<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 20, 2000
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------------
FORM S-1
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
------------------
CIPHERGEN BIOSYSTEMS, INC.
(Exact name of Registrant as specified in its charter)
<TABLE>
<S> <C> <C>
DELAWARE 8731 33-059-5156
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification Number)
</TABLE>
490 SAN ANTONIO ROAD
PALO ALTO, CA 94306
(650) 496-3770
(Address, including zip code, and telephone number, including
area code, of registrant's principal executive offices)
--------------------------
WILLIAM E. RICH, PH.D.
PRESIDENT AND CHIEF EXECUTIVE OFFICER
CIPHERGEN BIOSYSTEMS, INC.
490 SAN ANTONIO ROAD
PALO ALTO, CA 94306
(650) 496-3770
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
--------------------------
COPIES TO:
<TABLE>
<S> <C>
MICHAEL J. O'DONNELL, ESQ. NORA L. GIBSON, ESQ.
RICHARD L. PICHENY, ESQ. BROBECK, PHLEGER & HARRISON LLP
WILSON SONSINI GOODRICH & ROSATI SPEAR STREET TOWER
PROFESSIONAL CORPORATION ONE MARKET
650 PAGE MILL ROAD SAN FRANCISCO, CA 94105
PALO ALTO, CA 94304 (415) 442-0900
(650) 493-9300
</TABLE>
--------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following box. / /
--------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED MAXIMUM
AGGREGATE OFFERING PRICE AMOUNT OF
TITLE OF EACH CLASS OF SECURITIES TO BE REGISTERED PER SHARE(1) REGISTRATION FEE
<S> <C> <C>
Common Stock $0.001 par value............................ $86,250,000 $22,770.00
</TABLE>
(1) Includes shares that the Underwriters have the option to purchase to cover
over-allotments, if any. Estimated solely for the purpose of computing the
amount of the registration fee pursuant to Rule 457(o) under the Securities
Act of 1933.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT THAT SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
SUBJECT TO COMPLETION, DATED MARCH 20, 2000
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY
NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY THESE
SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
<PAGE>
PROSPECTUS
SHARES
[CIPHERGEN LOGO]
COMMON STOCK
This is an initial public offering of shares of common stock of Ciphergen
Biosystems, Inc. Ciphergen expects that the initial public offering price will
be between $ and $ per share.
We have applied for approval for trading and quotation of our common stock
on the Nasdaq National Market under the symbol "CIPH."
OUR BUSINESS INVOLVES SIGNIFICANT RISKS. THESE RISKS ARE DESCRIBED UNDER THE
CAPTION "RISK FACTORS" BEGINNING ON PAGE 8.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
---------------------
<TABLE>
<CAPTION>
PER
SHARE TOTAL
<S> <C> <C>
Public offering price.................................... $ $
Underwriting discounts and commissions................... $ $
Proceeds, before expenses, to Ciphergen.................. $ $
</TABLE>
The underwriters may also purchase up to an additional shares of
common stock at the public offering price, less the underwriting discounts and
commissions, to cover over-allotments.
The underwriters expect to deliver the shares against payment in New York,
New York on , 2000.
---------------------
SG COWEN
ING BARINGS
WARBURG DILLON READ LLC
, 2000
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
--------
<S> <C>
Prospectus Summary..................... 4
Risk Factors........................... 8
Special Note Regarding Forward-Looking
Statements........................... 17
Use of Proceeds........................ 18
Dividend Policy........................ 18
Capitalization......................... 19
Dilution............................... 20
Selected Consolidated Financial Data... 21
Management's Discussion and Analysis of
Financial Condition and Results of
Operations........................... 22
Business............................... 27
</TABLE>
<TABLE>
<CAPTION>
PAGE
--------
<S> <C>
Management............................. 36
Certain Transactions................... 43
Principal Stockholders................. 47
Description of Capital Stock........... 50
Shares Eligible for Future Sale........ 53
Underwriting........................... 55
Legal Matters.......................... 58
Experts................................ 58
Where You Can Find Additional
Information.......................... 58
Index to Consolidated Financial
Statements........................... F-1
</TABLE>
------------------------
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS PROSPECTUS. WE
HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH INFORMATION THAT IS DIFFERENT. WE
ARE OFFERING TO SELL AND SEEKING OFFERS TO BUY SHARES OF OUR COMMON STOCK ONLY
IN JURISDICTIONS WHERE OFFERS AND SALES ARE PERMITTED. THE INFORMATION CONTAINED
IN THIS PROSPECTUS IS ACCURATE ONLY AS OF THE DATE OF THIS PROSPECTUS,
REGARDLESS OF THE TIME OF DELIVERY OF THIS PROSPECTUS OR OF ANY SALE OF OUR
COMMON STOCK. IN THIS PROSPECTUS, REFERENCES TO "CIPHERGEN BIOSYSTEMS,"
"CIPHERGEN," "WE," "US" AND "OUR" REFER TO CIPHERGEN BIOSYSTEMS, INC., A
DELAWARE CORPORATION.
------------------------
UNTIL , 2000, ALL DEALERS THAT EFFECT TRANSACTIONS IN THESE
SECURITIES, WHETHER OR NOT PARTICIPATING IN THIS OFFERING, MAY BE REQUIRED TO
DELIVER A PROSPECTUS. THIS REQUIREMENT IS IN ADDITION TO THE DEALERS' OBLIGATION
TO DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR
UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
CIPHERGEN AND PROTEINCHIP ARE U.S. REGISTERED TRADEMARKS OF CIPHERGEN
BIOSYSTEMS, INC. IN ADDITION, CIPHERGEN HAS FILED FOR TRADEMARK REGISTRATION OF
SELDI, THE CIPHERGEN LOGO AND BIOMARKER DISCOVERY CENTER. THIS PROSPECTUS ALSO
INCLUDES TRADEMARKS AND TRADENAMES OF OTHER PARTIES.
3
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING IS ONLY A SUMMARY. YOU SHOULD CAREFULLY READ THE MORE DETAILED
INFORMATION CONTAINED IN THIS PROSPECTUS, INCLUDING OUR FINANCIAL STATEMENTS AND
RELATED NOTES INCLUDED IN THIS PROSPECTUS. OUR BUSINESS INVOLVES SIGNIFICANT
RISKS. YOU SHOULD CAREFULLY CONSIDER THE INFORMATION UNDER THE HEADING "RISK
FACTORS" BEGINNING ON PAGE 8. UNLESS OTHERWISE NOTED, ALL INFORMATION IN THIS
PROSPECTUS HAS NOT BEEN ADJUSTED TO REFLECT A -FOR- REVERSE STOCK SPLIT THAT
WILL BE EFFECTED PRIOR TO CONSUMMATION OF THIS OFFERING AND ASSUMES (1) THE
CONVERSION OF ALL OUTSTANDING SHARES OF OUR PREFERRED STOCK INTO SHARES OF
COMMON STOCK UPON THE CLOSING OF THIS OFFERING AND (2) NO EXERCISE BY THE
UNDERWRITERS OF THE OVER-ALLOTMENT OPTION.
THE COMPANY
Ciphergen Biosystems, Inc. develops, manufactures and markets a proprietary
ProteinChip System that enables protein discovery, characterization and assay
development to provide a better understanding of biological functions at the
protein level. Our ProteinChip System is a novel, enabling tool in the emerging
field of protein-based biology research, known as proteomics. While recent
technological advances in DNA tools have substantially changed the field of
genomics, the absence of enabling protein analysis tools has limited progress in
proteomics research. Proteomics provides a direct approach to understanding the
role of proteins in the biology of disease, monitoring of disease progression
and the therapeutic effects of drugs. We believe proteomics will be a major
focus of biological research by enhancing the understanding of gene function and
the molecular basis of disease. In May 1999, we commercially launched our
current ProteinChip System, Series PBS II.
Our ProteinChip System integrates the key steps of proteomics research on a
single, miniaturized biochip platform. Our ProteinChip System consists of three
components: disposable ProteinChip Arrays, a ProteinChip Reader and ProteinChip
Software. The ProteinChip System incorporates our proprietary Surface-Enhanced
Laser Desorption/Ionization, or SELDI, technology on a disposable chip. This
allows proteins to be captured, separated and quantitatively analyzed directly
from crude biological materials, such as whole blood, tissue and saliva, with
minimal sample preparation. Our ProteinChip System allows rapid, differential
protein expression and quantitative protein interaction analysis. Our SELDI
technology provides signal-to-noise enhancement of proteins through chemical
noise reduction. In addition, SELDI enables on-chip, secondary processing of
proteins, including purification, sequencing, characterization and quantitative
protein interaction analysis, and laser-based molecular weight detection.
We believe our ProteinChip System is an enabling technology that will
accelerate proteomics research. Our ProteinChip System can be used in the
following areas:
- differential protein expression;
- protein characterization; and
- quantitative assay of proteins and protein interactions.
The entire genetic content of any organism, known as its genome, is encoded
in strands of DNA. Cells carry out their normal biological functions through the
genetic instructions encoded in their DNA, which results in the production of
proteins. This process is known as gene expression or protein expression.
Differences in living organisms result from variability in their genome, which
can affect the levels of gene expression. The type of cell determines which
genes are expressed and the amount and type of a particular protein produced.
Proteins play a crucial role in virtually all biological processes, including
transportation and storage of energy, immune protection, generation and
transmission of nerve impulses and control of cell growth.
4
<PAGE>
Diseases may be caused by a mutation of a gene that alters a protein, alters
the gene's level of protein expression or by changes to the protein after gene
expression. Indicators of these types of protein changes, known as protein
biomarkers, may be used to identify disease progression prior to the appearance
of physical symptoms. In addition, protein biomarkers can be used to monitor
disease treatment and identify new disease pathways to be used as drug targets.
We believe our ProteinChip System facilitates proteomics research in the
following markets:
- basic biology research;
- clinical research and diagnostics; and
- pharmaceutical research and development.
We are establishing Biomarker Discovery Centers directly and through
partnerships to foster adoption of our products and technology as an industry
standard. We believe that our Biomarker Discovery Centers may accelerate
biomarker discovery and validation in pharmaceutical drug discovery, toxicology
and clinical trials, and in clinical research and diagnostic laboratories. We
intend to obtain certain commercial rights related to biomarkers discovered in
our Biomarker Discovery Centers. Currently, we have leased facilities for our
Biomarker Discovery Centers in Copenhagen, Denmark and Fremont, California.
We intend to establish our ProteinChip System as the enabling technology
platform for protein biomarker discovery and proteomics research in the basic
biology research, drug discovery and development and clinical research and
diagnostic markets. Key elements of our strategy are to:
- accelerate awareness and acceptance of our ProteinChip System;
- expand product development and innovation;
- establish Biomarker Discovery Centers; and
- expand our intellectual property portfolio.
Our principal executive offices are located at 490 San Antonio Road, Palo
Alto, CA 94306 and our telephone number is (650) 496-3770. Our corporate web
site is www.ciphergen.com. The reference to our web address does not constitute
incorporation by reference of the information contained at that site. The
information found on our site is not part of this prospectus and should not be
relied upon when making a decision to invest in our common stock. We were
incorporated in California in December 1993 and reincorporated in Delaware in
, 2000.
5
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Common stock we are offering......................... shares
Common stock to be outstanding after this offering... shares
Underwriters' over-allotment option.................. shares
Use of proceeds...................................... We intend to use the net proceeds for research
and development activities, including
establishment of Biomarker Discovery Centers,
expansion of facilities and expansion of sales
and marketing capabilities, and for general
corporate purposes, including working capital.
See "Use of Proceeds."
Proposed Nasdaq National Market symbol............... CIPH
</TABLE>
The number of shares of our common stock to be outstanding immediately after
this offering is based on the number of shares outstanding on March 15, 2000.
This number:
- includes 16,467,257 shares of our currently outstanding common stock;
- includes the conversion of all outstanding shares of series A, B, C, D and
E preferred stock into an aggregate of 29,570,551 shares of common stock,
which will automatically occur at the closing of this offering;
- includes warrants to purchase 390,000 shares of preferred stock at a
weighted average exercise price of $1.42 per share, which warrants will
expire at the closing of this offering;
- excludes 2,571,136 shares of common stock issuable upon the exercise of
stock options outstanding under our stock option plan at a weighted
average exercise price of $1.12 per share;
- excludes 1,463,123 shares of common stock reserved for future grant under
our stock option plans;
- excludes 280,590 shares of common stock issuable upon the exercise of
warrants at a weighted average exercise price of $2.00 per share; and
- excludes 550,000 shares of common stock issuable to Stanford Research
Systems, Inc. upon possible achievement of certain product development
milestones under a product development agreement dated February 2, 1995.
6
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
The following summary historical financial data has been derived from our
audited financial information and sets forth summary consolidated financial data
of our business. You should read this information together with the consolidated
financial statements and the notes to those statements appearing elsewhere in
this prospectus and the information under "Selected Consolidated Financial Data"
and "Management's Discussion and Analysis of Financial Condition and Results of
Operations." See note 1 to our consolidated financial statements for information
regarding computation of net loss per share and pro forma net loss per share.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------
1997 1998 1999
-------- -------- --------
<S> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Revenue..................................................... $ 1,283 $ 2,933 $ 5,010
Loss from operations........................................ (6,583) (8,167) (7,625)
Net loss.................................................... $(6,809) $(8,310) $(7,681)
======= ======= =======
Net loss per share:
Basic and diluted......................................... $ (1.01) $ (0.72) $ (0.52)
Shares used in computing net loss per share, basic and
diluted................................................. 6,749 11,558 14,877
Pro forma net loss per share:
Basic and diluted......................................... $ (0.23)
Shares used in computing net loss per share, basic and
diluted (pro forma)..................................... 33,939
</TABLE>
The following table contains a summary of our consolidated balance sheet at
December 31, 1999:
- on an actual basis;
- on a pro forma basis including the issuance of Series E preferred stock in
March 2000; and
- on a pro forma, as adjusted basis, to reflect the conversion of all
outstanding shares of preferred stock into 29,532,151 shares of common
stock effective upon the closing of this offering and the sale of
shares of common stock offered hereby at an assumed initial public
offering price per share of $ after deducting estimated underwriting
discounts, commissions and offering expenses.
<TABLE>
<CAPTION>
DECEMBER 31, 1999
-----------------------------------
PRO FORMA,
ACTUAL PRO FORMA AS ADJUSTED
--------- --------- -----------
(UNAUDITED)
<S> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents................................... $ 2,799 $ 29,748
Working capital............................................. 1,533 28,482
Total assets................................................ 6,147 33,096
Long-term debt and capital lease obligations, net of current
portion................................................... 483 483
Convertible preferred stock................................. 25,339 52,288
Total stockholders' equity (deficit)........................ (23,280) (23,280)
</TABLE>
7
<PAGE>
RISK FACTORS
YOU SHOULD CAREFULLY CONSIDER THE RISKS DESCRIBED BELOW BEFORE MAKING AN
INVESTMENT DECISION. YOU SHOULD ALSO REFER TO THE OTHER INFORMATION IN THIS
PROSPECTUS, INCLUDING OUR FINANCIAL STATEMENTS AND THE RELATED NOTES. THE RISKS
AND UNCERTAINTIES DESCRIBED BELOW ARE THOSE THAT WE CURRENTLY BELIEVE MAY
MATERIALLY AFFECT OUR COMPANY. ADDITIONAL RISKS AND UNCERTAINTIES THAT WE ARE
UNAWARE OF OR THAT WE CURRENTLY DEEM IMMATERIAL ALSO MAY BECOME IMPORTANT
FACTORS THAT AFFECT OUR COMPANY.
RISKS RELATED TO OUR COMPANY AND BUSINESS
WE ARE IN THE EARLY STAGES OF PRODUCT DEVELOPMENT AND COMMERCIALIZATION AND IF
WE FAIL TO SUCCESSFULLY IMPLEMENT OUR BUSINESS STRATEGY, OUR REVENUE WILL NOT
INCREASE AND WE WILL NOT ACHIEVE PROFITABILITY.
We were founded in December 1993, and our technologies are still in the
early stages of development. We have recently begun full commercialization of
our products. Our success will depend on our ability to continue to develop and
expand commercial sales of our ProteinChip System, including our ProteinChip
Arrays. Our ProteinChip System may not achieve market acceptance. In addition,
our ProteinChip System may be difficult or uneconomical to produce, fail to
achieve expected performance levels, have a price that is unacceptable to the
industry or be precluded from commercialization by the proprietary rights of
others. We may not be able to successfully develop, manufacture and market our
ProteinChip System or any other products on a timely basis, achieve anticipated
performance levels, gain industry acceptance of such products or develop a
profitable business.
OUR SUCCESS DEPENDS ON MARKET ACCEPTANCE AND USE OF OUR PRODUCTS, WHICH MAY NOT
BE COMMERCIALLY VIABLE.
We introduced our second generation ProteinChip System, Series PBS II, and
second generation ProteinChip Arrays in May 1999. Because our products have been
in operation for a limited period of time, the accuracy and utility of our
products have not been fully established. The commercial success of our
ProteinChip System will depend upon its accuracy, utility and market acceptance
by researchers in pharmaceutical and biotechnology companies, academic and
government research centers and clinical reference laboratories, which are our
targeted markets. Accordingly, any of the following events may occur, each of
which would seriously undermine market acceptance of our products and damage our
ability to become profitable:
- the accuracy of our ProteinChip System in providing commercially useful
protein information may not be equal to or better than current
technologies;
- advanced protein analysis techniques could be discovered that obviate the
need for our ProteinChip Arrays;
- manufacturing problems or marketing difficulties may limit or harm the
distribution of our ProteinChip Arrays to our targeted markets;
- limitations in funding for commercial, academic and government research
organizations that are the potential customers for our ProteinChip System
and ProteinChip Arrays and cost containment pressures for biomedical
research may limit the price we may be able to charge customers for our
products;
- our failure to place and service sufficient quantities of our ProteinChip
System and ensuring that technicians have adequate training to use our
ProteinChip System or interpret the results generated by our ProteinChip
System may limit acceptance and use of our products;
- our inability to provide our customers with software that enables the
integration and analysis of large volumes of data may limit acceptance and
use of our products; and
8
<PAGE>
- our ProteinChip Arrays or our ProteinChip System may experience
operational difficulties.
Because of these and other factors, our products may not be commercially
viable and may not gain market acceptance.
WE HAVE A HISTORY OF NET LOSSES, WE EXPECT TO CONTINUE TO INCUR NET LOSSES IN
THE FORESEEABLE FUTURE, AND MAY NEVER ACHIEVE PROFITABILITY.
From our inception in December 1993 through December 31, 1999, we have
generated cumulative revenue of approximately $9.6 million and have incurred net
losses of approximately $29.3 million. We have experienced significant operating
losses each year since our inception and expect these losses to continue for the
next several years. For example, we experienced net losses of approximately
$6.8 million in 1997, $8.3 million in 1998 and $7.7 million in 1999. Our losses
have resulted principally from costs incurred in research and development, sales
and marketing, and general and administrative costs associated with our
operations. These costs have exceeded our interest income and revenue, which, to
date, have been generated principally from product sales. We expect to incur
additional operating losses and these losses may be substantial as a result of
increases in expenses for manufacturing, marketing and sales capabilities,
research and product development and general and administrative costs. We may
never achieve profitability. Even if we do achieve profitability, we may not be
able to sustain or increase profitability on a quarterly or annual basis. Our
ability to manage the transition to a commercially successful company will
depend upon many factors, including our ability to:
- develop our marketing capabilities;
- establish sales and distribution capabilities;
- educate our targeted markets as to the applications for and utility of our
ProteinChip System;
- develop products that are accepted by the marketplace;
- create a product mix that is appealing to customers in our targeted
markets;
- hire and retain qualified personnel;
- establish a commercial scale manufacturing capability for our ProteinChip
Arrays and consistently achieve acceptable yields;
- cost-effectively procure components of our ProteinChip System;
- avoid infringing on the intellectual property rights of others; and
- enforce our intellectual property rights against others.
OUR OPERATING RESULTS ARE LIKELY TO FLUCTUATE AND MAY BE SUBJECT TO SEASONAL
FLUCTUATIONS, WHICH MAY MAKE IT DIFFICULT TO FORECAST OUR FUTURE PERFORMANCE AND
COULD CAUSE OUR STOCK PRICE TO DECLINE.
Our results of operations historically have fluctuated on an annual and
quarterly basis, and we expect this trend to continue. Operating results can
fluctuate as a result of a number of factors, including:
- the commencement, delay or cancellation of purchase orders;
- seasonal slowdowns;
- the timing of start-up expenses for new products and facilities;
- the timing and integration of acquisitions;
- costs incurred in developing and testing our products and product
enhancements;
9
<PAGE>
- costs incurred in anticipation of future sales, such as inventory
purchases, expansion of manufacturing facilities, or establishment of
international sales offices;
- competitive changes, such as price changes or new product introductions
that we or our competitors may make;
- budget cycles of our customers; and
- the timing of government appropriations to our customers.
We believe that period-to-period comparisons of our historical and future
results will not necessarily be meaningful, and that investors should not rely
on them as an indication of future performance. To the extent we experience the
factors described above, our future operating results may not meet the
expectations of securities analysts or investors from time to time, which may
cause the market price of our common stock to decline.
WE HAVE LIMITED SALES, MARKETING AND TECHNICAL SUPPORT EXPERIENCE, WHICH MAY
HURT SALES OF OUR PRODUCTS.
We are currently engaged in full commercialization of our products, and have
a limited direct sales, marketing and technical support organization. Our
failure to further develop our sales, marketing and technical support
capabilities would hurt sales of our products. Our existing organization and
relationships may not be sufficient to achieve successful commercialization of
our products and we may be required to expand our organization and enter into
additional collaboration or distribution arrangements to commercialize our
products both inside and outside the United States. We may not be able to
establish a sufficient sales, marketing or technical support organization, or
establish additional collaboration or distribution arrangements to sell, market
and service our products.
WE HAVE EXPANDED RAPIDLY AND OUR FAILURE TO MANAGE GROWTH COULD DAMAGE OUR
ABILITY TO INCREASE REVENUE AND BECOME PROFITABLE.
We are rapidly and significantly expanding our operations, which is placing
a significant strain on our financial, managerial and operational resources. For
example, we are planning to relocate our corporate headquarters during 2000.
This relocation could divert management attention or otherwise disrupt our
operations. In order to achieve and manage growth effectively, we must continue
to improve and expand our operational and financial management capabilities and
resources. Moreover, we will need to increase staffing and effectively train,
motivate and retain our employees. Our failure to manage our growth effectively
could damage our ability to increase revenue and become profitable.
IF WE DON'T INCREASE OUR LIMITED MANUFACTURING CAPACITY AND IF WE CONTINUE TO
EXPERIENCE VARIABILITY IN MANUFACTURING YIELDS, WE WILL NOT BE ABLE TO MEET
ANTICIPATED DEMANDS FOR OUR PROTEINCHIP ARRAY PRODUCTS.
We are currently manufacturing limited quantities of our ProteinChip Arrays
for internal and collaborative purposes and for sale to the research market. We
currently have one manufacturing facility located in Palo Alto, California. The
actual number of ProteinChip Arrays we are able to sell or use depends in part
on the utilization of the capacity at this facility and the yield of our
ProteinChip Arrays that pass quality control testing. We may experience
difficulties in meeting anticipated customer and internal demand for our
ProteinChip Array products. Our inability to deliver products in a timely manner
could seriously harm our relationships with our customers and our revenue will
not increase and we will not become profitable.
10
<PAGE>
WE HAVE A LIMITED HISTORY IN MANUFACTURING OUR PRODUCTS AND WE MAY ENCOUNTER
MANUFACTURING AND QUALITY CONTROL PROBLEMS AS WE INCREASE OUR EFFORTS.
Some aspects of our manufacturing processes may not be easily scalable to
allow for production of our ProteinChip Arrays or ProteinChip Readers in larger
volumes. As a result, manufacturing and quality control problems may arise as we
increase our level of production. We may not be able to increase our
manufacturing capacity in a timely and cost-effective manner. If we are unable
to consistently manufacture our ProteinChip Arrays and ProteinChip Readers on a
timely basis because of these or other factors, we will not be able to meet
anticipated demand or become profitable.
OUR QUALITY CONTROL PROCEDURES MAY NOT BE SUFFICIENT TO ENSURE PROPER
PERFORMANCE OF OUR PRODUCTS.
Our ProteinChip System is a complex set of products, which are produced in a
complicated manufacturing process. As part of the ProteinChip Array
manufacturing process, we test only selected ProteinChip Arrays from each lot
against a number of performance criteria. We therefore rely on limited internal
quality control procedures to verify the correct completion of the manufacturing
process. It is possible that ProteinChip Arrays that do not meet all of our
performance specifications may not be identified before they are shipped. We
also assemble our ProteinChip Readers. Due to the complexity of and our limited
experience in manufacturing of these products, we may experience technical
problems as our ProteinChip System is placed into operation. If we are unable to
consistently deliver products to our customers that meet their performance
expectations, demand for our products will decline and we will not be able to
achieve or sustain profitability.
IF WE ARE UNABLE TO KEEP PACE WITH THE LATEST TECHNOLOGICAL CHANGES, SALES OF
OUR PROTEINCHIP ARRAY PRODUCTS WILL DECREASE.
The analytical tools used by researchers in pharmaceutical and biotechnology
companies, academic and government research centers and clinical research
laboratories are characterized by rapid technological change and frequent new
product introductions. Our future success will depend on our ability to enhance
our current and planned products and to develop and introduce, on a timely
basis, new products that address the evolving needs of our customers. If we are
unable to develop the necessary enhancements to our technology to compete
successfully with newly emerging technologies, our sales will decrease and we
will continue to incur losses.
WE FACE INTENSE COMPETITION IN OUR CURRENT AND POTENTIAL MARKETS AND IF WE ARE
UNABLE TO EFFECTIVELY COMPETE, OUR PRODUCTS MAY NOT ACHIEVE MARKET ACCEPTANCE
AND MAY FAIL TO CAPTURE MARKET SHARE.
Competition in our existing and potential markets is intense and is expected
to increase. Currently, our principal competition comes from existing
technologies that are used to perform many of the same functions for which we
market our ProteinChip System. In order to compete against existing and newly
developed technologies and maintain pricing and gross margins, we will need to
be successful in asserting our intellectual property rights and in demonstrating
to potential customers that our ProteinChip System provides improved performance
and utility over existing methods.
The major competitive technologies to our ProteinChip System are liquid
chromatography-mass spectrometry and 2D-gel electrophoresis-mass spectrometry.
In the life science research market, protein research tools are currently
provided by companies such as the Applied Biosystems division of PE
Biosystems, Inc., Amersham Pharmacia Biotech, Boehringer-Mannheim, Qiagen and
several smaller reagent and equipment companies. Several other companies also
provide products and services, some of which may be competitive with ours.
Additionally, our potential customers may internally develop competing
technologies. If we fail to compete effectively with these technologies and
products, and technologies and products under development, our products may not
achieve market acceptance and our sales may not increase.
11
<PAGE>
OUR ABILITY TO PROTECT OUR TECHNOLOGY AND PROPRIETARY RIGHTS IS LIMITED, WHICH
MAY HARM OUR COMPETITIVENESS.
Our commercial success depends in part on our ability to maintain the
proprietary nature of our technology, products and processes. We rely on a
combination of patents, trademarks and trade secrets to protect our technology.
We acquired our core SELDI technology, which was originally developed at the
Baylor College of Medicine, pursuant to royalty bearing sublicenses. If we fail
to maintain licensing rights to this technology, it could harm our
competitiveness. Our rights under these sublicenses are set forth in agreements
between Molecular Analytical Systems, Inc., the exclusive licensee of the Baylor
patents, and our subsidiaries, IllumeSys Pacific, Inc. and Ciphergen
Technologies, Inc. We have received a letter from Molecular Analytical Systems
expressing non-specific concerns that we are using the licensed technology in a
manner that it claims exceeds the scope of the sublicense grants. Molecular
Analytical Systems makes a further non-specific claim that we are
misrepresenting the scope of our rights to third parties. We also have patent
applications directed to subsequent technological improvements and applications
of SELDI technology. Our proprietary technology may not give us a competitive
advantage in the market. Our patent applications may not result in additional
issued U.S. patents and any issued patents for our technology may be held
invalid or unenforceable by a court of law.
We also rely upon the skills, knowledge and experience of our technical
personnel. To help protect our rights, we require all employees to enter into
confidentiality agreements that prohibit the disclosure of confidential
information to anyone outside of us. These agreements may not provide adequate
protection for our trade secrets, know-how or other proprietary information in
the event of any unauthorized use or disclosure.
THE COSTS OF ENFORCING OUR PROPRIETARY RIGHTS MAY BE EXPENSIVE AND RESULT IN
INCREASED LOSSES.
The patent positions of pharmaceutical and biotechnology companies are
generally uncertain and involve complex legal and factual questions. Disputes
with respect to the ownership of our intellectual property rights may arise. We
cannot be sure that others will not design around our patented technology or
that they will not infringe our patented technology. We believe that there will
continue to be significant litigation in the industry regarding patent and other
intellectual property rights. Our patents may be challenged and held invalid or
unenforceable by a court of law. Lawsuits that we bring against alleged
infringers of our proprietary technology may not be decided in our favor.
Other parties may now possess or may in the future possess proprietary
technology that competes with our technology or that covers aspects of our
products or processes. We are aware of third parties whose business involves the
use of mass spectrometry for the analysis of biological macromolecules. Certain
of these parties have issued patents or pending patent applications on
technology which, if practiced, might infringe our issued patents or interfere
with our pending patent applications. We may be subject to legal proceedings to
determine rights to any disputed technology, or may incur substantial
expenditures enforcing our proprietary rights against alleged infringers.
Our success also depends on avoiding infringing on the proprietary
technologies of others. Further licenses may become necessary for us to use our
technology and such licenses may not be available on commercially reasonable
terms, if at all. We may incur substantial costs defending ourselves in lawsuits
against charges of patent infringement or other unlawful use of another's
proprietary technology. Any such lawsuit may not be decided in our favor, and if
we are found liable, we may be subject to monetary damages or injunction.
12
<PAGE>
WE RELY ON THIRD-PARTY SUPPLIERS FOR MANY COMPONENTS OF OUR PROTEINCHIP SYSTEM
AND ANY FAILURE TO OBTAIN COMPONENTS COULD HARM OUR ABILITY TO ASSEMBLE AND
MANUFACTURE OUR PRODUCTS.
We depend on several suppliers for the necessary materials and components
required to assemble our products. If we are unable to procure the necessary
materials and components from our current vendors, we will have to arrange new
sources of supply and our materials and components shipments could be delayed,
harming our ability to assemble and manufacture our ProteinChip Reader and
ProteinChip Arrays, and may harm our ability to sustain or increase revenue.
WE MAY NEED TO RAISE ADDITIONAL CAPITAL IN THE FUTURE, AND IF WE ARE UNABLE TO
SECURE ADEQUATE FUNDS ON TERMS ACCEPTABLE TO US, WE MAY BE UNABLE TO EXECUTE OUR
BUSINESS PLAN.
We currently anticipate that the net proceeds of this offering will be
sufficient to meet our anticipated financial needs for at least the next two
years. However, we may need to raise additional capital sooner in order to
maintain our operations, fund manufacturing and expansion, develop new or
enhanced products or services, acquire complementary products, businesses or
technologies or otherwise respond to competitive pressures and opportunities or
unanticipated requirements. We may be required to raise additional capital
through a variety of sources, including the public equity market, private
financings, collaborative arrangements and debt. If additional capital is raised
through the issuance of equity or securities convertible into equity, our
stockholders may experience dilution, and such securities may have rights,
preferences or privileges senior to those of the holders of the common stock.
Additional financing may not be available to us on favorable terms, if at all.
If we are unable to obtain financing, or to obtain it on acceptable terms, we
may be unable to successfully execute our business plan.
REDUCTIONS IN GOVERNMENT FUNDING OF RESEARCH INSTITUTIONS COULD SERIOUSLY HARM
THE ABILITY OF OUR EXISTING AND PROSPECTIVE RESEARCH CUSTOMERS TO PURCHASE OUR
PRODUCTS.
A significant portion of our products for research use are likely to be sold
to universities, government research laboratories, private foundations and other
institutions where funding is dependent upon grants from government agencies,
such as the National Institutes of Health. Research funding by the government
may be significantly reduced in the future. Any such reduction may seriously
harm the ability of our existing and prospective research customers to purchase
our products or to reduce the number of ProteinChip Arrays used.
CONSOLIDATION OF THE PHARMACEUTICAL AND BIOTECHNOLOGY INDUSTRY MAY REDUCE THE
SIZE OF OUR TARGET MARKET AND CAUSE A DECREASE IN OUR REVENUE.
In addition, consolidation in the pharmaceutical and biotechnology
industries is generally expected to occur. Planned or future consolidation among
our current and potential customers could decrease or slow sales of our
technology and reduce the markets our products target. Any such consolidation
could seriously harm our ability to achieve or sustain profitability.
OUR EXECUTIVE OFFICERS AND KEY PERSONNEL ARE CRITICAL TO OUR BUSINESS, AND
BECAUSE THERE IS SIGNIFICANT COMPETITION FOR PERSONNEL IN OUR INDUSTRY, WE MAY
NOT BE ABLE TO ATTRACT AND RETAIN SUCH QUALIFIED PERSONNEL.
Our performance is substantially dependent on the efforts of our executive
officers and key employees. The loss of one or more key employees could harm our
business. Our success also depends on our ability to attract, retain and
motivate highly talented management personnel and scientists. Currently, each of
our field research scientists has a Ph.D. degree in biology or biochemistry. We
are actively attempting to hire additional field research scientists and
scientific staff. We may not be successful in hiring qualified personnel to fill
such positions, and we may not be able to retain our key
13
<PAGE>
employees or be able to attract and retain skilled personnel in the future.
There is a shortage of such skilled personnel, which is likely to continue for
some time. As a result, competition for these people, particularly for employees
with technical expertise, is intense and the turnover rate for these people is
high. If we are unable to hire, train and retain a sufficient number of
qualified employees, our business could be seriously harmed. This inability
could also hinder the planned expansion of our business.
WE HAVE A LENGTHY SALES CYCLE, AND MAY EXPEND SUBSTANTIAL FUNDS AND MANAGEMENT
EFFORT AND WE MAY NOT BE ABLE TO SUCCESSFULLY SELL OUR PRODUCTS OR SERVICES.
Our ability to obtain customers for our products depends in significant part
upon the perception that our products and services can help enable protein
biomarker discovery, characterization and assay development. The sales cycle is
lengthy, typically between a few months to one year. Our sales effort requires
the effective demonstration of the benefits of our products to and significant
training of many different departments within a potential customer. These
departments might include research and development personnel and key management.
In addition, we may be required to negotiate agreements containing terms unique
to each customer. We may expend substantial funds and management effort and may
not be able to successfully sell our products or services.
ANY PARTNERSHIPS WE NEGOTIATE TO ESTABLISH OUR BIOMARKER DISCOVER CENTERS MAY
NOT BE SUCCESSFUL.
An element of our business strategy is to establish Biomarker Discovery
Centers in part through partnerships with academic and government research
centers, and pharmaceutical and biotechnology companies. To date, we have not
entered into any such partnerships. We may not be able to negotiate partnerships
on acceptable terms, if at all, or that such partnerships will be successful. In
addition, our future partners may not perform their obligations as expected or
devote sufficient resources to biomarker discovery and validation. In addition,
we may be unable to retain rights to biomarkers discovered in our Biomarker
Discovery Centers.
RISKS RELATED TO THIS OFFERING
OUR STOCK PRICE MAY BE VOLATILE, AND YOUR INVESTMENT IN OUR STOCK COULD DECLINE
IN VALUE.
There is currently no public market for our common stock, and an active
trading market may not develop or be sustained after this offering. The initial
public offering price will be determined through negotiation between us and
representatives of the underwriters and may not be indicative of the market
price for our common stock after this offering. The price of our stock may
decline after this offering.
BECAUSE THE NASDAQ NATIONAL MARKET IS LIKELY TO EXPERIENCE EXTREME PRICE AND
VOLUME FLUCTUATIONS, THE PRICE OF OUR STOCK MAY DECLINE EVEN IF OUR BUSINESS IS
DOING WELL.
The market price of our common stock could fluctuate significantly as a
result of:
- our susceptibility to quarterly variations in our operating results, which
may cause us to fail to meet analysts' or investors' expectations;
- changes in financial estimates by the analysts following our stock;
- earnings and other announcements by, and changes in investors' evaluations
of, pharmaceutical and biotechnology firms;
- economic and stock market conditions specific to pharmaceutical and
biotechnology firms;
- announcements or implementation by us or our competitors of technological
innovations or new products or services;
- trading volume of our common stock; and
14
<PAGE>
- changes in general economic conditions.
The securities of many companies have experienced significant price and
volume fluctuations in recent years, often unrelated to the companies' operating
performance. Specifically, market prices for securities of biotechnology
companies have sometimes reached elevated levels, often following their initial
public offerings. These levels may not be sustainable and may not bear any
relationship to the operating performances of these companies. If the market
price of our common stock reaches an elevated level following this offering, it
may significantly and rapidly decline. In the past, following periods of
volatility in the market price of a company's securities, stockholders have
often instituted securities class action litigation against the company. If we
were to become involved in a class action suit, it could divert the attention of
senior management, and, if adversely determined, our business could suffer.
THE SALE OR AVAILABILITY FOR SALE OF SUBSTANTIAL AMOUNTS OF OUR COMMON STOCK
COULD CAUSE A DECLINE IN THE MARKET PRICE OF OUR COMMON STOCK, EVEN IF OUR
BUSINESS IS DOING WELL.
Sales of substantial amounts of our common stock in the public market after
the completion of this offering, or the perception that these sales could occur,
could cause a decline in the market price of our common stock and could impair
our future ability to raise capital through offerings of our common stock. Upon
completion of the offering, we will have outstanding an aggregate of
shares of common stock, assuming no exercise of the underwriters'
over-allotment option and no exercise of outstanding options or outstanding
warrants after March 15, 2000. Of these outstanding shares, the shares
sold in the offering will be freely tradable without restriction or further
registration under the Securities Act of 1933, unless purchased by our
"affiliates" as that term is defined in Rule 144 under the Securities Act of
1933. The remaining 46,427,808 shares of common stock outstanding upon
completion of the offering and held by existing stockholders will be "restricted
securities" as that term is defined in Rule 144 under the Securities Act of
1933.
All officers, directors and certain other holders of common stock have
entered into contractual "lock-up" agreements providing that they will not
offer, sell, contract to sell or grant any option to purchase or otherwise
dispose of shares of common stock owned by them or that could be purchased by
them through the exercise of options or warrants for a period of 180 days after
the date of this prospectus without the prior written consent of SG Cowen. As a
result of these contractual restrictions, notwithstanding possible earlier
eligibility for sale under the various provisions of the Securities Act of 1933,
additional shares will be eligible for sale beginning 181 days after the
effective date of the offering, subject in some cases to certain volume
limitations.
Shares of our common stock will become eligible for sale in the public
market as follows:
<TABLE>
<S> <C>
At the effective date....................................... shares
90 days after effective date................................ shares
180 days after effective date............................... shares
More than 180 days after effective date..................... shares
</TABLE>
Sales of the restricted shares in the public market, or the availability of
such shares for sale, could adversely affect the market price of the common
stock.
CONCENTRATION OF OWNERSHIP OF OUR COMMON STOCK MAY LIMIT YOUR ABILITY TO
INFLUENCE CORPORATE MATTERS.
Immediately following this offering, our executive officers and directors,
or entities controlled by them, together with greater than five percent
stockholders and their affiliates will own approximately % of the
outstanding shares of our common stock.
If our significant stockholders choose to act or vote together on other
matters, they will have the power to control the approval of any other action
requiring the approval of our stockholders, including
15
<PAGE>
any amendments to our certificate of incorporation and mergers, acquisitions or
sales of all of our assets. In addition, without the consent of these
stockholders, we could be prevented from entering into transactions that could
be beneficial to us. Also, third parties could be discouraged from making a
tender offer or bid to acquire our company at a price per share that is above
the then-prevailing market price.
BECAUSE WE HAVE BROAD DISCRETION TO USE THE OFFERING PROCEEDS, HOW WE INVEST
THESE PROCEEDS MAY NOT INCREASE OUR OPERATING RESULTS OR MARKET VALUE.
Our management will have significant flexibility in applying the proceeds we
receive in this offering. Because the proceeds are not required to be allocated
to any specific investment or transaction, you will not have the opportunity, as
part of your investment decision, to assess whether the proceeds are being used
in ways which will increase our operating results or market value.
YOU WILL INCUR IMMEDIATE AND SUBSTANTIAL DILUTION AS A RESULT OF THIS OFFERING.
If you purchase common stock in this offering, you will pay more for your
shares than the amounts paid by existing stockholders for their shares. As a
result, you will experience immediate and substantial dilution of approximately
$ per share, representing the difference between our net tangible
book value per share as of December 31, 1999, after giving effect to this
offering and an assumed initial public offering price of $ per
share. In addition, you may experience further dilution to the extent that
shares of our common stock are issued upon the exercise of stock options.
Substantially all of the shares issuable upon the exercise of currently
outstanding stock options will be issued at a purchase price less than the
public offering price per share in this offering.
PROVISIONS OF OUR CHARTER DOCUMENTS AND DELAWARE LAW COULD PREVENT OR DELAY A
CHANGE IN OUR CONTROL AND MAY REDUCE THE MARKET PRICE OF OUR COMMON STOCK.
Amendments to our certificate of incorporation and our bylaws, as well as
various provisions of the Delaware General Corporation Law, may make it more
difficult to effect a change in control of us. The existence of these provisions
may adversely affect the price of our common stock, discourage third parties
from making a bid for us or reduce any premiums paid to our stockholders for
their common stock. For example, our certificate of incorporation authorizes our
board of directors to issue up to 5,000,000 shares of blank check preferred
stock and to attach special rights and preferences to this preferred stock. The
issuance of this preferred stock may make it more difficult for a third party to
acquire control of us. Our Certificate of Incorporation also provides for the
division of our board of directors into three classes as nearly equal in size as
possible with staggered three-year terms. This classification of our board of
directors could have the effect of making it more difficult for a third party to
acquire us, or of discouraging a third party from acquiring control of us.
16
<PAGE>
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
We have made statements under the captions "Prospectus Summary," "Risk
Factors," "Use of Proceeds," "Management's Discussion and Analysis of Financial
Condition and Results of Operations," "Business" and in other sections of this
prospectus that are forward-looking statements. You can identify these
statements by forward-looking words such as "may," "will," "expect," "intend,"
"anticipate," "believe," "estimate," "plan," "could," "should" and "continue" or
similar words. These forward-looking statements may also use different phrases.
We have based these forward-looking statements on our current expectations and
projections about future events. These forward-looking statements, which are
subject to risks, uncertainties, and assumptions about us, may include, among
other things, projections of our future results of operations or of our
financial condition, our anticipated product commercialization strategies, and
anticipated trends in our business.
We believe it is important to communicate our expectations to our investors.
However, there may be events in the future that we are not able to accurately
predict or which we do not fully control that could cause actual results to
differ materially from those expressed or implied in our forward-looking
statements. Because these forward-looking statements involve risks and
uncertainties, there are important factors that could cause actual results to
differ materially from those expressed or implied by these forward-looking
statements.
You should also consider carefully the statements under "Risk Factors" and
other sections of this prospectus, which address additional factors that could
cause our results to differ from those set forth in the forward-looking
statements.
17
<PAGE>
USE OF PROCEEDS
We estimate that the net proceeds from the sale of the shares of
common stock offered by us at an assumed initial public offering price of
$ per share will be approximately $ million after
deducting the underwriting discounts and estimated offering expenses payable by
us. If the underwriters exercise in full their option to purchase an additional
shares of common stock, we estimate that such net proceeds will be
approximately $ million.
We expect to use the net proceeds from this offering primarily for general
corporate purposes, including:
- expansion of our sales and marketing capabilities;
- expansion of our research and development activities;
- expansion of our facilities;
- establishment of Biomarker Discovery Centers;
- expansion of our intellectual property portfolio;
- additional investments in our internal systems and processes;
- selected strategic investments or acquisitions; and
- working capital and other general corporate purposes.
Based upon the current status of our product development and
commercialization plans, we believe that the net proceeds of this offering,
together with our cash, cash equivalents and investments, will be adequate to
satisfy our capital needs through at least the next two years. Pending use of
the net proceeds of this offering, we intend to invest the net proceeds in
interest-bearing, investment-grade securities.
DIVIDEND POLICY
We have never declared or paid any cash dividends on our capital stock. We
currently intend to retain all of our future earnings, if any, to finance
operations and we do not anticipate paying cash dividends in the foreseeable
future. Our current equipment financing facilities and bank line-of-credit
restrict our ability to declare and pay any dividends without the prior consent
of our lenders.
18
<PAGE>
CAPITALIZATION
The following table sets forth our capitalization at December 31, 1999:
- on an actual basis;
- on a pro forma basis to reflect the receipt of approximately $26.9 million
of net proceeds from the issuance of 10,390,862 million shares of our
Series E convertible preferred stock and conversion upon the closing of
this offering of all outstanding shares of convertible preferred stock
into 29,532,151 shares of common stock; and
- on a pro forma, as adjusted basis, to reflect the sale of the common stock
offered by this prospectus at an assumed initial public offering price of
$ per share, after deducting the estimated underwriting discounts,
commissions and offering expenses.
You should read the following table in conjunction with our consolidated
financial statements and related notes included in this prospectus.
<TABLE>
<CAPTION>
DECEMBER 31, 1999
----------------------------------
PRO FORMA,
ACTUAL PRO FORMA AS ADJUSTED
-------- --------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
Long-term debt and capital lease obligations, net of current
portion................................................... $ 483 $ 483 $ 483
-------- -------- --------
Convertible preferred stock, $0.001 par value,
Authorized: 30,000,000 shares actual; 32,253,644 pro forma
and pro forma, as adjusted
Issued and outstanding: 19,141,289 shares actual; none pro
forma and pro forma, as adjusted........................ 25,339 --
-------- -------- --------
Stockholders' equity (deficit):
Common stock, $0.001 par value,
Authorized: 60,000,000 shares
Issued and outstanding: 15,936,960 shares actual;
45,469,111 shares pro forma; shares pro forma as
adjusted................................................ 16 45
Additional paid-in capital.............................. 10,161 62,420
Notes receivable from stockholders...................... (488) (488)
Deferred stock compensation............................. (3,687) (3,687)
Accumulated deficit..................................... (29,282) (29,282)
-------- -------- --------
Total stockholders' equity (deficit)........................ (23,280) 29,008
-------- -------- --------
Total capitalization........................................ $ 2,542 $ 29,491 $
======== ======== ========
</TABLE>
The information in the table above does not include:
- 2,571,136 shares of common stock issuable upon exercise of options
outstanding under our stock option plan at a weighted average exercise
price of $1.12 per share;
- 1,463,123 shares of common stock reserved for future grant under our stock
option plan;
- 280,590 shares of our common stock issuable upon exercise of warrants at a
weighted average exercise price of $2.00 per share; and
- 550,000 shares of common stock issuable to Stanford Research
Systems, Inc. upon possible achievement of certain product development
milestones under the product development agreement dated February 2, 1995.
19
<PAGE>
DILUTION
On a pro forma basis after giving effect to the conversion of all
outstanding shares of preferred stock into shares of common stock in connection
with this offering, our pro forma net tangible book value as of December 31,
1999, was $2.1 million or $0.05 per share of common stock. Our pro forma net
tangible book value per share represents the amount of total tangible assets
less total liabilities, divided by the shares of common stock outstanding as of
December 31, 1999, assuming the issuance of shares of Series E preferred stock
in March 2000, and assuming the conversion of all outstanding shares of
preferred stock.
After giving effect to the sale of shares of common stock we are
offering hereby at an assumed initial public offering price of $ per share
and after deducting estimated underwriting discounts and commissions and
offering expenses, our pro forma net tangible book value as of December 31,
1999, would have been approximately $ million or $ per share. This
represents an immediate increase in pro forma net tangible book value of $
per share to existing stockholders and an immediate dilution of $ per share
to the investors purchasing shares of common stock in this offering. The
following table illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............. $
Pro forma net tangible book value per share as of
December 31, 1999......................................... $ 0.05
Increase attributable to new investors......................
--------
Pro forma net tangible book value per share after
offering.................................................. $
--------
Dilution per share to new investors......................... $
========
</TABLE>
The following table summarizes, as of December 31, 1999, on the pro forma
basis described above, the number of shares of common stock purchased in this
offering, the aggregate cash consideration paid and the average price per share
paid by existing stockholders for common stock and by new investors purchasing
shares of common stock in this offering:
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
--------------------- ---------------------- PRICE PER
NUMBER PERCENT AMOUNT PERCENT SHARE
---------- -------- ----------- -------- ---------
<S> <C> <C> <C> <C> <C>
Existing Stockholders...................... 45,469,111 % $58,202,116 % $ 1.28
New Investors..............................
---------- ----- ----------- ----- --------
Total...................................... 100.0% $ 100.0% $
========== ===== =========== ===== ========
</TABLE>
This discussion and tables above assume no exercise of options outstanding
under our stock option plan. As of March 15, 2000, there were options
outstanding to purchase a total of 2,571,136 shares of common stock at a
weighted average exercise price of $1.12 per share and 1,463,123 shares
available for future grant or issuance under our stock option plan. The
discussion and tables above also assume no exercise of any outstanding warrants,
other than those expected to be exercised due to their termination at the time
of this offering. It also does not include 550,000 shares of preferred stock
issuable upon possible achievement of product development milestones by Stanford
Research Systems, Inc. As of March 15, 2000, there were outstanding warrants to
purchase 280,590 shares of our common weighted average exercise price of $2.00
per share. To the extent that any of these options or warrants are exercised,
there will be further dilution to new investors.
20
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The selected financial data set forth below should be read in conjunction
with our consolidated financial statements and the related notes and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," included in this prospectus. The consolidated statement of
operations data for the years ended December 31, 1997, 1998 and 1999, and the
consolidated balance sheet data as of December 31, 1998 and 1999, are derived
from our audited consolidated financial statements included elsewhere in this
prospectus. The consolidated statement of operations data for the years ended
December 31, 1995 and 1996, and the consolidated balance sheet data as of
December 31, 1995, 1996 and 1997, are derived from our audited consolidated
financial statements that are not included in this prospectus. The historical
results are not necessarily indicative of the operating results to be expected
in the future.
See the notes to the consolidated financial statements for an explanation of
the method used to determine the numbers of shares used in computing basic and
diluted and pro forma basic and diluted net loss per share.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------------------------
1995 1996 1997 1998 1999
-------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Revenue......................................... $ -- $ 335 $ 1,283 $ 2,933 $ 5,010
Cost of revenue................................. -- 412 1,001 1,066 1,669
------- ------- ------- ------- -------
Gross margin.................................. -- (77) 282 1,867 3,341
------- ------- ------- ------- -------
Operating expenses:
Research and development...................... 1,180 1,906 3,205 4,566 2,933
Sales and marketing........................... 89 421 1,310 2,629 4,513
General and administrative.................... 826 650 1,263 1,422 2,176
Amortization of deferred stock-based
compensation................................ -- -- 119 880 1,344
Write-off of acquired in-process technology... -- -- 968 537 --
------- ------- ------- ------- -------
Total operating expenses.................... 2,095 2,977 6,865 10,034 10,966
------- ------- ------- ------- -------
Loss from operations............................ (2,095) (3,054) (6,583) (8,167) (7,625)
Interest and other income (expense), net........ 4 (102) (226) (143) (56)
------- ------- ------- ------- -------
Net loss........................................ $(2,091) $(3,156) $(6,809) $(8,310) $(7,681)
======= ======= ======= ======= =======
Net loss per share:
Basic and diluted net loss per share............ $ (1.33) $ (1.59) $ (1.01) $ (0.72) $ (0.52)
Weighted average shares used in computing basic
and diluted net loss per share................ 1,577 1,986 6,749 11,558 14,877
Pro forma basic and diluted net loss per share
(unaudited)................................... $ (0.23)
Weighted average shares used in computing pro
forma basic and diluted net loss per share.... 33,939
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
----------------------------------------------------
1995 1996 1997 1998 1999
-------- -------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents....................... $ 127 $ 900 $ 416 $ 7,002 $ 2,799
Working capital................................. (80) 1,063 (1,958) 6,616 1,533
Total assets.................................... 752 2,219 2,064 10,082 6,147
Long-term debt and capital lease obligations,
net of current portion........................ 285 474 576 381 483
Convertible preferred stock..................... 3,317 7,506 10,425 24,264 25,339
Total stockholders' deficit..................... (3,267) (6,404) (12,014) (16,982) (23,280)
</TABLE>
21
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THE FOLLOWING DISCUSSION SHOULD BE READ IN CONJUNCTION WITH OUR CONSOLIDATED
FINANCIAL STATEMENTS AND RELATED NOTES INCLUDED IN THIS PROSPECTUS. THE
FOLLOWING DISCUSSION CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND
UNCERTAINTIES. OUR ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE ANTICIPATED
IN THOSE ANTICIPATED IN THESE FORWARD-LOOKING STATEMENTS AS A RESULT OF CERTAIN
FACTORS, INCLUDING THOSE DISCUSSED BELOW AND ELSEWHERE IN THIS PROSPECTUS,
PARTICULARLY UNDER THE HEADING "RISK FACTORS."
OVERVIEW
We develop, manufacture and sell our ProteinChip System, which consists of
disposable ProteinChip Arrays, a ProteinChip Reader and ProteinChip Software. We
market and sell our products primarily to research biologists in pharmaceutical
and biotechnology companies and academic and government research laboratories.
As part of our early product design effort, in February 1995, we signed an
agreement with Stanford Research Systems, a Sunnyvale, California based
manufacturer of electronic test equipment, to assist in this development. As
part of our early market research activities, in the fourth quarter of 1996, we
began selling an early prototype of our reader, which we purchased from a
supplier in the U.K., combined with our own software. In April 1997, we acquired
IllumeSys Pacific, Inc., which held specific rights to the SELDI technology for
the life science research market. Our first designed and manufactured System,
the ProteinChip System, Series PBS I, was available for customer shipment for
additional market research in the third quarter of 1997, and we discontinued
supplying the U.K.-purchased system. In July 1998, we acquired Ciphergen
Technologies, Inc., which held specific rights to the SELDI technology in other
life science markets. During 1999, we initiated an expanded marketing program
and in May began shipping our first commercial product, the ProteinChip System,
Series PBS II.
Since our inception in 1993, we have used our resources primarily to develop
our proprietary ProteinChip System and establish marketing and sales for
commercialization of our products. Since our inception we have incurred
significant losses and as of December 31, 1999, we had an accumulated deficit of
$29.3 million.
We recognize revenue from the sale of our ProteinChip System and disposable
ProteinChip Arrays at the time of shipment. Currently, most of the units of our
ProteinChip System placed in the field generate a recurring revenue stream from
the sale of disposables. We expect the volume of disposables purchased from each
site to increase over time as customers become increasingly familiar with the
technology and adopt our ProteinChip System for a broader range of proteomics
research programs. Our sales are currently driven by the need for better tools
to perform protein biomarker discovery, characterization and assay development.
Our expenses have consisted primarily of costs incurred in manufacturing our
ProteinChip System, including materials, labor and overhead costs, marketing and
sales activities, research and development programs, and general and
administrative costs associated with our operations. We expect our cost of
revenue to increase in the future as we sell additional units of our ProteinChip
System and Arrays, but will decrease as a percent of total revenue as we gain
efficiencies from spreading our fixed costs over a greater number of units. Our
selling expenses will increase as we continue to commercialize our products and
expand our sales force. We expect our research and development expenses to
increase in the future as we continue to improve and develop products. Expansion
of our facilities and the additional obligations of a public reporting entity
will also add to our expenses. As a result, we expect to incur losses for the
foreseeable future. Our current products do not provide sufficient revenue for
us to become profitable. To become profitable, we will need to increase our unit
sales of our ProteinChip System and generate significant sales of disposables.
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We have a limited history of operations and we anticipate that our quarterly
results of operations will fluctuate for the foreseeable future due to several
factors, including market acceptance of current and new products, the length of
the sales cycle and timing of significant orders, the timing and results of our
research and development efforts, the introduction of new products by our
competitors and possible patent conflicts. Our limited operating history makes
accurate prediction of future results of operations difficult or impossible.
RESULTS OF OPERATIONS
COMPARISON OF YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
REVENUE
Revenue was $5.0 million in 1999, $2.9 million in 1998 and $1.3 million in
1997. The increase in revenue from 1998 to 1999, which was $2.1 million or 71%,
was primarily due to increases in unit sales of our ProteinChip System,
increases in sales of disposable ProteinChip Arrays and price increases in
connection with the introduction of our first commercial product, the
ProteinChip System, Series PBS II. The increase in revenue from 1997 to 1998,
which was $1.6 million or 129%, was primarily due to an increase in the number
of units of our ProteinChip System sold and increases in sales of ProteinChip
Arrays.
COST OF REVENUE
Cost of revenue was $1.7 million in 1999, $1.1 million in 1998 and
$1.0 million in 1997. From 1998 to 1999, cost of revenue increased $603,000 or
57%. The increase from 1998 to 1999 was primarily from an increase in unit sales
of our ProteinChip System. Cost of revenue as a percent of revenue decreased
from 36% to 33%, primarily as a result of manufacturing efficiencies as unit
volumes of our ProteinChip System and Arrays manufactured increased. From 1997
to 1998, cost of revenue was essentially unchanged. Cost of revenue as a percent
of revenue decreased from 78% to 36%, primarily from one-time expenses incurred
in 1997 from manufacturing start-up costs of both ProteinChip Readers and
ProteinChip Arrays. In addition, manufacturing efficiencies were achieved as
unit volumes of our ProteinChip System and Arrays increased.
OPERATING EXPENSES
RESEARCH AND DEVELOPMENT. Research and development expenses were
$2.9 million in 1999, $4.6 million in 1998 and $3.2 million in 1997. From 1998
to 1999, research and development expenses decreased $1.7 million or 36%. This
decrease was primarily due to a one-time non-cash charge of $1.7 million in
compensation expense in 1998 related to an employee retained following our two
acquisitions. From 1997 to 1998, research and development expenses increased
$1.4 million or 42%. This increase was primarily due to the one-time charge of
$1.7 million recognized in 1998 described above and to a $275,000 milestone
payment to Stanford Research Systems in 1997.
SALES AND MARKETING. Sales and marketing expenses were $4.5 million in
1999, $2.6 million in 1998 and $1.3 million in 1997. From 1998 to 1999, sales
and marketing expenses increased $1.9 million or 72%. This increase was
primarily from additional salaries and related costs associated with newly hired
sales personnel, marketing activities associated with the launch of the
ProteinChip, Series PBS II and increases in general product promotion
activities. From 1997 to 1998, sales and marketing expenses increased
$1.3 million or 101%. This increase was primarily from additional salaries and
related costs associated with newly hired sales personnel and limited marketing
activities in 1998.
GENERAL AND ADMINISTRATIVE. General and administrative expenses were
$2.2 million in 1999, $1.4 million in 1998 and $1.3 million in 1997. From 1998
to 1999, general and administrative expenses increased $754,000 or 53%. This
increase was primarily due to business development consulting
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expenses, legal and filing fee related to intellectual property and to
additional salaries and related costs associated with newly hired employees and
contractors in business development and accounting. From 1997 to 1998, general
and administrative expenses increased $159,000 or 13%. This increase was
primarily due to intellectual property and business development expenses and to
additional salaries and related costs associated with a newly hired Chief
Financial Officer.
DEFERRED STOCK COMPENSATION. Deferred stock compensation for options
granted to employees is the difference between the deemed value for financial
reporting purposes of our common stock on the date such options were granted and
their exercise price. Deferred stock compensation for options granted to
consultants has been determined in accordance with Statement of Financial
Accounting Standards No. 123 as the fair value of the equity instruments issued.
Deferred stock compensation for options granted to consultants is periodically
remeasured as the underlying options vest in accordance with Emerging Issues
Task Force No. 96-18.
In connection with the grant of stock options to employees and consultants,
we recorded deferred stock compensation of approximately $3.7 million in the
year ended December 31, 1999, compared to $1.5 million in 1998 and $830,000 in
1997. These amounts were recorded as a component of stockholders' equity and are
being amortized as charges to operations over the vesting periods of the
options. We recorded amortization of deferred stock compensation of
approximately $1.3 million for the year ended December 31, 1999, compared to
$880,000 in 1998 and $119,000 in 1997. For options granted through December 31,
1999, we expect to record additional amortization expense for deferred
compensation as follows: $1.4 million in 2000, $730,000 in 2001, $626,000 in
2002, $429,000 in 2003 and $212,000 in 2004. Amortization expense relates to
options awarded to employees and consultants assigned to all operating expense
categories in the statements of operations. We will also record an additional
$8.9 million of deferred stock compensation related to options for 1,927,500
shares of common stock granted from January 1, 2000 through March 15, 2000. See
Note 8 of notes to consolidated financial statements.
INTEREST AND OTHER INCOME (EXPENSE), NET. Interest and other income
(expense), net was a net expense of $56,000 in 1999, $143,000 in 1998 and
$226,000 in 1997. From 1998 to 1999, net expense decreased primarily due to
additional interest earned on higher average cash balances. From 1997 to 1998,
our net interest expense decreased primarily due to an increase in interest
earned on higher cash balances and income received in 1998 from a strategic
partner, partially offset by increased interest expenses incurred on equipment
loans and leases, bridge loans and warrant amortization expenses.
INCOME TAXES
We incurred net losses during the past three years and consequently are not
subject to corporate income taxes. At December 31, 1999, we had federal net
operating loss carryforwards of $21.1 million, state net operating loss
carryforwards of $10.9 million and research and development credits of
$1,075,000, which will expire between 2002 and 2019. The utilization of net
operating loss carryforwards to reduce future income taxes will depend on our
ability to generate sufficient taxable income prior to the expiration of the net
operating loss carryforwards. In addition, the maximum annual use of the net
operating loss carryforwards is limited in certain situations where changes
occur in our stock ownership.
LIQUIDITY AND CAPITAL RESOURCES
From our inception to December 31, 1999, we have financed our operations
with $9.6 million from sales of products and services to customers and with
proceeds from the sale of preferred stock totaling $25.3 million. In addition,
in March 2000, we received approximately $26.9 million of net proceeds from the
sale of Series E Preferred Stock. We had cash balances of $2.8 million at
December 31, 1999. Working capital was $1.5 million at December 31, 1999. We had
long-term debt balances of $483,000 at
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December 31, 1999. Long-term debt consisted primarily of capital equipment loans
and lease obligations.
Net cash used in operating activities was $5.1 million in 1999, which was
primarily the result of net losses in operations.
Net cash used in investing activities was $922,000 in 1999, which consisted
primarily of capital equipment purchases and an investment in our joint venture
in Japan.
Net cash provided by financing activities was $1.8 million in 1999,
primarily from the sale of preferred stock and borrowings under our lines of
credit.
We may be required to raise additional capital through a variety of sources,
including the public equity market, private financings, collaborative
arrangements and debt. If additional capital is raised through the issuance of
equity or securities convertible into equity, our stockholders may experience
dilution, and such securities may have rights, preferences or privileges senior
to those of the holders of the common stock. We cannot assure you that
additional financing will be available to us on favorable terms, if at all. If
we are unable to obtain financing, or to obtain it on acceptable terms, we may
be unable to execute our business plan.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board, or FASB, issued SFAS
No. 133, "Accounting for Derivative Instruments and Hedging Activities." SFAS
No. 133 establishes new standards of accounting and reporting for derivative
instruments and hedging activities. SFAS No. 133 requires that all derivatives
be recognized at fair value in the statement of financial position, and that the
corresponding gains or losses be reported either in the statement of operations
or as a component of comprehensive income, depending on the type of relationship
that exists. In July 1999, the Financial Accounting Standards Board issued SFAS
No. 137, "Accounting for Derivative Instruments and Hedging Activities--Deferral
of the Effective Date of FASB Statement No. 133." SFAS No. 137 deferred the
effective date of FASB Statement No. 133 until fiscal years beginning after
June 15, 2000. The Company has not engaged in significant hedging activities or
invested in significant derivative instruments.
On March 31, 1999, the FASB issued an exposure draft entitled "Accounting
for Certain Transactions Involving Stock Compensation," which is a proposed
interpretation of APB Opinion No. 25, which has an effective date for certain
transactions of December 15, 1998. However, the exposure draft has not been
finalized. Once finalized and issued, the current accounting practices for
transactions involving stock compensation may need to change and such changes
could effect our future earnings.
QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
The primary objective of our investment activities is to preserve principal
while at the same time maximizing the income we receive from our investments
without significantly increasing risk. Some of the securities that we invest in
may have market risk. That means that a change in prevailing interest rates may
cause the fair value of the principal amount of investment to fluctuate. For
example, if we hold a security that was issued with a fixed interest rate at the
then-prevailing rate and the prevailing rate rises, the fair value of the
principal amount of our investment will probably decline. To minimize this risk
in the future, we intend to maintain our portfolio of cash equivalents and
short-term investments in a variety of securities, including commercial paper,
money market funds, government and non-government debt securities. The average
duration of all of our investments has generally been less than one year. Due to
the short-term nature of these investments, we believe we have no material
exposure to interest rate risk arising from our investments.
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Our exposure to market risk for changes in interest rates relates primarily
to the increase or decrease in the amount of interest income we can earn on our
available funds for investment. Our long-term debt and capital lease agreements
are at fixed interest rates. We do not plan to use derivative financial
instruments in our investment portfolio. We plan to ensure the safety and
preservation of our invested principal funds by limiting default risks, market
risk and reinvestment risk. We plan to mitigate default risk by investing in
high-credit quality securities.
All of our revenue is realized in U.S. dollars. Therefore, we do not believe
that we currently have any significant direct foreign currency exchange rate
risk.
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BUSINESS
OVERVIEW
Ciphergen Biosystems, Inc. develops, manufactures and markets a proprietary
ProteinChip System that enables protein discovery, characterization and assay
development that provides better understanding of biological functions at the
protein level. Our ProteinChip System is a novel, enabling tool in the emerging
field of protein-based biology research, known as proteomics. While recent
technological advances in DNA tools have substantially changed the field of
genomics, the absence of enabling protein analysis tools has limited progress in
proteomics research. Proteomics provides a direct approach to understanding the
role of proteins in the biology of disease, monitoring of disease progression
and the therapeutic effects of drugs. We believe proteomics will be a major
focus of biological research by enhancing the understanding of gene function and
the molecular basis of disease. In May 1999, we commercially launched our
current ProteinChip System, Series PBS II.
INDUSTRY BACKGROUND
Genes are the hereditary coding system of living organisms. Genes encode
proteins that are responsible for cellular functions. The study of genes and
their functions has led to the discovery of new targets for drug development.
The majority of drug targets are proteins, such as receptors, hormones and
enzymes. Although genomics allows researchers to identify drug targets, it does
not provide complete information on how these targets function within an
organism. It is estimated that within the human genome there are approximately
100,000 genes. The initial structure of a protein is determined by a single
gene. The final structure of a protein is frequently altered by interactions
with additional genes or proteins in a process called post-translational
modification. Post-translational modifications produce hundreds of thousands of
different proteins. In addition, proteins may interact with one another to form
complex structures that are ultimately responsible for cellular functions.
Genomics establishes the relationship between gene activity and disease.
However, many diseases are manifested not at the genetic level, but at the
protein level. The complete structure of modified proteins cannot be determined
by reference to the encoding gene alone. Thus, while genomics provides some
information about diseases, it does not provide a full understanding of disease
processes.
THE RELATIONSHIP BETWEEN PROTEINS AND DISEASES
The entire genetic content of any organism, known as its genome, is encoded
in strands of deoxyribonucleic acid, or DNA. Cells perform their normal
biological functions through the genetic instructions encoded in their DNA,
which results in the production of proteins. This process is known as gene
expression or protein expression. Differences in living organisms result from
variability in their genomes, which can affect the levels of gene expression.
Each cell of the organism expresses only approximately 10% to 20% of the genome.
The type of cell determines which genes are expressed and the amount of a
particular protein produced. For example, liver cells produce different proteins
from those produced by cells found in the heart, lungs, skin, etc. Proteins play
a crucial role in virtually all biological processes, including transportation
and storage of energy, immune protection, generation and transmission of nerve
impulses and control of growth.
Diseases may be caused by a mutation of a gene that alters a protein, the
gene's level of protein expression or changes to the protein after gene
expression. These alterations interrupt the normal balance of proteins and
create disease symptoms. Biomarkers are indicators of changes from a normal to a
diseased state. Protein biomarkers are biomolecular indicators of reduced or
increased levels of proteins that represent symptoms of a disease. By studying
changes in protein biomarkers, diseases may be identified prior to the
appearance of physical symptoms. In addition, protein biomarkers can be used to
identify new disease pathways to be used as drug targets. Historically, protein
biomarkers were discovered as a byproduct of basic biological disease research.
This has resulted in the validation of
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approximately 200 protein biomarkers that are being used in commercially
available clinical diagnostic products. The development of new diagnostic
products has been limited by the complexity of disease states, which may be
caused or characterized by several or many interacting proteins. Diagnostic
products that are limited to the detection of a single protein may lack the
ability to detect more complex diseases, and thus produce results that are
unacceptable for practical use. Recently, the National Institutes of Health, or
NIH, has recognized the importance of protein biomarkers in overcoming this
problem and their usefulness in the development of new diagnostic and
therapeutic products. The NIH has established a grant program to fund the
discovery and clinical validation of new protein biomarkers.
LIMITATIONS OF AVAILABLE TECHNOLOGIES FOR PROTEOMICS RESEARCH
Efforts to understand biology and to improve diagnosis, monitoring and
treatment of diseases have been dramatically enhanced through advancements in
modern genomic technologies. These new technologies have formed the basis for
the development of new analytical tools, which are primarily directed at DNA and
genomic analysis, but are not applicable to protein research or proteomics.
These new tools have accelerated the ability to sequence and analyze the human
genome. Historically, researchers used gel electrophoresis as a primary tool for
sequencing DNA. Gel electrophoresis measures how far a DNA fragment migrates
through the pores of gels in response to an applied electric field over a fixed
time interval. Electrophoresis is a time-consuming, manual process that requires
large amounts of pure DNA to be useful. The development of polymerase chain
reaction, or PCR, allowed researchers to amplify, or produce multiple copies of,
a fragment of DNA. Researchers could then enhance the signal of trace amounts of
DNA from an unprocessed biological sample, such as tissue or blood, to a level
where measurement was possible. Successive advances in technologies have
produced faster, automated sequencing machines and new, chip-based technologies
such as DNA probe arrays and microfluidics. These new technologies have
dramatically improved the throughput and accuracy of DNA analysis. In addition,
these new technologies have reduced costs by increasing automation and reducing
necessary labor.
Although recent technological advances have benefited genomics, there have
been fewer significant advances in proteomics. While DNA has been relatively
simple to study because of its ease of detection and linear structure, protein
analysis has been a far more difficult challenge. The goal of proteomics is to
determine the structure and function of proteins. Techniques, such as tagging,
amplification and sequencing that are used to analyze DNA cannot be used
effectively to study proteins. These techniques can change the structure of
proteins and may change their characteristics or function, which would limit
identification and analysis of a sample. In addition, these techniques do not
allow researchers to monitor or study how proteins interact, or to identify
which proteins interact together, to perform biological functions.
Currently, proteomics research is performed using gel electrophoresis, mass
spectrometry and other protein purification and analysis products. These tools
require substantial, labor-intensive sample preparation processes to produce
enough purified proteins before identification and analysis can occur. In
addition, these tools must be operated by researchers with substantial technical
expertise. As a result, proteomics research has not advanced at a rate
comparable to that of genomics. New tools are needed that are specifically
designed to analyze proteins to enable protein biomarker discovery, to fully
understand biological pathways and function, and ultimately to accelerate the
discovery of new drugs and clinical diagnostics.
THE CIPHERGEN SOLUTION
We develop, manufacture and market our proprietary ProteinChip System that
enables protein biomarker discovery, characterization and assay development. Our
ProteinChip System integrates the key steps of proteomics research on a single,
miniaturized biochip platform. Our ProteinChip System incorporates our
proprietary Surface-Enhanced Laser Desorption/Ionization, or SELDI, technology
on
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the surface of a disposable chip, which allows proteins to be captured and
analyzed directly. Our ProteinChip System enables rapid, reproducible, on-chip
protein expression and protein analysis from complex biological samples such as
whole blood, tissue or saliva, without separation, tagging and amplification
processes and with minimal prior purification. Similar to PCR technology, SELDI
enables protein detection and quantitation through signal-to-noise enhancement.
But unlike PCR, SELDI accomplishes this by reducing background chemical noise
rather than through signal amplification.
We believe our ProteinChip System enables researchers to identify and
quantify proteins by direct laser-based, time-of-flight molecular weight
detection. Chemical and biochemical processing, such as protein sequencing, can
be performed at any step during the process to greatly enhance the detailed
knowledge gained from a set of experiments. We believe the integration of these
processes enables rapid discovery, characterization and assay of proteins
directly from biological samples, providing a novel technique for protein
discovery and analysis. We believe our ProteinChip System can enable protein
research in the following areas:
- DIFFERENTIAL PROTEIN EXPRESSION. Our ProteinChip System is designed to
enable biologists to rapidly discover and validate new protein biomarkers.
In addition, our ProteinChip System enables scientists to tie genetic
message information derived from DNA biochips or miniaturized chips
containing DNA, to protein information in order to better define protein
function. Expression studies and protein discovery that previously were
impossible to conduct or took months or years can be performed on our
ProteinChip System in days or even hours.
- PROTEIN CHARACTERIZATION. Our ProteinChip System enables identification of
trace proteins from biological samples by reducing or eliminating the need
for labor-intensive sample purification. Biology researchers can purify
samples in hours versus days or weeks, which are required with current
methods. Researchers can then obtain the precise protein sequence using
our ProteinChip System through on-chip peptide mapping and conventional
database sequencing comparison methods. Also, enzymatic, chemical or
antibody-based assays can be used to rapidly characterize
post-translational modifications.
- QUANTITATIVE ASSAY OF PROTEINS AND PROTEIN INTERACTIONS. We believe our
ProteinChip System will enable biology researchers to obtain quantitative
analysis of proteins and protein interactions within a sample. We believe
this will speed functional validation of discovered biomarkers by allowing
rapid functional assay development and analysis of hundreds or thousands
of samples for clinical diagnostic or drug discovery research use.
Currently, this process requires many weeks or months to accomplish using
conventional technologies. Our ProteinChip technology can reduce this
process to days or even hours.
OUR MARKET OPPORTUNITY
There are several types of research laboratories that perform proteomics
research and development. We believe our ProteinChip System can enable
proteomics research in the following markets:
- BASIC BIOLOGY RESEARCH. Basic biology research laboratories focus on the
study of general biological processes and the understanding of the
molecular basis of disease. There are over 320,000 scientists from
academic and government research institutions pursuing this research. Most
of the techniques used in basic biology research to study proteins are
labor intensive or have limited analytical capabilities. We believe that
the ease of use and problem-solving versatility of our ProteinChip System
may enable biologists to perform proteomics research at the benchtop.
- CLINICAL RESEARCH AND DIAGNOSTICS. Clinical research is focused on
associating clinical disease symptoms to changes in certain proteins in
the disease state versus in the normal state. In doing so, researchers
seek to identify biomarkers, many of which are proteins, that can be used
to
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diagnose diseases early, assess treatment response and monitor treatment
progress. Currently, physicians pursuing clinical research lack a
flexible, integrated, standardized tool to perform protein biomarker
discovery. We believe that our ProteinChip System may enable researchers
to rapidly discover protein biomarkers and to develop these biomarkers
into clinical diagnostic assays.
- PHARMACEUTICAL RESEARCH AND DEVELOPMENT. A current bottleneck in drug
development is secondary screening, where drug lead candidates are
validated using complex biological assays in which markers are used to
assess biological responses to varying compounds, dose level and
conditions. Current assay systems often have poor specificity and are
usually labor intensive and require substantial development time. In
addition, over 50% of drug development failures now occur in toxicology,
in which the availability of useful data is hampered by similar issues. We
believe a lack of protein biomarkers currently limits the ability of
researchers to adequately evaluate drug target function, cell pathway
analysis and toxicological and therapeutic effects throughout the drug
development process. We believe our ProteinChip System can substantially
improve preclinical development and clinical trial effectiveness by
greatly expanding the use of protein biomarkers.
BUSINESS STRATEGY
We intend to establish our ProteinChip System as the enabling technology
platform for protein biomarker discovery and proteomics research in the basic
biological research, clinical research and diagnostics, and pharmaceutical drug
discovery and development markets. Key elements of our strategy are to:
- ACCELERATE AWARENESS AND ACCEPTANCE OF OUR PROTEINCHIP SYSTEM. We intend
to focus on expanding the installed base of our ProteinChip System with
leading academic, government, pharmaceutical and clinical research
laboratories to promote awareness and acceptance of our technology. In
addition, we will support the use of our ProteinChip System through
customer education and training as well as customer collaborations to
increase the applications and use of our ProteinChip Arrays. Further, we
intend to pursue commercialization of our products through our own sales
and marketing organizations in the United States and Europe and through
distributors in other parts of the world, including through our joint
venture with Sumitomo Corporation in Japan.
- EXPAND PRODUCT DEVELOPMENT AND INNOVATION. We intend to expand the scope
of our product portfolio by continuously developing new products and
applications based on our ProteinChip technology. We believe that
expanding the application of our technology and products and increasing
functionality will promote the use and acceptance of our ProteinChip
System by biology researchers. Our ProteinChip products under development
include next generation products to further automate the protein analysis
process, high performance proteomics systems and benchtop proteomics
systems.
- ESTABLISH BIOMARKER DISCOVERY CENTERS. We intend to establish Biomarker
Discovery Centers directly and through partnerships to foster further
adoption of our products and technology as an industry standard. We
believe that our Biomarker Discovery Centers may accelerate biomarker
discovery and validation in both pharmaceutical drug discovery, toxicology
and clinical trials, and in clinical research laboratories. We plan to
deploy the prototypes of our next-generation ProteinChip System to
maintain a technological advantage in our Biomarker Discovery Centers. In
addition, we intend to obtain rights related to biomarkers discovered in
our Biomarker Discovery Centers.
- EXPAND OUR INTELLECTUAL PROPERTY PORTFOLIO. The issued, allowed and
pending patents on SELDI technology and ProteinChip System are included in
our current patent portfolio and we intend to expand this portfolio in
several areas of technology related to our business, including
applications of SELDI technology and biomarker discoveries. We intend to
continue to develop
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our proprietary technologies and infrastructure in support of our existing
SELDI technology and ProteinChip System. In addition, we intend to develop
new surface chemistries for our ProteinChip Arrays, enhancements to our
ProteinChip Readers and advancements in our analysis and database
ProteinChip Software, in order to broaden the range of applications and
opportunities that can be addressed. We intend to continue to license and
acquire technologies from others that complement our core capabilities and
protect our proprietary technologies with patents and trade secrets.
OUR PROTEINCHIP TECHNOLOGY
Our ProteinChip technology is based on Surface-Enhanced Laser
Desorption/Ionization, or SELDI, which combines laser-based molecular weight
detection with the use of a chemically or biochemically active chip array
surface constructed from proprietary treated plastic or metal. Our ProteinChip
technology enables researchers to apply a crude biological sample, such as whole
blood or tissue, directly to the surface of a ProteinChip Array. These
ProteinChip Arrays are designed to select desired proteins from the sample
through affinity capture, which employs chemical processes or biochemical
targets such as receptors, antibodies or DNA probes. The remainder of the unused
sample is then washed away with a variety of solutions with varying stringency
conditions, depending on the type of test performed. This enhances the signal of
the proteins of interest on the chip by reducing signals from unwanted
biomolecules that would otherwise obscure the measurement results. The purified
sample proteins remain evenly distributed on the surface of the ProteinChip
Array. This even distribution allows the proteins to be accurately measured and
quantified.
The ProteinChip Array is then placed in a specially developed laser-based,
time-of-flight, molecular weight detection analyzer, or ProteinChip Reader. A
laser beam is used to release the retained proteins from the ProteinChip Array
surface. These proteins are accelerated and then guided through a flight tube
under vacuum to a detector. The time of this flight is directly related to the
exact molecular weight of each protein. This process allows the molecular weight
of a sample protein to be determined.
A protein expression profile is generated by comparing protein samples
collected in different conditions, such as disease versus normal states. Our
ProteinChip System compares profiles by displaying the differences between the
samples for the biology researcher and allows discovery of new, potentially
relevant proteins as biomarkers. Proteins of interest can then be further
processed on-chip to:
- obtain sequence identification;
- detect secondary modifications of proteins, or post-translational
modifications;
- identify protein interactions; and
- quantitatively measure protein concentrations.
OUR PROTEINCHIP SYSTEM
In May 1999, we commercially launched our current ProteinChip System, Series
PBS II. Our ProteinChip System, Series PBS II consists of disposable,
proprietary ProteinChip Arrays containing chemical or biochemical binding sites
on a chip, a ProteinChip Reader to read the ProteinChip Arrays and our
proprietary ProteinChip Software to analyze and manage protein-based
information.
Our PROTEINCHIP ARRAYS are typically used for protein expression profiling,
characterization and quantitative protein interaction applications. Our
ProteinChip Arrays consist of a metal surface with multiple sample wells, or
spots. These spots are treated with proprietary coatings that are designed to
capture certain families of proteins. Single coatings can be applied to several
spots or multiple types of coatings can be singly applied to spots on one
ProteinChip Array to create a variety of selectivity conditions. We offer two
types of ProteinChip Arrays: one uses chemical surfaces to perform
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differential protein expression, and the other uses biochemical surfaces used in
protein interaction studies. Both types of ProteinChip Arrays can be used to
perform protein identification and characterization. We recently introduced our
second-generation chemical ProteinChip Arrays, which utilize our proprietary
polymer technology that improves both the selectivity, sensitivity and capacity
of our ProteinChip Arrays.
Our PROTEINCHIP READER is a laser-based, time-of-flight, molecular weight
detection system designed for use with our ProteinChip Arrays. Our ProteinChip
Reader is designed to be used at the benchtop in the laboratory by basic biology
researchers. Our ProteinChip Reader consists of a nitrogen laser, high-speed
digital electronics, a vacuum system and a standard personal computer with our
proprietary ProteinChip Software for system control and data analysis.
Our PROTEINCHIP SOFTWARE is designed to facilitate system operation by
biology researchers with no experience in molecular detection systems and
minimal experience in protein analysis. The software allows fully automated
operation of the ProteinChip System with graphic data presentation and analysis
readouts in familiar forms for the biologist, such as that displayed by gel
electrophoresis systems. Our ProteinChip Software enables differential protein
expression analysis by automatically comparing protein profiles and highlighting
differences in protein expression. Our ProteinChip Software provides researchers
with Internet access for rapid database searches, which facilitates protein
identification. Furthermore, our ProteinChip Software allows quantitative
protein interaction assays to be performed.
BIOMARKER DISCOVERY CENTERS
We intend to establish Biomarker Discovery Centers directly and through
partnerships to foster further adoption of our products and technology as an
industry standard. We believe that our Biomarker Discovery Centers may
accelerate biomarker discovery and validation in pharmaceutical drug discovery,
toxicology and clinical trials, and in clinical research laboratories. We intend
to deploy the prototypes of each next-generation ProteinChip System to maintain
a technological advantage in our Biomarker Discovery Centers. In addition, we
intend to obtain certain rights related to biomarkers discovered in our
Biomarker Discovery Centers.
We have leased facilities for our Biomarker Discovery Centers in Copenhagen,
Denmark and Fremont, California. We have hired initial managerial and scientific
staff at these facilities and have begun to build infrastructure necessary to
begin operations during 2000.
SALES AND MARKETING
We have developed a direct sales force worldwide. The sales process involves
on-site applications problem-solving, scientific publications, product
demonstrations, seminars, exhibits, conventions and meetings, word of mouth,
direct mail and the Internet to increase market awareness of our ProteinChip
System and promote acceptance of our technology as an industry standard. We
initiated our first full commercial launch of the ProteinChip System, Series PBS
II, in May 1999. This launch included over 30 exhibitions and trade shows,
direct mailings and an expanded demonstration sales program throughout the
United States, Japan and selected countries in Europe.
Our sales force includes field research scientists, most of whom have Ph.D.
degrees in biology or biochemistry. The primary responsibility of the field
research scientist is to provide solutions to biological problems for our
current and future sale prospects through applications development, scientific
seminars, joint scientific publications with customers and product
demonstrations. In addition, the field research scientists also serve as the
primary field representatives for after-sales customer service and technical
support. We currently have nine field research scientists in the United States,
three in Europe and three employed by our joint venture in Japan.
Ciphergen Biosystems, K.K. in Japan was formed in January 1999, as a joint
venture with Sumitomo Corporation, to distribute our products in Japan. The
joint venture was established with
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<PAGE>
Sumitomo having majority ownership, with transfer of majority ownership to us to
be accomplished on a pre-determined formula basis as early as the first quarter
of 2002. The joint venture currently has eight employees, consisting of three
field research scientists, one program manager and four administrative and
support personnel. The Joint Venture Agreement is for ten years from
January 1999. We invested $315,000 for 30% of Ciphergen Biosystems, K.K. In
March 1999, we signed a Distribution and Marketing Agreement granting Ciphergen
Biosystems, K.K. the exclusive right to distribute our products in Japan for ten
years, and we were paid $315,000 by Ciphergen Biosystems, K.K.
Our sales and marketing organization as of March 15, 2000, including
Ciphergen Biosystems, K.K., consisted of 32 employees, 17 of whom have Ph.D.
degrees. We intend to significantly increase the size of our organization over
the next 12 months, expanding in North America, Europe and Asia.
EXISTING CUSTOMERS
The following is a list of our customers:
<TABLE>
<S> <C>
PHARMACEUTICAL AND BIOTECHNOLOGY ACADEMIC AND GOVERNMENT
Alkermes, Inc. Dana Farber Cancer Center
Amgen, Inc. Duke Medical School
Amylin Pharmaceuticals, Inc. Harvard Brigham and Women's Hospital
Antex Biologics, Inc. Harvard Massachusetts General Hospital
AstraZeneca plc Imperial College Prion Unit
Boehringer-Ingelheim Pharmaceuticals, Inc. John Innes Institute
Cambridge Antibody Technology Group plc Johns Hopkins Medical School
Cantab Pharmaceuticals plc Massachusetts Institute of Technology
Creative Biomolecules, Inc. MD Anderson Cancer Center
Elan Pharmaceuticals Research Corp. Medical Research Council (Cambridge)
GeminX Biotechnologies, Inc. National Cancer Institute, National
Genome Therapeutics Corp. Institutes
GlaxoWellcome plc of Health
Human Genome Sciences, Inc. Royal Free Hospital School of Medicine
Matritech, Inc. St. Mary's Hospital Medical School
Merck & Co., Inc. Stanford University
Morinaga Milk Industry Company, Ltd. University of California, San Francisco
Novo Nordisk A/S (Zymogenetics) Cancer Center
Parke Davis & Co. University of British Columbia
Pioneer Hi-Bred International, Inc. University of East Anglia
Rhone Poulenc Rorer, Inc. University of Maryland
Riken BSI University of Massachusetts
Roche Vitamins, Inc. University of Notre Dame
Schering Plough Corp. U.S. Army, Medical Research Institute
SmithKline Beecham plc Veterans Administration Hospital, Loma Linda
Tanabe Pharmaceuticals Co., Ltd. Virginia Prostate Center
Yamanouchi Pharmaceuticals Co., Ltd.
</TABLE>
Morinaga Milk Industry Company, Ltd., Riken BSI, Tanabe Pharmaceuticals and
Yamanouchi Pharmaceuticals are customers of our Japanese distributor, Ciphergen
Biosystems, K.K. In 1999, Ciphergen Biosystems, K.K. accounted, for 11% of our
revenue.
RESEARCH AND DEVELOPMENT
Our ProteinChip System is a single technology platform that we believe can
be easily optimized for use in multiple markets. This flexibility allows for new
applications and products in one field to be
33
<PAGE>
introduced rapidly to others. Our research and development expenditures were
$2.9 million in 1999, $4.6 million in 1998 and $3.2 million in 1997. The total
expenditures for 1997 and 1998 included expenses related to stock issuance to
acquire IllumeSys Pacific, Inc. and Ciphergen Technologies, Inc.
We have ongoing technology development programs in our ProteinChip Arrays,
materials, surface chemistries, high-density biochip formats and manufacturing
processes. In applied research, we are developing new applications in
differential protein expression, quantitative protein interaction assays and
protein characterization.
Our research and development efforts related to our ProteinChip Readers,
includes research in the automation of sample introduction, high-sensitivity
detection, improvement in system resolution and quantitation. In addition, we
are developing new SELDI-based accessories for high resolution, tandem mass
spectrometry, whose capabilities will further enhance our ProteinChip System.
MANUFACTURING
We manufacture our ProteinChip Readers and Arrays in our Palo Alto,
California facilities. We rely upon suppliers for certain components of our
ProteinChip System, including Stanford Research Systems that also performs
specified design services for certain components of our ProteinChip Reader. We
perform final assembly and quality control on our ProteinChip Reader at our
facilities. We purchase extruded aluminum for our ProteinChip Arrays from a
third-party supplier. The ProteinChip Arrays are etched and base coated by
external vendors. We apply all chemistries to the ProteinChip Arrays and perform
final quality control at our facilities. We intend to continue and may extend
the subcontracting portions of our manufacturing processes when we think it best
leverages the suppliers' manufacturing experience, reduces costs or improves our
ability to meet customer demand.
INTELLECTUAL PROPERTY
As of March 15, 2000, we owned, co-owned or licensed a patent portfolio of
five issued U.S. patents and 17 pending U.S. patent applications, as well as
seven issued foreign patents, 41 pending foreign patent applications and one
international patent application filed under the Patent Cooperation Treaty. This
portfolio of patent properties includes four issued U.S. patents, five pending
U.S. patent applications, two issued foreign patents and three pending foreign
patent applications directed to the core SELDI technology. We licensed these
patents and patent applications in the field of life sciences for laboratories
and laboratory environments doing bioanalytic or biological measurements or
assays from Molecular Analytical Systems, which has an exclusive license on the
properties from the original assignee, Baylor College of Medicine. Our rights
under these sublicenses are set forth in agreements between Molecular Analytical
Systems, Inc., the exclusive licensee of the Baylor patents, and our
subsidiaries, IllumeSys Pacific, Inc. and Ciphergen Technologies, Inc. We have
received a letter from Molecular Analytical Systems expressing non-specific
concerns that we are using the licensed technology in a manner that it claims
exceeds the scope of the sublicense grants. Molecular Analytical Systems makes a
further non-specific claim that we are misrepresenting the scope of our rights
to third parties. We believe that this matter can be resolved satisfactorily.
Our portfolio also includes ten pending U.S. patent applications, 30 pending
foreign patent applications and one international patent application filed under
the Patent Cooperation Treaty directed to applications of SELDI technology for
research, diagnostics and drug screening, as well as to mass spectrometer
instrumentation, software and chip arrays. These properties are assigned or are
expected to be assigned to us. Our portfolio also includes one issued U.S.
patent, one pending U.S. patent application, one issued foreign patent and eight
pending foreign patent applications directed to methods of determining the amino
acid sequence of polypeptides. We licensed these properties from Rockefeller
University and Scripps Research Institute. Our portfolio also includes four
issued foreign patents directed to devices for and methods in mass spectrometry.
We licensed these properties from Rockefeller University. Our portfolio also
includes one pending U.S. patent application directed to methods of screening
phage display libraries.
34
<PAGE>
We co-own this application with IntraImmune Therapies, Inc. through assignments
from the inventors. We also rely on trade secrets, know-how, continuing
technological development and licensing opportunities to develop and maintain a
competitive position in the market.
COMPETITION
Although we believe that we are currently the only company selling and
delivering products with an integrated separations and molecular weight
detection biochip platform for proteomics research, we expect to encounter
intense competition from a number of companies that offer competing products. We
anticipate that competition will come primarily from companies providing
products that incorporate established technologies, such as gel electrophoresis,
liquid chromatography and mass spectrometry.
In order to compete effectively, we will need to demonstrate the advantages
of our ProteinChip System over well-established alternative technologies and
products. We will also need to demonstrate the potential economic value of our
ProteinChip products relative to these conventional technologies and products.
Some of the companies that provide these products include the Applied Biosystems
division of PE Biosystems, Inc. Amersham Pharmacia Biotech, Boehringer-Mannheim,
Qiagen and several smaller reagent and equipment companies. Our future success
will depend in large part on our ability to establish and maintain a competitive
position with respect to these and future technologies.
We plan to offer proteomics services in the future through our Biomarker
Discovery Centers. Our Biomarker Discovery Centers may compete with companies in
the proteomics services area. We expect an increasing number of companies to
provide proteomics services in the future.
In many instances, our competitors have or will have substantially greater
financial, technical, research, and other resources and larger, more established
marketing, sales, distribution, and service organizations than we do. Moreover,
competitors may have greater name recognition than we do, and may offer
discounts as a competitive tactic. Our competitors may succeed in developing or
marketing technologies or products that are more effective or commercially
attractive than our products, or that would render our technologies and products
obsolete. Also, we may not have the financial resources, technical expertise or
marketing, distribution or support capabilities to compete successfully in the
future. Our success will depend in large part on our ability to maintain a
competitive position with respect to our technologies.
EMPLOYEES
As of March 15, 2000, we had 60 full-time employees worldwide, including 24
in sales and marketing, 16 in research and development, ten in manufacturing and
ten in administration. 25 of our employees have Ph.D. degrees in chemistry,
biology or biochemistry and many are experts in software and engineering. We
have also contracted with an additional nine individuals. Ciphergen Biosystems,
K.K. in Japan employs eight people. None of our employees is covered by a
collective bargaining agreement and we believe that our relations with our
employees are good.
FACILITIES
We currently lease 17,000 square feet in Palo Alto, California. The lease
expires on June 30, 2000. We have leased a 30,000 square foot facility in
Fremont, California, approximately 13 miles from our current location and will
move all Palo Alto operations to this new facility during the second quarter of
2000. The lease for the new facility expires in March 2008.
LEGAL PROCEEDINGS
We are not currently a party to any legal proceedings.
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<PAGE>
MANAGEMENT
EXECUTIVE OFFICERS, KEY EMPLOYEES AND DIRECTORS
The following table sets forth certain information regarding our executive
officers, key employees and directors as of March 15, 2000:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- -------------------- --------
<S> <C> <C>
William E. Rich, Ph.D..................... 55 President, Chief Executive Officer and Director
James H. Stanford......................... 61 Vice President and Chief Financial Officer
David A. DeNola........................... 49 Vice President, Operations
Robert M. Maurer.......................... 47 Vice President, Business Development
Christopher A. Pohl....................... 48 Vice President, Research and Development
John A. Young............................. 67 Chairman of the Board of Directors
Michael J. Callaghan...................... 47 Director
Barbara J. Dalton, Ph.D................... 46 Director
Jean-Francois Formela, M.D................ 43 Director
William R. Green, Ph.D.................... 49 Director
James L. Rathmann......................... 48 Director
Daniel Vapnek, Ph.D....................... 61 Director
</TABLE>
WILLIAM E. RICH, PH.D., joined us in September 1994, as our President and
Chief Executive Officer and as a director. Prior to joining us, Dr. Rich was
Senior Vice President of Sepracor, Inc. from 1991 to 1994, and President of
BioSepra, which was spun off by Sepracor. Prior to joining Sepracor, he was
Senior Vice President of Dionex Corporation and from 1975 to 1990, he had
responsibility for both the Marketing and Sales and Research and Development
departments at various times during his tenure there. Dr. Rich received a B.S.
in Chemistry from Carson Newman College and a Ph.D. in Chemistry from the
University of North Carolina, Chapel Hill and conducted post-doctoral research
in biochemistry at Duke University.
DAVID A. DENOLA joined us in January 2000, as Vice President, Operations.
Prior to joining us he was Chief Operating Officer of Gamida-Cell, a cell
therapy company in Israel, from March 1999 to January 2000. From September 1997
to March 1999, he was Vice President and Deputy General Manager of CBD
Technologies, an agricultural biotechnology company in Israel. From August 1994
to August 1997, he held positions of Director of Operations, Business
Development Manager and Chief Operating Officer at Diagenetics, Ltd. in Israel.
From 1992 to 1993, he served as Director of Operations at Tago Immunologicals, a
division of Biosource International, an antibody company from 1991 to 1992, he
was Manager of Contract Manufacturing at Somatix Therapy, a parenteral drug
company. Mr. DeNola received a B.A. in Genetics from the University of
California, Berkeley, and a post-graduate degree in Business from the Technion
College in Israel.
ROBERT M. MAURER joined us in June 1999, on a consulting basis and became a
full time employee as Vice President, Business Development in February 2000.
Prior to joining us he was an independent consultant in biomedical business
development, technology licensing and corporate strategy from March 1999 to
February 2000. Prior to that he served as Vice President of Business Development
at Avigen Corporation, a gene delivery system company, from November 1996 to
February 1999. From June to October 1996, he was an independent consultant. From
November 1995 to June 1996, he was Vice President of Strategic Marketing at
Promega Corporation, a life sciences company. From May 1995 to October 1995, he
was an independent consultant. From February 1992 to April 1995, he was Chief
Operating Officer, Secretary and Treasurer of Molecular Geriatrics Corporation,
an Alzheimer's Disease research company. He received a B.A. from Carleton
College and an M.B.A. from the Harvard Graduate School of Business.
36
<PAGE>
CHRISTOPHER A. POHL joined us in March 2000, as Vice President, Research and
Development. Prior to joining us, he was Vice President of Dionex Corporation
responsible for chemistry research and development and chemical products
manufacturing. He joined Dionex in the early 1980's and has held various senior
management positions in research and development. He holds 19 U.S. patents in a
broad range of separations areas including chromotography, electrophoresis and
solid phase extractions. He received a B.S. in Chemistry from the University of
Washington.
JAMES H. STANFORD joined us in January 1995, on a consulting basis and
became a full-time employee in August 1997. He currently serves as our Vice
President and Chief Financial Officer. Prior to joining us he was a Partner in
the Financial Services Division of David Powell, Inc. from August 1994 to
August 1997, President, Chief Operating Officer and Chief Financial Officer of
Adams Scientific, Inc. from 1991 to 1993, Vice President, Finance and Operations
of Answer Systems, Inc. from 1990 to 1991, and Executive Vice President and
Chief Financial Officer of Sequoia-Turner Corporation from 1982 to 1989. He
received an A.B. from Stanford University and an M.B.A. from the Stanford
Graduate School of Business.
JOHN A. YOUNG has been one of our directors since our inception and became
our Chairman in 1995. Mr. Young was President and Chief Executive Officer of
Hewlett Packard Company from 1977 until his retirement in 1992. He serves as a
director of other public life science companies, including SmithKline Beecham
plc and Affymetrix Incorporated, and also serves as a director of Wells Fargo &
Co., Chevron Corporation, Novell Incorporated, and Lucent Technologies Inc. He
received a B.S.E.E. from Oregon State University and an M.B.A. from the Stanford
Graduate School of Business.
MICHAEL J. CALLAGHAN is Senior Vice President of MDS Capital Corporation and
became one of our directors in 1998. Prior to joining MDS Capital in 1992, he
was active in several general management positions. Mr. Callaghan began his
career with Ernst & Young where he became a Chartered Accountant. He serves as a
director of a public company: Systems Xcellence, Inc. He also serves as a
director of several other private companies, including Apollo
Biopharmaceuticals, Inc., Mitokor, Inc. and Redwood Microsystems, Inc. He
received a B. Comm from McGill University and an M.B.A. from York University.
BARBARA J. DALTON, PH.D., is a Vice President of S.R. One, Ltd., and became
one of our directors in 1999. Prior to joining S.R. One in 1993, Dr. Dalton
served for ten years as a research scientist at SmithKline Beecham. She was
formerly a director of Genset, S.A., a public company and currently serves as a
director of several private companies, including Gryphon Sciences, Molecular
Mining Corporation, Physiome Sciences, Inc. and TerraGen Discovery, Inc. She
received a B.S. in Biology from Pennsylvania State University and a Ph.D. in
Microbiology and Immunology from the Medical College of Pennsylvania.
JEAN-FRANCOIS FORMELA, M.D., is a General Partner of Atlas Venture and
became one of our directors in March 2000. Prior to joining Atlas Venture in
1993, Dr. Formela was Senior Director, Medical Marketing and Scientific Affairs
at Schering-Plough in the U.S. He is also a director of BioChem Pharma, a public
company, and the following private companies, deCode Genetics, Exelixis, SGX and
Variagenics. He holds an M.D. degree from Paris University School of Medicine
and an M.B.A. from Columbia Business School.
WILLIAM R. GREEN, PH.D., is President and Chief Executive Officer of
Stanford Research Systems, Inc., which he joined in 1984 and with which we have
a strategic partnership. He became one of our directors in 1995. He received a
B.S.E.E. degree from Cornell University and M.S.E.E. and Ph.D. degrees from
Stanford University. He also served as a post-doctoral fellow at the Ecole
Polytechnique in France.
JAMES L. RATHMANN has been President of Falcon Technology Management
Corporation and a general partner of Falcon Technology Partners, L. P. since its
founding in 1993. Mr. Rathmann has been
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<PAGE>
one of our directors since our inception. He also serves as a director of
several private companies, including Genomica Corporation and Array Biopharma
Corporation. Prior to joining Falcon Technology in 1993, he was Senior Vice
President of Operations at Soft-Switch, Inc. from 1984 to 1993. He received a
B.A. in Mathematics from the University of Colorado and an M.S. in Computer
Science from the University of Wisconsin.
DANIEL VAPNEK, PH.D., held senior research positions at Amgen, Inc., from
1981 to his retirement in 1996, serving the last 13 years as Senior Vice
President, Research. He has been one of our directors since our inception. Prior
to Amgen, Dr. Vapnek was a faculty member in the Department of Molecular and
Population Genetics at the University of Georgia from 1972 to 1981, becoming a
Professor in 1981. He holds B.S. and Ph.D. degrees from the University of Miami
in Florida.
BOARD COMPOSITION
Our board of directors is currently comprised of eight directors. Our
amended and restated bylaws authorize not fewer than five directors and not more
than nine directors.
BOARD COMMITTEES
Our board of directors has established an audit committee and a compensation
committee.
AUDIT COMMITTEE
The audit committee is responsible for assuring the integrity of our
financial control, audit and reporting functions. It reviews with our management
and our independent accountants the effectiveness of our financial controls,
accounting and reporting practices and procedures. In addition, the audit
committee reviews the qualifications of our independent accountants, makes
recommendations to the board of directors regarding the selection or our
auditors, reviews the scope, fees and results of activities related to audit and
non-audit services. Prior to March 2000, the audit committee responsibilities
were conducted by the full board of directors, which met annually with
representatives of our independent accountants, including executive sessions
from which members of management were excused.
COMPENSATION COMMITTEE
The compensation committee is chaired by James L. Rathmann, and has
Barbara J. Dalton and John A. Young as members. Its principal responsibility is
to administer our stock plans and to set the salary and incentive compensation,
including stock option grants to the President and Chief Executive Officer.
DIRECTOR COMPENSATION
Our seven outside directors serve without cash compensation. In
November 1999, September 1998 and September 1997, outside directors or the
institutions they represent were each awarded non-statutory options for 20,000
shares of our common stock, with each option granted vesting monthly over
12 months. In March 2000, John A. Young, the Chairman of our board, was granted
non-statutory options to acquire 200,000 shares, half vesting immediately and
half vesting monthly over 24 months.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
None of our executive officers serves as a member of the board of directors
or compensation committee of any entity that has one or more of its executive
officers serving as a member of our board of directors or compensation
committee.
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<PAGE>
LIMITATION OF LIABILITY AND INDEMNIFICATION
Our Amended and Restated Certificate of Incorporation limits the liability
of directors to the maximum extent permitted by Delaware law. Delaware law
provides that directors of a corporation will not be personally liable for
monetary damages for breach of their fiduciary duties as directors, except
liability for:
- breach of their duty of loyalty to the corporation or its stockholders;
- acts or omissions not in good faith or that involve intentional misconduct
or a knowing violation of law;
- unlawful payments of dividends or unlawful stock repurchases or
redemptions; and
- any transaction from which the director derived an improper personal
benefit.
This limitation of liability does not apply to liabilities arising under the
federal or state securities laws and does not affect the availability of
equitable remedies such as injunctive relief or rescission. Our bylaws provide
that we will indemnify our directors, officers, employees and other agents to
the fullest extent permitted by the Delaware General Corporation Law. We believe
that indemnification under our bylaws covers at least negligence and gross
negligence on the part of indemnified parties. Our bylaws also permit us to
secure insurance on behalf of any officer, director, employee or other agent for
any liability arising out of his or her actions in such capacity, regardless of
whether the bylaws would permit such indemnification.
We have obtained directors and officers' insurance providing indemnification
for all of our directors, officers and employees for certain liabilities. Prior
to closing of this offering we will enter into agreements to indemnify our
directors and executive officers in addition to the indemnification provided for
in our bylaws. These agreements, among other things, will indemnify our
directors and executive officers for expenses, including attorneys' fees,
judgments, fines and settlement amounts incurred by any such person in any
action or proceeding, out of such person's services as a director, officer,
employee, agent or fiduciary of ours, any subsidiary of ours or any other
company or enterprise to which the person provides services at our request. We
believe that these provisions and agreements are necessary to attract and retain
qualified persons as directors and executive officers. At present, there is no
litigation or proceeding involving any of our directors or officers in which
indemnification is required or permitted, and we are not aware of any threatened
litigation or proceeding that may result in a claim for indemnification.
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<PAGE>
EXECUTIVE COMPENSATION
The following table summarizes the compensation paid to or earned during the
year ended December 31, 1999, by our Chief Executive Officer and our other
mostly highly compensated executive officer whose total salary and bonus
exceeded $100,000 for services rendered to us in all capacities during 1999. The
executive officers listed in the table below are referred to as named executive
officers.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION AWARDS
---------------------- -------------------
SECURITIES
UNDERLYING
NAME AND PRINCIPAL POSITIONS SALARY ($) BONUS ($) OPTIONS (#)
- ---------------------------- ---------- --------- -------------------
<S> <C> <C> <C>
William E. Rich, Ph.D., ............................... 215,233 40,800 155,000
President and Chief Executive Officer and Director
James H. Stanford, .................................... 176,191 24,302 --
Vice President and Chief Financial Officer
</TABLE>
OPTION GRANTS IN YEAR ENDED DECEMBER 31, 1999
The following table sets forth information concerning the individual grants
of stock options to each of the named executive officers during the fiscal year
ended December 31, 1999.
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS (1) POTENTIAL REALIZABLE
---------------------------------------------------- VALUE AT ASSUMED
PERCENT OF ANNUAL RATES OF
NUMBER OF TOTAL OPTIONS STOCK PRICE
SECURITIES GRANTED TO APPRECIATION
UNDERLYING EMPLOYEES EXERCISE FOR OPTION TERM (2)
OPTIONS IN FISCAL PRICE EXPIRATION -----------------------
NAME GRANTED (#) YEAR (%) ($/SH) DATE 5% ($) 10% ($)
- ---- ------------ ------------- -------- ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
William E. Rich, Ph.D............ 155,000 13 .50 5/10/09
James H. Stanford................ -- -- -- --
</TABLE>
- ------------------------
(1) All options were granted under our 1993 Stock Option Plan. Options granted
to employees under the plan generally vest over a five-year period in equal
monthly installments. Options granted to directors generally vest over
12 months. The board retains sole discretion to modify the terms, including
the price, of outstanding options.
(2) Amounts represent hypothetical gains that could be achieved for the
respective options if exercised at the end of the option term. These gains
are based on assumed rates of stock price appreciation of 5% and 10%
compounded annually from the date the respective options were granted to
their expiration date based upon an assumed initial public offering price of
$ per share. These assumptions are not intended to forecast future
appreciation of our stock price. The potential realizable value computation
does not take into account federal or state income tax consequences of
option exercises or sales of appreciated stock.
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<PAGE>
AGGREGATE OPTION EXERCISES IN 1999
AND 1999 YEAR-END OPTION VALUES
The following table provides summary information concerning stock options
granted under our 1993 Stock Option Plan during the year ended December 31,
1999, and exercised options subject to repurchase held as of December 31, 1999,
by each of the named executive officers:
<TABLE>
<CAPTION>
SHARES NUMBER OF SECURITIES VALUE OF SHARES
ACQUIRED VALUE SUBJECT TO REPURCHASE SUBJECT TO REPURCHASE
NAME ON EXERCISE REALIZED AT DECEMBER 31, 1999 (#) AT DECEMBER 31, 1999 ($)(1)
- ---- ----------- -------- -------------------------- -----------------------------
<S> <C> <C> <C> <C>
William E. Rich............... 155,000 -- 580,000
James H. Stanford............. -- -- 230,000
</TABLE>
- ------------------------
(1) There was no public trading market for our common stock as of December 31,
1999. Accordingly, the value of unexercised in-the-money options as of that
date was calculated on the basis of an assumed initial public offering price
of $ per share, less the aggregate exercise price of the options.
EMPLOYEE BENEFIT PLANS
1993 STOCK OPTION PLAN
Our 1993 Stock Option Plan was adopted by the board of directors and
approved by our stockholders in December 1993. The 1993 Stock Option Plan
provides for the grant of incentive stock options intended to qualify under
Section 422 of the Internal Revenue Code and stock options that do not so
qualify. The granting of incentive stock options is subject to the limitations
set forth in the 1993 Stock Option Plan. Our directors, officers, employees and
consultants are eligible to receive grants under the 1993 Stock Option Plan. The
purpose of the 1993 Stock Option Plan is to promote the interests of us and our
stockholders by encouraging and enabling eligible employees and other persons
affiliated with us to acquire our stock. We believe that the granting of options
will stimulate the efforts of these persons, strengthen their desire to remain
with us, further align their interests with our success and assure a closer
identification between them and us.
The 1993 Stock Option Plan is administered by our board of directors, which,
subject to the limitations on incentive stock options discussed above, has
authority to determine the optionees, the number of shares covered by an option,
the option exercise price, the term of the option, the vesting schedule and
other terms and conditions. The 1993 Stock Option Plan, as amended, provides for
the grant of options covering up to 5,825,000 shares of common stock. If an
option expires, terminates, becomes unexercisable or is forfeited during the
term of the 1993 Stock Option Plan without having been exercised in full, the
shares subject to the unexercised portion of such plan will again be available
for grant pursuant to the 1993 Stock Option Plan. In March 2000, the board of
directors approved an additional 1,900,000 shares for the 1993 Stock Option Plan
and recommended such action to the stockholders.
As of March 15, 2000, options for a total of 2,571,136 shares of common
stock are outstanding under the 1993 Stock Option Plan. In addition, 3,690,741
shares of common stock have been purchased under the 1993 Stock Option Plan
pursuant to exercises of options. A total of 1,463,123 shares remain available
for issuance under the 1993 Stock Option Plan.
401(K) PLAN
We have established a tax-qualified employee savings and retirement plan, or
401(k) Plan, which covers all of our full-time U.S. employees who have completed
at least three months of service. Under the 401(k) Plan, eligible employees may
defer up to 20% of their pre-tax-earnings, subject to the
41
<PAGE>
Internal Revenue Service's annual contribution limit. The 401(k) Plan permits
additional discretionary matching contributions by us on behalf of all
participants in the 401(k) Plan in such a percentage amount as may be determined
annually by the Advisory Committee. The Advisory Committee has the
responsibility of making all discretionary determinations under the 401(k) Plan.
The 401(k) Plan is intended to qualify under Section 401 of the Internal Revenue
Code so that contributions by employees or by us to the 401(k) Plan, and so that
our contributions, if any, will be deductible by us when made. The Trustee under
the 401(k) Plan invests the account balance under the plan in accordance with an
employee's written direction. To the extent an employee directs the investment
of his or her account balance under the plan, ERISA relieves the Trustee from
liability for any loss resulting from employee direction of the investment.
EMPLOYMENT AGREEMENTS
We entered into an employment offer letter, dated August 25, 1997, with
James H. Stanford, our Vice President and Chief Financial Officer. This letter
provides for the acceleration of vesting of 100% of the options granted to
Mr. Stanford and severance pay of not less than three month's pay and bonus in
the event we are acquired by another company or group of investors and
Mr. Stanford's employment is terminated for reasons other than gross misconduct,
Mr. Stanford receives a cut in pay or responsibilities, or Mr. Stanford is
required to move beyond reasonable commuting distance from his home.
42
<PAGE>
CERTAIN TRANSACTIONS
We have issued since our inception through March 15, 2000, in private
placement transactions (collectively, the "Private Placement Transactions"),
shares of preferred stock as follows: an aggregate of 3,054,400 shares of
Series A preferred stock at $0.50 per share in February and July 1994, an
aggregate of 6,627,457 shares of Series B preferred stock at $1.00 per share in
March 1995, July 1996 and March 2000, an aggregate of 2,968,119 shares of
Series C preferred stock at $1.50 per share in April 1997, March 1998 and
March 2000, an aggregate of 6,919,713 shares of Series D preferred stock at
$2.00 per share in July and September 1998, January 1999 and March 2000, and an
aggregate of 10,390,862 shares of Series E preferred stock at $2.75 per share in
March 2000.
Each share of preferred stock is convertible, without payment of additional
consideration, into one share of common stock, and all of the 29,960,551 shares
of preferred stock shall be converted into 29,960,551 shares of common stock
upon closing of this offering.
The following table summarizes the shares of preferred stock purchased by
our greater than 5% stockholders, our directors and our executive officers in
private placement transactions:
<TABLE>
<CAPTION>
SERIES A SERIES B SERIES C SERIES D SERIES E
PREFERRED PREFERRED PREFERRED PREFERRED PREFERRED
INVESTOR (1) STOCK STOCK STOCK STOCK STOCK
- ------------ --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
DIRECTORS AND EXECUTIVE OFFICERS
John A. Young......................... 100,000 -- 304,775 148,378 96,759
William R. Green, Ph.D................ -- 200,000 121,734 -- 51,300
William E. Rich, Ph.D................. -- 250,000 67,303 -- --
Daniel Vapnek, Ph.D................... -- 50,000 100,000 -- 27,159
James H. Stanford..................... -- 5,000 -- -- --
MDS Capital Corporation(2)............ -- -- -- 2,500,000 452,649
ENTITIES AFFILIATED WITH DIRECTORS
S.R. One, Ltd.(3)..................... 1,375,660 1,743,696 671,441 207,404 363,636
Atlas Venture(4)...................... -- -- -- -- 3,796,941
Stanford Research Systems, Inc.(5).... -- 1,657,239 -- -- 300,059
Falcon Technology Partners(6)......... 749,834 1,578,671 1,414,532 678,368 727,273
Lenita Rich (IRA)(7).................. -- -- -- 50,113 10,884
Diana Young(8)........................ -- 83,333 -- -- 27,159
Gregory Young(8)...................... -- 83,333 -- -- 27,159
John Peter Young(8)................... -- 83,334 -- -- 27,159
China Development Industrial
Bank(9)............................. -- -- -- -- 103,891
Central Investment Holding(9)......... -- -- -- -- 103,891
Bank Sinopac(9)....................... -- -- -- -- 103,891
Cheng Xin Venture Capital Corp.(9).... -- -- -- -- 51,963
5% STOCKHOLDERS
William E. Rich, Ph.D................. -- 250,000 67,303 -- --
MDS Capital Corporation............... -- -- -- 2,500,000 452,649
S.R. One, Ltd......................... 1,375,660 1,743,696 671,441 207,404 363,636
Atlas Venture......................... -- -- -- -- 3,796,941
Falcon Technology Partners............ 749,834 1,578,671 1,414,532 678,368 727,273
T. William Hutchens................... -- -- -- -- --
Tai-Tung Yip.......................... -- -- -- -- --
</TABLE>
- ------------------------
(1) See "Principal Stockholders" for more detail on shares held by these
purchasers.
(2) Michael J. Callaghan, a director, is a Senior Vice President of MDS Capital
Corporation.
(3) Barbara J. Dalton, Ph.D., a director, is a Vice President of
S.R. One, Ltd.
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<PAGE>
(4) Jean-Francois Formela, M.D., a director, is a General Partner of Atlas
Venture.
(5) William R. Green, Ph.D, a director, is President and Chief Executive Officer
of Stanford Research Systems, Inc.
(6) James L. Rathmann, a director, is President of Falcon Technology Partners.
(7) William E. Rich, Ph.D., President and Chief Executive Officer and a
director, is the spouse of Lenita Rich.
(8) John A. Young, Chairman of the board of directors, is the father of Diana,
Gregory and John Peter Young.
(9) China Development Industrial Bank, Central Investment Holding, Bank Sinopac
and Cheng Xin Venture Capital corporation are limited partners of MDS
Capital Corporation, of which Michael J. Callaghan, a director, is Senior
Vice President.
Since our inception, we have issued, in conjunction with the issuance of
certain convertible promissory notes (all of which have been converted) in
private placement transactions and in conjunction with other financing
transactions, warrants to purchase shares of preferred stock as follows: an
aggregate of 53,334 shares of Series A preferred stock at $0.50 per share in
December 1993 and September 1996, an aggregate of 393,668 shares of Series B
preferred stock at $1.00 per share in March and October 1995 and January 1996,
an aggregate of 83,400 shares of Series C preferred stock at $1.50 per share in
April, September and November 1997, an aggregate of 165,955 shares of Series D
preferred stock at $2.00 per share in February, March and August 1998, and
146,635 shares of Series E preferred stock at $2.75 per share in March 2000. The
following table summarizes the number of preferred stock warrants granted to
greater than 5% stockholders, directors, executive officers and entities
affiliated with our executive officers and directors in private placement
transactions (including 53,334 Series A warrants exercised in 1998, 280,668
Series B warrants exercised in 1999 and 2000, 38,400 Series C warrants exercised
in 2000 and 165,000 Series D warrants exercised in 2000, by those listed in this
table):
<TABLE>
<CAPTION>
SERIES A SERIES B SERIES C SERIES D
PRINCIPAL AMOUNT WARRANT WARRANT WARRANT WARRANT
INVESTOR(1) OF NOTES SHARES SHARES SHARES SHARES
- ----------- ---------------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
S.R. One, Ltd............................. $1,721,683 53,334 139,054 -- 26,250
Falcon Technology Partners................ 1,250,784 -- 127,558 -- 22,500
William R. Green, Ph.D.................... 240,000 -- -- 38,400 --
John A. Young............................. 250,000 -- -- -- 18,750
</TABLE>
- ------------------------
(1) See "Principal Stockholders" for more detail on shares held by these
purchasers.
In October 1996 and September 1997, we issued an aggregate of 550,000 shares
of Series B preferred stock to SRS under a joint development agreement with SRS
entered into in February 1995. In connection with the agreement, SRS may be
entitled to receive up to an additional 550,000 shares of Series B preferred
stock upon the achievement of certain milestones.
In February 1997, Dr. Green loaned us $240,000 evidenced by a promissory
note. In addition, we issued to Dr. Green a warrant to purchase 38,400 shares of
Series C preferred stock at an exercise price of $1.25 per share. The loan was
fully repaid on March 3, 2000.
In April 1997, we entered into an agreement to acquire all of the
outstanding capital stock of IllumeSys Pacific, Inc. Under the agreement, we
issued an aggregate of 9,831,476 shares of its common stock to IllumeSys
shareholders, including 6,783,718 shares of common stock to Dr. Hutchens.
In January 1998, the William E. Rich family loaned us $100,000 pursuant to a
senior promissory note. The note accrued interest at a rate of 8 1/2% per annum.
On March 26, 1998, we issued 67,303
44
<PAGE>
shares of Series C preferred stock to the William E. Rich IRA at $1.50 per share
and we repaid the outstanding principal balance and accrued interest on the note
on March 31, 1998.
In February 1998, we agreed with Ciphergen Technologies, Inc. ("CTI"), that
we would acquire the 95% of the capital stock of CTI we did not then own in
exchange for 1,075,000 shares of our common stock. The consummation of the
acquisition was concurrent with the first closing of the Series D preferred
stock offering on July 28, 1998. Drs. Hutchens and Yip were the principal
shareholders of CTI.
In March 1998, Drs. Rich and Hutchens, Mr. Stanford and Dr. Yip exercised
incentive stock options totaling 1,925,000 shares with five-year promissory
notes totaling $296,250. In May 1998, Mr. Stanford exercised an incentive stock
option for 100,000 shares with a $50,000 five-year promissory note. In
December 1998, a $200,000, five-year promissory note was executed by Dr. Rich,
secured by his personal residence. In September 1999, Dr. Rich entered into a
five-year promissory note for $47,548, which represented a renewal of a $35,000
promissory note of September 1994 plus accumulated interest. In November 1998, a
$30,000, five year promissory note was executed by Dr. Rich, representing
renewal of a $30,000, four year promissory note executed by Dr. Rich in
November 1994.
In September 1999, Dr. Rich exercised an incentive stock option for 155,000
shares with a $77,500, five-year promissory note. In March 2000, Dr. Rich
exercised an incentive stock option for 200,000 shares with a $300,000 five-year
promissory note.
From June 1996 to March 1999, SRS provided space to us at no charge so that
we could begin manufacturing operations of our ProteinChip Reader. SRS charged
us on an hourly basis for the use of SRS purchasing personnel who ordered
materials from vendors for ProteinChip Reader production. SRS charged us the
suppliers' prices without markup and invoiced us monthly. In March 1999, we
relocated our manufacturing operations to our Palo Alto headquarters and
instituted direct purchases of materials. SRS continues as a supplier of certain
components of our ProteinChip Reader but no longer purchases from other
suppliers for us. We believe that the price and quality of products made and
supplied by SRS are competitive with available alternatives. From June 1996 to
September 1999, we paid SRS $2.4 million for externally purchased parts, SRS
staff time and SRS manufactured parts.
Our SELDI technology was acquired via royalty-bearing sub-licenses. The
technology was developed by Drs. Hutchens and Yip when they were employed at the
Baylor College of Medicine. Several patent applications have been filed under
the names of Drs. Hutchens and Yip and assigned to Baylor.
In 1993, Molecular Analytical Systems, or MAS, owned primarily by Drs.
Hutchens and Yip, obtained an exclusive worldwide license to the SELDI
technology from Baylor. In 1997, MAS granted an exclusive sub-license for a
broad range of applications in the life science research market to IllumeSys
Pacific, Inc., or IPI, and an exclusive sub-license for a broad range of
applications in other life science markets, including clinical diagnostics and
consumer products, to ISP Acquisition Corporation, later named Ciphergen
Technologies, Inc., or CTI. Exclusive rights for a broad range of applications
in the field of therapeutic drug discovery were shared between IPI and CTI.
In April 1997, we acquired 100% of the stock of IPI and 5% of the stock of
CTI. In July 1998, we acquired the remaining 95% of the stock of CTI concurrent
with the first closing of the Series D preferred stock offering. MAS retained
for itself rights to SELDI for non-life science applications and for life
science applications that do not involve biological or bioanalytical
measurements or assays performed in laboratories or laboratory environments.
We entered into an employment agreement, dated April 7, 1997, with Tai-Tung
Yip, our Director of Research. It provides for an annual base salary of $100,000
per year and for a discretionary bonus.
45
<PAGE>
Mr. Yip's term of employment under the agreement is three years and we have the
right to terminate Mr. Yip's employment with cause.
We believe the foregoing transactions were in our best interests. It is our
policy that future transactions with affiliates, including any loans we make to
our officers, directors, principal stockholders or other affiliates will be on
terms no less favorable to us than we could have obtained from unaffiliated
third parties. These transactions will be approved by a majority of our board of
directors, including a majority of the independent and disinterested members,
or, if required by law, a majority of our disinterested stockholders.
46
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth information regarding the beneficial
ownership of our common stock as of March 15, 2000, and as adjusted to reflect
the sale of common stock offered hereby for:
- each person known by us to own beneficially more than 5% of our common
stock;
- each of the our directors;
- our Chief Executive Officer and our other most highly compensated
executive officer; and
- our executive officers and directors as a group.
Except as otherwise noted, the address of each person listed in the table is
c/o Ciphergen Biosystems, Inc., 490 San Antonio Road, Palo Alto, California,
94306. The table includes all shares of common stock issuable within 60 days of
March 15, 2000, upon the exercise of options and warrants beneficially owned by
the indicated stockholders on that date based on options and warrants
outstanding as of March 15, 2000. Beneficial ownership is determined in
accordance with the rules of the Securities and Exchange Commission and includes
voting and investment power with respect to shares. To our knowledge, except
under applicable community property laws or as otherwise indicated, the persons
named in the table have sole voting and sole investment control with respect to
all shares beneficially owned. The applicable percentage of ownership for each
stockholder is based on 46,427,808 shares of common stock outstanding as of
March 15, 2000, in each case together with applicable options and warrants for
that stockholder. Shares of common stock issuable upon exercise of options and
warrants beneficially owned are deemed outstanding for the purpose of computing
the percentage of ownership of the person holding those options and warrants,
but are not deemed outstanding for computing the percentage ownership of any
other person.
<TABLE>
<CAPTION>
PERCENT BENEFICIALLY
OWNED (1)
SHARES ---------------------
BENEFICIALLY BEFORE AFTER
BENEFICIAL OWNER OWNED OFFERING OFFERING
- ---------------- ------------ --------- ---------
<S> <C> <C> <C>
T. William Hutchens ........................................ 7,525,468 16.2%
132 Palmer Avenue
Mountain View, CA 94043
James L. Rathmann (2) ...................................... 5,258,678 11.3%
Falcon Technology Partners
600 Dorsett Road
Devon, PA 19333
Falcon Technology Partners ................................. 5,198,678 11.2%
600 Dorsett Road
Devon, PA 19333
Barbara J. Dalton (3) ...................................... 4,521,837 9.7%
S.R. One, Limited
Four Tower Bridge
200 Barr Harbor Drive, Suite 250
W. Conshohocken, PA 19428
S.R. One, Limited .......................................... 4,521,837 9.7%
Four Tower Bridge
200 Barr Harbor Drive, Suite 250
W. Conshohocken, PA 19428
</TABLE>
47
<PAGE>
<TABLE>
<CAPTION>
PERCENT BENEFICIALLY
OWNED (1)
SHARES ---------------------
BENEFICIALLY BEFORE AFTER
BENEFICIAL OWNER OWNED OFFERING OFFERING
- ---------------- ------------ --------- ---------
<S> <C> <C> <C>
Jean-Francois Formela (4) .................................. 3,796,941 8.2%
Atlas Venture
222 Berkeley Street
Boston, MA 02116
Atlas Venture .............................................. 3,796,941 8.2%
222 Berkeley Street
Boston, MA 02116
Tai-Tung Yip (5)............................................ 3,410,148 7.3%
William E. Rich (6)......................................... 3,293,300 7.0%
Michael J. Callaghan (7) ................................... 2,972,649 6.4%
MDS Capital Corporation
100 International Blvd.
Etobicoke, Ontario, Canada M9W 6J6
MDS Capital Corporation .................................... 2,952,649 6.4%
100 International Blvd.
Etobicoke, Ontario, Canada M9W 6J6
William R. Green (8) ....................................... 2,940,332 6.3%
Stanford Research Systems, Inc.
1290 D Reamwood Avenue
Sunnyvale, CA 94089
John A. Young (9) .......................................... 1,181,389 2.5%
3200 Hillview Avenue
Palo Alto, CA 94304
James H. Stanford (10) ..................................... 415,000 *
Daniel Vapnek (11) ......................................... 277,159 *
414 Plaza Rubio
Santa Barbara, CA 93103
All directors and executive officers as group (nine 24,657,285 51.6%
persons) (12).............................................
</TABLE>
- ------------------------
* less than one percent of outstanding shares
(1) Assumes total conversion of preferred stock into common stock and includes
all shares of common stock issuable (as of March 15, 2000) upon the
exercise of outstanding options (including unvested options) held by the
above listed stockholders and upon the exercise of outstanding warrants
held by the above listed stockholders. Except as otherwise noted, the
persons named in the table have sole voting and investment power with
respect to all shares of common stock owned by them, subject to community
property laws where applicable. Unless otherwise indicated, the address of
each of the individuals named above is c/o Ciphergen Biosystems, Inc.,
490 San Antonio Road, Palo Alto, California 94306.
(2) Includes 40,000 shares in the name of James L. Rathmann, a director,
issuable upon exercise of stock options, 20,000 shares of common stock
currently owned by Mr. Rathmann and 135,000 shares in the name of Falcon
Technology Partners, of which Mr. Rathmann is a General Partner, issuable
upon exercise of preferred stock warrants.
48
<PAGE>
(3) Includes 60,000 shares in the name of S.R. One, Ltd. issuable upon exercise
of stock options and 138,750 shares issuable upon exercise of preferred
stock warrants. Barbara Dalton, a director, is a Vice President of
S.R. One.
(4) Jean-Francois Formela, a director, is a General Partner of Atlas Venture.
(5) Includes 14,584 shares issuable upon exercise of a stock option and 20,416
shares of common stock in the name of Christine Yip, an employee, who is
Dr. Yip's spouse, and 50,000 shares subject to repurchase in the event of
employment termination, as part of an early option exercise agreement.
(6) Includes 50,113 shares of Series D preferred stock and 10,884 shares of
Series E preferred stock held in an Individual Retirement Account and
10,000 shares of common stock held by Lenita L. Rich, a former employee,
who is Dr. Rich's spouse. Includes 710,667 shares subject to repurchase in
the event of employment termination, as part of an early option exercise
agreement.
(7) Includes 20,000 shares issuable upon exercise of a stock option grant to
Michael J. Callaghan. Includes shares owned by three funds affiliated with
MDS Capital Corporation. Michael J. Callaghan, a director, is Senior Vice
President of MDS Capital Corporation.
(8) Includes 550,000 shares of Series B preferred stock issuable upon
completion of certain milestones under a product development agreement
between Stanford Research Systems, Inc. and us. William R. Green, a
director, is President and Chief Executive Officer of Stanford Research
Systems, Inc.
(9) Includes 250,000 shares of Series B preferred stock and 200,000 shares of
common stock, 10,000 shares of which is subject to repurchase as part of an
early stock exercise agreement, are in the names of Mr. Young's three adult
children and 18,750 shares issuable upon the exercise of Series D preferred
stock warrants.
(10) Includes 215,000 shares subject to repurchase in the event of employment
termination as part of an early option exercise agreement.
(11) Includes 100,000 shares issuable upon exercise of stock options.
(12) Includes 880,000 shares issuable upon exercise of stock options, 292,500
shares issuable upon exercise of preferred stock warrants, 550,000 shares
of Series B preferred stock issuable upon completion of certain milestones
by Stanford Research Systems, Inc. under a product development agreement
between Stanford Research Systems, Inc. and us. A total of 945,667 shares
are subject to repurchase in the event of employment termination as part
of early option exercise agreements for two executive officers and two
outside directors.
49
<PAGE>
DESCRIPTION OF CAPITAL STOCK
GENERAL
Our Certificate of Incorporation, which will become effective upon the
closing of this offering, authorizes the issuance of up to shares of
common stock, par value $0.001 per share, and 5,000,000 shares of preferred
stock, par value $0.001 per share, the rights and preferences of which may be
established from time to time by our board of directors. As of March 15, 2000,
16,467,257 shares of common stock were issued and outstanding and 29,960,551
shares of preferred stock convertible into 29,960,551 shares of common stock
upon the completion of this offering were issued and outstanding. As of
March 15, 2000, we had 112 common stockholders of record.
Immediately after the closing of this offering, we will have shares of
common stock outstanding, assuming no exercise of options to acquire 2,571,136
additional shares of common stock or warrants to purchase 280,590 additional
shares of preferred stock convertible into 280,590 shares of common stock that
are outstanding as of the date of this prospectus.
The description below gives effect to the filing of the Certificate of
Incorporation and the adoption of the Amended and Restated Bylaws. The following
summary is qualified in its entirety by reference to our Certificate and Amended
and Restated Bylaws, copies of which are filed as exhibits to the registration
statement of which this prospectus is a part.
COMMON STOCK
Each holder of common stock is entitled to one vote for each share on all
matters to be voted upon by the stockholders and there are no cumulative voting
rights. Subject to preferences to which holders of preferred stock issued after
the sale of the common stock offered hereby may be entitled, holders of common
stock are entitled to receive ratably such dividends, if any, as may be declared
from time to time by the board of directors out of funds legally available
therefor. In the event of a liquidation, dissolution or winding up of us,
holders of common stock would be entitled to share in our assets remaining after
the payment of liabilities and the satisfaction of any liquidation preference
granted the holders of any outstanding shares of preferred stock. Holders of
common stock have no preemptive or conversion rights or other subscription
rights and there are no redemption or sinking fund provisions applicable to the
common stock. All outstanding shares of common stock are, and the shares of
common stock offered by us in this offering, when issued and paid for will be,
fully paid and nonassesable. The rights, preferences and privileges of the
holders of common stock are subject to, and may be adversely affected by, the
rights of the holders of shares of any series of preferred stock which we may
designate in the future.
PREFERRED STOCK
Upon the closing of this offering, our board of directors will be
authorized, subject to any limitations prescribed by law, without stockholder
approval, to issue from time to time up to an aggregate of 5,000,000 shares of
preferred stock, in one or more series, each of such series to have such rights
and preferences, including voting rights, dividend rights, conversion rights,
redemption privileges and liquidation preferences as shall be determined by the
board of directors. The rights for the holders of common stock will be subject
to, and may be adversely affected by, the rights of holders of any preferred
stock that may be issued in the future. Issuance of preferred stock, while
providing desirable flexibility in connection with possible acquisitions and
other corporate purposes, could have the effect of making it more difficult for
a third party to acquire, or of discouraging a third party from attempting to
acquire, a majority of the outstanding voting stock of us. We have no present
plans to issue any shares of preferred stock.
50
<PAGE>
WARRANTS
We have issued and outstanding warrants to purchase an aggregate of 280,590
shares of our preferred stock convertible into 280,590 shares of common stock,
excluding warrants which will expire without exercise prior to consummation of
this offering, which are assumed included in preferred stock outstanding
immediately prior to this offering.
REGISTRATION RIGHTS
DEMAND REGISTRATION
According to the terms of an investors rights agreement dated March 3, 2000,
beginning six months after the closing of this offering, the holders of
shares of common stock shall have the right to require us to register
their shares with the Securities and Exchange Commission so that those shares
may be resold to the public. To demand such a registration, holders who hold
together an aggregate of at least 50% of the shares having registration rights
must request that the registration statement register shares for an aggregate
offering price of at least $5,000,000, net of underwriting discounts and
commissions. We are not required to effect more than two demand registrations.
We may defer the filing of a demand registration for a period of up to 120 days
once in any 12-month period.
PIGGYBACK REGISTRATION
If we register in a public offering any of our securities, other than a
registration relating solely to employee benefit plans or a registration
relating solely to a Rule 145 transaction, the holders of demand registration
rights will have the right to include their shares in the registration
statement.
FORM S-3 REGISTRATION
At any time after we become eligible to file a registration statement on
Form S-3, holders of shares of common stock having demand and piggyback
registration rights may require us to file a Form S-3 registration. We are
obligated to file only one Form S-3 registration statement in any 12-month
period. We are also not obligated to file a Form S-3 within 180 days after any
registered offering by us, except for a registration relating solely to employee
benefit plans or a registration relating solely to a Rule 145 transaction.
Further, the aggregate offering proceeds of the requested Form S-3 registration,
before deduction of underwriting discounts and expenses, must be at least
$1,000,000. We may defer one registration request in any 12-month period for 120
days.
The registration rights are subject to certain conditions and limitations,
including the right of the underwriters of an offering to limit the number
shares of common stock to be included in the registration. We are generally
required to bear the expenses of all registrations, except underwriting
discounts and commissions. However, we will not pay for any expenses of any
demand registration if the request is subsequently withdrawn by the holders
requesting the demand registration. The investors rights agreement also contains
our commitment to indemnify the holders of registration rights for losses
attributable to statements or omissions by us incurred with registrations under
the agreement. The registration rights terminate six years from the closing of
this offering.
The holders of Preferred Stock, certain holders of warrants to purchase
Preferred Stock and certain holders of our Common Stock are parties with us to
an investor rights agreement (the "Investor Rights Agreement"), pursuant to
which those holders have customary demand and piggyback registration rights with
respect to the shares of Common Stock held or to be issued upon conversion or
exercise of their Preferred Stock and warrants, respectively. In addition, the
holders of Preferred Stock are entitled to receive quarterly and annual
financial statements, subject to certain conditions and limitations. Copies of
the Investor Rights Agreement setting forth such rights will be furnished to
investors upon request.
51
<PAGE>
EFFECT OF CERTAIN PROVISIONS OF OUR CERTIFICATE OF INCORPORATION AND BYLAWS, AND
THE DELAWARE ANTI-TAKEOVER LAW
Certain provisions of our Amended and Restated Certificate of Incorporation
and Bylaws, which will become effective upon the closing of this offering, may
have the effect of making it more difficult for a third party to acquire, or of
discouraging a third party from attempting to acquire, control of us. Such
provisions could limit the price that certain investors might be willing to pay
in the future for shares of our common stock. Our Bylaws eliminate the right of
stockholders to call special meetings of stockholders or to act by written
consent without a meeting and require advance notice for stockholder proposals
and director nominations, which may preclude stockholders from bringing matters
before an annual meeting of stockholders or from making nominations for
directors at an annual meeting of stockholders. The authorization of
undesignated preferred stock makes it possible for the Board of Directors to
issue preferred stock with voting or other rights or preferences that could
impede the success of any attempt to change control of us. These and other
provisions may have the effect of deferring hostile takeovers or delaying
changes in control or management of us. The amendment of any of these provisions
would require approval by holders of at least 66 2/3% of the outstanding common
stock. In addition, we are subject to Section 203 of the Delaware General
Corporation which, subject to certain exceptions, prohibits a Delaware
corporation from engaging in any business combination with any interested
stockholder, unless:
- prior to such date, the Board of Directors of the corporation approved
either the business combination or the transaction which resulted in the
stockholder becoming an interested stockholder;
- upon consummation of the transaction which resulted in the stockholder
becoming an interested stockholder, the interested stockholder owned at
least 85% of the voting stock of the corporation outstanding at the time
the transaction commenced, excluding for purposes of determining the
number of shares outstanding (a) shares owned by persons who are directors
and also officers, and (b) shares owned by employee stock plans in which
employee participants do not have the right to determine confidentially
whether shares held subject to the plan will be tendered in a tender or
exchange offer; or
- on or subsequent to such date, the business combination is approved by the
Board of Directors and authorized at an annual or special meeting of
stockholders, and not by written consent, by the affirmative vote of at
least 66 2/3% of the outstanding voting stock which is not owned by the
interested stockholder.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for our common stock is .
52
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has been no market for our common stock, and
we cannot assure you that a significant public market for the common stock will
develop or be sustained after this offering. Future sales of substantial amounts
of common stock, including shares issued upon exercise of outstanding options
and warrants, in the public market following this offering could adversely
affect market prices prevailing from time to time and could impair our ability
to raise capital through the sale of our equity securities. As described below,
shares currently outstanding will be available for sale immediately after
this offering.
SALES OF RESTRICTED SECURITIES
Upon completion of the offering, we will have outstanding an aggregate of
shares of common stock, assuming no exercise of the underwriters'
over-allotment option and no exercise of outstanding options or outstanding
warrants after March 15, 2000. Of these outstanding shares, the shares
sold in the offering will be freely tradable without restriction or further
registration under the Securities Act of 1933, unless purchased by our
"affiliates" as that term is defined in Rule 144 under the Securities Act of
1933. The remaining 46,427,808 shares of common stock outstanding upon
completion of the offering and held by existing stockholders will be "restricted
securities" as that term is defined in Rule 144 under the Securities Act of
1933. Restricted shares may be sold in the public market only if registered or
if they qualify for an exemption from registration under Rules 144, 144(k) or
701 promulgated under the Securities Act of 1933, which rules are summarized
below, or another exemption. Sales of the restricted shares in the public
market, or the availability of such shares for sale, could adversely affect the
market price of the common stock. All officers, directors and certain other
holders of common stock have entered into contractual "lock-up" agreements
providing that they will not offer, sell, contract to sell or grant any option
to purchase or otherwise dispose of shares of common stock owned by them or that
could be purchased by them through the exercise of options or warrants for a
period of 180 days after the date of this prospectus without the prior written
consent of SG Cowen. As a result of these contractual restrictions,
notwithstanding possible earlier eligibility for sale under the provisions of
Rules 144, 144(k) and 701, additional shares will be eligible for sale beginning
181 days after the effective date of the offering, subject in some cases to
certain volume limitations.
ELIGIBILITY OF RESTRICTED SHARES FOR SALE IN THE PUBLIC MARKET
<TABLE>
<S> <C>
At the effective date....................................... shares
90 days after effective date................................ shares
180 days after effective date............................... shares
More than 180 days after effective date..................... shares
</TABLE>
RULE 144
In general, under Rule 144 as currently in effect, beginning 91 days after
the date of this prospectus, a person, or persons whose shares are aggregated,
who has beneficially owned restricted shares for at least one year, including
persons who may be deemed to be our "affiliates," would be entitled to sell
within any three-month period a number of shares that does not exceed the
greater of:
- 1% of the number of shares of common stock then outstanding, which will
equal approximately shares immediately after the offering
- the average weekly trading volume of the common stock as reported through
the Nasdaq National Market during the four calendar weeks preceding the
filing of a Form 144 with respect to such sale
53
<PAGE>
Sales under Rule 144 are also subject to manner of sale provisions and
notice requirements and to the availability of current public information about
us. Under Rule 144(k), a person who is not deemed to have been our affiliate at
any time during the 90 days preceding a sale, and who has beneficially owned for
at least two years the restricted shares proposed to be sold, including the
holding period of any prior owner except an affiliate, is entitled to sell such
shares without complying with the manner of sale, public information, volume
limitation or notice provisions of Rule 144.
RULE 701
Subject to certain limitations on the aggregate offering price of a
transaction and other conditions, Rule 701 permits resales of shares issued
prior to the date the issuer becomes subject to the reporting requirements of
the Securities Exchange Act of 1934, pursuant to certain compensatory benefit
plans and contracts commencing 90 days after the issuer becomes subject to the
reporting requirements of the Securities and Exchange Act of 1933, in reliance
upon Rule 144 but without compliance with certain restrictions, including the
holding period requirements. In addition, the Securities and Exchange Commission
has indicated that Rule 701 will apply to typical stock options granted by an
issuer before it becomes subject to the reporting requirements of the Securities
Exchange Act of 1934, along with the shares acquired upon exercise of such
options, including exercises after the date the issuer becomes so subject.
Securities issued in reliance on Rule 701 are restricted securities and, subject
to the contractual restrictions described above, beginning 91 days after the
date of this prospectus, may be sold by persons other than affiliates subject
only to the manner of sale provisions of Rule 144 and by affiliates under
Rule 144 without compliance with its one-year minimum holding period
requirements.
LOCK-UP AGREEMENTS
We have agreed not to sell or otherwise dispose of any shares of common
stock or any securities convertible into or exercisable or exchangeable for
common stock, or enter into any swap or similar agreement that transfers, in
whole or in part, the economic risk of ownership of the common stock, for a
period of 180 days after the date of this prospectus, without the prior written
consent of SG Cowen Securities Corporation, subject to limited exceptions.
We intend to file a registration statement under the Securities Act of 1933
covering the shares of common stock subject to outstanding options or reserved
for issuance under the 1993 Stock Option Plan. This registration statement is
expected to be filed within 90 days of effectiveness of the registration
statement covering the shares of common stock in this offering and will
automatically become effective upon filing. Accordingly, shares registered under
such registration statement will, subject to Rule 144 volume limitations
applicable to affiliates and the expiration of a 180-day lock-up period, be
available for sale in the open market, except to the extent that such shares are
subject to our vesting restrictions or the contractual restrictions described
above.
54
<PAGE>
UNDERWRITING
Pursuant to the terms of an underwriting agreement dated , 2000, which
is filed as an exhibit to the registration statement relating to this
prospectus, the underwriters of the offering named below, for whom SG Cowen
Securities Corporation, ING Barings LLC and Warburg Dillon Read LLC are acting
as representatives, have each agreed to purchase from us the respective number
of shares of common stock set forth opposite its name below:
<TABLE>
<CAPTION>
UNDERWRITERS NUMBER OF SHARES
- ------------ ----------------
<S> <C>
SG Cowen Securities Corporation.............................
ING Barings LLC.............................................
Warburg Dillon Read LLC.....................................
-------
Total.....................................................
=======
</TABLE>
The underwriting agreement provides that the underwriters' obligations to
purchase shares of common stock depend on the satisfaction of the conditions
contained in the underwriting agreement, and that if any of the shares of common
stock are purchased by the underwriters under the underwriting agreement, then
all of the shares of common stock which the underwriters have agreed to purchase
under the underwriting agreement must be purchased. The conditions contained in
the underwriting agreement include the requirement that the representations and
warranties made by us to the underwriters are true, that there is no material
change in the financial markets and that we deliver to the underwriters
customary closing documents.
We have granted to the underwriters an option to purchase up to an aggregate
of additional shares of common stock, exercisable solely to cover
over-allotments, if any, at the public offering price less the underwriting
discounts and commissions shown on the cover page of this prospectus. The
underwriters may exercise this option at any time until 30 days after the date
of the underwriting agreement. If this option is exercised, each underwriter
will be committed, so long as the conditions of the underwriting agreement are
satisfied, to purchase a number of additional shares of common stock
proportionate to the underwriter's initial commitment as indicated in the
preceding table and we will be obligated, under the over-allotment option, to
sell the shares of common stock to the underwriters.
The underwriters propose to offer the common stock directly to the public at
the public offering price set forth on the cover page of this prospectus. The
underwriters may offer the common stock to securities dealers at that price less
a concession not in excess of $ per share. Securities dealers may reallow a
concession not in excess of $ per share to other dealers. After the shares
of common stock are released for sale to the public, the underwriters may vary
the offering price and other selling terms from time to time.
The following table shows the per share and total underwriting discounts and
commissions to be paid to the underwriters by us. These amounts are shown
assuming both no exercise and full exercise of the underwriters' option to
purchase additional shares described below.
<TABLE>
<CAPTION>
WITHOUT
PER SHARE OPTION WITH OPTION
--------- ------------ -----------
<S> <C> <C> <C>
Public offering price.....................
Underwriting discount.....................
Proceeds, before expenses, to Ciphergen...
</TABLE>
We estimate that the total expenses of the offering, excluding underwriting
discounts and commissions, will be approximately $1.4 million.
55
<PAGE>
We have agreed to indemnify the underwriters against liabilities, including
liabilities under the Securities Act of 1933 and liabilities arising from
breaches of the representations and warranties contained in the underwriting
agreement, and to contribute to payments that the underwriters may be required
to make for these liabilities.
We, our executive officers and directors and certain of our other existing
stockholders have agreed not to directly or indirectly do any of the following,
whether any transaction described in clause (1) or (2) below is to be settled by
delivery of common stock or other securities, in cash or otherwise, in each case
without the prior written consent of SG Cowen on behalf of the underwriters, for
a period of 180 days after the date of this prospectus:
(1) offer, sell or otherwise dispose of, or enter into any transaction or
arrangement which is designed or could be expected to, result in the
disposition or purchase by any person at any time in the future of, any
shares of common stock or securities convertible into or exchangeable for
common stock or substantially similar securities, other than any of the
following:
- the common stock sold under this prospectus
- shares of common stock we issue under employee benefit plans, qualified
stock option plans or other employee compensation plans existing on the
date of this prospectus or under currently outstanding options,
warrants or rights
(2) sell or grant options, rights or warrants with respect to any shares of
our common stock or securities convertible into or exchangeable for our
common stock or substantially similar securities, other than the grant of
options under option plans existing on the date hereof
The underwriters have informed us that they do not intend to confirm sales
to discretionary accounts that exceed five percent of the total number of shares
of common stock offered by them.
We have applied for inclusion of our common stock on the Nasdaq National
Market under the symbol "CIPH", subject to official notice of issuance.
Prior to the offering, there has been no public market for the shares of our
common stock. The initial public offering price will be negotiated between the
representatives and us. In determining the initial public offering price of the
common stock, the representatives will consider, among other things and in
addition to prevailing market conditions, our historical performance and capital
structure, estimates of our business potential and earnings prospects, an
overall assessment of our management and the consideration of the above factors
in relation to market valuation of companies in related businesses.
Until the distribution of the common stock is completed, rules of the
Securities and Exchange Commission may limit the ability of the underwriters and
selling group members to bid for and purchase shares of common stock. As an
exception to these rules, the representatives are permitted to engage in
transactions that stabilize the price of the common stock. These transactions
may consist of bids or purchases for the purpose of pegging, fixing or
maintaining the price of common stock.
The underwriters may create a short position in the common stock in
connection with the offering, which means that they may sell more shares than
are set forth on the cover page of this prospectus. If the underwriters create a
short position, then the representatives may reduce that short position by
purchasing common stock in the open market. The representatives also may elect
to reduce any short position by exercising all or part of the over-allotment
option.
The representatives also may impose a penalty bid on underwriters and
selling group members. This means that if the representatives purchase shares of
common stock in the open market to reduce the underwriters' short position or to
stabilize the price of the common stock, they may reclaim the
56
<PAGE>
amount of the selling concession from the underwriters and selling group members
who sold those shares as part of the offering.
In general, purchases of a security for the purpose of stabilization or to
reduce a syndicate short position could cause the price of the security to be
higher than it might otherwise be in the absence of those purchases. The
imposition of a penalty bid might have an effect on the price of a security to
the extent that it was to discourage resales of the security by purchasers in an
offering.
Neither we nor any of the underwriters make any representation or prediction
as to the direction or magnitude of any effect that the transactions described
above may have on the price of the common stock. In addition, neither we nor any
of the underwriters make any representation that the representatives will engage
in these transactions or that these transactions, once commenced, will not be
discontinued without notice.
At our request, the underwriters have reserved up to % shares of the
common stock offered by this prospectus for sale to our directors and to our
business associates at the initial public offering price set forth on the cover
page of this prospectus. These persons must commit to purchase no later than the
close of business on the day following the date of this prospectus. The number
of shares available for sale to the general public will be reduced to the extent
these persons purchase the reserved shares.
SG Cowen Securities Corporation owns 146,635 shares of our Series E
preferred stock. The shares of Series E preferred stock will convert into an
equal number of shares of common stock upon completion of the initial public
offering.
Certain of the representatives and their affiliates have in the past, and
may in the future, provide investment banking, financial advisory and other
services to us for which these representatives receive customary fees and
commissions.
57
<PAGE>
LEGAL MATTERS
The validity of the common stock offered hereby will be passed upon for us
by Wilson Sonsini Goodrich & Rosati, P.C., Palo Alto, California. Certain legal
matters in connection with this offering will be passed upon for the
underwriters by Brobeck, Phleger & Harrison LLP, San Francisco, California.
EXPERTS
Our consolidated financial statements as of December 31, 1998 and 1999, and
for each of the three years in the period ended December 31, 1999 included in
this Prospectus have been so included in reliance on the report of
PricewaterhouseCoopers LLP, independent accountants, given on the authority of
said firm as experts in auditing and accounting.
WHERE YOU CAN FIND ADDITIONAL INFORMATION
We have filed with the SEC a registration statement on Form S-1 under the
Securities Act, and the rules and regulations promulgated thereunder, with
respect to the shares of common stock offered buy this prospectus. This
prospectus, which constitutes part of the registration statement, does not
contain all of the information set forth in the registration statement and the
exhibits thereto. Statements contained in this prospectus as to the contents of
any contract or other document that is filed as an exhibit to the registration
statement are not necessarily complete and each such statement is qualified in
all respects by reference to the full text of such contract or document.
You may read and copy all or any portion of the registration statement and
the exhibits at the SEC's public reference room at 450 Fifth Street, N.W.,
Washington, D.C. 20549, and at the regional offices of the SEC located at Seven
World Trade Center, Suite 1300, New York, New York 10048 and Citicorp Center,
500 West Madison Street, Suite 1400, Chicago, Illinois 60661. You can request
copies of these documents, upon payment of a duplication fee, by writing to the
SEC. Please call the SEC at 1-800-SEC-0330 for further information on the
operation of the SEC's public reference rooms. Also, the SEC maintains a World
Wide Web site on the Internet at http://www.sec.gov that contains reports, proxy
and information statements and other information regarding registrants that file
electronically with the SEC.
As a result of this offering, we will become subject to the information and
periodic reporting requirements of the Securities Exchange Act of 1934 and, in
accordance therewith, will file periodic reports, proxy and information
statements and other information with the SEC. These periodic reports, proxy and
information statements and other information will be available for inspection
and copying at the public reference facilities, regional offices and SEC's Web
site referred to above.
58
<PAGE>
CIPHERGEN BIOSYSTEMS, INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Accountants........................... F-2
Consolidated Balance Sheets................................. F-3
Consolidated Statements of Operations....................... F-4
Consolidated Statements of Stockholders' Deficit............ F-5
Consolidated Statements of Cash Flows....................... F-6
Notes to Consolidated Financial Statements.................. F-7
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of
Ciphergen Biosystems, Inc.
The reincorporation described in Note 14 to the consolidated financial
statements has not been consummated at the date of our opinion. When it has been
consummated, we will be in a position to furnish the following report.
"In our opinion, the accompanying consolidated balance sheets and the
related consolidated statements of operations, of stockholders' deficit and of
cash flows present fairly, in all material respects, the financial position of
Ciphergen Biosystems, Inc. and its subsidiaries at December 31, 1998 and 1999,
and the results of their operations and their cash flows for each of the three
years in the period ended December 31, 1999, in conformity with accounting
principles generally accepted in the United States. These financial statements
are the responsibility of the Company's management; our responsibility is to
express an opinion on these financial statements based on our audits. We
conducted our audits of these statements in accordance with auditing standards
generally accepted in the United States, which require that we plan and perform
the audits to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above."
San Jose, California
March 6, 2000, except for Note 14 for
which the date is April , 2000
F-2
<PAGE>
CIPHERGEN BIOSYSTEMS, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
PRO FORMA
STOCKHOLDERS'
DECEMBER 31, EQUITY AT
------------------- DECEMBER 31,
1998 1999 1999
-------- -------- -------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 7,002 $ 2,799
Accounts receivable, net of allowance for doubtful
accounts of $40 and $100, respectively.................. 1,072 998
Inventories, net.......................................... 730 722
Prepaid expenses and other current assets................. 231 322
-------- --------
Total current assets.................................. 9,035 4,841
Property and equipment, net................................. 791 867
Notes receivable from related party......................... 256 261
Investment in joint venture................................. -- 156
Other long-term assets...................................... -- 22
-------- --------
Total assets.............................................. $ 10,082 $ 6,147
======== ========
LIABILITIES, CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS'
EQUITY (DEFICIT)
Current liabilities:
Accounts payable.......................................... $ 821 $ 770
Accrued liabilities....................................... 740 931
Deferred revenue.......................................... 377 295
Current portion of capital lease obligations.............. 52 121
Current portion of long-term debt......................... 429 366
Line of credit............................................ -- 825
-------- --------
Total current liabilities............................. 2,419 3,308
Capital lease obligations, net of current portion........... 105 184
Long-term debt, net of current portion...................... 276 299
Deferred revenue............................................ -- 297
-------- --------
Total liabilities..................................... 2,800 4,088
-------- --------
Commitments (Note 6)
Convertible preferred stock, $0.001 par value,
Authorized: 30,000,000 shares
Issued and outstanding: 18,574,954 shares at December
31, 1998 and 19,141,289 shares at December 31, 1999;
none pro forma (unaudited)............................ 24,264 25,339 $ --
-------- -------- --------
(Liquidation value: $25,834)
Stockholders' equity (deficit):
Common stock, $0.001 par value,
Authorized: 60,000,000 shares
Issued and outstanding: 15,956,850 shares at December
31, 1998 and 15,936,960 shares at December 31, 1999;
35,078,249 shares pro forma (unaudited)............... 16 16 35
Additional paid-in capital................................ 6,297 10,161 35,481
Notes receivable from stockholders........................ (386) (488) (488)
Deferred stock compensation............................... (1,308) (3,687) (3,687)
Accumulated deficit....................................... (21,601) (29,282) (29,282)
-------- -------- --------
Total stockholders' equity (deficit).................. (16,982) (23,280) $ 2,059
-------- -------- ========
Total liabilities, mandatorily redeemable
convertible preferred stock and stockholders'
equity (deficit).................................. $ 10,082 $ 6,147
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE>
CIPHERGEN BIOSYSTEMS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------
1997 1998 1999
-------- -------- --------
<S> <C> <C> <C>
Revenue..................................................... $ 1,283 $ 2,933 $ 5,010
Cost of revenue............................................. 1,001 1,066 1,669
------- ------- -------
Gross margin.......................................... 282 1,867 3,341
------- ------- -------
Operating expenses:
Research and development.................................. 3,205 4,566 2,933
Sales and marketing....................................... 1,310 2,629 4,513
General and administrative................................ 1,263 1,422 2,176
Amortization of deferred stock compensation............... 119 880 1,344
Write-off of acquired in-process technology............... 968 537 --
------- ------- -------
Total operating expenses.............................. 6,865 10,034 10,966
------- ------- -------
Loss from operations........................................ (6,583) (8,167) (7,625)
Interest income............................................. 15 175 245
Interest expense............................................ (236) (488) (179)
Other income (expense), net................................. (5) 170 37
Equity in net loss of joint venture......................... -- -- (159)
------- ------- -------
Net loss.................................................... $(6,809) $(8,310) $(7,681)
======= ======= =======
Net loss per share:
Basic and diluted......................................... $ (1.01) $ (0.72) $ (0.52)
======= ======= =======
Shares used in computing net loss per share............... 6,749 11,558 14,877
======= ======= =======
Pro forma net loss per share (unaudited):
Basic and diluted......................................... $ (0.23)
=======
Shares used in computing pro forma net loss per share..... 33,939
=======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE>
CIPHERGEN BIOSYSTEMS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT
FOR THE YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999
(IN THOUSANDS)
<TABLE>
<CAPTION>
NOTES
COMMON STOCK ADDITIONAL RECEIVABLE DEFERRED
------------------- PAID-IN FROM STOCK ACCUMULATED
SHARES AMOUNT CAPITAL STOCKHOLDERS COMPENSATION DEFICIT TOTAL
-------- -------- ---------- ------------ ------------- ------------ --------
<S> <C> <C> <C> <C> <C> <C> <C>
Balances, December 31, 1996........... 2,494 $ 3 $ 110 $ (35) $ -- $ (6,482) $ (6,404)
Issuance of common stock upon
conversion of note payable.......... 5 -- 1 -- -- -- 1
Issuance of common stock for
acquisition......................... 4,916 5 732 -- -- -- 737
Issuance of common stock for cash and
notes receivable.................... 138 -- 11 (5) -- -- 6
Issuance of common stock for
services............................ 1,156 1 170 -- -- -- 171
Issuance of warrants.................. -- -- 165 -- -- -- 165
Deferred stock compensation........... -- -- 830 -- (830) -- --
Amortization of deferred stock
compensation........................ -- -- -- -- 119 -- 119
Net loss.............................. -- -- -- -- -- (6,809) (6,809)
------ --- ------- ----- ------- -------- --------
Balances, December 31, 1997........... 8,709 9 2,019 (40) (711) (13,291) (12,014)
Issuance of common stock for
services............................ 3,876 4 1,691 -- -- -- 1,695
Issuance of common stock for cash and
notes receivable.................... 2,297 2 384 (346) -- -- 40
Issuance of common stock for
acquisition......................... 1,075 1 536 -- -- -- 537
Issuance of warrants.................. -- -- 190 -- -- -- 190
Deferred stock compensation........... -- -- 1,477 -- (1,477) -- --
Amortization of deferred stock
compensation........................ -- -- -- -- 880 -- 880
Net loss.............................. -- -- -- -- -- (8,310) (8,310)
------ --- ------- ----- ------- -------- --------
Balances, December 31, 1998........... 15,957 16 6,297 (386) (1,308) (21,601) (16,982)
Issuance of common stock for
services............................ 27 -- 14 -- -- -- 14
Issuance of common stock for cash and
notes receivable.................... 787 1 365 (341) -- -- 25
Repurchase of common stock............ (834) (1) (238) 239 -- -- --
Deferred stock compensation........... -- -- 3,723 -- (3,723) -- --
Amortization of deferred stock
compensation........................ -- -- -- -- 1,344 -- 1,344
Net loss.............................. -- -- -- -- -- (7,681) (7,681)
------ --- ------- ----- ------- -------- --------
Balances, December 31, 1999........... 15,937 $16 $10,161 $(488) $(3,687) $(29,282) $(23,280)
====== === ======= ===== ======= ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE>
CIPHERGEN BIOSYSTEMS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------
1997 1998 1999
-------- -------- --------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss.................................................. $(6,809) $(8,310) $(7,681)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization........................... 602 991 580
Common stock issued for services........................ 171 1,695 14
Preferred stock issued for services..................... 275 83 --
Amortization of deferred stock compensation............. 119 880 1,344
Amortization of debt discount........................... -- -- 19
Equity in net loss of joint venture..................... -- -- 159
Preferred stock issued in lieu of interest.............. -- 91 --
Provision for obsolete inventory........................ 134 117 5
Write-off of acquired in-process technology............. 968 537 --
Loss on disposal of fixed assets........................ 155 67 164
Provision for bad debts................................. -- 40 60
Changes in operating assets and liabilities:
Accounts receivable................................... 80 (1,105) 14
Inventories........................................... (921) (545) 3
Prepaid and other current assets...................... 167 (114) (91)
Other long-term assets................................ -- -- (22)
Accounts payable and accrued liabilities.............. 433 322 140
Deferred revenue...................................... (3) 334 215
------- ------- -------
Net cash used in operating activities............... (4,629) (4,917) (5,077)
------- ------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment........................ (426) (196) (602)
Issuance of notes receivable to related party............. -- (226) (5)
Investment in joint venture............................... (315)
------- ------- -------
Net cash used in investing activities............... (426) (422) (922)
------- ------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Exercise of common stock options.......................... 6 40 25
Proceeds from issuance of preferred stock, net of issuance
costs................................................... 2,640 9,665 1,019
Exercise of preferred stock warrants...................... -- -- 56
Principal payments on capital lease obligations........... -- -- (70)
Proceeds from long-term debt.............................. 2,183 2,742 467
Repayments of long-term debt.............................. (257) (522) (526)
Borrowing under line of credit............................ -- -- 2,554
Payments under line of credit............................. -- -- (1,729)
------- ------- -------
Net cash provided by financing activities........... 4,572 11,925 1,796
------- ------- -------
Net increase (decrease) in cash and cash equivalents........ (483) 6,586 (4,203)
Cash and cash equivalents, beginning of year................ 899 416 7,002
------- ------- -------
Cash and cash equivalents, end of year...................... $ 416 $ 7,002 $ 2,799
======= ======= =======
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid............................................. $ 138 $ 174 $ 140
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING
ACTIVITIES:
Acquisition of property and equipment under capital
leases.................................................. $ -- $ 186 $ 218
Common stock issued in exchange for fixed assets,
purchased technology and assumption of liabilities...... $ 737 $ -- $ --
Common stock issued in exchange for notes receivable from
stockholders............................................ $ 5 $ 346 $ 341
Preferred stock issued upon conversion of convertible
notes payable........................................... $ 5 $ 4,000 $ --
Issuance of warrants in connection with notes payable..... $ 165 $ 190 $ --
Common stock issued in acquisition of Ciphergen
Technologies, Inc....................................... $ -- $ 537 $ --
Repurchase of common stock for cancellation of note
receivable.............................................. $ -- $ -- $ 154
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE>
CIPHERGEN BIOSYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
THE COMPANY
Ciphergen Biosystems, Inc. (the "Company") develops, manufactures and sells
ProteinChip Systems, which consist of disposable ProteinChip Arrays, ProteinChip
Readers and ProteinChip Software for life science researchers. These products
are primarily sold to biologists at pharmaceutical and biotechnology companies
and academic and government research laboratories.
INITIAL PUBLIC OFFERING
In February 2000, the Board of Directors authorized management of the
Company to file a registration statement with the Securities and Exchange
Commission permitting the Company to sell shares of its common stock to the
public. If the initial public offering is closed under the terms presently
anticipated, all of the convertible preferred stock outstanding will
automatically convert into shares of common stock. Unaudited pro forma
stockholders' equity, as adjusted for the assumed conversion of the preferred
stock, is set forth on the balance sheets.
BASIS OF PRESENTATION
The accompanying consolidated financial statements include the accounts of
the Company and its three wholly-owned subsidiaries. All intercompany
transactions have been eliminated in consolidation.
The Company reports its minority ownership interest in Ciphergen K.K., a
joint venture, using the equity method of accounting.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
CERTAIN RISKS AND UNCERTAINTIES
The Company's products and services are currently concentrated in a single
segment of the life science research field which is characterized by rapid
technological advances and changes in customer requirements. The success of the
Company depends on management's ability to anticipate or to respond quickly and
adequately to technological developments in its industry, changes in customer
requirements or industry standards. Any significant delays in the development or
introduction of products or services could have a material adverse effect on the
Company's business and operating results.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments purchased with an
original maturity of three months or less to be cash equivalents.
F-7
<PAGE>
CIPHERGEN BIOSYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts of certain of the Company's financial instruments
including cash and cash equivalents and accounts payable approximate fair value
due to their short maturities. Based on borrowing rates currently available to
the Company for loans with similar terms, the carrying value of its debt
obligations approximates fair value.
CONCENTRATION OF CREDIT RISK
Financial instruments that potentially subject the Company to a
concentration of credit risk consist of cash and cash equivalents and accounts
receivable. The Company's cash and cash equivalents as of December 31, 1999 were
deposited with financial institutions in the United States and exceed federally
insured amounts. The Company also maintains cash deposits with one bank in the
United Kingdom. The Company has not experienced any losses on its deposits of
cash and cash equivalents. The Company's accounts receivable are derived from
sales made to customers located in the United States, Europe and Asia. The
Company performs ongoing credit evaluations of its customers' financial
condition and generally does not require collateral. The Company maintains an
allowance for doubtful accounts based upon the expected collectibility of
accounts receivable.
INVENTORIES
Inventories are stated at the lower of cost, using the average cost method,
or market value.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost and depreciated on a straight-line
basis over the estimated useful lives of the related assets, generally three to
five years. Gains and losses upon asset disposal are reflected in operations in
the year of disposition.
LONG-LIVED ASSETS
Long-lived assets are reviewed for impairment when events or changes in
circumstances indicate the carrying amount of an asset may not be recoverable.
Recoverability is measured by comparison of the asset's carrying amount to
future net undiscounted cash flows the assets are expected to generate. If such
assets are considered to be impaired, the impairment to be recognized is
measured by the amount by which the carrying amount of the assets exceeds the
projected discounted future net cash flows arising from the assets.
REVENUE RECOGNITION
Revenue from product sales is recognized upon product shipment provided no
significant obligations remain and collections of the receivables are deemed
probable.
RESEARCH AND DEVELOPMENT
Research, design and development expenditures are charged to operations as
incurred.
F-8
<PAGE>
CIPHERGEN BIOSYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
STOCK-BASED COMPENSATION
The Company accounts for its stock-based employee compensation arrangements
in accordance with provisions of Accounting Principles Board Opinion No. 25
("APB 25"), "Accounting for Stock Issued to Employees" and complies with the
disclosure provisions of Statement of Financial Accounting Standards ("SFAS")
No. 123, "Accounting for Stock-Based Compensation." Under APB 25, unearned
compensation expense is based on the difference, if any, on the date of the
grant, between the fair value of the Company's stock and the exercise price.
Unearned compensation is amortized and expensed in accordance with Financial
Accounting Standards Board Interpretation No. 28. The Company accounts for stock
issued to non-employees in accordance with the provisions of SFAS No. 123 and
Emerging Issue Task Force No. 96-18, "Accounting for Equity Instruments that are
Issued to Other Than Employees for Acquiring, or in Conjunction with Selling,
Goods or Services."
INCOME TAXES
The Company accounts for income taxes under the liability method. Under this
method, deferred tax assets and liabilities are determined based on the
difference between the financial statement and the tax bases of assets and
liabilities using enacted tax rates in effect for the year in which the
differences are expected to affect taxable income. A valuation allowance is
established when necessary to reduce deferred tax assets to the amounts expected
to be realized.
COMPREHENSIVE INCOME
The Company has adopted the provisions of SFAS No. 130, "Reporting
Comprehensive Income." This statement requires the disclosure of comprehensive
income and its components in a full set of general-purpose financial statements.
Comprehensive income is defined as net income (loss) plus revenues, expenses,
gains, and losses that, under generally accepted accounting principles, are
excluded from net income (loss). The Company's comprehensive income approximated
net income for all periods presented.
FOREIGN CURRENCY TRANSLATION
The functional currency of the Company's foreign subsidiary is the U.S.
dollar. All assets and liabilities denominated in foreign currency are
translated into U.S. dollars at the exchange rate on the balance sheet date.
Revenues, costs and expenses are translated at the average rates of exchange
prevailing during the period. Gains and losses resulting from foreign currency
translations and transactions are included in the consolidated statements of
operations and have not been significant.
NET LOSS PER SHARE
Basic net loss per share is computed by dividing net loss for the period by
the weighted average number of common shares outstanding during the period.
Diluted net loss per share is computed by dividing the net loss for the period
by the weighted average number of common and potential common shares outstanding
during the period, if their effect is dilutive. Potential common shares include
common stock subject to repurchase and incremental shares of common stock
issuable upon the exercise of stock options and warrants and upon the conversion
of convertible preferred stock.
F-9
<PAGE>
CIPHERGEN BIOSYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
The following table sets forth the computation of basic and diluted net loss
per share for the periods indicated (in thousands, except per share amounts):
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------
1997 1998 1999
-------- -------- --------
<S> <C> <C> <C>
Net loss......................................... $(6,809) $(8,310) $(7,681)
Weighted average shares.......................... 6,749 11,558 14,877
------- ------- -------
Basic and diluted net loss per share............. $ (1.01) $ (0.72) $ (0.52)
======= ======= =======
</TABLE>
The following table sets forth the potential shares of common stock that are
not included in the diluted net loss per share calculation above because to do
so would be anti-dilutive for the periods indicated (in thousands):
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------
1997 1998 1999
-------- -------- --------
<S> <C> <C> <C>
Effect of dilutive securities:
Convertible preferred stock outstanding........... 11,118 18,575 19,141
Common stock subject to repurchase................ 1,585 1,505 1,038
Stock options outstanding......................... 2,177 1,021 1,305
Warrants outstanding.............................. 532 618 562
------ ------ ------
15,412 21,719 22,046
====== ====== ======
</TABLE>
PRO FORMA STOCKHOLDERS' EQUITY AND PRO FORMA NET LOSS PER SHARE (UNAUDITED)
Immediately prior to the effective date of the offering, all of the
convertible preferred stock outstanding will automatically convert into common
stock at a one-to-one ratio. The pro forma effects of these transactions are
unaudited and have been reflected in the accompanying Pro Forma Stockholders'
Equity as of December 31, 1999.
Pro forma net loss per share for the year ended December 31, 1999 is
computed using the weighted average number of common shares outstanding
including the pro forma effects of the automatic conversion of the Company's
convertible preferred stock into shares of the Company's common stock effective
upon the closing of the Company's initial public offering as if such conversion
occurred on January 1, 1999, or at the date of original issue, if later. The
resulting pro forma adjustment includes an increase in the weighted average
shares used to compute basic net loss per share of 19,062,646 shares for the
year ended December 31, 1999. The calculation of pro forma diluted net loss per
share excludes incremental common stock issuable upon the exercise of stock
options, warrants and common stock subject to repurchase as their effect would
be anti-dilutive.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities." SFAS No. 133
establishes new standards of accounting and reporting for derivative instruments
and hedging activities. SFAS No. 133 requires that all derivatives be recognized
at fair value in the statement of financial position, and that the corresponding
F-10
<PAGE>
CIPHERGEN BIOSYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
gains or losses be reported either in the statement of operations or as a
component of comprehensive income, depending on the type of relationship that
exists. In July 1999, the Financial Accounting Standards Board issued SFAS
No. 137, "Accounting for Derivative Instruments and Hedging Activities--Deferral
of the Effective Date of FASB Statement No. 133." SFAS No. 137 deferred the
effective date until fiscal years beginning after June 15, 2000. The Company has
not engaged in significant hedging activities or invested in significant
derivative instruments.
On March 31, 1999, the FASB issued an exposure draft entitled "Accounting
for Certain Transactions Involving Stock Compensation," which is a proposed
interpretation of APB Opinion No. 25, which has an effective date for certain
transactions of December 15, 1998. However, the exposure draft has not been
finalized. Once finalized and issued, the current accounting practices for
transactions involving stock compensation may need to change and such changes
could effect our future earnings.
2. BALANCE SHEET COMPONENTS (IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1998 1999
-------- --------
<S> <C> <C>
INVENTORY, NET:
Raw materials............................................. $ 434 $ 471
Work in process........................................... 160 102
Finished goods............................................ 136 149
------ -------
$ 730 $ 722
====== =======
PROPERTY AND EQUIPMENT:
Machinery and equipment................................... $1,032 $ 1,472
Computers and equipment................................... 254 304
Furniture and fixtures.................................... 193 241
------ -------
1,479 2,017
Less: Accumulated depreciation............................ (688) (1,150)
------ -------
$ 791 $ 867
====== =======
</TABLE>
Property and equipment includes $186 and $402 of equipment under capital
leases at December 31, 1998 and 1999, respectively. Accumulated amortization of
assets under capital leases totaled $38 and $123 at December 31, 1998 and 1999,
respectively.
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1998 1999
-------- --------
<S> <C> <C>
ACCRUED LIABILITIES:
Payroll and related expenses.............................. $391 $452
Royalties................................................. 31 49
Other accrued liabilities................................. 318 430
---- ----
$740 $931
==== ====
</TABLE>
F-11
<PAGE>
CIPHERGEN BIOSYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. INVESTMENT IN JOINT VENTURE
In January 1999, the Company entered into a joint venture agreement with a
Japanese company to form a limited liability corporation, Ciphergen Biosystems
K.K., to be incorporated under the commercial code of Japan. The Company
invested $315,000 in exchange for 30% ownership of the joint venture. Commencing
with the fiscal year ending December 31, 2001, the Company has the option to
purchase an additional 40% of Ciphergen Biosystems K.K. from its joint venture
partner each year within 30 days of the receipt of the joint venture's audited
financial statements. Such buyout option terminates automatically 30 days after
the receipt of the joint venture's audited financial statements for the year
ending December 31, 2004. The aggregate purchase price for the buyout option is
the greatest of (i) 50,000,000 yen, (ii) 8% of the joint venture's net sales
during the last fiscal year, or (iii) 40% of the joint venture's book value at
the end of the last fiscal year. The Company's proportionate share of the joint
venture's losses were recorded in the statement of operations as non-operating
losses.
In connection with the joint venture agreement, the Company entered into a
distribution and marketing agreement with the joint venture whereby the joint
venture would distribute the Company's products in the life science research
markets in Japan. In exchange for providing trading, technical support,
equipment demonstrations and seminars, the Company received a non-refundable
payment of approximately $315,000. Such payment is included in deferred revenue
and being amortized over a 10 year period.
4. LONG-TERM DEBT (IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1998 1999
-------- --------
<S> <C> <C>
Notes payable to a financial institution, bearing interest
between 14.8% and 17.8% collateralized by equipment and
inventory, with principal and interest payable monthly
through May 2000.......................................... $264 $ 29
Notes payable to a financial institution, bearing interest
between 14.7% and 16.8%, collateralized by equipment, with
principal and interest payable through August 2002........ 326 584
Note payable to a related party, bearing interest at 18%,
collateralized by certain equipment, with principal and
interest payable monthly through March 2000............... 128 50
Note payable to a financial institution, bearing interest at
6%, collateralized by certain equipment, with principal
and interest payable monthly through November 2001........ 11 7
---- ----
729 670
Unamortized discounts related to stock warrants (Note 8).... (24) (5)
---- ----
705 665
Less: Current portion....................................... 429 366
---- ----
$276 $299
==== ====
</TABLE>
The notes payable to financial institutions are subject to certain
covenants, including restrictions on the payment of dividends and the sale of
assets. At December 31, 1999, the Company was not in violation of any covenants.
F-12
<PAGE>
CIPHERGEN BIOSYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4. LONG-TERM DEBT (IN THOUSANDS) (CONTINUED)
Principal payments on notes payable at December 31, 1999 were as follows:
<TABLE>
<S> <C>
2000........................................................ $366
2001........................................................ 182
2002........................................................ 117
----
$665
====
</TABLE>
5. LINE OF CREDIT
On June 23, 1999, the Company entered into a loan and security agreement
with a bank for a line of credit. At December 31, 1999, the Company had $825,000
outstanding under a $1,500,000 revolving line of credit for which the borrowing
base is equal to 80% of the Company's eligible domestic accounts receivable and
75% of the Company's eligible foreign accounts receivable as determined by the
lender. The line of credit matures on June 22, 2000. Interest is calculated
daily at 0.75% above the prime rate based on a 360 day year. The line is
collateralized by accounts receivable and other assets of the Company. The
Company is subject to certain covenants, including restrictions on dividend
payments and maintenance of certain financial ratios. The Company was not in
violation of any covenants at December 31, 1999.
6. COMMITMENTS
CAPITAL LEASES
The Company leases certain machinery and equipment under capital lease
agreements with an independent finance company which expire through
December 2002.
As of December 31, 1999, future minimum lease payments under capital lease
agreements were as follows (in thousands):
<TABLE>
<S> <C>
2000........................................................ $ 158
2001........................................................ 126
2002........................................................ 84
-----
Total minimum lease payments................................ 368
Less: Amount representing interest.......................... (63)
-----
Present value of minimum lease payments..................... 305
Less: Current portion....................................... (121)
-----
Non-current portion......................................... $ 184
=====
</TABLE>
OPERATING LEASES
The Company leases various equipment and two facilities in Palo Alto,
California. The two facility leases originally expired in December 31, 1999, but
were extended for an additional six months to June 30, 2000. Under the terms of
one of the facility leases, the Company is responsible for common area
maintenance. Total rent expense under all leases was $204, $221 and $397 for the
years ended December 31, 1997, 1998 and 1999, respectively.
F-13
<PAGE>
CIPHERGEN BIOSYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
6. COMMITMENTS (CONTINUED)
As of December 31, 1999, future minimum lease payments under the operating
leases were as follows (in thousands):
<TABLE>
<S> <C>
2000........................................................ $238
2001........................................................ 6
2002 and thereafter......................................... 6
----
Total minimum lease payments................................ $250
====
</TABLE>
7. STOCKHOLDERS' EQUITY (DEFICIT)
CONVERTIBLE PREFERRED STOCK
In February 1995, the Company entered into a joint development agreement
that provides for the issuance of a total of 2,207,239 shares of Series B
preferred stock. Under this agreement, 1,107,239 shares of Series B preferred
stock at $1.00 per share were issued upon the closing of the Company's Series B
financing in March 1995, 275,000 shares were issued in October 1996 upon the
achievement of the first milestone, and 275,000 shares were issued in
September 1997 upon the achievement of the second milestone. The remaining
550,000 shares will be issued upon the achievement of additional milestones.
In 1998, the Board of Directors approved two amendments to the Company's
Articles of Incorporation designating 30,000,000 shares as preferred stock. At
December 31, 1999, the amounts, terms and liquidation values of Series A,
Series B, Series C and Series D convertible preferred stock were as follows:
<TABLE>
<CAPTION>
SHARES COMMON
ISSUED STOCK
SHARES AND RESERVED FOR LIQUIDATION
SERIES AUTHORIZED OUTSTANDING CONVERSION VALUE
- ------ ---------- ----------- ------------ -----------
<S> <C> <C> <C> <C>
A............................ 3,054,400 3,054,400 3,054,400 $ 1,527,200
B............................ 8,500,000 6,402,457 6,402,457 6,402,457
C............................ 3,334,000 2,929,719 2,929,719 4,394,579
D............................ 10,000,000 6,754,713 6,754,713 13,509,426
Undesignated................. 5,111,600 -- -- --
---------- ---------- ---------- -----------
30,000,000 19,141,289 19,141,289 $25,833,662
========== ========== ========== ===========
</TABLE>
The rights, preferences and privileges of Series A, Series B, Series C and
Series D preferred stock are as follows:
VOTING RIGHTS
Holders of Series A, Series B, Series C and Series D preferred stock are
entitled to one vote for each share of common stock into which such shares can
be converted. The holders of the outstanding shares of Series A and Series B
preferred stock, voting as separate classes, are each entitled to elect two
members to the Company's Board of Directors and the holders of the outstanding
shares of Series D preferred stock, voting as a separate class, are entitled to
elect one member to the Company's
F-14
<PAGE>
CIPHERGEN BIOSYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7. STOCKHOLDERS' EQUITY (DEFICIT) (CONTINUED)
Board of Directors. Any remaining board members will be elected by the holders
of common stock and the holders of preferred stock voting together as a single
class.
DIVIDENDS
The holders of Series A, Series B, Series C and Series D preferred stock are
entitled to noncumulative dividends prior and in preference to any declaration
or payment of any dividend on the common stock of the Company, in the amount of
$0.04, $0.08, $0.12 and $0.16 per share per annum, respectively, as declared by
the Board of Directors. No dividends had been declared as of December 31, 1999.
CONVERSION RIGHTS
Shares of Series A, Series B, Series C and Series D preferred stock are
convertible into common shares at the option of the holder or automatically upon
a public offering of at least $10,000,000 of common stock at an offering price
of at least $3.00 per share or upon the written consent of the holders of more
than 50% of the then outstanding shares of Series A, Series B, Series C or
Series D preferred stock voting as separate classes. The conversion rate is one
share of common stock for one share of preferred stock (subject to certain
adjustments).
LIQUIDATION
In the event of liquidation or sale of the Company, Series A, Series B,
Series C and Series D preferred stock have preference over common stock in the
amount of $0.50, $1.00, $1.50 and $2.00, respectively, in addition to any
declared and unpaid dividends. The remaining assets of the Company shall be
distributed on a pro rata basis to the holders of Series A, Series B, Series C
and Series D preferred stock and common stock until holders of Series A,
Series B, Series C and Series D preferred stock have received an amount equal to
$1.00, $2.00, $3.00 and $4.00 per share outstanding, respectively, including the
preferences disclosed above, at which time the remaining assets shall be
distributed on a pro rata basis to holders of common stock.
8. STOCK OPTIONS AND WARRANTS
STOCK OPTIONS
The Company has reserved 5,825,000 shares of common stock for sale to
employees, directors and consultants under its 1993 Stock Option Plan (the
"Plan"). Under the Plan, options may be granted at prices not lower than 85% and
100% of the fair market value of the common stock for nonstatutory and statutory
stock options, respectively. Options are exercisable when granted and such
shares are subject to repurchase upon termination of employment. Should the
employment of the holders of common stock subject to repurchase terminate prior
to full vesting of the outstanding shares, the Company may repurchase all
unvested shares at a price per share equal to the original exercise price. At
December 31, 1999, a total of 1,038,417 shares of common stock were subject to
repurchase by the Company at a weighted average price of $0.28 per share.
Unexercised options generally expire ten years from the date of grant (five
years for incentive stock options granted to holders of more than 10% of the
Company's common stock).
F-15
<PAGE>
CIPHERGEN BIOSYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. STOCK OPTIONS AND WARRANTS (CONTINUED)
Activity under the Plan was as follows:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING WEIGHTED
SHARES ------------------------------------ AVERAGE
AVAILABLE NUMBER OF PRICE PER AGGREGATE EXERCISE
FOR GRANT SHARES SHARE PRICE PRICE
---------- ---------- ----------- --------- --------
<S> <C> <C> <C> <C> <C>
Balances, December 31, 1996........... 879,734 492,500 $0.05-$0.10 $ 41,250 $0.08
Shares reserved for the Plan........ 2,050,000
Options granted..................... (1,974,388) 1,974,388 0.10-0.15 291,483 0.15
Options canceled.................... 152,582 (152,582) 0.05-0.10 (12,087) 0.08
Options exercised................... -- (137,751) 0.05-0.15 (11,546) 0.08
---------- ---------- ----------- --------- -----
Balances, December 31, 1997........... 1,107,928 2,176,555 0.05-0.15 309,100 0.14
Shares reserved for the Plan........ 425,000 --
Options granted..................... (1,238,500) 1,238,500 0.15-0.50 382,000 0.31
Options canceled.................... 96,726 (96,726) 0.15-0.50 (31,875) 0.33
Options exercised................... -- (2,297,379) 0.15-0.50 (386,295) 0.17
---------- ---------- ----------- --------- -----
Balances, December 31, 1998........... 391,154 1,020,950 0.05-0.50 272,930 0.27
Shares reserved for the Plan........ 1,200,000
Options granted..................... (1,173,500) 1,173,500 0.50 586,750 0.50
Options canceled.................... 936,352 (102,185) 0.10-0.50 (30,225) 0.30
Options exercised................... -- (786,715) 0.10-0.50 (366,155) 0.47
---------- ---------- ----------- --------- -----
Balances, December 31, 1999........... 1,354,006 1,305,550 $0.05-$0.50 $ 463,300 $0.35
========== ========== =========== ========= =====
</TABLE>
The options outstanding and currently exercisable by exercise price at
December 31, 1999 were as follows:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING AND EXERCISABLE
-------------------------------------
WEIGHTED
AVERAGE WEIGHTED
REMAINING AVERAGE
NUMBER CONTRACTUAL EXERCISE
EXERCISE PRICE OUTSTANDING LIFE PRICE
- -------------- ----------- ----------- ---------
<S> <C> <C> <C>
$0.05........................................ 40,000 4.2 years $0.05
$0.10........................................ 153,500 6.5 years $0.10
$0.15........................................ 314,500 7.5 years $0.15
$0.50........................................ 797,550 9.1 years $0.50
---------
1,305,550 $0.35
=========
</TABLE>
F-16
<PAGE>
CIPHERGEN BIOSYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. STOCK OPTIONS AND WARRANTS (CONTINUED)
FAIR VALUE DISCLOSURES
The Company applies the measurement principles of APB 25 in accounting for
its stock option plans. Had compensation expense for options granted been
determined based on fair value at the grant date as prescribed by SFAS No. 123,
the Company's net loss per share would have been decreased to the pro forma
amounts indicated below:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------
1997 1998 1999
-------- -------- --------
<S> <C> <C> <C>
Net loss:
As reported..................................... $(6,809) $(8,310) $(7,681)
======= ======= =======
Pro forma....................................... $(7,021) $(8,514) $(8,116)
======= ======= =======
Basic and diluted net loss per share:
As reported..................................... $ (1.01) $ (0.72) $ (0.52)
======= ======= =======
Pro forma....................................... $ (1.04) $ (0.74) $ (0.55)
======= ======= =======
</TABLE>
The value of each option grant is estimated on the date of grant using the
minimum value method with the following weighted assumptions:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------------
1997 1998 1999
-------- -------- --------
<S> <C> <C> <C>
Risk-free interest rate......................... 6.2% 5.4% 5.6%
Expected average life........................... 5 years 5 years 5 years
Expected dividends.............................. -- -- --
</TABLE>
The expected average life is based on the assumption that stock options on
average are exercised 5 years after they are granted. The risk-free interest
rate was calculated in accordance with the grant date and expected average life.
The weighted-average fair value of options granted during the years ended
December 31, 1997, 1998 and 1999 was $0.03, $0.07 and $0.11 per share,
respectively.
DEFERRED STOCK-BASED COMPENSATION
During the period from April 1997 through December 31, 1999, the Company
recorded $6.0 million of deferred stock compensation in accordance with APB 25,
SFAS 123 and Emerging Issues Task Force 96-18, related to stock options granted
to consultants and employees. The Company will record an additional
$8.9 million of deferred stock compensation related to 1,927,500 options granted
to employees through March 6, 2000. For options granted to consultants, the
Company determined the fair value of the options using the Black-Scholes option
pricing model with the following assumptions: expected lives of five years;
weighted average risk-free rate between 5.4% and 6.2%; expected dividend yield
of zero percent; volatility of 50% and deemed values of common stock between
$0.30 and $5.53 per share. Stock compensation expense is being recognized in
accordance with FIN 28 over the vesting periods of the related options,
generally five years. The Company recognized stock compensation expense of
$0.1 million, $0.9 million and $1.3 million for the years ended December 31,
1997, 1998 and 1999, respectively.
F-17
<PAGE>
CIPHERGEN BIOSYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. STOCK OPTIONS AND WARRANTS (CONTINUED)
The allocation of stock-based compensation expense by functional area would
be as follows (in thousands):
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
------------------------------
1997 1998 1999
-------- -------- --------
<S> <C> <C> <C>
Cost of revenue........................................ $ 1 $ 2 $ 39
Research and development............................... 44 167 206
Sales and marketing.................................... 5 33 476
General and administrative............................. 69 678 623
---- ---- ------
Total stock-based compensation..................... $119 $880 $1,344
==== ==== ======
</TABLE>
WARRANTS
In 1995, the Company issued warrants with lives ranging from three to five
years to four shareholders and eight-year warrants to an equipment financing
company to purchase an aggregate 80,668 and 88,000 shares of Series B preferred
stock, respectively, for $1.00 per share, the fair market value at the dates of
grant. Of the 80,668 warrants, 25,000 expired in 1998 and the remaining 55,668
were exercised in 1999. During 1996, the Company issued five-year warrants to
two shareholders to purchase an aggregate of 225,000 shares of Series B
preferred stock for $1.00 per share, the fair market value at the date of grant.
The value of the warrants using the Black-Scholes valuation model was not
material.
In 1997, the Company issued warrants to purchase an aggregate of 20,000
shares of Series C preferred stock for $1.50 per share, the fair market value at
the date of grant to an equipment lender. The warrants expire in
September 2007. Also in 1997, the Company issued warrants to an equipment lender
to purchase an aggregate 38,400 shares of Series C preferred shares for $1.25
per share. These warrants were exercised in March 2000. The Company also issued
warrants to an accounts receivable lender to purchase an aggregate 25,000 shares
of Series C preferred shares for $1.50 per share. The warrants expire in
November 2004. The value of the warrants using the Black-Scholes valuation model
was not material.
In 1998, the Company issued warrants to purchase an aggregate of 955 shares
of Series D preferred stock for $2.00 per share, the fair market value at the
date of grant to an equipment lender. The warrants expire in August 2008. Also
in 1998, the Company issued five-year warrants in conjunction with the issuance
of Series D preferred stock bridge loans, to purchase an aggregate 165,000
shares of Series D preferred stock for $2.00 per share. The loans were converted
to Series D in 1998 and their note discount was taken to interest expense. At
December 31, 1999, 562,355 warrants were outstanding to purchase 313,000, 83,400
and 165,955 shares of Series B, Series C and Series D preferred stock,
respectively. The warrants issued had a fair value of approximately $1.14 per
warrant at the time of issuance, based on a calculation using the Black-Scholes
valuation model. The fair value of these warrants is reflected as a discount on
the debt and accreted as interest expense to be amortized over the life of the
debt.
F-18
<PAGE>
CIPHERGEN BIOSYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
9. INCOME TAXES
The Company accounts for income taxes using the liability method. Under this
method, deferred tax assets and liabilities are determined based on the
difference between the financial statement and tax bases of assets and
liabilities using the current tax laws and rates. Valuation allowances are
established when necessary to reduce deferred tax assets to the amounts expected
to be realized.
At December 31, 1999, the Company had federal and state net operating loss
carryforwards of approximately $21,053,000 and $10,859,000, respectively,
available to offset future taxable income. The operating loss carryforwards and
credits expire between 2002 and 2019, if not utilized. For federal and state tax
purposes, a portion of the Company's net operating loss carryforwards may be
subject to certain limitations on utilization in case of a change in ownership,
as defined by federal and state tax law.
Temporary differences which give rise to significant portions of deferred
tax assets and liabilities at December 31, 1998 and 1999 were as follows (in
thousands):
<TABLE>
<CAPTION>
1998 1999
-------- --------
<S> <C> <C>
Deferred tax assets and liabilities:
Net operating loss carryforwards........................ $ 5,622 $ 7,579
Research and development credits........................ 624 935
Depreciation and amortization........................... 293 375
Other................................................... 162 417
------- -------
Total deferred tax assets............................. 6,701 9,306
Less: Valuation allowance................................. (6,701) (9,306)
------- -------
Net deferred tax asset.................................... $ -- $ --
======= =======
</TABLE>
Based on the evidence currently available, the Company has established a
full valuation allowance because at this time it appears more likely than not
that no benefit will be realized for its deferred tax assets.
10. EMPLOYEE BENEFIT PLAN
The Company maintains the Ciphergen Biosystems, Inc. 401(k) Savings Plan for
its U.S. employees. This Plan allows eligible employees to defer up to 20%,
subject to the Internal Revenue Service annual contribution limit, of their
pretax compensation in certain investments at the discretion of the employee.
Under the Plan, the Company is not required to make Plan contributions. The
Company had not made any contributions to the Plan as of December 31, 1999.
11. ACQUISITIONS
On April 7, 1997, the Company acquired all the outstanding stock of
IllumeSys Pacific, Inc. ("IllumeSys") and 5% of Ciphergen Technologies, Inc.
("CTI"). The total purchase price was approximately $737,000 which consisted of
4,915,738 shares of the Company's common stock. The acquisition was accounted
for under the purchase accounting method.
F-19
<PAGE>
CIPHERGEN BIOSYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
11. ACQUISITIONS (CONTINUED)
The purchase price allocation was based on the estimated fair value of
IllumeSys' tangible assets less liabilities at April 7, 1997. The allocation
follows (in thousands):
<TABLE>
<S> <C>
Property and equipment...................................... $ 118
Total liabilities........................................... (349)
In-process technology....................................... 968
-----
$ 737
=====
</TABLE>
At the time of acquisition, technological feasibility of the in-process
technology had not been established and had no alternative future use.
Accordingly, the entire $968,000 was charged to operations.
Under an employment agreement signed as part of the acquisition, the Company
had a contingent obligation to issue an additional 4,915,738 shares of common
stock to the owners of IllumeSys contingent upon the continued service of a
certain key employee. As of December 31, 1997, 1,092,386 shares had been issued
and $164,000 had been recorded as research and development expense. The
remainder of that contingent obligation was then accelerated and $1.7 million
was charged to research and development expense in July 1998.
On July 28, 1998, the Company acquired the remaining 95% of the outstanding
stock of CTI. The total purchase price was $537,500 which consisted of 1,075,000
shares of the Company's common stock. The acquisition was accounted for under
the purchase accounting method. The purchase was allocated to in-process
technology based on the fair value of the Company's common stock given in
consideration. At the time of the acquisition, the technological feasibility of
the in-process technology had not been established and therefore had no
alternative future use. Accordingly, the entire $537,500 was charged to
operations.
12. RELATED PARTIES
At December 31, 1999, the Company had two notes receivable totaling $230,000
from an officer, with an imputed interest rate of 6.0%. The notes are repayable
on or before December 30, 2003. Additionally, the Company has various notes
receivable from stockholders in the aggregate amount of approximately $488,000
related to the early exercise of stock options. These notes have five year
terms, bear interest between 5.59% and 6.85% and are collateralized by the
underlying stock and other personal assets. All notes receivable related to the
early exercise of options become due immediately upon termination of employment.
During the years ended December 31, 1998 and 1999, the Company recorded
revenue in the amount of $625,000 and $881,000, respectively, on sales to
related parties. These sales were transactions related to the sale of equipment
to companies who held minority investments in the Company. Additionally, the
Company recorded $31,000 of other income for services performed under the
Ciphergen Biosystems, K.K. distribution and marketing agreement.
13. SEGMENT INFORMATION
The Company has adopted SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information" effective December 31, 1998. SFAS 131
establishes standards for disclosure about
F-20
<PAGE>
CIPHERGEN BIOSYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
13. SEGMENT INFORMATION (CONTINUED)
operating segments and related disclosures about products and services,
geographic areas and major customers. Comparative information has been provided
for prior years. The Company operates in one business segment. The Company sells
its products and systems directly to customers in the United States and Europe,
and through a distributor in Asia.
Revenue for geographic regions reported below are based upon the customers'
locations. Long-lived assets, predominately property and equipment, are reported
based on the location of the assets. Following is a summary of the geographic
information related to revenues, long-lived assets and information related to
significant customers for the years ended December 31, 1997, 1998 and 1999:
<TABLE>
<CAPTION>
1997 1998 1999
-------- -------- --------
<S> <C> <C> <C>
REVENUE
North America............................................... $1,163 $1,926 $3,142
Europe...................................................... 120 643 1,320
Asia........................................................ -- 364 548
------ ------ ------
TOTAL..................................................... $1,283 $2,933 $5,010
====== ====== ======
</TABLE>
<TABLE>
<CAPTION>
1997 1998 1999
-------- -------- --------
<S> <C> <C> <C>
LONG-LIVED ASSETS
North America............................................... $ 914 $ 789 $ 777
Europe...................................................... -- 2 90
------ ------ ------
TOTAL..................................................... $ 914 $ 791 $ 867
====== ====== ======
</TABLE>
<TABLE>
<CAPTION>
1997 1998 1999
-------- -------- --------
<S> <C> <C> <C>
SIGNIFICANT CUSTOMERS
REVENUE
Ciphergen Biosystems, K.K. and Predecessor.................. -- 12% 11%
====== ====== ======
</TABLE>
ACCOUNTS RECEIVABLE
As of December 31, 1998 and 1999, six and seven customers accounted for 97%
and 94% of accounts receivable, respectively.
The Company does not segregate information related to operating income
generated by its export sales.
14. SUBSEQUENT EVENTS (UNAUDITED)
FACILITIES LEASE
In February 2000, the Company signed an eight year lease for a new facility.
The lease expires in March 2008 and future rental commitments totaled $8,271,000
on the date the lease was signed.
F-21
<PAGE>
CIPHERGEN BIOSYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
14. SUBSEQUENT EVENTS (UNAUDITED) (CONTINUED)
DANISH SUBSIDIARY
In February 2000, the Company established a new subsidiary in Denmark,
Ciphergen Biosystems A/S. The subsidiary will carry out both research and sales
and marketing activities.
SERIES E CONVERTIBLE PREFERRED STOCK
In March 2000, the Company issued 10,390,862 shares of Series E preferred
stock ("Series E") at $2.75 per share resulting in gross proceeds of
$28.6 million. The difference between the conversion price and the deemed value
per share of the common stock on the transaction date will result in a
beneficial conversion feature and will be reflected of a preferred stock
dividend in the March 31, 2000 interim financial statements. Each share of
Series E has voting rights equal to the number of shares of common stock into
which such share is convertible. Holders of Series E are entitled to receive
annual dividends of $0.22 per share, when and if declared by the Board of
Directors, on a PARI PASSU basis with the holders of Series A, Series B,
Series C and Series D preferred stock, and prior to the common stock. The
Series E preferred stock is convertible at any time into common stock at a
one-for-one exchange ratio. Such conversion is automatic upon the effective date
of an initial public offering of at least $10.0 million provided the public
offering price is at least $5.50 per share. In the event of any liquidation,
dissolution or winding up of the Company, the holders of Series E are entitled
to receive an amount equal to $2.75 per share, plus any declared but unpaid
dividends.
In March 2000, the Board of Directors authorized the Company to
reincorporate in Delaware.
F-22
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SHARES
[CIPHGERGEN LOGO]
COMMON STOCK
---------------------
PROSPECTUS
---------------------
SG COWEN
ING BARINGS
WARBURG DILLON READ LLC
, 2000
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth all expenses to be paid by the Registrant,
other than the underwriting discounts and commissions payable by the Registrant
in connection with the sale of the common stock being registered. All amounts
shown are estimates except for the registration fee and the NASD filing fee.
<TABLE>
<CAPTION>
AMOUNT TO BE PAID
-----------------
<S> <C>
Registration fee............................................ $ 22,770
NASD filing fee............................................. 9,125
Nasdaq National Market listing fee.......................... 95,000
Blue sky qualification fees and expenses.................... 10,000
Printing and engraving expenses............................. 300,000
Legal fees and expenses..................................... 500,000
Accounting fees and expenses................................ 300,000
Transfer agent and registrar fees........................... 25,000
Miscellaneous expenses...................................... $ 138,105
----------
Total................................................... $1,400,000
==========
</TABLE>
ITEM 14. INDEMNIFICATION OF OFFICERS AND DIRECTORS.
Section 145 of the Delaware General Corporation Law permits indemnification
of officers, directors and other corporate agents under certain circumstances
and subject to certain limitations. The Registrant's certificate of
incorporation and bylaws provide that the Registrant shall indemnify its
directors, officers, employees and agents to the full extent permitted by
Delaware General Corporation Law, including in circumstances in which
indemnification is otherwise discretionary under Delaware law. In addition, the
Registrant intends to enter into separate indemnification agreements with its
directors, officers and certain employees that would require the Registrant,
among other things, to indemnify them against certain liabilities that may arise
by reason of their status or service (other than liabilities arising from
willful misconduct of a culpable nature). The Registrant also intends to
maintain director and officer liability insurance, if available on reasonable
terms.
These indemnification provisions and the indemnification agreements to be
entered into between the Registrant and its officers and directors may be
sufficiently broad to permit indemnification of the Registrant's officers and
directors for liabilities (including reimbursement of expenses incurred) arising
under the Securities Act.
The Registrant intends to obtain in conjunction with the effectiveness of
the Registration Statement a policy of directors' and officers' liability
insurance that insures the Registrant's directors and officers against the cost
of defense, settlement or payment of a judgment under certain circumstances.
The underwriting agreement filed as Exhibit 1.1 to this Registration
Statement provides for indemnification by the underwriters of the Registrant and
its officers and directors for certain liabilities arising under the Securities
Act, or otherwise.
II-1
<PAGE>
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
Except as otherwise noted, we have issued and sold the following securities
within the last three years and through March 15, 2000:
On April 7, 1997 and March 3, 1998, we sold an aggregate of 2,929,719 shares
of our Series C preferred stock at a price of $1.50 per share to eight investors
and their affiliates.
On July 28, 1998, September 30, 1998, and January 2, 1999, we sold an
aggregate of 6,754,713 shares of our Series D Preferred Stock at a price of
$2.00 per share to 20 investors and their affiliates.
On March 3, 2000 and March 3 and 8, 2000, we sold an aggregate of 10,390,862
shares of our Series E preferred stock at a price of $2.75 per share to 43
investors and their affiliates.
We issued 54,400 shares of our Series A preferred stock in 1998, at an
exercise price per share of $0.50, pursuant to the exercise of warrants issued
in connection with our original issuance of our Series A preferred stock.
We issued 280,669 shares of our Series B preferred stock in 1999 and 2000,
at an exercise price per share of $1.00, pursuant to the exercise of warrants
issued in connection with our original issuance of our Series B preferred stock.
We issued 38,400 shares of our Series C preferred stock in 2000, at an
exercise price per share of $1.50, pursuant to the exercise of warrants issued
in connection with an equipment loan from William R. Green.
We issued 165,000 shares of our Series D preferred stock in 2000 at an
exercise price per share of $2.00 pursuant to the exercise of warrants issued in
connection with original issuance of our Series D preferred stock.
On March 17, 2000, we issued 146,635 shares of our Series E preferred stock
at an exercise price per share of $2.75 to SG Cowen Securities Corporation,
pursuant to the exercise of warrants issued in connection with original issuance
of our Series E preferred stock.
Since our inception, we have granted options to purchase 7,620,388 shares of
our common stock to employees, directors and consultants under our 1993 Stock
Option Plan at exercise prices ranging from $0.01 to $1.50 per share. Of the
7,620,388 options granted; 2,571,136 remain outstanding, 3,690,741 shares of
common stock have been purchased pursuant to exercises of stock options and
options to acquire 1,358,511 shares have been cancelled and became available for
grant under our 1993 Stock Option Plan.
The sales and issuances of securities in the transactions described above
were deemed to be exempt from registration under the Securities Act in reliance
upon Section 4(2) of the Securities Act, Regulation D promulgated thereunder or
Rule 701 promulgated under Section 3(b) of the Securities Act, as transactions
by an issuer not involving any public offering or transactions pursuant to
compensatory benefit plans and contracts relating to compensation as provided
under Rule 701. The recipients of securities in each transaction represented
their intentions to acquire the securities for investment only and not with a
view to or for sale in connection with any distribution thereof and appropriate
legends were affixed to the securities issued in such transactions. All
recipients either received adequate information about us or had access, through
their employment or other relationships with us, to adequate information about
us.
There were no underwriters employed in connection with any of the
transactions set forth in Item 15.
II-2
<PAGE>
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) EXHIBITS.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- --------------------- ------------------------------------------------------------
<C> <S>
1.1* Form of Underwriting Agreement
3.1 Form of Amended and Restated Articles of Incorporation of
Registrant prior to completion of this offering
3.2* Form of Certificate of Incorporation of Registrant to be
effective upon completion of this offering
3.3 Amended and Restated Bylaws of Registrant prior to
completion of this offering
3.4* Amended and Restated Bylaws of Registrant to be effective
upon completion of this offering
4.1* Form of Registrant's Common Stock Certificate
5.1* Opinion of Wilson Sonsini Goodrich & Rosati, P.C., regarding
legality of the securities being issued
10.1 Form of Preferred Stock Purchase Agreement
10.2 Fourth Amended and Restated Investors Rights Agreement dated
March 3, 2000
10.3 1993 Stock Option Plan
10.4* Form of Stock Option Agreement
10.5* 2000 Stock Plan and related form of Stock Option Agreement
10.6* Employee Stock Purchase Plan
10.7* 401(k) Plan
10.8 Form of Warrant
10.9* Form of Proprietary Information Agreement between the
Registrant and certain of its employees
10.10* Lease Agreement dated March 20, 1996, between Nearon
Enterprises LLC and Registrant and amendment thereto
10.22* Employment Letter Agreement between the Registrant and
James H. Stanford, dated as of August 25, 1997
10.23* MAS License Agreement with IllumeSys Pacific, Inc.
10.24* MAS License agreement with Ciphergen Technologies, Inc.
(formerly ISP Acquisition Corporation)
10.25 Joint Venture Agreement between Registrant and Sumitomo
Corporation
10.26 Distribution and Marketing Agreement between Registrant and
Ciphergen Biosystems K.K.
10.27 Joint Development Agreement between Registrant and Stanford
Research Systems, dated as of February 2, 1995
11.1* Statement of computation of earnings per share
21.1* Subsidiaries of Registrant
23.1* Consent of Wilson Sonsini Goodrich & Rosati, P.C. (included
in Exhibit 5.1)
23.2 Consent of PricewaterhouseCoopers LLP, Independent
Accountants
24.1 Power of Attorney (see signature page)
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- --------------------- ------------------------------------------------------------
<C> <S>
27.1 Financial Data Schedule
</TABLE>
- ------------------------
* to be filed by amendment
(b) FINANCIAL STATEMENT SCHEDULES.
Schedules not listed above have been omitted because the information
required to be set forth therein is not applicable or is shown in the financial
statements or notes thereto.
ITEM 17. UNDERTAKINGS
The undersigned Registrant hereby undertakes to provide to the Underwriters
at the closing specified in the Underwriting Agreement certificates in such
denominations and registered in such names as required by the underwriters to
permit prompt delivery to each purchaser.
Insofar as indemnification by the Registrant for liabilities arising under
the Securities Act may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the provisions referenced in Item 14 of
this Registration Statement or otherwise, the Registrant has been advised that
in the opinion of the Commission such indemnification is against public policy
as expressed in the Securities Act, and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities (other than the
payment by the Registrant of expenses incurred or paid by a director, officer,
or controlling person of the Registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered hereunder, the Registrant
will, unless in the opinion of its counsel the matter has been settled by
controlling precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against public policy as
expressed in the Securities Act and will be governed by the final adjudication
of such issue.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act, the
information omitted from the form of Prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act shall be deemed to be part of this Registration
Statement as of the time it was declared effective; and
(2) For the purpose of determining any liability under the Securities Act,
each post-effective amendment that contains a form of Prospectus shall be deemed
to be a new Registration Statement relating to the securities offered therein,
and the offering of such securities at the time shall be deemed to be the
initial bona fide offering thereof.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in Palo Alto, California, on the 20th
day of March 2000.
<TABLE>
<S> <C> <C>
CIPHERGEN BIOSYSTEMS, INC.
By: /s/ WILLIAM E. RICH
-----------------------------------------
William E. Rich
PRESIDENT AND CHIEF EXECUTIVE OFFICER
</TABLE>
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears
below hereby constitutes and appoints William E. Rich and James H. Stanford, and
each of them acting individually, as his true and lawful attorneys-in-fact and
agents, each with full power of substitution, for him in any and all capacities,
to sign any and all amendments to this Registration Statement (including
post-effective amendments or any abbreviated registration statement and any
amendments thereto filed pursuant to Rule 462(b) increasing the number of
securities for which registration is sought), and to file the same, with
exhibits thereto and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, with full power of each to act alone, full power and authority to do and
perform each and every act and thing requisite and necessary to be done in
connection therewith, as fully for all intents and purposes as he might or could
do in person, hereby ratifying and confirming all that said attorneys-in-fact
and agents, or his or their substitute or substitutes, may lawfully do or cause
to be done by virtue hereof.
Pursuant to the requirements of the Securities Act, this Registration
Statement has been signed by the following persons in the capacities and on the
dates indicated:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ WILLIAM E. RICH President and Chief Executive
------------------------------------ Officer, and Director March 20, 2000
William E. Rich (PRINCIPAL EXECUTIVE OFFICER)
/s/ JAMES H. STANFORD Vice President and Chief Financial
------------------------------------ Officer March 20, 2000
James H. Stanford (PRINCIPAL FINANCIAL OFFICER)
/s/ DANIEL M. CASERZA
------------------------------------ Corporate Controller March 20, 2000
Daniel M. Caserza (PRINCIPAL ACCOUNTING OFFICER)
/s/ JOHN A. YOUNG
------------------------------------ Director March 20, 2000
John A. Young
</TABLE>
II-5
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ MICHAEL J. CALLAGHAN
------------------------------------ Director March 20, 2000
Michael J. Callaghan
/s/ BARBARA J. DALTON
------------------------------------ Director March 20, 2000
Barbara J. Dalton
/s/ JEAN-FRANCOIS FORMELA
------------------------------------ Director March 20, 2000
Jean-Francois Formela
/s/ WILLIAM R. GREEN
------------------------------------ Director March 20, 2000
William R. Green
/s/ JAMES L. RATHMANN
------------------------------------ Director March 20, 2000
James L. Rathmann
/s/ DANIEL VAPNEK
------------------------------------ Director March 20, 2000
Daniel Vapnek
</TABLE>
II-6
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBITS
- ---------------------
<C> <S> <C>
1.1* Form of Underwriting Agreement
3.1 Form of Amended and Restated Articles of Incorporation of
Registrant prior to completion of this offering
3.2* Form of Certificate of Incorporation of Registrant to be
effective upon completion of this offering
3.3 Amended and Restated Bylaws of Registrant prior to
completion of this offering
3.4* Amended and Restated Bylaws of Registrant to be effective
upon completion of this offering
4.1* Form of Registrant's Common Stock Certificate
5.1* Opinion of Wilson Sonsini Goodrich & Rosati, P.C., regarding
legality of the securities being issued
10.1 Form of Preferred Stock Purchase Agreement
10.2 Fourth Amended and Restated Investors Rights Agreement dated
March 3, 2000
10.3 1993 Stock Option Plan
10.4* Form of Stock Option Agreement
10.5* 2000 Stock Plan and related form of Stock Option Agreement
10.6* Employee Stock Purchase Plan
10.7* 401(k) Plan
10.8 Form of Warrant
10.9* Form of Proprietary Information Agreement between the
Registrant and certain of its employees
10.10* Lease Agreement dated March 20, 1996, between Nearon
Enterprises LLC and Registrant and amendment thereto
10.22* Employment Letter Agreement between the Registrant and
James H. Stanford, dated as of August 25, 1997
10.23* MAS License Agreement with IllumeSys Pacific, Inc.
10.24* MAS License agreement with Ciphergen Technologies, Inc.
(formerly ISP Acquisition Corporation)
10.25 Joint Venture Agreement between Registrant and Sumitomo
Corporation
10.26 Distribution and Marketing Agreement between Registrant and
Ciphergen Biosystems K.K.
10.27 Joint Development Agreement between Registrant and Stanford
Research Systems, dated as of February 2, 1995
11.1* Statement of computation of earnings per share
21.1* Subsidiaries of Registrant
23.1* Consent of Wilson Sonsini Goodrich & Rosati, P.C. (included
in Exhibit 5.1)
23.2 Consent of PricewaterhouseCoopers LLP, Independent
Accountants
24.1 Power of Attorney (see signature page)
27.1 Financial Data Schedule
</TABLE>
- ------------------------
* to be filed by amendment
<PAGE>
AMENDED AND RESTATED ARTICLES OF INCORPORATION
OF CIPHERGEN BIOSYSTEMS, INC.
A CALIFORNIA CORPORATION
The undersigned, James H. Stanford and Michael J. O'Donnell, hereby
certify that:
ONE: They are the duly elected and acting Vice President and
Secretary, respectively, of Ciphergen Biosystems, Inc., a California
corporation.
TWO: The Articles of Incorporation of this corporation are amended
and restated to read in full as follows:
ARTICLE III
The name of this corporation is Ciphergen Biosystems, Inc.
ARTICLE IV
The purpose of this corporation is to engage in any lawful act or
activity for which a corporation may be organized under the General
Corporation Law of California other than the banking business, the trust
company business or the practice of a profession permitted to be incorporated
by the California Corporations Code.
ARTICLE V
A. CLASSES OF STOCK. This corporation is authorized to issue
two classes of stock to be designated, respectively, "Common Stock" and
"Preferred Stock." The total number of shares which the corporation is
authorized to issue is 92,253,644 shares. 60,000,000 shares shall be Common
Stock. 32,253,644 shares shall be Preferred Stock.
The Preferred Stock may be issued from time to time in one or more
series. Except as provided in this Article III, the Board of Directors is
hereby authorized to determine and alter the rights, preferences, privileges
and restrictions granted to or imposed upon any wholly unissued series of
Preferred Stock, and to fix the number of shares of any such series of
Preferred Stock and the designation of any such series of Preferred Stock.
The Board of Directors, within the limits and restrictions stated in this
Article III or in any resolution or resolutions of the Board of Directors
originally fixing the number of shares constituting any series, may increase
or decrease (but not below the number of shares of such series then
outstanding) the number of shares of any series subsequent to the issuance of
shares of that series.
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B. RIGHTS, PREFERENCES, PRIVILEGES AND RESTRICTIONS OF THE
PREFERRED STOCK.
SECTION 1. DESIGNATION OF PREFERRED STOCK. 3,054,400
shares of Preferred Stock are designated Series A Preferred Stock (the
"Series A Preferred"), 7,265,457 shares of Preferred Stock are designated
Series B Preferred Stock (the "Series B Preferred"), 3,013,119 shares of
Preferred Stock are designated Series C Preferred Stock (the "Series C
Preferred"), 6,920,668 shares of Preferred Stock are designated Series D
Preferred Stock (the "Series D Preferred") and 12,000,000 shares of Preferred
Stock are designated Series E Preferred Stock (the "Series E Preferred") with
the rights, preferences, privileges and restrictions specified herein. The
Series A Preferred, the Series B Preferred, the Series C Preferred, the
Series D Preferred and the Series E Preferred are hereinafter collectively
referred to as the "Preferred Stock."
SECTION 2. DIVIDEND RIGHTS OF PREFERRED STOCK.
(a) The holders of the then outstanding shares of
the Series A Preferred, the Series B Preferred, the Series C Preferred, the
Series D Preferred and the Series E Preferred shall be entitled to receive
dividends at the rate of $0.04 per share per annum, $0.08 per share per
annum, $0.12 per share per annum, $0.16 per share per annum, and $0.22 per
share per annum, respectively, when, as and if declared by the Board of
Directors out of any funds legally available therefor, prior and in
preference to any declaration or payment of any dividend on the Common Stock
of this corporation ("Common Stock") payable other than in Common Stock or
other securities and rights convertible into or entitling the holder thereof
to receive, directly or indirectly, additional shares of Common Stock. Such
dividends shall not be cumulative.
SECTION 3. LIQUIDATION PREFERENCE.
(a) In the event of any liquidation, dissolution
or winding up of the corporation, either voluntary or involuntary, the
holders of the Preferred Stock shall be entitled to receive, prior and in
preference to any distribution of any of the assets or surplus funds of the
corporation to the holders of the Common Stock by reason of their ownership
thereof, the sum of (i) $0.50 per share for each share of the Series A
Preferred, $1.00 per share for each share of the Series B Preferred, $1.50
per share for each share of the Series C Preferred, $2.00 per share for each
share of the Series D Preferred and $2.75 per share for each share of the
Series E Preferred then held by them and (ii) an amount equal to all declared
but unpaid dividends on the Preferred Stock then held by them. If, upon the
occurrence of such event, the assets and funds available for such
distribution among the holders of the Preferred Stock shall be insufficient
to permit the payment to such holders of the full aforesaid preferential
amount, then the entire assets and funds of the corporation legally available
for distribution shall be distributed ratably among the holders of the
Preferred Stock in proportion to the preferential amount each such holder
would have been entitled to receive pursuant to this Section 3 if such
distribution had been sufficient to permit the full payment of such
preferential amount.
(b) Upon the completion of the distribution
provided for in paragraph 3(a), all of the assets remaining in the
corporation shall be distributed pro rata among the holders of the Preferred
Stock and Common Stock based on the number of shares of Common Stock held
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by each such holder (assuming conversion of the Preferred Stock into the
number of shares of Common Stock into which the Preferred Stock could then be
converted under these Articles) until the holders of the Series A Preferred,
the Series B Preferred, the Series C Preferred, the Series D Preferred and
the Series E Preferred shall have received an aggregate amount from the
distributions provided for under paragraph (a) of this Section 3 and this
paragraph (b) equal to $1.00, $2.00, $3.00, $4.00 and $5.50 per share,
respectively, plus an amount equal to all declared but unpaid dividends on
the Preferred Stock then held by them.
(c) Upon completion of the distribution provided
for in paragraphs 3(a) and 3(b), all of the assets remaining in the
Corporation, if any, shall be distributed to the holders of Common Stock pro
rata based on the number of shares of Common Stock held by each such holder.
(d) For purposes of this Section 3, a merger or
consolidation of the corporation with or into any other corporation or
corporations, or the merger of any other corporation or corporations into
this corporation, in which consolidation or merger the shareholders of this
corporation receive distributions in cash or securities of another
corporation or corporations as a result of such consolidation or merger or a
sale of all or substantially all of the assets of this corporation, shall be
treated as a liquidation, dissolution or winding up of this corporation.
SECTION 4. CONVERSION. The holders of the Preferred
Stock shall have conversion rights as follows (the "Conversion Rights"):
(a) RIGHT TO CONVERT. Each share of Preferred
Stock shall be convertible, at the option of the holder thereof, at any time
after the date of issuance of such share at the office of the corporation or
any transfer agent for such Preferred Stock. Each share of Preferred Stock
shall be convertible into the number of shares of Common Stock which results
from dividing the "Conversion Price" per share in effect for such series of
Preferred Stock at the time of conversion into the "Conversion Value" per
share of such series of Preferred Stock. The number of shares of Common
Stock into which each series of Preferred Stock is convertible is hereinafter
collectively referred to as the "Conversion Rate" for such series. The
initial Conversion Price per share of (i) Series A Preferred shall be $0.50,
(ii) Series B Preferred shall be $1.00, (iii) Series C Preferred shall $1.50,
(iv) Series D Preferred shall be $2.00 and (v) Series E Preferred shall be
$2.75. The Conversion Value per share of (i) Series A Preferred shall be
$0.50, (ii) Series B Preferred shall be $1.00, (iii) Series C Preferred shall
be $1.50, (iv) Series D Preferred shall be $2.00 and (v) Series E Preferred
shall be $2.75. The Conversion Price of each series of Preferred Stock shall
be subject to adjustment as hereinafter provided.
(b) AUTOMATIC CONVERSION. Each share of
Preferred Stock shall automatically be converted into shares of Common Stock
at the then effective Conversion Rate in the event of either (i) the closing
of a firm commitment underwritten public offering pursuant to an effective
registration statement under the Securities Act of 1933, as amended (the
"Act"), covering the offer and sale of Common Stock (whether for the account
of the corporation or for the account of one or more shareholders of the
corporation) of the corporation to the public at an aggregate offering price
of not less than $10,000,000 and at a public offering price (prior to
underwriters' discounts and expenses) equal to or exceeding $5.50 per share
of Common Stock
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(as adjusted for any stock dividends, combinations or splits with respect to
such shares) or (ii) the written consent of holders of more than 66 2/3% of
the then outstanding shares of the Preferred Stock voting as a class. In the
event of the automatic conversion of the Preferred Stock upon a public
offering as aforesaid, the conversion of the Preferred Stock shall be deemed
to have occurred automatically at the closing of such public offering.
(c) MECHANICS OF CONVERSION. No fractional
shares of Common Stock shall be issued upon conversion of Preferred Stock.
In lieu of any fractional shares to which the holder would otherwise be
entitled, the corporation shall pay cash equal to such fraction multiplied by
the fair market value of a share of Common Stock. Before any holder of
Preferred Stock shall be entitled to convert the same into full shares of
Common Stock, it shall surrender the certificate or certificates therefor,
duly endorsed, at the office of the corporation or of any transfer agent for
the Preferred Stock, and shall give written notice to the corporation at such
office that it elects to convert the same (except that no such written notice
of election to convert shall be necessary in the event of an automatic
conversion pursuant to Section 4(b)). The corporation shall, as soon as
practicable thereafter, issue and deliver at such office to such holder of
Preferred Stock a certificate or certificates, registered in such names as
specified by the holder, for the number of shares of Common Stock to which
such holder shall be entitled as aforesaid and a check payable to the holder
in the amount of any cash amounts payable as the result of a conversion into
fractional shares of Common Stock, and any accrued and unpaid dividends on
the converted Preferred Stock. Such conversion shall be deemed to have been
made immediately prior to the close of business on the date of such surrender
of the shares of Preferred Stock to be converted, and the person or persons
entitled to receive the shares of Common Stock issuable upon such conversion
shall be treated for all purposes as the record holder or holders of such
shares of Common Stock on such date (except that in the event of an automatic
conversion pursuant to clause (i) of Section 4(b) such conversion shall be
deemed to have been made immediately prior to the closing of the offering
referred to in such clause. If the conversion is in connection with an
underwritten offer of securities registered pursuant to the Act, the
convrsion may, at the option of any holder tendering Preferred Stock for
conversion, be conditioned upon the closing with the underwriter of the sale
of securities pursuant to such offering, in which event the person(s)
entitled to receive the Common Stock issuable upon such conversion of the
Preferred Stock shall not be deemed to have converted such Preferred Stock
until immediately prior to the closing of such sale of securities.
(d) ADJUSTMENTS TO CONVERSION PRICE FORDILUTING
ISSUES.
(i) SPECIAL DEFINITIONS. For purposes of
this Section 4(d), the following definitions shall apply:
(1) "OPTIONS" shall mean rights,
options or warrants to subscribe for, purchase or otherwise acquire either
Common Stock or Convertible Securities.
(2) "ORIGINAL ISSUE DATE" shall
mean February ___, 2000.
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(3) "CONVERTIBLE SECURITIES"
shall mean any evidences of indebtedness, shares (other than Common Stock) or
other securities convertible into or exchangeable for Common Stock.
(4) "ADDITIONAL SHARES OF COMMON
STOCK" shall mean all shares of Common Stock issued (or, pursuant to Section
4(d)(iii), deemed to be issued) by the corporation after the Original Issue
Date, other than shares of Common Stock issued or issuable or deemed to be
issued:
(A) upon conversion of
shares of Preferred Stock;
(B) as a result of an
adjustment made pursuant to Sections 4(d)(iv), (vi) or (vii);
(C) to directors,
officers or employees of, or consultants to, the corporation pursuant to a
stock incentive program or another director, officer, employee or consultant
agreement or an option or purchase plan approved by the Board of Directors of
the Company and not exceeding an aggregate of 2,610,389 shares of Common
Stock;
(D) to third parties in
connection with technology licensing, corporate partnering, equipment
leasing, corporate borrowing or similar transactions approved by the Board of
Directors;
(E) as a dividend or
distribution on Preferred Stock;
(F) for consideration
other than cash pursuant to a merger, consolidation, acquisition or similar
business combination; or
(G) by way of dividend or
other distribution on shares of Common Stock excluded from the definition of
Additional Shares of Common Stock by the foregoing clauses (A), (B), (C),
(D), (E) or (F) or this clause (G) and on shares of Common Stock so excluded.
(ii) No Adjustment of Conversion Price
(1) SERIES A CONVERSION PRICE.
No adjustment in the Series A Conversion Price of a particular share of the
Series A Preferred shall be made in respect of the issuance of Additional
Shares of Common Stock unless the consideration per share (determined
pursuant to Section 4(d)(v) hereof) for an Additional Share of Common Stock
issued or deemed to be issued by the corporation is less than the Series A
Conversion Price in effect on the date of, and immediately prior to such
issue, for such share of the Series A Preferred.
(2) SERIES B CONVERSION PRICE.
No adjustment in the Series B Conversion Price of a particular share of the
Series B Preferred shall be made in respect
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of the issuance of Additional Shares of Common Stock unless the consideration
per share (determined pursuant to Section 4(d)(v) hereof) for an Additional
Share of Common Stock issued or deemed to be issued by the corporation is
less than the Series B Conversion Price in effect on the date of, and
immediately prior to such issue, for such share of the Series B Preferred.
(3) SERIES C CONVERSION PRICE.
No adjustment in the Series C Conversion Price of a particular share of the
Series C Preferred shall be made in respect of the issuance of Additional
Shares of Common Stock unless the consideration per share (determined
pursuant to Section 4(d)(v) hereof) for an Additional Share of Common Stock
issued or deemed to be issued by the corporation is less than the Series C
Conversion Price in effect on the date of, and immediately prior to such
issue, for such share of the Series C Preferred.
(4) SERIES D CONVERSION PRICE.
No adjustment in the Series D Conversion Price of a particular share of the
Series D Preferred shall be made in respect of the issuance of Additional
Shares of Common Stock unless the consideration per share (determined
pursuant to Section 4(d)(v) hereof) for an Additional Share of Common Stock
issued or deemed to be issued by the corporation is less than the Series D
conversion price in effect on the date of, and immediately prior to such
issue, for such share of the Series D Preferred.
(5) SERIES E CONVERSION PRICE.
No adjustment in the Series E Conversion Price of a particular share of the
Series E Preferred shall be made in respect of the issuance of Additional
Shares of Common Stock unless the consideration per share (determined
pursuant to Section 4(d)(v) hereof) for an Additional Share of Common Stock
issued or deemed to be issued by the corporation is less than the Series E
conversion price in effect on the date of, and immediately prior to such
issue, for such share of the Series E Preferred.
(iii) DEEMED ISSUE OF ADDITIONAL SHARES OF
COMMON STOCK.
(1) OPTIONS AND CONVERTIBLE
SECURITIES. In the event the corporation at any time or from time to time
after the Original Issue Date shall issue any Options or Convertible
Securities or shall fix a record date for the determination of holders of any
class of securities entitled to receive any such Options or Convertible
Securities, then the maximum number of shares (as set forth in the instrument
relating thereto without regard to any provisions contained therein for a
subsequent adjustment of such number) of Common Stock issuable upon the
exercise of such Options or, in the case of Convertible Securities and
Options therefor, the conversion or exchange of such Convertible Securities,
shall be deemed to be Additional Shares of Common Stock the time of such
issue or, in case such a record date shall have been fixed, as of the close
of business on such record date, provided that in any such case in which
Additional Shares of Common Stock are deemed to be issued;
(A) no further adjustment
in the Series A Conversion Price, the Series B Conversion Price, the Series C
Conversion Price, the Series D Conversion Price or the Series E Conversion
Price shall be made upon the subsequent issue of
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Convertible Securities or shares of Common Stock upon the exercise of such
Options or conversion or exchange of such Convertible Securities;
(B) if such Options or
Convertible Securities by their terms provide, with the passage of time or
otherwise, for any increase in the consideration payable to the corporation,
or decrease in the number of shares of Common Stock issuable, upon the
exercise, conversion or exchange thereof, any adjustment of the Series A
Conversion Price, the Series B Conversion Price, the Series C Conversion
Price, the Series D Conversion Price or the Series E Conversion Price
computed upon the original issue thereof (or upon the occurrence of a record
date with respect thereto), and any subsequent adjustments based thereon,
shall, upon any such increase or decrease becoming effective, be recomputed
to reflect such increase or decrease insofar as it affects such Options or
the rights of conversion or exchange under such Convertible Securities; and
(C) upon the expiration
of any such Options or any rights of conversion or exchange under such
Convertible Securities which shall not have been exercised, any adjustments
of the Series A Conversion Price, the Series B Conversion Price, the Series C
Conversion Price, the Series D Conversion Price or the Series E Conversion
Price computed upon the original issue thereof (or upon the occurrence of a
record date with respect thereto), and any subsequent adjustments based
thereon, shall, upon such expiration, be recomputed as if:
(i) in the case
of Convertible Securities or Options for Common Stock the only Additional
Shares of Common Stock issued were the shares of Common Stock, if any,
actually issued upon the exercise of such Options or the conversion or
exchange of such Convertible Securities and the consideration received
therefor was the consideration actually received by the corporation for the
issue of all such Options, whether or not exercised, plus the consideration
actually received by the corporation upon such exercise, or for the issue of
all such Convertible Securities which were actually converted or exchanged,
plus the additional consideration, if any, actually received by the
corporation upon such conversion or exchange, and
(ii) in the case
of Options for Convertible Securities only the Convertible Securities, if
any, actually issued upon the exercise thereof were issued at the time of
issue of such Options, and the consideration received by the corporation for
the Additional Shares of Common Stock deemed to have been then issued was the
consideration actually received by the corporation for the issue of all such
Options, whether or not exercised, plus the consideration deemed to have been
received by the corporation upon the issue of the Convertible Securities with
respect to which such Options were actually exercised; and
(D) (i) no
readjustment pursuant to clause (B) or (C) above shall have the effect of
increasing the Series A Conversion Price to an amount which exceeds the lower
of (i) the Series A Conversion Price on the original adjustment date
prior to the original adjustment, or (ii) the Series A Conversion Price that
would have resulted from any issuance of Additional Shares of Common Stock
between the original adjustment date and such readjustment date.
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(ii) no
readjustment pursuant to clause (B) or (C) above shall have the effect of
increasing the Series B Conversion Price to an amount which exceeds the lower
of (i) the Series B Conversion Price on the original adjustment date prior to
the original adjustment, or (ii) the Series B Conversion Price that would
have resulted from any issuance of Additional Shares of Common Stock between
the original adjustment date and such readjustment date.
(iii) no
readjustment pursuant to clause (B) or (C) above shall have the effect of
increasing the Series C Conversion Price to an amount which exceeds the lower
of (i) the Series C Conversion Price on the original adjustment date prior to
the original adjustment, or (ii) the Series C Conversion Price that would
have resulted from any issuance of Additional Shares of Common Stock between
the original adjustment date and such readjustment date.
(iv) no
readjustment pursuant to clause (B) or (C) above shall have the effect of
increasing the Series D Conversion Price to an amount which exceeds the lower
of (i) the Series D Conversion Price on the original adjustment date prior to
the original adjustment, or (ii) the Series D Conversion Price that would
have resulted from any issuance of Additional Shares of Common Stock between
the original adjustment date and such readjustment date.
(v) no
readjustment pursuant to clause (B) or (C) above shall have the effect of
increasing the Series E Conversion Price to an amount which exceeds the lower
of (i) the Series E Conversion Price on the original adjustment date prior to
the original adjustment, or (ii) the Series E Conversion Price that would
have resulted from any issuance of Additional Shares of Common Stock between
the original adjustment date and such readjustment date.
(2) STOCK DIVIDENDS AND
SUBDIVISIONS. In the event that the corporation at any time or from time to
time after the Original Issue Date shall declare or pay any dividend on the
Common Stock payable in Common Stock, or effect a subdivision of the
outstanding shares of Common Stock into a greater number of shares of Common
Stock (by reclassification or otherwise than by payment of a dividend in
Common Stock), then and in any such event, Additional Shares of Common Stock
shall not be deemed to have been issued, but rather the provisions of Section
4(d)(vi) below shall apply.
(iv) ADJUSTMENT OF CONVERSION PRICE UPON
ISSUANCE OF ADDITIONAL SHARES OF COMMON STOCK
(1) SERIES A CONVERSION PRICE.
In the event this corporation shall issue Additional Shares of Common Stock
(including Additional Shares of Common Stock deemed to be issued pursuant to
Section 4(d)(iii)) without consideration or for a consideration per share
less than the Series A Conversion Price in effect on the date of and
immediately prior to such issue, then and in such event, such Series A
Conversion Price shall be reduced, concurrently with such issue, to a price
(calculated to the nearest cent) determined by multiplying such Series A
Conversion Price by a fraction, the numerator of which shall be the number of
shares of Common Stock outstanding immediately prior to such issue plus the
number
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of shares of Common Stock which the aggregate consideration received by the
corporation for the total number of Additional Shares of Common Stock so
issued would purchase at such Series A Conversion Price and the denominator
of which shall be the number of shares of Common Stock outstanding
immediately prior to such issue plus the number of such Additional Shares of
Common Stock so issued; provided, however, that for the purposes of this
Section (iv)(1), all shares of Common Stock issuable upon conversion of
outstanding Preferred Stock shall be deemed to be outstanding, and
immediately after any Additional Shares of Common Stock are deemed issued
pursuant to Section (iii), such Additional Shares of Common Stock shall be
deemed to be outstanding.
(2) SERIES B CONVERSION PRICE.
In the event this corporation shall issue Additional Shares of Common Stock
(including Additional Shares of Common Stock deemed to be issued pursuant to
Section 4(d)(iii)) without consideration or for a consideration per share
less than the Series B Conversion Price in effect on the date of and
immediately prior to such issue, then and in such event, such Series B
Conversion Price shall be reduced, concurrently with such issue, to a price
(calculated to the nearest cent) determined by multiplying such Series B
Conversion Price by a fraction, the numerator of which shall be the number of
shares of Common Stock outstanding immediately prior to such issue plus the
number of shares of Common Stock which the aggregate consideration received
by the corporation for the total number of Additional Shares of Common Stock
so issued would purchase at such Series B Conversion Price and the
denominator of which shall be the number of shares of Common Stock
outstanding immediately prior to such issue plus the number of such
Additional Shares of Common Stock so issued; provided, however, that for the
purposes of this Section (iv)(2), all shares of Common Stock issuable upon
conversion of outstanding Preferred Stock shall be deemed to be outstanding,
and immediately after any Additional Shares of Common Stock are deemed issued
pursuant to Section (iii), such Additional Shares of Common Stock shall be
deemed to be outstanding.
(3) SERIES C CONVERSION PRICE.
In the event this corporation shall issue Additional Shares of Common Stock
(including Additional Shares of Common Stock deemed to be issued pursuant to
Section 4(d)(iii)) without consideration or for a consideration per share
less than the Series C Conversion Price in effect on the date of and
immediately prior to such issue, then and in such event, such Series C
Conversion Price shall be reduced, concurrently with such issue, to a price
(calculated to the nearest cent) determined by multiplying such Series C
Conversion Price by a fraction, the numerator of which shall be the number of
shares of Common Stock outstanding immediately prior to such issue plus the
number of shares of Common Stock which the aggregate consideration received
by the corporation for the total number of Additional Shares of Common Stock
so issued would purchase at such Series C Conversion Price and the
denominator of which shall be the number of shares of Common Stock
outstanding immediately prior to such issue plus the number of such
Additional Shares of Common Stock so issued; provided, however, that for the
purposes of this Section (iv)(3), all shares of Common Stock issuable upon
conversion of outstanding Preferred Stock shall be deemed to be outstanding,
and immediately after any Additional Shares of Common Stock are deemed issued
pursuant to Section (iii), such Additional Shares of Common Stock shall be
deemed to be outstanding.
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(4) SERIES D CONVERSION PRICE.
In the event this corporation shall issue Additional Shares of Common Stock
(including Additional Shares of Common Stock deemed to be issued pursuant to
Section 4(d)(iii)) without consideration or for a consideration per share
less than the Series D Conversion Price in effect on the date of and
immediately prior to such issue, then and in such event, such Series D
Conversion Price shall be reduced, concurrently with such issue, to a price
(calculated to the nearest cent) determined by multiplying such Series D
Conversion Price by a fraction, the numerator of which shall be the number of
shares of Common Stock outstanding immediately prior to such issue plus the
number of shares of Common Stock which the aggregate consideration received
by the corporation for the total number of Additional Shares of Common Stock
so issued would purchase at such Series D Conversion Price and the
denominator of which shall be the number of shares of Common Stock
outstanding immediately prior to such issue plus the number of such
Additional Shares of Common Stock so issued; provided, however, that for the
purposes of this Section (iv)(4), all shares of Common Stock issuable upon
conversion of outstanding Preferred Stock shall be deemed to be outstanding,
and immediately after any Additional Shares of Common Stock are deemed issued
pursuant to Section (iii), such Additional Shares of Common Stock shall be
deemed to be outstanding.
(5) SERIES E CONVERSION PRICE.
In the event this corporation shall issue Additional Shares of Common Stock
(including Additional Shares of Common Stock deemed to be issued pursuant to
Section 4(d)(iii)) without consideration or for a consideration per share
less than the Series E Conversion Price in effect on the date of and
immediately prior to such issue, then and in such event, such Series E
Conversion Price shall be reduced, concurrently with such issue, to a price
(calculated to the nearest cent) determined by multiplying such Series E
Conversion Price by a fraction, the numerator of which shall be the number of
shares of Common Stock outstanding immediately prior to such issue plus the
number of shares of Common Stock which the aggregate consideration received
by the corporation for the total number of Additional Shares of Common Stock
so issued would purchase at such Series E Conversion Price and the
denominator of which shall be the number of shares of Common Stock
outstanding immediately prior to such issue plus the number of such
Additional Shares of Common Stock so issued; provided, however, that for the
purposes of this Section (iv)(2), all shares of Common Stock issuable upon
conversion of outstanding Preferred Stock shall be deemed to be outstanding,
and immediately after any Additional Shares of Common Stock are deemed issued
pursuant to Section (iii), such Additional Shares of Common Stock shall be
deemed to be outstanding.
(v) DETERMINATION OF CONSIDERATION.
For purposes of Section 4(d), the
consideration received by the corporation for the issue of any Additional
Shares of Common Stock shall be computed as follows:
(1) CASH AND PROPERTY: Such
consideration shall:
(A) insofar as it
consists of cash, be computed at the aggregate amount of cash received by the
corporation excluding amounts paid or payable for accrued interest or accrued
dividends;
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(B) insofar as it
consists of property other than cash, be computed at the fair value thereof
at the time of such issue, as determined in good faith by the corporation's
Board of Directors; and
(C) in the event
Additional Shares of Common Stock are issued together with other shares or
securities or other assets of the corporation for consideration which covers
both, be the proportion of such consideration so received, computed as
provided in clauses (A) and (B) above, as determined in good faith by the
Board.
(2) OPTIONS AND CONVERTIBLE
SECURITIES. The consideration per share received by the corporation for
Additional Shares of Common Stock deemed to have been issued pursuant to
Section 4(d)(iii)(1), relating to Options and Convertible Securities, shall
be determined by dividing:
(i) the total
amount, if any, received or receivable by the corporation as consideration
for the issue of such Options or Convertible Securities, plus the minimum
aggregate amount of additional consideration (as set forth in the instruments
relating thereto, without regard to any provision contained therein for a
subsequent adjustment of such consideration) payable to the corporation upon
the exercise of such Options or the conversion or exchange of such
Convertible Securities, or in the case of Options for Convertible Securities,
the exercise of such Options for Convertible Securities and the conversion or
exchange of such Convertible Securities by
(ii) the maximum
number of shares of Common Stock (as set forth in the instruments relating
thereto, without regard to any provision contained therein for a subsequent
adjustment of such number) issuable upon the exercise of such Options or the
conversion or exchange of such Convertible Securities.
(vi) ADJUSTMENTS FOR SUBDIVISIONS,
DIVIDENDS, COMBINATIONS OR CONSOLIDATIONS OF COMMON STOCK.
(1) In the event the outstanding
shares of Common Stock shall be combined or consolidated, by reclassification
or otherwise, into a lesser number of shares of Common Stock, the Series A
Conversion Price, the Series B Conversion Price, the Series C Conversion
Price, the Series D Conversion Price, and the Series E Conversion Price in
effect immediately prior to such combination or consolidation shall,
concurrently with the effectiveness of such combination or consolidation, be
proportionately increased.
(2) In the event the corporation
shall declare or pay any dividend on the Common Stock payable in Common Stock
or in the event the outstanding shares of Common Stock shall be subdivided,
by reclassification or otherwise than by payment of a dividend in Common
Stock, into a greater number of shares of Common Stock, the Series A
Conversion Price, the Series B Conversion Price, the Series C Conversion
Price, the Series D Conversion Price and the Series E Conversion Price in
effect immediately prior to such dividend or subdivision shall be
proportionately decreased:
11.
<PAGE>
(A) in the case of any
such dividend, immediately after the close of business on the record date for
the determination of holders of any class of securities entitled to receive
such dividend, or
(B) in the case of any
such subdivision, at the close of business on the date immediately prior to
the date upon which such corporate action becomes effective.
If such record date shall have been fixed and such dividend shall not
have been fully paid on the date fixed therefor, the adjustment previously
made in the Series A Conversion Price, the Series B Conversion Price, the
Series C Conversion Price, the Series D Conversion Price and the Series E
Conversion Price which became effective on such record date shall be canceled
as of the close of business on such record date, and thereafter the Series A
Conversion Price, the Series B Conversion Price, the Series C Conversion
Price, the Series D Conversion Price and the Series E Conversion Price shall
be adjusted as of the time of actual payment of such dividend.
(vii) ADJUSTMENTS FOR OTHER
RECLASSIFICATIONS, DIVIDENDS AND DISTRIBUTIONS. If there occurs any capital
reorganization or any reclassification of the capital stock of the
Corporation (other than a subdivision, dividend, combination, consolidation
or other transaction provided for in Section 2 or Section 4(d)(vi)), each
share of the Preferred Stock shall thereafter be convertible into the same
kind and amounts of securities or other assets, or both, that were issuable
or distributable to the holders of shares of outstanding Common Stock of the
Corporation upon such reorganization or reclassification, in respect of that
number of shares of Common Stock into which such shares of the Preferred
Stock might have been converted immediately prior to such reorganization or
reclassification, and in any such case, appropriate adjustments (as
determined by the Board of Directors) shall be made in the application of the
provisions herein set forth with respect to the rights and interests
thereafter of the holders of the Preferred Stock to the end that the
provisions of these Articles shall thereafter be applicable, as nearly as
reasonably may be, in relation to any securities or other assets thereafter
deliverable upon the conversion of the Preferred Stock.
(e) NO IMPAIRMENT. The corporation will not, by
amendment of its Articles of Incorporation or through any reorganization,
transfer of assets, consolidation, merger, dissolution, issue or sale of
securities or any other voluntary action, avoid or seek to avoid the
observance or performance of any of the terms to be observed or performed
hereunder by the corporation but will at all times in good faith assist in
the carrying out of all the provisions of this Section 4 and in the taking of
all such action as may be necessary or appropriate in order to protect the
Conversion Rights of the holders of the Preferred Stock against impairment.
(f) CERTIFICATE AS TO ADJUSTMENTS. Upon the
occurrence of each adjustment or readjustment of the Series A Conversion
Price, the Series B Conversion Price, the Series C Conversion Price, the
Series D Conversion Price or the Series E Conversion Price pursuant to this
Section 4, the corporation at its expense shall promptly compute such
adjustment or readjustment in accordance with the terms hereof and furnish to
each holder of such Preferred Stock a certificate setting forth such
adjustment or readjustment and showing in detail the facts upon which such
adjustment or readjustment is based. The corporation shall, upon the written
request at any time of any holder of Preferred Stock, furnish or cause to be
furnished to such
12.
<PAGE>
holder a like certificate setting forth (i) such adjustments and
readjustments, (ii) the Series A Conversion Price, the Series B Conversion
Price, the Series C Conversion Price, the Series D Conversion Price or the
Series E Conversion Price, as applicable, at the time in effect, and (iii)
the number of shares of Common Stock and the amount, if any, of other
property which at the time would be received upon the conversion such
Preferred Stock.
(g) NOTICES OF RECORD DATE. In the event that
this corporation shall propose at any time:
(i) to declare any dividend or
distribution upon its Common Stock, whether in cash, property, stock or other
securities, whether or not a regular cash dividend and whether or not out of
earnings or earned surplus;
(ii) to offer for subscription pro rata to
the holders of any class or series of its stock any additional shares of
stock of any class or series or other rights;
(iii) to effect any reclassification or
recapitalization of its Common Stock outstanding involving a change in the
Common Stock; or
(iv) to consolidate or merge with or into
any other corporation or other entity or person, or any other corporate
reorganization, in which the shareholders of the Company immediately prior to
such consolidation, merger or reorganization, own less than fifty percent
(50%) of the Company's voting power immediately after such consolidation,
merger or reorganization, or any transaction or series of related
transactions to which the Company is a party in which in excess of fifty
percent (50%) of the Company's voting power is transferred; or
(v) to sell, lease or convey all or
substantially all its property or business, or to liquidate, dissolve or wind
up; then, in connection with each such event, this corporation shall send to
the holders of the Preferred Stock:
(1) at least 10 days' prior
written notice of the date on which a record shall be taken for such
dividend, distribution or subscription rights (and specifying the date on
which the holders of Common shares shall be entitled thereto) or for
determining rights to vote in respect of the matters referred to in (iii) and
(iv) above; and
(2) in the case of the matters
referred to in (iii), (iv) and (v) above, at least 10 days' prior written
notice of the date when the same shall take place (and specifying, if
practicable, or estimating the date on which the holders of Common shares
shall be entitled to exchange their Common shares for securities or other
property deliverable upon the occurrence of such event).
Each such written notice shall be given by first class mail, postage
prepaid, addressed to the holders of Preferred Stock at the address for each
such holder as shown on the books of this corporation.
(h) COMMON STOCK RESERVED. The corporation shall
at all times reserve and keep available out of its authorized but unissued
shares of Common Stock, solely for the purpose of effecting the conversion of
the shares of Preferred Stock, such number of shares
13.
<PAGE>
of Common Stock as shall from time to time be sufficient to effect the
conversion of all outstanding shares of the Preferred Stock, and if at any
time the number of authorized but unissued shares of Common Stock shall not
be sufficient to effect the conversion of all then outstanding shares of the
Preferred Stock, the corporation shall take such corporate action as may, in
the opinion of its counsel, be necessary to increase its authorized but
unissued shares of Common Stock to such number of shares as shall be
sufficient for such purpose.
SECTION 5. VOTING RIGHTS.
(a) Except as otherwise required by law or
hereunder, each share of Common Stock issued and outstanding shall have one
vote, each share of the Preferred Stock issued and outstanding shall have the
number of votes equal to the number of Common Stock into which such share of
the Preferred Stock is convertible as adjusted from time to time pursuant to
Section 4 hereof, and the Common Stock and the Preferred Stock shall vote
together as a single class. Fractional votes by the holders of Preferred
Stock shall not, however, be permitted and any fractional voting rights
resulting from the above formula (after aggregating all shares into which
shares of Preferred Stock held by each holder could be converted) shall be
rounded to the nearest whole number.
(b) Notwithstanding Section 5(a), the holders of
the Series A Preferred voting together as a single class shall be entitled to
elect two (2) directors, the holders of the Series B Preferred voting
together as a single class shall be entitled to elect two (2) directors, the
holders of the Series D Preferred voting together as a single class shall be
entitled to elect one (1) director, the holders of the Series E Preferred
voting together as a single class shall be entitled to elect one (1)
director, and all remaining directors shall be elected by the holders of the
Common Stock and the Preferred Stock voting together as a single class.
SECTION 6. COVENANTS.
(a) SERIES A PREFERRED. In addition to any other
rights provided by law, this corporation shall not, without first obtaining
the affirmative vote or written consent of the holders of a majority of all
outstanding shares of the Series A Preferred voting as a class, take any
action that:
(i) materially and adversely alters or
changes the rights, preferences and privileges of the Series A Preferred; or
(ii) increases the authorized number of
shares of the Series A Preferred beyond the number initially authorized.
(b) SERIES B PREFERRED. In addition to any other
rights provided by law, this corporation shall not, without first obtaining
the affirmative vote or written consent of the holders of a majority of all
outstanding shares of the Series B Preferred voting as a class, take any
action that:
(i) materially and adversely alters or
changes the rights, preferences and privileges of the Series B Preferred; or
14.
<PAGE>
(ii) increases the authorized number of
shares of the Series B Preferred beyond the number initially authorized.
(c) SERIES C PREFERRED. In addition to any other
rights provided by law, this corporation shall not, without first obtaining
the affirmative vote or written consent of the holders of a majority of all
outstanding shares of the Series C Preferred voting as a class, take any
action that:
(i) materially and adversely alters or
changes the rights, preferences and privileges of the Series C Preferred; or
(ii) increases the authorized number of
shares of the Series C Preferred beyond the number initially authorized.
(d) SERIES D PREFERRED. In addition to any other
rights provided by law, this corporation shall not, without first obtaining
the affirmative vote or written consent of the holders of a majority of all
outstanding shares of the Series D Preferred voting as a class, take any
action that:
(i) materially and adversely alters or
changes the rights, preferences and privileges of the Series D Preferred; or
(ii) increases the authorized number of
shares of the Series D Preferred beyond the number initially authorized.
(e) SERIES E PREFERRED. In addition to any other
rights provided by law, this corporation shall not, without first obtaining
the affirmative vote or written consent of the holders of a majority of all
outstanding shares of the Series E Preferred voting as a class, take any
action that:
(i) materially and adversely alters or
changes the rights, preferences and privileges of the Series E Preferred; or
(ii) increases the authorized number of
shares of the Series E Preferred beyond the number initially authorized.
(f) PREFERRED STOCK. In addition to any other
rights provided by law, this corporation shall not, without first obtaining
the affirmative vote or written consent of the holders of more than sixty-six
and two-thirds percent (66 2/3%) of all outstanding shares of the Preferred
Stock voting together as a single class, take any action that:
(i) creates any new class or series of
stock or any other securities convertible into equity securities of the
corporation having a preference over, or being on a parity with, the Series A
Preferred, the Series B Preferred, the Series C Preferred, the Series D
Preferred or the Series E Preferred with respect to voting rights,
liquidation or redemption preferences or dividends; or
15.
<PAGE>
(ii) results in any merger, consolidation
or reorganization of the corporation or any transaction in which the
shareholders of the Company immediately prior to such merger, consolidation
or reorganization, own less than fifty percent (50%) of the Company's voting
power immediately after such consolidation, merger or reorganization, or any
transaction or series of related transactions to which the Company is a party
in which in excess of fifty percent (50%) of the Company's voting power is
transferred.
SECTION 7. RESIDUAL RIGHTS. All rights accruing to the
outstanding shares of this corporation not expressly provided for to the
contrary herein shall be vested in the Common Stock.
SECTION 8. CONSENT FOR CERTAIN REPURCHASES DEEMED TO BE
DISTRIBUTIONS. Each holder of an outstanding share of the Preferred Stock
shall be deemed to have consented, for purposes of Section 502, 503 and 506
of the California Corporations Code, to distributions by the corporation in
connection with the repurchase of shares of Common Stock issued to or held by
officers, directors or employees of or consultants to the corporation upon
termination of their employment or services pursuant to agreements providing
for the right of said repurchase between the corporation and such person.
ARTICLE VI
(a) The liability of the directors of this
corporation for monetary damages shall be eliminated to the fullest extent
permissible under California law.
(b) This corporation is authorized to provide
indemnification of agents (as defined in Section 317 of the California
Corporations Code) for breach of duty to the Corporation and its shareholders
through bylaw provisions or through agreements with agents, or both, in
excess of the indemnification otherwise permitted by Section 317 of the
California Corporations Code, subject to the limits on such excess
indemnification set forth in Section 204 of the California Corporations Code.
(c) Any repeal or modification of the provisions of
this Article shall not adversely affect the rights under this Article in effect
at the time of the alleged occurrence of any act or omission to act giving rise
to liability or indemnification.
16.
<PAGE>
* * * * *
THREE: The foregoing amendment and restatement of Articles of
Incorporation has been duly approved by the Board of Directors of said
corporation.
FOUR: The foregoing amendment and restatement of Articles of
Incorporation has been duly approved by the required vote of shareholders in
accordance with Sections 902 and 903 of the California Corporations Code.
The total number of outstanding shares of the corporation is 15,991,127
shares of Common Stock, 3,054,400 shares of the Series A Preferred, 6,402,457
shares of the Series B Preferred, 2,929,719 shares of the Series C Preferred,
and 6,754,713 shares of the Series D Preferred. The number of shares voting
in favor of the amendment equaled or exceeded the vote required. The
percentage required was more than 50% of the outstanding Common Stock, voting
together as a single class, 50% of the Preferred Stock voting together as a
single class, and 50% of the outstanding Common Stock and the outstanding
Preferred Stock, voting together as a single class.
We further declare under penalty of perjury under the laws of the
State of California that the matters set forth in this certificate are true
and correct of our own knowledge.
DATE: February 18, 2000 /s/ James H. Stanford
-------------------------------------
James H. Stanford, Vice President of
Finance and Chief Financial Officer
/s/ Michael J. O'Donnell
-------------------------------------
Michael J. O'Donnell, Secretary
[SEAL]
17.
<PAGE>
BYLAWS
OF
CIPHERGEN BIOSYSTEMS, INC.
(A California corporation)
(As Amended and Restated by Resolution of
the Board of Directors dated July 20, 1995)
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
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<S> <C>
ARTICLE I - OFFICES...................................................................................................1
Section 1. Principal Office...........................................................................1
Section 2. Other Offices..............................................................................1
ARTICLE II - CORPORATE SEAL...........................................................................................1
Section 3. Corporate Seal.............................................................................1
ARTICLE III - SHAREHOLDERS' MEETINGS AND VOTING RIGHTS................................................................1
Section 4. Place of Meetings..........................................................................1
Section 5. Annual Meeting.............................................................................1
Section 6. Postponement of Annual Meeting.............................................................1
Section 7. Special Meetings...........................................................................2
Section 8. Notice of Meetings.........................................................................2
Section 9. Manner of Giving Notice....................................................................3
Section 10. Quorum and Transaction of Business.........................................................3
Section 11. Adjournment and Notice of Adjourned Meetings...............................................4
Section 12. Waiver of Notice, Consent to Meeting or Approval of Minutes................................4
Section 13. Action by Written Consent Without a Meeting................................................5
Section 14. Voting.....................................................................................6
Section 15. Persons Entitled to Vote or Consent........................................................6
Section 16. Proxies....................................................................................7
Section 17. Inspectors of Election.....................................................................7
ARTICLE IV - BOARD OF DIRECTORS.......................................................................................8
Section 18. Powers.....................................................................................8
Section 19. Number of Directors........................................................................8
Section 20. Election Of Directors, Term, Qualifications................................................8
Section 21. Resignations...............................................................................9
Section 22. Removal....................................................................................9
Section 23. Vacancies..................................................................................9
Section 24. Regular Meetings...........................................................................9
Section 25. Participation by Telephone................................................................10
Section 26. Special Meetings..........................................................................10
Section 27. Notice of Meetings........................................................................10
Section 28. Place of Meetings.........................................................................10
Section 29. Action by Written Consent Without a Meeting...............................................10
Section 30. Quorum and Transaction of Business........................................................10
Section 31. Adjournment...............................................................................11
Section 32. Organization..............................................................................11
Section 33. Compensation..............................................................................11
Section 34. Committees................................................................................11
</TABLE>
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TABLE OF CONTENTS
(CONTINUED)
<TABLE>
<CAPTION>
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ARTICLE V - OFFICERS.................................................................................................12
Section 35. Officers..................................................................................12
Section 36. Appointment...............................................................................12
Section 37. Inability to Act..........................................................................12
Section 38. Resignations..............................................................................12
Section 39. Removal...................................................................................12
Section 40. Vacancies.................................................................................13
Section 41. Chairman of the Board.....................................................................13
Section 42. President.................................................................................13
Section 43. Vice Presidents...........................................................................13
Section 44. Secretary.................................................................................13
Section 45. Chief Financial Officer...................................................................14
Section 46. Compensation..............................................................................15
ARTICLE VI - CONTRACTS, LOANS, BANK ACCOUNTS, CHECKS AND DRAFTS......................................................15
Section 47. Execution of Contracts and Other Instruments..............................................15
Section 48. Loans.....................................................................................15
Section 49. Bank Accounts.............................................................................15
Section 50. Checks, Drafts, Etc.......................................................................16
ARTICLE VII - CERTIFICATES FOR SHARES AND THEIR TRANSFER.............................................................16
Section 51. Certificate for Shares....................................................................16
Section 52. Transfer on the Books.....................................................................16
Section 53. Lost, Destroyed and Stolen Certificates...................................................16
Section 54. Issuance, Transfer and Registration of Shares.............................................17
ARTICLE VIII - INSPECTION OF CORPORATE RECORDS.......................................................................17
Section 55. Inspection by Directors...................................................................17
Section 56. Inspection by Shareholders................................................................17
Section 57. Written Form..............................................................................18
ARTICLE IX - MISCELLANEOUS...........................................................................................18
Section 58. Fiscal Year...............................................................................18
Section 59. Annual Report.............................................................................18
Section 60. Record Date...............................................................................19
Section 61. Bylaw Amendments..........................................................................19
Section 62. Construction and Definition...............................................................19
ARTICLE X - INDEMNIFICATION..........................................................................................20
Section 63. Indemnification of Directors, Officers, Employees And Other Agents........................20
</TABLE>
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TABLE OF CONTENTS
(CONTINUED)
<TABLE>
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ARTICLE XI - RIGHT OF FIRST REFUSAL..................................................................................23
Section 64. Right of First Refusal....................................................................23
</TABLE>
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<PAGE>
BYLAWS
OF
CIPHERGEN BIOSYSTEMS, INC.
(A California Corporation)
ARTICLE I - OFFICES
SECTION 1. PRINCIPAL OFFICE. The principal executive office of the
corporation shall be located at such place as the Board of Directors may from
time to time authorize. If the principal executive office is located outside
this state, and the corporation has one or more business offices in this
state, the Board of Directors shall fix and designate a principal business
office in the State of California.
SECTION 2. OTHER OFFICES. Additional offices of the corporation
shall be located at such place or places, within or outside the State of
California, as the Board of Directors may from time to time authorize.
ARTICLE II - CORPORATE SEAL
SECTION 3. CORPORATE SEAL. If the Board of Directors adopts a
corporate seal such seat shall have inscribed thereon the name of the
corporation and the state and date of its incorporation. If and when a seal
is adopted by the Board of Directors, such seal may be engraved,
lithographed, printed, stamped, impressed upon, or affixed to any contract,
conveyance, certificate for shares, or other instrument executed by the
corporation.
ARTICLE III - SHAREHOLDERS' MEETINGS AND VOTING RIGHTS
SECTION 4. PLACE OF MEETINGS. Meetings of shareholders shall be held
at the principal executive office of the corporation, or at any other place,
within or outside the State of California, which may be fixed either by the
Board of Directors or by the written consent of all persons entitled to vote
at such meeting, given either before or after the meeting and filed with the
Secretary of the Corporation.
SECTION 5. ANNUAL MEETING. The annual meeting of the shareholders of
the corporation shall be held on any date and time which may from time to
time be designated by the Board of Directors. At such annual meeting,
directors shall be elected and any other business may be transacted which may
properly come before the meeting.
SECTION 6. POSTPONEMENT OF ANNUAL MEETING. The Board of Directors
and the President shall each have authority to hold at an earlier date and/or
time, or to postpone to a later date and/or time, the annual meeting of
shareholders.
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<PAGE>
SECTION 7. SPECIAL MEETINGS.
(a) Special meetings of the shareholders, for any purpose
or purposes, may be called by the Board of Directors, the Chairman of the
Board of Directors, the President, or the holders of shares entitled to cast
not less than ten percent (10%) of the votes at the meeting.
(b) Upon written request to the Chairman of the Board of
Directors, the President, any vice president or the Secretary of the
corporation by any person or persons (other than the Board of Directors)
entitled to call a special meeting of the shareholders, such officer
forthwith shall cause notice to be given to the shareholders entitled to
vote, that a meeting will be held at a time requested by the person or
persons calling the meeting, such time to be not less than thirty-five (35)
nor more than sixty (60) days after receipt of such request. If such notice
is not given within twenty (20) days after receipt of such request, the
person or persons calling the meeting may give notice thereof in the manner
provided by law or in these bylaws. Nothing contained in this Section 7 shall
be construed as limiting, fixing or affecting the time or date when a meeting
of shareholders called by action of the Board of Directors may be held.
SECTION 8. NOTICE OF MEETINGS. Except as otherwise may be required
by law and subject to subsection 7(b) above, written notice of each meeting
of shareholders shall be given to each shareholder entitled to vote at that
meeting (see Section 15 below), by the Secretary, assistant secretary or
other person charged with that duty, not less than ten (10) (or, if sent by
third class mail, thirty (30)) nor more than sixty (60) days before such
meeting.
Notice of any meeting of shareholders shall state the date, place
and hour of the meeting and,
(a) in the case of a special meeting, the general nature of
the business to be transacted, and no other business may be transacted at
such meeting;
(b) in the case of an annual meeting, the general nature of
matters which the Board of Directors, at the time the notice is given,
intends to present for action by the shareholders;
(c) in the case of any meeting at which directors are to be
elected, the names of the nominees intended at the time of the notice to be
presented by management for election; and
(d) in the case of any meeting, if action is to be taken on
any of the following proposals, the general nature of such proposal:
(1) a proposal to approve a transaction within the
provisions of California Corporations Code, Section 310 (relating to certain
transactions in which a director has a direct or indirect financial interest);
(2) a proposal to approve a transaction within the
provisions of California Corporations Code, Section 902 (relating to amending
the Articles of Incorporation of the corporation);
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(3) a proposal to approve a transaction within the
provisions of California Corporations Code, Sections 181 and 1201 (relating to
reorganization);
(4) a proposal to approve a transaction within the
provisions of California Corporations Code, Section 1900 (winding up and
dissolution);
(5) a proposal to approve a plan of distribution
within the provisions of California Corporations Code, Section 2007 (relating
to certain plans providing for distribution not in accordance with the
liquidation rights of preferred shares, if any).
At a special meeting, notice of which has been given in
accordance with this Section, action may not be taken with respect to
business, the general nature of which has not been stated in such notice. At
an annual meeting, action may be taken with respect to business stated in the
notice of such meeting, given in accordance with this Section, and, subject
to subsection 8(d) above, with respect to any other business as may properly
come before the meeting.
SECTION 9. MANNER OF GIVING NOTICE. Notice of any meeting of
shareholders shall be given either personally or by first-class mail, or, if
the corporation has outstanding shares held of record by 500 or more persons
(determined as provided in California Corporations Code Section 605) on the
record date for such meeting, third-class mail, or telegraphic or other
written communication, addressed to the shareholder at the address of that
shareholder appearing on the books of the corporation or given by the
shareholder to the corporation for the purpose of notice. If no such address
appears on the corporation's books or is given, notice shall be deemed to
have been given if sent to that shareholder by first-class mail or
telegraphic or other written communication to the corporation's principal
executive office, or if published at least once in a newspaper of general
circulation in the county where that office is located. Notice shall be
deemed to have been given at the time when delivered personally or deposited
in the mail or sent by telegram or other means of written communication.
If any notice addressed to a shareholder at the address of that
shareholder appearing on the books of the corporation is returned to the
corporation by the United States Postal Service marked to indicate that the
United States Postal Service is unable to deliver the notice to the
shareholder at that address, all future notices shall be deemed to have been
duly given without further mailing if these shall be available to the
shareholder on written demand by the shareholder at the principal executive
office of the corporation for a period of one year from the date of the
giving of the notice.
An affidavit of mailing of any notice or report in accordance with
the provisions of this Section 9, executed by the Secretary, Assistant
Secretary or any transfer agent, shall be prima facie evidence of the giving
of the notice.
SECTION 10. QUORUM AND TRANSACTION OF BUSINESS.
(a) At any meeting of the shareholders, a majority of the
shares entitled to vote, represented in person or by proxy, shall constitute
a quorum. If a quorum is present, the affirmative vote of the majority of
shares represented at the meeting and entitled to vote on any matter shall be
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<PAGE>
the act of the shareholders, unless the vote of a greater number or voting by
classes is required by law or by the Articles of Incorporation, and except as
provided in subsection (b) below.
(b) The shareholders present at a duly called or held
meeting of the shareholders at which a quorum is present may continue to do
business until adjournment, notwithstanding the withdrawal of enough
shareholders to leave less than a quorum, provided that any action taken
(other than adjournment) is approved by at least a majority of the shares
required to constitute a quorum.
(c) In the absence of a quorum, no business other than
adjournment may be transacted, except as described in subsection (b) above.
SECTION 11. ADJOURNMENT AND NOTICE OF ADJOURNED MEETINGS. Any
meeting of shareholders may be adjourned from time to time, whether or not a
quorum is present, by the affirmative vote of a majority of shares
represented at such meeting either in person or by proxy and entitled to vote
at such meeting.
In the event any meeting is adjourned, it shall not be necessary to
give notice of the time and place of such adjourned meeting pursuant to
Sections 8 and 9 of these bylaws; provided that if any of the following three
events occur, such notice must be given:
(1) announcement of the adjourned meeting's time
and place is not made at the original meeting which it continues or
(2) such meeting is adjourned for more than
forty-five (45) days from the date set for the original meeting or
(3) a new record date is fixed for the adjourned
meeting.
At the adjourned meeting, the corporation may transact any business
which might have been transacted at the original meeting.
SECTION 12. WAIVER OF NOTICE, CONSENT TO MEETING OR APPROVAL OF
MINUTES.
(a) Subject to subsection (b) of this Section, the
transactions of any meeting of shareholders, however called and noticed, and
wherever held, shall be as valid as though made at a meeting duly held after
regular call and notice, if a quorum is present either in person or by proxy,
and if, either before or after the meeting, each of the persons entitled to
vote but not present in person or by proxy signs a written waiver of notice
or a consent to holding of the meeting or an approval of the minutes thereof.
(b) A waiver of notice, consent to the holding of a meeting
or approval of the minutes thereof need not specify the business to be
transacted or transacted at nor the purpose of the meeting; provided that in
the case of proposals described in subsection (d) of Section 8 of these
bylaws, the general nature of such proposals must be described in any such
waiver of notice and
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<PAGE>
such proposals can only be approved by waiver of notice, not by consent to
holding of the meeting or approval of the minutes.
(c) All waivers, consents and approvals shall be filed with
the corporate records or made a part of the minutes of the meeting.
(d) A person's attendance at a meeting shall constitute
waiver of notice of and presence at such meeting, except when such person
objects at the beginning of the meeting to transaction of any business
because the meeting is not lawfully called or convened and except that
attendance at a meeting is not a waiver of any right to object to the
consideration of matters which are required by law or these bylaws to be in
such notice (including those matters described in subsection (d) of Section 8
of these bylaws), but are not so included if such person expressly objects to
consideration of such matter or matters at any time during the meeting.
SECTION 13. ACTION BY WRITTEN CONSENT WITHOUT A MEETING. Any action
which may be taken at any meeting of shareholders may be taken without a
meeting and without prior notice if written consents setting forth the action
so taken are signed by the holders of the outstanding shares having not less
than the minimum number of votes that would be necessary to authorize or take
such action at a meeting at which all shares entitled to vote thereon were
present and voted.
Directors may not be elected by written consent except by unanimous
written consent of all shares entitled to vote for the election of directors;
provided that any vacancy on the Board of Directors (other than a vacancy
created by removal) which has not been filled by the board of directors may
be filled by the written consent of a majority of outstanding shares entitled
to vote for the election of directors.
Any written consent may be revoked pursuant to California
Corporations Code Section 603(c) prior to the time that written consents of
the number of shares required to authorize the proposed action have been
filed with the Secretary. Such revocation must be in writing and will be
effective upon its receipt by the Secretary.
If the consents of all shareholders entitled to vote have not been
solicited in writing, and if the unanimous written consent of all such
shareholders shall not have been received, the Secretary shall give prompt
notice of any corporate action approved by the shareholders without a meeting
to those shareholders entitled to vote on such matters who have not consented
thereto in writing. This notice shall be given in the manner specified in
Section 9 of these bylaws. In the case of approval of (i) a transaction
within the provisions of California Corporations Code, Section 310 (relating
to certain transactions in which a director has an interest), (ii) a
transaction within the provisions of California Corporations Code, Section
317 (relating to indemnification of agents of the corporation), (iii) a
transaction within the provisions of California Corporations Code, Sections
181 and 1201 (relating to reorganization), and (iv) a plan of distribution
within the provisions of California Corporations Code, Section 2007 (relating
to certain plans providing for distribution not in accordance with the
liquidation rights of preferred shares, if any), the notice shall be given at
least ten (10) days before the consummation of any action authorized by that
approval.
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SECTION 14. VOTING. The shareholders entitled to vote at any meeting
of shareholders shall be determined in accordance with the provisions of
Section 15 of these bylaws, subject to the provisions of Sections 702 through
704 of the California Corporations Code (relating to voting shares held by a
fiduciary, in the name of a corporation, or in joint ownership). Voting at
any meeting of shareholders need not be by ballot; provided, however, that
elections for directors must be by ballot if balloting is demanded by a
shareholder at the meeting and before the voting begins.
Every person entitled to vote at an election for directors may
cumulate the votes to which such person is entitled, i.e., such person may
cast a total number of votes equal to the number of directors to be elected
multiplied by the number of votes to which such person's shares are entitled,
and may cast said total number of votes for one or more candidates in such
proportions as such person thinks fit; provided, however, no shareholder
shall be entitled to so cumulate such shareholder's votes unless the
candidates for which such shareholder is voting have been placed in
nomination prior to the voting and a shareholder has given notice at the
meeting, prior to the vote, of an intention to cumulate votes. In any
election of directors, the candidates receiving the highest number of votes,
up to the number of directors to be elected, are elected.
Except as may be otherwise provided in the Articles of Incorporation
or by law, and subject to the foregoing provisions regarding the cumulation
of votes, each shareholder shall be entitled to one vote for each share held.
Any shareholder may vote part of such shareholder's shares in favor
of a proposal and refrain from voting the remaining shares or vote them
against the proposal, other than elections to office, but, if the shareholder
fails to specify the number of shares such shareholder is voting
affirmatively, it will be conclusively presumed that the shareholder's
approving vote is with respect to all shares such shareholder is entitled to
vote.
No shareholder approval, other than unanimous approval of those
entitled to vote, will be valid as to proposals described in subsection 8(d)
of these bylaws unless the general nature of such business was stated in the
notice of meeting or in any written waiver of notice.
SECTION 15. PERSONS ENTITLED TO VOTE OR CONSENT. The Board of
Directors may fix a record date pursuant to Section 60 of these bylaws to
determine which shareholders are entitled to notice of and to vote at a
meeting or consent to corporate actions, as provided in Sections 13 and 14 of
these bylaws. Only persons in whose name shares otherwise entitled to vote
stand on the stock records of the corporation on such date shall be entitled
to vote or consent.
If no record date is fixed:
(1) The record date for determining shareholders
entitled to notice of or to vote at a meeting of shareholders shall be at the
close of business on the business day next preceding the day notice is given
or, if notice is waived, at the close of business on the business day next
preceding the day on which the meeting is held;
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(2) The record date for determining shareholders
entitled to give consent to corporate action in writing without a meeting,
when no prior action by the Board of Directors has been taken, shall be the
day on which the first written consent is given;
(3) The record date for determining shareholders
for any other purpose shall be at the close of business on the day on which
the Board of Directors adopts the resolution relating thereto, or the
sixtieth (60th) day prior to the date of such other action, whichever is
later.
A determination of shareholders of record entitled to notice of or
to vote at a meeting of shareholders shall apply to any adjournment of the
meeting unless the Board of Directors fixes a new record date for the
adjourned meeting; provided, however, that the Board of Directors shall fix a
new record date if the meeting is adjourned for more than forty-five (45)
days from the date set for the original meeting.
Shares of the corporation held by its subsidiary or subsidiaries (as
defined in California Corporations Code, Section 189(b)) are not entitled to
vote in any matter.
SECTION 16. PROXIES. Every person entitled to vote or execute
consents may do so either in person or by one or more agents authorized to
act by a written proxy executed by the person or such person's duly
authorized agent and filed with the Secretary of the corporation; provided
that no such proxy shall be valid after the expiration of eleven (11) months
from the date of its execution unless otherwise provided in the proxy. The
manner of execution, suspension, revocation, exercise and effect of proxies
is governed by law.
SECTION 17. INSPECTORS OF ELECTION. Before any meeting of
shareholders, the Board of Directors may appoint any persons, other than
nominees for office, to act as inspectors of election at the meeting or its
adjournment. If no inspectors of election are so appointed, the chairman of
the meeting may, and on the request of any shareholder or a shareholder's
proxy shall, appoint inspectors of election at the meeting. The number of
inspectors shall be either one (1) or three (3). If inspectors are appointed
at a meeting on the request of one or more shareholders or proxies, the
majority of shares represented in person or proxy shall determine whether one
(1) or three (3) inspectors are to be appointed. If any person appointed as
inspector fails to appear or fails or refuses to act, the chairman of the
meeting may, and upon the request of any shareholder or a shareholder's proxy
shall, appoint a person to fill that vacancy.
These inspectors shall:
(a) Determine the number of shares outstanding and the
voting power of each, the shares represented at the meeting, the existence of
a quorum, and the authenticity, validity, and effect of proxies;
(b) Receive votes, ballots, or consents;
(c) Hear and determine all challenges and questions in any
way arising in connection with the right to vote;
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(d) Count and tabulate all votes or consents;
(e) Determine when the polls shall close;
(f) Determine the result; and
(g) Do any other acts that may be proper to conduct the
election or vote with fairness to all shareholders.
ARTICLE IV - BOARD OF DIRECTORS
SECTION 18. POWERS. Subject to the provisions of law or any
limitations in the Articles of Incorporation or these bylaws, as to action
required to be approved by the shareholders or by the outstanding shares, the
business and affairs of the corporation shall be managed and all corporate
powers shall be exercised, by or under the direction of the Board of
Directors. The Board of Directors may delegate the management of the
day-to-day operation of the business of the corporation to a management
company or other person, provided that the business and affairs of the
corporation shall be managed and all corporate powers shall be exercised
under the ultimate direction of the Board of Directors.
SECTION 19. NUMBER OF DIRECTORS. The authorized number of directors
of the corporation shall be not less than a minimum of five (5) nor more than
a maximum of nine (9) (which maximum number in no case shall be greater than
two times said minimum, minus one) and the number of directors presently
authorized is nine (9). The exact number of directors shall be set within
these limits from time to time (a) by approval of the Board of Directors, or
(b) by the affirmative vote of a majority of the shares represented and
voting at a duly held meeting at which a quorum is present (which shares
voting affirmatively also constitute a majority of the required quorum) or by
the written consent of shareholders pursuant to Section 13 hereinabove.
Any amendment of these bylaws changing the maximum or minimum number
of directors may be adopted only by the affirmative vote of a majority of the
outstanding shares entitled to vote; provided, an amendment reducing the
minimum number of directors to less than five (5), cannot be adopted if votes
cast against its adoption at a meeting or the shares not consenting to it in
the case of action by written consent are equal to more than 16-2/3 percent
of the outstanding shares entitled to vote.
No reduction of the authorized number of directors shall remove any
director prior to the expiration of such director's term of office.
SECTION 20. ELECTION OF DIRECTORS, TERM, QUALIFICATIONS. The
directors shall be elected at each annual meeting of shareholders to hold
office until the next annual meeting. Each director, including a director
elected or appointed to fill a vacancy, shall hold office either until the
expiration of the term for which elected or appointed and until a successor
has been elected and qualified, or until his death, resignation or removal.
Directors need not be shareholders of the corporation.
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SECTION 21. RESIGNATIONS. Any director of the corporation may resign
effective upon giving written notice to the Chairman of the Board, the
President, the Secretary or the Board of Directors of the corporation, unless
the notice specifies a later time for the effectiveness of such resignation.
If the resignation specifies effectiveness at a future time, a successor may
be elected pursuant to Section 23 of these bylaws to take office on the date
that the resignation becomes effective.
SECTION 22. REMOVAL. The Board of Directors may declare vacant the
office of a director who has been declared of unsound mind by an order of
court or who has been convicted of a felony.
The entire Board of Directors or any individual director may be
removed from office without cause by the affirmative vote of a majority of
the outstanding shares entitled to vote on such removal; provided, however,
that unless the entire Board is removed, no individual director may be
removed when the votes cast against such director's removal, or not
consenting in writing to such removal, would be sufficient to elect that
director if voted cumulatively at an election at which the same total number
of votes cast were cast (or, if such action is taken by written consent, all
shares entitled to vote were voted) and the entire number of directors
authorized at the time of such director's most recent election were then
being elected.
SECTION 23. VACANCIES. A vacancy or vacancies on the Board of
Directors shall be deemed to exist in case of the death, resignation or
removal of any director, or upon increase in the authorized number of
directors or if shareholders fail to elect the full authorized number of
directors at an annual meeting of shareholders or if, for whatever reason,
there are fewer directors on the Board of Directors, than the full number
authorized. Such vacancy or vacancies, other than a vacancy created by the
removal of a director, may be filled by a majority of the remaining
directors, though less than a quorum, or by a sole remaining director. A
vacancy created by the removal of a director may be filled only by the
affirmative vote of a majority of the shares represented and voting at a duly
held meeting at which a quorum is present (which shares voting affirmatively
also constitute at least a majority of the required quorum) or by the written
consent of shareholders pursuant to Section 13 hereinabove. The shareholders
may elect a director at any time to fill any vacancy not filled by the
directors. Any such election by written consent, other than to fill a vacancy
created by removal, requires the consent of a majority of the outstanding
shares entitled to vote. Any such election by written consent to fill a
vacancy created by removal requires the consent of all of the outstanding
shares entitled to vote.
If, after the filling of any vacancy by the directors, the directors
then in office who have been elected by the shareholders constitute less than
a majority of the directors then in office, any holder or holders of an
aggregate of five percent (5%) or more of the shares outstanding at that time
and having the right to vote for such directors may call a special meeting of
shareholders to be held to elect the entire Board of Directors. The term of
office of any director shall terminate upon such election of a successor.
SECTION 24. REGULAR MEETINGS. Regular meetings of the Board of
Directors shall be held at such times, places and dates as fixed in these
bylaws or by the Board of Directors; provided, however, that if the date for
such a meeting falls on a legal holiday, then the meeting shall be held at
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the same time on the next succeeding full business day. Regular meetings of
the Board of Directors held pursuant to this Section 24 may be held without
notice.
SECTION 25. PARTICIPATION BY TELEPHONE. Members of the Board of
Directors may participate in a meeting through use of conference telephone or
similar communications equipment, so long as all members participating in
such meeting can hear one another. Such participation constitutes presence in
person at such meeting.
SECTION 26. SPECIAL MEETINGS. Special meetings of the Board of
Directors for any purpose may be called by the Chairman of the Board or the
President or any vice president or the Secretary of the corporation or any
two (2) directors.
SECTION 27. NOTICE OF MEETINGS. Notice of the date, time and place
of all meetings of the Board of Directors, other than regular meetings held
pursuant to Section 24 above shall be delivered personally, orally or in
writing, or by telephone or telegraph to each director, at least forty-eight
(48) hours before the meeting, or sent in writing to each director by
first-class mail, charges prepaid, at least four (4) days before the meeting.
Such notice may be given by the Secretary of the corporation or by the person
or persons who called a meeting. Such notice need not specify the purpose of
the meeting. Notice of any meeting of the Board of Directors need not be
given to any director who signs a waiver of notice of such meeting, or a
consent to holding the meeting or an approval of the minutes thereof, either
before or after the meeting, or who attends the meeting without protesting
prior thereto or at its commencement such director's lack of notice. All such
waivers, consents and approvals shall be filed with the corporate records or
made a part of the minutes of the meeting.
SECTION 28. PLACE OF MEETINGS. Meetings of the Board of Directors
may be held at any place within or without the state which has been
designated in the notice of the meeting or, if not stated in the notice or
there is no notice, designated in the bylaws or by resolution of the Board of
Directors.
SECTION 29. ACTION BY WRITTEN CONSENT WITHOUT A MEETING. Any action
required or permitted to be taken by the Board of Directors may be taken
without a meeting, if all members of the Board of Directors individually or
collectively consent in writing to such action. Such written consent or
consents shall be filed with the minutes of the proceedings of the Board of
Directors. Such action by written consent shall have the same force and
effect as a unanimous vote of such directors.
SECTION 30. QUORUM AND TRANSACTION OF BUSINESS. A majority of the
authorized number of directors shall constitute a quorum for the transaction
of business. Every act or decision done or made by a majority of the
authorized number of directors present at a meeting duly held at which a
quorum is present shall be the act of the Board of Directors, unless the law,
the Articles of Incorporation or these bylaws specifically require a greater
number. A meeting at which a quorum is initially present may continue to
transact business, notwithstanding withdrawal of directors, if any action
taken is approved by at least a majority of the number of directors
constituting a quorum for such meeting. In the absence of a quorum at any
meeting of the Board of Directors, a majority of the directors present may
adjourn the meeting, as provided in Section 31 of these bylaws.
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SECTION 31. ADJOURNMENT. Any meeting of the Board of Directors,
whether or not a quorum is present, may be adjourned to another time and
place by the affirmative vote of a majority of the directors present. If the
meeting is adjourned for more than twenty-four (24) hours, notice of such
adjournment to another time or place shall be given prior to the time of the
adjourned meeting to the directors who were not present at the time of the
adjournment.
SECTION 32. ORGANIZATION. The Chairman of the Board shall preside at
every meeting of the Board of Directors, if present. If there is no Chairman
of the Board or if the Chairman is not present, a Chairman chosen by a
majority of the directors present shall act as chairman. The Secretary of the
corporation or, in the absence of the Secretary, any person appointed by the
Chairman shall act as secretary of the meeting.
SECTION 33. COMPENSATION. Directors and members of committees may
receive such compensation, if any, for their services, and such reimbursement
for expenses, as may be fixed or determined by the Board of Directors.
SECTION 34. COMMITTEES. The Board of Directors may, by resolution
adopted by a majority of the authorized number of directors, designate one or
more committees, each consisting of two (2) or more directors, to serve at
the pleasure of the Board of Directors. The Board of Directors, by a vote of
the majority of authorized directors, may designate one or more directors as
alternate members of any committee, to replace any absent member at any
meeting of such committee. Any such committee shall have authority to act in
the manner and to the extent provided in the resolution of the Board of
Directors, and may have all the authority of the Board of Directors in the
management of the business and affairs of the corporation, except with
respect to:
(a) the approval of any action for which shareholders'
approval or approval of the outstanding shares also is required by the
California Corporations Code;
(b) the filling of vacancies on the Board of Directors or
any of its committees;
(c) the fixing of compensation of directors for serving on
the Board of Directors or any of its committees;
(d) the adoption, amendment or repeal of these bylaws;
(e) the amendment or repeal of any resolution of the Board
of Directors which by its express terms is not so amendable or repealable;
(f) a distribution to shareholders, except at a rate or in
a periodic amount or within a price range determined by the Board of
Directors; or
(g) the appointment of other committees of the Board of
Directors or the members thereof.
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Any committee may from time to time provide by resolution for
regular meetings at specified times and places. If the date of such a meeting
falls on a legal holiday, then the meeting shall be held at the same time on
the next succeeding full business day. No notice of such a meeting need be
given. Such regular meetings need not be held if the committee shall so
determine at any time before or after the time when such meeting would
otherwise have taken place. Special meetings may be called at any time in the
same manner and by the same persons as stated in Sections 26 and 27 of these
bylaws for meetings of the Board of Directors. The provisions of Sections 25,
28, 29, 30, 31 and 32 of these bylaws shall apply to committees, committee
members and committee meetings as if the words "committee" and "committee
member" were substituted for the word "Board of Directors", and "director",
respectively, throughout such sections.
ARTICLE V - OFFICERS
SECTION 35. OFFICERS. The corporation shall have a Chairman of the
Board or a President or both, a Secretary, a Chief Financial Officer and such
other officers with such titles and duties as the Board of Directors may
determine. Any two or more offices may be held by the same person.
SECTION 36. APPOINTMENT. All officers shall be chosen and appointed
by the Board of Directors; provided, however, the Board of Directors may
empower the chief executive officer of the corporation to appoint such
officers, other than Chairman of the Board, President, Secretary or Chief
Financial Officer, as the business of the corporation may require. All
officers shall serve at the pleasure of the Board of Directors, subject to
the rights, if any, of an officer under a contract of employment.
SECTION 37. INABILITY TO ACT. In the case of absence or inability to
act of any officer of the corporation or of any person authorized by these
bylaws to act in such officer's place, the Board of Directors may from time
to time delegate the powers or duties of such officer to any other officer,
or any director or other person whom it may select, for such period of time
as the Board of Directors deems necessary.
SECTION 38. RESIGNATIONS. Any officer may resign at any time upon
written notice to the corporation, without prejudice to the rights, if any,
of the corporation under any contract to which such officer is a party. Such
resignation shall be effective upon its receipt by the Chairman of the Board,
the President, the Secretary or the Board of Directors, unless a different
time is specified in the notice for effectiveness of such resignation. The
acceptance of any such resignation shall not be necessary to make it
effective unless otherwise specified in such notice.
SECTION 39. REMOVAL. Any officer may be removed from office at any
time, with or without cause, but subject to the rights, if any, of such
officer under any contract of employment, by the Board of Directors or by any
committee to whom such power of removal has been duly delegated, or, with
regard to any officer who has been appointed by the chief executive officer
pursuant to Section 36 above, by the chief executive officer or any other
officer upon whom such power of removal may be conferred by the Board of
Directors.
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SECTION 40. VACANCIES. A vacancy occurring in any office for any
cause may be filled by the Board of Directors, in the manner prescribed by
this Article of the bylaws for initial appointment to such office.
SECTION 41. CHAIRMAN OF THE BOARD. The Chairman of the Board, if
there be such an officer, shall, if present, preside at all meetings of the
Board of Directors and shall exercise and perform such other powers and
duties as may be assigned from time to time by the Board of Directors or
prescribed by these bylaws. If no President is appointed, the Chairman of the
Board is the general manager and chief executive officer of the corporation,
and shall exercise all powers of the President described in Section 42 below.
SECTION 42. PRESIDENT. Subject to such powers, if any, as may be
given by the Board of Directors to the Chairman of the Board, if there be
such an officer, the President shall be the general manager and chief
executive officer of the corporation and shall have general supervision,
direction, and control over the business and affairs of the corporation,
subject to the control of the Board of Directors. The President may sign and
execute, in the name of the corporation, any instrument authorized by the
Board of Directors, except when the signing and execution thereof shall have
been expressly delegated by the Board of Directors or by these bylaws to some
other officer or agent of the corporation. The President shall have all the
general powers and duties of management usually vested in the president of a
corporation, and shall have such other powers and duties as may be prescribed
from time to time by the Board of Directors or these bylaws. The President
shall have discretion to prescribe the duties of other officers and employees
of the corporation in a manner not inconsistent with the provisions of these
bylaws and the directions of the Board of Directors.
SECTION 43. VICE PRESIDENTS. In the absence or disability of the
President, in the event of a vacancy in the office of President, or in the
event such officer refuses to act, the Vice President shall perform all the
duties of the President and, when so acting, shall have all the powers of,
and be subject to all the restrictions on, the President. If at any such time
the corporation has more than one vice president, the duties and powers of
the President shall pass to each vice president in order of such vice
president's rank as fixed by the Board of Directors or, if the vice
presidents are not so ranked, to the vice president designated by the Board
of Directors. The vice presidents shall have such other powers and perform
such other duties as may be prescribed for them from time to time by the
Board of Directors or pursuant to Sections 35 and 36 of these bylaws or
otherwise pursuant to these bylaws.
SECTION 44. SECRETARY. The Secretary shall:
(a) Keep, or cause to be kept, minutes of all meetings of
the corporation's shareholders, Board of Directors, and committees of the
Board of Directors, if any. Such minutes shall be kept in written form.
(b) Keep, or cause to be kept, at the principal executive
office of the corporation, or at the office of its transfer agent or
registrar, if any, a record of the corporation's shareholders, showing the
names and addresses of all shareholders, and the number and classes of shares
held by
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each. Such records shall be kept in written form or any other form capable of
being converted into written form.
(c) Keep, or cause to be kept, at the principal executive
office of the corporation, or if the principal executive office is not in
California, at its principal business office in California, an original or
copy of these bylaws, as amended.
(d) Give, or cause to be given, notice of all meetings of
shareholders, directors and committees of the Board of Directors, as required
by law or by these bylaws.
(e) Keep the seal of the corporation, if any, in safe
custody.
(f) Exercise such powers and perform such duties as are
usually vested in the office of secretary of a corporation, and exercise such
other powers and perform such other duties as may be prescribed from time to
time by the Board of Directors or these bylaws.
If any assistant secretaries are appointed, the assistant secretary,
or one of the assistant secretaries in the order of their rank as fixed by
the Board of Directors or, if they are not so ranked, the assistant secretary
designated by the Board of Directors, in the absence or disability of the
Secretary or in the event of such officer's refusal to act or if a vacancy
exists in the office of Secretary, shall perform the duties and exercise the
powers of the Secretary and discharge such duties as may be assigned from
time to time pursuant to these bylaws or by the Board of Directors.
SECTION 45. CHIEF FINANCIAL OFFICER. The Chief Financial Officer
shall:
(a) Be responsible for all functions and duties of the
treasurer of the corporation.
(b) Keep and maintain, or cause to be kept and maintained,
adequate and correct books and records of account for the corporation.
(c) Receive or be responsible for receipt of all monies due
and payable to the corporation from any source whatsoever; have charge and
custody of, and be responsible for, all monies and other valuables of the
corporation and be responsible for deposit of all such monies in the name and
to the credit of the corporation with such depositaries as may be designated
by the Board of Directors or a duly appointed and authorized committee of the
Board of Directors.
(d) Disburse or be responsible for the disbursement of the
funds of the corporation as may be ordered by the Board of Directors or a
duly appointed and authorized committee of the Board of Directors.
(e) Render to the chief executive officer and the Board of
Directors a statement of the financial condition of the corporation if called
upon to do so.
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(f) Exercise such powers and perform such duties as are
usually vested in the office of chief financial officer of a corporation, and
exercise such other powers and perform such other duties as may be prescribed
by the Board of Directors or these bylaws.
If any assistant financial officer is appointed, the assistant
financial officer, or one of the assistant financial officers, if there are
more than one, in the order of their rank as fixed by the Board of Directors
or, if they are not so ranked, the assistant financial officer designated by
the Board of Directors, shall, in the absence or disability of the Chief
Financial Officer or in the event of such officer's refusal to act, perform
the duties and exercise the powers of the Chief Financial Officer, and shall
have such powers and discharge such duties as may be assigned from time to
time pursuant to these bylaws or by the Board of Directors.
SECTION 46. COMPENSATION. The compensation of the officers shall be
fixed from time to time by the Board of Directors, and no officer shall be
prevented from receiving such compensation by reason of the fact that such
officer is also a director of the corporation.
ARTICLE VI - CONTRACTS, LOANS, BANK ACCOUNTS, CHECKS AND DRAFTS
SECTION 47. EXECUTION OF CONTRACTS AND OTHER INSTRUMENTS. Except as
these bylaws may otherwise provide, the Board of Directors or its duly
appointed and authorized committee may authorize any officer or officers,
agent or agents, to enter into any contract or execute and deliver any
instrument in the name of and on behalf of the corporation, and such
authorization may be general or confined to specific instances. Except as so
authorized or otherwise expressly provided in these bylaws, no officer,
agent, or employee shall have any power or authority to bind the corporation
by any contract or engagement or to pledge its credit or to render it liable
for any purpose or in any amount.
SECTION 48. LOANS. No loans shall be contracted on behalf of the
corporation and no negotiable paper shall be issued in its name, unless and
except as authorized by the Board of Directors or its duly appointed and
authorized committee. When so authorized by the Board of Directors or such
committee, any officer or agent of the corporation may effect loans and
advances at any time for the corporation from any bank, trust company, or
other institution, or from any firm, corporation or individual, and for such
loans and advances may make, execute and deliver promissory notes, bonds or
other evidences of indebtedness of the corporation and, when authorized as
aforesaid, may mortgage, pledge, hypothecate or transfer any and all stocks,
securities and other property, real or personal, at any time held by the
corporation, and to that end endorse, assign and deliver the same as security
for the payment of any and all loans, advances, indebtedness, and liabilities
of the corporation. Such authorization may be general or confined to specific
instances.
SECTION 49. BANK ACCOUNTS. The Board of Directors or its duly
appointed and authorized committee from time to time may authorize the
opening and keeping of general and/or special bank accounts with such banks,
trust companies, or other depositaries as may be selected by the Board of
Directors, its duly appointed and authorized committee or by any officer or
officers, agent or agents, of the corporation to whom such power may be
delegated from time to time by the Board of Directors. The Board of Directors
or its duly appointed and authorized committee may make such
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rules and regulations with respect to said bank accounts, not inconsistent
with the provisions of these bylaws, as are deemed advisable.
SECTION 50. CHECKS, DRAFTS, ETC. All checks, drafts or other orders
for the payment of money, notes, acceptances or other evidences of
indebtedness issued in the name of the corporation shall be signed by such
officer or officers, agent or agents, of the corporation, and in such manner,
as shall be determined from time to time by resolution of the Board of
Directors or its duly appointed and authorized committee. Endorsements for
deposit to the credit of the corporation in any of its duly authorized
depositaries may be made, without counter-signature, by the President or any
vice president or the Chief Financial Officer or any assistant financial
officer or by any other officer or agent of the corporation to whom the Board
of Directors or its duly appointed and authorized committee, by resolution,
shall have delegated such power or by hand-stamped impression in the name of
the corporation.
ARTICLE VII - CERTIFICATES FOR SHARES AND THEIR TRANSFER
SECTION 51. CERTIFICATE FOR SHARES. Every holder of shares in the
corporation shall be entitled to have a certificate signed in the name of the
corporation by the Chairman or Vice Chairman of the Board or the President or
a Vice President and by the Chief Financial Officer or an assistant financial
officer or by the Secretary or an assistant secretary, certifying the number
of shares and the class or series of shares owned by the shareholder. Any or
all of the signatures on the certificate may be facsimile. In case any
officer, transfer agent or registrar who has signed or whose facsimile
signature has been placed upon a certificate shall have ceased to be such
officer, transfer agent or registrar before such certificate is issued, it
may be issued by the corporation with the same effect as if such person were
an officer, transfer agent or registrar at the date of issue.
In the event that the corporation shall issue any shares as only
partly paid, the certificate issued to represent such partly paid shares
shall have stated thereon the total consideration to be paid for such shares
and the amount paid thereon.
SECTION 52. TRANSFER ON THE BOOKS. Upon surrender to the Secretary
or transfer agent (if any) of the corporation of a certificate for shares of
the corporation duly endorsed, with reasonable assurance that the endorsement
is genuine and effective, or accompanied by proper evidence of succession,
assignment or authority to transfer and upon compliance with applicable
federal and state securities laws and if the corporation has no statutory
duty to inquire into adverse claims or has discharged any such duty and if
any applicable law relating to the collection of taxes has been complied
with, it shall be the duty of the corporation, by its Secretary or transfer
agent, to cancel the old certificate, to issue a new certificate to the
person entitled thereto and to record the transaction on the books of the
corporation.
SECTION 53. LOST, DESTROYED AND STOLEN CERTIFICATES. The holder of
any certificate for shares of the corporation alleged to have been lost,
destroyed or stolen shall notify the corporation by making a written
affidavit or affirmation of such fact. Upon receipt of said affidavit or
affirmation the Board of Directors, or its duly appointed and authorized
committee or any officer or officers authorized by the Board so to do, may
order the issuance of a new certificate for shares in
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the place of any certificate previously issued by the corporation and which
is alleged to have been lost, destroyed or stolen. However, the Board of
Directors or such authorized committee, officer or officers may require the
owner of the allegedly lost, destroyed or stolen certificate, or such owner's
legal representative, to give the corporation a bond or other adequate
security sufficient to indemnify the corporation and its transfer agent
and/or registrar, if any, against any claim that may be made against it or
them on account of such allegedly lost, destroyed or stolen certificate or
the replacement thereof. Said bond or other security shall be in such amount,
on such terms and conditions and, in the case of a bond, with such surety or
sureties as may be acceptable to the Board of Directors or to its duly
appointed and authorized committee or any officer or officers authorized by
the Board of Directors to determine the sufficiency thereof. The requirement
of a bond or other security may be waived in particular cases at the
discretion of the Board of Directors or its duly appointed and authorized
committee or any officer or officers authorized by the Board of Directors so
to do.
SECTION 54. ISSUANCE, TRANSFER AND REGISTRATION OF SHARES. The Board
of Directors may make such rules and regulations, not inconsistent with law
or with these bylaws, as it may deem advisable concerning the issuance,
transfer and registration of certificates for shares of the capital stock of
the corporation. The Board of Directors may appoint a transfer agent or
registrar of transfers, or both, and may require all certificates for shares
of the corporation to bear the signature of either or both.
ARTICLE VIII - INSPECTION OF CORPORATE RECORDS
SECTION 55. INSPECTION BY DIRECTORS. Every director shall have the
absolute right at any reasonable time to inspect and copy all books, records,
and documents of every kind of the corporation and any of its subsidiaries
and to inspect the physical properties of the corporation and any of its
subsidiaries. Such inspection may be made by the director in person or by
agent or attorney, and the right of inspection includes the right to copy and
make extracts.
SECTION 56. INSPECTION BY SHAREHOLDERS.
(a) INSPECTION OF CORPORATE RECORDS.
(i) A shareholder or shareholders
holding at least five percent (5%) in the aggregate of the outstanding voting
shares of the corporation or who hold at least one percent of such voting
shares and have filed a Schedule 14B with the United States Securities and
Exchange Commission relating to the election of directors of the corporation
shall have an absolute right to do either or both of the following:
(A) Inspect and copy the record
of shareholders' names and addresses and shareholdings during usual business
hours upon five (5) business days' prior written demand upon the corporation;
or
(B) Obtain from the transfer
agent, if any, for the corporation,upon five business days' prior written
demand and upon the tender of its usual charges for such a list (the amount
of which charges shall be stated to the shareholder by the transfer agent
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upon request), a list of the shareholders' names and addresses who are
entitled to vote for the election of directors and their shareholdings, as of
the most recent record date for which it has been compiled or as of a date
specified by the shareholder subsequent to the date of demand.
(ii) The record of shareholders shall
also be open to inspection and copying by any shareholder or holder of a
voting trust certificate at any time during usual business hours upon written
demand on the corporation, for a purpose reasonably related to such holder's
interest as a shareholder or holder of a voting trust certificate.
(iii) The accounting books and
records and minutes of proceedings of the shareholders and the Board of
Directors and of any committees of the Board of Directors of the corporation
and of each of its subsidiaries shall be open to inspection, copying and
making extracts upon written demand on the corporation of any shareholder or
holder of a voting trust certificate at any reasonable time during usual
business hours, for a purpose reasonably related to such holder's interests
as a shareholder or as a holder of such voting trust certificate.
(iv) Any inspection, copying, and
making of extracts under this subsection (a) may be done in person or by
agent or attorney.
(b) INSPECTION OF BYLAWS. The original or a copy of these
bylaws shall be kept as provided in Section 44 of these bylaws and shall be
open to inspection by the shareholders at all reasonable times during office
hours. If the principal executive office of the corporation is not in
California, and the corporation has no principal business office in the state
of California, a current copy of these bylaws shall be furnished to any
shareholder upon written request.
SECTION 57. WRITTEN FORM. If any record subject to inspection
pursuant to Section 56 above is not maintained in written form, a request for
inspection is not complied with unless and until the corporation at its
expense makes such record available in written form.
ARTICLE IX - MISCELLANEOUS
SECTION 58. FISCAL YEAR. Unless otherwise fixed by resolution of the
Board of Directors, the fiscal year of the corporation shall end on the 31st
day of December in each calendar year.
SECTION 59. ANNUAL REPORT.
(a) Subject to the provisions of Section 59(b) below, the
Board of Directors shall cause an annual report to be sent to each
shareholder of the corporation in the manner provided in Section 9 of these
bylaws not later than one hundred twenty (120) days after the close of the
corporation's fiscal year. Such report shall include a balance sheet as of
the end of such fiscal year and an income statement and statement of changes
in financial position for such fiscal year, accompanied by any report thereon
of independent accountants or, if there is no such report, the certificate of
an authorized officer of the corporation that such statements were prepared
without audit from the books and records of the corporation. When there are
more than 100 shareholders of record of the corporation's shares, as
determined by Section 605 of the California Corporations
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Code, additional information as required by Section 1501(b) of the California
Corporations Code shall also be contained in such report, provided that if
the corporation has a class of securities registered under Section 12 of the
United States Securities Exchange Act of 1934, that Act shall take
precedence. Such report shall be sent to shareholders at least fifteen (15)
(or, if sent by third-class mail, thirty-five (35)) days prior to the next
annual meeting of shareholders after the end of the fiscal year to which it
relates.
(b) If and so long as there are fewer than 100 holders of
record of the corporation's shares, the requirement of sending of an annual
report to the shareholders of the corporation is hereby expressly waived.
SECTION 60. RECORD DATE. The Board of Directors may fix a time in
the future as a record date for the determination of the shareholders
entitled to notice of or to vote at any meeting or entitled to receive
payment of any dividend or other distribution or allotment of any rights or
entitled to exercise any rights in respect of any change, conversion or
exchange of shares or entitled to exercise any rights in respect of any other
lawful action. The record date so fixed shall not be more than sixty (60)
days nor less than ten (10) days prior to the date of the meeting nor more
than sixty (60) days prior to any other action or event for the purpose of
which it is fixed. If no record date is fixed, the provisions of Section 15
of these bylaws shall apply with respect to notice of meetings, votes, and
consents and the record date for determining shareholders for any other
purpose shall be at the close of business on the day on which the Board of
Directors adopts the resolutions relating thereto, or the sixtieth (60th) day
prior to the date of such other action or event, whichever is later.
Only shareholders of record at the close of business on the record
date shall be entitled to notice and to vote or to receive the dividend,
distribution or allotment of rights or to exercise the rights, as the case
may be, notwithstanding any transfer of any shares on the books of the
corporation after the record date, except as otherwise provided in the
Articles of Incorporation, by agreement or by law.
SECTION 61. BYLAW AMENDMENTS. Except as otherwise provided by law or
Section 19 of these bylaws, these bylaws may be amended or repealed by the
Board of Directors or by the affirmative vote of a majority of the
outstanding shares entitled to vote, including, if applicable, the
affirmative vote of a majority of the outstanding shares of each class or
series entitled by law or the Articles of Incorporation to vote as a class or
series on the amendment or repeal or adoption of any bylaw or bylaws;
provided, however, after issuance of shares, a bylaw specifying or changing a
fixed number of directors or the maximum or minimum number or changing from a
fixed to a variable board or vice versa may only be adopted by approval of
the outstanding shares as provided herein.
SECTION 62. CONSTRUCTION AND DEFINITION. Unless the context requires
otherwise, the general provisions, rules of construction, and definitions
contained in the California Corporations Code shall govern the construction
of these bylaws.
Without limiting the foregoing, "shall" is mandatory and "may" is
permissive.
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ARTICLE X - INDEMNIFICATION
INDEMNIFICATION OF DIRECTORS, OFFICERS, EMPLOYEES AND OTHER AGENTS.
(a) DIRECTORS AND EXECUTIVE OFFICERS. The corporation shall
indemnify its directors and executive officers to the fullest extent not
prohibited by the California General Corporation Law; PROVIDED, HOWEVER that
the corporation may limit the extent of such indemnification by individual
contracts with its directors and executive officers; and, PROVIDED, FURTHER,
that the corporation shall not be required to indemnify any director or
executive officer in connection with any proceeding (or part thereof)
initiated by such person or any proceeding by such person against the
corporation or its directors, officers, employees or other agents unless (i)
such indemnification is expressly required to be made by law, (ii) the
proceeding was authorized by the board of directors of the corporation or
(iii) such indemnification is provided by the corporation, in its sole
discretion, pursuant to the powers vested in the corporation under the
California General Corporation Law.
(b) OTHER OFFICERS, EMPLOYEES AND OTHER AGENTS. The
corporation shall have the power to indemnify its other officers, employees
and other agents as set forth in the California General Corporation Law.
(c) DETERMINATION BY THE CORPORATION. Promptly after
receipt of a request for indemnification hereunder (and in any event within
90 days thereof) a reasonable, good faith determination as to whether
indemnification of the director or executive officer is proper under the
circumstances because such director or executive officer has met the
applicable standard of care shall be made by:
(1) a majority vote of a quorum consisting of
directors who are not parties to such proceeding;
(2) if such quorum is not obtainable, by
independent legal counsel in a written opinion; or
(3) approval or ratification by the affirmative
vote of a majority of the shares of this corporation represented and voting
at a duly held meeting at which a quorum is present (which shares voting
affirmatively also constitute at least a majority of the required quorum) or
by written consent of a majority of the outstanding shares entitled to vote;
where in each case the shares owned by the person to be indemnified shall not
be considered entitled to vote thereon.
(d) GOOD FAITH.
(1) For purposes of any determination under this
bylaw, a director or executive officer shall be deemed to have acted in good
faith and in a manner he reasonably believed to be in the best interests of
the corporation and its shareholders, and, with respect to any criminal
action or proceeding, to have had no reasonable cause to believe that his
conduct was unlawful, if his
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action is based on information, opinions, reports and statements, including
financial statements and other financial data, in each case prepared or
presented by:
(i) one or more officers or employees
of the corporation whom the director or executive officer believed to be
reliable and competent in the matters presented;
(ii) counsel, independent accountants
or other persons as to matters which the director or executive officer
believed to be within such person's professional competence; and
(iii) with respect to a director, a
committee of the Board upon which such director does not serve, as to matters
within such committee's designated authority, which committee the director
believes to merit confidence; so long as, in each case, the director or
executive officer acts without knowledge that would cause such reliance to be
unwarranted.
(2) The termination of any proceeding by judgment,
order, settlement, conviction or upon a plea of nolo contendere or its
equivalent shall not, of itself, create a presumption that the person did not
act in good faith and in a manner which he reasonably believed to be in the
best interests of the corporation and its shareholders or that he had
reasonable cause to believe that his conduct was unlawful.
(3) The provisions of this paragraph (d) shall not
be deemed to be exclusive or to limit in any way the circumstances in which a
person may be deemed to have met the applicable standard of conduct set forth
by the California General Corporation Law.
(e) EXPENSES. The corporation shall advance, prior to the
final disposition of any proceeding, promptly following request therefor, all
expenses incurred by any director or executive officer in connection with
such proceeding upon receipt of an undertaking by or on behalf of such person
to repay said amounts if it shall be determined ultimately that such person
is not entitled to be indemnified under this bylaw or otherwise.
Notwithstanding the foregoing, unless otherwise determined pursuant
to paragraph (f) of this bylaw, no advance shall be made by the corporation
if a determination is reasonably and promptly made by the Board of Directors
by a majority vote of a quorum consisting of directors who were not parties
to the proceeding (or, if no such quorum exists, by independent legal counsel
in a written opinion) that the facts known to the decision making party at
the time such determination is made demonstrate clearly and convincingly that
such person acted in bad faith or in a manner that such person did not
believe to be in the best interests of the corporation and its shareholders.
(f) ENFORCEMENT. Without the necessity of entering into an
express contract, all rights to indemnification and advances to directors and
executive officers under this bylaw shall be deemed to be contractual rights
and be effective to the same extent and as if provided for in a contract
between the corporation and the director or executive officer. Any right to
indemnification or advances granted by this bylaw to a director or executive
officer shall be enforceable by or on behalf of the person holding such right
in the forum in which the proceeding is or was pending or, if
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such forum is not available or a determination is made that such forum is not
convenient, in any court of competent jurisdiction if (i) the claim for
indemnification or advances is denied, in whole or in part, or (ii) no
disposition of such claim is made within ninety (90) days of request
therefor. The claimant in such enforcement action, if successful in whole or
in part, shall be entitled to be paid also the expense of prosecuting his
claim. The corporation shall be entitled to raise as a defense to any such
action that the claimant has not met the standards of conduct that make it
permissible under the California General Corporation Law for the corporation
to indemnify the claimant for the amount claimed. Neither the failure of the
corporation (including its board of directors, independent legal counsel or
its shareholders) to have made a determination prior to the commencement of
such action that indemnification of the claimant is proper in the
circumstances because he has met the applicable standard of conduct set forth
in the California General Corporation Law, nor an actual determination by the
corporation (including its board of directors, independent legal counsel or
its shareholders) that the claimant has not met such applicable standard of
conduct, shall be a defense to the action or create a presumption that
claimant has not met the applicable standard of conduct.
(g) NON-EXCLUSIVITY OF RIGHTS. To the fullest extent
permitted by the corporation's Articles of Incorporation and the California
General Corporation Law, the rights conferred on any person by this bylaw
shall not be exclusive of any other right which such person may have or
hereafter acquire under any statute, provision of the Articles of
Incorporation, bylaws, agreement, vote of shareholders or disinterested
directors or otherwise, both as to action in his official capacity and as to
action in another capacity while holding office. The corporation is
specifically authorized to enter into individual contracts with any or all of
its directors, officers, employees or agents respecting indemnification and
advances, to the fullest extent permitted by the California General
Corporation Law and the corporation's Articles of Incorporation.
(h) SURVIVAL OF RIGHTS. The rights conferred on any person
by this bylaw shall continue as to a person who has ceased to be a director
or executive officer and shall inure to the benefit of the heirs, executors
and administrators of such a person.
(i) INSURANCE. The corporation, upon approval by the board
of directors, may purchase insurance on behalf of any person required or
permitted to be indemnified pursuant to this bylaw.
(j) AMENDMENTS. Any repeal or modification of this bylaw
shall only be prospective and shall not affect the rights under this bylaw in
effect at the time of the alleged occurrence of any action or omission to act
that is the cause of any proceeding against any agent of the corporation.
(k) EMPLOYEE BENEFIT PLANS. The corporation shall indemnify
the directors and officers of the corporation who serve at the request of the
corporation as trustees, investment managers or other fiduciaries of employee
benefit plans to the fullest extent permitted by the California General
Corporation Law.
(l) SAVING CLAUSE. If this bylaw or any portion hereof
shall be invalidated on any ground by any court of competent jurisdiction,
then the corporation shall nevertheless indemnify
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each director and executive officer to the fullest extent permitted by any
applicable portion of this bylaw that shall not have been invalidated, or by
any other applicable law.
(m) CERTAIN DEFINITIONS. For the purposes of this bylaw,
the following definitions shall apply:
(1) The term "proceeding" shall be broadly
construed and shall include, without limitation, the investigation,
preparation, prosecution, defense, settlement and appeal of any threatened,
pending or completed action, suit or proceeding, whether civil, criminal,
administrative, arbitrative or investigative.
(2) The term "expenses" shall be broadly construed
and shall include, without limitation, court costs, attorneys' fees, witness
fees, fines, amounts paid in settlement or judgment and any other costs and
expenses of any nature or kind incurred in connection with any proceeding,
including expenses of establishing a right to indemnification under this
bylaw or any applicable law.
(3) The term the "corporation" shall include, in
addition to the resulting corporation, any constituent corporation (including
any constituent of a constituent) absorbed in a consolidation or merger
which, if its separate existence had continued, would have had power and
authority to indemnify its directors, officers, and employees or agents, so
that any person who is or was a director, officer, employee or agent of such
constituent corporation, or is or was serving at the request of such
constituent corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise, shall
stand in the same position under the provisions of this bylaw with respect to
the resulting or surviving corporation as he would have with respect to such
constituent corporation if its separate existence had continued.
(4) References to a "director," "officer,"
"employee," or "agent" of the corporation shall include, without limitation,
situations where such person is or was serving at the request of the
corporation as a director, officer, employee, trustee or agent of another
corporation, partnership, joint venture, trust or other enterprise.
ARTICLE XI - RIGHT OF FIRST REFUSAL
SECTION 64. RIGHT OF FIRST REFUSAL. No shareholder shall sell,
assign, pledge, or in any manner transfer any of the shares of stock of the
corporation or any right or interest therein, whether voluntarily or by
operation of law, or by gift or otherwise, except by a transfer which meets
the requirements hereinafter set forth in this bylaw:
(a) If the shareholder desires to sell or otherwise
transfer any of his shares of stock, then the shareholder shall first give
written notice thereof to the corporation. The notice shall name the proposed
transferee and state the number of shares to be transferred, the proposed
consideration, and all other terms and conditions of the proposed transfer.
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(b) For thirty (30) days following receipt of such notice,
the corporation shall have the option to purchase all (but not less than all)
of the shares specified in the notice at the price and upon the terms set
forth in such notice; provided, however, that, with the consent of the
shareholder, the corporation shall have the option to purchase a lesser
portion of the shares specified in said notice at the price and upon the
terms set forth therein. In the event of a gift, property settlement or other
transfer in which the proposed transferee is not paying the full price for
the shares, and that is not otherwise exempted from the provisions of this
Section 64, the price shall be deemed to be the fair market value of the
stock at such time as determined in good faith by the Board of Directors. In
the event the corporation elects to purchase all of the shares or, with
consent of the shareholder, a lesser portion of the shares, it shall give
written notice to the transferring shareholder of its election and settlement
for said shares shall be made as provided below in paragraph (d).
(c) The corporation may assign its rights hereunder.
(d) In the event the corporation and/or its assignee(s)
elect to acquire any of the shares of the transferring shareholder as
specified in said transferring shareholder's notice, the Secretary of the
corporation shall so notify the transferring shareholder and settlement
thereof shall be made in cash within thirty (30) days after the Secretary of
the corporation receives said transferring shareholder's notice; provided
that if the terms of payment set forth in said transferring shareholder's
notice were other than cash against delivery, the corporation and/or its
assignee(s) shall pay for said shares on the same terms and conditions set
forth in said transferring shareholder's notice.
(e) In the event the corporation and/or its assignee(s) do
not elect to acquire all of the shares specified in the transferring
shareholder's notice, said transferring shareholder may, within the sixty-day
period following the expiration of the option rights granted to the
corporation and/or its assignee(s) herein, transfer the shares specified in
said transferring shareholder's notice which were not acquired by the
corporation and/or its assignee(s) as specified in said transferring
shareholder's notice. All shares so sold by said transferring shareholder
shall continue to be subject to the provisions of this bylaw in the same
manner as before said transfer.
(f) Anything to the contrary contained herein
notwithstanding, the following transactions shall be exempt from the
provisions of this bylaw:
(1) A shareholder's transfer of any or all shares
held either during such shareholder's lifetime or on death by will or
intestacy to such shareholder's immediate family or to any custodian or
trustee for the account of such shareholder or such shareholder's immediate
family. "Immediate family" as used herein shall mean spouse, lineal
descendant, father, mother, brother, or sister of the shareholder making such
transfer.
(2) A shareholder's bona fide pledge or mortgage
of any shares with a commercial lending institution, provided that any
subsequent transfer of said shares by said institution shall be conducted in
the manner set forth in this bylaw.
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(3) A shareholder's transfer of any or all of such
shareholder's shares to the corporation or to any other shareholder of the
corporation.
(4) A shareholder's transfer of any or all of such
shareholder's shares to a person who, at the time of such transfer, is an
officer or director of the corporation.
(5) A corporate shareholder's transfer of any or
all of its shares pursuant to and in accordance with the terms of any merger,
consolidation, reclassification of shares or capital reorganization of the
corporate shareholder, or pursuant to a sale of all or substantially all of
the stock or assets of a corporate shareholder.
(6) A corporate shareholder's transfer of any or
all of its shares to any or all of its shareholders.
(7) A transfer by a shareholder which is a limited
or general partnership to any or all of its partners or former partners.
In any such case, the transferee, assignee, or other recipient shall
receive and hold such stock subject to the provisions of this bylaw, and
there shall be no further transfer of such stock except in accord with this
bylaw.
(g) The provisions of this bylaw may be waived with respect
to any transfer either by the corporation, upon duly authorized action of its
Board of Directors, or by the shareholders, upon the express written consent
of the owners of a majority of the voting power of the corporation (excluding
the votes represented by those shares to be transferred by the transferring
shareholder). This bylaw may be amended or repealed either by a duly
authorized action of the Board of Directors or by the shareholders, upon the
express written consent of the owners of a majority of the voting power of
the corporation.
(h) Any sale or transfer, or purported sale or transfer, of
securities of the corporation shall be null and void unless the terms,
conditions, and provisions of this bylaw are strictly observed and followed.
(i) The foregoing right of first refusal shall terminate on
either of the following dates, whichever shall first occur:
(1) On December 8, 2003; or
(2) Upon the date securities of the corporation
are first offered to the public pursuant to a registration statement filed
with, and declared effective by, the United States Securities and Exchange
Commission under the Securities Act of 1933, as amended.
(j) The certificates representing shares of stock of the
corporation shall bear on their face the following legend so long as the
foregoing right of first refusal remains in effect:
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"The shares represented by this certificate are subject to a
right of first refusal option in favor of the corporation and/or its
assignee(s), as provided in the bylaws of the corporation."
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AMENDMENT TO THE
BYLAWS
OF
CIPHEREGEN BIOSYSTEMS, INC.
Section 19 of Articles IV of the Bylaws of Ciphergen Biosystems, Inc.
was amended in its entirety on May 11, 1999 to read as follows:
SECTION 19. NUMBER OF DIRECTORS. The authorized number of directors
of the corporation shall be not less than a minimum of five (5) nor more than a
maximum of nine (9) (which maximum number in no case shall be greater than two
times said minimum, minus one) and the number of directors presently authorized
is nine (9). The exact number of directors shall be set within these limits from
time to time (a) by approval of the Board of Directors, or (b) by the
affirmative vote of a majority of the shares represented and voting at a duly
held meeting at which a quorum is present (which shares voting affirmatively
also constitute a majority of the required quorum) or by the written consent of
shareholders pursuant to Section 13 hereinabove.
<PAGE>
EXHIBIT 10.1
CIPHERGEN BIOSYSTEMS, INC.
---------------------------------------------------
SERIES E PREFERRED STOCK PURCHASE AGREEMENT
---------------------------------------------------
MARCH 3, 2000
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
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<S> <C>
SECTION 1 SALE OF SERIES E PREFERRED STOCK . . . . . . . . . . . . . . . . . . . . .1
1.1 SALE OF SERIES E PREFERRED. . . . . . . . . . . . . . . . . . . . . . . .1
1.2 CLOSING DATE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1
1.3 SUBSEQUENT SALE OF THE SERIES E PREFERRED . . . . . . . . . . . . . . . .1
1.4 DELIVERY. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2
SECTION 2 REPRESENTATIONS AND WARRANTIES OF THE COMPANY. . . . . . . . . . . . . . .2
2.1 ORGANIZATION AND STANDING . . . . . . . . . . . . . . . . . . . . . . . .2
2.2 CORPORATE POWER . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2
2.3 SUBSIDIARIES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2
2.4 CAPITALIZATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .3
2.5 AUTHORIZATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .4
2.6 VALIDITY OF SHARES. . . . . . . . . . . . . . . . . . . . . . . . . . . .4
2.7 COMPLIANCE WITH OTHER INSTRUMENTS, ETC. . . . . . . . . . . . . . . . . .4
2.8 LITIGATION, ETC . . . . . . . . . . . . . . . . . . . . . . . . . . . . .4
2.9 REGISTRATION RIGHTS . . . . . . . . . . . . . . . . . . . . . . . . . . .5
2.10 GOVERNMENTAL OR THIRD PARTY CONSENT, ETC. . . . . . . . . . . . . . . . .5
2.11 OFFERING. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .5
2.12 FINANCIAL STATEMENTS. . . . . . . . . . . . . . . . . . . . . . . . . . .5
2.13 TITLE TO PROPERTIES AND ASSETS; LIENS, ETC. . . . . . . . . . . . . . . .6
2.14 PATENTS AND TRADEMARKS. . . . . . . . . . . . . . . . . . . . . . . . . .6
2.15 TAX RETURNS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6
2.16 NO DEFAULTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6
2.17 AGREEMENTS; ACTION. . . . . . . . . . . . . . . . . . . . . . . . . . . .7
2.18 RELATED-PARTY TRANSACTIONS. . . . . . . . . . . . . . . . . . . . . . . .8
2.19 PERMITS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .8
2.20 ENVIRONMENTAL AND SAFETY LAWS . . . . . . . . . . . . . . . . . . . . . .8
2.21 EMPLOYEE BENEFITS PLANS; EMPLOYEES. . . . . . . . . . . . . . . . . . . .8
2.22 INSURANCE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .8
2.23 USE OF PROCEEDS . . . . . . . . . . . . . . . . . . . . . . . . . . . . .8
2.24 MANUFACTURING AND MARKETING RIGHTS. . . . . . . . . . . . . . . . . . . .9
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2.25 DISCLOSURE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .9
2.26 OFFERING MEMORANDUM . . . . . . . . . . . . . . . . . . . . . . . . . . .9
SECTION 3 INVESTMENT REPRESENTATIONS . . . . . . . . . . . . . . . . . . . . . . . .9
3.1 EXPERIENCE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .9
3.2 INVESTMENT. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .9
3.3 RULE 144. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
3.4 ADEQUATE INFORMATION; NO PUBLIC MARKET. . . . . . . . . . . . . . . . . 10
SECTION 4 BREACHES OF REPRESENTATIONS, WARRANTIES AND COVENANTS. . . . . . . . . . 10
SECTION 5 CONDITIONS TO CLOSING OF PURCHASERS. . . . . . . . . . . . . . . . . . . 11
5.1 REPRESENTATIONS AND WARRANTIES. . . . . . . . . . . . . . . . . . . . . 11
5.2 COVENANTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
5.3 COMPLIANCE CERTIFICATE. . . . . . . . . . . . . . . . . . . . . . . . . 11
5.4 CONSENTS, PERMITS AND WAIVERS . . . . . . . . . . . . . . . . . . . . . 11
5.5 OPINION OF COUNSEL. . . . . . . . . . . . . . . . . . . . . . . . . . . 11
5.6 INVESTORS RIGHTS AGREEMENT. . . . . . . . . . . . . . . . . . . . . . . 12
5.7 PROCEEDINGS AND DOCUMENTS . . . . . . . . . . . . . . . . . . . . . . . 12
5.8 RESTATED ARTICLES . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
5.9 CERTIFICATE FOR SHARES OF SERIES E PREFERRED. . . . . . . . . . . . . . 12
5.10 BLUE SKY COMPLIANCE . . . . . . . . . . . . . . . . . . . . . . . . . . 12
SECTION 6 CONDITIONS TO CLOSING OF COMPANY . . . . . . . . . . . . . . . . . . . . 12
6.1 REPRESENTATIONS AND WARRANTIES. . . . . . . . . . . . . . . . . . . . . 12
6.2 COVENANTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
6.3 CONSENTS, PERMITS AND WAIVERS . . . . . . . . . . . . . . . . . . . . . 13
6.4 DELIVERY OF PURCHASE PRICE. . . . . . . . . . . . . . . . . . . . . . . 13
6.5 EXECUTION AND DELIVERY OF DOCUMENTS . . . . . . . . . . . . . . . . . . 13
6.6 PROCEEDINGS AND DOCUMENTS . . . . . . . . . . . . . . . . . . . . . . . 13
6.7 RESTATED ARTICLES . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
SECTION 7 MISCELLANEOUS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
7.1 ADDITIONAL SERIES E PREFERRED . . . . . . . . . . . . . . . . . . . . . 13
7.2 GOVERNING LAW . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
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7.3 SURVIVAL. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
7.4 SUCCESSORS AND ASSIGNS. . . . . . . . . . . . . . . . . . . . . . . . . 14
7.5 ENTIRE AGREEMENT. . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
7.6 RIGHTS OF PURCHASERS. . . . . . . . . . . . . . . . . . . . . . . . . . 14
7.7 NOTICES, ETC. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
7.8 EXPENSES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
7.9 COUNTERPARTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
7.10 SEVERABILITY. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
7.11 CALIFORNIA CORPORATE SECURITIES LAW . . . . . . . . . . . . . . . . . . 15
7.12 APPROVAL OF AMENDMENTS AND WAIVERS. . . . . . . . . . . . . . . . . . . 15
7.13 COUNTERPARTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
7.14 HEADINGS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
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<PAGE>
CIPHERGEN BIOSYSTEMS, INC.
SERIES E PREFERRED STOCK PURCHASE AGREEMENT
THIS AGREEMENT is made as of March 3, 2000 between CIPHERGEN
BIOSYSTEMS, INC., a California corporation (the "Company"), with its
principal office at 490 San Antonio Road, Palo Alto, CA 94306, and the
purchasers (each a "Purchaser" and collectively the "Purchasers") listed on
the Schedule of Purchasers attached to this Agreement as EXHIBIT A (the
"Schedule of Purchasers").
WHEREAS, the Company has authorized the issuance and sale pursuant to
this Agreement of up to 11,000,000 shares of its Series E Preferred Stock
(the "Series E Preferred") having the rights, preferences, privileges and
restrictions set forth in the Amended and Restated Articles of Incorporation
of the Company in the form attached to this Agreement as EXHIBIT B (the
"Restated Articles"). The shares of Series E Preferred to be sold hereunder
are collectively referred to as the "Shares."
NOW, THEREFORE, in consideration of the foregoing premises and the
mutual covenants and conditions set forth below, and for other good and
valuable consideration, the receipt of which is hereby acknowledged, the
parties to this Agreement agree as follows:
SECTION 1
SALE OF SERIES E PREFERRED STOCK
1.1 SALE OF SERIES E PREFERRED. Subject to the terms and
conditions hereof, each Purchaser agrees, severally, to purchase from the
Company and the Company agrees to sell and issue to each Purchaser the number
of Shares set forth opposite such Purchaser's name on the Schedule of
Purchasers at a price of $2.75 per share.
1.2 CLOSING DATE. The purchase and sale of the Shares is expected
to take place in one or more closings. The initial closing of the purchase
and sale of the Shares hereunder (the "Initial Closing") shall be held at the
offices of Wilson Sonsini Goodrich & Rosati PC ("WSGR"), 650 Page Mill Road,
Palo Alto, California, 94306, on the date of this Agreement or at such other
time and place upon which the Company and a majority of the Purchasers shall
agree.
1.3 SUBSEQUENT SALE OF THE SERIES E PREFERRED. Subsequent closings
shall be held within 60 days from the Initial Closing at such time and place
as the Company and a majority of the Purchasers participating therein shall
agree. All such sales shall be made on the terms and conditions set forth in
this Agreement. Each Purchaser at a subsequent Closing shall be made a party
to this Agreement as a Purchaser, the shares so acquired shall be deemed to
be sold hereunder, and the Schedule of Purchasers shall be appropriately
revised to reflect the subsequent closing.
1.4 DELIVERY. At the Closing, the Company will deliver to each
Purchaser a certificate representing the Shares that each Purchaser is
purchasing against payment of the
<PAGE>
purchase price therefor by (i) check payable to the order of the Company,
(ii) wire transfer of immediately available funds and/or (iii) cancellation
of indebtedness, as indicated on the Schedule of Purchasers.
SECTION 2
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
Except as set forth in the Schedule of Exceptions attached hereto as
EXHIBIT C or in the Company's Confidential Offering Memorandum, dated
November 5, 1999, including the Schedules and Exhibits attached thereto (the
"Offering Memorandum"), the Company hereby represents and warrants to each
Purchaser as follows:
2.1 ORGANIZATION AND STANDING. The Company is a corporation duly
organized and validly existing under, and by virtue of, the laws of the State
of California and is in good standing under such laws. The Company has all
requisite corporate power to own and operate its assets and to carry on its
business as presently conducted and as proposed to be conducted. The Company
is qualified to do business as a foreign corporation in each jurisdiction in
which the failure to so qualify would have a material adverse affect on the
Company or its business or prospects (a "Material Adverse Affect").
2.2 CORPORATE POWER. The Company has all requisite legal and
corporate power to execute and deliver this Agreement and the Fourth Amended
and Restated Investors Rights Agreement in substantially the form attached
hereto as EXHIBIT D (the "Investors Rights Agreement") (the Agreement and the
Investor Rights Agreement are hereinafter collectively referred to as the
"Agreements"), to sell and issue the Shares under this Agreement, to issue
the Common Stock issuable upon conversion of the Shares and to carry out and
perform its obligations under the terms of the Agreements, including all
exhibits and schedules hereto and thereto.
2.3 SUBSIDIARIES. The Company does not own or control, directly or
indirectly, any corporation, association or business entity other than those
listed on EXHIBIT C. Each of the Company's subsidiaries is a corporation
duly organized and validly existing under, and by virtue of, the laws of the
jurisdiction of its organization and is in good standing under such laws.
Each of the Company's subsidiaries has the requisite corporate power to own
and operate its assets and to carry on its business as presently conducted
and as proposed to be conducted. Each of the Company's subsidiaries is
qualified to do business as a foreign corporation in each jurisdiction in
which the failure to so qualify would have a Material Adverse Effect. All of
the Company's subsidiaries are wholly-owned by the Company. For all other
representations and warranties contained in this Section 2, the term
"Company" shall refer to the Company and all of its subsidiaries taken as a
whole.
2.4 CAPITALIZATION. The authorized capital stock of the Company
consists of 60,000,000 shares of Common Stock and 32,253,644 shares of
Preferred Stock. Of the Preferred Stock, 3,054,400 shares are designated
Series A Preferred Stock (the "Series A Preferred"), 7,265,457 shares are
designated Series B Preferred Stock (the "Series B Preferred"), 3,013,119
<PAGE>
shares are designated Series C Preferred Stock (the "Series C Preferred"),
6,920,668 shares are designated Series D Preferred Stock (the "Series D
Preferred"), and 12,000,000 shares are designated Series E Preferred.
Effective as of February 4, 2000, 15,991,127 shares of Common Stock are
issued and outstanding, 3,054,400 shares of Series A Preferred are issued and
outstanding, 6,402,457 shares of Series B Preferred are issued and
outstanding, 2,929,719 shares of Series C Preferred are issued and
outstanding, and 6,754,713 shares of Series D Preferred are issued and
outstanding. Immediately prior to the Closing, no shares of Series E
Preferred will be issued and outstanding. No other shares of capital stock
are outstanding. All such issued and outstanding shares have been duly
authorized and validly issued and are fully paid and nonassessable. The
Company has reserved the following shares of its Common Stock for issuance
from time to time as may be determined by the Company's Board of Directors
(collectively, the "Reserved Shares"): (i) 313,000 shares of the Series B
Preferred Stock (and 313,000 shares of the Common Stock issuable upon
conversion thereof) issuable upon exercise of certain warrants; (ii) 550,000
shares of the Series B Preferred (and 550,000 shares of the Common Stock
issuable upon conversion thereof) issuable upon the achievement of certain
milestones by Stanford Research Systems pursuant to an agreement between the
Company and Stanford Research Systems dated February 2, 1995; (iii) 83,400
shares of the Company's Series C Preferred Stock (and 83,400 shares of the
Common Stock issuable upon conversion thereof) issuable upon exercise of
certain warrants; (iv) 165,955 shares of the Company's Series D Preferred
Stock (and 165,955 shares of the Common Stock issuable upon conversion
thereof) issuable upon exercise of certain warrants; and (v) 2,610,389 shares
of the Company's Common Stock issuable to directors, officers or employees
of, or consultants to, the corporation pursuant to an agreement or an option
or purchase plan or another director, officer, employee or consultant stock
incentive program approved by the Board of Directors of the Company. The
Series E Preferred has the rights, preferences and privileges set forth in
the Restated Articles. Except for the conversion privileges of the Series E
Preferred, Series D Preferred, Series C Preferred, Series B Preferred, and
the Series A Preferred specified in the Restated Articles, the Shares
issuable under this Agreement and the Reserved Shares, there are no options,
warrants, conversion privileges or other rights presently outstanding to
purchase or otherwise acquire any authorized but unissued shares of the
Company's capital stock or other securities of the Company. The
designations, powers, preferences, rights, qualifications, limitations and
restrictions in respect of each class and series of authorized capital stock
of the Company are as set forth in the Restated Articles. Except as provided
in the Restated Articles, the Company has no obligation (contingent or other)
to purchase, redeem or otherwise acquire any of its capital stock or any
interest therein or to pay any dividend or make any other distribution in
respect thereof. The Company has no knowledge of any voting agreements,
voting trusts, stockholders' agreements, proxies or other agreements or
understandings that are currently in effect or that are currently
contemplated with respect to the voting of any capital stock of the Company.
All of the outstanding securities of the Company were issued in compliance
with all applicable federal and state securities laws.
2.5 AUTHORIZATION. All corporate action on the part of the
Company, its officers, directors and shareholders necessary for the
authorization, execution, delivery and performance of the Agreements by the
Company, the authorization, sale, issuance and delivery of the Shares (and
the Common Stock issuable upon conversion of the Shares) and the performance
of the Company's obligations under the Agreements has been taken or will be
taken prior to the Closing. The Agreements, when executed and delivered by
the Company, will constitute valid
<PAGE>
and binding obligations of the Company enforceable in accordance with their
terms, subject to laws of general application relating to bankruptcy,
insolvency, the relief of debtors, general equity principles, and limitations
upon rights to indemnity.
2.6 VALIDITY OF SHARES. The Shares, when issued in compliance with
the provisions of this Agreement, will be duly and validly issued, fully paid
and nonassessable and will be free and clear of all liens, charges,
restrictions, claims and encumbrances imposed by or through the Company. The
Common Stock issuable upon conversion of the Shares has been duly and validly
reserved and, when issued in compliance with the provisions of this
Agreement, will be duly and validly issued, fully paid and nonassessable and
will be free and clear of all liens, charges, restrictions, claims and
encumbrances imposed by or through the Company; provided, however, that the
Shares (and the Common Stock issuable upon conversion of the Shares) may be
subject to restrictions on transfer under state and/or federal securities
laws as set forth herein. The Shares are not subject to any preemptive
rights or rights of first refusal that have not been waived or exercised in
connection with the Closing.
2.7 COMPLIANCE WITH OTHER INSTRUMENTS, ETC. The Company is not,
and will not by virtue of entering into and performing the Agreements and the
transactions contemplated thereunder be, in violation of any term of its
Restated Articles or Bylaws or any term or provision of any material
mortgage, indenture, contract, agreement, instrument, judgment or decree to
which it is a party or by which it is bound, and is not, and will not by
virtue of entering into and performing the Agreements and the transactions
contemplated thereunder be, in violation of any order addressed specifically
to the Company nor, to the Company's knowledge, any order, statute, rule or
regulation applicable to the Company, other than any of the foregoing such
violations that do not, either individually or in the aggregate, have a
material adverse affect on the Company's business as presently conducted or
planned to be conducted.
2.8 LITIGATION, ETC. There are no actions, suits, proceedings or
investigations pending against the Company before any court or governmental
agency (nor, to the Company's knowledge, is there any overt threat thereof).
2.9 REGISTRATION RIGHTS. Except as set forth in the Investors
Rights Agreement, the Company is not under any obligation to register (as
defined in the Investors Rights Agreement) any of its presently outstanding
securities or any of its securities that may hereafter be issued.
2.10 GOVERNMENTAL OR THIRD PARTY CONSENT, ETC. No consent, approval
or authorization of or designation, declaration or filing with any
governmental authority or any other party on the part of the Company is
required in connection with the valid execution and delivery of the
Agreements, or the offer, sale or issuance of the Shares (and the Common
Stock issuable upon conversion of the Shares) or the consummation of any
other transaction contemplated thereby, except (a) filing of the Restated
Articles in the Office of the Secretary of State of the State of California,
(b) qualification (or taking such action as may be necessary to secure an
exemption from qualification, if available) of the offer and sale of the
Shares (and the Common Stock issuable upon conversion of the Shares) under
the California Corporate Securities Law and any other applicable blue sky
laws, which filing and qualification, if required, will be accomplished in a
timely manner prior to or promptly upon completion of the Closing and (c)
such filings as may be determined by counsel to the Company to be necessary
to
<PAGE>
secure an exemption from registration under the Securities Act of 1933, as
amended (the "Securities Act") which filing, if required, will be
accomplished in a timely manner prior to or promptly after completion of the
Closing.
2.11 OFFERING. Subject to the accuracy of the representations set
forth in Section 3 hereof, the offer, sale and issuance of the Shares
pursuant to this Agreement (and the issuance of the Common Stock to be issued
upon conversion of the Shares) (i) constitute transactions exempt from the
registration requirements of Section 5 of the Securities Act and (ii) is in
compliance with all applicable state securities laws.
2.12 FINANCIAL STATEMENTS. The Company has delivered to the
Purchasers its audited balance sheet at December 31, 1998 and its unaudited
balance sheet at December 31, 1999 (the "Balance Sheets"). The Balance
Sheets are complete and correct in all material respects and accurately
describe the financial condition of the Company as of December 31, 1998 and
December 31, 1999 (the "Balance Sheet Dates"). The Company has no known
material liability or obligation, absolute or contingent (individually or in
the aggregate), except as set forth in the Balance Sheets and except for
other liabilities incurred since the Balance Sheet Dates in the ordinary
course of business that are not material (individually or in the aggregate).
The Company maintains and will continue to maintain a standard system of
accounting established and administered in accordance with generally accepted
accounting principles.
2.13 TITLE TO PROPERTIES AND ASSETS; LIENS, ETC. The Company has
good and marketable title to its properties and assets shown in the Balance
Sheets, and has good title to all of its leasehold interests, in each case
subject to no mortgage, pledge, lien, lease, encumbrance or charge, other
than (i) the lien of current taxes not yet due and payable, and (ii) possible
minor liens and encumbrances that do not in any case materially detract from
the value of the property subject thereto or materially impair the operations
of the Company and which have not arisen otherwise than in the ordinary
course of business.
2.14 PATENTS AND TRADEMARKS. The Company has sufficient title and
ownership of all patents, trademarks, service marks, trade names, copyrights,
trade secrets, information, proprietary rights and processes (collectively
"Proprietary Information"), or believes it has the ability to acquire valid
licenses to such Proprietary Information on reasonable terms, as necessary
for its business as now conducted and as proposed to be conducted without any
conflict with or infringement of the rights of others. There are no
outstanding options, licenses, or agreements of any kind relating to the
foregoing, nor is the Company bound by or a party to any options, licenses or
agreements of any kind with respect to the patents, trademarks, service
marks, trade names, copyrights, trade secrets, licenses, information,
proprietary rights and processes of any other person or entity. The Company
is not aware of any impropriety with regard to the granting of any licenses
of Proprietary Information to the Company. The Company has not received any
written or other communications alleging that the Company has violated or
infringed or that the Company would, by conducting its business as proposed,
violate or infringe any of the patents, trademarks, service marks, trade
names, copyrights or trade secrets or other proprietary rights of any other
person or entity. No claim is pending or, to the Company's knowledge,
threatened to the effect that any such Proprietary Information owned or
licensed by the Company, or which the Company has the right to use, is
invalid or unenforceable by the company, and, to the Company's knowledge,
there is no basis for any such claim. Except
<PAGE>
pursuant to the terms of the Proprietary Information and Inventions
Agreements entered into between the Company and each of its employees and/or
consultants (the "Proprietary Information and Inventions Agreement"), there
are no agreements, understandings, instruments, or contracts to which the
Company is a party or by which it is bound that involve the license of any
patent, copyright, trade secret or other similar proprietary right to or from
the Company.
2.15 TAX RETURNS. The Company has accurately prepared and timely
filed all federal, state and other tax returns which are required to be filed
and has timely paid all taxes covered by such returns which have become due
and payable.
The Company has not been advised that any of its returns, federal, state or
other, have been or are being audited as of the date hereof. The Company is
not delinquent in taxes or assessments and has no tax deficiency proposed or
assessed and no waiver of the statute of limitations and assessment or
collections.
2.16 NO DEFAULTS. The Company has, and, to the Company's knowledge,
each other party thereto has in all material respects, performed all material
obligations required to be performed by it to date and is not in default
under any of the contracts, loans, notes, mortgages, indentures, licenses,
security agreements, agreements, leases, documents, commitments or other
arrangements to which it is a party or by which it is otherwise bound, except
for such defaults which in the aggregate would not have a Material Adverse
Effect, and no event or condition has occurred which, with the lapse of time
or the giving of notice, or both, would constitute such a default.
2.17 AGREEMENTS; ACTION.
(a) Except for agreements explicitly contemplated by the
Agreements, there are no material agreements, understandings or proposed
transactions between the Company and any of its officers, employees,
directors, affiliates, or any affiliate thereof.
(b) There are no material agreements, understandings,
instruments, contracts, proposed transactions, judgments, orders, writs or
decrees to which the Company is a party or by which it is bound which may
involve (i) obligations (contingent or otherwise) of, or payments to the
Company in excess of $50,000 individually or $500,000 in the aggregate, or
(ii) provisions restricting or affecting the development, manufacture of
distribution of the Company's products or services.
(c) The Company has not (i) declared or paid any dividends,
or authorized or made any distribution upon or with respect to any class or
series of its capital stock, (ii) incurred any indebtedness for money
borrowed or any other liabilities individually in excess of $50,000 or, in
the case of indebtedness and/or liabilities individually less than $50,000,
in excess of $250,000 in the aggregate, (iii) made any loans or advances to
any person, other than ordinary advances for travel expenses, or (iv) sold,
exchanged or otherwise disposed of any of its material assets or rights,
other than the sale of its inventory or replacement of equipment in the
ordinary course of business.
(d) The Company has not engaged in the past three months in
any discussion (i) with any representative of any corporation or corporations
regarding the consolidation or merger of the Company with or into any such
corporation or corporations, (ii) with any
<PAGE>
corporation, partnership, association or other business entity or any
individual regarding the sale, conveyance or disposition of all or
substantially all of the assets of the Company or a transaction or series of
related transactions in which more than fifty percent (50%) of the voting
power of the Company is disposed of, or (iii) regarding any other similar
form of acquisition, liquidation, dissolution or winding up of the Company.
2.18 RELATED-PARTY TRANSACTIONS. Except as disclosed in the
Offering Memorandum, no employee, officer, or director of the Company or
member of his or her immediate family is indebted to the Company, nor is the
Company indebted (or committed to make loans or extend or guarantee credit)
to any of them, other than with respect to accrued salaries and vacation
payable to employees and officers of the Company. To the Company's
knowledge, except as disclosed in the Offering Memorandum, none of such
persons has any direct or indirect ownership interest in any firm or
corporation with which the Company is affiliated or with which the Company
has a business relationship, or any firm or corporation that competes with
the Company, except that employees, officers, or directors of the Company and
members of their immediate family may own stock in publicly traded companies
that may compete with the Company. No member of the immediate family of any
officer or director of the Company is directly interested in any material
contract with the Company.
2.19 PERMITS. The Company has all franchises, permits, licenses and
any similar authority necessary for the conduct of its business as now being
conducted by it, the lack of which would materially and adversely affect the
business, properties, prospects or financial condition of the Company and
believes it can obtain, without undue burden or expense, any similar
authority for the conduct of its business as planned to be conducted. The
Company is not in default in any material respect under any of such
franchises, permits, licenses, or other similar authority.
2.20 ENVIRONMENTAL AND SAFETY LAWS. To the best of its knowledge,
the Company is not in violation of any applicable statute, law, or regulation
relating to the environment or occupational health and safety, and to the
best of its knowledge, no material expenditures are or will be required in
order to comply with any such existing statute, law, or regulation.
2.21 EMPLOYEE BENEFITS PLANS; EMPLOYEES. The Company does not have
any Employee Benefit Plan as defined in the Employee Retirement Income
Security Act of 1974 ("ERISA"). The Company does not have any knowledge as
to any intentions of any key employee or any group of employees to leave the
employ of the Company. The Company has complied in all material respects with
all applicable laws relating to the employment of labor, including provisions
relating to wages, hours, equal opportunity, collective bargaining and the
payment of social security and other taxes and ERISA.
2.22 INSURANCE. The Company holds valid policies covering insurance
in the amounts and type that the Company reasonably believes is appropriate
and customary for companies in the same or similar businesses to that of the
Company or otherwise required to be maintained by it.
<PAGE>
2.23 USE OF PROCEEDS. The Company will use the proceeds from the
sale of the Shares for the purposes set forth in the Offering Memorandum.
2.24 MANUFACTURING AND MARKETING RIGHTS. The Company has not
granted rights to manufacture, produce, assemble, license, market or sell its
products to any other person and is not bound by any agreement that affects
the Company's exclusive right to develop, manufacture, assemble, distribute,
market or sell it products.
2.25 DISCLOSURE. The Company has fully provided each Purchaser with
all of the information which such purchaser has requested for deciding
whether to purchase the Shares. Neither the Agreements nor any other
statements or certificates made or delivered in connection herewith or
therewith contains any untrue statement of a material fact or omits to state
a material fact necessary to make the statements herein or therein not
misleading, except that with respect to the financial projections and
forecasts delivered to such Purchaser the Company represents only that such
projection and forecasts were prepared in good faith and on what the Company
believes is a reasonable basis.
2.26 OFFERING MEMORANDUM. Nothing has come to the attention of the
Company that would cause it to believe that the Offering Memorandum contained
or contains a false or misleading statement of a material fact or omits to
state any material fact necessary in order to make the statements made in the
Offering Memorandum, in light of the circumstances under which they were
made, not misleading. There is no fact known to the Company which is not in
the Offering Memorandum and which materially and adversely affects the
assets, properties, liabilities, business, affairs, results of operations,
condition (financial or otherwise) or prospects of the Company.
SECTION 3
INVESTMENT REPRESENTATIONS
Each Purchaser hereby represents and warrants to the Company as
follows:
3.1 EXPERIENCE. Such Purchaser (other than Purchasers who are
executive officers or directors of the Company, if applicable) has knowledge
and experience in financial and business matters as to be capable of
evaluating the merits and risks of Purchaser's prospective investment in the
Shares.
3.2 INVESTMENT. Such Purchaser is acquiring the Shares (and any
Common Stock issuable upon conversion of the Shares) for investment for its
own account and not with the view to, or for resale in connection with, any
distribution thereof. Such Purchaser understands that the Shares (and any
Common Stock issuable upon conversion of the Shares) to be purchased will not
be registered under the Securities Act on the grounds that the offering and
sale of securities contemplated by this Agreement are exempt from
registration pursuant to Section 4(2) of the Securities Act, and that the
Company's reliance upon such exemption is predicated upon such Purchaser's
representations set forth in this Agreement.
<PAGE>
3.3 RULE 144. Such Purchaser acknowledges that the Shares must be
held indefinitely unless subsequently registered under the Securities Act or
an exemption from such registration is available. Such Purchaser is aware of
the provisions of Rule 144 promulgated under the Securities Act which permits
limited resale of shares purchased in a private placement subject to the
satisfaction of certain conditions, including, among other things the
existence of a public market for the shares, the availability of certain
current public information about the Company, the resale occurring not less
than one year after a party has purchased and paid for the securities to be
sold, the sale being through a "broker's transaction" or in transactions
directly with a "market maker" (as provided by Rule 144(f)) and the number of
shares being sold during any three-month period not exceeding specified
limitations. Such Purchaser is aware that the conditions for resale set
forth in Rule 144 have not been satisfied and that the Company has no plan to
satisfy these conditions in the foreseeable future.
3.4 ADEQUATE INFORMATION; NO PUBLIC MARKET. Such Purchaser
represents that: (i) such Purchaser has received all the information it has
requested from the Company and considers necessary or appropriate for
deciding whether to purchase the Shares; (ii) such Purchaser has the ability
to bear the economic risks of such Purchaser's prospective investment; (iii)
such Purchaser understands that no public market currently exists for any of
the Company's securities, and that the Company has made no assurances that a
public market will ever exist for the Shares and (iv) such Purchaser is able,
without materially impairing its financial condition, to hold the Shares for
an indefinite period of time and to suffer complete loss of its investment.
SECTION 4
BREACHES OF REPRESENTATIONS, WARRANTIES AND COVENANTS
4.1 The representations and warranties, covenants and agreements of
the Company and the Purchasers contained in the Agreements or in any document
or certificate delivered pursuant hereto or in connection herewith shall
survive, and shall continue in effect following, the execution and delivery
of the Agreements, the closings hereunder and thereunder, any investigation
at any time made by the Purchasers or on their behalf or by any other person,
the issuance, sale and delivery of the Shares, any disposition thereof and
any payment, conversion or cancellation of the Shares, provided, however,
that Section 2 hereof shall terminate when there are no longer any shares of
Series E Preferred outstanding. All statements as to factual matters
contained in any certificate or other instrument delivered by or on behalf o
the Company pursuant hereto in connection with the transactions contemplated
hereby shall be deemed to be representations and warranties by the Company
hereunder solely as of the date of such certificate or instrument.
4.2 The Company agrees to indemnify and hold the Purchasers
harmless from and against and will pay to the Purchasers the full amount of
any loss, damage, liability or expense (including amounts paid in settlement
and attorneys' fees and expenses) to any Purchaser resulting either directly
or indirectly from any breach of the representations, warranties, covenants
or agreements of the Company contained in the Agreements, or in any
certificate delivered to the Purchasers pursuant hereto or in connection
herewith, PROVIDED, HOWEVER, in no event shall the Company be liable for any
amount in excess of the proceeds received by the Company from the sale of the
shares of Series E Preferred.
<PAGE>
SECTION 5
CONDITIONS TO CLOSING OF PURCHASERS
The Purchasers' obligation to purchase the Shares at the Closing is
subject to the fulfillment to its satisfaction on or prior to the Closing of
the following conditions:
5.1 REPRESENTATIONS AND WARRANTIES. The representations and
warranties of the Company contained in Section 2 shall be true on and as of
the Closing with the same effect as though such representations and
warranties had been made on and as of the date of the Closing.
5.2 COVENANTS. All covenants, agreements and conditions contained
in this Agreement to be performed by the Company on or prior to the Closing
shall have been performed or complied with in all material respects.
5.3 COMPLIANCE CERTIFICATE. The Company shall have delivered on
the Closing a certificate signed by an officer of the Company certifying that
the conditions specified in Sections 5.1 and 5.2 have been fulfilled.
5.4 CONSENTS, PERMITS AND WAIVERS. The Company shall have obtained
any and all consents, permits and waivers necessary or appropriate for
consummation of the transactions contemplated by the Agreements (except for
such as may properly be obtained subsequent to the Closing).
5.5 OPINION OF COUNSEL. The Purchasers shall have received from
Wilson Sonsini Goodrich & Rosati, counsel for the Company, an opinion in the
form of EXHIBIT E attached to this Agreement.
5.6 INVESTORS RIGHTS AGREEMENT. The Company, the Purchasers and
the holders of Common Stock named therein shall have entered into the
Investors Rights Agreement.
5.7 PROCEEDINGS AND DOCUMENTS. All corporate and other proceedings
in connection with the transactions contemplated at the Closing and all
documents incident thereto shall be reasonably satisfactory in form and
substance to Purchasers' special counsel.
5.8 RESTATED ARTICLES. The Restated Articles shall have been filed
with the Secretary of State of the State of California in the form of EXHIBIT
B hereto.
5.9 CERTIFICATE FOR SHARES OF SERIES E PREFERRED. The Purchasers
shall concurrently receive the certificates for the Shares purchased by each
of them.
5.10 BLUE SKY COMPLIANCE. The Company shall have complied with and
be effective under all state securities or Blue Sky laws applicable to the
offer and sale of the Shares to the Investors at the Closing
<PAGE>
SECTION 6
CONDITIONS TO CLOSING OF COMPANY
The Company's obligation to issue and sell the Series E Preferred at
the Closing is subject to the fulfillment of the following conditions:
6.1 REPRESENTATIONS AND WARRANTIES. The representations and
warranties of the Purchasers contained in Section 3 shall be true on and as
of the Closing with the same effect as though such representations and
warranties had been made on and as of the date of the Closing.
6.2 COVENANTS. All covenants, agreements and conditions contained
in this Agreement to be performed by Purchasers on or prior to the Closing
shall have been performed or complied with in all respects.
6.3 CONSENTS, PERMITS AND WAIVERS. The Company shall have obtained
any and all consents, permits and waivers necessary or appropriate for
consummation of the transactions contemplated by the Agreements (except for
such as may properly be obtained subsequent to the Closing).
6.4 DELIVERY OF PURCHASE PRICE. The Purchasers shall have
delivered the purchase price for the Shares as provided for under Section 1.
6.5 EXECUTION AND DELIVERY OF DOCUMENTS. Each Purchaser shall have
executed and delivered the Investors Rights Agreement and such other
documents and/or certificates as are required or contemplated by this
Agreement or as reasonably requested by the Company.
6.6 PROCEEDINGS AND DOCUMENTS. All corporate and other proceedings
in connection with the transactions contemplated at the Closing and all
documents incident thereto shall be reasonably satisfactory in form and
substance to the Company's counsel, and the Company shall have received all
such counterpart original and certified or other copies of such documents as
the Company may reasonably request.
6.7 RESTATED ARTICLES. The Restated Articles shall have been filed
with the Secretary of State of the State of California in the form of EXHIBIT
B hereto.
SECTION 7
MISCELLANEOUS
7.1 ADDITIONAL SERIES E PREFERRED. The Company shall not issue any
additional shares of Series E Preferred beyond the Shares to be sold
hereunder without first obtaining the approval of the Board of Directors.
7.2 GOVERNING LAW. This Agreement shall be governed by the laws of
the State of California as applicable to contracts entered into and performed
entirely within the State of California.
<PAGE>
7.3 SURVIVAL. The representations, warranties, covenants and
agreements made herein shall survive any investigation made by Purchasers and
the closing of the transactions contemplated hereby.
7.4 SUCCESSORS AND ASSIGNS. Except as otherwise provided herein,
the provisions hereof shall inure to the benefit of, and be binding upon, the
successors, assigns, heirs, executors and administrators of the parties
hereto, provided, however, that the rights of Purchasers to purchase the
Shares shall not be assignable without the consent of the Company and
provided further that the Company may not assign any of its rights, duties or
obligations under this Agreement without the written consent of the
Purchasers except in the case of a merger, acquisition or consolidation of
the Company in which case such consent shall not be required.
7.5 ENTIRE AGREEMENT. This Agreement and the other documents
delivered pursuant hereto constitute the full and entire understanding and
agreement between the parties with regard to the subjects hereof and thereof.
7.6 RIGHTS OF PURCHASERS. Each holder of the Series E Preferred
(and Common Stock issued upon conversion of the Series E Preferred) shall
have the absolute right to exercise or refrain from exercising any right or
rights that such holder may have by reason of this Agreement or ownership of
any Series E Preferred, including without limitation the right to consent to
the waiver of any obligation of the Company under this Agreement and to enter
into an agreement with the Company for the purpose of modifying this
Agreement or any agreement affecting any such modification, and such holder
shall not incur any liability to any other holder or holders of Series E
Preferred with respect to exercising or refraining from exercising any such
right or rights.
7.7 NOTICES, ETC. All notices and other communications required or
permitted hereunder shall be in writing and shall be mailed by registered or
certified mail, postage prepaid, or otherwise delivered by hand or by
messenger, addressed (a) if to the Purchasers, to each Purchaser's address
set forth below or at such other address as shall have been furnished to the
Company in writing by such Purchaser or (b) if to the Company, one copy shall
be sent to its address set forth above and addressed to the attention of the
President, and another copy shall be sent to Wilson Sonsini Goodrich &
Rosati, 650 Page Mill Road, Palo Alto, California 94304, attention: Michael
J. O'Donnell, Esq., or at such other address or addresses as the Company
shall have furnished in writing to the Purchasers. All notices and other
communications mailed pursuant to the provisions of this Section 7.6 shall be
deemed delivered three days after being mailed.
7.8 EXPENSES. Each party to this Agreement shall bear its own
expenses and legal fees incurred by it with respect to this Agreement and all
related transactions and agreements.
7.9 COUNTERPARTS. This Agreement may be executed in counterparts,
each of which shall be enforceable against the party actually executing such
counterpart, and which together shall constitute one instrument.
7.10 SEVERABILITY. In the event that any provision of this
Agreement becomes or is declared by a court of competent jurisdiction to be
illegal, unenforceable or void, this Agreement
<PAGE>
shall continue in full force and effect without said provision; provided that
no such severability shall be effective if it materially changes the economic
benefit of this Agreement to any party.
7.11 CALIFORNIA CORPORATE SECURITIES LAW. The sale of the
securities which are the subject of this Agreement has not been qualified
with the Commissioner of corporations of the state of California, and the
issuance of such securities or the payment or receipt of any part of the
consideration therefor prior to such qualification, if required by law, is
unlawful. The rights of all parties to this agreement are expressly
conditioned upon such qualification being obtained, if required by law.
7.12 APPROVAL OF AMENDMENTS AND WAIVERS. Any term of this agreement
may be amended or terminated and the observance of any term of this Agreement
may be waived (either generally or in a particular instance and either
retroactively or prospectively) with the written consent of the Company and
the holders of a majority of the outstanding Series E Preferred and Common
Stock issued upon conversion thereof, excluding from the determination of
such a majority (both in determining the total number of such shares
outstanding and the number of such shares consenting or not consenting) all
shares previously disposed of by Purchasers or their transferees pursuant to
one or more registration statements under the Securities Act or pursuant to
Rule 144 thereunder. Any amendment, termination or waiver effected in
accordance with this section shall be binding upon each holder of any
securities issued pursuant to this Agreement (including securities into which
such securities have been converted or exchanged), each future holder of any
or all such securities and the Company.
7.13 COUNTERPARTS. This Agreement may be executed in counterparts,
each of which shall be deemed an original, but all of which together shall
constitute one and the same instrument.
7.14 HEADINGS. The headings of the sections of this Agreement are for
convenience and shall not by themselves determine the interpretation of this
Agreement.
<PAGE>
The foregoing Agreement is hereby executed as of the date first above
written.
THE COMPANY:
CIPHERGEN BIOSYSTEMS, INC.
Name:
-----------------------------
Title:
----------------------------
SIGNATURE PAGE TO SERIES E PREFERRED STOCK PURCHASE AGREEMENT
<PAGE>
THE INVESTORS:
ATLAS VENTURE FUND V,L.P.
By: Atlas Venture Associates V, L.P.
its general partner
By: Atlas Venture Associates V, Inc.
Its general partner
- --------------------------------
Vice President
ATLAS VENTURE PARALLEL FUND V-A.C.V.
By: Atlas Venture Associates V, L.P.
its general partner
By: Atlas Venture Associates V, Inc.
Its general partner
- --------------------------------
Vice President
ATLAS VENTURE PARALLEL FUND V-B C.V.
By: Atlas Venture Associates V, L.P.
its general partner
By: Atlas Venture Associates V, Inc.
Its general partner
- --------------------------------
Vice President
ATLAS VENTURE ENTREPRENEURS' FUND V,L.P.
By: Atlas Venture Associates V, L.P.
its general partner
By: Atlas Venture Associates V, Inc.
Its general partner
- --------------------------------
Vice President
SIGNATURE PAGE TO SERIES E PREFERRED STOCK PURCHASE AGREEMENT
<PAGE>
MORGAN STANLEY DEAN WITTER
VENTURE PARTNERS IV, L.P.
By: MSDW VENTURE PARTNERS IV, LLC,
as General Partner
By: MSDW VENTURE PARTNERS IV, INC.,
as Member
By:
-----------------------------
Name:
Title:
By:
-----------------------------
Name:
Title:
ESSEX PRIVATE PLACEMENT FUND III - A, Limited Partnership
By: Essex Investment Management Company, LLC its General Partner
By:
-----------------------------
Title:
--------------------------
ESSEX PRIVATE PLACEMENT FUND III - B, Limited Partnership
By: Essex Investment Management Company, LLC its General Partner
By:
-----------------------------
Title:
--------------------------
ORBIMED ADVISORS, LLC
By:
-----------------------------
Title:
--------------------------
SIGNATURE PAGE TO SERIES E PREFERRED STOCK PURCHASE AGREEMENT
<PAGE>
AP ANLAGE & Private Bank AG
By:
-----------------------------
Title:
--------------------------
CLARIDEN BANK. a CREDIT SUISSE GROUP company
By:
-----------------------------
Title:
--------------------------
AMADEUS CAPITAL PARTNERS LIMITED
By:
-----------------------------
Title:
--------------------------
PENTECH FINANCIAL SERVICES, INC.
By:
-----------------------------
Title:
--------------------------
CHINA DEVELOPMENT INDUSTRIAL BANK INC.
By:
-----------------------------
Title:
--------------------------
FIRST BIO VENTURE CAPITAL CORPORATION of Cheng Xin Venture Capital Corp
By:
-----------------------------
Title:
--------------------------
SIGNATURE PAGE TO SERIES E PREFERRED STOCK PURCHASE AGREEMENT
<PAGE>
CENTRAL INVESTMENT HOLDING (B.V.I.) CO., LTD.
By:
-----------------------------
Title:
--------------------------
GRAND CAPITAL INTERNATIONAL LIMITED of Bank SinoPac
By:
-----------------------------
Title:
--------------------------
MDS, INC.
By:
-----------------------------
Title:
--------------------------
S. R. ONE, LIMITED
By:
-----------------------------
Title:
--------------------------
MDS LIFE SCIENCES TECHNOLOGY BARBADOS INVESTMENT TRUST
By:
-----------------------------
Title:
--------------------------
MDS LIFE SCIENCES TECHNOLOGY FUND LIMITED PARTNERSHIP,
by its General Partner, MDS Life Sciences Technology Fund (GP) Inc.
By:
-----------------------------
Title:
--------------------------
SIGNATURE PAGE TO SERIES E PREFERRED STOCK PURCHASE AGREEMENT
<PAGE>
MDS LIFE SCIENCES TECHNOLOGY FUND USA, L.P.
by its General Partner, MDS Capital USA (GP) Inc.
By:
-----------------------------
Title:
--------------------------
THE HEALTH CARE AND BIOTECHNOLOGY VENTURE FUND
by its Manager, MDS Capital Corp
By:
-----------------------------
Title:
--------------------------
STANFORD RESEARCH SYSTEMS
By:
-----------------------------
Title:
--------------------------
WILLIAM R. GREEN
By:
-----------------------------
Title:
--------------------------
JAMES AND LINDA GINSBURG
By:
-----------------------------
Title:
--------------------------
FALCON TECHNOLOGY PARTNERS, L.P.
By:
-----------------------------
Title:
--------------------------
SIGNATURE PAGE TO SERIES E PREFERRED STOCK PURCHASE AGREEMENT
<PAGE>
FORWARD VENTURES II, L.P.
By:
-----------------------------
Title:
--------------------------
ICNA, LTD.
By:
-----------------------------
Title:
--------------------------
JOHN A. YOUNG, TRUSTEE for the Young
Family Trust
By:
-----------------------------
Title:
--------------------------
DIANA K. YOUNG
By:
-----------------------------
Title:
--------------------------
GREGORY S. YOUNG
By:
-----------------------------
Title:
--------------------------
SIGNATURE PAGE TO SERIES E PREFERRED STOCK PURCHASE AGREEMENT
<PAGE>
JOHN PETER YOUNG
By:
-----------------------------
Title:
--------------------------
HLM/ CB FUND L.P.
By:
-----------------------------
Title:
--------------------------
TURTLE & COMPANY c/o Nuland & Arshad, Inc.
By:
-----------------------------
Title:
--------------------------
HOOVER ASSOCIATES
By:
-----------------------------
Title:
--------------------------
THE MACKOWSKI FAMILY TRUST
c/o Mackowski & Shepler
By:
-----------------------------
Title:
--------------------------
SIGNATURE PAGE TO SERIES E PREFERRED STOCK PURCHASE AGREEMENT
<PAGE>
WATERVIEW TRUST
By:
-----------------------------
Title:
--------------------------
JOHNATHAN J. KENT
By:
-----------------------------
Title:
--------------------------
DANIEL VAPNEK
By:
-----------------------------
Title:
--------------------------
GUARANTEE TRUST COMPANY FBO
Lenita L. Rich IRA, Dated 8-2-91, No. 20186123 BT Alex Brown
By:
-----------------------------
Title:
--------------------------
ONE AND COMPANY
as Nominee for Welch & Forbes c/o Charles Haydock
By:
-----------------------------
Title:
--------------------------
SIGNATURE PAGE TO SERIES E PREFERRED STOCK PURCHASE AGREEMENT
<PAGE>
DEAN V. AMBROSE
By:
-----------------------------
Title:
--------------------------
EDWARD O. ANSELL
By:
-----------------------------
Title:
--------------------------
ROBERT SHEPLER c/o Mackowski & Shepler
By:
-----------------------------
Title:
--------------------------
PETER F. DRAKE c/o Prudential Vector Healthcare
By:
-----------------------------
Title:
--------------------------
ROBERT AND LORI LUTHER
By:
-----------------------------
Title:
--------------------------
SIGNATURE PAGE TO SERIES E PREFERRED STOCK PURCHASE AGREEMENT
<PAGE>
IKIKO CORPORATION c/o Nuland & Arshad, Inc.
By:
-----------------------------
Title:
--------------------------
ANTHONY J. SINSKEY c/o Department of Biology
By:
-----------------------------
Title:
--------------------------
R. ANGUS WEST c/o The Boston Family Office. L.L.C.
By:
-----------------------------
Title:
--------------------------
MICHAEL G. AND OLWEN PAGE c/o Prudential Vector Healthcare
By:
-----------------------------
Title:
--------------------------
ROBERT A. SHAW AND MAUREEN MCLAUGHLIN, Trustees UTD 12-14-90
By:
-----------------------------
Title:
--------------------------
SIGNATURE PAGE TO SERIES E PREFERRED STOCK PURCHASE AGREEMENT
<PAGE>
EXHIBIT A
SCHEDULE OF PURCHASERS (FIRST CLOSING)
<TABLE>
<CAPTION>
NAME AND ADDRESS OF PURCHASER NUMBER OF SHARES AMOUNT
<S> <C> <C>
ATLAS VENTURE FUND V,L.P. 3,001,351 $8,253,715.25
Attn: Jean-Francois Formela, M.D.
General Partner
222 Berkeley Street
Boston, MA 02116
Phone: 617-859-9290 ext. 230
Fax: 617-859-9292
[email protected]
ATLAS VENTURE PARALLEL FUND V-A.C.V. 372,815 $1,025,241.25
Attn: Jean-Francois Formela, M.D.
General Partner
222 Berkeley Street
Boston, MA 02116
Phone: 617-859-9290 ext. 230
Fax: 617-859-9292
[email protected]
ATLAS VENTURE PARALLEL FUND V-B C.V. 372,815 $1,025,241.25
Attn: Jean-Francois Formela, M.D.
General Partner
222 Berkeley Street
Boston, MA 02116
Phone: 617-859-9290 ext. 230
Fax: 617-859-9292
[email protected]
ATLAS VENTURE ENTREPRENEURS' FUND V,L.P. 49,960 $137,390
Attn: Jean-Francois Formela, M.D.
General Partner
222 Berkeley Street
Boston, MA 02116
Phone: 617-859-9290 ext. 230
Fax: 617-859-9292
[email protected]
MORGAN STANLEY VENTURES 1,898,470 $5,220,792.50
Attn: Gary M. Stein
Vice President
Venture Partners
1221 Avenue of the Americas
New York, NY 10020
Phone: 212-762-6709
Fax: 212-762-8424
[email protected]
[email protected]
<PAGE>
<CAPTION>
NAME AND ADDRESS OF PURCHASER NUMBER OF SHARES AMOUNT
<S> <C> <C>
ESSEX INVESTMENT MANAGEMENT 545,455 $1,500,001.25
Attn: Susan Stickles
125 High St., 29th Fl.
Boston, MA 02110
Phone: 617-342-3200
[email protected]
WINCHESTER GLOBAL TRUST COMPANY LIMITED AS TRUSTEE FOR CADUCEUS CAPITAL TRUST 145,375 $399,781.25
Orbimed Advisors, LLC
Attn: Carl L. Gordon, Ph. D., CFA
General Partner
767 Third Avenue, 6th Floor
New York, NY 10017-2023
Phone: 212-739-6400
Fax: 212-739-6444
[email protected]
CADUCEUS CAPITAL II. L.P. 63,761 $175,342.75
Orbimed Advisors, LLC
Attn: Carl L. Gordon, Ph. D., CFA
General Partner
767 Third Avenue, 6th Floor
New York, NY 10017-2023
Phone: 212-739-6400
Fax: 212-739-6444
[email protected]
PW EUCALYPTUS FUND, LLC 148,000 $407,000.00
Orbimed Advisors, LLC
Attn: Carl L. Gordon, Ph. D., CFA
General Partner
767 Third Avenue, 6th Floor
New York, NY 10017-2023
Phone: 212-739-6400
Fax: 212-739-6444
[email protected]
PW EUCALYPTUS FUND, LTD. 6,500 $17,875.00
Orbimed Advisors, LLC
Attn: Carl L. Gordon, Ph. D., CFA
General Partner
767 Third Avenue, 6th Floor
New York, NY 10017-2023
Phone: 212-739-6400
Fax: 212-739-6444
[email protected]
<PAGE>
<CAPTION>
NAME AND ADDRESS OF PURCHASER NUMBER OF SHARES AMOUNT
<S> <C> <C>
AP ANLAGE Private Bank AG 363,636 $999,999.00
Attn: Andreas Bremer, Ph.D.
Managing Director
Werkstrasse 2
8806 Baech
Switzerland
Phone: +4117876241
Fax: +4117876250
[email protected]
CLARIDEN BANK. a CREDIT SUISSE GROUP company 181,818 $499,999.50
Attn: Eric H. Bernhardt
Vice President
Claridenstrasse 26
P.O. Box 5080
CH-8022 Zurich
Phone: +4112056576
Fax: +4112056209
[email protected]
AMADEUS CAPITAL PARTNERS LIMITED
Attn: Hermann M. Hauser 181,818 $499,999.50
Director
Mount Pleasant House, 2 Mount Pleasant
Cambridge CB3 ORN
19 Hanover Square, London
S1R9 3OA UK
Phone: 01223-578-365
Fax: 01223-578-488
[email protected]
PENTECH FINANCIAL SERVICES, INC. 9,091 $25,000.25
Attn: Ben Millerbis
310 West Hamilton Avenue, Suite 212
Campbell, CA 95008
Phone: (408) 378-2000
Fax: (408) 378-3304
[email protected]
CHINA DEVELOPMENT INDUSTRIAL BANK INC. 103,891 $285,700.25
Attn: Willie Lin Ph.D.
Associate Vice President, Technology Department
9F, 125 Nanking East Road, Section 5
Taipei 105, Taiwan
Phone: (886-2) 2756-1532
Fax: (886)-2)2756-7323
[email protected]
With a copy to:
Henry Pan
44 Whippany Road
Morristown, NJ 07960
<PAGE>
<CAPTION>
NAME AND ADDRESS OF PURCHASER NUMBER OF SHARES AMOUNT
<S> <C> <C>
FIRST BIO VENTURE CAPITAL CORPORATION of Cheng Xin Venture Capital 51,963 $142,898.25
Corp
Attn: Jerome Shen, Ph.D
Vice President
5F, 143, Section 2, Min-Sheng East Road
Taipei, Taiwan
Phone: (886-2) 2507-2960
Fax: (886) 2500-6908
[email protected]
With a copy to:
Henry Pan
44 Whippany Road
Morristown, NJ 07960
CENTRAL INVESTMENT HOLDING (B.V.I.) CO., LTD. 103,891 $285,700.25
Attn: W.J. Shiyu
Vice President
6F, No. 232 Section 2, Pa-Teh Road
Taipei 104, Taiwan
Phone: (886-2) 2771-9998 Ext. 628
Fax: (886)-2) 2781-1231
[email protected]
With a copy to:
Henry Pan
44 Whippany Road
Morristown, NJ 07960
GRAND CAPITAL INTERNATIONAL LIMITED of Bank SinoPac 103,891 $285,700.25
Attn: Jeremy T.M. Tsai
Manager, Investment Banking Division
3F, 9-1, Chien Kuo North Road
Taipei , Taiwan
Phone: (886-2) 2508-8560
Fax: (886)-2)2517-3956
[email protected]
With a copy to:
Henry Pan
44 Whippany Road
Morristown, NJ 07960
FALCON TECHNOLOGY PARTNERS, L.P. 727,273 $2,000,000.75
Attn: James L. Rathmann
General Partner
600 Dorset Road
Devon, PA 19333
[email protected]
<PAGE>
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NAME AND ADDRESS OF PURCHASER NUMBER OF SHARES AMOUNT
<S> <C> <C>
MDS, INC. 181,818 499,999.50
Attn: Peter Winkley
100 International Blvd.
Toronto, Canada M9W9J6
Phone: (416)-213-4678
S. R. ONE, LIMITED 363,636 $999,999.00
Attn: Barbara Dalton
200 Barr Harbor Drive
Suite 250, Four Tower Bridge
W. Conshohoken, PA 19428
Phone: 610-567-1033
Fax: 610-567-1039
[email protected]
MDS LIFE SCIENCES TECHNOLOGY BARBADOS INVESTMENT TRUST 47,355 $130,226.25
P.O. Box 261
Bush Hill
Bay Street
Bridgetown, Barbados
WEST INDIES
MDS LIFE SCIENCES TECHNOLOGY FUND LIMITED PARTNERSHIP 272,878 $750,414.50
Attn: Michael J. Callaghan
100 International Boulevard
Toronto, Ontario M9W 6J6
Phone: 416-675-4530
Fax: 416-213-4232
MDS LIFE SCIENCES TECHNOLOGY FUND USA, L.P. 64,519 $177,427.25
Attn: Dr. Henry Pan
44 Whippany Road
Morristown, NJ 07960
THE HEALTH CARE AND BIOTECHNOLOGY VENTURE FUND 67,897 $186,716.75
Attn: Michael J. Callaghan
100 International Boulevard
Toronto, Ontario M9W 6J6
Phone: 416-675-4530
Fax: 416-213-4232
STANFORD RESEARCH SYSTEMS 300,059 $825,162.25
Attn: William R. Green, President
1290 D Reamwood Avenue
Sunnyvale, CA 94089
[email protected]
WILLIAM R. GREEN 51,300 $141,075.00
1290 D Reamwood Avenue
Sunnyvale, CA 94089
[email protected]
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NAME AND ADDRESS OF PURCHASER NUMBER OF SHARES AMOUNT
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JAMES AND LINDA GINSBURG 4,526 $12,446.50
900 Bluff Street
Glencoe, IL 60022
Phone: 312-409-9048
TOTAL 9,785,762 $26,910,845.50
</TABLE>
<PAGE>
SCHEDULE OF PURCHASERS (SECOND CLOSING)
<TABLE>
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NAME AND ADDRESS OF PURCHASER NUMBER OF SHARES AMOUNT
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FORWARD VENTURES II, LP 177,020 $486,805.00
Attn: Standish Fleming
9255 Towne Center Drive, Suite #300
San Diego, Ca 92121
Phone: 858-677-6077
Fax: 858-452-8799
[email protected]
ICNA, LTD. 406 $ 1,116.50
Attn: Ivor Royston
7514 Girard Avenue, #1-PMB243
La Jolla, CA 92037
Phone: 858-450-5997
Fax: 858-454-4658
[email protected]
JOHN A. YOUNG, TRUSTEE FOR THE YOUNG FAMILY TRUST 96,759 $266,087.25
Attn: John A. Young
3200 Hillview Avenue
Palo Alto, CA 94304
Phone: 650-857-2114
Fax: 650-857-2677
[email protected]
DIANA K. YOUNG 27,159 $74,687.25
999 Green Street, #2005
San Francisco, CA 94113
Phone: 415-441-8680
Fax: 650-854-0292
[email protected]
GREGORY S. YOUNG 27,159 $74,687.25
22050 Regnart Road
Cupertino, CA 95014-4841
Phone: 408-366-0581
Fax: 408-366-0583
[email protected]
JOHN PETER YOUNG 27,159 $74,687.25
4100 Grange Road
Santa Rosa, CA 95404
Phone: 707-542-5575
Fax: 707-546-6849
[email protected]
</TABLE>
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<TABLE>
<CAPTION>
<S> <C> <C>
HLM/CB FUND LP 113,162 $311,195.50
Attn: Buck Haberkom
222 Berkeley Street
Boston, MA 02116
Phone: 617-266-0030x. 231
Fax: 617-266-3619
TURTLE & COMPANY 69,358 $190,734.50
c/o Nuland & Arshad, Inc.
Attn: Jamie Nuland
176 Federal Street
Boston, MA 02110-2209
Phone: 617-261-7687
Fax: 617-261-1529
[email protected]
HOOVER ASSOCIATES 46,308 $127,347.00
Attn: R. Graham Luther
24 Christopher Lane
Sterling, VA 20165-6205
Phone: 703-404-8553
Fax: 703-404-9858
[email protected]
THE MACKOWSKI FAMILY TRUST 45,265 $124,478.75
c/o Mackowski & Shepler
Attn: Matthew Mackowski
275 Post Street
San Francisco, CA 94108-5005
Phone: 415-765-6982
Fax: 415-765-6983
[email protected]
WATERVIEW TRUST 45,265 $124,478.75
Attn: Thomas J. Menzes
24 Hamana Street
Devonport, Aukland, New Zealand
Phone: 64-9-9880154
Fax: 64-94880157
[email protected]
JOHNATHAN J. KENT 1,000 $2,750.00
4909 34th Street
San Diego, CA 92116
Phone: 619-281-6983
[email protected]
DANIEL VAPNEK 27,159 $74,687.25
414 Plaza Rubio
Santa Barbara, CA 93103
Phone: 805-569-4072
Fax: 805-687-5153
[email protected]
2.
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<S> <C> <C>
GUARANTEE TRUST COMPANY FBO LENITA L. RICH IRA, DATED 8-2-91,
NO. 20186123 BT ALEX BROWN 10,884 $29,931.00
Attn: Maria Cadden
1 South Street, 23rd Floor
Baltimore, MD 21202
Phone: 650-595-4131
Fax: 650-595-4131
[email protected]
ONE AND COMPANY AS NOMINEE FOR WELCH & FORBES 10,864 $29,876.00
c/o Charles Haydock
Attn: Charles Haydock
45 School Street
Boston, MA 02108
Phone: 617-523-1635x246
Fax: 617-742-6243
[email protected]
DEAN V. AMBROSE 10,801 $29,702.75
1901 Avenue of the Stars, #1551
Los Angeles, CA 90067
Phone: 310-785-9700
Fax: 310-556-1266
[email protected]
EDWARD O. ANSELL 10,371 $28,520.25
449 W. Willamette Lane
Claremont, CA 91711-2746
Phone: 909-625-1244
Fax: 909-624-1664
[email protected]
ROBERT SHEPLER 7,500 $20,625.00
c/o Mackowski & Shepler
275 Post Street
San Francisco, CA 94108-5005
Phone: 765-6980
Fax: 415-765-6983
[email protected]
PETER F. DRAKE 6,830 $18,782.50
c/o Prudential Vector Healthcare
1751 Lake Cook Road, Suite 350
Deerfield, IL 60015
Phone: 847-374-3802
Fax: 847-374-3800
[email protected]
3.
<PAGE>
ROBERT AND LORI LUTHER
Attn: R. Graham Luther
24 Christopher Lane 4,631 $12,735.25
Sterling, MD 20165
Phone: 703-404-8553
Fax: 703-404-9858
[email protected]
IKIKO CORPORATION 4,631 $12,735.25
c/o Nuland & Arshad, Inc.
Attn: Jamie Nuland
176 Federal Street
Boston, MA 02110-2209
Phone: 617-261-7687
Fax: 617-261-1529
[email protected]
ANTHONY J. SINSKEY 4,554 $12,523.50
c/o Department of Biology
Massachusetts Institute of Technology
Cambridge, MA 02139
Phone: 617-253-6721
Fax: 617-253-8550
[email protected]
R. ANGUS WEST 4,526 $12,446.50
c/o The Boston Family Office, LLC
33 Broad Street, 2nd Floor
Boston, MA 02109
Phone: 617-227-2676
Fax: 617-261-1529
[email protected]
MICHAEL G. AND OLWEN PAGE 4,526 $12,446.50
1751 Lake Cook Road, Suite 350
Deerfield, IL 60015
Phone: 847-374-3810
Fax: 847-940-0819
[email protected]
ROBERT A. SHAW AND MAUREEN MCLAUGHLIN, TRUSTEES UTD 12-14-90 3,621 $9,957.75
Attn: Maureen Mclaughlin
2237 Via Maderos
Los Altos, CA 94024
Phone: 650-906-8687
Fax: 650-966-1765
[email protected]
TOTAL 786,918 $2,164,024.50
</TABLE>
4.
<PAGE>
EXHIBIT B
AMENDED AND RESTATED ARTICLES OF INCORPORATION
[See Exhibit 3.1 to this Registration Statement]
<PAGE>
EXHIBIT C
SCHEDULE OF EXCEPTIONS
This Schedule of Exceptions is made and given pursuant to Section 2 of
the Series E Preferred Stock Purchase Agreement dated February __, 2000 (the
"Agreement") by and among Ciphergen Biosystems, Inc., a California
corporation (the "Company") and the Investors set forth on EXHIBIT A thereto.
The Section numbers in this Schedule of Exceptions correspond to the Section
numbers in the Agreement, which are modified by the disclosures. Any terms
defined in the Agreement shall have the same meaning when used in this
Schedule of Exceptions as when used in the Agreement, unless the context
otherwise requires.
2.3 SUBSIDIARIES
IllumeSys Pacific, Inc., a California corporation ("IllumeSys"), is a
wholly owned subsidiary of the Company.
Ciphergen Technologies, Inc., a California corporation ("CTI"), is a
wholly owned subsidiary of the Company.
Ciphergen Biosystems, Ltd., a corporation organized under the laws of
the U. K., is a wholly owned subsidiary of the Company.
Ciphergen Biosystems, KK, a corporation organized under the laws of
Japan, is 30% owned by the Company.
2.14 PATENTS AND TRADEMARKS
The following six agreements are only listed in this Schedule of
Exceptions for the reason that they are existing agreements. The provisions
of Section 2.14 are otherwise applicable to these agreements.
Assignment and Assumption Agreement, dated January 1, 1994, between
the Company, Abiotic Technologies and Abiotic Pharmaceutical Technologies,
with Exhibits and Schedules attached thereto (the "Assignment Agreement").
Joint Development Program Agreement (the "Joint Development
Agreement") dated February 2, 1995, with Stanford Research Systems ("SRS")
for the development of a digitizer and a time of flight mass spectrometer
under which the Company granted an aggregate of 550,000 shares of Series B
Preferred Stock in October 1996 and September 1997. The Company has reserved
an additional 550,000 shares of Series B Preferred Stock for issuance to SRS
upon achievement by SRS of specified product development milestones.
License Agreement, dated December 6, 1994, with Rockefeller University
(the "Rockefeller License Agreement").
<PAGE>
License Agreement, dated March 1, 1994, with the Scripps Research
Institute (the "SRI License Agreement").
License Agreement dated April 7, 1997, between IllumeSys and Molecular
Analytical Systems (the "IllumeSys License Agreement")
License Agreement dated April 7, 1997, between CTI and Molecular
Analytical Systems (the "CTI License Agreement").
Letter dated July 23, 1999 from attorneys for Brucker Daltrinics
offering licenses under three patents. Response from William E. Rich dated
August 20, 1999, indicating that the Company does not presently use the
referenced technologies and is not interested in licenses to use them.
Letter dated January 14, 2000 from Myriad Genetics, Inc. offering a
license under a patent. Response from Company patent counsel February 10,
2000, indicating that the Company does not presently use the referenced
technologies and is not interested in licenses to use them.
2.15 TAX RETURNS
The Company was audited by the California State Board of Equalization
in September 1999 regarding sales taxes for the years 1996 through 1999 to
date. The Company believes that its net obligation to the agency will be less
than $10,000.
The Company was audited by Santa Clara County, California regarding
property taxes for the years 1996 through 1999 to date. The Company believes
that its net obligation to the County will be less than $10,000.
2.17 AGREEMENTS; ACTION
(a) Restricted Stock Purchase Agreements, dated December 29,
1993, with S.R. One, Limited, Forward Ventures II, L.P. and certain
affiliates.
Restricted Stock Purchase Agreement, dated July 21, 1994, with John
Young.
Employment Agreement, dated August 9, 1994, between the Company and
William E. Rich (the "Rich Employment Agreement"), including a loan and stock
options (convertible to Restricted Stock Purchase Agreement with promissory
note) provided for thereunder.
Offer Letter, dated August 25, 1997, extended to James H. Stanford,
which included stock options with accelerated vesting upon the occurrence of
certain events (the "Stanford Offer Letter").
Warrants to purchase up to an aggregate of 54,400 shares of the
Company's Series A Preferred Stock issued to S.R. One, Limited and Forward
Ventures II, L.P.
2.
<PAGE>
Warrants to purchase up to an aggregate of 80,668 shares of the
Company's Series B Preferred Stock issued to Stephen B.H. Kent, S.R. One,
Limited, Forward Ventures II, L.P., Falcon Technology Partners, L.P., Edward
O. Ansell and Steven M. Clark.
Management Rights Letter, dated February 17, 1994, from the Company to
Forward Ventures II, L.P.
Financial Information and Board Visitation Rights Letter, dated
February 17, 1994, from the Company to Falcon Technology Partners, L.P.
Promissory Note, dated March 1, 1995, in the aggregate principal
amount of $35,000 extended by the Company to William E. Rich, due and payable
in full on August 31, 1999, accruing interest at a rate of 7.69% per annum,
pursuant to an exercise of options (the "Rich March 1995 Note"). This note
and accumulated interest thereon were replaced with a note payable September
1, 2004 accruing interest at the rate of 6% with principal of $47,548 (the
"Rich September 1999 Note").
Two Promissory Notes, dated May 1, 1997, in the aggregate principal
amount of $5,000 each extended by the Company to William E. Rich, due and
payable in full on May 1, 2002, accruing interest at a rate of 6.85% per
annum, pursuant to an exercise of options (the "Rich May 1997 Note").
Two Promissory Notes, dated March 25, 1998, in the aggregate principal
amount of $180,000 extended by the Company to William E. Rich, due and
payable in full on March 25, 2003, accruing interest at a rate of 5.59% per
annum, pursuant to an exercise of options (the "Rich March 1998 Notes").
Promissory Note, dated March 25, 1998, in the aggregate principal
amount of $15,000 extended by the Company to James H. Stanford, due and
payable in full on March 25, 2003, accruing interest at a rate of 5.59% per
annum, pursuant to an exercise of options (the "Stanford March 1998 Note").
Promissory Note, dated May 31, 1998, in the aggregate principal amount
of $50,000 extended by the Company to James H. Stanford, due and payable in
full on May 31, 2003, accruing interest at a rate of 5.69% per annum,
pursuant to an exercise of options (the "Stanford May 1998 Note").
Promissory Note, dated September 15, 1999, in the aggregate principal
amount of $77,500 extended by the Company to William E. Rich, due and payable
in full on September 14, 2004, accruing interest at a rate of 5.82% per
annum, pursuant to an exercise of options (the "Rich September 1999 Note").
Loan Agreement, dated November 17, 1998, in the aggregate principal
amount of $30,000 extended by the Company to William E. Rich, due and payable
in full on November 17, 2003, accruing no interest (the "Rich Loan").
3.
<PAGE>
Secured Loan Agreement, in the aggregate principal amount of $200,000
extended by the Company to William E. Rich to finance a house, due and
payable in full December 30, 2003, accruing no interest in lieu of a 5% pay
increase (the "Rich Housing Loan").
Reference is made to the Joint Development Agreement.
(b) Facilities Lease agreements of April 18, 1996, as amended,
between the Company and Nearon Enterprises, LLC for space in 470 and 490 San
Antonio Road, Palo Alto, California, expiring June 30, 2000 (the "Nearon
Facilities Agreement").
Facilities Lease agreement of February 3, 2000 between the Company and
the John Arrillaga Survivor's Trust and the Richard T. Peery Separate
Property Trust for a facility in Fremont, California terminating March 31,
2008 (the "Arrillaga Facility Agreement").
Joint Venture Agreement dated January 25, 1999, with Sumitomo
Corporation of Tokyo, Japan establishing Ciphergen Biosystems, KK (the
"Sumitomo Joint Venture Agreement").
Marketing and Distribution Agreement dated March 24, 1999 with
Ciphergen Biosystems, KK for marketing rights to certain Company products in
Japan (the "Japan Marketing and Distribution Agreement").
Reference is made to the Joint Development Agreement.
Loan and Lease Agreement dated September 12, 1997 with Pentech
Financial Services, Inc. (the "Pentech 1997 Agreement"), in which the Company
entered into a secured equipment loan and an equipment lease financing for an
aggregate amount of $638,000 with three-year repayment terms. All drawdowns
under this agreement have been completed. The current unpaid principal
balance is $261,000.
Loan and Lease Agreement, dated May 1, 1999, with Pentech Financial
Services, Inc. (the "Pentech 1999 Agreement") in which the Company entered
into a secured equipment loan and an equipment lease financing for an
aggregate amount of up to $1,200,000 with three-year
4.
<PAGE>
repayment terms. Drawdowns totaling $685,000 have been made to date and the
remainder must be completed by March 31, 2000. The current unpaid principal
balance is $571,000.
Loan and Security Agreement, dated June 23, 1999, with Imperial Bank
for a line of credit based on eligible accounts receivable, with borrowing up
to $1,500,000 with interest at Prime + 0.75% (the "Imperial Loan Agreement").
Reference is made to the Rockefeller Agreement.
Reference is made to the Assignment Agreement.
Reference is made to the IllumeSys License Agreement.
Reference is made to the CTI License Agreement.
Reference is made to the Rich Housing Loan.
Reference is made to the Rich Loan.
(c) Reference is made to the Pentech 1997 Agreement.
Reference is made to the Pentech 1999 Agreement.
Reference is made to the Rich Housing Loan.
Reference is made to the Rich Loan.
Reference is made to the Imperial Loan Agreement.
Reference is made to the Rockefeller Agreement.
5.
<PAGE>
(d) The Chief Executive Officer and an outside director of the
Company met with representatives of another company in November 1999 for
purposes of exploring a potential business combination. No agreement was
reached and no further discussions have taken place or are scheduled.
2.21 EMPLOYEE BENEFIT PLANS
The Company has a 401(k) Plan.
The Company has a Section 125 Cafeteria Plan.
Gary Holmes, Director of Marketing, resigned and left the Company
February 11, 2000. He has been replaced by Richard Rubin, former Director of
Marketing at Molecular Dynamics, Inc., who has been an employee since June
1999, most recently acting as Western Regional Program Manager for Sales.
2.24 Reference is made to the Japan Marketing and Distribution Agreement.
Reference is made to the Joint Development Agreement.
6.
<PAGE>
CIPHERGEN BIOSYSTEMS, INC
FOURTH AMENDED AND RESTATED INVESTORS RIGHTS AGREEMENT
MARCH 3, 2000
<PAGE>
TABLE OF CONTENTS
<TABLE>
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PAGE
<S> <C>
SECTION 1 TERMINATION OF THE THIRD AMENDED AND RESTATED INVESTORS RIGHTS AGREEMENT....................................1
SECTION 2 RESTRICTIONS ON TRANSFER; REGISTRATION RIGHTS...............................................................2
2.1 Restrictions on Transferability.....................................................................2
2.2 Certain Definitions.................................................................................2
2.3 Restrictive Legend..................................................................................3
2.4 Notice of Proposed Transfer.........................................................................3
2.5 Demand Registration Rights..........................................................................4
2.6 Company Registration................................................................................6
2.7 Form S-3 Registration Rights........................................................................7
2.8 Expenses of Registration............................................................................8
2.9 Registration Procedures.............................................................................8
2.10 Indemnification.....................................................................................9
2.11 Information by Holder..............................................................................11
2.12 Rule 144 Reporting.................................................................................11
2.13 Transfer of Registration Rights....................................................................12
2.14 Termination of Registration Rights.................................................................12
2.15 "Market Stand Off" Agreement.......................................................................13
2.16 Inclusion of Common Stock Held by Founders.........................................................13
2.17 Limitations on Subsequent Registration Rights......................................................13
SECTION 3 AFFIRMATIVE COVENANTS OF THE COMPANY.......................................................................13
3.1 Financial Information..............................................................................13
3.2 Inspection.........................................................................................14
3.3 Assignment of Rights to Financial Information......................................................14
3.4 Termination of Covenants...........................................................................14
SECTION 4 AFFIRMATIVE COVENANT OF INVESTORS; RIGHT OF FIRST REFUSAL..................................................15
4.1 Confidential Information, etc......................................................................15
4.2 Right of First Refusal.............................................................................15
SECTION 5 MISCELLANEOUS..............................................................................................16
5.1 Governing Law......................................................................................16
5.2 Successors and Assigns.............................................................................17
5.3 Entire Agreement...................................................................................17
5.4 Rights of Investors and Founders...................................................................17
5.5 Notices, etc.......................................................................................17
5.6 Counterparts.......................................................................................17
5.7 Severability.......................................................................................17
5.8 Approval of Amendments and Waivers.................................................................17
</TABLE>
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<PAGE>
CIPHERGEN BIOSYSTEMS
FOURTH AMENDED AND RESTATED INVESTORS RIGHTS AGREEMENT
THIS FOURTH AMENDED AND RESTATED INVESTORS RIGHTS AGREEMENT (the
"Agreement") is dated as of March 3, 2000 among CIPHERGEN BIOSYSTEMS, INC., a
California corporation (the "Company"), with its principal office located at
490 San Antonio Road, Suite #201, Palo Alto, CA 94306, the undersigned
holders of the Company's Series A Preferred Stock, Series B Preferred Stock,
Series C Preferred Stock, Series D Preferred Stock and Series E Preferred
Stock (collectively, the "Preferred Stock"), any individual or entity which
may hereafter become a party hereto pursuant to Section 5.8 of this Agreement
(each, individually, an "Investor" and collectively, the "Investors") and
Dean V. Ambrose, Edward O. Ansell, Steven M. Clark, Jonathan J. Kent and
Stephen B.H. Kent (each, individually, a "Founder" and Collectively, the
"Founders").
RECITALS
WHEREAS, the Company, and certain Investors and the Founders have
entered into that certain Third Amended and Restated Investors Right
Agreement, dated as of September 30, 1998, as amended (the "Third Amended
Investors Rights Agreement"), which superseded the Second Amended Investors
rights Agreement; and
WHEREAS, the Company and certain Investors are entering into that
certain Series E Stock Purchase Agreement (the "Series E Agreement") of even
date herewith; and
WHEREAS, as a condition of the closing of the financing provided for
in the Series E Agreement, and as an inducement to the additional financing
of the Company provided for therein, the Company and the Investors desire to
amend and restate in full the various covenants and restrictions set forth in
the Third Amended Investors Rights Agreement, in the form set forth herein;
NOW, THEREFORE, in consideration of the mutual agreements, covenants
and conditions contained herein, the parties hereby agree as follows:
SECTION 1
TERMINATION OF THE THIRD AMENDED AND
RESTATED INVESTORS RIGHTS AGREEMENT
1.1 The parties hereto agree that, upon execution of this Agreement
by the Company and Investors holding at least a majority of the currently
outstanding shares of Registrable Securities (as the terms "Investors" and
"Registrable Securities" are defined in the Third Amended Investor Rights
Agreement), the Third Amended Investors Rights Agreement shall be terminated
with no further force or effect, and that this Agreement shall define the
rights and obligations of the parties hereto on
<PAGE>
the subject matter hereof with respect to shares of Common Stock of the
Company (the "Common Stock") and Preferred Stock held by the Investors and
Founders.
SECTION 2
RESTRICTIONS ON TRANSFER; REGISTRATION RIGHTS
2.1 RESTRICTIONS ON TRANSFERABILITY. The Preferred Stock (and any
Common Stock into which the Preferred Stock may be converted) shall not be
transferable except upon the conditions specified in this Agreement, which
conditions are intended to insure compliance with the provisions of the
Securities Act (as hereinafter defined), or upon such other terms as are in
the opinion of counsel to the Company satisfactory to comply with the
provisions of the Securities Act. Except for transfers made pursuant to Rule
144 of the Securities Act, each Holder (as hereinafter defined) will cause
any proposed transferee of Preferred Stock (and any Common Stock into which
the Preferred Stock may be converted) held by such Holder to agree to take
and hold such securities subject to the provisions and upon the conditions
specified in this Agreement and it will be a condition precedent to the
effectiveness of any such transfer that the Company shall have secured a
written agreement in form and substance satisfactory to the Company to that
effect, if so requested by the Company.
2.2 CERTAIN DEFINITIONS. As used in this Agreement, the following
terms shall have the following respective meanings:
"COMMISSION" shall mean the Securities and Exchange Commission or
any other federal agency at the time administering the Securities Act.
"FORM S-3" shall mean Form S-3 under the Securities Act as in effect
on the date of this Agreement, or any substantially similar, equivalent or
successor form under the Securities Act.
"FOUNDERS' ORIGINAL COMMON STOCK" shall mean that Common Stock
listed on SCHEDULE A attached hereto.
"HOLDER" shall mean any Investor or Founder, or any transferee of
registration rights under Section 2.13 hereof, who then holds any outstanding
Preferred Stock or Registrable Securities.
"INVESTORS' ORIGINAL COMMON STOCK" shall mean that Common Stock
listed on SCHEDULE B attached hereto.
"REGISTER," "REGISTERED" AND "REGISTRATION" refer to a registration
effected by preparing and filing a registration statement in compliance with
the Securities Act, and the declaration or ordering of the effectiveness of
such registration statement.
"REGISTRABLE SECURITIES" shall mean (i) shares of the Common Stock
issued or issuable upon the conversion of the Preferred Stock which have not
been sold to the public, (ii) shares of the Investors' Original Common Stock
which have not been sold to the public, (iii) shares of the Common Stock
issued upon any stock split, stock dividend, recapitalization, or similar
event, which
-2-
<PAGE>
have not been sold to the public, in respect of (a) shares of the Preferred
Stock, (b) shares of Common Stock issued or issuable upon the conversion of
the Preferred Stock or (c) shares of Investors' Original Common Stock and
(iv) shares of Founders' Original Common Stock which have not been sold to
the public and are included as Registrable Securities pursuant to Section
2.16, solely for the purposes set forth therein.
"REGISTRATION EXPENSES" shall mean all expenses incurred in
complying with Sections 2.5, 2.6 and 2.7 hereof, including, without
limitation, all registration, qualification and filing fees, printing
expenses, escrow fees, fees and disbursements of counsel for the Company,
blue sky fees and expenses, and the expense of any special audits incident to
or required by any such registration (but excluding the compensation of
regular employees of the Company which shall be paid in any event by the
Company).
"RESTRICTED SECURITIES" shall mean the securities of the Company
required to bear the legend set forth in Section 2.3 hereof or a legend
substantially similar thereto and all shares of Founders' Original Common
Stock and Investors' Original Common Stock.
"SECURITIES ACT" shall mean the Securities Act of 1933, as amended,
or any similar federal statute and the rules and regulations of the
Commission thereunder, all as the same shall be in effect at the time.
"SELLING EXPENSES" shall mean all underwriting discounts and selling
commissions applicable to the applicable sale.
2.3 RESTRICTIVE LEGEND. Each certificate representing (i) the
Preferred Stock, (ii) shares of the Common Stock issued upon conversion of
the Preferred Stock or upon any stock split, stock dividend,
recapitalization, merger, consolidation or similar event, shall (unless
otherwise permitted by the provisions of Section 2.4 below) be stamped or
otherwise imprinted with a legend in the following form (in addition to any
legend required under applicable California or other state securities laws):
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR
INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933. SUCH SHARES MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF SUCH
REGISTRATION OR AN EXEMPTION THEREFROM UNDER SAID ACT. COPIES OF THE
AGREEMENT COVERING THE PURCHASE OF THESE SHARES AND RESTRICTING THEIR
TRANSFER MAY BE OBTAINED AT NO COST BY WRITTEN REQUEST MADE BY THE
HOLDER OF RECORD OF THIS CERTIFICATE TO THE SECRETARY OF THE
CORPORATION.
2.4 NOTICE OF PROPOSED TRANSFER. The holder of each certificate
representing Restricted Securities, by acceptance thereof, agrees to comply
in all respects with the provisions of this Section 2.4. Prior to any
proposed transfer of any Restricted Securities, unless there is in effect a
registration statement under the Securities Act covering the proposed
transfer, the holder thereof shall give written notice to the Company of such
holder's intention to effect such transfer. Each such notice
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shall describe the manner and circumstances of the proposed transfer in
sufficient detail, and shall be accompanied (except in transactions in
compliance with Rule 144) by either (i) a written opinion of legal counsel
who shall be reasonably satisfactory to the Company addressed to the Company
and reasonably satisfactory in form and substance to the Company's counsel,
to the effect that the proposed transfer of the Restricted Securities may be
effected without registration under the Securities Act, or (ii) (x) a "no
action letter" from the Commission to the effect that the transfer of such
securities without registration will not result in a recommendation by such
staff that action be taken with respect thereto and (y) a copy of such
holder's request (together with all supplements or amendments thereto) for
such letter which shall have been provided to the Company at or prior to the
time of first delivery to the Commission's staff, whereupon the holder of
such Restricted Securities shall be entitled to transfer such Restricted
Securities in accordance with the terms of the notice delivered by the holder
to the Company. Each certificate evidencing the Restricted Securities
transferred as provided for above shall bear the appropriate restrictive
legend set forth in Section 2.3 above, except that such certificate shall not
bear such restrictive legend if, in the opinion of counsel for the Company or
counsel for such holder, which opinion and counsel shall be satisfactory to
counsel for the Company, such legend is not required in order to establish
compliance with any provisions of the Securities Act.
Notwithstanding the provisions above, no such opinion of counsel or
"no action letter" shall be necessary for a transfer by an Investor (i) which
is a partnership to a partner of such partnership or a retired partner of
such partnership who retires after the date hereof, or to the estate of any
such partner or retired partner or the transfer by gift, will or intestate
succession of any partner to his or her spouse or to the siblings, lineal
descendants or ancestors of such partner or his or her spouse, or (ii) to an
affiliate of an Investor if, in each case, the transferee agrees in writing
to be subject to the terms hereof to the same extent as if he or she were an
original Investor hereunder.
2.5 DEMAND REGISTRATION RIGHTS.
(a) Commencing on the earlier of (i) six months after the
effective date of the first registration statement filed by the Company
covering an underwritten offering of any of its securities to the general
public and (ii) February ___, 2004, if the Company shall receive a written
request (specifying that it is being made pursuant to this Section 2.5) from
Holders of more than fifty percent (50%) of the outstanding Registrable
Securities then held by all Holders (the "Initiating Holders") that the
Company file a registration statement or similar document under the
Securities Act covering the registration of at least fifty percent (50%) of
the then outstanding Registrable Securities or any lesser percentage if the
anticipated aggregate offering proceeds, net of underwriting discounts and
commissions would exceed $5,000,000, then the Company shall promptly notify
all other Holders of such request and shall use its best efforts to cause all
Registrable Securities that such Holders have requested, within 15 days after
receipt of such written notice, be registered in accordance with this Section
2.5 to be registered under the Securities Act.
Notwithstanding the foregoing, (i) the Company shall not be
obligated to effect a registration pursuant to this Section 2.5 during the
period starting with the date sixty (60) days prior to the Company's
estimated date of filing of, and ending on a date sixty (60) days following
the effective
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date of, a registration statement pertaining to an underwritten public
offering of the Company's securities, provided that the Company is actively
employing in good faith all reasonable efforts to cause such registration
statement to become effective and that the Company's estimate of the date of
filing such registration statement is made in good faith and (ii) if the
Company shall furnish to such Holders a certificate signed by the President
of the Company stating that in the good faith judgment of the Board of
Directors it would be seriously detrimental to the Company or its
shareholders for a registration statement to be filed in the near future,
then the Company's obligation to use its best efforts to file a registration
statement shall be deferred for a period not to exceed one hundred twenty
(120) days; provided, however, that the Company shall not obtain such a
deferral more than once in any twelve (12) month period.
The Company shall be obligated to effect not more than two
registrations pursuant to this Section 2.5; PROVIDED, HOWEVER, that such
obligation shall be deemed satisfied only when a registration statement
covering at least fifty-one percent (51%) of the Registrable Securities
requested to be registered shall have become effective, and if the method of
disposition is an underwritten offering, all such shares have been sold
pursuant thereto.
(b) If the Initiating Holders intend to distribute the
Registrable Securities covered by their demand by means of an underwriting,
they shall so advise the Company as part of their demand made pursuant to
this Section 2.5, and the Company shall include such information in the
notice referred to in Section 2.5(a). In such event, the right of any Holder
to registration pursuant to this Section 2.5 shall be conditioned upon such
Holder's participation in such underwriting and the inclusion of such
Holder's Registrable Securities in the underwriting (unless otherwise
mutually agreed by a majority in interest of the Initiating Holders and such
Holder) to the extent provided herein.
The Company shall, together with all Holders proposing to distribute
their securities through such underwriting, enter into an underwriting
agreement in customary form with the underwriter or underwriters selected by
a majority of interest of the Initiating Holders and reasonably satisfactory
to the Company. Notwithstanding any other provision of this Section 2.5, if
the underwriter shall advise the Company in writing that marketing factors
(including, without limitation, an adverse effect on the per share offering
price) require a limitation of the number of shares to be underwritten, then
the Company shall so advise all Holders of Registrable Securities that would
otherwise be registered and underwritten pursuant hereto, and the number of
shares of Registrable Securities that may be included in the registration and
underwriting shall be allocated pro rata among such Holders thereof in
proportion, as nearly as practicable, to the respective amounts of
Registrable Securities held by such Holders at the time of filing the
registration statement. No Registrable Securities excluded from the
underwriting by reason of the foregoing underwriter's marketing limitation
shall be included in such registration.
If any Holder disapproves of the terms of the underwriting, such
Holder may elect to withdraw therefrom by written notice to the Company, the
underwriter, and the Initiating Holders. The Registrable Securities so
withdrawn shall also be withdrawn from registration. If by the withdrawal of
such Registrable Securities a greater number of Registrable Securities held
by other
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Holders may be included in such registration (up to the maximum of any
limitation imposed by the underwriters), then the Company shall offer to all
Holders who have included Registrable Securities in the registration the
right to include additional Registrable Securities in the same proportion
used in determining the underwriter limitation in this Section 2.5.
If the underwriter has not limited the number of Registrable
Securities to be underwritten, the Company may include securities for its own
account (or for the account of other shareholders) in such registration if
the underwriter so agrees and if the number of Registrable Securities that
would otherwise have been included in such registration and underwriting will
not thereby be limited.
Except for registration statements on Form S-4, S-8 or any successor
thereto, the Company will not file with the Commission without the approval
of the Initiating Holders any other new registration statements with respect
to its capital stock, whether for its own account or that of other
shareholders, from the date of receipt of a notice from the Initiating
Holders until the earlier of (i) 180 days from the date of receipt of such
notice and (ii) the completion of the period of distribution of the
registration contemplated thereby.
2.6 COMPANY REGISTRATION.
(a) If, at any time or from time to time, the Company shall
determine to register any of its securities, either for its own account or
the account of a security holder or holders exercising their respective
demand registration rights, other than a registration relating solely to
employee benefit plans on Form S-8 or similar forms which may be promulgated
in the future or a registration on Form S-4 or similar forms which may be
promulgated in the future relating solely to a Securities and Exchange
Commission Rule 145 or similar transaction, the Company will (i) promptly
give to each Holder written notice thereof and (ii) include in such
registration (and any related qualification under blue sky laws or other
compliance), and in any underwriting involved therein, all Registrable
Securities of such Holders as specified in a written request or requests made
within 15 days after receipt of such written notice from the Company.
(b) UNDERWRITING. If the registration of which the Company
gives notice is for a registered public offering involving an underwriting,
the Company shall so indicate in the notice given pursuant to Section 2.6(a).
In such event the right of any Holder to registration pursuant to this
Section 2.6 shall be conditioned upon such Holder's agreeing to participate
in such underwriting and in the inclusion of such Holder's Registrable
Securities in the underwriting to the extent provided herein. All Holders
proposing to distribute their securities through such underwriting shall
(together with the Company and the other holders distributing their
securities through such underwriting) enter into an underwriting agreement in
customary form with the underwriter or underwriters selected for such
underwriting by the Company or by other holders exercising any demand
registration rights. Notwithstanding any other provision of this Section 2.6,
if the underwriter determines that marketing factors require a limitation of
the number of shares to be underwritten, the underwriter may exclude some or
all Registrable Securities or other securities from such registration and
underwriting (hereinafter an "Underwriter Cutback"). In the event of an
Underwriter Cutback, the Company shall so advise all Holders and the other
holders distributing their securities through such underwriting, and the
number of Registrable Securities that may be
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included in the registration and underwriting shall be allocated among the
Holders in proportion, as nearly as practicable, to the respective amounts of
Registrable Securities held by such Holders at the time of filing the
registration statement. If any Holder disapproves of the terms of any such
underwriting, such Holder may elect to withdraw therefrom by written notice
to the Company and the underwriter. Any securities excluded or withdrawn from
such underwriting shall be withdrawn from such registration.
2.7 FORM S-3 REGISTRATION RIGHTS. After the Company's initial
registered underwritten public offering, the Company shall use its best
efforts to qualify for registration on Form S-3, and to that end the Company
shall use its best efforts to comply with the reporting requirements of the
Securities Exchange Act of 1934, as amended (the "Securities Exchange Act"),
within twelve (12) months following the effective date of the first
registration of any securities of the Company for an underwritten registered
public offering. After the Company has qualified for the use of Form S-3, and
subject to the provisions of Section 2.14, each Holder shall have the right
to request registrations on Form S-3 (such requests shall be in writing and
shall state the number of shares of Registrable Securities to be disposed of
and the intended method of disposition of such shares by each such Holder),
subject only to the following limitations:
(a) The Company shall not be obligated to cause a
registration on Form S-3 to become effective prior to one hundred eighty
(180) days following the effective date of a Company initiated registration
(other than a registration effected solely to qualify an employee benefit
plan or to effect a business combination pursuant to Rule 145);
(b) The Company shall not be required to effect a
registration pursuant to this Section 2.7 unless the Holder or Holders
requesting such a registration propose to dispose of shares of Registrable
Securities having an aggregate disposition price (before deduction of
underwriting discounts and expenses of sale) of at least $1,000,000;
(c) The Company shall not be required to effect a
registration pursuant to this Section 2.7 if the Company shall furnish to the
requesting Holders a certificate signed by the President of the Company
stating that in the good faith judgment of the Board of Directors of the
Company it would be seriously detrimental to the Company or its shareholders
for the registration statement to be filed at the date filing would be
required, in which case the Company shall have an additional period of not
more than one hundred twenty (120) days within which to file such
registration statement; provided however, that the Company shall not use this
right more than once in any twelve (12) month period;
(d) The Company shall not be required to maintain and keep
any such registration on Form S-3 effective for a period exceeding one
hundred and twenty (120) days from the effective date thereof; and
(e) The Company shall not be obligated to cause a
registration on Form S-3 if in the prior twelve-month period the Company has
caused a registration on Form S-3 to become effective pursuant to this
Section 2.7.
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The Company shall give notice to all Holders of the receipt of a
request for registration pursuant to this Section 2.7 and shall use its best
efforts to cause all Registrable Securities that such Holders have requested,
within 15 days after receipt of such written notice, be registered in
accordance with this Section 2.7 to be registered under the Securities Act.
Subject to the foregoing, the Company will use its best efforts to effect
promptly any registration pursuant to this Section 2.7. The provisions of
Section 2.5(b) shall apply to any registration effected pursuant to this
Section 2.7
2.8 EXPENSES OF REGISTRATION. All Registration Expenses incurred in
connection with any registration, qualification or compliance pursuant to
Sections 2.5, 2.6 and 2.7 (exclusive of Selling Expenses but inclusive of the
reasonable fees and expenses of one special counsel to the selling Holders)
shall be borne by the Company. Notwithstanding anything to the contrary
herein, the Company shall not be required to pay for any expenses of any
registration proceeding under Section 2.5 if the registration request is
subsequently withdrawn at the request of the Holders of a majority of the
Registrable Securities to have been registered, unless such Holders agree to
forfeit their right to a demand registration pursuant to Section 2.5 (in
which event such right shall be forfeited by all Holders). In the absence of
such an agreement to forfeit, the Holders of Registrable Securities to have
been registered shall bear all such expenses pro rata on the basis of the
Registrable Securities to have been registered. Notwithstanding the
foregoing, however, if at the time of the withdrawal, the Holders have
learned of a material adverse change in the condition, business, or prospects
of the Company from that known to the Holders at the time of their request,
of which the Company had knowledge at the time of the request, then the
Holders shall not be required to pay any of said expenses and shall retain
their rights pursuant to Section 2.5.
2.9 REGISTRATION PROCEDURES. In the case of each registration,
qualification or compliance effected by the Company pursuant to this Section
2, the Company will keep each Holder advised in writing as to the initiation
of each registration, qualification and compliance and as to the completion
thereof. At its expense the Company will:
(a) Keep such registration, qualification or compliance
effective for a period of one hundred twenty (120) days or until the Holder
or Holders have completed the distribution described in the registration
statement relating thereto, whichever first occurs;
(b) Prepare and file with the Commission such amendments
and supplements to such registration statement and the prospectus used in
connection with such registration statement as may be necessary to comply
with the provisions of the Securities Act with respect to the disposition of
all securities covered by such registration statement;
(c) Furnish to the Holders such numbers of copies of a
prospectus, including a preliminary prospectus, in conformity with the
requirements of the Securities Act, and such other documents as they may
reasonably request in order to facilitate the disposition of Registrable
Securities owned by them;
(d) Use its best efforts to register and qualify the
securities covered by such registration statement under such other securities
or blue sky laws of such jurisdictions as shall be reasonably requested by
the Holders, provided that the Company shall not be required in connection
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therewith or as a condition thereto to qualify to do business or to file a
general consent to service of process in any such states or jurisdictions;
(e) In the event of any underwritten public offering, enter
into and perform its obligations under an underwriting agreement, in usual
and customary form, with the managing underwriter of such offering including,
without limitation causing to be furnished to the Initiating Holders (i) a
"cold comfort" letter of the Company's independent accountants as of the
effective date of the registration statement as to such matters as
customarily are covered in accountant's letters delivered to underwriters in
underwritten public offerings and (ii) an opinion of counsel to the Company,
as of the date of the closing of such underwritten public offering, in the
form customarily provided by issuer's counsel in underwritten public
offerings of securities. Each Holder participating in such underwriting shall
also enter into and perform its obligations under such an agreement; and
(f) Notify each Holder of Registrable Securities covered by
such registration statement at any time when a prospectus relating thereto is
required to be delivered under the Securities Act of any stop order,
injunction or other order or requirement of the Commission or any other
governmental agency or court that is issued which suspends the effectiveness
of the registration statement or of the happening of any event as a result of
which the prospectus included in such registration statement, as then in
effect, includes an untrue statement of a material fact or omits to state a
material fact required to be stated therein or necessary to make the
statements therein not misleading in the light of the circumstances then
existing.
Notwithstanding any provision to the contrary in this Agreement, the
Company shall not be required in connection with any registration pursuant to
Sections 2.5, 2.6 or 2.7 to qualify shares in any state or jurisdiction which
requires the Company to qualify to do business or to file a general consent
to service of process.
2.10 INDEMNIFICATION.
(a) The Company will indemnify each Holder, each of its
officers and directors and partners, and each person controlling such Holder
within the meaning of Section 15 of the Securities Act, with respect to which
registration, qualification or compliance has been effected pursuant to this
Section 2, and each underwriter, if any, and each person who controls any
underwriter within the meaning of Section 15 of the Securities Act, against
all expenses, claims, losses, damages and liabilities (or actions in respect
thereof), including any of the foregoing incurred in settlement of any
litigation, commenced or threatened, arising out of or based on any untrue
statement (or alleged untrue statement) of a material fact contained in any
registration statement, prospectus, offering circular or other document, or
any amendment or supplement thereto, incident to any such registration,
qualification or compliance, or based on any omission (or alleged omission)
to state therein a material fact required to be stated therein or necessary
to make the statements therein, in light of the circumstances in which they
were made, not misleading, or any violation by the Company of any rule or
regulation promulgated under the Securities Act applicable to the Company and
relating to action or inaction required of the Company in connection with any
such registration, qualification or compliance, and will reimburse each such
Holder, each of its officers
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and directors and partners, and each person controlling such Holder, each
such underwriter and each person who controls any such underwriter, for any
legal and any other expenses reasonably incurred in connection with
investigating, preparing or defending any such claim, loss, damage, liability
or action, provided that the Company will not be liable in any such case to
the extent that any such claim, loss, damage, liability or expense arises out
of or is based on any untrue statement or omission or alleged untrue
statement or omission, made in reliance upon and in conformity with written
information furnished to the Company by an instrument duly executed by such
Holder or underwriter and stated to be specifically for use therein.
(b) Each Holder will, if Registrable Securities held by
such Holder are included in the securities as to which such registration,
qualification or compliance is being effected, indemnify the Company, each of
its directors and officers, each underwriter, if any, of the Company's
securities covered by such a registration statement, each person who controls
the Company or such underwriter within the meaning of Section 15 of the
Securities Act, and each other such Holder, each of its officers and
directors and partners and each person controlling such Holder within the
meaning of Section 15 of the Securities Act, against all expenses, claims,
losses, damages and liabilities (or actions in respect thereof) including any
of the foregoing incurred in settlement of any litigation commenced or
threatened, arising out of or based on any untrue statement (or alleged
untrue statement) of a material fact contained in any such registration
statement, prospectus, offering circular or other document, or any amendment
or supplement thereto, incident to any such registration, qualification or
compliance or based on any omission (or alleged omission) to state therein a
material fact required to be stated therein or necessary to make the
statements therein, in the light of the circumstances in which they were
made, not misleading, or any violation by the Company of any rule or
regulation promulgated under the Securities Act applicable to the Company in
connection with any such registration, qualification, or compliance, and will
reimburse the Company, such Holders, such directors, officers, partners,
persons, underwriters or control persons for any legal or any other expenses
reasonably incurred in connection with investigation, preparing or defending
any such claim, loss, damage, liability or action, in each case to the
extent, but only to the extent, that such untrue statement (or alleged untrue
statement) or omission (or alleged omission) is made in such registration
statement, prospectus, offering circular or other document or any amendment
or supplement thereto in reliance upon and in conformity with written
information furnished to the Company by an instrument duly executed by such
Holder and stated to be specifically for use therein; provided, however, that
the obligations of such Holders hereunder shall be limited to an amount equal
to the proceeds to each such Holder of Registrable Securities sold as
contemplated herein. The liability of a Holder hereunder shall be several and
not joint.
(c) Each party entitled to indemnification under this
Section 2.10 (the "Indemnified Party") shall give notice to the party
required to provide indemnification (the "Indemnifying Party") promptly after
such Indemnified Party has actual knowledge of any claim as to which
indemnity may be sought, and shall permit the Indemnifying Party to assume
the defense of any such claim or any litigation resulting therefrom, provided
that counsel for the Indemnifying Party, who shall conduct the defense of
such claim or litigation, shall be approved by the Indemnified Party (whose
approval shall not be unreasonably withheld), and the Indemnified Party may
participate in such defense at its own expense; provided, however, that an
Indemnified Party
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(together with all other indemnified parties which may be represented without
conflict by one counsel) shall have the right to retain one separate counsel,
with the fees and expenses to be paid by the Indemnifying Party, if
representation of such Indemnified Party by the counsel retained by the
Indemnifying Party would be inappropriate due to actual or potential
conflicts of interests between such Indemnified Party and any other party
represented by such counsel in such proceeding. The failure of any
Indemnified Party to give notice as provided herein shall not relieve the
Indemnifying Party of its obligations under this Section 2 unless such
failure resulted in actual detriment to the Indemnifying Party. No
Indemnifying Party, in the defense of any such claim or litigation, shall,
except with the consent of each Indemnified Party, consent to entry of any
judgment or enter into any settlement which does not include as an
unconditional term thereof the giving by the claimant or plaintiff to such
Indemnified Party a release from all liability in respect of such claim or
litigation.
(d) If the indemnification provided for in this Section
2.10 is held by a court of competent jurisdiction to be unavailable to an
Indemnified Party with respect to any loss, liability, claim, damage, or
expense referred to therein, then the Indemnifying Party, in lieu of
indemnifying such Indemnified Party hereunder, shall contribute to the amount
paid or payable by such Indemnified Party as a result of such loss,
liability, claim, damage, or expense in such proportion as is appropriate to
reflect the relative fault of the Indemnifying Party on the one hand and of
the Indemnified Party on the other in connection with the statements or
omissions that resulted in such loss, liability, claim, damage, or expense as
well as any other relevant equitable considerations. The relative fault of
the Indemnifying Party and of the Indemnified Party shall be determined by
reference to, among other things, whether the untrue or alleged untrue
statement of a material fact or the omission to state a material fact relates
to information supplied by the Indemnifying Party or by the Indemnified Party
and the parties relative intent, knowledge, access to information, and
opportunity to correct or prevent such statement or omission.
(e) The obligations of the Company and Holders under this
Section 2.10 shall survive the completion of any offering of Registrable
Securities in a registration statement under this Section 2, and otherwise.
2.11 INFORMATION BY HOLDER. The Holder or Holders of Registrable
Securities included in any registration shall furnish to the Company such
information regarding such Holder or Holders and the distribution proposed by
such Holder or Holders as the Company may request in writing and as shall be
required in connection with any registration, qualification or compliance
referred to in this Section 2.
2.12 RULE 144 REPORTING. With a view to making available the
benefits of certain rules and regulations of the Commission which may at any
time permit the sale of the Restricted Securities to the public without
registration, after such time as a public market exists for the Common Stock
of the Company, the Company agrees to:
(a) Use its best efforts to make and keep public
information available, as those terms are understood and defined in Rule 144
under the Securities Act at all times after the effective date of the first
registration under the Securities Act filed by the Company for an offering of
its securities to the general public;
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(b) Use its best efforts to then file with the Commission
in a timely manner all reports and other documents required of the Company
under the Securities Exchange Act at any time after it has become subject to
such reporting requirements;
(c) So long as a Holder owns any Restricted Securities, to
furnish to such Holder forthwith upon request a written statement by the
Company as to its compliance with the reporting requirements of said Rule 144
(at any time after 90 days after the effective date of the first registration
statement filed by the Company for an offering of its securities to the
general public) and of the Securities Act and the Securities Exchange Act (at
any time after it has become subject to such reporting requirements), a copy
of the most recent annual or quarterly report of the Company, and such other
reports and documents of the Company as a Holder may reasonably request in
availing itself of any rule or regulation of the Commission allowing a Holder
to sell any such securities without registration.
2.13 TRANSFER OF REGISTRATION RIGHTS. The rights to cause the
Company to register securities granted under Sections 2.5, 2.6 and 2.7 may be
assigned or otherwise conveyed to a transferee or assignee of Registrable
Securities, who shall be considered a "Holder" for purposes of this Section
2, provided that (a) such transfer is effected in accordance with applicable
federal and state securities laws, (b) the Company is given written notice by
such Holder at the time of or within a reasonable time after said transfer,
stating the name, address and a reasonably detailed description of the
principal business or occupation of said transferee or assignee and any such
other information as is reasonably requested by the Company in order to carry
out the intent of these provisions and identifying the securities with
respect to which such registration rights are being assigned, (c) the Company
reasonably determines that the proposed transferee or assignee is not a
direct competitor or future competitor of the Company and (d) such transferee
or assignee (i) is a Holder, (ii) is an affiliate of a Holder, including a
wholly-owned subsidiary or constituent partner (including limited partners
and partners who retire from a transferor partnership after the date hereof)
of the transferring Holder, (iii) is a family member of the transferring
Holder, (iv) is a trust for the benefit of an individual transferor or his
family members, or (v) acquires at least 50,000 shares (as presently
constituted) of the Registrable Securities held by the transferring Holder.
No such transfer or assignment shall be valid or effective unless the
proposed transferee or assignee expressly agrees to be subject to all of the
provisions of this Agreement relating to such rights, including without
limitation the provisions of Sections 2.10 and 2.15 of this Agreement.
2.14 TERMINATION OF REGISTRATION RIGHTS. The registration rights
granted pursuant to this Section 2 shall terminate as to any Holder upon the
earlier of (i) the sixth anniversary of the effective date of the first
registration statement filed by the Company covering an underwritten offering
of its securities to the general public at an aggregate offering price of not
less than $10,000,000 and at a public offering price equal to or exceeding
$5.50 per share (as adjusted for any stock dividends, combinations, or splits
with respect to such shares) and (ii) the date such Holder is able to
immediately sell all Registrable Securities held or entitled to be held upon
conversion by such Holder under Rule 144 during any 90-day period.
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2.15 "MARKET STAND OFF" AGREEMENT. Each Holder hereby agrees that it
shall not, to the extent requested by the Company and an underwriter of
Common Stock (or other securities) of the Company, sell or otherwise transfer
or dispose (other than to those who agree to be similarly bound) of any
Registrable Securities or any other securities of the Company for a period of
up to one hundred and eighty (180) days following the effective date of a
registration statement of the Company filed under the Securities Act;
provided, however, that (i) such agreement shall only be applicable to the
first such registration statement of the Company which covers shares (or
securities) to be sold on its behalf to the public in an underwritten
offering and (ii) all officers and directors of the Company enter into
similar agreements.
In order to enforce the foregoing covenant, the Company may impose
stop-transfer instructions with respect to the Registrable Securities and
Common Stock of each Holder (and the shares or securities of every other
person subject to the foregoing restriction) until the end of such one
hundred eighty (180) day period.
2.16 INCLUSION OF COMMON STOCK HELD BY FOUNDERS. In connection with
any registration effected pursuant to Section 2.6 hereof, each of the
Founders, with respect to all Founders' Original Common Stock, shall be
entitled to participate in such registration, on the same terms and
conditions as Holders selling their Registrable Securities in such
registration and, solely for purposes of Section 2.6, (i) each such Founder
shall be entitled to all of the rights and shall be subject to all of the
obligations applicable to a Holder in connection with such registration,
including without limitation the provisions of Sections 2.10 and 2.15 of this
Agreement, (ii) all such securities, and any shares of Common Stock issued in
respect thereof upon any stock split, stock dividend, recapitalization or
similar event, which have not been sold to the public, shall be deemed to be
"Registrable Securities," (iii) all references to "Holder" in this Agreement
shall be deemed to include such Founder for purposes of such registration and
(iv) any Underwriter Cutback shall apply pro rata to the shares so included
by the Founders participating in such registration.
2.17 LIMITATIONS ON SUBSEQUENT REGISTRATION RIGHTS. From and after
the date of this Agreement, the Company shall not, without the prior written
consent of Holders holding more than fifty percent (50%) of the Registrable
Securities, enter into any agreement with any holder or prospective holder of
any securities of the Company which would allow such holder or prospective
holder to (i) require the Company to effect a registration or (ii) include
any securities in any registration filed under Sections 2.5, 2.6 or 2.7
hereof unless, under the terms of such agreement, such holder or prospective
holder may include such securities in any such registration only to the
extent that the inclusion of such securities will not diminish the amount of
Registrable Securities which are included in such registration, and such
agreement includes the equivalent of Section 2.15 as a term.
SECTION 3
AFFIRMATIVE COVENANTS OF THE COMPANY
3.1 FINANCIAL INFORMATION. The Company will furnish the following
reports to each Investor for so long as such Investor is a holder of (or is
entitled to purchase under this Agreement)
-13-
<PAGE>
at least 100,000 shares of Preferred Stock or Common Stock issued upon
conversion of the Preferred Stock or a combination thereof:
(a) As soon as practicable after the end of each fiscal
year, and in any event within 90 days thereafter, audited consolidated
balance sheets of the Company and its subsidiaries, if any, as of the end of
such fiscal year, and consolidated statements of income and surplus,
consolidated statements of changes in financial position of the Company and
its subsidiaries and consolidated statements of changes in stockholders'
equity, if any, for such year, prepared in accordance with generally accepted
accounting principles and setting forth in each case in comparative form the
figures for the previous fiscal year, all in reasonable detail and certified
by independent public accountants of recognized national standing selected by
the Company; and
(b) As soon as practicable after the end of every fiscal
quarter and in any event within 45 days thereafter, an unaudited consolidated
balance sheet of the Company and its subsidiaries, if any, as of the end of
each such quarter, and consolidated statements of income, consolidated
statements of changes in financial condition and consolidated statements of
changes in stockholders' equity of the Company and its subsidiaries for such
period, prepared in accordance with generally accepted accounting principals,
subject to changes resulting from year-end audit adjustments.
3.2 INSPECTION. The Company shall permit each Investor, at such
Investor's expense, to visit and inspect the Company's properties, to examine
its books of account and records and to discuss the Company's affairs,
finances and accounts with its officers, all at such reasonable times as may
be requested by the Investor provided, however, that the Company shall not be
obligated pursuant to this Section 3.2 to provide access to any information
which it reasonably considers to be a trade secret or similar confidential
information.
3.3 ASSIGNMENT OF RIGHTS TO FINANCIAL INFORMATION. The rights
granted pursuant to this Section 3 may be assigned by Investors (or by any
permitted transferee of any such rights) only in connection with the transfer
to a single transferee of not less than 100,000 shares of Preferred Stock or
Common Stock issued upon conversion thereof, or a combination thereof
(including, for such purposes transfers by affiliates of a transferor) and
only so long as (i) the Company is given notice of any such assignment within
thirty (30) days of the date the same is effected, which notice shall
disclose the name of such assignee and provide a reasonably detailed
description of such assignee's business or principal occupation and the
circumstances surrounding such assignment, (ii) the Company reasonably
determines that the assignee is not a direct competitor or potential
competitor of the Company and (iii) if the Company reasonably believes that
it is necessary to protect proprietary information, the Company may require
that the assignee execute a confidentiality agreement as a condition to
receiving such information.
3.4 TERMINATION OF COVENANTS. The covenants set forth in Section 3
shall terminate and be of no further force or effect after the earlier of (a)
the date upon which the first registration statement filed by the Company
under the Securities Act in connection with the firm commitment underwritten
public offering of its securities at an aggregate offering price of not less
than $10,000,000 and at a public offering price equal to or exceeding $5.50
per share (as adjusted for any
-14-
<PAGE>
stock dividends, combinations, or splits with respect to such shares) becomes
effective, or (b) the date when none of the Preferred Stock is outstanding.
SECTION 4
AFFIRMATIVE COVENANT OF INVESTORS; RIGHT OF FIRST REFUSAL
4.1 CONFIDENTIAL INFORMATION, ETC. Each Investor agrees that all
information received by it pursuant to Section 3, and any other information
relating to the Company's technology, processes or formulas that is disclosed
by the Company to any Investor in writing and is marked "Confidential," shall
be considered confidential information. Each Investor further agrees that it
shall hold all confidential information relating to the Company in confidence
and shall not disclose any such confidential information to any third party
other than its counsel or accountants nor shall such Investor use such
confidential information for any purpose other than evaluation of such
Investor's investment in the Company; provided, however, that the foregoing
obligation to hold in confidence and not to disclose confidential information
shall not apply to any such information that (a) was known to the public
prior to disclosure by the Company, (b) becomes known to the public through
no fault of such Investor, (c) is disclosed to such Investor on a
non-confidential basis by a third party having a legal right to make such
disclosure or (d) is independently developed by such Investor.
4.2 RIGHT OF FIRST REFUSAL. The Company hereby grants to each
Purchaser (defined below) the right of first refusal to purchase its Pro Rata
Share (defined below) of all (or any part) of any New Securities (defined
below) that the Company may from time to time propose to sell and issue. Such
Purchaser's "Pro Rata Share," for purposes of this right of first refusal, is
the ratio of the number of shares of Common Stock (assuming conversion to
Common Stock of all shares of the Preferred Stock) then held by such
Purchaser to the total number of shares of Common Stock then outstanding
(assuming conversion to Common Stock of all outstanding shares of the
Company's Preferred Stock). This right of first refusal shall be subject to
the following provisions:
(a) "PURCHASER" shall mean, with respect to any issuance of
New Securities of the Company, each Founder who then holds any Founders'
Original Common Stock and each Investor who then holds any Preferred Stock
(or Common Stock issued upon conversion thereof).
(b) "NEW SECURITIES" shall mean any Common Stock or any
series or class of preferred stock including the Preferred Stock of the
Company, whether now authorized or not, and rights, options or warrants to
purchase said Common Stock or preferred stock, and securities of any type
whatsoever that are, or may become, convertible into or exchangeable for said
Common Stock or preferred stock; provided, however, that "New Securities"
does not include (i) securities issuable upon conversion of or with respect
to preferred stock or any future series of preferred stock; (ii) securities
issuable upon exercise of warrants to purchase up to an aggregate of 313,000
shares of Series B Preferred Stock, securities issuable upon exercise of
warrants to purchase up to an aggregate of 83,400 shares of Series C
Preferred Stock and securities issuable upon exercise of warrants to purchase
up to an aggregate of 165,955 shares of Series D Preferred Stock; (iii)
securities offered to the public pursuant to a registration statement filed
under the Securities Act;
-15-
<PAGE>
(iv) securities issued pursuant to the acquisition of another corporation by
the Company by merger, purchase of substantially all of the assets or other
reorganization; (v) up to 5,825,000 shares of the Company's Common Stock (or
related options or warrants) that are issued to directors, officers or
employees of, or consultants to, the corporation pursuant to an agreement or
an option or purchase plan or another director, officer, employee or
consultant stock incentive program approved by the Board of Directors of the
Company; (vi) shares of the Company's Common Stock that are issued in
connection with technology licensing, corporate partnering, equipment leasing
or similar or related transactions and (vii) shares of the Company's Common
Stock or Preferred Stock issued in connection with any stock split, stock
dividend, or recapitalization by the Company.
(c) In the event that the Company proposes to undertake an
issuance of New Securities, it shall give each Purchaser written notice of
its intention, describing the type of New Securities, the price, and the
general terms upon which the Company proposes to issue the same. Each
Purchaser shall have five (5) days from the date of delivery of any such
notice to agree to purchase its pro rata share of such New Securities for the
price and upon the general terms specified in the notice by giving written
notice to the Company and stating therein the quantity of New Securities to
be purchased.
(d) In the event that Purchasers fail to exercise in full
the right of first refusal within said five (5) day period, the Company shall
have sixty (60) business days thereafter to sell (or enter into an agreement
pursuant to which the sale of New Securities covered thereby shall be closed,
if at all, within sixty (60) business days from the date of said agreement)
the New Securities respecting which the Purchasers' rights were not
exercised, at a price and upon general terms no more favorable to the
purchasers thereof than specified in the Company's notice. In the event the
Company has not sold the New Securities within said sixty (60) business day
period (or sold and issued new Securities in accordance with the foregoing
within sixty (60) business days from the date of said agreement), the Company
shall not thereafter issue or sell any New Securities, without first offering
such securities to the Purchasers in the manner provided above.
(e) The right of first refusal granted under this Agreement
shall expire upon the closing of the Company's first underwritten public
offering of Common Stock at an aggregate offering price of not less than
$10,000,000 and at a public offering price equal to or exceeding $5.50 per
share (as adjusted for any stock dividends, combinations, or splits with
respect to such shares) pursuant to a registration statement declared
effective under the Securities Act.
(f) This right of first refusal is nonassignable except to
any other Purchaser or to any parent, subsidiary or general or limited
partner or member of any Purchaser.
SECTION 5
MISCELLANEOUS
5.1 GOVERNING LAW. This Agreement shall be governed by the laws of
the State of California as applicable to contracts entered into and performed
entirely within the State of California.
-16-
<PAGE>
5.2 SUCCESSORS AND ASSIGNS. Except as otherwise provided herein, the
provisions hereof shall inure to the benefit of, and be binding upon, the
successors, assigns, heirs, executors and administrators of the parties
hereto.
5.3 ENTIRE AGREEMENT. This Agreement constitutes the full and entire
understanding and agreement between the parties with regard to the subject
matter hereof.
5.4 RIGHTS OF INVESTORS AND FOUNDERS. Each Investor and Founder
shall have the absolute right to exercise or refrain from exercising any
right or rights that such Investor or Founder may have by reason of this
Agreement or the ownership of any Preferred Stock, including without
limitation the right to consent to the waiver of any obligation of the
Company under this Agreement to such Investor or Founder and to enter into an
agreement with the Company for the purpose of modifying this Agreement or any
agreement affecting any such modification, and such Investor or Founder shall
not incur any liability to any other Investor or holder of Preferred Stock or
Founder with respect to exercising or refraining from exercising any such
right or rights.
5.5 NOTICES, ETC. All notices and other communications required or
permitted hereunder shall be in writing and shall be mailed by registered or
certified mail, postage prepaid, or facsimile or otherwise delivered by hand
or by messenger, addressed (a) if to an Investor or Founder, at such
Investor's or Founder's address set forth below or at such other address as
such Investor or Founder shall have furnished to the Company in writing, (b)
if to any other holder of Preferred Stock, at such address as such holder
shall have furnished the Company in writing or (c) if to the Company, one
copy shall be sent to its address set forth above and addressed to the
attention of the Corporate Secretary and another copy shall be sent to Wilson
Sonsini Goodrich & Rosati, 650 Page Mill Road, Palo Alto, CA 94304,
Attention: Michael J. O'Donnell, Esq., or at such other addresses as the
Company shall have furnished to the Investors and the Founders. All notices
and other communications mailed or sent by facsimile pursuant to the
provisions of this Section 5.5 shall be deemed delivered when mailed or sent
by facsimile.
5.6 COUNTERPARTS. This Agreement may be executed in counterparts,
each of which shall be enforceable against the party actually executing such
counterpart, and which together shall constitute one instrument.
5.7 SEVERABILITY. In the event that any provision of this Agreement
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; provided that no such severability shall be effective
if it materially changes the economic benefit of this Agreement to any party.
5.8 APPROVAL OF AMENDMENTS AND WAIVERS. Any term of this agreement
may be amended or terminated and the observance of any term of this Agreement
may be waived (either generally or in a particular instance and either
retroactively or prospectively) with the written consent of the Company and
Investors (or their transferees) holding at least sixty-six and two-thirds
percent (66 2/3%) of the then outstanding shares of Registrable Securities,
excluding from the determination of such percentage (both in determining the
total number of such shares outstanding and the number of such shares
consenting or not consenting) all shares previously disposed of by
-17-
<PAGE>
Investors or their transferees pursuant to one or more registration
statements under the Securities Act or pursuant to Rule 144 thereunder;
provided, however, that no such amendment or waiver shall adversely affect
the right of any Founder to participate in registrations under Section 2.6 of
this Agreement as provided for in Section 2.16 without such Founder's written
consent; it being understood, however, that the amendment of this Agreement
to increase the number of shares defined as Registrable Securities or to add
additional parties as Investors shall be deemed not to adversely affect such
right under Section 2.6. Any amendment, termination or waiver effected in
accordance with this section shall be binding upon each Founder, each
Investor, each of their transferees and the Company. Each Founder and each
Investor acknowledges that, subject to the limitations contained in the first
sentence of this Section 5.8, by the operation of this Section 5.8 the
holders of sixty-six and two-thirds percent (66 2/3%) of the outstanding
Registrable Securities may have the right and power to diminish or eliminate
all rights of such Founder or such Investor under this Agreement as provided
for above. Notwithstanding anything in this Agreement to the contrary,
however, no written consent of the Investors or Founders shall be required to
amend this Agreement to add additional parties to this Agreement as Investors
who are purchasers at Subsequent Closings of the Series E Agreement pursuant
to Section 1.3 of the Series E Agreement.
[INTENTIONALLY LEFT BLANK]
-18-
<PAGE>
The foregoing Agreement is hereby executed as of the date first above
written.
THE COMPANY:
CIPHERGEN BIOSYSTEMS, INC.
By:
-----------------------------
Title:
--------------------------
(SIGNATURE PAGE TO FOURTH AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT)
<PAGE>
THE INVESTORS:
ATLAS VENTURE FUND V,L.P.
By: Atlas Venture Associates V, L.P.
its general partner
By: Atlas Venture Associates V, Inc.
Its general partner
- --------------------------------
Vice President
ATLAS VENTURE PARALLEL FUND V-A.C.V.
By: Atlas Venture Associates V, L.P.
its general partner
By: Atlas Venture Associates V, Inc.
Its general partner
- --------------------------------
Vice President
ATLAS VENTURE PARALLEL FUND V-B C.V.
By: Atlas Venture Associates V, L.P.
its general partner
By: Atlas Venture Associates V, Inc.
Its general partner
- --------------------------------
Vice President
(SIGNATURE PAGE TO FOURTH AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT)
<PAGE>
ATLAS VENTURE ENTREPRENEURS' FUND V,L.P.
By: Atlas Venture Associates V, L.P.
its general partner
By: Atlas Venture Associates V, Inc.
Its general partner
- -----------------------
Vice President
MORGAN STANLEY DEAN WITTER
VENTURE PARTNERS IV, L.P.
By: MSDW VENTURE PARTNERS IV, LLC,
AS GENERAL PARTNER
By: MSDW VENTURE PARTNERS IV, INC.,
AS MEMBER
By:
--------------------------------
Name:
Title:
By:
--------------------------------
Name:
Title:
(SIGNATURE PAGE TO FOURTH AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT)
<PAGE>
ESSEX PRIVATE PLACEMENT FUND III - A, Limited Partnership
By: Essex Investment Management Company, LLC its General Partner
By:
----------------------------------
Title:
-------------------------------
ESSEX PRIVATE PLACEMENT FUND III - B, Limited Partnership
By: Essex Investment Management Company, LLC its General Partner
By:
----------------------------------
Title:
-------------------------------
ORBIMED ADVISORS, LLC
By:
----------------------------------
Title:
-------------------------------
AP ANLAGE Private Bank AG
By:
----------------------------------
Title:
-------------------------------
(SIGNATURE PAGE TO FOURTH AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT)
<PAGE>
CLARIDEN BANK. a CREDIT SUISSE GROUP company
By:
----------------------------------
Title:
-------------------------------
AMADEUS CAPITAL PARTNERS LIMITED
By:
----------------------------------
Title:
-------------------------------
PENTECH FINANCIAL SERVICES, INC.
By:
----------------------------------
Title:
-------------------------------
CHINA DEVELOPMENT INDUSTRIAL BANK INC.
By:
----------------------------------
Title:
-------------------------------
(SIGNATURE PAGE TO FOURTH AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT)
<PAGE>
FIRST BIO VENTURE CAPITAL CORPORATION of Cheng Xin Venture Capital Corp
By:
----------------------------------
Title:
-------------------------------
CENTRAL INVESTMENT HOLDING (B.V.I.) CO., LTD.
By:
----------------------------------
Title:
-------------------------------
GRAND CAPITAL INTERNATIONAL LIMITED of Bank SinoPac
By:
----------------------------------
Title:
-------------------------------
MDS, INC.
By:
----------------------------------
Title:
-------------------------------
(SIGNATURE PAGE TO FOURTH AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT)
<PAGE>
S. R. ONE, LIMITED
By:
----------------------------------
Title:
-------------------------------
MDS LIFE SCIENCES TECHNOLOGY BARBADOS INVESTMENT TRUST
By:
----------------------------------
Title:
-------------------------------
MDS LIFE SCIENCES TECHNOLOGY FUND LIMITED PARTNERSHIP, by its General Partner,
MDS Life Sciences Technology Fund (GP) Inc.
By:
----------------------------------
Title:
-------------------------------
MDS LIFE SCIENCES TECHNOLOGY FUND USA, L.P.
by its General Partner, MDS Capital USA (GP) Inc.
By:
----------------------------------
Title:
-------------------------------
(SIGNATURE PAGE TO FOURTH AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT)
<PAGE>
THE HEALTH CARE AND BIOTECHNOLOGY VENTURE FUND
by its Manager, MDS Capital Corp
By:
----------------------------------
Title:
-------------------------------
STANFORD RESEARCH SYSTEMS
By:
----------------------------------
Title:
-------------------------------
WILLIAM R. GREEN
By:
----------------------------------
Title:
-------------------------------
JAMES AND LINDA GINSBURG
By:
----------------------------------
Title:
-------------------------------
FALCON TECHNOLOGY PARTNERS, L.P.
By:
----------------------------------
Title:
-------------------------------
(SIGNATURE PAGE TO FOURTH AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT)
<PAGE>
FORWARD VENTURES II, L.P.
By:
----------------------------------
Title:
-------------------------------
ICNA, LTD.
By:
----------------------------------
Title:
-------------------------------
JOHN A. YOUNG, TRUSTEE for the Young
Family Trust
By:
----------------------------------
Title:
-------------------------------
DIANA K. YOUNG
By:
----------------------------------
Title:
-------------------------------
GREGORY S. YOUNG
By:
----------------------------------
Title:
-------------------------------
(SIGNATURE PAGE TO FOURTH AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT)
<PAGE>
JOHN PETER YOUNG
By:
----------------------------------
Title:
-------------------------------
HLM/ CB FUND L.P.
By:
----------------------------------
Title:
-------------------------------
TURTLE & COMPANY c/o Nuland & Arshad, Inc.
By:
----------------------------------
Title:
-------------------------------
HOOVER ASSOCIATES
By:
----------------------------------
Title:
-------------------------------
THE MACKOWSKI FAMILY TRUST
c/o Mackowski & Shepler
By:
----------------------------------
Title:
-------------------------------
(SIGNATURE PAGE TO FOURTH AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT)
<PAGE>
WATERVIEW TRUST
By:
----------------------------------
Title:
-------------------------------
JOHNATHAN J. KENT
By:
----------------------------------
Title:
-------------------------------
DANIEL VAPNEK
By:
----------------------------------
Title:
-------------------------------
GUARANTEE TRUST COMPANY FBO
Lenita L. Rich IRA, Dated 8-2-91, No. 20186123 BT Alex Brown
By:
----------------------------------
Title:
-------------------------------
ONE AND COMPANY
as Nominee for Welch & Forbes c/o Charles Haydock
By:
----------------------------------
Title:
-------------------------------
(SIGNATURE PAGE TO FOURTH AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT)
<PAGE>
DEAN V. AMBROSE
By:
----------------------------------
Title:
-------------------------------
EDWARD O. ANSELL
By:
----------------------------------
Title:
-------------------------------
ROBERT SHEPLER c/o Mackowski & Shepler
By:
----------------------------------
Title:
-------------------------------
PETER F. DRAKE c/o Prudential Vector Healthcare
By:
----------------------------------
Title:
-------------------------------
ROBERT AND LORI LUTHER
By:
----------------------------------
Title:
-------------------------------
(SIGNATURE PAGE TO FOURTH AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT)
<PAGE>
IKIKO CORPORATION c/o Nuland & Arshad, Inc.
By:
----------------------------------
Title:
-------------------------------
ANTHONY J. SINSKEY c/o Department of Biology
By:
----------------------------------
Title:
-------------------------------
R. ANGUS WEST c/o The Boston Family Office. L.L.C.
By:
----------------------------------
Title:
-------------------------------
MICHAEL G. AND OLWEN PAGE c/o Prudential Vector Healthcare
By:
----------------------------------
Title:
-------------------------------
ROBERT A. SHAW AND MAUREEN MCLAUGHLIN, Trustees UTD 12-14-90
By:
----------------------------------
Title:
-------------------------------
(SIGNATURE PAGE TO FOURTH AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT)
<PAGE>
SCHEDULE A
FOUNDERS' ORIGINAL COMMON STOCK
<TABLE>
<CAPTION>
SHAREHOLDER ISSUE DATE NUMBER OF SHARES
- ----------- ---------- ----------------
<S> <C> <C>
Dean V. Ambrose 12/27/93 31,648
Edward O. Ansell 12/27/93 31,648
Steven M. Clark 12/27/93 107,500
Jonathan J. Kent 12/27/93 153,889
Stephen B. H. Kent 12/27/93 250,000
</TABLE>
(SIGNATURE PAGE TO FOURTH AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT)
<PAGE>
SCHEDULE B
INVESTORS' ORIGINAL COMMON STOCK
<TABLE>
<CAPTION>
SHAREHOLDER ISSUE DATE NUMBER OF SHARES
- ----------- ---------- ----------------
<S> <C> <C>
S.R. One, Limited 12/29/93 100,000
Forward Ventures II, L.P. 12/29/93 75,000
</TABLE>
(SIGNATURE PAGE TO FOURTH AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT)
<PAGE>
CIPHERGEN BIOSYSTEMS, INC.
1993 STOCK OPTION PLAN
(As Amended and Restated on October 27, 1994)
(As Amended and Restated on May 10, 1995)
(As Amended and Restated on September 5, 1996)
(As Amended and Restated on July 31, 1997)
(As Amended and Restated on July 28, 1998)
(As Amended and restated on September 9,1999)
1. PURPOSES.
(a) The purpose of the Plan is to provide a means by which selected
Employees and Directors of and Consultants to the Company and its Affiliates,
may be given an opportunity to purchase stock of the Company.
(b) The Company, by means of the Plan, seeks to retain the services
of persons who are now Employees or Directors of or Consultants to the
Company, to secure and retain the services of new Employees, Directors and
Consultants, and to provide incentives for such persons to exert maximum
efforts for the success of the Company and its Affiliates.
(c) The Company intends that the Options issued under the Plan
shall, in the discretion of the Board or any Committee to which
responsibility for administration of the Plan has been delegated pursuant to
subsection 3(c), be either Incentive Stock Options or Nonstatutory Stock
Options. All Options shall be separately designated Incentive Stock Options
or Nonstatutory Stock Options at the time of grant, and in such form as
issued pursuant to Section 6, and a separate certificate or certificates will
be issued for shares purchased on exercise of each type of Option.
<PAGE>
2. DEFINITIONS.
(a) "AFFILIATE" means any parent corporation or subsidiary
corporation, whether now or hereafter existing, as those terms are defined in
Sections 424(e) and (f) respectively, of the Code.
(b) "BOARD" means the Board of Directors of the Company.
(c) "CODE" means the Internal Revenue Code of 1986, as amended.
(d) "COMMITTEE" means a Committee appointed by the Board in
accordance with subsection 3(c) of the Plan.
(e) "COMPANY" means Ciphergen Biosystems, Inc., a California
corporation.
(f) "CONSULTANT" means any person, including an advisor, engaged by
the Company or an Affiliate to render services and who is compensated for
such services, provided that the term "Consultant" shall not include
Directors who are paid only a director's fee by the Company or who are not
compensated by the Company for their services as Directors.
(g) "CONTINUOUS STATUS AS AN EMPLOYEE, DIRECTOR OR CONSULTANT" means
the employment or relationship as a Director or Consultant is not interrupted
or terminated by the Company or any Affiliate. The Board, in its sole
discretion, may determine whether Continuous Status as an Employee, Director
or Consultant shall be considered interrupted in the case of: (i) any leave
of absence approved by the Board, including sick leave, military leave, or
any other personal leave; or (ii) transfers between locations of the Company
or between the Company, Affiliates or their successors.
(h) "DIRECTOR" means a member of the Board.
(i) "DISINTERESTED PERSON" means a Director: (i) who was not during
the one year prior to service as an administrator of the Plan granted or
awarded equity securities pursuant to the Plan or any other plan of the
Company or any of its affiliates entitling the participants therein to
acquire
-2-
<PAGE>
equity securities of the Company or any of its affiliates except as permitted
by Rule 16b-3(c)(2)(i); or (ii) who is otherwise considered to be a
"disinterested person" in accordance with Rule 16b-3(c)(2)(i), or any other
applicable rules, regulations or interpretations of the Securities and
Exchange Commission.
(j) "EMPLOYEE" means any person, including Officers and Directors,
employed by the Company or any Affiliate of the Company. Neither service as a
Director nor payment of a director's fee by the Company shall be sufficient
to constitute "employment" by the Company.
(k) "EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended.
(l) "FAIR MARKET VALUE" means, as of any date, the value of the
common stock of the Company determined by the Board pursuant to Rule
260.140.50 of Title 10 of the California Code of Regulations.
(m) "INCENTIVE STOCK OPTION" means an Option intended to qualify as
an incentive stock option within the meaning of Section 422 of the Code and
the regulations promulgated thereunder.
(n) "NONSTATUTORY STOCK OPTION" means an Option not intended to
qualify as an Incentive Stock Option.
(o) "OFFICER" means a person who is an officer of the Company within
the meaning of Section 16 of the Exchange Act and the rules and regulations
promulgated thereunder.
(p) "OPTION" means a stock option granted pursuant to the Plan.
(q) "OPTION AGREEMENT" means a written agreement between the Company
and an Optionee evidencing the terms and conditions of an individual Option
grant. Each Option Agreement shall be subject to the terms and conditions of
the Plan.
(r) "OPTIONED STOCK" means the common stock of the Company subject
to an Option.
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(s) "OPTIONEE" means an Employee, Director or Consultant who holds
an outstanding Option.
(t) "PLAN" means this 1993 Stock Option Plan.
(u) "RULE 16b-3" means Rule 16b-3 of the Exchange Act or any
successor to Rule 16b-3, as in effect when discretion is being exercised with
respect to the Plan.
3. ADMINISTRATION.
(a) The Plan shall be administered by the Board unless and until the
Board delegates administration to a Committee, as provided in subsection 3(c).
(b) The Board shall have the power, subject to, and within the
limitations of, the express provisions of the Plan:
(1) To determine from time to time which of the persons
eligible under the Plan shall be granted Options; when and how such Option
shall be granted; whether an Option will be an Incentive Stock Option or a
Nonstatutory Stock Option; the provisions of each Option granted (which need
not be identical), including the time or times such Option may be exercised
in whole or in part; and the number of shares for which an Option shall be
granted to each such person;
(2) To construe and interpret the Plan and Options granted
under it, and to establish, amend and revoke rules and regulations for its
administration. The Board, in the exercise of this power, may correct any
defect, omission or inconsistency in the Plan or in any Option Agreement, in
a manner and to the extent it shall deem necessary or expedient to make the
Plan fully effective; and
(3) To amend the Plan or an Option as provided in Section
11.
(c) The Board may delegate administration of the Plan to a committee
composed of not fewer than two (2) members (the "Committee"), all of the
members of which Committee shall be
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Disinterested Persons, if required under subsection 3(d). If administration
is delegated to a Committee, the Committee shall have, in connection with the
administration of the Plan, the powers theretofore possessed by the Board
(and references in this Plan to the Board shall thereafter be to the
Committee), subject, however, to such resolutions, not inconsistent with the
provisions of the Plan, as may be adopted from time to time by the Board. The
Board may abolish the Committee at any time and revest in the Board the
administration of the Plan. Additionally, prior to the date of the first
registration of an equity security of the Company under Section 12 of the
Exchange Act, and notwithstanding anything to the contrary contained herein,
the Board may delegate administration of the Plan to any person or persons
and the term "Committee" shall apply to any person or persons to whom such
authority has been delegated.
(d) Any requirement that an administrator of the Plan be a
Disinterested Person shall not apply (i) prior to the date of the first
registration of an equity security of the Company under Section 12 of the
Exchange Act, or (ii) if the Board or the Committee expressly declares that
such requirement shall not apply. Any Disinterested Person shall otherwise
comply with the requirements of Rule 16b-3.
4. SHARES SUBJECT TO THE PLAN.
(a) Subject to the provisions of Section 10 relating to adjustments
upon changes in stock, the stock that may be sold pursuant to Options shall
not exceed in the aggregate five million eight hundred twenty five thousand
(5,825,000) shares of the Company's common stock. If any Option shall for any
reason expire or otherwise terminate without having been exercised in full,
the stock not purchased under such Option shall revert to and again become
available for issuance under the Plan.
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<PAGE>
(b) The stock subject to the Plan may be unissued shares or
reacquired shares, bought on the market or otherwise.
5. ELIGIBILITY.
(a) Incentive Stock Options may be granted only to Employees.
Nonstatutory Stock Options may be granted only to Employees, Directors or
Consultants.
(b) A Director shall in no event be eligible for the benefits of the
Plan unless at the time discretion is exercised in the selection of the
Director as a person to whom Options may be granted, or in the determination
of the number of shares which may be covered by Options granted to the
Director: (i) the Board has delegated its discretionary authority over the
Plan to a Committee which consists solely of Disinterested Persons; or (ii)
the Plan otherwise complies with the requirements of Rule 16b-3. The Board
shall otherwise comply with the requirements of Rule 16b-3. This subsection
5(b) shall not apply (i) prior to the date of the first registration of an
equity security of the Company under Section 12 of the Exchange Act, or (ii)
if the Board or Committee expressly declares that it shall not apply.
(c) No person shall be eligible for the grant of an Option if, at
the time of grant, such person owns (or is deemed to own pursuant to Section
424(d) of the Code) stock possessing more than ten percent (10%) of the total
combined voting power of all classes of stock of the Company or of any of its
Affiliates unless the exercise price of such Option is at least one hundred
ten percent (110%) of the Fair Market Value of such stock at the date of
grant and the Option is not exercisable after the expiration of five (5)
years from the date of grant.
6. OPTION PROVISIONS.
Each Option shall be in such form and shall contain such terms and
conditions as the Board shall deem appropriate. The provisions of separate
Options need not be identical, but each Option
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shall include (through incorporation of provisions hereof by reference in the
Option or otherwise) the substance of each of the following provisions:
(a) TERM. No Option shall be exercisable after the expiration of ten
(10) years from the date it was granted.
(b) PRICE. The exercise price of each Incentive Stock Option shall
be not less than one hundred percent (100%) of the Fair Market Value of the
stock subject to the Option on the date the Option is granted. The exercise
price of each Nonstatutory Stock Option shall be not less than eighty-five
percent (85%) of the Fair Market Value of the stock subject to the Option on
the date the Option is granted.
(c) CONSIDERATION. The purchase price of stock acquired pursuant to
an Option shall be paid, to the extent permitted by applicable statutes and
regulations, either (i) in cash at the time the Option is exercised, or (ii)
at the discretion of the Board or the Committee, at the time of the grant of
the Option, (A) by delivery to the Company of other common stock of the
Company, (B) according to a deferred payment or other arrangement (which may
include, without limiting the generality of the foregoing, the use of other
common stock of the Company) with the person to whom the Option is granted or
to whom the Option is transferred pursuant to subsection 6(d), or (C) in any
other form of legal consideration that may be acceptable to the Board.
In the case of any deferred payment arrangement, interest shall be
payable at least annually and shall be charged at the minimum rate of
interest necessary to avoid the treatment as interest, under any applicable
provisions of the Code, of any amounts other than amounts stated to be
interest under the deferred payment arrangement.
(d) TRANSFERABILITY. An Incentive Stock Option shall not be
transferable except by will or by the laws of descent and distribution, and
shall be exercisable during the lifetime of the person
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<PAGE>
to whom the Option is granted only by such person. A Nonstatutory Stock
Option shall not be transferable except by will or by the laws of descent and
distribution or pursuant to a qualified domestic relations order satisfying
the requirements of Rule 16b-3 and the rules thereunder (a "QDRO"), and shall
be exercisable during the lifetime of the person to whom the Option is
granted only by such person or any transferee pursuant to a QDRO. The person
to whom the Option is granted may, by delivering written notice to the
Company, in a form satisfactory to the Company, designate a third party who,
in the event of the death of the Optionee, shall thereafter be entitled to
exercise the Option.
(e) VESTING. The total number of shares of stock subject to an
Option may, but need not, be allotted in periodic installments (which may,
but need not, be equal). The Option Agreement may provide that from time to
time during each of such installment periods, the Option may become
exercisable ("vest") with respect to some or all of the shares allotted to
that period, and may be exercised with respect to some or all of the shares
allotted to such period and/or any prior period as to which the Option became
vested but was not fully exercised. The vesting provisions of individual
Options may vary but in each case will provide for vesting of at least twenty
percent (20%) of the total number of shares subject to the Option per year.
During the remainder of the term of the Option (if its term extends beyond
the end of the installment periods), the Option may be exercised from time to
time with respect to any shares then remaining subject to the Option. The
provisions of this subsection 6(e) are subject to any Option provisions
governing the minimum number of shares as to which an Option may be exercised.
(f) SECURITIES LAW COMPLIANCE. The Company may require any Optionee,
or any person to whom an Option is transferred under subsection 6(d), as a
condition of exercising any such Option, (1) to give written assurances
satisfactory to the Company as to the Optionee's knowledge
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<PAGE>
and experience in financial and business matters and/or to employ a purchaser
representative reasonably satisfactory to the Company who is knowledgeable
and experienced in financial and business matters, and that he or she is
capable of evaluating, alone or together with the purchaser representative,
the merits and risks of exercising the Option; and (2) to give written
assurances satisfactory to the Company stating that such person is acquiring
the stock subject to the Option for such person's own account and not with
any present intention of selling or otherwise distributing the stock. These
requirements, and any assurances given pursuant to such requirements, shall
be inoperative if (i) the issuance of the shares upon the exercise of the
Option has been registered under a then currently effective registration
statement under the Securities Act of 1933, as amended (the "Securities
Act"), or (ii) as to any particular requirement, a determination is made by
counsel for the Company that such requirement need not be met in the
circumstances under the then applicable securities laws.
(g) TERMINATION OF EMPLOYMENT OR RELATIONSHIP AS A DIRECTOR OR
CONSULTANT. In the event an Optionee's Continuous Status as an Employee,
Director or Consultant terminates (other than upon the Optionee's death or
disability), the Optionee may exercise his or her Option, (to the extent that
the Optionee was entitled to exercise it at the date of termination) but only
within such period of time ending on the earlier of (i) the date three (3)
months after the termination of the Optionee's Continuous Status as an
Employee, Director or Consultant (or such longer or shorter period, which in
no event shall be less than thirty (30) days, specified in the Option
Agreement), or (ii) the expiration of the term of the Option as set forth in
the Option Agreement. If, after termination, the Optionee does not exercise
his or her Option within the time specified in the Option Agreement, the
Option shall terminate, and the shares covered by such Option shall revert to
and again become available for issuance under the Plan.
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<PAGE>
(h) DISABILITY OF OPTIONEE. In the event an Optionee's Continuous
Status as an Employee, Director or Consultant terminates as a result of the
Optionee's disability, the Optionee may exercise his or her Option (to the
extent that the Optionee was entitled to exercise it at the date of such
termination), but only within such period of time ending on the earlier of
(i) the date twelve (12) months following such termination (or such longer or
shorter period, which in no event shall be less than six (6) months,
specified in the Option Agreement), or (ii) the expiration of the term of the
Option as set forth in the Option Agreement. If, at the date of termination,
the Optionee is not entitled to exercise his or her entire Option, the shares
covered by the unexercisable portion of the Option shall revert to and again
become available for issuance under the Plan. If, after termination, the
Optionee does not exercise his or her Option within the time specified
herein, the Option shall terminate, and the shares covered by such Option
shall revert to and again become available for issuance under the Plan.
(i) DEATH OF OPTIONEE. In the event of the death of an Optionee
during, or within a period specified in the Option after the termination of,
the Optionee's Continuous Status as an Employee, Director or Consultant, the
Option may be exercised (to the extent the Optionee was entitled to exercise
the Option at the date of death) by the Optionee's estate, by a person who
acquired the right to exercise the Option by bequest or inheritance or by a
person designated to exercise the Option upon the Optionee's death pursuant
to subsection 6(d), but only within the period ending on the earlier of (i)
the date eighteen (18) months following the date of death (or such longer or
shorter period, which in no event shall be less than six (6) months,
specified in the Option Agreement), or (ii) the expiration of the term of
such Option as set forth in the Option Agreement. If, at the time of death,
the Optionee was not entitled to exercise his or her entire Option, the
shares covered by the unexercisable portion of the Option shall revert to and
again become available for
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<PAGE>
issuance under the Plan. If, after death, the Option is not exercised within
the time specified herein, the Option shall terminate, and the shares covered
by such Option shall revert to and again become available for issuance under
the Plan.
(j) EARLY EXERCISE. The Option may, but need not, include a
provision whereby the Optionee may elect at any time while an Employee,
Director or Consultant to exercise the Option as to any part or all of the
shares subject to the Option prior to the full vesting of the Option. Any
unvested shares so purchased shall be subject to a repurchase right in favor
of the Company, with the repurchase price to be equal to the original
purchase price of the stock, or to any other restriction the Board determines
to be appropriate; PROVIDED, HOWEVER, that (i) the right to repurchase at the
original purchase price shall lapse at a minimum rate of twenty percent (20%)
per year over five (5) years from the date the Option was granted, and (ii)
such right shall be exercisable only within (A) the ninety (90) day period
following the termination of employment or the relationship as a Director or
Consultant, or (B) such longer period as may be agreed to by the Company and
the Optionee (for example, for purposes of satisfying the requirements of
Section 1202(c)(3) of the Code (regarding "qualified small business stock")),
and (iii) such right shall be exercisable only for cash or cancellation of
purchase money indebtedness for the shares. Should the right of repurchase be
assigned by the Company, the assignee shall pay the Company cash equal to the
difference between the original purchase price and the stock's Fair Market
Value if the original purchase price is less than the stock's Fair Market
Value.
(k) WITHHOLDING. To the extent provided by the terms of an Option
Agreement, the Optionee may satisfy any federal, state or local tax
withholding obligation relating to the exercise of such Option by any of the
following means or by a combination of such means: (1) tendering a cash
payment; (2) authorizing the Company to withhold shares from the shares of
the common stock
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otherwise issuable to the participant as a result of the exercise of the
Option; or (3) delivering to the Company owned and unencumbered shares of the
common stock of the Company.
7. COVENANTS OF THE COMPANY.
(a) During the terms of the Options, the Company shall keep
available at all times the number of shares of stock required to satisfy such
Options.
(b) The Company shall seek to obtain from each regulatory commission
or agency having jurisdiction over the Plan such authority as may be required
to issue and sell shares of stock upon exercise of the Options; provided,
however, that this undertaking shall not require the Company to register
under the Securities Act either the Plan, any Option or any stock issued or
issuable pursuant to any such Option. If, after reasonable efforts, the
Company is unable to obtain from any such regulatory commission or agency the
authority which counsel for the Company deems necessary for the lawful
issuance and sale of stock under the Plan, the Company shall be relieved from
any liability for failure to issue and sell stock upon exercise of such
Options unless and until such authority is obtained.
8. USE OF PROCEEDS FROM STOCK.
Proceeds from the sale of stock pursuant to Options shall constitute
general funds of the Company.
9. MISCELLANEOUS.
(a) Neither an Optionee nor any person to whom an Option is
transferred under subsection 6(d) shall be deemed to be the holder of, or to
have any of the rights of a holder with respect to, any shares subject to
such Option unless and until such person has satisfied all requirements for
exercise of the Option pursuant to its terms.
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(b) Subject to Section 59(b) of the Company's Bylaws, throughout the
term of any Option, the Company shall deliver to the holder of such Option,
not later than one hundred twenty (120) days after the close of each of the
Company's fiscal years during the Option term, such financial and other
information regarding the Company as comprises the annual report to the
stockholders of the Company provided for in the bylaws of the Company.
(c) Nothing in the Plan or any instrument executed or Option granted
pursuant thereto shall confer upon any Employee, Director, Consultant or
Optionee any right to continue in the employ of the Company or any Affiliate
(or to continue acting as a Director or Consultant) or shall affect the right
of the Company or any Affiliate to terminate the employment or relationship
as a Director or Consultant of any Employee, Director, Consultant or Optionee
with or without cause.
(d) To the extent that the aggregate Fair Market Value (determined
at the time of grant) of stock with respect to which Incentive Stock Options
granted after 1986 are exercisable for the first time by any Optionee during
any calendar year under all plans of the Company and its Affiliates exceeds
one hundred thousand dollars ($100,000), the Options or portions thereof
which exceed such limit (according to the order in which they were granted)
shall be treated as Nonstatutory Stock Options.
(e) The Board or the Committee shall have the authority to effect,
at any time and from time to time (i) the repricing of any outstanding
Options under the Plan and/or (ii) with the consent of the affected holders
of Options, the cancellation of any outstanding Options and the grant in
substitution therefor of new Options under the Plan covering the same or
different numbers of shares of Common Stock, but having an exercise price per
share not less than eighty-five percent (85%) of the Fair Market Value (one
hundred percent (100%) of the Fair Market Value in the case of an Incentive
Stock Option or, in the case of a ten percent (10%) stockholder (as defined
in
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subsection 5(c)), not less than one hundred and ten percent (110%) of the
Fair Market Value) per share of Common Stock on the new grant date.
10. ADJUSTMENTS UPON CHANGES IN STOCK.
(a) If any change is made in the stock subject to the Plan, or
subject to any Option (through merger, consolidation, reorganization,
recapitalization, stock dividend, dividend in property other than cash, stock
split, liquidating dividend, combination of shares, exchange of shares,
change in corporate structure or otherwise), the Plan and outstanding Options
will be appropriately adjusted in the class(es) and maximum number of shares
subject to the Plan and the class(es) and number of shares and price per
share of stock subject to outstanding Options.
(b) In the event of: (1) a merger or consolidation in which the
Company is not the surviving corporation or (2) a reverse merger in which the
Company is the surviving corporation but the shares of the Company's common
stock outstanding immediately preceding the merger are converted by virtue of
the merger into other property, whether in the form of securities, cash or
otherwise then to the extent permitted by applicable law: (i) any surviving
corporation shall assume any Options outstanding under the Plan or shall
substitute similar Options for those outstanding under the Plan, or (ii) such
Options shall continue in full force and effect. In the event any surviving
corporation refuses to assume or continue such Options, or to substitute
similar options for those outstanding under the Plan, then such Options shall
be terminated if not exercised prior to such event. In the event of a
dissolution or liquidation of the Company, any Options outstanding under the
Plan shall terminate if not exercised prior to such event.
11. AMENDMENT OF THE PLAN AND OPTIONS.
(a) The Board at any time, and from time to time, may amend the
Plan. However, except as provided in Section 10 relating to adjustments upon
changes in stock, no amendment shall be
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effective unless approved by the stockholders of the Company within twelve
(12) months before or after the adoption of the amendment, where the
amendment will:
(1) Increase the number of shares reserved for Options
under the Plan;
(2) Modify the requirements as to eligibility for
participation in the Plan (to the extent such modification requires
stockholder approval in order for the Plan to satisfy the requirements of
Section 422 of the Code); or
(3) Modify the Plan in any other way if such modification
requires stockholder approval in order for the Plan to satisfy the
requirements of Section 422 of the Code or to comply with the requirements of
Rule 16b-3.
(b) It is expressly contemplated that the Board may amend the Plan
in any respect the Board deems necessary or advisable to provide Optionees
with the maximum benefits provided or to be provided under the provisions of
the Code and the regulations promulgated thereunder relating to Incentive
Stock Options and/or to bring the Plan and/or Incentive Stock Options granted
under it into compliance therewith.
(c) Rights and obligations under any Option granted before amendment
of the Plan shall not be altered by any amendment of the Plan unless (i) the
Company requests the consent of the person to whom the Option was granted and
(ii) such person consents in writing. The Board at any time, and from time to
time, may amend an Option. However, rights and obligations under any Option
granted before the amendment of such Option shall not be impaired by any such
amendment unless (i) the Company requests the consent of the person to whom
the Option was granted and (ii) such person consents in writing.
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12. TERMINATION OR SUSPENSION OF THE PLAN.
(a) The Board may suspend or terminate the Plan at any time. Unless
sooner terminated, the Plan shall terminate on December 13, 2003, which shall
be within ten (10) years from the date the Plan is adopted by the Board or
approved by the stockholders of the Company, whichever is earlier. No Options
may be granted under the Plan while the Plan is suspended or after it is
terminated.
(b) Rights and obligations under any Option granted while the Plan
is in effect shall not be altered or impaired by suspension or termination of
the Plan, except with the consent of the person to whom the Option was
granted.
13. EFFECTIVE DATE OF PLAN.
The Plan shall become effective as determined by the Board, but no
Options granted under the Plan shall be exercised unless and until the Plan
has been approved by the stockholders of the Company, and, if required, an
appropriate permit has been issued by the Commissioner of Corporations of the
State of California.
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Exhibit 10.8
THE SALE OF THE SECURITIES WHICH ARE THE SUBJECT OF THIS WARRANT HAS NOT BEEN
QUALIFIED WITH THE COMMISSIONER OF CORPORATIONS OF THE STATE OF CALIFORNIA
AND THE ISSUANCE OF SUCH SECURITIES OR THE PAYMENT OR RECEIPT OF ANY PART OF
THE CONSIDERATION THEREFOR PRIOR TO SUCH QUALIFICATION IS UNLAWFUL, UNLESS
THE SALE OF SECURITIES IS EXEMPT FROM QUALIFICATION BY SECTION 25100, 25102
OR 25105 OF THE CALIFORNIA CORPORATIONS CODE. THE RIGHTS OF ALL PARTIES TO
THIS WARRANT ARE EXPRESSLY CONDITIONED UPON SUCH QUALIFICATION BEING
OBTAINED, UNLESS THE SALE IS SO EXEMPT.
THIS WARRANT AND THE SECURITIES ISSUABLE UPON EXERCISE OF THIS WARRANT HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"),
OR UNDER THE SECURITIES LAWS OF CERTAIN STATES. THESE SECURITIES ARE SUBJECT
TO RESTRICTIONS ON TRANSFERABILITY AND RESALE AND MAY NOT BE TRANSFERRED OR
RESOLD EXCEPT AS PERMITTED UNDER THE ACT AND THE APPLICABLE STATE SECURITIES
LAWS, PURSUANT TO REGISTRATION OR EXEMPTION THEREFROM. INVESTORS SHOULD BE
AWARE THAT THEY MAY BE REQUIRED TO BEAR THE FINANCIAL RISKS OF THIS
INVESTMENT FOR AN INDEFINITE PERIOD OF TIME. THE ISSUER OF THESE SECURITIES
MAY REQUIRE AN OPINION OF COUNSEL IN FORM AND SUBSTANCE SATISFACTORY TO THE
ISSUER TO THE EFFECT THAT ANY PROPOSED TRANSFER OR RESALE IS IN COMPLIANCE
WITH THE ACT AND ANY APPLICABLE STATE SECURITIES LAWS.
WARRANT TO PURCHASE SERIES E CONVERTIBLE PREFERRED STOCK
OF
CIPHERGEN BIOSYSTEMS, INC.
VOID AFTER FEBRUARY 28, 2005
This certifies that, for value received, SG Cowen Securities
Corporation or its permitted registered assigns ("REGISTERED HOLDER"), is
entitled, subject to the terms and conditions of this Warrant, at any time
before 5:00 p.m. Pacific Time on February 28, 2005, unless terminated earlier
under Section 11 hereof (the "EXPIRATION DATE") to purchase from Ciphergen
Biosystems, Inc., a California corporation (the "COMPANY"), up to One Hundred
Forty Six Thousand Six Hundred Thirty Five (146,635) shares of the Company's
Series E Convertible Preferred Stock, no par value per share (the "WARRANT
STOCK"), as constituted on March 8, 2000 (the "ISSUE DATE"), at the price of
Two Dollars Seventy Five cents ($2.75) per share (the "PURCHASE PRICE") upon
surrender of this Warrant at the principal office of the Company, together
with a duly executed subscription in the form attached hereto as EXHIBIT 1
and simultaneous payment of the full Purchase Price therefor in lawful money
of the United States as provided herein. The Purchase Price and the number
and character of shares of Warrant Stock purchasable hereunder are subject to
adjustment as provided herein. Unless the context otherwise requires, the
term "Warrant Stock" shall mean and include the stock and other securities
and property at any time receivable
<PAGE>
or issuable upon exercise of this Warrant. The term "Warrant" as used herein,
shall include this Warrant and any warrants delivered in substitution or
exchange therefor as provided herein.
1. EXERCISE.
1.1 METHOD OF EXERCISE. Subject to the terms and
conditions of this Warrant, the Registered Holder may exercise this Warrant
in whole or in part, at any time or from time to time, on any business day
prior to the Expiration Date by surrendering this Warrant at the principal
executive office of the Company, together with the subscription form attached
hereto duly executed by the Registered Holder and payment in full of the
Purchase Price or adjusted Purchase Price therefor, if applicable (as
determined in accordance with the terms hereof) for the number of shares of
Warrant Stock to be purchased upon such exercise of this Warrant.
1.2 FORM OF PAYMENT. Payment may be made by (i) a
check payable to the Company's order, (ii) wire transfer of funds to the
Company, (iii) cancellation of indebtedness of the Company to the Holder, or
(iv) any combination of the foregoing.
1.3 PARTIAL EXERCISE. Upon a partial exercise of
this Warrant: (i) the Purchase Amount immediately prior to such exercise
shall be reduced by the aggregate amount paid to the Company upon such
exercise of this Warrant, and (ii) this Warrant shall be surrendered by the
Registered Holder and replaced with a new Warrant of like tenor for purchase
of the number of remaining shares of Warrant Stock not previously purchased
shall be issued by the Company to the Registered Holder.
1.4 NO FRACTIONAL SHARES. No fractional shares may
be issued upon any exercise of this Warrant, and any fractions shall be
rounded down to the nearest whole number of shares. If upon any exercise of
this Warrant a fraction of a share results, the Company will pay the cash
value of any such fractional share, calculated on the basis of the Warrant
Price.
1.5 RESTRICTIONS ON EXERCISE. This Warrant may not
be exercised if the issuance of the Warrant Stock upon such exercise would
constitute a violation of any applicable federal or state securities laws or
other laws or regulations. As a condition to the exercise of this Warrant,
the Registered Holder shall execute the subscription form attached hereto.
1.6 NET EXERCISE ELECTION. The Registered Holder may
elect to convert all or a portion of this Warrant, without the payment by the
Registered Holder of any additional consideration, by the surrender of this
Warrant or such portion to the Company, with the net exercise election
selected in the subscription form attached hereto duly executed by the
Holder, into up to the number of shares of Warrant Stock that is obtained
under the following formula:
X = Y (A-B)
-------
A
2
<PAGE>
where X = the number of shares of Warrant Stock to be issued
to the Registered Holder pursuant to this Section 1.6.
Y = the Maximum Purchase Amount divided by the Warrant
Price.
A = the fair market value of one share of Warrant Stock, as
determined in good faith by the Company's Board of
Directors, as at the time the net exercise election is made
pursuant to this Section 1.6.
B = the Warrant Price.
The Company will promptly respond in writing to an inquiry
by the Registered Holder as to the then current fair market value of one
share of Warrant Stock.
2. VALID ISSUANCE. All shares of Warrant Stock issued upon
the exercise of this Warrant shall be validly issued, fully paid and
non-assessable. The Company shall not be required to pay any tax or other
charge imposed in connection with any transfer involved in the issue of any
certificate for shares of Warrant Stock, or any Common Stock or other
securities issuable upon conversion of such Warrant Stock ("CONVERSION
STOCK"), in any name other than that of the Registered Holder of this
Warrant, and in such case the Company shall not be required to issue or
deliver any stock certificate or security until such tax or other charge has
been paid, or it has been established to the Company's satisfaction that no
tax or other charge is due.
3. TRANSFER AND EXCHANGE. This Warrant and the rights
hereunder may not be transferred in whole or in part without the Company's
prior written consent and may not be transferred unless such transfer
complies with all applicable securities laws and the provisions of Section
10. If a transfer of all or part of this Warrant is permitted by the
preceding sentence, then this Warrant and all rights hereunder may be
transferred, in whole or in part, on the books of the Company maintained for
such purpose at the principal office of the Company referred to above, by the
Registered Holder hereof in person, or by duly authorized attorney, upon
surrender of this Warrant properly endorsed and upon payment of any necessary
transfer tax or other governmental charge imposed upon such transfer. Upon
any permitted partial transfer, the Company will issue and deliver to the
Registered Holder a new Warrant or Warrants with respect to the shares of
Warrant Stock not so transferred. Each taker and holder of this Warrant, by
taking or holding the same, consents and agrees that when this Warrant shall
have been so endorsed, the person in possession of this Warrant may be
treated by the Company, and all other persons dealing with this Warrant, as
the absolute owner hereof for any purpose and as the person entitled to
exercise the rights represented hereby, any notice to the contrary
notwithstanding; PROVIDED, HOWEVER that until a transfer of this Warrant is
duly registered on the books of the Company, the Company may treat the
Registered Holder hereof as the owner of this Warrant for all purposes.
4. ADJUSTMENT OF PURCHASE PRICE AND NUMBER OF SHARES. The
number and character of shares of Warrant Stock issuable upon exercise of
this Warrant (or any shares of
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stock or other securities or property at the time receivable or issuable upon
exercise of this Warrant) and the Purchase Price therefor, are subject to
adjustment upon occurrence of the following events:
4.1 ADJUSTMENT FOR STOCK SPLITS, STOCK DIVIDENDS,
RECAPITALIZATIONS, ETC. The Purchase Price of this Warrant and the number of
shares of Warrant Stock issuable upon exercise of this Warrant shall each be
proportionally adjusted to reflect any stock dividend, stock split, reverse
stock split, combination of shares, reclassification, recapitalization or
other similar event altering the number of outstanding shares of Warrant
Stock.
4.2 ADJUSTMENT FOR OTHER DIVIDENDS AND
DISTRIBUTIONS. In case the Company shall make or issue, or shall fix a record
date for the determination of eligible holders entitled to receive, a
dividend or other distribution with respect to the Warrant Stock payable in
securities of the Company then, and in each such case, the Registered Holder
of this Warrant, on exercise of this Warrant at any time after the
consummation, effective date or record date of such event, shall receive, in
addition to the shares of Warrant Stock (or such other stock or securities)
issuable on such exercise prior to such date, the securities of the Company
to which such Registered Holder would have been entitled upon such date if
such Registered Holder had exercised this Warrant immediately prior thereto
(all subject to further adjustment as provided in this Warrant).
4.3 ADJUSTMENT FOR CAPITAL REORGANIZATION,
CONSOLIDATION, MERGER.
(a) Subject to Section 5.4, if any capital
reorganization of the capital stock of the Company, or any consolidation or
merger of the Company with or into another corporation, or the sale of all or
substantially all of the Company's assets to another corporation shall be
effected in such a way that holders of Warrant Stock will be entitled to
receive stock, securities or assets with respect to or in exchange for their
Warrant Stock, and in each such case, the Registered Holder of this Warrant,
upon the exercise of this Warrant (as provided in Section 1), at any time
after the consummation of such capital reorganization, consolidation, merger,
or sale, shall be entitled to receive, in lieu of the stock or other
securities and property receivable upon the exercise of this Warrant prior to
such consummation, the stock or other securities or property to which such
Registered Holder would have been entitled upon such consummation if such
Registered Holder had exercised this Warrant immediately prior thereto, all
subject to further adjustment as provided in this Section 6; and in each such
case, the terms of this Warrant shall be applicable to the shares of stock or
other securities or property receivable upon the exercise of this Warrant
after such consummation.
(b) In lieu of receiving the stock, securities
or assets as referred to in Section 4.3(a), the Holder of this Warrant shall
be entitled, at its option, to receive a warrant substantially similar to
this Warrant to be issued by the person acquiring the stock or assets of the
Company.
4.4 CONVERSION OF WARRANT STOCK. If all the
outstanding shares of the Series E Convertible Preferred Stock of the Company
are converted into Common Stock pursuant to the Company's Articles of
Incorporation or otherwise, or such Series E Convertible Preferred Stock
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otherwise ceases to exist, then, from and after the date on which such Series
E Convertible Preferred Stock is so converted or ceases to exist (the
"CONVERSION DATE"): (i) this Warrant will be exercisable for Common Stock of
the Company and the term "Warrant Stock" (wherever used in this Warrant) will
thereafter mean the Company's Common Stock; and (ii) the Purchase Price will
be the price obtained by dividing (a) the Purchase Price in effect
immediately prior to the Conversion Date by (b) the number of shares of
Common Stock (including fractional shares) into which each share of Series E
Convertible Preferred Stock was convertible immediately prior to the
Conversion Date (subject to subsequent adjustment as provided herein).
5. NO IMPAIRMENT. Subject to the provisions of Section 4, the
Company will not, by amendment of its Articles of Incorporation or bylaws, or
through reorganization, consolidation, merger, dissolution, issue or sale of
securities, sale of assets or any other voluntary action, willfully avoid or
seek to avoid the observance or performance of any of the terms of this
Warrant, but will at all times in good faith assist in the carrying out of
all such terms and in the taking of all such action as may be necessary or
appropriate in order to protect the rights of the Registered Holder of this
Warrant against impairment. Without limiting the generality of the foregoing,
subject to the provisions of Section 4, the Company (a) will not increase the
par value of any shares of stock issuable upon the exercise of this Warrant
above the amount payable therefor upon such exercise, and (b) will take all
such action as may be necessary or appropriate in order that the Company may
validly and legally issue fully paid and non-assessable shares of Warrant
Stock upon the exercise of this Warrant.
6. CERTIFICATE AS TO ADJUSTMENTS. In each case of any
adjustment in either the Purchase Price or in the number of shares of Warrant
Stock, or other stock, securities or property receivable on the exercise of
this Warrant, the Chief Financial Officer of the Company shall compute such
adjustment in accordance with the terms of this Warrant and prepare a
certificate setting forth such adjustment and showing in detail the facts
upon which such adjustment is based, including a statement of the adjusted
Purchase Price. The Company will forthwith mail a copy of each such
certificate to the Registered Holder of this Warrant.
7. NOTICES OF RECORD DATE. In case:
(a) the Company shall take a record of the holders of its
Warrant Stock (or other stock or securities at the time receivable upon the
exercise of this Warrant) for the purpose of entitling them to receive any
stock dividend; or
(b) of any consolidation or merger of the Company with or
into another corporation, or any conveyance of all or substantially all of
the assets of the Company to another corporation in which holders of the
Company's stock are to receive stock, securities or property of another
corporation; or
(c) of any voluntary dissolution, liquidation or
winding-up of the Company; or
(d) of any redemption or conversion into Common Stock of
all outstanding Warrant Stock;
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then, and in each such case, the Company will mail or cause to be mailed to
the Registered Holder of this Warrant a notice specifying, as the case may
be, (i) the date on which a record is to be taken for the purpose of such
dividend, and stating the amount and character of such dividend, or (ii) the
date on which such consolidation, merger, conveyance, dissolution,
liquidation, winding-up, redemption or conversion is to take place, and the
time, if any is to be fixed, as of which the holders of record of Warrant
Stock or Common Stock (or such stock or securities as at the time are
receivable upon the exercise of this Warrant) shall be entitled to exchange
their shares of Warrant Stock or Common Stock (or such other stock or
securities) for securities or other property deliverable upon such
consolidation, merger, conveyance, dissolution, liquidation or winding-up.
Such notice shall be mailed at least ten (10) days prior to the date therein
specified.
8. LOSS OR MUTILATION. Upon receipt by the Company of
evidence reasonably satisfactory to it of the ownership of and the loss,
theft, destruction or mutilation of this Warrant, and of a written indemnity
agreement reasonably satisfactory to the Company, and (in the case of
mutilation) upon surrender and cancellation of this Warrant, the Company will
execute and deliver in lieu thereof a new Warrant of like tenor.
9. RESERVATION OF WARRANT STOCK. Subject to the provisions of
Section 5.4, the Company shall at all times reserve and keep available for
issue upon the exercise of this Warrant such number of its authorized but
unissued shares of Warrant Stock (and Common Stock if the Warrant Stock is
not Common Stock) as will be sufficient to permit the exercise in full of
this Warrant and the conversion of all shares of Warrant Stock issuable
hereunder into Common Stock (if the Warrant Stock is then convertible into
Common Stock).
10. NO RIGHTS OR LIABILITIES AS SHAREHOLDER. This Warrant does
not by itself entitle the Registered Holder to any voting rights or other
rights as a shareholder of the Company. In the absence of affirmative action
by Registered Holder to purchase Warrant Stock by exercise of this Warrant,
no pro- visions of this Warrant, and no enumeration herein of the rights or
privileges of the Registered Holder shall cause such Registered Holder to be
a shareholder of the Company for any purpose.
11. REPRESENTATIONS OF THE REGISTERED HOLDER. Because of the
exemptions from the registration and qualification requirements of the 1933
Act, and the California Corporation Securities Law of 1968, as amended or
such other applicable states' securities laws (the "LAW") relied upon by the
Company in issuing this Warrant and Warrant Stock to the Registered Holder,
the Registered Holder hereby represents and warrants to the Company that it:
11.1 By reason of its business or financial
experience, is able to evaluate the merits and risks of the investment in the
Warrant and Warrant Stock, and that it has the capacity to protect its own
interests with respect to this investment;
11.2 Is aware that the Warrant and Warrant Stock are
highly speculative and that there can be no assurance that it will receive
any return on this investment, and further, that
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it has the financial ability to bear the economic risk of the investment and
has no need for liquidity with respect to the investment in the Warrant and
Warrant Stock;
11.3 Is aware of the Company's business affairs and
financial condition and: (a) has acquired sufficient information about the
Company to reach an informed and knowledgeable decision to acquire the
Warrant and Warrant Stock; (b) has been given the opportunity to ask
questions of and receive answers from the Company with respect to its
business and financial condition and with respect to the terms and conditions
of this investment; (c) has had the opportunity to obtain any additional
information necessary to verify any information received from the Company;
11.4 Is purchasing the Warrant and Warrant Stock for
investment for its own account only, not as nominee or agent, and not with a
view to, or for resale in connection with, any "distribution" of all or any
part of such securities within the meaning of the 1933 Act;
11.5 Understands that the Warrant and Warrant Stock
have not been registered under the 1933 Act by reason of a specific exemption
therefrom, which exemption may depend upon, among other things, the truth of
its representations as expressed in this Warrant;
11.6 Understands that: (a) the Warrant and Warrant
Stock are characterized as "restricted securities" under the federal
securities laws since the sale of the Warrant and Warrant Stock has not been
registered under the 1933 Act; (b) the Warrant and Warrant Stock may be
resold without registration under the 1933 Act only in certain limited
circumstances; (c) the Registered Holder may be required to hold the Warrant
and Warrant Stock indefinitely unless such securities are subsequently
registered under the 1933 Act or an exemption from such registration is
available; and (d) the Company is not obligated to register such securities
under the 1933 Act or assist the Registered Holder in qualifying for any
exemption from registration under the 1933 Act;
11.7 Is aware of Rule 144 promulgated under the 1933
Act, which rule provides, in substance, that (a) after one (1) year from the
date the securities have been purchased and fully paid for, a purchaser may
publicly transfer restricted securities provided certain conditions are met,
e.g., certain public information is available about the Company, and specific
limitations on the amount of shares which can be sold within certain periods
and the manner in which such shares must be sold are complied with, and (b)
after two (2) years from the date the securities have been purchased and
fully paid for, purchasers who are not "affiliates" of the Company may sell
restricted securities without satisfying such conditions;
11.8 Further understands that if the requirements of
Rule 144 are not met, registration under the 1933 Act, compliance with
Regulation A, or some other registration exemption will be required for any
disposition of the Warrant or Warrant Stock; and that, although Rule 144 is
not exclusive, the SEC has expressed its opinion that persons proposing to
sell restricted securities other than in a registered offering and other than
pursuant to Rule 144 will have a substantial burden of proof in establishing
that an exemption from registration is
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available for such offers or sales and that such persons and the brokers who
participate in the transactions do so at their own risk;
11.9 Agrees that the Company may place the legends
set forth below or similar legends on any stock certificate(s) evidencing the
Warrant Shares, together with any other legends that may be required by state
or federal securities laws, the Company's Articles of Incorporation or
Bylaws, any other agreement between Registered Holder and the Company or any
agreement between the Registered Holder and any third party:
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR UNDER THE
SECURITIES LAWS OF ANY OTHER JURISDICTIONS. THESE SECURITIES ARE
SUBJECT TO RESTRICTIONS ON TRANSFERABILITY AND RESALE AND MAY NOT BE
TRANSFERRED OR RESOLD EXCEPT AS PERMITTED UNDER THE ACT AND
APPLICABLE STATE SECURITIES LAWS, PURSUANT TO REGISTRATION OR
EXEMPTION THEREFROM. INVESTORS SHOULD BE AWARE THAT THEY MAY BE
REQUIRED TO BEAR THE FINANCIAL RISKS OF THIS INVESTMENT FOR AN
INDEFINITE PERIOD OF TIME. THE ISSUER OF THESE SECURITIES MAY
REQUIRE AN OPINION OF COUNSEL IN FORM AND SUBSTANCE SATISFACTORY TO
THE ISSUER TO THE EFFECT THAT ANY PROPOSED TRANSFER OR RESALE IS IN
COMPLIANCE WITH THE ACT AND ANY APPLICABLE STATE SECURITIES LAWS.
THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO A 180 DAY
MARKET STAND-OFF RESTRICTION AS SET FORTH IN A CERTAIN WARRANT
AGREEMENT BETWEEN THE ISSUER AND THE ORIGINAL HOLDER OF THESE
SHARES, A COPY OF WHICH MAY BE OBTAINED AT THE PRINCIPAL OFFICE OF
THE ISSUER. AS A RESULT OF SUCH AGREEMENT, THESE SHARES MAY NOT BE
TRADED PRIOR TO 180 DAYS AFTER THE EFFECTIVE DATE OF THE INITIAL
PUBLIC OFFERING OF THE COMMON STOCK OF THE ISSUER HEREOF. SUCH
RESTRICTIONS SHALL BE BINDING ON TRANSFEREES OF THESE SHARES.
Registered Holder agrees that, in order to ensure compliance with
the restrictions imposed by this Warrant, the Company may issue appropriate
"stop-transfer" instructions to its transfer agent, if any, and if the
Company transfers its own securities, it may make appropriate notations to
the same effect in its own records.
12. "MARKET STAND-OFF" AGREEMENT. Registered Holder agrees in
connection with any registration of the Company's securities under the 1933
Act that, upon the request of the Company or the underwriters managing any
registered public offering of the Company's securities, Registered Holder
will not sell or otherwise dispose of any shares of the Warrant Stock without
the prior written consent of the Company or such underwriters, as the case
may be, for such period of time (not to exceed one hundred eighty (180) days)
after the effective date of
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such registration requested by such managing underwriters and subject to all
restrictions as the Company or the managing underwriters may specify for
employee-shareholders generally. Registered Holder further agrees to enter
into any agreement reasonably required by the underwriters to implement the
foregoing.
13. FINANCIAL INFORMATION. The Company shall provide the
Registered Holder with quarterly financial statements so long as the Company
is profitable.
14. NOTICES. All notices and other communications from the
Company to the Registered Holder shall be mailed by first-class registered or
certified mail, postage prepaid, to the address furnished to the Company in
writing by the last Registered Holder who shall have furnished an address to
the Company in writing.
15. CHANGE; WAIVER. Neither this Warrant nor any term hereof
may be changed, waived, discharged or terminated orally but only by an
instrument in writing signed by the party against which enforcement of the
change, waiver, discharge or termination is sought.
16. HEADINGS. The headings in this Warrant are for purposes of
convenience in reference only, and shall not be deemed to constitute a part
hereof.
17. LAW GOVERNING. This Warrant shall be construed and
enforced in accordance with, and governed by, the internal laws of the State
of California, excluding that body of law applicable to conflicts of law.
18. TERMS BINDING. By acceptance of this Warrant, the
Registered Holder of this Warrant (and each subsequent assignee, transferee
or Registered Holder of this Warrant) accepts and agrees to be bound by all
the terms and conditions of this Warrant.
Dated: March 8, 2000
ACKNOWLEDGED AND ACCEPTED BY:
CIPHERGEN BIOSYSTEMS, INC. REGISTERED HOLDER:
By: By:
------------------------------ -------------------------------
Name: Name:
---------------------------- -----------------------------
Title: Title:
---------------------------- -----------------------------
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EXHIBIT 1
FORM OF SUBSCRIPTION
(To be signed only upon exercise of Warrant)
To: Ciphergen Biosystems, Inc.
490 San Antonio Road
Palo Alto, CA 94306
(1) The undersigned Holder hereby elects to purchase ________________
shares of Series E Convertible Preferred Stock of _______________ (the "WARRANT
STOCK"), pursuant to the terms of the attached Warrant, and tenders herewith
payment of the purchase price for such shares in full.
[(1) NET EXERCISE ELECTION. THE UNDERSIGNED HOLDER ELECTS TO CONVERT
THE WARRANT INTO SHARES OF WARRANT STOCK BY NET EXERCISE ELECTION PURSUANT TO
SECTION 1.6 OF THE WARRANT. THIS CONVERSION IS EXERCISED WITH RESPECT TO
__________ SHARES OF SERIES E CONVERTIBLE PREFERRED STOCK OF _______________
(THE "WARRANT STOCK") COVERED BY THE WARRANT.]
[STRIKE PARAGRAPH ABOVE THAT DOES NOT APPLY]
(2) In exercising the Warrant, the undersigned Holder hereby
confirms and acknowledges that the representations and warranties set forth
in Section 12 of the Warrant as they apply to the undersigned Holder continue
to be true and correct as of this date.
(3) Please issue a certificate or certificates representing such
shares of Warrant Stock in the name or names specified below:
- -------------------------------- ----------------------------------
(Name) (Name)
- -------------------------------- ----------------------------------
(Address) (Address)
- -------------------------------- ----------------------------------
(City, State, Zip Code) (City, State, Zip Code)
- -------------------------------- ----------------------------------
(Federal Tax Identification Number) (Federal Tax Identification Number)
- -------------------------------- ----------------------------------
(Date) (Signature of Holder)
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<PAGE>
FORM OF ASSIGNMENT
FOR VALUE RECEIVED the undersigned Registered Holder of this Warrant
hereby sells, assigns and transfers unto the Assignee named below all of the
rights of the undersigned under the within Warrant, with respect to the
number of shares of Series E Convertible Preferred Stock set forth below:
NAME OF ASSIGNEE ADDRESS NO. OF SHARES
- ---------------------- ------------- -------------------
and does hereby irrevocably constitute and appoint ________________ Attorney
to make such transfer on the books of ___________________, maintained for the
purpose, with full power of substitution in the premises.
Dated: _____________________ [Registered Holder]
By:
-------------------------------
Name:
-----------------------------
Title:
----------------------------
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JOINT VENTURE AGREEMENT
This Joint Venture Agreement ("Agreement") is entered into as of the
Effective Date (as defined below) by Ciphergen Biosystems, Inc., a California
corporation located at 490 San Antonio Road, Palo Alto, California 94306,
U.S.A. ("CBI") and Sumitomo Corporation, a Japanese corporation located at
1-2-2 Hitotsubashi Chiyoda-ku, Tokyo 100-8601, Japan ("SC"). Upon Closing (as
defined below), JVC (as defined below) shall sign and become a Party (as
defined below) to this Agreement. The Parties (as defined below) agree as
follows:
1. DEFINITIONS
For the purpose of this Agreement, the following definitions shall
apply:
1.1 "AFFILIATE" means any entity which is controlled by CBI, SC or
JVC. An entity shall be regarded as in control of another entity for purposes
of this definition if it owns or controls more than fifty percent (50%) of
the shares of the subject entity entitled to vote in the election of
directors (or, in the case of an entity that is not a corporation, for the
election of the corresponding managing authority); provided, however, that in
any country where the local law does not permit equity participation of at
least 50%, then Affiliate will include any company in which CBI, SC or JVC
owns or controls, directly or indirectly, the maximum percentage of such
outstanding stock or voting rights permitted by law.
1.2 "ANNUAL BUDGET" means an estimate of JVC's revenues and
expenditures for a specified fiscal year prepared annually by the JVC and
presented to JVC's Board on the first quarterly meeting of each fiscal year,
submitted as a part of the Business Plan in Section 1.6.
1.3 "ARTICLES" means the Japanese language version of the Articles
of Incorporation of JVC attached in the English language as EXHIBIT A, and
includes any amendments made under this Agreement and the Commercial Code of
Japan.
1.4 "BOARD" means the board of directors of JVC.
1.5 "BOOK VALUE" means JVC's tangible net worth (tangible assets
minus total liabilities) at the end of the specified accounting period as
defined in Japan GAAP and disclosed in JVC's Financial Statements audited by
JVC's public accountants.
1.6 "BUSINESS PLAN" means a plan of JVC operations, management,
financial and other business matters presented and approved by the Board on
the first quarterly meeting of each fiscal year.
1.7 "BUYOUT OPTION" means CBI's option to purchase JVC shares from
SC as provided in Section 5.
1.8 "CBI IPO" means initial underwritten public offering of CBI's
equity securities on a national securities exchange or the Nasdaq National or
Small Cap Markets.
<PAGE>
1.9 "CHANGE IN CONTROL" with respect to a Party means (i) a merger
of that Party with or into another Person, or a sale of all or substantially
all of a Party's assets to another Person, if as a result of the merger or
asset sale the holders of a majority of the Party's voting securities before
the transaction hold less than a majority of the voting securities of the
surviving entity, or (ii) the acquisition by a Person or a group acting in
concert of a majority of a Party's voting securities.
1.10 "CLOSING" is defined in Section 9.3.
1.11 "DISTRIBUTION AND MARKETING AGREEMENT" means the Distribution
and Marketing Agreement to be entered into by CBI and JVC attached in EXHIBIT
B.
1.12 "EFFECTIVE DATE" means the date on which CBI and SC have
executed this Agreement.
1.13 "FAIR MARKET VALUE" is defined in Section 10.8.
1.14 "FINANCIAL STATEMENTS" is defined in Section 4.5(a).
1.15 "HOLDER" means CBI or SC, as applicable. "HOLDERS" means CBI
and SC.
1.16 "JAPAN GAAP" means generally accepted accounting principles as
applied in Japan.
1.17 "JVC IPO" means initial underwritten public offering of JVC's
Shares on a national securities exchange in the United States or Japan, the
over-the-counter securities market in Japan, or the Nasdaq National or Small
Cap Markets in the United States.
1.18 "JVC" means the limited liability corporation (KABUSHIKI
KAISHA) to be incorporated under the Commercial Code of Japan with the
English language name "Ciphergen Biosystems K.K."
1.19 "JVC INTEREST" means Shares held by the Holders.
1.20 "OPTION SHARES" is defined in Section 5.1.
1.21 "PARTY" or "PARTIES" means CBI, SC or JVC, as applicable.
1.22 "PERSON" means a natural individual, partnership, firm,
company, corporation, and any other form of business association.
1.23 "PRO RATA SHARE" of a Holder means the percentage of JVC
Interest that the Holder holds by virtue of those Shares owned by that
Holder, after assuming conversion or exercise of any warrant, stock option
and other securities of JVC.
1.24 "REPRESENTATIVE DIRECTOR" is defined in Section 4.1(d).
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1.25 "REPRESENTATIVE DIRECTOR AGREEMENT" means the Representative
Director Agreement to be entered into by the JVC and the Representative
Director attached in EXHIBIT C.
1.26 "SC INTEREST RATE" means rate of interest charged on Working
Capital Loans from SC to JVC as provided in Section 2.4.
1.27 "SHARE" or "SHARES" means shares of JVC Common Stock with a par
value of Y50,000 per share, as specified in the Articles.
1.28 "SHAREHOLDING RATIO" means the ratio of the number of a
Holder's Shares to all outstanding Shares, after assuming conversion or
exercise of any warrant, stock option and other equity securities of JVC.
1.29 "U.S. GAAP" means the generally accepted accounting principles
as applied in the United States.
1.30 "WORKING CAPITAL LOAN" is defined in Section 2.4(a).
1.31 "TERMINATING EVENT" means any event which gives a Holder the
right to notify the other Holder of termination of this Agreement under
Section 10.
2. JVC ORGANIZATION AND CAPITAL STRUCTURE
2.1 INCORPORATION PROCEDURE AND DOCUMENTATION. SC shall be
responsible for the incorporation of JVC and file the application for
registration of incorporation as soon as practicable. SC, as the promoter,
shall prepare all documents necessary to establish JVC as provided in this
Agreement and to allow the Holders to subscribe for JVC's Shares pursuant to
Section 2.3. SC shall select a bank in Japan for the deposit of initial
paid-in capital ("Deposit Bank"). The initial paid-in capital shall be sent
to an account (BETSUDAN YOKIN) designated by the Deposit Bank, and the
Deposit Bank shall issue a certificate of custody required for the
registration of incorporation. Except as approved by CBI, SC shall deliver to
CBI a complete and accurate English language translation of (i) the Articles,
(ii) the commercial registration of JVC as of a recent date, and (iii) all
such incorporation, subscription and other documents required to be prepared
in the Japanese language. All such documents not required to be prepared in
the Japanese language shall be prepared and executed in the English language.
Pursuant to Section 9.4(b), SC shall provide CBI with a reasonably itemized
listing of the out-of-pocket costs SC incurred in incorporating JVC and
causing its initial share issuances, which shall be reimbursed by the JVC
within 30 days after the Closing.
2.2 CAPITALIZATION. JVC shall have 10,000 authorized Shares.
2.3 SUBSCRIPTION. At the incorporation of JVC, (i) 1,750 Shares
shall be issued to SC at the issue price of Y50,000 per Share for an
aggregate issue price of Y87,500,000, and at Closing, (ii) 750 Shares shall
be issued to CBI at the issue price of Y50,000 per Share for an aggregate
issue price of Y37,500,000. Documents for subscription of Shares shall be
prepared in the names of the Holders, and JVC shall issue to SC and CBI
certificates evidencing the Shares purchased.
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<PAGE>
2.4 SC WORKING CAPITAL LOANS TO JVC.
(a) LOAN TO JVC. SC shall arrange to lend JVC, from the
Effective Date to the date that CBI exercises the Buyout Option ("Working
Capital Loan Period"), all amounts reasonably required by JVC to fund JVC's
operations in the manner described in the Business Plan, to the extent funds
received in the initial stock issuance, plus cash generated by JVC operations
are not sufficient ("Working Capital Loan"). JVC may draw the Working Capital
Loan from an immediately available line of credit from an account designated
by SC to JVC. SC shall advance the Working Capital Loan to JVC at any time
during the Working Capital Loan Period ("Working Capital Advance") provided
that JVC gives SC a 48 hour notice ("Working Capital Loan Notice") before the
Working Capital Advance is to be made. JVC or CBI shall not have any
additional obligation to SC or any other Person as a result of the Working
Capital Loan.
(b) WORKING CAPITAL LOAN INTEREST. JVC shall pay interest
on the unpaid aggregate principal amount of the outstanding Working Capital
Loan advanced to JVC from the date of the Working Capital Advance until the
next date on which SC makes another Working Capital Advance, at the rate
applicable on the date of Working Capital Advance as SC notifies JVC in
writing at that time ("SC Interest Rate") until the next date of Working
Capital Advance. SC shall provide the JVC with a schedule of applicable
interest rates and use its best efforts to provide the lowest interest rate.
Payments on accrued Working Capital interest shall be made 10 days after the
last day of each month during the Working Capital Loan Period. When SC makes
available a subsequent Working Capital Advance, the interest rate for the
aggregate principal amount plus accrued interest shall be the SC Interest
Rate applicable on the date of that subsequent Working Capital Advance. The
Working Capital interest shall be computed, for actual days elapsed, as if
each full calendar year consisted of 360 days. The Working Capital Loan
interest shall be limited by the Interest Rate Restriction Law (RISOKU
SEIGENHO).
(c) WORKING CAPITAL LOAN TERMINATION. JVC shall pay SC any
outstanding balance of the Working Capital Loan, plus continuing Working
Capital Loan Interest (i) within 10 days after CBI's exercise of the Buyout
Option, (ii) immediately upon JVC's bankruptcy, JVC ceasing to do business,
JVC's dissolution or liquidation, or (iii) upon the termination of this
Agreement following a Termination Event under Section 10.
(d) PREPAYMENTS. JVC shall have the right to prepay the
Working Capital Loan ("Prepayments") amount at any time during the Working
Capital Loan Period, in whole or in part, without premium or penalty. JVC
shall give SC notice of each such Prepayment. All Prepayments shall be
applied first to accrued and unpaid interest and then to the principal
balance of the Working Capital Loan. Such Prepayments shall not affect the
availability of the Working Capital Loan for the benefit of JVC.
(e) DISBURSEMENT. Each Working Capital Advance shall be
disbursed to JVC after the Working Capital Loan Notice and added to the
principal amount of the Working Capital Loan and interest shall accrue at the
SC Interest Rate applicable on the disbursement date until the next
disbursement date.
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(f) RECORDS. All Working Capital Loan Advances, interest on
the Working Capital Loan, Prepayments of the principal amount of the Working
Capital Loan, Working Capital Loan Payment, wire transfers and other related
transactions shall be recorded and kept up to date by the JVC. JVC's failure
to maintain such records shall not affect JVC's obligations to repay the
Working Capital Loan.
(g) SECURITY INTEREST. The Working Capital Loan shall not
be supported by any security interest or guaranty.
(h) DEFAULT AND ACCELERATION. If after CBI exercises the
Buyout Option, (i) JVC fails to pay the principal of or interest on the
Working Capital Loan when due, (ii) JVC files for bankruptcy proceedings,
(iii) JVC's creditors file for JVC's bankruptcy and the case has not been
dismissed in 60 days, or (iv) JVC ceases to do business or liquidates, then
the Working Capital Loan shall terminate and the entire unpaid balance of the
principal of and interest on the Working Capital Loan shall immediately
become due and payable upon written notice to JVC.
(j) FINANCING AFTER CBI EXERCISE OF BUYOUT OPTION. After
CBI exercises the Buyout Option and until the JVC IPO, CBI shall use its best
efforts to obtain financing for the JVC. If CBI is not able to obtain such
financing, then until the JVC IPO, CBI shall provide JVC with Working Capital
Loans on the best terms then available. JVC shall pay the outstanding balance
of the post-CBI Buyout Working Capital Loan, plus the total Working Capital
Loan Interest, upon (i) JVC IPO, or (ii) on demand by CBI to the extent that
after payment of the post CBI-Buyout Working Capital Loan and Working Capital
Loan Interest, JVC has sufficient working capital.
3. JVC BUSINESS
3.1 PURPOSE. The main purpose of the JVC shall be to distribute and
market CBI's Systems and Consumables (as defined in Section 1 of the
Distribution and Marketing Agreement as attached) in the life sciences
research market in Japan as provided in the Distribution and Marketing
Agreement.
3.2 SC MARKETING SUPPORT. Until CBI exercises its Buyout Option, SC
shall provide marketing support to JVC. In consideration for SC's marketing
support, until CBI exercises its Buyout Option, JVC shall pay SC 20% of U.S.
list price for CBI's Systems and Consumables purchased by JVC from CBI and
sold to JVC customers in Japan within 10 days of the month end following
payments from JVC customers to JVC.
3.3 JVC INITIAL PUBLIC OFFERING IN JAPAN. Each Holder shall cause
JVC to take all actions reasonably necessary to permit JVC to effect a JVC
IPO, such as (i) conducting its business in accordance with applicable law
and regulations, (ii) maintaining adequate records, (iii) obtaining an annual
audit of JVC's Financial Statements in Section 4.5(b), (iv) other reasonably
necessary actions. Each Holder shall cause JVC to not take any action
reasonably expected to prevent or delay a JVC IPO, such as (i) not issuing
any additional Shares and satisfying its financing needs through borrowing,
and (ii) not entering into any merger transaction or sell or purchase any
significant business so long as and to the extent that the rules of any
Japanese national securities exchange or the Japanese OTC market prohibit
stock issuances, merger transactions or the sale or purchase of any
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significant business during the period starting on the date one year prior to
the end of the most recently concluded fiscal year of JVC and ending on the
date of listing or OTC registration, (iii) other actions reasonably expected
to prevent or delay a JVC IPO. However, this Section 3.3 does not require a
Holder to take any action which it reasonably believes would be detrimental
to JVC's or the Holder's business and does not constitute any representation
or warranty by a Holder that a JVC IPO shall occur.
4. MANAGEMENT OF JVC
4.1 BOARD OF DIRECTORS.
(a) DIRECTOR POSITIONS BEFORE EXERCISE OF BUYOUT OPTION.
The Board shall have three authorized positions. Until CBI exercises the
Buyout Option, SC as Holder of majority Shares shall have the right to
nominate two Board members (one of whom shall be JVC's President and Chief
Executive Officer), and CBI as Holder of minority Shares shall have the right
to nominate one Board member. Each Holder shall nominate to the Board only
individuals who are active in JVC's field of business or related fields of
business. Any vacancy on the Board shall be filled pursuant to the nomination
procedure described in this Section 4.1(a). The (or one of the) CBI
director(s) shall be Chairman of the Board.
(b) DIRECTOR POSITIONS AFTER EXERCISE OF BUYOUT OPTION. If
CBI exercises the Buyout Option, SC shall immediately cause one of the SC
nominees to resign from JVC's Board. After the Buyout Option, CBI as Holder
of majority Shares shall have the ongoing right to nominate two Board members
and SC as Holder of minority Shares shall have the ongoing right to nominate
one Board member.
(c) REMOVAL. A Holder shall have the right to request
removal of any director which such Holder is entitled to nominate at any time
effective upon notice to JVC, the director to be removed and to the other
Holder. SC and CBI shall vote all voting Shares held by them or as to which
they have the right to direct the vote so as to elect the other Holder's
nominees, remove directors for whom removal has been requested, and maintain
the Board constituency described in this Section 4.1.
(d) REPRESENTATIVE DIRECTOR. The President and Chief
Executive Officer of JVC and the (or one of the) director or directors
designated by a Holder of minority Shares shall each be a Representative
Director of JVC and each enter into the Representative Director Agreement in
a form substantially similar to EXHIBIT C. If the individual designated by
the Holder of minority Shares resigns as Representative Director or becomes
unable to serve, another individual shall be designated to be a
Representative Director.
(e) COMPENSATION AND EXPENSES. Directors of JVC shall serve
without compensation unless the position of JVC director is his or her
full-time occupation. No JVC director shall receive a retirement payment for
his or her service in that position. Each Holder shall indemnify the other
Holder and JVC against any other claim for compensation for service as a
director of JVC made by a director nominated by that Holder. JVC shall
reimburse reasonable travel costs of any director attending a Board meeting.
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(f) BOARD MEETINGS. Directors of JVC shall meet in Tokyo,
Japan and Palo Alto, California, alternatively, for quarterly Board meetings.
(g) BOARD QUORUM AND APPROVAL Without limiting the
Articles, a quorum of the Board shall be deemed present at any duly noticed
regular or special meeting if a majority of the directors including at least
one director nominated by CBI and one director nominated by SC are present
physically, and (to the extent permitted by the Japanese Commercial Code)
present by telephone, video conference or otherwise. Without limiting the
Articles, any action or determination by the Board shall require the
affirmative vote of a majority of the Board members present at the meeting.
4.2 OFFICERS.
(a) PRESIDENT AND CHIEF EXECUTIVE OFFICER OF JVC. The
President shall be the Chief Executive Officer ("CEO") of JVC. Mr. Toru
Umehara shall be JVC's Interim President and Interim Chief Executive Officer
and shall work at least 50% for the JVC. SC shall assist CBI in searching for
and recruiting a senior Japanese biotechnology industry executive to serve
permanently as JVC's President and CEO. The Board shall elect as President
and CEO the individual selected by SC and approved by CBI, which approval
shall not be unreasonably withheld. Upon such election SC shall cause the
Interim President and Interim CEO to resign as President and CEO and as a
director unless SC wishes to nominate him as an SC director.
(b) VICE PRESIDENT. JVC's Vice President of Marketing and
Sales shall be Mr. Tsuyoshi Karasawa. He shall work 100% for the JVC until a
new President and CEO is elected by the Board. He shall work 75% for the JVC
after the new President and CEO is appointed.
(c) OTHER OFFICERS Other officers of JVC and JVC's
management reporting structure shall be determined by the Board.
4.3 EMPLOYEE MATTERS.
(a) LOANED EMPLOYEES. If the Board and a Holder agree that
a Holder or its Affiliate will loan an employee on a full- or part-time basis
to JVC, then JVC shall reimburse the lender for the salary and benefits
actually paid to such employee during the period loaned to JVC, pro-rated
based on the percentage of time the employee works for JVC. JVC shall not
bear any other costs of loaned employees.
(b) CONFIDENTIALITY. Each JVC employee, and any employee of
another entity working for JVC but not a regular employee of JVC, shall each
sign CBI's standard form confidentiality agreement providing for
confidentiality of information or data disclosed by JVC or CBI and for
ownership by CBI of inventions or original works of authorship created by
such individuals.
4.4 STATUTORY AUDITOR. Except as required by applicable law, JVC
shall have one statutory auditor. CBI shall nominate the statutory auditor,
subject to SC's approval, which shall not be unreasonably withheld.
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4.5 FINANCIAL STATEMENTS AND ACCOUNTING RECORDS. JVC's financial
year shall be January 1 through December 31 of every year. JVC's auditors
shall be Price Waterhouse Coopers in Japan. JVC shall maintain its accounting
records and prepare its Financial Statements (as defined below) in compliance
with Japan GAAP. All Financial Statements provided to CBI shall be in English.
(a) UNAUDITED MONTHLY FINANCIAL STATEMENTS. JVC shall
provide each Holder with a monthly unaudited balance sheet, profit and loss
statement and statement of sources and uses of cash ("Financial Statements")
within 30 days after each month-end.
(b) AUDITED ANNUAL FINANCIAL STATEMENTS. JVC shall provide
each Holder with audited Financial Statements within 120 days after each
fiscal year end.
(c) CBI'S ADDITIONAL INFORMATION RIGHTS. Until the CBI IPO,
JVC shall provide CBI with a reconciliation of JVC's annual audited Financial
Statements according to U.S. GAAP when JVC delivers its audited Financial
Statements. After the CBI IPO, JVC shall continue to provide CBI with monthly
unaudited Financial Statements and provide (i) quarterly unaudited Financial
Statements within 30 days after the end of each fiscal quarter, and (ii)
annual audited Financial Statements within 75 days after the end of each
fiscal year, in each case prepared according to U.S. GAAP.
4.6 JVC BUSINESS PLAN. An English version of the annual Business
Plan shall be produced. The Business Plan shall include, without limitation,
(i) promotion strategy and tactics, (ii) sales and marketing plans, (iii) the
Annual Budget, and (iv) other items relating to distribution and marketing of
CBI Systems and Consumables. CBI shall review and approve the Business Plan
on the first quarterly meeting of each fiscal year. The Board shall discuss,
update and approve the Business Plan at least once every fiscal year.
4.7 RIGHT OF INSPECTION. During office hours of JVC, the Holders
shall have full access to all properties, books of account, records and the
like of JVC with the right to make copies. Any information obtained by the
Holders through exercise of this right shall (i) be used by such Holder only
for purposes which are consistent with its status as an equity Holder in JVC
and not for the pursuit of business interests outside JVC (except to the
extent such Holder shall otherwise have rights for access to such information
or to the extent used to determine compliance with this Agreement) and (ii)
be subject to the confidentiality provisions of Section 11.1.
4.8 MATTERS REQUIRING APPROVAL OF HOLDERS. The following actions
shall not be taken by JVC without prior approval of both Holders. A Holder's
approval shall be considered given if one of the directors nominated by that
Holder votes at a Board meeting or takes action by written consent in favor
of such action.
(a) Making any basic change in the general nature or scope
of business of JVC, including entering a new line of business.
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(b) Amending the Articles of JVC, including, without
limitation, increasing or decreasing the number of authorized Shares of JVC,
changing the rights, preferences or privileges of the Shares and increasing
or decreasing the authorized number of directors on the Board.
(c) Removing the director nominated by the other Holder,
unless the director has violated his fiduciary obligations to JVC or has
caused JVC to act in a manner intended to harm the other Holder.
(d) Dissolving or liquidating JVC before and until CBI
exercises the Buyout Option.
(e) Issuing any Shares, securities convertible into Shares
or debt securities (but excluding Working Capital Loans).
(f) Redeeming or canceling Shares.
(g) Merging or consolidating JVC with another Person, or
selling, leasing, pledging, mortgaging, encumbering or otherwise disposing
all or substantially all of the assets of JVC, whether in one transaction or
a series of transactions.
(h) Establishing a business relationship with any direct
competitor of CBI.
(i) Allowing a Holder to engage in JVC's field of business
that materially competes with JVC and therefore violates Section 7 of this
Agreement.
(j) Investing in any other Person.
(k) Entering into any agreement with any director or
shareholder of JVC or an Affiliate of such director or shareholder (except
this Agreement and the other agreements contemplated hereby).
(l) Changing JVC's executive management or management
structure.
(m) Declaring dividends.
(n) Acquiring assets for consideration in excess of
Y31,250,000.
(o) Borrowing in excess of Y12,500,000 (except for Working
Capital Loans).
(p) Approving annual budgets and any business plans.
(q) Selling or licensing technology developed by the JVC to
third parties, or encumbering such technology.
(r) Licensing or sublicensing CBI's technology.
(s) Transferring or sublicensing distribution, sale and
marketing rights.
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(t) Opening a branch office.
(u) Approving the sale or assignment of Shares.
(v) Terminating this Agreement without following the
Termination procedures as set forth in Section 10 of this Agreement.
(w) Entering into any material transactions except in the
ordinary course of business.
(x) Effecting a JVC IPO.
(y) Amending, attaching any addendum or addenda to any of
the terms of this Agreement.
5. CBI BUYOUT OPTION.
5.1 OPTION RIGHT AND EXERCISE PRICE. Until November 30 of each year
commencing with November 30, 2001, CBI shall have the right ("Buyout Option")
to purchase from SC 1,000 Shares (or such greater number of Shares as is
necessary for CBI to hold, after the purchase, 70% of the then outstanding
Shares) ("Option Shares"). The Buyout Option shall terminate automatically
after November 30, 2004. The aggregate purchase price for the Option Shares
shall be Y50,000,000, or if greater than Y50,000,000 the larger of:
(a) 8% of JVC's Net Sales during the calendar year ending
on the date CBI exercises the Buyout Option, or
(b) 40% of JVC's Book Value on December 31 of the year in
which CBI exercises the Buyout Option.
5.2 BUYOUT OPTION PROCEDURES.
(a) Before November 15 of each year in which the Buyout
Option may be exercised, JVC shall provide CBI JVC's estimated year-end
Financial Statements prepared in accordance with Japan GAAP. CBI shall give
SC CBI's written notice ("Buyout Notice") as to whether CBI exercises the
Buyout Option on or before 9:00 a.m. on November 30, Tokyo time. SC shall
elect within 10 days after CBI's Buyout Notice whether to have CBI pay the
exercise price in cash or in CBI stock.
(b) CBI's exercise of the Buyout Option and its election as
to the form of payment shall be irrevocable, except that CBI shall have the
right to revoke its exercise, for 10 days after CBI receives JVC's audited
Financial Statements for the fiscal year at the end of which CBI exercised
the Buyout Option, if such audited Financial Statements show that JVC's Net
Sales or Book Value were more than 10% higher or lower than the estimated
year-end Financial Statements provided to CBI under Section 5.2(a).
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5.3 BUYOUT OPTION PAYMENTS. CBI's obligation to pay the Buyout
Option exercise price shall first arise when CBI receives JVC's audited
Financial Statements for the fiscal year at the end of which CBI elected to
exercise the Buyout Option. If SC has elected to be paid the exercise price
in cash, CBI shall pay SC the exercise price within 10 days after CBI
receives such audited Financial Statements. If SC elects to be paid the
exercise price with CBI stock, the number of shares of CBI Common Stock to be
issued shall be determined by dividing the exercise price (i) if the CBI IPO
has not yet occurred, the same price per share of the CBI Preferred Stock in
the most recent private financing or (ii) if the CBI IPO has occurred, the
average of the closing price of CBI Common Stock over the 30-day period
ending 3 business days before the exercise of the Buyout Option. Any shares
issued shall be pursuant to a "private placement" exemption from the
registration requirements of U.S. state and federal securities laws and
subject to transfer restrictions and legends on stock certificates to the
extent required by such laws and regulations. The transfer of the Option
Shares, and the transfer of the cash or stock to be paid by CBI, will occur
at CBI's office. At that closing, SC will deliver to CBI a certificate
representing the Option Shares in the name of CBI and registered by JVC, and
CBI shall deliver to SC payment by check or wire transfer of immediately
available funds if the exercise price is being paid in cash, or a certificate
representing the shares of CBI Common Stock to be delivered in the name of
SC. SC will deliver a written statement to CBI that the Option Shares are
free of all liens and other encumbrances, and if CBI is delivering CBI Common
Stock, CBI will deliver to SC a written statement that the shares of CBI
Common Stock are free of all liens and other encumbrances (other than
restrictions on transfer under applicable law).
6. PERMITTED TRANSFERS; RIGHT OF FIRST REFUSAL
6.1 RESTRICTIONS. CBI and SC agree to hold their respective JVC
Interest from the Effective Date to CBI's exercise of the Buyout Option,
subject to this Section 6. CBI and SC further agree not to transfer, sell,
assign, hypothecate or in any way alienate any of such Holder's Shares or any
right or interest therein except as provided below:
(a) Before the CBI Buyout Option is exercised pursuant to
Section 5, neither Holder shall be permitted to so transfer its Shares
without the prior written consent of the other Holder.
(b) After the CBI Buyout Option is exercised pursuant to
Section 5, either Holder may transfer such Holder's Shares; provided that the
non-offering Holder shall have the right to purchase all (but not less than
all) of the Shares offered by the offering Holder ("Right of First Refusal"),
which right shall be exercisable by written notice ("Right of First Refusal
Notice") to the offering Holder not later than the expiration of 30 days
after delivery of the offering Holder's written notice of intention to sell.
The price and terms for the non-offering Holder shall be the price and terms
stated in the offering Holder's Right of First Refusal Notice.
(c) If the non-offering Holder does not exercise its Right
of First Refusal on the offered Shares within such 30-day period in Section
6.1(b) above, the offering Holder may within 60 days after expiration of such
Right of First Refusal, sell or transfer its Shares to a transferee or
transferees named in the Right of First Refusal Notice; provided that (i)
such sale or
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transfer is not at a lower price or on terms more favorable to the transferee
or transferees than those specified in the Right of First Refusal Notice;
(ii) prior to such sale or transfer, such transferee or transferees agree in
writing to become bound by all obligations of the transferor under this
Agreement; and (iii) any such sale or transfer shall not serve to excuse or
terminate any of the obligations of the transferor either hereunder or under
a related agreement to which the transferor is a party if such related
agreement does not provide for such excuse or termination upon such transfer.
(d) The restrictions and other provisions of this Section 6
shall apply to any Shares acquired by a Holder.
(e) The instruments representing the Shares shall bear a
legend stating that such Shares are not transferable without the Board's
prior written approval. SC and CBI agree to cause the Board not to consent to
any transfer of any Shares made other than in accordance with this Section 6.
6.2 PREEMPTIVE RIGHTS. Except for the Shares subscribed under
Section 2.3 by the Holders, CBI and SC shall have preemptive rights to
purchase newly issued Shares pursuant to the applicable provisions of the
Japanese Commercial Code to subscribe for any Shares to be newly issued by
JVC to a Person or Persons other than CBI or SC so that CBI and SC shall
retain their respective Pro Rata Share in JVC ("Preemptive Rights"). As
required by Section 280.5 of the Japanese Commercial Code, JVC shall (i)
inform each Holder that JVC intends to issue new and additional Shares, (ii)
provide notice to each Holder individually that that Holders may exercise
their preemptive rights to the new issue ("Preemptive Rights Notice"), (iii)
each Preemptive Rights Notice shall give the exact date on which Holders'
preemptive rights will expire (JVC may select any date of expiration as along
as JVC provides notice of that date to the Holders), (iv) the Preemptive
Rights Notice shall be given to each Holder at least two weeks before the
expiration date of preemptive rights. If necessary for the purpose of this
Section 6.2, the Holders agree to vote their Shares, and shall cause their
Board nominees to vote, in favor of an increase in capital or the number of
authorized Shares.
7. NONCOMPETITION
7.1 COMPETITION IN DISTRIBUTION OF PRODUCTS. SC agrees that as long
as SC holds a JVC Interest, SC shall not engage, either directly or
indirectly, as a principal or for its own account or solely or jointly with
others, or as a shareholder in any corporation or joint stock association, in
any entity that sells, resells, or distributes any products in the life
sciences research market that materially competes with the sale of CBI's
Products (as defined in Section 1 of the Distribution and Marketing Agreement
attached in EXHIBIT B). This Section 7.1 shall not apply to substitutable or
similar products already being sold, resold or distributed by SC before the
Effective Date of this Agreement.
7.2 RESEARCH USING CBI PRODUCTS FOR THIRD PARTIES. SC and its
Affiliates shall not use any of CBI's Products to conduct research and/or
development on behalf of any third party. JVC and its Affiliates shall not
use any of CBI's Products to conduct research and/or development on behalf of
any third party.
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7.3 OWNERSHIP OF INVENTIONS. Title to all inventions and all other
intellectual property derived from and relating to the use of CBI's Products
made solely by JVC employees or its agents or jointly by employees or the
agents of JVC and SC shall be owned by CBI.
7.4 APPLICATIONS FOR RIGHTS. During the term of this Agreement,
neither SC nor its Affiliates and the JVC nor its Affiliates shall file any
patent, copyright or other similar applications with respect to any
intellectual property derived from or related to any of the Products (or
modifications thereof) or products which may compete herewith. If new
knowledge or experience is gained from the use of the Products, such
knowledge or experience shall be fully disclosed to CBI at the time of
discovery of the knowledge or experience. JVC shall grant CBI a
non-exclusive, royalty-free license with respect to improved or applied
inventions by the JVC derived from or related to any of the Products.
7.5 ASSIGNMENT OF RIGHTS. JVC hereby assigns to CBI all of its
rights, title and interest it may otherwise hold (i) from the use of the
Products or modifications thereof, (ii) from any patent, copyright or other
similar applications with respect to any intellectual property derived from
or related to any of the Products or modifications thereof, or (iii) from any
other intellectual property rights relating to the Products or modifications
thereof. JVC shall, at the request of CBI, execute, and deliver or cause to
be delivered, all such consents, documents or further instruments of
assignment or transfer, and take or cause to be taken all such actions CBI
reasonably deems necessary or desirable in order for CBI to obtain the full
benefits of the assignment herein.
7.6 INVALIDITY. If any provision contained in this Section 7 shall
for any reason be held invalid, illegal or unenforceable in any respect, such
invalidity, illegality of unenforceability shall not affect any other
provisions of this Section or this Agreement, but this Section and Agreement
shall be construed as if such invalid, illegal or unenforceable provision had
never been contained herein. It is the intention of CBI, SC and JVC that if
any of the restrictions or covenants contained herein is held to cover a
geographic area or to be for a length of time which is not permitted by
applicable law, or in any way construed to be too broad or to any extent
invalid, such provision shall not be construed to be null, void and of no
effect, but to the extent such provision would be valid or enforceable under
applicable law, a court of competent jurisdiction shall construe and
interpret or reform this Section 7 to provide for a covenant having the
maximum enforceable geographic area, time period and other provisions (not
greater than those contained herein) as shall be valid and enforceable under
such applicable law.
8. REPRESENTATIONS
8.1 CBI. CBI represents and warrants as follows to SC as of the date
of this Agreement and the date of the Closing:
(a) ORGANIZATION AND GOOD STANDING OF CBI. CBI is a
corporation duly organized, validly existing and in good standing under the
laws of the State of California and has the corporate power and authority to
engage in the business CBI is presently engaged in and to enter into this
Agreement and to perform its obligations hereunder.
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(b) AUTHORIZATION. All corporate action on the part of CBI
and CBI's officers and directors necessary for the authorization, execution,
delivery and performance of this Agreement, the Distribution and Marketing
Agreement, and the Representative Directors Agreement has been taken. Each of
this Agreement and other agreements constitutes a valid, legally binding and
enforceable obligation of CBI.
(c) GOVERNMENT AND OTHER CONSENTS. Except for those
governmental consents or approvals contemplated by this Agreement, no
consent, authorization, license, permit, registration or approval of any
governmental or public body or authority is required in connection with CBI's
execution and delivery of this Agreement by CBI or with the performance by
CBI of its respective obligations hereunder.
(d) EFFECT OF AGREEMENT. CBI's execution and delivery of
this Agreement, performance of CBI's obligations hereunder and CBI's
consummation of the transactions contemplated hereby will not, (i) to CBI's
knowledge, violate any provision of any law, statute, rule or regulation to
which CBI is subject; (ii) violate any judgment, order, writ, injunction or
decree of any court applicable to CBI; (iii) to CBI's knowledge, have any
effect on the compliance of CBI with any laws, statutes, rules, regulations,
orders, decrees, licenses, permits or authorizations which would materially
and adversely affect CBI; (iv) to CBI's knowledge, result in the breach of,
or be in conflict with, any term, covenant, condition or provision of, or
affect the validity, enforceability and subsistence of any agreement, lease
or other commitment to which CBI is a party and which would materially and
adversely affect CBI; or (v) to CBI's knowledge, result in the creation or
imposition of any lien, pledge, mortgage, claim, charge, or encumbrance upon
any assets of CBI.
(e) BROKERS, FINDERS. CBI has not retained any person to
act on CBI's behalf, nor has any person contended that such person was so
retained, to assist CBI as CBI's broker, finder or agent in connection with
this joint venture.
(f) DISCLOSURE. No representation or warranty by CBI
contained in this Agreement and no writing, certificate, exhibit, list or
other instrument required to be furnished pursuant hereto contains or will
contain any untrue statement of a material fact or omits or will omit any
material fact necessary in order to make the statements and information
contained therein not misleading.
8.2 SC. SC represents and warrants to CBI as follows as of the date
of this Agreement and the date of the Closing:
(a) ORGANIZATION AND GOOD STANDING OF SC. SC is a
corporation duly organized, validly existing and in good standing under the
laws of Japan and has the corporate power and authority to engage in the
business SC is presently engaged in and to enter into this Agreement and to
perform its obligations hereunder.
(b) AUTHORIZATION. All corporate action on the part of SC
and its officers and directors necessary for the authorization, execution,
delivery and performance of this Agreement, Distribution and Marketing
Agreement, and the Representative Directors Agreement has been taken.
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Each of these Agreements and other agreements constitutes a valid, legally
binding and enforceable obligation of SC.
(c) GOVERNMENT AND OTHER CONSENTS. Except as to those
government consents or approvals contemplated by this Agreement, no consent,
authorization, license, permit, registration or approval of governmental or
public body or authority is required in connection with execution and
delivery of this Agreement by SC or with the performance by SC of any of its
respective obligations hereunder.
(d) EFFECT OF AGREEMENT. SC's execution and delivery of
this Agreement, performance of its obligations hereunder and SC's
consummation of the transactions contemplated hereby will not, (i) to SC's
knowledge, violate any provision of any law, statute, rule or regulation to
which SC is subject; (ii) violate any judgment, order, writ, injunction or
decree of any court applicable to SC; (iii) to SC's knowledge, have any
effect on the compliance of SC with any laws, statutes, rules, regulations,
orders, decrees, licenses, permits or authorizations which would materially
and adversely affect SC; (iv) to SC's knowledge, result in the breach of, or
be in conflict with, any term, covenant, condition or provision of, or affect
the validity, enforceability and subsistence of any agreement, lease or other
commitment to which SC is a party and which would materially and adversely
affect SC; or (v) to SC's knowledge, result in the creation or imposition of
any lien, pledge, mortgage, claim, charge, or encumbrance upon any assets of
SC.
(e) BROKERS, FINDERS. SC has not retained any person to act
on SC's behalf, nor has any person contended that such person was so
retained, to assist SC as SC's broker, finder or agent in connection with
this joint venture.
(f) DISCLOSURE. No representation or warranty by SC
contained in this Agreement and no writing, certificate, exhibit, list or
other instrument required to be furnished pursuant hereto contains or will
contain any untrue statement of a material fact or omits or will omit any
material fact necessary in order to make the statements and information
contained therein not misleading.
9. CONDITIONS TO CLOSING
9.1 CONDITIONS PRECEDENT TO THE OBLIGATIONS OF SC. The obligations
of SC to purchase Shares under this Agreement are subject to satisfaction of
each of the following conditions at the Closing (unless waived by SC):
(a) REPRESENTATIONS AND WARRANTIES. The representations and
warranties of CBI contained in Section 5.1 shall be correct as of the
Closing, and CBI shall have delivered to SC a certificate of CBI, dated as of
the Closing Date, to this effect.
(b) COVENANTS. CBI shall have performed all covenants to be
performed by CBI under this Agreement and before the Closing, and CBI shall
have delivered to SC a certificate of CBI, dated as of the Closing Date, to
this effect.
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(c) THIRD PARTY NOTIFICATIONS AND CONSENTS. Any government
notifications and consents required to be made or obtained prior to the
Closing shall have been made or obtained before the closing, and all required
waiting periods shall have expired.
(d) NO SUITS, PROCEEDINGS. No suit, action, investigation,
inquiry or proceeding by any person or by any governmental body, or other
legal or administrative proceeding shall have been instituted or threatened
which questions the validity or legality of the transactions contemplated
hereby.
(e) AGREEMENTS. The Distribution and Marketing Agreement as
attached in EXHIBIT B and Representative Director Agreement as attached in
EXHIBIT C have been executed.
9.2 CONDITIONS PRECEDENT TO THE OBLIGATIONS OF CBI. The obligations
of CBI under this Agreement and to purchase Shares at the Closing are subject
to satisfaction of the following conditions at the Closing (unless waived by
CBI):
(a) REPRESENTATIONS AND WARRANTIES. The representation and
warranties of SC contained in Section 5.2 of this Agreement shall be true and
correct as of the Closing, and SC shall have delivered to CBI a certificate
of SC, dated as of the Closing Date, to this effect.
(b) COVENANTS. SC shall have performed all covenants to be
performed by SC under this Agreement and before the Closing, and SC shall
have delivered to CBI a certificate of SC, dated as of the Closing Date, to
this effect.
(c) THIRD PARTY NOTIFICATIONS AND CONSENTS. Any government
notifications and consents required to be made or obtained before the Closing
shall have been made or obtained before the Closing, and all required waiting
periods shall have expired.
(d) NO SUITS, PROCEEDINGS. No suit, action, investigation,
inquiry or proceeding by any person or by any governmental body, or other
legal or administrative proceeding shall have been instituted or threatened
which questions the validity or legality of the transactions contemplated
hereby.
(e) AGREEMENTS. The Distribution and Marketing Agreement as
attached in EXHIBIT B and Representative Director Agreement as attached in
EXHIBIT C have been executed.
9.3 TIME AND PLACE OF CLOSING. The Closing shall occur upon the
execution of this Agreement by the Holders on December __, 1998 in Tokyo,
Japan, or at such time and place as CBI and SC may mutually agree.
9.4 POST-CLOSING EVENTS.
(a) SC shall file the application for registration of
incorporation of JVC with the corporate registry office in the administrative
district where the head office of JVC is to be located.
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(b) SC shall provide CBI with a reasonably itemized listing
of the out-of-pocket costs SC incurred in incorporating JVC and causing its
initial share issuances, which shall be reimbursed by the JVC within 30 days
after the application for registration of incorporation is approved.
(c) As soon as practicable after Closing, JVC shall issue
to CBI certificates evidencing the Shares purchased pursuant to Section 2.3
and record issuances of JVC Shares in JVC's shareholders register.
(d) Each Holder shall vote all Shares and voting Shares
held by the Holder to effect the provisions of this Agreement.
(e) JVC and CBI shall execute and deliver to each other the
Distribution and Marketing Agreement.
10. TERM AND TERMINATION
10.1 TERM. This Agreement shall continue in full force and
effect until terminated as provided herein under this Section 10.
10.2 GROUNDS FOR TERMINATION. This Agreement may terminate
only
(a) 10 years after the Effective Date of this Agreement; or
(b) at such time as only one Holder remains subject to this
Agreement; or
(c) the Closing does not occur by December 31, 1998.
The respective obligations of CBI, SC and JVC pursuant to Sections
6, 7, 10, 11.1 and 11.15 shall survive a termination for any reason.
10.3 TERMINATION UPON BANKRUPTCY OR INSOLVENCY OF A HOLDER.
(a) RIGHT TO TERMINATE. A Holder shall have the right to
notify the other Holder that this Agreement has terminated if any of the
following events occurs with respect to the other Holder after CBI exercises
its Buyout Option:
(i) Appointment of a custodian for all or
substantially all of the property of the other Holder.
(ii) The determination by a court or tribunal of
competent jurisdiction that the other Holder is insolvent.
(iii) The filing of a petition for liquidation
(and not for reorganization) in bankruptcy by the majority shareholder on its
own behalf or the filing of any such petition against the majority if the
proceeding is not dismissed or withdrawn within 60 days thereafter. The
majority shareholder shall not file for liquidation of the JVC without the
minority shareholder's consent.
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(iv) An assignment of all or substantially all
assets by the other Holder for the benefit of its creditors.
(v) The dissolution or liquidation of the other
Holder other than in consequence of a merger, amalgamation or other corporate
reorganization to which it is a party.
(b) NOTICE OF EVENT. If a Holder suffers any such event,
that Holder shall immediately notify the other Holder and JVC of the
occurrence of such event.
(c) RIGHT TO PURCHASE. After notice of termination, the
Holders shall consult in good faith for 60 days concerning the disposition of
their respective interests in JVC and the future operations of JVC. If the
Holders do not sign a written agreement regarding such matters during such 60
days, then the Holder who gave notice of termination shall have the exclusive
option to purchase the JVC Interest of the other Holder.
10.4 Termination Upon Bankruptcy or Insolvency of JVC.
(a) RIGHT TO TERMINATE. If any of the following events
("Liquidating Event") occurs to the JVC after CBI exercises its Buyout Option
and such event is not cured within 60 days following the event, the Holder of
majority Shares shall have the right to terminate this Agreement with the
consent of the Holder of minority Shares:
(i) JVC becomes insolvent or unable to pay any or
all of its debts as they mature or ceases to pay any or all of its debts as
they mature in the ordinary course of business.
(ii) Any application or petition is submitted, by
or for JVC, for commencement of proceedings of bankruptcy, composition or
other similar proceedings under the applicable law.
(b) RIGHT TO DISSOLVE. After the occurrence of a
Liquidating Event, the Holders shall consult in good faith for 60 days
concerning the disposition of their respective interests in JVC and the
future operations of JVC. If the Holders do not sign a written agreement
regarding such matters during such 60-day period, then CBI shall have the
option to cause liquidation or dissolution of JVC.
(c) Right to Purchase or Sell
If CBI decides to liquidate or dissolve the JVC after satisfying
Sections 10.4(a) and 10.4(b) above, CBI shall give notice to SC ("Liquidation
Notice"), and the following procedure shall apply:
(i) SC shall provide irrevocable notice to CBI within 30
days after Liquidation Notice that SC desires to have the Fair Market Value
("FMV") of its JVC Shares determined pursuant to Section 10.8;
(ii) determination of FMV shall assume that JVC continues
to operate so that JVC's liquidation or dissolution does not give effect to
any decrease in FMV of JVC Shares;
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(iii) within 5 days after FMV of JVC Shares is determined,
SC shall give irrevocable notice whether to buy or sell its JVC Shares
("Buy-Sell Notice");
(iv) the closing of the purchase or sale of SC's Shares
shall occur within 30 days after SC gives the Buy-Sell Notice, and payment
shall be made in cash;
(v) during the procedure in this Section 10.4(c), CBI or
JVC shall not take any action to cause the liquidation or dissolution of JVC.
10.5 TERMINATION UPON MATERIAL BREACH.
(a) RIGHT TO TERMINATE. A Holder shall have the right to
notify the other Holder and JVC that this Agreement has terminated if the
other Holder commits a Material Breach (as defined below) of this Agreement.
(b) DEFINITION OF MATERIAL BREACH. The commission of any of
the following acts by a Holder, which is not cured within 60 days following
notice thereof to the breaching Holder by the other Holder or JVC, shall
constitute a Material Breach of this Agreement by such Holder:
(i) As to SC (or its Affiliates, if applicable)
the material failure by SC, or such Affiliates, to fully comply with its
obligations under this Agreement.
(ii) As to CBI (or its Affiliates, if applicable)
the material failure by CBI, or such Affiliates, to fully comply with its
obligations under this Agreement.
(c) RIGHT TO PURCHASE OR TO SELL. After notice of
termination, the Holders shall consult in good faith for 60 days concerning
the disposition of their respective interests in JVC and the future
operations of JVC. If the Holders do not resolve such matters in writing
within such 60 days, and SC is the breaching Holder, then for an additional
60 days CBI shall have an exclusive option to purchase SC's JVC Interest
pursuant to Section 10.8, provided that CBI may offset against the purchase
price for SC's JVC Interest the amount of damages sustained by JVC and CBI as
a result of such Material Breach. If the Holders do not resolve such matters
in writing within such 60 days, and CBI is the breaching Holder, then for an
additional 60 days SC shall have the exclusive option to purchase CBI's JVC
Interest pursuant to Section 10.8, provided that SC may offset against the
purchase price for CBI's JVC Interest the amount of damages sustained by JVC
and SC as a result of such Material Breach.
(d) REMEDIES NOT AFFECTED. The foregoing shall not limit
the ability of JVC or any Holder to seek such legal and equitable remedies
(including damages not fully offset by the reduction in purchase price)
related to a Material Breach by a Holder or the failure of a Holder to
perform any other duty or obligation.
10.6 TERMINATION UPON GOVERNMENTAL ALTERATION OR MODIFICATION.
(a) RIGHT TO OBJECT. If at any time any government or
agency having jurisdiction over JVC, CBI, or SC should require, directly or
indirectly, any alteration or
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modification of any term or condition of this Agreement, the Distribution and
Marketing Agreement, or of the performance by the Holders under such
agreements in a manner which has a material adverse effect on any Holder or
on the operations or financial condition or prospects of JVC, then the Holder
which suffers from such alteration or modification shall have the right to
notify the other Holder of its objection to such alteration or modification.
(b) RIGHT TO TERMINATE. If a Holder gives such a notice,
then (i) the Holders shall negotiate in good faith a mutually satisfactory
resolution of such objection for 60 days; (ii) if no resolution results, the
President of CBI and the President of SC shall meet personally and negotiate
in good faith to resolve such objection within 60 days after the initial 60
day period. If such mutual consultation does not resolve such objection, then
the suffering Holder shall have the right to notify the other Holders and the
JVC that this Agreement has terminated and to cause dissolution of JVC. Upon
such dissolution each Holder and JVC shall take all actions (including voting
of the Shares) required to dissolve and liquidate JVC in accordance with
applicable laws and regulations.
(c) LIMITED LIABILITY. The Holder which terminates this
Agreement shall not incur any liability to the other Holders or to the JVC
for any alleged default in the performance of this Agreement arising from the
exercise of its termination rights under this Section 10.6.
10.7 CONTINUED RIGHT TO PURCHASE. If a Holder terminates this
Agreement pursuant to this Section 10, but does not have the necessary number
of Shares to cause liquidation or dissolution of JVC and does not purchase
the other Holder's entire JVC Interest, then the Shares held by the other
Holder shall continue to be subject to any right of purchase held by the
Holder which terminated this Agreement.
10.8 PURCHASE PROCEDURES.
(a) The purchase price for the Shares to be sold pursuant
to this Section 10 shall be the "Fair Market Value" of such Shares.
(b) "Fair Market Value" per share shall be determined as
follows:
(i) If the Shares are publicly traded on a
national securities exchange or the Japanese OTC market, the value shall be
deemed to be the average of the closing prices of the Shares on such exchange
or market, as the case may be, over the 30-day period ending 3 business days
prior to the closing of the purchase of the Shares.
(ii) If there is no active public market for the
Shares, the value shall be the fair market value thereof as determined by
good faith negotiation between the selling Holder or Holders ("Seller") and
the purchasing Holder or Holders ("Purchaser"). If such negotiation fails to
determine the fair market value within 90 days after the date of the notice
of termination, the fair market value shall be determined as follows:
(1) Seller and Purchaser shall each
retain at its expense an investment bank expert in the life sciences research
market. If Seller or Purchaser does not select an investment bank within 30
days after the end of the 90-day good faith negotiation period referred to
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in subsection (ii) above, such Holder or Holders shall not be entitled to
retain an investment bank and shall present whatever materials it has
available by the deadline regarding the valuation of JVC.
(2) Subject to execution of customary
confidentiality agreements by the investment banks, JVC shall provide or
cause to be provided to each investment bank all material information,
including any material changes in such information, reasonably necessary to
value JVC or reasonably requested by the investment banks.
(3) During the 60-day period after both
Seller and Purchaser have selected an investment bank, or the end of the
30-day period in Section 10.8(b)(ii)(1) above if Seller and/or Purchaser does
not select an investment bank (the "Negotiation Period"), Seller, Purchaser
and their respective investment banks shall meet on at least two occasions to
present their respective views on valuation and shall negotiate in good faith
to reach a written agreement on the fair market value.
(4) If the fair market value has not been
agreed to in writing by the end of the Negotiation Period, Seller and
Purchaser shall each submit a final valuation proposal with a supporting
analysis to the other Holder or Holders and to the "Arbitrator" within 10
days after the end of the Negotiation Period. The "Arbitrator" shall be a
Person with expertise in valuing companies in the life sciences research
market, shall not have a material business relationship with CBI, SC or JVC
and shall be reasonably acceptable to both Seller and Purchaser.
(5) If Seller or Purchaser does not
submit in a timely manner a final valuation proposal, then the valuation
proposal of the other Holder or Holders shall be used to establish the fair
market value. If the final proposals differ by less than 15%, then the
average of the proposals shall be the fair market value. If the final
proposals differ by 15% or more, then the Arbitrator shall choose one or the
other proposal. The Arbitrator's determination shall be final and binding on
both Seller and Purchase; provided, however, that the Arbitrator must select
one of the final valuation proposals as submitted.
(c) Each Holder purchasing Shares under this Section 10.8
shall pay in cash or other immediately available funds the aggregate purchase
price for the Shares to be sold to such Holder upon receipt of the
certificate or certificates for the Shares to be sold to such Holder.
(d) When Holders have the right to purchase their pro rata
share of another Holder's Shares pursuant to this Section 10.8 and not all of
those Holders exercise their purchase right, the Holders exercising their
purchase right shall also have the right to purchase the pro rata share of
the Shares of the Holders not exercising their purchase right (the "Remaining
Shares"). If more than one Holder elects to exercise its purchase right as to
the Remaining Shares, each Holder who wishes to purchase the Remaining Shares
shall be entitled to purchase that portion of the Remaining Shares as the
total number of Shares then owned by such Holder bears to the total number of
Shares then owned by all Holders who wish to purchase the Remaining Shares.
10.9 CONTINUATION OF BUSINESS. During any period in which a Holder
has the right to purchase or is purchasing the JVC Interest of the other
Holder pursuant to this Section 10:
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(a) JVC shall continue its business in the ordinary course.
CBI, SC and JVC shall use their best efforts to maintain and preserve the
business of JVC pending the consummation of such purchase.
(b) Unless the Holders otherwise agree in writing, no other
agreement between the Holders, between any two of the Parties or among the
Parties, and other related agreements shall be amended or terminated.
(c) The Holders shall negotiate in good faith an agreement
providing that employees of such selling Holder working full-time for JVC
shall be made available full-time to JVC for such period as is reasonably
required up to 6 months to effect an orderly transition to sole ownership by
one Holder, and each Holder shall use its best efforts to make all such
employees available on this basis.
(d) If CBI purchases SC's JVC Interest, then until one year
after the purchase has been completed SC shall not assign to its employees
who have worked at JVC, or to any employees of JVC who become employees of
SC, responsibilities which relate to the development, distribution or
marketing of products competitive with the Products (as defined in Section 1
of the Distribution and Marketing Agreement attached in EXHIBIT B)
distributed by JVC or which JVC was preparing to distribute, at the time of
the purchase.
11. GENERAL PROVISIONS
11.1 CONFIDENTIALITY.
(a) Each Party to this Agreement acknowledges and agrees
that certain information it receives from any of the other Parties
constitutes the confidential and proprietary trade secrets of the disclosing
Party, and that the receiving Party's protection thereof is essential to this
Agreement and a condition of the receiving Party's use and possession
thereof. Each Party shall retain in strict confidence any and all such
confidential and proprietary information marked by the disclosing Party as
confidential (collectively, "Confidential Information") and use such
Confidential Information only as expressly authorized by the Holders. A Party
will under no circumstances distribute or in any way disseminate Confidential
Information to third parties without the prior written permission of the
Holders.
(b) Notwithstanding the above, the receiving Party shall
have no liability to the disclosing Party with regard to Confidential
Information which:
(i) was generally known and available in the
public domain at the time it was disclosed or becomes generally known and
available in the public domain through no fault of the receiving Party;
(ii) was known to the receiving Party at the time
of disclosure as shown by the files of the receiving Holder in existence at
the time of disclosure;
(iii) is disclosed with the prior written approval
of the disclosing Party;
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(iv) was independently developed by the receiving
Party (or by its employees or agents who have not been exposed to such
Confidential Information) without any use of Confidential Information or use
of CBI Products;
(v) becomes known to the receiving Party from a
source other than the disclosing Party without breach of this Agreement or
the Distribution and Marketing Agreement attached in EXHIBIT B by the
receiving Party and otherwise not in violation of the disclosing Party's
rights; or
(vi) is disclosed pursuant to the order or
requirement of a court, administrative agency, or other governmental body;
provided, that the receiving Party shall provide prompt, advanced notice
thereof to enable the disclosing Party to seek a protective order or
otherwise prevent such disclosure.
(c) Each Party will enter into a confidentiality agreement
similar to CBI's form confidentiality agreement with each employee who is
given access to the Confidential Information of any of the Parties which
incorporates the protections and restrictions substantially as set forth
herein.
(d) Each Party agrees to notify the other Holders in the
event of any breach of its security under conditions in which it would appear
that Confidential Information was prejudiced or exposed to loss. Each Party
shall, upon request of the disclosing Party, take all other reasonable steps
necessary to recover any compromised Confidential Information disclosed to or
placed in its possession by virtue of this Agreement. The cost of taking such
steps shall be borne solely by the receiving Party.
(e) Each Party acknowledges that any breach of any of its
obligations under this Section 11.1 is likely to cause or threaten
irreparable harm to the other Parties, and accordingly, each Party agrees
that in such event the disclosing Party shall be entitled to equitable relief
to protect its interests, including but not limited to preliminary and
permanent injunctive relief, as well as money damages.
11.2 ARBITRATION; FORUM.
(a) ARBITRATION. All other disputes, controversies or
claims arising out of or relating to this Agreement, or the breach,
termination or validity thereof, shall be resolved by one arbitrator under
the Rules of International Chamber of Commerce which rules are hereby
incorporated by reference into this Section 11.2. The place of arbitration
shall be Honolulu, Hawaii. The language to be used in the arbitration
proceedings shall be English. The arbitrator may be of any nationality, but
must have knowledge of the life sciences research market in Japan and in the
United States. The arbitral award shall be rendered in writing and state the
reasons for the award. Judgment on any award may be entered by any court of
competent jurisdiction or application may be made to such a court for
judicial acceptance of the award and any appropriate order including
enforcement.
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(b) EXPENSES OF LITIGATION. In case of litigation arising
out of this Agreement, the prevailing Party shall be entitled to recover its
reasonable attorneys' fees and expenses from either of the other Parties. In
case of arbitration between Holders, the arbitrators shall award reasonable
attorneys' fees and expenses to either Holder in such manner and to such
extent as the arbitrators deem equitable.
(c) OTHER RELIEF. Notwithstanding the foregoing, the
Holders may apply to any court of competent jurisdiction for a temporary
restraining order, preliminary injunction, or other interim or conservatory
relief, as necessary, without breach of this section, and without any
abridgement of the powers of the arbitrator.
11.3 FORCE MAJEURE. If the performance of this Agreement or any
obligations hereunder is prevented, restricted or interfered with by reason
of fire or other casualty or accident, strikes or labor disputes, war or
other violence, any law, order, proclamation, regulations, ordinance, demand
or requirement of any government agency, or any other act or condition beyond
the reasonable control of the Parties to this Agreement, any Party so
affected upon giving prompt notice to the other Parties shall be excused from
such performance during such prevention, restriction or interference.
11.4 LAW TO GOVERN. This Agreement shall be governed by the laws of
Japan.
11.5 PUBLICITY. Prior to issuing any reports, statements, press
releases or other disclosures to third parties regarding this Agreement or
the transactions contemplated herein, the Holders shall exchange copies of
such documents and shall consult with each other Holder regarding their
content. Except as otherwise required by law, neither Holder nor the JVC
shall issue any such disclosure without the prior approval of the Holders.
11.6 NOTICES AND OTHER COMMUNICATIONS. Every notice by any of the
Parties herein shall be in writing and delivered either by personal delivery,
or by Express Mail or any similar overnight courier service, or by registered
or certified mail, postage prepaid, or by fax or e-mail, addressed to the
Party for whom intended at its address set forth above, or at such other
address as the intended recipient previously shall have designated by written
notice to the other Party. All notices delivered in person shall be deemed to
have been delivered to and received by the addressee and shall be effective
on the date of personal delivery. All notices delivered by Express Mail or
any other similar overnight courier service shall be effective upon receipt.
All notices delivered by registered or certified mail, or by fax or e-mail,
shall be effective upon receipt.
11.7 COUNTERPARTS. This Agreement may be executed in any number of
English language counterparts or duplicate originals, and each such
counterpart or duplicate original shall constitute an original instrument,
but all such separate counterparts or duplicate originals shall constitute
one and the same instrument.
11.8 WRITTEN AGREEMENT TO GOVERN. This Agreement sets forth the
entire understanding and supersede all prior and contemporaneous agreements
and discussions between the Holders relating to the specific subject matter
contained herein or therein, and neither Holder shall be bound by any
definition, condition, representation, warranty, covenant or provision other
than as
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expressly stated in or contemplated herein or therein or as subsequently
shall be set forth in writing and executed by a duly authorized
representative or agent of the Holder to be bound thereby.
11.9 NO WAIVER OF RIGHTS. All waivers hereunder must be made in
writing, and failure at any time to require any Party's performance of any
obligation under this Agreement shall not affect the right subsequently to
require performance of that obligation. No waiver of any breach of any
provision of this Agreement shall be construed as a waiver of any continuing
or succeeding breach of such provision or a waiver or modification of such
provision.
11.10 SEVERABILITY. Whenever possible, each provision of this
Agreement shall be interpreted in such manner as to be effective and valid
under applicable law, but if any provision of this Agreement should be
prohibited or invalid under applicable law, (including, without limitation,
objections by the Japanese Fair Trade Commission) such provisions shall be
ineffective to the extent of such prohibition or invalidity without
invalidating the remainder of such provision or the remaining provisions of
this Agreement. In such event, the Holders agree to negotiate, in good faith,
a valid, legal and enforceable substitute provision which most nearly effects
the Holders' intent in entering into this Agreement.
11.11 SUBJECT HEADINGS. The subject headings of the Sections of this
Agreement are included for the purposes of convenience only, and shall not
affect the construction or interpretations of any of its provisions.
11.12 FURTHER ASSURANCES. The Parties shall each perform such acts,
execute and deliver such instruments and documents, and do all such other
things as may be reasonably necessary to accomplish the transactions
contemplated in this Agreement.
11.13 EXPENSES AND FINDER'S FEES. The Holders shall each bear their
own costs and expenses (including attorneys' fees) incurred in connection
with the negotiation and preparation of this Agreement and the consummation
of the transactions contemplated hereby. Each Holder shall indemnify the
other Holder against any claim for brokerage or finder's fees arising out of
the transactions contemplated herein by any person claiming to have been
engaged by the indemnifying Holder based upon any action or communication, or
any alleged action or communication, by the indemnifying Holder or any of its
officers or employees. Pursuant to Section 9.4(b), JVC shall bear the costs
of incorporation and issuance of the initial Shares.
11.14 RELATIONSHIP AMONG PARTIES. Each of CBI, SC and JVC will in
all matters relating to this Agreement be and act as an independent
contractor. None of the Parties will represent that it has any authority to
assume or create any obligation, express or implied, on behalf of any of the
other Parties, or to represent any of the other Parties as agent, employee,
or in any other capacity.
11.15 CONFIDENTIALITY OF AGREEMENT. The Parties shall hold in
confidence and not disclose to any third party, without the prior written
consent of both Holders, the terms and conditions of the Agreement, provided
that each Party may disclose the terms and conditions of this Agreement
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(a) as required by any court or other governmental body;
(b) as otherwise required by law;
(c) to legal counsel of each of the Parties;
(d) in confidence, to accountants, banks and financing
sources and their advisors;
(e) in connection with the enforcement of this Agreement or
rights under this Agreement; or
(f) in confidence, in connection with a merger or
acquisition or proposed merger or acquisition, or the like.
11.16 LANGUAGE. This Agreement is in the English language only, which
language shall be controlling in all respects, and all versions hereof in any
other language shall be for accommodation only and shall not be binding upon
all Parties hereto. All communications and notices to be made or given
between Holders pursuant to this Agreement shall be in the English language.
11.17 ASSIGNMENT. This Agreement shall inure to benefit of, and shall
be binding upon, the Parties and their respective successors and assigns. No
Party may assign or delegate this Agreement or any of its rights or duties
under this Agreement without the prior written consent of both Holders except
as expressly set forth herein or to a Person or entity into which it has
merged or which has otherwise succeeded to all or substantially all of the
business and assets of the assignor ("Successor"), and which has assumed in
writing or by operation of law the assignor's obligations under this
Agreement.
11.18 FOREIGN CORRUPT PRACTICES ACT.
(a) All of the Parties to this Agreement acknowledge that
the laws, rules, regulations and decrees of the various jurisdictions in
which JVC conducts its business, and of the United States of America, shall
apply to the actions of JVC. The Parties recognize that the United States
Foreign Corrupt Practices Act of 1977 (the "Act") may be applicable to JVC's
activities. The Parties recognize that the Act prohibits the payment or
giving of anything of value either directly or indirectly to a government
official for the purpose of influencing an act or decision in his or her
official capacity, or for the purpose of inducing him to use his influence
with his government to assist a company in obtaining or retaining business
for or with, or directing business to, any Person.
(b) The Parties represent and warrant that they are
familiar with the Act and its purposes, and that none of the Parties nor
their owners, officers, directors, partners, principals, employees, staff
members, or agents are officials, officers or representatives of any
government or political party or candidates for political office. The Parties
shall ensure that no part of JVC's capital or other funds will be accepted or
used by JVC for any purpose, nor will it take any action, which
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would constitute a violation of any law of the various jurisdictions in which
it conducts business or of the United States of America, including the Act.
(c) Should any of the Parties ever receive, directly or
indirectly, a request which any of them believes will or might constitute a
violation of the Act, it shall immediately notify CBI.
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IN WITNESS WHEREOF, the undersigned are duly authorized to execute
this Agreement on behalf of CBI and SC as applicable.
CIPHERGEN BIOSYSTEMS, INC. ("CBI") SUMITOMO CORPORATION ("SC")
By: By:
---------------------------------- -------------------------------
Title: Title:
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Dated Dated:
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JVC agrees to be bound by all provisions of this Agreement applicable to it.
CIPHERGEN BIOSYSTEMS K.K. ("JVC")
By:
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Title:
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Dated
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DISTRIBUTION AND MARKETING AGREEMENT
This DISTRIBUTION AND MARKETING AGREEMENT, including the attached
Exhibits ("Agreement"), is made and entered into as of ______________, 1998
(the "Effective Date") by and between CIPHERGEN BIOSYSTEMS, INC., a
California corporation with offices at 490 San Antonio Road, Palo Alto, CA
94306, USA ("CBI"), and Ciphergen Biosystems K.K., a Japanese corporation
with offices at ______________, Japan ("JVC").
BACKGROUND
A. CBI is engaged in the business of developing, manufacturing,
distributing, and selling Products (as defined below); and
B. JVC desires to solicit orders for Products from, and distribute
and sell Products to, customers in the Territory (as defined below); and
C. JVC desires to purchase from CBI, and CBI desires to sell to JVC,
such Products for the purpose of resale to customers in the Territory.
NOW, THEREFORE, in consideration of the mutual promises contained herein, CBI
and JVC agree as follows:
1. DEFINITIONS
1.1 "AFFILIATE" means any entity which is controlled by CBI or JVC.
An entity shall be regarded as in control of another entity for purposes of
this definition if it owns or controls more than fifty percent (50%) of the
shares of the subject entity entitled to vote in the election of directors
(or, in the case of an entity that is not a corporation, for the election of
the corresponding managing authority); provided, however, that in any country
where the local law does not permit equity participation of at least 50%,
then Affiliate will include any company in which CBI or JVC owns or controls,
directly or indirectly, the maximum percentage of such outstanding stock or
voting rights permitted by law.
1.2 "CHANGE IN CONTROL" with respect to a Party means (i) a merger
of that Party with or into another Person, or a sale of all or substantially
all of a Party's assets to another Person, if as a result of the merger or
asset sale the holders of a majority of the Party's voting securities before
the transaction hold less than a majority of the voting securities of the
surviving entity, or (ii) the acquisition by a Person or a group acting in
concert of a majority of a party's voting securities.
1.3 "CONSUMABLES" means CBI's ProteinChip-TM- arrays generally made
available by CBI for use with Systems and items that CBI sells in the United
States and Europe in one time or limited reuse with the Systems for life
sciences research market applications.
1.4 "CUSTOMERS" means end users of Products in the Territory and in
the Field.
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1.5 "EFFECTIVE DATE" means the date first above written in the
caption.
1.6 "FIELD" means life science research for internal purposes only.
JVC's Customers of Products may not sell clinical diagnostic products or
services nor sell information or data generated from Products acquired from
JVC.
1.7 "PARTY" or "PARTIES" means CBI and JVC.
1.8 "PERSON" or "PERSONS" means a natural individual, partnership,
firm, company, corporation, and any other form of business association.
1.9 "PRODUCTS " means Systems and Consumables manufactured by CBI
and/or any third party who has been allowed by CBI to manufacture the same.
1.10"SC" means Sumitomo Corporation.
1.11"SYSTEMS " means CBI's Protein Biology System I and its
successors based on CBI's Surface Enhanced Laser Desorption/Ionization
(SELDI-TM-) technology, generally made available in the life sciences
research market in the United States and Europe.
1.12 "SOFTWARE" means machine control software and bioinformatics
software supplied with Systems for use in connection with the Products.
1.13 "SYSTEM SPECIFICATIONS" means operator's guide, package
inserts, packaging specifications, label claims, instructional manuals and
other material provided by CBI for use with Systems and Consumables.
1.14 "SC" means Sumitomo Corporation.
1.15 "TERM" is defined in Section 12.1.
1.16 "TERRITORY" means Japan.
1.17 "WORKING DAYS" means Monday through Friday, other than public
holidays of the United States, the State of California, and Japan.
2. GRANT OF DISTRIBUTION RIGHTS
2.1 APPOINTMENT.
(a) Subject to the terms and conditions of this Agreement,
CBI hereby grants to JVC the exclusive right, to market, sell and distribute
in the Territory CBI's Products to Customers solely for use in the Territory
and in the Field.
(b) Rights granted under 2.1(a) shall not include any
patents, copyrights, maskwork rights, trade secrets, know-how or any other
intellectual property of CBI.
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(c) CBI agrees not to grant licenses on any of its patents,
copyrights, maskwork rights, trade secrets, know-how or any other
intellectual property to any other Person without specifically excluding the
right to market, sell and distribute in the Territory CBI's Products to
Customers in the Territory and in the Field.
(d) CBI shall not (i) appoint any distributor of Products
other than JVC in the Territory and in the Field; and (ii) sell or resell any
Products to third parties other than JVC in the Territory and in the Field.
2.2 SOFTWARE LICENSE; NOTICES.
(a) CBI hereby grants to JVC a limited, non-exclusive,
nontransferable, royalty-free license to use the Software, solely for the
purposes of (i) demonstrating the Products, (ii) training and instructing JVC
personnel, and (iii) allowing Customer use of the Products, in each case in
accordance with the terms and conditions of this Agreement.
(b) Software provided to JVC hereunder is subject to this
license and is not a sale of title to the Software and it is understood and
agreed that CBI retains all right, title, and interest in and to Software.
JVC agrees not to directly or indirectly reverse engineer, disassemble,
decompile, or otherwise attempt to derive source code from the Software and
not to copy the Software or use it for any other purpose except as expressly
licensed.
(c) The terms of Section 2.2(b) apply in full force and
effect to JVC's Customers, and JVC shall ensure that its Customers comply
with the requirement not to directly or indirectly reverse engineer,
disassemble, decompile, or otherwise attempt to derive source code from the
Software and not to copy the Software or use it for any other purpose except
as expressly licensed.
(d) JVC agrees not to modify, delete, or obscure any and
all proprietary notices affixed to the Products, including, without
limitation, the Software.
(e) JVC agrees to localize the Software for use in the
Territory. CBI retains all right, title, and interest in any and all
resulting copyrightable materials from such localization.
2.3 NO RIGHTS BEYOND PRODUCTS. It is understood and agreed that the
foregoing rights do not include the right to market, license, sell or
otherwise distribute any information or data derived from or with the use of
Products.
2.4 RESERVATION OF RIGHTS. Except as expressly provided in this
Section 2, no right, title, or interest is granted, whether express or
implied, by CBI to JVC. Nothing in this Agreement shall be deemed to grant to
JVC rights in any products or technology other than the Products, nor shall
any provision of this Agreement be deemed to restrict CBI's right to exploit
technology, know-how, patents, or any other intellectual property rights
relating to the Products and applications other than Products. CBI reserves
the rights to market, sell, or otherwise distribute, directly or indirectly,
Products in the Territory for use outside the Field.
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3. PAYMENT
3.1 PAYMENT
(a) JVC shall pay 80% of CBI's then published U.S. list
price for the applicable Products. JVC shall pay 40% of CBI's then published
U.S. list price for the Consumables purchased by JVC for internal use at JVC
and for Customer demonstration. Limited quantities of such Consumables
supplied to JVC shall be specified in the annual Business Plan (as defined in
Section 1.6 and as required by Section 4.6 of the Joint Venture Agreement).
(b) CBI shall submit an invoice to JVC upon shipment by CBI
of each Product ordered by JVC. Each such invoice shall state JVC's aggregate
and unit transfer price for Products in a given shipment, plus any freight,
taxes or other costs incident to the purchase or shipment initially paid by
CBI but to be borne by JVC hereunder. Such payment shall be made in U.S.
dollars net thirty (30) days by wire transfer after the date of shipment by
CBI to JVC and deposited by wire into a bank account designated by CBI.
(c) Any payment for Products due which is not paid within
five (5) days of the date such payments are due in accordance with Section
3.1(a) shall bear interest at the lesser of one and one-half percent (1-1/2%)
per month or the maximum rate permitted by law, calculated on the number of
days such payment is delinquent. This Section 3.1(b) shall in no way limit
any other remedies available to CBI.
3.2 TAXES. Any and all amounts payable hereunder by JVC under
Section 3 do not include any government taxes (including without limitation
sales, use, excise, and value added taxes) or duties imposed by any
governmental agency that are applicable to the export, import, or purchase of
the Products (other than taxes on the net income of CBI), and JVC shall bear
all such taxes and duties. JVC shall be responsible to pay all taxes, costs,
or payments, if any, which result from compliance with applicable currency
control restrictions including the Revised Foreign Exchange and Foreign Trade
Control Act (Revised FECA). Any such taxes which are otherwise imposed on
payments to CBI or JVC shall be the sole responsibility of JVC. When CBI has
the legal obligation to collect and/or pay such taxes, the appropriate amount
shall be added to JVC's income and/or paid by JVC, unless JVC provides CBI
with a valid tax exemption certificate authorized by the appropriate taxing
authority. JVC shall provide CBI with official receipts issued by the
appropriate taxing authority or such other evidence as is reasonably
requested by CBI to establish that such taxes have been paid.
3.3 RECORDS; INSPECTION. JVC shall keep complete, true and accurate
books of account and records for the purpose of determining the amounts
payable under Section 3.1. Such books and records shall be kept at JVC's
principal place of business for at least three (3) years following the end of
the calendar quarter to which they pertain. Such records will be open for
inspection during such three (3) year period by a representative or agent of
the other Party for the purpose of verifying the amounts payable under
Section 3.1. Such inspections may be made no more than once each calendar
year, at reasonable times mutually agreed upon by CBI and JVC (each
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referred to as "Inspecting Party"). The Inspecting Party's representative or
agent shall execute a confidentiality agreement prior to commencing any such
inspection. Inspections conducted under this Section 3.4 shall be at the
expense of the Inspecting Party's, unless a variation or error producing an
underpayment in amounts payable exceeding five percent (5%) of the amount
paid for any period covered by the inspection is established in the course of
any such inspection, whereupon all costs relating to the inspection for such
period and any unpaid amounts that are discovered will be paid by the
inspected Party, together with interest on such unpaid amounts at the rate
specified in Section 3.1(c) above.
4. PURCHASE AND SALE
4.1 FORECASTS AND PURCHASE ORDERS. Beginning on the Effective Date,
and thereafter sixty (60) days prior to the first day of each calendar
quarter, JVC shall provide to CBI a good faith, quarterly written forecast of
Products that JVC expects to purchase and prospective customers over the
twelve (12) months commencing with the first day of the next calendar quarter
("Forecasts"). The Parties acknowledge that the Forecasts are for CBI's
planning purposes only and shall not be binding upon the Parties. JVC and CBI
shall meet, by telephone or in person, not less than once per calendar
quarter to review Forecasts.
4.2 ORDER AND ACCEPTANCE. All orders shall be by means of signed
written Purchase Orders by JVC to a CBI employee designated in writing by
CBI, sent to CBI at CBI's address for notice hereunder and proposing a
delivery date that is consistent with the Forecasts and not less than sixty
(60) days after CBI's receipt of such Purchase Order unless CBI waives this
notice requirement when requested by JVC for a particular order ("Purchase
Orders"). Orders shall be placed by a signed written Purchase Order, which
may be provided to CBI by fax or e-mail. CBI shall accept Purchase Orders by
fax, e-mail or in writing within fourteen (14) days of receipt, it being
understood that no Purchase Order shall be binding upon CBI until accepted by
CBI. CBI shall fulfill Purchase Orders accepted by CBI pursuant to the terms
and conditions of this Agreement. CBI shall maintain full production capacity
to meet the Purchase Order, but does not guarantee delivery of Products for
delivery dates less than sixty (60) days of the Purchase Order. No partial
shipment of an order shall constitute the acceptance of the entire order,
absent the written acceptance of such entire order. Once accepted by CBI, JVC
may cancel or reschedule Purchase Orders for Products only with CBI's prior
written approval.
4.3 SHIPPING. All Products delivered pursuant to the terms of this
Agreement shall be suitably packed for surface or air shipment, in JVC's
discretion, in CBI's standard shipping cartons, and delivered, at JVC's
direction, to JVC or a carrier agent, F.O.B. (as the term "F.O.B." is defined
under Section 2319 of the California Uniform Commercial Code as of the
Effective Date) the shipping location designated by CBI (the "Shipping
Location"), at which time risk of loss shall pass to JVC. CBI shall ship
Products using the carrier specified in JVC's Purchase Order provided that if
JVC does not provide instructions with respect to the carrier to be used, CBI
shall select the carrier. All freight, insurance, and other shipping
expenses, as well as any special packing expenses incurred by CBI at the
request of JVC, shall be paid by JVC. JVC shall also bear all applicable
taxes, export taxes, duties and similar charges, and any charges that may be
assessed against the Products after
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delivery to JVC or the carrier at the Shipping Location. All shipments and
freight charges shall be deemed correct unless CBI receives from JVC, no
later than forty-five (45) days after the shipping date of a given shipment,
a written notice specifying the shipment, the purchase order number, and the
exact nature of the discrepancy between the order and shipment or discrepancy
in the freight cost, as applicable.
4.4 RETURNS. JVC may return Products only with CBI's prior written
approval. Products returned to CBI other than under Section 6 shall be
returned F.O.B. the destination point designated by CBI (as the term "F.O.B."
is defined under Section 2319 of the California Uniform Commercial Code as of
the Effective Date) and shall be subject to a restocking fee in an amount
equal to ten percent (10%) of the transfer price paid by JVC to CBI for such
Products computed in accordance with Section 3.1(a). JVC shall also bear all
applicable taxes, export taxes, duties and similar charges, and any charges
that may be assessed against the Products in connection with such delivery to
CBI at the destination point.
5. INSPECTION AND ACCEPTANCE
JVC shall inspect all Products promptly upon receipt thereof and may
reject any Product that fails to conform to the warranties set forth in
Section 6 below at the time of delivery to JVC, provided that JVC complies
with the provisions of Section 6.3 below. JVC may reject any Product rejected
by Customers within thirty (30) days of rejection by Customers. Except as set
forth in this Section 5 and Section 6 below, JVC shall return Products to CBI
only with CBI's prior written approval.
6. LIMITED WARRANTY
6.1 STANDARD CBI SYSTEMS AND CONSUMABLES WARRANTY. CBI warrants to
JVC that subject to the exclusions set forth in this Section 6.1 and in
Section 6.2 below, the Systems and Consumables shall substantially conform to
System Specifications, during the one-year warranty period after
installation, covering parts and labor. The foregoing warranty is contingent
upon proper use of the Systems and Consumables with the supplied Software in
the applications for which they were intended as indicated in the Systems and
Consumables label claims. The above limited warranty applies only to defects
reported to CBI in accordance with CBI's standard reporting procedures
described in the System Specifications and does not apply to any Systems and
Consumables which, after dispatch from the Shipping Location, (i) have been
altered, (ii) have not been maintained in accordance with any transportation,
storage, handling or maintenance instructions supplied by CBI, (iii) have
been damaged by negligence or accident, or (iv) have been damaged by acts of
nature, vandalism, burglary, neglect, or misuse. In the event of any breach
of the above limited warranty, JVC's exclusive remedy and CBI's sole and
exclusive liability shall be, at CBI's sole election, within thirty (30) days
after the end of the quarter during which defects are reported to CBI, to
replace the Systems and Consumables, with Software supplied therewith, at
CBI's expense or to provide JVC with a credit or refund in the amount of the
transfer price paid by JVC for the non-conforming Systems, Consumables and
Software.
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6.2 DISCLAIMER OF OTHER WARRANTIES. Except for the limited
warranties provided in Section 6.1 above, CBI grants no other warranties or
conditions, express or implied, by statute, or otherwise, regarding any or
all of CBI Products and specifically disclaim the implied warranties of
fitness for a particular purpose, merchantability, and noninfringement. CBI
does not warrant that operation of the Systems, Consumables and Software will
be uninterrupted or error-free. Any other representations or warranties made
by any person or entity, including employees or representatives of CBI, that
are inconsistent herewith shall be disregarded and shall not be binding upon
CBI. In no event shall CBI be liable to JVC or any third party for lost
profits, or for any special, consequential, incidental, or indirect damages
for breach of warranty. This limitation shall apply even where CBI has been
advised of the possibility of such damage and notwithstanding the failure of
the essential purpose of any limited remedy stated herein.
6.3 END USER WARRANTY AND REPRESENTATIONS. JVC shall pass on to
Customers the foregoing standard limited warranties and disclaimer set forth
in this Section 6. JVC further agrees not to represent the Products in a
manner that is inconsistent with the CBI's System Specifications and any
other promotional or instructional manuals produced by CBI or to otherwise
misrepresent the Products.
7. EXCHANGE OF DATA
7.1 EXCHANGE. JVC shall promptly provide to CBI all Product data
("Data") made, developed, or acquired by or for JVC with respect to Products.
CBI shall provide to JVC access to data from Product studies that CBI
possesses as of the Effective Date and that is reasonably necessary for JVC
to obtain those governmental approvals that JVC is responsible for obtaining
pursuant to Sections 8.1 and 8.2 below, to the extent that CBI has the right
to disclose such data to JVC for the foregoing purposes. JVC will provide to
CBI access to and copies of all government approval applications and other
regulatory and governmental filings made by JVC with respect to Products
(including, without limitation, pricing approvals), together with the
underlying data, promptly after submission to government authorities and
shall provide to CBI copies of all correspondence with government authorities
with respect to the Products promptly after receipt or submission thereof.
All such data, applications, filings and correspondences necessary for
government approval and compliance shall be translated into English and
provided to CBI.
7.2 DISCLOSURE. CBI may use, reference, and provide copies of
regulatory and governmental filings and Data made, developed, or acquired by
JVC relating to the Products, to third parties as is reasonably necessary or
useful for CBI's business and/or as required by law or regulation. JVC will
only use, reference, and disclose Data relating to the Products to third
parties as required to obtain governmental approval to market and distribute
Products pursuant to Section 8, as required by law or regulation, or, to the
extent CBI has authorized JVC to do so and only with CBI's prior written
approval which shall not be unreasonably withheld, to market, sell,
distribute and promote the Products. JVC shall not enter into any agreements
with third parties or Affiliates involving the development or dissemination
of Data for sale or otherwise.
8. GOVERNMENT APPROVAL
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8.1 HEALTH REGULATORY APPROVAL. JVC, at JVC's expense, shall use
commercially reasonable efforts to obtain regulatory approvals from the
Ministry of Health and Welfare (KOSEISHO) and other regulatory agencies in
the Territory to the extent required by the foregoing regulatory authorities
to market, sell and distribute the Products in the Territory. To the extent
permitted by law, all regulatory approvals obtained by JVC shall be made in
CBI's name.
8.2 REGISTRATIONS, LICENSES AND PERMITS. Except as expressly
provided in Section 7.1 above, if and as required from time to time under the
laws of any jurisdiction within the Territory, JVC, at JVC's expense, shall
obtain all registrations, licenses, and permits required to comply with the
laws and regulations within the Territory for marketing, sale and
distribution of the Products. JVC shall provide to CBI complete copies of all
applications, and all registrations, licenses and permits obtained therefrom
relating to the Products. To the extent permitted by law, all registrations,
approvals, and government authorizations obtained by JVC in the Territory
with respect to the Products shall be in the name of CBI. Upon the
expiration, cancellation, or termination of this Agreement, all
registrations, approvals, and government authorizations shall be transferred
and delivered to, and shall inure to the benefit of CBI or its designee, to
the extent that this is permissible under applicable law, at no cost to CBI
other than lawfully imposed transfer fees.
9. REPORTS
9.1 ANNUAL BUSINESS PLANS. JVC shall develop an English version of
annual business plan for the Products which shall include, without
limitation, promotion strategy and tactics, and sales and other marketing
plans ("Business Plan" as defined in Section 1.6 and required by Section 4.6
of the Joint Venture Agreement). Any such Business Plan shall be provided to
CBI for prior review and approval, which approval shall not be unreasonably
withheld. The Business Plan for the first year of this Agreement shall be
provided to CBI within three (3) months after the Effective Date. Thereafter,
if requested, Business Plans shall be provided to CBI for review and approval
by CBI not later than ninety (90) days before January 1 of the year to which
such Business Plan pertains. JVC's Board of Directors shall discuss and
update the Business Plan at least once every calendar year.
9.2 SALES AND INVENTORY REPORTS. If requested by CBI, JVC shall
provide to CBI semi-annual sales and inventory reports setting forth JVC's
sales and inventory of Products, on a Product-by-Product basis, during the
prior six (6) month period. If requested, such sales and inventory reports
shall be submitted to CBI within thirty (30) days after June 30 and December
31 of each calendar year.
9.3 MARKETING REPORTS. At CBI's request, JVC shall provide CBI,
within ten (10) Working Days after the end of each calendar quarter, a
general description of JVC's activities in promoting the Products in the
Territory during the previous calendar quarter.
9.4 AUDITS. Without limiting the provisions of Section 3.3 above,
CBI reserves the right to authorize a CBI representative, at CBI's expense,
to audit JVC's records other than the books and records described in Section
3.3, relating to the Products, including, without limitation, sales and
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inventory records. Upon prior written notice, JVC shall provide reasonable
access to such inventory records during normal business hours at JVC's
business locations. JVC shall maintain all such records relating to Products
at its principal place of business for a minimum of five (5) years.
10. ADDITIONAL OBLIGATIONS OF JVC
10.1 INVENTORY. JVC shall maintain a quantity of each Product at all
times during the Term of this Agreement as reasonably necessary in order to
meet the demand of JVC's Customers and potential Customers.
10.2 TRANSLATION. JVC shall at its cost provide any and all
resources necessary to translate all required manuals, instructions,
literature, and package insert data sheets for use in the Territory, and
shall provide CBI and the applicable regulatory authorities sufficient
quantities of such materials to meet governmental and/or regulatory, and
market support requirements.
10.3 TRAINING. JVC shall maintain knowledgeable sales and marketing
personnel to provide instructions to Customers in the use of the Products.
JVC agrees that such sales and marketing personnel will, at JVC's expense,
attend a hands-on sales training session provided by CBI with respect to the
Products. CBI agrees to provide such training at CBI's expense under Section
11.1, except that CBI shall not pay for travel or other similar expenses
incurred by JVC personnel.
10.4 BUSINESS OBLIGATIONS. Any and all obligations associated with
JVC's business shall remain the sole responsibility of JVC. Any and all sales
and other agreements between JVC and its customers are and shall remain JVC's
exclusive responsibility and shall have no affect on JVC's obligations
pursuant to this Agreement.
10.5 COPYRIGHT AND TRADEMARK PROTECTION; NOTICE OF INFRINGEMENT. JVC
shall promptly notify CBI of the requirements for copyright and trademark
protection and registration for the Products in the Territory and, at CBI's
request, shall assist CBI in fulfilling such requirements. JVC agrees to
notify CBI of any infringement in the Territory of CBI's intellectual
property rights immediately after JVC becomes aware of any such infringement.
If Baylor University ("Baylor") or Molecular Analytical Systems, Inc. ("MAS")
notifies CBI of any third party claim that a Product infringes on the third
party's patent or of any action by Baylor or MAS against a third party whose
product infringes on patents held by Baylor or MAS and applicable to any
Product, CBI shall immediately notify JVC. CBI shall immediately notify JVC
of any breach of the agreements between Baylor and MAS, and between MAS and
CBI which could reasonably be expected to result in termination or
modification of MAS's or CBI's license to the technology embodied in the
Products. CBI shall, promptly after signing this Agreement, send Baylor and
MAS a written request for them to send SC a copy of any notice sent to CBI of
such an infringement action or breach.
10.6 FOREIGN CORRUPT PRACTICES ACT. In conformity with the United
States Foreign Corrupt Practices Act, JVC (including employees, agents, and
Affiliates of JVC) shall not directly or indirectly make any offer, payment,
promise to pay, or authorize payment, or offer a gift, promise to give, or
authorize the giving of anything of value for the purpose of influencing an
act or decision of
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an official of any government within the Territory or the United States
Government (including a decision not to act) or inducing such official to use
his or her influence to affect any such governmental act or decision in order
to assist JVC in obtaining, retaining, or directing any such business.
10.7 ADVERTISING AND PROMOTIONS. JVC shall be responsible for all
Product marketing commitments and procedures in the Territory in the Field.
JVC shall use reasonable efforts to advertise and promote the Products and to
transmit Product information and promotional materials to its Customers, in
order to maximize Product sales in the Territory. Such advertising and
promotion may take the form of, but shall not be limited to, magazine
advertising, direct mail promotion, trade show displays, educational seminars
and other activities related to promoting Products.
10.8 MATERIALS. JVC shall provide to CBI for purposes of review,
comment, and revision by CBI all promotional, advertising, instructional and
educational materials and programs, package data sheets, and other literature
relating to the Products ("Materials") at least thirty (30) days prior to the
commercial release of such materials or commencement of such programs. JVC
shall provide CBI with English versions of the Materials. JVC, at JVC's
expense, shall produce Japanese language samples of promotional and marketing
support materials for the Products. Such materials shall include, without
limitation, brochures and advertising literature.
10.9 PRODUCT PACKAGING AND LABELING. JVC shall not repackage
Products supplied to JVC by CBI hereunder without the prior written consent
of CBI. In addition, except for the addition of information required by
applicable laws and regulations within the Territory, JVC shall not relabel
Products supplied to JVC by CBI in Japanese or English without the prior
written consent of CBI. CBI hereby agrees that, subject to the terms and
conditions of Section 14, JVC may label the Products with the JVC tradename
and trademarks, provided JVC agrees to label all Products with the following
legend in the Japanese language: "Distributed under authority from Ciphergen
Biosystems, Inc.", or a substantially equivalent legend.
10.10 ACCESS. JVC shall, at CBI's request, allow representatives of
CBI to visit Customers, purchasers, and any other end users of Products in
the Territory with JVC personnel and/or independently to discuss the Products
and their performance and potential new products.
11. ADDITIONAL OBLIGATIONS OF CBI
11.1 TRAINING. CBI shall provide regularly scheduled hands-on sales
training sessions in the use of Products for JVC's sales, marketing and
technical support personnel involved in Product sales and service. All
expenses incurred by JVC's personnel in connection with all training
including, without limitation, travel and lodging expenses, shall be borne by
JVC. Travel and lodging expenses of CBI's personnel in connection with such
training shall be borne by CBI. Training shall be conducted at mutually
agreed facilities in Japan or in the United States.
11.2 TECHNICAL SUPPORT. CBI shall provide any reasonably necessary
technical support to JVC in respect of the Products until six (6) months
following the Effective Date, after which time
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CBI shall provide reasonable technical support to JVC, in a form and amount
and on terms to be agreed by the CBI and JVC.
11.3 EQUIPMENT DEMONSTRATIONS. At JVC's request, CBI shall perform
equipment demonstrations in Japan or in the United States, including and up
to four (4) visits ("Visits") to Japan each year. Equipment demonstrations
may be held at Customers' onsite facilities as agreed upon by JVC and CBI.
11.4 SEMINARS. At JVC's request, CBI shall conduct educational or
practical seminars in Japan or in the United States, during the Visits under
Section 11.3. Seminars may also be held at Customers' onsite facilities as
agreed upon by JVC and CBI.
11.5 PAYMENT. JVC shall pay CBI 37,500,000 yen in cash as a
non-refundable, advance payment for CBI services under Sections 11.1, 11.2,
11.3, and 11.4 above. Payment shall be made in United States dollars in
immediately available funds to a bank account designated by CBI by wire
transfer within 15 days of the Effective Date.
12. TERM AND TERMINATION
12.1 TERM. The initial term ("Initial Term") of this Agreement shall
commence on the Effective Date and continue in full force and effect until
ten (10) years from the Effective Date, unless earlier terminated pursuant to
this Section 12. Thereafter, this Agreement will automatically renew for
additional renewal terms of one (1) year (each a "Renewal Term"), unless
earlier terminated by either Party pursuant to this Section 12 or by written
notice to the other Party at least sixty (60) days prior to the expiration of
the Initial Term or any Renewal Term. The Initial Term and Renewal Terms are
referred to collectively herein as the "Term."
12.2 TERMINATION FOR CAUSE. If a Party has breached or defaulted in
the performance of any of its material obligations hereunder, and such breach
or default has not been cured within ten (10) days, the non-breaching Party
may terminate this Agreement by written notice.
12.3 TERMINATION UPON BANKRUPTCY, INSOLVENCY OR INVOLUNTARY
LIQUIDATION OR DISSOLUTION OF JVC. If, before CBI Buyout, JVC becomes subject
to any of the following, this Agreement shall terminate. If, after CBI
Buyout, JVC becomes subject to any of the following, this Agreement shall
continue and shall become assignable to SC if JVC is liquidated or dissolved.
(a) JVC becomes insolvent or unable to pay any or all of
its debts as they mature or ceases to pay any or all of its debts as they
mature in the ordinary course of business.
(b) Appointment of a custodian for all or substantially all
of JVC's assets.
(c) The determination by a court or tribunal of competent
jurisdiction that the JVC is insolvent.
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<PAGE>
(d) Any application or petition is submitted, by or for
JVC, for commencement of proceedings of bankruptcy, composition or other
similar proceedings under the applicable law.
(e) Proceedings for liquidation or dissolution are
commenced involuntarily.
12.4 TERMINATION UPON VOLUNTARY LIQUIDATION OR DISSOLUTION OF JVC.
If, before CBI Buyout, JVC is voluntarily liquidated or dissolved, this
Agreement shall terminate. If, after CBI Buyout, JVC is voluntarily
liquidated or dissolved, and SC at that time has an equity interest in JVC,
this Agreement shall continue and be assigned to SC.
12.5 TERMINATION UPON GOVERNMENTAL ALTERATION OR MODIFICATION. If
any government or agency having jurisdiction over JVC requires alteration or
modification of this Agreement or the Joint Venture Agreement, and the JVC is
liquidated or dissolved upon such alteration or modification, this Agreement
shall terminate.
12.6 TERMINATION RELATING TO SALES OF COMPETING PRODUCTS. JVC shall
not distribute in the Territory any products that compete with Products in
the Field. CBI may, at its sole discretion, terminate this Agreement with ten
(10) days notice if JVC shall directly or indirectly develop, market, sell,
or otherwise distribute any products, components, chips, chip arrays, which
could compete with the Products in the Field, or any information or data
derived from the use of Systems, Consumables and Software, or JVC appoints or
licenses any third party to develop, market, sell, or otherwise distribute
any products or components which could compete with Products in the Field
during the Term of this Agreement.
12.7 EFFECT OF TERMINATION.
(a) Expiration or termination of this Agreement for any
reason shall not release any Party hereto from any liability which, at the
time of such termination, has already accrued to the other Party or which is
attributable to a period prior to such termination nor preclude either Party
from pursuing any rights and remedies it may have hereunder or at law or in
equity with respect to any breach of this Agreement. It is understood and
agreed that monetary damages may not be a sufficient remedy for any breach of
this Agreement and that the non-breaching Party may be entitled to injunctive
or other equitable relief as a remedy for any such breach. Such remedy shall
not be deemed to be the exclusive remedy for any such breach of this
Agreement, but shall be in addition to all other remedies available at law or
in equity.
(b) Within ten (10) days after the effective date of
termination of this Agreement, JVC shall use its reasonable efforts to
provide CBI with a complete inventory of Products in JVC's possession, in
transit to JVC from CBI or otherwise in JVC's control. Upon any expiration or
other termination of this Agreement, CBI may inspect JVC's Product inventory
and audit JVC's records in the manner provided in Section 9.4 above.
(c) Upon expiration or any termination of this Agreement,
CBI or its designee may repurchase (and in the event that CBI terminates this
Agreement pursuant this Section 12, CBI
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<PAGE>
or its designee shall repurchase) and JVC shall sell to CBI or its designee,
all of JVC's inventory of Products existing on the effective date of
termination and ordered from CBI during the six (6) month period prior to the
effective date of termination. The price of inventory repurchased upon JVC's
termination of this Agreement pursuant to this Section 12 shall be the
transfer price paid by JVC net of any prior JVC price adjustment, credits or
other allowances. If CBI terminates this Agreement pursuant to this Section
12, then a restocking charge of ten percent (10%) of the repurchase price
shall be deducted from the transfer price for Products repurchased upon
termination. Products repurchased from JVC by CBI pursuant to this Section
12.6(c) shall be shipped promptly by JVC, at CBI's expense, to a location
specified by CBI.
12.8 RETURN OF MATERIALS. Within thirty (30) days after the
effective date of termination of this Agreement, JVC shall destroy all
tangible items bearing, containing, or contained in, any of the foregoing, in
its possession or control and certify such destruction, or prepare such
tangible items for shipment, as CBI may direct, at CBI's expense. Effective
upon the termination of this Agreement, JVC shall cease to use all trademarks
and trade names of CBI, including without limitation the Marks (as defined
under Section 14.2 below).
12.9 NO RENEWAL, EXTENSION OR WAIVER. Acceptance of any order from,
or sale of, any Product to JVC after the date of termination of this
Agreement shall not be construed as a renewal or extension of this Agreement,
or as a waiver of termination by CBI.
12.10 LIMITATION OF LIABILITY UPON TERMINATION. In the event of
termination by either Party in accordance with any of the provisions of this
Agreement, neither Party shall be liable to the other, because of such
termination, for compensation, reimbursement or damages on account of the
loss of prospective profits or anticipated sales or on account of
expenditures, inventory, investments, leases or commitments in connection
with the business or goodwill of CBI or JVC.
12.11 SURVIVAL OF CERTAIN TERMS. The provisions of Sections 1, 3.2,
6, 13, 14.1, 14.3, 15, and 16.14 shall survive the expiration or termination
of this Agreement for any reason.
13. LIMITED LIABILITY TO JVC AND OTHERS
CBI's liability arising out of this agreement and/or the sale of the
Products shall be limited to the aggregate amounts paid by JVC to CBI for the
Products under this agreement. In no event shall either Party be liable for
costs of procurement of substitute goods by anyone. In no event shall either
Party be liable to the other Party or any other Person for any special,
consequential or incidental damages, however caused and on any theory of
liability arising out of this agreement, and whether or not such Party has
been advised of the possibility of such damage. These limitations shall apply
notwithstanding any failure of essential purpose of any limited remedy
provided herein. Notwithstanding the foregoing provisions of this Section 13,
the foregoing limitations of liability set forth in this Section 13 shall not
apply to liability arising under Sections 2, 7, 10.5, 14, 15, or 16.14 and
shall not affect the remedies expressly provided in Section 6.
14. TRADEMARKS AND TRADE NAMES
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<PAGE>
14.1 RIGHTS. All trademarks, marks, trade names, trade dress,
designs, artwork, photographs, samples, literature, sales and promotional
aids of every kind relating to the Products shall remain the property of CBI.
JVC shall not file any application for the foregoing intellectual property
rights without CBI's prior written consent.
14.2 IDENTIFICATION. During the term of this Agreement, JVC shall
have the right and agrees to advertise and promote the Products under CBI's
trademarks and trade names identified on EXHIBIT A ("Marks"), and as such
marks as may be added to EXHIBIT A by CBI's written notice to JVC and as
modified by CBI pursuant to this Section 14. CBI reserves the right to modify
Marks or substitute alternative marks for any or all of the Marks at any time
upon thirty (30) days prior written notice. JVC agrees to use the Marks in
connection with Products as may be designated in writing by CBI. The rights
granted under this Section 14 shall automatically terminate on termination or
expiration of this Agreement.
14.3 USE. JVC shall not remove, modify, translate or obscure Marks
affixed to Products without the prior written consent of CBI. Except as set
forth in this Section 14.2, nothing contained in this Agreement shall grant
to JVC any right, title, or interest in or to Marks, whether or not
specifically recognized or perfected under applicable laws, and JVC
irrevocably assigns to CBI all such right, title, and interest, if any, in
any Marks. At no time during or after the term of this Agreement shall JVC
challenge or assist others to challenge Marks or the registration thereof or
attempt to register any trademarks, marks, or trade names confusingly similar
to Marks. All representations of Marks that JVC intends to use shall first be
submitted to CBI for approval (which shall not be unreasonably withheld) of
design, color, and other details, including any Japanese translation thereof
or shall be exact copies of those used by CBI. In addition, JVC shall fully
comply with all reasonable guidelines, if any, communicated by CBI concerning
the use of Marks.
15. CONFIDENTIALITY
JVC may provide information, technical and otherwise, about Products
to prospective Customers if and only if a prospective Customer has signed
CBI's standard form confidentiality agreement, a copy of which is attached as
EXHIBIT B. CBI may, within fifteen (15) days prior notice to the JVC, amend
or change the form confidentiality agreement.
16. GENERAL PROVISIONS
16.1 ARBITRATION; FORUM.
(a) All other disputes, controversies or claims arising out
of or relating to this Agreement, or the breach, termination or validity
thereof, shall be resolved by one arbitrator under the Rules of International
Chamber of Commerce which rules are hereby incorporated by reference into
this Section 16. The place of arbitration shall be Honolulu, Hawaii. The
language to be used in the arbitration proceedings shall be English. The
arbitrator may be of any nationality, but must have knowledge of the life
sciences research market in Japan and in the United States. The arbitral
award shall be rendered in writing and state the reasons for the award.
Judgment on any award may be
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<PAGE>
entered by any court of competent jurisdiction or application may be made to
such a court for judicial acceptance of the award and any appropriate order
including enforcement.
(b) In case of litigation arising out of this Agreement,
the prevailing Party shall be entitled to recover its reasonable attorneys'
fees and expenses from the other Party. In case of arbitration, the
arbitrators shall award reasonable attorneys' fees and expenses to either
Party in such manner and to such extent as the arbitrators deem equitable.
(c) Notwithstanding the foregoing, the Parties may apply to
any court of competent jurisdiction for a temporary restraining order,
preliminary injunction, or other interim or conservatory relief, as
necessary, without breach of this section, and without any abridgement of the
powers of the arbitrator.
16.2 INDEPENDENT CONTRACTORS. The relationship of the Parties
established by this Agreement is that of independent contractors, and nothing
contained in this Agreement shall be construed to (i) give either Party the
power to direct or control the day-to-day activities of the other, (ii)
constitute the Parties as partners, joint venturers, co-owners or otherwise
as participates in a joint or common undertaking, or (iii) allow a Party to
create or assume any obligation on behalf of the other Party for any purpose
whatever. Neither Party will represent that it has any authority to assume or
create any obligation, express or implied, on behalf of the other Party, or
to represent the other Party as agent, employee, or in any other capacity.
16.3 FORCE MAJEURE. If the performance of this Agreement or any
obligations hereunder is prevented, restricted or interfered with by reason
of fire or other casualty or accident, strikes or labor disputes, war or
other violence, any law, order, proclamation, regulations, ordinance, demand
or requirement of any government agency, or any other act or condition beyond
the reasonable control of the Parties hereto, the Party so affected upon
giving prompt notice to the other Parties shall be excused from such
performance during such prevention, restriction or interference.
16.4 LAW TO GOVERN. This Agreement shall not be governed by the 1980
United Nations Convention on Contracts for the International Sale of Goods.
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, without
reference to rules of conflicts or choice of laws.
16.5 PUBLICITY. Prior to issuing any reports, statements, press
releases or other disclosures to third parties regarding this Agreement or
the transactions contemplated herein, the Parties shall exchange copies of
such documents and shall consult with each other regarding their content.
Except as otherwise required by law, neither Party shall issue any such
disclosure without the prior approval of the other Party.
16.6 NOTICES AND OTHER COMMUNICATIONS. Every notice by either CBI or
JVC shall be in writing and delivered either by personal delivery, or by
Express Mail or any similar overnight courier service, or by registered or
certified mail, postage prepaid, or by facsimile or electronic mail,
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<PAGE>
addressed to the Party for whom intended at its address set forth above, or
at such other address as the intended recipient previously shall have
designated by written notice to the other Party. All notices delivered in
person shall be deemed to have been delivered to and received by the
addressee and shall be effective on the date of personal delivery. All
notices delivered by Express Mail or any other similar overnight courier
service shall be effective upon receipt. All notices delivered by registered
or certified mail, or by fax or e-mail, shall be effective upon receipt.
16.7 COUNTERPARTS. This Agreement may be executed in any number of
English language counterparts or duplicate originals, and each such
counterpart or duplicate original shall constitute an original instrument,
but all such separate counterparts or duplicate originals shall constitute
one and the same instrument.
16.8 WRITTEN AGREEMENT TO GOVERN. This Agreement sets forth the
entire understanding and supersede all prior and contemporaneous agreements
and discussions between the Parties relating to the specific subject matter
contained herein and therein, and neither Party shall be bound by any
definition, condition, representation, warranty, covenant or provision other
than as expressly stated in or contemplated herein or therein or as
subsequently shall be set forth in writing and executed by a duly authorized
representative or agent of CBI or JVC to be bound thereby.
16.9 NO WAIVER OF RIGHTS. All waivers hereunder must be made in
writing, and failure at any time to require the other Party's performance of
any obligation under this Agreement shall not affect the right subsequently
to require performance of that obligation. No waiver of any breach of any
provision of this Agreement shall be construed as a waiver of any continuing
or succeeding breach of such provision or a waiver or modification of such
provision.
16.10 SEVERABILITY. Whenever possible, each provision of this
Agreement shall be interpreted in such manner as to be effective and valid
under applicable law, but if any provision of this Agreement should be
prohibited or invalid under applicable law, (including, without limitation,
objections by the Japanese Fair Trade Commission) such provisions shall be
ineffective to the extent of such prohibition or invalidity without
invalidating the remainder of such provision or the remaining provisions of
this Agreement. In such event, the Parties agree to negotiate, in good faith,
a valid, legal and enforceable substitute provision which most nearly effects
the Parties' intent in entering into this Agreement.
16.11 SUBJECT HEADINGS. The subject headings of the Sections of this
Agreement are included for the purposes of convenience only, and shall not
affect the construction or interpretations of any of its provisions.
16.12 FURTHER ASSURANCES. The Parties shall each perform such acts,
execute and deliver such instruments and documents, and do all such other
things as may be reasonably necessary to accomplish the transactions
contemplated in this Agreement.
16.13 EXPENSES AND FINDER'S FEES. The Parties shall each bear their
own costs and expenses (including attorneys' fees) incurred in connection
with the negotiation and preparation of
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<PAGE>
this Agreement and the consummation of the transactions contemplated hereby.
Each Party shall indemnify the other against any claim for brokerage or finder's
fees arising out of the transactions contemplated herein by any person claiming
to have been engaged by the indemnifying Party based upon any action or
communication, or any alleged action or communication, by the indemnifying Party
or any of its officers or employees.
16.14 CONFIDENTIALITY OF AGREEMENT. CBI and JVC shall hold in
confidence and not disclose to any third party, without the prior written
consent of the other Party, the terms and conditions of the Agreement,
provided that each Party may disclose the terms and conditions of this
Agreement:
(a) as required by any court or other governmental body;
(b) as otherwise required by law;
(c) to legal counsel of the Parties;
(d) in confidence, to accountants, banks and financing
sources and their advisors;
(e) in connection with the enforcement of this Agreement or
rights under this Agreement; or
(f) in confidence, in connection with a merger or
acquisition or proposed merger or acquisition, or the like.
16.15 LANGUAGE. This Agreement is in the English language only,
which language shall be controlling in all respects, and all versions hereof
in any other language shall be for accommodation only and shall not be
binding upon the Parties hereto. All communications and notices to be made or
given pursuant to this Agreement shall be in the English language.
16.16 ASSIGNMENT. This Agreement shall inure to benefit of, and
shall be binding upon, the Parties and their respective successors and
assigns. No Party may assign or delegate this Agreement or any of its rights
or duties under this Agreement, except that a Party may transfer this
Agreement, without the consent of the other Party, to a Person or entity into
which it has merged or which has otherwise succeeded to all or substantially
all of the business and assets of the assignor ("Successor"), and which has
assumed in writing the assignor's obligations under this Agreement. Such a
Change of Control shall have no effect whatsoever on either party's rights
under this Agreement. CBI agrees that as a part of CBI's Change of Control,
CBI shall cause the acquiror to sign an agreement confirming the terms and
conditions of this Agreement.
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IN WITNESS WHEREOF, the undersigned are duly authorized to execute
this Agreement on behalf of CBI and JVC as applicable.
CIPHERGEN BIOSYSTEMS, INC. Ciphergen Biosystems K.K.
("CBI") ("JVC")
By: By:
---------------------------------- -------------------------------
Print Name: Print Name:
-------------------------- -----------------------
Title: Title:
------------------------------- ----------------------------
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EXHIBIT A
---------
MARKS
ProteinChip Array-TM-
SELDI-TM-
<PAGE>
[LETTERHEAD]
JOINT DEVELOPMENT PROGRAM
TIME-OF-FLIGHT MASS SPECTROMETER
Stanford Research Systems and Abiotic Systems agree to enter into a joint
development program. In consideration of design, development, productizing, and
promotional support, and $1,100,000 in cash from Stanford Research Systems,
Abiotic Systems will provide to Stanford Research Systems 2,200,000 shares of
Series B Preferred Stock.
1) SRS will cover all of its own development and production-engineering
costs for the system development.
2) SRS will provide assistance with literature design and preparation
(there will be no cost for SRS labor and equipment-time; outside
costs and materials will be covered by Abiotic Systems).
3) Abiotic Systems will develop their own proprietary software and
analysis package.
4) SRS will sell the complete system to Abiotic Systems for two times the
direct material costs for all components for the system except
the computer, which will be transferred at cost. If a laser is
purchased as an outside end-item, it will also be transferred at
cost. If a laser is developed by SRS, it will be transferred at
two times material costs. Any fees such as sales tax, royalty
payments, etc. will be passed on directly. This discounted
selling agreement will last for two years with an option by
Abiotic Systems for five additional years. The transfer price of
the first 30 systems will not exceed $35,000.
5) Upon execution of this agreement, SRS will pay Abiotic Systems
$1,100,000. SRS will receive 1,100,000 shares of Series B
Preferred Stock. The remaining 1,100,000 shares will be
distributed as follows:
a) 275,000 shares upon delivery of a prototype
digitizer.
b) 275,000 shares upon delivery of a prototype TOF
spectrometer.
c) 275,000 shares upon delivery of a production
digitizer.
d) 275,000 shares upon delivery of a production TOF
spectrometer.
6) Both parties will have free access to all design and documentation
materials for five years. Both parties will have unrestricted right to
manufacture and sell this product. These rights and access to design and
documentation materials shall also apply to any laser developed during this
period. The software and chemicals suite developed by Abiotic Systems shall
remain the exclusive property of Abiotic Systems.
/s/ WILLIAM R. GREEN /s/ WILLIAM E. RICH
-------------------------------- --------------------------------
Stanford Research Systems Abiotic Systems
President & CEO President & CEO
February 2, 1995 February 2, 1995
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in this Registration Statement on Form S-1 of
our report dated March 6, 2000, except for Note 14 for which the date is
April , 2000, relating to the financial statements of Ciphergen
Biosystems, Inc., which appears in such Registration Statement. We also consent
to the references to us under the heading "Experts" in such Registration
Statement.
/s/ PRICEWATERHOUSECOOPERS LLP
PricewaterhouseCoopers LLP
San Jose, California
March 20, 2000
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE AUDITED
FINANCIAL STATEMENTS OF CIPHERGEN BIOSYSTEMS, INC. AS OF DECEMBER 31, 1998 AND
1999 AND FOR THE YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999 AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000926617
<NAME> CIPHERGEN BIOSYSTEMS, INC.
<MULTIPLIER> 1,000
<S> <C> <C> <C>
<PERIOD-TYPE> YEAR YEAR YEAR
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1998 DEC-31-1999
<PERIOD-START> JAN-01-1997 JAN-01-1998 JAN-01-1999
<PERIOD-END> DEC-31-1997 DEC-01-1998 DEC-01-1999
<CASH> 0 7,002 2,799
<SECURITIES> 0 0 0
<RECEIVABLES> 0 1,112 1,098
<ALLOWANCES> 0 (40) (100)
<INVENTORY> 0 730 722
<CURRENT-ASSETS> 0 9,035 4,841
<PP&E> 0 1,479 2,017
<DEPRECIATION> 0 (688) (1,150)
<TOTAL-ASSETS> 0 10,082 6,147
<CURRENT-LIABILITIES> 0 2,419 3,308
<BONDS> 0 0 0
0 0 0
0 24,264 25,339
<COMMON> 0 16 16
<OTHER-SE> 0 (16,998) (23,296)
<TOTAL-LIABILITY-AND-EQUITY> 0 10,082 6,147
<SALES> 1,283 2,933 5,010
<TOTAL-REVENUES> 1,283 2,933 5,010
<CGS> 1,001 1,066 1,669
<TOTAL-COSTS> 1,001 1,066 1,669
<OTHER-EXPENSES> 6,865 10,034 10,966
<LOSS-PROVISION> 0 0 0
<INTEREST-EXPENSE> 236 488 179
<INCOME-PRETAX> (6,809) (8,310) (7,681)
<INCOME-TAX> 0 0 0
<INCOME-CONTINUING> (6,809) (8,310) (7,681)
<DISCONTINUED> 0 0 0
<EXTRAORDINARY> 0 0 0
<CHANGES> 0 0 0
<NET-INCOME> (6,809) (8,310) (7,681)
<EPS-BASIC> (1.01) (0.72) (0.52)
<EPS-DILUTED> (1.01) (0.72) (0.52)
</TABLE>
