AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 20, 2000
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-1
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
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CIPHERGEN BIOSYSTEMS, INC.
(Exact name of Registrant as specified in its charter)
DELAWARE 8731 33-059-5156
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification Number)
490 SAN ANTONIO ROAD
PALO ALTO, CA 94306
(650) 496-3770
(Address, including zip code, and telephone number, including
area code, of registrant's principal executive offices)
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WILLIAM E. RICH, PH.D.
PRESIDENT AND CHIEF EXECUTIVE OFFICER
CIPHERGEN BIOSYSTEMS, INC.
490 SAN ANTONIO ROAD
PALO ALTO, CA 94306
(650) 496-3770
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
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COPIES TO:
MICHAEL J. O'DONNELL, ESQ. NORA L. GIBSON, ESQ.
RICHARD L. PICHENY, ESQ. BROBECK, PHLEGER & HARRISON LLP
WILSON SONSINI GOODRICH & ROSATI SPEAR STREET TOWER
PROFESSIONAL CORPORATION ONE MARKET
650 PAGE MILL ROAD SAN FRANCISCO, CA 94105
PALO ALTO, CA 94304 (415) 442-0900
(650) 493-9300
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following box. / /
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CALCULATION OF REGISTRATION FEE
PROPOSED MAXIMUM
AGGREGATE OFFERING PRICE AMOUNT OF
TITLE OF EACH CLASS OF SECURITIES TO BE REGISTERED PER SHARE(1) REGISTRATION FEE
Common Stock $0.001 par value............................ $86,250,000 $22,770.00
(1) Includes shares that the Underwriters have the option to purchase to cover
over-allotments, if any. Estimated solely for the purpose of computing the
amount of the registration fee pursuant to Rule 457(o) under the Securities
Act of 1933.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT THAT SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
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SUBJECT TO COMPLETION, DATED MARCH 20, 2000
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY
NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY THESE
SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
PROSPECTUS
SHARES
[CIPHERGEN LOGO]
COMMON STOCK
This is an initial public offering of shares of common stock of Ciphergen
Biosystems, Inc. Ciphergen expects that the initial public offering price will
be between $ and $ per share.
We have applied for approval for trading and quotation of our common stock
on the Nasdaq National Market under the symbol "CIPH."
OUR BUSINESS INVOLVES SIGNIFICANT RISKS. THESE RISKS ARE DESCRIBED UNDER THE
CAPTION "RISK FACTORS" BEGINNING ON PAGE 8.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
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PER
SHARE TOTAL
Public offering price.................................... $ $
Underwriting discounts and commissions................... $ $
Proceeds, before expenses, to Ciphergen.................. $ $
The underwriters may also purchase up to an additional shares of
common stock at the public offering price, less the underwriting discounts and
commissions, to cover over-allotments.
The underwriters expect to deliver the shares against payment in New York,
New York on , 2000.
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SG COWEN
ING BARINGS
WARBURG DILLON READ LLC
, 2000
TABLE OF CONTENTS
PAGE
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Prospectus Summary..................... 4
Risk Factors........................... 8
Special Note Regarding Forward-Looking
Statements........................... 17
Use of Proceeds........................ 18
Dividend Policy........................ 18
Capitalization......................... 19
Dilution............................... 20
Selected Consolidated Financial Data... 21
Management's Discussion and Analysis of
Financial Condition and Results of
Operations........................... 22
Business............................... 27
PAGE
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Management............................. 36
Certain Transactions................... 43
Principal Stockholders................. 47
Description of Capital Stock........... 50
Shares Eligible for Future Sale........ 53
Underwriting........................... 55
Legal Matters.......................... 58
Experts................................ 58
Where You Can Find Additional
Information.......................... 58
Index to Consolidated Financial
Statements........................... F-1
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YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS PROSPECTUS. WE
HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH INFORMATION THAT IS DIFFERENT. WE
ARE OFFERING TO SELL AND SEEKING OFFERS TO BUY SHARES OF OUR COMMON STOCK ONLY
IN JURISDICTIONS WHERE OFFERS AND SALES ARE PERMITTED. THE INFORMATION CONTAINED
IN THIS PROSPECTUS IS ACCURATE ONLY AS OF THE DATE OF THIS PROSPECTUS,
REGARDLESS OF THE TIME OF DELIVERY OF THIS PROSPECTUS OR OF ANY SALE OF OUR
COMMON STOCK. IN THIS PROSPECTUS, REFERENCES TO "CIPHERGEN BIOSYSTEMS,"
"CIPHERGEN," "WE," "US" AND "OUR" REFER TO CIPHERGEN BIOSYSTEMS, INC., A
DELAWARE CORPORATION.
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UNTIL , 2000, ALL DEALERS THAT EFFECT TRANSACTIONS IN THESE
SECURITIES, WHETHER OR NOT PARTICIPATING IN THIS OFFERING, MAY BE REQUIRED TO
DELIVER A PROSPECTUS. THIS REQUIREMENT IS IN ADDITION TO THE DEALERS' OBLIGATION
TO DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR
UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
CIPHERGEN AND PROTEINCHIP ARE U.S. REGISTERED TRADEMARKS OF CIPHERGEN
BIOSYSTEMS, INC. IN ADDITION, CIPHERGEN HAS FILED FOR TRADEMARK REGISTRATION OF
SELDI, THE CIPHERGEN LOGO AND BIOMARKER DISCOVERY CENTER. THIS PROSPECTUS ALSO
INCLUDES TRADEMARKS AND TRADENAMES OF OTHER PARTIES.
3
PROSPECTUS SUMMARY
THE FOLLOWING IS ONLY A SUMMARY. YOU SHOULD CAREFULLY READ THE MORE DETAILED
INFORMATION CONTAINED IN THIS PROSPECTUS, INCLUDING OUR FINANCIAL STATEMENTS AND
RELATED NOTES INCLUDED IN THIS PROSPECTUS. OUR BUSINESS INVOLVES SIGNIFICANT
RISKS. YOU SHOULD CAREFULLY CONSIDER THE INFORMATION UNDER THE HEADING "RISK
FACTORS" BEGINNING ON PAGE 8. UNLESS OTHERWISE NOTED, ALL INFORMATION IN THIS
PROSPECTUS HAS NOT BEEN ADJUSTED TO REFLECT A -FOR- REVERSE STOCK SPLIT THAT
WILL BE EFFECTED PRIOR TO CONSUMMATION OF THIS OFFERING AND ASSUMES (1) THE
CONVERSION OF ALL OUTSTANDING SHARES OF OUR PREFERRED STOCK INTO SHARES OF
COMMON STOCK UPON THE CLOSING OF THIS OFFERING AND (2) NO EXERCISE BY THE
UNDERWRITERS OF THE OVER-ALLOTMENT OPTION.
THE COMPANY
Ciphergen Biosystems, Inc. develops, manufactures and markets a proprietary
ProteinChip System that enables protein discovery, characterization and assay
development to provide a better understanding of biological functions at the
protein level. Our ProteinChip System is a novel, enabling tool in the emerging
field of protein-based biology research, known as proteomics. While recent
technological advances in DNA tools have substantially changed the field of
genomics, the absence of enabling protein analysis tools has limited progress in
proteomics research. Proteomics provides a direct approach to understanding the
role of proteins in the biology of disease, monitoring of disease progression
and the therapeutic effects of drugs. We believe proteomics will be a major
focus of biological research by enhancing the understanding of gene function and
the molecular basis of disease. In May 1999, we commercially launched our
current ProteinChip System, Series PBS II.
Our ProteinChip System integrates the key steps of proteomics research on a
single, miniaturized biochip platform. Our ProteinChip System consists of three
components: disposable ProteinChip Arrays, a ProteinChip Reader and ProteinChip
Software. The ProteinChip System incorporates our proprietary Surface-Enhanced
Laser Desorption/Ionization, or SELDI, technology on a disposable chip. This
allows proteins to be captured, separated and quantitatively analyzed directly
from crude biological materials, such as whole blood, tissue and saliva, with
minimal sample preparation. Our ProteinChip System allows rapid, differential
protein expression and quantitative protein interaction analysis. Our SELDI
technology provides signal-to-noise enhancement of proteins through chemical
noise reduction. In addition, SELDI enables on-chip, secondary processing of
proteins, including purification, sequencing, characterization and quantitative
protein interaction analysis, and laser-based molecular weight detection.
We believe our ProteinChip System is an enabling technology that will
accelerate proteomics research. Our ProteinChip System can be used in the
following areas:
- differential protein expression;
- protein characterization; and
- quantitative assay of proteins and protein interactions.
The entire genetic content of any organism, known as its genome, is encoded
in strands of DNA. Cells carry out their normal biological functions through the
genetic instructions encoded in their DNA, which results in the production of
proteins. This process is known as gene expression or protein expression.
Differences in living organisms result from variability in their genome, which
can affect the levels of gene expression. The type of cell determines which
genes are expressed and the amount and type of a particular protein produced.
Proteins play a crucial role in virtually all biological processes, including
transportation and storage of energy, immune protection, generation and
transmission of nerve impulses and control of cell growth.
4
Diseases may be caused by a mutation of a gene that alters a protein, alters
the gene's level of protein expression or by changes to the protein after gene
expression. Indicators of these types of protein changes, known as protein
biomarkers, may be used to identify disease progression prior to the appearance
of physical symptoms. In addition, protein biomarkers can be used to monitor
disease treatment and identify new disease pathways to be used as drug targets.
We believe our ProteinChip System facilitates proteomics research in the
following markets:
- basic biology research;
- clinical research and diagnostics; and
- pharmaceutical research and development.
We are establishing Biomarker Discovery Centers directly and through
partnerships to foster adoption of our products and technology as an industry
standard. We believe that our Biomarker Discovery Centers may accelerate
biomarker discovery and validation in pharmaceutical drug discovery, toxicology
and clinical trials, and in clinical research and diagnostic laboratories. We
intend to obtain certain commercial rights related to biomarkers discovered in
our Biomarker Discovery Centers. Currently, we have leased facilities for our
Biomarker Discovery Centers in Copenhagen, Denmark and Fremont, California.
We intend to establish our ProteinChip System as the enabling technology
platform for protein biomarker discovery and proteomics research in the basic
biology research, drug discovery and development and clinical research and
diagnostic markets. Key elements of our strategy are to:
- accelerate awareness and acceptance of our ProteinChip System;
- expand product development and innovation;
- establish Biomarker Discovery Centers; and
- expand our intellectual property portfolio.
Our principal executive offices are located at 490 San Antonio Road, Palo
Alto, CA 94306 and our telephone number is (650) 496-3770. Our corporate web
site is www.ciphergen.com. The reference to our web address does not constitute
incorporation by reference of the information contained at that site. The
information found on our site is not part of this prospectus and should not be
relied upon when making a decision to invest in our common stock. We were
incorporated in California in December 1993 and reincorporated in Delaware in
, 2000.
5
THE OFFERING
Common stock we are offering......................... shares
Common stock to be outstanding after this offering... shares
Underwriters' over-allotment option.................. shares
Use of proceeds...................................... We intend to use the net proceeds for research
and development activities, including
establishment of Biomarker Discovery Centers,
expansion of facilities and expansion of sales
and marketing capabilities, and for general
corporate purposes, including working capital.
See "Use of Proceeds."
Proposed Nasdaq National Market symbol............... CIPH
The number of shares of our common stock to be outstanding immediately after
this offering is based on the number of shares outstanding on March 15, 2000.
This number:
- includes 16,467,257 shares of our currently outstanding common stock;
- includes the conversion of all outstanding shares of series A, B, C, D and
E preferred stock into an aggregate of 29,570,551 shares of common stock,
which will automatically occur at the closing of this offering;
- includes warrants to purchase 390,000 shares of preferred stock at a
weighted average exercise price of $1.42 per share, which warrants will
expire at the closing of this offering;
- excludes 2,571,136 shares of common stock issuable upon the exercise of
stock options outstanding under our stock option plan at a weighted
average exercise price of $1.12 per share;
- excludes 1,463,123 shares of common stock reserved for future grant under
our stock option plans;
- excludes 280,590 shares of common stock issuable upon the exercise of
warrants at a weighted average exercise price of $2.00 per share; and
- excludes 550,000 shares of common stock issuable to Stanford Research
Systems, Inc. upon possible achievement of certain product development
milestones under a product development agreement dated February 2, 1995.
6
SUMMARY CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
The following summary historical financial data has been derived from our
audited financial information and sets forth summary consolidated financial data
of our business. You should read this information together with the consolidated
financial statements and the notes to those statements appearing elsewhere in
this prospectus and the information under "Selected Consolidated Financial Data"
and "Management's Discussion and Analysis of Financial Condition and Results of
Operations." See note 1 to our consolidated financial statements for information
regarding computation of net loss per share and pro forma net loss per share.
YEARS ENDED DECEMBER 31,
------------------------------
1997 1998 1999
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CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Revenue..................................................... $ 1,283 $ 2,933 $ 5,010
Loss from operations........................................ (6,583) (8,167) (7,625)
Net loss.................................................... $(6,809) $(8,310) $(7,681)
======= ======= =======
Net loss per share:
Basic and diluted......................................... $ (1.01) $ (0.72) $ (0.52)
Shares used in computing net loss per share, basic and
diluted................................................. 6,749 11,558 14,877
Pro forma net loss per share:
Basic and diluted......................................... $ (0.23)
Shares used in computing net loss per share, basic and
diluted (pro forma)..................................... 33,939
The following table contains a summary of our consolidated balance sheet at
December 31, 1999:
- on an actual basis;
- on a pro forma basis including the issuance of Series E preferred stock in
March 2000; and
- on a pro forma, as adjusted basis, to reflect the conversion of all
outstanding shares of preferred stock into 29,532,151 shares of common
stock effective upon the closing of this offering and the sale of
shares of common stock offered hereby at an assumed initial public
offering price per share of $ after deducting estimated underwriting
discounts, commissions and offering expenses.
DECEMBER 31, 1999
-----------------------------------
PRO FORMA,
ACTUAL PRO FORMA AS ADJUSTED
--------- --------- -----------
(UNAUDITED)
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents................................... $ 2,799 $ 29,748
Working capital............................................. 1,533 28,482
Total assets................................................ 6,147 33,096
Long-term debt and capital lease obligations, net of current
portion................................................... 483 483
Convertible preferred stock................................. 25,339 52,288
Total stockholders' equity (deficit)........................ (23,280) (23,280)
7
RISK FACTORS
YOU SHOULD CAREFULLY CONSIDER THE RISKS DESCRIBED BELOW BEFORE MAKING AN
INVESTMENT DECISION. YOU SHOULD ALSO REFER TO THE OTHER INFORMATION IN THIS
PROSPECTUS, INCLUDING OUR FINANCIAL STATEMENTS AND THE RELATED NOTES. THE RISKS
AND UNCERTAINTIES DESCRIBED BELOW ARE THOSE THAT WE CURRENTLY BELIEVE MAY
MATERIALLY AFFECT OUR COMPANY. ADDITIONAL RISKS AND UNCERTAINTIES THAT WE ARE
UNAWARE OF OR THAT WE CURRENTLY DEEM IMMATERIAL ALSO MAY BECOME IMPORTANT
FACTORS THAT AFFECT OUR COMPANY.
RISKS RELATED TO OUR COMPANY AND BUSINESS
WE ARE IN THE EARLY STAGES OF PRODUCT DEVELOPMENT AND COMMERCIALIZATION AND IF
WE FAIL TO SUCCESSFULLY IMPLEMENT OUR BUSINESS STRATEGY, OUR REVENUE WILL NOT
INCREASE AND WE WILL NOT ACHIEVE PROFITABILITY.
We were founded in December 1993, and our technologies are still in the
early stages of development. We have recently begun full commercialization of
our products. Our success will depend on our ability to continue to develop and
expand commercial sales of our ProteinChip System, including our ProteinChip
Arrays. Our ProteinChip System may not achieve market acceptance. In addition,
our ProteinChip System may be difficult or uneconomical to produce, fail to
achieve expected performance levels, have a price that is unacceptable to the
industry or be precluded from commercialization by the proprietary rights of
others. We may not be able to successfully develop, manufacture and market our
ProteinChip System or any other products on a timely basis, achieve anticipated
performance levels, gain industry acceptance of such products or develop a
profitable business.
OUR SUCCESS DEPENDS ON MARKET ACCEPTANCE AND USE OF OUR PRODUCTS, WHICH MAY NOT
BE COMMERCIALLY VIABLE.
We introduced our second generation ProteinChip System, Series PBS II, and
second generation ProteinChip Arrays in May 1999. Because our products have been
in operation for a limited period of time, the accuracy and utility of our
products have not been fully established. The commercial success of our
ProteinChip System will depend upon its accuracy, utility and market acceptance
by researchers in pharmaceutical and biotechnology companies, academic and
government research centers and clinical reference laboratories, which are our
targeted markets. Accordingly, any of the following events may occur, each of
which would seriously undermine market acceptance of our products and damage our
ability to become profitable:
- the accuracy of our ProteinChip System in providing commercially useful
protein information may not be equal to or better than current
technologies;
- advanced protein analysis techniques could be discovered that obviate the
need for our ProteinChip Arrays;
- manufacturing problems or marketing difficulties may limit or harm the
distribution of our ProteinChip Arrays to our targeted markets;
- limitations in funding for commercial, academic and government research
organizations that are the potential customers for our ProteinChip System
and ProteinChip Arrays and cost containment pressures for biomedical
research may limit the price we may be able to charge customers for our
products;
- our failure to place and service sufficient quantities of our ProteinChip
System and ensuring that technicians have adequate training to use our
ProteinChip System or interpret the results generated by our ProteinChip
System may limit acceptance and use of our products;
- our inability to provide our customers with software that enables the
integration and analysis of large volumes of data may limit acceptance and
use of our products; and
8
- our ProteinChip Arrays or our ProteinChip System may experience
operational difficulties.
Because of these and other factors, our products may not be commercially
viable and may not gain market acceptance.
WE HAVE A HISTORY OF NET LOSSES, WE EXPECT TO CONTINUE TO INCUR NET LOSSES IN
THE FORESEEABLE FUTURE, AND MAY NEVER ACHIEVE PROFITABILITY.
From our inception in December 1993 through December 31, 1999, we have
generated cumulative revenue of approximately $9.6 million and have incurred net
losses of approximately $29.3 million. We have experienced significant operating
losses each year since our inception and expect these losses to continue for the
next several years. For example, we experienced net losses of approximately
$6.8 million in 1997, $8.3 million in 1998 and $7.7 million in 1999. Our losses
have resulted principally from costs incurred in research and development, sales
and marketing, and general and administrative costs associated with our
operations. These costs have exceeded our interest income and revenue, which, to
date, have been generated principally from product sales. We expect to incur
additional operating losses and these losses may be substantial as a result of
increases in expenses for manufacturing, marketing and sales capabilities,
research and product development and general and administrative costs. We may
never achieve profitability. Even if we do achieve profitability, we may not be
able to sustain or increase profitability on a quarterly or annual basis. Our
ability to manage the transition to a commercially successful company will
depend upon many factors, including our ability to:
- develop our marketing capabilities;
- establish sales and distribution capabilities;
- educate our targeted markets as to the applications for and utility of our
ProteinChip System;
- develop products that are accepted by the marketplace;
- create a product mix that is appealing to customers in our targeted
markets;
- hire and retain qualified personnel;
- establish a commercial scale manufacturing capability for our ProteinChip
Arrays and consistently achieve acceptable yields;
- cost-effectively procure components of our ProteinChip System;
- avoid infringing on the intellectual property rights of others; and
- enforce our intellectual property rights against others.
OUR OPERATING RESULTS ARE LIKELY TO FLUCTUATE AND MAY BE SUBJECT TO SEASONAL
FLUCTUATIONS, WHICH MAY MAKE IT DIFFICULT TO FORECAST OUR FUTURE PERFORMANCE AND
COULD CAUSE OUR STOCK PRICE TO DECLINE.
Our results of operations historically have fluctuated on an annual and
quarterly basis, and we expect this trend to continue. Operating results can
fluctuate as a result of a number of factors, including:
- the commencement, delay or cancellation of purchase orders;
- seasonal slowdowns;
- the timing of start-up expenses for new products and facilities;
- the timing and integration of acquisitions;
- costs incurred in developing and testing our products and product
enhancements;
9
- costs incurred in anticipation of future sales, such as inventory
purchases, expansion of manufacturing facilities, or establishment of
international sales offices;
- competitive changes, such as price changes or new product introductions
that we or our competitors may make;
- budget cycles of our customers; and
- the timing of government appropriations to our customers.
We believe that period-to-period comparisons of our historical and future
results will not necessarily be meaningful, and that investors should not rely
on them as an indication of future performance. To the extent we experience the
factors described above, our future operating results may not meet the
expectations of securities analysts or investors from time to time, which may
cause the market price of our common stock to decline.
WE HAVE LIMITED SALES, MARKETING AND TECHNICAL SUPPORT EXPERIENCE, WHICH MAY
HURT SALES OF OUR PRODUCTS.
We are currently engaged in full commercialization of our products, and have
a limited direct sales, marketing and technical support organization. Our
failure to further develop our sales, marketing and technical support
capabilities would hurt sales of our products. Our existing organization and
relationships may not be sufficient to achieve successful commercialization of
our products and we may be required to expand our organization and enter into
additional collaboration or distribution arrangements to commercialize our
products both inside and outside the United States. We may not be able to
establish a sufficient sales, marketing or technical support organization, or
establish additional collaboration or distribution arrangements to sell, market
and service our products.
WE HAVE EXPANDED RAPIDLY AND OUR FAILURE TO MANAGE GROWTH COULD DAMAGE OUR
ABILITY TO INCREASE REVENUE AND BECOME PROFITABLE.
We are rapidly and significantly expanding our operations, which is placing
a significant strain on our financial, managerial and operational resources. For
example, we are planning to relocate our corporate headquarters during 2000.
This relocation could divert management attention or otherwise disrupt our
operations. In order to achieve and manage growth effectively, we must continue
to improve and expand our operational and financial management capabilities and
resources. Moreover, we will need to increase staffing and effectively train,
motivate and retain our employees. Our failure to manage our growth effectively
could damage our ability to increase revenue and become profitable.
IF WE DON'T INCREASE OUR LIMITED MANUFACTURING CAPACITY AND IF WE CONTINUE TO
EXPERIENCE VARIABILITY IN MANUFACTURING YIELDS, WE WILL NOT BE ABLE TO MEET
ANTICIPATED DEMANDS FOR OUR PROTEINCHIP ARRAY PRODUCTS.
We are currently manufacturing limited quantities of our ProteinChip Arrays
for internal and collaborative purposes and for sale to the research market. We
currently have one manufacturing facility located in Palo Alto, California. The
actual number of ProteinChip Arrays we are able to sell or use depends in part
on the utilization of the capacity at this facility and the yield of our
ProteinChip Arrays that pass quality control testing. We may experience
difficulties in meeting anticipated customer and internal demand for our
ProteinChip Array products. Our inability to deliver products in a timely manner
could seriously harm our relationships with our customers and our revenue will
not increase and we will not become profitable.
10
WE HAVE A LIMITED HISTORY IN MANUFACTURING OUR PRODUCTS AND WE MAY ENCOUNTER
MANUFACTURING AND QUALITY CONTROL PROBLEMS AS WE INCREASE OUR EFFORTS.
Some aspects of our manufacturing processes may not be easily scalable to
allow for production of our ProteinChip Arrays or ProteinChip Readers in larger
volumes. As a result, manufacturing and quality control problems may arise as we
increase our level of production. We may not be able to increase our
manufacturing capacity in a timely and cost-effective manner. If we are unable
to consistently manufacture our ProteinChip Arrays and ProteinChip Readers on a
timely basis because of these or other factors, we will not be able to meet
anticipated demand or become profitable.
OUR QUALITY CONTROL PROCEDURES MAY NOT BE SUFFICIENT TO ENSURE PROPER
PERFORMANCE OF OUR PRODUCTS.
Our ProteinChip System is a complex set of products, which are produced in a
complicated manufacturing process. As part of the ProteinChip Array
manufacturing process, we test only selected ProteinChip Arrays from each lot
against a number of performance criteria. We therefore rely on limited internal
quality control procedures to verify the correct completion of the manufacturing
process. It is possible that ProteinChip Arrays that do not meet all of our
performance specifications may not be identified before they are shipped. We
also assemble our ProteinChip Readers. Due to the complexity of and our limited
experience in manufacturing of these products, we may experience technical
problems as our ProteinChip System is placed into operation. If we are unable to
consistently deliver products to our customers that meet their performance
expectations, demand for our products will decline and we will not be able to
achieve or sustain profitability.
IF WE ARE UNABLE TO KEEP PACE WITH THE LATEST TECHNOLOGICAL CHANGES, SALES OF
OUR PROTEINCHIP ARRAY PRODUCTS WILL DECREASE.
The analytical tools used by researchers in pharmaceutical and biotechnology
companies, academic and government research centers and clinical research
laboratories are characterized by rapid technological change and frequent new
product introductions. Our future success will depend on our ability to enhance
our current and planned products and to develop and introduce, on a timely
basis, new products that address the evolving needs of our customers. If we are
unable to develop the necessary enhancements to our technology to compete
successfully with newly emerging technologies, our sales will decrease and we
will continue to incur losses.
WE FACE INTENSE COMPETITION IN OUR CURRENT AND POTENTIAL MARKETS AND IF WE ARE
UNABLE TO EFFECTIVELY COMPETE, OUR PRODUCTS MAY NOT ACHIEVE MARKET ACCEPTANCE
AND MAY FAIL TO CAPTURE MARKET SHARE.
Competition in our existing and potential markets is intense and is expected
to increase. Currently, our principal competition comes from existing
technologies that are used to perform many of the same functions for which we
market our ProteinChip System. In order to compete against existing and newly
developed technologies and maintain pricing and gross margins, we will need to
be successful in asserting our intellectual property rights and in demonstrating
to potential customers that our ProteinChip System provides improved performance
and utility over existing methods.
The major competitive technologies to our ProteinChip System are liquid
chromatography-mass spectrometry and 2D-gel electrophoresis-mass spectrometry.
In the life science research market, protein research tools are currently
provided by companies such as the Applied Biosystems division of PE
Biosystems, Inc., Amersham Pharmacia Biotech, Boehringer-Mannheim, Qiagen and
several smaller reagent and equipment companies. Several other companies also
provide products and services, some of which may be competitive with ours.
Additionally, our potential customers may internally develop competing
technologies. If we fail to compete effectively with these technologies and
products, and technologies and products under development, our products may not
achieve market acceptance and our sales may not increase.
11
OUR ABILITY TO PROTECT OUR TECHNOLOGY AND PROPRIETARY RIGHTS IS LIMITED, WHICH
MAY HARM OUR COMPETITIVENESS.
Our commercial success depends in part on our ability to maintain the
proprietary nature of our technology, products and processes. We rely on a
combination of patents, trademarks and trade secrets to protect our technology.
We acquired our core SELDI technology, which was originally developed at the
Baylor College of Medicine, pursuant to royalty bearing sublicenses. If we fail
to maintain licensing rights to this technology, it could harm our
competitiveness. Our rights under these sublicenses are set forth in agreements
between Molecular Analytical Systems, Inc., the exclusive licensee of the Baylor
patents, and our subsidiaries, IllumeSys Pacific, Inc. and Ciphergen
Technologies, Inc. We have received a letter from Molecular Analytical Systems
expressing non-specific concerns that we are using the licensed technology in a
manner that it claims exceeds the scope of the sublicense grants. Molecular
Analytical Systems makes a further non-specific claim that we are
misrepresenting the scope of our rights to third parties. We also have patent
applications directed to subsequent technological improvements and applications
of SELDI technology. Our proprietary technology may not give us a competitive
advantage in the market. Our patent applications may not result in additional
issued U.S. patents and any issued patents for our technology may be held
invalid or unenforceable by a court of law.
We also rely upon the skills, knowledge and experience of our technical
personnel. To help protect our rights, we require all employees to enter into
confidentiality agreements that prohibit the disclosure of confidential
information to anyone outside of us. These agreements may not provide adequate
protection for our trade secrets, know-how or other proprietary information in
the event of any unauthorized use or disclosure.
THE COSTS OF ENFORCING OUR PROPRIETARY RIGHTS MAY BE EXPENSIVE AND RESULT IN
INCREASED LOSSES.
The patent positions of pharmaceutical and biotechnology companies are
generally uncertain and involve complex legal and factual questions. Disputes
with respect to the ownership of our intellectual property rights may arise. We
cannot be sure that others will not design around our patented technology or
that they will not infringe our patented technology. We believe that there will
continue to be significant litigation in the industry regarding patent and other
intellectual property rights. Our patents may be challenged and held invalid or
unenforceable by a court of law. Lawsuits that we bring against alleged
infringers of our proprietary technology may not be decided in our favor.
Other parties may now possess or may in the future possess proprietary
technology that competes with our technology or that covers aspects of our
products or processes. We are aware of third parties whose business involves the
use of mass spectrometry for the analysis of biological macromolecules. Certain
of these parties have issued patents or pending patent applications on
technology which, if practiced, might infringe our issued patents or interfere
with our pending patent applications. We may be subject to legal proceedings to
determine rights to any disputed technology, or may incur substantial
expenditures enforcing our proprietary rights against alleged infringers.
Our success also depends on avoiding infringing on the proprietary
technologies of others. Further licenses may become necessary for us to use our
technology and such licenses may not be available on commercially reasonable
terms, if at all. We may incur substantial costs defending ourselves in lawsuits
against charges of patent infringement or other unlawful use of another's
proprietary technology. Any such lawsuit may not be decided in our favor, and if
we are found liable, we may be subject to monetary damages or injunction.
12
WE RELY ON THIRD-PARTY SUPPLIERS FOR MANY COMPONENTS OF OUR PROTEINCHIP SYSTEM
AND ANY FAILURE TO OBTAIN COMPONENTS COULD HARM OUR ABILITY TO ASSEMBLE AND
MANUFACTURE OUR PRODUCTS.
We depend on several suppliers for the necessary materials and components
required to assemble our products. If we are unable to procure the necessary
materials and components from our current vendors, we will have to arrange new
sources of supply and our materials and components shipments could be delayed,
harming our ability to assemble and manufacture our ProteinChip Reader and
ProteinChip Arrays, and may harm our ability to sustain or increase revenue.
WE MAY NEED TO RAISE ADDITIONAL CAPITAL IN THE FUTURE, AND IF WE ARE UNABLE TO
SECURE ADEQUATE FUNDS ON TERMS ACCEPTABLE TO US, WE MAY BE UNABLE TO EXECUTE OUR
BUSINESS PLAN.
We currently anticipate that the net proceeds of this offering will be
sufficient to meet our anticipated financial needs for at least the next two
years. However, we may need to raise additional capital sooner in order to
maintain our operations, fund manufacturing and expansion, develop new or
enhanced products or services, acquire complementary products, businesses or
technologies or otherwise respond to competitive pressures and opportunities or
unanticipated requirements. We may be required to raise additional capital
through a variety of sources, including the public equity market, private
financings, collaborative arrangements and debt. If additional capital is raised
through the issuance of equity or securities convertible into equity, our
stockholders may experience dilution, and such securities may have rights,
preferences or privileges senior to those of the holders of the common stock.
Additional financing may not be available to us on favorable terms, if at all.
If we are unable to obtain financing, or to obtain it on acceptable terms, we
may be unable to successfully execute our business plan.
REDUCTIONS IN GOVERNMENT FUNDING OF RESEARCH INSTITUTIONS COULD SERIOUSLY HARM
THE ABILITY OF OUR EXISTING AND PROSPECTIVE RESEARCH CUSTOMERS TO PURCHASE OUR
PRODUCTS.
A significant portion of our products for research use are likely to be sold
to universities, government research laboratories, private foundations and other
institutions where funding is dependent upon grants from government agencies,
such as the National Institutes of Health. Research funding by the government
may be significantly reduced in the future. Any such reduction may seriously
harm the ability of our existing and prospective research customers to purchase
our products or to reduce the number of ProteinChip Arrays used.
CONSOLIDATION OF THE PHARMACEUTICAL AND BIOTECHNOLOGY INDUSTRY MAY REDUCE THE
SIZE OF OUR TARGET MARKET AND CAUSE A DECREASE IN OUR REVENUE.
In addition, consolidation in the pharmaceutical and biotechnology
industries is generally expected to occur. Planned or future consolidation among
our current and potential customers could decrease or slow sales of our
technology and reduce the markets our products target. Any such consolidation
could seriously harm our ability to achieve or sustain profitability.
OUR EXECUTIVE OFFICERS AND KEY PERSONNEL ARE CRITICAL TO OUR BUSINESS, AND
BECAUSE THERE IS SIGNIFICANT COMPETITION FOR PERSONNEL IN OUR INDUSTRY, WE MAY
NOT BE ABLE TO ATTRACT AND RETAIN SUCH QUALIFIED PERSONNEL.
Our performance is substantially dependent on the efforts of our executive
officers and key employees. The loss of one or more key employees could harm our
business. Our success also depends on our ability to attract, retain and
motivate highly talented management personnel and scientists. Currently, each of
our field research scientists has a Ph.D. degree in biology or biochemistry. We
are actively attempting to hire additional field research scientists and
scientific staff. We may not be successful in hiring qualified personnel to fill
such positions, and we may not be able to retain our key
13
employees or be able to attract and retain skilled personnel in the future.
There is a shortage of such skilled personnel, which is likely to continue for
some time. As a result, competition for these people, particularly for employees
with technical expertise, is intense and the turnover rate for these people is
high. If we are unable to hire, train and retain a sufficient number of
qualified employees, our business could be seriously harmed. This inability
could also hinder the planned expansion of our business.
WE HAVE A LENGTHY SALES CYCLE, AND MAY EXPEND SUBSTANTIAL FUNDS AND MANAGEMENT
EFFORT AND WE MAY NOT BE ABLE TO SUCCESSFULLY SELL OUR PRODUCTS OR SERVICES.
Our ability to obtain customers for our products depends in significant part
upon the perception that our products and services can help enable protein
biomarker discovery, characterization and assay development. The sales cycle is
lengthy, typically between a few months to one year. Our sales effort requires
the effective demonstration of the benefits of our products to and significant
training of many different departments within a potential customer. These
departments might include research and development personnel and key management.
In addition, we may be required to negotiate agreements containing terms unique
to each customer. We may expend substantial funds and management effort and may
not be able to successfully sell our products or services.
ANY PARTNERSHIPS WE NEGOTIATE TO ESTABLISH OUR BIOMARKER DISCOVER CENTERS MAY
NOT BE SUCCESSFUL.
An element of our business strategy is to establish Biomarker Discovery
Centers in part through partnerships with academic and government research
centers, and pharmaceutical and biotechnology companies. To date, we have not
entered into any such partnerships. We may not be able to negotiate partnerships
on acceptable terms, if at all, or that such partnerships will be successful. In
addition, our future partners may not perform their obligations as expected or
devote sufficient resources to biomarker discovery and validation. In addition,
we may be unable to retain rights to biomarkers discovered in our Biomarker
Discovery Centers.
RISKS RELATED TO THIS OFFERING
OUR STOCK PRICE MAY BE VOLATILE, AND YOUR INVESTMENT IN OUR STOCK COULD DECLINE
IN VALUE.
There is currently no public market for our common stock, and an active
trading market may not develop or be sustained after this offering. The initial
public offering price will be determined through negotiation between us and
representatives of the underwriters and may not be indicative of the market
price for our common stock after this offering. The price of our stock may
decline after this offering.
BECAUSE THE NASDAQ NATIONAL MARKET IS LIKELY TO EXPERIENCE EXTREME PRICE AND
VOLUME FLUCTUATIONS, THE PRICE OF OUR STOCK MAY DECLINE EVEN IF OUR BUSINESS IS
DOING WELL.
The market price of our common stock could fluctuate significantly as a
result of:
- our susceptibility to quarterly variations in our operating results, which
may cause us to fail to meet analysts' or investors' expectations;
- changes in financial estimates by the analysts following our stock;
- earnings and other announcements by, and changes in investors' evaluations
of, pharmaceutical and biotechnology firms;
- economic and stock market conditions specific to pharmaceutical and
biotechnology firms;
- announcements or implementation by us or our competitors of technological
innovations or new products or services;
- trading volume of our common stock; and
14
- changes in general economic conditions.
The securities of many companies have experienced significant price and
volume fluctuations in recent years, often unrelated to the companies' operating
performance. Specifically, market prices for securities of biotechnology
companies have sometimes reached elevated levels, often following their initial
public offerings. These levels may not be sustainable and may not bear any
relationship to the operating performances of these companies. If the market
price of our common stock reaches an elevated level following this offering, it
may significantly and rapidly decline. In the past, following periods of
volatility in the market price of a company's securities, stockholders have
often instituted securities class action litigation against the company. If we
were to become involved in a class action suit, it could divert the attention of
senior management, and, if adversely determined, our business could suffer.
THE SALE OR AVAILABILITY FOR SALE OF SUBSTANTIAL AMOUNTS OF OUR COMMON STOCK
COULD CAUSE A DECLINE IN THE MARKET PRICE OF OUR COMMON STOCK, EVEN IF OUR
BUSINESS IS DOING WELL.
Sales of substantial amounts of our common stock in the public market after
the completion of this offering, or the perception that these sales could occur,
could cause a decline in the market price of our common stock and could impair
our future ability to raise capital through offerings of our common stock. Upon
completion of the offering, we will have outstanding an aggregate of
shares of common stock, assuming no exercise of the underwriters'
over-allotment option and no exercise of outstanding options or outstanding
warrants after March 15, 2000. Of these outstanding shares, the shares
sold in the offering will be freely tradable without restriction or further
registration under the Securities Act of 1933, unless purchased by our
"affiliates" as that term is defined in Rule 144 under the Securities Act of
1933. The remaining 46,427,808 shares of common stock outstanding upon
completion of the offering and held by existing stockholders will be "restricted
securities" as that term is defined in Rule 144 under the Securities Act of
1933.
All officers, directors and certain other holders of common stock have
entered into contractual "lock-up" agreements providing that they will not
offer, sell, contract to sell or grant any option to purchase or otherwise
dispose of shares of common stock owned by them or that could be purchased by
them through the exercise of options or warrants for a period of 180 days after
the date of this prospectus without the prior written consent of SG Cowen. As a
result of these contractual restrictions, notwithstanding possible earlier
eligibility for sale under the various provisions of the Securities Act of 1933,
additional shares will be eligible for sale beginning 181 days after the
effective date of the offering, subject in some cases to certain volume
limitations.
Shares of our common stock will become eligible for sale in the public
market as follows:
At the effective date....................................... shares
90 days after effective date................................ shares
180 days after effective date............................... shares
More than 180 days after effective date..................... shares
Sales of the restricted shares in the public market, or the availability of
such shares for sale, could adversely affect the market price of the common
stock.
CONCENTRATION OF OWNERSHIP OF OUR COMMON STOCK MAY LIMIT YOUR ABILITY TO
INFLUENCE CORPORATE MATTERS.
Immediately following this offering, our executive officers and directors,
or entities controlled by them, together with greater than five percent
stockholders and their affiliates will own approximately % of the
outstanding shares of our common stock.
If our significant stockholders choose to act or vote together on other
matters, they will have the power to control the approval of any other action
requiring the approval of our stockholders, including
15
any amendments to our certificate of incorporation and mergers, acquisitions or
sales of all of our assets. In addition, without the consent of these
stockholders, we could be prevented from entering into transactions that could
be beneficial to us. Also, third parties could be discouraged from making a
tender offer or bid to acquire our company at a price per share that is above
the then-prevailing market price.
BECAUSE WE HAVE BROAD DISCRETION TO USE THE OFFERING PROCEEDS, HOW WE INVEST
THESE PROCEEDS MAY NOT INCREASE OUR OPERATING RESULTS OR MARKET VALUE.
Our management will have significant flexibility in applying the proceeds we
receive in this offering. Because the proceeds are not required to be allocated
to any specific investment or transaction, you will not have the opportunity, as
part of your investment decision, to assess whether the proceeds are being used
in ways which will increase our operating results or market value.
YOU WILL INCUR IMMEDIATE AND SUBSTANTIAL DILUTION AS A RESULT OF THIS OFFERING.
If you purchase common stock in this offering, you will pay more for your
shares than the amounts paid by existing stockholders for their shares. As a
result, you will experience immediate and substantial dilution of approximately
$ per share, representing the difference between our net tangible
book value per share as of December 31, 1999, after giving effect to this
offering and an assumed initial public offering price of $ per
share. In addition, you may experience further dilution to the extent that
shares of our common stock are issued upon the exercise of stock options.
Substantially all of the shares issuable upon the exercise of currently
outstanding stock options will be issued at a purchase price less than the
public offering price per share in this offering.
PROVISIONS OF OUR CHARTER DOCUMENTS AND DELAWARE LAW COULD PREVENT OR DELAY A
CHANGE IN OUR CONTROL AND MAY REDUCE THE MARKET PRICE OF OUR COMMON STOCK.
Amendments to our certificate of incorporation and our bylaws, as well as
various provisions of the Delaware General Corporation Law, may make it more
difficult to effect a change in control of us. The existence of these provisions
may adversely affect the price of our common stock, discourage third parties
from making a bid for us or reduce any premiums paid to our stockholders for
their common stock. For example, our certificate of incorporation authorizes our
board of directors to issue up to 5,000,000 shares of blank check preferred
stock and to attach special rights and preferences to this preferred stock. The
issuance of this preferred stock may make it more difficult for a third party to
acquire control of us. Our Certificate of Incorporation also provides for the
division of our board of directors into three classes as nearly equal in size as
possible with staggered three-year terms. This classification of our board of
directors could have the effect of making it more difficult for a third party to
acquire us, or of discouraging a third party from acquiring control of us.
16
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
We have made statements under the captions "Prospectus Summary," "Risk
Factors," "Use of Proceeds," "Management's Discussion and Analysis of Financial
Condition and Results of Operations," "Business" and in other sections of this
prospectus that are forward-looking statements. You can identify these
statements by forward-looking words such as "may," "will," "expect," "intend,"
"anticipate," "believe," "estimate," "plan," "could," "should" and "continue" or
similar words. These forward-looking statements may also use different phrases.
We have based these forward-looking statements on our current expectations and
projections about future events. These forward-looking statements, which are
subject to risks, uncertainties, and assumptions about us, may include, among
other things, projections of our future results of operations or of our
financial condition, our anticipated product commercialization strategies, and
anticipated trends in our business.
We believe it is important to communicate our expectations to our investors.
However, there may be events in the future that we are not able to accurately
predict or which we do not fully control that could cause actual results to
differ materially from those expressed or implied in our forward-looking
statements. Because these forward-looking statements involve risks and
uncertainties, there are important factors that could cause actual results to
differ materially from those expressed or implied by these forward-looking
statements.
You should also consider carefully the statements under "Risk Factors" and
other sections of this prospectus, which address additional factors that could
cause our results to differ from those set forth in the forward-looking
statements.
17
USE OF PROCEEDS
We estimate that the net proceeds from the sale of the shares of
common stock offered by us at an assumed initial public offering price of
$ per share will be approximately $ million after
deducting the underwriting discounts and estimated offering expenses payable by
us. If the underwriters exercise in full their option to purchase an additional
shares of common stock, we estimate that such net proceeds will be
approximately $ million.
We expect to use the net proceeds from this offering primarily for general
corporate purposes, including:
- expansion of our sales and marketing capabilities;
- expansion of our research and development activities;
- expansion of our facilities;
- establishment of Biomarker Discovery Centers;
- expansion of our intellectual property portfolio;
- additional investments in our internal systems and processes;
- selected strategic investments or acquisitions; and
- working capital and other general corporate purposes.
Based upon the current status of our product development and
commercialization plans, we believe that the net proceeds of this offering,
together with our cash, cash equivalents and investments, will be adequate to
satisfy our capital needs through at least the next two years. Pending use of
the net proceeds of this offering, we intend to invest the net proceeds in
interest-bearing, investment-grade securities.
DIVIDEND POLICY
We have never declared or paid any cash dividends on our capital stock. We
currently intend to retain all of our future earnings, if any, to finance
operations and we do not anticipate paying cash dividends in the foreseeable
future. Our current equipment financing facilities and bank line-of-credit
restrict our ability to declare and pay any dividends without the prior consent
of our lenders.
18
CAPITALIZATION
The following table sets forth our capitalization at December 31, 1999:
- on an actual basis;
- on a pro forma basis to reflect the receipt of approximately $26.9 million
of net proceeds from the issuance of 10,390,862 million shares of our
Series E convertible preferred stock and conversion upon the closing of
this offering of all outstanding shares of convertible preferred stock
into 29,532,151 shares of common stock; and
- on a pro forma, as adjusted basis, to reflect the sale of the common stock
offered by this prospectus at an assumed initial public offering price of
$ per share, after deducting the estimated underwriting discounts,
commissions and offering expenses.
You should read the following table in conjunction with our consolidated
financial statements and related notes included in this prospectus.
DECEMBER 31, 1999
----------------------------------
PRO FORMA,
ACTUAL PRO FORMA AS ADJUSTED
-------- --------- -----------
(IN THOUSANDS)
Long-term debt and capital lease obligations, net of current
portion................................................... $ 483 $ 483 $ 483
-------- -------- --------
Convertible preferred stock, $0.001 par value,
Authorized: 30,000,000 shares actual; 32,253,644 pro forma
and pro forma, as adjusted
Issued and outstanding: 19,141,289 shares actual; none pro
forma and pro forma, as adjusted........................ 25,339 --
-------- -------- --------
Stockholders' equity (deficit):
Common stock, $0.001 par value,
Authorized: 60,000,000 shares
Issued and outstanding: 15,936,960 shares actual;
45,469,111 shares pro forma; shares pro forma as
adjusted................................................ 16 45
Additional paid-in capital.............................. 10,161 62,420
Notes receivable from stockholders...................... (488) (488)
Deferred stock compensation............................. (3,687) (3,687)
Accumulated deficit..................................... (29,282) (29,282)
-------- -------- --------
Total stockholders' equity (deficit)........................ (23,280) 29,008
-------- -------- --------
Total capitalization........................................ $ 2,542 $ 29,491 $
======== ======== ========
The information in the table above does not include:
- 2,571,136 shares of common stock issuable upon exercise of options
outstanding under our stock option plan at a weighted average exercise
price of $1.12 per share;
- 1,463,123 shares of common stock reserved for future grant under our stock
option plan;
- 280,590 shares of our common stock issuable upon exercise of warrants at a
weighted average exercise price of $2.00 per share; and
- 550,000 shares of common stock issuable to Stanford Research
Systems, Inc. upon possible achievement of certain product development
milestones under the product development agreement dated February 2, 1995.
19
DILUTION
On a pro forma basis after giving effect to the conversion of all
outstanding shares of preferred stock into shares of common stock in connection
with this offering, our pro forma net tangible book value as of December 31,
1999, was $2.1 million or $0.05 per share of common stock. Our pro forma net
tangible book value per share represents the amount of total tangible assets
less total liabilities, divided by the shares of common stock outstanding as of
December 31, 1999, assuming the issuance of shares of Series E preferred stock
in March 2000, and assuming the conversion of all outstanding shares of
preferred stock.
After giving effect to the sale of shares of common stock we are
offering hereby at an assumed initial public offering price of $ per share
and after deducting estimated underwriting discounts and commissions and
offering expenses, our pro forma net tangible book value as of December 31,
1999, would have been approximately $ million or $ per share. This
represents an immediate increase in pro forma net tangible book value of $
per share to existing stockholders and an immediate dilution of $ per share
to the investors purchasing shares of common stock in this offering. The
following table illustrates this per share dilution:
Assumed initial public offering price per share............. $
Pro forma net tangible book value per share as of
December 31, 1999......................................... $ 0.05
Increase attributable to new investors......................
--------
Pro forma net tangible book value per share after
offering.................................................. $
--------
Dilution per share to new investors......................... $
========
The following table summarizes, as of December 31, 1999, on the pro forma
basis described above, the number of shares of common stock purchased in this
offering, the aggregate cash consideration paid and the average price per share
paid by existing stockholders for common stock and by new investors purchasing
shares of common stock in this offering:
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
--------------------- ---------------------- PRICE PER
NUMBER PERCENT AMOUNT PERCENT SHARE
---------- -------- ----------- -------- ---------
Existing Stockholders...................... 45,469,111 % $58,202,116 % $ 1.28
New Investors..............................
---------- ----- ----------- ----- --------
Total...................................... 100.0% $ 100.0% $
========== ===== =========== ===== ========
This discussion and tables above assume no exercise of options outstanding
under our stock option plan. As of March 15, 2000, there were options
outstanding to purchase a total of 2,571,136 shares of common stock at a
weighted average exercise price of $1.12 per share and 1,463,123 shares
available for future grant or issuance under our stock option plan. The
discussion and tables above also assume no exercise of any outstanding warrants,
other than those expected to be exercised due to their termination at the time
of this offering. It also does not include 550,000 shares of preferred stock
issuable upon possible achievement of product development milestones by Stanford
Research Systems, Inc. As of March 15, 2000, there were outstanding warrants to
purchase 280,590 shares of our common weighted average exercise price of $2.00
per share. To the extent that any of these options or warrants are exercised,
there will be further dilution to new investors.
20
SELECTED CONSOLIDATED FINANCIAL DATA
The selected financial data set forth below should be read in conjunction
with our consolidated financial statements and the related notes and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," included in this prospectus. The consolidated statement of
operations data for the years ended December 31, 1997, 1998 and 1999, and the
consolidated balance sheet data as of December 31, 1998 and 1999, are derived
from our audited consolidated financial statements included elsewhere in this
prospectus. The consolidated statement of operations data for the years ended
December 31, 1995 and 1996, and the consolidated balance sheet data as of
December 31, 1995, 1996 and 1997, are derived from our audited consolidated
financial statements that are not included in this prospectus. The historical
results are not necessarily indicative of the operating results to be expected
in the future.
See the notes to the consolidated financial statements for an explanation of
the method used to determine the numbers of shares used in computing basic and
diluted and pro forma basic and diluted net loss per share.
YEARS ENDED DECEMBER 31,
----------------------------------------------------
1995 1996 1997 1998 1999
-------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Revenue......................................... $ -- $ 335 $ 1,283 $ 2,933 $ 5,010
Cost of revenue................................. -- 412 1,001 1,066 1,669
------- ------- ------- ------- -------
Gross margin.................................. -- (77) 282 1,867 3,341
------- ------- ------- ------- -------
Operating expenses:
Research and development...................... 1,180 1,906 3,205 4,566 2,933
Sales and marketing........................... 89 421 1,310 2,629 4,513
General and administrative.................... 826 650 1,263 1,422 2,176
Amortization of deferred stock-based
compensation................................ -- -- 119 880 1,344
Write-off of acquired in-process technology... -- -- 968 537 --
------- ------- ------- ------- -------
Total operating expenses.................... 2,095 2,977 6,865 10,034 10,966
------- ------- ------- ------- -------
Loss from operations............................ (2,095) (3,054) (6,583) (8,167) (7,625)
Interest and other income (expense), net........ 4 (102) (226) (143) (56)
------- ------- ------- ------- -------
Net loss........................................ $(2,091) $(3,156) $(6,809) $(8,310) $(7,681)
======= ======= ======= ======= =======
Net loss per share:
Basic and diluted net loss per share............ $ (1.33) $ (1.59) $ (1.01) $ (0.72) $ (0.52)
Weighted average shares used in computing basic
and diluted net loss per share................ 1,577 1,986 6,749 11,558 14,877
Pro forma basic and diluted net loss per share
(unaudited)................................... $ (0.23)
Weighted average shares used in computing pro
forma basic and diluted net loss per share.... 33,939
AS OF DECEMBER 31,
----------------------------------------------------
1995 1996 1997 1998 1999
-------- -------- -------- -------- --------
(IN THOUSANDS)
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents....................... $ 127 $ 900 $ 416 $ 7,002 $ 2,799
Working capital................................. (80) 1,063 (1,958) 6,616 1,533
Total assets.................................... 752 2,219 2,064 10,082 6,147
Long-term debt and capital lease obligations,
net of current portion........................ 285 474 576 381 483
Convertible preferred stock..................... 3,317 7,506 10,425 24,264 25,339
Total stockholders' deficit..................... (3,267) (6,404) (12,014) (16,982) (23,280)
21
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THE FOLLOWING DISCUSSION SHOULD BE READ IN CONJUNCTION WITH OUR CONSOLIDATED
FINANCIAL STATEMENTS AND RELATED NOTES INCLUDED IN THIS PROSPECTUS. THE
FOLLOWING DISCUSSION CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND
UNCERTAINTIES. OUR ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE ANTICIPATED
IN THOSE ANTICIPATED IN THESE FORWARD-LOOKING STATEMENTS AS A RESULT OF CERTAIN
FACTORS, INCLUDING THOSE DISCUSSED BELOW AND ELSEWHERE IN THIS PROSPECTUS,
PARTICULARLY UNDER THE HEADING "RISK FACTORS."
OVERVIEW
We develop, manufacture and sell our ProteinChip System, which consists of
disposable ProteinChip Arrays, a ProteinChip Reader and ProteinChip Software. We
market and sell our products primarily to research biologists in pharmaceutical
and biotechnology companies and academic and government research laboratories.
As part of our early product design effort, in February 1995, we signed an
agreement with Stanford Research Systems, a Sunnyvale, California based
manufacturer of electronic test equipment, to assist in this development. As
part of our early market research activities, in the fourth quarter of 1996, we
began selling an early prototype of our reader, which we purchased from a
supplier in the U.K., combined with our own software. In April 1997, we acquired
IllumeSys Pacific, Inc., which held specific rights to the SELDI technology for
the life science research market. Our first designed and manufactured System,
the ProteinChip System, Series PBS I, was available for customer shipment for
additional market research in the third quarter of 1997, and we discontinued
supplying the U.K.-purchased system. In July 1998, we acquired Ciphergen
Technologies, Inc., which held specific rights to the SELDI technology in other
life science markets. During 1999, we initiated an expanded marketing program
and in May began shipping our first commercial product, the ProteinChip System,
Series PBS II.
Since our inception in 1993, we have used our resources primarily to develop
our proprietary ProteinChip System and establish marketing and sales for
commercialization of our products. Since our inception we have incurred
significant losses and as of December 31, 1999, we had an accumulated deficit of
$29.3 million.
We recognize revenue from the sale of our ProteinChip System and disposable
ProteinChip Arrays at the time of shipment. Currently, most of the units of our
ProteinChip System placed in the field generate a recurring revenue stream from
the sale of disposables. We expect the volume of disposables purchased from each
site to increase over time as customers become increasingly familiar with the
technology and adopt our ProteinChip System for a broader range of proteomics
research programs. Our sales are currently driven by the need for better tools
to perform protein biomarker discovery, characterization and assay development.
Our expenses have consisted primarily of costs incurred in manufacturing our
ProteinChip System, including materials, labor and overhead costs, marketing and
sales activities, research and development programs, and general and
administrative costs associated with our operations. We expect our cost of
revenue to increase in the future as we sell additional units of our ProteinChip
System and Arrays, but will decrease as a percent of total revenue as we gain
efficiencies from spreading our fixed costs over a greater number of units. Our
selling expenses will increase as we continue to commercialize our products and
expand our sales force. We expect our research and development expenses to
increase in the future as we continue to improve and develop products. Expansion
of our facilities and the additional obligations of a public reporting entity
will also add to our expenses. As a result, we expect to incur losses for the
foreseeable future. Our current products do not provide sufficient revenue for
us to become profitable. To become profitable, we will need to increase our unit
sales of our ProteinChip System and generate significant sales of disposables.
22
We have a limited history of operations and we anticipate that our quarterly
results of operations will fluctuate for the foreseeable future due to several
factors, including market acceptance of current and new products, the length of
the sales cycle and timing of significant orders, the timing and results of our
research and development efforts, the introduction of new products by our
competitors and possible patent conflicts. Our limited operating history makes
accurate prediction of future results of operations difficult or impossible.
RESULTS OF OPERATIONS
COMPARISON OF YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
REVENUE
Revenue was $5.0 million in 1999, $2.9 million in 1998 and $1.3 million in
1997. The increase in revenue from 1998 to 1999, which was $2.1 million or 71%,
was primarily due to increases in unit sales of our ProteinChip System,
increases in sales of disposable ProteinChip Arrays and price increases in
connection with the introduction of our first commercial product, the
ProteinChip System, Series PBS II. The increase in revenue from 1997 to 1998,
which was $1.6 million or 129%, was primarily due to an increase in the number
of units of our ProteinChip System sold and increases in sales of ProteinChip
Arrays.
COST OF REVENUE
Cost of revenue was $1.7 million in 1999, $1.1 million in 1998 and
$1.0 million in 1997. From 1998 to 1999, cost of revenue increased $603,000 or
57%. The increase from 1998 to 1999 was primarily from an increase in unit sales
of our ProteinChip System. Cost of revenue as a percent of revenue decreased
from 36% to 33%, primarily as a result of manufacturing efficiencies as unit
volumes of our ProteinChip System and Arrays manufactured increased. From 1997
to 1998, cost of revenue was essentially unchanged. Cost of revenue as a percent
of revenue decreased from 78% to 36%, primarily from one-time expenses incurred
in 1997 from manufacturing start-up costs of both ProteinChip Readers and
ProteinChip Arrays. In addition, manufacturing efficiencies were achieved as
unit volumes of our ProteinChip System and Arrays increased.
OPERATING EXPENSES
RESEARCH AND DEVELOPMENT. Research and development expenses were
$2.9 million in 1999, $4.6 million in 1998 and $3.2 million in 1997. From 1998
to 1999, research and development expenses decreased $1.7 million or 36%. This
decrease was primarily due to a one-time non-cash charge of $1.7 million in
compensation expense in 1998 related to an employee retained following our two
acquisitions. From 1997 to 1998, research and development expenses increased
$1.4 million or 42%. This increase was primarily due to the one-time charge of
$1.7 million recognized in 1998 described above and to a $275,000 milestone
payment to Stanford Research Systems in 1997.
SALES AND MARKETING. Sales and marketing expenses were $4.5 million in
1999, $2.6 million in 1998 and $1.3 million in 1997. From 1998 to 1999, sales
and marketing expenses increased $1.9 million or 72%. This increase was
primarily from additional salaries and related costs associated with newly hired
sales personnel, marketing activities associated with the launch of the
ProteinChip, Series PBS II and increases in general product promotion
activities. From 1997 to 1998, sales and marketing expenses increased
$1.3 million or 101%. This increase was primarily from additional salaries and
related costs associated with newly hired sales personnel and limited marketing
activities in 1998.
GENERAL AND ADMINISTRATIVE. General and administrative expenses were
$2.2 million in 1999, $1.4 million in 1998 and $1.3 million in 1997. From 1998
to 1999, general and administrative expenses increased $754,000 or 53%. This
increase was primarily due to business development consulting
23
expenses, legal and filing fee related to intellectual property and to
additional salaries and related costs associated with newly hired employees and
contractors in business development and accounting. From 1997 to 1998, general
and administrative expenses increased $159,000 or 13%. This increase was
primarily due to intellectual property and business development expenses and to
additional salaries and related costs associated with a newly hired Chief
Financial Officer.
DEFERRED STOCK COMPENSATION. Deferred stock compensation for options
granted to employees is the difference between the deemed value for financial
reporting purposes of our common stock on the date such options were granted and
their exercise price. Deferred stock compensation for options granted to
consultants has been determined in accordance with Statement of Financial
Accounting Standards No. 123 as the fair value of the equity instruments issued.
Deferred stock compensation for options granted to consultants is periodically
remeasured as the underlying options vest in accordance with Emerging Issues
Task Force No. 96-18.
In connection with the grant of stock options to employees and consultants,
we recorded deferred stock compensation of approximately $3.7 million in the
year ended December 31, 1999, compared to $1.5 million in 1998 and $830,000 in
1997. These amounts were recorded as a component of stockholders' equity and are
being amortized as charges to operations over the vesting periods of the
options. We recorded amortization of deferred stock compensation of
approximately $1.3 million for the year ended December 31, 1999, compared to
$880,000 in 1998 and $119,000 in 1997. For options granted through December 31,
1999, we expect to record additional amortization expense for deferred
compensation as follows: $1.4 million in 2000, $730,000 in 2001, $626,000 in
2002, $429,000 in 2003 and $212,000 in 2004. Amortization expense relates to
options awarded to employees and consultants assigned to all operating expense
categories in the statements of operations. We will also record an additional
$8.9 million of deferred stock compensation related to options for 1,927,500
shares of common stock granted from January 1, 2000 through March 15, 2000. See
Note 8 of notes to consolidated financial statements.
INTEREST AND OTHER INCOME (EXPENSE), NET. Interest and other income
(expense), net was a net expense of $56,000 in 1999, $143,000 in 1998 and
$226,000 in 1997. From 1998 to 1999, net expense decreased primarily due to
additional interest earned on higher average cash balances. From 1997 to 1998,
our net interest expense decreased primarily due to an increase in interest
earned on higher cash balances and income received in 1998 from a strategic
partner, partially offset by increased interest expenses incurred on equipment
loans and leases, bridge loans and warrant amortization expenses.
INCOME TAXES
We incurred net losses during the past three years and consequently are not
subject to corporate income taxes. At December 31, 1999, we had federal net
operating loss carryforwards of $21.1 million, state net operating loss
carryforwards of $10.9 million and research and development credits of
$1,075,000, which will expire between 2002 and 2019. The utilization of net
operating loss carryforwards to reduce future income taxes will depend on our
ability to generate sufficient taxable income prior to the expiration of the net
operating loss carryforwards. In addition, the maximum annual use of the net
operating loss carryforwards is limited in certain situations where changes
occur in our stock ownership.
LIQUIDITY AND CAPITAL RESOURCES
From our inception to December 31, 1999, we have financed our operations
with $9.6 million from sales of products and services to customers and with
proceeds from the sale of preferred stock totaling $25.3 million. In addition,
in March 2000, we received approximately $26.9 million of net proceeds from the
sale of Series E Preferred Stock. We had cash balances of $2.8 million at
December 31, 1999. Working capital was $1.5 million at December 31, 1999. We had
long-term debt balances of $483,000 at
24
December 31, 1999. Long-term debt consisted primarily of capital equipment loans
and lease obligations.
Net cash used in operating activities was $5.1 million in 1999, which was
primarily the result of net losses in operations.
Net cash used in investing activities was $922,000 in 1999, which consisted
primarily of capital equipment purchases and an investment in our joint venture
in Japan.
Net cash provided by financing activities was $1.8 million in 1999,
primarily from the sale of preferred stock and borrowings under our lines of
credit.
We may be required to raise additional capital through a variety of sources,
including the public equity market, private financings, collaborative
arrangements and debt. If additional capital is raised through the issuance of
equity or securities convertible into equity, our stockholders may experience
dilution, and such securities may have rights, preferences or privileges senior
to those of the holders of the common stock. We cannot assure you that
additional financing will be available to us on favorable terms, if at all. If
we are unable to obtain financing, or to obtain it on acceptable terms, we may
be unable to execute our business plan.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board, or FASB, issued SFAS
No. 133, "Accounting for Derivative Instruments and Hedging Activities." SFAS
No. 133 establishes new standards of accounting and reporting for derivative
instruments and hedging activities. SFAS No. 133 requires that all derivatives
be recognized at fair value in the statement of financial position, and that the
corresponding gains or losses be reported either in the statement of operations
or as a component of comprehensive income, depending on the type of relationship
that exists. In July 1999, the Financial Accounting Standards Board issued SFAS
No. 137, "Accounting for Derivative Instruments and Hedging Activities--Deferral
of the Effective Date of FASB Statement No. 133." SFAS No. 137 deferred the
effective date of FASB Statement No. 133 until fiscal years beginning after
June 15, 2000. The Company has not engaged in significant hedging activities or
invested in significant derivative instruments.
On March 31, 1999, the FASB issued an exposure draft entitled "Accounting
for Certain Transactions Involving Stock Compensation," which is a proposed
interpretation of APB Opinion No. 25, which has an effective date for certain
transactions of December 15, 1998. However, the exposure draft has not been
finalized. Once finalized and issued, the current accounting practices for
transactions involving stock compensation may need to change and such changes
could effect our future earnings.
QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
The primary objective of our investment activities is to preserve principal
while at the same time maximizing the income we receive from our investments
without significantly increasing risk. Some of the securities that we invest in
may have market risk. That means that a change in prevailing interest rates may
cause the fair value of the principal amount of investment to fluctuate. For
example, if we hold a security that was issued with a fixed interest rate at the
then-prevailing rate and the prevailing rate rises, the fair value of the
principal amount of our investment will probably decline. To minimize this risk
in the future, we intend to maintain our portfolio of cash equivalents and
short-term investments in a variety of securities, including commercial paper,
money market funds, government and non-government debt securities. The average
duration of all of our investments has generally been less than one year. Due to
the short-term nature of these investments, we believe we have no material
exposure to interest rate risk arising from our investments.
25
Our exposure to market risk for changes in interest rates relates primarily
to the increase or decrease in the amount of interest income we can earn on our
available funds for investment. Our long-term debt and capital lease agreements
are at fixed interest rates. We do not plan to use derivative financial
instruments in our investment portfolio. We plan to ensure the safety and
preservation of our invested principal funds by limiting default risks, market
risk and reinvestment risk. We plan to mitigate default risk by investing in
high-credit quality securities.
All of our revenue is realized in U.S. dollars. Therefore, we do not believe
that we currently have any significant direct foreign currency exchange rate
risk.
26
BUSINESS
OVERVIEW
Ciphergen Biosystems, Inc. develops, manufactures and markets a proprietary
ProteinChip System that enables protein discovery, characterization and assay
development that provides better understanding of biological functions at the
protein level. Our ProteinChip System is a novel, enabling tool in the emerging
field of protein-based biology research, known as proteomics. While recent
technological advances in DNA tools have substantially changed the field of
genomics, the absence of enabling protein analysis tools has limited progress in
proteomics research. Proteomics provides a direct approach to understanding the
role of proteins in the biology of disease, monitoring of disease progression
and the therapeutic effects of drugs. We believe proteomics will be a major
focus of biological research by enhancing the understanding of gene function and
the molecular basis of disease. In May 1999, we commercially launched our
current ProteinChip System, Series PBS II.
INDUSTRY BACKGROUND
Genes are the hereditary coding system of living organisms. Genes encode
proteins that are responsible for cellular functions. The study of genes and
their functions has led to the discovery of new targets for drug development.
The majority of drug targets are proteins, such as receptors, hormones and
enzymes. Although genomics allows researchers to identify drug targets, it does
not provide complete information on how these targets function within an
organism. It is estimated that within the human genome there are approximately
100,000 genes. The initial structure of a protein is determined by a single
gene. The final structure of a protein is frequently altered by interactions
with additional genes or proteins in a process called post-translational
modification. Post-translational modifications produce hundreds of thousands of
different proteins. In addition, proteins may interact with one another to form
complex structures that are ultimately responsible for cellular functions.
Genomics establishes the relationship between gene activity and disease.
However, many diseases are manifested not at the genetic level, but at the
protein level. The complete structure of modified proteins cannot be determined
by reference to the encoding gene alone. Thus, while genomics provides some
information about diseases, it does not provide a full understanding of disease
processes.
THE RELATIONSHIP BETWEEN PROTEINS AND DISEASES
The entire genetic content of any organism, known as its genome, is encoded
in strands of deoxyribonucleic acid, or DNA. Cells perform their normal
biological functions through the genetic instructions encoded in their DNA,
which results in the production of proteins. This process is known as gene
expression or protein expression. Differences in living organisms result from
variability in their genomes, which can affect the levels of gene expression.
Each cell of the organism expresses only approximately 10% to 20% of the genome.
The type of cell determines which genes are expressed and the amount of a
particular protein produced. For example, liver cells produce different proteins
from those produced by cells found in the heart, lungs, skin, etc. Proteins play
a crucial role in virtually all biological processes, including transportation
and storage of energy, immune protection, generation and transmission of nerve
impulses and control of growth.
Diseases may be caused by a mutation of a gene that alters a protein, the
gene's level of protein expression or changes to the protein after gene
expression. These alterations interrupt the normal balance of proteins and
create disease symptoms. Biomarkers are indicators of changes from a normal to a
diseased state. Protein biomarkers are biomolecular indicators of reduced or
increased levels of proteins that represent symptoms of a disease. By studying
changes in protein biomarkers, diseases may be identified prior to the
appearance of physical symptoms. In addition, protein biomarkers can be used to
identify new disease pathways to be used as drug targets. Historically, protein
biomarkers were discovered as a byproduct of basic biological disease research.
This has resulted in the validation of
27
approximately 200 protein biomarkers that are being used in commercially
available clinical diagnostic products. The development of new diagnostic
products has been limited by the complexity of disease states, which may be
caused or characterized by several or many interacting proteins. Diagnostic
products that are limited to the detection of a single protein may lack the
ability to detect more complex diseases, and thus produce results that are
unacceptable for practical use. Recently, the National Institutes of Health, or
NIH, has recognized the importance of protein biomarkers in overcoming this
problem and their usefulness in the development of new diagnostic and
therapeutic products. The NIH has established a grant program to fund the
discovery and clinical validation of new protein biomarkers.
LIMITATIONS OF AVAILABLE TECHNOLOGIES FOR PROTEOMICS RESEARCH
Efforts to understand biology and to improve diagnosis, monitoring and
treatment of diseases have been dramatically enhanced through advancements in
modern genomic technologies. These new technologies have formed the basis for
the development of new analytical tools, which are primarily directed at DNA and
genomic analysis, but are not applicable to protein research or proteomics.
These new tools have accelerated the ability to sequence and analyze the human
genome. Historically, researchers used gel electrophoresis as a primary tool for
sequencing DNA. Gel electrophoresis measures how far a DNA fragment migrates
through the pores of gels in response to an applied electric field over a fixed
time interval. Electrophoresis is a time-consuming, manual process that requires
large amounts of pure DNA to be useful. The development of polymerase chain
reaction, or PCR, allowed researchers to amplify, or produce multiple copies of,
a fragment of DNA. Researchers could then enhance the signal of trace amounts of
DNA from an unprocessed biological sample, such as tissue or blood, to a level
where measurement was possible. Successive advances in technologies have
produced faster, automated sequencing machines and new, chip-based technologies
such as DNA probe arrays and microfluidics. These new technologies have
dramatically improved the throughput and accuracy of DNA analysis. In addition,
these new technologies have reduced costs by increasing automation and reducing
necessary labor.
Although recent technological advances have benefited genomics, there have
been fewer significant advances in proteomics. While DNA has been relatively
simple to study because of its ease of detection and linear structure, protein
analysis has been a far more difficult challenge. The goal of proteomics is to
determine the structure and function of proteins. Techniques, such as tagging,
amplification and sequencing that are used to analyze DNA cannot be used
effectively to study proteins. These techniques can change the structure of
proteins and may change their characteristics or function, which would limit
identification and analysis of a sample. In addition, these techniques do not
allow researchers to monitor or study how proteins interact, or to identify
which proteins interact together, to perform biological functions.
Currently, proteomics research is performed using gel electrophoresis, mass
spectrometry and other protein purification and analysis products. These tools
require substantial, labor-intensive sample preparation processes to produce
enough purified proteins before identification and analysis can occur. In
addition, these tools must be operated by researchers with substantial technical
expertise. As a result, proteomics research has not advanced at a rate
comparable to that of genomics. New tools are needed that are specifically
designed to analyze proteins to enable protein biomarker discovery, to fully
understand biological pathways and function, and ultimately to accelerate the
discovery of new drugs and clinical diagnostics.
THE CIPHERGEN SOLUTION
We develop, manufacture and market our proprietary ProteinChip System that
enables protein biomarker discovery, characterization and assay development. Our
ProteinChip System integrates the key steps of proteomics research on a single,
miniaturized biochip platform. Our ProteinChip System incorporates our
proprietary Surface-Enhanced Laser Desorption/Ionization, or SELDI, technology
on
28
the surface of a disposable chip, which allows proteins to be captured and
analyzed directly. Our ProteinChip System enables rapid, reproducible, on-chip
protein expression and protein analysis from complex biological samples such as
whole blood, tissue or saliva, without separation, tagging and amplification
processes and with minimal prior purification. Similar to PCR technology, SELDI
enables protein detection and quantitation through signal-to-noise enhancement.
But unlike PCR, SELDI accomplishes this by reducing background chemical noise
rather than through signal amplification.
We believe our ProteinChip System enables researchers to identify and
quantify proteins by direct laser-based, time-of-flight molecular weight
detection. Chemical and biochemical processing, such as protein sequencing, can
be performed at any step during the process to greatly enhance the detailed
knowledge gained from a set of experiments. We believe the integration of these
processes enables rapid discovery, characterization and assay of proteins
directly from biological samples, providing a novel technique for protein
discovery and analysis. We believe our ProteinChip System can enable protein
research in the following areas:
- DIFFERENTIAL PROTEIN EXPRESSION. Our ProteinChip System is designed to
enable biologists to rapidly discover and validate new protein biomarkers.
In addition, our ProteinChip System enables scientists to tie genetic
message information derived from DNA biochips or miniaturized chips
containing DNA, to protein information in order to better define protein
function. Expression studies and protein discovery that previously were
impossible to conduct or took months or years can be performed on our
ProteinChip System in days or even hours.
- PROTEIN CHARACTERIZATION. Our ProteinChip System enables identification of
trace proteins from biological samples by reducing or eliminating the need
for labor-intensive sample purification. Biology researchers can purify
samples in hours versus days or weeks, which are required with current
methods. Researchers can then obtain the precise protein sequence using
our ProteinChip System through on-chip peptide mapping and conventional
database sequencing comparison methods. Also, enzymatic, chemical or
antibody-based assays can be used to rapidly characterize
post-translational modifications.
- QUANTITATIVE ASSAY OF PROTEINS AND PROTEIN INTERACTIONS. We believe our
ProteinChip System will enable biology researchers to obtain quantitative
analysis of proteins and protein interactions within a sample. We believe
this will speed functional validation of discovered biomarkers by allowing
rapid functional assay development and analysis of hundreds or thousands
of samples for clinical diagnostic or drug discovery research use.
Currently, this process requires many weeks or months to accomplish using
conventional technologies. Our ProteinChip technology can reduce this
process to days or even hours.
OUR MARKET OPPORTUNITY
There are several types of research laboratories that perform proteomics
research and development. We believe our ProteinChip System can enable
proteomics research in the following markets:
- BASIC BIOLOGY RESEARCH. Basic biology research laboratories focus on the
study of general biological processes and the understanding of the
molecular basis of disease. There are over 320,000 scientists from
academic and government research institutions pursuing this research. Most
of the techniques used in basic biology research to study proteins are
labor intensive or have limited analytical capabilities. We believe that
the ease of use and problem-solving versatility of our ProteinChip System
may enable biologists to perform proteomics research at the benchtop.
- CLINICAL RESEARCH AND DIAGNOSTICS. Clinical research is focused on
associating clinical disease symptoms to changes in certain proteins in
the disease state versus in the normal state. In doing so, researchers
seek to identify biomarkers, many of which are proteins, that can be used
to
29
diagnose diseases early, assess treatment response and monitor treatment
progress. Currently, physicians pursuing clinical research lack a
flexible, integrated, standardized tool to perform protein biomarker
discovery. We believe that our ProteinChip System may enable researchers
to rapidly discover protein biomarkers and to develop these biomarkers
into clinical diagnostic assays.
- PHARMACEUTICAL RESEARCH AND DEVELOPMENT. A current bottleneck in drug
development is secondary screening, where drug lead candidates are
validated using complex biological assays in which markers are used to
assess biological responses to varying compounds, dose level and
conditions. Current assay systems often have poor specificity and are
usually labor intensive and require substantial development time. In
addition, over 50% of drug development failures now occur in toxicology,
in which the availability of useful data is hampered by similar issues. We
believe a lack of protein biomarkers currently limits the ability of
researchers to adequately evaluate drug target function, cell pathway
analysis and toxicological and therapeutic effects throughout the drug
development process. We believe our ProteinChip System can substantially
improve preclinical development and clinical trial effectiveness by
greatly expanding the use of protein biomarkers.
BUSINESS STRATEGY
We intend to establish our ProteinChip System as the enabling technology
platform for protein biomarker discovery and proteomics research in the basic
biological research, clinical research and diagnostics, and pharmaceutical drug
discovery and development markets. Key elements of our strategy are to:
- ACCELERATE AWARENESS AND ACCEPTANCE OF OUR PROTEINCHIP SYSTEM. We intend
to focus on expanding the installed base of our ProteinChip System with
leading academic, government, pharmaceutical and clinical research
laboratories to promote awareness and acceptance of our technology. In
addition, we will support the use of our ProteinChip System through
customer education and training as well as customer collaborations to
increase the applications and use of our ProteinChip Arrays. Further, we
intend to pursue commercialization of our products through our own sales
and marketing organizations in the United States and Europe and through
distributors in other parts of the world, including through our joint
venture with Sumitomo Corporation in Japan.
- EXPAND PRODUCT DEVELOPMENT AND INNOVATION. We intend to expand the scope
of our product portfolio by continuously developing new products and
applications based on our ProteinChip technology. We believe that
expanding the application of our technology and products and increasing
functionality will promote the use and acceptance of our ProteinChip
System by biology researchers. Our ProteinChip products under development
include next generation products to further automate the protein analysis
process, high performance proteomics systems and benchtop proteomics
systems.
- ESTABLISH BIOMARKER DISCOVERY CENTERS. We intend to establish Biomarker
Discovery Centers directly and through partnerships to foster further
adoption of our products and technology as an industry standard. We
believe that our Biomarker Discovery Centers may accelerate biomarker
discovery and validation in both pharmaceutical drug discovery, toxicology
and clinical trials, and in clinical research laboratories. We plan to
deploy the prototypes of our next-generation ProteinChip System to
maintain a technological advantage in our Biomarker Discovery Centers. In
addition, we intend to obtain rights related to biomarkers discovered in
our Biomarker Discovery Centers.
- EXPAND OUR INTELLECTUAL PROPERTY PORTFOLIO. The issued, allowed and
pending patents on SELDI technology and ProteinChip System are included in
our current patent portfolio and we intend to expand this portfolio in
several areas of technology related to our business, including
applications of SELDI technology and biomarker discoveries. We intend to
continue to develop
30
our proprietary technologies and infrastructure in support of our existing
SELDI technology and ProteinChip System. In addition, we intend to develop
new surface chemistries for our ProteinChip Arrays, enhancements to our
ProteinChip Readers and advancements in our analysis and database
ProteinChip Software, in order to broaden the range of applications and
opportunities that can be addressed. We intend to continue to license and
acquire technologies from others that complement our core capabilities and
protect our proprietary technologies with patents and trade secrets.
OUR PROTEINCHIP TECHNOLOGY
Our ProteinChip technology is based on Surface-Enhanced Laser
Desorption/Ionization, or SELDI, which combines laser-based molecular weight
detection with the use of a chemically or biochemically active chip array
surface constructed from proprietary treated plastic or metal. Our ProteinChip
technology enables researchers to apply a crude biological sample, such as whole
blood or tissue, directly to the surface of a ProteinChip Array. These
ProteinChip Arrays are designed to select desired proteins from the sample
through affinity capture, which employs chemical processes or biochemical
targets such as receptors, antibodies or DNA probes. The remainder of the unused
sample is then washed away with a variety of solutions with varying stringency
conditions, depending on the type of test performed. This enhances the signal of
the proteins of interest on the chip by reducing signals from unwanted
biomolecules that would otherwise obscure the measurement results. The purified
sample proteins remain evenly distributed on the surface of the ProteinChip
Array. This even distribution allows the proteins to be accurately measured and
quantified.
The ProteinChip Array is then placed in a specially developed laser-based,
time-of-flight, molecular weight detection analyzer, or ProteinChip Reader. A
laser beam is used to release the retained proteins from the ProteinChip Array
surface. These proteins are accelerated and then guided through a flight tube
under vacuum to a detector. The time of this flight is directly related to the
exact molecular weight of each protein. This process allows the molecular weight
of a sample protein to be determined.
A protein expression profile is generated by comparing protein samples
collected in different conditions, such as disease versus normal states. Our
ProteinChip System compares profiles by displaying the differences between the
samples for the biology researcher and allows discovery of new, potentially
relevant proteins as biomarkers. Proteins of interest can then be further
processed on-chip to:
- obtain sequence identification;
- detect secondary modifications of proteins, or post-translational
modifications;
- identify protein interactions; and
- quantitatively measure protein concentrations.
OUR PROTEINCHIP SYSTEM
In May 1999, we commercially launched our current ProteinChip System, Series
PBS II. Our ProteinChip System, Series PBS II consists of disposable,
proprietary ProteinChip Arrays containing chemical or biochemical binding sites
on a chip, a ProteinChip Reader to read the ProteinChip Arrays and our
proprietary ProteinChip Software to analyze and manage protein-based
information.
Our PROTEINCHIP ARRAYS are typically used for protein expression profiling,
characterization and quantitative protein interaction applications. Our
ProteinChip Arrays consist of a metal surface with multiple sample wells, or
spots. These spots are treated with proprietary coatings that are designed to
capture certain families of proteins. Single coatings can be applied to several
spots or multiple types of coatings can be singly applied to spots on one
ProteinChip Array to create a variety of selectivity conditions. We offer two
types of ProteinChip Arrays: one uses chemical surfaces to perform
31
differential protein expression, and the other uses biochemical surfaces used in
protein interaction studies. Both types of ProteinChip Arrays can be used to
perform protein identification and characterization. We recently introduced our
second-generation chemical ProteinChip Arrays, which utilize our proprietary
polymer technology that improves both the selectivity, sensitivity and capacity
of our ProteinChip Arrays.
Our PROTEINCHIP READER is a laser-based, time-of-flight, molecular weight
detection system designed for use with our ProteinChip Arrays. Our ProteinChip
Reader is designed to be used at the benchtop in the laboratory by basic biology
researchers. Our ProteinChip Reader consists of a nitrogen laser, high-speed
digital electronics, a vacuum system and a standard personal computer with our
proprietary ProteinChip Software for system control and data analysis.
Our PROTEINCHIP SOFTWARE is designed to facilitate system operation by
biology researchers with no experience in molecular detection systems and
minimal experience in protein analysis. The software allows fully automated
operation of the ProteinChip System with graphic data presentation and analysis
readouts in familiar forms for the biologist, such as that displayed by gel
electrophoresis systems. Our ProteinChip Software enables differential protein
expression analysis by automatically comparing protein profiles and highlighting
differences in protein expression. Our ProteinChip Software provides researchers
with Internet access for rapid database searches, which facilitates protein
identification. Furthermore, our ProteinChip Software allows quantitative
protein interaction assays to be performed.
BIOMARKER DISCOVERY CENTERS
We intend to establish Biomarker Discovery Centers directly and through
partnerships to foster further adoption of our products and technology as an
industry standard. We believe that our Biomarker Discovery Centers may
accelerate biomarker discovery and validation in pharmaceutical drug discovery,
toxicology and clinical trials, and in clinical research laboratories. We intend
to deploy the prototypes of each next-generation ProteinChip System to maintain
a technological advantage in our Biomarker Discovery Centers. In addition, we
intend to obtain certain rights related to biomarkers discovered in our
Biomarker Discovery Centers.
We have leased facilities for our Biomarker Discovery Centers in Copenhagen,
Denmark and Fremont, California. We have hired initial managerial and scientific
staff at these facilities and have begun to build infrastructure necessary to
begin operations during 2000.
SALES AND MARKETING
We have developed a direct sales force worldwide. The sales process involves
on-site applications problem-solving, scientific publications, product
demonstrations, seminars, exhibits, conventions and meetings, word of mouth,
direct mail and the Internet to increase market awareness of our ProteinChip
System and promote acceptance of our technology as an industry standard. We
initiated our first full commercial launch of the ProteinChip System, Series PBS
II, in May 1999. This launch included over 30 exhibitions and trade shows,
direct mailings and an expanded demonstration sales program throughout the
United States, Japan and selected countries in Europe.
Our sales force includes field research scientists, most of whom have Ph.D.
degrees in biology or biochemistry. The primary responsibility of the field
research scientist is to provide solutions to biological problems for our
current and future sale prospects through applications development, scientific
seminars, joint scientific publications with customers and product
demonstrations. In addition, the field research scientists also serve as the
primary field representatives for after-sales customer service and technical
support. We currently have nine field research scientists in the United States,
three in Europe and three employed by our joint venture in Japan.
Ciphergen Biosystems, K.K. in Japan was formed in January 1999, as a joint
venture with Sumitomo Corporation, to distribute our products in Japan. The
joint venture was established with
32
Sumitomo having majority ownership, with transfer of majority ownership to us to
be accomplished on a pre-determined formula basis as early as the first quarter
of 2002. The joint venture currently has eight employees, consisting of three
field research scientists, one program manager and four administrative and
support personnel. The Joint Venture Agreement is for ten years from
January 1999. We invested $315,000 for 30% of Ciphergen Biosystems, K.K. In
March 1999, we signed a Distribution and Marketing Agreement granting Ciphergen
Biosystems, K.K. the exclusive right to distribute our products in Japan for ten
years, and we were paid $315,000 by Ciphergen Biosystems, K.K.
Our sales and marketing organization as of March 15, 2000, including
Ciphergen Biosystems, K.K., consisted of 32 employees, 17 of whom have Ph.D.
degrees. We intend to significantly increase the size of our organization over
the next 12 months, expanding in North America, Europe and Asia.
EXISTING CUSTOMERS
The following is a list of our customers:
PHARMACEUTICAL AND BIOTECHNOLOGY ACADEMIC AND GOVERNMENT
Alkermes, Inc. Dana Farber Cancer Center
Amgen, Inc. Duke Medical School
Amylin Pharmaceuticals, Inc. Harvard Brigham and Women's Hospital
Antex Biologics, Inc. Harvard Massachusetts General Hospital
AstraZeneca plc Imperial College Prion Unit
Boehringer-Ingelheim Pharmaceuticals, Inc. John Innes Institute
Cambridge Antibody Technology Group plc Johns Hopkins Medical School
Cantab Pharmaceuticals plc Massachusetts Institute of Technology
Creative Biomolecules, Inc. MD Anderson Cancer Center
Elan Pharmaceuticals Research Corp. Medical Research Council (Cambridge)
GeminX Biotechnologies, Inc. National Cancer Institute, National
Genome Therapeutics Corp. Institutes
GlaxoWellcome plc of Health
Human Genome Sciences, Inc. Royal Free Hospital School of Medicine
Matritech, Inc. St. Mary's Hospital Medical School
Merck & Co., Inc. Stanford University
Morinaga Milk Industry Company, Ltd. University of California, San Francisco
Novo Nordisk A/S (Zymogenetics) Cancer Center
Parke Davis & Co. University of British Columbia
Pioneer Hi-Bred International, Inc. University of East Anglia
Rhone Poulenc Rorer, Inc. University of Maryland
Riken BSI University of Massachusetts
Roche Vitamins, Inc. University of Notre Dame
Schering Plough Corp. U.S. Army, Medical Research Institute
SmithKline Beecham plc Veterans Administration Hospital, Loma Linda
Tanabe Pharmaceuticals Co., Ltd. Virginia Prostate Center
Yamanouchi Pharmaceuticals Co., Ltd.
Morinaga Milk Industry Company, Ltd., Riken BSI, Tanabe Pharmaceuticals and
Yamanouchi Pharmaceuticals are customers of our Japanese distributor, Ciphergen
Biosystems, K.K. In 1999, Ciphergen Biosystems, K.K. accounted, for 11% of our
revenue.
RESEARCH AND DEVELOPMENT
Our ProteinChip System is a single technology platform that we believe can
be easily optimized for use in multiple markets. This flexibility allows for new
applications and products in one field to be
33
introduced rapidly to others. Our research and development expenditures were
$2.9 million in 1999, $4.6 million in 1998 and $3.2 million in 1997. The total
expenditures for 1997 and 1998 included expenses related to stock issuance to
acquire IllumeSys Pacific, Inc. and Ciphergen Technologies, Inc.
We have ongoing technology development programs in our ProteinChip Arrays,
materials, surface chemistries, high-density biochip formats and manufacturing
processes. In applied research, we are developing new applications in
differential protein expression, quantitative protein interaction assays and
protein characterization.
Our research and development efforts related to our ProteinChip Readers,
includes research in the automation of sample introduction, high-sensitivity
detection, improvement in system resolution and quantitation. In addition, we
are developing new SELDI-based accessories for high resolution, tandem mass
spectrometry, whose capabilities will further enhance our ProteinChip System.
MANUFACTURING
We manufacture our ProteinChip Readers and Arrays in our Palo Alto,
California facilities. We rely upon suppliers for certain components of our
ProteinChip System, including Stanford Research Systems that also performs
specified design services for certain components of our ProteinChip Reader. We
perform final assembly and quality control on our ProteinChip Reader at our
facilities. We purchase extruded aluminum for our ProteinChip Arrays from a
third-party supplier. The ProteinChip Arrays are etched and base coated by
external vendors. We apply all chemistries to the ProteinChip Arrays and perform
final quality control at our facilities. We intend to continue and may extend
the subcontracting portions of our manufacturing processes when we think it best
leverages the suppliers' manufacturing experience, reduces costs or improves our
ability to meet customer demand.
INTELLECTUAL PROPERTY
As of March 15, 2000, we owned, co-owned or licensed a patent portfolio of
five issued U.S. patents and 17 pending U.S. patent applications, as well as
seven issued foreign patents, 41 pending foreign patent applications and one
international patent application filed under the Patent Cooperation Treaty. This
portfolio of patent properties includes four issued U.S. patents, five pending
U.S. patent applications, two issued foreign patents and three pending foreign
patent applications directed to the core SELDI technology. We licensed these
patents and patent applications in the field of life sciences for laboratories
and laboratory environments doing bioanalytic or biological measurements or
assays from Molecular Analytical Systems, which has an exclusive license on the
properties from the original assignee, Baylor College of Medicine. Our rights
under these sublicenses are set forth in agreements between Molecular Analytical
Systems, Inc., the exclusive licensee of the Baylor patents, and our
subsidiaries, IllumeSys Pacific, Inc. and Ciphergen Technologies, Inc. We have
received a letter from Molecular Analytical Systems expressing non-specific
concerns that we are using the licensed technology in a manner that it claims
exceeds the scope of the sublicense grants. Molecular Analytical Systems makes a
further non-specific claim that we are misrepresenting the scope of our rights
to third parties. We believe that this matter can be resolved satisfactorily.
Our portfolio also includes ten pending U.S. patent applications, 30 pending
foreign patent applications and one international patent application filed under
the Patent Cooperation Treaty directed to applications of SELDI technology for
research, diagnostics and drug screening, as well as to mass spectrometer
instrumentation, software and chip arrays. These properties are assigned or are
expected to be assigned to us. Our portfolio also includes one issued U.S.
patent, one pending U.S. patent application, one issued foreign patent and eight
pending foreign patent applications directed to methods of determining the amino
acid sequence of polypeptides. We licensed these properties from Rockefeller
University and Scripps Research Institute. Our portfolio also includes four
issued foreign patents directed to devices for and methods in mass spectrometry.
We licensed these properties from Rockefeller University. Our portfolio also
includes one pending U.S. patent application directed to methods of screening
phage display libraries.
34
We co-own this application with IntraImmune Therapies, Inc. through assignments
from the inventors. We also rely on trade secrets, know-how, continuing
technological development and licensing opportunities to develop and maintain a
competitive position in the market.
COMPETITION
Although we believe that we are currently the only company selling and
delivering products with an integrated separations and molecular weight
detection biochip platform for proteomics research, we expect to encounter
intense competition from a number of companies that offer competing products. We
anticipate that competition will come primarily from companies providing
products that incorporate established technologies, such as gel electrophoresis,
liquid chromatography and mass spectrometry.
In order to compete effectively, we will need to demonstrate the advantages
of our ProteinChip System over well-established alternative technologies and
products. We will also need to demonstrate the potential economic value of our
ProteinChip products relative to these conventional technologies and products.
Some of the companies that provide these products include the Applied Biosystems
division of PE Biosystems, Inc. Amersham Pharmacia Biotech, Boehringer-Mannheim,
Qiagen and several smaller reagent and equipment companies. Our future success
will depend in large part on our ability to establish and maintain a competitive
position with respect to these and future technologies.
We plan to offer proteomics services in the future through our Biomarker
Discovery Centers. Our Biomarker Discovery Centers may compete with companies in
the proteomics services area. We expect an increasing number of companies to
provide proteomics services in the future.
In many instances, our competitors have or will have substantially greater
financial, technical, research, and other resources and larger, more established
marketing, sales, distribution, and service organizations than we do. Moreover,
competitors may have greater name recognition than we do, and may offer
discounts as a competitive tactic. Our competitors may succeed in developing or
marketing technologies or products that are more effective or commercially
attractive than our products, or that would render our technologies and products
obsolete. Also, we may not have the financial resources, technical expertise or
marketing, distribution or support capabilities to compete successfully in the
future. Our success will depend in large part on our ability to maintain a
competitive position with respect to our technologies.
EMPLOYEES
As of March 15, 2000, we had 60 full-time employees worldwide, including 24
in sales and marketing, 16 in research and development, ten in manufacturing and
ten in administration. 25 of our employees have Ph.D. degrees in chemistry,
biology or biochemistry and many are experts in software and engineering. We
have also contracted with an additional nine individuals. Ciphergen Biosystems,
K.K. in Japan employs eight people. None of our employees is covered by a
collective bargaining agreement and we believe that our relations with our
employees are good.
FACILITIES
We currently lease 17,000 square feet in Palo Alto, California. The lease
expires on June 30, 2000. We have leased a 30,000 square foot facility in
Fremont, California, approximately 13 miles from our current location and will
move all Palo Alto operations to this new facility during the second quarter of
2000. The lease for the new facility expires in March 2008.
LEGAL PROCEEDINGS
We are not currently a party to any legal proceedings.
35
MANAGEMENT
EXECUTIVE OFFICERS, KEY EMPLOYEES AND DIRECTORS
The following table sets forth certain information regarding our executive
officers, key employees and directors as of March 15, 2000:
NAME AGE POSITION
- ---- -------------------- --------
William E. Rich, Ph.D..................... 55 President, Chief Executive Officer and Director
James H. Stanford......................... 61 Vice President and Chief Financial Officer
David A. DeNola........................... 49 Vice President, Operations
Robert M. Maurer.......................... 47 Vice President, Business Development
Christopher A. Pohl....................... 48 Vice President, Research and Development
John A. Young............................. 67 Chairman of the Board of Directors
Michael J. Callaghan...................... 47 Director
Barbara J. Dalton, Ph.D................... 46 Director
Jean-Francois Formela, M.D................ 43 Director
William R. Green, Ph.D.................... 49 Director
James L. Rathmann......................... 48 Director
Daniel Vapnek, Ph.D....................... 61 Director
WILLIAM E. RICH, PH.D., joined us in September 1994, as our President and
Chief Executive Officer and as a director. Prior to joining us, Dr. Rich was
Senior Vice President of Sepracor, Inc. from 1991 to 1994, and President of
BioSepra, which was spun off by Sepracor. Prior to joining Sepracor, he was
Senior Vice President of Dionex Corporation and from 1975 to 1990, he had
responsibility for both the Marketing and Sales and Research and Development
departments at various times during his tenure there. Dr. Rich received a B.S.
in Chemistry from Carson Newman College and a Ph.D. in Chemistry from the
University of North Carolina, Chapel Hill and conducted post-doctoral research
in biochemistry at Duke University.
DAVID A. DENOLA joined us in January 2000, as Vice President, Operations.
Prior to joining us he was Chief Operating Officer of Gamida-Cell, a cell
therapy company in Israel, from March 1999 to January 2000. From September 1997
to March 1999, he was Vice President and Deputy General Manager of CBD
Technologies, an agricultural biotechnology company in Israel. From August 1994
to August 1997, he held positions of Director of Operations, Business
Development Manager and Chief Operating Officer at Diagenetics, Ltd. in Israel.
From 1992 to 1993, he served as Director of Operations at Tago Immunologicals, a
division of Biosource International, an antibody company from 1991 to 1992, he
was Manager of Contract Manufacturing at Somatix Therapy, a parenteral drug
company. Mr. DeNola received a B.A. in Genetics from the University of
California, Berkeley, and a post-graduate degree in Business from the Technion
College in Israel.
ROBERT M. MAURER joined us in June 1999, on a consulting basis and became a
full time employee as Vice President, Business Development in February 2000.
Prior to joining us he was an independent consultant in biomedical business
development, technology licensing and corporate strategy from March 1999 to
February 2000. Prior to that he served as Vice President of Business Development
at Avigen Corporation, a gene delivery system company, from November 1996 to
February 1999. From June to October 1996, he was an independent consultant. From
November 1995 to June 1996, he was Vice President of Strategic Marketing at
Promega Corporation, a life sciences company. From May 1995 to October 1995, he
was an independent consultant. From February 1992 to April 1995, he was Chief
Operating Officer, Secretary and Treasurer of Molecular Geriatrics Corporation,
an Alzheimer's Disease research company. He received a B.A. from Carleton
College and an M.B.A. from the Harvard Graduate School of Business.
36
CHRISTOPHER A. POHL joined us in March 2000, as Vice President, Research and
Development. Prior to joining us, he was Vice President of Dionex Corporation
responsible for chemistry research and development and chemical products
manufacturing. He joined Dionex in the early 1980's and has held various senior
management positions in research and development. He holds 19 U.S. patents in a
broad range of separations areas including chromotography, electrophoresis and
solid phase extractions. He received a B.S. in Chemistry from the University of
Washington.
JAMES H. STANFORD joined us in January 1995, on a consulting basis and
became a full-time employee in August 1997. He currently serves as our Vice
President and Chief Financial Officer. Prior to joining us he was a Partner in
the Financial Services Division of David Powell, Inc. from August 1994 to
August 1997, President, Chief Operating Officer and Chief Financial Officer of
Adams Scientific, Inc. from 1991 to 1993, Vice President, Finance and Operations
of Answer Systems, Inc. from 1990 to 1991, and Executive Vice President and
Chief Financial Officer of Sequoia-Turner Corporation from 1982 to 1989. He
received an A.B. from Stanford University and an M.B.A. from the Stanford
Graduate School of Business.
JOHN A. YOUNG has been one of our directors since our inception and became
our Chairman in 1995. Mr. Young was President and Chief Executive Officer of
Hewlett Packard Company from 1977 until his retirement in 1992. He serves as a
director of other public life science companies, including SmithKline Beecham
plc and Affymetrix Incorporated, and also serves as a director of Wells Fargo &
Co., Chevron Corporation, Novell Incorporated, and Lucent Technologies Inc. He
received a B.S.E.E. from Oregon State University and an M.B.A. from the Stanford
Graduate School of Business.
MICHAEL J. CALLAGHAN is Senior Vice President of MDS Capital Corporation and
became one of our directors in 1998. Prior to joining MDS Capital in 1992, he
was active in several general management positions. Mr. Callaghan began his
career with Ernst & Young where he became a Chartered Accountant. He serves as a
director of a public company: Systems Xcellence, Inc. He also serves as a
director of several other private companies, including Apollo
Biopharmaceuticals, Inc., Mitokor, Inc. and Redwood Microsystems, Inc. He
received a B. Comm from McGill University and an M.B.A. from York University.
BARBARA J. DALTON, PH.D., is a Vice President of S.R. One, Ltd., and became
one of our directors in 1999. Prior to joining S.R. One in 1993, Dr. Dalton
served for ten years as a research scientist at SmithKline Beecham. She was
formerly a director of Genset, S.A., a public company and currently serves as a
director of several private companies, including Gryphon Sciences, Molecular
Mining Corporation, Physiome Sciences, Inc. and TerraGen Discovery, Inc. She
received a B.S. in Biology from Pennsylvania State University and a Ph.D. in
Microbiology and Immunology from the Medical College of Pennsylvania.
JEAN-FRANCOIS FORMELA, M.D., is a General Partner of Atlas Venture and
became one of our directors in March 2000. Prior to joining Atlas Venture in
1993, Dr. Formela was Senior Director, Medical Marketing and Scientific Affairs
at Schering-Plough in the U.S. He is also a director of BioChem Pharma, a public
company, and the following private companies, deCode Genetics, Exelixis, SGX and
Variagenics. He holds an M.D. degree from Paris University School of Medicine
and an M.B.A. from Columbia Business School.
WILLIAM R. GREEN, PH.D., is President and Chief Executive Officer of
Stanford Research Systems, Inc., which he joined in 1984 and with which we have
a strategic partnership. He became one of our directors in 1995. He received a
B.S.E.E. degree from Cornell University and M.S.E.E. and Ph.D. degrees from
Stanford University. He also served as a post-doctoral fellow at the Ecole
Polytechnique in France.
JAMES L. RATHMANN has been President of Falcon Technology Management
Corporation and a general partner of Falcon Technology Partners, L. P. since its
founding in 1993. Mr. Rathmann has been
37
one of our directors since our inception. He also serves as a director of
several private companies, including Genomica Corporation and Array Biopharma
Corporation. Prior to joining Falcon Technology in 1993, he was Senior Vice
President of Operations at Soft-Switch, Inc. from 1984 to 1993. He received a
B.A. in Mathematics from the University of Colorado and an M.S. in Computer
Science from the University of Wisconsin.
DANIEL VAPNEK, PH.D., held senior research positions at Amgen, Inc., from
1981 to his retirement in 1996, serving the last 13 years as Senior Vice
President, Research. He has been one of our directors since our inception. Prior
to Amgen, Dr. Vapnek was a faculty member in the Department of Molecular and
Population Genetics at the University of Georgia from 1972 to 1981, becoming a
Professor in 1981. He holds B.S. and Ph.D. degrees from the University of Miami
in Florida.
BOARD COMPOSITION
Our board of directors is currently comprised of eight directors. Our
amended and restated bylaws authorize not fewer than five directors and not more
than nine directors.
BOARD COMMITTEES
Our board of directors has established an audit committee and a compensation
committee.
AUDIT COMMITTEE
The audit committee is responsible for assuring the integrity of our
financial control, audit and reporting functions. It reviews with our management
and our independent accountants the effectiveness of our financial controls,
accounting and reporting practices and procedures. In addition, the audit
committee reviews the qualifications of our independent accountants, makes
recommendations to the board of directors regarding the selection or our
auditors, reviews the scope, fees and results of activities related to audit and
non-audit services. Prior to March 2000, the audit committee responsibilities
were conducted by the full board of directors, which met annually with
representatives of our independent accountants, including executive sessions
from which members of management were excused.
COMPENSATION COMMITTEE
The compensation committee is chaired by James L. Rathmann, and has
Barbara J. Dalton and John A. Young as members. Its principal responsibility is
to administer our stock plans and to set the salary and incentive compensation,
including stock option grants to the President and Chief Executive Officer.
DIRECTOR COMPENSATION
Our seven outside directors serve without cash compensation. In
November 1999, September 1998 and September 1997, outside directors or the
institutions they represent were each awarded non-statutory options for 20,000
shares of our common stock, with each option granted vesting monthly over
12 months. In March 2000, John A. Young, the Chairman of our board, was granted
non-statutory options to acquire 200,000 shares, half vesting immediately and
half vesting monthly over 24 months.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
None of our executive officers serves as a member of the board of directors
or compensation committee of any entity that has one or more of its executive
officers serving as a member of our board of directors or compensation
committee.
38
LIMITATION OF LIABILITY AND INDEMNIFICATION
Our Amended and Restated Certificate of Incorporation limits the liability
of directors to the maximum extent permitted by Delaware law. Delaware law
provides that directors of a corporation will not be personally liable for
monetary damages for breach of their fiduciary duties as directors, except
liability for:
- breach of their duty of loyalty to the corporation or its stockholders;
- acts or omissions not in good faith or that involve intentional misconduct
or a knowing violation of law;
- unlawful payments of dividends or unlawful stock repurchases or
redemptions; and
- any transaction from which the director derived an improper personal
benefit.
This limitation of liability does not apply to liabilities arising under the
federal or state securities laws and does not affect the availability of
equitable remedies such as injunctive relief or rescission. Our bylaws provide
that we will indemnify our directors, officers, employees and other agents to
the fullest extent permitted by the Delaware General Corporation Law. We believe
that indemnification under our bylaws covers at least negligence and gross
negligence on the part of indemnified parties. Our bylaws also permit us to
secure insurance on behalf of any officer, director, employee or other agent for
any liability arising out of his or her actions in such capacity, regardless of
whether the bylaws would permit such indemnification.
We have obtained directors and officers' insurance providing indemnification
for all of our directors, officers and employees for certain liabilities. Prior
to closing of this offering we will enter into agreements to indemnify our
directors and executive officers in addition to the indemnification provided for
in our bylaws. These agreements, among other things, will indemnify our
directors and executive officers for expenses, including attorneys' fees,
judgments, fines and settlement amounts incurred by any such person in any
action or proceeding, out of such person's services as a director, officer,
employee, agent or fiduciary of ours, any subsidiary of ours or any other
company or enterprise to which the person provides services at our request. We
believe that these provisions and agreements are necessary to attract and retain
qualified persons as directors and executive officers. At present, there is no
litigation or proceeding involving any of our directors or officers in which
indemnification is required or permitted, and we are not aware of any threatened
litigation or proceeding that may result in a claim for indemnification.
39
EXECUTIVE COMPENSATION
The following table summarizes the compensation paid to or earned during the
year ended December 31, 1999, by our Chief Executive Officer and our other
mostly highly compensated executive officer whose total salary and bonus
exceeded $100,000 for services rendered to us in all capacities during 1999. The
executive officers listed in the table below are referred to as named executive
officers.
SUMMARY COMPENSATION TABLE
LONG-TERM
ANNUAL COMPENSATION COMPENSATION AWARDS
---------------------- -------------------
SECURITIES
UNDERLYING
NAME AND PRINCIPAL POSITIONS SALARY ($) BONUS ($) OPTIONS (#)
- ---------------------------- ---------- --------- -------------------
William E. Rich, Ph.D., ............................... 215,233 40,800 155,000
President and Chief Executive Officer and Director
James H. Stanford, .................................... 176,191 24,302 --
Vice President and Chief Financial Officer
OPTION GRANTS IN YEAR ENDED DECEMBER 31, 1999
The following table sets forth information concerning the individual grants
of stock options to each of the named executive officers during the fiscal year
ended December 31, 1999.
INDIVIDUAL GRANTS (1) POTENTIAL REALIZABLE
---------------------------------------------------- VALUE AT ASSUMED
PERCENT OF ANNUAL RATES OF
NUMBER OF TOTAL OPTIONS STOCK PRICE
SECURITIES GRANTED TO APPRECIATION
UNDERLYING EMPLOYEES EXERCISE FOR OPTION TERM (2)
OPTIONS IN FISCAL PRICE EXPIRATION -----------------------
NAME GRANTED (#) YEAR (%) ($/SH) DATE 5% ($) 10% ($)
- ---- ------------ ------------- -------- ---------- -------- --------
William E. Rich, Ph.D............ 155,000 13 .50 5/10/09
James H. Stanford................ -- -- -- --
- ------------------------
(1) All options were granted under our 1993 Stock Option Plan. Options granted
to employees under the plan generally vest over a five-year period in equal
monthly installments. Options granted to directors generally vest over
12 months. The board retains sole discretion to modify the terms, including
the price, of outstanding options.
(2) Amounts represent hypothetical gains that could be achieved for the
respective options if exercised at the end of the option term. These gains
are based on assumed rates of stock price appreciation of 5% and 10%
compounded annually from the date the respective options were granted to
their expiration date based upon an assumed initial public offering price of
$ per share. These assumptions are not intended to forecast future
appreciation of our stock price. The potential realizable value computation
does not take into account federal or state income tax consequences of
option exercises or sales of appreciated stock.
40
AGGREGATE OPTION EXERCISES IN 1999
AND 1999 YEAR-END OPTION VALUES
The following table provides summary information concerning stock options
granted under our 1993 Stock Option Plan during the year ended December 31,
1999, and exercised options subject to repurchase held as of December 31, 1999,
by each of the named executive officers:
SHARES NUMBER OF SECURITIES VALUE OF SHARES
ACQUIRED VALUE SUBJECT TO REPURCHASE SUBJECT TO REPURCHASE
NAME ON EXERCISE REALIZED AT DECEMBER 31, 1999 (#) AT DECEMBER 31, 1999 ($)(1)
- ---- ----------- -------- -------------------------- -----------------------------
William E. Rich............... 155,000 -- 580,000
James H. Stanford............. -- -- 230,000
- ------------------------
(1) There was no public trading market for our common stock as of December 31,
1999. Accordingly, the value of unexercised in-the-money options as of that
date was calculated on the basis of an assumed initial public offering price
of $ per share, less the aggregate exercise price of the options.
EMPLOYEE BENEFIT PLANS
1993 STOCK OPTION PLAN
Our 1993 Stock Option Plan was adopted by the board of directors and
approved by our stockholders in December 1993. The 1993 Stock Option Plan
provides for the grant of incentive stock options intended to qualify under
Section 422 of the Internal Revenue Code and stock options that do not so
qualify. The granting of incentive stock options is subject to the limitations
set forth in the 1993 Stock Option Plan. Our directors, officers, employees and
consultants are eligible to receive grants under the 1993 Stock Option Plan. The
purpose of the 1993 Stock Option Plan is to promote the interests of us and our
stockholders by encouraging and enabling eligible employees and other persons
affiliated with us to acquire our stock. We believe that the granting of options
will stimulate the efforts of these persons, strengthen their desire to remain
with us, further align their interests with our success and assure a closer
identification between them and us.
The 1993 Stock Option Plan is administered by our board of directors, which,
subject to the limitations on incentive stock options discussed above, has
authority to determine the optionees, the number of shares covered by an option,
the option exercise price, the term of the option, the vesting schedule and
other terms and conditions. The 1993 Stock Option Plan, as amended, provides for
the grant of options covering up to 5,825,000 shares of common stock. If an
option expires, terminates, becomes unexercisable or is forfeited during the
term of the 1993 Stock Option Plan without having been exercised in full, the
shares subject to the unexercised portion of such plan will again be available
for grant pursuant to the 1993 Stock Option Plan. In March 2000, the board of
directors approved an additional 1,900,000 shares for the 1993 Stock Option Plan
and recommended such action to the stockholders.
As of March 15, 2000, options for a total of 2,571,136 shares of common
stock are outstanding under the 1993 Stock Option Plan. In addition, 3,690,741
shares of common stock have been purchased under the 1993 Stock Option Plan
pursuant to exercises of options. A total of 1,463,123 shares remain available
for issuance under the 1993 Stock Option Plan.
401(K) PLAN
We have established a tax-qualified employee savings and retirement plan, or
401(k) Plan, which covers all of our full-time U.S. employees who have completed
at least three months of service. Under the 401(k) Plan, eligible employees may
defer up to 20% of their pre-tax-earnings, subject to the
41
Internal Revenue Service's annual contribution limit. The 401(k) Plan permits
additional discretionary matching contributions by us on behalf of all
participants in the 401(k) Plan in such a percentage amount as may be determined
annually by the Advisory Committee. The Advisory Committee has the
responsibility of making all discretionary determinations under the 401(k) Plan.
The 401(k) Plan is intended to qualify under Section 401 of the Internal Revenue
Code so that contributions by employees or by us to the 401(k) Plan, and so that
our contributions, if any, will be deductible by us when made. The Trustee under
the 401(k) Plan invests the account balance under the plan in accordance with an
employee's written direction. To the extent an employee directs the investment
of his or her account balance under the plan, ERISA relieves the Trustee from
liability for any loss resulting from employee direction of the investment.
EMPLOYMENT AGREEMENTS
We entered into an employment offer letter, dated August 25, 1997, with
James H. Stanford, our Vice President and Chief Financial Officer. This letter
provides for the acceleration of vesting of 100% of the options granted to
Mr. Stanford and severance pay of not less than three month's pay and bonus in
the event we are acquired by another company or group of investors and
Mr. Stanford's employment is terminated for reasons other than gross misconduct,
Mr. Stanford receives a cut in pay or responsibilities, or Mr. Stanford is
required to move beyond reasonable commuting distance from his home.
42
CERTAIN TRANSACTIONS
We have issued since our inception through March 15, 2000, in private
placement transactions (collectively, the "Private Placement Transactions"),
shares of preferred stock as follows: an aggregate of 3,054,400 shares of
Series A preferred stock at $0.50 per share in February and July 1994, an
aggregate of 6,627,457 shares of Series B preferred stock at $1.00 per share in
March 1995, July 1996 and March 2000, an aggregate of 2,968,119 shares of
Series C preferred stock at $1.50 per share in April 1997, March 1998 and
March 2000, an aggregate of 6,919,713 shares of Series D preferred stock at
$2.00 per share in July and September 1998, January 1999 and March 2000, and an
aggregate of 10,390,862 shares of Series E preferred stock at $2.75 per share in
March 2000.
Each share of preferred stock is convertible, without payment of additional
consideration, into one share of common stock, and all of the 29,960,551 shares
of preferred stock shall be converted into 29,960,551 shares of common stock
upon closing of this offering.
The following table summarizes the shares of preferred stock purchased by
our greater than 5% stockholders, our directors and our executive officers in
private placement transactions:
SERIES A SERIES B SERIES C SERIES D SERIES E
PREFERRED PREFERRED PREFERRED PREFERRED PREFERRED
INVESTOR (1) STOCK STOCK STOCK STOCK STOCK
- ------------ --------- --------- --------- --------- ---------
DIRECTORS AND EXECUTIVE OFFICERS
John A. Young......................... 100,000 -- 304,775 148,378 96,759
William R. Green, Ph.D................ -- 200,000 121,734 -- 51,300
William E. Rich, Ph.D................. -- 250,000 67,303 -- --
Daniel Vapnek, Ph.D................... -- 50,000 100,000 -- 27,159
James H. Stanford..................... -- 5,000 -- -- --
MDS Capital Corporation(2)............ -- -- -- 2,500,000 452,649
ENTITIES AFFILIATED WITH DIRECTORS
S.R. One, Ltd.(3)..................... 1,375,660 1,743,696 671,441 207,404 363,636
Atlas Venture(4)...................... -- -- -- -- 3,796,941
Stanford Research Systems, Inc.(5).... -- 1,657,239 -- -- 300,059
Falcon Technology Partners(6)......... 749,834 1,578,671 1,414,532 678,368 727,273
Lenita Rich (IRA)(7).................. -- -- -- 50,113 10,884
Diana Young(8)........................ -- 83,333 -- -- 27,159
Gregory Young(8)...................... -- 83,333 -- -- 27,159
John Peter Young(8)................... -- 83,334 -- -- 27,159
China Development Industrial
Bank(9)............................. -- -- -- -- 103,891
Central Investment Holding(9)......... -- -- -- -- 103,891
Bank Sinopac(9)....................... -- -- -- -- 103,891
Cheng Xin Venture Capital Corp.(9).... -- -- -- -- 51,963
5% STOCKHOLDERS
William E. Rich, Ph.D................. -- 250,000 67,303 -- --
MDS Capital Corporation............... -- -- -- 2,500,000 452,649
S.R. One, Ltd......................... 1,375,660 1,743,696 671,441 207,404 363,636
Atlas Venture......................... -- -- -- -- 3,796,941
Falcon Technology Partners............ 749,834 1,578,671 1,414,532 678,368 727,273
T. William Hutchens................... -- -- -- -- --
Tai-Tung Yip.......................... -- -- -- -- --
- ------------------------
(1) See "Principal Stockholders" for more detail on shares held by these
purchasers.
(2) Michael J. Callaghan, a director, is a Senior Vice President of MDS Capital
Corporation.
(3) Barbara J. Dalton, Ph.D., a director, is a Vice President of
S.R. One, Ltd.
43
(4) Jean-Francois Formela, M.D., a director, is a General Partner of Atlas
Venture.
(5) William R. Green, Ph.D, a director, is President and Chief Executive Officer
of Stanford Research Systems, Inc.
(6) James L. Rathmann, a director, is President of Falcon Technology Partners.
(7) William E. Rich, Ph.D., President and Chief Executive Officer and a
director, is the spouse of Lenita Rich.
(8) John A. Young, Chairman of the board of directors, is the father of Diana,
Gregory and John Peter Young.
(9) China Development Industrial Bank, Central Investment Holding, Bank Sinopac
and Cheng Xin Venture Capital corporation are limited partners of MDS
Capital Corporation, of which Michael J. Callaghan, a director, is Senior
Vice President.
Since our inception, we have issued, in conjunction with the issuance of
certain convertible promissory notes (all of which have been converted) in
private placement transactions and in conjunction with other financing
transactions, warrants to purchase shares of preferred stock as follows: an
aggregate of 53,334 shares of Series A preferred stock at $0.50 per share in
December 1993 and September 1996, an aggregate of 393,668 shares of Series B
preferred stock at $1.00 per share in March and October 1995 and January 1996,
an aggregate of 83,400 shares of Series C preferred stock at $1.50 per share in
April, September and November 1997, an aggregate of 165,955 shares of Series D
preferred stock at $2.00 per share in February, March and August 1998, and
146,635 shares of Series E preferred stock at $2.75 per share in March 2000. The
following table summarizes the number of preferred stock warrants granted to
greater than 5% stockholders, directors, executive officers and entities
affiliated with our executive officers and directors in private placement
transactions (including 53,334 Series A warrants exercised in 1998, 280,668
Series B warrants exercised in 1999 and 2000, 38,400 Series C warrants exercised
in 2000 and 165,000 Series D warrants exercised in 2000, by those listed in this
table):
SERIES A SERIES B SERIES C SERIES D
PRINCIPAL AMOUNT WARRANT WARRANT WARRANT WARRANT
INVESTOR(1) OF NOTES SHARES SHARES SHARES SHARES
- ----------- ---------------- --------- --------- --------- ---------
S.R. One, Ltd............................. $1,721,683 53,334 139,054 -- 26,250
Falcon Technology Partners................ 1,250,784 -- 127,558 -- 22,500
William R. Green, Ph.D.................... 240,000 -- -- 38,400 --
John A. Young............................. 250,000 -- -- -- 18,750
- ------------------------
(1) See "Principal Stockholders" for more detail on shares held by these
purchasers.
In October 1996 and September 1997, we issued an aggregate of 550,000 shares
of Series B preferred stock to SRS under a joint development agreement with SRS
entered into in February 1995. In connection with the agreement, SRS may be
entitled to receive up to an additional 550,000 shares of Series B preferred
stock upon the achievement of certain milestones.
In February 1997, Dr. Green loaned us $240,000 evidenced by a promissory
note. In addition, we issued to Dr. Green a warrant to purchase 38,400 shares of
Series C preferred stock at an exercise price of $1.25 per share. The loan was
fully repaid on March 3, 2000.
In April 1997, we entered into an agreement to acquire all of the
outstanding capital stock of IllumeSys Pacific, Inc. Under the agreement, we
issued an aggregate of 9,831,476 shares of its common stock to IllumeSys
shareholders, including 6,783,718 shares of common stock to Dr. Hutchens.
In January 1998, the William E. Rich family loaned us $100,000 pursuant to a
senior promissory note. The note accrued interest at a rate of 8 1/2% per annum.
On March 26, 1998, we issued 67,303
44
shares of Series C preferred stock to the William E. Rich IRA at $1.50 per share
and we repaid the outstanding principal balance and accrued interest on the note
on March 31, 1998.
In February 1998, we agreed with Ciphergen Technologies, Inc. ("CTI"), that
we would acquire the 95% of the capital stock of CTI we did not then own in
exchange for 1,075,000 shares of our common stock. The consummation of the
acquisition was concurrent with the first closing of the Series D preferred
stock offering on July 28, 1998. Drs. Hutchens and Yip were the principal
shareholders of CTI.
In March 1998, Drs. Rich and Hutchens, Mr. Stanford and Dr. Yip exercised
incentive stock options totaling 1,925,000 shares with five-year promissory
notes totaling $296,250. In May 1998, Mr. Stanford exercised an incentive stock
option for 100,000 shares with a $50,000 five-year promissory note. In
December 1998, a $200,000, five-year promissory note was executed by Dr. Rich,
secured by his personal residence. In September 1999, Dr. Rich entered into a
five-year promissory note for $47,548, which represented a renewal of a $35,000
promissory note of September 1994 plus accumulated interest. In November 1998, a
$30,000, five year promissory note was executed by Dr. Rich, representing
renewal of a $30,000, four year promissory note executed by Dr. Rich in
November 1994.
In September 1999, Dr. Rich exercised an incentive stock option for 155,000
shares with a $77,500, five-year promissory note. In March 2000, Dr. Rich
exercised an incentive stock option for 200,000 shares with a $300,000 five-year
promissory note.
From June 1996 to March 1999, SRS provided space to us at no charge so that
we could begin manufacturing operations of our ProteinChip Reader. SRS charged
us on an hourly basis for the use of SRS purchasing personnel who ordered
materials from vendors for ProteinChip Reader production. SRS charged us the
suppliers' prices without markup and invoiced us monthly. In March 1999, we
relocated our manufacturing operations to our Palo Alto headquarters and
instituted direct purchases of materials. SRS continues as a supplier of certain
components of our ProteinChip Reader but no longer purchases from other
suppliers for us. We believe that the price and quality of products made and
supplied by SRS are competitive with available alternatives. From June 1996 to
September 1999, we paid SRS $2.4 million for externally purchased parts, SRS
staff time and SRS manufactured parts.
Our SELDI technology was acquired via royalty-bearing sub-licenses. The
technology was developed by Drs. Hutchens and Yip when they were employed at the
Baylor College of Medicine. Several patent applications have been filed under
the names of Drs. Hutchens and Yip and assigned to Baylor.
In 1993, Molecular Analytical Systems, or MAS, owned primarily by Drs.
Hutchens and Yip, obtained an exclusive worldwide license to the SELDI
technology from Baylor. In 1997, MAS granted an exclusive sub-license for a
broad range of applications in the life science research market to IllumeSys
Pacific, Inc., or IPI, and an exclusive sub-license for a broad range of
applications in other life science markets, including clinical diagnostics and
consumer products, to ISP Acquisition Corporation, later named Ciphergen
Technologies, Inc., or CTI. Exclusive rights for a broad range of applications
in the field of therapeutic drug discovery were shared between IPI and CTI.
In April 1997, we acquired 100% of the stock of IPI and 5% of the stock of
CTI. In July 1998, we acquired the remaining 95% of the stock of CTI concurrent
with the first closing of the Series D preferred stock offering. MAS retained
for itself rights to SELDI for non-life science applications and for life
science applications that do not involve biological or bioanalytical
measurements or assays performed in laboratories or laboratory environments.
We entered into an employment agreement, dated April 7, 1997, with Tai-Tung
Yip, our Director of Research. It provides for an annual base salary of $100,000
per year and for a discretionary bonus.
45
Mr. Yip's term of employment under the agreement is three years and we have the
right to terminate Mr. Yip's employment with cause.
We believe the foregoing transactions were in our best interests. It is our
policy that future transactions with affiliates, including any loans we make to
our officers, directors, principal stockholders or other affiliates will be on
terms no less favorable to us than we could have obtained from unaffiliated
third parties. These transactions will be approved by a majority of our board of
directors, including a majority of the independent and disinterested members,
or, if required by law, a majority of our disinterested stockholders.
46
PRINCIPAL STOCKHOLDERS
The following table sets forth information regarding the beneficial
ownership of our common stock as of March 15, 2000, and as adjusted to reflect
the sale of common stock offered hereby for:
- each person known by us to own beneficially more than 5% of our common
stock;
- each of the our directors;
- our Chief Executive Officer and our other most highly compensated
executive officer; and
- our executive officers and directors as a group.
Except as otherwise noted, the address of each person listed in the table is
c/o Ciphergen Biosystems, Inc., 490 San Antonio Road, Palo Alto, California,
94306. The table includes all shares of common stock issuable within 60 days of
March 15, 2000, upon the exercise of options and warrants beneficially owned by
the indicated stockholders on that date based on options and warrants
outstanding as of March 15, 2000. Beneficial ownership is determined in
accordance with the rules of the Securities and Exchange Commission and includes
voting and investment power with respect to shares. To our knowledge, except
under applicable community property laws or as otherwise indicated, the persons
named in the table have sole voting and sole investment control with respect to
all shares beneficially owned. The applicable percentage of ownership for each
stockholder is based on 46,427,808 shares of common stock outstanding as of
March 15, 2000, in each case together with applicable options and warrants for
that stockholder. Shares of common stock issuable upon exercise of options and
warrants beneficially owned are deemed outstanding for the purpose of computing
the percentage of ownership of the person holding those options and warrants,
but are not deemed outstanding for computing the percentage ownership of any
other person.
PERCENT BENEFICIALLY
OWNED (1)
SHARES ---------------------
BENEFICIALLY BEFORE AFTER
BENEFICIAL OWNER OWNED OFFERING OFFERING
- ---------------- ------------ --------- ---------
T. William Hutchens ........................................ 7,525,468 16.2%
132 Palmer Avenue
Mountain View, CA 94043
James L. Rathmann (2) ...................................... 5,258,678 11.3%
Falcon Technology Partners
600 Dorsett Road
Devon, PA 19333
Falcon Technology Partners ................................. 5,198,678 11.2%
600 Dorsett Road
Devon, PA 19333
Barbara J. Dalton (3) ...................................... 4,521,837 9.7%
S.R. One, Limited
Four Tower Bridge
200 Barr Harbor Drive, Suite 250
W. Conshohocken, PA 19428
S.R. One, Limited .......................................... 4,521,837 9.7%
Four Tower Bridge
200 Barr Harbor Drive, Suite 250
W. Conshohocken, PA 19428
47
PERCENT BENEFICIALLY
OWNED (1)
SHARES ---------------------
BENEFICIALLY BEFORE AFTER
BENEFICIAL OWNER OWNED OFFERING OFFERING
- ---------------- ------------ --------- ---------
Jean-Francois Formela (4) .................................. 3,796,941 8.2%
Atlas Venture
222 Berkeley Street
Boston, MA 02116
Atlas Venture .............................................. 3,796,941 8.2%
222 Berkeley Street
Boston, MA 02116
Tai-Tung Yip (5)............................................ 3,410,148 7.3%
William E. Rich (6)......................................... 3,293,300 7.0%
Michael J. Callaghan (7) ................................... 2,972,649 6.4%
MDS Capital Corporation
100 International Blvd.
Etobicoke, Ontario, Canada M9W 6J6
MDS Capital Corporation .................................... 2,952,649 6.4%
100 International Blvd.
Etobicoke, Ontario, Canada M9W 6J6
William R. Green (8) ....................................... 2,940,332 6.3%
Stanford Research Systems, Inc.
1290 D Reamwood Avenue
Sunnyvale, CA 94089
John A. Young (9) .......................................... 1,181,389 2.5%
3200 Hillview Avenue
Palo Alto, CA 94304
James H. Stanford (10) ..................................... 415,000 *
Daniel Vapnek (11) ......................................... 277,159 *
414 Plaza Rubio
Santa Barbara, CA 93103
All directors and executive officers as group (nine 24,657,285 51.6%
persons) (12).............................................
- ------------------------
* less than one percent of outstanding shares
(1) Assumes total conversion of preferred stock into common stock and includes
all shares of common stock issuable (as of March 15, 2000) upon the
exercise of outstanding options (including unvested options) held by the
above listed stockholders and upon the exercise of outstanding warrants
held by the above listed stockholders. Except as otherwise noted, the
persons named in the table have sole voting and investment power with
respect to all shares of common stock owned by them, subject to community
property laws where applicable. Unless otherwise indicated, the address of
each of the individuals named above is c/o Ciphergen Biosystems, Inc.,
490 San Antonio Road, Palo Alto, California 94306.
(2) Includes 40,000 shares in the name of James L. Rathmann, a director,
issuable upon exercise of stock options, 20,000 shares of common stock
currently owned by Mr. Rathmann and 135,000 shares in the name of Falcon
Technology Partners, of which Mr. Rathmann is a General Partner, issuable
upon exercise of preferred stock warrants.
48
(3) Includes 60,000 shares in the name of S.R. One, Ltd. issuable upon exercise
of stock options and 138,750 shares issuable upon exercise of preferred
stock warrants. Barbara Dalton, a director, is a Vice President of
S.R. One.
(4) Jean-Francois Formela, a director, is a General Partner of Atlas Venture.
(5) Includes 14,584 shares issuable upon exercise of a stock option and 20,416
shares of common stock in the name of Christine Yip, an employee, who is
Dr. Yip's spouse, and 50,000 shares subject to repurchase in the event of
employment termination, as part of an early option exercise agreement.
(6) Includes 50,113 shares of Series D preferred stock and 10,884 shares of
Series E preferred stock held in an Individual Retirement Account and
10,000 shares of common stock held by Lenita L. Rich, a former employee,
who is Dr. Rich's spouse. Includes 710,667 shares subject to repurchase in
the event of employment termination, as part of an early option exercise
agreement.
(7) Includes 20,000 shares issuable upon exercise of a stock option grant to
Michael J. Callaghan. Includes shares owned by three funds affiliated with
MDS Capital Corporation. Michael J. Callaghan, a director, is Senior Vice
President of MDS Capital Corporation.
(8) Includes 550,000 shares of Series B preferred stock issuable upon
completion of certain milestones under a product development agreement
between Stanford Research Systems, Inc. and us. William R. Green, a
director, is President and Chief Executive Officer of Stanford Research
Systems, Inc.
(9) Includes 250,000 shares of Series B preferred stock and 200,000 shares of
common stock, 10,000 shares of which is subject to repurchase as part of an
early stock exercise agreement, are in the names of Mr. Young's three adult
children and 18,750 shares issuable upon the exercise of Series D preferred
stock warrants.
(10) Includes 215,000 shares subject to repurchase in the event of employment
termination as part of an early option exercise agreement.
(11) Includes 100,000 shares issuable upon exercise of stock options.
(12) Includes 880,000 shares issuable upon exercise of stock options, 292,500
shares issuable upon exercise of preferred stock warrants, 550,000 shares
of Series B preferred stock issuable upon completion of certain milestones
by Stanford Research Systems, Inc. under a product development agreement
between Stanford Research Systems, Inc. and us. A total of 945,667 shares
are subject to repurchase in the event of employment termination as part
of early option exercise agreements for two executive officers and two
outside directors.
49
DESCRIPTION OF CAPITAL STOCK
GENERAL
Our Certificate of Incorporation, which will become effective upon the
closing of this offering, authorizes the issuance of up to shares of
common stock, par value $0.001 per share, and 5,000,000 shares of preferred
stock, par value $0.001 per share, the rights and preferences of which may be
established from time to time by our board of directors. As of March 15, 2000,
16,467,257 shares of common stock were issued and outstanding and 29,960,551
shares of preferred stock convertible into 29,960,551 shares of common stock
upon the completion of this offering were issued and outstanding. As of
March 15, 2000, we had 112 common stockholders of record.
Immediately after the closing of this offering, we will have shares of
common stock outstanding, assuming no exercise of options to acquire 2,571,136
additional shares of common stock or warrants to purchase 280,590 additional
shares of preferred stock convertible into 280,590 shares of common stock that
are outstanding as of the date of this prospectus.
The description below gives effect to the filing of the Certificate of
Incorporation and the adoption of the Amended and Restated Bylaws. The following
summary is qualified in its entirety by reference to our Certificate and Amended
and Restated Bylaws, copies of which are filed as exhibits to the registration
statement of which this prospectus is a part.
COMMON STOCK
Each holder of common stock is entitled to one vote for each share on all
matters to be voted upon by the stockholders and there are no cumulative voting
rights. Subject to preferences to which holders of preferred stock issued after
the sale of the common stock offered hereby may be entitled, holders of common
stock are entitled to receive ratably such dividends, if any, as may be declared
from time to time by the board of directors out of funds legally available
therefor. In the event of a liquidation, dissolution or winding up of us,
holders of common stock would be entitled to share in our assets remaining after
the payment of liabilities and the satisfaction of any liquidation preference
granted the holders of any outstanding shares of preferred stock. Holders of
common stock have no preemptive or conversion rights or other subscription
rights and there are no redemption or sinking fund provisions applicable to the
common stock. All outstanding shares of common stock are, and the shares of
common stock offered by us in this offering, when issued and paid for will be,
fully paid and nonassesable. The rights, preferences and privileges of the
holders of common stock are subject to, and may be adversely affected by, the
rights of the holders of shares of any series of preferred stock which we may
designate in the future.
PREFERRED STOCK
Upon the closing of this offering, our board of directors will be
authorized, subject to any limitations prescribed by law, without stockholder
approval, to issue from time to time up to an aggregate of 5,000,000 shares of
preferred stock, in one or more series, each of such series to have such rights
and preferences, including voting rights, dividend rights, conversion rights,
redemption privileges and liquidation preferences as shall be determined by the
board of directors. The rights for the holders of common stock will be subject
to, and may be adversely affected by, the rights of holders of any preferred
stock that may be issued in the future. Issuance of preferred stock, while
providing desirable flexibility in connection with possible acquisitions and
other corporate purposes, could have the effect of making it more difficult for
a third party to acquire, or of discouraging a third party from attempting to
acquire, a majority of the outstanding voting stock of us. We have no present
plans to issue any shares of preferred stock.
50
WARRANTS
We have issued and outstanding warrants to purchase an aggregate of 280,590
shares of our preferred stock convertible into 280,590 shares of common stock,
excluding warrants which will expire without exercise prior to consummation of
this offering, which are assumed included in preferred stock outstanding
immediately prior to this offering.
REGISTRATION RIGHTS
DEMAND REGISTRATION
According to the terms of an investors rights agreement dated March 3, 2000,
beginning six months after the closing of this offering, the holders of
shares of common stock shall have the right to require us to register
their shares with the Securities and Exchange Commission so that those shares
may be resold to the public. To demand such a registration, holders who hold
together an aggregate of at least 50% of the shares having registration rights
must request that the registration statement register shares for an aggregate
offering price of at least $5,000,000, net of underwriting discounts and
commissions. We are not required to effect more than two demand registrations.
We may defer the filing of a demand registration for a period of up to 120 days
once in any 12-month period.
PIGGYBACK REGISTRATION
If we register in a public offering any of our securities, other than a
registration relating solely to employee benefit plans or a registration
relating solely to a Rule 145 transaction, the holders of demand registration
rights will have the right to include their shares in the registration
statement.
FORM S-3 REGISTRATION
At any time after we become eligible to file a registration statement on
Form S-3, holders of shares of common stock having demand and piggyback
registration rights may require us to file a Form S-3 registration. We are
obligated to file only one Form S-3 registration statement in any 12-month
period. We are also not obligated to file a Form S-3 within 180 days after any
registered offering by us, except for a registration relating solely to employee
benefit plans or a registration relating solely to a Rule 145 transaction.
Further, the aggregate offering proceeds of the requested Form S-3 registration,
before deduction of underwriting discounts and expenses, must be at least
$1,000,000. We may defer one registration request in any 12-month period for 120
days.
The registration rights are subject to certain conditions and limitations,
including the right of the underwriters of an offering to limit the number
shares of common stock to be included in the registration. We are generally
required to bear the expenses of all registrations, except underwriting
discounts and commissions. However, we will not pay for any expenses of any
demand registration if the request is subsequently withdrawn by the holders
requesting the demand registration. The investors rights agreement also contains
our commitment to indemnify the holders of registration rights for losses
attributable to statements or omissions by us incurred with registrations under
the agreement. The registration rights terminate six years from the closing of
this offering.
The holders of Preferred Stock, certain holders of warrants to purchase
Preferred Stock and certain holders of our Common Stock are parties with us to
an investor rights agreement (the "Investor Rights Agreement"), pursuant to
which those holders have customary demand and piggyback registration rights with
respect to the shares of Common Stock held or to be issued upon conversion or
exercise of their Preferred Stock and warrants, respectively. In addition, the
holders of Preferred Stock are entitled to receive quarterly and annual
financial statements, subject to certain conditions and limitations. Copies of
the Investor Rights Agreement setting forth such rights will be furnished to
investors upon request.
51
EFFECT OF CERTAIN PROVISIONS OF OUR CERTIFICATE OF INCORPORATION AND BYLAWS, AND
THE DELAWARE ANTI-TAKEOVER LAW
Certain provisions of our Amended and Restated Certificate of Incorporation
and Bylaws, which will become effective upon the closing of this offering, may
have the effect of making it more difficult for a third party to acquire, or of
discouraging a third party from attempting to acquire, control of us. Such
provisions could limit the price that certain investors might be willing to pay
in the future for shares of our common stock. Our Bylaws eliminate the right of
stockholders to call special meetings of stockholders or to act by written
consent without a meeting and require advance notice for stockholder proposals
and director nominations, which may preclude stockholders from bringing matters
before an annual meeting of stockholders or from making nominations for
directors at an annual meeting of stockholders. The authorization of
undesignated preferred stock makes it possible for the Board of Directors to
issue preferred stock with voting or other rights or preferences that could
impede the success of any attempt to change control of us. These and other
provisions may have the effect of deferring hostile takeovers or delaying
changes in control or management of us. The amendment of any of these provisions
would require approval by holders of at least 66 2/3% of the outstanding common
stock. In addition, we are subject to Section 203 of the Delaware General
Corporation which, subject to certain exceptions, prohibits a Delaware
corporation from engaging in any business combination with any interested
stockholder, unless:
- prior to such date, the Board of Directors of the corporation approved
either the business combination or the transaction which resulted in the
stockholder becoming an interested stockholder;
- upon consummation of the transaction which resulted in the stockholder
becoming an interested stockholder, the interested stockholder owned at
least 85% of the voting stock of the corporation outstanding at the time
the transaction commenced, excluding for purposes of determining the
number of shares outstanding (a) shares owned by persons who are directors
and also officers, and (b) shares owned by employee stock plans in which
employee participants do not have the right to determine confidentially
whether shares held subject to the plan will be tendered in a tender or
exchange offer; or
- on or subsequent to such date, the business combination is approved by the
Board of Directors and authorized at an annual or special meeting of
stockholders, and not by written consent, by the affirmative vote of at
least 66 2/3% of the outstanding voting stock which is not owned by the
interested stockholder.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for our common stock is .
52
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has been no market for our common stock, and
we cannot assure you that a significant public market for the common stock will
develop or be sustained after this offering. Future sales of substantial amounts
of common stock, including shares issued upon exercise of outstanding options
and warrants, in the public market following this offering could adversely
affect market prices prevailing from time to time and could impair our ability
to raise capital through the sale of our equity securities. As described below,
shares currently outstanding will be available for sale immediately after
this offering.
SALES OF RESTRICTED SECURITIES
Upon completion of the offering, we will have outstanding an aggregate of
shares of common stock, assuming no exercise of the underwriters'
over-allotment option and no exercise of outstanding options or outstanding
warrants after March 15, 2000. Of these outstanding shares, the shares
sold in the offering will be freely tradable without restriction or further
registration under the Securities Act of 1933, unless purchased by our
"affiliates" as that term is defined in Rule 144 under the Securities Act of
1933. The remaining 46,427,808 shares of common stock outstanding upon
completion of the offering and held by existing stockholders will be "restricted
securities" as that term is defined in Rule 144 under the Securities Act of
1933. Restricted shares may be sold in the public market only if registered or
if they qualify for an exemption from registration under Rules 144, 144(k) or
701 promulgated under the Securities Act of 1933, which rules are summarized
below, or another exemption. Sales of the restricted shares in the public
market, or the availability of such shares for sale, could adversely affect the
market price of the common stock. All officers, directors and certain other
holders of common stock have entered into contractual "lock-up" agreements
providing that they will not offer, sell, contract to sell or grant any option
to purchase or otherwise dispose of shares of common stock owned by them or that
could be purchased by them through the exercise of options or warrants for a
period of 180 days after the date of this prospectus without the prior written
consent of SG Cowen. As a result of these contractual restrictions,
notwithstanding possible earlier eligibility for sale under the provisions of
Rules 144, 144(k) and 701, additional shares will be eligible for sale beginning
181 days after the effective date of the offering, subject in some cases to
certain volume limitations.
ELIGIBILITY OF RESTRICTED SHARES FOR SALE IN THE PUBLIC MARKET
At the effective date....................................... shares
90 days after effective date................................ shares
180 days after effective date............................... shares
More than 180 days after effective date..................... shares
RULE 144
In general, under Rule 144 as currently in effect, beginning 91 days after
the date of this prospectus, a person, or persons whose shares are aggregated,
who has beneficially owned restricted shares for at least one year, including
persons who may be deemed to be our "affiliates," would be entitled to sell
within any three-month period a number of shares that does not exceed the
greater of:
- 1% of the number of shares of common stock then outstanding, which will
equal approximately shares immediately after the offering
- the average weekly trading volume of the common stock as reported through
the Nasdaq National Market during the four calendar weeks preceding the
filing of a Form 144 with respect to such sale
53
Sales under Rule 144 are also subject to manner of sale provisions and
notice requirements and to the availability of current public information about
us. Under Rule 144(k), a person who is not deemed to have been our affiliate at
any time during the 90 days preceding a sale, and who has beneficially owned for
at least two years the restricted shares proposed to be sold, including the
holding period of any prior owner except an affiliate, is entitled to sell such
shares without complying with the manner of sale, public information, volume
limitation or notice provisions of Rule 144.
RULE 701
Subject to certain limitations on the aggregate offering price of a
transaction and other conditions, Rule 701 permits resales of shares issued
prior to the date the issuer becomes subject to the reporting requirements of
the Securities Exchange Act of 1934, pursuant to certain compensatory benefit
plans and contracts commencing 90 days after the issuer becomes subject to the
reporting requirements of the Securities and Exchange Act of 1933, in reliance
upon Rule 144 but without compliance with certain restrictions, including the
holding period requirements. In addition, the Securities and Exchange Commission
has indicated that Rule 701 will apply to typical stock options granted by an
issuer before it becomes subject to the reporting requirements of the Securities
Exchange Act of 1934, along with the shares acquired upon exercise of such
options, including exercises after the date the issuer becomes so subject.
Securities issued in reliance on Rule 701 are restricted securities and, subject
to the contractual restrictions described above, beginning 91 days after the
date of this prospectus, may be sold by persons other than affiliates subject
only to the manner of sale provisions of Rule 144 and by affiliates under
Rule 144 without compliance with its one-year minimum holding period
requirements.
LOCK-UP AGREEMENTS
We have agreed not to sell or otherwise dispose of any shares of common
stock or any securities convertible into or exercisable or exchangeable for
common stock, or enter into any swap or similar agreement that transfers, in
whole or in part, the economic risk of ownership of the common stock, for a
period of 180 days after the date of this prospectus, without the prior written
consent of SG Cowen Securities Corporation, subject to limited exceptions.
We intend to file a registration statement under the Securities Act of 1933
covering the shares of common stock subject to outstanding options or reserved
for issuance under the 1993 Stock Option Plan. This registration statement is
expected to be filed within 90 days of effectiveness of the registration
statement covering the shares of common stock in this offering and will
automatically become effective upon filing. Accordingly, shares registered under
such registration statement will, subject to Rule 144 volume limitations
applicable to affiliates and the expiration of a 180-day lock-up period, be
available for sale in the open market, except to the extent that such shares are
subject to our vesting restrictions or the contractual restrictions described
above.
54
UNDERWRITING
Pursuant to the terms of an underwriting agreement dated , 2000, which
is filed as an exhibit to the registration statement relating to this
prospectus, the underwriters of the offering named below, for whom SG Cowen
Securities Corporation, ING Barings LLC and Warburg Dillon Read LLC are acting
as representatives, have each agreed to purchase from us the respective number
of shares of common stock set forth opposite its name below:
UNDERWRITERS NUMBER OF SHARES
- ------------ ----------------
SG Cowen Securities Corporation.............................
ING Barings LLC.............................................
Warburg Dillon Read LLC.....................................
-------
Total.....................................................
=======
The underwriting agreement provides that the underwriters' obligations to
purchase shares of common stock depend on the satisfaction of the conditions
contained in the underwriting agreement, and that if any of the shares of common
stock are purchased by the underwriters under the underwriting agreement, then
all of the shares of common stock which the underwriters have agreed to purchase
under the underwriting agreement must be purchased. The conditions contained in
the underwriting agreement include the requirement that the representations and
warranties made by us to the underwriters are true, that there is no material
change in the financial markets and that we deliver to the underwriters
customary closing documents.
We have granted to the underwriters an option to purchase up to an aggregate
of additional shares of common stock, exercisable solely to cover
over-allotments, if any, at the public offering price less the underwriting
discounts and commissions shown on the cover page of this prospectus. The
underwriters may exercise this option at any time until 30 days after the date
of the underwriting agreement. If this option is exercised, each underwriter
will be committed, so long as the conditions of the underwriting agreement are
satisfied, to purchase a number of additional shares of common stock
proportionate to the underwriter's initial commitment as indicated in the
preceding table and we will be obligated, under the over-allotment option, to
sell the shares of common stock to the underwriters.
The underwriters propose to offer the common stock directly to the public at
the public offering price set forth on the cover page of this prospectus. The
underwriters may offer the common stock to securities dealers at that price less
a concession not in excess of $ per share. Securities dealers may reallow a
concession not in excess of $ per share to other dealers. After the shares
of common stock are released for sale to the public, the underwriters may vary
the offering price and other selling terms from time to time.
The following table shows the per share and total underwriting discounts and
commissions to be paid to the underwriters by us. These amounts are shown
assuming both no exercise and full exercise of the underwriters' option to
purchase additional shares described below.
WITHOUT
PER SHARE OPTION WITH OPTION
--------- ------------ -----------
Public offering price.....................
Underwriting discount.....................
Proceeds, before expenses, to Ciphergen...
We estimate that the total expenses of the offering, excluding underwriting
discounts and commissions, will be approximately $1.4 million.
55
We have agreed to indemnify the underwriters against liabilities, including
liabilities under the Securities Act of 1933 and liabilities arising from
breaches of the representations and warranties contained in the underwriting
agreement, and to contribute to payments that the underwriters may be required
to make for these liabilities.
We, our executive officers and directors and certain of our other existing
stockholders have agreed not to directly or indirectly do any of the following,
whether any transaction described in clause (1) or (2) below is to be settled by
delivery of common stock or other securities, in cash or otherwise, in each case
without the prior written consent of SG Cowen on behalf of the underwriters, for
a period of 180 days after the date of this prospectus:
(1) offer, sell or otherwise dispose of, or enter into any transaction or
arrangement which is designed or could be expected to, result in the
disposition or purchase by any person at any time in the future of, any
shares of common stock or securities convertible into or exchangeable for
common stock or substantially similar securities, other than any of the
following:
- the common stock sold under this prospectus
- shares of common stock we issue under employee benefit plans, qualified
stock option plans or other employee compensation plans existing on the
date of this prospectus or under currently outstanding options,
warrants or rights
(2) sell or grant options, rights or warrants with respect to any shares of
our common stock or securities convertible into or exchangeable for our
common stock or substantially similar securities, other than the grant of
options under option plans existing on the date hereof
The underwriters have informed us that they do not intend to confirm sales
to discretionary accounts that exceed five percent of the total number of shares
of common stock offered by them.
We have applied for inclusion of our common stock on the Nasdaq National
Market under the symbol "CIPH", subject to official notice of issuance.
Prior to the offering, there has been no public market for the shares of our
common stock. The initial public offering price will be negotiated between the
representatives and us. In determining the initial public offering price of the
common stock, the representatives will consider, among other things and in
addition to prevailing market conditions, our historical performance and capital
structure, estimates of our business potential and earnings prospects, an
overall assessment of our management and the consideration of the above factors
in relation to market valuation of companies in related businesses.
Until the distribution of the common stock is completed, rules of the
Securities and Exchange Commission may limit the ability of the underwriters and
selling group members to bid for and purchase shares of common stock. As an
exception to these rules, the representatives are permitted to engage in
transactions that stabilize the price of the common stock. These transactions
may consist of bids or purchases for the purpose of pegging, fixing or
maintaining the price of common stock.
The underwriters may create a short position in the common stock in
connection with the offering, which means that they may sell more shares than
are set forth on the cover page of this prospectus. If the underwriters create a
short position, then the representatives may reduce that short position by
purchasing common stock in the open market. The representatives also may elect
to reduce any short position by exercising all or part of the over-allotment
option.
The representatives also may impose a penalty bid on underwriters and
selling group members. This means that if the representatives purchase shares of
common stock in the open market to reduce the underwriters' short position or to
stabilize the price of the common stock, they may reclaim the
56
amount of the selling concession from the underwriters and selling group members
who sold those shares as part of the offering.
In general, purchases of a security for the purpose of stabilization or to
reduce a syndicate short position could cause the price of the security to be
higher than it might otherwise be in the absence of those purchases. The
imposition of a penalty bid might have an effect on the price of a security to
the extent that it was to discourage resales of the security by purchasers in an
offering.
Neither we nor any of the underwriters make any representation or prediction
as to the direction or magnitude of any effect that the transactions described
above may have on the price of the common stock. In addition, neither we nor any
of the underwriters make any representation that the representatives will engage
in these transactions or that these transactions, once commenced, will not be
discontinued without notice.
At our request, the underwriters have reserved up to % shares of the
common stock offered by this prospectus for sale to our directors and to our
business associates at the initial public offering price set forth on the cover
page of this prospectus. These persons must commit to purchase no later than the
close of business on the day following the date of this prospectus. The number
of shares available for sale to the general public will be reduced to the extent
these persons purchase the reserved shares.
SG Cowen Securities Corporation owns 146,635 shares of our Series E
preferred stock. The shares of Series E preferred stock will convert into an
equal number of shares of common stock upon completion of the initial public
offering.
Certain of the representatives and their affiliates have in the past, and
may in the future, provide investment banking, financial advisory and other
services to us for which these representatives receive customary fees and
commissions.
57
LEGAL MATTERS
The validity of the common stock offered hereby will be passed upon for us
by Wilson Sonsini Goodrich & Rosati, P.C., Palo Alto, California. Certain legal
matters in connection with this offering will be passed upon for the
underwriters by Brobeck, Phleger & Harrison LLP, San Francisco, California.
EXPERTS
Our consolidated financial statements as of December 31, 1998 and 1999, and
for each of the three years in the period ended December 31, 1999 included in
this Prospectus have been so included in reliance on the report of
PricewaterhouseCoopers LLP, independent accountants, given on the authority of
said firm as experts in auditing and accounting.
WHERE YOU CAN FIND ADDITIONAL INFORMATION
We have filed with the SEC a registration statement on Form S-1 under the
Securities Act, and the rules and regulations promulgated thereunder, with
respect to the shares of common stock offered buy this prospectus. This
prospectus, which constitutes part of the registration statement, does not
contain all of the information set forth in the registration statement and the
exhibits thereto. Statements contained in this prospectus as to the contents of
any contract or other document that is filed as an exhibit to the registration
statement are not necessarily complete and each such statement is qualified in
all respects by reference to the full text of such contract or document.
You may read and copy all or any portion of the registration statement and
the exhibits at the SEC's public reference room at 450 Fifth Street, N.W.,
Washington, D.C. 20549, and at the regional offices of the SEC located at Seven
World Trade Center, Suite 1300, New York, New York 10048 and Citicorp Center,
500 West Madison Street, Suite 1400, Chicago, Illinois 60661. You can request
copies of these documents, upon payment of a duplication fee, by writing to the
SEC. Please call the SEC at 1-800-SEC-0330 for further information on the
operation of the SEC's public reference rooms. Also, the SEC maintains a World
Wide Web site on the Internet at http://www.sec.gov that contains reports, proxy
and information statements and other information regarding registrants that file
electronically with the SEC.
As a result of this offering, we will become subject to the information and
periodic reporting requirements of the Securities Exchange Act of 1934 and, in
accordance therewith, will file periodic reports, proxy and information
statements and other information with the SEC. These periodic reports, proxy and
information statements and other information will be available for inspection
and copying at the public reference facilities, regional offices and SEC's Web
site referred to above.
58
CIPHERGEN BIOSYSTEMS, INC.
INDEX TO FINANCIAL STATEMENTS
PAGE
----
Report of Independent Accountants........................... F-2
Consolidated Balance Sheets................................. F-3
Consolidated Statements of Operations....................... F-4
Consolidated Statements of Stockholders' Deficit............ F-5
Consolidated Statements of Cash Flows....................... F-6
Notes to Consolidated Financial Statements.................. F-7
F-1
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of
Ciphergen Biosystems, Inc.
The reincorporation described in Note 14 to the consolidated financial
statements has not been consummated at the date of our opinion. When it has been
consummated, we will be in a position to furnish the following report.
"In our opinion, the accompanying consolidated balance sheets and the
related consolidated statements of operations, of stockholders' deficit and of
cash flows present fairly, in all material respects, the financial position of
Ciphergen Biosystems, Inc. and its subsidiaries at December 31, 1998 and 1999,
and the results of their operations and their cash flows for each of the three
years in the period ended December 31, 1999, in conformity with accounting
principles generally accepted in the United States. These financial statements
are the responsibility of the Company's management; our responsibility is to
express an opinion on these financial statements based on our audits. We
conducted our audits of these statements in accordance with auditing standards
generally accepted in the United States, which require that we plan and perform
the audits to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above."
San Jose, California
March 6, 2000, except for Note 14 for
which the date is April , 2000
F-2
CIPHERGEN BIOSYSTEMS, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
PRO FORMA
STOCKHOLDERS'
DECEMBER 31, EQUITY AT
------------------- DECEMBER 31,
1998 1999 1999
-------- -------- -------------
(UNAUDITED)
ASSETS
Current assets:
Cash and cash equivalents................................. $ 7,002 $ 2,799
Accounts receivable, net of allowance for doubtful
accounts of $40 and $100, respectively.................. 1,072 998
Inventories, net.......................................... 730 722
Prepaid expenses and other current assets................. 231 322
-------- --------
Total current assets.................................. 9,035 4,841
Property and equipment, net................................. 791 867
Notes receivable from related party......................... 256 261
Investment in joint venture................................. -- 156
Other long-term assets...................................... -- 22
-------- --------
Total assets.............................................. $ 10,082 $ 6,147
======== ========
LIABILITIES, CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS'
EQUITY (DEFICIT)
Current liabilities:
Accounts payable.......................................... $ 821 $ 770
Accrued liabilities....................................... 740 931
Deferred revenue.......................................... 377 295
Current portion of capital lease obligations.............. 52 121
Current portion of long-term debt......................... 429 366
Line of credit............................................ -- 825
-------- --------
Total current liabilities............................. 2,419 3,308
Capital lease obligations, net of current portion........... 105 184
Long-term debt, net of current portion...................... 276 299
Deferred revenue............................................ -- 297
-------- --------
Total liabilities..................................... 2,800 4,088
-------- --------
Commitments (Note 6)
Convertible preferred stock, $0.001 par value,
Authorized: 30,000,000 shares
Issued and outstanding: 18,574,954 shares at December
31, 1998 and 19,141,289 shares at December 31, 1999;
none pro forma (unaudited)............................ 24,264 25,339 $ --
-------- -------- --------
(Liquidation value: $25,834)
Stockholders' equity (deficit):
Common stock, $0.001 par value,
Authorized: 60,000,000 shares
Issued and outstanding: 15,956,850 shares at December
31, 1998 and 15,936,960 shares at December 31, 1999;
35,078,249 shares pro forma (unaudited)............... 16 16 35
Additional paid-in capital................................ 6,297 10,161 35,481
Notes receivable from stockholders........................ (386) (488) (488)
Deferred stock compensation............................... (1,308) (3,687) (3,687)
Accumulated deficit....................................... (21,601) (29,282) (29,282)
-------- -------- --------
Total stockholders' equity (deficit).................. (16,982) (23,280) $ 2,059
-------- -------- ========
Total liabilities, mandatorily redeemable
convertible preferred stock and stockholders'
equity (deficit).................................. $ 10,082 $ 6,147
======== ========
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
CIPHERGEN BIOSYSTEMS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
YEARS ENDED DECEMBER 31,
------------------------------
1997 1998 1999
-------- -------- --------
Revenue..................................................... $ 1,283 $ 2,933 $ 5,010
Cost of revenue............................................. 1,001 1,066 1,669
------- ------- -------
Gross margin.......................................... 282 1,867 3,341
------- ------- -------
Operating expenses:
Research and development.................................. 3,205 4,566 2,933
Sales and marketing....................................... 1,310 2,629 4,513
General and administrative................................ 1,263 1,422 2,176
Amortization of deferred stock compensation............... 119 880 1,344
Write-off of acquired in-process technology............... 968 537 --
------- ------- -------
Total operating expenses.............................. 6,865 10,034 10,966
------- ------- -------
Loss from operations........................................ (6,583) (8,167) (7,625)
Interest income............................................. 15 175 245
Interest expense............................................ (236) (488) (179)
Other income (expense), net................................. (5) 170 37
Equity in net loss of joint venture......................... -- -- (159)
------- ------- -------
Net loss.................................................... $(6,809) $(8,310) $(7,681)
======= ======= =======
Net loss per share:
Basic and diluted......................................... $ (1.01) $ (0.72) $ (0.52)
======= ======= =======
Shares used in computing net loss per share............... 6,749 11,558 14,877
======= ======= =======
Pro forma net loss per share (unaudited):
Basic and diluted......................................... $ (0.23)
=======
Shares used in computing pro forma net loss per share..... 33,939
=======
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
CIPHERGEN BIOSYSTEMS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT
FOR THE YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999
(IN THOUSANDS)
NOTES
COMMON STOCK ADDITIONAL RECEIVABLE DEFERRED
------------------- PAID-IN FROM STOCK ACCUMULATED
SHARES AMOUNT CAPITAL STOCKHOLDERS COMPENSATION DEFICIT TOTAL
-------- -------- ---------- ------------ ------------- ------------ --------
Balances, December 31, 1996........... 2,494 $ 3 $ 110 $ (35) $ -- $ (6,482) $ (6,404)
Issuance of common stock upon
conversion of note payable.......... 5 -- 1 -- -- -- 1
Issuance of common stock for
acquisition......................... 4,916 5 732 -- -- -- 737
Issuance of common stock for cash and
notes receivable.................... 138 -- 11 (5) -- -- 6
Issuance of common stock for
services............................ 1,156 1 170 -- -- -- 171
Issuance of warrants.................. -- -- 165 -- -- -- 165
Deferred stock compensation........... -- -- 830 -- (830) -- --
Amortization of deferred stock
compensation........................ -- -- -- -- 119 -- 119
Net loss.............................. -- -- -- -- -- (6,809) (6,809)
------ --- ------- ----- ------- -------- --------
Balances, December 31, 1997........... 8,709 9 2,019 (40) (711) (13,291) (12,014)
Issuance of common stock for
services............................ 3,876 4 1,691 -- -- -- 1,695
Issuance of common stock for cash and
notes receivable.................... 2,297 2 384 (346) -- -- 40
Issuance of common stock for
acquisition......................... 1,075 1 536 -- -- -- 537
Issuance of warrants.................. -- -- 190 -- -- -- 190
Deferred stock compensation........... -- -- 1,477 -- (1,477) -- --
Amortization of deferred stock
compensation........................ -- -- -- -- 880 -- 880
Net loss.............................. -- -- -- -- -- (8,310) (8,310)
------ --- ------- ----- ------- -------- --------
Balances, December 31, 1998........... 15,957 16 6,297 (386) (1,308) (21,601) (16,982)
Issuance of common stock for
services............................ 27 -- 14 -- -- -- 14
Issuance of common stock for cash and
notes receivable.................... 787 1 365 (341) -- -- 25
Repurchase of common stock............ (834) (1) (238) 239 -- -- --
Deferred stock compensation........... -- -- 3,723 -- (3,723) -- --
Amortization of deferred stock
compensation........................ -- -- -- -- 1,344 -- 1,344
Net loss.............................. -- -- -- -- -- (7,681) (7,681)
------ --- ------- ----- ------- -------- --------
Balances, December 31, 1999........... 15,937 $16 $10,161 $(488) $(3,687) $(29,282) $(23,280)
====== === ======= ===== ======= ======== ========
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
CIPHERGEN BIOSYSTEMS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
YEARS ENDED DECEMBER 31,
------------------------------
1997 1998 1999
-------- -------- --------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss.................................................. $(6,809) $(8,310) $(7,681)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization........................... 602 991 580
Common stock issued for services........................ 171 1,695 14
Preferred stock issued for services..................... 275 83 --
Amortization of deferred stock compensation............. 119 880 1,344
Amortization of debt discount........................... -- -- 19
Equity in net loss of joint venture..................... -- -- 159
Preferred stock issued in lieu of interest.............. -- 91 --
Provision for obsolete inventory........................ 134 117 5
Write-off of acquired in-process technology............. 968 537 --
Loss on disposal of fixed assets........................ 155 67 164
Provision for bad debts................................. -- 40 60
Changes in operating assets and liabilities:
Accounts receivable................................... 80 (1,105) 14
Inventories........................................... (921) (545) 3
Prepaid and other current assets...................... 167 (114) (91)
Other long-term assets................................ -- -- (22)
Accounts payable and accrued liabilities.............. 433 322 140
Deferred revenue...................................... (3) 334 215
------- ------- -------
Net cash used in operating activities............... (4,629) (4,917) (5,077)
------- ------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment........................ (426) (196) (602)
Issuance of notes receivable to related party............. -- (226) (5)
Investment in joint venture............................... (315)
------- ------- -------
Net cash used in investing activities............... (426) (422) (922)
------- ------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Exercise of common stock options.......................... 6 40 25
Proceeds from issuance of preferred stock, net of issuance
costs................................................... 2,640 9,665 1,019
Exercise of preferred stock warrants...................... -- -- 56
Principal payments on capital lease obligations........... -- -- (70)
Proceeds from long-term debt.............................. 2,183 2,742 467
Repayments of long-term debt.............................. (257) (522) (526)
Borrowing under line of credit............................ -- -- 2,554
Payments under line of credit............................. -- -- (1,729)
------- ------- -------
Net cash provided by financing activities........... 4,572 11,925 1,796
------- ------- -------
Net increase (decrease) in cash and cash equivalents........ (483) 6,586 (4,203)
Cash and cash equivalents, beginning of year................ 899 416 7,002
------- ------- -------
Cash and cash equivalents, end of year...................... $ 416 $ 7,002 $ 2,799
======= ======= =======
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid............................................. $ 138 $ 174 $ 140
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING
ACTIVITIES:
Acquisition of property and equipment under capital
leases.................................................. $ -- $ 186 $ 218
Common stock issued in exchange for fixed assets,
purchased technology and assumption of liabilities...... $ 737 $ -- $ --
Common stock issued in exchange for notes receivable from
stockholders............................................ $ 5 $ 346 $ 341
Preferred stock issued upon conversion of convertible
notes payable........................................... $ 5 $ 4,000 $ --
Issuance of warrants in connection with notes payable..... $ 165 $ 190 $ --
Common stock issued in acquisition of Ciphergen
Technologies, Inc....................................... $ -- $ 537 $ --
Repurchase of common stock for cancellation of note
receivable.............................................. $ -- $ -- $ 154
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
CIPHERGEN BIOSYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
THE COMPANY
Ciphergen Biosystems, Inc. (the "Company") develops, manufactures and sells
ProteinChip Systems, which consist of disposable ProteinChip Arrays, ProteinChip
Readers and ProteinChip Software for life science researchers. These products
are primarily sold to biologists at pharmaceutical and biotechnology companies
and academic and government research laboratories.
INITIAL PUBLIC OFFERING
In February 2000, the Board of Directors authorized management of the
Company to file a registration statement with the Securities and Exchange
Commission permitting the Company to sell shares of its common stock to the
public. If the initial public offering is closed under the terms presently
anticipated, all of the convertible preferred stock outstanding will
automatically convert into shares of common stock. Unaudited pro forma
stockholders' equity, as adjusted for the assumed conversion of the preferred
stock, is set forth on the balance sheets.
BASIS OF PRESENTATION
The accompanying consolidated financial statements include the accounts of
the Company and its three wholly-owned subsidiaries. All intercompany
transactions have been eliminated in consolidation.
The Company reports its minority ownership interest in Ciphergen K.K., a
joint venture, using the equity method of accounting.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
CERTAIN RISKS AND UNCERTAINTIES
The Company's products and services are currently concentrated in a single
segment of the life science research field which is characterized by rapid
technological advances and changes in customer requirements. The success of the
Company depends on management's ability to anticipate or to respond quickly and
adequately to technological developments in its industry, changes in customer
requirements or industry standards. Any significant delays in the development or
introduction of products or services could have a material adverse effect on the
Company's business and operating results.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments purchased with an
original maturity of three months or less to be cash equivalents.
F-7
CIPHERGEN BIOSYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts of certain of the Company's financial instruments
including cash and cash equivalents and accounts payable approximate fair value
due to their short maturities. Based on borrowing rates currently available to
the Company for loans with similar terms, the carrying value of its debt
obligations approximates fair value.
CONCENTRATION OF CREDIT RISK
Financial instruments that potentially subject the Company to a
concentration of credit risk consist of cash and cash equivalents and accounts
receivable. The Company's cash and cash equivalents as of December 31, 1999 were
deposited with financial institutions in the United States and exceed federally
insured amounts. The Company also maintains cash deposits with one bank in the
United Kingdom. The Company has not experienced any losses on its deposits of
cash and cash equivalents. The Company's accounts receivable are derived from
sales made to customers located in the United States, Europe and Asia. The
Company performs ongoing credit evaluations of its customers' financial
condition and generally does not require collateral. The Company maintains an
allowance for doubtful accounts based upon the expected collectibility of
accounts receivable.
INVENTORIES
Inventories are stated at the lower of cost, using the average cost method,
or market value.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost and depreciated on a straight-line
basis over the estimated useful lives of the related assets, generally three to
five years. Gains and losses upon asset disposal are reflected in operations in
the year of disposition.
LONG-LIVED ASSETS
Long-lived assets are reviewed for impairment when events or changes in
circumstances indicate the carrying amount of an asset may not be recoverable.
Recoverability is measured by comparison of the asset's carrying amount to
future net undiscounted cash flows the assets are expected to generate. If such
assets are considered to be impaired, the impairment to be recognized is
measured by the amount by which the carrying amount of the assets exceeds the
projected discounted future net cash flows arising from the assets.
REVENUE RECOGNITION
Revenue from product sales is recognized upon product shipment provided no
significant obligations remain and collections of the receivables are deemed
probable.
RESEARCH AND DEVELOPMENT
Research, design and development expenditures are charged to operations as
incurred.
F-8
CIPHERGEN BIOSYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
STOCK-BASED COMPENSATION
The Company accounts for its stock-based employee compensation arrangements
in accordance with provisions of Accounting Principles Board Opinion No. 25
("APB 25"), "Accounting for Stock Issued to Employees" and complies with the
disclosure provisions of Statement of Financial Accounting Standards ("SFAS")
No. 123, "Accounting for Stock-Based Compensation." Under APB 25, unearned
compensation expense is based on the difference, if any, on the date of the
grant, between the fair value of the Company's stock and the exercise price.
Unearned compensation is amortized and expensed in accordance with Financial
Accounting Standards Board Interpretation No. 28. The Company accounts for stock
issued to non-employees in accordance with the provisions of SFAS No. 123 and
Emerging Issue Task Force No. 96-18, "Accounting for Equity Instruments that are
Issued to Other Than Employees for Acquiring, or in Conjunction with Selling,
Goods or Services."
INCOME TAXES
The Company accounts for income taxes under the liability method. Under this
method, deferred tax assets and liabilities are determined based on the
difference between the financial statement and the tax bases of assets and
liabilities using enacted tax rates in effect for the year in which the
differences are expected to affect taxable income. A valuation allowance is
established when necessary to reduce deferred tax assets to the amounts expected
to be realized.
COMPREHENSIVE INCOME
The Company has adopted the provisions of SFAS No. 130, "Reporting
Comprehensive Income." This statement requires the disclosure of comprehensive
income and its components in a full set of general-purpose financial statements.
Comprehensive income is defined as net income (loss) plus revenues, expenses,
gains, and losses that, under generally accepted accounting principles, are
excluded from net income (loss). The Company's comprehensive income approximated
net income for all periods presented.
FOREIGN CURRENCY TRANSLATION
The functional currency of the Company's foreign subsidiary is the U.S.
dollar. All assets and liabilities denominated in foreign currency are
translated into U.S. dollars at the exchange rate on the balance sheet date.
Revenues, costs and expenses are translated at the average rates of exchange
prevailing during the period. Gains and losses resulting from foreign currency
translations and transactions are included in the consolidated statements of
operations and have not been significant.
NET LOSS PER SHARE
Basic net loss per share is computed by dividing net loss for the period by
the weighted average number of common shares outstanding during the period.
Diluted net loss per share is computed by dividing the net loss for the period
by the weighted average number of common and potential common shares outstanding
during the period, if their effect is dilutive. Potential common shares include
common stock subject to repurchase and incremental shares of common stock
issuable upon the exercise of stock options and warrants and upon the conversion
of convertible preferred stock.
F-9
CIPHERGEN BIOSYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
The following table sets forth the computation of basic and diluted net loss
per share for the periods indicated (in thousands, except per share amounts):
YEARS ENDED DECEMBER 31,
------------------------------
1997 1998 1999
-------- -------- --------
Net loss......................................... $(6,809) $(8,310) $(7,681)
Weighted average shares.......................... 6,749 11,558 14,877
------- ------- -------
Basic and diluted net loss per share............. $ (1.01) $ (0.72) $ (0.52)
======= ======= =======
The following table sets forth the potential shares of common stock that are
not included in the diluted net loss per share calculation above because to do
so would be anti-dilutive for the periods indicated (in thousands):
YEARS ENDED DECEMBER 31,
------------------------------
1997 1998 1999
-------- -------- --------
Effect of dilutive securities:
Convertible preferred stock outstanding........... 11,118 18,575 19,141
Common stock subject to repurchase................ 1,585 1,505 1,038
Stock options outstanding......................... 2,177 1,021 1,305
Warrants outstanding.............................. 532 618 562
------ ------ ------
15,412 21,719 22,046
====== ====== ======
PRO FORMA STOCKHOLDERS' EQUITY AND PRO FORMA NET LOSS PER SHARE (UNAUDITED)
Immediately prior to the effective date of the offering, all of the
convertible preferred stock outstanding will automatically convert into common
stock at a one-to-one ratio. The pro forma effects of these transactions are
unaudited and have been reflected in the accompanying Pro Forma Stockholders'
Equity as of December 31, 1999.
Pro forma net loss per share for the year ended December 31, 1999 is
computed using the weighted average number of common shares outstanding
including the pro forma effects of the automatic conversion of the Company's
convertible preferred stock into shares of the Company's common stock effective
upon the closing of the Company's initial public offering as if such conversion
occurred on January 1, 1999, or at the date of original issue, if later. The
resulting pro forma adjustment includes an increase in the weighted average
shares used to compute basic net loss per share of 19,062,646 shares for the
year ended December 31, 1999. The calculation of pro forma diluted net loss per
share excludes incremental common stock issuable upon the exercise of stock
options, warrants and common stock subject to repurchase as their effect would
be anti-dilutive.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities." SFAS No. 133
establishes new standards of accounting and reporting for derivative instruments
and hedging activities. SFAS No. 133 requires that all derivatives be recognized
at fair value in the statement of financial position, and that the corresponding
F-10
CIPHERGEN BIOSYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
gains or losses be reported either in the statement of operations or as a
component of comprehensive income, depending on the type of relationship that
exists. In July 1999, the Financial Accounting Standards Board issued SFAS
No. 137, "Accounting for Derivative Instruments and Hedging Activities--Deferral
of the Effective Date of FASB Statement No. 133." SFAS No. 137 deferred the
effective date until fiscal years beginning after June 15, 2000. The Company has
not engaged in significant hedging activities or invested in significant
derivative instruments.
On March 31, 1999, the FASB issued an exposure draft entitled "Accounting
for Certain Transactions Involving Stock Compensation," which is a proposed
interpretation of APB Opinion No. 25, which has an effective date for certain
transactions of December 15, 1998. However, the exposure draft has not been
finalized. Once finalized and issued, the current accounting practices for
transactions involving stock compensation may need to change and such changes
could effect our future earnings.
2. BALANCE SHEET COMPONENTS (IN THOUSANDS)
DECEMBER 31,
-------------------
1998 1999
-------- --------
INVENTORY, NET:
Raw materials............................................. $ 434 $ 471
Work in process........................................... 160 102
Finished goods............................................ 136 149
------ -------
$ 730 $ 722
====== =======
PROPERTY AND EQUIPMENT:
Machinery and equipment................................... $1,032 $ 1,472
Computers and equipment................................... 254 304
Furniture and fixtures.................................... 193 241
------ -------
1,479 2,017
Less: Accumulated depreciation............................ (688) (1,150)
------ -------
$ 791 $ 867
====== =======
Property and equipment includes $186 and $402 of equipment under capital
leases at December 31, 1998 and 1999, respectively. Accumulated amortization of
assets under capital leases totaled $38 and $123 at December 31, 1998 and 1999,
respectively.
DECEMBER 31,
-------------------
1998 1999
-------- --------
ACCRUED LIABILITIES:
Payroll and related expenses.............................. $391 $452
Royalties................................................. 31 49
Other accrued liabilities................................. 318 430
---- ----
$740 $931
==== ====
F-11
CIPHERGEN BIOSYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. INVESTMENT IN JOINT VENTURE
In January 1999, the Company entered into a joint venture agreement with a
Japanese company to form a limited liability corporation, Ciphergen Biosystems
K.K., to be incorporated under the commercial code of Japan. The Company
invested $315,000 in exchange for 30% ownership of the joint venture. Commencing
with the fiscal year ending December 31, 2001, the Company has the option to
purchase an additional 40% of Ciphergen Biosystems K.K. from its joint venture
partner each year within 30 days of the receipt of the joint venture's audited
financial statements. Such buyout option terminates automatically 30 days after
the receipt of the joint venture's audited financial statements for the year
ending December 31, 2004. The aggregate purchase price for the buyout option is
the greatest of (i) 50,000,000 yen, (ii) 8% of the joint venture's net sales
during the last fiscal year, or (iii) 40% of the joint venture's book value at
the end of the last fiscal year. The Company's proportionate share of the joint
venture's losses were recorded in the statement of operations as non-operating
losses.
In connection with the joint venture agreement, the Company entered into a
distribution and marketing agreement with the joint venture whereby the joint
venture would distribute the Company's products in the life science research
markets in Japan. In exchange for providing trading, technical support,
equipment demonstrations and seminars, the Company received a non-refundable
payment of approximately $315,000. Such payment is included in deferred revenue
and being amortized over a 10 year period.
4. LONG-TERM DEBT (IN THOUSANDS)
DECEMBER 31,
-------------------
1998 1999
-------- --------
Notes payable to a financial institution, bearing interest
between 14.8% and 17.8% collateralized by equipment and
inventory, with principal and interest payable monthly
through May 2000.......................................... $264 $ 29
Notes payable to a financial institution, bearing interest
between 14.7% and 16.8%, collateralized by equipment, with
principal and interest payable through August 2002........ 326 584
Note payable to a related party, bearing interest at 18%,
collateralized by certain equipment, with principal and
interest payable monthly through March 2000............... 128 50
Note payable to a financial institution, bearing interest at
6%, collateralized by certain equipment, with principal
and interest payable monthly through November 2001........ 11 7
---- ----
729 670
Unamortized discounts related to stock warrants (Note 8).... (24) (5)
---- ----
705 665
Less: Current portion....................................... 429 366
---- ----
$276 $299
==== ====
The notes payable to financial institutions are subject to certain
covenants, including restrictions on the payment of dividends and the sale of
assets. At December 31, 1999, the Company was not in violation of any covenants.
F-12
CIPHERGEN BIOSYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4. LONG-TERM DEBT (IN THOUSANDS) (CONTINUED)
Principal payments on notes payable at December 31, 1999 were as follows:
2000........................................................ $366
2001........................................................ 182
2002........................................................ 117
----
$665
====
5. LINE OF CREDIT
On June 23, 1999, the Company entered into a loan and security agreement
with a bank for a line of credit. At December 31, 1999, the Company had $825,000
outstanding under a $1,500,000 revolving line of credit for which the borrowing
base is equal to 80% of the Company's eligible domestic accounts receivable and
75% of the Company's eligible foreign accounts receivable as determined by the
lender. The line of credit matures on June 22, 2000. Interest is calculated
daily at 0.75% above the prime rate based on a 360 day year. The line is
collateralized by accounts receivable and other assets of the Company. The
Company is subject to certain covenants, including restrictions on dividend
payments and maintenance of certain financial ratios. The Company was not in
violation of any covenants at December 31, 1999.
6. COMMITMENTS
CAPITAL LEASES
The Company leases certain machinery and equipment under capital lease
agreements with an independent finance company which expire through
December 2002.
As of December 31, 1999, future minimum lease payments under capital lease
agreements were as follows (in thousands):
2000........................................................ $ 158
2001........................................................ 126
2002........................................................ 84
-----
Total minimum lease payments................................ 368
Less: Amount representing interest.......................... (63)
-----
Present value of minimum lease payments..................... 305
Less: Current portion....................................... (121)
-----
Non-current portion......................................... $ 184
=====
OPERATING LEASES
The Company leases various equipment and two facilities in Palo Alto,
California. The two facility leases originally expired in December 31, 1999, but
were extended for an additional six months to June 30, 2000. Under the terms of
one of the facility leases, the Company is responsible for common area
maintenance. Total rent expense under all leases was $204, $221 and $397 for the
years ended December 31, 1997, 1998 and 1999, respectively.
F-13
CIPHERGEN BIOSYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
6. COMMITMENTS (CONTINUED)
As of December 31, 1999, future minimum lease payments under the operating
leases were as follows (in thousands):
2000........................................................ $238
2001........................................................ 6
2002 and thereafter......................................... 6
----
Total minimum lease payments................................ $250
====
7. STOCKHOLDERS' EQUITY (DEFICIT)
CONVERTIBLE PREFERRED STOCK
In February 1995, the Company entered into a joint development agreement
that provides for the issuance of a total of 2,207,239 shares of Series B
preferred stock. Under this agreement, 1,107,239 shares of Series B preferred
stock at $1.00 per share were issued upon the closing of the Company's Series B
financing in March 1995, 275,000 shares were issued in October 1996 upon the
achievement of the first milestone, and 275,000 shares were issued in
September 1997 upon the achievement of the second milestone. The remaining
550,000 shares will be issued upon the achievement of additional milestones.
In 1998, the Board of Directors approved two amendments to the Company's
Articles of Incorporation designating 30,000,000 shares as preferred stock. At
December 31, 1999, the amounts, terms and liquidation values of Series A,
Series B, Series C and Series D convertible preferred stock were as follows:
SHARES COMMON
ISSUED STOCK
SHARES AND RESERVED FOR LIQUIDATION
SERIES AUTHORIZED OUTSTANDING CONVERSION VALUE
- ------ ---------- ----------- ------------ -----------
A............................ 3,054,400 3,054,400 3,054,400 $ 1,527,200
B............................ 8,500,000 6,402,457 6,402,457 6,402,457
C............................ 3,334,000 2,929,719 2,929,719 4,394,579
D............................ 10,000,000 6,754,713 6,754,713 13,509,426
Undesignated................. 5,111,600 -- -- --
---------- ---------- ---------- -----------
30,000,000 19,141,289 19,141,289 $25,833,662
========== ========== ========== ===========
The rights, preferences and privileges of Series A, Series B, Series C and
Series D preferred stock are as follows:
VOTING RIGHTS
Holders of Series A, Series B, Series C and Series D preferred stock are
entitled to one vote for each share of common stock into which such shares can
be converted. The holders of the outstanding shares of Series A and Series B
preferred stock, voting as separate classes, are each entitled to elect two
members to the Company's Board of Directors and the holders of the outstanding
shares of Series D preferred stock, voting as a separate class, are entitled to
elect one member to the Company's
F-14
CIPHERGEN BIOSYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7. STOCKHOLDERS' EQUITY (DEFICIT) (CONTINUED)
Board of Directors. Any remaining board members will be elected by the holders
of common stock and the holders of preferred stock voting together as a single
class.
DIVIDENDS
The holders of Series A, Series B, Series C and Series D preferred stock are
entitled to noncumulative dividends prior and in preference to any declaration
or payment of any dividend on the common stock of the Company, in the amount of
$0.04, $0.08, $0.12 and $0.16 per share per annum, respectively, as declared by
the Board of Directors. No dividends had been declared as of December 31, 1999.
CONVERSION RIGHTS
Shares of Series A, Series B, Series C and Series D preferred stock are
convertible into common shares at the option of the holder or automatically upon
a public offering of at least $10,000,000 of common stock at an offering price
of at least $3.00 per share or upon the written consent of the holders of more
than 50% of the then outstanding shares of Series A, Series B, Series C or
Series D preferred stock voting as separate classes. The conversion rate is one
share of common stock for one share of preferred stock (subject to certain
adjustments).
LIQUIDATION
In the event of liquidation or sale of the Company, Series A, Series B,
Series C and Series D preferred stock have preference over common stock in the
amount of $0.50, $1.00, $1.50 and $2.00, respectively, in addition to any
declared and unpaid dividends. The remaining assets of the Company shall be
distributed on a pro rata basis to the holders of Series A, Series B, Series C
and Series D preferred stock and common stock until holders of Series A,
Series B, Series C and Series D preferred stock have received an amount equal to
$1.00, $2.00, $3.00 and $4.00 per share outstanding, respectively, including the
preferences disclosed above, at which time the remaining assets shall be
distributed on a pro rata basis to holders of common stock.
8. STOCK OPTIONS AND WARRANTS
STOCK OPTIONS
The Company has reserved 5,825,000 shares of common stock for sale to
employees, directors and consultants under its 1993 Stock Option Plan (the
"Plan"). Under the Plan, options may be granted at prices not lower than 85% and
100% of the fair market value of the common stock for nonstatutory and statutory
stock options, respectively. Options are exercisable when granted and such
shares are subject to repurchase upon termination of employment. Should the
employment of the holders of common stock subject to repurchase terminate prior
to full vesting of the outstanding shares, the Company may repurchase all
unvested shares at a price per share equal to the original exercise price. At
December 31, 1999, a total of 1,038,417 shares of common stock were subject to
repurchase by the Company at a weighted average price of $0.28 per share.
Unexercised options generally expire ten years from the date of grant (five
years for incentive stock options granted to holders of more than 10% of the
Company's common stock).
F-15
CIPHERGEN BIOSYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. STOCK OPTIONS AND WARRANTS (CONTINUED)
Activity under the Plan was as follows:
OPTIONS OUTSTANDING WEIGHTED
SHARES ------------------------------------ AVERAGE
AVAILABLE NUMBER OF PRICE PER AGGREGATE EXERCISE
FOR GRANT SHARES SHARE PRICE PRICE
---------- ---------- ----------- --------- --------
Balances, December 31, 1996........... 879,734 492,500 $0.05-$0.10 $ 41,250 $0.08
Shares reserved for the Plan........ 2,050,000
Options granted..................... (1,974,388) 1,974,388 0.10-0.15 291,483 0.15
Options canceled.................... 152,582 (152,582) 0.05-0.10 (12,087) 0.08
Options exercised................... -- (137,751) 0.05-0.15 (11,546) 0.08
---------- ---------- ----------- --------- -----
Balances, December 31, 1997........... 1,107,928 2,176,555 0.05-0.15 309,100 0.14
Shares reserved for the Plan........ 425,000 --
Options granted..................... (1,238,500) 1,238,500 0.15-0.50 382,000 0.31
Options canceled.................... 96,726 (96,726) 0.15-0.50 (31,875) 0.33
Options exercised................... -- (2,297,379) 0.15-0.50 (386,295) 0.17
---------- ---------- ----------- --------- -----
Balances, December 31, 1998........... 391,154 1,020,950 0.05-0.50 272,930 0.27
Shares reserved for the Plan........ 1,200,000
Options granted..................... (1,173,500) 1,173,500 0.50 586,750 0.50
Options canceled.................... 936,352 (102,185) 0.10-0.50 (30,225) 0.30
Options exercised................... -- (786,715) 0.10-0.50 (366,155) 0.47
---------- ---------- ----------- --------- -----
Balances, December 31, 1999........... 1,354,006 1,305,550 $0.05-$0.50 $ 463,300 $0.35
========== ========== =========== ========= =====
The options outstanding and currently exercisable by exercise price at
December 31, 1999 were as follows:
OPTIONS OUTSTANDING AND EXERCISABLE
-------------------------------------
WEIGHTED
AVERAGE WEIGHTED
REMAINING AVERAGE
NUMBER CONTRACTUAL EXERCISE
EXERCISE PRICE OUTSTANDING LIFE PRICE
- -------------- ----------- ----------- ---------
$0.05........................................ 40,000 4.2 years $0.05
$0.10........................................ 153,500 6.5 years $0.10
$0.15........................................ 314,500 7.5 years $0.15
$0.50........................................ 797,550 9.1 years $0.50
---------
1,305,550 $0.35
=========
F-16
CIPHERGEN BIOSYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. STOCK OPTIONS AND WARRANTS (CONTINUED)
FAIR VALUE DISCLOSURES
The Company applies the measurement principles of APB 25 in accounting for
its stock option plans. Had compensation expense for options granted been
determined based on fair value at the grant date as prescribed by SFAS No. 123,
the Company's net loss per share would have been decreased to the pro forma
amounts indicated below:
YEARS ENDED DECEMBER 31,
------------------------------
1997 1998 1999
-------- -------- --------
Net loss:
As reported..................................... $(6,809) $(8,310) $(7,681)
======= ======= =======
Pro forma....................................... $(7,021) $(8,514) $(8,116)
======= ======= =======
Basic and diluted net loss per share:
As reported..................................... $ (1.01) $ (0.72) $ (0.52)
======= ======= =======
Pro forma....................................... $ (1.04) $ (0.74) $ (0.55)
======= ======= =======
The value of each option grant is estimated on the date of grant using the
minimum value method with the following weighted assumptions:
YEARS ENDED DECEMBER 31,
------------------------------------
1997 1998 1999
-------- -------- --------
Risk-free interest rate......................... 6.2% 5.4% 5.6%
Expected average life........................... 5 years 5 years 5 years
Expected dividends.............................. -- -- --
The expected average life is based on the assumption that stock options on
average are exercised 5 years after they are granted. The risk-free interest
rate was calculated in accordance with the grant date and expected average life.
The weighted-average fair value of options granted during the years ended
December 31, 1997, 1998 and 1999 was $0.03, $0.07 and $0.11 per share,
respectively.
DEFERRED STOCK-BASED COMPENSATION
During the period from April 1997 through December 31, 1999, the Company
recorded $6.0 million of deferred stock compensation in accordance with APB 25,
SFAS 123 and Emerging Issues Task Force 96-18, related to stock options granted
to consultants and employees. The Company will record an additional
$8.9 million of deferred stock compensation related to 1,927,500 options granted
to employees through March 6, 2000. For options granted to consultants, the
Company determined the fair value of the options using the Black-Scholes option
pricing model with the following assumptions: expected lives of five years;
weighted average risk-free rate between 5.4% and 6.2%; expected dividend yield
of zero percent; volatility of 50% and deemed values of common stock between
$0.30 and $5.53 per share. Stock compensation expense is being recognized in
accordance with FIN 28 over the vesting periods of the related options,
generally five years. The Company recognized stock compensation expense of
$0.1 million, $0.9 million and $1.3 million for the years ended December 31,
1997, 1998 and 1999, respectively.
F-17
CIPHERGEN BIOSYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. STOCK OPTIONS AND WARRANTS (CONTINUED)
The allocation of stock-based compensation expense by functional area would
be as follows (in thousands):
YEARS ENDED
DECEMBER 31,
------------------------------
1997 1998 1999
-------- -------- --------
Cost of revenue........................................ $ 1 $ 2 $ 39
Research and development............................... 44 167 206
Sales and marketing.................................... 5 33 476
General and administrative............................. 69 678 623
---- ---- ------
Total stock-based compensation..................... $119 $880 $1,344
==== ==== ======
WARRANTS
In 1995, the Company issued warrants with lives ranging from three to five
years to four shareholders and eight-year warrants to an equipment financing
company to purchase an aggregate 80,668 and 88,000 shares of Series B preferred
stock, respectively, for $1.00 per share, the fair market value at the dates of
grant. Of the 80,668 warrants, 25,000 expired in 1998 and the remaining 55,668
were exercised in 1999. During 1996, the Company issued five-year warrants to
two shareholders to purchase an aggregate of 225,000 shares of Series B
preferred stock for $1.00 per share, the fair market value at the date of grant.
The value of the warrants using the Black-Scholes valuation model was not
material.
In 1997, the Company issued warrants to purchase an aggregate of 20,000
shares of Series C preferred stock for $1.50 per share, the fair market value at
the date of grant to an equipment lender. The warrants expire in
September 2007. Also in 1997, the Company issued warrants to an equipment lender
to purchase an aggregate 38,400 shares of Series C preferred shares for $1.25
per share. These warrants were exercised in March 2000. The Company also issued
warrants to an accounts receivable lender to purchase an aggregate 25,000 shares
of Series C preferred shares for $1.50 per share. The warrants expire in
November 2004. The value of the warrants using the Black-Scholes valuation model
was not material.
In 1998, the Company issued warrants to purchase an aggregate of 955 shares
of Series D preferred stock for $2.00 per share, the fair market value at the
date of grant to an equipment lender. The warrants expire in August 2008. Also
in 1998, the Company issued five-year warrants in conjunction with the issuance
of Series D preferred stock bridge loans, to purchase an aggregate 165,000
shares of Series D preferred stock for $2.00 per share. The loans were converted
to Series D in 1998 and their note discount was taken to interest expense. At
December 31, 1999, 562,355 warrants were outstanding to purchase 313,000, 83,400
and 165,955 shares of Series B, Series C and Series D preferred stock,
respectively. The warrants issued had a fair value of approximately $1.14 per
warrant at the time of issuance, based on a calculation using the Black-Scholes
valuation model. The fair value of these warrants is reflected as a discount on
the debt and accreted as interest expense to be amortized over the life of the
debt.
F-18
CIPHERGEN BIOSYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
9. INCOME TAXES
The Company accounts for income taxes using the liability method. Under this
method, deferred tax assets and liabilities are determined based on the
difference between the financial statement and tax bases of assets and
liabilities using the current tax laws and rates. Valuation allowances are
established when necessary to reduce deferred tax assets to the amounts expected
to be realized.
At December 31, 1999, the Company had federal and state net operating loss
carryforwards of approximately $21,053,000 and $10,859,000, respectively,
available to offset future taxable income. The operating loss carryforwards and
credits expire between 2002 and 2019, if not utilized. For federal and state tax
purposes, a portion of the Company's net operating loss carryforwards may be
subject to certain limitations on utilization in case of a change in ownership,
as defined by federal and state tax law.
Temporary differences which give rise to significant portions of deferred
tax assets and liabilities at December 31, 1998 and 1999 were as follows (in
thousands):
1998 1999
-------- --------
Deferred tax assets and liabilities:
Net operating loss carryforwards........................ $ 5,622 $ 7,579
Research and development credits........................ 624 935
Depreciation and amortization........................... 293 375
Other................................................... 162 417
------- -------
Total deferred tax assets............................. 6,701 9,306
Less: Valuation allowance................................. (6,701) (9,306)
------- -------
Net deferred tax asset.................................... $ -- $ --
======= =======
Based on the evidence currently available, the Company has established a
full valuation allowance because at this time it appears more likely than not
that no benefit will be realized for its deferred tax assets.
10. EMPLOYEE BENEFIT PLAN
The Company maintains the Ciphergen Biosystems, Inc. 401(k) Savings Plan for
its U.S. employees. This Plan allows eligible employees to defer up to 20%,
subject to the Internal Revenue Service annual contribution limit, of their
pretax compensation in certain investments at the discretion of the employee.
Under the Plan, the Company is not required to make Plan contributions. The
Company had not made any contributions to the Plan as of December 31, 1999.
11. ACQUISITIONS
On April 7, 1997, the Company acquired all the outstanding stock of
IllumeSys Pacific, Inc. ("IllumeSys") and 5% of Ciphergen Technologies, Inc.
("CTI"). The total purchase price was approximately $737,000 which consisted of
4,915,738 shares of the Company's common stock. The acquisition was accounted
for under the purchase accounting method.
F-19
CIPHERGEN BIOSYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
11. ACQUISITIONS (CONTINUED)
The purchase price allocation was based on the estimated fair value of
IllumeSys' tangible assets less liabilities at April 7, 1997. The allocation
follows (in thousands):
Property and equipment...................................... $ 118
Total liabilities........................................... (349)
In-process technology....................................... 968
-----
$ 737
=====
At the time of acquisition, technological feasibility of the in-process
technology had not been established and had no alternative future use.
Accordingly, the entire $968,000 was charged to operations.
Under an employment agreement signed as part of the acquisition, the Company
had a contingent obligation to issue an additional 4,915,738 shares of common
stock to the owners of IllumeSys contingent upon the continued service of a
certain key employee. As of December 31, 1997, 1,092,386 shares had been issued
and $164,000 had been recorded as research and development expense. The
remainder of that contingent obligation was then accelerated and $1.7 million
was charged to research and development expense in July 1998.
On July 28, 1998, the Company acquired the remaining 95% of the outstanding
stock of CTI. The total purchase price was $537,500 which consisted of 1,075,000
shares of the Company's common stock. The acquisition was accounted for under
the purchase accounting method. The purchase was allocated to in-process
technology based on the fair value of the Company's common stock given in
consideration. At the time of the acquisition, the technological feasibility of
the in-process technology had not been established and therefore had no
alternative future use. Accordingly, the entire $537,500 was charged to
operations.
12. RELATED PARTIES
At December 31, 1999, the Company had two notes receivable totaling $230,000
from an officer, with an imputed interest rate of 6.0%. The notes are repayable
on or before December 30, 2003. Additionally, the Company has various notes
receivable from stockholders in the aggregate amount of approximately $488,000
related to the early exercise of stock options. These notes have five year
terms, bear interest between 5.59% and 6.85% and are collateralized by the
underlying stock and other personal assets. All notes receivable related to the
early exercise of options become due immediately upon termination of employment.
During the years ended December 31, 1998 and 1999, the Company recorded
revenue in the amount of $625,000 and $881,000, respectively, on sales to
related parties. These sales were transactions related to the sale of equipment
to companies who held minority investments in the Company. Additionally, the
Company recorded $31,000 of other income for services performed under the
Ciphergen Biosystems, K.K. distribution and marketing agreement.
13. SEGMENT INFORMATION
The Company has adopted SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information" effective December 31, 1998. SFAS 131
establishes standards for disclosure about
F-20
CIPHERGEN BIOSYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
13. SEGMENT INFORMATION (CONTINUED)
operating segments and related disclosures about products and services,
geographic areas and major customers. Comparative information has been provided
for prior years. The Company operates in one business segment. The Company sells
its products and systems directly to customers in the United States and Europe,
and through a distributor in Asia.
Revenue for geographic regions reported below are based upon the customers'
locations. Long-lived assets, predominately property and equipment, are reported
based on the location of the assets. Following is a summary of the geographic
information related to revenues, long-lived assets and information related to
significant customers for the years ended December 31, 1997, 1998 and 1999:
1997 1998 1999
-------- -------- --------
REVENUE
North America............................................... $1,163 $1,926 $3,142
Europe...................................................... 120 643 1,320
Asia........................................................ -- 364 548
------ ------ ------
TOTAL..................................................... $1,283 $2,933 $5,010
====== ====== ======
1997 1998 1999
-------- -------- --------
LONG-LIVED ASSETS
North America............................................... $ 914 $ 789 $ 777
Europe...................................................... -- 2 90
------ ------ ------
TOTAL..................................................... $ 914 $ 791 $ 867
====== ====== ======
1997 1998 1999
-------- -------- --------
SIGNIFICANT CUSTOMERS
REVENUE
Ciphergen Biosystems, K.K. and Predecessor.................. -- 12% 11%
====== ====== ======
ACCOUNTS RECEIVABLE
As of December 31, 1998 and 1999, six and seven customers accounted for 97%
and 94% of accounts receivable, respectively.
The Company does not segregate information related to operating income
generated by its export sales.
14. SUBSEQUENT EVENTS (UNAUDITED)
FACILITIES LEASE
In February 2000, the Company signed an eight year lease for a new facility.
The lease expires in March 2008 and future rental commitments totaled $8,271,000
on the date the lease was signed.
F-21
CIPHERGEN BIOSYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
14. SUBSEQUENT EVENTS (UNAUDITED) (CONTINUED)
DANISH SUBSIDIARY
In February 2000, the Company established a new subsidiary in Denmark,
Ciphergen Biosystems A/S. The subsidiary will carry out both research and sales
and marketing activities.
SERIES E CONVERTIBLE PREFERRED STOCK
In March 2000, the Company issued 10,390,862 shares of Series E preferred
stock ("Series E") at $2.75 per share resulting in gross proceeds of
$28.6 million. The difference between the conversion price and the deemed value
per share of the common stock on the transaction date will result in a
beneficial conversion feature and will be reflected of a preferred stock
dividend in the March 31, 2000 interim financial statements. Each share of
Series E has voting rights equal to the number of shares of common stock into
which such share is convertible. Holders of Series E are entitled to receive
annual dividends of $0.22 per share, when and if declared by the Board of
Directors, on a PARI PASSU basis with the holders of Series A, Series B,
Series C and Series D preferred stock, and prior to the common stock. The
Series E preferred stock is convertible at any time into common stock at a
one-for-one exchange ratio. Such conversion is automatic upon the effective date
of an initial public offering of at least $10.0 million provided the public
offering price is at least $5.50 per share. In the event of any liquidation,
dissolution or winding up of the Company, the holders of Series E are entitled
to receive an amount equal to $2.75 per share, plus any declared but unpaid
dividends.
In March 2000, the Board of Directors authorized the Company to
reincorporate in Delaware.
F-22
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SHARES
[CIPHGERGEN LOGO]
COMMON STOCK
---------------------
PROSPECTUS
---------------------
SG COWEN
ING BARINGS
WARBURG DILLON READ LLC
, 2000
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth all expenses to be paid by the Registrant,
other than the underwriting discounts and commissions payable by the Registrant
in connection with the sale of the common stock being registered. All amounts
shown are estimates except for the registration fee and the NASD filing fee.
AMOUNT TO BE PAID
-----------------
Registration fee............................................ $ 22,770
NASD filing fee............................................. 9,125
Nasdaq National Market listing fee.......................... 95,000
Blue sky qualification fees and expenses.................... 10,000
Printing and engraving expenses............................. 300,000
Legal fees and expenses..................................... 500,000
Accounting fees and expenses................................ 300,000
Transfer agent and registrar fees........................... 25,000
Miscellaneous expenses...................................... $ 138,105
----------
Total................................................... $1,400,000
==========
ITEM 14. INDEMNIFICATION OF OFFICERS AND DIRECTORS.
Section 145 of the Delaware General Corporation Law permits indemnification
of officers, directors and other corporate agents under certain circumstances
and subject to certain limitations. The Registrant's certificate of
incorporation and bylaws provide that the Registrant shall indemnify its
directors, officers, employees and agents to the full extent permitted by
Delaware General Corporation Law, including in circumstances in which
indemnification is otherwise discretionary under Delaware law. In addition, the
Registrant intends to enter into separate indemnification agreements with its
directors, officers and certain employees that would require the Registrant,
among other things, to indemnify them against certain liabilities that may arise
by reason of their status or service (other than liabilities arising from
willful misconduct of a culpable nature). The Registrant also intends to
maintain director and officer liability insurance, if available on reasonable
terms.
These indemnification provisions and the indemnification agreements to be
entered into between the Registrant and its officers and directors may be
sufficiently broad to permit indemnification of the Registrant's officers and
directors for liabilities (including reimbursement of expenses incurred) arising
under the Securities Act.
The Registrant intends to obtain in conjunction with the effectiveness of
the Registration Statement a policy of directors' and officers' liability
insurance that insures the Registrant's directors and officers against the cost
of defense, settlement or payment of a judgment under certain circumstances.
The underwriting agreement filed as Exhibit 1.1 to this Registration
Statement provides for indemnification by the underwriters of the Registrant and
its officers and directors for certain liabilities arising under the Securities
Act, or otherwise.
II-1
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
Except as otherwise noted, we have issued and sold the following securities
within the last three years and through March 15, 2000:
On April 7, 1997 and March 3, 1998, we sold an aggregate of 2,929,719 shares
of our Series C preferred stock at a price of $1.50 per share to eight investors
and their affiliates.
On July 28, 1998, September 30, 1998, and January 2, 1999, we sold an
aggregate of 6,754,713 shares of our Series D Preferred Stock at a price of
$2.00 per share to 20 investors and their affiliates.
On March 3, 2000 and March 3 and 8, 2000, we sold an aggregate of 10,390,862
shares of our Series E preferred stock at a price of $2.75 per share to 43
investors and their affiliates.
We issued 54,400 shares of our Series A preferred stock in 1998, at an
exercise price per share of $0.50, pursuant to the exercise of warrants issued
in connection with our original issuance of our Series A preferred stock.
We issued 280,669 shares of our Series B preferred stock in 1999 and 2000,
at an exercise price per share of $1.00, pursuant to the exercise of warrants
issued in connection with our original issuance of our Series B preferred stock.
We issued 38,400 shares of our Series C preferred stock in 2000, at an
exercise price per share of $1.50, pursuant to the exercise of warrants issued
in connection with an equipment loan from William R. Green.
We issued 165,000 shares of our Series D preferred stock in 2000 at an
exercise price per share of $2.00 pursuant to the exercise of warrants issued in
connection with original issuance of our Series D preferred stock.
On March 17, 2000, we issued 146,635 shares of our Series E preferred stock
at an exercise price per share of $2.75 to SG Cowen Securities Corporation,
pursuant to the exercise of warrants issued in connection with original issuance
of our Series E preferred stock.
Since our inception, we have granted options to purchase 7,620,388 shares of
our common stock to employees, directors and consultants under our 1993 Stock
Option Plan at exercise prices ranging from $0.01 to $1.50 per share. Of the
7,620,388 options granted; 2,571,136 remain outstanding, 3,690,741 shares of
common stock have been purchased pursuant to exercises of stock options and
options to acquire 1,358,511 shares have been cancelled and became available for
grant under our 1993 Stock Option Plan.
The sales and issuances of securities in the transactions described above
were deemed to be exempt from registration under the Securities Act in reliance
upon Section 4(2) of the Securities Act, Regulation D promulgated thereunder or
Rule 701 promulgated under Section 3(b) of the Securities Act, as transactions
by an issuer not involving any public offering or transactions pursuant to
compensatory benefit plans and contracts relating to compensation as provided
under Rule 701. The recipients of securities in each transaction represented
their intentions to acquire the securities for investment only and not with a
view to or for sale in connection with any distribution thereof and appropriate
legends were affixed to the securities issued in such transactions. All
recipients either received adequate information about us or had access, through
their employment or other relationships with us, to adequate information about
us.
There were no underwriters employed in connection with any of the
transactions set forth in Item 15.
II-2
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) EXHIBITS.
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- --------------------- ------------------------------------------------------------
1.1* Form of Underwriting Agreement
3.1 Form of Amended and Restated Articles of Incorporation of
Registrant prior to completion of this offering
3.2* Form of Certificate of Incorporation of Registrant to be
effective upon completion of this offering
3.3 Amended and Restated Bylaws of Registrant prior to
completion of this offering
3.4* Amended and Restated Bylaws of Registrant to be effective
upon completion of this offering
4.1* Form of Registrant's Common Stock Certificate
5.1* Opinion of Wilson Sonsini Goodrich & Rosati, P.C., regarding
legality of the securities being issued
10.1 Form of Preferred Stock Purchase Agreement
10.2 Fourth Amended and Restated Investors Rights Agreement dated
March 3, 2000
10.3 1993 Stock Option Plan
10.4* Form of Stock Option Agreement
10.5* 2000 Stock Plan and related form of Stock Option Agreement
10.6* Employee Stock Purchase Plan
10.7* 401(k) Plan
10.8 Form of Warrant
10.9* Form of Proprietary Information Agreement between the
Registrant and certain of its employees
10.10* Lease Agreement dated March 20, 1996, between Nearon
Enterprises LLC and Registrant and amendment thereto
10.22* Employment Letter Agreement between the Registrant and
James H. Stanford, dated as of August 25, 1997
10.23* MAS License Agreement with IllumeSys Pacific, Inc.
10.24* MAS License agreement with Ciphergen Technologies, Inc.
(formerly ISP Acquisition Corporation)
10.25 Joint Venture Agreement between Registrant and Sumitomo
Corporation
10.26 Distribution and Marketing Agreement between Registrant and
Ciphergen Biosystems K.K.
10.27 Joint Development Agreement between Registrant and Stanford
Research Systems, dated as of February 2, 1995
11.1* Statement of computation of earnings per share
21.1* Subsidiaries of Registrant
23.1* Consent of Wilson Sonsini Goodrich & Rosati, P.C. (included
in Exhibit 5.1)
23.2 Consent of PricewaterhouseCoopers LLP, Independent
Accountants
24.1 Power of Attorney (see signature page)
II-3
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- --------------------- ------------------------------------------------------------
27.1 Financial Data Schedule
- ------------------------
* to be filed by amendment
(b) FINANCIAL STATEMENT SCHEDULES.
Schedules not listed above have been omitted because the information
required to be set forth therein is not applicable or is shown in the financial
statements or notes thereto.
ITEM 17. UNDERTAKINGS
The undersigned Registrant hereby undertakes to provide to the Underwriters
at the closing specified in the Underwriting Agreement certificates in such
denominations and registered in such names as required by the underwriters to
permit prompt delivery to each purchaser.
Insofar as indemnification by the Registrant for liabilities arising under
the Securities Act may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the provisions referenced in Item 14 of
this Registration Statement or otherwise, the Registrant has been advised that
in the opinion of the Commission such indemnification is against public policy
as expressed in the Securities Act, and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities (other than the
payment by the Registrant of expenses incurred or paid by a director, officer,
or controlling person of the Registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered hereunder, the Registrant
will, unless in the opinion of its counsel the matter has been settled by
controlling precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against public policy as
expressed in the Securities Act and will be governed by the final adjudication
of such issue.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act, the
information omitted from the form of Prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act shall be deemed to be part of this Registration
Statement as of the time it was declared effective; and
(2) For the purpose of determining any liability under the Securities Act,
each post-effective amendment that contains a form of Prospectus shall be deemed
to be a new Registration Statement relating to the securities offered therein,
and the offering of such securities at the time shall be deemed to be the
initial bona fide offering thereof.
II-4
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in Palo Alto, California, on the 20th
day of March 2000.
CIPHERGEN BIOSYSTEMS, INC.
By: /s/ WILLIAM E. RICH
-----------------------------------------
William E. Rich
PRESIDENT AND CHIEF EXECUTIVE OFFICER
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears
below hereby constitutes and appoints William E. Rich and James H. Stanford, and
each of them acting individually, as his true and lawful attorneys-in-fact and
agents, each with full power of substitution, for him in any and all capacities,
to sign any and all amendments to this Registration Statement (including
post-effective amendments or any abbreviated registration statement and any
amendments thereto filed pursuant to Rule 462(b) increasing the number of
securities for which registration is sought), and to file the same, with
exhibits thereto and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, with full power of each to act alone, full power and authority to do and
perform each and every act and thing requisite and necessary to be done in
connection therewith, as fully for all intents and purposes as he might or could
do in person, hereby ratifying and confirming all that said attorneys-in-fact
and agents, or his or their substitute or substitutes, may lawfully do or cause
to be done by virtue hereof.
Pursuant to the requirements of the Securities Act, this Registration
Statement has been signed by the following persons in the capacities and on the
dates indicated:
SIGNATURE TITLE DATE
--------- ----- ----
/s/ WILLIAM E. RICH President and Chief Executive
------------------------------------ Officer, and Director March 20, 2000
William E. Rich (PRINCIPAL EXECUTIVE OFFICER)
/s/ JAMES H. STANFORD Vice President and Chief Financial
------------------------------------ Officer March 20, 2000
James H. Stanford (PRINCIPAL FINANCIAL OFFICER)
/s/ DANIEL M. CASERZA
------------------------------------ Corporate Controller March 20, 2000
Daniel M. Caserza (PRINCIPAL ACCOUNTING OFFICER)
/s/ JOHN A. YOUNG
------------------------------------ Director March 20, 2000
John A. Young
II-5
SIGNATURE TITLE DATE
--------- ----- ----
/s/ MICHAEL J. CALLAGHAN
------------------------------------ Director March 20, 2000
Michael J. Callaghan
/s/ BARBARA J. DALTON
------------------------------------ Director March 20, 2000
Barbara J. Dalton
/s/ JEAN-FRANCOIS FORMELA
------------------------------------ Director March 20, 2000
Jean-Francois Formela
/s/ WILLIAM R. GREEN
------------------------------------ Director March 20, 2000
William R. Green
/s/ JAMES L. RATHMANN
------------------------------------ Director March 20, 2000
James L. Rathmann
/s/ DANIEL VAPNEK
------------------------------------ Director March 20, 2000
Daniel Vapnek
II-6
INDEX TO EXHIBITS
EXHIBITS
- ---------------------
1.1* Form of Underwriting Agreement
3.1 Form of Amended and Restated Articles of Incorporation of
Registrant prior to completion of this offering
3.2* Form of Certificate of Incorporation of Registrant to be
effective upon completion of this offering
3.3 Amended and Restated Bylaws of Registrant prior to
completion of this offering
3.4* Amended and Restated Bylaws of Registrant to be effective
upon completion of this offering
4.1* Form of Registrant's Common Stock Certificate
5.1* Opinion of Wilson Sonsini Goodrich & Rosati, P.C., regarding
legality of the securities being issued
10.1 Form of Preferred Stock Purchase Agreement
10.2 Fourth Amended and Restated Investors Rights Agreement dated
March 3, 2000
10.3 1993 Stock Option Plan
10.4* Form of Stock Option Agreement
10.5* 2000 Stock Plan and related form of Stock Option Agreement
10.6* Employee Stock Purchase Plan
10.7* 401(k) Plan
10.8 Form of Warrant
10.9* Form of Proprietary Information Agreement between the
Registrant and certain of its employees
10.10* Lease Agreement dated March 20, 1996, between Nearon
Enterprises LLC and Registrant and amendment thereto
10.22* Employment Letter Agreement between the Registrant and
James H. Stanford, dated as of August 25, 1997
10.23* MAS License Agreement with IllumeSys Pacific, Inc.
10.24* MAS License agreement with Ciphergen Technologies, Inc.
(formerly ISP Acquisition Corporation)
10.25 Joint Venture Agreement between Registrant and Sumitomo
Corporation
10.26 Distribution and Marketing Agreement between Registrant and
Ciphergen Biosystems K.K.
10.27 Joint Development Agreement between Registrant and Stanford
Research Systems, dated as of February 2, 1995
11.1* Statement of computation of earnings per share
21.1* Subsidiaries of Registrant
23.1* Consent of Wilson Sonsini Goodrich & Rosati, P.C. (included
in Exhibit 5.1)
23.2 Consent of PricewaterhouseCoopers LLP, Independent
Accountants
24.1 Power of Attorney (see signature page)
27.1 Financial Data Schedule
- ------------------------
* to be filed by amendment