemnify and hold harmless each Underwriter against any losses, claims, damages
or liabilities, joint or several, to which such Underwriter may become subject
(including, without limitation, in its capacity as an Underwriter or as a
"qualified independent underwriter" within the meaning of Schedule E or the
Bylaws of the NASD) under the Act, the Exchange Act or otherwise, specifically
including, but not limited to, losses, claims, damages or liabilities (or
actions in respect thereof) arising out of or based upon (i) any breach of any
representation, warranty, agreement or covenant of such Selling Stockholder
herein
-21-
<PAGE>
contained, (ii) any untrue statement or alleged untrue statement of any
material fact contained in the Registration Statement or any amendment or
supplement thereto, or the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading, or (iii) any untrue statement or alleged untrue
statement of any material fact contained in any Preliminary Prospectus or the
Prospectus or any amendment or supplement thereto, or the omission or alleged
omission to state therein a material fact necessary to make the statements
therein, in the light of the circumstances under which they were made, not
misleading, in the case of subparagraphs (ii) and (iii) of this Section 8(b) to
the extent, but only to the extent, that such untrue statement or alleged untrue
statement or omission or alleged omission was made in reliance upon and in
conformity with written information furnished to the Company or such Underwriter
by such Selling Stockholder, directly or through such Selling Stockholder's
representatives, specifically for use in the preparation thereof, and agrees to
reimburse each Underwriter for any legal or other expenses reasonably incurred
by it in connection with investigating or defending any such loss, claim,
damage, liability or action; provided, however, that the indemnity agreement
-------- -------
provided in this Section 8(b) with respect to any Preliminary Prospectus shall
not inure to the benefit of any Underwriter from whom the person asserting any
losses, claims, damages, liabilities or actions based upon any untrue statement
or alleged untrue statement of a material fact or omission or alleged omission
to state therein a material fact purchased Shares, if a copy of the Prospectus
in which such untrue statement or alleged untrue statement or omission or
alleged omission was corrected had not been sent or given to such person within
the time required by the Act and the Rules and Regulations, unless such failure
is the result of noncompliance by the Company with Section 4(d) hereof.
The indemnity agreement in this Section 8(b) shall extend upon the
same terms and conditions to, and shall inure to the benefit of, each person, if
any, who controls any Underwriter within the meaning of the Act or the Exchange
Act. This indemnity agreement shall be in addition to any liabilities which
such Selling Stockholder may otherwise have.
(c) Each Underwriter, severally and not jointly, agrees to indemnify
and hold harmless the Company and each Selling Stockholder against any losses,
claims, damages or liabilities, joint or several, to which the Company or such
Selling Stockholder may become subject under the Act or otherwise, specifically
including, but not limited to, losses, claims, damages or liabilities (or
actions in respect thereof) arising out of or based upon (i) any breach of any
representation, warranty, agreement or covenant of such Underwriter herein
contained, (ii) any untrue statement or alleged untrue statement of any material
fact contained in the Registration Statement or any amendment or supplement
thereto, or the omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading, or (iii) any untrue statement or alleged untrue statement of any
material fact contained in any Preliminary Prospectus or the Prospectus or any
amendment or supplement thereto, or the omission or alleged omission to state
therein a material fact necessary to make the statements therein, in the light
of the circumstances under which they were made, not misleading, in the case of
subparagraphs (ii) and (iii) of this Section 8(c) to the extent, but only to the
extent, that such untrue statement or alleged untrue statement or omission or
alleged omission was made in reliance upon and in conformity with written
information furnished to the Company by such Underwriter, directly or through
you, specifically for use in the preparation thereof, and agrees to reimburse
the Company and each such Selling Stockholder for any legal or other expenses
reasonably incurred by the Company and each such Selling Stockholder in
connection with investigating or defending any such loss, claim, damage,
liability or action.
The indemnity agreement in this Section 8(c) shall extend upon the
same terms and conditions to, and shall inure to the benefit of, each officer of
the Company who signed the Registration Statement and each director of the
Company, each Selling Stockholder and each person, if any, who controls the
Company or any Selling Stockholder within the meaning of the Act or the Exchange
Act. This indemnity agreement shall be in addition to any liabilities which
each Underwriter may otherwise have.
(d) Promptly after receipt by an indemnified party under this Section
8 of notice of the commencement of any action, such indemnified party shall, if
a claim in respect thereof is to be made against any indemnifying party under
this Section 8, notify the indemnifying party in writing of the commencement
thereof; no indemnification provided for in Section 8(a), 8(b) or 8(c) shall be
available to any party who shall fail to give notice as provided in this Section
8(d) if the party to whom notice was not given was unaware of the proceeding to
which such notice would have related and was prejudiced by the failure to give
such notice, but the omission so to notify the indemnifying party will not
relieve it from any liability which it may have to any indemnified party
otherwise than under this Section 8. In case any such action is brought against
any indemnified party, and it notified the indemnifying party of the
commencement thereof, the indemnifying party will be entitled to participate
therein and, to the extent that it shall elect
-22-
<PAGE>
by written notice delivered to the indemnified party promptly after receiving
the aforesaid notice from such indemnified party, to assume the defense thereof,
with counsel reasonably satisfactory to such indemnified party; provided,
--------
however, that if the defendants in any such action include both the indemnified
- -------
party and the indemnifying party and the indemnified party shall have reasonably
concluded that there may be legal defenses available to it and/or other
indemnified parties which are different from or additional to those available to
the indemnifying party, the indemnified party or parties shall have the right to
select separate counsel to assume such legal defenses and to otherwise
participate in the defense of such action on behalf of such indemnified party or
parties. Upon receipt of notice from the indemnifying party to such indemnified
party of the indemnifying party's election so to assume the defense of such
action and approval by the indemnified party of counsel, the indemnifying party
will not be liable to such indemnified party under this Section 8 for any legal
or other expenses subsequently incurred by such indemnified party in connection
with the defense thereof unless (i) the indemnified party shall have employed
separate counsel in accordance with the proviso to the next preceding sentence
(it being understood, however, that the indemnifying party shall not be liable
for the expenses of more than one separate counsel (together with appropriate
local counsel) approved by the indemnifying party representing all the
indemnified parties under Section 8(a), 8(b) or 8(c) hereof who are parties to
such action), (ii) the indemnifying party shall not have employed counsel
satisfactory to the indemnified party to represent the indemnified party within
a reasonable time after notice of commencement of the action or (iii) the
indemnifying party has authorized the employment of counsel for the indemnified
party at the expense of the indemnifying party. In no event shall any
indemnifying party be liable in respect of any amounts paid in settlement of any
action unless the indemnifying party shall have approved the terms of such
settlement; provided that such consent shall not be unreasonably withheld. No
--------
indemnifying party shall, without the prior written consent of the indemnified
party, effect any settlement of any pending or threatened proceeding in respect
of which any indemnified party is or could have been a party and indemnification
could have been sought hereunder by such indemnified party, unless such
settlement includes an unconditional release of such indemnified party from all
liability on all claims that are the subject matter of such proceeding.
(e) In order to provide for just and equitable contribution in any
action in which a claim for indemnification is made pursuant to this Section 8
but it is judicially determined (by the entry of a final judgment or decree by a
court of competent jurisdiction and the expiration of time to appeal or the
denial of the last right of appeal) that such indemnification may not be
enforced in such case notwithstanding the fact that this Section 8 provides for
indemnification in such case, all the parties hereto shall contribute to the
aggregate losses, claims, damages or liabilities to which they may be subject
(after contribution from others) in such proportion so that, except as set forth
in Section 8(f) hereof, the Underwriters severally and not jointly are
responsible pro rata for the portion represented by the percentage that the
underwriting discount bears to the public offering price, and the Company and
the Selling Stockholders are responsible for the remaining portion, provided,
--------
however, that (i) no Underwriter shall be required to contribute any amount in
- -------
excess of the amount by which the underwriting discount applicable to the Shares
purchased by such Underwriter exceeds the amount of damages which such
Underwriter is otherwise required to pay and (ii) no person guilty of a
fraudulent misrepresentation (within the meaning of Section 11(f) of the Act)
shall be entitled to contribution from any person who is not guilty of such
fraudulent misrepresentation. The contribution agreement in this Section 8(e)
shall extend upon the same terms and conditions to, and shall inure to the
benefit of, each person, if any, who controls any Underwriter, the Company or
any Selling Stockholder within the meaning of the Act or the Exchange Act and
each officer of the Company who signed the Registration Statement and each
director of the Company.
(f) The liability of each Selling Stockholder under the
representations, warranties and agreements contained herein and under the
indemnity agreements contained in the provisions of this Section 8 shall be
limited to an amount equal to the public offering price of the Selling
Stockholder Shares sold by such Selling Stockholder to the Underwriters minus
the amount of the underwriting discount paid thereon to the Underwriters by such
Selling Stockholder. The Company and such Selling Stockholders may agree, as
among themselves and without limiting the rights of the Underwriters under this
Agreement, as to the respective amounts of such liability for which they each
shall be responsible.
(g) The parties to this Agreement hereby acknowledge that they are
sophisticated business persons who were represented by counsel during the
negotiations regarding the provisions hereof including, without limitation, the
provisions of this Section 8, and are fully informed regarding said provisions.
They further acknowledge that the provisions of this Section 8 fairly allocate
the risks in light of the ability of the parties to investigate the Company and
its business in order to assure that adequate disclosure is made in the
Registration Statement and Prospectus as required by the Act and the Exchange
Act.
-23-
<PAGE>
9. Representations, Warranties, Covenants and Agreements to Survive
----------------------------------------------------------------
Delivery. All representations, warranties, covenants and agreements of the
- --------
Company, the Selling Stockholders and the Underwriters herein or in certificates
delivered pursuant hereto, and the indemnity and contribution agreements
contained in Section 8 hereof shall remain operative and in full force and
effect regardless of any investigation made by or on behalf of any Underwriter
or any person controlling any Underwriter within the meaning of the Act or the
Exchange Act, or by or on behalf of the Company or any Selling Stockholder or
any of their officers, directors or controlling persons within the meaning of
the Act or the Exchange Act, and shall survive the delivery of the Shares to the
several Underwriters hereunder or termination of this Agreement.
10. Substitution of Underwriters. If any Underwriter or Underwriters
----------------------------
shall fail to take up and pay for the number of Firm Shares agreed by such
Underwriter or Underwriters to be purchased hereunder upon tender of such Firm
Shares in accordance with the terms hereof, and if the aggregate number of Firm
Shares which such defaulting Underwriter or Underwriters so agreed but failed to
purchase does not exceed 10% of the Firm Shares, the remaining Underwriters
shall be obligated, severally in proportion to their respective commitments
hereunder, to take up and pay for the Firm Shares of such defaulting Underwriter
or Underwriters.
If any Underwriter or Underwriters so defaults and the aggregate
number of Firm Shares which such defaulting Underwriter or Underwriters agreed
but failed to take up and pay for exceeds 10% of the Firm Shares, the remaining
Underwriters shall have the right, but shall not be obligated, to take up and
pay for (in such proportions as may be agreed upon among them) the Firm Shares
which the defaulting Underwriter or Underwriters so agreed but failed to
purchase. If such remaining Underwriters do not, at the Closing Date, take up
and pay for the Firm Shares which the defaulting Underwriter or Underwriters so
agreed but failed to purchase, the Closing Date shall be postponed for twenty-
four (24) hours to allow the several Underwriters the privilege of substituting
within twenty-four (24) hours (including non-business hours) another underwriter
or underwriters (which may include any nondefaulting Underwriter) satisfactory
to the Company. If no such underwriter or underwriters shall have been
substituted as aforesaid by such postponed Closing Date, the Closing Date may,
at the option of the Company, be postponed for a further twenty-four (24) hours,
if necessary, to allow the Company the privilege of finding another underwriter
or underwriters, satisfactory to you, to purchase the Firm Shares which the
defaulting Underwriter or Underwriters so agreed but failed to purchase. If it
shall be arranged for the remaining Underwriters or substituted underwriter or
underwriters to take up the Firm Shares of the defaulting Underwriter or
Underwriters as provided in this Section 10, (i) the Company shall have the
right to postpone the time of delivery for a period of not more than seven (7)
full business days, in order to effect whatever changes may thereby be made
necessary in the Registration Statement or the Prospectus, or in any other
documents or arrangements, and the Company agrees promptly to file any
amendments to the Registration Statement, supplements to the Prospectus or other
such documents which may thereby be made necessary, and (ii) the respective
number of Firm Shares to be purchased by the remaining Underwriters and
substituted underwriter or underwriters shall be taken as the basis of their
underwriting obligation. If the remaining Underwriters shall not take up and pay
for all such Firm Shares so agreed to be purchased by the defaulting Underwriter
or Underwriters or substitute another underwriter or underwriters as aforesaid
and the Company shall not find or shall not elect to seek another underwriter or
underwriters for such Firm Shares as aforesaid, then this Agreement shall
terminate.
In the event of any termination of this Agreement pursuant to the
preceding paragraph of this Section 10, neither the Company nor any Selling
Stockholder shall be liable to any Underwriter (except as provided in Sections 5
and 8 hereof) nor shall any Underwriter (other than an Underwriter who shall
have failed, otherwise than for some reason permitted under this Agreement, to
purchase the number of Firm Shares agreed by such Underwriter to be purchased
hereunder, which Underwriter shall remain liable to the Company, the Selling
Stockholders and the other Underwriters for damages, if any, resulting from such
default) be liable to the Company or any Selling Stockholder (except to the
extent provided in Sections 5 and 8 hereof).
The term "Underwriter" in this Agreement shall include any person
substituted for an Underwriter under this Section 10.
11. Effective Date of this Agreement and Termination.
------------------------------------------------
(a) This Agreement shall become effective at the earlier of (i)
6:30 A.M., San Francisco time, on the first full business day following the
effective date of the Registration Statement, or (ii) the time of the public
offering of any of the Shares by the Underwriters after the Registration
Statement becomes effective. The time of the public
-24-
<PAGE>
offering shall mean the time of the release by you, for publication, of the
first newspaper advertisement relating to the Shares, or the time at which the
Shares are first generally offered by the Underwriters to the public by letter,
telephone, telegram or facsimile, whichever shall first occur. By giving notice
as set forth in Section 12 before the time this Agreement becomes effective,
you, as Representatives of the several Underwriters, or the Company, may prevent
this Agreement from becoming effective without liability of any party to any
other party, except as provided in Sections 4(i), 5 and 8 hereof.
(b) You, as Representatives of the several Underwriters, shall have
the right to terminate this Agreement by giving notice as hereinafter specified
at any time on or prior to the Closing Date or on or prior to any later date on
which Option Shares are to be purchased, as the case may be, (i) if the Company
or any Selling Stockholder shall have failed, refused or been unable to perform
any agreement on its part to be performed, or because any other condition of the
Underwriters' obligations hereunder required to be fulfilled is not fulfilled,
including, without limitation, any change in the financial condition, earnings,
operations, business or business prospects of the Company and the Subsidiary
considered as one enterprise from that set forth in the Registration Statement
or Prospectus, which, in your sole judgment, is material and adverse, or (ii) if
additional material governmental restrictions, not in force and effect on the
date hereof, shall have been imposed upon trading in securities generally or
minimum or maximum prices shall have been generally established on the New York
Stock Exchange or on the American Stock Exchange or in the over the counter
market by the NASD, or trading in securities generally shall have been suspended
on either such exchange or in the over the counter market by the NASD, or if a
banking moratorium shall have been declared by federal, New York or California
authorities, or (iii) if the Company shall have sustained a loss by strike,
fire, flood, earthquake, accident or other calamity of such character as to
interfere materially with the conduct of the business and operations of the
Company regardless of whether or not such loss shall have been insured, or (iv)
if there shall have been a material adverse change in the general political or
economic conditions or financial markets as in your reasonable judgment makes it
inadvisable or impracticable to proceed with the offering, sale and delivery of
the Shares, or (v) if there shall have been an outbreak or escalation of
hostilities or of any other insurrection or armed conflict or the declaration by
the United States of a national emergency which, in the reasonable opinion of
the Representatives, makes it impracticable or inadvisable to proceed with the
public offering of the Shares as contemplated by the Prospectus. In the event
of termination pursuant to subparagraph (i) above, the Company shall remain
obligated to pay costs and expenses pursuant to Sections 4(i), 5 and 8 hereof.
Any termination pursuant to any of subparagraphs (ii) through (v) above shall be
without liability of any party to any other party except as provided in Sections
5 and 8 hereof.
If you elect to prevent this Agreement from becoming effective or to
terminate this Agreement as provided in this Section 11, you shall promptly
notify the Company and the Attorneys by telephone, facsimile or telegram, in
each case confirmed by letter. If the Company shall elect to prevent this
Agreement from becoming effective, the Company shall promptly notify you by
telephone, facsimile or telegram, in each case, confirmed by letter.
12. Notices. All notices or communications hereunder, except as herein
-------
otherwise specifically provided, shall be in writing and if sent to you shall be
mailed, delivered, telegraphed (and confirmed by letter) or sent by facsimile
transmission (and confirmed by letter) to you c/o Robertson, Stephens & Company
LLC, 555 California Street, Suite 2600, San Francisco, California 94104,
facsimile number (415) 781-0278, Attention: General Counsel; if sent to the
Company, such notice shall be mailed, delivered, telegraphed (and confirmed by
letter) or sent by facsimile transmission (and confirmed by letter) to Cytyc
Corporation, 85 Swanson Road, Boxborough, MA 01719, facsimile number
(508) ___-____, Attention: Patrick J. Sullivan, Chief Executive Officer; if sent
to one or more of the Selling Stockholders, such notice shall be sent mailed,
delivered, telegraphed (and confirmed by letter) or telecopied (and confirmed by
letter) to either Mr. Patrick J. Sullivan or Mr. Joseph W. Kelly, as
Attorney-in-Fact for the Selling Stockholders, c/o Cytyc Corporation, 85 Swanson
Road, Boxborough, MA 01719, facsimile number (508) ___-____.
13. Parties. This Agreement shall inure to the benefit of and be binding
-------
upon the several Underwriters and the Company and the Selling Stockholders and
their respective executors, administrators, successors and assigns. Nothing
expressed or mentioned in this Agreement is intended or shall be construed to
give any person or entity, other than the parties hereto and their respective
executors, administrators, successors and assigns, and the controlling persons
within the meaning of the Act or the Exchange Act, officers and directors
referred to in Section 8 hereof, any legal or equitable right, remedy or claim
in respect of this Agreement or any provisions herein contained, this Agreement
and all conditions and provisions hereof being intended to be and being for the
sole and exclusive benefit of the parties hereto and their respective executors,
administrators, successors and assigns and said controlling persons and said
officers and directors, and for the benefit of no other person or entity. No
purchaser of any of the Shares from any Underwriter shall be construed a
successor or assign by reason merely of such purchase.
-25-
<PAGE>
In all dealings with the Company and the Selling Stockholders under this
Agreement, you shall act on behalf of each of the several Underwriters, and the
Company shall and the Selling Stockholders be entitled to act and rely upon any
statement, request, notice or agreement made or given by you jointly or by
Robertson, Stephens & Company LLC on behalf of you.
14. Applicable Law. This Agreement shall be governed by, and construed in
--------------
accordance with, the internal laws of the State of New York.
15. Counterparts. This Agreement may be signed in several counterparts, each
------------
of which will constitute an original.
-26-
<PAGE>
If the foregoing correctly sets forth the understanding among the Company,
the Selling Stockholders and the several Underwriters, please so indicate in the
space provided below for that purpose, whereupon this letter shall constitute a
binding agreement among the Company, the Selling Stockholders and the several
Underwriters.
Very truly yours,
CYTYC CORPORATION
By
--------------------------------------
Patrick J. Sullivan
President
SELLING STOCKHOLDERS
By
--------------------------------------
Patrick J. Sullivan
Attorney-in-fact for the Selling Stockholders
named in Schedule B hereto
Accepted as of the date first above written:
ROBERTSON, STEPHENS & COMPANY LLC
MONTGOMERY SECURITIES
PIPER JAFFRAY INC.
On their behalf and on behalf of each of the
several Underwriters named in Schedule A hereto.
By ROBERTSON, STEPHENS & COMPANY LLC
By ROBERTSON, STEPHENS & COMPANY GROUP, L.L.C.
By
--------------------------------------
Authorized Signatory
-27-
<PAGE>
SCHEDULE A
Number of
Firm Shares
To Be
Underwriters Purchased
- -------------------------------------------------- ---------------
Robertson, Stephens & Company LLC.............................
Montgomery Securities.........................................
Piper Jaffray Inc. ...........................................
---------
Total................................................. [3,000,000]
---------
A-1
<PAGE>
SCHEDULE B
Number of
Firm Shares
To Be
Company Sold
- -------------------------------------------------- ---------------
Cytyc Corporation ........................................... [2,000,000]
Total...................................................... [2,000,000]
---------
Number of
Selling Stockholder
Shares To Be
Selling Stockholder Sold
- -------------------------------------------------- --------------------
---------
Total...................................................... [1,000,000]
---------
B-1
<PAGE>
THIRD AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
CYTYC CORPORATION
CYTYC CORPORATION, a corporation organized and existing under and by
virtue of the Delaware General Corporation Law ("DGCL"), does hereby certify:
That the present name of the corporation is Cytyc Corporation (the
"Corporation");
That the date of filing of the original Certificate of Incorporation
of the Corporation with the Secretary of State was February 9, 1987 under the
name of Generitech Corp.;
That the dates of filing of the Certificates of Amendment to the
Certificate of Incorporation of the Corporation with the Secretary of State were
September 9, 1988, March 31, 1989, July 14, 1989, July 23, 1990, January 13,
1992, December 30, 1992, May 17, 1993, May 17, 1994, and the dates of filing of
the Amended and Restated Certificate of Incorporation and the Second Amended and
Restated Certificate of Incorporation of the Corporation with the Secretary of
State were May 17, 1994 and June 14, 1995 respectively.
That this Third Amended and Restated Certificate of Incorporation
restates, integrates, and amends the Second Amended and Restated Certificate of
Incorporation of the Corporation by amending Article FOURTH, FIFTH, SIXTH,
SEVENTH, EIGHTH, NINTH, TENTH.
That the Board of Directors of the Corporation, by unanimous consent
pursuant to Section 141(f) of the DGCL, has adopted a resolution proposing and
declaring advisable this Third Amended and Restated Certificate of Incorporation
in accordance with the provisions of Section 245 of the DGCL;
That in lieu of a meeting and vote of the Shareholders, this Third
Amended and Restated Certificate of Incorporation has been duly adopted in
accordance with the provisions of Sections 228(a), 242(b), and 245 of the DGCL
by a majority of the outstanding stock entitled to vote thereon, and written
notice of the adoption of this Third Amended and Restated Certificate of
Incorporation has been given as provided in Section 228 of the General
Corporation Law of the State of Delaware to every shareholder entitled to such
notice;
<PAGE>
-2-
That the text of the Certificate of Incorporation, as amended, is
hereby further amended to read as herein set forth in full:
FIRST. The name of the corporation is Cytyc Corporation.
SECOND. The address of its registered office in the State of Delaware
is 1209 Orange Street, in the City of Wilmington, County of New Castle, Delaware
19801. The name of its registered agent at such address is The Corporation
Trust Company.
THIRD. The nature of the business or purposes to be conducted or
promoted is to engage in any lawful act or activity for which corporations may
be organized under the General Corporation Law of Delaware.
FOURTH. The total number of shares of all classes of capital stock
which the Corporation shall have authority to issue is 35,000,000 shares,
consisting of 30,000,000 shares of common stock with a par value of $.01 per
share (the "Common Stock") and 5,000,000 shares of preferred stock with a par
value of $.01 per share (the "Preferred Stock").
The following is a statement of the designations and the powers,
privileges and rights, and the qualifications, limitations or restrictions
thereof in respect of each class of capital stock of the Corporation.
A. COMMON STOCK
------------
1. GENERAL. All shares of Common Stock will be identical and will
-------
entitle the holders thereof to the same rights, powers and privileges. The
rights, powers and privileges of the holders of the Common Stock are subject to
and qualified by the rights of holders of the Preferred Stock.
2. DIVIDENDS. Dividends may be declared and paid on the Common Stock
---------
from funds lawfully available therefor as and when determined by the Board of
Directors and subject to any preferential dividend rights of any then
outstanding Preferred Stock.
3. DISSOLUTION, LIQUIDATION OR WINDING UP. In the event of any
--------------------------------------
dissolution, liquidation or winding up of the affairs of the Corporation,
whether voluntary or involuntary, each issued and outstanding share of Common
Stock shall entitle the holder thereof to receive an equal portion of the net
assets of the Corporation available for distribution to the holders of Common
Stock, subject to any preferential rights of any then outstanding Preferred
Stock.
4. VOTING RIGHTS. Except as otherwise required by law or this Third
-------------
Amended and Restated Certificate of Incorporation, each holder of Common Stock
shall have one vote in respect of each share of stock held of record by such
holder on the books of the Corporation for the election of directors and on all
matters submitted to a vote of stockholders of the Corporation. Except as
otherwise required by law or provided herein, holders of Common Stock shall vote
together with holders of the Preferred Stock as a single class, subject to any
special or
<PAGE>
-3-
preferential voting rights of any then outstanding Preferred Stock. There shall
be no cumulative voting.
B. PREFERRED STOCK
---------------
The Preferred Stock may be issued in one or more series at such time
or times and for such consideration or considerations as the Board of Directors
of the Corporation may determine. Each series shall be so designated as to
distinguish the shares thereof from the shares of all other series and classes.
Except as otherwise provided in this Third Amended and Restated Certificate of
Incorporation, different series of Preferred Stock shall not be construed to
constitute different classes of shares for the purpose of voting by classes.
The Board of Directors is expressly authorized to provide for the
issuance of all or any shares of the undesignated Preferred Stock in one or more
series, each with such designations, preferences, voting powers (or special,
preferential or no voting powers), relative, participating, optional or other
special rights and privileges and such qualifications, limitations or
restrictions thereof as shall be stated in the resolution or resolutions adopted
by the Board of Directors to create such series, and a certificate of said
resolution or resolutions (a "Certificate of Designation") shall be filed in
accordance with the General Corporation Law of the State of Delaware. The
authority of the Board of Directors with respect to each such series shall
include, without limitation of the foregoing, the right to provide that the
shares of each such series may be: (i) subject to redemption at such time or
times and at such price or prices; (ii) entitled to receive dividends (which may
be cumulative or non-cumulative) at such rates, on such conditions, and at such
times, and payable in preference to, or in such relation to, the dividends
payable on any other class or classes or any other series; (iii) entitled to
such rights upon the dissolution of, or upon any distribution of the assets of,
the Corporation; (iv) convertible into, or exchangeable for, shares of any other
class or classes of stock, or of any other series of the same or any other class
or classes of stock of the Corporation at such price or prices or at such rates
of exchange and with such adjustments, if any; (v) entitled to the benefit of
such limitations, if any, on the issuance of additional shares of such series or
shares of any other series of Preferred Stock; or (vi) entitled to such other
preferences, powers, qualifications, rights and privileges, all as the Board of
Directors may deem advisable and as are not inconsistent with law and the
provisions of this Third Amended and Restated Certificate of Incorporation.
FIFTH. The Corporation is to have perpetual existence.
SIXTH. The following provisions are included for the management of
the business and the conduct of the affairs of the Corporation, and for further
definition, limitation and regulation of the powers of the Corporation and of
its Board of Directors and stockholders:
1. The business and affairs of the Corporation shall be managed by or
under the direction of the Board of Directors of the Corporation.
2. The Board of Directors of the Corporation is expressly authorized
to adopt, amend or repeal the By-laws of the Corporation, subject to any
limitation thereof
<PAGE>
-4-
contained in the By-laws. The stockholders shall also have the power to adopt,
amend or repeal the By-laws of the Corporation; provided, however, that, in
-------- -------
addition to any vote of the holders of any class or series of stock of the
Corporation required by law or by this Third Amended and Restated Certificate of
Incorporation, the affirmative vote of the holders of at least sixty-six and
two-thirds percent (66 2/3%) of the voting power of all of the then outstanding
shares of the capital stock of the Corporation entitled to vote generally in the
election of directors, voting together as a single class, shall be required to
adopt, amend or repeal any provision of the By-laws of the Corporation.
3. Stockholders of the Corporation may not take any action by written
consent in lieu of a meeting.
4. Special meetings of stockholders may be called at any time only by
the President, the Chairman of the Board of Directors (if any), or a majority of
the Board of Directors. Business transacted at any special meeting of
stockholders shall be limited to matters relating to the purpose or purposes
stated in the notice of meeting.
5. The books of the Corporation may be kept at such place within or
without the State of Delaware as the By-laws of the Corporation may provide or
as may be designated from time to time by the Board of Directors of the
Corporation.
SEVENTH.
1. NUMBER OF DIRECTORS. The number of directors which shall
-------------------
constitute the whole Board of Directors shall be determined by resolution of a
majority of the Board of Directors, but in no event shall the number of
directors be less than three. The number of directors may be decreased at any
time and from time to time by a majority of the directors then in office, but
only to eliminate vacancies existing by reason of the death, resignation,
removal or expiration of the term of one or more directors. The directors shall
be elected at the annual meeting of stockholders by such stockholders as have
the right to vote on such election. Directors need not be stockholders of the
Corporation.
2. CLASSES OF DIRECTORS. The Board of Directors shall be and is
--------------------
divided into three classes: Class I, Class II and Class III. No one class
shall have more than one director more than any other class.
3. ELECTION OF DIRECTORS. Elections of directors need not be by written
---------------------
ballot except as and to the extent provided in the By-laws of the Corporation.
4. TERMS OF OFFICE. Each director shall serve for a term ending on
---------------
the date of the third annual meeting following the annual meeting at which such
director was elected; provided, however, that each initial director in Class I
shall serve for a term ending on the date of the annual meeting next following
the end of the Corporation's fiscal year ending December 31, 1996; each initial
director in Class II shall serve for a term ending on the date of the annual
meeting next following the end of the Corporation's fiscal year ending December
31, 1997; and
<PAGE>
-5-
each initial director in Class III shall serve for a term ending on the date of
the annual meeting next following the end of the Corporation's fiscal year
ending December 31, 1998.
5. ALLOCATION OF DIRECTORS AMONG CLASSES IN THE EVENT OF INCREASES OR
------------------------------------------------------------------
DECREASES IN THE NUMBER OF DIRECTORS. In the event of any increase or decrease
- ------------------------------------
in the authorized number of directors, (i) each director then serving as such
shall nevertheless continue as director of the class of which he or she is a
member until the expiration of such director's current term or his or her prior
death, retirement or resignation and (ii) the newly created or eliminated
directorships resulting from such increase or decrease shall be apportioned by
the Board of Directors among the three classes of directors so as to ensure that
no one class has more than one director more than any other class. To the
extent possible, consistent with the foregoing rule, any newly created
directorships shall be added to those classes whose terms of office are to
expire at the earliest dates following such allocation, unless otherwise
provided for from time to time by resolution adopted by a majority of the
directors then in office, though less than a quorum. No decrease in the number
of directors constituting the whole Board of Directors shall shorten the term of
an incumbent Director.
6. TENURE. Notwithstanding any provisions to the contrary contained
------
herein, each director shall hold office until his or her successor is elected
and qualified, or until his or her earlier death, resignation or removal.
7. VACANCIES. Unless and until filled by the stockholders, any
---------
vacancy in the Board of Directors, however occurring, including a vacancy
resulting from an enlargement of the Board of Directors, may be filled only by
vote of a majority of the directors then in office, even if less than a quorum,
or by a sole remaining director. A director elected to fill a vacancy shall be
elected for the unexpired term of his or her predecessor in office, if
applicable, and a director chosen to fill a position resulting from an increase
in the number of directors shall hold office until the next election of the
class for which such director shall have been chosen and until his or her
successor is elected and qualified, or until his or her earlier death,
resignation or removal.
8. QUORUM. A majority of the total number of the whole Board of
------
Directors shall constitute a quorum at all meetings of the Board of Directors.
In the event one or more of the directors shall be disqualified to vote at any
meeting, then the required quorum shall be reduced by one for each such director
so disqualified; provided, however, that in no case shall less than one-third
(1/3) of the number so fixed constitute a quorum. In the absence of a quorum at
any such meeting, a majority of the directors present may adjourn the meeting
from time to time without further notice other than announcement at the meeting,
until a quorum shall be present.
9. ACTION AT MEETING. At any meeting of the Board of Directors at
-----------------
which a quorum is present, the vote of a majority of those present shall be
sufficient to take any action, unless a different vote is specified by law or
the Corporation's By-laws.
10. REMOVAL. Any one or more or all of the directors may be removed
-------
without cause only by the holders of at least seventy-five percent (75%) of the
shares then entitled to vote at an
<PAGE>
-6-
election of directors. Any one or more or all of the directors may be removed
with cause only by the holders of at least a majority of the shares then
entitled to vote at an election of directors.
11. STOCKHOLDER NOMINATIONS AND INTRODUCTION OF BUSINESS, ETC.
----------------------------------------------------------
Advance notice of stockholder nominations for election of directors and other
business to be brought by stockholders before a meeting of stockholders shall be
given in the manner provided in the By-laws of the Corporation.
12. RIGHTS OF PREFERRED STOCK. The provisions of this Article are
-------------------------
subject to the rights of the holders of any series of Preferred Stock from time
to time outstanding.
EIGHTH. No director (including any advisory director) of the
Corporation shall be personally liable to the Corporation or its stockholders
for monetary damages for breach of fiduciary duty as a director notwithstanding
any provision of law imposing such liability; provided, however, that, to the
extent provided by applicable law, this provision shall not eliminate the
liability of a director (i) for any breach of the director's duty of loyalty to
the Corporation or its stockholders, (ii) for acts or omissions not in good
faith or which involve intentional misconduct or a knowing violation of law,
(iii) under Section 174 of the General Corporation Law of the State of Delaware,
or (iv) for any transaction from which the director derived an improper personal
benefit. No amendment to or repeal of this provision shall apply to or have any
effect on the liability or alleged liability of any director for or with respect
to any acts or omissions of such director occurring prior to such amendment or
repeal.
NINTH.
1. ACTIONS, SUITS AND PROCEEDINGS OTHER THAN BY OR IN THE RIGHT OF
---------------------------------------------------------------
THE CORPORATION. The Corporation shall indemnify each person who was or is a
- ---------------
party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of the Corporation), by
reason of the fact that he is or was, or has agreed to become, a director or
officer of the Corporation, or is or was serving, or has agreed to serve, at the
request of the Corporation, as a director, officer or trustee of, or in a
similar capacity with, another corporation, partnership, joint venture, trust or
other enterprise (including any employee benefit plan) (all such persons being
referred to hereafter as an "Indemnitee"), or by reason of any action alleged to
have been taken or omitted in such capacity, against all expenses (including
attorneys' fees), judgments, fines and amounts paid in settlement actually and
reasonably incurred by him or on his behalf in connection with such action, suit
or proceeding and any appeal therefrom, if he acted in good faith and in a
manner he reasonably believed to be in, or not opposed to, the best interests of
the Corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful. The termination of any
action, suit or proceeding by judgment, order, settlement, conviction or upon a
plea of nolo contendere or its equivalent, shall not, of itself, create a
---- ----------
presumption that the person did not act in good faith and in a manner which he
reasonably believed to be in, or not opposed to, the best interests of the
Corporation, and, with respect to any criminal action or proceeding, had
reasonable cause to believe that his conduct was unlawful. Notwithstanding
anything to the contrary in this Article,
<PAGE>
-7-
except as set forth in Section 6 below, the Corporation shall not indemnify an
Indemnitee seeking indemnification in connection with a proceeding (or part
thereof) initiated by the Indemnitee unless the initiation thereof was approved
by the Board of Directors of the Corporation.
2. ACTIONS OR SUITS BY OR IN THE RIGHT OF THE CORPORATION. The
------------------------------------------------------
Corporation shall indemnify any Indemnitee who was or is a party or is
threatened to be made a party to any threatened, pending or completed action or
suit by or in the right of the Corporation to procure a judgment in its favor by
reason of the fact that he is or was, or has agreed to become, a director or
officer of the Corporation, or is or was serving, or has agreed to serve, at the
request of the Corporation, as a director, officer or trustee of, or in a
similar capacity with, another corporation, partnership, joint venture, trust or
other enterprise (including any employee benefit plan), or by reason of any
action alleged to have been taken or omitted in such capacity, against all
expenses (including attorneys' fees) and amounts paid in settlement actually and
reasonably incurred by him or on his behalf in connection with such action, suit
or proceeding and any appeal therefrom, if he acted in good faith and in a
manner he reasonably believed to be in, or not opposed to, the best interests of
the Corporation, except that no indemnification shall be made in respect of any
claim, issue or matter as to which such person shall have been adjudged to be
liable to the Corporation unless and only to the extent that the Court of
Chancery of Delaware or the court in which such action or suit was brought shall
determine upon application that, despite the adjudication of such liability but
in view of all the circumstances of the case, such person is fairly and
reasonably entitled to indemnity for such expenses (including attorneys' fees)
which the Court of Chancery of Delaware or such other court shall deem proper.
3. INDEMNIFICATION FOR EXPENSES OF SUCCESSFUL PARTY. Notwithstanding
------------------------------------------------
the other provisions of this Article, to the extent that an Indemnitee has been
successful, on the merits or otherwise, in defense of any action, suit or
proceeding referred to in Sections 1 and 2 of this Article, or in defense of any
claim, issue or matter therein, or on appeal from any such action, suit or
proceeding, he shall be indemnified against all expenses (including attorneys'
fees) actually and reasonably incurred by him or on his behalf in connection
therewith. Without limiting the foregoing, if any action, suit or proceeding is
disposed of, on the merits or otherwise (including a disposition without
prejudice), without (i) the disposition being adverse to the Indemnitee, (ii) an
adjudication that the Indemnitee was liable to the Corporation, (iii) a plea of
guilty or nolo contendere by the Indemnitee, (iv) an adjudication that the
---- ----------
Indemnitee did not act in good faith and in a manner he reasonably believed to
be in or not opposed to the best interests of the Corporation, and (v) with
respect to any criminal proceeding, an adjudication that the Indemnitee had
reasonable cause to believe his conduct was unlawful, the Indemnitee shall be
considered for the purpose hereof to have been wholly successful with respect
thereto.
4. NOTIFICATION AND DEFENSE OF CLAIM. As a condition precedent to
---------------------------------
his right to be indemnified, the Indemnitee must notify the Corporation in
writing as soon as practicable of any action, suit, proceeding or investigation
involving him for which indemnity will or could be sought. With respect to any
action, suit, proceeding or investigation of which the Corporation is so
notified, the Corporation will be entitled to participate therein at its own
expense and/or to assume the defense thereof at its own expense, with legal
counsel reasonably acceptable to the
<PAGE>
-8-
Indemnitee. After notice from the Corporation to the Indemnitee of its election
so to assume such defense, the Corporation shall not be liable to the Indemnitee
for any legal or other expenses subsequently incurred by the Indemnitee in
connection with such claim, other than as provided below in this Section 4. The
Indemnitee shall have the right to employ his own counsel in connection with
such claim, but the fees and expenses of such counsel incurred after notice from
the Corporation of its assumption of the defense thereof shall be at the expense
of the Indemnitee unless (i) the employment of counsel by the Indemnitee has
been authorized by the Corporation, (ii) counsel to the Indemnitee shall have
reasonably concluded that there may be a conflict of interest or position on any
significant issue between the Corporation and the Indemnitee in the conduct of
the defense of such action or (iii) the Corporation shall not in fact have
employed counsel to assume the defense of such action, in each of which cases
the fees and expenses of counsel for the Indemnitee shall be at the expense of
the Corporation, except as otherwise expressly provided by this Article. The
Corporation shall not be entitled, without the consent of the Indemnitee, to
assume the defense of any claim brought by or in the right of the Corporation or
as to which counsel for the Indemnitee shall have reasonably made the conclusion
provided for in clause (ii) above.
5. ADVANCE OF EXPENSES. Subject to the provisions of Section 6
-------------------
below, in the event that the Corporation does not assume the defense pursuant to
Section 4 of this Article of any action, suit, proceeding or investigation of
which the Corporation receives notice under this Article, any expenses
(including attorneys' fees) incurred by an Indemnitee in defending a civil or
criminal action, suit, proceeding or investigation or any appeal therefrom shall
be paid by the Corporation in advance of the final disposition of such matter,
provided, however, that the payment of such expenses incurred by an Indemnitee
- -------- -------
in advance of the final disposition of such matter shall be made only upon
receipt of an undertaking by or on behalf of the Indemnitee to repay all amounts
so advanced in the event that it shall ultimately be determined that the
indemnitee is not entitled to be indemnified by the Corporation as authorized in
this Article. Such undertaking may be accepted without reference to the
financial ability of such person to make such repayment.
6. PROCEDURE FOR INDEMNIFICATION. In order to obtain indemnification
-----------------------------
or advancement of expenses pursuant to Section 1, 2, 3 or 5 of this Article, the
Indemnitee shall submit to the Corporation a written request, including in such
request such documentation and information as is reasonably available to the
Indemnitee and is reasonably necessary to determine whether and to what extent
the Indemnitee is entitled to indemnification or advancement of expenses. Any
such indemnification or advancement of expenses shall be made promptly, and in
any event within 60 days after receipt by the Corporation of the written request
of the Indemnitee, unless with respect to requests under Section 1, 2 or 5 the
Corporation determines, by clear and convincing evidence, within such 60-day
period that the Indemnitee did not meet the applicable standard of conduct set
forth in Section 1 or 2, as the case may be. Such determination shall be made
in each instance by (a) a majority vote of the directors of the Corporation who
are not at that time parties to the action, suit or proceeding in question
("disinterested directors"), even though less than a quorum, (b) if there are no
such disinterested directors, or if such disinterested directors so direct, by
independent legal counsel (who may be regular legal counsel to the corporation)
in a written opinion, (c) a majority vote of a quorum of
<PAGE>
-9-
the outstanding shares of stock of all classes entitled to vote for directors,
voting as a single class, which quorum shall consist of stockholders who are not
at that time parties to the action, suit or proceeding in question, or (d) the
Delaware Court of Chancery.
7. REMEDIES. The right to indemnification or advances as granted by
--------
this Article shall be enforceable by the Indemnitee in any court of competent
jurisdiction if the Corporation denies such request, in whole or in part, or if
no disposition thereof is made within the 60-day period referred to above in
Section 6. Unless otherwise provided by law, the burden of proving that the
Indemnitee is not entitled to indemnification or advancement of expenses under
this Article shall be on the Corporation. Neither the failure of the
Corporation to have made a determination prior to the commencement of such
action that indemnification is proper in the circumstances because the
Indemnitee has met the applicable standard of conduct, nor an actual
determination by the Corporation pursuant to Section 6 that the Indemnitee has
not met such applicable standard of conduct, shall be a defense to the action or
create a presumption that the Indemnitee has not met the applicable standard of
conduct. The Indemnitee's expenses (including attorneys' fees) incurred in
connection with successfully establishing his right to indemnification, in whole
or in part, in any such proceeding shall also be indemnified by the Corporation.
8. SUBSEQUENT AMENDMENT. No amendment, termination or repeal of this
--------------------
Article or of the relevant provisions of the General Corporation Law of the
State of Delaware or any other applicable laws shall affect or diminish in any
way the rights of any Indemnitee to indemnification under the provisions hereof
with respect to any action, suit, proceeding or investigation arising out of or
relating to any actions, transactions or facts occurring prior to the final
adoption of such amendment, termination or repeal.
9. OTHER RIGHTS. The indemnification and advancement of expenses
------------
provided by this Article shall not be deemed exclusive of any other rights to
which an Indemnitee seeking indemnification or advancement of expenses may be
entitled under any law (common or statutory), agreement or vote of stockholders
or disinterested directors or otherwise, both as to action in his official
capacity and as to action in any other capacity while holding office for the
Corporation, and shall continue as to an Indemnitee who has ceased to be a
director or officer, and shall inure to the benefit of the estate, heirs,
executors and administrators of the Indemnitee. Nothing contained in this
Article shall be deemed to prohibit, and the Corporation is specifically
authorized to enter into, agreements with officers and directors providing
indemnification rights and procedures different from those set forth in this
Article. In addition, the Corporation may, to the extent authorized from time
to time by its Board of Directors, grant indemnification rights to other
employees or agents of the Corporation or other persons serving the Corporation
and such rights may be equivalent to, or greater or less than, those set forth
in this Article.
10. PARTIAL INDEMNIFICATION. If an Indemnitee is entitled under any
-----------------------
provision of this Article to indemnification by the Corporation for some or a
portion of the expenses (including attorneys' fees), judgments, fines or amounts
paid in settlement actually and reasonably incurred by him or on his behalf in
connection with any action, suit, proceeding or investigation and any appeal
therefrom but not, however, for the total amount thereof, the Corporation shall
<PAGE>
-10-
nevertheless indemnify the Indemnitee for the portion of such expenses
(including attorneys' fees), judgments, fines or amounts paid in settlement to
which the Indemnitee is entitled.
11. INSURANCE. The Corporation may purchase and maintain insurance,
---------
at its expense, to protect itself and any director, officer, employee or agent
of the Corporation or another corporation, partnership, joint venture, trust or
other enterprise (including any employee benefit plan) against any expense,
liability or loss incurred by him in any such capacity, or arising out of his
status as such, whether or not the Corporation would have the power to indemnify
such person against such expense, liability or loss under the General
Corporation Law of the State of Delaware.
12. MERGER OR CONSOLIDATION. If the Corporation is merged into or
-----------------------
consolidated with another corporation and the Corporation is not the surviving
corporation, the surviving corporation shall assume the obligations of the
Corporation under this Article with respect to any action, suit, proceeding or
investigation arising out of or relating to any actions, transactions or facts
occurring prior to the date of such merger or consolidation.
13. SAVINGS CLAUSE. If this Article or any portion hereof shall be
--------------
invalidated on any ground by any court of competent jurisdiction, then the
Corporation shall nevertheless indemnify each Indemnitee as to any expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement in
connection with any action, suit, proceeding or investigation, whether civil,
criminal or administrative, including an action by or in the right of the
Corporation, to the fullest extent permitted by an applicable portion of this
Article that shall not have been invalidated and to the fullest extent permitted
by applicable law.
14. DEFINITIONS. Terms used herein and defined in Section 145(h) and
-----------
Section 145(i) of the General Corporation Law of the State of Delaware shall
have the respective meanings assigned to such terms in such Section 145(h) and
Section 145(i).
15. SUBSEQUENT LEGISLATION. If the General Corporation Law of the
----------------------
State of Delaware is amended after adoption of this Article to expand further
the indemnification permitted to Indemnitees, then the Corporation shall
indemnify such persons to the fullest extent permitted by the General
Corporation Law of the State of Delaware, as so amended.
TENTH. The Corporation reserves the right to amend or repeal any
provision contained in this Third Amended and Restated Certificate of
Incorporation in the manner prescribed by the laws of the State of Delaware and
all rights conferred upon stockholders are granted subject to this reservation,
provided, however, that in addition to the vote of the holders of any class or
- -------- -------
series of stock of the Corporation required by law or by this Third Amended and
Restated Certificate of Incorporation, but in addition to any vote of the
holders of any class or series of stock of the Corporation required by law, this
Third Amended and Restated Certificate of Incorporation or a Certificate of
Designation with respect to a series of Preferred Stock, the affirmative vote of
the holders of shares of voting stock of the Corporation representing at least
sixty-six and two-thirds percent (66-2/3%) of the voting power of all of the
then outstanding shares of the capital stock of the Corporation entitled to vote
generally in the election of
<PAGE>
-11-
directors, voting together as a single class, shall be required to (i) reduce or
eliminate the number of authorized shares of Common Stock or the number of
authorized shares of Preferred Stock set forth in Article FOURTH or (ii) amend
or repeal, or adopt any provision inconsistent with, Parts A and B of Article
FOURTH and Articles FIFTH, SIXTH, SEVENTH, EIGHTH, NINTH, and this Article TENTH
of this Third Amended and Restated Certificate of Incorporation.
<PAGE>
-12-
IN WITNESS WHEREOF, the undersigned has hereunto signed his name and
affirms that the statements made in this Third Amended and Restated Certificate
of Incorporation are true under the penalties of perjury this 13 day of March,
-- ------
1996.
- ----
/s/ Patrick J. Sullivan
------------------------------
Patrick J. Sullivan, President
<PAGE>
AMENDED AND RESTATED
BY-LAWS
OF
CYTYC CORPORATION
Dated: March 13, 1996
<PAGE>
BY-LAWS
-------
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE 1 - STOCKHOLDERS................................................................. 3
1.1 PLACE OF MEETINGS................................................................... 3
1.2 ANNUAL MEETING...................................................................... 3
1.3 SPECIAL MEETINGS.................................................................... 3
1.4 NOTICE OF MEETINGS.................................................................. 3
1.5 VOTING LIST......................................................................... 3
1.6 QUORUM.............................................................................. 4
1.7 ADJOURNMENTS........................................................................ 4
1.8 VOTING AND PROXIES.................................................................. 4
1.9 ACTION AT MEETING................................................................... 5
1.10 INTRODUCTION OF BUSINESS AT MEETINGS................................................ 5
1.11 ACTION WITHOUT MEETING.............................................................. 8
ARTICLE 2 - DIRECTORS.................................................................... 8
2.1 GENERAL POWERS...................................................................... 8
2.2 NUMBER; ELECTION AND QUALIFICATION.................................................. 9
2.3 CLASSES OF DIRECTORS................................................................ 9
2.4 TERMS IN OFFICE..................................................................... 9
2.5 ALLOCATION OF DIRECTORS AMONG CLASSES IN THE EVENT OF INCREASES OR DECREASES IN THE
NUMBER OF DIRECTORS................................................................. 9
2.6 TENURE.............................................................................. 10
2.7 VACANCIES........................................................................... 10
2.8 RESIGNATION......................................................................... 10
2.9 REGULAR MEETINGS.................................................................... 10
2.10 SPECIAL MEETINGS.................................................................... 10
2.11 NOTICE OF SPECIAL MEETINGS.......................................................... 10
2.12 MEETINGS BY TELEPHONE CONFERENCE CALLS.............................................. 11
2.13 QUORUM.............................................................................. 11
2.14 ACTION AT MEETING................................................................... 11
2.15 ACTION BY WRITTEN CONSENT........................................................... 11
2.16 REMOVAL............................................................................. 11
2.17 COMMITTEES.......................................................................... 11
2.18 COMPENSATION OF DIRECTORS........................................................... 12
ARTICLE 3 - OFFICERS..................................................................... 12
3.1 ENUMERATION......................................................................... 12
3.2 ELECTION............................................................................ 12
3.3 QUALIFICATION....................................................................... 12
3.4 TENURE.............................................................................. 12
3.5 RESIGNATION AND REMOVAL............................................................. 12
3.6 VACANCIES........................................................................... 13
3.7 CHAIRMAN OF THE BOARD AND VICE-CHAIRMAN OF THE BOARD................................ 13
3.8 PRESIDENT........................................................................... 13
3.9 VICE PRESIDENTS..................................................................... 13
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Page
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<S> <C>
3.10 SECRETARY AND ASSISTANT SECRETARIES................................................. 14
3.11 TREASURER AND ASSISTANT TREASURERS.................................................. 14
3.12 SALARIES............................................................................ 14
3.13 ACTION WITH RESPECT TO SECURITIES OF OTHER CORPORATIONS............................. 15
ARTICLE 4 - CAPITAL STOCK................................................................ 15
4.1 ISSUANCE OF STOCK................................................................... 15
4.2 CERTIFICATES OF STOCK............................................................... 15
4.3 TRANSFERS........................................................................... 15
4.4 LOST, STOLEN OR DESTROYED CERTIFICATES.............................................. 16
4.5 RECORD DATE......................................................................... 16
ARTICLE 5 - GENERAL PROVISIONS........................................................... 16
5.1 FISCAL YEAR......................................................................... 16
5.2 CORPORATE SEAL...................................................................... 16
5.3 NOTICES............................................................................. 16
5.4 WAIVER OF NOTICE.................................................................... 17
5.5 EVIDENCE OF AUTHORITY............................................................... 17
5.6 FACSIMILE SIGNATURES................................................................ 17
5.7 RELIANCE UPON BOOKS, REPORTS AND RECORDS............................................ 17
5.8 TIME PERIODS........................................................................ 17
5.9 CERTIFICATE OF INCORPORATION........................................................ 17
5.10 TRANSACTIONS WITH INTERESTED PARTIES................................................ 18
5.11 SEVERABILITY........................................................................ 18
5.12 PRONOUNS............................................................................ 18
ARTICLE 6 - AMENDMENTS................................................................... 18
6.1 BY THE BOARD OF DIRECTORS........................................................... 18
6.2 BY THE STOCKHOLDERS................................................................. 19
</TABLE>
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<PAGE>
AMENDED AND RESTATED
BY-LAWS
OF
CYTYC CORPORATION (the "Corporation")
ARTICLE 1 - STOCKHOLDERS
------------------------
1.1 PLACE OF MEETINGS. All meetings of stockholders shall be held at
-----------------
such place within or without the State of Delaware as may be designated from
time to time by the Chairman of the Board (if any), the board of directors of
the Corporation (the "Board of Directors") or the President or, if not so
designated, at the registered office of the Corporation.
1.2 ANNUAL MEETING. The annual meeting of stockholders for the
--------------
election of directors and for the transaction of such other business as may
properly be brought before the meeting shall be held on a date to be fixed by
the Chairman of the Board (if any), Board of Directors or the President (which
date shall not be a legal holiday in the place where the meeting is to be held)
at the time and place to be fixed by the Chairman of the Board, the Board of
Directors or the President and stated in the notice of the meeting.
1.3 SPECIAL MEETINGS. Special meetings of stockholders may be called
----------------
at any time by the Chairman of the Board (if any), a majority of the Board of
Directors or the President and shall be held at such place, on such date and at
such time as shall be fixed by the Board of Directors or the person calling the
meeting. Business transacted at any special meeting of stockholders shall be
limited to matters relating to the purpose or purposes stated in the notice of
meeting.
1.4 NOTICE OF MEETINGS. Except as otherwise provided by law, written
------------------
notice of each meeting of stockholders, whether annual or special, shall be
given not less than 10 nor more than 60 days before the date of the meeting to
each stockholder entitled to vote at such meeting. The notices of all meetings
shall state the place, date and hour of the meeting. The notice of a special
meeting shall state, in addition, the purpose or purposes for which the meeting
is called. If mailed, notice is given when deposited in the United States mail,
postage prepaid, directed to the stockholder at his or her address as it appears
on the records of the Corporation.
1.5 VOTING LIST. The officer who has charge of the stock ledger of
-----------
the Corporation shall prepare, at least 10 days before every meeting of
stockholders, a complete list of the stockholders entitled to vote at the
meeting, arranged in alphabetical order, and showing the address of each
stockholder and the number of shares registered in the name of each stockholder.
Such list shall be open to the examination of any stockholder, for any purpose
germane to the meeting, during ordinary business hours, for a period of at least
10 days prior to the meeting,
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<PAGE>
either at a place within the city where the meeting is to be held, which place
shall be specified in the notice of the meeting, or if not so specified, at the
place where the meeting is to be held. The list shall also be produced and kept
at the time and place of the meeting during the whole time of the meeting, and
may be inspected by any stockholder who is present. This list shall
presumptively determine the identity of the stockholders entitled to vote at the
meeting and the number of shares held by each of them.
1.6 QUORUM. Except as otherwise provided by law, the Certificate of
------
Incorporation or these By-Laws, the holders of a majority of the shares of the
capital stock of the Corporation issued and outstanding and entitled to vote at
the meeting, present in person or represented by proxy, shall constitute a
quorum for the transaction of business. Shares held by brokers which such
brokers are prohibited from voting (pursuant to their discretionary authority on
behalf of beneficial owners of such shares who have not submitted a proxy with
respect to such shares) on some or all of the matters before the stockholders,
but which shares would otherwise be entitled to vote at the meeting ("Broker
Non-Votes") shall be counted, for the purpose of determining the presence or
absence of a quorum, both (a) toward the total voting power of the shares of
capital stock of the Corporation and (b) as being represented by proxy. If a
quorum has been established for the purpose of conducting the meeting, a quorum
shall be deemed to be present for the purpose of all votes to be conducted at
such meeting, provided that where a separate vote by a class or classes, or
series thereof, is required, a majority of the voting power of the shares of
such class or classes, or series, present in person or represented by proxy
shall constitute a quorum entitled to take action with respect to that vote on
that matter. If a quorum shall fail to attend any meeting, the chairman of the
meeting or the holders of a majority of the voting power of the shares of stock
entitled to vote who are present, in person or by proxy, may adjourn the meeting
to another place, date, or time.
1.7 ADJOURNMENTS. Any meeting of stockholders may be adjourned to
------------
any other time and to any other place at which a meeting of stockholders may be
held under these By-Laws by the stockholders present or represented at the
meeting and entitled to vote, although less than a quorum, or, if no stockholder
is present, by any officer entitled to preside at or to act as Secretary of such
meeting. It shall not be necessary to notify any stockholder of any adjournment
of less than 30 days if the time and place of the adjourned meeting are
announced at the meeting at which adjournment is taken, unless after the
adjournment a new record date is fixed for the adjourned meeting. At the
adjourned meeting, the Corporation may transact any business which might have
been transacted at the original meeting.
1.8 VOTING AND PROXIES. At any meeting of the stockholders, each
------------------
stockholder shall have one vote for each share of stock entitled to vote at such
meeting held of record by such stockholder and a proportionate vote for each
fractional share so held, unless otherwise provided in the Certificate of
Incorporation. Each stockholder of record entitled to vote at a meeting of
stockholders, or to express consent or dissent to corporate action in writing
without a meeting, may vote or express such consent or dissent in person or may
authorize another person or persons to vote or act for such stockholder by
written proxy executed by such stockholder or his or her authorized agent or by
a transmission permitted by law and delivered to the Secretary of the
Corporation. No such proxy shall be voted or acted upon after three years from
the date of its
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<PAGE>
execution, unless the proxy expressly provides for a longer period. Any copy,
facsimile telecommunication or other reliable reproduction of the writing or
transmission created pursuant to this Section 1.8 may be substituted or used in
lieu of the original writing or transmission for any and all purposes for which
the original writing or transmission could be used, provided that such copy,
facsimile telecommunication or reproduction shall be a complete reproduction of
the entire original writing or transmission.
In the election of directors, voting shall be by written ballot, and
for any other action, voting need not be by ballot.
The Corporation may, and to the extent required by law or the
Certificate of Incorporation, shall, in advance of any meeting of stockholders,
appoint one or more inspectors to act at such meeting and make a written report
thereof. The Corporation may designate one or more persons as alternate
inspectors to replace any inspector who fails to act. If no inspector or
alternate is able to act at a meeting of stockholders, the person presiding at
such meeting may, and to the extent required by law or the Certificate of
Incorporation, shall, appoint one or more inspectors to act at such meeting.
Each inspector, before entering upon the discharge of his duties, shall take and
sign an oath faithfully to execute the duties of inspector with strict
impartiality and according to the best of his or her ability.
1.9 ACTION AT MEETING. When a quorum is present at any meeting of
-----------------
stockholders, the holders of a majority of the stock present or represented and
voting on a matter (or if there are two or more classes of stock entitled to
vote as separate classes, then in the case of each such class, the holders of a
majority of the stock of that class present or represented and voting on such
matter) shall decide any matter to be voted upon by the stockholders at such
meeting, except when a different vote is required by express provision of law,
the Certificate of Incorporation or these By-Laws. Any election by stockholders
shall be determined by a plurality of the votes cast by the stockholders
entitled to vote at the election. Except as otherwise provided by the
Certificate of Incorporation, all elections of directors shall be determined by
a plurality of the votes cast, and except as otherwise required by law or the
Certificate of Incorporation, all other matters shall be determined by a
majority of the votes cast affirmatively or negatively. For the purposes of this
paragraph, Broker Non-Votes represented at the meeting but not permitted to vote
on a particular matter shall not be counted, with respect to the vote on such
matter, in the number of (a) votes cast, (b) votes cast affirmatively, or (c)
votes cast negatively.
1.10 INTRODUCTION OF BUSINESS AT MEETINGS.
------------------------------------
A. ANNUAL MEETINGS OF STOCKHOLDERS.
-------------------------------
(1) Nominations of persons for election to the Board of Directors
and the proposal of business to be considered by the stockholders may be
made at an annual meeting of stockholders (a) pursuant to the
Corporation's notice of meeting, (b) by or at the direction of the Board
of Directors or (c) by any stockholder of the Corporation who was a
stockholder of record at the time of giving of notice provided
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<PAGE>
for in this Section 1.10, who is entitled to vote at the meeting and who
complies with the notice procedures set forth in this Section 1.10.
(2) For nominations or other business to be properly brought
before an annual meeting by a stockholder pursuant to clause (c) of
paragraph (A)(1) of this Section 1.10, the stockholder must have given
timely notice thereof in writing to the Secretary of the Corporation and
such other business must otherwise be a proper matter for stockholder
action. To be timely, a stockholder's notice shall be delivered to the
Secretary at the principal executive offices of the Corporation not later
than the close of business on the one hundred twentieth (120th) day nor
earlier than the close of business on the one hundred fiftieth (150th)
day prior to the first anniversary of the date of the proxy statement
delivered to stockholders in connection with the preceding year's annual
meeting; provided, however, that if either (i) the date of the annual
meeting is more than thirty (30) days before or more than sixty (60) days
after such an anniversary date or (ii) no proxy statement was delivered
to stockholders in connection with the preceding year's annual meeting,
notice by the stockholder to be timely must be so delivered not earlier
than the close of business on the ninetieth (90th) day prior to such
annual meeting and not later than the close of business on the later of
the sixtieth (60th) day prior to such annual meeting or the close of
business on the tenth (10th) day following the day on which public
announcement of the date of such meeting is first made by the
Corporation. Such stockholder's notice shall set forth (a) as to each
person whom the stockholder proposes to nominate for election or
reelection as a director, all information relating to such person that is
required to be disclosed in solicitations of proxies for election of
directors, or is otherwise required, in each case pursuant to Regulation
14A under the Securities Exchange Act of 1934, as amended (the "Exchange
Act") (including such person's written consent to being named in the
proxy statement as a nominee and to serving as a director if elected);
(b) as to any other business that the stockholder proposes to bring
before the meeting, a brief description of the business desired to be
brought before the meeting, the reasons for conducting such business at
the meeting and any material interest in such business of such
stockholder and the beneficial owner, if any, on whose behalf the
proposal is made; and (c) as to the stockholder giving the notice and the
beneficial owner, if any, on whose behalf the nomination or proposal is
made (i) the name and address of such stockholder, as they appear on the
Corporation's books, and of such beneficial owner and (ii) the class and
number of shares of capital stock of the Corporation that are owned
beneficially and held of record by such stockholder and such beneficial
owner.
(3) Notwithstanding anything in the second sentence of paragraph
(A)(2) of this Section 1.10 to the contrary, in the event that the number
of directors to be elected to the Board of Directors of the Corporation
is increased and there is no public announcement by the Corporation
naming all of the nominees for director or specifying the size of the
increased Board of Directors at least seventy (70) days prior to the
first anniversary of the preceding year's annual meeting (or, if the
annual meeting is held more than thirty (30) days before or sixty (60)
days after such
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<PAGE>
anniversary date, at least seventy (70) days prior to
such annual meeting), a stockholder's notice required by this Section
1.10 shall also be considered timely, but only with respect to nominees
for any new positions created by such increase, if it shall be delivered
to the Secretary at the principal executive office of the Corporation not
later than the close of business on the tenth (10th) day following the
day on which such public announcement is first made by the Corporation.
B. SPECIAL MEETINGS OF STOCKHOLDERS. Only such business shall
--------------------------------
be conducted at a special meeting of stockholders as shall have been
brought before the meeting pursuant to the Corporation's notice of
meeting. Nominations of persons for election to the Board of Directors
may be made at a special meeting of stockholders at which directors are
to be elected pursuant to the Corporation's notice of meeting (a) by or
at the direction of the Board of Directors or (b) provided that the Board
of Directors has determined that directors shall be elected at such
meeting, by any stockholder of the Corporation who is a stockholder of
record at the time of giving of notice of the special meeting, who shall
be entitled to vote at the meeting and who complies with the notice
procedures set forth in this Section 1.10. If the Corporation calls a
special meeting of stockholders for the purpose of electing one or more
directors to the Board of Directors, any such stockholder may nominate a
person or persons (as the case may be), for election to such position(s)
as specified in the Corporation's notice of meeting, if the stockholder's
notice required by paragraph (A)(2) of this Section 1.10 shall be
delivered to the Secretary at the principal executive offices of the
Corporation not earlier than the ninetieth (90th) day prior to such
special meeting nor later than the later of (x) the close of business of
the sixtieth (60th) day prior to such special meeting or (y) the close of
business of the tenth (10th) day following the day on which public
announcement is first made of the date of such special meeting and of the
nominees proposed by the Board of Directors to be elected at such
meeting.
C. GENERAL.
-------
(1) Only such persons who are nominated in accordance with the
procedures set forth in this Section 1.10 shall be eligible to serve as
directors and only such business shall be conducted at a meeting of
stockholders as shall have been brought before the meeting in accordance
with the procedures set forth in this Section 1.10. Except as otherwise
provided by law, the Certificate of Incorporation or these By-Laws, the
chairman of the meeting shall have the power and duty to determine
whether a nomination or any business proposed to be brought before the
meeting was made or proposed, as the case may be, in accordance with the
procedures set forth in this Section 1.10 and, if any proposed nomination
or business is not in compliance herewith, to declare that such defective
proposal or nomination shall be disregarded.
(2) For purposes of this Section 1.10, "public announcement"
shall mean disclosure in a press release reported by the Dow Jones News
Service,
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<PAGE>
Associated Press or comparable national news service or in a document
publicly filed by the Corporation with the Securities and Exchange
Commission pursuant to Section 13, 14 or 15(d) of the Exchange Act.
(3) Notwithstanding the foregoing provisions of this Section
1.10, a stockholder shall also comply with all applicable requirements of
the Exchange Act and the rules and regulations thereunder with respect to
the matters set forth herein. Nothing in this Section 1.10 shall be
deemed to affect any rights (i) of stockholders to request inclusion of
proposals in the Corporation's proxy statement pursuant to Rule 14a-8
under the Exchange Act or (ii) of the holders of any series of Preferred
Stock to elect directors under specified circumstances.
1.11 ACTION WITHOUT MEETING. Stockholders of the Corporation may not take
----------------------
any action by written consent in lieu of a meeting.
ARTICLE 2 - DIRECTORS
---------------------
2.1 GENERAL POWERS. The business and affairs of the Corporation shall be
--------------
managed by or under the direction of a Board of Directors, who may exercise all
of the powers of the Corporation except as otherwise provided by law or the
Certificate of Incorporation. In the event of a vacancy in the Board of
Directors, the remaining directors, except as otherwise provided by law or the
Certificate of Incorporation, may exercise the powers of the full Board of
Directors until the vacancy is filled. Without limiting the foregoing, the Board
of Directors may:
(a) declare dividends from time to time in accordance with law;
(b) purchase or otherwise acquire any property, rights or privileges
on such terms as it shall determine;
(c) authorize the creation, making and issuance, in such form as it
may determine, of written obligations of every kind, negotiable or non-
negotiable, secured or unsecured, to borrow funds and guarantee obligations,
and to do all things necessary in connection therewith;
(d) remove any officer of the Corporation with or without cause, and
from time to time to devolve the powers and duties of any officer upon any
other person for the time being;
(e) confer upon any officer of the Corporation the power to appoint,
remove and suspend subordinate officers, employees and agents;
(f) adopt from time to time such stock option, stock purchase, bonus
or other compensation plans for directors, officers, employees, consultants
and agents of the Corporation and its subsidiaries as it may determine;
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<PAGE>
(g) adopt from time to time such insurance, retirement, and other
benefit plans for directors, officers, employees, consultants and agents of
the Corporation and its subsidiaries as it may determine; and
(h) adopt from time to time regulations, not inconsistent herewith,
for the management of the Corporation's business and affairs.
2.2 NUMBER; ELECTION AND QUALIFICATION. The number of directors which
----------------------------------
shall constitute the whole Board of Directors shall be determined by resolution
of the Board of Directors, but in no event shall be less than three. The number
of directors may be decreased at any time and from time to time by a majority of
the directors then in office, but only to eliminate vacancies existing by reason
of the death, resignation, removal or expiration of the term of one or more
directors. The directors shall be elected at the annual meeting of stockholders
by such stockholders as have the right to vote on such election. Directors need
not be stockholders of the Corporation.
2.3 CLASSES OF DIRECTORS. The Board of Directors shall be and is divided
--------------------
into three classes: Class I, Class II and Class III. No one class shall have
more than one director more than any other class.
2.4 TERMS IN OFFICE. Each director shall serve for a term ending on the
---------------
date of the third annual meeting following the annual meeting at which such
director was elected; provided, however, that each initial director in Class I
shall serve for a term ending on the date of the annual meeting next following
the end of the Corporation's fiscal year ending December 31, 1996; each initial
director in Class II shall serve for a term ending on the date of the annual
meeting next following the end of the Corporation's fiscal year ending December
31, 1997 and each initial director in Class III shall serve for a term ending on
the date of the annual meeting next following the end of the Corporation's
fiscal year ending December 31, 1998.
2.5 ALLOCATION OF DIRECTORS AMONG CLASSES IN THE EVENT OF INCREASES OR
------------------------------------------------------------------
DECREASES IN THE NUMBER OF DIRECTORS. In the event of any increase or decrease
- ------------------------------------
in the authorized number of directors, (i) each director then serving as such
shall nevertheless continue as director of the class of which he or she is a
member until the expiration of such director's current term or his or her prior
death, retirement or resignation and (ii) the newly created or eliminated
directorships resulting from such increase or decrease shall be apportioned by
the Board of Directors among the three classes of directors, subject to Section
2.3. To the extent possible, consistent with the foregoing rule, any newly
created directorships shall be added to those classes whose terms of office are
to expire at the earliest dates following such allocation, unless otherwise
provided for from time to time by resolution adopted by a majority of the
directors then in office, although less than a quorum. No decrease in the
number of directors constituting the whole Board of Directors shall shorten the
term of an incumbent Director.
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<PAGE>
2.6 TENURE. Notwithstanding any provisions to the contrary contained
------
herein, each director shall hold office until his or her successor is elected
and qualified, or until his or her earlier death, resignation or removal.
2.7 VACANCIES. Unless and until filled by the stockholders, any vacancy
---------
in the Board of Directors, however occurring, including a vacancy resulting from
an enlargement thereof, may be filled by vote of a majority of the directors
then in office, although less than a quorum, or by a sole remaining director. A
director elected to fill a vacancy shall be elected for the unexpired term of
his or her predecessor in office, and a director chosen to fill a position
resulting from an increase in the number of directors shall hold office until
the next annual meeting of stockholders at which directors of the class to which
such position belongs are to be elected and until his or her successor is
elected and qualified, or until his or her earlier death, resignation or
removal.
2.8 RESIGNATION. Any director may resign by delivering his or her written
-----------
resignation to the Corporation at its principal office or to the President or
Secretary. Such resignation shall be effective upon receipt unless it is
specified to be effective at some other time or upon the happening of some other
event.
2.9 REGULAR MEETINGS. Regular meetings of the Board of Directors may be
----------------
held without notice at such time and place, either within or without the State
of Delaware, as shall be determined from time to time by the Board of Directors;
provided that any director who is absent when such a determination is made shall
be given notice of the determination.
2.10 SPECIAL MEETINGS. Special meetings of the Board of Directors may be
----------------
held at any time and place, within or without the State of Delaware, designated
in a call by the Chairman of the Board (if any), the President, two or more
directors, or by one director in the event that there is only a single director
in office.
2.11 NOTICE OF SPECIAL MEETINGS. Notice of any special meeting of
--------------------------
directors shall be given to each director by the Secretary or by the officer or
one of the directors calling the meeting. Notice shall be duly given to each
director (i) by giving notice to such director in person or by telephone at
least 48 hours in advance of the meeting, (ii) by sending a telegram or
delivering written notice by facsimile transmission or by hand, to his or her
last known business or home address at least 48 hours in advance of the meeting,
or (iii) by mailing written notice to his or her last known business or home
address at least 72 hours in advance of the meeting. A notice or waiver of
notice of a meeting of the Board of Directors need not specify the purposes of
the meeting.
2.12 MEETINGS BY TELEPHONE CONFERENCE CALLS. Directors or any members of
--------------------------------------
any committee designated by the Board of Directors may participate in a meeting
of the Board of Directors or such committee by means of conference telephone or
similar communications equipment by means of which all persons participating in
the meeting can hear each other, and participation by such means shall be deemed
to constitute presence in person at such meeting.
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<PAGE>
2.13 QUORUM. A majority of the total number of the whole Board of
------
Directors shall constitute a quorum at all meetings of the Board of Directors.
In the event one or more of the directors shall be disqualified to vote at any
meeting, then the required quorum shall be reduced by one for each such director
so disqualified; provided, however, that in no case shall less than one-third
(1/3) of the total number of the whole Board of Directors constitute a quorum.
In the absence of a quorum at any such meeting, a majority of the directors
present may adjourn the meeting from time to time without further notice other
than announcement at the meeting, until a quorum shall be present.
2.14 ACTION AT MEETING. At any meeting of the Board of Directors at which
-----------------
a quorum is present, the vote of a majority of those present shall be sufficient
to take any action, unless a different vote is specified by law, the Certificate
of Incorporation or these By-Laws.
2.15 ACTION BY WRITTEN CONSENT. Any action required or permitted to be
-------------------------
taken at any meeting of the Board of Directors or of any committee of the Board
of Directors may be taken without a meeting, if all members of the Board of
Directors or committee, as the case may be, consent to such action in writing,
and the written consents are filed with the minutes of proceedings of the Board
of Directors or committee.
2.16 REMOVAL. Unless otherwise provided in the Certificate of
-------
Incorporation, any one or more or all of the directors may be removed, only for
cause, by the holders of at least seventy-five percent (75%)of the shares then
entitled to vote at an election of directors.
2.17 COMMITTEES. The Board of Directors may, by resolution passed by a
----------
majority of the whole Board, designate one or more committees, each committee to
consist of one or more of the directors of the Corporation. The Board of
Directors may designate one or more directors as alternate members of any
committee, who may replace any absent or disqualified member at any meeting of
such committee. In the absence or disqualification of a member of a committee,
the member or members of such committee present at any meeting and not
disqualified from voting, whether or not such member or members constitute a
quorum, may unanimously appoint another member of the Board of Directors to act
at such meeting in the place of any such absent or disqualified member. Any
such committee, to the extent provided in the resolution of the Board of
Directors and subject to the provisions of the General Corporation Law of the
State of Delaware, shall have and may exercise all the powers and authority of
the Board of Directors in the management of the business and affairs of the
Corporation and may authorize the seal of the Corporation to be affixed to all
papers which may require it. Each such committee shall keep minutes and make
such reports as the Board of Directors may from time to time request. Except as
the Board of Directors may otherwise determine or as provided herein, any
committee may make rules for the conduct of its business, but unless otherwise
provided by the directors or in such rules, its business shall be conducted as
nearly as possible in the same manner as is provided in these By-Laws for the
Board of Directors. Adequate provisions shall be made for notice to members of
all meeting of committees. A majority of the members of any committee shall
constitute a quorum and all matters shall be determined by a majority vote of
the members present. Action may be taken by any committee without a meeting if
all members thereof
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<PAGE>
consent thereto in writing, and the writing or writings are filed with the
minutes of the proceedings of such committee.
2.18 COMPENSATION OF DIRECTORS. Directors may be paid such compensation
-------------------------
for their services and such reimbursement for expenses of attendance at meetings
as the Board of Directors may from time to time determine. No such payment
shall preclude any director from serving the Corporation or any of its parent or
subsidiary corporations in any other capacity and receiving compensation for
such service.
ARTICLE 3 - OFFICERS
--------------------
3.1 ENUMERATION. The officers of the Corporation shall consist of a
-----------
President, a Secretary, a Treasurer and such other officers with such other
titles as the Board of Directors shall determine, including, but not limited to,
a Chairman of the Board, a Vice-Chairman of the Board, and one or more Vice
Presidents, Assistant Treasurers and Assistant Secretaries. The Board of
Directors may appoint such other officers as it may deem appropriate.
3.2 ELECTION. The President, Treasurer and Secretary shall be elected
--------
annually by the Board of Directors at its first meeting following the annual
meeting of stockholders. Other officers may be appointed by the Board of
Directors at such meeting or at any other meeting.
3.3 QUALIFICATION. No officer need be a stockholder. Any two or more
-------------
offices may be held by the same person.
3.4 TENURE. Except as otherwise provided by law, by the Certificate of
------
Incorporation or by these By-Laws, each officer shall hold office until his or
her successor is elected and qualified, unless a different term is specified in
the vote choosing or appointing such officer, or until his or her earlier death,
resignation or removal.
3.5 RESIGNATION AND REMOVAL. Any officer may resign by delivering his or
-----------------------
her written resignation to the Chairman of the Board (if any), to the Board of
Directors at a meeting thereof, to the Corporation at its principal office or to
the President or Secretary. Such resignation shall be effective upon receipt
unless it is specified to be effective at some other time or upon the happening
of some other event.
Any officer may be removed at any time, with or without cause, by vote of a
majority of the entire number of directors then in office.
Except as the Board of Directors may otherwise determine, no officer who
resigns or is removed shall have any right to any compensation as an officer for
any period following his or her resignation or removal, or any right to damages
on account of such removal, whether his or her compensation be by the month or
by the year or otherwise, unless such compensation is expressly provided in a
duly authorized written agreement with the Corporation.
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3.6 VACANCIES. The Board of Directors may fill any vacancy occurring in
---------
any office for any reason and may, in its discretion, leave unfilled for such
period as it may determine any offices other than those of President, Treasurer
and Secretary. Each such successor shall hold office for the unexpired term of
his predecessor and until his or her successor is elected and qualified, or
until his or her earlier death, resignation or removal.
3.7 CHAIRMAN OF THE BOARD AND VICE-CHAIRMAN OF THE BOARD. The Chairman of
----------------------------------------------------
the Board, if any, shall preside at all meetings of the Board of Directors and
stockholders at which he or she is present and shall perform such duties and
possess such powers as are designated by the Board of Directors. If the Board
of Directors appoints a Vice-Chairman of the Board, he or she shall, in the
absence or disability of the Chairman of the Board, perform the duties and
exercise the powers of the Chairman of the Board and shall perform such other
duties and possess such other powers as may from time to time be designated by
the Board of Directors.
3.8 PRESIDENT. The President shall, subject to the direction of the Board
---------
of Directors, have general charge and supervision of the business of the
Corporation. Unless otherwise provided by the Board of Directors, the President
shall preside at all meetings of the stockholders, and, if a director, at all
meetings of the Board of Directors. Unless the Board of Directors has
designated another officer as the Chief Executive Officer, the President shall
be the Chief Executive Officer of the Corporation. The President shall perform
such other duties and shall have such other powers as the Board of Directors may
from time to time prescribe. The President shall have the power to enter into
contracts and otherwise bind the Corporation in matters arising in the ordinary
course of the Corporation's business.
3.9 VICE PRESIDENTS. Any Vice President shall perform such duties and
---------------
possess such powers as the Board of Directors or the President may from time to
time prescribe. In the event of the absence, inability or refusal to act of the
President, the Vice President (or if there shall be more than one, the Vice
Presidents in the order determined by the Board of Directors) shall perform the
duties of the President and, when so performing, shall have all the powers of
and be subject to all the restrictions upon the President. The Board of
Directors may assign to any Vice President the title of Executive Vice
President, Senior Vice President or any other title selected by the Board of
Directors. Unless otherwise determined by the Board of Directors, any Vice
President shall have the power to enter into contracts and otherwise bind the
Corporation in matters arising in the ordinary course of the Corporation's
business.
3.10 SECRETARY AND ASSISTANT SECRETARIES. The Secretary shall perform such
-----------------------------------
duties and shall have such powers as the Board of Directors or the President may
from time to time prescribe. In addition, the Secretary shall perform such
duties and have such powers as are incident to the office of secretary,
including without limitation the duty and power to give notices of all meetings
of stockholders and special meetings of the Board of Directors, to attend all
meetings of stockholders and the Board of Directors and keep a record of the
proceedings, to maintain a stock ledger and prepare lists of stockholders and
their addresses as required, to be custodian of corporate records and the
corporate seal and to affix and attest to the same on documents.
-13-
<PAGE>
Any Assistant Secretary shall perform such duties and possess such powers
as the Board of Directors, the President or the Secretary may from time to time
prescribe. In the event of the absence, inability or refusal to act of the
Secretary, the Assistant Secretary (or if there shall be more than one, the
Assistant Secretaries in the order determined by the Board of Directors) shall
perform the duties and exercise the powers of the Secretary.
In the absence of the Secretary or any Assistant Secretary at any meeting
of stockholders or directors, the person presiding at the meeting shall
designate a temporary secretary to keep a record of the meeting.
3.11 TREASURER AND ASSISTANT TREASURERS. The Treasurer shall perform such
----------------------------------
duties and shall have such powers as the Board of Directors or the President may
from time to time prescribe. In addition, the Treasurer shall perform such
duties and have such powers as are incident to the office of treasurer,
including without limitation the duty and power to keep and be responsible for
all funds and securities of the Corporation, to deposit funds of the Corporation
in depositories selected in accordance with these By-Laws, to disburse such
funds as ordered by the Board of Directors, to make proper accounts for such
funds, and to render as required by the Board of Directors statements of all
such transactions and of the financial condition of the Corporation.
The Assistant Treasurers shall perform such duties and possess such powers
as the Board of Directors, the President or the Treasurer may from time to time
prescribe. In the event of the absence, inability or refusal to act of the
Treasurer, the Assistant Treasurer (or if there shall be more than one, the
Assistant Treasurers in the order determined by the Board of Directors) shall
perform the duties and exercise the powers of the Treasurer.
3.12 SALARIES. Officers of the Corporation shall be entitled to such
--------
salaries, compensation or reimbursement as shall be fixed or allowed from time
to time by the Board of Directors.
3.13 ACTION WITH RESPECT TO SECURITIES OF OTHER CORPORATIONS. Unless
-------------------------------------------------------
otherwise directed by the Board of Directors, the President or any officer of
the Corporation authorized by the President shall have power to vote and
otherwise act on behalf of the Corporation, in person or by proxy, at any
meeting of stockholders of or with respect to any action of stockholders of any
other corporation in which the Corporation may hold securities and otherwise to
exercise any and all rights and powers which this Corporation may possess by
reason of its ownership of securities in such other corporation.
ARTICLE 4 - CAPITAL STOCK
-------------------------
4.1 ISSUANCE OF STOCK. Unless otherwise voted by the stockholders and
-----------------
subject to the provisions of the Certificate of Incorporation, the whole or any
part of any unissued balance of the authorized capital stock of the Corporation
or the whole or any part of any issued, authorized capital stock of the
Corporation held in its treasury may be issued, sold, transferred or otherwise
-14-
<PAGE>
disposed of by vote of the Board of Directors in such manner, for such
consideration and on such terms as the Board of Directors may determine.
4.2 CERTIFICATES OF STOCK. Every holder of stock of the Corporation shall
---------------------
be entitled to have a certificate, in such form as may be prescribed by law and
by the Board of Directors, certifying the number and class of shares owned by
such stockholder in the Corporation. Each such certificate shall be signed by,
or in the name of the Corporation by, the Chairman or Vice-Chairman, if any, of
the Board of Directors, or the President or a Vice President, and the Treasurer
or an Assistant Treasurer, or the Secretary or an Assistant Secretary of the
Corporation. Any or all of the signatures on such certificate may be a
facsimile.
Each certificate for shares of stock which are subject to any restriction
on transfer pursuant to the Certificate of Incorporation, the By-Laws,
applicable securities laws or any agreement among any number of shareholders or
among such holders and the Corporation shall have conspicuously noted on the
face or back of such certificate either the full text of such restriction or a
statement of the existence of such restriction.
4.3 TRANSFERS. Except as otherwise established by rules and regulations
---------
adopted by the Board of Directors, and subject to applicable law, shares of
stock may be transferred on the books of the Corporation by the surrender to the
Corporation or its transfer agent of the certificate representing such shares,
properly endorsed or accompanied by a written assignment or power of attorney
properly executed, and with such proof of authority or the authenticity of
signature as the Corporation or its transfer agent may reasonably require.
Except as may be otherwise required by law, by the Certificate of Incorporation
or by these By-Laws, the Corporation shall be entitled to treat the record
holder of stock as shown on its books as the owner of such stock for all
purposes, including the payment of dividends and the right to vote with respect
to such stock, regardless of any transfer, pledge or other disposition of such
stock, until the shares have been transferred on the books of the Corporation in
accordance with the requirements of these By-Laws.
4.4 LOST, STOLEN OR DESTROYED CERTIFICATES. The Corporation may issue a
--------------------------------------
new certificate of stock in place of any previously issued certificate alleged
to have been lost, stolen, or destroyed, upon such terms and conditions as the
President may prescribe, including the presentation of reasonable evidence of
such loss, theft or destruction and the giving of such indemnity as the
President may require for the protection of the Corporation or any transfer
agent or registrar.
4.5 RECORD DATE. The Board of Directors may fix in advance a date as a
-----------
record date for the determination of the stockholders entitled to notice of or
to vote at any meeting of stockholders or to express consent (or dissent) to
corporate action in writing without a meeting, or entitled to receive payment of
any dividend or other distribution or allotment of any rights in respect of any
change, conversion or exchange of stock, or for the purpose of any other lawful
action. Such record date shall not be more than 60 nor less than 10 days before
the date of such meeting, nor more than 60 days prior to any other action to
which such record date relates.
-15-
<PAGE>
If no record date is fixed, the record date for determining stockholders
entitled to notice of or to vote at a meeting of stockholders shall be at the
close of business on the day before the day on which notice is given, or, if
notice is waived, at the close of business on the day before the day on which
the meeting is held. The record date for determining stockholders entitled to
express consent to corporate action in writing without a meeting, when no prior
action by the Board of Directors is necessary, shall be the day on which the
first written consent is expressed. The record date for determining
stockholders for any other purpose shall be at the close of business on the day
on which the Board of Directors adopts the resolution relating to such purpose.
A determination of stockholders of record entitled to notice of or to vote
at a meeting of stockholders shall apply to any adjournment of the meeting;
provided, however, that the Board of Directors may fix a new record date for the
adjourned meeting.
ARTICLE 5 - GENERAL PROVISIONS
------------------------------
5.1 FISCAL YEAR. The fiscal year of the Corporation shall end on December
-----------
31 of each year or such other date as may be fixed by resolution of the Board of
Directors.
5.2 CORPORATE SEAL. The corporate seal shall be in such form as shall be
--------------
approved by the Board of Directors.
5.3 NOTICES. Except as otherwise specifically provided herein or required
-------
by law or the Certificate of Incorporation, all notices required to be given to
any stockholder, director, officer, employee or agent of the Corporation shall
be in writing and may in every instance be effectively given by hand delivery to
the recipient thereof, by depositing such notice in the mails, postage paid, or
by sending such notice by prepaid telegram or facsimile transmission. Any such
notice shall be addressed to such stockholder, director, officer, employee or
agent at his or her last known address as the same appears on the books of the
Corporation. The time when such notice is received shall be deemed to be the
time of the giving of the notice.
5.4 WAIVER OF NOTICE. Whenever any notice whatsoever is required to be
----------------
given by law, by the Certificate of Incorporation or by these By-Laws, a waiver
of such notice either in writing signed by the person entitled to such notice or
such person's duly authorized attorney, or by telegraph, facsimile transmission
or any other available method, whether before, at or after the time stated in
such waiver, or the appearance of such person or persons at such meeting in
person or by proxy, shall be deemed equivalent to such notice.
5.5 EVIDENCE OF AUTHORITY. A certificate by the Secretary, or an
---------------------
Assistant Secretary, or a temporary Secretary, as to any action taken by the
stockholders, directors, a committee or any officer or representative of the
Corporation shall, as to all persons who rely on the certificate in good faith,
be conclusive evidence of such action.
-16-
<PAGE>
5.6 FACSIMILE SIGNATURES. In addition to the provisions for use of
--------------------
facsimile signatures elsewhere specifically authorized in these By-Laws,
facsimile signatures of any officer or officers of the Corporation may be used
whenever and as authorized by the Board of Directors or a committee thereof.
5.7 RELIANCE UPON BOOKS, REPORTS AND RECORDS. Each director, each member
----------------------------------------
of any committee designated by the Board of Directors, and each officer of the
Corporation shall, in the performance of his or her duties, be fully protected
in relying in good faith upon the books of account or other records of the
Corporation and upon such information, opinions, reports or statements presented
to the Corporation by any of its officers or employees or committees of the
Board of Directors so designated, or by any other person as to matters which
such director or committee member reasonably believes are within such other
person's professional or expert competence and who has been selected with
reasonable care by or on behalf of the Corporation.
5.8 TIME PERIODS. In applying any provision of these By-Laws that
------------
requires that an act be done or not be done a specified number of days prior to
an event or that an act be done during a period of a specified number of days
prior to an event, calendar days shall be used, the day of the doing of the act
shall be excluded, and the day of the event shall be included.
5.9 CERTIFICATE OF INCORPORATION. All references in these By-Laws to the
----------------------------
Certificate of Incorporation shall be deemed to refer to the Certificate of
Incorporation of the Corporation, as amended and in effect from time to time.
5.10 TRANSACTIONS WITH INTERESTED PARTIES. No contract or transaction
------------------------------------
between the Corporation and one or more of the directors or officers, or between
the Corporation and any other corporation, partnership, association, or other
organization in which one or more of the directors or officers are directors or
officers, or have a financial interest, shall be void or voidable solely for
this reason, or solely because such director or officer is present at or
participates in the meeting of the Board of Directors or a committee of the
Board of Directors which authorizes the contract or transaction or solely
because his, her or their votes are counted for such purpose, if:
(1) The material facts as to his or her relationship or interest and
as to the contract or transaction are disclosed or are known to the Board of
Directors or the committee, and the Board or committee in good faith
authorizes the contract or transaction by the affirmative vote of a majority
of the disinterested directors, even though the disinterested directors be
less than a quorum;
(2) The material facts as to his or her relationship or interest and
as to the contract or transaction are disclosed or are known to the
stockholders entitled to vote thereon, and the contract or transaction is
specifically approved in good faith by vote of the stockholders; or
(3) The contract or transaction is fair as to the Corporation as of
the time it is authorized, approved or ratified, by the Board of Directors, a
committee of the Board of Directors, or the stockholders.
-17-
<PAGE>
Common or interested directors may be counted in determining the presence
of a quorum at a meeting of the Board of Directors or of a committee which
authorizes the contract or transaction.
5.11 SEVERABILITY. Any determination that any provision of these By-Laws
------------
is for any reason inapplicable, illegal or ineffective shall not affect or
invalidate any other provision of these By-Laws.
5.12 PRONOUNS. All pronouns used in these By-Laws shall be deemed to refer
--------
to the masculine, feminine or neuter, singular or plural, as the identity of the
persons or persons so designated may require.
ARTICLE 6 - AMENDMENTS
----------------------
6.1 BY THE BOARD OF DIRECTORS. Except as is otherwise set forth in these
-------------------------
By-Laws, these By-Laws may be altered, amended or repealed, or new by-laws may
be adopted, by the affirmative vote of a majority of the directors present at
any regular or special meeting of the Board of Directors at which a quorum is
present.
6.2 BY THE STOCKHOLDERS. These By-Laws may be altered, amended or
-------------------
repealed or new by-laws may be adopted by the affirmative vote of the holders of
at least 66 2/3% of the shares of the capital stock of the Corporation issued
and outstanding and entitled to vote at any regular meeting of stockholders, or
at any special meeting of stockholders, provided notice of such alteration,
amendment, repeal or adoption of new by-laws shall have been stated in the
notice of such special meeting.
* * *
-18-
<PAGE>
Exhibit 5.1
-----------
Testa, Hurwitz & Thibeault, LLP
125 High Street, High Street Tower
Boston, Massachusetts 02110
January 7, 1997
Cytyc Corporation
85 Swanson Road
Boxborough, MA 01719
RE: Registration Statement on Form S-1
Relating to 3,450,000 shares of Common Stock
--------------------------------------------
Dear Sir or Madam:
This opinion relates to an aggregate of 3,450,000 shares of Common Stock,
par value $.01 per share (the "Common Stock"), of Cytyc Corporation (the
"Company"), which are the subject matter of a Registration Statement on Form S-1
filed with the Securities and Exchange Commission on January 7, 1997 (the
"Registration Statement").
The 3,450,000 shares of Common Stock covered by the Registration Statement
consist of 2,000,000 shares being sold by the Company, 1,000,000 shares being
sold by certain selling stockholders (the "Selling Stockholders") and an
additional 450,000 shares subject to an over-allotment option granted by the
Company to the underwriters named in the prospectus (the "Prospectus") included
in the Registration Statement.
Based upon such investigation as we have deemed necessary, we are of the
opinion that the shares of Common Stock being sold by the Selling Stockholders
have been legally issued and are fully paid and nonassessable and that when the
shares of Common Stock to be sold by the Company pursuant to the Prospectus have
been issued and paid for in accordance with the terms described in the
Prospectus, such shares of Common Stock will have been validly issued and will
be fully paid and nonassessable.
We hereby consent to the filing of this opinion as Exhibit 5.1 to the
Registration Statement and to the reference to our firm in the Prospectus under
the caption "Legal Matters."
Very truly yours,
/s/ Testa, Hurwitz & Thibeault, LLP
Testa, Hurwitz & Thibeault, LLP
<PAGE>
EXHIBIT 11.1
CYTYC CORPORATION
COMPUTATION OF PRO FORMA WEIGHTED AVERAGE SHARES OUTSTANDING
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
FOR THE YEARS ENDED DECEMBER 31, (UNAUDITED)
-------------------------------------------------- ---------------------
1991 1992 1993 1994 1995 1995 1996
--------- --------- --------- --------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Weighted average shares
of Series A1
Convertible Preferred
Stock outstanding,
assuming conversion to
Common Stock........... -- -- -- 519,360 2,399,573 2,399,573 --
Weighted average shares
of Series B1
Convertible Preferred
Stock outstanding,
assuming conversion to
Common Stock (1)....... 2,209,907 3,019,206 3,569,370 3,569,370 3,569,370 3,569,370 --
Shares of Series C1
Convertible Preferred
Stock outstanding,
assuming conversion to
Common Stock (2)....... 3,809,383 3,809,383 3,809,383 3,809,383 3,809,383 3,809,383 --
Weighted average shares
of Common Stock
outstanding (3)........ 236,916 238,616 247,701 273,940 307,803 307,624 12,737,241
Net shares issuable upon
exercise of stock
options granted
subsequent to January
15, 1995 (2)........... 782,274 782,274 782,274 782,274 782,274 782,274 --
--------- --------- --------- --------- ---------- ---------- ----------
7,038,480 7,849,479 8,408,728 8,954,327 10,868,403 10,868,224 12,737,241
========= ========= ========= ========= ========== ========== ==========
</TABLE>
- --------
(1) All outstanding shares of Series B1 Convertible Preferred Stock are assumed
to have been converted into shares of Common Stock at the time of issuance
of the four prior series of Convertible Preferred Stock, which
automatically converted into Series B1 Convertible Preferred Stock in 1995.
(2) Common stock equivalents issued and stock options granted during the twelve
month period immediately prior to the filing of the proposed initial public
offering have been included as outstanding for all periods presented using
the treasury-stock method and the initial public offering price.
(3) In March, 1996, the Company sold, through an initial public offering,
3,000,000 shares of its common stock at $16 per share. All shares of the
Company's Convertible Preferred Stock were automatically converted into
9,778,326 shares of common stock at the time of the initial public offering
and are assumed to be issued common stock as of January 1, 1996. On April
4, 1996, the underwriters of the Company's initial public offering
exercised their over-allotment option in full to purchase an additional
450,000 shares of the Company's common stock at $16 per share.
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As Independent Public Accountants, we hereby consent to the use of our
reports (and to all references to our Firm) included in or made part of this
Registration Statement.
Arthur Andersen LLP
Boston, Massachusetts
January 7, 1997
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 29,645
<SECURITIES> 14,169
<RECEIVABLES> 2,221
<ALLOWANCES> 120
<INVENTORY> 1,193
<CURRENT-ASSETS> 47,552
<PP&E> 5,601
<DEPRECIATION> 1,176
<TOTAL-ASSETS> 52,772
<CURRENT-LIABILITIES> 2,581
<BONDS> 0
138
0
<COMMON> 0
<OTHER-SE> 50,053
<TOTAL-LIABILITY-AND-EQUITY> 52,772
<SALES> 5,485
<TOTAL-REVENUES> 5,485
<CGS> 3,102
<TOTAL-COSTS> 3,102
<OTHER-EXPENSES> 11,952
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (1,523)
<INCOME-PRETAX> (8,060)
<INCOME-TAX> 0
<INCOME-CONTINUING> (9,569)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (8,060)
<EPS-PRIMARY> (0.63)
<EPS-DILUTED> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> YEAR YEAR
<FISCAL-YEAR-END> DEC-31-1995 DEC-31-1994
<PERIOD-START> JAN-01-1995 JAN-01-1994
<PERIOD-END> DEC-31-1995 DEC-31-1994
<CASH> 5,665 2,777
<SECURITIES> 2,237 0
<RECEIVABLES> 1,481 1,382
<ALLOWANCES> 158 929
<INVENTORY> 753 63
<CURRENT-ASSETS> 10,026 3,319
<PP&E> 1,956 1,293
<DEPRECIATION> 1,016 825
<TOTAL-ASSETS> 11,025 3,851
<CURRENT-LIABILITIES> 2,947 5,963
<BONDS> 0 0
0 0
98 163
<COMMON> 3 3
<OTHER-SE> 7,977 (2,278)
<TOTAL-LIABILITY-AND-EQUITY> 11,025 3,851
<SALES> 4,273 2,920
<TOTAL-REVENUES> 4,273 2,920
<CGS> 2,413 2,225
<TOTAL-COSTS> 2,413 2,225
<OTHER-EXPENSES> 8,022 4,849
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> (262) 110
<INCOME-PRETAX> (5,915) (4,266)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (6,162) (4,154)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (5,915) (4,266)
<EPS-PRIMARY> (0.54) (0.48)
<EPS-DILUTED> 0 0
</TABLE>
