<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
POST EFFECTIVE
AMENDMENT NO. 1
FORM SB-2
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
LARK TECHNOLOGIES, INC.
(Name of small business issuer in its charter)
COMMISSION FILE NO-333-4688
DELAWARE 8099 73-1461841
- --------------- --------------------------- ------------
(state of Primary Standard Industrial IRS Employer
incorporation) Classification Code Number I.D. Number
9545 KATY FREEWAY, SUITE 465
HOUSTON, TEXAS 77024
713-464-7488
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(Address and telephone number of registrant's principal
executive offices and principal place of business)
John E. Adams, 301 N.W. 63rd Street, Oklahoma City, OK 73116
405-840-0481
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(Name, address and telephone number of agent for service)
Copies to:
Thomas J. Kenan, Esq., Fuller, Tubb & Pomeroy
201 Robert S. Kerr, Suite 800, Oklahoma City, OK 73102-4292
Approximate date of proposed sale to the public: As soon as
practicable after the Registration Statement becomes effective.
If this Form is filed to register additional securities for an
offering pursuant to Rule 462(c) 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.[X]
If delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box.[ ]
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Title of
each class Maximum Maximum
of securities Dollar offering aggregate Amount of
to be Amount to be price per offering registration
registered registered unit price fee
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock $1,105,113 $1.00 $1,105,113 $382
================================================================================
</TABLE>
The registrant hereby amends this registration statement on such date
or dates as may be necessary to delay its effective date until the registrant
shall file a further amendment which specifically states that this registration
statement shall thereafter become effective in accordance with section 8(a) of
the Securities Act of 1933 or until the registration statement shall become
effective on such date as the Commission, acting pursuant to said section 8(a),
may determine.
<PAGE> 2
PROSPECTUS
LARK TECHNOLOGIES, INC.
1,105,113 Shares of Common Stock
(Par value, $0.001 per Share)
RIGHTS OFFERING
Lark Technologies, Inc., a Delaware corporation ("the Company"),
offers 1,105,113 shares ("the Shares") of its Common Stock (par value $0.001)
at $1.00 a Share to its shareholders of record of May 31, 1996 who reside in
states either where state registration of this offering is not required or, if
required, in the judgment of the Company can reasonably be effected
("Shareholders of Record"). Each Shareholder of Record's right to subscribe is
not transferable. Acceptance of the offer must be made by July 8, 1996. See
"Summary Information - The Offering - Manner of Acceptance" for information on
how to subscribe. The Company's stock is quoted on the NASD's Bulletin Board
under the symbol "LDNA".
THE SECURITIES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK. SEE "RISK
FACTORS" FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED BY
PROSPECTIVE PURCHASERS OF THE COMMON STOCK OFFERED HEREBY.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE COMMISSION
OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
Underwriting
Price to Discounts and Proceeds to
Public Commissions Issuer (1)
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share $ 1.00 $ 0 $ 1.00
Total: 1,105,113 Shares $1,105,113 $ 0 $1,105,113
- --------------------------------------------------------------------------------
</TABLE>
(1) The estimated expenses of the offering are $56,000. These expenses are
federal and state registration fees - $650; subscription agent's fee -
$12,634; printing and engraving - $7,700; legal fees - $20,000;
accountant's fees - $10,000; and mailing cost - $5,000.
The date of this Prospectus is June 5, 1996.
<PAGE> 3
The Company is a "reporting company," as such term is employed in the
Securities Exchange Act of 1934. It is not listed on any exchange, and its
Common Stock is not eligible for quotation on the NASDAQ Small-Cap Market
("NASDAQ") but is quoted on the NASD's "Bulletin Board." Reports and other
information filed by the Company may be inspected and copied at the Public
Reference Facilities of the Securities Exchange Commission in Washington D.C.
Copies of such material can be obtained from the public reference section of
the Commission, Washington, D.C. 20549 at prescribed rates.
ADDITIONAL INFORMATION
REGISTRATION STATEMENT
The Company has filed with the Securities and Exchange Commission in
Washington, D.C. a Registration Statement under the Securities Act of 1933, as
amended, with respect to the Common Stock offered by this Prospectus. For
further information with respect to the Company and the Common Stock offered
hereby, reference is made to the Registration Statement and the exhibits listed
in the Registration Statement. The Registration Statement can be examined at
the Public Reference Room of the Securities and Exchange Commission at 450
Fifth Street, N.W., Washington, D.C. 20549, and copies may be obtained upon
payment of the prescribed fees.
REPORTS TO SHAREHOLDERS
Commencing with fiscal year 1996, the Company intends to furnish
shareholders with annual reports containing financial statements audited by
independent public or certified accountants and such other periodic reports as
it may deem appropriate or as required by law.
STOCK CERTIFICATES
It is expected that certificates for the securities offered hereby
will be ready for delivery within one week after the date of July 19, 1996.
<PAGE> 4
TABLE OF CONTENTS
Contents
<TABLE>
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Page
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<S> <C>
Summary Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Lark Technologies, Inc. . . . . . . . . . . . . . . . . . . . . . . . . 1
DNA Sequencing and Research Services . . . . . . . . . . . . . . . . 1
Senescence Gene Discovery Program . . . . . . . . . . . . . . . . . . 1
The Offering . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Manner of Acceptance . . . . . . . . . . . . . . . . . . . . . . . . . 2
Opportunity to Increase Holdings . . . . . . . . . . . . . . . . . . . 2
Avoiding dilution . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Assistance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Company Address . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Risk Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Accumulated Deficit . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Limited Trading Volume in the Public Market for the Common Stock . . . 4
Market Restriction on Broker-Dealers . . . . . . . . . . . . . . . . . 4
Dependence Upon a Major Customer . . . . . . . . . . . . . . . . . . . . 4
Variability of Operating Results . . . . . . . . . . . . . . . . . . . 5
Uncertainty of Product Development . . . . . . . . . . . . . . . . . . 5
Competition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Hazardous Materials . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Management Control . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Dependence on Key Personnel . . . . . . . . . . . . . . . . . . . . . . 6
Dividends Not Likely . . . . . . . . . . . . . . . . . . . . . . . . . 6
Possible Future Dilution . . . . . . . . . . . . . . . . . . . . . . . 6
Use of Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Plan of Distribution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
The Offering . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Manner of Acceptance . . . . . . . . . . . . . . . . . . . . . . . . . 7
Market for the Company's Common Stock . . . . . . . . . . . . . . . . .
and Related Stockholder Matters . . . . . . . . . . . . . . . . . . . 7
Description of Business . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Company History . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Business Strategy . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Business Model . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Service Business . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Senescence Gene Discovery Program . . . . . . . . . . . . . . . . . . . 13
Government Approval and Regulation . . . . . . . . . . . . . . . . . . 16
</TABLE>
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<TABLE>
<S> <C>
Employees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Description of Property . . . . . . . . . . . . . . . . . . . . . . . . 17
Term Loan, Line of Credit, and Debentures Payable . . . . . . . . . . . 17
Patents, Copyrights and Intellectual Property . . . . . . . . . . . . . 18
Research and Development . . . . . . . . . . . . . . . . . . . . . . . 18
Raw Materials . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Customers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Merger-Acquisition Discussion . . . . . . . . . . . . . . . . . . . . . 19
Management's Discussion and Analysis of Financial
Condition and Results of Operations . . . . . . . . . . . . . . . . . . . . 20
Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Results of Operations . . . . . . . . . . . . . . . . . . . . . . . . . 20
Years ended December 31, 1994 and 1995 . . . . . . . . . . . . . . . 20
Three months ended March 31, 1995 and 1996 . . . . . . . . . . . . . 22
Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Directors, Executive Officers and Key Employees . . . . . . . . . . . . 24
Director's Compensation . . . . . . . . . . . . . . . . . . . . . . . . 26
Executive Compensation . . . . . . . . . . . . . . . . . . . . . . . . 26
Stock Options . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Interest of Management and Others in Certain Transactions . . . . . . . 28
Parents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Principal Stockholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Security Ownership of Certain Beneficial Owners and Management . . . . 29
Security Ownership of the Directors and Executive Officers . . . . . . 30
Description of Securities . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Common Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Preferred Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Registrar and Transfer Agent . . . . . . . . . . . . . . . . . . . . . 32
Dissenter's Rights . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Disclosure of Commission Position on Indemnification
for Securities Act Liabilities . . . . . . . . . . . . . . . . . . . 33
Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-1
</TABLE>
ii
<PAGE> 6
SUMMARY INFORMATION
LARK TECHNOLOGIES, INC.
Lark Technologies, Inc. ("Lark" or "the Company") is a successor in
interest, through a merger effected in September 1995, to Lark Sequencing
Technologies, Inc., which was incorporated under the business corporation laws
of the State of Delaware on May 4, 1990.
Lark is a leader in providing contract DNA sequencing and research
services to the pharmaceutical and biotechnology industries worldwide. Lark's
service portfolio consists of various DNA sequencing and molecular biology
services as follows:
- Automated DNA Sequencing Services. Lark applies automated sequencing
techniques to generate high throughput DNA sequence and fast
turnaround screening information, including genome sequencing
projects.
- Manual DNA Sequencing Services. Lark uses manual sequencing
techniques for projects that require greater than 99.9% accuracy.
These techniques are useful for DNA sequence information that is used
for patent applications, FDA submissions or the identification of
genetic mutations.
- Library Screening Services. During the gene discovery process,
customers may find only a portion of a gene of interest. As a
service, Lark will use a customer's gene fragment to probe a genetic
library to identify a full length gene. Identification of full length
genes is necessary for determining a gene's function, developing novel
drugs, and securing patent rights.
- Differential Display Service. Lark uses differential display
techniques for analyzing differences in gene expression caused by the
introduction of various drug compounds, viruses or stimulatory
factors. Differential display can be useful in identifying novel genes
and gene functions. By understanding how and when a gene is expressed
or repressed, targeted interventions can be developed to maximize
results and minimize harmful side effects. This service is used to
discover novel genes as well as to characterize pharmaceutical
effects.
Lark has also undertaken a senescence gene discovery program for its
own account. In 1995, the Company obtained exclusive rights to senescence gene
technology developed at Baylor College of Medicine, subject to third party
royalty rights and development obligations. Senescence is the final stage of
cellular aging when a cell ceases to divide but remains viable. The genes
which control this process regulate cell immortality. The major disease target
for this gene technology is cancer. Animal studies have demonstrated the
ability of this technology to reduce tumor growth at statistically significant
levels. Lark is actively pursuing the discovery of these novel genes and
intends to exploit the diagnostic and therapeutic applications of the
technology by forging appropriate corporate partnering relationships. The
Company considers this to be a highly speculative project. Although the
Company would benefit from the success of this project, this project is not
essential to the success of the Company.
1
<PAGE> 7
THE OFFERING
The Company offers 1,105,113 shares ("the Shares") of its Common
Stock, $0.001 par value, to its shareholders of record of May 31, 1996, who
reside in states either where state registration of this offering is not
required or, if required, in the judgment of the Company can reasonably be
effected ("Shareholders of Record"). The shares are offered at a purchase
price of $1.00 per Share. Each Shareholder of Record may subscribe to purchase
as many of the Shares as desired; provided, however, should this offering be
oversubscribed (i) each subscribing Shareholder of Record shall first be
entitled to purchase one of the Shares for each two shares of Common Stock of
the Company held of record on the record date, and (ii) after allocating up to
50,000 of the remaining Shares for purchase by certain shareholders who have
rendered non-solicitation services to the Company in connection with this
offering (see "Summary Information - Assistance"), each subscribing Shareholder
of Record shall then be entitled to purchase that amount of any remaining
Shares that his or her remaining, unsatisfied subscription bears to the total
remaining, unallocated subscription.
The Rights Offering is being made directly from the Company to its
Shareholders of Record. No underwriters are involved. No commissions are
being paid. All net proceeds from subscriptions go directly to the Company in
their entirety. (See "Information about the Company - Description of Business
and Properties").
Common Stock offered 1,105,113 shares
Common Stock to be outstanding
after the offering 3,315,338 shares (1)
Use of proceeds For technology and new product
development and business expansion
(1) Assuming all the shares offered herein are subscribed and sold.
MANNER OF ACCEPTANCE
Shareholders of Record may not transfer their rights to purchase the
Shares. Subscriptions must be made in writing by completing and signing the
enclosed subscription form and mailing or delivering it, with a good and
sufficient check for the subscribed amount, to Liberty Bank and Trust Company
of Oklahoma City, c/o Stock Transfer Department, P.O. Box 25848, Oklahoma City,
Oklahoma 73125. Completed subscription forms and checks must, in any event, be
received by Liberty Bank no later than July 8, 1996.
Checks should be made payable to "Liberty Bank - Lark Subscriptions."
Should the offering be oversubscribed, Liberty Bank will promptly return to
subscribers that portion of their subscription amounts that could not be
filled, without any interest.
OPPORTUNITY TO INCREASE HOLDINGS
The Company acquired approximately 2,500 new shareholders through a
merger-spin-off transaction registered with the Securities and Exchange
Commission in August 1995. The Company's Common Stock has recently traded at
or above the $1.00 price offered herein. Measured at this price, more than
1,000 of its shareholders hold fewer shares than are required if their shares
are to be sold in an effective commercial manner. While brokerage costs and
commissions vary among brokerage firms, a $25 minimum cost per transaction is
in the lower
2
<PAGE> 8
range of such costs. Viewed this way, a holder of fewer than 25 shares would
lose money in a sale of his present shareholdings.
This offering thus provides an opportunity for these holders of a few
shares to increase their holdings to an amount which is a commercially
marketable number of shares. The Company suggests that each such holder of a
few shares consider this opportunity to do so in the context of their
individual situation. No broker's commission is involved in this transaction.
The Company also urges holders of larger numbers of shares to consider
exercising their rights described herein and increasing their investment in the
Company. Not only is the Company's basic business, DNA sequencing, expanding
and improving its profitability, the Company is pursuing the development of a
gene technology which could lead to the development of improved cancer
therapeutics and diagnostics. See "Description of Business - Senescence Gene
Discovery Program". No assurances can be provided that the Company will
continue to operate profitably, or that its senescence gene discovery program
will be successful.
AVOIDING DILUTION
Each Shareholder of Record may subscribe for as many Shares as
desired. However, each Shareholder of Record may avoid a percentage dilution
of one's shareholdings by subscribing for that number of the Shares which
equals 50 percent of one's shareholdings on the record date. See "Summary
Information - The Offering" above for additional terms of the offering.
ASSISTANCE
Any Shareholder of Record who has questions concerning this offering
or the manner of acceptance of the offer described herein may call any of the
following persons for free assistance, all of which persons are registered
brokers and shareholders of the Company but who will not solicit the caller to
purchase Shares:
John E. Adams 405-235-5757
George W. Cole 405-943-8008
Albert Welsh 405-840-1585
COMPANY ADDRESS
The business office of Lark is 9545 Katy Freeway, Suite 465, Houston,
Texas 77024. Its telephone number is 713-464-7488, its facsimile number is
713-464-7492, and its internet address on the world wide web is
http://www.lark.com.
3
<PAGE> 9
RISK FACTORS
An investment in the shares of Common Stock offered hereby involves a
high degree of risk. Prospective investors should carefully consider, in
addition to the information set forth elsewhere in this Prospectus, the
following risk factors in evaluating the Company and the Common Stock offered
hereby.
ACCUMULATED DEFICIT
Lark operated at a loss its first three years of operation, began to
operate profitably in late 1993, made a profit of $94,592 in 1994, operated at
a loss of $499,535 in 1995, and made a profit of $220,288 in the first quarter
of 1996. At the end of 1995, its accumulated deficit was $1,570,202 and its
stockholders' deficit was $164,458. At March 31, 1996, Lark's accumulated
deficit was $1,349,914 and stockholders' equity was $55,830. There can be, and
is, no assurance that profitable operations can be sustained or that any funds
obtained from the offering described herein will be sufficient to carry the
Company to a time when profitable operations should sustain the Company.
LIMITED TRADING VOLUME IN THE PUBLIC MARKET FOR THE COMMON STOCK
The trading volume in the Company's Common Stock is limited, and there
is no assurance that a more active public market for such securities will
develop after the conclusion of the Rights Offering described herein or, if a
more active trading market develops, that it will be sustained.
MARKET RESTRICTIONS ON BROKER-DEALERS
The Company's Common Stock is covered by a Securities and Exchange
Commission rule that imposes additional sales practice requirements on
broker-dealers who sell such securities to persons other than established
customers and accredited investors (generally institutions with assets in
excess of $5 million or individuals with net worth in excess of $1 million or
annual income exceeding $200,000 or $300,000 jointly with their spouse). For
transactions covered by the rule, the broker-dealer must make a special
suitability determination for the purchaser and receive the purchaser's written
agreement to the transaction prior to the sale. Consequently, the rule may
affect the ability of broker-dealers to sell the Company's securities and also
may affect the ability of persons purchasing Shares in this offering to sell
their Shares in the secondary market. Further, the Company's Common Stock is
quoted on an NASD inter-dealer system called "the Bulletin Board," and the
Company still will not have $4 million in assets or $2 million in stockholders'
equity which are both required for it to qualify for quotation on NASDAQ, and
the Shares are not expected soon to command a market price of $5 per share, the
price required for a non-NASDAQ-quoted security to escape the trading
severities imposed by the Securities and Exchange Commission on so-called
"penny stocks." These trading severities tend to reduce broker-dealer and
investor interest in penny stocks and could operate (i) to inhibit the ability
of the Company's stock to reach a $3 per share trading price that would make it
eligible for quotation on NASDAQ even should it otherwise qualify for quotation
on NASDAQ and (ii) to inhibit the ability of the Company to use its stock for
business acquisition purposes. See "Plan of Distribution - Market for the
Company's Common Stock and Related Stockholders Matters."
DEPENDENCE UPON A MAJOR CUSTOMER
The Company's recent business activities have been devoted in a
substantial way to work performed for a single customer, an international
pharmaceutical company. The loss of this customer would have a material,
negative impact upon its business and prospects of profits. This single
customer accounted for approximately 29% of its 1995 total revenues. This
same customer accounted for 52% and 64% of total revenues during the first
three months of 1995 and 1996, respectively.
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<PAGE> 10
VARIABILITY OF OPERATING RESULTS
The Company's revenues are derived through provision of DNA sequencing
and related molecular biology services to researchers in the pharmaceutical,
biotechnology and related industries. Quarterly fluctuations in revenues arise
primarily from variations in contract status with one large customer. In
addition, the majority of other customer projects are individual orders for
specific projects ranging in value from $6,000 to $140,000. Engagement for
successive work is highly dependent upon the customer's satisfaction with the
services provided to date. The Company is unable to predict for more than a
few months in advance the number and size of future projects in any given
period. Thus, timing could have a significant impact on financial results in
any given period. The combined impact of the large contract from a single
customer and the unpredictable project fluctuations from other customers can
result in very large fluctuations in financial performance from quarter to
quarter.
UNCERTAINTY OF PRODUCT DEVELOPMENT
Before obtaining regulatory approval for the commercial sale of any of
its potential products based on the senescence technology, the Company must
demonstrate, through pre-clinical studies and clinical trials or corresponding
animal health or agricultural studies, that a potential product is safe and
efficacious for use in each application. None of the Company's potential
products have been approved for testing nor has the Company commenced testing
of any products for safety or efficacy in humans. There can be no assurance
that results generated by pre-clinical animal testing will be indicative of
results of clinical testing in humans when, and if, those tests are conducted.
There can be no assurance that the Company will be permitted to undertake human
clinical testing of any of the Company's potential products, or, if permitted,
that such potential products will be demonstrated to be safe and efficacious or
will receive necessary regulatory approvals.
COMPETITION
Lark is engaged in a highly competitive field. Other companies, such
as the genomics companies, are actively seeking the same service projects as
Lark. The Company cannot assure that these competitors will not engage these
service projects. Additionally, for the Company's senescence gene discovery
project, other companies are actively seeking to develop products designed to
suppress tumor growth or impact cell immortality. There can be no assurance
that the Company's competitors will not succeed in developing products that
would render the senescence technology obsolete and noncompetitive.
HAZARDOUS MATERIALS
The Company's operations involve the controlled use of hazardous
materials, chemicals and various radioactive compounds. Although the Company
believes that its safety procedures for handling and disposing of such
materials comply with the standards prescribed by state and federal
regulations, the risk of accidental contamination or injury from these
materials cannot be completely eliminated. In the event of such an accident,
the Company could be held liable for any damages that result and any such
liability could exceed the resources of the Company. (See "Description of
Business - Government Approval and Regulation.")
MANAGEMENT CONTROL
The Company's officers and directors and their affiliates own
approximately 19 percent of the common stock of the Company and thereby may be
able to determine the outcome of any vote affecting the control of the Company.
5
<PAGE> 11
DEPENDENCE ON KEY PERSONNEL
The loss of the services of any of the Company's management and other
key employees, for any reason, may have a materially adverse effect on the
prospects of the Company. (See "Management - Directors, Executive Officers and
Key Employees.")
DIVIDENDS NOT LIKELY
Dividends have never been paid on the Company's Common Stock. For the
foreseeable future it is anticipated that any earnings which may be generated
from operations of the Company will be used to finance the growth of the
Company and that cash dividends will not be paid to holders of the Common
Stock.
POSSIBLE FUTURE DILUTION
In addition to the Shares registered for the Rights Offering described
herein, the Company earlier registered 1,500,000 shares which are available for
issuance in possible business combinations or asset acquisitions, the issuance
of which would dilute the percentage ownership and could dilute the net
tangible book value per share of shareholders of the Company.
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 1,105,113 shares
of Common Stock offered by the Company hereby are estimated to be $1,049,113,
based on an offering price of $1.00 per share and after deducting the offering
expenses payable by the Company.
The Company expects that the proceeds of the offering will be used for
growth of the existing business, new product development and the senescence
gene discovery program. The Company may also use a portion of such net
proceeds to acquire or invest in businesses, products and technologies that are
complementary to those of the Company, although no specific acquisitions are
planned as of the date of this Prospectus, and no portion of such net proceeds
has been allocated for any particular acquisition. The Company intends to
invest the aggregate net proceeds from this offering in short-term,
investment-grade, interest-bearing securities until such time as funds are
needed.
6
<PAGE> 12
PLAN OF DISTRIBUTION
THE OFFERING
The Company offers 1,105,113 shares ("the Shares") of its Common
Stock, $0.001 par value, only to its shareholders of record of May 31, 1996,
who reside in states either where state registration of this offering is not
required or, if required, in the judgment of the Company can reasonably be
effected ("Shareholders of Record"). The shares are offered at a purchase
price of $1.00 per Share. Each Shareholder of Record may subscribe to purchase
as many of the Shares as desired; provided, however, should this offering be
oversubscribed (i) each subscribing Shareholder of Record shall first be
entitled to purchase one of the Shares for each two shares of Common Stock of
the Company held of record on the record date, and (ii) after allocating up to
50,000 of the remaining Shares for purchase by certain shareholders who have
rendered non-solicitation services to the Company in connection with this
offering (see "Summary Information - Assistance"), each subscribing Shareholder
of Record shall then be entitled to purchase that amount of any remaining
Shares that his or her remaining, unsatisfied subscription bears to the total
remaining, unallocated subscription.
The Rights Offering is being made directly from the Company to its
Shareholders of Record. No underwriters are involved. No commissions are
being paid. All net proceeds from subscriptions go directly to the Company in
their entirety.
MANNER OF ACCEPTANCE
Shareholders of Record may not transfer their rights to purchase the
Shares. Subscriptions must be made in writing by completing and signing the
enclosed subscription form and mailing or delivering it, with a good and
sufficient check for the subscribed amount, to Liberty Bank and Trust Company
of Oklahoma City, c/o Stock Transfer Department, P.O. Box 25848, Oklahoma City,
Oklahoma 73125. Completed subscription forms and checks must, in any event, be
received by Liberty Bank no later than July 8, 1996.
Checks should be made payable to "Liberty Bank - Lark Subscriptions."
Should the offering be oversubscribed, Liberty Bank will promptly return to
subscribers that portion of their subscription amounts that could not be
filled, without any interest.
MARKET FOR THE COMPANY'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
As of the date of this Prospectus, there are 2,210,225 shares of
Common Stock of the Company owned of record by approximately 2,500
shareholders.
An additional 74,128 shares of Common Stock of the Company are
reserved for issuance against the exercise of Company stock options, and an
additional 53,262 shares of Common Stock of the Company are reserved for
issuance against the exercise of Company stock purchase warrants.
The following sets forth the range of high and low bids for the
Company's Common Stock reported by America OnLine for the calendar quarters
since the Company's stock commenced being quoted on the Bulletin Board under
the symbol LDNA. These quotations reflect inter-dealer prices, without retail
mark-up, mark-down or commission and may not represent actual transactions.
<TABLE>
<CAPTION>
Calendar Quarter High Low
----------------- ---- ---
<S> <C> <C>
1st quarter, 1996 1 3/8 3/4
4th quarter, 1995 1 1/2
</TABLE>
The Company's stock is quoted on an NASD inter-dealer system called
"the Bulletin Board." While some Bulletin Board stocks are actively traded,
they do not draw the interest of the NASD brokerage
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<PAGE> 13
community held by NASDAQ stocks or exchange-listed stocks. The eligibility
requirements for listing the Company's stock on exchanges are generally as high
or higher than the requirements for eligibility for quotation on NASDAQ, and
the Company has no present plans to list its stock on an exchange.
The Company's stock will not be eligible for quotation on the NASDAQ
Small Cap Market ("NASDAQ") (i) until it trades at a price of $3 per share or
higher and (ii) unless it meets other NASDAQ requirements regarding assets and
shareholders' equity, which it will not yet meet even if all the Shares offered
herein are subscribed. No assurance can be made that the Common Stock will ever
become eligible for quotation on NASDAQ.
Further, holders of the Shares offered herein face the prospect of an
indefinite period during which the Shares will be subject to trading severities
imposed on Bulletin Board, so-called "penny stocks" (stocks that trade at less
than $5 per share) by regulations of the Securities and Exchange Commission.
The effect of these trading severities is to reduce broker-dealer and investor
interest in trading or owning "penny stocks" and, hence, could inhibit the
ability of the Company's stock to reach a trading level of $3 per share or
higher and thereby become eligible for quotation on NASDAQ even if the Company
meets NASDAQ's assets and shareholders' equity requirements in the future.
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<PAGE> 14
DESCRIPTION OF BUSINESS
GENERAL
Lark Technologies, Inc. ("Lark" or the "Company") is a leader in
providing contract DNA sequencing and research services to the pharmaceutical
and biotechnology industries worldwide. Lark's service portfolio consists of
various DNA sequencing and molecular biology services as follows:
- - Automated DNA Sequencing Services. Lark applies automated sequencing
techniques to generate high throughput DNA sequence and fast turnaround
screening information, including genome sequencing projects.
- - Manual DNA Sequencing Services. Lark uses manual sequencing techniques for
projects that require greater than 99.9% accuracy. These techniques are
useful for DNA sequence information that is used for patent applications,
FDA submissions or the identification of genetic mutations.
- - Library Screening Services. During the gene discovery process, customers
may find only a portion of a gene of interest. As a service, Lark will use
a customer's gene fragment to probe a genetic library to identify a full
length gene. Identification of full length genes is necessary for
determining a gene's function, developing novel drugs, and securing patent
rights.
- - Differential Display Service. Lark uses differential display techniques
for analyzing differences in gene expression caused by the introduction of
various drug compounds, viruses or stimulatory factors. Differential
display can be useful in identifying novel genes and gene functions. By
understanding how and when a gene is expressed or repressed, targeted
interventions can be developed to maximize results and minimize harmful
side effects. This service is used to discover novel genes as well as
characterize pharmaceutical effects.
SENESCENCE GENE DISCOVERY PROGRAM. In 1995, the Company obtained
exclusive rights to senescence gene technology developed at Baylor College of
Medicine. Senescence is the final stage of cellular aging when a cell ceases
to divide but remains viable. The genes which control this process regulate
cell immortality. The major disease target for this gene technology is cancer.
Animal studies have shown promising results in demonstrating the ability of
this technology to reduce tumor growth. Lark is actively pursuing the
discovery of these novel genes and will attempt to exploit the diagnostic and
therapeutic applications of the technology. The Company intends to invest in
the initial research of this technology to increase the value of the
intellectual property. The Company intends to seek a corporate partner or
partners as warranted to support further development, clinical trials and
regulatory approval of any products that may be generated from this technology.
COMPANY HISTORY
Lark Sequencing Technologies, Inc. ("Sequencing") was incorporated as
a Delaware corporation in May 1990. Sequencing's corporate predecessor was
organized in 1989 for the purposes of (i) marketing standard gene sequencing
technologies used by scientists at Baylor College of Medicine in Houston, Texas
and (ii) marketing software developed at Baylor College of Medicine and used
for sequencing.
In June of 1992, Sequencing acquired the assets of a Texas limited
partnership that was engaged in basic research into potential medical uses of
the bio-active proteins present in the venom of poisonous snakes. These assets
were placed by Sequencing in a wholly-owned subsidiary, Summa Biologica Inc., a
Texas corporation ("Summa"). The operations of Summa were not profitable and
were not deemed sufficiently promising to management of Sequencing to continue
expenditures in this respect. In December of 1993, Sequencing sold
substantially all the assets of Summa.
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<PAGE> 15
Lark Technologies, Inc. ("Lark" or the "Company") was incorporated
under the laws of the State of Delaware on November 16, 1994 for the purpose of
merging with Sequencing. Prior to the merger, Lark had no business operations
or significant capital and had no intention of engaging in any active business
until it merged with Sequencing. Prior to the merger, the sole shareholder of
Lark was SuperCorp Inc. ("SuperCorp"), an Oklahoma company. Upon approval of
the merger, SuperCorp spun off Lark by transferring its stock in Lark to its
shareholders.
The Company is a successor in interest to Sequencing through a merger
effected in September 1995. As a result of the merger, the shareholders of
Sequencing own 90% of the capital stock of Lark, and the shareholders of
SuperCorp own 10% of the capital stock of Lark.
BUSINESS STRATEGY
The Company is a rapidly growing service provider to the biotechnology
and pharmaceutical industries. The Company intends to focus its expansion
efforts on the maintenance and expansion of long term relationships with
corporate clients in these industries as well as establishing new corporate
relationships. The Company will seek to identify trends that impact its
clients and develop new products and services to meet the changing needs of its
clients.
Internationally, the Company intends to expand by establishing a
relationship with a major European equipment and reagent distributor with a
significant sales force and by establishing a laboratory in the United Kingdom.
The Company intends to provide fast turnaround DNA sequencing services for the
European market using instruments provided by the distribution partner.
Lark intends to use its fundamental capabilities and skills in DNA
sequencing, molecular biology and gene function analysis to drive the two major
components of the Company: (1) the fee for service business and (2) the gene
discovery program. Lark's founding business, DNA sequencing and molecular
biology services, provides current revenue. The Company expects that its
skills and capabilities in this area will provide the basic ability to grow
this business. The same skills and capabilities will also be used and expanded
in the Company's efforts to discover the genes associated with cellular
senescence. Management believes that this gene discovery and technology
development program may provide significant value to the Company in addition to
the on-going service business.
The field of genomics is becoming increasingly important. The Company
intends to use its skills and capabilities in the fields of molecular biology
and DNA sequencing to reposition itself to take advantage of the growth
opportunities in the genomics marketplace. The Company believes that its
efforts in its senescence gene discovery program will add to its credibility in
the genomics arena.
Lark intends to continue to consider the development of new services
to support the needs of the marketplace and its gene discovery program. The
Company will evaluate prospective new services and products as opportunities
arise.
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<PAGE> 16
Set forth here is a diagram showing how the Company's internal
resources - its skills in DNA sequencing, its library screening services, its
differential display service, its skills in gene function analysis, and its
other molecular biology services - are utilized to support both of its areas of
emphasis -
- its contract services business, and
- its gene discovery program.
The DNA contract services business is depicted as a revenue generator,
while the gene discovery program is depicted as a long term asset builder.
The diagram suggests that the Company will enhance its revenue
generating contract services business by expanding its distribution channels.
The diagram suggests that the Company will enhance its gene discovery program
by establishing corporate partnerships and by engaging outside, contract
resources to reduce the overhead of this presently non-revenue producing
program. Underneath the diagram appears the following statement:
Lark's business model has two value generating components: a gene
discovery program and a contract services business. Lark's internal resources
support both components and are complementary. To reduce overhead costs
associated with the gene discovery program, Lark has and will continue to
engage contract resources as appropriate. To enhance the Company's revenue
generating capacity from its services, Lark has and will continue to expand its
distribution channels. The gene discovery program will be augmented by
establishing corporate partnerships. The Company believes its value will
continue to grow through both its contract service business and its gene
discovery program.
11
<PAGE> 17
SERVICE BUSINESS
The Company was established to provide contract research services to
biotechnology researchers. With the advent of the Human Genome Project (an
initiative to map and sequence the human genome) and revolutionary advances in
the field of molecular biology, the Company has developed quality services to
capitalize upon these market opportunities. Today, the Company's services are
used worldwide by commercial, government and academic institutions. The
Company believes it has earned a reputation as a leading provider of high
quality DNA sequencing -- a reputation which has enabled it to obtain key
contracts with major pharmaceutical and biotechnology companies throughout the
world. The Company is a fee-for-service contractor and typically takes no
ownership position in the intellectual property rights of the services it
performs under contract.
A number of market factors impact Lark's service business. First, the
total amount of DNA sequencing is increasing due to the Human Genome Project,
to related genome sequencing initiatives, and to competitive pressures in the
pharmaceutical industry. Major pharmaceutical companies have made significant
financial commitments to gene therapy approaches. These approaches are
maturing and may require demonstration of genetic stability before or during
clinical trials. For example, there are currently 32 biotech drugs in the
marketplace and over 400 in development, all of which potentially require FDA
submission sequencing in support of a demonstration of genetic stability.
Additionally, companies in both the pharmaceutical and biotechnology
sectors are facing increasing competitive pressures to reduce fixed
expenditures. Pharmaceutical companies are increasingly outsourcing routine
procedures to maximize the innovative aspects of their internal efforts. The
biotechnology sector has largely accepted the "virtual company model," which
supports further outsourcing of routine development efforts.
The Company has many attributes which have enabled it to compete in
this complex environment. The Company believes it is recognized to be the
quality leader among contract molecular biology service providers and has
operated under the direction of industry professionals for more than six years.
The Company's technical team follows standard operating procedures which help
to produce consistent, high quality results. Because services are performed in
compliance with Good Laboratory Practices (GLPs) as specified by the Food and
Drug Administration (FDA), Lark can undertake projects that support
applications to the FDA. Finally, the Company provides a breadth of molecular
biology services with flexible protocols to meet project specific objectives.
The Company faces several types of competition. The first is
individual researchers capable of performing the work themselves rather than
contracting it out. A similar type of competition is that of the core lab,
either in an academic setting or within a large company, that can provide
services at a much reduced rate due to subsidies of its overhead expenses.
These first types of competition are difficult to overcome due to the
perception of significantly lower costs. There are several smaller companies
which offer DNA sequencing or related molecular biology services; however,
these companies have not yet demonstrated the longevity, breadth of services or
marketing ability that the Company has. Finally, there are several recent
entrants in the genomics sequencing market. These companies typically take an
ownership position in the sequence information they generate, whereas Lark
takes no ownership position in any sequence data generated for its clients.
The Company markets its services through advertisements in biological
and pharmaceutical journals, presentations to potential clients, attendance at
trade shows and scientific conferences, and client referrals. The Company's
sales staff in the United States and in its European branch office is
compensated with base salaries and commissions based on performance. The
Company also has
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<PAGE> 18
distributors based in Northern Europe and the Pacific Rim, and is actively
exploring other distributor arrangements.
SENESCENCE GENE DISCOVERY PROGRAM
Cell Senescence Background:
Most normal cells in the human body are unable to proliferate (divide)
forever. The phenomenon by which cells stop proliferating is called cell
senescence. Cell senescence is a normal physiological process involving cell
senescence genes that eventually signal the cells to stop dividing. In
contrast to normal senescent cells, cancer cells divide indefinitely, possibly
due to changes that have occurred to the cell senescence genes.
The study of cell senescence has historically been tied to the
biological study of aging. Studies over the past thirty years have shown that
the onset of cell senescence is directly related to the age of the animal in
that cells taken from older animals tend to undergo fewer divisions than cells
taken from younger animals. Because of the correspondence of cell senescence
with aging of the body as a whole, cell senescence has become an accepted model
for studying aging at the cellular level. The terms "cell aging" and "cell
senescence" thus are generally used interchangeably to describe the limited
proliferative capacity of normal cells.
Based upon discoveries made at Baylor College of Medicine, four
genetic pathways have been identified that control the senescence process and
may be involved in suppressing cancer tumors. Thus it is postulated that each
senescence gene, or a defect therein, may be implicated in 25% of all cancerous
tumors for any given tumor type. Studies performed at Baylor indicate that the
presence of senescence genes may override the tumorigenic effects associated
with mutations in tumor suppressor genes such as p53 or Rb. Initial animal
studies using a fragment containing the first senescence gene demonstrate the
ability of that gene to reduce colon or lung cancer tumor growth at
statistically significant levels. The Company is collaborating with Dr. Olivia
Pereira-Smith at Baylor College of Medicine to clone and sequence the four
genes responsible for regulating these pathways and is in the process of
sequencing the first gene.
Applications:
This innovative technology could represent a novel approach to the
diagnosis and treatment of cancer, although no assurances can be given that it
will. Studies performed to date indicate that a defect in one of the four
senescence genes may lead to cellular immortalization. Unlike the early stages
of tumorigenesis, this central immortalization event is common to all tumor
types independent of the tissue or cell of origin. Based on the identification
of only four senescence gene pathways, it is postulated by the Company at this
stage in its research that each senescence gene, or a defect therein, may be
implicated in 25% of all cancerous tumors for any given tumor type.
The senescence gene technology creates a paradigm shift in the
understanding of cancer which could lead to the development of improved cancer
therapeutics and diagnostics. The therapeutic and diagnostic value of these
genes is supported by their presumed function. Diagnosis of cancer in an early
phase, when a tumor is local and most susceptible to curative treatment,
significantly increases an individual's five-year survival rate. The
senescence gene technology could be developed as a molecular diagnostic which
could potentially provide prognostic and therapeutic value for many cancers.
Information from a diagnostic test could guide a physician in determining an
appropriate therapy based on mutations detected in one of the senescence genes.
Determining that a person has inherited a mutated copy of a senescence gene on
one of his paired chromosomes could suggest to a physician that this individual
is at a significantly increased risk for cancer if an environmental factor
mutates the good copy
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<PAGE> 19
of the gene on the other chromosome. As a result, more effective surveillance
measures could be taken that in certain cases could delay or prevent the
development of cancer.
In addition to the diagnostic applications of the senescence gene
technology, the technology may also be used to develop gene, protein, or small
molecule therapies to treat cancer. The Company believes that by introducing
the appropriate cell senescence gene, or possibly its protein product or small
molecule mimetic, into an immortal (cancerous) cell line, a mortal (normal)
senescence phenotype may be restored. The identification of the senescence
genes may produce new molecular targets for the development of improved cancer
therapies. Lark plans to attempt to exploit the diagnostic and therapeutic
applications of the senescence gene technology by identifying appropriate
corporate partners or commercial licensees.
No assurances can be given, however, that the Company's senescence
technology will prove to be useful in cancer therapies or diagnostics, that
suitable corporate partners or commercial licensees can be located who will
share the Company's costs in this endeavor, or that the Company's efforts and
expenditures in the development of this new technology will be financially
successful for the Company. Any revenues or fees arising from this research and
development program are subject to royalty payments to the original licensor of
this technology as described in Note 9 to the financial statements. Although
the Company would benefit from the success of this project, this project is not
essential to the success of the Company. The Company considers this to be a
highly speculative project.
The following table sets forth certain conclusions reached by the
Company and its researchers with respect to (i) the identification of the four
gene pathways that control cell senescence and (ii) the identification, to
date, of the certain types of cancer that result from mutations in each of the
four senescence genes:
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<PAGE> 20
Set forth here is a diagram showing the four senescence gene pathways
the Company and its researchers believe they have identified and which may be
involved in suppressing cancer tumors. Also shown are the types of cancers
already identified that can result from mutations in each of the four
senescence genes.
In the diagram, under each of Gene A, Gene B, Gene C and Gene D, are
straight-arrow paths pointing to "old age" - or normal senescence. Shown as
offshoots of the straight paths are the results associated with mutations of
the four genes:
<TABLE>
<CAPTION>
Mutation in Mutation in Mutation in Mutation in
Gene A Gene B Gene C Gene D
----------- ----------- ----------- -----------
<S> <C> <C> <C>
Bladder Cancer Bladder Cancer Bladder Cancer
Skin Cancer
Lung Cancer Lung Cancer Lung Cancer
Liver Cancer Liver Cancer
Fibrosarcoma
Colon Cancer
Brain Cancer
Cervical Cancer
Bone Cancer
Lymphomas
</TABLE>
Under the diagram appears the following statement:
Studies at Baylor College of Medicine have determined there are four
senescence gene pathways that regulate cellular aging. Mutations in one of
these four pathways leads to cell immortality, a prerequisite of cancer.
Cancers associated with a mutation in one of these four pathways do not
correspond to a particular tissue or cell of origin. For example, lung cancer
can result when there is a mutation in gene B, C, or D.
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<PAGE> 21
Market Potential:
Lark's senescence gene discovery program provides the Company with
potential long term share holder value creation through the identification of
proprietary senescence genes that may have applications as novel therapies and
diagnostics for cancer. Recent studies indicate that the first senescence gene
being sequenced by Lark may be able to stop cell division in tissue culture
cells associated with the following cancers: colon, lung, bladder, brain, and
cervical.
Worldwide sales for cancer pharmaceuticals were $5.76 billion in 1993.
With a projected annual growth rate of 12.9%, this market could reach
approximately $11.83 billion in 1999. Therapies based upon novel therapeutic
products are projected to represent approximately 11% of the total market in
1999, or $1.3 billion. The cancer diagnostic market is projected to reach $2.3
billion by the year 2000. Lark intends to develop this technology through the
early research phases, then seek appropriate corporate partners as warranted to
support further research, development, and commercialization efforts. Lark
expects to recognize significant revenue streams from royalty payments
associated with these potential partnering relationships. It is possible that
Lark will achieve a significant increase in intellectual property value based
on identification and characterization of only one of the four senescence
genes. Any revenues or fees arising from this research and development program
are subject to royalty payments to the original licensor of this technology as
described in Note 9 to the financial statements.
There are a number of biotechnology and pharmaceutical companies
searching for novel genes associated with diseases including cancer. The
methods that these companies are using to identify genes, however, are
different from the functional assay approach being used by Dr. Pereira-Smith at
Baylor College of Medicine. Lark's expertise in DNA sequencing and molecular
biology combined with its exclusive relationship with Dr. Olivia Pereira-Smith
should strengthen the Company's competitive position concerning the
identification of the senescence genes.
GOVERNMENTAL APPROVAL AND REGULATIONS
The Company is not dependent upon governmental approval of its current
services. However, many of its clients will submit applications for new drugs
or devices to the FDA. A significant portion of the projects undertaken by the
Company are in support of such applications and thus are subject to compliance
with standards established by the FDA and its foreign counterparts. The
Company employs personnel and utilizes procedures which it deems necessary to
comply with these regulatory standards. Although the Company and its services
are not themselves subject to FDA approval, the Company complies with these
regulatory standards in order to undertake this type of project for its
clients.
By virtue of its work in support of its client's submissions to the
FDA and other regulatory bodies, the Company is subject to inspections by the
FDA and other federal, state and local agencies regarding specific FDA
submission projects it has performed. Regulatory affairs audit teams from its
pharmaceutical and biotech clients frequently inspect the Company's facilities
and procedures to ascertain whether the Company is in sufficient compliance
with applicable regulations. The Company has not had a significant negative
finding as a result of such inspections. If significant violations were
discovered during a client or governmental inspection, the Company might be
restricted from undertaking additional submission projects until the violations
were remedied.
The Company is subject to regulations concerning laboratory and
occupational safety practices, the use and handling of hazardous chemicals and
radioisotopes, and environmental protection. The Company believes that it is
in general compliance with such applicable federal, state and local regulations
and does not estimate the costs to be material.
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<PAGE> 22
EMPLOYEES
As of December 31, 1995, the Company had 35 total employees and 29
full time employees, and had 38 total employees and 32 full time employees as
of March 31, 1996. The Company believes that its employee relations are good,
but can make no assurances that it will continue to be able to attract and
retain qualified employees. The Company also has engaged the services of
consultants when appropriate. In connection with licensing the rights to the
senescence technology, the company maintains a sponsored research agreement and
a consulting agreement with a principal investigator at Baylor College of
Medicine.
DESCRIPTION OF PROPERTY
The Company leases 11,000 square feet of office and laboratory space
for its corporate headquarters in Houston, Texas pursuant to a lease which
expires on September 30, 1999. The Company also leases office space for its
European branch office in Hove, England, pursuant to a lease which expires on
September 30, 1996 or with 30 days advance notice. The Company is currently
evaluating available space for a potential laboratory and office expansion in
England. Future amounts due under the terms of these leases are detailed in
Note 9 - "Commitments and Contingencies - Leases" of the financial statements.
The Company carries commercial insurance which it deems sufficient to cover
loss of lab equipment or occupancy privileges.
TERM LOAN, LINE OF CREDIT, AND DEBENTURES PAYABLE
At March 31, 1996, the Company had two notes payable to a bank with
interest of prime plus 2% (10.25% at March 31, 1996) and collateralized by
accounts receivable, property, and equipment. The notes were due on demand and
if no demand was made, the notes were payable in monthly installments of $1,400
and $3,799 plus interest. Any unpaid principal on the notes was due at
maturity on March 31, 1996, and January 6, 1998. Amounts outstanding under
these notes were $57,200 and $77,720, respectively, at March 31, 1996.
At March 31, 1996, the Company had a revolving line of credit with the
same bank. The terms of the line of credit provided for maximum borrowings of
$250,000 of which $200,000 was outstanding at March 31, 1996. Borrowings bear
interest at the bank's prime rate plus 2% and the line of credit expired March
31, 1996. The line of credit was secured by qualified accounts receivable of
the Company and an aggregate of $125,000 of the line of credit was guaranteed
by five individuals. Of the five individuals, two are directors of the Company
and all are stockholders. In return for the guarantees, each guarantor was
granted a warrant to purchase 3,382 shares of Common Stock, exercisable at
$0.1479 per share, and expiring on December 31, 1996.
On April 26, 1996, the Company repaid the demand note payable which
matured on March 31, 1996, and renewed the line of credit with a reduced
maximum borrowing limit of $200,000 and a maturity date of January 2, 1997.
Contemporaneously with the renewal of the line of credit, the maturity of the
demand note payable of $77,720 which originally matured January 6, 1998, was
accelerated to January 2, 1997. The line of credit and demand note are
guaranteed by certain stockholders of the Company. In exchange for the
guarantees, the Company issued to each guarantor, on a pro-rata basis, warrants
to purchase a total of 106,533 shares of unregistered common stock of the
Company at an exercise price of $0.1479. The warrants expire December 31,
1997. The Company has the right to repurchase half of the warrants at $0.1479
if the Company has arranged for the release of the personal guarantees by
August 15, 1996.
At March 31, 1996, the Company had subordinated redeemable debentures
payable of $45,000 that matured on March 31, 1996, with interest at 8% per
year, payable quarterly. The Company has
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<PAGE> 23
offered to renew the subordinated debentures. As of June 5, 1996, the Company
has received renewal agreements from the holders of $20,000 of these
subordinated debentures. The other subordinated debenture holder has not
demanded payment.
PATENTS, COPYRIGHTS AND INTELLECTUAL PROPERTY
The Company actively seeks patent protection in the U.S. and in
significant foreign countries for inventions and technologies for which it
deems such protection commercially advisable. In connection with its
senescence gene discovery program, the Company currently has licensed rights to
two U.S. patent applications pending and one foreign counterpart. The Company
believes that this patent protection is important to its senescence technology
but not essential to the overall success of the Company. The Company can make
no assurances that these applications will be approved, that similar patents
have not been or will not be issued, or that any patent issued to the Company
will not be circumvented or infringed. In connection with its senescence gene
discovery program, the Company is subject to certain performance and royalty
arrangements as described in Note 9 of the financial statements.
The Company relies on trade secrets and technical know-how in order to
maintain its competitive advantage and scientific expertise. It is the
practice of the Company to enter into confidentiality agreements with
employees, consultants, members of its scientific advisory board, and any third
party to whom it discloses confidential information. There can be no assurance
that such confidential information will not be disclosed, that similar trade
secrets or expertise will not be independently developed, or that access to
such information could not be gained inadvertently.
The Company is, by nature of its work, privy to certain confidential
information of its customers. In order to attract and maintain clients the
Company enters into confidentiality agreements with its customers as both deem
appropriate. There can be no assurance that such confidential information will
not be disclosed, that similar trade secrets or expertise will not be
independently developed, or that access to such information could not be gained
inadvertently.
RESEARCH AND DEVELOPMENT
The Company uses existing technology and is not dependent upon
research and development to provide its service. Its research and development
expenditures are expensed as incurred and were $21,051 during 1994 and $48,521
during 1995. In the first quarter of 1995 and 1996, research and development
expenditures were $0 and $34,994, respectively.
RAW MATERIALS
The principal suppliers of raw materials for the Company's services
and R&D efforts are laboratory supply companies. The Company believes that
there are sufficient alternate suppliers available such that raw materials will
be available in sufficient quantities and at reasonable cost for the
foreseeable future.
CUSTOMERS
The Company provides services to researchers at a large number of
institutions. However, revenues from one major customer accounted for 29% of
total revenues during 1995. This same customer accounted for 52% and 64% of
total revenues during the first three months of 1995 and 1996, respectively.
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<PAGE> 24
LEGAL PROCEEDINGS
Neither the Company nor any of its property is a party to or the
subject of any pending legal proceedings.
MERGER-ACQUISITION DISCUSSION
During the past year, the Company was approached by several biotech
companies with respect to a possible merger or acquisition with Lark. The
Company was recently approached by a biotech company in this same respect. No
offer has been made. The Board of Directors will consider any future merger or
acquisition offers made to the Company in light of what appears to be in the
best interest of the Company's shareholders.
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<PAGE> 25
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction
with the Financial Statements and the accompanying Notes herein, and is
qualified entirely by the foregoing and by other more detailed financial
information appearing elsewhere.
OVERVIEW
The Company's revenues are derived through provision of DNA sequencing
and related molecular biology services to researchers in the pharmaceutical,
biotechnology and related industries. Quarterly fluctuations in revenues arise
primarily from variations in contract status with one large customer. In
addition, the majority of other customer projects are individual orders for
specific projects ranging in value from $6,000 to $140,000. Engagement for
successive work is highly dependent upon the customer's satisfaction with the
services provided to date. The Company is unable to predict for more than a
few months in advance the number and size of future projects in any given
period. Thus, timing could have a significant impact on financial results in
any given period. The combined impact of the large contract from a single
customer and the unpredictable project fluctuations from other customers can
result in very large fluctuations in financial performance from quarter to
quarter.
The Company believes that its expansion efforts discussed herein will
compensate for some of these sales fluctuations. In addition, the Company has
initiated several steps to mitigate the effects of these fluctuations where
possible. The Company has formalized team based, project management programs
to increase efficiency in laboratory operations. A custom database for project
tracking has been developed and implemented. The Company has also instituted
cost control measures where possible without negatively impacting project
completions. These measures include more efficient labor scheduling, the use
of temporary employees to decrease overhead costs, and negotiating with
suppliers to decrease supply costs.
RESULTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1994 AND DECEMBER 31, 1995
Gross revenues increased 12% from $2,248,247 to $2,518,255 for the
years ended December 31, 1994 and 1995, respectively. The increase in revenues
for 1995 was attributable to an increase in new customer accounts for all three
types of services provided by the Company during 1995 (the fourth service
described in "Description of Business - General" is a new service added in
1996). Management believes that this increase in orders is attributable to
increased sales and advertising activities. These activities included the
introduction of a tiered pricing structure with services billed at lower rates
and initial price concessions made as a component of the Company's aggressive
entry into the European market. Quarterly fluctuations in gross revenues
during 1994 and 1995 were due to the automated sequencing performed for the
first contract with a single customer. Revenues from this first contract were
recognized during the second and third quarters of 1994 and the first quarter
of 1995. Materials for a second contract with this customer were received by
the Company during October 1995. Operations for this second contract were
begun during the fourth quarter of 1995 and were significantly completed during
the first quarter of 1996, significantly increasing revenues for the first
quarter of 1996 as compared to any prior quarters. An extension of this second
contract may be granted during the second quarter of 1996. This extension or
lack thereof will have a significant material impact upon the Company's
revenues in the second and possibly third quarters of 1996.
Costs of services consist primarily of labor and laboratory supplies.
Costs of services increased 52% from $797,612 to $1,210,618 for the years ended
December 31, 1994 and 1995, respectively.
20
<PAGE> 26
Operating costs overall were less in the first half of 1994 as compared to the
first half of 1995 because the automated sequencing group was not fully
operational until late in the second quarter of 1994. Increases in personnel
and supply usage for the manual sequencing and molecular biology service groups
as a result of the increase in services rendered comprised the remainder of the
increase in operating costs. Costs of services as a percentage of revenue were
35% and 48% for the years ended December 31, 1994 and 1995, respectively.
Sales, general and administrative expenses consist primarily of
salaries and related costs, depreciation, amortization, legal and professional
costs, rent, travel, and advertising. Sales, general and administrative
expenses increased 33% from $1,317,439 to $1,745,389 for the years ended
December 31, 1994 and 1995, respectively. Sales, general and administrative
expenses as a percentage of revenue were 59% and 69% for the years ended
December 31, 1994 and 1995, respectively. The change in management discussed
in the Notes to the Financial Statements resulted in one- time non-recurring
expenses totaling approximately $120,000 in the third quarter of 1995. The
remaining increases are attributable to various costs incurred to support the
growth of the Company. These growth related costs consist primarily of
increased personnel costs in the United States and Europe, certain commissions
on contracts, an increase in amortization of certain capitalized costs, and
incremental fees related to public disclosure requirements.
Research and development costs were $21,051 and $48,521 for the years
ended December 31, 1994 and 1995, respectively. Research and development costs
during 1994 were primarily related to developing and improving protocols for
the automated sequencing group. Research and development costs in 1995 were
related to the development of new services and the gene senescence project
described in "Description of Business - Senescence Gene Discovery Program"
above. Research and development expenses are likely to continue to increase as
a result of this project. Lark will need additional capital in order expand
its research and development efforts.
VARIABILITY OF FUTURE OPERATING RESULTS. The Company experienced a
significant revenue increase in the latter half of 1994, due in large part to
the commencement of the first contract with a single customer. This first
contract was substantially completed during the first quarter of 1995. In
December 1994, a second, similar contract with this customer was signed.
Operations for the second contract began in the fourth quarter of 1995 and were
significantly completed during the first quarter of 1996. Completion of this
contract without a replacement from this or another customer could have a
material adverse impact on the Company.
LIQUIDITY AND CAPITAL RESOURCES. (See updated "Liquidity and Capital
Resources" which begins on page 22). The Company has experienced increased
demands on working capital due to actual and anticipated growth in all current
services. Operating cash flow was $89,076 and ($36,247) for the years ended
December 31, 1994 and 1995, respectively. The company's liquidity was
increased during the third quarter of 1995 by the expansion of its revolving
line of credit and the addition of a closed end line of credit for the purchase
of capital equipment as discussed in the Notes to the Financial Statements. The
remaining subordinated debentures matured September 30, 1995, and were extended
for an additional six months. Management intends to renew this subordinated
debt which matured on March 31, 1996. Although no assurances can be made that
these negotiations will be completed successfully, the subordinated debenture
holders have not demanded payment to date.
A portion of the Company's bank debt totaling approximately $230,000
at December 31, 1995, matured March 31, 1996. On April 11, 1996, the Company
obtained a commitment from the bank to renew the bank debt and additional debt
incurred from March 31, 1996 through January 2, 1997. See Note 7 of the Notes
to the Financial Statements for the years ended December 31, 1994 and 1995 for
21
<PAGE> 27
additional discussion of the renewed debt. Management anticipates that
additional capital expenditures necessary to support the Company's operating
growth can be funded through a combination of existing or proposed credit
facilities and future operating results.
The Company has committed to certain minimum expenditures related to
its senescence research and development efforts as outlined in Note 9 to the
Financial Statements ("Patent License Agreement" and "Sponsored Research
Contract and Consulting Agreement"). Lark will need additional capital in
order to expand its research and development efforts beyond the levels required
by these agreements.
THREE MONTHS ENDED MARCH 31, 1995 AND MARCH 31, 1996
Gross revenues increased 44% from $838,625 to $1,206,795 for the three
month periods ended March 31, 1995 and 1996, respectively. This increase in
revenues was attributable to an increase in new customer accounts for both the
automated and manual sequencing services provided by the Company. Management
believes that the increase in manual sequencing revenues is attributable to
increased sales and advertising activities while the increase in automated
sequencing revenues was due to the work performed for a contract with a single
customer.
Costs of services consist primarily of labor and laboratory supplies.
Costs of services increased 42% from $297,965 to $423,445 for the three month
periods ended March 31, 1995 and 1996, respectively. Increases in personnel,
supply usage and equipment costs as a result of the increase in services
rendered comprised the increase in operating costs. Costs of services as a
percentage of revenue were 36% and 35% for the three month periods ending March
31, 1995 and 1996, respectively.
Sales, general and administrative expenses consist primarily of
salaries and related costs, depreciation, amortization, legal and professional
costs, rent, travel, and advertising. Sales, general and administrative
expenses increased 43% from $363,727 to $518,529 for the three month periods
ended March 31, 1995 and 1996, respectively. Sales, general and administrative
expenses as a percentage of revenue were 43% for both three month periods
ending March 31, 1995 and 1996. The increases are attributable to various
costs incurred to support the growth of the company. These growth related
costs consist primarily of increased personnel costs in the United States and
Europe, certain commissions on contracts, an increase in amortization of
certain capitalized costs, and fees related to public disclosure requirements.
Research and development costs were $34,994 for the quarter ended
March 31, 1996. There were no research and development costs incurred during
the first quarter of 1995. Research and development costs during 1996 were
related to the gene senescence project described above. Research and
development expenses are likely to continue to increase as a result of this
project. Lark will need additional capital in order to expand its research and
development efforts.
VARIABILITY OF FUTURE OPERATING RESULTS. The Company experienced a
significant revenue increase in the latter half of 1994, due in large part to
the commencement of the first contract with a single customer. This first
contract was substantially completed during the first quarter of 1995. In
December 1994, a second, similar contract with this customer was signed.
Operations for the second contract began in the fourth quarter of 1995 and were
substantially completed during the first quarter of 1996. The Company has a
"baseline" of projects from clients which it believes will provide a
sustainable level of revenues, although no assurances can be made that this
will be true in the future. The addition or completion of any single large
contract may have a material impact on the Company's revenues.
LIQUIDITY AND CAPITAL RESOURCES. The Company has experienced
increased demands on working capital due to actual and anticipated growth in
all current services. Operating cash flow was $210,800 and $52,865 for the
three month periods ended March 31, 1995 and 1996, respectively. The
22
<PAGE> 28
Company's remaining subordinated debentures totaling $45,000 matured March 31,
1996. Management intends to renew this debt, although no assurances can be
made that these negotiations will be completed successfully. As of June 5,
1996, $20,000 has been renewed, and the other subordinated debenture holder has
not demanded payment.
A portion of the Company's bank debt totaling $260,000 at March 31,
1996, matured March 31, 1996. On April 26, 1996, the Company renewed its line
of credit from March 31, 1996 through January 2, 1997, accelerated the maturity
of a portion of its notes payable to January 2, 1997, and repaid the remainder
of its demand notes payable. See Note 7 to the Financial Statements for
additional discussion of the renewed debt. Management anticipates that
additional capital expenditures necessary to support the Company's operating
growth can be funded through a combination of existing or proposed credit
facilities and future operating results.
The Company has committed to certain minimum expenditures related to
its senescence research and development efforts as outlined in Note 9 to the
Financial Statements ("Patent License Agreement" and "Sponsored Research
Contract and Consulting Agreement"). The Company has committed to monthly
minimum expenditures of $6,469 through July 1996 with respect to its Senescence
Gene Discovery Program. These expenditures relate to certain research and
development efforts being performed by Baylor College of Medicine. Lark will
need additional capital in order to expand its research and development efforts
beyond the levels required by these agreements.
MATERIAL COMMITMENTS. Late in the first quarter of 1996, the Company
placed an order totaling $240,000 for two automated sequencers in anticipation
of an additional large contract. The funds for this purchase will be generated
internally, through additional borrowings, or through other credit
arrangements.
23
<PAGE> 29
MANAGEMENT
DIRECTORS, EXECUTIVE OFFICERS AND KEY EMPLOYEES
The directors, executive officers and key employees are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Stephen J. Banks (1) 55 Chairman of the Board
Vincent P. Kazmer 46 President, CEO and Director
George M. Britton (1) 49 Director
David A. Lawson (2) 48 Director
Frank Vazquez (2) 55 Vice Chairman of the Board
Christine B. Powaser 32 Vice President, CFO, Secretary and Treasurer
Bethany J. Pimentel 33 Vice President, Sales and Business Development
Kevin A. Auton, Ph.D. (3) 32 European General Manager
Joseph D. Kittle, Jr., Ph.D. (3) 37 Director of New Products
Raymond A. Vonder Haar, Ph.D. (3) 47 Scientific Director
David Alan Wall, Ph.D. (3) 33 Laboratory Director
</TABLE>
(1) Member of the Audit Committee.
(2) Member of the Compensation Committee.
(3) This person is not a corporate officer or a corporate director of the
Company but, rather, is a key employee.
STEPHEN J. BANKS has served as Chairman of the Board of Lark since
1989. Mr. Banks is the president of BCM Technologies, Inc., the technology
transfer subsidiary of the Baylor College of Medicine. Mr. Banks has been with
BCM Technologies, Inc., since 1988. Mr. Banks is a director of the ForeFront
Group, Inc. and several private companies. Prior to 1988 he was a vice
president of The Hillman Company, an investment holding company located in
Pennsylvania. Mr. Banks has an MBA degree from Harvard University and a BS
degree from the Massachusetts Institute of Technology.
VINCENT P. KAZMER has served as President, CEO and a Director of Lark
since September, 1995. Prior to joining Lark, Mr. Kazmer was the President and
CEO of Copernicus Gene Systems, Inc., a private gene therapy company of which
he was a founder. From 1989 to 1994 he served as Senior Vice President of
United States Biochemical Corporation with responsibilities for business
development, marketing and sales. While at US. Biochemical, Mr. Kazmer served
as Vice President of Ribozyme Pharmaceuticals, Inc., a biotechnology company,
with responsibilities for its founding and initial financing. During the
period 1978 to 1988, Mr. Kazmer served in several finance and planning
positions at The BF Goodrich Company including CFO for a specialty chemicals
division. Mr. Kazmer also served as a nuclear submarine officer and qualified
nuclear engineer in the US Navy. He received his BS in computer information
science from Ohio State University and MBA from Stanford University.
GEORGE M. BRITTON has served as a Director of Lark since 1989. Mr.
Britton is a director of Britton Capital Services, a closely held investment
and financial consulting firm. Since 1989, approximately 80 percent of his
activities have been related to real estate acquisitions, syndications,
development, leasing and management, primarily in commercial properties in the
Houston, Texas area, and approximately 20 percent of his activities have been
related to assisting start up and early-stage companies in their business plans
and in contacting sources of venture capital. Mr. Britton holds an MBA degree
from the University of Texas and a BA degree from Vanderbilt University.
24
<PAGE> 30
DAVID A. LAWSON has served as a Director of Lark since 1989. Mr.
Lawson is an independent real estate investor and consultant in Houston, Texas.
In this capacity, Mr. Lawson has been actively involved in the acquisition,
syndication, ownership and management of income-producing real estate in
Houston and elsewhere. He is president of three Texas corporations, Diva
Corporation, Twelve Oaks Tower I, Inc., and OFD Redevelopment, Inc., each of
which is the general partner and manager of a limited partnership that owns a
redevelopment real estate project in Houston, Texas. He has been active since
1983 with respect to Diva Corporation, since 1991 with respect to OFD
Redevelopment, Inc., and since 1992 with respect to Twelve Oaks Tower I, Inc.
Diva and Twelve Oaks manage medical office buildings in the Texas Medical
Center, and OFD manages a shopping center. Mr. Lawson holds a BS degree from
Trinity University.
FRANK VAZQUEZ has served as a Director and Vice Chairman of Lark since
1989. Mr. Vazquez was the President, CEO and a Director of the Company from
its inception until April 1991, when he resigned to become a general management
and business development consultant with Chojnacki & Associates in Houston,
Texas, with emphasis upon technology-based business opportunities in the
fields of biotechnology, environmental and energy industries, and
medical-related industries. Since April 1991 Mr. Vazquez has continued to
serve as a Director of the Company and as the Vice Chairman of its Board of
Directors. Mr. Vazquez was previously employed by Trinity Computing, Inc. and
had for several years been actively engaged in a consulting business. Mr.
Vazquez holds a BS degree from Columbia University.
CHRISTINE B. POWASER joined the Company in 1989 and held a variety of
positions in sales and marketing before assuming the role of Director of
Finance in 1993. She is currently a Vice President, the Chief Financial
Officer, Corporate Secretary and Treasurer of the Company. Ms. Powaser
received an MBA degree in finance from Rice University in 1989 and a BS degree
in genetics and cell biology from the University of Minnesota in 1986.
BETHANY J. PIMENTEL joined the Company in 1995 as the Vice President
of Sales and Business Development. Ms. Pimentel was recruited from Sennes
Drug Innovations, Inc., a privately held biopharmaceutical company, where she
had been the Director of Business Development since 1993. From September 1990
until February 1993, she was first a market research analyst and then the
Director of Business Development for BCM Technologies, Inc., where she oversaw
the startup activities of Sennes Drug Innovations, Inc., GeneMedicine, Inc.,
and Meretek Diagnostics, Inc. From May 1985 to September 1990 she was employed
as a research technician at Baylor College of Medicine in the Department of
Immunology and Microbiology. She received a BA degree in Biopsychology from
the University of Colorado, Boulder in 1985 and an MBA in finance from the
University of Houston in 1990.
KEVIN A. AUTON, PH.D., has served as the European General Manager of
the Company's European branch since August 1994, and is based in the United
Kingdom ("UK"). Dr. Auton was recruited from Millipore (UK) Ltd., a subsidiary
of the Millipore Corporation, (Massachusetts, USA) where he was the UK Product
Manager for Millipore Imaging (now the Bio Image Corporation), since 1992.
From 1989 until 1992, Dr. Auton was first the regional specialist for Waters
chromatography systems and later the Senior Specialist for the bioscience
product ranges at Millipore. Dr. Auton holds a Ph.D. in Biochemistry from the
University of Southampton awarded in 1988.
JOSEPH D. KITTLE, JR., PH.D., has served as Director of New Products
since January 1996. Prior to joining Lark, Dr. Kittle served GeneMedicine,
Inc., The Woodlands, Texas, as Senior Scientist, Expression Systems. Prior to
GeneMedicine, Inc., he was a research scientist at Battelle Memorial Institute.
Dr. Kittle holds a Ph.D. in Chemistry from Harvard University and a BS in
Chemistry from Ohio University.
RAYMOND A. VONDER HAAR, PH.D., has served as Scientific Director since
1993. Previously, Dr. Vonder Haar was a research scientist at Transgene, S.A.,
in Strasbourg, France. From 1990 to 1992 he was Director of Molecular Biology
Services at Ambion, Inc., in Austin, Texas. From 1979 to 1990 Dr. Vonder
25
<PAGE> 31
Haar held a faculty position at Texas A&M University in the department of
Medical Biochemistry where he worked on genetic and metabolic control
mechanisms in mammalian systems. For two years he was Director of the DNA
Sequencing Synthesis Core Laboratory at Texas A&M. Dr. Vonder Haar received
his AB in Zoology from the University of Missouri and his Ph.D. in Molecular
Biology from Purdue University.
DAVID A. WALL, PH.D., has served as Laboratory Director for molecular
biology services and manual DNA sequencing since October, 1994. Previously,
Dr. Wall was Associate Director of GenTest Laboratories in New Orleans,
Louisiana, in charge of the Paternity Testing Laboratories. He was also
Director of Research and Genetic Testing at ImmGen, Inc., College Station,
Texas. Dr. Wall received his BS in animal science and his Ph.D. in genetics
from Texas A&M University in College Station, Texas.
DIRECTOR'S COMPENSATION
Lark's directors do not receive any compensation for service on the
Board of Directors or any committee thereof.
EXECUTIVE COMPENSATION
The following table sets forth the compensation paid by the Company
for the 1995 fiscal year to the Company's Chief Executive Officer and two other
executive officers:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
Annual Compensation Long Term Compensation
-------------------------------------------------------------
Awards Payouts
---------------------------------
Securities
Name and Other Restricted Underlying All
principal annual stock Options/ LTIP other
position Year Salary Bonus comp award(s) SARs Payouts compensation
($) ($) ($) ($) ($) ($) ($)
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Vincent P. Kazmer(1),(2),(3) 1995 125,000 15,000 36,000 15,000
President & CEO
- ---------------------------------------------------------------------------------------------------------------
Maurice J. Walker(4) 1995 99,000 12,125 99,000
President & CEO
- ---------------------------------------------------------------------------------------------------------------
Bethany J. Pimentel 1995 65,000 10,945 8,454
Vice President
- ---------------------------------------------------------------------------------------------------------------
Christine B. Powaser(3) 1995 54,000 6,405
Vice President, CFO
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Mr. Kazmer joined the Company in September 1995 as its president and chief
executive officer. He has a two-year employment agreement providing for (i) a
base salary of $125,000 a year, subject to increase at the discretion of the
Company, (ii) participation interest of at least 33% of the Company's annual
bonus plan, but no less than $15,000 the first year of his employment, (iii) a
monthly car allowance of $500, (iv) reimbursement of a maximum of $35,000 for
his moving expenses incurred in relocating from Cleveland to Houston, and (v)
reimbursement of his actual living expenses (up to $2,500 a month) incurred
during his relocation to Houston, Texas.
(2) As of December 21, 1995, Mr. Kazmer held 101,452 shares of restricted
common stock valued at $133,155.75 based on a closing price of $1.3125 on March
15, 1996. These shares vest over a period of four years at a rate of 25,363
per year. It is not anticipated that dividends will be paid on these shares.
In connection with the purchase of the restricted Common Stock, the Company
received a note from Mr. Kazmer in the amount of $15,000, which is secured by
the restricted stock, is due October 24, 1999, bears simple interest at a
variable rate equal to the minimum variable rate permissible to avoid imputed
interest, and is reflected as a decrease of stockholders' equity until paid.
(3) On January 31, 1995 the directors of the Company adopted a 1995 bonus plan
on behalf of the employees of the Company as follows: 20% of the Company's
operating income in excess of $150,000 for the first six months and 20% of the
Company's operating income in excess of $200,000 for the second six months
shall be paid to the Company's
26
<PAGE> 32
employees employed at the end of each such six-month period, the president of
the Company having the authority to allocate such excess operating income as he
decides in his discretion.
(4) Mr. Walker resigned as President and CEO in August, 1995. His separation
and release package included payment of his salary and benefits for one year
which is reported in the "All other compensation" column above.
STOCK OPTIONS
During 1995 the Company granted stock options as set forth below:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Number of Percent of total
Securities options/SARs
Underlying granted to Excercise or
Options/SARs employees in base price Expiration
Name granted fiscal year ($/Share) date
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Kevin A. Auton 8,454 50% 0.74 5/15/05
- --------------------------------------------------------------------------------
Bethany J. Pimentel 8,454 50% 0.74 5/15/05
- --------------------------------------------------------------------------------
</TABLE>
During 1995 the following options were exercised:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Value of
Number of unexercised
unexercised in-the-money
options/SARs options/SARs
Shares at FY-end(#) at FY-end(#)
acquired on Value realized exercisable/ exercisable/
Name exercise (#) ($) unexercisable unexercisable
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Maurice J. Walker 16,909 2,500 0 0
- --------------------------------------------------------------------------------
</TABLE>
27
<PAGE> 33
LONG-TERM INCENTIVE PLANS - AWARDS IN LAST FISCAL YEAR
None.
INTEREST OF MANAGEMENT AND OTHERS IN CERTAIN TRANSACTIONS
As described in Note 7 to the Financial Statements, the Company
granted warrants to certain directors and stockholders in return for their
personal guarantees which provide security for the Company's bank debts.
As described in Note 11 to the Financial Statements, the Company
purchases laboratory reagents from an affiliate at rates normally charged to a
third party.
It is the policy of the Company, which policy has been followed in the
past and is intended to be followed in the future, that any transactions with
Officers, Directors, or 5% shareholders shall be on terms no less favorable to
the Company than could be obtained from third parties.
PARENTS
The parents of the Company are its board of directors. No shareholder
of the Company owns sufficient stock to exercise control over the Company
through stock ownership.
28
<PAGE> 34
PRINCIPAL STOCKHOLDERS
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table describes Security Ownership of Beneficial Owners of more
than 5% of the Common Stock of the Company, as of March 31, 1996:
<TABLE>
<CAPTION>
Name and address Amount and nature Percent of
Title of Class of beneficial owner of beneficial owner class
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Common Carter Interests, Ltd. 173,568 8.0
5757 Memorial Drive
Houston, Texas 77007
Common David Lawson 115,676(1) 5.2
2039 Dryden
Houston, Texas 77030
Common TaKaRa Shuzo Co., Ltd. 222,902 10.3
Biotechnology Research Laboratories
SETA 3-4-1 Otsu
Shiga, 520-21, Japan
Common Baylor College of Medicine 177,540(2) 8.2
One Baylor Plaza
Houston, Texas 77030
Common Stephen J. Banks 50,726(2) 2.3
BCM Technologies, Inc.
1709 Dryden, Suite 901
Houston, Texas 77030
</TABLE>
(1) Mr. Lawson is deemed to be the beneficial owner of 115,676 shares of the
Company's Common Stock and holds options and warrants to acquire 10,484 shares
of Common Stock which are included in this total. Of the 115,676 shares,
52,455 shares are held in each of two trusts - the D.K. Lawson Trust and the
S.R. Lawson Trust.
(2) Mr. Banks is deemed to be the beneficial owner of 50,726 shares of the
Company's Common Stock, owned of record by BCM Technologies, Inc. Mr. Banks is
the President of BCM Technologies, Inc. which is a subsidiary of Baylor College
of Medicine.
29
<PAGE> 35
The following table describes the Security Ownership of the Directors, the
Chief Executive Officer, and the Directors and Executive Officers as a Group as
of March 31, 1996:
<TABLE>
<CAPTION>
Name and address Amount and nature Percent of
Title of Class of beneficial owner of beneficial owner class
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Common Baylor College of Medicine 177,540(1) 8.2
One Baylor Plaza
Houston, Texas 77030
Common Stephen J. Banks 50,726(1) 2.3
BCM Technologies, Inc.
1709 Dryden, Suite 901
Houston, Texas 77030
Common George Britton 48,186(2) 2.1
3272 Westheimer, Suite 3
Houston, Texas 77098
Common Vincent P. Kazmer 101,452 4.7
2161 Benjamin Circle
Hudson, Ohio 44236
Common David Lawson 115,676(3) 5.2
2039 Dryden
Houston, Texas 77030
Common Frank Vazquez 35,508(4) 1.6
4643 Wild Indigo #388
Houston, Texas 77027
Common Christine B. Powaser 9,455(5) 0.4
3006 Avanti Court
Pearland, TX 77584
Common Bethany J. Pimentel 9,454(6) 0.4
2341 Sunset Blvd.
Houston, TX 77005
Common Directors and Executive Officers as a Group 547,997(7) 25.0
9545 Katy Freeway, Suite 465
Houston, Texas 77024
</TABLE>
(1) Mr. Banks is deemed to be the beneficial owner of 50,726 shares of the
Company's Common Stock, owned of record by BCM Technologies, Inc. Mr. Banks is
the President of BCM Technologies, Inc. which is a subsidiary of Baylor College
of Medicine. Baylor College of Medicine holds 177,540 shares of the Company's
Common Stock.
30
<PAGE> 36
(2) Mr. Britton holds options and warrants to acquire 10,484 shares of Common
Stock which are included in this total.
(3) Mr. Lawson is deemed to be the beneficial owner of 115,676 shares of the
Company's Common Stock and holds options and warrants to acquire 10,484 shares
of Common Stock which are included in this total. Of the 115,676 shares,
52,455 shares are held in each of two trusts - the D.K. Lawson Trust and the
S.R. Lawson Trust.
(4) Mr. Vazquez holds options and warrants to acquire 1,691 shares of Common
Stock which are included in this total.
(5) Ms. Powaser holds options to acquire 4,382 shares of Common Stock which
are included in this total.
(6) Ms. Pimentel holds options to acquire 9,454 shares of Common Stock which
are included in this total.
(7) The Directors and Executive Officers as a group total 7 persons and hold
options and warrants to acquire 34,495 shares of Common Stock which are
included in this total.
31
<PAGE> 37
DESCRIPTION OF SECURITIES
The following description of the securities of the Company and certain
provisions of the Company's Certificate of Incorporation and Bylaws is a
summary and is qualified in its entirety by the provisions of the Certificate
of Incorporation and Bylaws, which have been filed as exhibits to the Company's
Registration Statement.
COMMON STOCK
The Company is authorized to issue 8 million shares of Common Stock,
$0.001 par value. As of the date of this Prospectus the Company had 2,210,225
shares of Common Stock issued and outstanding.
VOTING RIGHTS. Holders of the shares of Common Stock are entitled to
one vote per share on all matters submitted to a vote of the shareholders.
Shares of Common Stock do not have cumulative voting rights, which means that
the holders of a majority of the shares voting for the election of the board of
directors can elect all members of the board of directors.
DIVIDEND RIGHTS. Holders of record of shares of Common Stock are
entitled to receive dividends when and if declared by the board of directors
out of funds of the Company legally available therefor. The Company does not
anticipate paying dividends in the near future.
LIQUIDATION RIGHTS. Upon any liquidation, dissolution or winding up
of the Company, holders of shares of Common Stock are entitled to receive a pro
rata share of the assets of the company available for distribution to
shareholders, subject to the prior satisfaction of the liquidation rights of
the holders of outstanding shares of Preferred Stock.
PREEMPTIVE RIGHTS. Holders of Common Stock do not have any preemptive
rights to subscribe for or to purchase any stock, obligations or other
securities of the Company.
PREFERRED STOCK
The Company is authorized to issue 2 million shares of Preferred
Stock, $0.001 par value. The preferences, rights and attributes of the
Preferred Stock, which may be set forth in series, shall be determined by the
board of directors at such times as series are authorized to be issued. As of
the date of this Prospectus, the Company has not issued any shares of its
authorized Preferred Stock.
REGISTRAR AND TRANSFER AGENT
Liberty Bank and Trust Company of Oklahoma City serves as the transfer
agent and registrar of the Company.
DISSENTER'S RIGHTS
Under current Delaware law, a shareholder is afforded dissenters'
rights which if properly exercised may require the corporation to repurchase
its shares. Dissenters' rights commonly arise in extraordinary transactions
such as mergers, consolidations, reorganizations, substantial asset sales,
liquidating distributions, and certain amendments to the company's certificate
of incorporation.
INDEMNIFICATION
Under Delaware corporation law, a corporation is authorized to
indemnify officers, directors, employees and agents who are made or threatened
to be made parties to any civil, criminal, administrative or investigative suit
or proceeding by reason of the fact that they are or were a director, officer,
employee or agent of the corporation or are or were acting in the same capacity
for another entity at the request of the corporation. Such indemnification
includes expenses (including attorneys' fees), judgments, fines and amounts
paid in settlement actually and reasonably incurred by such persons if they
acted in good faith and
32
<PAGE> 38
in a manner reasonably believed to be in or not opposed to the best interests
of the corporation or, with respect to any criminal action or proceeding, if
they had no reasonable cause to believe their conduct was unlawful. In the
case of any action or suit by or in the right of the corporation against such
persons, the corporation is authorized to provide similar indemnification,
provided that, should any such persons be adjudged to be liable for negligence
or misconduct in the performance of duties to the corporation, the court
conducting the proceeding must determine that such persons are nevertheless
fairly and reasonably entitled to indemnification. To the extent any such
persons are successful on the merits in defense of any such action, suit or
proceeding, Delaware law provides that they shall be indemnified against
reasonable expenses, including attorney fees. A corporation is authorized to
advance anticipated expenses for such suits or proceedings upon an undertaking
by the person to whom such advance is made to repay such advances if it is
ultimately determined that such person is not entitled to be indemnified by the
corporation. Indemnification and payment of expenses provided by Delaware law
are not deemed exclusive of any other rights by which an officer, director,
employee or agent may seek indemnification or payment of expenses or may be
entitled to under any by-law, agreement, or vote of shareholders or
disinterested directors. In such regard, a Delaware corporation is empowered
to, and may, purchase and maintain liability insurance on behalf of any person
who is or was a director, officer, employee or agent of the corporation. As a
result of such corporation law, the Company may, at some future time, be
legally obligated to pay judgments (including amounts paid in settlement) and
expenses in regard to civil or criminal suits or proceedings brought against
one or more of its officers, directors, employees or agents, as such, with
respect to matters involving the proposed Merger or, should the Merger be
effected, matters that occurred prior to the Merger with respect to Lark.
DISCLOSURE OF COMMISSION POSITION ON INDEMNIFICATION FOR SECURITIES ACT
LIABILITIES
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the Company pursuant to the foregoing provisions, or otherwise, the
Company has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Securities Act of 1933 and is, therefore, unenforceable.
33
<PAGE> 39
LARK TECHNOLOGIES, INC.
Index to Financial Statements for the
Years ended December 31, 1994 and 1995
and Three Months ended March 31, 1995 and 1996
Contents
<TABLE>
<CAPTION>
Page
----
<S> <C>
Report of Independent Auditors . . . . . . . . . . . . . . . . . . . . . . . . . F-2
Financial Statements
Balance Sheets as of December 31, 1995, and March 31, 1996 (unaudited) . F-3
Statements of Operations for the
Years Ended December 31, 1994 and 1995
and Three Months Ended March 31, 1995 and 1996 (unaudited) . . . . . F-4
Statements of Stockholders' Equity for the
Years Ended December 31, 1994 and 1995
and Three Months Ended March 31, 1995 and 1996 (unaudited) . . . . . F-5
Statements of Cash Flows for the
Years Ended December 31, 1994 and 1995
and Three Months Ended March 31, 1995 and 1996 (unaudited) . . . . . F-6
Notes to Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . F-8
</TABLE>
F-1
<PAGE> 40
REPORT OF INDEPENDENT AUDITORS
Lark Technologies, Inc.
Board of Directors and Stockholders
We have audited the accompanying balance sheet of Lark Technologies, Inc. (the
"Company") as of December 31, 1995, and the related statements of operations,
stockholders' deficit, and cash flows for each of the two years in the period
ended December 31, 1995. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Lark Technologies, Inc. at
December 31, 1995, and the results of its operations and cash flows for each of
the two years in the period ended December 31, 1995, in conformity with
generally accepted accounting principles.
ERNST & YOUNG LLP
Houston, Texas
March 5, 1996,
except for Note 7,
as to which the date
is April 13, 1996.
F-2
<PAGE> 41
LARK TECHNOLOGIES, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
December 31, March 31,
1995 1996
----------- -----------
ASSETS (Audited) (Unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 75,996 $ 52,003
Accounts receivable 424,663 732,739
Due from related parties 25,891 7,068
Work-in-process 89,150 129,151
Prepaid expenses 22,634 14,183
----------- -----------
Total current assets 638,334 935,144
Property and equipment, net 249,864 305,651
Other assets, net 115,683 112,877
----------- -----------
Total assets $ 1,003,881 $ 1,353,672
=========== ===========
LIABILITIES AND STOCKHOLDERS' (DEFICIT) EQUITY
Current liabilities:
Notes payable $ 319,596 $ 334,920
Debentures payable 45,000 45,000
Accounts payable 277,039 312,811
Accrued expenses 220,080 294,554
Customer deposits 209,183 213,116
Deposits from related parties 97,441 97,441
----------- -----------
Total current liabilities 1,168,339 1,297,842
Commitments and contingencies
Stockholders' equity
Preferred stock, $0.001 par value:
Authorized shares - 2,000,000
None issued and outstanding
Common stock, $0.001 par value:
Authorized shares - 8,000,000
Issued and outstanding shares - 2,118,361 2,118 2,118
Additional paid-in capital 1,418,626 1,418,626
Amounts due from Shareholder (15,000) (15,000)
Accumulated deficit (1,570,202) (1,349,914)
----------- -----------
Total stockholders' (deficit) equity (164,458) 55,830
----------- -----------
Total liabilities and stockholders' (deficit) equity $ 1,003,881 $ 1,353,672
=========== ===========
</TABLE>
See accompanying notes to the financial statements.
F-3
<PAGE> 42
LARK TECHNOLOGIES, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Years ended Three months ended
December 31, March 31,
---------------------------- ----------------------------
1994 1995 1995 1996
------------ ------------ ------------ ------------
(Audited) (Unaudited)
<S> <C> <C> <C> <C>
Revenue:
Laboratory Services $ 2,248,247 $ 2,518,255 $ 838,625 $ 1,206,795
Costs and expenses:
Costs of services 797,612 1,210,618 297,965 423,445
Sales, general and administrative 1,317,439 1,745,389 363,727 518,529
Research and development 21,051 48,521 0 34,994
------------ ------------ ------------ ------------
Total costs and expenses 2,136,102 3,004,528 661,692 976,968
------------ ------------ ------------ ------------
Operating income (loss) 112,145 (486,273) 176,933 229,827
Other income and (expense):
Interest expense (18,012) (19,167) (4,429) (10,528)
Interest income 3,248 5,606 2,804 989
Gain/(Loss) on disposal of assets (2,789) 300 300 0
------------ ------------ ------------ ------------
Total other (expense) (17,553) (13,261) (1,325) (9,540)
------------ ------------ ------------ ------------
Income (loss) before income taxes 94,592 (499,535) 175,608 220,288
Income taxes 0 0 0 0
------------ ------------ ------------ ------------
Net income (loss) $ 94,592 $ (499,535) $ 175,608 $ 220,288
============ ============ ============ ============
Net income (loss) per share $ 0.05 $ (0.25) $ 0.09 $ 0.10
============ ============ ============ ============
Weighted average number of common
or equivalent shares outstanding 2,000,000 2,024,552 2,000,000 2,144,950
============ ============ ============ ============
</TABLE>
See accompanying notes to the financial statements.
F-4
<PAGE> 43
Lark Technologies, Inc.
Statements of Stockholders' (Deficit) Equity
<TABLE>
<CAPTION>
Common Stock
----------------------------- Additional
Shares At Par Paid-in Deferred
Outstanding Value Capital Compensation
--------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance at December 31, 1993 2,046,000 $2,005 $1,403,624 ($6,000)
Common stock issued for 4,000 0 200 --
compensation
Repurchase and retirement (50,000) (5) (2,495) 2,500
of common stock
Amortization of deferred -- -- -- 1,750
compensation for
common stock issued
Legal Fees - Pref C Issue -- -- (84) --
Net Income -- -- -- --
------------------------- -----------------------------
Balance at December 31, 1994 2,000,000 2,000 1,401,245 (1,750)
Common stock issued for 16,909 17 2,483 --
compensation
Common stock issued for 101,452 101 14,899 --
note due from shareholder
Amortization of deferred -- -- -- 1,750
compensation for
common stock issued
Net Loss -- -- -- --
------------------------- -----------------------------
Balance at December 31, 1995 2,118,361 2,118 1,418,626 0
Net Income (unaudited)
------------------------- -----------------------------
Balance at March 31, 1996 (unaudited) 2,118,361 $2,118 $1,418,626 $ 0
========================= =============================
<CAPTION>
Amounts
due from Accumulated
Shareholders Deficit Total
------------------------------------------------
<S> <C> <C> <C>
Balance at December 31, 1993 $0 ($1,165,259) $234,370
Common stock issued for -- -- 200
compensation
Repurchase and retirement -- -- 0
of common stock
Amortization of deferred -- -- 1,750
compensation for
common stock issued
Legal Fees - Pref C Issue -- -- (84)
Net Income -- 94,592 94,592
------------------------------------------------
Balance at December 31, 1994 0 (1,070,667) 330,828
Common stock issued for -- -- 2,500
compensation
Common stock issued for (15,000) -- 0
note due from shareholder
Amortization of deferred -- -- 1,750
compensation for
common stock issued
Net Loss -- (499,535) (499,535)
------------------------------------------------
Balance at December 31, 1995 (15,000) (1,570,202) (164,458)
Net Income (unaudited) 220,288 220,288
------------------------------------------------
Balance at March 31, 1996 (unaudited) ($15,000) ($1,349,914) $55,830
================================================
</TABLE>
See accompanying notes to the financial statements.
F-5
<PAGE> 44
LARK TECHNOLOGIES, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Years ended Three months ended
December 31, March 31,
------------------------ ------------------------
1994 1995 1995 1996
---------- ---------- ---------- ----------
(Audited) (Unaudited)
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net income (loss) $ 94,592 ($ 499,535) $ 175,608 $ 220,288
Adjustments to reconcile net income (loss)
to net cash provided by (used in)
operating activities
Depreciation and amortization 168,856 186,512 42,312 44,145
Compensation expense recognized for
issuance of common stock 1,750 4,250 0 0
(Gain) Loss on disposal of assets 2,789 (300) 0 0
Changes in operating assets and liabilities:
Accounts receivable (269,116) 37,299 (43,292) (329,846)
Work-in-process (38,328) (21,456) (3,387) (40,001)
Prepaid expenses (35,586) 39,346 14,191 8,451
Other assets (9,605) (114,542) (1,593) (4,943)
Due to/from related parties (62,365) 80,476 18,330 25,891
Accounts payable 42,467 148,873 12,130 35,772
Accrued expenses 119,294 78,846 (102,827) 74,474
Deposits 74,328 23,983 99,328 18,634
---------- ---------- ---------- ----------
Net cash provided by (used in) operating activities 89,076 (36,247) 210,800 52,865
INVESTING ACTIVITIES
Purchases of property and equipment (188,610) (44,558) (32,396) (92,183)
Proceeds from disposal of property and equipment 4,785 300 0 0
---------- ---------- ---------- ----------
Net cash used in investing activities (183,825) (44,258) (32,396) (92,183)
FINANCING ACTIVITIES
Proceeds from issuance of notes payable 0 200,000 50,000 29,521
Principal payments on notes payable (36,834) (44,532) (10,342) (14,197)
Proceeds from issuance of common stock 200 0 0 0
Repayment of debentures payable (40,000) (25,000) 0 0
Costs of issuing preferred stock (84) 0 0 0
---------- ---------- ---------- ----------
Net cash (used in) provided by financing activities (76,718) 130,468 39,658 15,324
---------- ---------- ---------- ----------
Net (decrease) increase in cash and cash equivalents (171,467) 49,962 218,062 (23,993)
Cash and cash equivalents at beginning of period 197,501 26,034 26,034 75,996
---------- ---------- ---------- ----------
Cash and cash equivalents at end of period $ 26,034 $ 75,996 $ 244,096 $ 52,003
========== ========== ========== ==========
</TABLE>
See accompanying notes to the financial statements.
F-6
<PAGE> 45
LARK TECHNOLOGIES, INC.
STATEMENTS OF CASH FLOWS (CONTINUED)
<TABLE>
<CAPTION>
Years ended Three months ended
December 31, March 31,
------------------------ ------------------------
1994 1995 1995 1996
---------- ---------- ---------- ----------
(Audited) (Unaudited)
<S> <C> <C> <C> <C>
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the period for:
Interest $ 20,315 $ 19,167 $ 5,429 $ 9,963
Noncash investing activities:
Long-term debt issued
to acquire property and equipment $ -- $ 80,479 $ 50,000 $ 29,521
Noncash financing activities:
Issuance of common stock
for services rendered $ -- $ 2,500 $ -- $ --
Issuance of common stock
for note due from shareholder $ -- $ 15,000 $ -- $ --
</TABLE>
See accompanying notes to the financial statements.
F-7
<PAGE> 46
LARK TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS
(INFORMATION PERTAINING TO THE THREE MONTHS
ENDING MARCH 31, 1995 AND 1996, IS UNAUDITED).
1. ORGANIZATION
Lark Technologies, Inc., a Delaware corporation (the "Company"), was
formed on November 16, 1994, as a wholly owned subsidiary of SuperCorp Inc.
("SuperCorp"), for the purpose of merging with Lark Sequencing Technologies,
Inc., a Delaware corporation ("Sequencing"), as outlined in a merger agreement
("Merger Agreement") entered into by SuperCorp and Sequencing on October 28,
1994. The Merger Agreement was approved by SuperCorp on September 5, 1995, and
by the stockholders of Sequencing on September 12, 1995. As a consequence of
the merger, all of the shares of common and preferred stock of Sequencing were
exchanged for 1,800,000 shares of Common Stock of the Company with a par value
of $0.001 per share, and the 200,000 shares of Common Stock of the Company held
by SuperCorp were distributed to the shareholders of SuperCorp. The Company
has succeeded to all of the business previously undertaken by Sequencing. Lark
provides specialized laboratory services for DNA sequencing to biotechnology
researchers.
2. ACCOUNTING POLICIES
Basis of Presentation
For financial reporting purposes, the merger of the Company and
Sequencing has been accounted for as a recapitalization of Sequencing, and the
historical financial statements of Sequencing prior to the merger became the
financial statements of the Company. The financial statements of Sequencing
have been retroactively restated to give effect to the merger transaction as if
it had occurred on January 1, 1994.
Interim Financial Information (Unaudited)
The accompanying financial information as of March 31, 1996, and for
the three months ended March 31, 1995 and 1996, is unaudited and, in the
opinion of management, reflects all adjustments that are necessary for a fair
presentation of financial position as of such dates and results of operations
and cash flows for the periods then ended. All such adjustments are of a
normal and recurring nature. Results for the interim periods are not
necessarily indicative of results for the year.
Revenue Recognition
The Company recognizes revenue and related profit upon the completion
of laboratory service projects. For laboratory service projects under
government indefinite delivery contracts, revenue and related profit is
recognized as projects are completed. Costs incurred on partially completed
projects are recorded as work-in-process.
Cash and Cash Equivalents
The Company considers all highly liquid debt instruments purchased
with an original maturity of three months or less to be cash equivalents.
F-8
<PAGE> 47
LARK TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Property and Equipment
Property and equipment are recorded at cost. Depreciation and
amortization expense is recorded over the estimated useful lives of the assets.
The straight-line method is used by the Company in providing depreciation and
amortization for financial reporting purposes. The cost of repairs and
maintenance is expensed as incurred. The estimated useful lives of assets are
as follows:
Laboratory equipment 5 years
Furniture and fixtures 5 years
Computer equipment 30 months to 5 years
Leasehold improvements 3 years
Other Assets
Other assets consist of the costs of patents and license rights in
connection with the patent license agreement discussed in Note 9 and deferred
offering costs. The costs of patents and license agreements are amortized on a
straight-line basis over the life of the related license agreement (two years)
or the life of the patents. Deferred offering costs will be netted against the
proceeds of a rights offering anticipated to be completed in the second quarter
of 1996.
Accounting for Long-Lived Assets
In March 1995, the FASB issued Statement No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of,
which requires impairment losses to be recorded on long-lived assets used in
operations when indicators of impairment are present and the undiscounted cash
flows estimated to be generated by those assets are less than the assets'
carrying amount. Statement 121 also addresses the accounting for long-lived
assets that are expected to be disposed of. The Company will adopt Statement
121 in the first quarter of 1996, and, based on current circumstances, does not
believe the effect of adoption will be material.
Stock Options
The Company follows Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" and related interpretations in
accounting for its employee stock options and expects to continue doing so.
Earnings Per Share
Net income (loss) per share was calculated by dividing the Company's
net income (loss) for the period by the weighted average number of common stock
and dilutive common stock equivalents (stock options and warrants) outstanding.
F-9
<PAGE> 48
LARK TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
Research & Development
Costs incurred in connection with research and development activities
are expensed as incurred. These consist of direct and indirect costs
associated with specific research and development projects.
3. CONCENTRATION OF RISK
The Company provides laboratory services primarily to major
researchers in the United States, Europe, and through a stockholder in Japan.
The Company generally requires a deposit of approximately 50% prior to
commencing work on laboratory service projects. The Company performs ongoing
credit evaluations of its customers and generally does not require additional
collateral on its laboratory services.
The Company primarily invests its excess cash in deposits with local
banks and, at times, these deposits may exceed federally insured limits. The
Company selects depository institutions based upon management's review of the
financial stability of the institutions.
4. ACCOUNTS RECEIVABLE
Included in accounts receivable at December 31, 1994 and 1995 are
approximately $64,000 and $55,070, respectively, of accounts receivable due
from government contracts of which approximately $19,000 and $28,000,
respectively, is unbilled and none is retainage. The Company has no allowance
for doubtful accounts at December 31, 1994 and 1995 as management believes all
accounts receivable are collectible.
5. PROPERTY AND EQUIPMENT
Property and equipment consisted of the following at December 31,
1995:
<TABLE>
<S> <C>
Laboratory equipment $ 588,156
Furniture and fixtures 48,945
Computer equipment 161,111
Leasehold improvements 27,062
---------
825,273
Less accumulated depreciation and amortization (575,409)
---------
Property and equipment, net $ 249,864
=========
</TABLE>
F-10
<PAGE> 49
LARK TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
6. ACCRUED EXPENSES
Accrued expenses consisted of the following at December 31, 1995:
<TABLE>
<S> <C>
Accrued bonuses $ 8,424
Accrued commissions 60,912
Accrued severance pay 57,750
Other (individually less than 5% of current liabilities) 92,994
----------
$ 220,080
==========
</TABLE>
7. DEBENTURES AND NOTES PAYABLE
At December 31, 1995, and March 31, 1996, the Company had two notes
payable to a bank with interest of prime plus 2% (11.5% at December 31, 1995)
and collateralized by accounts receivable, property, and equipment. The notes
were due on demand and if no demand was made, the notes were payable in monthly
installments of $3,799 and $1,400 plus interest. Any unpaid principal on the
notes was due at maturity on March 31, 1996 and January 6, 1998. Amounts
outstanding under these notes were $30,479 and $89,117, respectively, at
December 31, 1995, and $57,200 and $77,720, respectively, as of March 31, 1996.
At December 31, 1995, and March 31, 1996, the Company had a revolving
line of credit with a bank. The terms of the line of credit provide for maximum
borrowings of $250,000, of which $200,000 was outstanding at December 31, 1995,
and March 31, 1996. Borrowings bear interest at the bank's prime rate plus 2%
and the line of credit expired March 31, 1996. The line of credit was secured
by qualified accounts receivable of the Company and an aggregate of $125,000 of
the line of credit is guaranteed by five individuals. Of the five individuals,
two are directors of the Company and all are stockholders. In return for the
guarantees, each guarantor was granted a warrant to purchase 3,382 shares of
Common Stock, exercisable at $0.1479 per share, and expiring on December 31,
1996.
On April 26, 1996, the Company repaid the demand note payable which
matured on March 31, 1996, and renewed the line of credit with a reduced
maximum borrowing limit of $200,000. Contemporaneously with the renewal of the
line of credit, the maturity of the demand note payable of $77,720 which
originally matured January 6, 1998, was accelerated to January 2, 1997. The
line of credit and demand note are guaranteed by certain stockholders of the
Company. In exchange for the guarantees, the Company issued to each guarantor,
on a pro-rata basis, warrants to purchase a total of 106,533 shares of
unregistered common stock of the Company at an exercise price of $0.1479. The
warrants expire December 31, 1997. The Company has the right to repurchase
half of the warrants at $0.1479 if the Company has arranged for the release of
the personal guarantees by August 15, 1996.
At December 31, 1995, and March 31, 1996, the Company had subordinated
redeemable debentures payable of $45,000 that matured on March 31, 1996, with
interest at 8% per year, payable quarterly. The Company has offered to renew
the subordinated debentures. As of May 2, 1996, the Company has received
renewal agreements from the holders of $20,000 of these subordinated
debentures. The other subordinated debenture holder has not demanded payment.
F-11
<PAGE> 50
LARK TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
8. FEDERAL INCOME TAX
At December 31, 1995, the Company had net operating loss carryforwards
of $1,575,000 for income tax purposes that expire in 2000 through 2010. These
net operating loss carryforwards may be restricted as a result of ownership
changes resulting from issuance of common stock.
Deferred income taxes reflect the net tax effects of temporary
differences between the carrying amounts of assets and liabilities for
financial reporting purposes and the amounts used for income tax purposes. A
valuation allowance has been recorded against the Company's net deferred tax
assets because of the Company's cumulative loss position.
Significant components of the Company's deferred tax liability and
deferred tax assets are as follows at December 31, 1995:
<TABLE>
<S> <C>
Deferred tax liability:
Accumulated depreciation ($23,996)
Deferred tax assets:
Accumulated amortization 10,606
Net operating loss carryforwards 535,374
----------
Total deferred tax assets 545,980
Valuation allowance for net deferred tax assets (521,984)
----------
Net deferred tax assets 23,996
----------
Net deferred taxes $ -
==========
</TABLE>
The reconciliation of income tax computed at the US federal statutory
tax rates to income tax expense is:
<TABLE>
<CAPTION>
1994 1995
Amount Percent Amount Percent
-------------------------------------------------------------------
<S> <C> <C> <C> <C>
Tax at U.S. statutory rate $ 32,161 34% ($169,842) 34%
Change in valuation allowance (31,465) (33%) 105,458 (21%)
Other (696) (1%) 64,384 (13%)
--------------------------- --------------------------
$0 0% $0 0%
=========================== ==========================
</TABLE>
F-12
<PAGE> 51
LARK TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
9. COMMITMENTS AND CONTINGENCIES
Stock Option Plan
The Company has an incentive stock option plan for directors, certain
key employees, and others as determined by the directors. The Company has
reserved 90,968 shares of common stock for issuance under the stock option
plan. The price at which shares may be purchased under the option plan shall
not be less than the greater of (a) 100% of the fair market value of the shares
on the date the option is granted or (b) the aggregate par value of such shares
on the date the option is granted. Common stock options granted are generally
exercisable at a rate of 25% on the date of grant with the remaining 75%
exercisable at a rate of 1/36th per month thereafter.
Stock option activity was as follows:
<TABLE>
<CAPTION>
Shares Option Price
Under Option Per Share
------------ -------------
<S> <C> <C>
Outstanding at
December 31, 1993 33,478 $ 0.15 - 4.73
Granted 34,663 $ 0.15 - 0.74
Exercised 1,691 $ 0.15
Cancelled 27,899 $ 0.47 - 4.73
-----------
Outstanding at
December 31, 1994 38,551 $ 0.15 - 0.74
Granted 16,908 $ 0.15 - 0.74
Exercised 16,909 $ 0.15
Cancelled 8,623 $ 0.47 - 0.74
-----------
Options outstanding at December 31, 1995 29,927 $ 0.15 - 0.74
===========
Options available for future grants 61,041
===========
</TABLE>
F-13
<PAGE> 52
LARK TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Warrants
At December 31, 1995, the Company had outstanding warrants for
purchase of its common stock as follows:
<TABLE>
<CAPTION>
Shares Exercise
Issuable Price Expiration
---------- --------- ----------
<S> <C> <C>
16,910 $ 0.15 1996
10,822 $ 0.59 1996
--------
27,732
========
</TABLE>
F-14
<PAGE> 53
LARK TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Leases
The Company leases certain real estate for its corporate office and
branch office in the United Kingdom, as well as certain equipment under
noncancelable lease agreements which expire at various dates.
Future minimum payments under these operating leases are as follows:
<TABLE>
<CAPTION>
Year ending December 31,
<S> <C>
1996 $147,864
1997 153,779
1998 159,930
1999 123,510
---------
$585,082
=========
</TABLE>
Total rent expense for all operating leases for the years ended December 31,
1994 and 1995 was approximately $117,000 and $125,000, respectively.
Sales Commitments
During December 1994, the Company entered into a contract with
one customer to perform DNA sequencing services totaling approximately
$1,000,000. Viable starting materials were not shipped to the Company until
October 1995. Consequently, the Company did not commence its performance under
this contract or receive any revenues from this contract until October 1995.
As of December 31, 1995, approximately $737,000 remain on this contract.
Patent License Agreement
Effective June 15, 1995, the Company entered into an exclusive patent
sub-license agreement with another biotech company. The agreement grants to
the Company an exclusive license to certain "Licensed Patent Rights" of this
third party and requires the Company to perform research and development
efforts as defined in the agreement. The Company is required to pay the third
party a royalty of 25% to 50% of all consideration the Company receives as a
result of sales of licensed products and licensed processes or a sub-license or
assignment of the Company's rights under the agreement. If the Company does
not meet the research and development milestones as defined in the agreement,
or is unable to successfully commercialize the results of the research and
development efforts, the agreement will terminate. Otherwise, the agreement
will terminate upon the dissolution of the Company or the expiration of the
"Licensed Patent Rights". The agreement may also be terminated by the Company
with 60 days written notice to the third party.
Sponsored Research Contract and Consulting Agreement
The Company entered into a sponsored research contract on August 1,
1995, whereby the Company is required to fund certain research and development
efforts being performed by Baylor College of Medicine ("Baylor"). The research
and development is being performed pursuant to the Patent License Agreement
described in this Note. The agreement expires on July 31, 1996, and requires
the Company to pay Baylor a total of $53,739 in monthly installments over the
term of the contract. The agreement may be extended for an additional term by
F-15
<PAGE> 54
LARK TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
mutual written consent. As of December 31, 1995, the remaining obligation
under the terms of the contract was $31,282.
The Company entered into a related consulting agreement with the
Principal Investigator at Baylor. This agreement expires on August 1, 1996,
and requires the Company to pay the researcher a total of $24,000 in monthly
installments over the term of the contract. The agreement may be extended for
an additional term by mutual written consent. As of December 31, 1995, the
remaining obligation under the terms of the contract was $14,000.
Other Commitments
In September 1995, the Company entered into a two year employment
agreement with the new President and CEO of the Company providing for a base
salary and bonus arrangement. The Company has guaranteed a minimum bonus of
$15,000 for the first year. Additionally, the President and CEO entered into a
Restricted Stock Purchase Agreement whereby the President and CEO has purchased
101,452 shares of restricted Common Stock at $.1479 per share, subject to the
right of the Company to repurchase a declining portion of such shares should
the President and CEO terminate his employment with the Company prior to the
expiration of 48 months. In connection with the purchase of the restricted
Common stock, the Company received a note from the President and CEO in the
amount of $15,000. The note is secured by the restricted stock, is due October
24, 1999, bears simple interest at a variable rate equal to the minimum
variable rate permissible to avoid imputed interest and is reflected as an
increase of stockholders' deficit until paid.
10. 401(K) PLAN
Effective January 1992, the Company adopted an employee 401(k)
retirement plan. Qualified employees may contribute up to 15% of their gross
pay to the plan. Employee contributions are limited to amounts established by
law. The Company may make matching contributions to the plan as determined by
the Board of Directors subject to the limitations under the Internal Revenue
Code. The Company made contributions of $5,600 to the Plan in 1994 and no
contributions in 1995.
11. RELATED PARTY TRANSACTIONS
The Company has appointed TaKaRa Shuzo Co. Ltd. (TaKaRa), a major
stockholder of the Company, as the Company's exclusive representative in Japan,
South Korea, Taiwan, Oceania and Singapore for a ten-year period commencing
June 25, 1990. The Company has the right to terminate TaKaRa's exclusivity. The
Company has also agreed to use its best efforts to purchase reagents and
biologics it uses in the performance of services from TaKaRa or PanVera
Corporation, TaKaRa's distributor.
TaKaRa has purchased laboratory services, at rates normally charged to
third-parties, from the Company totaling approximately $61,000 and $1,200 in
1994 and 1995, respectively. The Company has also provided laboratory
services, at rates normally charged to third-parties, to affiliates of
stockholders of the Company totaling approximately $67,000 and $107,642 in 1994
and 1995, respectively.
The Company purchased approximately $9,000 and $13,970 of reagents and
biologics from PanVera during 1994 and 1995, respectively. The Company
purchased approximately $41,000 and $134,481 of laboratory supplies and other
services from affiliates of stockholders of the Company in 1994 and 1995,
respectively.
F-16
<PAGE> 55
LARK TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
TaKaRa periodically advances the Company funds to be applied against
future laboratory services purchased by TaKaRa. At December 31, 1995, the
unearned balance of TaKaRa deposits was $97,441.
The due from related parties at December 31, 1995, is comprised
primarily of amounts due from affiliates of stockholders of the Company for
laboratory services rendered to those affiliates.
12. MAJOR CUSTOMERS
During 1994 and 1995, approximately 44% and 29%, respectively, of the
Company's total revenue was with one customer; of which 91% and 99%,
respectively, of those sales were to a division of the customer located in the
United Kingdom.
13. SEGMENT INFORMATION
The proportion of the Company's sales to customers in foreign
countries is as follows:
<TABLE>
<CAPTION>
1994 1995
------ ------
<S> <C> <C>
Japan 3% 0%
European Community 44% 42%
</TABLE>
Sales to foreign companies are denominated in U.S. dollars.
14. DISTRIBUTION AGREEMENT
Effective January 1, 1996, the Company announced a new service,
Differential Display ("DD"). The Company entered into a distribution agreement
with a third party which provided the Company with a significant amount of
specialized training and scientific knowledge relating to the DD services.
The Company agreed to purchase supplies and equipment related to this service
exclusively from the third party. The DD services will be sold on an exclusive
basis by the third party and its distributor, but Lark can sell the DD services
through its own sales force worldwide. The third party will pay the Company an
agreed upon transfer price for DD services that the third party or its
distributor sells. The Company will pay the third party an agreed upon royalty
for DD services that the Company sells.
F-17
<PAGE> 56
PART II
INDEMNIFICATION OF DIRECTORS AND OFFICERS
There is set forth in the Prospectus under "Description of Securities -
Indemnification" a description of the laws of Delaware with respect to the
indemnification of officers, directors, and agents of corporations incorporated
in Delaware.
The Company has charter provisions and bylaw provisions that insure or
indemnify, to the full extent allowed by the laws of Delaware, directors,
officers, employees, agents or persons serving in similar capacities in other
enterprises at the request of the Company.
To the extent of the indemnification rights provided by the Delaware
statutes and provided by the Company's charter and bylaws, and to the extent of
the Company's abilities to meet such indemnification obligations, the officers,
directors and agents of the Company would be beneficially affected.
OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following are all expenses of this issuance and distribution.
There are no underwriting discounts or commissions.
<TABLE>
<S> <C>
Item Amount
---- ------
Registration fees $650(1)
Subscription agent's fee $12,634(1)
Printing and engraving $7,700(1)
Postage $5,000(1)
Legal $20,000(1)
Accounting $10,000(1)
</TABLE>
(1) Estimate
RECENT SALES OF UNREGISTERED SECURITIES
On October 24, 1995 the Company sold 101,452 shares of its Common
Stock to its new president, Vincent P. Kazmer. On October 31, 1995 the
Company sold 16,909 shares of its Common Stock to its prior President, Maurice
Walker, upon exercise of his existing stock options.
In May 1996 the Company issued 91,863 shares to two directors and 7
shareholders who exercised existing options and warrants.
The securities were not registered under the Securities Act of 1933 in
reliance upon the exemption from registration provided by Section 4(2) of the
Securities Act and by Regulation D, Rule 506 of the Commission.
II-1
<PAGE> 57
EXHIBITS
Filed as part of this Form SB-2 Registration Statement or incorporated
by reference are the following exhibits. There are no financial statement
schedules required by Regulation S-B.
Exhibit Item
------------
2.1(1) The Agreement of Merger of November 18, 1994, between Lark
Technologies, Inc. and Lark Sequencing Technologies, Inc.
providing for the merger of Lark Sequencing Technologies,
Inc. into the Company.
3.1(7) Bylaws of Lark Technologies, Inc., as amended.
3.2(7) The Certificate of Incorporation of Lark Technologies, Inc.,
as amended.
5.1(6) Opinion of Thomas J. Kenan, Esq., as to the legality of the
securities covered by the Form SB-2 Registration Statement.
10.1(1) 1990 Stock Option Plan adopted by the Company.
10.2(1) Agreement between Lark Sequencing Technologies, Inc. and
MedProbe, A.S.
10.3(1) Agreement of 12-28-94 between Lark Sequencing Technologies,
Inc. and SmithKline Beecham PLC.
10.4(1) Patent License Agreement between Sennes Drug Innovations,
Inc. and Lark Sequencing Technologies, Inc.
10.5(2) Form of Warrant Agreement entered into by and between the
Company and each of George Britton, David Lawson, Peter
Boatright, Homer Peterson, and Larry Peterson.
10.7(3) Employment Agreement entered into by and between the Company
and Vincent Kazmer.
10.8(3) Restricted Stock Purchase Agreement entered into by and
between the Company and Vincent Kazmer.
10.9(3) Promissory Note entered into by and between the Company and
Vincent Kazmer.
10.11(4) Sponsored Research Contract entered by and between the
Company and Baylor College of Medicine.
10.12(4) Consulting Agreement entered into by and between the Company
and Olivia Pereira-Smith.
10.13(5) Agreement entered into by and between the Company and
Genomyx Corporation.
10.14(5) The Portion of the Minutes of the Executive Session of the
Meeting of the Board of Directors of the Company held
December 8, 1995, establishing and defining the bonus plan
for 1996 under which the chief executive officer, chief
financial officer, and other employees may receive cash
bonuses as part of their compensation.
10.15(1) Minutes of the Meeting of the Board of Directors of the
Company held January 31, 1995, establishing and defining the
bonus plan for 1995 under which the chief executive officer,
chief financial officer, and other employees may receive
cash bonuses as part of their compensation.
II-2
<PAGE> 58
23.1(6) Consent of Thomas J. Kenan, Esq., to the reference to him as
an attorney who has passed upon certain information
contained in the Prospectus.
23.2(6) Consent of Ernst & Young LLP.
(1) Incorporated by reference from the Company's Registration Statement on
Form S-4 dated August 14, 1995, Commission File No. 33-90424. The exhibit
numbering system used in Form S-4 differed from that used in this Form SB-2
(8a, 6b, 6c, 6d-1, 6f, and 6e, respectively).
(2) Incorporated by reference from the Company's Form 10-QSB for the quarterly
period ended June 30, 1995.
(3) Incorporated by reference from the Company's Form 10-QSB for the quarterly
period ended September 30, 1995.
(4) Incorporated by reference from the Company's Form 10-KSB for the fiscal
year ended December 31, 1995.
(5) Incorporated by reference from the Company's Form 10-QSB for the quarterly
period ended March 31, 1996.
(6) Filed herewith.
(7) Filed herewith. The exhibit numbering system used in the Company's
Registration Statement on Form S-4 dated August 14, 1995, Commission File No.
33-90424, differed from that used in this form SB-2 (2d and 2c, respectively).
II-3
<PAGE> 59
UNDERTAKINGS
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 ("the Act") may be permitted to directors, officers and
controlling persons of the Company pursuant to the foregoing provisions, or
otherwise, the Company has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities
(other than the payment by the Company of expenses incurred or paid by a
director, officer or controlling person of the Company in the successful
defense of any action, suit or proceeding) is asserted by such director,
officer or controlling person in connection with the securities being
registered, the Company will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of 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.
II-4
<PAGE> 60
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 Houston, Texas on June
5, 1996.
Lark Technologies, Inc.
By: /s/ Vincent P. Kazmer
------------------------------
Vincent P. Kazmer
President
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated.
Date: June 5, 1996 /s/ Stephen J. Banks
-------------------------------
Stephen J. Banks
Chairman of the Board
Date: June 5, 1996 /s/ Vincent P. Kazmer
-------------------------------
Vincent P. Kazmer
President, CEO, Director
Date: June 5, 1996 /s/ George M. Britton
-------------------------------
George M. Britton
Director
Date: June 5, 1996 /s/ David A. Lawson
-------------------------------
David A. Lawson
Director
Date: June 5, 1996 /s/ Frank Vazquez
-------------------------------
Frank Vazquez
Director and Vice Chairman
Date: June 5, 1996 /s/ Christine Powaser
-------------------------------
Christine Powaser
Chief Financial Officer
II-5
<PAGE> 61
INDEX TO EXHIBITS
EXHIBIT
NUMBER DESCRIPTION
------- -----------
3.1 Bylaws of Lark Technologies, Inc., as amended.
3.2 The Certificate of Incorporation of Lark Technologies, Inc.,
as amended.
5.1 Opinion of Thomas J. Kenan, Esq., as to the legality of the
securities covered by the Form SB-2 Registration Statement.
23.1 Consent of Thomas J. Kenan, Esq., to the reference to him as
an attorney who has passed upon certain information
contained in the Prospectus.
23.2 Consent of Ernst & Young LLP.
<PAGE> 1
Exhibit 3.1
BY-LAWS
OF
LARK TECHNOLOGIES, INC.
ARTICLE I
OFFICES
SECTION 1.1. Registered Office. The registered office of the
corporation in the State of Delaware shall be in the City of Wilmington, County
of New Castle, and the name of its registered agent shall be The Corporation
Trust Company.
SECTION 1.2. Other Offices. The corporation may also have offices at
such other places both within and without the State of Delaware as the Board of
Directors may from time to time determine or the business of the corporation
may require.
ARTICLE II
MEETINGS OF STOCKHOLDERS
SECTION 2.1. Place of Meeting. All meetings of stockholders for the
election of directors shall be held at such place, either within or without the
State of Delaware, as shall be designated from time to time by the Board of
Directors and stated in the notice of the meeting.
SECTION 2.2. Annual Meeting. The annual meeting of stockholders
shall be held at such date and time as shall be designated from time to time by
the Board of Directors and stated in the notice of the meeting.
SECTION 2.3. Voting List. The officer who has charge of the stock
ledger of the Corporation shall prepare and make, at least ten days before
every meeting of stockholders, a complete list of the stockholders entitled to
vote at the meeting, arranged in alphabetical order, and showing the address of
each stockholder and the number of shares registered in the name of each
stockholder. Such list shall be open to the examination of any stockholder,
for any purpose germane to the meeting, during ordinary business hours, for a
period of at least ten days prior to the meeting, either at a place within the
city where the meeting is to be held, which place shall be specified in the
notice, or if not so specified, at the place where the meeting is to be held.
The list shall also be produced and kept at the time and place of the meeting
during the whole time thereof, and may be inspected by any stockholder who is
present.
SECTION 2.4. Special Meeting. Special meetings of the stockholders,
for any purpose or purposes, unless otherwise prescribed by statute or by the
Certificate of Incorporation, may be called by the President or by the Board of
Directors or by written order of a majority of the directors and shall be
called by the President or the Secretary at the request in writing of
stockholders owing a majority in the amount of the entire capital stock of the
corporation issued and outstanding and entitled to vote. Such request shall
state the purposes of the proposed meeting. The President or directors so
calling, or the stockholders so requesting, any such meeting shall fix the time
and any place, either within or without the State of Delaware, as the place for
holding such meeting.
SECTION 2.5. Notice of Meeting. Written notice of the annual, and
each special meeting of stockholders, stating the time, place and purpose or
purposes thereof, shall be given to each stockholder entitled to vote thereat,
not less than ten nor more than 60 days before the meeting.
<PAGE> 2
SECTION 2.6. Quorum. The holders of a majority of the stock issued
and outstanding and entitled to vote thereat, present in person or represented
by proxy, shall constitute a quorum at any meeting of stockholders for the
transaction of business except as otherwise provided by statute or by the
Certificate of Incorporation. Notwithstanding the other provisions of the
Certificate of Incorporation or these by-laws, the holders of a majority of the
shares of capital stock entitled to vote thereat, present in person or
represented by proxy, whether or not a quorum is present, shall have power to
adjourn the meeting from time to time, without notice othern than announcement
at the meeting, until a quorum shall be present or represented. If the
adjournment is for more than 30 days, or if after the adjournment a new record
date is fixed for the adjourned meeting, a notice of the adjourned meeting
shall be given to each stockholder of record entitled to vote at the meeting.
At such adjourned meeting at which a quorum shall be present or represented any
business may be transacted which might have been transacted at the meeting as
originally notified.
SECTION 2.7. Voting. When a quorum is present at any meeting of the
stockholders, the vote of the holders of a majority of the stock having voting
power present in person or represented by proxy shall decide any question
brought before such meeting, unless the question is one upon which, by express
provision of the statutes, of the Certificate of Incorporation or of these
by-laws, a different vote is required, in which case such express provision
shall govern and control the decision of such question. Every stockholder
having the right to vote shall be entitled to vote in person, or by proxy
appointed by an instrument in writing subscribed by such stockholder, bearing a
date not more than three years prior to voting, unless such instrument provides
for a longer period, and filed with the Secretary of the corporation before, or
at the time of the meeting. If such instrument shall designate two or more
persons to act as proxies, unless such instrument shall provide the contrary, a
majority of such persons present at any meeting at which their powers
thereunder are to be exercised shall have and may exercise all the powers of
voting or giving consents thereby conferred, or if only one be present, then
such powers may be exercised by that one; or, if an even number attend and a
majority do not agree on any particular issue, each proxy so attending shall be
entitled to exercise such powers in respect of the same portion of the shares
as he is of the proxies representing such shares.
SECTION 2.8. Consent of Stockholders. Whenever the vote of
stockholders at a meeting thereof is required or permitted to be taken for or
in connection with any corporate action by any provision of the statutes, the
meeting and vote of stockholders may be dispensed with, if all the stockholders
who would have been entitled to vote upon the action if such meeting were held,
shall consent in writing to such corporate action being taken; or on the
written consent of the holders of stock having not less than the minimum
percentage of the vote required by statute for the proposed corporate action,
and provided that prompt notice must be given to all stockholders of the taking
of corporate action without a meeting and by less than unanimous written
consent.
SECTION 2.9. Voting of Stock of Certain Holders. Shares standing in
the name of another corporation, domestic or foreign, may be voted by such
officer, agent or proxy as the by-laws of such corporation may prescribe, or in
the absence of such provision, as the Board of Directors of such corporation
may determine. Shares standing in the name of a deceased person may be voted
by the executor or administrator of such deceased person, either in person or
by proxy. Shares standing in the name of a guardian, conservator or trustee
may be voted by such fiduciary, either in person or by proxy, but no such
fiduciary shall be entitled to vote shares held in such fiduciary capacity
without a transfer of such shares into the name of such fiduciary. Shares
standing in the name of a receiver may be voted by such receiver. A
stockholder whose shares are pledged shall be entitled to vote such shares,
unless in the transfer by the pledgor on the books of the corporation, he has
expressly empowered the pledgee to vote thereon, in which case only the
pledgee, or his proxy, may represent the stock and vote thereon.
SECTION 2.10. Treasury Stock. The corporation shall not vote,
directly or indirectly, shares of its own stock owned by it; and such shares
shall not be counted in determining the total number of outstanding shares.
SECTION 2.11. Fixing Record Date. The Board of Directors may fix in
advance a date, not exceeding 60 days preceding the date of any meeting of
stockholders, or the date for payment of any dividend or distribution, or
<PAGE> 3
stockholder whose shares are pledged shall be entitled to vote such shares,
unless in the transfer by the pledgor on the books of the corporation, he has
expressly empowered the pledgee to vote thereon, in which case only the
pledgee, or his proxy, may represent the stock and vote thereon.
<PAGE> 4
the date for the allotment of rights, or the date when any change, or
conversion or exchange of capital stock shall go into effect, or a date in
connection with obtaining a consent, as a record date for the determination of
the stockholders entitled to notice of, and to vote at, any such meeting and
any adjournment thereof, or entitled to receive payment of any such dividend or
distribution, or to receive any such allotment of rights, or to exercise the
rights in respect of any such change, conversion or exchange of capital stock,
or to give such consent, and in such case such stockholders and only such
stockholders as shall be stockholders of record on the date so fixed shall be
entitled to such notice of, and to vote at, any such meeting and any
adjournment thereof, or to receive payment of dividend or distribution, or to
receive such allotment of rights, or to exercise such rights, or to give such
consent, as the case may be, notwithstanding any transfer of any stock on the
books of the corporation after any such record date fixed as aforesaid.
ARTICLE III
BOARD OF DIRECTORS
SECTION 3.1. Powers. The business and affairs of the corporation
shall be managed by its Board of Directors, which may exercise all such powers
of the corporation and do all such lawful acts and things as are not by statute
or by the Certificate of Incorporation or by these by-laws directed or required
to be exercised or done by the stockholders.
SECTION 3.2. Number, Election and Term. The number of directors
which shall constitute the whole Board shall be not less than one. Such number
of directors shall be as specified in the corporation's Certificate of
Incorporation, or, if not so specified in the Certificate of Incorporation,
such number of directors shall from time to time be fixed and determined by the
directors and shall be set forth in the notice of any meeting of stockholders
held for the purpose of electing directors. The directors shall be elected at
the annual meeting of stockholders, except as provided in Section 3.3, and each
director elected shall hold office until his successor shall be elected and
shall qualify. Directors need not be residents of Delaware or stockholders of
the corporation.
SECTION 3.3. Vacancies, Additional Directors and Removal From Office.
Unless otherwise provided in the Certificate of Incorporation or these By-laws:
(1) vacancies and newly created directorships resulting from any increase in
the authorized number of directors elected by all of the stockholders having
the right to vote as a single class may be filled by a majority of the
directors then in office, although less than a quorum, or by a sole remaining
director; (2) whenever the holders of any class or classes of stock or series
thereof are entitled to elect one or more directors by the Certificate of
Incorporation, vacancies and newly created directorships of such class or
classes or series may be filled by a majority of the directors elected by such
class or classes or series thereof then in office, or by a sole remaining
director so elected. Unless otherwise provided in the corporation's
Certificate of Incorporation, any director may be removed either for or without
cause at any special meeting of stockholders duly called and held for such
purpose.
SECTION 3.4. Regular Meeting. A regular meeting of the Board of
Directors shall be held each year, without other notice than this by-law, at
the place of, and immediately following, the annual meeting of stockholders;
and other regular meetings of the Board of Directors shall be held each year,
at such time and place as the Board of Directors may provide, by resolution,
either within or without the State of Delaware, without other notice than such
resolution.
SECTION 3.5. Special Meeting. A special meeting of the Board of
Directors may be called by the Chairman of the Board or by the President and
shall be called by the Secretary on the written request of any two directors.
The Chairman or President so calling, or the directors so requesting, any such
meeting shall fix the time and any place, either within or without the State of
Delaware, as the place for holding such meeting.
SECTION 3.6. Notice of Special Meeting. Written notice of special
meetings of the Board of Directors shall be given to each director at least 48
hours prior to the time of such meeting. Any director may waive notice of
<PAGE> 5
any meeting. The attendance of a director at any meeting shall constitute a
waiver of notice of such meeting, except where a director attends a meeting for
the purpose of objecting to the transaction of any business because the meeting
is not lawfully called or convened. Neither the business to be transacted at,
nor the purpose of, any special meeting of the Board of Directors need be
specified in the notice or waiver of notice of such meeting, except that notice
shall be given of any proposed amendment to the by-laws if it is to be adopted
at any special meeting or with respect to any other matter where notice is
required by statute.
SECTION 3.7. Quorum. A majority of the Board of Directors shall
constitute a quorum for the transaction of business at any meeting of the Board
of Directors, and the act of a majority of the directors present at any meeting
at which there is a quorum shall be the act of the Board of Directors, except
as may be otherwise specifically provided by statute, by the Certificate of
Incorporation or by these by-laws. If a quorum shall not be present at any
meeting of the Board of Directors, the directors present thereat may adjourn
the meeting from time to time, without notice other than announcement at the
meeting, until a quorum shall be present.
SECTION 3.8. Action Without Meeting. Unless otherwise restricted,
any action by the Certificate of Incorporation or these by-laws, any action
required or permitted to be taken at any meeting of the Board of Directors, or
of any committee thereof as provided in Article IV of these by-laws, may be
taken without a meeting, if a written consent thereto is signed by all members
of the Board or of such committee, as the case may be, and such written consent
is filed with the minutes of proceedings of the Board or committee.
Unless otherwise restricted by the Certificate of Incorporation,
subject to the requirement for notice of meetings, members of the Board of
Directors, or members of any committee designated by the Board of Directors,
may participate in a meeting of such Board of Directors or committee, as the
case may be, by means of a conference telephone or similar communications
equipment by means of which all persons participating in the meeting can hear
each other, and participating in such a meeting shall constitute presence in
person at such meeting, except where a person participates in the meeting for
the express purpose of objecting to the transaction of any business on the
ground that the meeting is not lawfully called or convened.
SECTION 3.9. Compensation. Directors, as such, shall not be entitled
to any stated salary for their services unless voted by the stockholders or the
Board of Directors; but by resolution of the Board of Directors, a fixed sum
and expenses of attendance, if any, may be allowed for attendance at each
regular or special meeting of the Board of Directors or any meeting of a
committee of directors. No provision of these by-laws shall be construed to
preclude any director from serving the corporation in any other capacity and
receiving compensation therefor.
ARTICLE IV
COMMITTEE OF DIRECTORS
SECTION 4.1. Designation, Powers and Name. The Board of Directors
may, by resolution passed by a majority of the whole Board, designate one or
more committees, including, if they shall so determine, an Executive Committee,
each such committee to consist of two or more of the directors of the
corporation. The committee shall have and may exercise such of the powers of
the Board of Directors in the management of the business and affairs of the
corporation as may be provided in such resolution. The committee may authorize
the seal of the corporation to be affixed to all papers which may require it.
The Board of Directors may designate one or more directors as alternate members
of any committee, who may replace any absent or disqualified member at any
meeting of such committee. In the absence or disqualification of any member of
such committee or committees, the member or members thereof present at any
meeting and not disqualified from voting, whether or not he or they constitute
a quorum, may unanimously appoint another member of the Board of Directors to
act at the meeting in the place of any such absent or disqualified member.
Such committee or committees shall have such name or names and such limitations
of authority as may be determined from time to time by resolution adopted by
the Board of Directors.
SECTION 4.2. Minutes. Each committee of directors shall keep regular
minutes of its proceedings and report the same to the Board of Directors when
required.
<PAGE> 6
SECTION 4.3 Compensation. Members of special or standing committees
may be allowed compensation for attending committee meetings, if the Board of
Directors shall so determine.
ARTICLE V
NOTICE
SECTION 5.1. Methods of Giving Notice. Whenever under the provisions
of the statutes, the Certificate of Incorporation or these by-laws, notice is
required to be given to any director, member of any committee or stockholder,
such notice shall be in writing and delivered personally or mailed to such
director, member or stockholder; provided that in the case of a director or a
member of any committee such notice may be given orally or by telephone or
telegram. If mailed, notice to a director, member of a committee or
stockholder shall be deemed to be given when deposited in the United States
mail first class in a sealed envelope, with postage thereon prepaid, addressed,
in the case of a stockholder, to the stockholder at the stockholder's address
as it appears on the records of the corporation or, in the case of a director
or a member of a committee, to such person at his business address. If sent by
telegraph, notice to a director or member of a committee shall be deemed to be
given when the telegram, so addressed, is delivered to the telegraph company.
SECTION 5.2. Written Waiver. Whenever any notice is required to be
given under the provisions of the statutes, the Certificate of Incorporation or
these by-laws, a waiver thereof in writing, signed by the person or persons
entitled to said notice, whether before or after the time stated therein, shall
be deemed equivalent thereto.
ARTICLE VI
OFFICERS
SECTION 6.1. Officers. The officers of the corporation shall be a
Chairman of the Board and a Vice Chairman of the Board (if such offices are
created by the Board), a President, one or more Vice Presidents, any one or
more of which may be designated Executive Vice President or Senior Vice
President, a Secretary and Treasurer. The Board of Directors may by resolution
create the office of Vice Chairman of the Board and define the duties of such
office. The Board of Directors may appoint such other officers and agents,
including Assistant Vice Presidents, Assistant Secretaries and Assistant
Treasurers, as it shall deem necessary, who shall hold their offices for such
terms and shall exercise such powers and perform such duties as shall be
determined by the Board. Any two or more offices may be held by the same
person. No officer shall execute, acknowledge, verify or countersign any
instrument on behalf of the corporation in more than one capacity, if such
instrument is required by law, by these by-laws or by any act of the
corporation to be executed, acknowledged, verified or countersigned by two or
more officers. The Chairman and Vice Chairman of the Board shall be elected
from among the directors. With the foregoing exceptions, none of the other
officers need be a director, and non of the officers need be a stockholder of
the corporation.
SECTION 6.2. Election and Term of Office. The officers of the
corporation shall be elected annually by the Board of Directors at its first
regular meeting held after the annual meeting of the stockholders or as soon
thereafter as conveniently possible. Each officer shall hold office until his
successor shall have been chosen and shall have qualified or until his death or
the effective date of his resignation or removal, or until he shall cease to be
a director in the case of the Chairman and Vice Chairman.
SECTION 6.3. Removal and Resignation. Any officer or agent elected
or appointed by the Board of Directors may be removed without cause by the
affirmative vote of a majority of the Board of Directors whenever, in its
judgment, the best interests of the corporation shall be served thereby, but
such removal shall be without prejudice to the contractual rights, if any, of
the person so removed. Any officer may resign at any time by giving written
notice to the corporation. Any such resignation shall take effect at the date
of the receipt of such notice or at
<PAGE> 7
any later time specified therein, and unless otherwise specified therein, the
acceptance of such resignation shall not be necessary to make it effective.
SECTION 6.4. Vacancies. Any vacancy occurring in any office of the
corporation by death, resignation, removal or otherwise, may be filled by the
Board of Directors for the unexpired portion of the term.
SECTION 6.5. Salaries. The salaries of all officers and agents of
the corporation shall be fixed by the Board of Directors or pursuant to its
direction; and no officer shall be prevented from receiving such salary by
reason of his also being a director.
SECTION 6.6. Chairman of the Board. The Chairman of the Board (if
such office is created by the Board) shall preside at all meetings of the Board
of Directors or of the stockholders of the corporation. In the Chairman's
absence, such duties shall be attended to by the Vice Chairman of the Board.
The Chairman shall formulate and submit to the Board of Directors or the
Executive Committee matters of general policy for the corporation and shall
perform such other duties as usually appertain to the office or as may be
prescribed by the Board of Directors or the Executive Committee.
SECTION 6.7. President. The President shall be the chief executive
officer of the corporation and, subject to the control of the Board of
Directors, shall in general supervise and control the business and affairs of
the corporation. In the absence of the Chairman of the Board or the Vice
Chairman of the Board (if such offices are created by the Board), the President
shall preside at all meetings of the Board of Directors and of the
stockholders. He may also preside at any such meeting attended by the Chairman
or Vice Chairman of the Board if he is so designated by the Chairman, or in
the Chairman's absence by the Vice Chairman. He shall have the power to
appoint and remove subordinate officers, agents and employees, except those
elected or appointed by the Board of Directors. The President shall keep the
Board of Directors and the Executive Committee fully informed and shall consult
them concerning the business of the corporation. He may sign with the
Secretary or any other officer of the corporation thereunto authorized by the
Board of Directors, certificates for shares of the corporation and any deeds,
bonds, mortgages, contracts, checks, notes, drafts or other instruments which
the Board of Directors has authorized to be executed, except in cases where the
signing and execution thereof has been expressly delegated by these by-laws or
by the Board of Directors to some other officer or agent of the corporation, or
shall be required by law to be otherwise executed. He shall vote, or give a
proxy to any other officer of the corporation to vote, all shares of stock of
any other corporation standing in the name of the corporation and in general he
shall perform all other duties normally incident to the office of President and
such other duties as may be prescribed by the stockholders, the Board of
Directors or the Executive Committee from time to time.
SECTION 6.8. Vice Presidents. In the absence of the President, or in
the event of his inability or refusal to act, the Executive Vice President (or
in the event there shall be no Vice President designated Executive Vice
President, any Vice President designated by the Board) shall perform the duties
and exercise the powers of the President. Any Vice President may sign, with
the Secretary or Assistant Secretary, certificates for shares of the
corporation. The Vice Presidents shall perform such other duties as from time
to time may be assigned to them by the President, the Board of Directors or the
Executive Committee.
SECTION 6.9. Secretary. The Secretary shall (a) keep the minutes of
the meetings of the stockholders, the Board of Directors and committees of
directors; (b) see that all notices are duly given in accordance with the
provisions of these by-laws and as required by law; (c) be custodian of the
corporate records and of the seal of the corporation, and see that the seal of
the corporation or a facsimile thereof is affixed to all certificates for
shares prior to the issue thereof and to all documents, the execution of which
on behalf of the corporation under its seal is duly authorized in accordance
with the provisions of these by-laws; (d) keep or cause to be kept a register
of the post office address of each stockholder which shall be furnished by such
stockholder; (e) sign with the President, or an Executive Vice President or
Vice President, certificates for shares of the corporation, the issue of which
shall have been authorized by resolution of the Board of Directors; (f) have
general charge of the stock transfer books of the
<PAGE> 8
corporation; and (g) in general, perform all duties normally incident to the
office of Secretary and such other duties as from time to time may be assigned
to him by the President, the Board of Directors or the Executive Committee.
SECTION 6.10. Treasurer. If required by the Board of Directors, the
Treasurer shall give a bond for the faithful discharge of his duties in such
sum and with such surety or sureties as the Board of Directors shall determine.
He shall (a) have charge and custody of and be responsible for all funds and
securities of the corporation; receive and give receipts for monies due and
payable to the corporation from any source whatsoever and deposit all such
moneys in the name of the corporation in such banks, trust companies or other
depositories as shall be selected in accordance with the provisions of Section
7.3 of these by-laws; (b) prepare, or cause to be prepared, for submission at
each regular meeting of the Board of Directors, at each annual meeting of the
stockholders, and at such other times as may be required by the Board of
Directors, the President or the Executive Committee, a statement of financial
condition of the corporation in such detail as may be required; and (c) in
general, perform all the duties incident to the office of Treasurer and such
other duties as from time to time may be assigned to him by the President, the
Board of Directors or the Executive Committee.
SECTION 6.11. Assistant Secretary or Treasurer. The Assistant
Secretaries and Assistant Treasurers shall, in general, perform such duties as
shall be assigned to them by the Secretary or the Treasurer, respectively, or
by the President, the Board of Directors or the Executive Committee. The
Assistant Secretaries and Assistant Treasurers shall, in the absence of the
Secretary or Treasurer, respectively, perform all functions and duties which
such absent officers may delegate, but such delegation shall not relieve the
absent officer from the responsibilities and liabilities of his office. The
Assistant Secretaries may sign, with the President or a Vice President,
certificates for shares of the corporation, the issue of which shall have been
authorized by a resolution of the Board of Directors. The Assistant Treasurers
shall respectively, if required by the Board of Directors, give bonds for the
faithful discharge of their duties in such sums and with such sureties as the
Board of Directors shall determine.
ARTICLE VII
CONTRACTS, CHECKS AND DEPOSITS
SECTION 7.1. Contracts. Subject to the provisions of Section 6.1,
the Board of Directors may authorize any officer, 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 authority may be general or confined
to specific instances.
SECTION 7.2. Checks, etc. All checks, demands, drafts or other
orders for the payment of money, notes or other evidences of indebtedness
issued in the name of the corporation, shall be signed by such officer or
officers or such agent or agents of the corporation, and in such manner, as
shall be determined by the Board of Directors.
SECTION 7.3. Deposits. All funds of the corporation not otherwise
employed shall be deposited from time to time to the credit of the corporation
in such banks, trust companies or other depositories as the Board of Directors
may select.
ARTICLE VIII
CERTIFICATES OF STOCK
SECTION 8.1. Issuance. Each stockholder of this corporation shall be
entitled to a certificate or certificates showing the number of shares of stock
registered in his name on the books of the corporation. The certificates shall
be in such form as may be determined by the Board of Directors, shall be issued
in numerical order and shall be entered in the books of the corporation as they
are issued. They shall exhibit the holder's name and number of shares and
shall be signed by the President or a Vice President and by the Secretary or an
Assistant Secretary. If any certificate is countersigned (1) by a transfer
agent other than the corporation or any employee of the corporation, or (2) by
a registrar other than the corporation or any employee of the corporation, any
other signature on the certificate may be a facsimile. If the corporation
shall be authorized to issue more than one class of
<PAGE> 9
stock or more than one series of any class, the designations, preferences and
relative participating, optional or other special rights of each class of stock
or series thereof and the qualifications, limitations or restrictions of such
preferences and rights shall be set forth in full or summarized on the face or
back of the certificate which the corporation shall issue to represent such
class of stock; provided that, except as otherwise provided by statute, in lieu
of the foregoing requirements there may be set forth on the face or back of the
certificate which the corporation shall issue to represent such class or series
of stock, a statement that the corporation will furnish to each stockholder who
so requests the designations, preferences and relative, participating, optional
or other special rights of each class of stock or series thereof and the
qualifications, limitations or restrictions of such preferences and rights.
All certificates surrendered to the corporation for transfer shall be canceled
and no new certificates shall be issued until the former certificate for a like
number of shares shall have been surrendered and canceled, except that in the
case of a lost, stolen, destroyed or mutilated certificate a new one may be
issued therefor upon such terms and with such indemnity, if any, to the
corporation as the Board of Directors may prescribe. Certificates shall not be
issued representing fractional shares of stock.
SECTION 8.2. Lost Certificates. The Board of Directors may direct a
new certificate or certificates to be issued in place of any certificate or
certificates theretofore issued by the corporation alleged to have been lost,
stolen or destroyed, upon the making of an affidavit of that fact by the person
claiming the certificate of stock to be lost, stolen or destroyed. When
authorizing such issue of a new certificate or certificates, the Board of
Directors may, in its discretion and as a condition precedent to the issuance
thereof, require the owner of such lost, stolen or destroyed certificate or
certificates, or his legal representative, to advertise the same in such manner
as it shall require or to give the corporation a bond in such sum as it may
direct as indemnity against any claim that may be made against the corporation
with respect to the certificate or certificates alleged to have been lost,
stolen or destroyed, or both.
SECTION 8.3. Transfers. Upon surrender to the corporation or the
transfer agent of the corporation of a certificate for shares duly endorsed or
accompanied by proper evidence of succession, assignment or authority to
transfer, it shall be the duty of the corporation to issue a new certificate to
the person entitled thereto, cancel the old certificate and record the
transaction upon its books. Transfers of shares shall be made only on the
books of the corporation by the registered holder thereof, or by his attorney
thereunto authorized by power of attorney and filed with the Secretary of the
corporation or the Transfer Agent.
SECTION 8.4. Registered Stockholders. The corporation shall be
entitled to treat the holder of record of any share or shares of stock as the
holder in fact thereof and, accordingly, shall not be bound to recognize any
equitable or other claim to or interest in such share or shares on the part of
any other person, whether or not it shall have express or other notice thereof,
except as otherwise provided by the laws of the State of Delaware.
ARTICLE IX
DIVIDENDS
SECTION 9.1. Declaration. Dividends upon the capital stock of the
corporation, subject to the provisions of the Certificate of Incorporation, if
any, may be declared by the Board of Directors at any regular or special
meeting, pursuant to law. Dividends may be paid in cash, in property or in
shares of capital stock, subject to the provisions of the Certificate of
Incorporation.
SECTION 9.2. Reserve. Before payment of any dividend, there may be
set aside out of any funds of the corporation available for dividends such sum
or sums as the Board of Directors from time to time, in their absolute
discretion, think proper as a reserve or reserves to meet contingencies, or for
equalizing dividends, or for repairing or maintaining any property of the
corporation, or for such other purpose as the Board of Directors shall think
conducive to the interest of the corporation, and the Directors may modify or
abolish any such reserve in the manner in which it was created.
<PAGE> 10
ARTICLE X
INDEMNIFICATION
SECTION 10.1. Third Party Actions. The corporation shall indemnify
any person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative (other than an action by or in the
right of the corporation) by reason of the fact that he is or was a director,
officer, employee or agent of the corporation, or is or was serving at the
request of the corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise, against
expenses (including attorneys' fees), judgments, fines and amounts paid in
settlement actually and reasonably incurred by him in connection with such
action, suit or proceeding if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful. The termination of any
action, suit or proceeding by judgment, order, settlement or conviction, or
upon a plea of nolo contenders or its equivalent, shall not, of itself, create
a presumption that the person did not act in good faith in a manner which he
reasonably believed to be in or not opposed to the best interests of the
corporation, and, with respect to any criminal action or proceeding, had
reasonable cause to believe that his conduct was unlawful.
SECTION 10.2. Actions by or in the Right of the Corporation. The
corporation shall indemnify any person who was or is a party or is threatened
to be made a party to any threatened, pending or completed action or suit by or
in the right of the corporation to procure a judgment in its favor by reason of
the fact that he is or was a director, officer, employee or agent of the
corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise against expenses (including attorneys' fees)
actually and reasonably incurred by him in connection with the defense or
settlement of such action or suit of he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
corporation and except that no indemnification shall be made in respect of any
claim, issue or matter as to which such person shall have been adjudged to be
liable to the corporation unless and only to the extent that the Court of
Chancery or the court in which such action or suit was brought shall determine
upon application that, despite the adjudication of liability but in view of all
the circumstances of the case, such person is fairly and reasonably entitled to
indemnity for such expenses which the Court of Chancery or such other court
shall deem proper.
SECTION 10.3. Determination of Conduct. The determination that a
director, officer, employee or agent has met the applicable standard of conduct
set forth in Sections 10.1 and 10.2 (unless indemnification is ordered by a
court) shall be made (1) by the Board of Directors by a majority vote of a
quorum consisting of directors who were not parties to such action, suite or
proceeding, or (2) if such quorum is not obtainable, or even if obtainable a
quorum of disinterested directors so directs, by independent legal counsel in a
written opinion, or (3) by the stockholders.
SECTION 10.4. Payment of Expenses in Advance. Expenses incurred in
defending a civil or criminal action, suit or proceeding shall be paid by the
corporation in advance of the final disposition of such action, suit or
proceeding upon receipt of an undertaking by or on behalf of the director,
officer, employee or agent to repay such amount if it shall ultimately be
determined that he is not entitled to be indemnified by the corporation as
authorized in this Article X.
SECTION 10.5. Definitions. For purposes of this Article X,
references to "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 who
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 Article X with respect to the
<PAGE> 11
resulting or surviving corporation as he would have with respect to such
constituent corporation if its separate existence had continued. For purposes
of this Article X, references to "other enterprises" shall include employee
benefit plans; references to "fines" shall include any excise taxes assessed on
a person with respect to any employee benefit plan; and references to "serving
at the request of the corporation" shall include any service as a director,
officer, employee or agent of the corporation which imposes duties on, or
involves services by, such director, officer, employee, or agent with respect
to an employee benefit plan, its participants or beneficiaries; and a person
who acted in good faith and in a manner he reasonably believed to be in the
interest of the participants and beneficiaries of an employee benefit plan
shall be deemed to have acted in a manner "not opposed to the best interests of
the corporation" as referred to in this Article X.
SECTION 10.6. Indemnity Not Exclusive. The indemnification and
advancement of expenses provided by, or granted pursuant to, the other sections
of this Article X shall not be deemed exclusive of any other rights to which
those seeking indemnification or advancement of expenses may be entitled under
any other by-law, agreement, vote of stockholders or disinterested directors or
otherwise, both as to action in his official capacity and as to action in
another capacity while holding such office.
SECTION 10.7. Survival of Indemnification. The indemnification and
advancement of expenses provided by, or granted pursuant to, this section
shall, unless otherwise provided when authorized or ratified, continue as to a
person who has ceased to be a director, officer, employee or agent and shall
inure to the benefit of the heirs, executors and administrators of such a
person.
ARTICLE XI
MISCELLANEOUS
SECTION 11.1. Seal. The corporate seal shall have inscribed thereon
the name of the corporation, and the words "Corporate Seal, Delaware." The
seal may be used by causing it or a facsimile thereof to be impressed or
affixed or otherwise reproduced.
SECTION 11.2. Books. The books of the corporation may be kept
(subject to any provision contained in the statutes) outside the State of
Delaware at the offices of the corporation at Houston, Texas, or at such other
place or places as may be designated from time to time by the Board of
Directors.
ARTICLE XII
AMENDMENT
These by-laws may be altered, amended or repealed at any regular
meeting of the Board of Directors without prior notice, or at any special
meeting of the Board of Directors if notice of such alteration, amendment or
repeal be contained in the notice of such special meeting.
<PAGE> 1
Exhibit 3.2
CERTIFICATE OF INCORPORATION
LARK TECHNOLOGIES, INC.
First: The name of the Corporation is Lark Technologies, Inc.
Second: The registered office of the Corporation in the State of
Delaware is located at Corporation Trust Center, 1209 Orange Street in the City
of Wilmington, County of New Castle. The name and address of its registered
agent is The Corporation Trust Company, Corporation Trust Center, 1209 Orange
Street, Wilmington, County of New Castle, Delaware.
Third: The nature of the business, objects and purposes to be
transacted, promoted or carried on by the Corporation are:
To engage in any lawful act or activity for which
corporations may be organized under the General Corporation
Law of Delaware.
Fourth: The total number of shares of stock which the Corporation
shall have authority to issue is 10,000,000 of which 2,000,000 shares of the
par value of $.001 per share shall be designated Preferred Stock ("Preferred
Stock") and of which 8,000,000 shares of the par value of $.001 per share shall
be designated Common Stock ("Common Stock").
Shares of Preferred Stock may be issued from time to time in one or
more series, each such series to have distinctive serial designations, as shall
hereafter be determined in the resolution or resolutions providing for the
issue of such Preferred Stock from time to time adopted by the Board of
Directors pursuant to authority so to do, which is hereby vested in the Board
of Directors.
Each series of Preferred Stock
(a) may have such number of shares;
(b) may have such voting powers, full or limited, or may be without
voting powers; (c) may be subject to redemption at such time or times
and at such prices; (d) may be entitled to receive dividends (which
may be cumulative or noncumulative), at such rate or rates, on
such conditions, from such date or dates, and at such time, and payable in
preference to, or in such relation to, the dividends payable on any other class
or classes or series of stock;
(e) may have such rights upon the dissolution of, or upon any
distribution of the assets of, the Corporation; (f) may be made
convertible into, or exchangeable for, shares of any other class or
classes or of any other
series of the same or any other class or classes of stock of the Corporation at
such price or prices or at such rates of exchange, and with such adjustments;
(g) may be entitled to the benefit of a sinking fund or purchase fund
to be applied to the purchase or redemption of shares of such series in such
amount or amounts;
(h) may be entitled to the benefit of conditions and restrictions upon
the creation of indebtedness of the Corporation or any subsidiary, upon the
issue of any additional stock (including additional shares of such series or of
any other series) and upon the payment of dividends or the making of other
distributions on and the purchase redemption or other acquisition by the
Corporation or any subsidiary of any outstanding stock of the Corporation; and
(i) may have such other relative, participating, optional or other
special rights, and qualifications, limitations or restrictions thereof; all as
shall be stated in said resolution or resolutions providing for the issue of
such Preferred Stock. Except where otherwise set forth in the resolution or
resolutions adopted by the Board of Directors providing for the issue of any
series of Preferred Stock, the number of shares comprising such series may be
increased or decreased (but not below the number of shares then outstanding)
from time to time by like action of the Board of Directors.
<PAGE> 2
Shares of any series of Preferred Stock which have been redeemed
(whether through the operation of a sinking fund or otherwise) or purchased by
the Corporation, or which, if convertible or exchangeable, have been converted
into or exchanged for shares of stock of any other class or classes shall have
the status of authorized and unissued shares of Preferred Stock and may be
reissued as part of the series of which they were originally a part or may be
reclassified and reissued as part of a new series of Preferred Stock to be
created by resolution or resolutions of the Board of Directors or as part of
any other series of Preferred Stock, all subject to the conditions or
restrictions on issuance set forth in the resolution or resolutions adopted by
the Board of Directors providing for the issue of any series of Preferred Stock
and to any filing required by Law.
Except as otherwise provided by law or by the resolution or
resolutions of the Board of Directors providing for the issue of any series of
the Preferred Stock, the Common Stock shall have the exclusive right to vote
for the election of Directors and for all other purposes, each holder of the
Common Stock being entitled to one vote for each share held.
Subject to all of the rights of the Preferred Stock or any series
thereof, the holders of the Common Stock shall be entitled to receive, when, as
and if declared by the Board of Directors, out of funds legally available
therefor, dividends payable in cash, stock or otherwise.
Upon any liquidation, dissolution or winding up of the Corporation,
whether voluntary or involuntary, and after the holders of the Preferred Stock
of each series shall have been paid in full the amounts to which they
respectively shall be entitled, or a sum sufficient for such payment in full
shall have been set aside, the remaining net assets of the Corporation shall be
distributed pro rata to the holders of the Common Stock in accordance with
their respective rights and interests, to the exclusion of the holders of the
Preferred Stock.
Whenever the vote of stockholders at a meeting thereof is required or
permitted to be taken for or in connection with any corporate action, the
meeting and vote of stockholders may be dispensed with and such action may be
taken with the written consent of stockholders having not less than the minimum
percentage of the vote required by statute for the proposed corporate action,
provided that prompt notice shall be given to all stockholders of the taking of
corporate action without a meeting and by less than unanimous consent.
Fifth: The name and mailing address of the incorporator is:
Name Mailing Address
Thomas J. Kenan 201 Robert S. Kerr Avenue, Suite 800
Oklahoma City, Oklahoma 73102
Sixth: The Corporation is to have perpetual existence.
Seventh: Elections of directors need not be by written ballot unless
the by-laws of the Corporation shall so provide.
Eighth: A director of the Corporation shall not be personally liable
to the Corporation or its stockholders for monetary damages for breach of
fiduciary duty as a director, except for liability (i) for any breach of the
director's duty of loyalty to the Corporation or its stockholders, (ii) for
acts or omissions not in good faith or which involve intentional misconduct or
a knowing violation of law, (iii) under Section 174 of the General Corporation
Law of the State of Delaware, or (iv) for any transaction from which the
director derived an improper personal benefit. If the Delaware General
Corporation Law hereafter is amended to authorize the further elimination or
limitation of the liability of directors, then the liability of a director of
the Corporation, in addition to the limitation on personal liability provided
herein, shall be limited to the fullest extent permitted by the amended
Delaware General Corporation Law. Any repeal or modification of this paragraph
by the stockholders of the Corporation shall be prospective only and shall not
adversely affect any limitation on the personal liability of a director of the
Corporation existing at the time of such repeal or modification.
<PAGE> 3
Ninth: The Corporation shall indemnify, to the full extent
permitted by and in the manner permissible under the laws of the State of
Delaware, any person made, or threatened to be made, a party to an action or
proceeding, whether criminal, civil, administrative or investigative, by reason
of the fact that he, his testator or intestate is or was a director or officer
of the Corporation or any predecessor of the Corporation, or served any other
enterprise as a director or officer at the request of the Corporation or any
predecessor of the Corporation. The foregoing provisions of this Article Ninth
shall be deemed to be a contract between the Corporation and each director and
officer who serves in such capacity at any time while this Article is in
effect, and any repeal or modification thereof shall not affect any rights or
obligations then existing with respect to any state of facts then or
theretofore existing or any action, suit or proceeding theretofore or
thereafter brought based in whole or in part upon any such state of facts. The
foregoing rights of indemnification shall not be deemed exclusive of any other
rights to which any director or officer may be entitled apart from the
provisions of this Article. The Board of Directors in its discretion shall
have power on behalf of the Corporation to indemnify any person, other than a
director or officer, made a party to any action, suit or proceeding by reason
of the fact that he, his testator or intestate, is or was an employee of the
Corporation.
Tenth: The names and mailing addresses of the persons who are to
serve as directors of the Corporation until the first annual meeting of the
stockholders or until their successors are elected and qualify are:
Name Address
---- -------
John E. Adams 211 North Robinson, Suite 1600
Oklahoma City, Oklahoma 73102
THE UNDERSIGNED, being the incorporator hereinbefore named, for the
purpose of forming a corporation pursuant to the General Corporation Law of the
State of Delaware, does make this Certificate, hereby declaring and certifying
that this is my act and deed and the facts herein stated are true, and
accordingly have hereunto set my hand this 16th day of November, 1994.
/s/ Thomas J. Kenan
------------------------------
Thomas J. Kenan
<PAGE> 1
EXHIBIT 5.1
[FULLER, TUBB & POMEROY LETTERHEAD]
June 5, 1996
Vincent P. Kazmer, President
Lark Technologies, Inc.
9445 Katy Freeway, Suite 465
Houston, Texas 77024-9870
Dear Mr. Kazmer:
In connection with the preparation and filing of a Form SB-2 Registration
Statement under the Securities Act of 1933, to be filed by Lark Technologies,
Inc. for the purpose of registering 1,105,113 shares of its Common Stock ("the
Shares") to be offered to its shareholders of record on a date to be selected by
its board of directors prior to the effective date of the Registration
Statement, we have acted as counsel to Lark Technologies, Inc. ("the Company")
in the preparation of the Form SB-2 Registration Statement. We advise you that
we are familiar with the originals or copies, certified or otherwise identified
to our satisfaction, of documents, corporate records, or other instruments
relating to the incorporation of the Company and the authorization and the
issuance of the Shares, including the following:
(a) Certificate of Incorporation of the Company;
(b) By-laws of the Company;
(c) Corporate proceedings and filings reflected in the minutes of the
Company as certified to by the secretary of the Company;
(d) Specimen certificates representing the Shares; and
(e) The Form SB-2 Registration Statement relating to the Shares and to be
filed with the Securities and Exchange Commission under the Securities
Act of 1933, as amended.
Based solely on the foregoing, we are of the opinion that:
<PAGE> 2
Vincent P. Kazmer, President
May 6, 1996
Page 2
1. The Company has been duly incorporated and is validly existing as a
corporation in good standing under the laws of the State of Delaware.
2. The Company has corporate power to conduct the business now being
conducted and is duly authorized and in good standing to do business in
the jurisdiction in which its ownership of property or the conduct of
its business legally requires that authorization.
3. The Company has an authorized capitalization as set forth in the
Registration Statement, and the Shares conform to the statements
concerning them in the Registration Statements.
4. The Shares have been duly and validly authorized. The Shares, when
issued, will be legally issued, fully paid and non-assessable.
5. No consent, approval, authorization, or other order of any regulatory
authority or third party is legally required for the valid issuance of
the Shares other than the order making effective the registration of the
Shares, which order must be issued by the Securities and Exchange
Commission, and other than similar action to be taken by the state
securities regulatory agencies of states which require registration of,
or filings with respect to, the Shares in those states.
6. The consummation of the offering and sale of the Shares as contemplated
in the Registration Statements will not result in a breach of any of the
terms and provisions of, or constitute a default under, any notes,
indenture, mortgage, deed of trust, or other agreement or instrument to
which the Company to its knowledge is now a party, or the Certificate of
Incorporation of the Company.
7. I do not know, and you have advised me that you do not know, of any
legal or governmental proceeding pending or threatened to which the
Company is a party, or of which the property of the Company is the
subject, of a character required to be disclosed in the Registration
Statements that is not disclosed and properly described in this
document; and you and I do not know of any contracts of a character to
be disclosed in the
<PAGE> 3
Vincent P. Kazmer, President
May 6, 1996
Page 3
Registration Statement that are not disclosed, filed and properly
summarized in such document.
8. The Registration Statement and any further amendments and supplements
made by the Company prior to the effective date of the Form SB-2
Registration Statement comply as to form in all material respects with
the requirements of the Securities Act of 1933, as amended, and the
applicable rules and regulations of the Securities and Exchange
Commission. I have no reason to relieve that the Registration Statement
contains an untrue statement of a material fact or omits to state any
material fact required to be stated in the document or necessary to make
the statements in it not misleading.
Very truly yours,
/s/ THOMAS J. KENAN
Thomas J. Kenan
TJK:slk
<PAGE> 1
EXHIBIT 23.1
[FULLER, TUBB & POMEROY LETTERHEAD]
June 5, 1996
Vincent P. Kazmer, President
Lark Technologies, Inc.
9445 Katy Freeway, Suite 465
Houston, Texas 77024-9870
Dear Mr. Kazmer:
The undersigned is named in a Form SB-2 Registration Statement of Lark
Technologies, Inc. ("the Company"), a Delaware corporation, which registration
statement is to be filed with the Securities and Exchange Commission in
connection with a rights offering of 1,105,113 shares of Common Stock of the
Company to its shareholders. The capacity in which the undersigned is named in
such SB-2 Registration Statement is that of counsel to the Company and as a
person who has given an opinion on the validity of the securities being
registered and upon other legal matters concerning the registration or offering
of the securities described therein.
The undersigned hereby consents to being named in such SB-2 Registration
Statement in the capacity therein described.
Sincerely,
/s/ THOMAS J. KENAN
Thomas J. Kenan
TJK/ss
<PAGE> 1
Exhibit 23.2
CONSENT OF INDEPENDENT AUDITORS
We consent to the use of our report dated March 5, 1996 (except for Note 7, as
to which the date is April 13, 1996), in Amendment No. 1 to the Registration
Statement (Form SB-2) of Lark Technologies, Inc. for the registration of
1,105,113 shares of its common stock.
ERNST & YOUNG LLP
Houston, Texas
June 4, 1996
