<PAGE> 1
FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 29, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from __________ to ___________
Commission File Number 0-19955
MOLECULAR DYNAMICS, INC.
(Exact name of registrant as specified in its charter)
Delaware 94-3050031
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
928 East Arques Avenue
Sunnyvale, California 94086
(Address of Principal Executive Offices, including Zip Code)
Registrant's telephone number, including area code: (408) 773-1222
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
None None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.01 par value
<PAGE> 2
Indicate by check mark whether the Registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter period
that the registrant was required to file such reports), and (2) has been subject
to such filing requirements for the past 90 days.
Yes [X] No
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of Registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K. [ ]
The aggregate market value of voting stock held by
nonaffiliates of the Registrant, as of March 18, 1997 was approximately
$109,314,328 (based upon the closing price for shares of the Registrant's Common
Stock as reported by the National Market System of the National Association of
Securities Dealers, Inc. Automated Quotation System on that date). Shares of
Common Stock held by each officer, director and holder of 5% or more of the
outstanding Common Stock have been excluded in that such persons may be deemed
to be affiliates. This determination of affiliate status is not necessarily a
conclusive determination for other purposes.
On March 18, 1997, approximately 10,124,914 shares of Common
Stock, $.01 par value, were outstanding.
Documents Incorporated by Reference
Designated portions of the following documents are
incorporated by reference into this Annual Report on Form 10-K where indicated:
Molecular Dynamics, Inc. Proxy Statement for the 1997 Annual
Meeting of Stockholders to be held on May 22, 1997, Part III.
<PAGE> 3
PART I
ITEM 1. BUSINESS.
Except for the historical information contained herein, the
matters discussed in this document are forward-looking statements that involve
certain risks and uncertainties, including the risks and uncertainties set forth
below and under "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Factors that May Affect Future Results."
OVERVIEW
Molecular Dynamics*/ is a leading developer, manufacturer and
international marketer of systems that accelerate genetic discovery and
analysis. The Company markets a family of systems that significantly enhance the
ability of scientists to visualize, quantify and analyze genetic information.
These instrument systems improve the productivity of the life science researcher
by making widely used biotechnology research procedures automatic and
quantitative. The Company believes the dramatic increases in analytical
sensitivity and speed provided by its products enable advances in life science
research that would not otherwise be possible.
The Company markets its products worldwide to universities,
government research laboratories, and biotechnology, pharmaceutical, genomics
and chemical companies. It provides direct sales, service and support of its
products in the United States, the United Kingdom, Germany, France, Japan,
Canada and Australia and through exclusive distributors in other countries.
Molecular Dynamics has shipped more than 3,000 instrument systems to customers
in 43 countries.
The Company was incorporated in Delaware on March 10, 1992 to
succeed to the business of a California corporation named "Molecular Dynamics"
which was incorporated on July 2, 1987. This reincorporation was consummated in
April 1992. References to "Molecular Dynamics" and the "Company" refer to
Molecular Dynamics, Inc., including its California predecessor, and its
subsidiaries.
SCIENTIFIC BACKGROUND
General
During the 1970's and 1980's, life science research evolved
rapidly as a result of new techniques and discoveries that enabled scientists to
attack biological problems at the molecular level. Over the past ten years,
molecular biology research has produced many important breakthroughs in our
understanding and treatment of cancer, heart disease and
- --------
*/ Trademarks of Molecular Dynamics, Inc. and other companies are included
herein.
1
<PAGE> 4
genetic disorders such as muscular dystrophy and cystic fibrosis. The new
methods of genetic analysis are also being used to improve the productivity and
disease resistance of crops and livestock. The continued development of
innovative techniques for identification and analysis of genes and proteins has
fueled the rapid progress of biotechnology research.
In order to remain competitive in life science research,
whether in the academic or commercial setting, scientists require advanced
instrumentation that enables efficient use of these powerful new molecular
techniques. Although most of these techniques began as labor-intensive manual
procedures, increased competition among academic and commercial research groups
and overall increases in the number of laboratory experiments have resulted in
scientists seeking more efficient methods for conducting and analyzing
experiments.
In molecular biology, almost all experiments result in a
complex mixture of DNA or proteins that require separation so that individual
molecules may be identified and analyzed. The separations are generally
accomplished by electrophoresis, a process that results in a two-dimensional
array of macromolecules containing information about their size, amount and
identity. Traditionally, the electrophoresis pattern was made visible by
staining or imaging on film. The isolated molecules were then analyzed by simple
inspection and manual measurement, methods that were tedious, inefficient and
often non-quantitative. It is now common for the visualization and analysis of
electrophoretic separations to be the bottleneck that limits the rate of
research progress in a molecular biology lab.
Visualization and quantitative analysis are also major
challenges in cell biology. Researchers require more efficient and accurate
means of analyzing image data. Increasingly, they seek to use modern computer
technology to store digital images and provide quantitative analysis of the
resulting data. Many experiments in cell biology have been restricted or not
attempted due to limitations in the ability of conventional instruments to
provide adequate visual and quantitative information.
Both academic and commercial life science laboratories operate
in highly competitive environments, where efficient data acquisition and
analysis are crucial to success. Research organizations and government
regulatory agencies, such as the Food and Drug Administration, are demanding
increasingly accurate and quantitative analyses. The Company believes that its
current and future products are well positioned to serve the growing and
evolving needs of researchers in these areas.
Genomics
The plan to sequence the entire human genome, conceived in the
late 1980's, has spawned a genomics revolution whose scope and impact will
probably be greater than generally anticipated at that time. The visionaries who
founded the early genomics companies believed that sequencing the human genome
is the beginning of a fundamental change in biological understanding that will
alter disease diagnostics, pharmaceutical discovery and development, and the
very nature of medical practice.
2
<PAGE> 5
The pharmaceutical industry appears to have embraced the
promise of the genomics revolution. From the investment by SmithKline Beecham in
Human Genome Sciences in 1992, the largest pharmaceutical companies now have
research agreements with or have made significant investments in leading
genomics companies.
PRODUCTS AND SYSTEMS
Molecular Dynamics was founded to develop a new generation of
instrumentation that automates existing procedures and enables new analytical
techniques in molecular and cell biology research. The Company's major product
family, its gel-scanning products, use lasers to image and analyze
electrophoresis gels and other two dimensional arrays. Applications in cell
biology are addressed by the Company's confocal microscopy software and a
microplate reader which was introduced in 1996.
Molecular Dynamics' core business has been focused on the
acquisition and analysis of image data from electrophoretic separations and
membrane blots using various detection methods, including radioactivity and
fluorescence. Radioactivity as a method of detection is decreasing because of
handling hazards and waste disposal problems, whereas fluorescence is growing
rapidly. For several years, Molecular Dynamics has had a strategic focus on the
emerging fluorescence opportunity that offers the potential for an annuity
revenue source in the form of consumable reagents.
The Company has historically targeted its products to meet the
needs of more than 50,000 research groups worldwide engaged in life science
research. These groups include academic institutions, government laboratories,
private foundations and biotechnology, pharmaceutical and chemical companies.
These groups are estimated to have spent approximately $1 billion in 1996 on
bioanalytical instrumentation, including liquid chromatography, gel
electrophoresis, sequencing, synthesis, confocal microscopy, and microplate
detection. The need to maximize productivity influences the researcher's
allocation of capital funds among this instrumentation. The Company's products
currently address the portion of this market relating to gel electrophoresis
and, to a lesser extent, confocal microscopy and microplate detection.
Over the next several years, the Company expects to adapt its
technology to develop systems that accelerate the expansion of molecular biology
techniques from research to commercial applications. These markets, which
include pharmaceuticals, genomics, forensics, agriculture and clinical
diagnostics, are characterized by the need for high throughput analysis and
complete analytical solutions requiring a combination of automated
instrumentation, reagent chemistry kits and optimized application software.
The Company's gel scanning products employ several detection
techniques to analyze data from gel electrophoresis and other two-dimensional
molecular arrays. Currently, these products are the Personal Densitometer(TM)
SI, the PhosphorImager(TM) SI, the Storm(TM) 820, 840, and 860, the
FluorImager(TM) SI, and the FluorImager 595. The BioLumin(TM) 960 enables
high-sensitivity imaging of 96-well microplates. The Company's confocal
microscopes enable high resolution, three-dimensional imaging of cells and other
biological specimens.
3
<PAGE> 6
Proprietary software for image analysis and data reduction is included with each
product. Sales of gel scanning products accounted for approximately 92%, 87% and
91% of instrument sales in 1996, 1995 and 1994, respectively. Sales of array
scanners and other products accounted for the remaining 8%, 13% and 9% of
instrument sales in 1996, 1995 and 1994, respectively.
Gel Scanning Products Visualization Technique
- --------------------- -----------------------
Personal Densitometer SI Staining, Radioactivity, Chemiluminescence
PhosphorImager SI Radioactivity
Storm 860 Fluorescence, Radioactivity, Chemifluorescence
Storm 840 Chemifluorescence, Radioactivity
Storm 820 Radioactivity
FluorImager SI Fluorescence, Chemifluorescence
FluorImager 595 Fluorescence, Chemifluorescence
Microplate Products
- -------------------
BioLumin 960 Fluorescence, absorption
GEL SCANNING PRODUCT FAMILY
Background
Gel electrophoresis is the most widely used technique for the
separation and analysis of biologically important macromolecules such as
proteins and DNA. Because of its versatility in separating molecules of vastly
different sizes, virtually every molecular biology laboratory uses gel
electrophoresis as one of its primary analytical techniques. Electrophoresis is
the fundamental technology for DNA sequencing, gene mapping, DNA fingerprinting
and one- or two-dimensional protein separation. Electrophoresis is usually
performed in a porous matrix, or gel, which acts as a support for several
samples which are then separated in parallel. Using this technique, charged
molecules in solution separate by size as they migrate in an electric field.
Molecular Dynamics' core business has been focused on the
acquisition and analysis of image data from electrophoretic separations and
membrane blots using various detection methods, including radioactivity and
fluorescence. Radioactivity as a method of detection is decreasing because of
handling hazards and waste disposal problems, whereas fluorescence is growing
rapidly. For several years, Molecular Dynamics has had a strategic focus on the
emerging fluorescence opportunity that offers the potential for an additional
revenue source in the form of consumable reagents.
4
<PAGE> 7
PhosphorImager
The Company's PhosphorImager systems and associated storage
phosphor screens have accounted for more than half of the Company's total sales
since introduction in 1989. The PhosphorImager replaces the use of film and
densitometry in traditional autoradiographic analysis by scanning a storage
phosphor screen. The screen is used instead of X-ray film to record the position
of radioactive macromolecules in an electrophoresis gel or blot. Storage
phosphor screens are highly sensitive to the types of radiation emitted by
materials used in life science research. A storage phosphor screen is exposed to
a gel or blot containing radioactive samples in a cassette outside of the
PhosphorImager and stores the radiation energy from the gel. The PhosphorImager
scans the screen with a laser beam, and accurately quantifies the radioactive
energy emitted from the original sample.
The Company introduced the PhosphorImager SI in January 1994.
Its networking and SCSI interface features allow researchers to share data
electronically and to control other devices from one workstation. The
PhosphorImager SI works with both Apple Macintosh and Intel-based computers. The
selling price ranges from $30,000 to $50,000. The Company believes that price
and performance makes it attractive to its target customers.
The Storm systems, which began shipping in the third quarter
of 1995, were designed to incorporate two non-radioactive detection systems as
well as the radioactive system used in the PhosphorImagers. These instruments
give customers the ability to move to fluorescent analysis methods without
giving up popular radioisotope techniques. In addition, the instruments feature
redesigned mechanical and electro-optical components which reduce cost and
improve performance.
Storm 820 provides storage phosphor autoradiography only, and
sells for between $55,000 to $70,000, depending on options and accessories. It
can be upgraded in the field to a Storm 840 by adding chemifluorescence and blue
fluorescence capability.
Storm 840 combines storage phosphor technology with the
nonradioactive fluorescent labeling techniques of chemifluorescence and direct
blue excited fluorescence. Storm 840 sells for $65,000 to $80,000, depending on
options and accessories. It can be upgraded in the field to a Storm 860 by
adding red fluorescence capability.
Storm 860 incorporates storage phosphor technology with the
nonradioactive fluorescent labeling techniques of chemifluorescence and direct
red and blue excited fluorescence. Storm 860 sells for $70,000 to $90,000,
depending on options and accessories.
5
<PAGE> 8
FluorImager and Associated Consumables
The Company began shipping the first product in its
fluorescence gel scanning product line in the third quarter of 1993. As a
general purpose fluorescent gel scanning system, the FluorImager SI is designed
to detect fluorescent labels as an alternative to radioactive labeling. Use of
fluorescence chemistry complements and in some cases substitutes for the use of
radioactive labels, particularly in cases where safety and radioactive disposal
are major concerns. The Company believes, however, that radioactivity will
continue to be widely used, particularly where metabolic processes are under
study. Since the FluorImager SI is designed to scan the results of a complete
experiment in less than three minutes, many researchers may conduct their
experiments in parallel and rapidly analyze them using the FluorImager SI. The
selling price of the FluorImager SI ranges from $70,000 to $95,000, depending on
options and accessories. Its networking and SCSI interface features allow
researchers to share data electronically and to control other devices from one
workstation, and it operates on multiple computer platforms.
In the third quarter of 1996, the Company began shipping the
FluorImager 595. The system's dual-line laser offers two-color imaging of
samples and standards in a single lane, which improves accuracy and throughput.
This multiple-color version of the FluorImager runs tests which are targeted at
human identity applications. The FluorImager 595 sells for $80,000 to $100,000
depending on options and accessories.
Densitometers
A densitometer measures optical density by determining the
amount of light absorbed by a film or stained gel. The optical density of the
bands on the film or stain in the gel is a measure of the quantity of the
macromolecules under study. The Company introduced the Personal Densitometer SI
in January 1994. The Personal Densitometer SI uses a laser light source and a
proprietary optical system to capture a two-dimensional image of a stained gel
or a film exposed by autoradiography or chemiluminescence. With a price range of
$20,000 to $25,000, a small footprint and built-in networking capability, the
Personal Densitometer SI is designed specifically for the individual researcher
or small research group. The Personal Densitometer SI makes it possible for
laboratories to use either Apple Macintosh(R) or Intel(TM)-based computers to
analyze samples and control the instruments. The networking and SCSI interface
features allow researchers to share data electronically and to control other
devices from one workstation, and the instrument operates on multiple computer
platforms.
MICROPLATE PRODUCT FAMILY
Background
Microplates are used for high-throughput assays in biomedical
and pharmaceutical research. A microplate is a multiple-well cassette that
allows the parallel processing of large numbers of small volume samples in a
standardized format. They have largely replaced test tubes and cuvettes for most
life science applications.
6
<PAGE> 9
Microplates are used for immunoassays, which allow the
measurement of small concentrations of biological molecules, receptor binding
assays, and cell-based assays, which measure the effects of compounds on cell
viability and toxicity. These types of assays are used in the pharmaceutical
industry for screening potential drugs. In addition, microplates have been
gaining wider acceptance for molecular biology applications such as DNA/RNA
quantitation and probe-based genetic analysis.
Microplate readers allow the researcher to detect and quantify
samples directly in the microplate. The most commonly used detection method is
absorbance. In this technique transmitted light is measured after passing
through the sample. The decrease in transmitted light is used to calculate the
amount of compound of interest. The most rapidly growing detection method is
fluorescence. Fluorescence detection is extremely sensitive and allows the
investigator to quantify several different compounds of interest in the same
sample.
BioLumin 960
The BioLumin(TM) 960 microplate reader, introduced in December
1995, is an addition to the Company's fluorescence detection instrument line.
The Company believes the BioLumin 960 was the first commercial microplate reader
that combines absorbance and fluorescence detection in a single instrument. The
new system is the first commercial product resulting from Molecular Dynamics'
acquisition of technology and assets from BioLumin Corporation in 1995. The
BioLumin 960 works with the BioTrak(TM) series of microplate assays reagents
from Amersham International plc, as well as other off-the-shelf reagents and
protocols. Xperiment(TM) Analytical Software for Macintosh(R) controls the
system and allows even novice users to design sophisticated multiparameter
experiments.
The Company began shipping the BioLumin 960 in the first half
of 1996. The selling price of the BioLumin 960 ranges from $33,000 to $40,000
depending on options and accessories.
PROPRIETARY SOFTWARE PRODUCTS
The Company has invested significant resources in the
development of its proprietary software, ImageQuaNT(TM) for data analysis and
ImageSpace for confocal microscopy imaging. ImageQuaNT and ImageSpace provide
comprehensive image quantitation capabilities distinguished by an easy-to-use
graphical interface and a portfolio of analysis tools tailored to the needs of
the life scientist.
7
<PAGE> 10
SALES AND MARKETING
Molecular Dynamics has made a substantial investment to build
a direct sales, service and technical support organization. Because the
Company's products are technically sophisticated and buyers are often Ph.D.
level researchers, scientifically qualified and highly trained sales personnel
are required. Virtually all of the Company's sales personnel have degrees in the
life sciences and have substantial experience in selling premium
instrumentation. The Company's marketing activities include product advertising
and application notes where appropriate, and participation in trade shows and
product seminars.
The Company has 103 direct sales, marketing and service
personnel, supported by an in-house staff of application specialists. U.S.
sales, marketing and service are handled by 72 individuals located throughout
the country. In Europe and the Pacific Rim, the Company has 31 direct sales,
marketing and service personnel and 30 distributors. The Company moved its
European headquarters from the United Kingdom to the Netherlands in 1995. This
headquarters is responsible for support for the Company's subsidiaries in the
UK, Germany and France. The Netherlands subsidiary also selects and supports
independent distributors throughout Europe and in the Middle East. Sales in the
Pacific Rim and elsewhere are managed from the Company's Sunnyvale, California
headquarters. The Company's wholly-owned subsidiary in Japan provides direct
sales and support of its products in that country. Additionally, the Company
sells through a wholly owned subsidiary in Australia, and operates through
specialized distributors in India, Taiwan, Korea, China, New Zealand, Mexico and
Hong Kong. Approximately $21,588,000, $19,224,000 and $12,914,000, or 44%, 49%
and 38% of the Company's sales in 1996, 1995 and 1994, respectively, were to
markets outside the United States. Foreign sales are denominated in both U.S.
dollars and local currencies, and it is the Company's policy to hedge accounts
receivable denominated in foreign currencies which result from foreign sales.
The Company periodically reviews international prices for its products and makes
appropriate adjustments to account for currency fluctuations.
MANUFACTURING
The Company manufactures its own components and subassemblies
only where it believes significant value can be added. Accordingly, the Company
focuses primarily on assembly of precision optical components and final assembly
and test of components and assemblies made by outside vendors to the Company's
specifications. The Company's products are assembled from numerous components
based on a wide variety of technologies, including laser optics, computers,
printed circuit boards and software. Cost savings in manufacturing are achieved
through use of the same components in multiple instruments. The Company believes
its current manufacturing facilities are sufficient to support its expected
level of operations through 1997.
Certain components used in the Company's products, including
the storage phosphor screens used with the PhosphorImager, are currently
purchased from single sources. The storage phosphor screens are manufactured by
Eastman Kodak Company (Kodak). Although such screens are available commercially
from Kodak, the Company believes that the Company and Kodak, which uses the
screens for medical imaging applications, are the only
8
<PAGE> 11
significant customers. Any disruption or delay in the supply of screens by Kodak
would have a material adverse effect on the Company. Additional components, such
as computers, lasers, optical elements and galvanometers are currently purchased
in configurations specific to and integrated into the Company's products. While
the Company believes that most of the components used in its products are
available from alternate sources, any unanticipated interruption of the supply
of these additional components or other supplies could require the Company to
redesign its products.
The Company manufactures its products to forecast rather than
to outstanding orders, and products are typically shipped within 30 to 90 days
of order receipt. As a result, the Company does not generally carry a
substantial backlog, and the amount of backlog at any particular date is
generally not indicative of its future level of sales. The amount of backlog and
the timing of shipment of products is subject to variation, especially in
connection with the introduction of new products, such as occurred with the
introduction of the company's Storm product in 1995. In addition, delivery of
components of unacceptable quality could delay shipment of the Company's
products, or result in returns of products incorporating such components by
customers, which could have a material adverse effect on the Company's business,
financial condition or results of operations. Products are typically warranted
for one year. At the end of that period, the Company offers additional warranty
coverage. Service on out-of-warranty instruments is invoiced on the basis of
parts, labor and travel. The Company's products are not subject to regulation by
the U.S. Food and Drug Administration; however, the products are subject to
Department of Commerce export controls and the European Union's unified import
regulations. The Company has experienced no material difficulties in obtaining
necessary export licenses to date.
PRODUCT DEVELOPMENT
The Company pursues active development programs in the areas
of new detection techniques, optical and electronic systems and computer
software.
In the fourth quarter of 1994, as part of a consortium led by
Affymetrix, Inc., the Company was awarded funding from the Advanced Technology
Program of the National Institute of Standards and Technology (NIST). The two
companies collaborate with researchers at several academic and research
institutions in an effort to develop miniaturized DNA diagnostic systems. The
Company has received notification from NIST that funding has been authorized for
the remaining term of the grant, which ends January 2000. The two companies will
receive up to $31 million in matching funds, to be divided 33% to the Company
and 67% to Affymetrix, over the five years beginning in January 1995, for
research and development in the field of DNA diagnostic devices with a total
shared project cost of $63 million. The additional funding is allowing the
Company to work toward developing new fluorescence detection technologies and
DNA separation devices and apply these to the expanding field of molecular
genetics. In 1996 and 1995, the Company recognized credits to its expenses of
approximately $1.9 and $1.5 million, and reduced its capitalized software by
$337,000 and $134,000, respectively, representing support from the grant.
The Company engages in several product development programs
simultaneously, and prioritizes these programs to take advantage of the most
significant market
9
<PAGE> 12
opportunities. Accordingly, the Company may change its product development
schedule to accelerate the introduction of products for which it perceives a
higher market demand and delay products currently under development. Research
and development expenses were approximately $6,628,000, $5,533,000 and
$4,953,000 during 1996, 1995 and 1994, respectively, including a reduction in
expenses of $1,945,000 and $1,531,000 in 1996 and 1995, representing support
from the Company's NIST grant. Expenses also exclude $456,000, $514,000 and
$443,000 of capitalized software costs in 1996, 1995 and 1994, respectively,
after considering credits to capitalized software of $337,000, $134,000 and zero
in 1996, 1995 and 1994, respectively, representing support from the NIST grant.
The Company's development staff consisted of 67 persons on December 31, 1996.
In November, 1996, the Company entered into an agreement with
SmithKline Beecham (SKB) for early access to the Company's technology for
fluorescence analysis of DNA in microarrays. Under the terms of this agreement,
SKB will provide capital in exchange for delivery of various generations of
pre-production systems, and a period of exclusive access to the Company's
technology. At the end of 1996, Molecular delivered the first system to SKB, and
SKB delivered a portion of its total cash commitment to the Company. In
conjunction with the life science business of Amersham International, the
Company intends to pursue similar collaborations with pharmaceutical and
biotechnology companies and researchers who have need of this technology and the
ability to fund its development prior to its release to the general market.
PATENTS AND PROPRIETARY RIGHTS
The Company holds patents on the utilization of 3-D
reconstruction techniques of confocal images issued in the United States and
Canada, and one pending in Japan. The Company has informed other suppliers of
competitive confocal laser scanning microscopes that it believes they are
violating Molecular Dynamics' U.S. patent. The Company currently has two
licensees. In April, 1996, the Company filed suit against Leica, Inc., one of
several companies which the Company believes are infringing its U.S. patent.
This suit is currently on-going and may result in future legal expenses for the
Company.
The Company's patent portfolio includes ten granted U.S.
patents, eight U.S. patent applications on file, three granted foreign patents,
and ten foreign patent applications on file. The Company actively seeks, where
appropriate, intellectual property protection for its products and proprietary
information by means of United States and foreign patents and trademarks. In
addition, the Company relies upon trade secrets and contractual arrangements to
protect certain of its proprietary information and products.
The Company is a party to an agreement with Fuji Photo Film
Co., Ltd. ("Fuji"), pursuant to which the Company received a license to certain
patents held by Fuji that affect the Company's PhosphorImager product line. In
addition, the Company obtained a nonexclusive license to certain patents for all
markets outside Japan in exchange for an ongoing royalty on the sales price of
all current and future products using certain storage phosphor technology.
10
<PAGE> 13
The Company also relies on trade secrets and proprietary
know-how. There can be no assurance that the trade secret or proprietary nature
of such information will not wrongfully be breached by employees, consultants,
advisors or others, or that the Company's trade secrets or proprietary know-how
will not otherwise become known or be independently developed by competitors in
such a manner that the Company has no practical recourse.
In December 1994, the Company entered into an agreement with
BioLumin, in order to allow it to pursue the development of technology possessed
by BioLumin. Under the terms of this agreement, the Company acquired an option
for $1 million, to purchase BioLumin's technology and assets under certain
conditions. The Company exercised this option in 1995, and paid an additional
amount of $1.1 million. The total amount was recorded as acquired in-process
research and development for the year ended December 31, 1995. The agreement
with BioLumin also provides for royalty payments to be made by the Company on
sales of the product. In 1996, the Company recorded an immaterial amount for
these royalties.
The Company has entered into two exclusive license agreements
for two patents with the University of California at Berkeley pursuant to which
it acquired certain rights to design, manufacture and sell products based on
technology relating to confocal fluorescence gel scanning. The Company will pay
a royalty under these licenses based on sales of products incorporating the
licensed technology. The first patent covered by this agreement was issued in
February 1992 and the second was issued in December 1993. Because the technology
was developed in part through the use of federal government funds, the Company's
licenses of such patent rights may be subject to certain rights of the United
States governmental agencies to use the technology.
The Company is a party to an agreement with Dr. Bala S.
Manian, a co-founder of the Company, pursuant to which it received certain
licenses to technology developed by Dr. Manian.
COMPETITION
The market for the Company's products is generally highly
competitive, and Molecular Dynamics expects competition to increase. The Company
competes with many other instrumentation companies for the researcher's
allocation of capital funds, including those which do not manufacture gel
scanning or confocal microscope products directly competitive with those of the
Company. Many of these companies have significantly greater research and
development, marketing and financial resources than the Company, and therefore
represent significant competition. The Company believes that the primary
competitive factors in the market for the Company's products are breadth of
applications, ease of use, productivity, quantitative accuracy and price.
The Company's densitometer products compete with products
offered by Procordia Pharmacia AB, Millipore Corporation, Bio-Rad Laboratories
(Bio-Rad), and Shimadzu Scientific Instruments, Inc., among others. The Company
believes that it competes favorably with respect to the factors listed above. In
addition, many small companies offer inexpensive document scanners and camera
systems with custom image analysis software for
11
<PAGE> 14
customers who require a lower level of quantitative accuracy than provided by
the Company's products.
Until early 1994, the Company's direct competition for the
PhosphorImager was relatively limited. Fuji offers a product competitive to the
Company's PhosphorImager SI and Storm. Pursuant to a licensing agreement with
Fuji, the Company does not sell the PhosphorImager or PhosphorImager SI in
Japan, but has begun limited marketing of the Storm product. The Company
believes that its products have certain advantages with respect to performance,
additional imaging technologies, price and size of the system compared to the
Fuji product. Bio-Rad has offered a competitive product since 1993. The Company
believes that the PhosphorImager SI and Storm have certain advantages with
respect to performance and additional imaging technologies compared to the
Bio-Rad product. Each of these companies is substantially larger than the
Company and there can be no assurance that the Company will be able to compete
successfully against them.
The Company believes that the FluorImager was the first
general purpose gel and blot scanning instrument that uses fluorescence as a
detection technique. Market acceptance of the FluorImager depends upon the
willingness of customers to shift from the use of radioactivity to fluorescence.
The Company introduced the Storm product line in order to facilitate the shift
to fluorescent detection while simultaneously providing detection of
radioactivity. The Company is experiencing increased competition from Hitachi
Instruments, Inc., which has introduced a fluorescence scanner featuring rapid
multi-color scanning and a large scan area.
The Company's BioLumin 960 product competes with products
offered by many manufacturers, including Perseptive Biosystems, Dynatech, BioTek
and Molecular Devices. The Company believes that its product competes favorably
with products of these companies due to the combination of fluorescence and
absorbance detection methods in one instrument.
AGREEMENTS WITH AMERSHAM INTERNATIONAL PLC
In April 1994, the Company concluded a series of agreements
with Amersham International plc whereby Molecular Dynamics would take
responsibility for development and sales of certain instrumentation and Amersham
would develop and sell associated reagents. Development costs and profits of
these reagent and instrument sales will be shared between the two companies.
Amersham has acquired approximately one million shares of the
Company's capital stock on the open market as part of this agreement.
HUMAN RESOURCES
As of December 29, 1996 the Company had 238 full time
employees, of which 67 were in product development, 48 were in manufacturing,
103 were in sales and marketing and 20 were in administration. The Company's
success will depend in part on its continued
12
<PAGE> 15
ability to attract and retain high quality employees. The Company considers its
relations with employees to be good.
ITEM 2. PROPERTIES.
The Company leases approximately 83,000 square feet in
Sunnyvale, California, under a lease expiring January 31, 2001. The Company
sublets approximately 15,000 square feet of this space under a sublease expiring
October, 1998. The Company also leases sales offices in the United Kingdom,
Germany, France, Japan and Australia, and an administrative office in the
Netherlands.
ITEM 3. LEGAL PROCEEDINGS.
The Company owns a U.S. Patent No. 34,214, which relates to
systems used for generating 3-D images from confocal microscopes. The Company
asserted this patent against Meridian Instruments in a patent infringement suit
filed on December 14, 1994 in federal district court, seeking damages and
injunctive relief. Molecular Dynamics, Inc. v. Meridian Instruments, Inc.,
C94-4292 SAW. This suit was settled in March, 1996. The Company also asserted
this patent against Leica, Inc. in a patent infringement suit filed on April 11,
1996 in federal district court, Northern California, Molecular Dynamics, Inc. v.
Leica, Inc. C96-20280 RMW (PVT). This suit is currently on-going and may result
in future legal expenses for the Company.
On November 18, 1996, the Company filed a complaint against a
former employee and DenOptix, Inc. The complaint, filed in the California
Superior Court for Santa Clara County, seeks damages and injunctive relief for
breach of contract and unfair competition based upon improper use of the
Company's information and property in developing a competing instrument.
Molecular Dynamics, Inc. v. DenOptix, Inc. CV762 197. ). This suit is currently
on-going and may result in future legal expenses for the Company.
13
<PAGE> 16
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matters were submitted to a vote of security holders during
the fourth quarter of the fiscal year ended December 29, 1996.
EXECUTIVE OFFICERS OF THE REGISTRANT
The current executive officers of the Company and their
respective ages and positions are as follows:
<TABLE>
<CAPTION>
Name Age Position
- ---- --- --------
<S> <C> <C>
James M. Schlater 60 Chairman of the Board of Directors
Jay Flatley 44 President, Chief Executive Officer, Chief Operating
Officer, Chief Financial Officer and Director
David L. Barker 55 Vice President, Scientific Development
Bud L. Bromley 47 Sr. Vice President, Sales and Marketing
Bruce K. Leisz 45 Vice President, Operations
</TABLE>
Officers are elected by and serve at the discretion of the
Board of Directors.
Mr. Schlater, a co-founder of the Company, has served as a
director of the Company since September 1987, and was appointed Chairman of the
Board of the Directors in August 1991. From August 1991 to July 1994, he served
as Chief Executive Officer of the Company. From September 1987 to August 1991,
he served as President and Chief Financial Officer. Prior to co-founding the
Company, Mr. Schlater co-founded Applied Biosystems, Inc., a bioanalytical
research instrumentation company, and served as a Senior Vice President
responsible for sales and marketing from October 1981 to January 1987.
Mr. Flatley, a co-founder of the Company, joined the Company
as Vice President of Operations in September 1987 and served in that position
until January 1990, when he was appointed Senior Vice President and Chief
Operating Officer. He was appointed President of the Company in August 1991 and
Chief Executive Officer of the Company in July 1994. He has served as a member
of the Company's Board of Directors since March 1992. Mr. Flatley holds a B.A.
in Economics from Claremont Men's College and B.S. and M.S. degrees in
Industrial Engineering from Stanford University.
Dr. Barker joined the Company as Director of Biochemical
Research in February 1988 and was appointed Vice President, Scientific
Development in March 1991. From May 1985 to January 1988, Dr. Barker was
employed as Scientific Sales Consultant for Protein Databases, Inc., a protein
separation and analysis company. Dr. Barker holds a B.S. in Chemistry from the
California Institute of Technology and a Ph.D. in Biochemistry from
14
<PAGE> 17
Brandeis University, and he was a Postdoctoral Research Fellow at Harvard
Medical School from 1969 to 1971.
Mr. Bromley joined the Company in November 1995 as Sr. Vice
President, Sales and Marketing. Prior to working for the Company, Mr. Bromley
held a variety of positions with Hewlett-Packard (HP) in the Chemical Analysis
Group. From November 1994, Mr. Bromley was the Manager of Information
Architecture, HP Chemical Analysis Group Sales and Marketing. From July 1993 to
November 1994 he was Worldwide Bioscience Sales and Marketing Manager. From
November 1988 to July 1993 he was Global Accounts Marketing Manager, Chemical
Analysis Group. Mr. Bromley holds a B.S. in Natural Sciences with a Chemistry
concentration from Mercer University.
Mr. Leisz joined the Company in February 1988 as Director of
Manufacturing and was appointed Vice President, Manufacturing in January 1990.
In February 1995, Mr. Leisz was appointed Vice President of Operations. From
April 1983 to February 1988, Mr. Leisz served as Vice President, Manufacturing
of Ridge Computers, a manufacturer of RISC-based computers. Mr. Leisz holds a
B.S. in Mechanical Engineering and an M.B.A. from the University of California
at Berkeley.
15
<PAGE> 18
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
Since February 5, 1993, the Company's common stock, par value
$.01 has been traded on the Nasdaq National Market under the symbol MDYN. The
following table sets forth the high and low closing sales price on the National
Market system for fiscal years 1995 and 1996. The approximate number of record
holders of the Company's common stock as of March 18, 1997 was 136.
High Low
---- ---
1st Quarter 1995 6.75 5.38
2nd Quarter 1995 8.00 5.50
3rd Quarter 1995 9.63 6.75
4th Quarter 1995 7.63 4.88
1st Quarter 1996 8.00 5.50
2nd Quarter 1996 8.75 4.86
3rd Quarter 1996 7.63 5.25
4th Quarter 1996 14.63 7.38
DIVIDEND POLICY
The Company has not paid any cash dividends since its
inception and does not anticipate paying cash dividends in the foreseeable
future.
16
<PAGE> 19
ITEM 6 SELECTED FINANCIAL DATA.
<TABLE>
<CAPTION>
Years Ended December 31,
----------------------------------------------------------------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
(In thousands, except per share amounts)
STATEMENT OF OPERATIONS DATA:
<S> <C> <C> <C> <C> <C>
Sales and other revenue $ 49,378 $ 38,938 $ 33,860 $ 38,084 $ 28,171
Cost of sales and other revenue 21,471 17,532 15,919 16,684 11,916
-------- -------- -------- -------- --------
Gross margin 27,907 21,406 17,941 21,400 16,255
-------- -------- -------- -------- --------
Operating expenses:
Research and development 6,628 5,533 4,953 4,025 3,802
Sales and marketing 14,662 14,017 12,463 10,828 8,516
General and administrative 3,723 3,728 3,642 2,399 1,874
Acquired in-process research and
development -- 2,082 -- -- --
Litigation settlement -- -- 1,975 -- --
-------- -------- -------- -------- --------
Operating income (loss) 2,894 (3,954) (5,092) 4,148 2,063
Interest income 844 918 1,032 898 75
Other income 49 69 72 49 16
-------- -------- -------- -------- --------
Income (loss) before income taxes 3,787 (2,967) (3,988) 5,095 2,154
Income taxes 379 20 716 1,119 217
-------- -------- -------- -------- --------
Net income (loss) $ 3,408 $ (2,987) $ (4,704) $ 3,976 $ 1,937
======== ======== ======== ======== ========
Earnings (loss) per share $ .32 $ (.30) $ (.47) $ .39 $ .26
======== ======== ======== ======== ========
Shares used to compute earnings (loss)
per share 10,725 10,095 10,056 10,295 7,536
======== ======== ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
December 31,
-----------------------------------------------------------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
BALANCE SHEET DATA:
<S> <C> <C> <C> <C> <C>
Working capital $27,889 $28,568 $30,237 $36,707 $13,875
Total assets 46,043 42,745 45,067 47,032 20,720
Stockholders' equity 33,514 33,645 36,454 41,418 17,037
</TABLE>
17
<PAGE> 20
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
The following discussion should be read in conjunction with the consolidated
financial statements contained herein.
Except for the historical information contained herein, the
matters discussed in this document are forward-looking statements that involve
certain risks and uncertainties, including the risks and uncertainties set forth
below. See "Factors that May Affect Future Results".
RESULTS OF OPERATIONS
The following table sets forth the percentage of sales and
other revenue for certain items in the Company's consolidated statements of
operations for the periods indicated:
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Sales and other revenue 100.0% 100.0% 100.0%
Gross margin 56.5 55.0 53.0
Research and development 13.4 14.2 14.6
Sales and marketing 29.7 36.0 36.8
General and administrative 7.5 9.6 10.8
Acquired in-process research & development -- 5.3 --
Litigation settlement -- -- 5.8
Operating income (loss) 5.9 (10.2) (15.0)
Income (loss) before income taxes 7.7 (7.6) (11.8)
Net income (loss) 6.9 (7.7) (13.9)
</TABLE>
1996 Compared to 1995
Sales and Other Revenue. The Company's sales and other revenue
increased by 27% to $49.4 million in 1996 from $38.9 million in 1995. This
increase resulted primarily from increased sales in the United States and the
Pacific Rim, offset by a slight decline in sales in Europe caused by decreased
sales through European distributors. Sales of the PhosphorImager product family,
including the Storm products and related screens and cassettes, contributed to
the increased sales and represented 63% of sales during 1996, compared with 48%
in 1995. International sales constituted 44% of sales in 1996 compared to 49% in
1995. Changes in foreign currency exchange rates from the prior period had the
effect of decreasing the Company's sales by 3% for the year ended December 31,
1996.
The Company believes that a majority of its sales are generated from
research groups that depend on grant funding from governmental agencies. The
remaining portion is primarily from biotechnology, pharmaceutical, and chemical
companies. The Company anticipates that an increased percentage of its business
will come from pharmaceutical and genomics
18
<PAGE> 21
companies in the future. The Company's revenues are directly affected by the
availability, timing, and amount of funding for these organizations. Such
funding is generally subject to a grant or capital budgeting process that
affects the sales cycle for the Company's products
Gross Margins. Gross margins were 56.5% and 55.0% in 1996 and 1995,
respectively. The increase in gross margins is primarily due to the increase in
the percentage of revenue contributed by instruments compared to lower margin
service and accessories, and to an increase in sales of the Storm products,
which have higher gross margins than certain of the Company's other products
Research and Development Expense. Research and development expense
decreased as a percentage of sales from 14.2% in 1995 to 13.4% in 1996. In
absolute dollars, research and development expenses increased to $6.6 million in
1996 from $5.5 million in 1995 as a result of the expansion of a number of major
development programs, partially offset by support from the Company's NIST grant.
Research and development expenses for 1996 and 1995 have been reduced by $1.9
million and $1.5 million, respectively, of credits representing support from the
NIST grant. Expenses in 1996 and 1995 also exclude capitalized software
development costs of $456,000 and $514,000, respectively, after considering
credits to capitalized software of $337,000, $134,000 and zero in 1996, 1995 and
1994, respectively, representing support from the NIST grant.
Sales and Marketing Expense. Sales and marketing expense decreased as a
percentage of sales from 36.0% in 1995 to 29.7% in 1996. In absolute dollars,
sales and marketing expense increased to $14.7 million in 1996 from $14.0
million in 1995 primarily because of promotional, sales and marketing activities
relating to the Company's Storm products.
General and Administrative Expense. General and administrative expense
decreased as a percentage of sales from 9.6% in 1995 to 7.5% in 1996. In
absolute dollars, general and administrative expense remained at $3.7 million in
both years, as a result of continuing cost control measures.
Acquired In-process Research and Development. The Company determined
that the technology acquired from BioLumin, Incorporated (BioLumin) in 1995 was
in-process research and development and therefore the amount of $2,082,000
allocated to the technology was expensed as acquired in-process research and
development in the accompanying consolidated statement of operations for 1995.
Interest and Other Income, Net. Interest and other income, net,
decreased to $893,000 in 1996 from $987,000 in 1995. This decrease resulted
primarily from lower average cash balances in 1996.
Provision for Income Taxes. The Company's income tax expense was
$379,000 and $20,000 in 1996 and 1995, respectively. In 1996, the Company
utilized NOL carryovers, but was subject to federal and state alternative
minimum taxes and foreign taxes. The relatively minor amount of income tax
expense recognized in 1995 relates to foreign and state income taxes.
19
<PAGE> 22
Earnings (Loss) Per Share. Earnings per share was $.32 in 1996,
compared to a net loss per share of $.30 in 1995. This increase is due to
increases in revenues, only partially offset by increases in normal operating
expenses, and the fact that approximately $.21 of the 1995 loss per share was
due to the acquisition of in-process research and development of BioLumin.
1995 Compared to 1994
Sales. The Company's sales increased by 15% to $38.9 million in 1995
from $33.9 million in 1994. This increase resulted primarily from increased
sales in Europe and the Pacific Rim, partially offset by a decline in domestic
sales caused by decreased sales of the FluorImager and PhosphorImager as
customers anticipated the availability of Storm. Sales of the PhosphorImager
product family, including the Storm products and related screens and cassettes,
represented 48% of sales during 1995, compared with 59% in 1994. International
sales constituted 49% of sales in 1995 compared to 38% in 1994. Changes in
foreign currency exchange rates from the prior period accounted for 8.8% of the
increase in the Company's sales for the year ended December 31, 1995.
Gross Margins. Gross margins were 55.0% and 53.0% in 1995 and 1994,
respectively. The increase in gross margins was due to increased sales volume,
which absorbed manufacturing overhead in 1995, and to an increase in sales of
the FluorImager, which has higher gross margins than other products.
Research and Development Expense. Research and development expense
decreased as a percentage of sales from 14.6% in 1994 to 14.2% in 1995. In
absolute dollars, research and development expenses increased to $5.5 million in
1995 from $5.0 million in 1994 as a result of the expansion of a number of major
development programs, partially offset by support from the Company's NIST grant
and increased capitalization of software development costs in 1995. Research and
development expenses for 1995 were reduced by $1.5 million in credits
representing support from the NIST grant. Expenses in 1995 and 1994 also
excluded capitalized software development costs of $514,000 and $443,000,
respectively.
Sales and Marketing Expense. Sales and marketing expense decreased as a
percentage of sales from 36.8% in 1994 to 36.0% in 1995. In absolute dollars,
sales and marketing expense increased to $14.0 million in 1995 from $12.5
million in 1994 primarily because of the formation of a sales and marketing
group dedicated to the Vistra Systems product line and to promotional and
marketing activities relating to the Company's Storm products.
General and Administrative Expense. General and administrative expense
decreased as a percentage of sales from 10.8% in 1994 to 9.6% in 1995. In
absolute dollars, general and administrative expense increased to $3,728,000 in
1995, a 2% increase from $3,642,000 in 1994. The small increase was the result
of continuing cost control measures.
Litigation Settlement Expense. In December 1994, the Company received
court approval to settle a stockholder class action lawsuit filed against the
Company and certain of its officers and directors in the U.S. district Court for
the Northern District of California relating to the results of operations for
the first quarter of fiscal 1994 and a decline of the Company's
20
<PAGE> 23
stock price. This settlement, along with associated legal expenses, resulted in
a charge to earnings in 1994 of approximately $2.0 million.
Interest and Other Income, Net. Interest and other income, net,
decreased to $987,000 in 1995 from $1,104,000 in 1994. This decrease resulted
primarily from lower average cash and investment balances arising from payments
to purchase the assets of BioLumin, payments to purchase the Company's common
stock on the open market, and an increase in accounts receivable. This decrease
in interest and other income, net, was partially offset by an increase in
interest rates.
Provision for Income Taxes. The Company's income tax expense was
$20,000 and $716,000 in 1995 and 1994, respectively, even though the Company
reported pretax losses in each of these two years. The relatively minor amount
of income tax expense recognized in 1995 relates to foreign and state income
taxes. The income tax expense recognized in 1994 was due to the Company's
recognizing an increase in the valuation allowance attributable to the gross
deferred tax assets and foreign taxes.
Earnings (Loss) Per Share. Loss per share was $.30 in 1995, compared to
$.47 in 1994. Approximately $.21 of the 1995 amount was due to the acquisition
of in-process research and development of BioLumin, and $.27 of the 1994 amount
was due to litigation settlement costs and an increase in the deferred tax asset
valuation allowance. The remaining $.09 of the 1995 amount is due to the fact
that the increase in revenue was more than offset by the increases in costs and
expenses as discussed.
FACTORS THAT MAY AFFECT FUTURE RESULTS
The Company believes that in the future, its results of operations in a
quarterly period may be impacted by factors such as delays in the shipment of
new products, difficulty in acquiring critical product components of acceptable
quality and in required quantity, increased competition, the effect of
announcements of new competitive products, a slower growth rate in the Company's
target markets, order deferrals in anticipation of new product releases,
decisions to invest in research and development programs, reduction or delay of
government and private sector funding of research activities, legal expenses or
adverse changes in economic conditions in any of the countries in which the
Company does business, the Company's ability to keep pace with new technological
developments, or lack of market acceptance of new products. Specifically, the
Company experienced delays with respect to the initial shipments of its Storm
products in the third quarter of 1995 and also experienced some delays in
ramping up production of such products. Additionally, with a significant portion
of net sales and net income contributed by international operations,
fluctuations of the U.S. dollar against foreign currencies could affect the
Company's consolidated results of operations and financial condition in a
particular quarter. There can be no assurance that the Company will be able to
grow in future periods or that it will be profitable on a quarterly or annual
basis.
The storage phosphor screens used with the Company's PhosphorImager and
Storm products are currently purchased from a single source. The storage
phosphor screens are manufactured by Eastman Kodak Company (Kodak). Although
these screens are available commercially from Kodak, the Company believes that
the Company and Kodak, which uses
21
<PAGE> 24
the screens for medical imaging applications, are the only significant
customers. Any disruption or delay in the supply of screens by Kodak would have
a material adverse effect on the Company.
The Company's future earnings and stock price may be subject to
significant volatility, particularly on a quarterly basis. Any shortfall in
revenues or earnings from levels expected by securities analysts, such as the
drop with respect to the third quarter of 1995, could have a significant adverse
effect on the trading price of the Company's common stock. The Company typically
recognizes a substantial portion of sales near the end of a quarter. Therefore,
as occurred with respect to the third quarter of 1995, the Company may not
become aware of such shortfalls until late in a quarter, which may result in an
adverse effect on the trading price of the Company's common stock.
LIQUIDITY AND CAPITAL RESOURCES
The Company has financed its operations to date primarily through
internally generated funds and the sale of equity securities. At December 31,
1996, cash and investment balances were $20.6 million, compared to $17.6 million
in 1995. Cash and investment balances increased by $3 million, which includes
the impact of repurchasing $4.9 million of the Company's common stock during the
year. Working capital decreased slightly to $27,889,000 as of December 31, 1996,
from $28,568,000 as of December 31, 1995. During 1996, the Company instituted a
factoring program with a Japanese bank in order to shorten the time between
customer shipments and receipt of payment. Since the Company retains ultimate
responsibility for collection of its Japan accounts, amounts paid by the
factoring bank are classified as liabilities until the customer pays the factor
bank. The Company generated $7,817,000 in cash from operations in 1996 compared
to a use of cash from operations in 1995 of $5,338,000. The Company spent
$1,532,000, $1,189,000 and $1,365,000 in connection with the acquisition of
equipment and leasehold improvements during 1996, 1995, and 1994, respectively.
The Company's principal commitments as of December 31, 1996 consist of
obligations under operating leases for facilities and equipment. Long-term cash
requirements, other than normal operating expenses, are anticipated for
development of new products, enhancement of existing products, financing
continued growth, and possible acquisition of products, technologies, or
businesses complementary to the Company's business. The Company believes its
cash and investments will be sufficient to satisfy its working capital
requirements for at least the next twelve months.
22
<PAGE> 25
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
Index to Consolidated Financial Statements
PAGE
----
Report of Independent Auditors 24
Consolidated Balance Sheets as of December 31, 1996 and 1995 25
Consolidated Statements of Operations for each of the 26
years in the three-year period ended December 31, 1996
Consolidated Statements of Stockholders' Equity for each of the 27
years in the three-year period ended December 31, 1996
Consolidated Statements of Cash Flows for each of the 28
years in the three-year period ended December 31, 1996
Notes to Consolidated Financial Statements 29
Unaudited Quarterly Financial Data 43
23
<PAGE> 26
Report of Independent Auditors
The Board of Directors
and Stockholders
Molecular Dynamics, Inc.:
We have audited the accompanying consolidated balance sheets of Molecular
Dynamics, Inc. and subsidiaries as of December 31, 1996 and 1995, and the
related consolidated statements of operations, stockholders' equity, and cash
flows for each of the years in the three-year period ended December 31, 1996.
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 Molecular Dynamics,
Inc. and subsidiaries as of December 31, 1996 and 1995, and the results of their
operations and their cash flows for each of the years in the three-year period
ended December 31, 1996, in conformity with generally accepted accounting
principles.
Palo Alto, California
January 23, 1997
24
<PAGE> 27
MOLECULAR DYNAMICS, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
(In thousands, except share data)
<TABLE>
<CAPTION>
December 31,
------------------------
1996 1995
---- ----
Assets
Current assets:
<S> <C> <C>
Cash and cash equivalents $ 8,024 $ 2,727
Securities available-for-sale 12,617 14,895
Accounts receivable, net of allowance for doubtful
accounts of $254 in 1996 and $281 in 1995 12,561 12,173
Inventories 6,869 7,470
Prepaids and other current assets 347 403
-------- --------
Total current assets 40,418 37,668
Property and equipment, net 2,997 2,788
Other assets, net 2,628 2,289
-------- --------
$ 46,043 $ 42,745
======== ========
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 3,264 $ 4,197
Accrued expenses 5,073 3,537
Factoring liability 1,124 --
Unearned revenue and customer advances 3,068 1,366
-------- --------
Total current liabilities 12,529 9,100
-------- --------
Commitments and contingencies
Stockholders' equity
Common stock, $.01 par value; 30,000,000 shares authorized;
10,208,356 shares issued and outstanding in
1996 and 1995 102 102
Additional paid-in capital 39,862 40,078
Accumulated deficit (2,426) (5,834)
Unrealized gain on short-term investments 5 43
Cumulative translation adjustment (86) 11
Less 445,800 and 128,600 shares of common stock in treasury
in 1996 and 1995, respectively, at cost (3,943) (755)
-------- --------
Total stockholders' equity 33,514 33,645
-------- --------
$ 46,043 $ 42,745
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
25
<PAGE> 28
MOLECULAR DYNAMICS, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
(In thousands, except per share data)
<TABLE>
<CAPTION>
Years ended December 31,
---------------------------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Sales and other revenue $ 49,378 $ 38,938 $ 33,860
Cost of sales and other revenue 21,471 17,532 15,919
-------- -------- --------
Gross margin 27,907 21,406 17,941
-------- -------- --------
Operating expenses:
Research and development 6,628 5,533 4,953
Sales and marketing 14,662 14,017 12,463
General and administrative 3,723 3,728 3,642
Acquired in-process research and development -- 2,082 --
Litigation settlement -- -- 1,975
-------- -------- --------
Total operating expenses 25,013 25,360 23,033
-------- -------- --------
Operating income (loss) 2,894 (3,954) (5,092)
-------- -------- --------
Other income:
Interest income 844 918 1,032
Other income 49 69 72
-------- -------- --------
Total other income 893 987 1,104
-------- -------- --------
Income (loss) before income taxes 3,787 (2,967) (3,988)
Income taxes 379 20 716
-------- -------- --------
Net income (loss) $ 3,408 $ (2,987) $ (4,704)
======== ======== ========
Earnings (loss) per share $ .32 $ (.30) $ (.47)
======== ======== ========
Shares used to compute earnings (loss) per share 10,725 10,095 10,056
======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
26
<PAGE> 29
- --------------------------------------------------------------------------------
MOLECULAR DYNAMICS, INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
Consolidated Statements of Stockholders' Equity
Years ended December 31, 1996, 1995, and 1994
(Dollars in thousands)
<TABLE>
<CAPTION>
Retained Unrealized
Additional Earnings Gain(loss)
Common stock Paid-in (Accumulated on Short-Term
Shares Amount Capital Deficit) Investments
------ ------ ------- -------- -----------
<S> <C> <C> <C> <C> <C>
Balances, December 31, 1993 9,949,681 $ 99 $ 39,527 $ 1,857 $ --
Exercise of stock options 99,479 1 128 -- --
Sale of common stock under
employee stock purchase plan 103,184 2 807 -- --
Translation adjustment -- -- -- -- --
Unrealized loss on short-term investments -- -- -- -- (497)
Treasury stock acquired -- -- -- -- --
Treasury stock reissued -- -- (29) -- --
Net loss -- -- -- (4,704) --
---------- ---------- ---------- ---------- ----------
Balances, December 31, 1994 10,152,344 102 40,433 (2,847) (497)
Exercise of stock options 49,488 -- 36 -- --
Treasury stock reissued in connection
with exercise of stock options -- -- (303) -- --
Sale of common stock under
employee stock purchase plan 6,524 -- 35 -- --
Treasury stock reissued in connection
with employee stock purchase plan -- -- (123) -- --
Translation adjustment -- -- -- -- --
Unrealized gain on short-term investments -- -- -- -- 540
Treasury stock acquired -- -- -- -- --
Net loss -- -- -- (2,987) --
---------- ---------- ---------- ---------- ----------
Balances, December 31, 1995 10,208,356 102 40,078 (5,834) 43
Treasury stock reissued in connection
with exercise of stock options -- -- (216) -- --
Treasury stock reissued in connection
with employee stock purchase plan -- -- (90) -- --
Tax benefit of employee stock transactions -- -- 90 -- --
Translation adjustment -- -- -- -- --
Unrealized loss on short-term investments -- -- -- -- (38)
Treasury stock acquired -- -- -- -- --
Net income -- -- -- 3,408 --
---------- ---------- ---------- ---------- ----------
Balances, December 31, 1996 10,208,356 $ 102 $ 39,862 $ (2,426) $ 5
========== ========== ========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
Cumulative Total
Translation Treasury Stock Stockholders'
Adjustment Shares Amount Equity
---------- ------ ------ ------
<S> <C> <C> <C> <C>
Balances, December 31, 1993 $ (65) -- $ -- $ 41,418
Exercise of stock options -- -- -- 129
Sale of common stock under
employee stock purchase plan -- -- -- 809
Translation adjustment 66 -- -- 66
Unrealized loss on short-term investments -- -- -- (497)
Treasury stock acquired -- (143,231) (916) (916)
Treasury stock reissued -- 28,076 178 149
Net loss -- -- -- (4,704)
---------- ---------- ---------- ----------
Balances, December 31, 1994 1 (115,155) (738) 36,454
Exercise of stock options -- -- -- 36
Treasury stock reissued in connection
with exercise of stock options -- 121,974 785 482
Sale of common stock under
employee stock purchase plan -- -- -- 35
Treasury stock reissued in connection
with employee stock purchase plan -- 134,581 860 737
Translation adjustment 10 -- -- 10
Unrealized gain on short-term investments -- -- -- 540
Treasury stock acquired -- (270,000) (1,662) (1,662)
Net loss -- -- -- (2,987)
---------- ---------- ---------- ----------
Balances, December 31, 1995 11 (128,600) (755) 33,645
Treasury stock reissued in connection
with exercise of stock options -- 109,878 691 475
Treasury stock reissued in connection
with employee stock purchase plan -- 159,422 976 886
Tax benefit of employee stock transactions -- -- -- 90
Translation adjustment (97) -- -- (97)
Unrealized loss on short-term investments -- -- -- (38)
Treasury stock acquired -- (586,500) (4,855) (4,855)
Net income -- -- -- 3,408
---------- ---------- ---------- ----------
Balances, December 31, 1996 $ (86) (445,800) ($ 3,943) $ 33,514
========== ========== ========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
27
<PAGE> 30
MOLECULAR DYNAMICS, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(In thousands)
<TABLE>
<CAPTION>
Years ended December 31,
-----------------------------------------
1996 1995 1994
---- ---- ----
Cash flows from operating activities:
<S> <C> <C> <C>
Net income (loss) $ 3,408 $ (2,987) $ (4,704)
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation and amortization 1,878 1,336 1,565
Provision for doubtful accounts 30 30 58
Loss on disposition of property 73 34 --
Deferred income taxes -- -- 648
Changes in items affecting operations:
Accounts receivable (649) (3,210) 435
Inventories 572 (1,129) (1,268)
Prepaids and other current assets (30) 79 (155)
Accounts payable (899) 365 1,638
Accrued expenses 1,745 (364) 1,147
Unearned revenue and customer advances 1,689 508 166
-------- -------- --------
Net cash provided by (used in) operating activities 7,817 (5,338) (470)
-------- -------- --------
Cash flows from investing activities:
Purchases of property and equipment (1,532) (1,189) (1,365)
Capitalized software development costs (456) (514) (443)
Purchases of securities available-for-sale (25,780) (18,858) (82,147)
Sales and maturities of securities available-for-sale 28,018 25,376 86,170
Other assets (561) 1,515 (1,229)
-------- -------- --------
Net cash (used in) provided by investing activities (311) 6,330 986
-------- -------- --------
Cash flows from financing activities:
Proceeds from stock option exercises -- 36 129
Proceeds from employee stock purchase plan -- 35 809
Purchase of treasury stock (4,855) (1,662) (916)
Reissuance of treasury stock 1,361 1,219 149
Proceeds from factoring 1,124 -- --
Other liabilities -- (42) --
-------- -------- --------
Net cash (used in) provided by financing activities (2,370) (414) 171
-------- -------- --------
Effect of exchange rate changes on cash 161 54 (219)
-------- -------- --------
Net increase in cash and cash equivalents 5,297 632 468
Cash and cash equivalents, beginning of year 2,727 2,095 1,627
-------- -------- --------
Cash and cash equivalents, end of year $ 8,024 $ 2,727 $ 2,095
======== ======== ========
Supplementary cash flow information:
Cash paid:
Interest $ 8 $ 4 $ --
======== ======== ========
Income taxes $ 91 $ 17 $ 25
======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
28
<PAGE> 31
MOLECULAR DYNAMICS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1996, 1995 and 1994
(1) Summary of the Company and Significant Accounting Policies
(a) The Company
Molecular Dynamics, Inc. (the Company) develops, manufactures
and markets high performance image acquisition and analysis
instrumentation for sale to the worldwide life science market.
(b) Basis of Presentation
The accompanying consolidated financial statements include the
accounts of the Company and its wholly owned subsidiaries. All
intercompany transactions and balances have been eliminated in
consolidation. Certain reclassifications have been made to
prior year amounts to conform to current year presentation.
(c) Cash Equivalents
The Company considers all highly liquid investments, which
include U.S. government securities and corporate securities,
with original maturities of three months or less to be cash
equivalents.
(d) Inventories
Inventories are stated at the lower of cost (first-in,
first-out method) or market and include material, labor and
manufacturing overhead costs.
(e) Property and Equipment
Property and equipment are stated at cost less accumulated
depreciation and amortization. Depreciation is provided using
the straight-line method over the estimated useful lives of
the respective assets, generally three to five years.
Leasehold improvements are amortized using the straight-line
method over the lesser of the lease terms or the estimated
useful lives of the related assets.
(f) Acquired Technology and Patents
Acquired technology and patents are stated at cost less
accumulated amortization. Amortization is provided using the
straight-line method over the estimated useful lives of the
respective assets, generally 5 years for technology and 10
years for patents.
29
<PAGE> 32
MOLECULAR DYNAMICS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements - (Continued)
(g) Computer Software Costs
The Company capitalizes internally generated software
development costs in compliance with SFAS No. 86, Accounting
for the Costs of Computer Software to be Sold, Leased or
Otherwise Marketed. Capitalization of software development
costs begins upon the establishment of technological
feasibility for the product. Software development costs
capitalized were $456,000, $514,000, and $443,000 for the
years ended December 31, 1996, 1995 and 1994, respectively,
after considering credits to capitalized software of $337,000,
$134,000 and zero for the years ended December 31, 1996, 1995
and 1994, respectively, representing support from the NIST
grant.
The Company amortizes such capitalized amounts upon
commencement of product introduction at the greater of the
straight-line basis using the estimated economic lives of
three to four years or the ratio of actual revenues achieved
to total anticipated revenues over the lives of the products.
The realizability of unamortized capitalized costs is
periodically reviewed relative to the estimated future
revenues of the related products. Capitalized software
amortization expense amounted to $586,000, $510,000, and
$409,000 for the years ended December 31, 1996, 1995 and 1994,
respectively.
(h) Revenue Recognition
The Company recognizes revenue upon shipment of product to its
customers. Estimated warranty costs are recorded at the time
of sale. Amounts billed for extended service contracts are
deferred and recognized over the term of the contract.
(i) Income Taxes
The Company accounts for income taxes under SFAS No. 109,
Accounting for Income Taxes. SFAS No. 109 requires that
deferred tax assets or liabilities at the end of each period
be determined using the tax rate expected to be in effect when
the taxes are actually paid or recovered. The measurement of
deferred tax assets is reduced, if necessary, by a valuation
allowance for any tax benefits which are not expected to be
realized. Under SFAS No. 109, the effect on deferred tax
assets and liabilities of a change in tax rates is recognized
in income in the period that includes the enactment date.
The Company does not provide income taxes on the undistributed
earnings of its foreign subsidiaries as it is intended that
current and future earnings, if any, will be indefinitely
invested in operations outside the United States.
30
<PAGE> 33
MOLECULAR DYNAMICS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements - (Continued)
(j) Foreign Currency Translation
The functional currency for the Company's foreign subsidiaries
is the local currency, except for the administrative
subsidiary established in the Netherlands in 1995, for which
the U.S. dollar is the functional currency. The financial
statements of the subsidiaries, other than those of the
Netherlands, are translated into U.S. dollars in accordance
with SFAS No. 52. The resulting translation adjustments are
recorded as a separate component of stockholders' equity.
Realized gains and losses on foreign currency transactions are
included in other income and expenses.
(k) Financial Instruments and Risk Concentration
Foreign Currency Contracts - The Company enters into foreign
exchange contracts to hedge receivables denominated in foreign
currencies. The Company's forward exchange hedge contracts
require the Company to exchange foreign currencies for U.S.
dollars at rates agreed upon at the inception of the
contracts. Although the gross amounts are used to express the
volume of these transactions, the amounts potentially subject
to credit risk are limited to the difference between the
counterparty's obligation and the obligation of the Company.
The contracts do not subject the Company to significant market
risk from exchange rate movements because the gains and losses
related to the contracts offset the foreign exchange gains and
losses on the settlement of the transactions being hedged.
Realized gains and losses on hedge contracts are included in
other income and expense. As of December 31, 1996, the Company
had approximately $2,683,000 of forward exchange contracts
outstanding, consisting primarily of Japanese yen, German
marks, and British pounds, to hedge firm commitments relating
to certain of its foreign receivables. The contracts mature at
various dates through March 1997. The fair value of the
contracts is the estimated amount that the Company would have
to pay to terminate the agreements. The cost to terminate
these contracts at December 31, 1996 is estimated to be
insignificant.
Securities Available-for-Sale - In accordance with SFAS No.
115 Accounting for Certain Investments in Debt and Equity
Securities, investment securities, consisting of U.S.
government securities, corporate securities and certificates
of deposit, are stated at fair market value and are considered
to be available-for-sale. Unrealized gains and unrealized
losses, which are considered to be temporary, are reported as
a separate component of stockholders' equity. Realized gains
and losses and the amortized cost basis of investments are
determined by specific identification. The fair market values
of securities available-for-sale are based on quoted market
prices at the reporting date for those investments.
Other Financial Instruments - For certain of the Company's
financial instruments, including cash and cash equivalents,
accounts receivable, other assets, accounts payable, accrued
expenses, unearned revenue and customer advances, the carrying
amounts approximate fair value because of the short maturity
of these instruments.
Risk Concentration - Financial instruments, which potentially
subject the Company to concentrations of credit risk, are
primarily securities available-for-sale and accounts
receivable. The Company places its securities
available-for-sale in high-credit quality financial
institutions and invests in high quality investments including
U.S. government obligations, corporate securities and
certificates of deposit. The Company believes no significant
concentration of credit risk exists with respect to these
investments. Accounts receivable include amounts from
customers located in the United States, Europe and the
Asia-Pacific region. Accounts receivable also include amounts
from end users and distributors. Management believes a
significant portion of the Company's revenue is derived from
customers that are research groups which are funded by
government agencies. The Company believes that any credit
risks
31
<PAGE> 34
associated with its accounts receivable are mitigated by the
Company's credit evaluation process and allowance for doubtful
accounts.
Certain components used in the Company's products, including
the storage phosphor screens used with the PhosphorImager, are
currently purchased from single sources. The storage phosphor
screens are manufactured by Kodak. Although such screens are
available commercially from Kodak, the Company believes that
the Company and Kodak, which uses the screens for medical
imaging applications, are the only significant customers. Any
disruption or delay in the supply of screens by Kodak would
have a material adverse effect on the Company. Additional
components, such as computers, lasers, optical elements and
galvanometers are currently purchased in configurations
specific to and integrated into the Company's products. While
the Company believes that most of the components used in its
products are available from alternate sources, any
unanticipated interruption of the supply of these additional
components or other supplies could require the Company to
redesign its products.
(l) Earnings (Loss) Per Share
Earnings (loss) per share amounts are based on the weighted
average number of common shares and common stock equivalents,
if dilutive, outstanding during the period. Common stock
equivalents from outstanding stock options are calculated
utilizing the treasury stock method.
(m) Year-End
The Company's fiscal year-end is the Sunday nearest December
31, and the Company operates and reports on 13-week quarterly
periods each ending on the Sunday closest to month-end. For
clarity of presentation, the Company has indicated its
accounting year as ending on December 31.
(n) Accounting for Stock-Based Compensation
The Company adopted SFAS No. 123, Accounting for Stock-Based
Compensation effective January 1, 1996. This statement
establishes financial accounting and reporting standards for
stock-based compensation, including employee stock purchase
plans and stock option plans. As allowed by SFAS No. 123, the
Company continues to measure compensation expense under the
provisions of APB No. 25, Accounting for Stock Issued to
Employees.
(o) Use of Estimates
The preparation of financial statements in conformity with
generally accepted accounting principles requires management
to make estimates and assumptions that affect the recorded
amounts of assets and liabilities, disclosure of those assets
and liabilities at the date of the consolidated financial
statements and the recorded amounts of revenues and expenses
during the reporting period. A change in the facts and
circumstances surrounding these estimates could result in a
change to the estimates and impact future operating results.
32
<PAGE> 35
MOLECULAR DYNAMICS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements - (Continued)
(2) Consolidated Balance Sheet Components
Certain balance sheet components are as follows (in thousands):
<TABLE>
<CAPTION>
December 31,
-------------------------------------
1996 1995
---- ----
(a) Inventories
<S> <C> <C>
Raw material $3,045 $3,316
Work-in-process 1,786 956
Finished goods 2,038 3,198
------ ------
$6,869 $7,470
====== ======
(b) Property and Equipment
Machinery and equipment $6,277 $5,216
Furniture and fixtures 824 746
Leasehold improvements 1,081 961
------ ------
8,182 6,923
Less accumulated depreciation and amortization 5,185 4,135
------ ------
$2,997 $2,788
====== ======
(c) Other Assets
Capitalized software $2,928 $2,473
Other 1,636 1,081
------ ------
4,564 3,554
Less accumulated amortization 1,936 1,265
------ ------
$2,628 $2,289
====== ======
(d) Accrued Expenses
Accrued salaries and benefits $1,971 $1,514
Accrued warranty costs 1,044 667
Other 2,058 1,356
------ ------
$5,073 $3,537
====== ======
</TABLE>
33
<PAGE> 36
MOLECULAR DYNAMICS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements - (Continued)
(3) Securities Available-for-Sale
The following is a summary of the fair market value of securities
available-for-sale (in thousands):
<TABLE>
<CAPTION>
December 31,
---------------------
1996 1995
---- ----
<S> <C> <C>
U.S. government securities $10,097 $12,003
Corporate securities 3,625 1,880
Certificates of deposit 1,889 1,511
------- -------
15,611 15,394
Less cash equivalents 2,994 499
------- -------
$12,617 $14,895
======= =======
</TABLE>
As of December 31, 1996, the Company's investments are scheduled to
mature as follows (in thousands):
<TABLE>
<CAPTION>
Maturity Fair Market Value
-------- -----------------
<S> <C>
Less than one year $11,266
4,345
-------
$15,611
=======
</TABLE>
At December 31, 1996 and 1995 differences between amortized cost and
fair market value due to unrealized gains and losses were not material.
Realized gains and losses in 1996, 1995 and 1994 were not material.
(4) Alliance with Amersham International
On April 6, 1994, the Company entered into an alliance with Amersham
International plc. (Amersham) whereby the companies agreed to share any
net profits or losses on the development and distribution of certain
instruments and reagents, included in the alliance. Under the
agreement, the companies have also agreed to collaborate on the
development of future products. Amersham acquired approximately one
million shares of the Company's capital stock on the open market as
part of this agreement.
(5) Factoring Agreement
During 1996, the Company instituted a factoring program with a Japanese
bank in order to shorten the time between customer shipments and
receipt of payment. Since the Company retains ultimate responsibility
for collection of its Japan accounts, amounts paid by the factoring
bank are classified as liabilities until the customer pays the factor
bank. The factoring charge amounts to 1.85% per annum, of the amount
factored. There are no collateral requirements and no financial ratio
requirements associated with the agreement.
(6) Microarray Technology Agreement
In November, 1996, the Company entered into an agreement with
SmithKline Beecham (SKB) for early access to the Company's technology
for fluorescence analysis of DNA in Microarrays. Under the terms of
this agreement, SKB will provide capital in exchange for delivery of
various generations of pre-production systems and a period of exclusive
access to the Company's technology. At the end of 1996, Molecular had
delivered the first system to
34
<PAGE> 37
SKB, and SKB had delivered a portion of its total cash commitment to
the Company, which is included in the accompanying consolidated balance
sheet in unearned revenue and customer advances at December 31, 1996.
(7) Collaboration with Affymetrix, Inc.
In the fourth quarter of 1994, a consortium led by Affymetrix, Inc.
(Affymetrix) and the Company was awarded funding from the Advanced
Technology Program (ATP) of the National Institute of Standards and
Technology (NIST). The Company and its partner, Affymetrix, collaborate
with researchers at several academic and research institutions in an
effort to develop miniaturized DNA diagnostic systems. The Company has
received notification from NIST that funding has been authorized for
the remaining term of the grant, which ends in January 2000. The two
companies will receive up to $31 million in matching funds to be
divided 33% to the Company and 67% to Affymetrix over the five years of
the grant period beginning in January 1995, for research and
development in the field of DNA diagnostic devices with a total shared
project cost of $63 million. Approximately $12 million of the $31
million was available for the first two years of the grant period,
which ended in January 1997. In 1996 and 1995, the Company recognized
credits to its expenses of approximately $1.9 and $1.5 million, and
reduced its capitalized software by $337,000 and $134,000,
respectively, representing support from the grant. Over the five-year
term of the project, the Company will fund $10.7 million and receive
matching funds of $10.7 million, for a total expenditure of $21.4
million. The additional funding will allow the Company to work toward
developing new fluorescence detection technologies and DNA separation
devices and apply these to the expanding field of molecular genetics.
(8) Acquired in-process Research and Development
In December 1994, the Company entered into an agreement with BioLumin,
Incorporated (BioLumin) in order to allow it to pursue the development
of technology possessed by BioLumin. Under the terms of this agreement,
the Company acquired an option for $1 million to purchase BioLumin's
technology and assets under certain conditions. The Company exercised
this option in 1995, and paid an additional amount of $1.1 million. The
Company determined that the technology purchased from BioLumin in 1995
was in-process research and development and therefore the amount
allocated to this technology was expensed as acquired in-process
research and development in the accompanying consolidated statement of
operations for the year ended December 31, 1995. The agreement with
BioLumin also provides for royalty payments to be made by the Company
if the technology results in sales.
(9) Preferred Share Purchase Rights Plan
On November 8, 1994, the Board of Directors declared a dividend
distribution of one Preferred Share Purchase Right (the Rights) on each
outstanding share of its common stock payable to stockholders of record
as of December 2, 1994.
The Rights will be exercisable only if a person or group acquires 20%
or more of the Company's common stock or announces a tender offer, the
consummation of which would result in ownership by a person or group of
20% or more of the Company's common stock. Each Right will entitle
stockholders to buy one one-hundredth of a share of Series A Junior
Participating Preferred Stock at an exercise price of $30.85 upon
certain events.
If, after the Rights become exercisable, the Company is acquired in a
merger or other business combination transaction, or sells 50% or more
of its assets or earnings power, each Right will entitle its holder to
purchase, at a Right's then-current exercise price, shares of the
acquiring company's common stock having a market value equal to twice a
Right's exercise price.
In addition, if a person or group acquires 20% or more of the Company's
outstanding common stock, other than pursuant to a tender offer for all
shares which is determined by the Board of Directors to be fair and in
the best interests of the Company and its stockholders, each Right will
entitle its holder (other than such person or members of such group) to
purchase, at a Right's exercise price, shares of the Company's common
stock (or cash, other securities or property) having a market value
equal to twice a Right's exercise price.
35
<PAGE> 38
Following the acquisition by a person or group of beneficial ownership
of 20% or more and prior to an acquisition of 50% or more of the
Company's common stock, the Board of Directors may exchange the Rights
(other than Rights owned by such person or group), in whole or in part,
at an exchange ratio of one share of common stock (or one one-hundredth
of a share of the Series A Junior Participating Preferred Stock) per
Right.
At any time prior to 10 days after a person or group has acquired
beneficial ownership of 20% or more of the combined number of the
Company's common stock, the Rights are redeemable for $.005 per Right
at the option of the Board of Directors.
(10) Stockholders' Equity
In May 1994, the Board of Directors approved a Stock Repurchase Program
which authorized the purchase of up to 1,000,000 shares of the
Company's common stock in the open market (See Note 16). Approximately
1,000,000 shares were purchased by the Company through December 31,
1996. Of these shares, approximately 322,000 shares were reissued under
the Company's Employee Stock Purchase Plan and approximately 232,000
shares were reissued upon the exercise of common stock options through
December 31,1996.
(11) Benefit Plans
(a) Stock-Based Compensation Plans
Fixed Stock Option Plan
The Company has one fixed stock option plan, the 1987 Stock
Option Plan (the Plan), which provides for the granting of
options to employees, consultants, officers and directors to
purchase common stock at prices not less than 100% and 85% of
the fair market value of the Company's common stock for
incentive and nonqualified options, respectively. The Company
may grant options for up to 3,504,500 shares of common stock.
All options are to have a term not greater than 10 years.
Options granted generally vest 25% after 1 year and then
ratably at 6 1/4 % per quarter over a 3-year period.
All options granted under this plan through December 31, 1996
have been nonqualified options. The Plan provides for the
acceleration of vesting of outstanding options at the time of
a change in control of the Company as described in the Plan.
Under the Plan there is an Automatic Option Grant Program
which provides for an initial stock option grant to all
nonemployee members of the Board of Directors of 10,000 shares
of common stock and subsequent annual grants of 3,500 shares
of common stock. All grants are at the current fair market
value on the date of the grant.
The following table summarizes option activity for the year
ended December 31, 1994 in the format consistent with APB No.
25:
<TABLE>
<CAPTION>
Options Price
Outstanding Per Share
<S> <C> <C>
Balance as of December 31, 1993 1,427,754 $ .25 - 22.50
Options granted 707,150 5.25 - 13.25
Options exercised (99,479) .25 - 8.00
Options canceled (212,560) .50 - 22.50
Options expired (29,931) 6.00 - 17.25
--------- -----------------
Balance as of December 31, 1994 1,792,934 $ .25 - $ 15.75
========= =================
</TABLE>
36
<PAGE> 39
MOLECULAR DYNAMICS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements - (Continued)
The following table summarizes option activity for the years ended
December 31, 1996 and 1995 in the format consistent with SFAS No. 123:
<TABLE>
<CAPTION>
1996 1995
-------------------------------- -------------------------------
Weighted-Average Weighted-Average
Shares Exercise Price Shares Exercise Price
------ -------------- ------ --------------
<S> <C> <C> <C> <C>
Outstanding at beginning of year 2,013,006 $5.00 1,792,934 $4.70
Granted 420,200 6.42 565,800 6.15
Exercised (109,878) 4.33 (171,462) 3.02
Forfeited (78,461) 7.03 (157,978) 7.34
Expired (15,149) 6.78 (16,288) 9.65
--------- ---------
Outstanding at end of year 2,229,718 5.22 2,013,006 5.00
========= =========
Options exercisable at end of year 1,323,514 1,063,087
========= =========
Weighted-average fair value of options
granted during the year $ 3.36 $ 3.21
========= =========
</TABLE>
The following table summarizes information about fixed stock options
outstanding at December 31, 1996.
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
------------------------------------------- -----------------------------
Number Weighted-Avg. Weighted-Avg. Number
Range of Outstanding Remaining Exercise Exercisable Weighted-Avg.
Exercise Prices 12/31/96 Contractual Life Price 12/31/96 Exercise Price
<S> <C> <C> <C> <C> <C>
$0.25 - 0.67 492,817 3.2 $0.41 492,817 $0.41
1.34 - 2.00 26,125 4.2 1.80 26,125 1.80
3.00 - 4.00 42,100 3.0 3.48 42,100 3.48
5.25 - 7.88 1,480,383 7.9 6.20 655,525 6.23
8.00 - 11.75 181,493 7.2 10.85 105,147 11.35
13.25 - 15.75 6,800 9.0 13.91 1,800 15.75
--------- --- ----- --------- -----
$0.25 - 15.75 2,229,718 6.7 $5.22 1,323,514 $4.31
========= === ===== ========= =====
</TABLE>
Stock Purchase Plan
Under the Company's Employee Stock Purchase Plan (the Purchase Plan),
which began in 1993, employees meeting certain specific employment
qualifications are eligible to participate and are granted rights to
purchase shares of the Company's common stock semiannually through
payroll deductions at the lower of 85% of the fair market value of the
stock at the beginning or end of the purchase period. The Purchase Plan
permits eligible employees to purchase common stock through payroll
deductions, for up to 15% of their salary, subject to certain
limitations. The Company is authorized to issue up to 500,000 shares of
common stock under the Purchase Plan and has sold 159,422 shares,
141,105 shares and 103,184 shares to employees in 1996, 1995 and 1994,
respectively.
37
<PAGE> 40
MOLECULAR DYNAMICS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements - (Continued)
Pro Forma Information
The Company continues to apply APB No. 25 in accounting for its
stock-based compensation plans. Accordingly, no compensation cost has
been recognized in the accompanying consolidated statements of
operations for its fixed stock option plan and its stock purchase plan.
Had compensation cost for the Company's stock-based compensation plans
been determined in accordance with the fair value method prescribed in
SFAS No. 123, the Company's net income (loss) and earnings (loss) per
share would have been changed to the pro forma amounts indicated below.
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Net Income (Loss) (in thousands) As Reported $3,408 $(2,987)
Pro Forma $2,513 $(3,525)
Earnings (Loss) Per Share As Reported $ .32 $ (.30)
Pro Forma $ .23 $ (.35)
</TABLE>
The above pro forma amounts include compensation expense for options
and purchase rights granted since January 1, 1995, and may not be
representative of that to be expected in future years.
The fair value of each option granted under the Plan and purchase
rights granted under the Purchase Plan is estimated on the date of
grant using the Black-Scholes option-pricing model with the following
weighted-average assumptions used for grants in 1996 and 1995:
<TABLE>
<CAPTION>
1987 Stock Option Plan Employee Stock Purchase Plan
--------------------------------------------- ----------------------------
Employees Officers
----------------- ------------------
1996 1995 1996 1995 1996 1995
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Expected Volatility 62 % 62 % 62 % 62 % 62% 62%
Expected Life 3.5 years 3.5 years 5 years 5 years 6 months 6 months
Risk-Free Interest Rate 6.16 % 6.21 % 6.54 % 6.35 % 5.24% 5.96%
</TABLE>
A dividend yield of zero was used for each year. The weighted-average
fair value of purchase rights granted under the Purchase Plan in 1996
and 1995 were $1.99 and $2.35, respectively.
(b) Option Repricing
On May 26, 1994, the Company offered current nonofficer
employees holding options with exercise prices in excess of
$7.25 per share, the opportunity to exchange such options for
options with an exercise price of $7.25 per share; provided
that such options cannot be exercised until January 1, 1995
and vesting for such options is suspended until January 1,
1995. Options to purchase 184,050 shares, or 95% of eligible
options were so exchanged.
38
<PAGE> 41
MOLECULAR DYNAMICS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements - (Continued)
(c) Savings Plan
The Company sponsors a 401(k) Savings Plan (the 401(k) Plan)
that covers substantially all full-time U.S. employees.
Employees can elect to defer, in the form of contributions to
the 401(k) Plan, up to 20% of their compensation limited to
$9,500 in 1996. The Company may make discretionary
contributions in the amounts determined by the Board of
Directors. Discretionary contributions of approximately
$193,000 were incurred in 1996. There were no such
contributions in 1995 or 1994.
(12) Commitments and Contingencies
(a) Leases
The Company leases its U.S. facility under an operating lease
expiring in 2001 and its European, Japanese, and Australian
facilities under operating leases expiring at various dates
through 2005. The Company also leases certain equipment under
operating leases. The future minimum lease payments under
noncancelable operating leases as of December 31, 1996 are as
follows (in thousands):
<TABLE>
<CAPTION>
Year Amount
---- --------
<S> <C>
1997 $ 2,104
1998 2,003
1999 1,452
2000 1,235
2001 174
Thereafter 251
--------
Total future minimum lease payments $ 7,219
========
</TABLE>
Future minimum sublease income payments not included in the
commitments above are $145,000 and $127,500 for the years
ended December 31, 1997 and 1998, respectively. Rent expense
approximated $1,410,000, $1,219,000, and $1,406,000 for the
years ended December 31, 1996, 1995, and 1994, respectively,
which includes sublease income of approximately $176,000,
$60,000 and $13,000, respectively.
(b) Patent Settlement
In March 1992, the Company reached an agreement with Fuji
Photo Film Co., Ltd. settling certain patent infringement
related claims. Under the agreement, the Company paid
approximately $1,425,000 in 1992. The Company also received a
nonexclusive license to the patent rights for the remaining
terms of the patents (currently between four and thirteen
years) and pays royalties on sales of the underlying products
to which the patents relate. The Company incurred royalties of
approximately $575,000, $479,000, and $614,000 in 1996, 1995
and 1994, respectively, under this arrangement.
(c) Compensating Balances
As of December 31, 1996, the Company had a $636,000
certificate of deposit which was held as a compensating
balance for the Company's credit facility. This credit
facility was used to secure letters of credit for its foreign
subsidiaries. This amount is included in cash and cash
equivalents in the accompanying consolidated balance sheet at
December 31, 1996.
39
<PAGE> 42
MOLECULAR DYNAMICS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements - (Continued)
(13) Income Taxes
Income taxes for the years ended December 31, 1996, 1995, and 1994
comprised (in thousands):
<TABLE>
<CAPTION>
1996 1995 1994
----- ----- -----
Current:
<S> <C> <C> <C>
Federal $ 186 $ -- $ --
State 51 48 1
Foreign 52 (28) 67
----- ----- -----
289 20 68
----- ----- -----
Deferred:
Federal -- -- 541
State -- -- 107
----- ----- -----
-- -- 648
----- ----- -----
Charge in lieu of taxes attributable
to employee stock plans 90 -- --
----- ----- -----
Total $ 379 $ 20 $ 716
===== ===== =====
</TABLE>
The reconciliation between the amount computed by applying the U.S.
federal statutory tax rate of 34% to income (loss) before income taxes
and the actual income taxes follows (in thousands):
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Income taxes expense (benefit) at statutory rate $ 1,288 $(1,009) $(1,355)
State income taxes, net of federal income
tax benefit 33 48 1
Losses and credits for which no benefit was
recognized 277 963 1,332
Utilization of NOL (1,283) -- --
Change in beginning of year valuation
allowance -- -- 648
Rate differential on foreign taxes 142 -- 67
Other (78) 18 23
------- ------- -------
$ 379 $ 20 $ 716
======= ======= =======
</TABLE>
40
<PAGE> 43
MOLECULAR DYNAMICS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements - (Continued)
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and liabilities as of December 31,
1996 and 1995 are presented below (in thousands):
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Deferred tax assets:
Reserves and accruals for financial reporting
purposes not taken for tax purposes $ 1,372 $ 1,444
Net operating loss carryforwards 2,299 2,995
Research and other credit carryforwards 2,387 1,878
Foreign net operating loss carryforwards 266 541
Other 67 --
------- -------
Total gross deferred tax assets 6,391 6,858
Valuation allowance (5,838) (6,284)
------- -------
Net deferred tax assets 553 574
------- -------
Deferred tax liabilities:
Software costs, principally due to
capitalization and amortization for
financial reporting purposes (553) (574)
------- -------
Total gross deferred tax liabilities (553) (574)
------- -------
Net deferred taxes $ -- $ --
======= =======
</TABLE>
The valuation allowance decreased by $446,000 during the year ended
December 31, 1996, and increased by $2,440,000 and $2,220,000 during
the years ended December 31, 1995 and 1994, respectively. The valuation
allowance as of December 31, 1996 includes a tax effect of
approximately $764,000 attributable to employee stock plans, the
benefit of which will be recorded as an increase to paid-in capital
when realized.
As of December 31, 1996, for federal income tax purposes the Company
has a net operating loss carryforward of approximately $6,610,000 which
expires in tax years 2004 through 2010. For California income tax
purposes, as of December 31, 1996, the Company has a net operating loss
carryforward of approximately $836,000 which expires in tax years 1999
through 2000. The difference between the net operating loss
carryforwards for federal income tax purposes and for California income
tax purposes results primarily from a 50% limitation on the California
loss carryforwards.
As of December 31, 1996, the Company has research and development tax
credit carryforwards of approximately $1,382,000 and $923,000 for
federal and state, respectively. The carryforwards expire in tax years
2003 through 2011.
41
<PAGE> 44
MOLECULAR DYNAMICS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements - (Continued)
(14) Litigation Settlement
In December 1994, the U.S. District Court for the Northern District of
California approved a settlement agreement regarding the stockholder
class action lawsuit brought against the Company and its executive
officers in April 1994. The lawsuit alleged damages in connection with
the Company's loss for the first quarter of 1994. The Company and its
insurer together funded a total of $4 million for the settlement. The
Company recorded a charge to earnings in 1994 of $1,975,000 or $.20 per
share for its portion of the settlement and related attorneys' fees.
(15) Segment Information
Summarized data for the Company's operations and export sales are as
follows (in thousands):
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
Sales and other revenue:
<S> <C> <C> <C>
United States $ 42,517 $ 32,972 $ 30,569
Europe 9,201 8,462 5,661
Asia-Pacific 7,500 5,620 2,927
Intercompany eliminations (9,840) (8,116) (5,297)
-------- -------- --------
$ 49,378 $ 38,938 $ 33,860
======== ======== ========
Operating income (loss):
United States $ 2,698 $ (3,457) $ (2,621)
Europe 580 (526) (1,807)
Asia-Pacific (126) (57) (757)
Intercompany eliminations (258) 86 93
-------- -------- --------
$ 2,894 $ (3,954) $ (5,092)
======== ======== ========
Identifiable assets:
United States $ 45,504 $ 43,310 $ 45,972
Europe 6,138 4,347 2,714
Asia-Pacific 3,592 3,337 1,899
Intercompany eliminations (9,191) (8,249) (5,518)
-------- -------- --------
$ 46,043 $ 42,745 $ 45,067
======== ======== ========
Export sales $ 4,883 $ 5,142 $ 4,504
======== ======== ========
</TABLE>
(16) Subsequent Events (Unaudited)
On February 13, 1997, the Board of Directors approved an additional
reserve of 500,000 shares of common stock for issuance under the
Company's 1993 Employee Stock Purchase Plan.
On February 13, 1997, the Board of Directors authorized the repurchase
of an additional 500,000 shares of the Company's common stock at
appropriate market prices, under its Stock Repurchase Program.
42
<PAGE> 45
UNAUDITED QUARTERLY FINANCIAL DATA
<TABLE>
<CAPTION>
Quarters Ended
------------------------------------------------------------------------------------------------------
1995 1996
------------------------------------------------- ------------------------------------------------
Mar 31 Jun 30 Sep 30 Dec 31 Mar 31 Jun 30 Sep 30 Dec 31
------ ------ ------ ------ ------ ------ ------ ------
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Sales and other revenue $ 9,781 $ 10,355 $ 7,725 $ 11,077 $ 10,884 $ 12,151 $ 12,910 $ 13,433
Gross Margin 5,238 5,875 3,962 6,331 6,134 6,960 7,110 7,703
Operating Income (Loss) (223) 220 (1,729) (2,222) 68 531 1,007 1,288
Net Income (Loss) 71 417 (1,535) (1,940) 286 630 1,068 1,424
Earnings (Loss) Per Share .01 .04 (.15) (.19) .03 .06 .10 .13
</TABLE>
In the fourth quarter of 1995, the Company determined that the
technology purchased from BioLumin was in-process research and
development and therefore the amount allocated to this technology of
$2,082,000 was expensed.
43
<PAGE> 46
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
Not applicable.
44
<PAGE> 47
PART III
ITEM 10. DIRECTORS AND OFFICERS OF REGISTRANT
(1) Identification of Directors:
The information concerning the Company's directors and nominees
is incorporated by reference from the section entitled "Proposal No. 1 --
Election of Directors" in the Proxy Statement for the 1997 Annual Meeting of
Stockholders to be held on May 22, 1997 (the Proxy Statement), a copy of which
will be filed with the Securities and Exchange Commission no later than 120 days
from the end of the Company's last fiscal year.
(2) Identification of Executive Officers:
See Part I, "Executive Officers of the Registrant."
The information concerning compliance with Section 16(a) of the
Exchange Act is incorporated by reference from "Additional Information -
Compliance with Section 16 (a) of the Securities Exchange Act of 1934" in the
Proxy Statement.
* * *
ITEM 11. EXECUTIVE COMPENSATION
Incorporated by reference from the section entitled "Additional
Information -- Executive Compensation and Other Information" in the Proxy
Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Incorporated by reference from the section entitled "General --
Share Ownership" in the Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Incorporated by reference from the section entitled "Additional
Information - Executive Compensation and Other Information -- Certain
Relationships and Related Transactions" in the Proxy Statement.
45
<PAGE> 48
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) List of Documents filed as part of this Report
1. Financial Statements. The following consolidated financial
statements and supplemental data are filed in Part II, Item 8 of this Annual
Report on Form 10-K:
Report of Independent Auditors
Consolidated Balance Sheets
Consolidated Statements of Operations
Consolidated Statements of Stockholders' Equity
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
Unaudited Quarterly Data
2. Financial Statement Schedules. The following consolidated
financial statement schedule for each of the years in the three-year period
ended December 31, 1996, is filed in Part IV, Item 14(d) of this Annual Report
on Form 10-K:
Report of Independent Auditors on
Consolidated Financial Statement Schedule
Schedule II Valuation and Qualifying Accounts
All other schedules are omitted because they are not applicable, or not
required, or because the required information is included in the consolidated
financial statements or notes thereto.
3. (a) Exhibits - see Exhibit List below.
(b) Form 8-K. The Company filed no reports on Form 8-K
during the fourth quarter of the fiscal year 1996.
46
<PAGE> 49
EXHIBIT LIST
Exhibit
Number Description
- ------ -----------
3.2(1) Bylaws of the Company.
3.3(2) Amended and Restated Certificate of Incorporation of the Company
filed with the Delaware Secretary of State on August 20, 1992.
3.4(7) Form of Amended and Restated Certificate of Incorporation of the
Company, to be filed with the Delaware Secretary of State as approved
by the Company's stockholders at the 1995 Annual Meeting of
Stockholders.
4.1(1) Amended and Restated Information and Registration Rights Agreement,
dated November 1, 1990, by and between the Company and certain
investors, including Amendment No. 1 to Amended and Restated
Information and Registration Rights Agreement, dated March 16, 1992,
and Amendment No. 2 to Amended and Restated Information and
Registration Rights Agreement, dated as of August 24, 1992.
4.2(3) Specimen Common Stock Certificate.
10.1(1) Form of Indemnification Agreement.
10.2(10) Restated 1987 Stock Option Plan.
10.3 1993 Employee Stock Purchase Plan.
10.4(3) Joint Venture Agreement, dated March 31, 1992, by and between
Molecular Dynamics and Junya Tominaga.
10.4A(7) Amendment to Joint Venture Agreement, dated August 18, 1994, by and
between Molecular Dynamics, Inc. and Junya Tominaga.
10.5(1) International Distributor Agreement, dated October 26, 1988, by and
between Molecular Dynamics Ltd. and Paul Bucher, Analytik and
Biotechnologie.
10.6(1) International Distributor Agreement, dated December 31, 1988, by and
between Molecular Dynamics and Molecular Dynamics, Ltd., including
Amendment to Distributor Agreement, dated May 1, 1990 and Second
Amendment to Distributor Agreement, dated April 21, 1992.
10.6A(7) Third Amendment to Distributor Agreement, dated April 23, 1993, by
and between Molecular Dynamics, Inc. and Molecular Dynamics, Ltd.
47
<PAGE> 50
10.7(1) Distributor Agreement, dated December 22, 1989, by and between
Molecular Dynamics and Molecular Dynamics, GmbH, including Amendment
to Distributor Agreement, dated May 1, 1990.
10.7A(7) Second Amendment to Distributor Agreement, dated July 30, 1994,
between Molecular Dynamics and Molecular Dynamics, GmbH.
10.9(1) Lease Agreement, dated July 3, 1990, by and between Molecular
Dynamics and Van Arques Investments, including Amendment No. 1 to
Lease Agreement, dated November 1, 1991, Amendment No. 2 to Lease
Agreement, dated November 5, 1991, and Amendment No. 3 to Lease
Agreement, dated April 20, 1992.
10.16(1) Distributor Agreement, dated December 4, 1990, by and between
Molecular Dynamics and Molecular Dynamics S.A.
10.17(1) OEM Agreement and Software License Agreement, dated January 1, 1991,
by and between Molecular Dynamics and Silicon Graphics, Inc.
10.18(1) Technology License Agreement, dated January 16, 1991, by and between
Molecular Dynamics and The Regents of the University of California.
10.19(1) Technology License Agreement, dated December 19, 1991, by and among
Molecular Dynamics, Dr. Bala Manian, Lumisys, Inc. and Biometric
Imaging, Inc.
10.20(1) License Agreement, dated January 1, 1992, by and between Molecular
Dynamics and Fuji Photo Film Co., Ltd.
10.22(1) Foreign Trade Commission, Sale, Lease and Services Agreement, dated
January 1, 1991, by and between Molecular Dynamics and Molecular
Dynamics Sales Corporation.
10.23(1) Export Related Services Agreement, dated January 1, 1991, by and
between Molecular Dynamics and Molecular Dynamics Sales Corporation.
10.24(4) Agreement for Sale of Assets, dated as of October 30, 1992, by and
between the Company and Newport Corporation.
10.25(4) Credit Agreement, dated December 24, 1992, by and between the Company
and Bank of America National Trust and Savings Association.
10.26(5) Sublease Agreement, dated April 19, 1993, by and between Molecular
Dynamics, Inc. and Silicon Graphics, Inc.
48
<PAGE> 51
10.27*(5) Technology License Agreement, dated October 20, 1993, by and between
Molecular Dynamics, Inc. and The Regents of the University of
California.
10.28*(5) Joint Development Agreement, dated December 31, 1993, by and between
Molecular Dynamics and Promega Corporation.
10.29*(6) Warrant Purchase Agreement, dated April 6, 1994, by and between
Molecular Dynamics, Inc. and Amersham Holdings, Inc.
10.30*(6) Warrant to Purchase 1,002,000 shares dated April 6, 1994, by and
between Molecular Dynamics, Inc., Amersham Holdings, Inc. and
Amersham International plc.
10.31*(6) Standstill Agreement, dated April 6, 1994, by and between Molecular
Dynamics, Inc., Amersham Holdings, Inc. and Amersham International
plc.
10.32*(6) Collaboration Agreement, dated April 6, 1994, by and between
Molecular Dynamics, Inc. and Amersham International plc.
10.33*(6) Co-Development and Co-Promotion Agreement for FluorImager Reagents,
dated April 6, 1994, by and between Amersham International plc and
Molecular Dynamics, Inc.
10.34*(6) Cross Co-Promotion Agreement, dated April 6, 1994, by and between
Amersham International plc and Molecular Dynamics, Inc.
10.35*(7) Agreement in Respect of Option, Research and Development and
Technology License, dated December 16, 1994, by and between Molecular
Dynamics, Inc. and BioLumin Corporation.
10.36*(7) Advanced Technology Program Participation Agreement, dated January
13, 1995, by and between Molecular Dynamics, Inc. and Affymetrix,
Inc.
10.37(8) Second Sublease by and between Molecular Dynamics, Inc. and
Tetherless Access, Ltd. dated as of September 14, 1995.
10.38(9) Settlement Agreement by and between Molecular Dynamics, Inc. and
Meridian Instruments, Inc. dated as of March 20, 1996.
10.39* Technology Development and Purchase Agreement between SmithKline
Beecham and Molecular Dynamics dated as of November 18, 1996.
10.40 Home Loan Agreement between Jay Flatley and Molecular Dynamics, Inc.
dated January 10, 1997.
"*" on such exhibits indicates that portions have been omitted for which
confidential treatment has been requested and filed separately with the
Securities and Exchange Commission.
49
<PAGE> 52
11.1 Statement regarding computation of earnings (loss) per share.
22.1(1) Subsidiaries of the Company.
23.1 Consent of KPMG Peat Marwick LLP.
(1) Incorporated by reference from an identically numbered exhibit
filed with the Company's Registration Statement on Form S-1 (File No.
33-46497) declared effective by the Securities and Exchange
Commission on February 5, 1993.
(2) Incorporated by reference from an identically numbered exhibit
filed with Amendment No. 1 to the Company's Registration Statement on
Form S-1 (File No. 33-46497) declared effective by the Securities and
Exchange Commission on February 5, 1993.
(3) Incorporated by reference from an identically numbered exhibit
filed with Amendment No. 2 to the Company's Registration Statement on
Form S-1 (File No. 33-46497) declared effective by the Securities and
Exchange Commission on February 5, 1993.
(4) Incorporated by reference from an identically numbered exhibit
filed with Amendment No. 3 to the Company's Registration Statement on
Form S-1 (File No. 33-46497) declared effective by the Securities and
Exchange Commission on February 5, 1993.
(5) Incorporated by reference from an identically numbered exhibit
filed with the Company's Annual Report on Form 10-K (File No.
0-19955) filed with the Securities and Exchange Commission on April
4, 1994, as amended by the Company's Amendment to Annual Report on
Form 10-K/A, as filed with the Securities and Exchange Commission on
May 12, 1994.
(6) Incorporated by reference from an identically numbered exhibit
filed with the Company's Quarterly Report on Form 10-Q for the
quarterly period ended July 3, 1994 (File No. 0-19955) filed with the
Securities and Exchange Commission on August 17, 1994.
(7) Incorporated by reference from an identically numbered exhibit
filed with the Company's Annual Report on Form 10-K (file No.
0-19955), filed with the Securities and Exchange Commission on April
3, 1995, as amended by the Company's Amendment to Annual Report on
Form 10-K/A, filed with the Securities and Exchange Commission on May
5, 1995, as further amended by the Company's Second Amendment to
Annual Report on Form 10-K/A-2, as filed with the Securities and
Exchange Commission on August 14, 1995.
(8) Incorporated by reference from an identically numbered exhibit
filed with the Company's Annual Report on Form 10-K (File No.
0-19955), filed with the Securities Exchange Commission on March 29,
1996, as amended by the Company's Amendment to Annual Report on Form
10-K/A, filed with the Securities and Exchange commission on April 4,
1996, as further amended by the Company's Second Amendment to annual
Report on form 10-K/A-2, as filed with the Securities and Exchange
Commission on January 10, 1997.
50
<PAGE> 53
(9) Incorporated by reference from an identically numbered exhibit
filed with the Company's Quarterly Report on Form 10-Q for the
quarterly period ended June 30, 1996 (File No. 0-19955) filed with
the Securities and Exchange Commission on August 13, 1996, as amended
by the company amendment to Quarterly Report on From 10-Q/A, filed
with the Securities and Exchange commission on January 10, 1997.
(10) Incorporated by reference from an identically numbered exhibit
filed with the Company's Registration Statement on Form S-8 (File No.
333-09561) filed with the Securities and Exchange Commission on
August 5, 1996.
51
<PAGE> 54
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized, in
Sunnyvale, California on this 28th day of March, 1997.
MOLECULAR DYNAMICS, INC.
By: /s/ Jay Flatley
------------------------------------
Jay Flatley
President, Chief Executive Officer,
Chief Operating Officer, Acting
Chief Financial Officer and Member
of the Board of Directors
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----
<S> <C> <C>
/s/ Jay Flatley President, Chief Executive March 28, 1997
- ------------------------------- Officer, Chief Operating Officer,
(Jay Flatley) Acting Chief Financial Officer
and Director (Principal Executive
and Financial Officer)
/s/ Lynne R. Wagoner Director of Finance March 28, 1997
- ------------------------------- (Principal Accounting Officer)
(Lynne R. Wagoner)
/s/ James M. Schlater Chairman of the Board of Directors March 28, 1997
- -------------------------------
(James M. Schlater)
/s/ C. Woodrow Rea Director March 28, 1997
- -------------------------------
(C. Woodrow Rea)
/s/ Robert Keeley Director March 28, 1997
- -------------------------------
(Robert Keeley)
/s/ Janice M. LeCocq Director March 28, 1997
- -------------------------------
(Janice M. LeCocq)
/s/ Jack Lloyd Director March 28, 1997
- -------------------------------
(Jack Lloyd)
</TABLE>
52
<PAGE> 55
INDEX TO FINANCIAL STATEMENT SCHEDULE
<TABLE>
<CAPTION>
Page
Number
<S> <C>
Report of Independent Auditors on Consolidated Financial Statement Schedule II-1
Schedule II Valuation and Qualifying Accounts II-2
</TABLE>
53
<PAGE> 56
ITEM 14(d). FINANCIAL STATEMENT SCHEDULE
REPORT OF KPMG PEAT MARWICK LLP, INDEPENDENT AUDITORS, ON FINANCIAL STATEMENT
SCHEDULE
Report of Independent Auditors
The Board of Directors and Stockholders
Molecular Dynamics, Inc.:
Under date of January 23, 1997, we reported on the consolidated balance sheets
of Molecular Dynamics, Inc. and subsidiaries as of December 31, 1996 and 1995,
and the related consolidated statements of operations, stockholders' equity, and
cash flows for each of the years in the three-year period ended December 31,
1996. In connection with our audits of the aforementioned consolidated financial
statements, we also audited the related consolidated financial statement
schedule as listed in the accompanying index. This consolidated financial
statement schedule is the responsibility of the Company's management. Our
responsibility is to express an opinion on this consolidated financial statement
schedule based on our audits.
In our opinion, such consolidated financial statement schedule, when considered
in relation to the basic consolidated financial statements taken as a whole,
presents fairly, in all material respects, the information set forth therein.
Palo Alto, California
January 23, 1997
II-1
<PAGE> 57
SCHEDULE II
MOLECULAR DYNAMICS, INC. AND SUBSIDIARIES
Valuation and Qualifying Accounts
<TABLE>
<CAPTION>
Balance at Charged to
Beginning Costs and Balance at
Description of Year Expenses Deductions End of Year
----------- ------- -------- ---------- -----------
<S> <C> <C> <C> <C>
Year ended
December 31, 1994
Allowance for
doubtful accounts $ 193,000 58,000 -- $ 251,000
Accrued warranty
costs $ 521,000 1,163,000 (947,000) $ 737,000
Year ended
December 31, 1995
Allowance for
doubtful accounts $ 251,000 30,000 -- $ 281,000
Accrued warranty
costs $ 737,000 859,000 (929,000) $ 667,000
Year ended
December 31, 1996
Allowance for
doubtful accounts $ 281,000 30,000 (57,000) $ 254,000
Accrued warranty
costs $ 667,000 1,669,000 (1,292,000) $ 1,044,000
</TABLE>
II-2
<PAGE> 1
EXHIBIT 10.3
MOLECULAR DYNAMICS, INC.
1993 EMPLOYEE STOCK PURCHASE PLAN
I. PURPOSE
The Molecular Dynamics 1993 Employee Stock Purchase Plan (the "Plan")
is intended to provide eligible employees of the Company and one or more of its
Corporate Affiliates with the opportunity to acquire a proprietary interest in
the Company through participation in a plan designed to qualify as an employee
stock purchase plan under Section 423 of the Internal Revenue Code (the
"Code").
II. DEFINITIONS
For purposes of administration of the Plan, the following terms shall
have the meanings indicated:
BOARD means the Board of Directors of the Company.
COMPANY means Molecular Dynamics, Inc., a Delaware corporation, and any
corporate successor to all or substantially all of the assets or voting stock
of Molecular Dynamics, Inc. which shall by appropriate action adopt the Plan.
COMPENSATION means the regular base earnings paid to an Eligible
Employee by one or more Participating Companies during such individual's period
of participation in the Plan, plus (i) any salary deferral contributions made
by such individual to the Company's 401(k) Plan during such period and (ii) all
overtime payments, bonuses, commissions, and other incentive-type payments, but
excluding all contributions (other than Code Section 125 or Section 401(k)
contributions) made by the Company or its Corporate Affiliates for such
individual's benefit under any employee benefit or welfare plan now or
hereafter established.
CORPORATE AFFILIATE means any company which is either the parent
corporation or a subsidiary corporation of the Company (as determined in
accordance with Section 424 of the Code), including any parent or subsidiary
corporation which becomes such after the Effective Date.
EFFECTIVE DATE means the first day of the initial purchase period
scheduled to commence upon the later of (i) January 25, 1993 or (ii) the
effective date of the S-8 Registration Statement covering the shares of Stock
issuable under the Plan. However, any Corporate Affiliate which becomes a
Participating Company in the Plan after the Effective Date shall designate a
subsequent Effective Date with respect to its employee-Participants.
ELIGIBLE EMPLOYEE means any person who is regularly engaged, for a
period of more than twenty (20) hours per week and more than five (5) months
per calendar year, in the rendition of personal services to the Company or any
other Participating Company for earnings considered wages under Section 3121
(a) of the Code.
<PAGE> 2
PARTICIPANT means any Eligible Employee of a Participating Company who
is actively participating in the Plan.
PARTICIPATING COMPANY means the Company and such Corporate Affiliate
or Affiliates as may be authorized from time to time by the Board to extend the
benefits of the Plan to their Eligible Employees. The Participating Companies
in the Plan, as of the Effective Date, are listed in attached Schedule A.
PLAN ADMINISTRATOR shall have the meaning given such term in Article
III.
STOCK means shares of the common stock of the Company.
III. ADMINISTRATION
The Plan shall be administered by a committee (the "Plan
Administrator") comprised of two or more non-employee Board members appointed
from time to time by the Board. The Plan Administrator shall have full
authority to administer the Plan, including authority to interpret and construe
any provision of the Plan and to adopt such rules and regulations for
administering the Plan as it may deem necessary in order to comply with the
requirements of Section 423 of the Code. Decisions of the Plan Administrator
shall be final and binding on all parties who have an interest in the Plan.
IV. PURCHASE PERIODS
A. Stock shall be offered for purchase under the Plan through a
series of successive purchase periods until such time as (i) the maximum number
of shares of Stock available for issuance under the Plan shall have been issued
pursuant to purchase rights granted under the Plan or (ii) the Plan shall have
been sooner terminated in accordance with Article VII.J.
B. Each purchase period shall have a duration of six (6) months,
except that the initial purchase period shall have a duration of less than six
(6) months and the next subsequent purchase period shall have a duration in
excess of six (6) months. The initial purchase period shall begin upon the
later of (i) January 25, 1993 or (ii) the effective date of the S-8
Registration Statement covering the shares of Stock issuable under the Plan and
shall end on July 31, 1993. The next subsequent purchase period shall begin on
August 1, 1993 and shall end on February 15, 1994. Subsequent purchase periods
shall begin on February 16 or August 16 and shall end on August 15 or February
15 each year, respectively.
C. The Participant shall be granted a separate purchase right for
each purchase period in which he/she participates. The purchase right shall be
granted on the first business day of the purchase period and shall be
automatically exercised on the last business day of the purchase period.
D. Under no circumstances shall any purchase rights granted under
the Plan be exercised, nor shall any shares of Stock be issued hereunder, until
such time as (i) the Plan shall have been approved by the Company's
stockholders and (ii) the Company shall have complied with all applicable
requirements of the Securities Act of 1933 (as amended), all applicable listing
<PAGE> 3
requirements of any securities exchange on which the Stock is listed and all
other applicable requirements established by law or regulation.
E. The acquisition of Stock through participation in the Plan for
any purchase period shall neither limit nor require the acquisition of Stock by
the Participant in any subsequent purchase period.
V. ELIGIBILITY AND PARTICIPATION
A. Each Eligible Employee of a Participating Company may begin
participation in the Plan on the first day of any purchase period following
his/her commencement of service with the Company or any Corporate Affiliate.
B. In order to participate in the Plan, an Eligible Employee must
complete the enrollment forms prescribed by the Plan Administrator (including a
purchase agreement and a payroll deduction authorization) and file such forms
with the Plan Administrator (or its designate) during the specified enrollment
period for the purchase period.
C. The payroll deduction authorized by a Participant for purposes
of acquiring Stock under the Plan may be any whole percentage not in excess of
fifteen percent (15%) of the Compensation paid to the Participant during the
purchase period. The deduction rate so authorized shall continue in effect for
the entire purchase period and for each successive period, unless the
Participant shall change the rate by filing the appropriate form with the Plan
Administrator (or its designate). The new rate shall become effective as soon
as practicable following the filing of such form. A participant may not
increase the deduction rate more than once per purchase period, but may reduce
the deduction rate an unlimited number of times. Payroll deductions, however,
shall automatically cease upon the termination of the Participant's purchase
right in accordance with Section VII.D or E below.
VI. STOCK SUBJECT TO PLAN
A. The Stock purchasable by Participants under the Plan shall,
solely in the Board's discretion, be made available from either authorized but
unissued Stock or from reacquired Stock, including shares of Stock purchased on
the open market. The total number of shares which may be issued under the Plan
shall not exceed 1,000,000 shares (subject to adjustment under subparagraph B
below).
B. In the event any change is made to the Stock purchasable under
the Plan by reason of any stock dividend, stock split, combination of shares,
recapitalization or other change affecting the outstanding Common Stock of the
Company as a class without the Company's receipt of consideration, appropriate
adjustments shall be made by the Plan Administrator to (i) the class and
maximum number of shares issuable over the term of the Plan, (ii) the class and
maximum number of shares purchasable per Participant under any one purchase
right, and (iii) the class and number of shares and the price per share of the
Stock subject to each purchase right at the time outstanding under the Plan.
<PAGE> 4
VII. PURCHASE RIGHTS
Each Eligible Employee who participates in the Plan for a particular
purchase period shall have the right to purchase Stock upon the terms and
conditions set forth below and shall execute a purchase agreement embodying
such terms and conditions and such other provisions (not inconsistent with the
Plan) as the Plan Administrator may deem advisable.
A. PURCHASE PRICE. The purchase price per share shall be the
lesser of (i) eighty-five percent (85%) of the fair market value of a share of
Stock on the date on which the purchase right is granted or (ii) eighty-five
percent (85%) of the fair market value of a share of Stock on the date the
purchase right is exercised. For purposes of determining such fair market
value (and for all other valuation purposes under the Plan), the fair market
value of a share of Stock on the start date of the initial purchase period
shall be the price per share at which the Stock was sold to the Company's
underwriters in connection with the firm commitment initial public offering of
the Stock effected concurrently on such start date and on any subsequent date
shall be the closing selling price per share of Stock on such date, as
officially quoted on the principal exchange on which the Stock is at the time
traded or, if not traded on any exchange, the closing selling price per share
of the Stock on such date, as reported on the NASDAQ National Market System.
If there are no sales of Stock on such day, then the closing selling price for
the Stock on the next preceding day for which such closing selling price is
quoted shall be determinative of fair market value.
B. NUMBER OF PURCHASABLE SHARES. The number of shares
purchasable by a Participant upon the exercise of an outstanding purchase right
shall be the number of whole shares obtained by dividing the amount collected
from the Participant through payroll deductions during the purchase period for
which such purchase right is outstanding, together with any amount carried over
from the preceding purchase period pursuant to the provisions of Section VII.F,
by the purchase price in effect for that purchase period. However, the maximum
number of shares purchasable by any Participant during any one purchase period
shall not exceed 1,500 shares (subject to adjustment under Section VI.B).
Under no circumstances shall purchase rights be granted under the Plan
to any Eligible Employee if such individual would, immediately after the grant,
own (within the meaning of Code Section 424(d)), or hold outstanding options or
other rights to purchase, stock possessing five percent (5%) or more of the
total combined voting power or value of all classes of stock of the Company or
any Corporate Affiliate.
C. PAYMENT. Payment for Stock purchased under the Plan shall be
effected by means of the Participant's authorized payroll deductions. Such
deductions shall begin with the first pay check received after the commencement
date of the relevant purchase period and shall terminate with the last pay
check received within the purchase period. The amounts so collected shall be
credited to the Participant's individual account under the Plan, but no
interest shall be paid on the balance from time to time outstanding in the
account. The amounts collected from a Participant may be commingled with the
general assets of the Company and may be used for general corporate purposes.
<PAGE> 5
D. TERMINATION OF PURCHASE RIGHTS.
(i) A Participant may, prior to the last business day of
any purchase period, terminate his/her outstanding purchase right under the
Plan by filing the prescribed notification form with the Plan Administrator (or
its designate). No further payroll deductions shall be collected from the
Participant with respect to the terminated purchase right, and the Participant
shall have the following election with respect to any payroll deductions for
the purchase period collected prior to the termination date: (a) have the
Company refund the payroll deductions which the Participant made in that
purchase period with respect to the terminated purchase right or (b) have such
payroll deductions held for the purchase of shares at the end of such purchase
period. If no such election is made, then such payroll deductions shall
automatically be refunded promptly after the close of such purchase period.
(ii) The termination of such purchase right shall be
irrevocable, and the Participant may not subsequently rejoin the purchase
period for which such terminated purchase right was granted. In order to
resume participation in any subsequent purchase period, such individual must
re-enroll in the Plan (by making a timely filing of a new purchase agreement
and payroll deduction authorization).
E. TERMINATION OF EMPLOYMENT/CHANGE OF STATUS. Should a
Participant cease to remain in Service while his/her purchase right remains
outstanding or should there otherwise occur a change in such individual's
employee status so that he/she is no longer an Eligible Employee while holding
such purchase right, then such purchase right shall immediately terminate upon
such termination of Service or change in status and all sums previously
collected from the Participant during the purchase period in which the purchase
right so terminates shall be promptly refunded to the Participant. However,
should the Participant die or become permanently disabled while in Service or
should the Participant cease employment by reason of a leave of absence, then
the Participant (or the person or persons to whom the rights of the deceased
Participant under the Plan are transferred by will or the laws of inheritance)
shall have the election, exercisable up until the end of the purchase period in
which the Participant dies or becomes permanently disabled or in which the
leave of absence commences, to (i) withdraw all the funds credited to the
Participant's account at the time of his/her cessation of Service or at the
commencement of such leave or (ii) have such funds held for the purchase of
shares at the end of such purchase period. If no such election is made, then
such funds shall automatically be held for the purchase of shares at the end of
such purchase period. In no event, however, shall any further payroll
deductions be added to the Participant's account following his/her cessation of
Service or the commencement of such leave. Should the Participant return to
active Service following a leave of absence, then his/her payroll deductions
under the Plan shall automatically resume at the rate in effect at the time the
leave began, provided such return to Service occurs prior to the expiration
date of the purchase period in which such leave began.
For purposes of the Plan: (i) the Participant shall be considered to
remain in Service for so long as such Participant remains in the active employ
of the Company or one or more other Participating Companies and (ii) the
Participant shall be deemed to be permanently disabled if he/she is unable to
engage in any substantial gainful employment, by reason of any medically
<PAGE> 6
determinable physical or mental impairment expected to result in death or to be
of continuous duration of at least twelve (12) months.
F. STOCK PURCHASE. The Stock subject to the purchase right of
each Participant (other than Participants whose payroll deductions have been
refunded in connection with the termination of their purchase rights under
Section VII.D or E above) shall automatically be purchased on the Participant's
behalf on the last day of the purchase period. The purchase shall be effected
by applying the amount credited to each Participant's account on the last date
of the purchase period to the purchase of whole shares of Stock (subject to the
Section VII.B limitation on the maximum number of purchasable shares) at the
purchase price in effect for such purchase period. Any amount remaining in the
Participant's account after application shall be held for the purchase of Stock
in the next purchase period. However, any amount not applied to the purchase
of Stock by reason of the Section VII.B limitation shall be refunded promptly
after the close of the purchase period.
G. PRORATION OF PURCHASE RIGHTS. Should the total number of
shares of Stock which are to be purchased pursuant to outstanding purchase
rights on any particular date exceed the number of shares then available for
issuance under the Plan, the Plan Administrator shall make a pro-rata
allocation of the available shares on a uniform and nondiscriminatory basis,
and any amounts credited to the accounts of Participants shall, to the extent
not applied to the purchase of Stock, be refunded to the Participants.
H. RIGHTS AS STOCKHOLDER. A Participant shall have no rights as
a stockholder with respect to shares covered by his/her outstanding purchase
right under the Plan until the shares are actually purchased on the
Participant's behalf in accordance with Section VII.F. No adjustments shall be
made for dividends, distributions or other rights for which the record date is
prior to the date of such purchase.
A Participant shall be issued, as soon as practicable after the date
of each purchase, a stock certificate for the number of shares purchased on the
Participant's behalf. Such certificate may, upon the Participant's request, be
issued in the names of the Participant and his/her spouse as community property
or as joint tenants with right of survivorship. Title to the stock certificate
may not be subsequently transferred to any other person or entity, including
the Participant's stock broker, except in connection with (i) the actual sale
of the underlying shares or (ii) a transfer of title by will or inheritance
following the Participant's death.
In lieu of delivering a stock certificate to each Participant, the
Plan Administrator may, in its discretion, implement a designated broker
program and direct the Company to issue a single stock certificate to a broker
designated by the Plan Administrator. Such designated broker shall establish
an account for each Participant. If the participant so requests, such
designated broker shall arrange for the issuance to the participant of a stock
certificate for the shares, subject to the restrictions set forth in the
preceding paragraph.
I. ASSIGNABILITY. No purchase right granted under the Plan shall
be assignable or transferable by the Participant other than by will or by the
laws of descent and distribution, and during the Participant's lifetime the
purchase right shall be exercisable only by the Participant.
<PAGE> 7
J. MERGER OR LIQUIDATION OF COMPANY. In the event the Company or
its stockholders enter into an agreement to dispose of all or substantially all
of the assets or outstanding capital stock of the Company by means of:
(I) a sale, merger or other reorganization (other than a
reorganization effected primarily to change the State in which the Company is
incorporated),
(ii) a reverse merger in which the Company is the
surviving corporation but in which all or substantially all of the Company's
outstanding voting stock is transferred to the acquiring entity or its
wholly-owned subsidiary, or
(iii) a liquidation of the Company,
all outstanding purchase rights under the Plan shall automatically be exercised
immediately prior to the effective date of such sale, merger, reorganization,
reverse merger or liquidation by applying all sums previously collected from
Participants during the purchase period in which such transaction occurs to the
purchase of whole shares of Stock, subject, however, to the applicable
limitations of Section VII.B.
VIII. ACCRUAL LIMITATIONS
A. No Participant shall be entitled to accrue rights to acquire
Stock pursuant to any purchase right outstanding under this Plan if and to the
extent such accrual, when aggregated with (i) rights to purchase Stock accrued
under other purchase rights granted to the Participant under this Plan and (ii)
similar rights accrued by the Participant under other employee stock purchase
plans (within the meaning of Code Section 423) of the Company or its Corporate
Affiliates, would otherwise permit such Participant to purchase more than
$25,000 in value of stock of the Company or any Corporate Affiliate (determined
on the basis of the fair market value of such stock on the date or dates such
rights are granted to the Participant) for each calendar year such rights are
at any time outstanding.
B. For purposes of applying the accrual limitations of Section
VIII.A, the right to acquire Stock pursuant to each purchase right granted
under the Plan shall accrue as follows:
(i) The right to acquire Stock under each such purchase
right shall accrue as and when the purchase right first becomes exercisable on
the last day of the purchase period for which such right is granted.
(ii) No right to acquire Stock under any outstanding
purchase right shall accrue to the extent the Participant has already accrued
in the same calendar year the right to acquire $25,000 in value of Stock
(determined on the basis of the fair market value on the date or dates of
grant) pursuant to one or more other purchase rights granted to the Participant
during such calendar year.
(iii) If by reason of the Section Vlll.A limitations, the
Participant's purchase right does not accrue on the last day of the particular
purchase period for which such right is
<PAGE> 8
granted, then the payroll deductions which the Participant made during that
purchase period with respect to such purchase right shall be promptly refunded.
C. In the event there is any conflict between the provisions of
this Article VIII and one or more provisions of the Plan or any instrument
issued thereunder, the provisions of this Article VIII shall be controlling.
IX. AMENDMENT AND TERMINATION
The Board may from time to time alter, amend, suspend or discontinue
the Plan; provided, however, that no such action shall adversely affect
purchase rights at the time outstanding under the Plan; and provided, further,
that no such action of the Board may, without the approval of the Company's
stockholders, increase the number of shares issuable under the Plan or the
maximum number of shares which any one Participant may purchase under the Plan
during a single purchase period (provided, however, the Plan Administrator
shall have the authority to effect adjustments pursuant to Sections VI.B and
VII.B without stockholder approval), alter the purchase price formula so as to
reduce the purchase price specified in the Plan, otherwise materially increase
the benefits accruing to Participants under the Plan, or materially modify the
requirements for eligibility to participate in the Plan.
X. GENERAL PROVISIONS
A. The Plan shall become effective on the Effective Date,
provided that no purchase rights granted under the Plan shall be exercised, and
no shares of Stock shall be issued hereunder, until (i) the Plan shall have
been approved by the Company's stockholders and (ii) the Company shall have
complied with all applicable requirements of the Securities Act of 1933 (as
amended), all applicable listing requirements of any securities exchange on
which the Stock is listed and all other applicable requirements established by
law or regulation. In the event such stockholder approval is not obtained, or
such Company compliance is not effected, within twelve (12) months after the
date on which the Plan is adopted by the Board, the Plan shall terminate and
have no further force or effect and all sums collected from Participants during
the initial purchase period hereunder shall be refunded.
B. The Plan shall terminate upon the earlier of (i) the last day
of the purchase period ending in February 2002 or (ii) the date on which all
shares available for issuance under the Plan shall have been sold pursuant to
purchase rights exercised under the Plan.
C. All costs and expenses incurred in the administration of the
Plan shall be paid by the Company.
D. Neither the action of the Company in establishing the Plan,
nor any action taken under the Plan by the Board or the Plan Administrator, nor
any provision of the Plan itself shall be construed so as to grant any person
the right to remain in the employ of the Company or any of its Corporate
Affiliates for any period of specific duration, and such person's employment
may be terminated at any time, with or without cause.
<PAGE> 9
E. The provisions of the Plan shall be governed by the laws of
the State of California without resort to that State's conflict of laws rules.
<PAGE> 1
AN "XXXXX" INDICATES THAT CONFIDENTIAL MATERIAL HAS BEEN OMITTED AND FILED
SEPARATELY IN A REQUEST FOR CONFIDENTIAL TREATMENT WITH THE SECURITIES AND
EXCHANGE COMMISSION
EXHIBIT 10.39
TECHNOLOGY DEVELOPMENT
AND
PURCHASE AGREEMENT
BETWEEN
SMITHKLINE BEECHAM
AND
MOLECULAR DYNAMICS
DATED AS OF NOVEMBER 18, 1996
<PAGE> 2
TABLE OF CONTENTS
PAGE NUMBER
1. DEFINITIONS 4
2. PAYMENTS 8
3. DEVELOPMENT AND DELIVERY OF 11
ARRAY SPOTTERS AND ARRAY SCANNERS
4. PURCHASE OF ADDITIONAL ARRAY SPOTTERS 14
AND ARRAY SCANNERS
5. TECHNICAL TRAINING AND SUPPORT 14
6. TECHNOLOGY DEVELOPMENT PERIOD 18
7. CONFIDENTIALITY 20
8. INTELLECTUAL PROPERTY 22
9. REPRESENTATIONS, WARRANTIES, 23
COVENANTS AND LIMITATION OF LIABILITY
10. INDEMNITY 25
11. TERM AND TERMINATION 27
12. EFFECT OF TERMINATION OR EXPIRATION 29
13. NOTICES 30
14. ASSIGNMENT 31
15. ADDITIONAL TERMS AND CONDITIONS 32
APPENDIX A 35
-2-
<PAGE> 3
TECHNOLOGY DEVELOPMENT AND
PURCHASE AGREEMENT
This Technology Development and Purchase Agreement ("AGREEMENT"), made
as of the 18th day of November, 1996, by and among SmithKline Beecham
Corporation, a Pennsylvania corporation with its principal offices at One
Franklin Plaza, Philadelphia, Pennsylvania 19101, U.S.A, SmithKline Beecham
p.l.c., a corporation organized under the laws of England and having a place of
business at Great West Road, Brentford, Middlesex, England ("SB") and Molecular
Dynamics, Inc. (a Delaware corporation) 928 East Arques Avenue, Sunnyvale, CA
94086-4520 ("MD");
WHEREAS, there is mutual interest in accelerating development of array
making and detecting instrumentation at MD and array-based applications at SB;
and
WHEREAS, MD wishes to have a close technical and business collaboration
with SB, including feedback on the use and performance of such array making and
detecting instrumentation for an actual end-user; and
WHEREAS, MD expects to use SB's input to advance the design and
performance of the commercial versions of such array making and detecting
instrumentation; and
WHEREAS, SB expects to gain access to a high level of training and
technical support services from MD for a period of time and a time advantage in
SB's access to MD's instrumentation for its own research and development
activities.
-3-
<PAGE> 4
NOW, THEREFORE, in consideration of the premises and the
mutual covenants herein contained, the parties hereto intending to be legally
bound agree as follows:
1. DEFINITIONS
"AFFILIATE", with respect to a party hereto, means any corporation,
firm, partnership or other entity, whether de jure or de facto, which directly
or indirectly owns, is owned by or is under common ownership with such party to
the extent of at least fifty percent (50%) of the equity (or such lesser
percentage which is the maximum allowed to be owned by a foreign corporation in
a particular jurisdiction) having the power to vote on or direct the affairs of
the entity, and any person, firm, partnership, corporation or other entity
actually controlled by, controlling or under common control with such party.
SB AFFILIATES (defined above) which are any corporation, firm, partnership or
other entity, whether de jure or de facto, which directly or indirectly owns,
is owned by or is under common ownership with such party to the extent of at
least fifty percent (50%) of the equity (or such lesser percentage which is the
maximum allowed to be owned by a foreign corporation in a particular
jurisdiction) but not greater than eighty percent (80%) having the power to
vote on or direct the affairs of the entity, and any person, firm, partnership,
corporation or other entity actually controlled by, controlling or under common
control with such party shall exclude those AFFILIATES whose primary business
is instrumentation for research.
"ARRAY SCANNER" shall mean the XXXXXXXXXXXXXXXXXX instrument and
associated software known by MD as XXXXXXXXXXXXX GENERATION X, GENERATION XX,
GENERATION XXX, having the ability to rapidly and accurately identify and
quantify fluorescent labeled probes hybridized or bound to the DNA
-4-
<PAGE> 5
and/or other biological materials spotted in an array by an ARRAY SPOTTER as
detailed in Appendix A.
"ARRAY SPOTTER" shall mean the XXXXXXXXXXXXXXXXXXXXXXX instrument and
associated chemistry and software known by MD as XXXXXXXXXXX GENERATION X,
GENERATION XX, GENERATION XXX, having the ability to spot DNA and other
biological materials on a substrate as detailed in Appendix A.
"CAPILLARY SEQUENCER" shall mean the pre-commercial instrument and
associated chemistry and software known by MD as XXXXXXXXX, having the ability
to sequence DNA as detailed in Appendix A.
"EFFECTIVE DATE" shall mean the date first written above.
"FUNCTIONALLY INSTALL(ED) (or FUNCTIONAL INSTALLATION)"
shall mean a qualified representative of MD will unpack the Array SCANNERs and
Array SPOTTERS and install them in a laboratory setting that has been
previously confirmed to meet each of the specifications outlined in the
Customer Planning Guide to be supplied in writing from MD to Customer at least
one (1) month prior to shipment of their first Array Spotter and Array Scanner.
The MD representative shall then confirm the basic functionality of the system
by using the Array Spotter to spot dye-labeled DNA samples provided by MD from
XXXX microplates onto XXXXXXX glass slides. All XXXXXXXXXX slides shall then
be scanned using the Array Scanner to confirm that at XXXXXXXXXXXXXXXX of the
samples have been successfully deposited and detected. FUNCTIONAL INSTALLATION
of the ARRAY SPOTTER shall also mean verifying the relevant sample carryover
specification listed in Appendix A using MD's standard procedure with
32P-labeled samples provided by SB. FUNCTIONAL INSTALLATION specifically
excludes
-5-
<PAGE> 6
meeting specific hybridization levels or using Customer's own samples to assess
performance.
"GENERATION X" shall mean ARRAY SPOTTERS and/or ARRAY SCANNERS meeting
the specifications set forth in Appendix A and FUNCTIONALLY INSTALLED at SB.
"GENERATION XX" shall mean ARRAY SPOTTERS and/or ARRAY SCANNERS
meeting the specifications set forth in Appendix A and FUNCTIONALLY INSTALLED
at SB and which have been materially modified and/or materially improved as
compared to GENERATION I ARRAY SPOTTERS and/or ARRAY SCANNERS.
"GENERATION XXX" shall mean ARRAY SPOTTERS and/or ARRAY SCANNERS
meeting the specifications set forth in Appendix A and FUNCTIONALLY INSTALLED
at SB and which have been materially modified and/or materially improved as
compared to GENERATION XX ARRAY SPOTTERS and/or ARRAY SCANNERS.
"MD" shall mean, collectively, Molecular Dynamics Inc., and any of its
respective AFFILIATE(S) to which any rights and/or obligations of either of
them shall be assigned and/or delegated pursuant to this AGREEMENT.
"MD DEVELOPED TECHNOLOGY" means any and all inventions and discoveries
made by MD during the TECHNOLOGY DEVELOPMENT PERIOD and TECHNOLOGY ACCESS
PERIOD using SB Confidential Information other than inventions and discoveries
to the hardware, instrument control and analysis
-6-
<PAGE> 7
software, binding and deposition chemistry each relating to the ARRAY SPOTTER
or ARRAY SCANNER.
"PROOF OF CONCEPT" shall mean experiments relating to ARRAY SPOTTERS
and ARRAY SCANNERS not exceeding running XXXXXXXX individual samples in a
XXXXXXXXXX well plate and which demonstrate the satisfactory performance of the
ARRAY SCANNER and ARRAY SPOTTER
"SB" shall mean, collectively, SmithKline Beecham Corporation,
SmithKline Beecham p.l.c, and any of their respective AFFILIATE(S) to which any
rights and/or obligations of either of them shall be assigned and/or delegated
pursuant to this AGREEMENT.
"SB DEVELOPED TECHNOLOGY" means any and all modifications or
improvements to the hardware, instrument control and analysis software, binding
and deposition chemistry each relating to the ARRAY SPOTTER or ARRAY SCANNER
made by SB during the TECHNOLOGY DEVELOPMENT PERIOD and the TECHNOLOGY ACCESS
PERIOD.
"STRATEGIC COLLABORATOR" shall mean (1) during the TECHNOLOGY
DEVELOPMENT PERIOD, any THIRD PARTY MD and SB mutually agree to in writing and
(2) after the TECHNOLOGY DEVELOPMENT PERIOD and during the TECHNOLOGY ACCESS
PERIOD, shall mean a) any THIRD PARTY engaged in XXXXXXXXXXXXXX or XXXXXXXXXX
research or development whom MD and SB mutually agree to in writing or b) any
other THIRD PARTY not engaged in such XXXXXXXXXXXXXX or XXXXXXXXXX research or
development.
-7-
<PAGE> 8
"TECHNOLOGY ACCESS CUSTOMER" shall mean any THIRD PARTY other than a
STRATEGIC COLLABORATOR who is granted access by MD to an ARRAY SPOTTER and/or
ARRAY SCANNER pursuant to Section 6.
"TECHNOLOGY ACCESS PERIOD" shall mean (1) for ARRAY SCANNERS a period
beginning XXXXX after the date of FUNCTIONAL INSTALLATION of the first ARRAY
SCANNER and ARRAY SPOTTER at SB and ending XXXXXXXXX after FUNCTIONAL
INSTALLATION of the first ARRAY SCANNER and ARRAY SPOTTER at SB and (2) for
ARRAY SPOTTERS a period beginning XXXXXX after the date of FUNCTIONAL
INSTALLATION of the first ARRAY SCANNER and ARRAY SPOTTER at SB and ending
XXXXXXXXX after FUNCTIONAL INSTALLATION of the first ARRAY SCANNER and ARRAY
SPOTTER at SB.
"TECHNOLOGY DEVELOPMENT PERIOD" shall mean the period beginning upon
the EFFECTIVE DATE and ending XXXXXXX after FUNCTIONAL INSTALLATION of the
first ARRAY SPOTTER and ARRAY SCANNER at SB.
"THIRD PARTY(IES)" shall mean any individual or entity other than SB
and MD.
2. PAYMENTS
2.1 SB shall make payments to MD of XXXX US Dollars (US $XXXXXX)
as follows:
(a) In consideration for the XXXXX access to ARRAY SPOTTERS and
ARRAY SCANNERS and the XXXXXXXXXXX periods set forth herein, XXX
-8-
<PAGE> 9
XXXX US Dollars (US $XXXXX) no later than XXXXXX days following the
EFFECTIVE DATE of this AGREEMENT; and, to support ongoing research and
development for ARRAY SPOTTERS and ARRAY SCANNERS to produce the
instruments required herein,
(b) XXXXX US Dollars (US $XXXXXXX) no later than XXXXXXX days
following the FUNCTIONAL INSTALLATION of the first ARRAY SPOTTER and
ARRAY SCANNER to SB; and
(c) XXXXXX US Dollars (US $XXXXXXX) no later than XXXXXX days
following the last to occur of the FUNCTIONAL INSTALLATION of the
XXXXXX and XXXXX ARRAY SPOTTER and XXXXXX and XXXXX ARRAY SCANNER at
SB.
2.2 In addition to the XXXX ARRAY SPOTTERS and ARRAY SCANNERS due
SB under this AGREEMENT pursuant to Paragraph 3.1, the purchase price for
additional ARRAY SPOTTERS and ARRAY SCANNERS which may be purchased by SB from
MD pursuant to Paragraph 4.1 shall be as follows:
(a) For the TECHNOLOGY DEVELOPMENT PERIOD and the TECHNOLOGY
ACCESS PERIOD, the XXXX of (i) the XXXXXXX offered any THIRD PARTY
(excluding STRATEGIC COLLABORATORS) for each such ARRAY SPOTTER and
ARRAY SCANNER; (ii) XXXXXX XXXX US Dollars (US $XXXXX) per ARRAY
SPOTTER or ARRAY SCANNER; or (iii) XXXXXXXXXXXXXX for such ARRAY
SPOTTER or ARRAY SCANNER.
-9-
<PAGE> 10
(b) For the first XXXXXXXXXXX following the first commercial sale of
each of an ARRAY SPOTTER and ARRAY SCANNER to a THIRD PARTY, the
XXXXXX of (i) XXXXXXX US Dollars (US $XXXXXX) per ARRAY SPOTTER or
ARRAY SCANNER or (ii) XXXXXXXXXXX for such ARRAY SPOTTER or ARRAY
SCANNER or (iii) the XXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX for each such ARRAY
SPOTTER and ARRAY SCANNER. The parties agree that the price minimums
set forth in this subparagraph 2(b) shall not apply to (a) transfers
of ARRAY SPOTTERS and ARRAY SCANNERS to distributors, Value Added
Resalers (VARS), systems integrators of MD at standard discounts; (b)
strategic placements to non-profit and academic institutions; and (c)
sale of used or refurbished ARRAY SPOTTERS and ARRAY SCANNERS.
2.3 SB agrees that payments made to MD pursuant to this Agreement
shall be made from a United States bank account.
2.4 SB agrees that sales, use or other similar taxes, or VAT,
customs charges and duties or other similar charges that may be imposed
pursuant to this Agreement associated with the transfer of ARRAY SPOTTERS,
ARRAY SCANNERS and CAPILLARY SEQUENCERS and associated miscellaneous products
pursuant to this Agreement shall be the responsibility of SB. SB agrees that
it will self-assess such taxes and/or charges, if any. The parties agree to
cooperate in good faith in the preparation of any relevant shipping documents
associated with such transfer. Nothing in this Agreement shall be deemed to
mean that SB shall be responsible for income taxes or similar taxes that may be
imposed on MD.
-10-
<PAGE> 11
3. DEVELOPMENT AND DELIVERY OF ARRAY SPOTTERS AND ARRAY SCANNERS
3.1 MD shall use commercially reasonable efforts to (a) develop
and make ARRAY SPOTTERS and ARRAY SCANNERS and (b) provide them on the
following target dates, without consideration except as set forth in Section
2.1 above, to SB as follows:
(a) XXXXX GENERATION XX ARRAY SPOTTER and XXXXX GENERATION XX
ARRAY SCANNER by XXXXXXXXXX.
(b) XXXXXXXX GENERATION XX ARRAY SPOTTER and XXXXX GENERATION XX
ARRAY SCANNER by XXXXXXX and before FUNCTIONAL INSTALLATION of either
an GENERATION XX ARRAY SPOTTER or GENERATION XX ARRAY SCANNER for any
TECHNOLOGY ACCESS CUSTOMER or STRATEGIC COLLABORATOR.
(c) XXXXXXX GENERATION XX ARRAY SPOTTERS and XXXXX GENERATION XX
ARRAY SCANNERS by XXXXXXX.
(d) XXXXX GENERATION XXX ARRAY SPOTTERS and XXXX GENERATION XXX
ARRAY SCANNERS by XXXXXXX.
3.2 SB and MD may mutually agree in writing to change the
distribution of the number of GENERATION XX and XXX ARRAY SPOTTERS and ARRAY
SCANNERS to be delivered to SB pursuant to Paragraph 3.1 provided XXXX XXXX
written notice is provided by SB to MD of any requested change. Since SB
-11-
<PAGE> 12
and MD agree that the anticipated delivery dates of the GENERATION X and the
first and second GENERATION XX units are all within the XXXXX TECHNOLOGY
DEVELOPMENT PERIOD, and since the required six XXXXX notice of change request
can not be given, these units may not be substituted or rescheduled by SB.
3.3 SB may in its sole discretion substitute up to XXX XXX XXXXX
of ARRAY SPOTTERS and ARRAY SCANNERS to be delivered to SB pursuant to
Paragraph 3.1 (d), for a number of XXXXXXXXX XXXXXXXXXX equal to the number of
pairs to be substituted.
3.4 The target dates in Paragraph 3.1 above are dependent upon the
performance by SB of its obligations in this AGREEMENT, including but not
limited to providing necessary samples and test data to MD on a timely basis,
as provided in Paragraph 5.9. It is agreed that XXXXXXXXXXXX XXXXXXXXXXXXXX for
the ARRAY SPOTTER and ARRAY SCANNER have not yet been established and that
determining their XXXXXXXXXXX XXXXXX is part of the TECHNOLOGY DEVELOPMENT
PERIOD. Therefore, FUNCTIONAL INSTALLATION shall not include XXXXXXX
XXXXXXXXXXX XXXXXX not specifically detailed in this Agreement nor include
demonstrating XXXXXXXXXXX of the ARRAY SCANNER or the ARRAY SPOTTER in XXXX XXX
XXXXXXXXXXXXXX XX XXXXX XXXX XXX XXXXXXX.
3.5 For FUNCTIONAL INSTALLATION, a qualified representative of MD
will unpack the ARRAY SCANNERS and ARRAY SPOTTERS and install them in a
laboratory setting, selected by SB, that has been previously confirmed to meet
each of the specifications outlined in the Customer Planning Guide to be
supplied in writing by MD to SB at least one (1) month prior to shipment of
the first GENERATION XX ARRAY SPOTTER and GENERATION XX ARRAY SCANNER. For the
first GENERATION X ARRAY SPOTTER and GENERATION X ARRAY
-12-
<PAGE> 13
SCANNER specifically, the parties agree that MD shall be required only to
complete the FUNCTIONAL INSTALLATION at SB in order to begin the XXXXXXXXXX XXX
XXXXXXXXXXX periods detailed in Paragraph 6. To further the collaboration, MD
agrees to place, XXXXXXXXXXX at least one Technical Support Specialist on site
at SB for XXXXXX to XXXXXX working days in the period directly following the
FUNCTIONAL INSTALLATION of the first GENERATION X ARRAY SPOTTER and GENERATION
I ARRAY SCANNER to assist with characterization and technical support on the
products.
3.6 ARRAY SPOTTERS and ARRAY SCANNERS delivered pursuant to
Paragraph 3.1.(a) shall be FUNCTIONALLY INSTALLED at SB within XX XXXXXXXXX of
such delivery.
3.7 The GENERATION X ARRAY SCANNER and ARRAY SPOTTER in paragraph
3.1(a) at SB shall be either (i) XXXXXXXX or (ii) XXXXXXXXX to GENERATION XX no
later than XXXXXXXXX with the choice between either (i) or (ii) at MD's sole
discretion. MD shall make commercially reasonable efforts to provide in-process
enhancements in each generation to further the collaboration. MD makes no
commitment to XXXXXXX or XXXXXXXX GENERATION XX or GENERATION XXX units
installed at SB to the next generation or to the commercially available
product.
3.8 At XXXXXX and with XXXXXX notice and if commercial versions of
MD's array SPOTTERS and array SCANNERs are available, SB may XXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX pursuant to Paragraph
XXXXXXXXXXXXXXXXXXXX XXXXXXXXXXXXX of MD's array SPOTTERS and array SCANNERs.
-13-
<PAGE> 14
4. PURCHASE OF ADDITIONAL ARRAY SPOTTERS AND ARRAY
4.1 Following delivery of the XXXXX ARRAY SPOTTERS AND ARRAY
SCANNERS due under Paragraph 3.1 of this AGREEMENT and during the TECHNOLOGY
ACCESS PERIOD SB and SB AFFILIATES, in their sole discretion, may purchase
additional ARRAY SPOTTERS and ARRAY SCANNERS from MD, and MD shall provide such
additional ARRAY SPOTTER and ARRAY SCANNERS provided:
(a) SB forecasts its demand for such additional ARRAY SPOTTERS
and/or ARRAY SCANNERS XXXXXXXX in advance of required delivery;
(b) SB places confirmed and binding orders with MD for such
additional ARRAY SPOTTERS and/or ARRAY SCANNERS XXXXXXXXXX in advance
of required delivery; and
(c) The price for such additional ARRAY SPOTTERS and/or ARRAY
SCANNERS is determined pursuant to Paragraph 2.2.
4.2 MD agrees to XXXXXX notify SB of any significant delays
expected in connections with SB's forecast in Paragraph 4.1(a) and to work in
good faith to offer SB one or more options for lessening the impact of any such
delays.
5. TECHNICAL TRAINING AND SUPPORT
5.1 For XXXXXXXXXXXXXXX MD shall supply reasonable technical
support and support staff sufficient to assure installation and operation of
the first
-14-
<PAGE> 15
FUNCTIONALLY INSTALLED GENERATION X ARRAY SPOTTER and GENERATION X ARRAY
SCANNER and to enable XXXX SB scientists, selected by SB at its sole
discretion, to use such FUNCTIONALLY INSTALLED ARRAY SPOTTER and ARRAY SCANNER.
Such support by MD shall be made available at SB at the site of the
installation for at least XXXX working days promptly after the delivery of such
ARRAY SPOTTER and ARRAY SCANNER. The SB site of installation of the first
ARRAY SPOTTER and ARRAY SCANNER shall be XXX XXXXX.
5.2 For XXXXXXXXXXXX during the TECHNOLOGY DEVELOPMENT PERIOD, SB
shall have reasonable access to MD personnel for technical support following
the support provided on-site in Paragraph 5.1, provided MD personnel shall not
be required to make on-site visits to SB other than as provided in Paragraph
5.3. Such reasonable access to MD for personnel may include visits by SB to
MD.
5.3 For XXXXXXXXXXXXXX during the TECHNOLOGY DEVELOPMENT PERIOD,
MD shall make XXXX additional on-site visits to SB at the XX XXXX having a
GENERATION X ARRAY SPOTTER and ARRAY SCANNER to assure installation and
operation of such ARRAY SPOTTERS and ARRAY SCANNERS at times to be mutually
agreed on by the parties.
5.4 For XXXXXXXXXXXX MD shall supply reasonable technical support
and support staff sufficient to assure installation and operation of the first
GENERATION XX FUNCTIONALLY INSTALLED ARRAY SPOTTER and ARRAY SCANNER and to
enable XXXX XXX scientists, selected by SB at its sole discretion, to use such
FUNCTIONALLY INSTALLED ARRAY SPOTTER and ARRAY SCANNER. Such support by MD
shall be made available at SB at the site
-15-
<PAGE> 16
of the installation for at least two XXXXXXXXXX promptly after the delivery of
such ARRAY SPOTTER and ARRAY SCANNER. The SB site of installation shall be one
or more of the XXXXXXX or XXXXXX. SB shall make reasonable efforts to
consolidate training and installation requirements.
5.5 For XXXXXXXXXXXX MD shall supply reasonable technical support
and support staff sufficient to assure installation and operation of the first
GENERATION XXX FUNCTIONALLY INSTALLED ARRAY SPOTTER and ARRAY SCANNER and to
enable XXXXX SB scientists, selected by SB at its sole discretion, to use such
FUNCTIONALLY INSTALLED ARRAY SPOTTER and ARRAY SCANNER. Such support by MD
shall be made available at SB at the site of the installation for at least
XXXXXXXXX days promptly after the delivery of such ARRAY SPOTTER and ARRAY
SCANNER. The SB site of installation shall be one or more of the XXX XX XX
XXXXXXX. SB shall make reasonable efforts to consolidate training and
installation requirements.
5.6. Any additional technical training and support provided to SB
by MD and not specifically provided for in this AGREEMENT shall be at XXXXXXXX
XXXXXXX XXXXXXXX, provided such training and support is agreed to in writing in
advance.
5.7 MD agrees to collaborate closely with SB during the TECHNOLOGY
DEVELOPMENT PERIOD and the TECHNOLOGY ACCESS PERIOD and MD agrees to inform SB
of material improvements during the TECHNOLOGY DEVELOPMENT PERIOD and
TECHNOLOGY ACCESS PERIOD.
-16-
<PAGE> 17
5.8 SB shall have reasonable access at MD's site to prototype
ARRAY SPOTTERS and ARRAY SCANNERS prior to delivery of the GENERATION X ARRAY
SPOTTER and ARRAY SCANNER at SB.
5.9 SB agrees to collaborate closely with MD during the
TECHNOLOGY DEVELOPMENT PERIOD and SB agrees to inform MD of all SB DEVELOPED
TECHNOLOGY during the TECHNOLOGY DEVELOPMENT PERIOD and TECHNOLOGY ACCESS
PERIOD.
5.10 MD responsibilities under this agreement shall not include,
the supply of reagents or consumables required for the operation of ARRAY
SCANNERS or ARRAY SPOTTERS. However, MD shall use its commercially reasonable
efforts to assure that SB has access to the consumables required for operation
of the ARRAY SPOTTERS and ARRAY SCANNERS. MD shall supply SB, at no charge to
SB, with up to XXXXXXXXXXX XXXXXXX XXXXXXXXXXXXXXXXXX glass slides per month,
at SB's request, during each of XXXXXXXXXXXXXXXXXXX. In addition, MD will
train a SB employee to prepare such glass to the MD specification to ensure a
secondary supply of XXXXXXX XXXXXXXXXX XXXXXXX glass slides during the
TECHNOLOGY DEVELOPMENT PERIOD. No license is hereby granted to SB for
manufacture or sale of such XXXXXXX glass slides using the MD chemistry. Also,
MD shall maintain XXXXX full sets of quality controlled XXX replacements (per
spotter delivered to SB by MD under this Agreement) to be used by SB as needed
in the event of failure of the XXXX supplied with the ARRAY SPOTTERS. MD shall
acquire and store a reasonable supply of Cy3 and Cy5 reagents from Amersham
International p.l.c. for the purpose of offering a second source for these
reagents to SB should they become unavailable from Amersham International p.l.c
at any point during the TECHNOLOGY DEVELOPMENT PERIOD. Should these reagents
be unavailable from Amersham International p.l.c for a period exceeding XXXXXX
-17-
<PAGE> 18
XXXX days, SB may elect to purchase these reagents directly from MD at a price
equal to the price in effect from Amersham International p.l.c. to SB at the
time this election is exercised.
5.11 Promptly after the EFFECTIVE DATE MD and SB shall form a
working party. The working party shall comprise XXXXXX scientists from MD and
XXXX scientists from SB. The working party shall meet at least monthly by
phone or in person during the TECHNOLOGY DEVELOPMENT PERIOD and the TECHNOLOGY
ACCESS PERIOD. The working party will discuss, amongst other matters related
to the collaboration, approaches for the development and improvement of the
ARRAY SPOTTERS and ARRAY SCANNERS, for example (1) modification of the glass
XXXXXXX XXXXXXXXX XX XXXXXX XXXXXXXXXX when complex probes are used and (2)
equalization of XXXXXXXXXXXXX XXXXXXXXXX over the slide surface.
6. TECHNOLOGY DEVELOPMENT PERIOD
6.1 During the TECHNOLOGY DEVELOPMENT PERIOD, SB shall have
XXXXXXXX to ARRAY SPOTTERS and ARRAY SCANNERS provided that MD may enter into
agreements regarding ARRAY SPOTTERS and ARRAY SCANNERS only with STRATEGIC
COLLABORATORS and the XXXX TECHNOLOGY ACCESS CUSTOMER pursuant to Paragraph
6.2. The parties agree the first XXXX STRATEGIC COLLABORATORS shall be XXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
provided all such STRATEGIC COLLABORATORS other than XXXXXXXXXXXXXXXXX shall
only have access to ARRAY SCANNERS during the TECHNOLOGY DEVELOPMENT PERIOD and
not ARRAY SPOTTERS. During the
-18-
<PAGE> 19
TECHNOLOGY ACCESS PERIOD, STRATEGIC COLLABORATORS shall have access to both
ARRAY SCANNERS and ARRAY SPOTTERS.
6.2 Only XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX XXXXXX may gain access
to only a GENERATION II ARRAY SCANNER and ARRAY SPOTTER at the earliest XXXXXX
following the FUNCTIONAL INSTALLATION at SB of one (1) GENERATION X ARRAY
SPOTTER and ARRAY SCANNER, provided the TECHNOLOGY ACCESS CUSTOMER pays MD at
least XXXXXXXX US Dollars ($US XXXX) inclusive of costs paid for the ARRAY
SPOTTER and ARRAY SCANNER and agrees to provisions substantially the same as
those in Paragraph 8.2. Prior to the delivery of such ARRAY SPOTTER and ARRAY
SCANNER, such TECHNOLOGY ACCESS CUSTOMER may request MD to demonstrate PROOF OF
CONCEPT. MD agrees it XXXXX XXX XXXXX TECHNOLOGY ACCESS CUSTOMER other access
to the ARRAY SPOTTERS and ARRAY SCANNERS during the above XXXXXXXXXX and SB
shall be the first to have access to a GENERATION XX ARRAY SPOTTER and ARRAY
SCANNER.
6.3 After the TECHNOLOGY DEVELOPMENT PERIOD, and during the first
XXXXXXXXXX of the TECHNOLOGY ACCESS PERIOD, TECHNOLOGY ACCESS CUSTOMERs may
gain access to ARRAY SCANNERs and ARRAY SPOTTERS, provided each TECHNOLOGY
ACCESS CUSTOMER pays MD at least XXXXXXX US Dollars ($US XXXXXXXXX) each for
access to the ARRAY SPOTTER and/or ARRAY SCANNER exclusive of costs paid for
the ARRAY SPOTTER and/or ARRAY SCANNER and agrees to provisions substantially
the same as those in Paragraph 8.2. After the TECHNOLOGY DEVELOPMENT PERIOD,
and after the first XXXXXXXXXX of the TECHNOLOGY ACCESS PERIOD, TECHNOLOGY
ACCESS CUSTOMERs may gain access to ARRAY
-19-
<PAGE> 20
SCANNERS and ARRAY SPOTTERS, provided each TECHNOLOGY ACCESS CUSTOMER pays MD
at least XXXXXXXXXXXX US Dollars ($US XXXXX) each for access to the ARRAY
SPOTTER and/or ARRAY SCANNER exclusive of costs paid for the ARRAY SPOTTER
and/or ARRAY SCANNER and agrees to provisions substantially the same as those
in Paragraph 8.2. Notwithstanding the foregoing, prior to the delivery of such
ARRAY SPOTTER and ARRAY SCANNER, such TECHNOLOGY ACCESS CUSTOMER may have MD
demonstrate PROOF OF CONCEPT. Except as provided above for PROOF OF CONCEPT,
MD agrees that during the TECHNOLOGY ACCESS PERIOD it XXXXX XXX XXXXX such
TECHNOLOGY ACCESS CUSTOMER other access to the ARRAY SPOTTERS and ARRAY
SCANNERs prior to delivery of their ARRAY SCANNER OR ARRAY SPOTTER.
6.4 MD agrees that it XXXX XXX XXXX XX XXXXX XX XX XXXX ARRAY
SPOTTERS or ARRAY SCANNERs to any THIRD PARTY, other than STRATEGIC
COLLABORATORS, TECHNOLOGY ACCESS CUSTOMERs or SB as permitted under this
AGREEMENT, during the TECHNOLOGY DEVELOPMENT PERIOD and TECHNOLOGY ACCESS
PERIOD.
7. CONFIDENTIALITY
7.1 Each party hereto (the "Receiving Party") agrees that it will
not, without the prior written consent of the other party hereto (the
"Disclosing Party") disclose to any THIRD PARTY any information disclosed to it
by the Disclosing Party, including without limitation, biological materials,
technology documents, software products, specifications, customer lists,
technical information or know-how, financial information, marketing or business
plans, and is marked "Confidential" or would reasonably be regarded in the
industry as confidential or proprietary
-20-
<PAGE> 21
(collectively, the "Confidential Information"). Furthermore, each party agrees
and will obtain or has obtained agreement from its employees and agents that
any Confidential Information obtained by the other pursuant to the terms of
this AGREEMENT will be retained as confidential and used only for the purposes
contemplated by this AGREEMENT.
7.2 The term "Confidential Information" does not include
information which (i) becomes generally available to the public other than as a
result of disclosure by the Receiving Party, (ii) was available to the
Receiving Party on a non-confidential basis prior to its disclosure by the
Disclosing Party, (iii) becomes available to the Receiving Party on a
non-confidential basis from a source other than the Disclosing Party, provided
that such disclosure did not violate any confidentiality obligations to the
Disclosing Party or its representatives, or (iv) was known to the Receiving
Party, as shown by its written records, prior to its disclosure to the
Receiving Party pursuant to this AGREEMENT.
7.3 The Receiving Party agrees to protect the Confidential
Information by not using it for any purpose, for itself or any THIRD PARTY,
other than those purposes contemplated by this AGREEMENT. Further, the
Receiving Party agrees to exercise at least that degree of care in protecting
the Confidential Information of the Disclosing Party as it exercises with
respect to its own confidential information which, in any event, shall not be
less than reasonable care.
7.4 No public announcement or other disclosure of non-public
information to any third party concerning the existence of or terms of this
AGREEMENT shall be made, either directly or indirectly, by any party hereto,
except as may be legally required (including pursuant to the rules and
regulations of the SEC) or as may be required for recording purposes, without
first obtaining the
-21-
<PAGE> 22
approval of the other party hereto and agreement upon the nature and text of
such announcement or disclosure. The party desiring to make any such public
announcement or other disclosure shall inform the other party of the proposed
announcement or disclosure in reasonably sufficient time prior to public
release, and shall provide the other party with a written copy thereof, in
order to allow such other party to comment upon such announcement or
disclosure.
7.5 After the end of the TECHNOLOGY ACCESS PERIOD or termination
of this Agreement, whichever is earlier, MD will cease all use of any SB
Confidential Information which are biological materials and Confidential
Information associated with such biological materials each which were
transferred to MD under this Agreement and marked as confidential.
8. INTELLECTUAL PROPERTY
8.1 MD shall have and retain sole and exclusive title to all
inventions, discoveries, designs, works of authorship and other know-how which
are made, conceived, reduced to practice or generated solely by its employees,
agents, or other persons acting under authority of MD. SB shall have and
retain sole and exclusive title to all inventions, discoveries, designs, works
of authorship and other know-how which are made, conceived, reduced to practice
or generated solely by employees, agents or other persons acting under
authority of SB. In the case of all inventions, discoveries, designs, works of
authorship and other know-how made, conceived, reduced to practice or generated
jointly by employees, agents, or other persons acting under the authority of
both parties hereto, each party shall own a fifty percent (50%) undivided
interest therein.
-22-
<PAGE> 23
8.2 Subject to SB's rights in and to ARRAY SPOTTERS and ARRAY
SCANNERs as provided in this AGREEMENT, SB hereby grants to MD an exclusive
worldwide right and license under SB DEVELOPED TECHNOLOGY to make, have made,
use, offer to sell, sell and have sold any and all products, processes,
apparatuses and compositions of matter (collectively hereinafter "Product"),
including the right to grant sublicenses.
8.3 MD hereby grants to SB an exclusive, except as to MD,
worldwide right and license under MD DEVELOPED TECHNOLOGY to make, have made,
use, offer to sell, sell and have sold any and all products, processes,
apparatuses and compositions of matter (collectively hereinafter "Product"),
including the right to grant sublicenses.
9. REPRESENTATIONS, WARRANTIES, COVENANTS AND LIMITATION OF
LIABILITY
9.1 MD hereby represents and warrants to SB, to the best of its
knowledge, that:
(a) it has, or will have as of the time of delivery of each ARRAY
SPOTTER and ARRAY SCANNER to SB, the full right, power and authority
to grant the rights, title and interest in the ARRAY SPOTTER and ARRAY
SCANNER that it has granted as the case may be, under this AGREEMENT;
(b) that it has not assigned, transferred or otherwise encumbered,
and will not assign, transfer or otherwise encumber such rights, title
and interest;
-23-
<PAGE> 24
(c) that no other person or entity has any claim of ownership
whatsoever with respect to ARRAY SPOTTERS and ARRAY SCANNERs to be
transferred to SB; that;
(d) that the technology embodied in the ARRAY SPOTTERS and ARRAY
SCANNERs XXXX XXX XXXXXXXX XXX XXXX XX XXXXXX XXXXXXX XXXXXXX;
provided, that the parties are aware that XXXXXXXXX XXXXXXXXXXXX of
the ARRAY SPOTTER and the ARRAY SCANNER XXX XXXXXXXX XXXX XXX
XXXXXXXXXXXX XXXXXXXX XXXXXX XX XXXXXX; XXX
(e) that there are no pending claims or litigation against MD
relating to ARRAY SPOTTERS and ARRAY SCANNERs.
9.2 As of the time of delivery of any portion of the SB DEVELOPED
TECHNOLOGY to MD, SB will notify MD if SB has knowledge that such transferred
SB DEVELOPED TECHNOLOGY may infringe any U.S. or United Kingdom patents or if
there are pending claims or litigation against SB relating to the SB DEVELOPED
TECHNOLOGY.
9.3 Each party hereto hereby represents and warrants to the other
parties hereto that it has full power and authority to execute and deliver this
AGREEMENT and to perform its obligations hereunder, and that its execution and
delivery of, and performance of the terms and conditions of this AGREEMENT will
not contravene, result in any breach of, or constitute a default under, any
order, judgment, decree or award of any court or other governmental body, or
any agreement or instrument by which it is bound.
-24-
<PAGE> 25
9.4 EXCEPT FOR THE FOREGOING EXPRESS WARRANTIES, NEITHER PARTY
MAKES ANY WARRANTIES AS TO ANY OTHER MATTER, INCLUDING WITHOUT LIMITATION ANY
WARRANTY AS TO MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE.
9.5 IN NO EVENT SHALL MD's LIABILITY TO SB UNDER THIS AGREEMENT
EXCEED AMOUNTS PAID BY SB TO MD UNDER THIS AGREEMENT.
10. INDEMNITY
10.1 MD agrees to indemnify, defend and hold SB and its officers,
directors, employees and agents harmless at MD's sole expense against any and
all damages, losses, and liabilities arising out of or resulting from any claim
that the technology embodied in the GENERATION X, XX XX XXX ARRAY SPOTTERS
and/or ARRAY SCANNERs infringe any U.S. or United Kingdom patent of a THIRD
PARTY ("Third Party Patent"). SB shall notify MD promptly in writing of any
notice, suit, or proceeding in which any claim is alleged for which SB intends
to seek indemnification hereunder, and MD shall have sole control to defend
and/or settle any such claim. MD shall incur no liability to SB under this
AGREEMENT to the extent that such infringement results from SB's modification
of the GENERATION XX XX XX XXX ARRAY SPOTTERS and/or ARRAY SCANNERs. If the
technology embodied in the GENERATION XX XX XX XXX ARRAY SPOTTERS and/or ARRAY
SCANNERs are determined to infringe any THIRD PARTY U.S. or United Kingdom
Patent, MD shall, at MD's expense in the following order of priority: (i)
provided that it is commercially reasonable to do so, procure for SB the right
to use such infringing GENERATION XX XX XX XXX ARRAY SPOTTERS and/or ARRAY
SCANNERs free of any liability for such infringement or (ii) shall use
reasonable
-25-
<PAGE> 26
best efforts to replace the GENERATION XX XX XX XXX ARRAY SPOTTERS and/or ARRAY
SCANNERs with a non-infringing substitute otherwise complying with the
requirements of this AGREEMENT. Nothing in this Agreement shall impose any
obligations of indemnity upon MD for any damages, losses, and liabilities
arising out of or resulting from any claim that applications of the technology
embodied in the GENERATION XX XX XX XXX ARRAY SPOTTERS and/or ARRAY SCANNERs
infringe any Third Party Patent.
10.2 Each party shall indemnify and hold harmless the other party,
its officers, directors, shareholders, employees, successors and assigns from
any loss, damage, or liability, including attorney's fees, resulting from any
claim, complaint, suit, proceeding or cause of action against any of them
alleging physical or other injury, including death, brought by or on behalf of
an injured party; loss of service or consortium or a similar such claim,
complaint, suit, proceeding or cause of action brought by a friend, spouse,
relative or companion of an injured party due to such physical injury or death
and rising out of its use of the ARRAY SPOTTERS and ARRAY SCANNERs, except to
the extent such damages, claims, costs, losses, liabilities or expenses are
caused by the other party's negligent or wrongful actions and provided:
a. The indemnifying party shall not be obligated under this
Paragraph if it is shown by evidence acceptable in a court of law
having jurisdiction over the subject matter and meeting the
appropriate degree of proof for such action, that the injury was the
result of the negligence or willful misconduct of any employee or
agent of the other party;
b. The indemnifying party shall have no obligation under this
Paragraph unless the other party (i) gives it prompt written notice
of any claim or
-26-
<PAGE> 27
lawsuit or other action for which it seeks to be indemnified under
this AGREEMENT, (ii) the indemnifying party is granted full authority
and control over the defense, including settlement, against such claim
or lawsuit or other action, and (iii) the other party cooperates fully
with the indemnifying party and its agents in defense of the claims or
lawsuit or other action; and
c. The indemnified party shall have the right to participate in
the defense of any such claim, complaint, suit, proceeding or cause of
action referred to in this paragraph utilizing attorneys of its
choice, provided, however, that the indemnifying party shall have full
authority and control to handle any such claim, complaint, suit,
proceeding or cause of action, including any settlement or other
disposition thereof, for which the other party seeks indemnification
under this Paragraph.
11. TERM AND TERMINATION
11.1 Unless earlier terminated pursuant to this Article 11, this
AGREEMENT shall take effect as of the EFFECTIVE DATE and shall continue in
force until MD has FUNCTIONALLY INSTALLED ALL GENERATION XXX ARRAY SPOTTERS and
ARRAY SCANNERs due pursuant to Section 3 and provided technical training and
support to SB in accordance with Section 5. Subject to Paragraph 12.2, the
obligations of MD in this agreement terminate upon the functional installation
of the last GENERATION XXX unit or the end of the TECHNOLOGY ACCESS PERIOD,
whichever occurs last provided where Paragraphs 3.3 and 3.8 are invoked, the
obligations of MD under this Agreement shall not terminate until the
obligations of such Paragraphs are satisfied except in the event of termination
pursuant to any of Paragraphs 11.2, 11.3, 11.4, or 11.5.
-27-
<PAGE> 28
11.2 SB may terminate this AGREEMENT, in its sole discretion and
without penalty to either party, in the event that MD shall fail to deliver the
GENERATION X ARRAY SCANNER or ARRAY SPOTTER and FUNCTIONALLY INSTALL them at
SB by XXXXXXXXXXXX provided, where MD fails to FUNCTIONALLY INSTALL such first
GENERATION X ARRAY SCANNER or ARRAY SPOTTER, then MD XXXXX XXXXXX XX XX XXX
XXXXXX XX XXXX pursuant to Paragraph 2.1(a).
11.3 SB shall have the right to terminate this AGREEMENT by written
notice to MD in the event of (i) a material breach by MD (or an MD AFFILIATE)
of this AGREEMENT, which breach shall remain unremedied for thirty (30) days
after receipt of notice thereof; or (ii) the filing by MD in any court or
agency pursuant to any statute or regulation of any state or country, a
petition in bankruptcy or insolvency or for reorganization or for an
arrangement or for the appointment of a receiver or trustee of the party or of
its assets, or its proposal of a written agreement of composition or extension
of its debts, or the filing of an involuntary petition against it, filed in any
insolvency proceeding, and such petition shall not be dismissed within sixty
(60) days after the filing thereof, or its proposal of or becoming a party to
any dissolution or liquidation, or its making an assignment for the benefit of
creditors.
11.4 MD shall have the right to terminate this AGREEMENT by written
notice to SB in the event of any (i) material breach by SB (or and SB
AFFILIATE) of this AGREEMENT, which breach shall remain unremedied for thirty
(30) days after receipt of notice thereof; or (ii) , as permitted by law, the
filing by SB in any court or agency pursuant to any statute or regulation of
any state or country, a petition in bankruptcy or insolvency or for
reorganization or for an arrangement or
-28-
<PAGE> 29
for the appointment of a receiver or trustee of the party or of its assets, or
its proposal of a written agreement of composition or extension of its debts,
or the filing of the involuntary petition against it, filed in any insolvency
proceeding, and such petition shall not be dismissed within sixty (60) days
after the filing thereof, or its proposal of or becoming a party to any
dissolution or liquidation, or its making an assignment for the benefit of
creditors.
11.5 SB may terminate this AGREEMENT, in its sole discretion and
without penalty to either party, in the event (1) the technology embodied in
the GENERATION X, GENERATION XX, or GENERATION XXX ARRAY SPOTTERS and ARRAY
SCANNERs due SB pursuant to Section 3.1 are determined by an industry expert in
the field of bioanalytical instrumentation mutually and reasonably acceptable
to both parties to infringe any US or United Kingdom patent of a THIRD PARTY;
and (2) where MD either (i) fails to use commercially reasonable efforts to
procure for SB the right to use such infringing ARRAY SPOTTERS and/or ARRAY
SCANNER free of any liability for such infringement or (ii) if MD does not
comply with (i), fails to use reasonable best efforts to replace the ARRAY
SPOTTERS and/or ARRAY SCANNERs with a non-infringing substitute otherwise
complying with the requirements of this AGREEMENT.
12. EFFECT OF TERMINATION OR EXPIRATION
12.1 Expiration or termination of this AGREEMENT for any reason
whatsoever shall be without prejudice to the right of any party hereto to
receive all performance due in favor of such party under this AGREEMENT prior
to the effective date of such expiration or termination and any other rights
and remedies which such party may then or thereafter have hereunder or under
applicable law.
-29-
<PAGE> 30
12.2 Termination or expiration of this AGREEMENT shall not deprive
the parties of any rights provided hereunder or relieve the parties of any
obligations that may have accrued hereunder prior to such termination or
expiration, and those portions of this AGREEMENT which define rights,
obligations or liabilities that extend beyond the term of this AGREEMENT,
including but not limited to the obligations set forth in Sections 7, 8, 9, 10,
13, 14, 15 and any other such portions clearly meant to survive, shall survive
the expiration or termination of this AGREEMENT in accordance with their terms;
provided, that the obligations set forth in Section 10 shall not survive
termination of this AGREEMENT pursuant to Section 11.2.
13. NOTICES
13.1 Any notice required or permitted under this AGREEMENT shall be
sent by air mail, postage pre-paid, by commercial courier service, or by
facsimile to the parties at the addresses and numbers below, or such other
addresses and numbers as each party may hereafter subsequently notify the other
parties hereto:
SB: SMITHKLINE BEECHAM CORPORATION
709 Swedeland Road
P.O. Box 1539
King of Prussia, Pennsylvania 19406
ATTENTION: Peter Goodfellow, Christine
Debouck, John Burczak and John Keller
-30-
<PAGE> 31
MD: MOLECULAR DYNAMICS, INC.
928 East Arques Avenue,
Sunnyvale, CA 94086-4520
ATTENTION: Jay Flatley, President and CEO
13.2 Any notice required or permitted to be given concerning this
AGREEMENT shall be effective upon receipt by the party to whom it is addressed.
14. ASSIGNMENT
14.1 This AGREEMENT and the licenses herein granted shall be
binding upon and inure to the benefit of the successors in interest of the
respective party. Neither this AGREEMENT nor any interest hereunder shall be
assignable by any party without the written consent of the other party;
provided, however, that SB or MD respectively may assign this AGREEMENT to any
corporation with which it may merge or consolidate, or to which it may transfer
all or substantially all of its assets to which this AGREEMENT relates, without
obtaining the consent of the other party hereto, provided the assigning party
remains liable under this AGREEMENT or the THIRD PARTY assignee or surviving
entity assumes in writing all of the assigning parties obligations under this
AGREEMENT.
14.2 The parties hereto agree that in the event of any assignment
or delegation to an AFFILIATE of Molecular Dynamics, Inc. on the one hand, and
SmithKline Beecham Corporation or SmithKline Beecham p.l.c. on the other hand,
the applicable party as to which such assignment or delegation applies
guarantees the performance of such AFFILIATE under this AGREEMENT and the
compliance with the terms of this AGREEMENT by such AFFILIATE. Any such
assignment or
-31-
<PAGE> 32
delegation must bind such AFFILIATE to the terms and conditions of this
AGREEMENT, or it is void ab initio.
15. ADDITIONAL TERMS AND CONDITIONS
15.1 Headings: The headings of the Articles of this AGREEMENT are
inserted for convenience of reference only and shall not be interpreted to
affect the interpretation of this AGREEMENT.
15.2 Force Majeure: If the performance of any part of this
AGREEMENT by any party hereto, or of any obligation under this AGREEMENT, is
prevented, restricted, interfered with or delayed by reason of any cause beyond
the reasonable control of the party liable to perform, unless conclusive
evidence to the contrary is provided, the party so affected shall, upon giving
prompt written notice to the other parties, be excused from such performance to
the extent of such prevention, restriction, interference or delay, provided
that the affected party shall use its reasonable best efforts to avoid or
remove such causes of non-performance and shall continue performance with the
utmost dispatch whenever such causes are removed. When such circumstances
arise, the parties shall discuss what, if any, modification of the terms of
this AGREEMENT may be required in order to arrive at an equitable solution.
15.3 Governing Law: This AGREEMENT and its form, execution,
validity, construction and effect shall be determined in accordance with the
laws of the State of New York, U.S.A. (without reference to the conflicts laws
thereof).
-32-
<PAGE> 33
15.4 Separability:
(a) In the event any portion of this AGREEMENT shall be held illegal, void
or ineffective, the remaining portions hereof shall remain in full force and
effect.
(b) If any of the terms or provisions of this AGREEMENT are in conflict with
any applicable statute or rule of law, then such terms or provisions shall be
deemed inoperative to the extent that they may conflict therewith and shall be
deemed to be modified to conform with such statute or rule of law.
(c) In the event that the terms and conditions of this AGREEMENT shall be
materially altered as a result of a final judicial determination that any
portion of this AGREEMENT is illegal, void or ineffective, or as a result of the
operation of subparagraph (b) above, the parties shall renegotiate the terms and
conditions of this AGREEMENT to resolve any inequities and accomplish their
intended purpose insofar as possible.
15.5 Entire Agreement:
(a) This AGREEMENT constitutes the entire agreement among the parties
relating to the subject matter hereof and supersedes all previous writings and
understandings.
(b) No terms of this AGREEMENT shall be varied or modified by any prior or
subsequent statement, conduct or act of either of the parties, except that the
parties may amend this AGREEMENT by written instruments
-33-
<PAGE> 34
specifically referring to and executed in the same manner as this
AGREEMENT.
15.6 Independent Contractors: The status of the parties under this
AGREEMENT shall be that of independent contractors. No party shall have the
right to enter into any agreements on behalf of another party nor shall it
represent to any person that it has such right or authority nor shall any
partnership or joint venture be created hereby.
IN WITNESS WHEREOF, the parties, through their authorized officers,
have executed this AGREEMENT as of the EFFECTIVE DATE.
SMITHKLINE BEECHAM CORPORATION
SMITHKLINE BEECHAM P.L.C.
By: /s/ George Posner
Name: ________________________
Title: _______________________
MOLECULAR DYNAMICS, INC.
By: /s/ Jay Flatley
Name: ________________________
Title: _______________________
-34-
<PAGE> 35
APPENDIX A
ARRAY SPOTTER:
Shall mean the family of XXXXXXXXXXXX instruments, and associated instrument
control software, currently under development at Molecular Dynamics as part of
the XXXXXXX Development Program. Specifically, these products shall have the
ability to sample XXXXXXXXX of DNA-containing liquids from microwell plates and
deposit them in ordered micro-arrays in duplicate on specially-prepared glass
microscope slides. This definition of ARRAY SPOTTER specifically includes the
XXXXXXX versions of the XXXXXXXXX product further defined as GENERATION XX
ARRAY SPOTTER, GENERATION XX ARRAY SPOTTER, and GENERATION XXX ARRAY SPOTTER
below.
ARRAY SCANNER:
Shall mean the family of XXXXXXXXXXXX instruments, and associated instrument
control software, currently under development at Molecular Dynamics as part of
the XXXXXXX Development Program. Specifically, these products shall have the
ability to scan and detect XXXXX amounts of dye-labeled DNA molecules which have
been deposited onto specially-prepared glass microscope slides. This definition
of ARRAY SCANNER specifically XXXXXX the XXXXXXX versions of the XXXXX product
further defined as GENERATION XX ARRAY SCANNER, GENERATION XXX ARRAY SCANNER and
GENERATION XXX ARRAY SCANNER below. This definition specifically XXX the
commercially available MD Confocal Laser Scanning Microscope product line, the
XXXXXXXXXX product, and direct improvements thereto, previously supplied to XX
and the
-35-
<PAGE> 36
XXXXXXXXXXXXX product, and direct improvements thereto, previously supplied to
XXXXXXXXXXXX
CAPILLARY SEQUENCER:
Shall mean the automated DNA sequencing system currently under development at
Molecular Dynamics known as XXXXX Specifically, this product is a high
throughput genome analysis system whose design goal is both higher productivity
and higher cost efficiency than the XXXXXXXXXX sequencing system. The system
is based on detection of XXXXXXX fluorescent dyes that emit light in separate
"color" regions of the spectrum. DNA fragments labeled with these dyes are
detected in real-time after electrophoretic separation in an array of 96
capillary columns. Emission data are analyzed by application and database
software for DNA sequence information. Design goals for the system include
sequencing read length greater than XXX bases with an accuracy greater than
XXXXXXX bases and XXXXX operation for 96 samples per run. There are many
additional design goals and specifications and the product is XXXXXXXX
However, this definition of CAPILLARY SEQUENCER specifically XXXXX the
pre-commercial versions of the XXXXX product. There can be no guarantee that
these design goals will be met, nor that the product will be commercially
available. Molecular Dynamics is applying substantial resources to bring a
XXXXX product to market.
GENERATION XX ARRAY SPOTTER AND SCANNER
Shall mean the XXX version of the XXXXX ARRAY SPOTTER and ARRAY SCANNER, under
development at MD to be delivered to SB and which essentially XXXXXX the
function and performance of the XXXXXX MD XXXXX system. The design goal of the
GENERATION XX ARRAY SPOTTER and ARRAY
-36-
<PAGE> 37
SCANNER is to XXXXXXXXXX to SB and therefore SB agrees the GENERATION XX system
will be XXXXX before shipment but is performance will be XXXXXXXXXX following
FUNCTIONAL INSTALLATION. Specifically, the GENERATION XX ARRAY SCANNER shall
use the XXXXX and optical design to scan an area of XXXXXXX with XXXXXXX at
both XXXXXXX and will include no XXX from the existing XXXXXXXX Specifically,
the GENERATION X ARRAY SPOTTER shall handle at least X XXXXXXXX with
XXXXXXXXXXXXXX shall use at least XXXXXXX, and shall accommodate at least
XXXXXXXX on which the micro- arrays shall be deposited. As initially
delivered, the GENERATION X ARRAY SPOTTER shall be able to spot XXX unique
samples, each in duplicate, for a total of XX spots per slide. MD shall use
commercially reasonable efforts to modify the existing instrument control
software by XXXXXXXX to allow for the contents of XXXXXX of XXXXXXXX plates to
be spotted onto a previously spotted slide set, thereby XXXXX the capacity to
XXXXX samples, for a total of XXXXXXXX per slide. MD shall use commercially
reasonable efforts to modify the existing instrument control software by XXXXXX
to allow for the contents of XXXXXXXXXXXXXX XXXXX plates to be spotted onto a
XXXXXX set, thereby XXXXXXX the capacity to XXXXX samples, for a total of XXXXX
per slide. XXXXXXXXXXXX to remove and reload each set of four XXXXXX plates
will be required. In the GENERATION XX ARRAY SPOTTER, the carryover from one
sample to the next when spotter with the same XXX XXX shall be XXXXXXXXXXXX
when using the MD-recommended washing protocols.
The spot-to-spot variability both from i) a XXXX XXXXXX making a
reasonable number of repetitive depositions and ii) within a XXXX XXXXXXX, each
XXXXXX making a reasonable number of repetitive depositions, shall be equal to
or less than plus or minus XXXXXXXXXXXXXXXX when using the GENERATION XX ARRAY
-37-
<PAGE> 38
SPOTTER to spot XXXXXXXXXXXXXXXX sample provided by MD and the GENERATION XX
ARRAY SCANNER for detection and quantitation. The verification of these
performance criteria shall be made XXXXXXXX XXXXXXXXXXXXXXXXXXXXXXX that
directly XXXXX the FUNCTIONAL INSTALLATION of the first GENERATION XX ARRAY
SPOTTER AND SCANNER.
GENERATION XX ARRAY SPOTTER AND SCANNER:
Shall mean the XXXXX version of the XXXXX ARRAY SPOTTER and ARRAY SCANNER under
development at MD to be delivered to SB and which shall contain XXXXXXX as
compared to GENERATION XX above. The design goal of GENERATION XX is increased
XXX as compared to GENERATION X. The design specifications of GENERATION XX
are XXXXXXXXX and can be expected to change slightly. Specifically, the
GENERATION XXX ARRAY SCANNER shall use an XXXXXXXXX to scan XXXXX regions of XX
XXXXXXXXXXXXX pixels at both XXXX and XXXX and will include XXXXXXXX
electronics. Specifically, the GENERATION XX ARRAY SPOTTER shall handle at
least XXXXXXX plates with XX positions each, shall use at least XXXXXXX and
shall accommodate at least XXXXXXXXXXXXXX on which the micro-arrays shall be
deposited. As currently defined, the GENERATION XX ARRAY SPOTTER shall be able
to spot XXX XXX samples, each in duplicate, for a total of XXXXXXX per slide.
MD shall use commercially reasonable efforts to modify the existing instrument
control software by XXXXXXX to allow for the contents of XXXXXXXXXXXXXX plates
to be spotted onto a single slide set, thereby increasing the capacity to
XXXXXXXX samples, for a total of XXXXX per slide. XXXXXXXXXXXXX to remove and
XXXXX each set of XXXXXXXX plates will be required. MD agrees to inform SB
promptly if these specifications
-38-
<PAGE> 39
change materially. In the GENERATION X ARRAY SPOTTER, the carryover from one
sample to the next when spotter with the XXXX XXX XXX shall be less than XXX
XXXXXXXX when using the MD-recommended washing protocols.
MD shall use reasonable best efforts to reduce the spot-to-spot
variability both from i) a XXXXX XXXXXX making a reasonable number of
repetitive depositions and ii) within a XXXXXX XXXX each XXXXXX making a
reasonable number of repetitive depositions, to be equal to or less than plus
or minus XXXXXXXXXX when using the GENERATION X ARRAY SPOTTER to spot
XXXXXXXXXX sample provided by MD and the GENERATION XX ARRAY SCANNER for
detection and quantitation. The verification of these performance criteria
shall be made XXXXX XXXXXXXXXXXXXXXXXXXXXX that directly XXXXXXXXXX the
FUNCTIONAL INSTALLATION of the first GENERATION XX ARRAY SPOTTER AND SCANNER.
GENERATION XXX ARRAY SPOTTER AND SCANNER:
Shall mean the XXXXX version of the XXXXXX ARRAY SPOTTER and ARRAY SCANNER
under development at MD at be developed to SB and which shall contain XXXXXXXX
as compared to GENERATION XXX above. The design goal of GENERATION XXX is to
XXXXX the XXXXXX and XXXXX as compared to GENERATION XX. The design
specifications of GENERATION XXX are XXXX XXXXXXXXX and can be expected to
change XXXXXX. The current plan for the GENERATION XXX ARRAY SCANNER is to
include XXXXXXXXXXXXXXX XXXXX to XXXXXXXXXX. The GENERATION XXX ARRAY SPOTTER
is expected to handle XXXXXXXX plates with XXXXXX each, is expected to include
up to XXXXXXXXXX and is expected to accommodate up to XXXXXXXXXXXX XXXXX on
which the micro-arrays shall be deposited. As currently defined, the
-39-
<PAGE> 40
GENERATION XXX ARRAY SPOTTER shall be able to spot XXXXXX samples, each in
duplicate, for a total of XXXXXXXX per slide. MD shall use commercially
reasonable efforts to modify the existing instrument control software by the
time of delivery of the first GENERATION XXX ARRAY SPOTTER to SB to allow for
the contents of XXXXXXXXXXX to be spotted onto a single slide set, thereby
increasing the capacity to XXXXXXXX samples, for a total of XXXXXXX per slide
when the contents of XXXXXXXXX have been fully arrayed. XXXXXXXXXXX XXXX to
remove and XXXXXX each set XXXXXX plates will most likely be required. MD
agrees to inform SB promptly if these expectations change materially and will
provide confirmed specifications for GENERATION XX at least X months prior to
the availability of the first GENERATION XX systems.
The parties agree to meet during the month of XXXXXXXXX to both i)
review the current levels of XXXXXXXXXXXX XXXXXXXXXXX in the GENERATION XXX
ARRAY SPOTTER and ii) to assess the level of XXXXXXXXXXXX XXXXXXXXXXX that is
required for the intended biological application(s). Based on these
discussions, the parties will jointly develop a mutually acceptable, firm
specification for XXXXXXXXXXXX XXXXXXXXXXX in the GENERATION XXXX ARRAY
SPOTTER.
FIRST TECHNOLOGY ACCESS CUSTOMER NAME:
XXXXXXXXXXXXXX.
-40-
<PAGE> 1
EXHIBIT 10.40
______________________________
HOME LOAN AGREEMENT
This Loan Agreement ("Agreement") dated effective as of January 10,
1997, is by and between Molecular Dynamics, Inc., a Delaware corporation (the
"Company"), and Jay Flatley (the "Borrower").
RECITALS
The Borrower desires to borrow and the Company is willing to lend to
the Borrower an amount not to exceed $400,000 on a secured basis under the
terms and conditions of this Agreement.
NOW THEREFORE, the Company and the Borrower agree as follows:
1. The Loan. Subject to the terms and conditions contained
herein, the Company shall lend to the Borrower an aggregate amount not to
exceed $400,000 (the "Loan") in connection with the Borrower's purchase of a
new home in California, set forth on Schedule A hereto (the "Property"). The
Borrower shall provide the Company with at least five (5) business days notice
of the Borrowers' request prior to funding of the Loan. The Company's
obligation to fund the Loan shall expire, at the Company's option, on the
earlier of (i) six (6) months after the effective date of this Agreement or
(ii) the termination date of Borrower's employment with the Company.
Concurrently with the Company's funding of the Loan, the Borrower shall have
executed and delivered one or more promissory notes in favor of the Company for
an aggregate amount not to exceed $400,000 (the "Notes") substantially in the
form attached hereto as Exhibit A bearing interest at the Applicable Federal
Rate (as defined by Section 1274(d) of the Internal Revenue Code) per annum,
compounded annually. Unpaid principal and interest under the Loan shall be due
and payable on the earlier of, (i) one year after a change of control of the
Company through merger or acquisition, (ii) one year after the voluntary or
involuntary termination of the Borrower's employment with the Company for any
reason, with or without cause (including death or disability), (iii) three (3)
years after the effective date of this Agreement, or (iv) as otherwise set
forth in the Notes or in this Agreement.
2. Security.
(a) Second Deed of Trust. Payment of the Notes shall be
secured by a Second Deed of Trust on the Property substantially in the form
attached hereto as Exhibit B. The Borrower, however, shall remain personally
liable for payment of the Notes, and assets of the Borrower, in addition to the
collateral under the Second Deed of Trust, may be applied to the satisfaction
of the Borrower's obligations hereunder.
<PAGE> 2
(b) Remedies. In the case of an Event of Default, as
defined and set forth below, the Company shall have the right to accelerate
payment of the Notes as set forth in the Notes, and the Company shall
thereafter be entitled to pursue its remedies, including foreclosure of the
Property, under the Second Deed of Trust. The proceeds of any sale shall be
applied in the following order:
(i) To the extent necessary, proceeds shall be
used to pay all reasonable expenses of the Company in
enforcing this Agreement, including, without
limitation, reasonable attorney's fees and legal
expenses incurred by the Company.
(ii) To the extent necessary, proceeds shall be
used to satisfy any remaining indebtedness under the
Notes.
(iii) Any remaining proceeds shall be delivered to
the Borrower.
(c) Withdrawal or Substitution of Collateral. The
Borrower shall not sell, withdraw, pledge, substitute or otherwise dispose of
all or any part of the Property without the prior written consent of the
Company.
3. Default. The Borrower shall be deemed to be in default of the
Notes in the event (an "Event of Default"):
(a) Payment of principal or interest on the Notes shall
be delinquent for a period of 10 days or more;
(b) The Borrower fails to perform any of the covenants in
this Agreement for a period of 10 days after written notice thereof from the
Company.
(c) The Borrower's representations and warranties to the
Company contained in this Agreement were untrue or incorrect.
4. No Employment Rights. Nothing contained in this Agreement or
in any of the attachments or exhibits hereto is intended or shall be construed
to confer upon the Borrower any rights to employment or continued employment
with the Company, or shall alter in any way the nature of the Borrower's
current employment with the Company.
5. Construction. This Agreement is the result of negotiations
between and has been reviewed by each of the parties hereto and their
respective counsel; accordingly, this Agreement shall be deemed to be the
product of all of the parties hereto, and no ambiguity shall be construed in
favor of or against any one of the parties hereto. The Borrower acknowledges
that the Company has made no representation or warranty to the Borrower
concerning the income tax consequences of the Loan, and the Borrower shall be
solely responsible for ascertaining and bearing such tax consequences.
-2-
<PAGE> 3
6. Notices. Any notice required or permitted by this Agreement
shall be in writing and shall be personally delivered or sent by prepaid
registered or certified mail, return receipt requested, addressed to the other
party at the address shown below or at such other address for which such party
gives notice hereunder. Notices sent by mail shall be deemed to have been
given 72 hours after deposit in the United States mail.
7. Voluntary Execution; Legal Counsel. This Agreement and the
exhibits hereto are executed voluntarily and without any duress or undue
influence on the part or behalf of the parties hereto, with the full intent of
creating the obligations and security interests described herein and therein.
The parties acknowledge that: (a) they have read this agreement and the
exhibits hereto; (b) they have been represented in the preparation,
negotiation, and execution of this Agreement and exhibits hereto by legal
counsel of their own choice or they have voluntarily declined to seek such
counsel; (c) they understand the terms and consequences of this Agreement and
the exhibits hereto, including any federal or state income tax effects, and of
the obligations and security interests they create; and (d) they are fully
aware of the legal and binding effect of this Agreement and the exhibits
hereto.
8. Survival. Each of the obligations of the Borrower hereunder,
and the liability of the Borrower for any failure of the representations or
warranties set forth herein to be accurate and complete, shall survive the
closing of the Loan described herein for the entire term of the Loan.
9. Dispute Resolution. All actions or proceedings relating to
this Agreement shall be maintained in a court located in Santa Clara County,
State of California, and the parties hereto expressly consent to (i) the
personal jurisdiction of the federal and state courts within Santa Clara
County, California, and (ii) service of process being effected upon them by
registered mail sent to the address set forth below.
10. Miscellaneous. This Agreement shall inure to the benefit of
and be binding on the respective heirs, successors and assigns of the parties
hereto. The Borrower may not assign his rights and/or duties under this
Agreement to a third party without the prior written consent of the Company,
which may be withheld in its sole discretion. This Agreement and all acts and
transactions pursuant hereto and the rights and obligations of the parties
hereto shall be governed, construed and interpreted in accordance with the laws
of the State of California. This Agreement constitutes the entire agreement of
the parties hereto with respect to the subject matter hereof and supersedes all
prior agreements and understandings related to such subject matter. This
Agreement shall not be amended without the written consent of the parties
hereto. In the event that any provision hereof becomes or is declared by a
court of competent jurisdiction to be illegal, unenforceable or void, this
Agreement shall continue in full force and effect without said provision. The
titles and subtitles used in this Agreement are used for convenience only and
are not to be considered in construing or interpreting this Agreement. This
Agreement may be executed in two or more counterparts, each of which shall be
deemed an original and all of which together shall constitute one instrument.
The parties hereto agree to execute, acknowledge and
-3-
<PAGE> 4
deliver or to cause to have executed, acknowledged and delivered, such other
and further instruments and documents as may reasonably be requested by the
other to carry out the purposes of this Agreement.
The undersigned have executed this Agreement as of the date first
written above.
BORROWER: COMPANY:
MOLECULAR DYNAMICS, INC.,
a Delaware corporation
/s/ Jay Flatley By: /s/ Lynne R. Wagoner
- ----------------------------- -----------------------------
Jay Flatley
Title: Director of Finance
--------------------------
Address: 26 Cabot Ave. Address: 928 East Arques Avenue
Santa Clara, CA Sunnyvale, CA 94086
-4-
<PAGE> 5
SCHEDULE A
18930 Congress Junction Court
Saratoga, California 95070
-5-
<PAGE> 6
EXHIBIT A
NOTE SECURED BY SECOND DEED OF TRUST
$_________ ______________, 1996_
Sunnyvale, California
1. Obligation. For value received, Jay Flatley (the "Borrower")
promises to pay to Molecular Dynamics, Inc., a Delaware corporation (the
"Company"), the principal sum of $_____________, together with interest on the
unpaid principal hereof from the date hereof at the rate of ____% per annum,
compounded annually (the "Loan").
2. Payment. Payments of principal and interest on the Loan shall
be made as follows:
$_______ principal amount plus interest accrued to date on this Note
shall be due and payable in equal installments on each of the first, second and
third anniversaries of the date and year first written above, provided that the
third such payment shall include the balance of the principal amount
outstanding plus all accrued interest as of that date, unless accelerated as
provided in Section 3 below. Prepayment of all or any portion of the principal
or interest owing under the Loan may be made at any time without penalty.
Payments of principal and interest shall be made in lawful money of
the United States of America and shall be credited first to the accrued
interest, with the remainder applied to principal. Payments may also be made,
at the election of the Borrower, (i) by offset of pre- tax cash bonuses, if
any, that may be payable from time to time by the Company to the Borrower, (ii)
by payment of the proceeds from the Borrower's sale of Common Stock of the
Company, (iii) by surrender of shares of Common Stock of the Company by the
Borrower for cancellation or (iv) by such other means as the Board of Directors
of the Company may authorize. In the event a payment hereunder is made in
shares of Company Common Stock pursuant to clause (iii) above, the shares
surrendered to the Company shall be valued based upon the closing sale price of
the Company's Common Stock on the Nasdaq National Market (or on such other
stock market or exchange on which the Company's Common Stock is then listed) on
the date the shares are surrendered for payment. The Borrower acknowledges that
he has consulted his own tax adviser with respect to the tax consequences of
selling shares of Common Stock of the Company pursuant to (ii) above or
surrendering shares of Common Stock of the Company for cancellation pursuant to
(iii) above in connection with repayment of the Loan.
3. Acceleration of Obligation. The Loan shall immediately become
due and payable in full upon the earliest of the following: (i) an Event of
Default under the Home Loan Agreement between the Company and the Borrower
dated as of ___________, 1996, as amended (the "Loan Agreement"); (ii) in the
event any required payment hereunder is not made when due [and the continuation
of such default for more than thirty (30) days]; (iii) one year after the
voluntary or
<PAGE> 7
involuntary termination of the Borrower's employment with the Company for any
reason, with or without cause (including death or disability); (iv) assignment
by the Borrower for the benefit of creditors, or admission in writing of the
Borrower's inability to pay his debts as they become due, or filing a voluntary
petition in bankruptcy or adjudication as a bankrupt or insolvent, or filing
any petition or answer seeking any reorganization, arrangement, composition,
readjustment, dissolution or similar relief under any present or future
statute, law or regulation, or filing any answer admitting or failing to deny
the material allegations of a petition filed against him for any such relief;
(v) the failure of the Borrower to execute a second deed of trust on the
Property as defined in the Loan Agreement (the "Property") within thirty (30)
days of a request from the Company; (vi) the date of any sale, conveyance,
assignment, alienation or any other form of transfer of the Property, or any
part thereof or interest therein, or any divestiture of the Borrower's title or
interest therein in any manner or way, whether voluntary or involuntary,
without the prior written consent of the Company being first obtained or except
as otherwise permitted under the Loan Agreement; or (vii) the occurrence of any
event of default under the Second Deed of Trust securing this Note or any
obligation secured thereby.
4. Security. The proceeds of the Loan evidenced by this Note
were applied solely to the purchase of the Property. Payment of this Note
shall be secured by a Second Deed of Trust on such Property. The Borrower,
however, shall remain personally liable for payment of this Note, and assets of
the Borrower, in addition to the collateral under the Second Deed of Trust, may
be applied to the satisfaction of the Borrower's obligations hereunder.
5. Purpose of Loan. The principal sum represented by this Note
was used by the Borrower to purchase their primary residence in California.
6. Governing Law. This Note shall be governed by and construed
in accordance with the laws of California, without reference to conflict of
laws principles.
7. Attorneys' Fees. If suit is brought for collection of this
Note, the Borrower agree to pay all reasonable expenses, including attorneys'
fees, incurred by the Company in connection therewith whether or not such suit
is prosecuted to judgment.
8. Waiver. No previous waiver and no failure or delay by the
Company in acting with respect to the terms of this Note, the Loan Agreement or
the Second Deed of Trust shall constitute a waiver of any breach, default, or
failure of condition under this Note, the Loan Agreement, the Second Deed of
Trust or the obligations secured thereby. A waiver of any term of this Note,
the Loan Agreement, the Second Deed of Trust or of any of the obligations
secured thereby must be made in writing and shall be limited to express terms
of such waiver.
The Borrower waives presentment, demand, notice of dishonor, notice of
default or delinquency, notice of acceleration, notice of protest and
nonpayment, notice of costs, expenses or losses and interest thereon, notice of
interest on interest, and diligence in taking any action to collect any sums
owing under this Note or in proceeding against any of the rights or interests
in or to properties securing payment of this Note.
-2-
<PAGE> 8
IN WITNESS WHEREOF, the Borrower has caused this Note to be executed
as of the date and year first above written.
"BORROWER"
____________________________
Jay Flatley
-3-
<PAGE> 1
EXHIBIT 11.1
MOLECULAR DYNAMICS, INC.
STATEMENT RE: COMPUTATION OF EARNINGS (LOSS) PER SHARE
<TABLE>
<CAPTION>
Years ended December 31,
------------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Net income (loss) $ 3,408,000 $ (2,987,000) $ (4,704,000)
Weighted average shares outstanding:
Common stock 10,058,000 10,095,000 10,056,000
Common stock equivalents -- options 667,000 -- --
------------ ------------ ------------
10,725,000 10,095,000 10,056,000
------------ ------------ ------------
Earnings (loss) per share $ .32 $ (.30) $ (.47)
============ ============ ============
</TABLE>
<PAGE> 1
EXHIBIT 23.1
Consent of Independent Auditors
The Board of Directors
Molecular Dynamics, Inc.:
We consent to incorporation by reference in the registration statements (Nos.
33-57966, 33-80042, 33-95430 and 333-21967) on Form S-8 of Molecular Dynamics,
Inc. of our reports dated January 23, 1997 relating to the consolidated balance
sheets of Molecular Dynamics, Inc. and subsidiaries as of December 31, 1996 and
1995, and the related consolidated statements of operations, stockholders'
equity, and cash flows for each of the years in the three-year period ended
December 31, 1996, and the related consolidated financial statement schedule,
which reports appear in the December 31, 1996 annual report on Form 10-K of
Molecular Dynamics, Inc.
KMPG Peat Marwick LLP
Palo Alto, California
March 25, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 8,024
<SECURITIES> 12,617
<RECEIVABLES> 12,815
<ALLOWANCES> 254
<INVENTORY> 6,869
<CURRENT-ASSETS> 40,418
<PP&E> 8,182
<DEPRECIATION> 5,185
<TOTAL-ASSETS> 46,043
<CURRENT-LIABILITIES> 12,529
<BONDS> 0
0
0
<COMMON> 36,021
<OTHER-SE> (2,507)
<TOTAL-LIABILITY-AND-EQUITY> 46,043
<SALES> 49,378
<TOTAL-REVENUES> 49,378
<CGS> 21,471
<TOTAL-COSTS> 21,471
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 3,787
<INCOME-TAX> 379
<INCOME-CONTINUING> 3,408
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,408
<EPS-PRIMARY> 0.32
<EPS-DILUTED> 0.32
</TABLE>
