-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, RYLAcgs+XoYZUfiDE5g7viK6LBizMhDMhqMOQKoslnTgBYX2N6+nXuFnLollajKn fFI7A3VE/KzO+nZgMQuBgQ== 0000912057-00-012329.txt : 20000321 0000912057-00-012329.hdr.sgml : 20000321 ACCESSION NUMBER: 0000912057-00-012329 CONFORMED SUBMISSION TYPE: S-1 PUBLIC DOCUMENT COUNT: 12 FILED AS OF DATE: 20000320 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CIPHERGEN BIOSYSTEMS INC CENTRAL INDEX KEY: 0000926617 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 330595156 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-1 SEC ACT: SEC FILE NUMBER: 333-32812 FILM NUMBER: 573372 BUSINESS ADDRESS: STREET 1: 490 SAN ANTONIO ROAD STREET 2: SUITE 201 CITY: PALO ALTO STATE: CA ZIP: 94306 BUSINESS PHONE: 6504963770 MAIL ADDRESS: STREET 1: 490 SAN ANTONIO ROAD CITY: PALO ALTO STATE: CA ZIP: 94304 S-1 1 S-1 AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 20, 2000 REGISTRATION NO. 333- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 -------------------------- FORM S-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 ------------------ CIPHERGEN BIOSYSTEMS, INC. (Exact name of Registrant as specified in its charter) 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) -------------------------- WILLIAM E. RICH, PH.D. PRESIDENT AND CHIEF EXECUTIVE OFFICER CIPHERGEN BIOSYSTEMS, INC. 490 SAN ANTONIO ROAD PALO ALTO, CA 94306 (650) 496-3770 (Name, address, including zip code, and telephone number, including area code, of agent for service) -------------------------- COPIES TO: 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
-------------------------- APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as practicable after the effective date of this Registration Statement. If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. / / If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. / / If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. / / If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. / / If delivery of the prospectus is expected to be made pursuant to Rule 434, check the following box. / / -------------------------- CALCULATION OF REGISTRATION FEE
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. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 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. ---------------------
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. --------------------- SG COWEN ING BARINGS WARBURG DILLON READ LLC , 2000 TABLE OF CONTENTS
PAGE -------- 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 -------- 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
------------------------ YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS PROSPECTUS. WE HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH INFORMATION THAT IS DIFFERENT. WE ARE OFFERING TO SELL AND SEEKING OFFERS TO BUY SHARES OF OUR COMMON STOCK ONLY IN JURISDICTIONS WHERE OFFERS AND SALES ARE PERMITTED. THE INFORMATION CONTAINED IN THIS PROSPECTUS IS ACCURATE ONLY AS OF THE DATE OF THIS PROSPECTUS, REGARDLESS OF THE TIME OF DELIVERY OF THIS PROSPECTUS OR OF ANY SALE OF OUR COMMON STOCK. IN THIS PROSPECTUS, REFERENCES TO "CIPHERGEN BIOSYSTEMS," "CIPHERGEN," "WE," "US" AND "OUR" REFER TO CIPHERGEN BIOSYSTEMS, INC., A DELAWARE CORPORATION. ------------------------ UNTIL , 2000, ALL DEALERS THAT EFFECT TRANSACTIONS IN THESE SECURITIES, WHETHER OR NOT PARTICIPATING IN THIS OFFERING, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS REQUIREMENT IS IN ADDITION TO THE DEALERS' OBLIGATION TO DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS. CIPHERGEN AND PROTEINCHIP ARE U.S. REGISTERED TRADEMARKS OF CIPHERGEN BIOSYSTEMS, INC. IN ADDITION, CIPHERGEN HAS FILED FOR TRADEMARK REGISTRATION OF SELDI, THE CIPHERGEN LOGO AND BIOMARKER DISCOVERY CENTER. THIS PROSPECTUS ALSO INCLUDES TRADEMARKS AND TRADENAMES OF OTHER PARTIES. 3 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 -------- -------- -------- 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 EX-3.1 2 EXHIBIT 3.1 AMENDED AND RESTATED ARTICLES OF INCORPORATION OF CIPHERGEN BIOSYSTEMS, INC. A CALIFORNIA CORPORATION The undersigned, James H. Stanford and Michael J. O'Donnell, hereby certify that: ONE: They are the duly elected and acting Vice President and Secretary, respectively, of Ciphergen Biosystems, Inc., a California corporation. TWO: The Articles of Incorporation of this corporation are amended and restated to read in full as follows: ARTICLE III The name of this corporation is Ciphergen Biosystems, Inc. ARTICLE IV The purpose of this corporation is to engage in any lawful act or activity for which a corporation may be organized under the General Corporation Law of California other than the banking business, the trust company business or the practice of a profession permitted to be incorporated by the California Corporations Code. ARTICLE V A. CLASSES OF STOCK. This corporation is authorized to issue two classes of stock to be designated, respectively, "Common Stock" and "Preferred Stock." The total number of shares which the corporation is authorized to issue is 92,253,644 shares. 60,000,000 shares shall be Common Stock. 32,253,644 shares shall be Preferred Stock. The Preferred Stock may be issued from time to time in one or more series. Except as provided in this Article III, the Board of Directors is hereby authorized to determine and alter the rights, preferences, privileges and restrictions granted to or imposed upon any wholly unissued series of Preferred Stock, and to fix the number of shares of any such series of Preferred Stock and the designation of any such series of Preferred Stock. The Board of Directors, within the limits and restrictions stated in this Article III or in any resolution or resolutions of the Board of Directors originally fixing the number of shares constituting any series, may increase or decrease (but not below the number of shares of such series then outstanding) the number of shares of any series subsequent to the issuance of shares of that series. 1. B. RIGHTS, PREFERENCES, PRIVILEGES AND RESTRICTIONS OF THE PREFERRED STOCK. SECTION 1. DESIGNATION OF PREFERRED STOCK. 3,054,400 shares of Preferred Stock are designated Series A Preferred Stock (the "Series A Preferred"), 7,265,457 shares of Preferred Stock are designated Series B Preferred Stock (the "Series B Preferred"), 3,013,119 shares of Preferred Stock are designated Series C Preferred Stock (the "Series C Preferred"), 6,920,668 shares of Preferred Stock are designated Series D Preferred Stock (the "Series D Preferred") and 12,000,000 shares of Preferred Stock are designated Series E Preferred Stock (the "Series E Preferred") with the rights, preferences, privileges and restrictions specified herein. The Series A Preferred, the Series B Preferred, the Series C Preferred, the Series D Preferred and the Series E Preferred are hereinafter collectively referred to as the "Preferred Stock." SECTION 2. DIVIDEND RIGHTS OF PREFERRED STOCK. (a) The holders of the then outstanding shares of the Series A Preferred, the Series B Preferred, the Series C Preferred, the Series D Preferred and the Series E Preferred shall be entitled to receive dividends at the rate of $0.04 per share per annum, $0.08 per share per annum, $0.12 per share per annum, $0.16 per share per annum, and $0.22 per share per annum, respectively, when, as and if declared by the Board of Directors out of any funds legally available therefor, prior and in preference to any declaration or payment of any dividend on the Common Stock of this corporation ("Common Stock") payable other than in Common Stock or other securities and rights convertible into or entitling the holder thereof to receive, directly or indirectly, additional shares of Common Stock. Such dividends shall not be cumulative. SECTION 3. LIQUIDATION PREFERENCE. (a) In the event of any liquidation, dissolution or winding up of the corporation, either voluntary or involuntary, the holders of the Preferred Stock shall be entitled to receive, prior and in preference to any distribution of any of the assets or surplus funds of the corporation to the holders of the Common Stock by reason of their ownership thereof, the sum of (i) $0.50 per share for each share of the Series A Preferred, $1.00 per share for each share of the Series B Preferred, $1.50 per share for each share of the Series C Preferred, $2.00 per share for each share of the Series D Preferred and $2.75 per share for each share of the Series E Preferred then held by them and (ii) an amount equal to all declared but unpaid dividends on the Preferred Stock then held by them. If, upon the occurrence of such event, the assets and funds available for such distribution among the holders of the Preferred Stock shall be insufficient to permit the payment to such holders of the full aforesaid preferential amount, then the entire assets and funds of the corporation legally available for distribution shall be distributed ratably among the holders of the Preferred Stock in proportion to the preferential amount each such holder would have been entitled to receive pursuant to this Section 3 if such distribution had been sufficient to permit the full payment of such preferential amount. (b) Upon the completion of the distribution provided for in paragraph 3(a), all of the assets remaining in the corporation shall be distributed pro rata among the holders of the Preferred Stock and Common Stock based on the number of shares of Common Stock held 2. by each such holder (assuming conversion of the Preferred Stock into the number of shares of Common Stock into which the Preferred Stock could then be converted under these Articles) until the holders of the Series A Preferred, the Series B Preferred, the Series C Preferred, the Series D Preferred and the Series E Preferred shall have received an aggregate amount from the distributions provided for under paragraph (a) of this Section 3 and this paragraph (b) equal to $1.00, $2.00, $3.00, $4.00 and $5.50 per share, respectively, plus an amount equal to all declared but unpaid dividends on the Preferred Stock then held by them. (c) Upon completion of the distribution provided for in paragraphs 3(a) and 3(b), all of the assets remaining in the Corporation, if any, shall be distributed to the holders of Common Stock pro rata based on the number of shares of Common Stock held by each such holder. (d) For purposes of this Section 3, a merger or consolidation of the corporation with or into any other corporation or corporations, or the merger of any other corporation or corporations into this corporation, in which consolidation or merger the shareholders of this corporation receive distributions in cash or securities of another corporation or corporations as a result of such consolidation or merger or a sale of all or substantially all of the assets of this corporation, shall be treated as a liquidation, dissolution or winding up of this corporation. SECTION 4. CONVERSION. The holders of the Preferred Stock shall have conversion rights as follows (the "Conversion Rights"): (a) RIGHT TO CONVERT. Each share of Preferred Stock shall be convertible, at the option of the holder thereof, at any time after the date of issuance of such share at the office of the corporation or any transfer agent for such Preferred Stock. Each share of Preferred Stock shall be convertible into the number of shares of Common Stock which results from dividing the "Conversion Price" per share in effect for such series of Preferred Stock at the time of conversion into the "Conversion Value" per share of such series of Preferred Stock. The number of shares of Common Stock into which each series of Preferred Stock is convertible is hereinafter collectively referred to as the "Conversion Rate" for such series. The initial Conversion Price per share of (i) Series A Preferred shall be $0.50, (ii) Series B Preferred shall be $1.00, (iii) Series C Preferred shall $1.50, (iv) Series D Preferred shall be $2.00 and (v) Series E Preferred shall be $2.75. The Conversion Value per share of (i) Series A Preferred shall be $0.50, (ii) Series B Preferred shall be $1.00, (iii) Series C Preferred shall be $1.50, (iv) Series D Preferred shall be $2.00 and (v) Series E Preferred shall be $2.75. The Conversion Price of each series of Preferred Stock shall be subject to adjustment as hereinafter provided. (b) AUTOMATIC CONVERSION. Each share of Preferred Stock shall automatically be converted into shares of Common Stock at the then effective Conversion Rate in the event of either (i) the closing of a firm commitment underwritten public offering pursuant to an effective registration statement under the Securities Act of 1933, as amended (the "Act"), covering the offer and sale of Common Stock (whether for the account of the corporation or for the account of one or more shareholders of the corporation) of the corporation to the public at an aggregate offering price of not less than $10,000,000 and at a public offering price (prior to underwriters' discounts and expenses) equal to or exceeding $5.50 per share of Common Stock 3. (as adjusted for any stock dividends, combinations or splits with respect to such shares) or (ii) the written consent of holders of more than 66 2/3% of the then outstanding shares of the Preferred Stock voting as a class. In the event of the automatic conversion of the Preferred Stock upon a public offering as aforesaid, the conversion of the Preferred Stock shall be deemed to have occurred automatically at the closing of such public offering. (c) MECHANICS OF CONVERSION. No fractional shares of Common Stock shall be issued upon conversion of Preferred Stock. In lieu of any fractional shares to which the holder would otherwise be entitled, the corporation shall pay cash equal to such fraction multiplied by the fair market value of a share of Common Stock. Before any holder of Preferred Stock shall be entitled to convert the same into full shares of Common Stock, it shall surrender the certificate or certificates therefor, duly endorsed, at the office of the corporation or of any transfer agent for the Preferred Stock, and shall give written notice to the corporation at such office that it elects to convert the same (except that no such written notice of election to convert shall be necessary in the event of an automatic conversion pursuant to Section 4(b)). The corporation shall, as soon as practicable thereafter, issue and deliver at such office to such holder of Preferred Stock a certificate or certificates, registered in such names as specified by the holder, for the number of shares of Common Stock to which such holder shall be entitled as aforesaid and a check payable to the holder in the amount of any cash amounts payable as the result of a conversion into fractional shares of Common Stock, and any accrued and unpaid dividends on the converted Preferred Stock. Such conversion shall be deemed to have been made immediately prior to the close of business on the date of such surrender of the shares of Preferred Stock to be converted, and the person or persons entitled to receive the shares of Common Stock issuable upon such conversion shall be treated for all purposes as the record holder or holders of such shares of Common Stock on such date (except that in the event of an automatic conversion pursuant to clause (i) of Section 4(b) such conversion shall be deemed to have been made immediately prior to the closing of the offering referred to in such clause. If the conversion is in connection with an underwritten offer of securities registered pursuant to the Act, the convrsion may, at the option of any holder tendering Preferred Stock for conversion, be conditioned upon the closing with the underwriter of the sale of securities pursuant to such offering, in which event the person(s) entitled to receive the Common Stock issuable upon such conversion of the Preferred Stock shall not be deemed to have converted such Preferred Stock until immediately prior to the closing of such sale of securities. (d) ADJUSTMENTS TO CONVERSION PRICE FORDILUTING ISSUES. (i) SPECIAL DEFINITIONS. For purposes of this Section 4(d), the following definitions shall apply: (1) "OPTIONS" shall mean rights, options or warrants to subscribe for, purchase or otherwise acquire either Common Stock or Convertible Securities. (2) "ORIGINAL ISSUE DATE" shall mean February ___, 2000. 4. (3) "CONVERTIBLE SECURITIES" shall mean any evidences of indebtedness, shares (other than Common Stock) or other securities convertible into or exchangeable for Common Stock. (4) "ADDITIONAL SHARES OF COMMON STOCK" shall mean all shares of Common Stock issued (or, pursuant to Section 4(d)(iii), deemed to be issued) by the corporation after the Original Issue Date, other than shares of Common Stock issued or issuable or deemed to be issued: (A) upon conversion of shares of Preferred Stock; (B) as a result of an adjustment made pursuant to Sections 4(d)(iv), (vi) or (vii); (C) to directors, officers or employees of, or consultants to, the corporation pursuant to a stock incentive program or another director, officer, employee or consultant agreement or an option or purchase plan approved by the Board of Directors of the Company and not exceeding an aggregate of 2,610,389 shares of Common Stock; (D) to third parties in connection with technology licensing, corporate partnering, equipment leasing, corporate borrowing or similar transactions approved by the Board of Directors; (E) as a dividend or distribution on Preferred Stock; (F) for consideration other than cash pursuant to a merger, consolidation, acquisition or similar business combination; or (G) by way of dividend or other distribution on shares of Common Stock excluded from the definition of Additional Shares of Common Stock by the foregoing clauses (A), (B), (C), (D), (E) or (F) or this clause (G) and on shares of Common Stock so excluded. (ii) No Adjustment of Conversion Price (1) SERIES A CONVERSION PRICE. No adjustment in the Series A Conversion Price of a particular share of the Series A Preferred shall be made in respect of the issuance of Additional Shares of Common Stock unless the consideration per share (determined pursuant to Section 4(d)(v) hereof) for an Additional Share of Common Stock issued or deemed to be issued by the corporation is less than the Series A Conversion Price in effect on the date of, and immediately prior to such issue, for such share of the Series A Preferred. (2) SERIES B CONVERSION PRICE. No adjustment in the Series B Conversion Price of a particular share of the Series B Preferred shall be made in respect 5. of the issuance of Additional Shares of Common Stock unless the consideration per share (determined pursuant to Section 4(d)(v) hereof) for an Additional Share of Common Stock issued or deemed to be issued by the corporation is less than the Series B Conversion Price in effect on the date of, and immediately prior to such issue, for such share of the Series B Preferred. (3) SERIES C CONVERSION PRICE. No adjustment in the Series C Conversion Price of a particular share of the Series C Preferred shall be made in respect of the issuance of Additional Shares of Common Stock unless the consideration per share (determined pursuant to Section 4(d)(v) hereof) for an Additional Share of Common Stock issued or deemed to be issued by the corporation is less than the Series C Conversion Price in effect on the date of, and immediately prior to such issue, for such share of the Series C Preferred. (4) SERIES D CONVERSION PRICE. No adjustment in the Series D Conversion Price of a particular share of the Series D Preferred shall be made in respect of the issuance of Additional Shares of Common Stock unless the consideration per share (determined pursuant to Section 4(d)(v) hereof) for an Additional Share of Common Stock issued or deemed to be issued by the corporation is less than the Series D conversion price in effect on the date of, and immediately prior to such issue, for such share of the Series D Preferred. (5) SERIES E CONVERSION PRICE. No adjustment in the Series E Conversion Price of a particular share of the Series E Preferred shall be made in respect of the issuance of Additional Shares of Common Stock unless the consideration per share (determined pursuant to Section 4(d)(v) hereof) for an Additional Share of Common Stock issued or deemed to be issued by the corporation is less than the Series E conversion price in effect on the date of, and immediately prior to such issue, for such share of the Series E Preferred. (iii) DEEMED ISSUE OF ADDITIONAL SHARES OF COMMON STOCK. (1) OPTIONS AND CONVERTIBLE SECURITIES. In the event the corporation at any time or from time to time after the Original Issue Date shall issue any Options or Convertible Securities or shall fix a record date for the determination of holders of any class of securities entitled to receive any such Options or Convertible Securities, then the maximum number of shares (as set forth in the instrument relating thereto without regard to any provisions contained therein for a subsequent adjustment of such number) of Common Stock issuable upon the exercise of such Options or, in the case of Convertible Securities and Options therefor, the conversion or exchange of such Convertible Securities, shall be deemed to be Additional Shares of Common Stock the time of such issue or, in case such a record date shall have been fixed, as of the close of business on such record date, provided that in any such case in which Additional Shares of Common Stock are deemed to be issued; (A) no further adjustment in the Series A Conversion Price, the Series B Conversion Price, the Series C Conversion Price, the Series D Conversion Price or the Series E Conversion Price shall be made upon the subsequent issue of 6. Convertible Securities or shares of Common Stock upon the exercise of such Options or conversion or exchange of such Convertible Securities; (B) if such Options or Convertible Securities by their terms provide, with the passage of time or otherwise, for any increase in the consideration payable to the corporation, or decrease in the number of shares of Common Stock issuable, upon the exercise, conversion or exchange thereof, any adjustment of the Series A Conversion Price, the Series B Conversion Price, the Series C Conversion Price, the Series D Conversion Price or the Series E Conversion Price computed upon the original issue thereof (or upon the occurrence of a record date with respect thereto), and any subsequent adjustments based thereon, shall, upon any such increase or decrease becoming effective, be recomputed to reflect such increase or decrease insofar as it affects such Options or the rights of conversion or exchange under such Convertible Securities; and (C) upon the expiration of any such Options or any rights of conversion or exchange under such Convertible Securities which shall not have been exercised, any adjustments of the Series A Conversion Price, the Series B Conversion Price, the Series C Conversion Price, the Series D Conversion Price or the Series E Conversion Price computed upon the original issue thereof (or upon the occurrence of a record date with respect thereto), and any subsequent adjustments based thereon, shall, upon such expiration, be recomputed as if: (i) in the case of Convertible Securities or Options for Common Stock the only Additional Shares of Common Stock issued were the shares of Common Stock, if any, actually issued upon the exercise of such Options or the conversion or exchange of such Convertible Securities and the consideration received therefor was the consideration actually received by the corporation for the issue of all such Options, whether or not exercised, plus the consideration actually received by the corporation upon such exercise, or for the issue of all such Convertible Securities which were actually converted or exchanged, plus the additional consideration, if any, actually received by the corporation upon such conversion or exchange, and (ii) in the case of Options for Convertible Securities only the Convertible Securities, if any, actually issued upon the exercise thereof were issued at the time of issue of such Options, and the consideration received by the corporation for the Additional Shares of Common Stock deemed to have been then issued was the consideration actually received by the corporation for the issue of all such Options, whether or not exercised, plus the consideration deemed to have been received by the corporation upon the issue of the Convertible Securities with respect to which such Options were actually exercised; and (D) (i) no readjustment pursuant to clause (B) or (C) above shall have the effect of increasing the Series A Conversion Price to an amount which exceeds the lower of (i) the Series A Conversion Price on the original adjustment date prior to the original adjustment, or (ii) the Series A Conversion Price that would have resulted from any issuance of Additional Shares of Common Stock between the original adjustment date and such readjustment date. 7. (ii) no readjustment pursuant to clause (B) or (C) above shall have the effect of increasing the Series B Conversion Price to an amount which exceeds the lower of (i) the Series B Conversion Price on the original adjustment date prior to the original adjustment, or (ii) the Series B Conversion Price that would have resulted from any issuance of Additional Shares of Common Stock between the original adjustment date and such readjustment date. (iii) no readjustment pursuant to clause (B) or (C) above shall have the effect of increasing the Series C Conversion Price to an amount which exceeds the lower of (i) the Series C Conversion Price on the original adjustment date prior to the original adjustment, or (ii) the Series C Conversion Price that would have resulted from any issuance of Additional Shares of Common Stock between the original adjustment date and such readjustment date. (iv) no readjustment pursuant to clause (B) or (C) above shall have the effect of increasing the Series D Conversion Price to an amount which exceeds the lower of (i) the Series D Conversion Price on the original adjustment date prior to the original adjustment, or (ii) the Series D Conversion Price that would have resulted from any issuance of Additional Shares of Common Stock between the original adjustment date and such readjustment date. (v) no readjustment pursuant to clause (B) or (C) above shall have the effect of increasing the Series E Conversion Price to an amount which exceeds the lower of (i) the Series E Conversion Price on the original adjustment date prior to the original adjustment, or (ii) the Series E Conversion Price that would have resulted from any issuance of Additional Shares of Common Stock between the original adjustment date and such readjustment date. (2) STOCK DIVIDENDS AND SUBDIVISIONS. In the event that the corporation at any time or from time to time after the Original Issue Date shall declare or pay any dividend on the Common Stock payable in Common Stock, or effect a subdivision of the outstanding shares of Common Stock into a greater number of shares of Common Stock (by reclassification or otherwise than by payment of a dividend in Common Stock), then and in any such event, Additional Shares of Common Stock shall not be deemed to have been issued, but rather the provisions of Section 4(d)(vi) below shall apply. (iv) ADJUSTMENT OF CONVERSION PRICE UPON ISSUANCE OF ADDITIONAL SHARES OF COMMON STOCK (1) SERIES A CONVERSION PRICE. In the event this corporation shall issue Additional Shares of Common Stock (including Additional Shares of Common Stock deemed to be issued pursuant to Section 4(d)(iii)) without consideration or for a consideration per share less than the Series A Conversion Price in effect on the date of and immediately prior to such issue, then and in such event, such Series A Conversion Price shall be reduced, concurrently with such issue, to a price (calculated to the nearest cent) determined by multiplying such Series A Conversion Price by a fraction, the numerator of which shall be the number of shares of Common Stock outstanding immediately prior to such issue plus the number 8. of shares of Common Stock which the aggregate consideration received by the corporation for the total number of Additional Shares of Common Stock so issued would purchase at such Series A Conversion Price and the denominator of which shall be the number of shares of Common Stock outstanding immediately prior to such issue plus the number of such Additional Shares of Common Stock so issued; provided, however, that for the purposes of this Section (iv)(1), all shares of Common Stock issuable upon conversion of outstanding Preferred Stock shall be deemed to be outstanding, and immediately after any Additional Shares of Common Stock are deemed issued pursuant to Section (iii), such Additional Shares of Common Stock shall be deemed to be outstanding. (2) SERIES B CONVERSION PRICE. In the event this corporation shall issue Additional Shares of Common Stock (including Additional Shares of Common Stock deemed to be issued pursuant to Section 4(d)(iii)) without consideration or for a consideration per share less than the Series B Conversion Price in effect on the date of and immediately prior to such issue, then and in such event, such Series B Conversion Price shall be reduced, concurrently with such issue, to a price (calculated to the nearest cent) determined by multiplying such Series B Conversion Price by a fraction, the numerator of which shall be the number of shares of Common Stock outstanding immediately prior to such issue plus the number of shares of Common Stock which the aggregate consideration received by the corporation for the total number of Additional Shares of Common Stock so issued would purchase at such Series B Conversion Price and the denominator of which shall be the number of shares of Common Stock outstanding immediately prior to such issue plus the number of such Additional Shares of Common Stock so issued; provided, however, that for the purposes of this Section (iv)(2), all shares of Common Stock issuable upon conversion of outstanding Preferred Stock shall be deemed to be outstanding, and immediately after any Additional Shares of Common Stock are deemed issued pursuant to Section (iii), such Additional Shares of Common Stock shall be deemed to be outstanding. (3) SERIES C CONVERSION PRICE. In the event this corporation shall issue Additional Shares of Common Stock (including Additional Shares of Common Stock deemed to be issued pursuant to Section 4(d)(iii)) without consideration or for a consideration per share less than the Series C Conversion Price in effect on the date of and immediately prior to such issue, then and in such event, such Series C Conversion Price shall be reduced, concurrently with such issue, to a price (calculated to the nearest cent) determined by multiplying such Series C Conversion Price by a fraction, the numerator of which shall be the number of shares of Common Stock outstanding immediately prior to such issue plus the number of shares of Common Stock which the aggregate consideration received by the corporation for the total number of Additional Shares of Common Stock so issued would purchase at such Series C Conversion Price and the denominator of which shall be the number of shares of Common Stock outstanding immediately prior to such issue plus the number of such Additional Shares of Common Stock so issued; provided, however, that for the purposes of this Section (iv)(3), all shares of Common Stock issuable upon conversion of outstanding Preferred Stock shall be deemed to be outstanding, and immediately after any Additional Shares of Common Stock are deemed issued pursuant to Section (iii), such Additional Shares of Common Stock shall be deemed to be outstanding. 9. (4) SERIES D CONVERSION PRICE. In the event this corporation shall issue Additional Shares of Common Stock (including Additional Shares of Common Stock deemed to be issued pursuant to Section 4(d)(iii)) without consideration or for a consideration per share less than the Series D Conversion Price in effect on the date of and immediately prior to such issue, then and in such event, such Series D Conversion Price shall be reduced, concurrently with such issue, to a price (calculated to the nearest cent) determined by multiplying such Series D Conversion Price by a fraction, the numerator of which shall be the number of shares of Common Stock outstanding immediately prior to such issue plus the number of shares of Common Stock which the aggregate consideration received by the corporation for the total number of Additional Shares of Common Stock so issued would purchase at such Series D Conversion Price and the denominator of which shall be the number of shares of Common Stock outstanding immediately prior to such issue plus the number of such Additional Shares of Common Stock so issued; provided, however, that for the purposes of this Section (iv)(4), all shares of Common Stock issuable upon conversion of outstanding Preferred Stock shall be deemed to be outstanding, and immediately after any Additional Shares of Common Stock are deemed issued pursuant to Section (iii), such Additional Shares of Common Stock shall be deemed to be outstanding. (5) SERIES E CONVERSION PRICE. In the event this corporation shall issue Additional Shares of Common Stock (including Additional Shares of Common Stock deemed to be issued pursuant to Section 4(d)(iii)) without consideration or for a consideration per share less than the Series E Conversion Price in effect on the date of and immediately prior to such issue, then and in such event, such Series E Conversion Price shall be reduced, concurrently with such issue, to a price (calculated to the nearest cent) determined by multiplying such Series E Conversion Price by a fraction, the numerator of which shall be the number of shares of Common Stock outstanding immediately prior to such issue plus the number of shares of Common Stock which the aggregate consideration received by the corporation for the total number of Additional Shares of Common Stock so issued would purchase at such Series E Conversion Price and the denominator of which shall be the number of shares of Common Stock outstanding immediately prior to such issue plus the number of such Additional Shares of Common Stock so issued; provided, however, that for the purposes of this Section (iv)(2), all shares of Common Stock issuable upon conversion of outstanding Preferred Stock shall be deemed to be outstanding, and immediately after any Additional Shares of Common Stock are deemed issued pursuant to Section (iii), such Additional Shares of Common Stock shall be deemed to be outstanding. (v) DETERMINATION OF CONSIDERATION. For purposes of Section 4(d), the consideration received by the corporation for the issue of any Additional Shares of Common Stock shall be computed as follows: (1) CASH AND PROPERTY: Such consideration shall: (A) insofar as it consists of cash, be computed at the aggregate amount of cash received by the corporation excluding amounts paid or payable for accrued interest or accrued dividends; 10. (B) insofar as it consists of property other than cash, be computed at the fair value thereof at the time of such issue, as determined in good faith by the corporation's Board of Directors; and (C) in the event Additional Shares of Common Stock are issued together with other shares or securities or other assets of the corporation for consideration which covers both, be the proportion of such consideration so received, computed as provided in clauses (A) and (B) above, as determined in good faith by the Board. (2) OPTIONS AND CONVERTIBLE SECURITIES. The consideration per share received by the corporation for Additional Shares of Common Stock deemed to have been issued pursuant to Section 4(d)(iii)(1), relating to Options and Convertible Securities, shall be determined by dividing: (i) the total amount, if any, received or receivable by the corporation as consideration for the issue of such Options or Convertible Securities, plus the minimum aggregate amount of additional consideration (as set forth in the instruments relating thereto, without regard to any provision contained therein for a subsequent adjustment of such consideration) payable to the corporation upon the exercise of such Options or the conversion or exchange of such Convertible Securities, or in the case of Options for Convertible Securities, the exercise of such Options for Convertible Securities and the conversion or exchange of such Convertible Securities by (ii) the maximum number of shares of Common Stock (as set forth in the instruments relating thereto, without regard to any provision contained therein for a subsequent adjustment of such number) issuable upon the exercise of such Options or the conversion or exchange of such Convertible Securities. (vi) ADJUSTMENTS FOR SUBDIVISIONS, DIVIDENDS, COMBINATIONS OR CONSOLIDATIONS OF COMMON STOCK. (1) In the event the outstanding shares of Common Stock shall be combined or consolidated, by reclassification or otherwise, into a lesser number of shares of Common Stock, the Series A Conversion Price, the Series B Conversion Price, the Series C Conversion Price, the Series D Conversion Price, and the Series E Conversion Price in effect immediately prior to such combination or consolidation shall, concurrently with the effectiveness of such combination or consolidation, be proportionately increased. (2) In the event the corporation shall declare or pay any dividend on the Common Stock payable in Common Stock or in the event the outstanding shares of Common Stock shall be subdivided, by reclassification or otherwise than by payment of a dividend in Common Stock, into a greater number of shares of Common Stock, the Series A Conversion Price, the Series B Conversion Price, the Series C Conversion Price, the Series D Conversion Price and the Series E Conversion Price in effect immediately prior to such dividend or subdivision shall be proportionately decreased: 11. (A) in the case of any such dividend, immediately after the close of business on the record date for the determination of holders of any class of securities entitled to receive such dividend, or (B) in the case of any such subdivision, at the close of business on the date immediately prior to the date upon which such corporate action becomes effective. If such record date shall have been fixed and such dividend shall not have been fully paid on the date fixed therefor, the adjustment previously made in the Series A Conversion Price, the Series B Conversion Price, the Series C Conversion Price, the Series D Conversion Price and the Series E Conversion Price which became effective on such record date shall be canceled as of the close of business on such record date, and thereafter the Series A Conversion Price, the Series B Conversion Price, the Series C Conversion Price, the Series D Conversion Price and the Series E Conversion Price shall be adjusted as of the time of actual payment of such dividend. (vii) ADJUSTMENTS FOR OTHER RECLASSIFICATIONS, DIVIDENDS AND DISTRIBUTIONS. If there occurs any capital reorganization or any reclassification of the capital stock of the Corporation (other than a subdivision, dividend, combination, consolidation or other transaction provided for in Section 2 or Section 4(d)(vi)), each share of the Preferred Stock shall thereafter be convertible into the same kind and amounts of securities or other assets, or both, that were issuable or distributable to the holders of shares of outstanding Common Stock of the Corporation upon such reorganization or reclassification, in respect of that number of shares of Common Stock into which such shares of the Preferred Stock might have been converted immediately prior to such reorganization or reclassification, and in any such case, appropriate adjustments (as determined by the Board of Directors) shall be made in the application of the provisions herein set forth with respect to the rights and interests thereafter of the holders of the Preferred Stock to the end that the provisions of these Articles shall thereafter be applicable, as nearly as reasonably may be, in relation to any securities or other assets thereafter deliverable upon the conversion of the Preferred Stock. (e) NO IMPAIRMENT. The corporation will not, by amendment of its Articles of Incorporation or through any reorganization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms to be observed or performed hereunder by the corporation but will at all times in good faith assist in the carrying out of all the provisions of this Section 4 and in the taking of all such action as may be necessary or appropriate in order to protect the Conversion Rights of the holders of the Preferred Stock against impairment. (f) CERTIFICATE AS TO ADJUSTMENTS. Upon the occurrence of each adjustment or readjustment of the Series A Conversion Price, the Series B Conversion Price, the Series C Conversion Price, the Series D Conversion Price or the Series E Conversion Price pursuant to this Section 4, the corporation at its expense shall promptly compute such adjustment or readjustment in accordance with the terms hereof and furnish to each holder of such Preferred Stock a certificate setting forth such adjustment or readjustment and showing in detail the facts upon which such adjustment or readjustment is based. The corporation shall, upon the written request at any time of any holder of Preferred Stock, furnish or cause to be furnished to such 12. holder a like certificate setting forth (i) such adjustments and readjustments, (ii) the Series A Conversion Price, the Series B Conversion Price, the Series C Conversion Price, the Series D Conversion Price or the Series E Conversion Price, as applicable, at the time in effect, and (iii) the number of shares of Common Stock and the amount, if any, of other property which at the time would be received upon the conversion such Preferred Stock. (g) NOTICES OF RECORD DATE. In the event that this corporation shall propose at any time: (i) to declare any dividend or distribution upon its Common Stock, whether in cash, property, stock or other securities, whether or not a regular cash dividend and whether or not out of earnings or earned surplus; (ii) to offer for subscription pro rata to the holders of any class or series of its stock any additional shares of stock of any class or series or other rights; (iii) to effect any reclassification or recapitalization of its Common Stock outstanding involving a change in the Common Stock; or (iv) to consolidate or merge with or into any other corporation or other entity or person, or any other corporate reorganization, in which the shareholders of the Company immediately prior to such consolidation, merger or reorganization, own less than fifty percent (50%) of the Company's voting power immediately after such consolidation, merger or reorganization, or any transaction or series of related transactions to which the Company is a party in which in excess of fifty percent (50%) of the Company's voting power is transferred; or (v) to sell, lease or convey all or substantially all its property or business, or to liquidate, dissolve or wind up; then, in connection with each such event, this corporation shall send to the holders of the Preferred Stock: (1) at least 10 days' prior written notice of the date on which a record shall be taken for such dividend, distribution or subscription rights (and specifying the date on which the holders of Common shares shall be entitled thereto) or for determining rights to vote in respect of the matters referred to in (iii) and (iv) above; and (2) in the case of the matters referred to in (iii), (iv) and (v) above, at least 10 days' prior written notice of the date when the same shall take place (and specifying, if practicable, or estimating the date on which the holders of Common shares shall be entitled to exchange their Common shares for securities or other property deliverable upon the occurrence of such event). Each such written notice shall be given by first class mail, postage prepaid, addressed to the holders of Preferred Stock at the address for each such holder as shown on the books of this corporation. (h) COMMON STOCK RESERVED. The corporation shall at all times reserve and keep available out of its authorized but unissued shares of Common Stock, solely for the purpose of effecting the conversion of the shares of Preferred Stock, such number of shares 13. of Common Stock as shall from time to time be sufficient to effect the conversion of all outstanding shares of the Preferred Stock, and if at any time the number of authorized but unissued shares of Common Stock shall not be sufficient to effect the conversion of all then outstanding shares of the Preferred Stock, the corporation shall take such corporate action as may, in the opinion of its counsel, be necessary to increase its authorized but unissued shares of Common Stock to such number of shares as shall be sufficient for such purpose. SECTION 5. VOTING RIGHTS. (a) Except as otherwise required by law or hereunder, each share of Common Stock issued and outstanding shall have one vote, each share of the Preferred Stock issued and outstanding shall have the number of votes equal to the number of Common Stock into which such share of the Preferred Stock is convertible as adjusted from time to time pursuant to Section 4 hereof, and the Common Stock and the Preferred Stock shall vote together as a single class. Fractional votes by the holders of Preferred Stock shall not, however, be permitted and any fractional voting rights resulting from the above formula (after aggregating all shares into which shares of Preferred Stock held by each holder could be converted) shall be rounded to the nearest whole number. (b) Notwithstanding Section 5(a), the holders of the Series A Preferred voting together as a single class shall be entitled to elect two (2) directors, the holders of the Series B Preferred voting together as a single class shall be entitled to elect two (2) directors, the holders of the Series D Preferred voting together as a single class shall be entitled to elect one (1) director, the holders of the Series E Preferred voting together as a single class shall be entitled to elect one (1) director, and all remaining directors shall be elected by the holders of the Common Stock and the Preferred Stock voting together as a single class. SECTION 6. COVENANTS. (a) SERIES A PREFERRED. In addition to any other rights provided by law, this corporation shall not, without first obtaining the affirmative vote or written consent of the holders of a majority of all outstanding shares of the Series A Preferred voting as a class, take any action that: (i) materially and adversely alters or changes the rights, preferences and privileges of the Series A Preferred; or (ii) increases the authorized number of shares of the Series A Preferred beyond the number initially authorized. (b) SERIES B PREFERRED. In addition to any other rights provided by law, this corporation shall not, without first obtaining the affirmative vote or written consent of the holders of a majority of all outstanding shares of the Series B Preferred voting as a class, take any action that: (i) materially and adversely alters or changes the rights, preferences and privileges of the Series B Preferred; or 14. (ii) increases the authorized number of shares of the Series B Preferred beyond the number initially authorized. (c) SERIES C PREFERRED. In addition to any other rights provided by law, this corporation shall not, without first obtaining the affirmative vote or written consent of the holders of a majority of all outstanding shares of the Series C Preferred voting as a class, take any action that: (i) materially and adversely alters or changes the rights, preferences and privileges of the Series C Preferred; or (ii) increases the authorized number of shares of the Series C Preferred beyond the number initially authorized. (d) SERIES D PREFERRED. In addition to any other rights provided by law, this corporation shall not, without first obtaining the affirmative vote or written consent of the holders of a majority of all outstanding shares of the Series D Preferred voting as a class, take any action that: (i) materially and adversely alters or changes the rights, preferences and privileges of the Series D Preferred; or (ii) increases the authorized number of shares of the Series D Preferred beyond the number initially authorized. (e) SERIES E PREFERRED. In addition to any other rights provided by law, this corporation shall not, without first obtaining the affirmative vote or written consent of the holders of a majority of all outstanding shares of the Series E Preferred voting as a class, take any action that: (i) materially and adversely alters or changes the rights, preferences and privileges of the Series E Preferred; or (ii) increases the authorized number of shares of the Series E Preferred beyond the number initially authorized. (f) PREFERRED STOCK. In addition to any other rights provided by law, this corporation shall not, without first obtaining the affirmative vote or written consent of the holders of more than sixty-six and two-thirds percent (66 2/3%) of all outstanding shares of the Preferred Stock voting together as a single class, take any action that: (i) creates any new class or series of stock or any other securities convertible into equity securities of the corporation having a preference over, or being on a parity with, the Series A Preferred, the Series B Preferred, the Series C Preferred, the Series D Preferred or the Series E Preferred with respect to voting rights, liquidation or redemption preferences or dividends; or 15. (ii) results in any merger, consolidation or reorganization of the corporation or any transaction in which the shareholders of the Company immediately prior to such merger, consolidation or reorganization, own less than fifty percent (50%) of the Company's voting power immediately after such consolidation, merger or reorganization, or any transaction or series of related transactions to which the Company is a party in which in excess of fifty percent (50%) of the Company's voting power is transferred. SECTION 7. RESIDUAL RIGHTS. All rights accruing to the outstanding shares of this corporation not expressly provided for to the contrary herein shall be vested in the Common Stock. SECTION 8. CONSENT FOR CERTAIN REPURCHASES DEEMED TO BE DISTRIBUTIONS. Each holder of an outstanding share of the Preferred Stock shall be deemed to have consented, for purposes of Section 502, 503 and 506 of the California Corporations Code, to distributions by the corporation in connection with the repurchase of shares of Common Stock issued to or held by officers, directors or employees of or consultants to the corporation upon termination of their employment or services pursuant to agreements providing for the right of said repurchase between the corporation and such person. ARTICLE VI (a) The liability of the directors of this corporation for monetary damages shall be eliminated to the fullest extent permissible under California law. (b) This corporation is authorized to provide indemnification of agents (as defined in Section 317 of the California Corporations Code) for breach of duty to the Corporation and its shareholders through bylaw provisions or through agreements with agents, or both, in excess of the indemnification otherwise permitted by Section 317 of the California Corporations Code, subject to the limits on such excess indemnification set forth in Section 204 of the California Corporations Code. (c) Any repeal or modification of the provisions of this Article shall not adversely affect the rights under this Article in effect at the time of the alleged occurrence of any act or omission to act giving rise to liability or indemnification. 16. * * * * * THREE: The foregoing amendment and restatement of Articles of Incorporation has been duly approved by the Board of Directors of said corporation. FOUR: The foregoing amendment and restatement of Articles of Incorporation has been duly approved by the required vote of shareholders in accordance with Sections 902 and 903 of the California Corporations Code. The total number of outstanding shares of the corporation is 15,991,127 shares of Common Stock, 3,054,400 shares of the Series A Preferred, 6,402,457 shares of the Series B Preferred, 2,929,719 shares of the Series C Preferred, and 6,754,713 shares of the Series D Preferred. The number of shares voting in favor of the amendment equaled or exceeded the vote required. The percentage required was more than 50% of the outstanding Common Stock, voting together as a single class, 50% of the Preferred Stock voting together as a single class, and 50% of the outstanding Common Stock and the outstanding Preferred Stock, voting together as a single class. We further declare under penalty of perjury under the laws of the State of California that the matters set forth in this certificate are true and correct of our own knowledge. DATE: February 18, 2000 /s/ James H. Stanford ------------------------------------- James H. Stanford, Vice President of Finance and Chief Financial Officer /s/ Michael J. O'Donnell ------------------------------------- Michael J. O'Donnell, Secretary [SEAL] 17. EX-3.3 3 EXHIBIT 3.3 BYLAWS OF CIPHERGEN BIOSYSTEMS, INC. (A California corporation) (As Amended and Restated by Resolution of the Board of Directors dated July 20, 1995) TABLE OF CONTENTS
PAGE ---- ARTICLE I - OFFICES...................................................................................................1 Section 1. Principal Office...........................................................................1 Section 2. Other Offices..............................................................................1 ARTICLE II - CORPORATE SEAL...........................................................................................1 Section 3. Corporate Seal.............................................................................1 ARTICLE III - SHAREHOLDERS' MEETINGS AND VOTING RIGHTS................................................................1 Section 4. Place of Meetings..........................................................................1 Section 5. Annual Meeting.............................................................................1 Section 6. Postponement of Annual Meeting.............................................................1 Section 7. Special Meetings...........................................................................2 Section 8. Notice of Meetings.........................................................................2 Section 9. Manner of Giving Notice....................................................................3 Section 10. Quorum and Transaction of Business.........................................................3 Section 11. Adjournment and Notice of Adjourned Meetings...............................................4 Section 12. Waiver of Notice, Consent to Meeting or Approval of Minutes................................4 Section 13. Action by Written Consent Without a Meeting................................................5 Section 14. Voting.....................................................................................6 Section 15. Persons Entitled to Vote or Consent........................................................6 Section 16. Proxies....................................................................................7 Section 17. Inspectors of Election.....................................................................7 ARTICLE IV - BOARD OF DIRECTORS.......................................................................................8 Section 18. Powers.....................................................................................8 Section 19. Number of Directors........................................................................8 Section 20. Election Of Directors, Term, Qualifications................................................8 Section 21. Resignations...............................................................................9 Section 22. Removal....................................................................................9 Section 23. Vacancies..................................................................................9 Section 24. Regular Meetings...........................................................................9 Section 25. Participation by Telephone................................................................10 Section 26. Special Meetings..........................................................................10 Section 27. Notice of Meetings........................................................................10 Section 28. Place of Meetings.........................................................................10 Section 29. Action by Written Consent Without a Meeting...............................................10 Section 30. Quorum and Transaction of Business........................................................10 Section 31. Adjournment...............................................................................11 Section 32. Organization..............................................................................11 Section 33. Compensation..............................................................................11 Section 34. Committees................................................................................11
-i- TABLE OF CONTENTS (CONTINUED)
PAGE ---- ARTICLE V - OFFICERS.................................................................................................12 Section 35. Officers..................................................................................12 Section 36. Appointment...............................................................................12 Section 37. Inability to Act..........................................................................12 Section 38. Resignations..............................................................................12 Section 39. Removal...................................................................................12 Section 40. Vacancies.................................................................................13 Section 41. Chairman of the Board.....................................................................13 Section 42. President.................................................................................13 Section 43. Vice Presidents...........................................................................13 Section 44. Secretary.................................................................................13 Section 45. Chief Financial Officer...................................................................14 Section 46. Compensation..............................................................................15 ARTICLE VI - CONTRACTS, LOANS, BANK ACCOUNTS, CHECKS AND DRAFTS......................................................15 Section 47. Execution of Contracts and Other Instruments..............................................15 Section 48. Loans.....................................................................................15 Section 49. Bank Accounts.............................................................................15 Section 50. Checks, Drafts, Etc.......................................................................16 ARTICLE VII - CERTIFICATES FOR SHARES AND THEIR TRANSFER.............................................................16 Section 51. Certificate for Shares....................................................................16 Section 52. Transfer on the Books.....................................................................16 Section 53. Lost, Destroyed and Stolen Certificates...................................................16 Section 54. Issuance, Transfer and Registration of Shares.............................................17 ARTICLE VIII - INSPECTION OF CORPORATE RECORDS.......................................................................17 Section 55. Inspection by Directors...................................................................17 Section 56. Inspection by Shareholders................................................................17 Section 57. Written Form..............................................................................18 ARTICLE IX - MISCELLANEOUS...........................................................................................18 Section 58. Fiscal Year...............................................................................18 Section 59. Annual Report.............................................................................18 Section 60. Record Date...............................................................................19 Section 61. Bylaw Amendments..........................................................................19 Section 62. Construction and Definition...............................................................19 ARTICLE X - INDEMNIFICATION..........................................................................................20 Section 63. Indemnification of Directors, Officers, Employees And Other Agents........................20
-ii- TABLE OF CONTENTS (CONTINUED)
PAGE ---- ARTICLE XI - RIGHT OF FIRST REFUSAL..................................................................................23 Section 64. Right of First Refusal....................................................................23
-iii- BYLAWS OF CIPHERGEN BIOSYSTEMS, INC. (A California Corporation) ARTICLE I - OFFICES SECTION 1. PRINCIPAL OFFICE. The principal executive office of the corporation shall be located at such place as the Board of Directors may from time to time authorize. If the principal executive office is located outside this state, and the corporation has one or more business offices in this state, the Board of Directors shall fix and designate a principal business office in the State of California. SECTION 2. OTHER OFFICES. Additional offices of the corporation shall be located at such place or places, within or outside the State of California, as the Board of Directors may from time to time authorize. ARTICLE II - CORPORATE SEAL SECTION 3. CORPORATE SEAL. If the Board of Directors adopts a corporate seal such seat shall have inscribed thereon the name of the corporation and the state and date of its incorporation. If and when a seal is adopted by the Board of Directors, such seal may be engraved, lithographed, printed, stamped, impressed upon, or affixed to any contract, conveyance, certificate for shares, or other instrument executed by the corporation. ARTICLE III - SHAREHOLDERS' MEETINGS AND VOTING RIGHTS SECTION 4. PLACE OF MEETINGS. Meetings of shareholders shall be held at the principal executive office of the corporation, or at any other place, within or outside the State of California, which may be fixed either by the Board of Directors or by the written consent of all persons entitled to vote at such meeting, given either before or after the meeting and filed with the Secretary of the Corporation. SECTION 5. ANNUAL MEETING. The annual meeting of the shareholders of the corporation shall be held on any date and time which may from time to time be designated by the Board of Directors. At such annual meeting, directors shall be elected and any other business may be transacted which may properly come before the meeting. SECTION 6. POSTPONEMENT OF ANNUAL MEETING. The Board of Directors and the President shall each have authority to hold at an earlier date and/or time, or to postpone to a later date and/or time, the annual meeting of shareholders. -1- SECTION 7. SPECIAL MEETINGS. (a) Special meetings of the shareholders, for any purpose or purposes, may be called by the Board of Directors, the Chairman of the Board of Directors, the President, or the holders of shares entitled to cast not less than ten percent (10%) of the votes at the meeting. (b) Upon written request to the Chairman of the Board of Directors, the President, any vice president or the Secretary of the corporation by any person or persons (other than the Board of Directors) entitled to call a special meeting of the shareholders, such officer forthwith shall cause notice to be given to the shareholders entitled to vote, that a meeting will be held at a time requested by the person or persons calling the meeting, such time to be not less than thirty-five (35) nor more than sixty (60) days after receipt of such request. If such notice is not given within twenty (20) days after receipt of such request, the person or persons calling the meeting may give notice thereof in the manner provided by law or in these bylaws. Nothing contained in this Section 7 shall be construed as limiting, fixing or affecting the time or date when a meeting of shareholders called by action of the Board of Directors may be held. SECTION 8. NOTICE OF MEETINGS. Except as otherwise may be required by law and subject to subsection 7(b) above, written notice of each meeting of shareholders shall be given to each shareholder entitled to vote at that meeting (see Section 15 below), by the Secretary, assistant secretary or other person charged with that duty, not less than ten (10) (or, if sent by third class mail, thirty (30)) nor more than sixty (60) days before such meeting. Notice of any meeting of shareholders shall state the date, place and hour of the meeting and, (a) in the case of a special meeting, the general nature of the business to be transacted, and no other business may be transacted at such meeting; (b) in the case of an annual meeting, the general nature of matters which the Board of Directors, at the time the notice is given, intends to present for action by the shareholders; (c) in the case of any meeting at which directors are to be elected, the names of the nominees intended at the time of the notice to be presented by management for election; and (d) in the case of any meeting, if action is to be taken on any of the following proposals, the general nature of such proposal: (1) a proposal to approve a transaction within the provisions of California Corporations Code, Section 310 (relating to certain transactions in which a director has a direct or indirect financial interest); (2) a proposal to approve a transaction within the provisions of California Corporations Code, Section 902 (relating to amending the Articles of Incorporation of the corporation); -2- (3) a proposal to approve a transaction within the provisions of California Corporations Code, Sections 181 and 1201 (relating to reorganization); (4) a proposal to approve a transaction within the provisions of California Corporations Code, Section 1900 (winding up and dissolution); (5) a proposal to approve a plan of distribution within the provisions of California Corporations Code, Section 2007 (relating to certain plans providing for distribution not in accordance with the liquidation rights of preferred shares, if any). At a special meeting, notice of which has been given in accordance with this Section, action may not be taken with respect to business, the general nature of which has not been stated in such notice. At an annual meeting, action may be taken with respect to business stated in the notice of such meeting, given in accordance with this Section, and, subject to subsection 8(d) above, with respect to any other business as may properly come before the meeting. SECTION 9. MANNER OF GIVING NOTICE. Notice of any meeting of shareholders shall be given either personally or by first-class mail, or, if the corporation has outstanding shares held of record by 500 or more persons (determined as provided in California Corporations Code Section 605) on the record date for such meeting, third-class mail, or telegraphic or other written communication, addressed to the shareholder at the address of that shareholder appearing on the books of the corporation or given by the shareholder to the corporation for the purpose of notice. If no such address appears on the corporation's books or is given, notice shall be deemed to have been given if sent to that shareholder by first-class mail or telegraphic or other written communication to the corporation's principal executive office, or if published at least once in a newspaper of general circulation in the county where that office is located. Notice shall be deemed to have been given at the time when delivered personally or deposited in the mail or sent by telegram or other means of written communication. If any notice addressed to a shareholder at the address of that shareholder appearing on the books of the corporation is returned to the corporation by the United States Postal Service marked to indicate that the United States Postal Service is unable to deliver the notice to the shareholder at that address, all future notices shall be deemed to have been duly given without further mailing if these shall be available to the shareholder on written demand by the shareholder at the principal executive office of the corporation for a period of one year from the date of the giving of the notice. An affidavit of mailing of any notice or report in accordance with the provisions of this Section 9, executed by the Secretary, Assistant Secretary or any transfer agent, shall be prima facie evidence of the giving of the notice. SECTION 10. QUORUM AND TRANSACTION OF BUSINESS. (a) At any meeting of the shareholders, a majority of the shares entitled to vote, represented in person or by proxy, shall constitute a quorum. If a quorum is present, the affirmative vote of the majority of shares represented at the meeting and entitled to vote on any matter shall be -3- the act of the shareholders, unless the vote of a greater number or voting by classes is required by law or by the Articles of Incorporation, and except as provided in subsection (b) below. (b) The shareholders present at a duly called or held meeting of the shareholders at which a quorum is present may continue to do business until adjournment, notwithstanding the withdrawal of enough shareholders to leave less than a quorum, provided that any action taken (other than adjournment) is approved by at least a majority of the shares required to constitute a quorum. (c) In the absence of a quorum, no business other than adjournment may be transacted, except as described in subsection (b) above. SECTION 11. ADJOURNMENT AND NOTICE OF ADJOURNED MEETINGS. Any meeting of shareholders may be adjourned from time to time, whether or not a quorum is present, by the affirmative vote of a majority of shares represented at such meeting either in person or by proxy and entitled to vote at such meeting. In the event any meeting is adjourned, it shall not be necessary to give notice of the time and place of such adjourned meeting pursuant to Sections 8 and 9 of these bylaws; provided that if any of the following three events occur, such notice must be given: (1) announcement of the adjourned meeting's time and place is not made at the original meeting which it continues or (2) such meeting is adjourned for more than forty-five (45) days from the date set for the original meeting or (3) a new record date is fixed for the adjourned meeting. At the adjourned meeting, the corporation may transact any business which might have been transacted at the original meeting. SECTION 12. WAIVER OF NOTICE, CONSENT TO MEETING OR APPROVAL OF MINUTES. (a) Subject to subsection (b) of this Section, the transactions of any meeting of shareholders, however called and noticed, and wherever held, shall be as valid as though made at a meeting duly held after regular call and notice, if a quorum is present either in person or by proxy, and if, either before or after the meeting, each of the persons entitled to vote but not present in person or by proxy signs a written waiver of notice or a consent to holding of the meeting or an approval of the minutes thereof. (b) A waiver of notice, consent to the holding of a meeting or approval of the minutes thereof need not specify the business to be transacted or transacted at nor the purpose of the meeting; provided that in the case of proposals described in subsection (d) of Section 8 of these bylaws, the general nature of such proposals must be described in any such waiver of notice and -4- such proposals can only be approved by waiver of notice, not by consent to holding of the meeting or approval of the minutes. (c) All waivers, consents and approvals shall be filed with the corporate records or made a part of the minutes of the meeting. (d) A person's attendance at a meeting shall constitute waiver of notice of and presence at such meeting, except when such person objects at the beginning of the meeting to transaction of any business because the meeting is not lawfully called or convened and except that attendance at a meeting is not a waiver of any right to object to the consideration of matters which are required by law or these bylaws to be in such notice (including those matters described in subsection (d) of Section 8 of these bylaws), but are not so included if such person expressly objects to consideration of such matter or matters at any time during the meeting. SECTION 13. ACTION BY WRITTEN CONSENT WITHOUT A MEETING. Any action which may be taken at any meeting of shareholders may be taken without a meeting and without prior notice if written consents setting forth the action so taken are signed by the holders of the outstanding shares having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted. Directors may not be elected by written consent except by unanimous written consent of all shares entitled to vote for the election of directors; provided that any vacancy on the Board of Directors (other than a vacancy created by removal) which has not been filled by the board of directors may be filled by the written consent of a majority of outstanding shares entitled to vote for the election of directors. Any written consent may be revoked pursuant to California Corporations Code Section 603(c) prior to the time that written consents of the number of shares required to authorize the proposed action have been filed with the Secretary. Such revocation must be in writing and will be effective upon its receipt by the Secretary. If the consents of all shareholders entitled to vote have not been solicited in writing, and if the unanimous written consent of all such shareholders shall not have been received, the Secretary shall give prompt notice of any corporate action approved by the shareholders without a meeting to those shareholders entitled to vote on such matters who have not consented thereto in writing. This notice shall be given in the manner specified in Section 9 of these bylaws. In the case of approval of (i) a transaction within the provisions of California Corporations Code, Section 310 (relating to certain transactions in which a director has an interest), (ii) a transaction within the provisions of California Corporations Code, Section 317 (relating to indemnification of agents of the corporation), (iii) a transaction within the provisions of California Corporations Code, Sections 181 and 1201 (relating to reorganization), and (iv) a plan of distribution within the provisions of California Corporations Code, Section 2007 (relating to certain plans providing for distribution not in accordance with the liquidation rights of preferred shares, if any), the notice shall be given at least ten (10) days before the consummation of any action authorized by that approval. -5- SECTION 14. VOTING. The shareholders entitled to vote at any meeting of shareholders shall be determined in accordance with the provisions of Section 15 of these bylaws, subject to the provisions of Sections 702 through 704 of the California Corporations Code (relating to voting shares held by a fiduciary, in the name of a corporation, or in joint ownership). Voting at any meeting of shareholders need not be by ballot; provided, however, that elections for directors must be by ballot if balloting is demanded by a shareholder at the meeting and before the voting begins. Every person entitled to vote at an election for directors may cumulate the votes to which such person is entitled, i.e., such person may cast a total number of votes equal to the number of directors to be elected multiplied by the number of votes to which such person's shares are entitled, and may cast said total number of votes for one or more candidates in such proportions as such person thinks fit; provided, however, no shareholder shall be entitled to so cumulate such shareholder's votes unless the candidates for which such shareholder is voting have been placed in nomination prior to the voting and a shareholder has given notice at the meeting, prior to the vote, of an intention to cumulate votes. In any election of directors, the candidates receiving the highest number of votes, up to the number of directors to be elected, are elected. Except as may be otherwise provided in the Articles of Incorporation or by law, and subject to the foregoing provisions regarding the cumulation of votes, each shareholder shall be entitled to one vote for each share held. Any shareholder may vote part of such shareholder's shares in favor of a proposal and refrain from voting the remaining shares or vote them against the proposal, other than elections to office, but, if the shareholder fails to specify the number of shares such shareholder is voting affirmatively, it will be conclusively presumed that the shareholder's approving vote is with respect to all shares such shareholder is entitled to vote. No shareholder approval, other than unanimous approval of those entitled to vote, will be valid as to proposals described in subsection 8(d) of these bylaws unless the general nature of such business was stated in the notice of meeting or in any written waiver of notice. SECTION 15. PERSONS ENTITLED TO VOTE OR CONSENT. The Board of Directors may fix a record date pursuant to Section 60 of these bylaws to determine which shareholders are entitled to notice of and to vote at a meeting or consent to corporate actions, as provided in Sections 13 and 14 of these bylaws. Only persons in whose name shares otherwise entitled to vote stand on the stock records of the corporation on such date shall be entitled to vote or consent. If no record date is fixed: (1) The record date for determining shareholders entitled to notice of or to vote at a meeting of shareholders shall be at the close of business on the business day next preceding the day notice is given or, if notice is waived, at the close of business on the business day next preceding the day on which the meeting is held; -6- (2) The record date for determining shareholders entitled to give consent to corporate action in writing without a meeting, when no prior action by the Board of Directors has been taken, shall be the day on which the first written consent is given; (3) The record date for determining shareholders for any other purpose shall be at the close of business on the day on which the Board of Directors adopts the resolution relating thereto, or the sixtieth (60th) day prior to the date of such other action, whichever is later. A determination of shareholders of record entitled to notice of or to vote at a meeting of shareholders shall apply to any adjournment of the meeting unless the Board of Directors fixes a new record date for the adjourned meeting; provided, however, that the Board of Directors shall fix a new record date if the meeting is adjourned for more than forty-five (45) days from the date set for the original meeting. Shares of the corporation held by its subsidiary or subsidiaries (as defined in California Corporations Code, Section 189(b)) are not entitled to vote in any matter. SECTION 16. PROXIES. Every person entitled to vote or execute consents may do so either in person or by one or more agents authorized to act by a written proxy executed by the person or such person's duly authorized agent and filed with the Secretary of the corporation; provided that no such proxy shall be valid after the expiration of eleven (11) months from the date of its execution unless otherwise provided in the proxy. The manner of execution, suspension, revocation, exercise and effect of proxies is governed by law. SECTION 17. INSPECTORS OF ELECTION. Before any meeting of shareholders, the Board of Directors may appoint any persons, other than nominees for office, to act as inspectors of election at the meeting or its adjournment. If no inspectors of election are so appointed, the chairman of the meeting may, and on the request of any shareholder or a shareholder's proxy shall, appoint inspectors of election at the meeting. The number of inspectors shall be either one (1) or three (3). If inspectors are appointed at a meeting on the request of one or more shareholders or proxies, the majority of shares represented in person or proxy shall determine whether one (1) or three (3) inspectors are to be appointed. If any person appointed as inspector fails to appear or fails or refuses to act, the chairman of the meeting may, and upon the request of any shareholder or a shareholder's proxy shall, appoint a person to fill that vacancy. These inspectors shall: (a) Determine the number of shares outstanding and the voting power of each, the shares represented at the meeting, the existence of a quorum, and the authenticity, validity, and effect of proxies; (b) Receive votes, ballots, or consents; (c) Hear and determine all challenges and questions in any way arising in connection with the right to vote; -7- (d) Count and tabulate all votes or consents; (e) Determine when the polls shall close; (f) Determine the result; and (g) Do any other acts that may be proper to conduct the election or vote with fairness to all shareholders. ARTICLE IV - BOARD OF DIRECTORS SECTION 18. POWERS. Subject to the provisions of law or any limitations in the Articles of Incorporation or these bylaws, as to action required to be approved by the shareholders or by the outstanding shares, the business and affairs of the corporation shall be managed and all corporate powers shall be exercised, by or under the direction of the Board of Directors. The Board of Directors may delegate the management of the day-to-day operation of the business of the corporation to a management company or other person, provided that the business and affairs of the corporation shall be managed and all corporate powers shall be exercised under the ultimate direction of the Board of Directors. SECTION 19. NUMBER OF DIRECTORS. The authorized number of directors of the corporation shall be not less than a minimum of five (5) nor more than a maximum of nine (9) (which maximum number in no case shall be greater than two times said minimum, minus one) and the number of directors presently authorized is nine (9). The exact number of directors shall be set within these limits from time to time (a) by approval of the Board of Directors, or (b) by the affirmative vote of a majority of the shares represented and voting at a duly held meeting at which a quorum is present (which shares voting affirmatively also constitute a majority of the required quorum) or by the written consent of shareholders pursuant to Section 13 hereinabove. Any amendment of these bylaws changing the maximum or minimum number of directors may be adopted only by the affirmative vote of a majority of the outstanding shares entitled to vote; provided, an amendment reducing the minimum number of directors to less than five (5), cannot be adopted if votes cast against its adoption at a meeting or the shares not consenting to it in the case of action by written consent are equal to more than 16-2/3 percent of the outstanding shares entitled to vote. No reduction of the authorized number of directors shall remove any director prior to the expiration of such director's term of office. SECTION 20. ELECTION OF DIRECTORS, TERM, QUALIFICATIONS. The directors shall be elected at each annual meeting of shareholders to hold office until the next annual meeting. Each director, including a director elected or appointed to fill a vacancy, shall hold office either until the expiration of the term for which elected or appointed and until a successor has been elected and qualified, or until his death, resignation or removal. Directors need not be shareholders of the corporation. -8- SECTION 21. RESIGNATIONS. Any director of the corporation may resign effective upon giving written notice to the Chairman of the Board, the President, the Secretary or the Board of Directors of the corporation, unless the notice specifies a later time for the effectiveness of such resignation. If the resignation specifies effectiveness at a future time, a successor may be elected pursuant to Section 23 of these bylaws to take office on the date that the resignation becomes effective. SECTION 22. REMOVAL. The Board of Directors may declare vacant the office of a director who has been declared of unsound mind by an order of court or who has been convicted of a felony. The entire Board of Directors or any individual director may be removed from office without cause by the affirmative vote of a majority of the outstanding shares entitled to vote on such removal; provided, however, that unless the entire Board is removed, no individual director may be removed when the votes cast against such director's removal, or not consenting in writing to such removal, would be sufficient to elect that director if voted cumulatively at an election at which the same total number of votes cast were cast (or, if such action is taken by written consent, all shares entitled to vote were voted) and the entire number of directors authorized at the time of such director's most recent election were then being elected. SECTION 23. VACANCIES. A vacancy or vacancies on the Board of Directors shall be deemed to exist in case of the death, resignation or removal of any director, or upon increase in the authorized number of directors or if shareholders fail to elect the full authorized number of directors at an annual meeting of shareholders or if, for whatever reason, there are fewer directors on the Board of Directors, than the full number authorized. Such vacancy or vacancies, other than a vacancy created by the removal of a director, may be filled by a majority of the remaining directors, though less than a quorum, or by a sole remaining director. A vacancy created by the removal of a director may be filled only by the affirmative vote of a majority of the shares represented and voting at a duly held meeting at which a quorum is present (which shares voting affirmatively also constitute at least a majority of the required quorum) or by the written consent of shareholders pursuant to Section 13 hereinabove. The shareholders may elect a director at any time to fill any vacancy not filled by the directors. Any such election by written consent, other than to fill a vacancy created by removal, requires the consent of a majority of the outstanding shares entitled to vote. Any such election by written consent to fill a vacancy created by removal requires the consent of all of the outstanding shares entitled to vote. If, after the filling of any vacancy by the directors, the directors then in office who have been elected by the shareholders constitute less than a majority of the directors then in office, any holder or holders of an aggregate of five percent (5%) or more of the shares outstanding at that time and having the right to vote for such directors may call a special meeting of shareholders to be held to elect the entire Board of Directors. The term of office of any director shall terminate upon such election of a successor. SECTION 24. REGULAR MEETINGS. Regular meetings of the Board of Directors shall be held at such times, places and dates as fixed in these bylaws or by the Board of Directors; provided, however, that if the date for such a meeting falls on a legal holiday, then the meeting shall be held at -9- the same time on the next succeeding full business day. Regular meetings of the Board of Directors held pursuant to this Section 24 may be held without notice. SECTION 25. PARTICIPATION BY TELEPHONE. Members of the Board of Directors may participate in a meeting through use of conference telephone or similar communications equipment, so long as all members participating in such meeting can hear one another. Such participation constitutes presence in person at such meeting. SECTION 26. SPECIAL MEETINGS. Special meetings of the Board of Directors for any purpose may be called by the Chairman of the Board or the President or any vice president or the Secretary of the corporation or any two (2) directors. SECTION 27. NOTICE OF MEETINGS. Notice of the date, time and place of all meetings of the Board of Directors, other than regular meetings held pursuant to Section 24 above shall be delivered personally, orally or in writing, or by telephone or telegraph to each director, at least forty-eight (48) hours before the meeting, or sent in writing to each director by first-class mail, charges prepaid, at least four (4) days before the meeting. Such notice may be given by the Secretary of the corporation or by the person or persons who called a meeting. Such notice need not specify the purpose of the meeting. Notice of any meeting of the Board of Directors need not be given to any director who signs a waiver of notice of such meeting, or a consent to holding the meeting or an approval of the minutes thereof, either before or after the meeting, or who attends the meeting without protesting prior thereto or at its commencement such director's lack of notice. All such waivers, consents and approvals shall be filed with the corporate records or made a part of the minutes of the meeting. SECTION 28. PLACE OF MEETINGS. Meetings of the Board of Directors may be held at any place within or without the state which has been designated in the notice of the meeting or, if not stated in the notice or there is no notice, designated in the bylaws or by resolution of the Board of Directors. SECTION 29. ACTION BY WRITTEN CONSENT WITHOUT A MEETING. Any action required or permitted to be taken by the Board of Directors may be taken without a meeting, if all members of the Board of Directors individually or collectively consent in writing to such action. Such written consent or consents shall be filed with the minutes of the proceedings of the Board of Directors. Such action by written consent shall have the same force and effect as a unanimous vote of such directors. SECTION 30. QUORUM AND TRANSACTION OF BUSINESS. A majority of the authorized number of directors shall constitute a quorum for the transaction of business. Every act or decision done or made by a majority of the authorized number of directors present at a meeting duly held at which a quorum is present shall be the act of the Board of Directors, unless the law, the Articles of Incorporation or these bylaws specifically require a greater number. A meeting at which a quorum is initially present may continue to transact business, notwithstanding withdrawal of directors, if any action taken is approved by at least a majority of the number of directors constituting a quorum for such meeting. In the absence of a quorum at any meeting of the Board of Directors, a majority of the directors present may adjourn the meeting, as provided in Section 31 of these bylaws. -10- SECTION 31. ADJOURNMENT. Any meeting of the Board of Directors, whether or not a quorum is present, may be adjourned to another time and place by the affirmative vote of a majority of the directors present. If the meeting is adjourned for more than twenty-four (24) hours, notice of such adjournment to another time or place shall be given prior to the time of the adjourned meeting to the directors who were not present at the time of the adjournment. SECTION 32. ORGANIZATION. The Chairman of the Board shall preside at every meeting of the Board of Directors, if present. If there is no Chairman of the Board or if the Chairman is not present, a Chairman chosen by a majority of the directors present shall act as chairman. The Secretary of the corporation or, in the absence of the Secretary, any person appointed by the Chairman shall act as secretary of the meeting. SECTION 33. COMPENSATION. Directors and members of committees may receive such compensation, if any, for their services, and such reimbursement for expenses, as may be fixed or determined by the Board of Directors. SECTION 34. COMMITTEES. The Board of Directors may, by resolution adopted by a majority of the authorized number of directors, designate one or more committees, each consisting of two (2) or more directors, to serve at the pleasure of the Board of Directors. The Board of Directors, by a vote of the majority of authorized directors, may designate one or more directors as alternate members of any committee, to replace any absent member at any meeting of such committee. Any such committee shall have authority to act in the manner and to the extent provided in the resolution of the Board of Directors, and may have all the authority of the Board of Directors in the management of the business and affairs of the corporation, except with respect to: (a) the approval of any action for which shareholders' approval or approval of the outstanding shares also is required by the California Corporations Code; (b) the filling of vacancies on the Board of Directors or any of its committees; (c) the fixing of compensation of directors for serving on the Board of Directors or any of its committees; (d) the adoption, amendment or repeal of these bylaws; (e) the amendment or repeal of any resolution of the Board of Directors which by its express terms is not so amendable or repealable; (f) a distribution to shareholders, except at a rate or in a periodic amount or within a price range determined by the Board of Directors; or (g) the appointment of other committees of the Board of Directors or the members thereof. -11- Any committee may from time to time provide by resolution for regular meetings at specified times and places. If the date of such a meeting falls on a legal holiday, then the meeting shall be held at the same time on the next succeeding full business day. No notice of such a meeting need be given. Such regular meetings need not be held if the committee shall so determine at any time before or after the time when such meeting would otherwise have taken place. Special meetings may be called at any time in the same manner and by the same persons as stated in Sections 26 and 27 of these bylaws for meetings of the Board of Directors. The provisions of Sections 25, 28, 29, 30, 31 and 32 of these bylaws shall apply to committees, committee members and committee meetings as if the words "committee" and "committee member" were substituted for the word "Board of Directors", and "director", respectively, throughout such sections. ARTICLE V - OFFICERS SECTION 35. OFFICERS. The corporation shall have a Chairman of the Board or a President or both, a Secretary, a Chief Financial Officer and such other officers with such titles and duties as the Board of Directors may determine. Any two or more offices may be held by the same person. SECTION 36. APPOINTMENT. All officers shall be chosen and appointed by the Board of Directors; provided, however, the Board of Directors may empower the chief executive officer of the corporation to appoint such officers, other than Chairman of the Board, President, Secretary or Chief Financial Officer, as the business of the corporation may require. All officers shall serve at the pleasure of the Board of Directors, subject to the rights, if any, of an officer under a contract of employment. SECTION 37. INABILITY TO ACT. In the case of absence or inability to act of any officer of the corporation or of any person authorized by these bylaws to act in such officer's place, the Board of Directors may from time to time delegate the powers or duties of such officer to any other officer, or any director or other person whom it may select, for such period of time as the Board of Directors deems necessary. SECTION 38. RESIGNATIONS. Any officer may resign at any time upon written notice to the corporation, without prejudice to the rights, if any, of the corporation under any contract to which such officer is a party. Such resignation shall be effective upon its receipt by the Chairman of the Board, the President, the Secretary or the Board of Directors, unless a different time is specified in the notice for effectiveness of such resignation. The acceptance of any such resignation shall not be necessary to make it effective unless otherwise specified in such notice. SECTION 39. REMOVAL. Any officer may be removed from office at any time, with or without cause, but subject to the rights, if any, of such officer under any contract of employment, by the Board of Directors or by any committee to whom such power of removal has been duly delegated, or, with regard to any officer who has been appointed by the chief executive officer pursuant to Section 36 above, by the chief executive officer or any other officer upon whom such power of removal may be conferred by the Board of Directors. -12- SECTION 40. VACANCIES. A vacancy occurring in any office for any cause may be filled by the Board of Directors, in the manner prescribed by this Article of the bylaws for initial appointment to such office. SECTION 41. CHAIRMAN OF THE BOARD. The Chairman of the Board, if there be such an officer, shall, if present, preside at all meetings of the Board of Directors and shall exercise and perform such other powers and duties as may be assigned from time to time by the Board of Directors or prescribed by these bylaws. If no President is appointed, the Chairman of the Board is the general manager and chief executive officer of the corporation, and shall exercise all powers of the President described in Section 42 below. SECTION 42. PRESIDENT. Subject to such powers, if any, as may be given by the Board of Directors to the Chairman of the Board, if there be such an officer, the President shall be the general manager and chief executive officer of the corporation and shall have general supervision, direction, and control over the business and affairs of the corporation, subject to the control of the Board of Directors. The President may sign and execute, in the name of the corporation, any instrument authorized by the Board of Directors, except when the signing and execution thereof shall have been expressly delegated by the Board of Directors or by these bylaws to some other officer or agent of the corporation. The President shall have all the general powers and duties of management usually vested in the president of a corporation, and shall have such other powers and duties as may be prescribed from time to time by the Board of Directors or these bylaws. The President shall have discretion to prescribe the duties of other officers and employees of the corporation in a manner not inconsistent with the provisions of these bylaws and the directions of the Board of Directors. SECTION 43. VICE PRESIDENTS. In the absence or disability of the President, in the event of a vacancy in the office of President, or in the event such officer refuses to act, the Vice President shall perform all the duties of the President and, when so acting, shall have all the powers of, and be subject to all the restrictions on, the President. If at any such time the corporation has more than one vice president, the duties and powers of the President shall pass to each vice president in order of such vice president's rank as fixed by the Board of Directors or, if the vice presidents are not so ranked, to the vice president designated by the Board of Directors. The vice presidents shall have such other powers and perform such other duties as may be prescribed for them from time to time by the Board of Directors or pursuant to Sections 35 and 36 of these bylaws or otherwise pursuant to these bylaws. SECTION 44. SECRETARY. The Secretary shall: (a) Keep, or cause to be kept, minutes of all meetings of the corporation's shareholders, Board of Directors, and committees of the Board of Directors, if any. Such minutes shall be kept in written form. (b) Keep, or cause to be kept, at the principal executive office of the corporation, or at the office of its transfer agent or registrar, if any, a record of the corporation's shareholders, showing the names and addresses of all shareholders, and the number and classes of shares held by -13- each. Such records shall be kept in written form or any other form capable of being converted into written form. (c) Keep, or cause to be kept, at the principal executive office of the corporation, or if the principal executive office is not in California, at its principal business office in California, an original or copy of these bylaws, as amended. (d) Give, or cause to be given, notice of all meetings of shareholders, directors and committees of the Board of Directors, as required by law or by these bylaws. (e) Keep the seal of the corporation, if any, in safe custody. (f) Exercise such powers and perform such duties as are usually vested in the office of secretary of a corporation, and exercise such other powers and perform such other duties as may be prescribed from time to time by the Board of Directors or these bylaws. If any assistant secretaries are appointed, the assistant secretary, or one of the assistant secretaries in the order of their rank as fixed by the Board of Directors or, if they are not so ranked, the assistant secretary designated by the Board of Directors, in the absence or disability of the Secretary or in the event of such officer's refusal to act or if a vacancy exists in the office of Secretary, shall perform the duties and exercise the powers of the Secretary and discharge such duties as may be assigned from time to time pursuant to these bylaws or by the Board of Directors. SECTION 45. CHIEF FINANCIAL OFFICER. The Chief Financial Officer shall: (a) Be responsible for all functions and duties of the treasurer of the corporation. (b) Keep and maintain, or cause to be kept and maintained, adequate and correct books and records of account for the corporation. (c) Receive or be responsible for receipt of all monies due and payable to the corporation from any source whatsoever; have charge and custody of, and be responsible for, all monies and other valuables of the corporation and be responsible for deposit of all such monies in the name and to the credit of the corporation with such depositaries as may be designated by the Board of Directors or a duly appointed and authorized committee of the Board of Directors. (d) Disburse or be responsible for the disbursement of the funds of the corporation as may be ordered by the Board of Directors or a duly appointed and authorized committee of the Board of Directors. (e) Render to the chief executive officer and the Board of Directors a statement of the financial condition of the corporation if called upon to do so. -14- (f) Exercise such powers and perform such duties as are usually vested in the office of chief financial officer of a corporation, and exercise such other powers and perform such other duties as may be prescribed by the Board of Directors or these bylaws. If any assistant financial officer is appointed, the assistant financial officer, or one of the assistant financial officers, if there are more than one, in the order of their rank as fixed by the Board of Directors or, if they are not so ranked, the assistant financial officer designated by the Board of Directors, shall, in the absence or disability of the Chief Financial Officer or in the event of such officer's refusal to act, perform the duties and exercise the powers of the Chief Financial Officer, and shall have such powers and discharge such duties as may be assigned from time to time pursuant to these bylaws or by the Board of Directors. SECTION 46. COMPENSATION. The compensation of the officers shall be fixed from time to time by the Board of Directors, and no officer shall be prevented from receiving such compensation by reason of the fact that such officer is also a director of the corporation. ARTICLE VI - CONTRACTS, LOANS, BANK ACCOUNTS, CHECKS AND DRAFTS SECTION 47. EXECUTION OF CONTRACTS AND OTHER INSTRUMENTS. Except as these bylaws may otherwise provide, the Board of Directors or its duly appointed and authorized committee may authorize any officer or officers, agent or agents, to enter into any contract or execute and deliver any instrument in the name of and on behalf of the corporation, and such authorization may be general or confined to specific instances. Except as so authorized or otherwise expressly provided in these bylaws, no officer, agent, or employee shall have any power or authority to bind the corporation by any contract or engagement or to pledge its credit or to render it liable for any purpose or in any amount. SECTION 48. LOANS. No loans shall be contracted on behalf of the corporation and no negotiable paper shall be issued in its name, unless and except as authorized by the Board of Directors or its duly appointed and authorized committee. When so authorized by the Board of Directors or such committee, any officer or agent of the corporation may effect loans and advances at any time for the corporation from any bank, trust company, or other institution, or from any firm, corporation or individual, and for such loans and advances may make, execute and deliver promissory notes, bonds or other evidences of indebtedness of the corporation and, when authorized as aforesaid, may mortgage, pledge, hypothecate or transfer any and all stocks, securities and other property, real or personal, at any time held by the corporation, and to that end endorse, assign and deliver the same as security for the payment of any and all loans, advances, indebtedness, and liabilities of the corporation. Such authorization may be general or confined to specific instances. SECTION 49. BANK ACCOUNTS. The Board of Directors or its duly appointed and authorized committee from time to time may authorize the opening and keeping of general and/or special bank accounts with such banks, trust companies, or other depositaries as may be selected by the Board of Directors, its duly appointed and authorized committee or by any officer or officers, agent or agents, of the corporation to whom such power may be delegated from time to time by the Board of Directors. The Board of Directors or its duly appointed and authorized committee may make such -15- rules and regulations with respect to said bank accounts, not inconsistent with the provisions of these bylaws, as are deemed advisable. SECTION 50. CHECKS, DRAFTS, ETC. All checks, drafts or other orders for the payment of money, notes, acceptances or other evidences of indebtedness issued in the name of the corporation shall be signed by such officer or officers, agent or agents, of the corporation, and in such manner, as shall be determined from time to time by resolution of the Board of Directors or its duly appointed and authorized committee. Endorsements for deposit to the credit of the corporation in any of its duly authorized depositaries may be made, without counter-signature, by the President or any vice president or the Chief Financial Officer or any assistant financial officer or by any other officer or agent of the corporation to whom the Board of Directors or its duly appointed and authorized committee, by resolution, shall have delegated such power or by hand-stamped impression in the name of the corporation. ARTICLE VII - CERTIFICATES FOR SHARES AND THEIR TRANSFER SECTION 51. CERTIFICATE FOR SHARES. Every holder of shares in the corporation shall be entitled to have a certificate signed in the name of the corporation by the Chairman or Vice Chairman of the Board or the President or a Vice President and by the Chief Financial Officer or an assistant financial officer or by the Secretary or an assistant secretary, certifying the number of shares and the class or series of shares owned by the shareholder. Any or all of the signatures on the certificate may be facsimile. In case any officer, transfer agent or registrar who has signed or whose facsimile signature has been placed upon a certificate shall have ceased to be such officer, transfer agent or registrar before such certificate is issued, it may be issued by the corporation with the same effect as if such person were an officer, transfer agent or registrar at the date of issue. In the event that the corporation shall issue any shares as only partly paid, the certificate issued to represent such partly paid shares shall have stated thereon the total consideration to be paid for such shares and the amount paid thereon. SECTION 52. TRANSFER ON THE BOOKS. Upon surrender to the Secretary or transfer agent (if any) of the corporation of a certificate for shares of the corporation duly endorsed, with reasonable assurance that the endorsement is genuine and effective, or accompanied by proper evidence of succession, assignment or authority to transfer and upon compliance with applicable federal and state securities laws and if the corporation has no statutory duty to inquire into adverse claims or has discharged any such duty and if any applicable law relating to the collection of taxes has been complied with, it shall be the duty of the corporation, by its Secretary or transfer agent, to cancel the old certificate, to issue a new certificate to the person entitled thereto and to record the transaction on the books of the corporation. SECTION 53. LOST, DESTROYED AND STOLEN CERTIFICATES. The holder of any certificate for shares of the corporation alleged to have been lost, destroyed or stolen shall notify the corporation by making a written affidavit or affirmation of such fact. Upon receipt of said affidavit or affirmation the Board of Directors, or its duly appointed and authorized committee or any officer or officers authorized by the Board so to do, may order the issuance of a new certificate for shares in -16- the place of any certificate previously issued by the corporation and which is alleged to have been lost, destroyed or stolen. However, the Board of Directors or such authorized committee, officer or officers may require the owner of the allegedly lost, destroyed or stolen certificate, or such owner's legal representative, to give the corporation a bond or other adequate security sufficient to indemnify the corporation and its transfer agent and/or registrar, if any, against any claim that may be made against it or them on account of such allegedly lost, destroyed or stolen certificate or the replacement thereof. Said bond or other security shall be in such amount, on such terms and conditions and, in the case of a bond, with such surety or sureties as may be acceptable to the Board of Directors or to its duly appointed and authorized committee or any officer or officers authorized by the Board of Directors to determine the sufficiency thereof. The requirement of a bond or other security may be waived in particular cases at the discretion of the Board of Directors or its duly appointed and authorized committee or any officer or officers authorized by the Board of Directors so to do. SECTION 54. ISSUANCE, TRANSFER AND REGISTRATION OF SHARES. The Board of Directors may make such rules and regulations, not inconsistent with law or with these bylaws, as it may deem advisable concerning the issuance, transfer and registration of certificates for shares of the capital stock of the corporation. The Board of Directors may appoint a transfer agent or registrar of transfers, or both, and may require all certificates for shares of the corporation to bear the signature of either or both. ARTICLE VIII - INSPECTION OF CORPORATE RECORDS SECTION 55. INSPECTION BY DIRECTORS. Every director shall have the absolute right at any reasonable time to inspect and copy all books, records, and documents of every kind of the corporation and any of its subsidiaries and to inspect the physical properties of the corporation and any of its subsidiaries. Such inspection may be made by the director in person or by agent or attorney, and the right of inspection includes the right to copy and make extracts. SECTION 56. INSPECTION BY SHAREHOLDERS. (a) INSPECTION OF CORPORATE RECORDS. (i) A shareholder or shareholders holding at least five percent (5%) in the aggregate of the outstanding voting shares of the corporation or who hold at least one percent of such voting shares and have filed a Schedule 14B with the United States Securities and Exchange Commission relating to the election of directors of the corporation shall have an absolute right to do either or both of the following: (A) Inspect and copy the record of shareholders' names and addresses and shareholdings during usual business hours upon five (5) business days' prior written demand upon the corporation; or (B) Obtain from the transfer agent, if any, for the corporation,upon five business days' prior written demand and upon the tender of its usual charges for such a list (the amount of which charges shall be stated to the shareholder by the transfer agent -17- upon request), a list of the shareholders' names and addresses who are entitled to vote for the election of directors and their shareholdings, as of the most recent record date for which it has been compiled or as of a date specified by the shareholder subsequent to the date of demand. (ii) The record of shareholders shall also be open to inspection and copying by any shareholder or holder of a voting trust certificate at any time during usual business hours upon written demand on the corporation, for a purpose reasonably related to such holder's interest as a shareholder or holder of a voting trust certificate. (iii) The accounting books and records and minutes of proceedings of the shareholders and the Board of Directors and of any committees of the Board of Directors of the corporation and of each of its subsidiaries shall be open to inspection, copying and making extracts upon written demand on the corporation of any shareholder or holder of a voting trust certificate at any reasonable time during usual business hours, for a purpose reasonably related to such holder's interests as a shareholder or as a holder of such voting trust certificate. (iv) Any inspection, copying, and making of extracts under this subsection (a) may be done in person or by agent or attorney. (b) INSPECTION OF BYLAWS. The original or a copy of these bylaws shall be kept as provided in Section 44 of these bylaws and shall be open to inspection by the shareholders at all reasonable times during office hours. If the principal executive office of the corporation is not in California, and the corporation has no principal business office in the state of California, a current copy of these bylaws shall be furnished to any shareholder upon written request. SECTION 57. WRITTEN FORM. If any record subject to inspection pursuant to Section 56 above is not maintained in written form, a request for inspection is not complied with unless and until the corporation at its expense makes such record available in written form. ARTICLE IX - MISCELLANEOUS SECTION 58. FISCAL YEAR. Unless otherwise fixed by resolution of the Board of Directors, the fiscal year of the corporation shall end on the 31st day of December in each calendar year. SECTION 59. ANNUAL REPORT. (a) Subject to the provisions of Section 59(b) below, the Board of Directors shall cause an annual report to be sent to each shareholder of the corporation in the manner provided in Section 9 of these bylaws not later than one hundred twenty (120) days after the close of the corporation's fiscal year. Such report shall include a balance sheet as of the end of such fiscal year and an income statement and statement of changes in financial position for such fiscal year, accompanied by any report thereon of independent accountants or, if there is no such report, the certificate of an authorized officer of the corporation that such statements were prepared without audit from the books and records of the corporation. When there are more than 100 shareholders of record of the corporation's shares, as determined by Section 605 of the California Corporations -18- Code, additional information as required by Section 1501(b) of the California Corporations Code shall also be contained in such report, provided that if the corporation has a class of securities registered under Section 12 of the United States Securities Exchange Act of 1934, that Act shall take precedence. Such report shall be sent to shareholders at least fifteen (15) (or, if sent by third-class mail, thirty-five (35)) days prior to the next annual meeting of shareholders after the end of the fiscal year to which it relates. (b) If and so long as there are fewer than 100 holders of record of the corporation's shares, the requirement of sending of an annual report to the shareholders of the corporation is hereby expressly waived. SECTION 60. RECORD DATE. The Board of Directors may fix a time in the future as a record date for the determination of the shareholders entitled to notice of or to vote at any meeting or entitled to receive payment of any dividend or other distribution or allotment of any rights or entitled to exercise any rights in respect of any change, conversion or exchange of shares or entitled to exercise any rights in respect of any other lawful action. The record date so fixed shall not be more than sixty (60) days nor less than ten (10) days prior to the date of the meeting nor more than sixty (60) days prior to any other action or event for the purpose of which it is fixed. If no record date is fixed, the provisions of Section 15 of these bylaws shall apply with respect to notice of meetings, votes, and consents and the record date for determining shareholders for any other purpose shall be at the close of business on the day on which the Board of Directors adopts the resolutions relating thereto, or the sixtieth (60th) day prior to the date of such other action or event, whichever is later. Only shareholders of record at the close of business on the record date shall be entitled to notice and to vote or to receive the dividend, distribution or allotment of rights or to exercise the rights, as the case may be, notwithstanding any transfer of any shares on the books of the corporation after the record date, except as otherwise provided in the Articles of Incorporation, by agreement or by law. SECTION 61. BYLAW AMENDMENTS. Except as otherwise provided by law or Section 19 of these bylaws, these bylaws may be amended or repealed by the Board of Directors or by the affirmative vote of a majority of the outstanding shares entitled to vote, including, if applicable, the affirmative vote of a majority of the outstanding shares of each class or series entitled by law or the Articles of Incorporation to vote as a class or series on the amendment or repeal or adoption of any bylaw or bylaws; provided, however, after issuance of shares, a bylaw specifying or changing a fixed number of directors or the maximum or minimum number or changing from a fixed to a variable board or vice versa may only be adopted by approval of the outstanding shares as provided herein. SECTION 62. CONSTRUCTION AND DEFINITION. Unless the context requires otherwise, the general provisions, rules of construction, and definitions contained in the California Corporations Code shall govern the construction of these bylaws. Without limiting the foregoing, "shall" is mandatory and "may" is permissive. -19- ARTICLE X - INDEMNIFICATION INDEMNIFICATION OF DIRECTORS, OFFICERS, EMPLOYEES AND OTHER AGENTS. (a) DIRECTORS AND EXECUTIVE OFFICERS. The corporation shall indemnify its directors and executive officers to the fullest extent not prohibited by the California General Corporation Law; PROVIDED, HOWEVER that the corporation may limit the extent of such indemnification by individual contracts with its directors and executive officers; and, PROVIDED, FURTHER, that the corporation shall not be required to indemnify any director or executive officer in connection with any proceeding (or part thereof) initiated by such person or any proceeding by such person against the corporation or its directors, officers, employees or other agents unless (i) such indemnification is expressly required to be made by law, (ii) the proceeding was authorized by the board of directors of the corporation or (iii) such indemnification is provided by the corporation, in its sole discretion, pursuant to the powers vested in the corporation under the California General Corporation Law. (b) OTHER OFFICERS, EMPLOYEES AND OTHER AGENTS. The corporation shall have the power to indemnify its other officers, employees and other agents as set forth in the California General Corporation Law. (c) DETERMINATION BY THE CORPORATION. Promptly after receipt of a request for indemnification hereunder (and in any event within 90 days thereof) a reasonable, good faith determination as to whether indemnification of the director or executive officer is proper under the circumstances because such director or executive officer has met the applicable standard of care shall be made by: (1) a majority vote of a quorum consisting of directors who are not parties to such proceeding; (2) if such quorum is not obtainable, by independent legal counsel in a written opinion; or (3) approval or ratification by the affirmative vote of a majority of the shares of this corporation represented and voting at a duly held meeting at which a quorum is present (which shares voting affirmatively also constitute at least a majority of the required quorum) or by written consent of a majority of the outstanding shares entitled to vote; where in each case the shares owned by the person to be indemnified shall not be considered entitled to vote thereon. (d) GOOD FAITH. (1) For purposes of any determination under this bylaw, a director or executive officer shall be deemed to have acted in good faith and in a manner he reasonably believed to be in the best interests of the corporation and its shareholders, and, with respect to any criminal action or proceeding, to have had no reasonable cause to believe that his conduct was unlawful, if his -20- action is based on information, opinions, reports and statements, including financial statements and other financial data, in each case prepared or presented by: (i) one or more officers or employees of the corporation whom the director or executive officer believed to be reliable and competent in the matters presented; (ii) counsel, independent accountants or other persons as to matters which the director or executive officer believed to be within such person's professional competence; and (iii) with respect to a director, a committee of the Board upon which such director does not serve, as to matters within such committee's designated authority, which committee the director believes to merit confidence; so long as, in each case, the director or executive officer acts without knowledge that would cause such reliance to be unwarranted. (2) The termination of any proceeding by judgment, order, settlement, conviction or upon a plea of nolo contendere or its equivalent shall not, of itself, create a presumption that the person did not act in good faith and in a manner which he reasonably believed to be in the best interests of the corporation and its shareholders or that he had reasonable cause to believe that his conduct was unlawful. (3) The provisions of this paragraph (d) shall not be deemed to be exclusive or to limit in any way the circumstances in which a person may be deemed to have met the applicable standard of conduct set forth by the California General Corporation Law. (e) EXPENSES. The corporation shall advance, prior to the final disposition of any proceeding, promptly following request therefor, all expenses incurred by any director or executive officer in connection with such proceeding upon receipt of an undertaking by or on behalf of such person to repay said amounts if it shall be determined ultimately that such person is not entitled to be indemnified under this bylaw or otherwise. Notwithstanding the foregoing, unless otherwise determined pursuant to paragraph (f) of this bylaw, no advance shall be made by the corporation if a determination is reasonably and promptly made by the Board of Directors by a majority vote of a quorum consisting of directors who were not parties to the proceeding (or, if no such quorum exists, by independent legal counsel in a written opinion) that the facts known to the decision making party at the time such determination is made demonstrate clearly and convincingly that such person acted in bad faith or in a manner that such person did not believe to be in the best interests of the corporation and its shareholders. (f) ENFORCEMENT. Without the necessity of entering into an express contract, all rights to indemnification and advances to directors and executive officers under this bylaw shall be deemed to be contractual rights and be effective to the same extent and as if provided for in a contract between the corporation and the director or executive officer. Any right to indemnification or advances granted by this bylaw to a director or executive officer shall be enforceable by or on behalf of the person holding such right in the forum in which the proceeding is or was pending or, if -21- such forum is not available or a determination is made that such forum is not convenient, in any court of competent jurisdiction if (i) the claim for indemnification or advances is denied, in whole or in part, or (ii) no disposition of such claim is made within ninety (90) days of request therefor. The claimant in such enforcement action, if successful in whole or in part, shall be entitled to be paid also the expense of prosecuting his claim. The corporation shall be entitled to raise as a defense to any such action that the claimant has not met the standards of conduct that make it permissible under the California General Corporation Law for the corporation to indemnify the claimant for the amount claimed. Neither the failure of the corporation (including its board of directors, independent legal counsel or its shareholders) to have made a determination prior to the commencement of such action that indemnification of the claimant is proper in the circumstances because he has met the applicable standard of conduct set forth in the California General Corporation Law, nor an actual determination by the corporation (including its board of directors, independent legal counsel or its shareholders) that the claimant has not met such applicable standard of conduct, shall be a defense to the action or create a presumption that claimant has not met the applicable standard of conduct. (g) NON-EXCLUSIVITY OF RIGHTS. To the fullest extent permitted by the corporation's Articles of Incorporation and the California General Corporation Law, the rights conferred on any person by this bylaw shall not be exclusive of any other right which such person may have or hereafter acquire under any statute, provision of the Articles of Incorporation, bylaws, agreement, vote of shareholders or disinterested directors or otherwise, both as to action in his official capacity and as to action in another capacity while holding office. The corporation is specifically authorized to enter into individual contracts with any or all of its directors, officers, employees or agents respecting indemnification and advances, to the fullest extent permitted by the California General Corporation Law and the corporation's Articles of Incorporation. (h) SURVIVAL OF RIGHTS. The rights conferred on any person by this bylaw shall continue as to a person who has ceased to be a director or executive officer and shall inure to the benefit of the heirs, executors and administrators of such a person. (i) INSURANCE. The corporation, upon approval by the board of directors, may purchase insurance on behalf of any person required or permitted to be indemnified pursuant to this bylaw. (j) AMENDMENTS. Any repeal or modification of this bylaw shall only be prospective and shall not affect the rights under this bylaw in effect at the time of the alleged occurrence of any action or omission to act that is the cause of any proceeding against any agent of the corporation. (k) EMPLOYEE BENEFIT PLANS. The corporation shall indemnify the directors and officers of the corporation who serve at the request of the corporation as trustees, investment managers or other fiduciaries of employee benefit plans to the fullest extent permitted by the California General Corporation Law. (l) SAVING CLAUSE. If this bylaw or any portion hereof shall be invalidated on any ground by any court of competent jurisdiction, then the corporation shall nevertheless indemnify -22- each director and executive officer to the fullest extent permitted by any applicable portion of this bylaw that shall not have been invalidated, or by any other applicable law. (m) CERTAIN DEFINITIONS. For the purposes of this bylaw, the following definitions shall apply: (1) The term "proceeding" shall be broadly construed and shall include, without limitation, the investigation, preparation, prosecution, defense, settlement and appeal of any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative, arbitrative or investigative. (2) The term "expenses" shall be broadly construed and shall include, without limitation, court costs, attorneys' fees, witness fees, fines, amounts paid in settlement or judgment and any other costs and expenses of any nature or kind incurred in connection with any proceeding, including expenses of establishing a right to indemnification under this bylaw or any applicable law. (3) The term the "corporation" shall include, in addition to the resulting corporation, any constituent corporation (including any constituent of a constituent) absorbed in a consolidation or merger which, if its separate existence had continued, would have had power and authority to indemnify its directors, officers, and employees or agents, so that any person who is or was a director, officer, employee or agent of such constituent corporation, or is or was serving at the request of such constituent corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, shall stand in the same position under the provisions of this bylaw with respect to the resulting or surviving corporation as he would have with respect to such constituent corporation if its separate existence had continued. (4) References to a "director," "officer," "employee," or "agent" of the corporation shall include, without limitation, situations where such person is or was serving at the request of the corporation as a director, officer, employee, trustee or agent of another corporation, partnership, joint venture, trust or other enterprise. ARTICLE XI - RIGHT OF FIRST REFUSAL SECTION 64. RIGHT OF FIRST REFUSAL. No shareholder shall sell, assign, pledge, or in any manner transfer any of the shares of stock of the corporation or any right or interest therein, whether voluntarily or by operation of law, or by gift or otherwise, except by a transfer which meets the requirements hereinafter set forth in this bylaw: (a) If the shareholder desires to sell or otherwise transfer any of his shares of stock, then the shareholder shall first give written notice thereof to the corporation. The notice shall name the proposed transferee and state the number of shares to be transferred, the proposed consideration, and all other terms and conditions of the proposed transfer. -23- (b) For thirty (30) days following receipt of such notice, the corporation shall have the option to purchase all (but not less than all) of the shares specified in the notice at the price and upon the terms set forth in such notice; provided, however, that, with the consent of the shareholder, the corporation shall have the option to purchase a lesser portion of the shares specified in said notice at the price and upon the terms set forth therein. In the event of a gift, property settlement or other transfer in which the proposed transferee is not paying the full price for the shares, and that is not otherwise exempted from the provisions of this Section 64, the price shall be deemed to be the fair market value of the stock at such time as determined in good faith by the Board of Directors. In the event the corporation elects to purchase all of the shares or, with consent of the shareholder, a lesser portion of the shares, it shall give written notice to the transferring shareholder of its election and settlement for said shares shall be made as provided below in paragraph (d). (c) The corporation may assign its rights hereunder. (d) In the event the corporation and/or its assignee(s) elect to acquire any of the shares of the transferring shareholder as specified in said transferring shareholder's notice, the Secretary of the corporation shall so notify the transferring shareholder and settlement thereof shall be made in cash within thirty (30) days after the Secretary of the corporation receives said transferring shareholder's notice; provided that if the terms of payment set forth in said transferring shareholder's notice were other than cash against delivery, the corporation and/or its assignee(s) shall pay for said shares on the same terms and conditions set forth in said transferring shareholder's notice. (e) In the event the corporation and/or its assignee(s) do not elect to acquire all of the shares specified in the transferring shareholder's notice, said transferring shareholder may, within the sixty-day period following the expiration of the option rights granted to the corporation and/or its assignee(s) herein, transfer the shares specified in said transferring shareholder's notice which were not acquired by the corporation and/or its assignee(s) as specified in said transferring shareholder's notice. All shares so sold by said transferring shareholder shall continue to be subject to the provisions of this bylaw in the same manner as before said transfer. (f) Anything to the contrary contained herein notwithstanding, the following transactions shall be exempt from the provisions of this bylaw: (1) A shareholder's transfer of any or all shares held either during such shareholder's lifetime or on death by will or intestacy to such shareholder's immediate family or to any custodian or trustee for the account of such shareholder or such shareholder's immediate family. "Immediate family" as used herein shall mean spouse, lineal descendant, father, mother, brother, or sister of the shareholder making such transfer. (2) A shareholder's bona fide pledge or mortgage of any shares with a commercial lending institution, provided that any subsequent transfer of said shares by said institution shall be conducted in the manner set forth in this bylaw. -24- (3) A shareholder's transfer of any or all of such shareholder's shares to the corporation or to any other shareholder of the corporation. (4) A shareholder's transfer of any or all of such shareholder's shares to a person who, at the time of such transfer, is an officer or director of the corporation. (5) A corporate shareholder's transfer of any or all of its shares pursuant to and in accordance with the terms of any merger, consolidation, reclassification of shares or capital reorganization of the corporate shareholder, or pursuant to a sale of all or substantially all of the stock or assets of a corporate shareholder. (6) A corporate shareholder's transfer of any or all of its shares to any or all of its shareholders. (7) A transfer by a shareholder which is a limited or general partnership to any or all of its partners or former partners. In any such case, the transferee, assignee, or other recipient shall receive and hold such stock subject to the provisions of this bylaw, and there shall be no further transfer of such stock except in accord with this bylaw. (g) The provisions of this bylaw may be waived with respect to any transfer either by the corporation, upon duly authorized action of its Board of Directors, or by the shareholders, upon the express written consent of the owners of a majority of the voting power of the corporation (excluding the votes represented by those shares to be transferred by the transferring shareholder). This bylaw may be amended or repealed either by a duly authorized action of the Board of Directors or by the shareholders, upon the express written consent of the owners of a majority of the voting power of the corporation. (h) Any sale or transfer, or purported sale or transfer, of securities of the corporation shall be null and void unless the terms, conditions, and provisions of this bylaw are strictly observed and followed. (i) The foregoing right of first refusal shall terminate on either of the following dates, whichever shall first occur: (1) On December 8, 2003; or (2) Upon the date securities of the corporation are first offered to the public pursuant to a registration statement filed with, and declared effective by, the United States Securities and Exchange Commission under the Securities Act of 1933, as amended. (j) The certificates representing shares of stock of the corporation shall bear on their face the following legend so long as the foregoing right of first refusal remains in effect: -25- "The shares represented by this certificate are subject to a right of first refusal option in favor of the corporation and/or its assignee(s), as provided in the bylaws of the corporation." -26- AMENDMENT TO THE BYLAWS OF CIPHEREGEN BIOSYSTEMS, INC. Section 19 of Articles IV of the Bylaws of Ciphergen Biosystems, Inc. was amended in its entirety on May 11, 1999 to read as follows: SECTION 19. NUMBER OF DIRECTORS. The authorized number of directors of the corporation shall be not less than a minimum of five (5) nor more than a maximum of nine (9) (which maximum number in no case shall be greater than two times said minimum, minus one) and the number of directors presently authorized is nine (9). The exact number of directors shall be set within these limits from time to time (a) by approval of the Board of Directors, or (b) by the affirmative vote of a majority of the shares represented and voting at a duly held meeting at which a quorum is present (which shares voting affirmatively also constitute a majority of the required quorum) or by the written consent of shareholders pursuant to Section 13 hereinabove. EX-10.1 4 EXHIBIT 10.1 EXHIBIT 10.1 CIPHERGEN BIOSYSTEMS, INC. --------------------------------------------------- SERIES E PREFERRED STOCK PURCHASE AGREEMENT --------------------------------------------------- MARCH 3, 2000 TABLE OF CONTENTS
Page ---- SECTION 1 SALE OF SERIES E PREFERRED STOCK . . . . . . . . . . . . . . . . . . . . .1 1.1 SALE OF SERIES E PREFERRED. . . . . . . . . . . . . . . . . . . . . . . .1 1.2 CLOSING DATE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1 1.3 SUBSEQUENT SALE OF THE SERIES E PREFERRED . . . . . . . . . . . . . . . .1 1.4 DELIVERY. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2 SECTION 2 REPRESENTATIONS AND WARRANTIES OF THE COMPANY. . . . . . . . . . . . . . .2 2.1 ORGANIZATION AND STANDING . . . . . . . . . . . . . . . . . . . . . . . .2 2.2 CORPORATE POWER . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2 2.3 SUBSIDIARIES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2 2.4 CAPITALIZATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .3 2.5 AUTHORIZATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .4 2.6 VALIDITY OF SHARES. . . . . . . . . . . . . . . . . . . . . . . . . . . .4 2.7 COMPLIANCE WITH OTHER INSTRUMENTS, ETC. . . . . . . . . . . . . . . . . .4 2.8 LITIGATION, ETC . . . . . . . . . . . . . . . . . . . . . . . . . . . . .4 2.9 REGISTRATION RIGHTS . . . . . . . . . . . . . . . . . . . . . . . . . . .5 2.10 GOVERNMENTAL OR THIRD PARTY CONSENT, ETC. . . . . . . . . . . . . . . . .5 2.11 OFFERING. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .5 2.12 FINANCIAL STATEMENTS. . . . . . . . . . . . . . . . . . . . . . . . . . .5 2.13 TITLE TO PROPERTIES AND ASSETS; LIENS, ETC. . . . . . . . . . . . . . . .6 2.14 PATENTS AND TRADEMARKS. . . . . . . . . . . . . . . . . . . . . . . . . .6 2.15 TAX RETURNS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6 2.16 NO DEFAULTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6 2.17 AGREEMENTS; ACTION. . . . . . . . . . . . . . . . . . . . . . . . . . . .7 2.18 RELATED-PARTY TRANSACTIONS. . . . . . . . . . . . . . . . . . . . . . . .8 2.19 PERMITS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .8 2.20 ENVIRONMENTAL AND SAFETY LAWS . . . . . . . . . . . . . . . . . . . . . .8 2.21 EMPLOYEE BENEFITS PLANS; EMPLOYEES. . . . . . . . . . . . . . . . . . . .8 2.22 INSURANCE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .8 2.23 USE OF PROCEEDS . . . . . . . . . . . . . . . . . . . . . . . . . . . . .8 2.24 MANUFACTURING AND MARKETING RIGHTS. . . . . . . . . . . . . . . . . . . .9
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Page ---- 2.25 DISCLOSURE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .9 2.26 OFFERING MEMORANDUM . . . . . . . . . . . . . . . . . . . . . . . . . . .9 SECTION 3 INVESTMENT REPRESENTATIONS . . . . . . . . . . . . . . . . . . . . . . . .9 3.1 EXPERIENCE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .9 3.2 INVESTMENT. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .9 3.3 RULE 144. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 3.4 ADEQUATE INFORMATION; NO PUBLIC MARKET. . . . . . . . . . . . . . . . . 10 SECTION 4 BREACHES OF REPRESENTATIONS, WARRANTIES AND COVENANTS. . . . . . . . . . 10 SECTION 5 CONDITIONS TO CLOSING OF PURCHASERS. . . . . . . . . . . . . . . . . . . 11 5.1 REPRESENTATIONS AND WARRANTIES. . . . . . . . . . . . . . . . . . . . . 11 5.2 COVENANTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 5.3 COMPLIANCE CERTIFICATE. . . . . . . . . . . . . . . . . . . . . . . . . 11 5.4 CONSENTS, PERMITS AND WAIVERS . . . . . . . . . . . . . . . . . . . . . 11 5.5 OPINION OF COUNSEL. . . . . . . . . . . . . . . . . . . . . . . . . . . 11 5.6 INVESTORS RIGHTS AGREEMENT. . . . . . . . . . . . . . . . . . . . . . . 12 5.7 PROCEEDINGS AND DOCUMENTS . . . . . . . . . . . . . . . . . . . . . . . 12 5.8 RESTATED ARTICLES . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 5.9 CERTIFICATE FOR SHARES OF SERIES E PREFERRED. . . . . . . . . . . . . . 12 5.10 BLUE SKY COMPLIANCE . . . . . . . . . . . . . . . . . . . . . . . . . . 12 SECTION 6 CONDITIONS TO CLOSING OF COMPANY . . . . . . . . . . . . . . . . . . . . 12 6.1 REPRESENTATIONS AND WARRANTIES. . . . . . . . . . . . . . . . . . . . . 12 6.2 COVENANTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 6.3 CONSENTS, PERMITS AND WAIVERS . . . . . . . . . . . . . . . . . . . . . 13 6.4 DELIVERY OF PURCHASE PRICE. . . . . . . . . . . . . . . . . . . . . . . 13 6.5 EXECUTION AND DELIVERY OF DOCUMENTS . . . . . . . . . . . . . . . . . . 13 6.6 PROCEEDINGS AND DOCUMENTS . . . . . . . . . . . . . . . . . . . . . . . 13 6.7 RESTATED ARTICLES . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 SECTION 7 MISCELLANEOUS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 7.1 ADDITIONAL SERIES E PREFERRED . . . . . . . . . . . . . . . . . . . . . 13 7.2 GOVERNING LAW . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
TABLE OF CONTENTS
Page ---- 7.3 SURVIVAL. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 7.4 SUCCESSORS AND ASSIGNS. . . . . . . . . . . . . . . . . . . . . . . . . 14 7.5 ENTIRE AGREEMENT. . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 7.6 RIGHTS OF PURCHASERS. . . . . . . . . . . . . . . . . . . . . . . . . . 14 7.7 NOTICES, ETC. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 7.8 EXPENSES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 7.9 COUNTERPARTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 7.10 SEVERABILITY. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 7.11 CALIFORNIA CORPORATE SECURITIES LAW . . . . . . . . . . . . . . . . . . 15 7.12 APPROVAL OF AMENDMENTS AND WAIVERS. . . . . . . . . . . . . . . . . . . 15 7.13 COUNTERPARTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 7.14 HEADINGS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
CIPHERGEN BIOSYSTEMS, INC. SERIES E PREFERRED STOCK PURCHASE AGREEMENT THIS AGREEMENT is made as of March 3, 2000 between CIPHERGEN BIOSYSTEMS, INC., a California corporation (the "Company"), with its principal office at 490 San Antonio Road, Palo Alto, CA 94306, and the purchasers (each a "Purchaser" and collectively the "Purchasers") listed on the Schedule of Purchasers attached to this Agreement as EXHIBIT A (the "Schedule of Purchasers"). WHEREAS, the Company has authorized the issuance and sale pursuant to this Agreement of up to 11,000,000 shares of its Series E Preferred Stock (the "Series E Preferred") having the rights, preferences, privileges and restrictions set forth in the Amended and Restated Articles of Incorporation of the Company in the form attached to this Agreement as EXHIBIT B (the "Restated Articles"). The shares of Series E Preferred to be sold hereunder are collectively referred to as the "Shares." NOW, THEREFORE, in consideration of the foregoing premises and the mutual covenants and conditions set forth below, and for other good and valuable consideration, the receipt of which is hereby acknowledged, the parties to this Agreement agree as follows: SECTION 1 SALE OF SERIES E PREFERRED STOCK 1.1 SALE OF SERIES E PREFERRED. Subject to the terms and conditions hereof, each Purchaser agrees, severally, to purchase from the Company and the Company agrees to sell and issue to each Purchaser the number of Shares set forth opposite such Purchaser's name on the Schedule of Purchasers at a price of $2.75 per share. 1.2 CLOSING DATE. The purchase and sale of the Shares is expected to take place in one or more closings. The initial closing of the purchase and sale of the Shares hereunder (the "Initial Closing") shall be held at the offices of Wilson Sonsini Goodrich & Rosati PC ("WSGR"), 650 Page Mill Road, Palo Alto, California, 94306, on the date of this Agreement or at such other time and place upon which the Company and a majority of the Purchasers shall agree. 1.3 SUBSEQUENT SALE OF THE SERIES E PREFERRED. Subsequent closings shall be held within 60 days from the Initial Closing at such time and place as the Company and a majority of the Purchasers participating therein shall agree. All such sales shall be made on the terms and conditions set forth in this Agreement. Each Purchaser at a subsequent Closing shall be made a party to this Agreement as a Purchaser, the shares so acquired shall be deemed to be sold hereunder, and the Schedule of Purchasers shall be appropriately revised to reflect the subsequent closing. 1.4 DELIVERY. At the Closing, the Company will deliver to each Purchaser a certificate representing the Shares that each Purchaser is purchasing against payment of the purchase price therefor by (i) check payable to the order of the Company, (ii) wire transfer of immediately available funds and/or (iii) cancellation of indebtedness, as indicated on the Schedule of Purchasers. SECTION 2 REPRESENTATIONS AND WARRANTIES OF THE COMPANY Except as set forth in the Schedule of Exceptions attached hereto as EXHIBIT C or in the Company's Confidential Offering Memorandum, dated November 5, 1999, including the Schedules and Exhibits attached thereto (the "Offering Memorandum"), the Company hereby represents and warrants to each Purchaser as follows: 2.1 ORGANIZATION AND STANDING. The Company is a corporation duly organized and validly existing under, and by virtue of, the laws of the State of California and is in good standing under such laws. The Company has all requisite corporate power to own and operate its assets and to carry on its business as presently conducted and as proposed to be conducted. The Company is qualified to do business as a foreign corporation in each jurisdiction in which the failure to so qualify would have a material adverse affect on the Company or its business or prospects (a "Material Adverse Affect"). 2.2 CORPORATE POWER. The Company has all requisite legal and corporate power to execute and deliver this Agreement and the Fourth Amended and Restated Investors Rights Agreement in substantially the form attached hereto as EXHIBIT D (the "Investors Rights Agreement") (the Agreement and the Investor Rights Agreement are hereinafter collectively referred to as the "Agreements"), to sell and issue the Shares under this Agreement, to issue the Common Stock issuable upon conversion of the Shares and to carry out and perform its obligations under the terms of the Agreements, including all exhibits and schedules hereto and thereto. 2.3 SUBSIDIARIES. The Company does not own or control, directly or indirectly, any corporation, association or business entity other than those listed on EXHIBIT C. Each of the Company's subsidiaries is a corporation duly organized and validly existing under, and by virtue of, the laws of the jurisdiction of its organization and is in good standing under such laws. Each of the Company's subsidiaries has the requisite corporate power to own and operate its assets and to carry on its business as presently conducted and as proposed to be conducted. Each of the Company's subsidiaries is qualified to do business as a foreign corporation in each jurisdiction in which the failure to so qualify would have a Material Adverse Effect. All of the Company's subsidiaries are wholly-owned by the Company. For all other representations and warranties contained in this Section 2, the term "Company" shall refer to the Company and all of its subsidiaries taken as a whole. 2.4 CAPITALIZATION. The authorized capital stock of the Company consists of 60,000,000 shares of Common Stock and 32,253,644 shares of Preferred Stock. Of the Preferred Stock, 3,054,400 shares are designated Series A Preferred Stock (the "Series A Preferred"), 7,265,457 shares are designated Series B Preferred Stock (the "Series B Preferred"), 3,013,119 shares are designated Series C Preferred Stock (the "Series C Preferred"), 6,920,668 shares are designated Series D Preferred Stock (the "Series D Preferred"), and 12,000,000 shares are designated Series E Preferred. Effective as of February 4, 2000, 15,991,127 shares of Common Stock are issued and outstanding, 3,054,400 shares of Series A Preferred are issued and outstanding, 6,402,457 shares of Series B Preferred are issued and outstanding, 2,929,719 shares of Series C Preferred are issued and outstanding, and 6,754,713 shares of Series D Preferred are issued and outstanding. Immediately prior to the Closing, no shares of Series E Preferred will be issued and outstanding. No other shares of capital stock are outstanding. All such issued and outstanding shares have been duly authorized and validly issued and are fully paid and nonassessable. The Company has reserved the following shares of its Common Stock for issuance from time to time as may be determined by the Company's Board of Directors (collectively, the "Reserved Shares"): (i) 313,000 shares of the Series B Preferred Stock (and 313,000 shares of the Common Stock issuable upon conversion thereof) issuable upon exercise of certain warrants; (ii) 550,000 shares of the Series B Preferred (and 550,000 shares of the Common Stock issuable upon conversion thereof) issuable upon the achievement of certain milestones by Stanford Research Systems pursuant to an agreement between the Company and Stanford Research Systems dated February 2, 1995; (iii) 83,400 shares of the Company's Series C Preferred Stock (and 83,400 shares of the Common Stock issuable upon conversion thereof) issuable upon exercise of certain warrants; (iv) 165,955 shares of the Company's Series D Preferred Stock (and 165,955 shares of the Common Stock issuable upon conversion thereof) issuable upon exercise of certain warrants; and (v) 2,610,389 shares of the Company's Common Stock issuable to directors, officers or employees of, or consultants to, the corporation pursuant to an agreement or an option or purchase plan or another director, officer, employee or consultant stock incentive program approved by the Board of Directors of the Company. The Series E Preferred has the rights, preferences and privileges set forth in the Restated Articles. Except for the conversion privileges of the Series E Preferred, Series D Preferred, Series C Preferred, Series B Preferred, and the Series A Preferred specified in the Restated Articles, the Shares issuable under this Agreement and the Reserved Shares, there are no options, warrants, conversion privileges or other rights presently outstanding to purchase or otherwise acquire any authorized but unissued shares of the Company's capital stock or other securities of the Company. The designations, powers, preferences, rights, qualifications, limitations and restrictions in respect of each class and series of authorized capital stock of the Company are as set forth in the Restated Articles. Except as provided in the Restated Articles, the Company has no obligation (contingent or other) to purchase, redeem or otherwise acquire any of its capital stock or any interest therein or to pay any dividend or make any other distribution in respect thereof. The Company has no knowledge of any voting agreements, voting trusts, stockholders' agreements, proxies or other agreements or understandings that are currently in effect or that are currently contemplated with respect to the voting of any capital stock of the Company. All of the outstanding securities of the Company were issued in compliance with all applicable federal and state securities laws. 2.5 AUTHORIZATION. All corporate action on the part of the Company, its officers, directors and shareholders necessary for the authorization, execution, delivery and performance of the Agreements by the Company, the authorization, sale, issuance and delivery of the Shares (and the Common Stock issuable upon conversion of the Shares) and the performance of the Company's obligations under the Agreements has been taken or will be taken prior to the Closing. The Agreements, when executed and delivered by the Company, will constitute valid and binding obligations of the Company enforceable in accordance with their terms, subject to laws of general application relating to bankruptcy, insolvency, the relief of debtors, general equity principles, and limitations upon rights to indemnity. 2.6 VALIDITY OF SHARES. The Shares, when issued in compliance with the provisions of this Agreement, will be duly and validly issued, fully paid and nonassessable and will be free and clear of all liens, charges, restrictions, claims and encumbrances imposed by or through the Company. The Common Stock issuable upon conversion of the Shares has been duly and validly reserved and, when issued in compliance with the provisions of this Agreement, will be duly and validly issued, fully paid and nonassessable and will be free and clear of all liens, charges, restrictions, claims and encumbrances imposed by or through the Company; provided, however, that the Shares (and the Common Stock issuable upon conversion of the Shares) may be subject to restrictions on transfer under state and/or federal securities laws as set forth herein. The Shares are not subject to any preemptive rights or rights of first refusal that have not been waived or exercised in connection with the Closing. 2.7 COMPLIANCE WITH OTHER INSTRUMENTS, ETC. The Company is not, and will not by virtue of entering into and performing the Agreements and the transactions contemplated thereunder be, in violation of any term of its Restated Articles or Bylaws or any term or provision of any material mortgage, indenture, contract, agreement, instrument, judgment or decree to which it is a party or by which it is bound, and is not, and will not by virtue of entering into and performing the Agreements and the transactions contemplated thereunder be, in violation of any order addressed specifically to the Company nor, to the Company's knowledge, any order, statute, rule or regulation applicable to the Company, other than any of the foregoing such violations that do not, either individually or in the aggregate, have a material adverse affect on the Company's business as presently conducted or planned to be conducted. 2.8 LITIGATION, ETC. There are no actions, suits, proceedings or investigations pending against the Company before any court or governmental agency (nor, to the Company's knowledge, is there any overt threat thereof). 2.9 REGISTRATION RIGHTS. Except as set forth in the Investors Rights Agreement, the Company is not under any obligation to register (as defined in the Investors Rights Agreement) any of its presently outstanding securities or any of its securities that may hereafter be issued. 2.10 GOVERNMENTAL OR THIRD PARTY CONSENT, ETC. No consent, approval or authorization of or designation, declaration or filing with any governmental authority or any other party on the part of the Company is required in connection with the valid execution and delivery of the Agreements, or the offer, sale or issuance of the Shares (and the Common Stock issuable upon conversion of the Shares) or the consummation of any other transaction contemplated thereby, except (a) filing of the Restated Articles in the Office of the Secretary of State of the State of California, (b) qualification (or taking such action as may be necessary to secure an exemption from qualification, if available) of the offer and sale of the Shares (and the Common Stock issuable upon conversion of the Shares) under the California Corporate Securities Law and any other applicable blue sky laws, which filing and qualification, if required, will be accomplished in a timely manner prior to or promptly upon completion of the Closing and (c) such filings as may be determined by counsel to the Company to be necessary to secure an exemption from registration under the Securities Act of 1933, as amended (the "Securities Act") which filing, if required, will be accomplished in a timely manner prior to or promptly after completion of the Closing. 2.11 OFFERING. Subject to the accuracy of the representations set forth in Section 3 hereof, the offer, sale and issuance of the Shares pursuant to this Agreement (and the issuance of the Common Stock to be issued upon conversion of the Shares) (i) constitute transactions exempt from the registration requirements of Section 5 of the Securities Act and (ii) is in compliance with all applicable state securities laws. 2.12 FINANCIAL STATEMENTS. The Company has delivered to the Purchasers its audited balance sheet at December 31, 1998 and its unaudited balance sheet at December 31, 1999 (the "Balance Sheets"). The Balance Sheets are complete and correct in all material respects and accurately describe the financial condition of the Company as of December 31, 1998 and December 31, 1999 (the "Balance Sheet Dates"). The Company has no known material liability or obligation, absolute or contingent (individually or in the aggregate), except as set forth in the Balance Sheets and except for other liabilities incurred since the Balance Sheet Dates in the ordinary course of business that are not material (individually or in the aggregate). The Company maintains and will continue to maintain a standard system of accounting established and administered in accordance with generally accepted accounting principles. 2.13 TITLE TO PROPERTIES AND ASSETS; LIENS, ETC. The Company has good and marketable title to its properties and assets shown in the Balance Sheets, and has good title to all of its leasehold interests, in each case subject to no mortgage, pledge, lien, lease, encumbrance or charge, other than (i) the lien of current taxes not yet due and payable, and (ii) possible minor liens and encumbrances that do not in any case materially detract from the value of the property subject thereto or materially impair the operations of the Company and which have not arisen otherwise than in the ordinary course of business. 2.14 PATENTS AND TRADEMARKS. The Company has sufficient title and ownership of all patents, trademarks, service marks, trade names, copyrights, trade secrets, information, proprietary rights and processes (collectively "Proprietary Information"), or believes it has the ability to acquire valid licenses to such Proprietary Information on reasonable terms, as necessary for its business as now conducted and as proposed to be conducted without any conflict with or infringement of the rights of others. There are no outstanding options, licenses, or agreements of any kind relating to the foregoing, nor is the Company bound by or a party to any options, licenses or agreements of any kind with respect to the patents, trademarks, service marks, trade names, copyrights, trade secrets, licenses, information, proprietary rights and processes of any other person or entity. The Company is not aware of any impropriety with regard to the granting of any licenses of Proprietary Information to the Company. The Company has not received any written or other communications alleging that the Company has violated or infringed or that the Company would, by conducting its business as proposed, violate or infringe any of the patents, trademarks, service marks, trade names, copyrights or trade secrets or other proprietary rights of any other person or entity. No claim is pending or, to the Company's knowledge, threatened to the effect that any such Proprietary Information owned or licensed by the Company, or which the Company has the right to use, is invalid or unenforceable by the company, and, to the Company's knowledge, there is no basis for any such claim. Except pursuant to the terms of the Proprietary Information and Inventions Agreements entered into between the Company and each of its employees and/or consultants (the "Proprietary Information and Inventions Agreement"), there are no agreements, understandings, instruments, or contracts to which the Company is a party or by which it is bound that involve the license of any patent, copyright, trade secret or other similar proprietary right to or from the Company. 2.15 TAX RETURNS. The Company has accurately prepared and timely filed all federal, state and other tax returns which are required to be filed and has timely paid all taxes covered by such returns which have become due and payable. The Company has not been advised that any of its returns, federal, state or other, have been or are being audited as of the date hereof. The Company is not delinquent in taxes or assessments and has no tax deficiency proposed or assessed and no waiver of the statute of limitations and assessment or collections. 2.16 NO DEFAULTS. The Company has, and, to the Company's knowledge, each other party thereto has in all material respects, performed all material obligations required to be performed by it to date and is not in default under any of the contracts, loans, notes, mortgages, indentures, licenses, security agreements, agreements, leases, documents, commitments or other arrangements to which it is a party or by which it is otherwise bound, except for such defaults which in the aggregate would not have a Material Adverse Effect, and no event or condition has occurred which, with the lapse of time or the giving of notice, or both, would constitute such a default. 2.17 AGREEMENTS; ACTION. (a) Except for agreements explicitly contemplated by the Agreements, there are no material agreements, understandings or proposed transactions between the Company and any of its officers, employees, directors, affiliates, or any affiliate thereof. (b) There are no material agreements, understandings, instruments, contracts, proposed transactions, judgments, orders, writs or decrees to which the Company is a party or by which it is bound which may involve (i) obligations (contingent or otherwise) of, or payments to the Company in excess of $50,000 individually or $500,000 in the aggregate, or (ii) provisions restricting or affecting the development, manufacture of distribution of the Company's products or services. (c) The Company has not (i) declared or paid any dividends, or authorized or made any distribution upon or with respect to any class or series of its capital stock, (ii) incurred any indebtedness for money borrowed or any other liabilities individually in excess of $50,000 or, in the case of indebtedness and/or liabilities individually less than $50,000, in excess of $250,000 in the aggregate, (iii) made any loans or advances to any person, other than ordinary advances for travel expenses, or (iv) sold, exchanged or otherwise disposed of any of its material assets or rights, other than the sale of its inventory or replacement of equipment in the ordinary course of business. (d) The Company has not engaged in the past three months in any discussion (i) with any representative of any corporation or corporations regarding the consolidation or merger of the Company with or into any such corporation or corporations, (ii) with any corporation, partnership, association or other business entity or any individual regarding the sale, conveyance or disposition of all or substantially all of the assets of the Company or a transaction or series of related transactions in which more than fifty percent (50%) of the voting power of the Company is disposed of, or (iii) regarding any other similar form of acquisition, liquidation, dissolution or winding up of the Company. 2.18 RELATED-PARTY TRANSACTIONS. Except as disclosed in the Offering Memorandum, no employee, officer, or director of the Company or member of his or her immediate family is indebted to the Company, nor is the Company indebted (or committed to make loans or extend or guarantee credit) to any of them, other than with respect to accrued salaries and vacation payable to employees and officers of the Company. To the Company's knowledge, except as disclosed in the Offering Memorandum, none of such persons has any direct or indirect ownership interest in any firm or corporation with which the Company is affiliated or with which the Company has a business relationship, or any firm or corporation that competes with the Company, except that employees, officers, or directors of the Company and members of their immediate family may own stock in publicly traded companies that may compete with the Company. No member of the immediate family of any officer or director of the Company is directly interested in any material contract with the Company. 2.19 PERMITS. The Company has all franchises, permits, licenses and any similar authority necessary for the conduct of its business as now being conducted by it, the lack of which would materially and adversely affect the business, properties, prospects or financial condition of the Company and believes it can obtain, without undue burden or expense, any similar authority for the conduct of its business as planned to be conducted. The Company is not in default in any material respect under any of such franchises, permits, licenses, or other similar authority. 2.20 ENVIRONMENTAL AND SAFETY LAWS. To the best of its knowledge, the Company is not in violation of any applicable statute, law, or regulation relating to the environment or occupational health and safety, and to the best of its knowledge, no material expenditures are or will be required in order to comply with any such existing statute, law, or regulation. 2.21 EMPLOYEE BENEFITS PLANS; EMPLOYEES. The Company does not have any Employee Benefit Plan as defined in the Employee Retirement Income Security Act of 1974 ("ERISA"). The Company does not have any knowledge as to any intentions of any key employee or any group of employees to leave the employ of the Company. The Company has complied in all material respects with all applicable laws relating to the employment of labor, including provisions relating to wages, hours, equal opportunity, collective bargaining and the payment of social security and other taxes and ERISA. 2.22 INSURANCE. The Company holds valid policies covering insurance in the amounts and type that the Company reasonably believes is appropriate and customary for companies in the same or similar businesses to that of the Company or otherwise required to be maintained by it. 2.23 USE OF PROCEEDS. The Company will use the proceeds from the sale of the Shares for the purposes set forth in the Offering Memorandum. 2.24 MANUFACTURING AND MARKETING RIGHTS. The Company has not granted rights to manufacture, produce, assemble, license, market or sell its products to any other person and is not bound by any agreement that affects the Company's exclusive right to develop, manufacture, assemble, distribute, market or sell it products. 2.25 DISCLOSURE. The Company has fully provided each Purchaser with all of the information which such purchaser has requested for deciding whether to purchase the Shares. Neither the Agreements nor any other statements or certificates made or delivered in connection herewith or therewith contains any untrue statement of a material fact or omits to state a material fact necessary to make the statements herein or therein not misleading, except that with respect to the financial projections and forecasts delivered to such Purchaser the Company represents only that such projection and forecasts were prepared in good faith and on what the Company believes is a reasonable basis. 2.26 OFFERING MEMORANDUM. Nothing has come to the attention of the Company that would cause it to believe that the Offering Memorandum contained or contains a false or misleading statement of a material fact or omits to state any material fact necessary in order to make the statements made in the Offering Memorandum, in light of the circumstances under which they were made, not misleading. There is no fact known to the Company which is not in the Offering Memorandum and which materially and adversely affects the assets, properties, liabilities, business, affairs, results of operations, condition (financial or otherwise) or prospects of the Company. SECTION 3 INVESTMENT REPRESENTATIONS Each Purchaser hereby represents and warrants to the Company as follows: 3.1 EXPERIENCE. Such Purchaser (other than Purchasers who are executive officers or directors of the Company, if applicable) has knowledge and experience in financial and business matters as to be capable of evaluating the merits and risks of Purchaser's prospective investment in the Shares. 3.2 INVESTMENT. Such Purchaser is acquiring the Shares (and any Common Stock issuable upon conversion of the Shares) for investment for its own account and not with the view to, or for resale in connection with, any distribution thereof. Such Purchaser understands that the Shares (and any Common Stock issuable upon conversion of the Shares) to be purchased will not be registered under the Securities Act on the grounds that the offering and sale of securities contemplated by this Agreement are exempt from registration pursuant to Section 4(2) of the Securities Act, and that the Company's reliance upon such exemption is predicated upon such Purchaser's representations set forth in this Agreement. 3.3 RULE 144. Such Purchaser acknowledges that the Shares must be held indefinitely unless subsequently registered under the Securities Act or an exemption from such registration is available. Such Purchaser is aware of the provisions of Rule 144 promulgated under the Securities Act which permits limited resale of shares purchased in a private placement subject to the satisfaction of certain conditions, including, among other things the existence of a public market for the shares, the availability of certain current public information about the Company, the resale occurring not less than one year after a party has purchased and paid for the securities to be sold, the sale being through a "broker's transaction" or in transactions directly with a "market maker" (as provided by Rule 144(f)) and the number of shares being sold during any three-month period not exceeding specified limitations. Such Purchaser is aware that the conditions for resale set forth in Rule 144 have not been satisfied and that the Company has no plan to satisfy these conditions in the foreseeable future. 3.4 ADEQUATE INFORMATION; NO PUBLIC MARKET. Such Purchaser represents that: (i) such Purchaser has received all the information it has requested from the Company and considers necessary or appropriate for deciding whether to purchase the Shares; (ii) such Purchaser has the ability to bear the economic risks of such Purchaser's prospective investment; (iii) such Purchaser understands that no public market currently exists for any of the Company's securities, and that the Company has made no assurances that a public market will ever exist for the Shares and (iv) such Purchaser is able, without materially impairing its financial condition, to hold the Shares for an indefinite period of time and to suffer complete loss of its investment. SECTION 4 BREACHES OF REPRESENTATIONS, WARRANTIES AND COVENANTS 4.1 The representations and warranties, covenants and agreements of the Company and the Purchasers contained in the Agreements or in any document or certificate delivered pursuant hereto or in connection herewith shall survive, and shall continue in effect following, the execution and delivery of the Agreements, the closings hereunder and thereunder, any investigation at any time made by the Purchasers or on their behalf or by any other person, the issuance, sale and delivery of the Shares, any disposition thereof and any payment, conversion or cancellation of the Shares, provided, however, that Section 2 hereof shall terminate when there are no longer any shares of Series E Preferred outstanding. All statements as to factual matters contained in any certificate or other instrument delivered by or on behalf o the Company pursuant hereto in connection with the transactions contemplated hereby shall be deemed to be representations and warranties by the Company hereunder solely as of the date of such certificate or instrument. 4.2 The Company agrees to indemnify and hold the Purchasers harmless from and against and will pay to the Purchasers the full amount of any loss, damage, liability or expense (including amounts paid in settlement and attorneys' fees and expenses) to any Purchaser resulting either directly or indirectly from any breach of the representations, warranties, covenants or agreements of the Company contained in the Agreements, or in any certificate delivered to the Purchasers pursuant hereto or in connection herewith, PROVIDED, HOWEVER, in no event shall the Company be liable for any amount in excess of the proceeds received by the Company from the sale of the shares of Series E Preferred. SECTION 5 CONDITIONS TO CLOSING OF PURCHASERS The Purchasers' obligation to purchase the Shares at the Closing is subject to the fulfillment to its satisfaction on or prior to the Closing of the following conditions: 5.1 REPRESENTATIONS AND WARRANTIES. The representations and warranties of the Company contained in Section 2 shall be true on and as of the Closing with the same effect as though such representations and warranties had been made on and as of the date of the Closing. 5.2 COVENANTS. All covenants, agreements and conditions contained in this Agreement to be performed by the Company on or prior to the Closing shall have been performed or complied with in all material respects. 5.3 COMPLIANCE CERTIFICATE. The Company shall have delivered on the Closing a certificate signed by an officer of the Company certifying that the conditions specified in Sections 5.1 and 5.2 have been fulfilled. 5.4 CONSENTS, PERMITS AND WAIVERS. The Company shall have obtained any and all consents, permits and waivers necessary or appropriate for consummation of the transactions contemplated by the Agreements (except for such as may properly be obtained subsequent to the Closing). 5.5 OPINION OF COUNSEL. The Purchasers shall have received from Wilson Sonsini Goodrich & Rosati, counsel for the Company, an opinion in the form of EXHIBIT E attached to this Agreement. 5.6 INVESTORS RIGHTS AGREEMENT. The Company, the Purchasers and the holders of Common Stock named therein shall have entered into the Investors Rights Agreement. 5.7 PROCEEDINGS AND DOCUMENTS. All corporate and other proceedings in connection with the transactions contemplated at the Closing and all documents incident thereto shall be reasonably satisfactory in form and substance to Purchasers' special counsel. 5.8 RESTATED ARTICLES. The Restated Articles shall have been filed with the Secretary of State of the State of California in the form of EXHIBIT B hereto. 5.9 CERTIFICATE FOR SHARES OF SERIES E PREFERRED. The Purchasers shall concurrently receive the certificates for the Shares purchased by each of them. 5.10 BLUE SKY COMPLIANCE. The Company shall have complied with and be effective under all state securities or Blue Sky laws applicable to the offer and sale of the Shares to the Investors at the Closing SECTION 6 CONDITIONS TO CLOSING OF COMPANY The Company's obligation to issue and sell the Series E Preferred at the Closing is subject to the fulfillment of the following conditions: 6.1 REPRESENTATIONS AND WARRANTIES. The representations and warranties of the Purchasers contained in Section 3 shall be true on and as of the Closing with the same effect as though such representations and warranties had been made on and as of the date of the Closing. 6.2 COVENANTS. All covenants, agreements and conditions contained in this Agreement to be performed by Purchasers on or prior to the Closing shall have been performed or complied with in all respects. 6.3 CONSENTS, PERMITS AND WAIVERS. The Company shall have obtained any and all consents, permits and waivers necessary or appropriate for consummation of the transactions contemplated by the Agreements (except for such as may properly be obtained subsequent to the Closing). 6.4 DELIVERY OF PURCHASE PRICE. The Purchasers shall have delivered the purchase price for the Shares as provided for under Section 1. 6.5 EXECUTION AND DELIVERY OF DOCUMENTS. Each Purchaser shall have executed and delivered the Investors Rights Agreement and such other documents and/or certificates as are required or contemplated by this Agreement or as reasonably requested by the Company. 6.6 PROCEEDINGS AND DOCUMENTS. All corporate and other proceedings in connection with the transactions contemplated at the Closing and all documents incident thereto shall be reasonably satisfactory in form and substance to the Company's counsel, and the Company shall have received all such counterpart original and certified or other copies of such documents as the Company may reasonably request. 6.7 RESTATED ARTICLES. The Restated Articles shall have been filed with the Secretary of State of the State of California in the form of EXHIBIT B hereto. SECTION 7 MISCELLANEOUS 7.1 ADDITIONAL SERIES E PREFERRED. The Company shall not issue any additional shares of Series E Preferred beyond the Shares to be sold hereunder without first obtaining the approval of the Board of Directors. 7.2 GOVERNING LAW. This Agreement shall be governed by the laws of the State of California as applicable to contracts entered into and performed entirely within the State of California. 7.3 SURVIVAL. The representations, warranties, covenants and agreements made herein shall survive any investigation made by Purchasers and the closing of the transactions contemplated hereby. 7.4 SUCCESSORS AND ASSIGNS. Except as otherwise provided herein, the provisions hereof shall inure to the benefit of, and be binding upon, the successors, assigns, heirs, executors and administrators of the parties hereto, provided, however, that the rights of Purchasers to purchase the Shares shall not be assignable without the consent of the Company and provided further that the Company may not assign any of its rights, duties or obligations under this Agreement without the written consent of the Purchasers except in the case of a merger, acquisition or consolidation of the Company in which case such consent shall not be required. 7.5 ENTIRE AGREEMENT. This Agreement and the other documents delivered pursuant hereto constitute the full and entire understanding and agreement between the parties with regard to the subjects hereof and thereof. 7.6 RIGHTS OF PURCHASERS. Each holder of the Series E Preferred (and Common Stock issued upon conversion of the Series E Preferred) shall have the absolute right to exercise or refrain from exercising any right or rights that such holder may have by reason of this Agreement or ownership of any Series E Preferred, including without limitation the right to consent to the waiver of any obligation of the Company under this Agreement and to enter into an agreement with the Company for the purpose of modifying this Agreement or any agreement affecting any such modification, and such holder shall not incur any liability to any other holder or holders of Series E Preferred with respect to exercising or refraining from exercising any such right or rights. 7.7 NOTICES, ETC. All notices and other communications required or permitted hereunder shall be in writing and shall be mailed by registered or certified mail, postage prepaid, or otherwise delivered by hand or by messenger, addressed (a) if to the Purchasers, to each Purchaser's address set forth below or at such other address as shall have been furnished to the Company in writing by such Purchaser or (b) if to the Company, one copy shall be sent to its address set forth above and addressed to the attention of the President, and another copy shall be sent to Wilson Sonsini Goodrich & Rosati, 650 Page Mill Road, Palo Alto, California 94304, attention: Michael J. O'Donnell, Esq., or at such other address or addresses as the Company shall have furnished in writing to the Purchasers. All notices and other communications mailed pursuant to the provisions of this Section 7.6 shall be deemed delivered three days after being mailed. 7.8 EXPENSES. Each party to this Agreement shall bear its own expenses and legal fees incurred by it with respect to this Agreement and all related transactions and agreements. 7.9 COUNTERPARTS. This Agreement may be executed in counterparts, each of which shall be enforceable against the party actually executing such counterpart, and which together shall constitute one instrument. 7.10 SEVERABILITY. In the event that any provision of this Agreement becomes or is declared by a court of competent jurisdiction to be illegal, unenforceable or void, this Agreement shall continue in full force and effect without said provision; provided that no such severability shall be effective if it materially changes the economic benefit of this Agreement to any party. 7.11 CALIFORNIA CORPORATE SECURITIES LAW. The sale of the securities which are the subject of this Agreement has not been qualified with the Commissioner of corporations of the state of California, and the issuance of such securities or the payment or receipt of any part of the consideration therefor prior to such qualification, if required by law, is unlawful. The rights of all parties to this agreement are expressly conditioned upon such qualification being obtained, if required by law. 7.12 APPROVAL OF AMENDMENTS AND WAIVERS. Any term of this agreement may be amended or terminated and the observance of any term of this Agreement may be waived (either generally or in a particular instance and either retroactively or prospectively) with the written consent of the Company and the holders of a majority of the outstanding Series E Preferred and Common Stock issued upon conversion thereof, excluding from the determination of such a majority (both in determining the total number of such shares outstanding and the number of such shares consenting or not consenting) all shares previously disposed of by Purchasers or their transferees pursuant to one or more registration statements under the Securities Act or pursuant to Rule 144 thereunder. Any amendment, termination or waiver effected in accordance with this section shall be binding upon each holder of any securities issued pursuant to this Agreement (including securities into which such securities have been converted or exchanged), each future holder of any or all such securities and the Company. 7.13 COUNTERPARTS. This Agreement may be executed in counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. 7.14 HEADINGS. The headings of the sections of this Agreement are for convenience and shall not by themselves determine the interpretation of this Agreement. The foregoing Agreement is hereby executed as of the date first above written. THE COMPANY: CIPHERGEN BIOSYSTEMS, INC. Name: ----------------------------- Title: ---------------------------- SIGNATURE PAGE TO SERIES E PREFERRED STOCK PURCHASE AGREEMENT THE INVESTORS: ATLAS VENTURE FUND V,L.P. By: Atlas Venture Associates V, L.P. its general partner By: Atlas Venture Associates V, Inc. Its general partner - -------------------------------- Vice President ATLAS VENTURE PARALLEL FUND V-A.C.V. By: Atlas Venture Associates V, L.P. its general partner By: Atlas Venture Associates V, Inc. Its general partner - -------------------------------- Vice President ATLAS VENTURE PARALLEL FUND V-B C.V. By: Atlas Venture Associates V, L.P. its general partner By: Atlas Venture Associates V, Inc. Its general partner - -------------------------------- Vice President ATLAS VENTURE ENTREPRENEURS' FUND V,L.P. By: Atlas Venture Associates V, L.P. its general partner By: Atlas Venture Associates V, Inc. Its general partner - -------------------------------- Vice President SIGNATURE PAGE TO SERIES E PREFERRED STOCK PURCHASE AGREEMENT MORGAN STANLEY DEAN WITTER VENTURE PARTNERS IV, L.P. By: MSDW VENTURE PARTNERS IV, LLC, as General Partner By: MSDW VENTURE PARTNERS IV, INC., as Member By: ----------------------------- Name: Title: By: ----------------------------- Name: Title: ESSEX PRIVATE PLACEMENT FUND III - A, Limited Partnership By: Essex Investment Management Company, LLC its General Partner By: ----------------------------- Title: -------------------------- ESSEX PRIVATE PLACEMENT FUND III - B, Limited Partnership By: Essex Investment Management Company, LLC its General Partner By: ----------------------------- Title: -------------------------- ORBIMED ADVISORS, LLC By: ----------------------------- Title: -------------------------- SIGNATURE PAGE TO SERIES E PREFERRED STOCK PURCHASE AGREEMENT AP ANLAGE & Private Bank AG By: ----------------------------- Title: -------------------------- CLARIDEN BANK. a CREDIT SUISSE GROUP company By: ----------------------------- Title: -------------------------- AMADEUS CAPITAL PARTNERS LIMITED By: ----------------------------- Title: -------------------------- PENTECH FINANCIAL SERVICES, INC. By: ----------------------------- Title: -------------------------- CHINA DEVELOPMENT INDUSTRIAL BANK INC. By: ----------------------------- Title: -------------------------- FIRST BIO VENTURE CAPITAL CORPORATION of Cheng Xin Venture Capital Corp By: ----------------------------- Title: -------------------------- SIGNATURE PAGE TO SERIES E PREFERRED STOCK PURCHASE AGREEMENT CENTRAL INVESTMENT HOLDING (B.V.I.) CO., LTD. By: ----------------------------- Title: -------------------------- GRAND CAPITAL INTERNATIONAL LIMITED of Bank SinoPac By: ----------------------------- Title: -------------------------- MDS, INC. By: ----------------------------- Title: -------------------------- S. R. ONE, LIMITED By: ----------------------------- Title: -------------------------- MDS LIFE SCIENCES TECHNOLOGY BARBADOS INVESTMENT TRUST By: ----------------------------- Title: -------------------------- MDS LIFE SCIENCES TECHNOLOGY FUND LIMITED PARTNERSHIP, by its General Partner, MDS Life Sciences Technology Fund (GP) Inc. By: ----------------------------- Title: -------------------------- SIGNATURE PAGE TO SERIES E PREFERRED STOCK PURCHASE AGREEMENT MDS LIFE SCIENCES TECHNOLOGY FUND USA, L.P. by its General Partner, MDS Capital USA (GP) Inc. By: ----------------------------- Title: -------------------------- THE HEALTH CARE AND BIOTECHNOLOGY VENTURE FUND by its Manager, MDS Capital Corp By: ----------------------------- Title: -------------------------- STANFORD RESEARCH SYSTEMS By: ----------------------------- Title: -------------------------- WILLIAM R. GREEN By: ----------------------------- Title: -------------------------- JAMES AND LINDA GINSBURG By: ----------------------------- Title: -------------------------- FALCON TECHNOLOGY PARTNERS, L.P. By: ----------------------------- Title: -------------------------- SIGNATURE PAGE TO SERIES E PREFERRED STOCK PURCHASE AGREEMENT FORWARD VENTURES II, L.P. By: ----------------------------- Title: -------------------------- ICNA, LTD. By: ----------------------------- Title: -------------------------- JOHN A. YOUNG, TRUSTEE for the Young Family Trust By: ----------------------------- Title: -------------------------- DIANA K. YOUNG By: ----------------------------- Title: -------------------------- GREGORY S. YOUNG By: ----------------------------- Title: -------------------------- SIGNATURE PAGE TO SERIES E PREFERRED STOCK PURCHASE AGREEMENT JOHN PETER YOUNG By: ----------------------------- Title: -------------------------- HLM/ CB FUND L.P. By: ----------------------------- Title: -------------------------- TURTLE & COMPANY c/o Nuland & Arshad, Inc. By: ----------------------------- Title: -------------------------- HOOVER ASSOCIATES By: ----------------------------- Title: -------------------------- THE MACKOWSKI FAMILY TRUST c/o Mackowski & Shepler By: ----------------------------- Title: -------------------------- SIGNATURE PAGE TO SERIES E PREFERRED STOCK PURCHASE AGREEMENT WATERVIEW TRUST By: ----------------------------- Title: -------------------------- JOHNATHAN J. KENT By: ----------------------------- Title: -------------------------- DANIEL VAPNEK By: ----------------------------- Title: -------------------------- GUARANTEE TRUST COMPANY FBO Lenita L. Rich IRA, Dated 8-2-91, No. 20186123 BT Alex Brown By: ----------------------------- Title: -------------------------- ONE AND COMPANY as Nominee for Welch & Forbes c/o Charles Haydock By: ----------------------------- Title: -------------------------- SIGNATURE PAGE TO SERIES E PREFERRED STOCK PURCHASE AGREEMENT DEAN V. AMBROSE By: ----------------------------- Title: -------------------------- EDWARD O. ANSELL By: ----------------------------- Title: -------------------------- ROBERT SHEPLER c/o Mackowski & Shepler By: ----------------------------- Title: -------------------------- PETER F. DRAKE c/o Prudential Vector Healthcare By: ----------------------------- Title: -------------------------- ROBERT AND LORI LUTHER By: ----------------------------- Title: -------------------------- SIGNATURE PAGE TO SERIES E PREFERRED STOCK PURCHASE AGREEMENT IKIKO CORPORATION c/o Nuland & Arshad, Inc. By: ----------------------------- Title: -------------------------- ANTHONY J. SINSKEY c/o Department of Biology By: ----------------------------- Title: -------------------------- R. ANGUS WEST c/o The Boston Family Office. L.L.C. By: ----------------------------- Title: -------------------------- MICHAEL G. AND OLWEN PAGE c/o Prudential Vector Healthcare By: ----------------------------- Title: -------------------------- ROBERT A. SHAW AND MAUREEN MCLAUGHLIN, Trustees UTD 12-14-90 By: ----------------------------- Title: -------------------------- SIGNATURE PAGE TO SERIES E PREFERRED STOCK PURCHASE AGREEMENT EXHIBIT A SCHEDULE OF PURCHASERS (FIRST CLOSING)
NAME AND ADDRESS OF PURCHASER NUMBER OF SHARES AMOUNT ATLAS VENTURE FUND V,L.P. 3,001,351 $8,253,715.25 Attn: Jean-Francois Formela, M.D. General Partner 222 Berkeley Street Boston, MA 02116 Phone: 617-859-9290 ext. 230 Fax: 617-859-9292 Jfformela@atlasventures.com ATLAS VENTURE PARALLEL FUND V-A.C.V. 372,815 $1,025,241.25 Attn: Jean-Francois Formela, M.D. General Partner 222 Berkeley Street Boston, MA 02116 Phone: 617-859-9290 ext. 230 Fax: 617-859-9292 Jfformela@atlasventures.com ATLAS VENTURE PARALLEL FUND V-B C.V. 372,815 $1,025,241.25 Attn: Jean-Francois Formela, M.D. General Partner 222 Berkeley Street Boston, MA 02116 Phone: 617-859-9290 ext. 230 Fax: 617-859-9292 Jfformela@atlasventures.com ATLAS VENTURE ENTREPRENEURS' FUND V,L.P. 49,960 $137,390 Attn: Jean-Francois Formela, M.D. General Partner 222 Berkeley Street Boston, MA 02116 Phone: 617-859-9290 ext. 230 Fax: 617-859-9292 Jfformela@atlasventures.com MORGAN STANLEY VENTURES 1,898,470 $5,220,792.50 Attn: Gary M. Stein Vice President Venture Partners 1221 Avenue of the Americas New York, NY 10020 Phone: 212-762-6709 Fax: 212-762-8424 Gary.stein@msdw.com Steing@ms.com NAME AND ADDRESS OF PURCHASER NUMBER OF SHARES AMOUNT ESSEX INVESTMENT MANAGEMENT 545,455 $1,500,001.25 Attn: Susan Stickles 125 High St., 29th Fl. Boston, MA 02110 Phone: 617-342-3200 Sstickells@essexinvest.com WINCHESTER GLOBAL TRUST COMPANY LIMITED AS TRUSTEE FOR CADUCEUS CAPITAL TRUST 145,375 $399,781.25 Orbimed Advisors, LLC Attn: Carl L. Gordon, Ph. D., CFA General Partner 767 Third Avenue, 6th Floor New York, NY 10017-2023 Phone: 212-739-6400 Fax: 212-739-6444 Gordonc@orbimed.com CADUCEUS CAPITAL II. L.P. 63,761 $175,342.75 Orbimed Advisors, LLC Attn: Carl L. Gordon, Ph. D., CFA General Partner 767 Third Avenue, 6th Floor New York, NY 10017-2023 Phone: 212-739-6400 Fax: 212-739-6444 Gordonc@orbimed.com PW EUCALYPTUS FUND, LLC 148,000 $407,000.00 Orbimed Advisors, LLC Attn: Carl L. Gordon, Ph. D., CFA General Partner 767 Third Avenue, 6th Floor New York, NY 10017-2023 Phone: 212-739-6400 Fax: 212-739-6444 Gordonc@orbimed.com PW EUCALYPTUS FUND, LTD. 6,500 $17,875.00 Orbimed Advisors, LLC Attn: Carl L. Gordon, Ph. D., CFA General Partner 767 Third Avenue, 6th Floor New York, NY 10017-2023 Phone: 212-739-6400 Fax: 212-739-6444 Gordonc@orbimed.com NAME AND ADDRESS OF PURCHASER NUMBER OF SHARES AMOUNT AP ANLAGE Private Bank AG 363,636 $999,999.00 Attn: Andreas Bremer, Ph.D. Managing Director Werkstrasse 2 8806 Baech Switzerland Phone: +4117876241 Fax: +4117876250 Andreas.bremer@apam.ch CLARIDEN BANK. a CREDIT SUISSE GROUP company 181,818 $499,999.50 Attn: Eric H. Bernhardt Vice President Claridenstrasse 26 P.O. Box 5080 CH-8022 Zurich Phone: +4112056576 Fax: +4112056209 Eric.bernhardt@clariden.com AMADEUS CAPITAL PARTNERS LIMITED Attn: Hermann M. Hauser 181,818 $499,999.50 Director Mount Pleasant House, 2 Mount Pleasant Cambridge CB3 ORN 19 Hanover Square, London S1R9 3OA UK Phone: 01223-578-365 Fax: 01223-578-488 Hhauser@amadeuscapital.com PENTECH FINANCIAL SERVICES, INC. 9,091 $25,000.25 Attn: Ben Millerbis 310 West Hamilton Avenue, Suite 212 Campbell, CA 95008 Phone: (408) 378-2000 Fax: (408) 378-3304 BEN@PENTECHFINANCIAL.COM CHINA DEVELOPMENT INDUSTRIAL BANK INC. 103,891 $285,700.25 Attn: Willie Lin Ph.D. Associate Vice President, Technology Department 9F, 125 Nanking East Road, Section 5 Taipei 105, Taiwan Phone: (886-2) 2756-1532 Fax: (886)-2)2756-7323 CDC1837@EMAIL.CDCDPBNK.COM With a copy to: Henry Pan 44 Whippany Road Morristown, NJ 07960 NAME AND ADDRESS OF PURCHASER NUMBER OF SHARES AMOUNT FIRST BIO VENTURE CAPITAL CORPORATION of Cheng Xin Venture Capital 51,963 $142,898.25 Corp Attn: Jerome Shen, Ph.D Vice President 5F, 143, Section 2, Min-Sheng East Road Taipei, Taiwan Phone: (886-2) 2507-2960 Fax: (886) 2500-6908 Shenc@chengxin.com.tw With a copy to: Henry Pan 44 Whippany Road Morristown, NJ 07960 CENTRAL INVESTMENT HOLDING (B.V.I.) CO., LTD. 103,891 $285,700.25 Attn: W.J. Shiyu Vice President 6F, No. 232 Section 2, Pa-Teh Road Taipei 104, Taiwan Phone: (886-2) 2771-9998 Ext. 628 Fax: (886)-2) 2781-1231 Shiyu@cihc.com.tw With a copy to: Henry Pan 44 Whippany Road Morristown, NJ 07960 GRAND CAPITAL INTERNATIONAL LIMITED of Bank SinoPac 103,891 $285,700.25 Attn: Jeremy T.M. Tsai Manager, Investment Banking Division 3F, 9-1, Chien Kuo North Road Taipei , Taiwan Phone: (886-2) 2508-8560 Fax: (886)-2)2517-3956 Jeremy.tsai@banksinopac.com.tw With a copy to: Henry Pan 44 Whippany Road Morristown, NJ 07960 FALCON TECHNOLOGY PARTNERS, L.P. 727,273 $2,000,000.75 Attn: James L. Rathmann General Partner 600 Dorset Road Devon, PA 19333 Jlrathmann@aol.com NAME AND ADDRESS OF PURCHASER NUMBER OF SHARES AMOUNT MDS, INC. 181,818 499,999.50 Attn: Peter Winkley 100 International Blvd. Toronto, Canada M9W9J6 Phone: (416)-213-4678 S. R. ONE, LIMITED 363,636 $999,999.00 Attn: Barbara Dalton 200 Barr Harbor Drive Suite 250, Four Tower Bridge W. Conshohoken, PA 19428 Phone: 610-567-1033 Fax: 610-567-1039 Barbara.dalton@sb.com MDS LIFE SCIENCES TECHNOLOGY BARBADOS INVESTMENT TRUST 47,355 $130,226.25 P.O. Box 261 Bush Hill Bay Street Bridgetown, Barbados WEST INDIES MDS LIFE SCIENCES TECHNOLOGY FUND LIMITED PARTNERSHIP 272,878 $750,414.50 Attn: Michael J. Callaghan 100 International Boulevard Toronto, Ontario M9W 6J6 Phone: 416-675-4530 Fax: 416-213-4232 MDS LIFE SCIENCES TECHNOLOGY FUND USA, L.P. 64,519 $177,427.25 Attn: Dr. Henry Pan 44 Whippany Road Morristown, NJ 07960 THE HEALTH CARE AND BIOTECHNOLOGY VENTURE FUND 67,897 $186,716.75 Attn: Michael J. Callaghan 100 International Boulevard Toronto, Ontario M9W 6J6 Phone: 416-675-4530 Fax: 416-213-4232 STANFORD RESEARCH SYSTEMS 300,059 $825,162.25 Attn: William R. Green, President 1290 D Reamwood Avenue Sunnyvale, CA 94089 Bill@srsys.com WILLIAM R. GREEN 51,300 $141,075.00 1290 D Reamwood Avenue Sunnyvale, CA 94089 Bill@srsys.com NAME AND ADDRESS OF PURCHASER NUMBER OF SHARES AMOUNT JAMES AND LINDA GINSBURG 4,526 $12,446.50 900 Bluff Street Glencoe, IL 60022 Phone: 312-409-9048 TOTAL 9,785,762 $26,910,845.50
SCHEDULE OF PURCHASERS (SECOND CLOSING)
NAME AND ADDRESS OF PURCHASER NUMBER OF SHARES AMOUNT FORWARD VENTURES II, LP 177,020 $486,805.00 Attn: Standish Fleming 9255 Towne Center Drive, Suite #300 San Diego, Ca 92121 Phone: 858-677-6077 Fax: 858-452-8799 ignell@forwardventures.com ICNA, LTD. 406 $ 1,116.50 Attn: Ivor Royston 7514 Girard Avenue, #1-PMB243 La Jolla, CA 92037 Phone: 858-450-5997 Fax: 858-454-4658 iroyston@skcc.org JOHN A. YOUNG, TRUSTEE FOR THE YOUNG FAMILY TRUST 96,759 $266,087.25 Attn: John A. Young 3200 Hillview Avenue Palo Alto, CA 94304 Phone: 650-857-2114 Fax: 650-857-2677 John_Young@hp.com DIANA K. YOUNG 27,159 $74,687.25 999 Green Street, #2005 San Francisco, CA 94113 Phone: 415-441-8680 Fax: 650-854-0292 Diyoung@mindspring.com GREGORY S. YOUNG 27,159 $74,687.25 22050 Regnart Road Cupertino, CA 95014-4841 Phone: 408-366-0581 Fax: 408-366-0583 Gsyoung@tetoncap.com JOHN PETER YOUNG 27,159 $74,687.25 4100 Grange Road Santa Rosa, CA 95404 Phone: 707-542-5575 Fax: 707-546-6849 JPY@workingdogranch.com
HLM/CB FUND LP 113,162 $311,195.50 Attn: Buck Haberkom 222 Berkeley Street Boston, MA 02116 Phone: 617-266-0030x. 231 Fax: 617-266-3619 TURTLE & COMPANY 69,358 $190,734.50 c/o Nuland & Arshad, Inc. Attn: Jamie Nuland 176 Federal Street Boston, MA 02110-2209 Phone: 617-261-7687 Fax: 617-261-1529 jamie@nulandandarshad.com HOOVER ASSOCIATES 46,308 $127,347.00 Attn: R. Graham Luther 24 Christopher Lane Sterling, VA 20165-6205 Phone: 703-404-8553 Fax: 703-404-9858 grayluther@erols.com THE MACKOWSKI FAMILY TRUST 45,265 $124,478.75 c/o Mackowski & Shepler Attn: Matthew Mackowski 275 Post Street San Francisco, CA 94108-5005 Phone: 415-765-6982 Fax: 415-765-6983 Jmmms@aol.com WATERVIEW TRUST 45,265 $124,478.75 Attn: Thomas J. Menzes 24 Hamana Street Devonport, Aukland, New Zealand Phone: 64-9-9880154 Fax: 64-94880157 TJM@XTRA.CO.NZ JOHNATHAN J. KENT 1,000 $2,750.00 4909 34th Street San Diego, CA 92116 Phone: 619-281-6983 kentaj@home.com DANIEL VAPNEK 27,159 $74,687.25 414 Plaza Rubio Santa Barbara, CA 93103 Phone: 805-569-4072 Fax: 805-687-5153 Dvapnek@worldnet.att.net 2. GUARANTEE TRUST COMPANY FBO LENITA L. RICH IRA, DATED 8-2-91, NO. 20186123 BT ALEX BROWN 10,884 $29,931.00 Attn: Maria Cadden 1 South Street, 23rd Floor Baltimore, MD 21202 Phone: 650-595-4131 Fax: 650-595-4131 Maria.G.Cadden@DB.com ONE AND COMPANY AS NOMINEE FOR WELCH & FORBES 10,864 $29,876.00 c/o Charles Haydock Attn: Charles Haydock 45 School Street Boston, MA 02108 Phone: 617-523-1635x246 Fax: 617-742-6243 Avardaro@welchforbes.com DEAN V. AMBROSE 10,801 $29,702.75 1901 Avenue of the Stars, #1551 Los Angeles, CA 90067 Phone: 310-785-9700 Fax: 310-556-1266 Dvax1@aol.com EDWARD O. ANSELL 10,371 $28,520.25 449 W. Willamette Lane Claremont, CA 91711-2746 Phone: 909-625-1244 Fax: 909-624-1664 eoansell@att.net ROBERT SHEPLER 7,500 $20,625.00 c/o Mackowski & Shepler 275 Post Street San Francisco, CA 94108-5005 Phone: 765-6980 Fax: 415-765-6983 Shepms@aol.com PETER F. DRAKE 6,830 $18,782.50 c/o Prudential Vector Healthcare 1751 Lake Cook Road, Suite 350 Deerfield, IL 60015 Phone: 847-374-3802 Fax: 847-374-3800 p_drake@prusec.com 3. ROBERT AND LORI LUTHER Attn: R. Graham Luther 24 Christopher Lane 4,631 $12,735.25 Sterling, MD 20165 Phone: 703-404-8553 Fax: 703-404-9858 grayluther@erols.com IKIKO CORPORATION 4,631 $12,735.25 c/o Nuland & Arshad, Inc. Attn: Jamie Nuland 176 Federal Street Boston, MA 02110-2209 Phone: 617-261-7687 Fax: 617-261-1529 jamie@nulandandarshad.com ANTHONY J. SINSKEY 4,554 $12,523.50 c/o Department of Biology Massachusetts Institute of Technology Cambridge, MA 02139 Phone: 617-253-6721 Fax: 617-253-8550 asinskey@mit.edu R. ANGUS WEST 4,526 $12,446.50 c/o The Boston Family Office, LLC 33 Broad Street, 2nd Floor Boston, MA 02109 Phone: 617-227-2676 Fax: 617-261-1529 angusw@bosfam.com MICHAEL G. AND OLWEN PAGE 4,526 $12,446.50 1751 Lake Cook Road, Suite 350 Deerfield, IL 60015 Phone: 847-374-3810 Fax: 847-940-0819 Michael_page@prusec.com ROBERT A. SHAW AND MAUREEN MCLAUGHLIN, TRUSTEES UTD 12-14-90 3,621 $9,957.75 Attn: Maureen Mclaughlin 2237 Via Maderos Los Altos, CA 94024 Phone: 650-906-8687 Fax: 650-966-1765 maureen@mcshaw.com TOTAL 786,918 $2,164,024.50
4. EXHIBIT B AMENDED AND RESTATED ARTICLES OF INCORPORATION [See Exhibit 3.1 to this Registration Statement] EXHIBIT C SCHEDULE OF EXCEPTIONS This Schedule of Exceptions is made and given pursuant to Section 2 of the Series E Preferred Stock Purchase Agreement dated February __, 2000 (the "Agreement") by and among Ciphergen Biosystems, Inc., a California corporation (the "Company") and the Investors set forth on EXHIBIT A thereto. The Section numbers in this Schedule of Exceptions correspond to the Section numbers in the Agreement, which are modified by the disclosures. Any terms defined in the Agreement shall have the same meaning when used in this Schedule of Exceptions as when used in the Agreement, unless the context otherwise requires. 2.3 SUBSIDIARIES IllumeSys Pacific, Inc., a California corporation ("IllumeSys"), is a wholly owned subsidiary of the Company. Ciphergen Technologies, Inc., a California corporation ("CTI"), is a wholly owned subsidiary of the Company. Ciphergen Biosystems, Ltd., a corporation organized under the laws of the U. K., is a wholly owned subsidiary of the Company. Ciphergen Biosystems, KK, a corporation organized under the laws of Japan, is 30% owned by the Company. 2.14 PATENTS AND TRADEMARKS The following six agreements are only listed in this Schedule of Exceptions for the reason that they are existing agreements. The provisions of Section 2.14 are otherwise applicable to these agreements. Assignment and Assumption Agreement, dated January 1, 1994, between the Company, Abiotic Technologies and Abiotic Pharmaceutical Technologies, with Exhibits and Schedules attached thereto (the "Assignment Agreement"). Joint Development Program Agreement (the "Joint Development Agreement") dated February 2, 1995, with Stanford Research Systems ("SRS") for the development of a digitizer and a time of flight mass spectrometer under which the Company granted an aggregate of 550,000 shares of Series B Preferred Stock in October 1996 and September 1997. The Company has reserved an additional 550,000 shares of Series B Preferred Stock for issuance to SRS upon achievement by SRS of specified product development milestones. License Agreement, dated December 6, 1994, with Rockefeller University (the "Rockefeller License Agreement"). License Agreement, dated March 1, 1994, with the Scripps Research Institute (the "SRI License Agreement"). License Agreement dated April 7, 1997, between IllumeSys and Molecular Analytical Systems (the "IllumeSys License Agreement") License Agreement dated April 7, 1997, between CTI and Molecular Analytical Systems (the "CTI License Agreement"). Letter dated July 23, 1999 from attorneys for Brucker Daltrinics offering licenses under three patents. Response from William E. Rich dated August 20, 1999, indicating that the Company does not presently use the referenced technologies and is not interested in licenses to use them. Letter dated January 14, 2000 from Myriad Genetics, Inc. offering a license under a patent. Response from Company patent counsel February 10, 2000, indicating that the Company does not presently use the referenced technologies and is not interested in licenses to use them. 2.15 TAX RETURNS The Company was audited by the California State Board of Equalization in September 1999 regarding sales taxes for the years 1996 through 1999 to date. The Company believes that its net obligation to the agency will be less than $10,000. The Company was audited by Santa Clara County, California regarding property taxes for the years 1996 through 1999 to date. The Company believes that its net obligation to the County will be less than $10,000. 2.17 AGREEMENTS; ACTION (a) Restricted Stock Purchase Agreements, dated December 29, 1993, with S.R. One, Limited, Forward Ventures II, L.P. and certain affiliates. Restricted Stock Purchase Agreement, dated July 21, 1994, with John Young. Employment Agreement, dated August 9, 1994, between the Company and William E. Rich (the "Rich Employment Agreement"), including a loan and stock options (convertible to Restricted Stock Purchase Agreement with promissory note) provided for thereunder. Offer Letter, dated August 25, 1997, extended to James H. Stanford, which included stock options with accelerated vesting upon the occurrence of certain events (the "Stanford Offer Letter"). Warrants to purchase up to an aggregate of 54,400 shares of the Company's Series A Preferred Stock issued to S.R. One, Limited and Forward Ventures II, L.P. 2. Warrants to purchase up to an aggregate of 80,668 shares of the Company's Series B Preferred Stock issued to Stephen B.H. Kent, S.R. One, Limited, Forward Ventures II, L.P., Falcon Technology Partners, L.P., Edward O. Ansell and Steven M. Clark. Management Rights Letter, dated February 17, 1994, from the Company to Forward Ventures II, L.P. Financial Information and Board Visitation Rights Letter, dated February 17, 1994, from the Company to Falcon Technology Partners, L.P. Promissory Note, dated March 1, 1995, in the aggregate principal amount of $35,000 extended by the Company to William E. Rich, due and payable in full on August 31, 1999, accruing interest at a rate of 7.69% per annum, pursuant to an exercise of options (the "Rich March 1995 Note"). This note and accumulated interest thereon were replaced with a note payable September 1, 2004 accruing interest at the rate of 6% with principal of $47,548 (the "Rich September 1999 Note"). Two Promissory Notes, dated May 1, 1997, in the aggregate principal amount of $5,000 each extended by the Company to William E. Rich, due and payable in full on May 1, 2002, accruing interest at a rate of 6.85% per annum, pursuant to an exercise of options (the "Rich May 1997 Note"). Two Promissory Notes, dated March 25, 1998, in the aggregate principal amount of $180,000 extended by the Company to William E. Rich, due and payable in full on March 25, 2003, accruing interest at a rate of 5.59% per annum, pursuant to an exercise of options (the "Rich March 1998 Notes"). Promissory Note, dated March 25, 1998, in the aggregate principal amount of $15,000 extended by the Company to James H. Stanford, due and payable in full on March 25, 2003, accruing interest at a rate of 5.59% per annum, pursuant to an exercise of options (the "Stanford March 1998 Note"). Promissory Note, dated May 31, 1998, in the aggregate principal amount of $50,000 extended by the Company to James H. Stanford, due and payable in full on May 31, 2003, accruing interest at a rate of 5.69% per annum, pursuant to an exercise of options (the "Stanford May 1998 Note"). Promissory Note, dated September 15, 1999, in the aggregate principal amount of $77,500 extended by the Company to William E. Rich, due and payable in full on September 14, 2004, accruing interest at a rate of 5.82% per annum, pursuant to an exercise of options (the "Rich September 1999 Note"). Loan Agreement, dated November 17, 1998, in the aggregate principal amount of $30,000 extended by the Company to William E. Rich, due and payable in full on November 17, 2003, accruing no interest (the "Rich Loan"). 3. Secured Loan Agreement, in the aggregate principal amount of $200,000 extended by the Company to William E. Rich to finance a house, due and payable in full December 30, 2003, accruing no interest in lieu of a 5% pay increase (the "Rich Housing Loan"). Reference is made to the Joint Development Agreement. (b) Facilities Lease agreements of April 18, 1996, as amended, between the Company and Nearon Enterprises, LLC for space in 470 and 490 San Antonio Road, Palo Alto, California, expiring June 30, 2000 (the "Nearon Facilities Agreement"). Facilities Lease agreement of February 3, 2000 between the Company and the John Arrillaga Survivor's Trust and the Richard T. Peery Separate Property Trust for a facility in Fremont, California terminating March 31, 2008 (the "Arrillaga Facility Agreement"). Joint Venture Agreement dated January 25, 1999, with Sumitomo Corporation of Tokyo, Japan establishing Ciphergen Biosystems, KK (the "Sumitomo Joint Venture Agreement"). Marketing and Distribution Agreement dated March 24, 1999 with Ciphergen Biosystems, KK for marketing rights to certain Company products in Japan (the "Japan Marketing and Distribution Agreement"). Reference is made to the Joint Development Agreement. Loan and Lease Agreement dated September 12, 1997 with Pentech Financial Services, Inc. (the "Pentech 1997 Agreement"), in which the Company entered into a secured equipment loan and an equipment lease financing for an aggregate amount of $638,000 with three-year repayment terms. All drawdowns under this agreement have been completed. The current unpaid principal balance is $261,000. Loan and Lease Agreement, dated May 1, 1999, with Pentech Financial Services, Inc. (the "Pentech 1999 Agreement") in which the Company entered into a secured equipment loan and an equipment lease financing for an aggregate amount of up to $1,200,000 with three-year 4. repayment terms. Drawdowns totaling $685,000 have been made to date and the remainder must be completed by March 31, 2000. The current unpaid principal balance is $571,000. Loan and Security Agreement, dated June 23, 1999, with Imperial Bank for a line of credit based on eligible accounts receivable, with borrowing up to $1,500,000 with interest at Prime + 0.75% (the "Imperial Loan Agreement"). Reference is made to the Rockefeller Agreement. Reference is made to the Assignment Agreement. Reference is made to the IllumeSys License Agreement. Reference is made to the CTI License Agreement. Reference is made to the Rich Housing Loan. Reference is made to the Rich Loan. (c) Reference is made to the Pentech 1997 Agreement. Reference is made to the Pentech 1999 Agreement. Reference is made to the Rich Housing Loan. Reference is made to the Rich Loan. Reference is made to the Imperial Loan Agreement. Reference is made to the Rockefeller Agreement. 5. (d) The Chief Executive Officer and an outside director of the Company met with representatives of another company in November 1999 for purposes of exploring a potential business combination. No agreement was reached and no further discussions have taken place or are scheduled. 2.21 EMPLOYEE BENEFIT PLANS The Company has a 401(k) Plan. The Company has a Section 125 Cafeteria Plan. Gary Holmes, Director of Marketing, resigned and left the Company February 11, 2000. He has been replaced by Richard Rubin, former Director of Marketing at Molecular Dynamics, Inc., who has been an employee since June 1999, most recently acting as Western Regional Program Manager for Sales. 2.24 Reference is made to the Japan Marketing and Distribution Agreement. Reference is made to the Joint Development Agreement. 6. EX-10.2 5 EXHIBIT 10.2 CIPHERGEN BIOSYSTEMS, INC FOURTH AMENDED AND RESTATED INVESTORS RIGHTS AGREEMENT MARCH 3, 2000 TABLE OF CONTENTS
PAGE SECTION 1 TERMINATION OF THE THIRD AMENDED AND RESTATED INVESTORS RIGHTS AGREEMENT....................................1 SECTION 2 RESTRICTIONS ON TRANSFER; REGISTRATION RIGHTS...............................................................2 2.1 Restrictions on Transferability.....................................................................2 2.2 Certain Definitions.................................................................................2 2.3 Restrictive Legend..................................................................................3 2.4 Notice of Proposed Transfer.........................................................................3 2.5 Demand Registration Rights..........................................................................4 2.6 Company Registration................................................................................6 2.7 Form S-3 Registration Rights........................................................................7 2.8 Expenses of Registration............................................................................8 2.9 Registration Procedures.............................................................................8 2.10 Indemnification.....................................................................................9 2.11 Information by Holder..............................................................................11 2.12 Rule 144 Reporting.................................................................................11 2.13 Transfer of Registration Rights....................................................................12 2.14 Termination of Registration Rights.................................................................12 2.15 "Market Stand Off" Agreement.......................................................................13 2.16 Inclusion of Common Stock Held by Founders.........................................................13 2.17 Limitations on Subsequent Registration Rights......................................................13 SECTION 3 AFFIRMATIVE COVENANTS OF THE COMPANY.......................................................................13 3.1 Financial Information..............................................................................13 3.2 Inspection.........................................................................................14 3.3 Assignment of Rights to Financial Information......................................................14 3.4 Termination of Covenants...........................................................................14 SECTION 4 AFFIRMATIVE COVENANT OF INVESTORS; RIGHT OF FIRST REFUSAL..................................................15 4.1 Confidential Information, etc......................................................................15 4.2 Right of First Refusal.............................................................................15 SECTION 5 MISCELLANEOUS..............................................................................................16 5.1 Governing Law......................................................................................16 5.2 Successors and Assigns.............................................................................17 5.3 Entire Agreement...................................................................................17 5.4 Rights of Investors and Founders...................................................................17 5.5 Notices, etc.......................................................................................17 5.6 Counterparts.......................................................................................17 5.7 Severability.......................................................................................17 5.8 Approval of Amendments and Waivers.................................................................17
-i- CIPHERGEN BIOSYSTEMS FOURTH AMENDED AND RESTATED INVESTORS RIGHTS AGREEMENT THIS FOURTH AMENDED AND RESTATED INVESTORS RIGHTS AGREEMENT (the "Agreement") is dated as of March 3, 2000 among CIPHERGEN BIOSYSTEMS, INC., a California corporation (the "Company"), with its principal office located at 490 San Antonio Road, Suite #201, Palo Alto, CA 94306, the undersigned holders of the Company's Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, Series D Preferred Stock and Series E Preferred Stock (collectively, the "Preferred Stock"), any individual or entity which may hereafter become a party hereto pursuant to Section 5.8 of this Agreement (each, individually, an "Investor" and collectively, the "Investors") and Dean V. Ambrose, Edward O. Ansell, Steven M. Clark, Jonathan J. Kent and Stephen B.H. Kent (each, individually, a "Founder" and Collectively, the "Founders"). RECITALS WHEREAS, the Company, and certain Investors and the Founders have entered into that certain Third Amended and Restated Investors Right Agreement, dated as of September 30, 1998, as amended (the "Third Amended Investors Rights Agreement"), which superseded the Second Amended Investors rights Agreement; and WHEREAS, the Company and certain Investors are entering into that certain Series E Stock Purchase Agreement (the "Series E Agreement") of even date herewith; and WHEREAS, as a condition of the closing of the financing provided for in the Series E Agreement, and as an inducement to the additional financing of the Company provided for therein, the Company and the Investors desire to amend and restate in full the various covenants and restrictions set forth in the Third Amended Investors Rights Agreement, in the form set forth herein; NOW, THEREFORE, in consideration of the mutual agreements, covenants and conditions contained herein, the parties hereby agree as follows: SECTION 1 TERMINATION OF THE THIRD AMENDED AND RESTATED INVESTORS RIGHTS AGREEMENT 1.1 The parties hereto agree that, upon execution of this Agreement by the Company and Investors holding at least a majority of the currently outstanding shares of Registrable Securities (as the terms "Investors" and "Registrable Securities" are defined in the Third Amended Investor Rights Agreement), the Third Amended Investors Rights Agreement shall be terminated with no further force or effect, and that this Agreement shall define the rights and obligations of the parties hereto on the subject matter hereof with respect to shares of Common Stock of the Company (the "Common Stock") and Preferred Stock held by the Investors and Founders. SECTION 2 RESTRICTIONS ON TRANSFER; REGISTRATION RIGHTS 2.1 RESTRICTIONS ON TRANSFERABILITY. The Preferred Stock (and any Common Stock into which the Preferred Stock may be converted) shall not be transferable except upon the conditions specified in this Agreement, which conditions are intended to insure compliance with the provisions of the Securities Act (as hereinafter defined), or upon such other terms as are in the opinion of counsel to the Company satisfactory to comply with the provisions of the Securities Act. Except for transfers made pursuant to Rule 144 of the Securities Act, each Holder (as hereinafter defined) will cause any proposed transferee of Preferred Stock (and any Common Stock into which the Preferred Stock may be converted) held by such Holder to agree to take and hold such securities subject to the provisions and upon the conditions specified in this Agreement and it will be a condition precedent to the effectiveness of any such transfer that the Company shall have secured a written agreement in form and substance satisfactory to the Company to that effect, if so requested by the Company. 2.2 CERTAIN DEFINITIONS. As used in this Agreement, the following terms shall have the following respective meanings: "COMMISSION" shall mean the Securities and Exchange Commission or any other federal agency at the time administering the Securities Act. "FORM S-3" shall mean Form S-3 under the Securities Act as in effect on the date of this Agreement, or any substantially similar, equivalent or successor form under the Securities Act. "FOUNDERS' ORIGINAL COMMON STOCK" shall mean that Common Stock listed on SCHEDULE A attached hereto. "HOLDER" shall mean any Investor or Founder, or any transferee of registration rights under Section 2.13 hereof, who then holds any outstanding Preferred Stock or Registrable Securities. "INVESTORS' ORIGINAL COMMON STOCK" shall mean that Common Stock listed on SCHEDULE B attached hereto. "REGISTER," "REGISTERED" AND "REGISTRATION" refer to a registration effected by preparing and filing a registration statement in compliance with the Securities Act, and the declaration or ordering of the effectiveness of such registration statement. "REGISTRABLE SECURITIES" shall mean (i) shares of the Common Stock issued or issuable upon the conversion of the Preferred Stock which have not been sold to the public, (ii) shares of the Investors' Original Common Stock which have not been sold to the public, (iii) shares of the Common Stock issued upon any stock split, stock dividend, recapitalization, or similar event, which -2- have not been sold to the public, in respect of (a) shares of the Preferred Stock, (b) shares of Common Stock issued or issuable upon the conversion of the Preferred Stock or (c) shares of Investors' Original Common Stock and (iv) shares of Founders' Original Common Stock which have not been sold to the public and are included as Registrable Securities pursuant to Section 2.16, solely for the purposes set forth therein. "REGISTRATION EXPENSES" shall mean all expenses incurred in complying with Sections 2.5, 2.6 and 2.7 hereof, including, without limitation, all registration, qualification and filing fees, printing expenses, escrow fees, fees and disbursements of counsel for the Company, blue sky fees and expenses, and the expense of any special audits incident to or required by any such registration (but excluding the compensation of regular employees of the Company which shall be paid in any event by the Company). "RESTRICTED SECURITIES" shall mean the securities of the Company required to bear the legend set forth in Section 2.3 hereof or a legend substantially similar thereto and all shares of Founders' Original Common Stock and Investors' Original Common Stock. "SECURITIES ACT" shall mean the Securities Act of 1933, as amended, or any similar federal statute and the rules and regulations of the Commission thereunder, all as the same shall be in effect at the time. "SELLING EXPENSES" shall mean all underwriting discounts and selling commissions applicable to the applicable sale. 2.3 RESTRICTIVE LEGEND. Each certificate representing (i) the Preferred Stock, (ii) shares of the Common Stock issued upon conversion of the Preferred Stock or upon any stock split, stock dividend, recapitalization, merger, consolidation or similar event, shall (unless otherwise permitted by the provisions of Section 2.4 below) be stamped or otherwise imprinted with a legend in the following form (in addition to any legend required under applicable California or other state securities laws): THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933. SUCH SHARES MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR AN EXEMPTION THEREFROM UNDER SAID ACT. COPIES OF THE AGREEMENT COVERING THE PURCHASE OF THESE SHARES AND RESTRICTING THEIR TRANSFER MAY BE OBTAINED AT NO COST BY WRITTEN REQUEST MADE BY THE HOLDER OF RECORD OF THIS CERTIFICATE TO THE SECRETARY OF THE CORPORATION. 2.4 NOTICE OF PROPOSED TRANSFER. The holder of each certificate representing Restricted Securities, by acceptance thereof, agrees to comply in all respects with the provisions of this Section 2.4. Prior to any proposed transfer of any Restricted Securities, unless there is in effect a registration statement under the Securities Act covering the proposed transfer, the holder thereof shall give written notice to the Company of such holder's intention to effect such transfer. Each such notice -3- shall describe the manner and circumstances of the proposed transfer in sufficient detail, and shall be accompanied (except in transactions in compliance with Rule 144) by either (i) a written opinion of legal counsel who shall be reasonably satisfactory to the Company addressed to the Company and reasonably satisfactory in form and substance to the Company's counsel, to the effect that the proposed transfer of the Restricted Securities may be effected without registration under the Securities Act, or (ii) (x) a "no action letter" from the Commission to the effect that the transfer of such securities without registration will not result in a recommendation by such staff that action be taken with respect thereto and (y) a copy of such holder's request (together with all supplements or amendments thereto) for such letter which shall have been provided to the Company at or prior to the time of first delivery to the Commission's staff, whereupon the holder of such Restricted Securities shall be entitled to transfer such Restricted Securities in accordance with the terms of the notice delivered by the holder to the Company. Each certificate evidencing the Restricted Securities transferred as provided for above shall bear the appropriate restrictive legend set forth in Section 2.3 above, except that such certificate shall not bear such restrictive legend if, in the opinion of counsel for the Company or counsel for such holder, which opinion and counsel shall be satisfactory to counsel for the Company, such legend is not required in order to establish compliance with any provisions of the Securities Act. Notwithstanding the provisions above, no such opinion of counsel or "no action letter" shall be necessary for a transfer by an Investor (i) which is a partnership to a partner of such partnership or a retired partner of such partnership who retires after the date hereof, or to the estate of any such partner or retired partner or the transfer by gift, will or intestate succession of any partner to his or her spouse or to the siblings, lineal descendants or ancestors of such partner or his or her spouse, or (ii) to an affiliate of an Investor if, in each case, the transferee agrees in writing to be subject to the terms hereof to the same extent as if he or she were an original Investor hereunder. 2.5 DEMAND REGISTRATION RIGHTS. (a) Commencing on the earlier of (i) six months after the effective date of the first registration statement filed by the Company covering an underwritten offering of any of its securities to the general public and (ii) February ___, 2004, if the Company shall receive a written request (specifying that it is being made pursuant to this Section 2.5) from Holders of more than fifty percent (50%) of the outstanding Registrable Securities then held by all Holders (the "Initiating Holders") that the Company file a registration statement or similar document under the Securities Act covering the registration of at least fifty percent (50%) of the then outstanding Registrable Securities or any lesser percentage if the anticipated aggregate offering proceeds, net of underwriting discounts and commissions would exceed $5,000,000, then the Company shall promptly notify all other Holders of such request and shall use its best efforts to cause all Registrable Securities that such Holders have requested, within 15 days after receipt of such written notice, be registered in accordance with this Section 2.5 to be registered under the Securities Act. Notwithstanding the foregoing, (i) the Company shall not be obligated to effect a registration pursuant to this Section 2.5 during the period starting with the date sixty (60) days prior to the Company's estimated date of filing of, and ending on a date sixty (60) days following the effective -4- date of, a registration statement pertaining to an underwritten public offering of the Company's securities, provided that the Company is actively employing in good faith all reasonable efforts to cause such registration statement to become effective and that the Company's estimate of the date of filing such registration statement is made in good faith and (ii) if the Company shall furnish to such Holders a certificate signed by the President of the Company stating that in the good faith judgment of the Board of Directors it would be seriously detrimental to the Company or its shareholders for a registration statement to be filed in the near future, then the Company's obligation to use its best efforts to file a registration statement shall be deferred for a period not to exceed one hundred twenty (120) days; provided, however, that the Company shall not obtain such a deferral more than once in any twelve (12) month period. The Company shall be obligated to effect not more than two registrations pursuant to this Section 2.5; PROVIDED, HOWEVER, that such obligation shall be deemed satisfied only when a registration statement covering at least fifty-one percent (51%) of the Registrable Securities requested to be registered shall have become effective, and if the method of disposition is an underwritten offering, all such shares have been sold pursuant thereto. (b) If the Initiating Holders intend to distribute the Registrable Securities covered by their demand by means of an underwriting, they shall so advise the Company as part of their demand made pursuant to this Section 2.5, and the Company shall include such information in the notice referred to in Section 2.5(a). In such event, the right of any Holder to registration pursuant to this Section 2.5 shall be conditioned upon such Holder's participation in such underwriting and the inclusion of such Holder's Registrable Securities in the underwriting (unless otherwise mutually agreed by a majority in interest of the Initiating Holders and such Holder) to the extent provided herein. The Company shall, together with all Holders proposing to distribute their securities through such underwriting, enter into an underwriting agreement in customary form with the underwriter or underwriters selected by a majority of interest of the Initiating Holders and reasonably satisfactory to the Company. Notwithstanding any other provision of this Section 2.5, if the underwriter shall advise the Company in writing that marketing factors (including, without limitation, an adverse effect on the per share offering price) require a limitation of the number of shares to be underwritten, then the Company shall so advise all Holders of Registrable Securities that would otherwise be registered and underwritten pursuant hereto, and the number of shares of Registrable Securities that may be included in the registration and underwriting shall be allocated pro rata among such Holders thereof in proportion, as nearly as practicable, to the respective amounts of Registrable Securities held by such Holders at the time of filing the registration statement. No Registrable Securities excluded from the underwriting by reason of the foregoing underwriter's marketing limitation shall be included in such registration. If any Holder disapproves of the terms of the underwriting, such Holder may elect to withdraw therefrom by written notice to the Company, the underwriter, and the Initiating Holders. The Registrable Securities so withdrawn shall also be withdrawn from registration. If by the withdrawal of such Registrable Securities a greater number of Registrable Securities held by other -5- Holders may be included in such registration (up to the maximum of any limitation imposed by the underwriters), then the Company shall offer to all Holders who have included Registrable Securities in the registration the right to include additional Registrable Securities in the same proportion used in determining the underwriter limitation in this Section 2.5. If the underwriter has not limited the number of Registrable Securities to be underwritten, the Company may include securities for its own account (or for the account of other shareholders) in such registration if the underwriter so agrees and if the number of Registrable Securities that would otherwise have been included in such registration and underwriting will not thereby be limited. Except for registration statements on Form S-4, S-8 or any successor thereto, the Company will not file with the Commission without the approval of the Initiating Holders any other new registration statements with respect to its capital stock, whether for its own account or that of other shareholders, from the date of receipt of a notice from the Initiating Holders until the earlier of (i) 180 days from the date of receipt of such notice and (ii) the completion of the period of distribution of the registration contemplated thereby. 2.6 COMPANY REGISTRATION. (a) If, at any time or from time to time, the Company shall determine to register any of its securities, either for its own account or the account of a security holder or holders exercising their respective demand registration rights, other than a registration relating solely to employee benefit plans on Form S-8 or similar forms which may be promulgated in the future or a registration on Form S-4 or similar forms which may be promulgated in the future relating solely to a Securities and Exchange Commission Rule 145 or similar transaction, the Company will (i) promptly give to each Holder written notice thereof and (ii) include in such registration (and any related qualification under blue sky laws or other compliance), and in any underwriting involved therein, all Registrable Securities of such Holders as specified in a written request or requests made within 15 days after receipt of such written notice from the Company. (b) UNDERWRITING. If the registration of which the Company gives notice is for a registered public offering involving an underwriting, the Company shall so indicate in the notice given pursuant to Section 2.6(a). In such event the right of any Holder to registration pursuant to this Section 2.6 shall be conditioned upon such Holder's agreeing to participate in such underwriting and in the inclusion of such Holder's Registrable Securities in the underwriting to the extent provided herein. All Holders proposing to distribute their securities through such underwriting shall (together with the Company and the other holders distributing their securities through such underwriting) enter into an underwriting agreement in customary form with the underwriter or underwriters selected for such underwriting by the Company or by other holders exercising any demand registration rights. Notwithstanding any other provision of this Section 2.6, if the underwriter determines that marketing factors require a limitation of the number of shares to be underwritten, the underwriter may exclude some or all Registrable Securities or other securities from such registration and underwriting (hereinafter an "Underwriter Cutback"). In the event of an Underwriter Cutback, the Company shall so advise all Holders and the other holders distributing their securities through such underwriting, and the number of Registrable Securities that may be -6- included in the registration and underwriting shall be allocated among the Holders in proportion, as nearly as practicable, to the respective amounts of Registrable Securities held by such Holders at the time of filing the registration statement. If any Holder disapproves of the terms of any such underwriting, such Holder may elect to withdraw therefrom by written notice to the Company and the underwriter. Any securities excluded or withdrawn from such underwriting shall be withdrawn from such registration. 2.7 FORM S-3 REGISTRATION RIGHTS. After the Company's initial registered underwritten public offering, the Company shall use its best efforts to qualify for registration on Form S-3, and to that end the Company shall use its best efforts to comply with the reporting requirements of the Securities Exchange Act of 1934, as amended (the "Securities Exchange Act"), within twelve (12) months following the effective date of the first registration of any securities of the Company for an underwritten registered public offering. After the Company has qualified for the use of Form S-3, and subject to the provisions of Section 2.14, each Holder shall have the right to request registrations on Form S-3 (such requests shall be in writing and shall state the number of shares of Registrable Securities to be disposed of and the intended method of disposition of such shares by each such Holder), subject only to the following limitations: (a) The Company shall not be obligated to cause a registration on Form S-3 to become effective prior to one hundred eighty (180) days following the effective date of a Company initiated registration (other than a registration effected solely to qualify an employee benefit plan or to effect a business combination pursuant to Rule 145); (b) The Company shall not be required to effect a registration pursuant to this Section 2.7 unless the Holder or Holders requesting such a registration propose to dispose of shares of Registrable Securities having an aggregate disposition price (before deduction of underwriting discounts and expenses of sale) of at least $1,000,000; (c) The Company shall not be required to effect a registration pursuant to this Section 2.7 if the Company shall furnish to the requesting Holders a certificate signed by the President of the Company stating that in the good faith judgment of the Board of Directors of the Company it would be seriously detrimental to the Company or its shareholders for the registration statement to be filed at the date filing would be required, in which case the Company shall have an additional period of not more than one hundred twenty (120) days within which to file such registration statement; provided however, that the Company shall not use this right more than once in any twelve (12) month period; (d) The Company shall not be required to maintain and keep any such registration on Form S-3 effective for a period exceeding one hundred and twenty (120) days from the effective date thereof; and (e) The Company shall not be obligated to cause a registration on Form S-3 if in the prior twelve-month period the Company has caused a registration on Form S-3 to become effective pursuant to this Section 2.7. -7- The Company shall give notice to all Holders of the receipt of a request for registration pursuant to this Section 2.7 and shall use its best efforts to cause all Registrable Securities that such Holders have requested, within 15 days after receipt of such written notice, be registered in accordance with this Section 2.7 to be registered under the Securities Act. Subject to the foregoing, the Company will use its best efforts to effect promptly any registration pursuant to this Section 2.7. The provisions of Section 2.5(b) shall apply to any registration effected pursuant to this Section 2.7 2.8 EXPENSES OF REGISTRATION. All Registration Expenses incurred in connection with any registration, qualification or compliance pursuant to Sections 2.5, 2.6 and 2.7 (exclusive of Selling Expenses but inclusive of the reasonable fees and expenses of one special counsel to the selling Holders) shall be borne by the Company. Notwithstanding anything to the contrary herein, the Company shall not be required to pay for any expenses of any registration proceeding under Section 2.5 if the registration request is subsequently withdrawn at the request of the Holders of a majority of the Registrable Securities to have been registered, unless such Holders agree to forfeit their right to a demand registration pursuant to Section 2.5 (in which event such right shall be forfeited by all Holders). In the absence of such an agreement to forfeit, the Holders of Registrable Securities to have been registered shall bear all such expenses pro rata on the basis of the Registrable Securities to have been registered. Notwithstanding the foregoing, however, if at the time of the withdrawal, the Holders have learned of a material adverse change in the condition, business, or prospects of the Company from that known to the Holders at the time of their request, of which the Company had knowledge at the time of the request, then the Holders shall not be required to pay any of said expenses and shall retain their rights pursuant to Section 2.5. 2.9 REGISTRATION PROCEDURES. In the case of each registration, qualification or compliance effected by the Company pursuant to this Section 2, the Company will keep each Holder advised in writing as to the initiation of each registration, qualification and compliance and as to the completion thereof. At its expense the Company will: (a) Keep such registration, qualification or compliance effective for a period of one hundred twenty (120) days or until the Holder or Holders have completed the distribution described in the registration statement relating thereto, whichever first occurs; (b) Prepare and file with the Commission such amendments and supplements to such registration statement and the prospectus used in connection with such registration statement as may be necessary to comply with the provisions of the Securities Act with respect to the disposition of all securities covered by such registration statement; (c) Furnish to the Holders such numbers of copies of a prospectus, including a preliminary prospectus, in conformity with the requirements of the Securities Act, and such other documents as they may reasonably request in order to facilitate the disposition of Registrable Securities owned by them; (d) Use its best efforts to register and qualify the securities covered by such registration statement under such other securities or blue sky laws of such jurisdictions as shall be reasonably requested by the Holders, provided that the Company shall not be required in connection -8- therewith or as a condition thereto to qualify to do business or to file a general consent to service of process in any such states or jurisdictions; (e) In the event of any underwritten public offering, enter into and perform its obligations under an underwriting agreement, in usual and customary form, with the managing underwriter of such offering including, without limitation causing to be furnished to the Initiating Holders (i) a "cold comfort" letter of the Company's independent accountants as of the effective date of the registration statement as to such matters as customarily are covered in accountant's letters delivered to underwriters in underwritten public offerings and (ii) an opinion of counsel to the Company, as of the date of the closing of such underwritten public offering, in the form customarily provided by issuer's counsel in underwritten public offerings of securities. Each Holder participating in such underwriting shall also enter into and perform its obligations under such an agreement; and (f) Notify each Holder of Registrable Securities covered by such registration statement at any time when a prospectus relating thereto is required to be delivered under the Securities Act of any stop order, injunction or other order or requirement of the Commission or any other governmental agency or court that is issued which suspends the effectiveness of the registration statement or of the happening of any event as a result of which the prospectus included in such registration statement, as then in effect, includes an untrue statement of a material fact or omits to state a material fact required to be stated therein or necessary to make the statements therein not misleading in the light of the circumstances then existing. Notwithstanding any provision to the contrary in this Agreement, the Company shall not be required in connection with any registration pursuant to Sections 2.5, 2.6 or 2.7 to qualify shares in any state or jurisdiction which requires the Company to qualify to do business or to file a general consent to service of process. 2.10 INDEMNIFICATION. (a) The Company will indemnify each Holder, each of its officers and directors and partners, and each person controlling such Holder within the meaning of Section 15 of the Securities Act, with respect to which registration, qualification or compliance has been effected pursuant to this Section 2, and each underwriter, if any, and each person who controls any underwriter within the meaning of Section 15 of the Securities Act, against all expenses, claims, losses, damages and liabilities (or actions in respect thereof), including any of the foregoing incurred in settlement of any litigation, commenced or threatened, arising out of or based on any untrue statement (or alleged untrue statement) of a material fact contained in any registration statement, prospectus, offering circular or other document, or any amendment or supplement thereto, incident to any such registration, qualification or compliance, or based on any omission (or alleged omission) to state therein a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances in which they were made, not misleading, or any violation by the Company of any rule or regulation promulgated under the Securities Act applicable to the Company and relating to action or inaction required of the Company in connection with any such registration, qualification or compliance, and will reimburse each such Holder, each of its officers -9- and directors and partners, and each person controlling such Holder, each such underwriter and each person who controls any such underwriter, for any legal and any other expenses reasonably incurred in connection with investigating, preparing or defending any such claim, loss, damage, liability or action, provided that the Company will not be liable in any such case to the extent that any such claim, loss, damage, liability or expense arises out of or is based on any untrue statement or omission or alleged untrue statement or omission, made in reliance upon and in conformity with written information furnished to the Company by an instrument duly executed by such Holder or underwriter and stated to be specifically for use therein. (b) Each Holder will, if Registrable Securities held by such Holder are included in the securities as to which such registration, qualification or compliance is being effected, indemnify the Company, each of its directors and officers, each underwriter, if any, of the Company's securities covered by such a registration statement, each person who controls the Company or such underwriter within the meaning of Section 15 of the Securities Act, and each other such Holder, each of its officers and directors and partners and each person controlling such Holder within the meaning of Section 15 of the Securities Act, against all expenses, claims, losses, damages and liabilities (or actions in respect thereof) including any of the foregoing incurred in settlement of any litigation commenced or threatened, arising out of or based on any untrue statement (or alleged untrue statement) of a material fact contained in any such registration statement, prospectus, offering circular or other document, or any amendment or supplement thereto, incident to any such registration, qualification or compliance or based on any omission (or alleged omission) to state therein a material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances in which they were made, not misleading, or any violation by the Company of any rule or regulation promulgated under the Securities Act applicable to the Company in connection with any such registration, qualification, or compliance, and will reimburse the Company, such Holders, such directors, officers, partners, persons, underwriters or control persons for any legal or any other expenses reasonably incurred in connection with investigation, preparing or defending any such claim, loss, damage, liability or action, in each case to the extent, but only to the extent, that such untrue statement (or alleged untrue statement) or omission (or alleged omission) is made in such registration statement, prospectus, offering circular or other document or any amendment or supplement thereto in reliance upon and in conformity with written information furnished to the Company by an instrument duly executed by such Holder and stated to be specifically for use therein; provided, however, that the obligations of such Holders hereunder shall be limited to an amount equal to the proceeds to each such Holder of Registrable Securities sold as contemplated herein. The liability of a Holder hereunder shall be several and not joint. (c) Each party entitled to indemnification under this Section 2.10 (the "Indemnified Party") shall give notice to the party required to provide indemnification (the "Indemnifying Party") promptly after such Indemnified Party has actual knowledge of any claim as to which indemnity may be sought, and shall permit the Indemnifying Party to assume the defense of any such claim or any litigation resulting therefrom, provided that counsel for the Indemnifying Party, who shall conduct the defense of such claim or litigation, shall be approved by the Indemnified Party (whose approval shall not be unreasonably withheld), and the Indemnified Party may participate in such defense at its own expense; provided, however, that an Indemnified Party -10- (together with all other indemnified parties which may be represented without conflict by one counsel) shall have the right to retain one separate counsel, with the fees and expenses to be paid by the Indemnifying Party, if representation of such Indemnified Party by the counsel retained by the Indemnifying Party would be inappropriate due to actual or potential conflicts of interests between such Indemnified Party and any other party represented by such counsel in such proceeding. The failure of any Indemnified Party to give notice as provided herein shall not relieve the Indemnifying Party of its obligations under this Section 2 unless such failure resulted in actual detriment to the Indemnifying Party. No Indemnifying Party, in the defense of any such claim or litigation, shall, except with the consent of each Indemnified Party, consent to entry of any judgment or enter into any settlement which does not include as an unconditional term thereof the giving by the claimant or plaintiff to such Indemnified Party a release from all liability in respect of such claim or litigation. (d) If the indemnification provided for in this Section 2.10 is held by a court of competent jurisdiction to be unavailable to an Indemnified Party with respect to any loss, liability, claim, damage, or expense referred to therein, then the Indemnifying Party, in lieu of indemnifying such Indemnified Party hereunder, shall contribute to the amount paid or payable by such Indemnified Party as a result of such loss, liability, claim, damage, or expense in such proportion as is appropriate to reflect the relative fault of the Indemnifying Party on the one hand and of the Indemnified Party on the other in connection with the statements or omissions that resulted in such loss, liability, claim, damage, or expense as well as any other relevant equitable considerations. The relative fault of the Indemnifying Party and of the Indemnified Party shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission to state a material fact relates to information supplied by the Indemnifying Party or by the Indemnified Party and the parties relative intent, knowledge, access to information, and opportunity to correct or prevent such statement or omission. (e) The obligations of the Company and Holders under this Section 2.10 shall survive the completion of any offering of Registrable Securities in a registration statement under this Section 2, and otherwise. 2.11 INFORMATION BY HOLDER. The Holder or Holders of Registrable Securities included in any registration shall furnish to the Company such information regarding such Holder or Holders and the distribution proposed by such Holder or Holders as the Company may request in writing and as shall be required in connection with any registration, qualification or compliance referred to in this Section 2. 2.12 RULE 144 REPORTING. With a view to making available the benefits of certain rules and regulations of the Commission which may at any time permit the sale of the Restricted Securities to the public without registration, after such time as a public market exists for the Common Stock of the Company, the Company agrees to: (a) Use its best efforts to make and keep public information available, as those terms are understood and defined in Rule 144 under the Securities Act at all times after the effective date of the first registration under the Securities Act filed by the Company for an offering of its securities to the general public; -11- (b) Use its best efforts to then file with the Commission in a timely manner all reports and other documents required of the Company under the Securities Exchange Act at any time after it has become subject to such reporting requirements; (c) So long as a Holder owns any Restricted Securities, to furnish to such Holder forthwith upon request a written statement by the Company as to its compliance with the reporting requirements of said Rule 144 (at any time after 90 days after the effective date of the first registration statement filed by the Company for an offering of its securities to the general public) and of the Securities Act and the Securities Exchange Act (at any time after it has become subject to such reporting requirements), a copy of the most recent annual or quarterly report of the Company, and such other reports and documents of the Company as a Holder may reasonably request in availing itself of any rule or regulation of the Commission allowing a Holder to sell any such securities without registration. 2.13 TRANSFER OF REGISTRATION RIGHTS. The rights to cause the Company to register securities granted under Sections 2.5, 2.6 and 2.7 may be assigned or otherwise conveyed to a transferee or assignee of Registrable Securities, who shall be considered a "Holder" for purposes of this Section 2, provided that (a) such transfer is effected in accordance with applicable federal and state securities laws, (b) the Company is given written notice by such Holder at the time of or within a reasonable time after said transfer, stating the name, address and a reasonably detailed description of the principal business or occupation of said transferee or assignee and any such other information as is reasonably requested by the Company in order to carry out the intent of these provisions and identifying the securities with respect to which such registration rights are being assigned, (c) the Company reasonably determines that the proposed transferee or assignee is not a direct competitor or future competitor of the Company and (d) such transferee or assignee (i) is a Holder, (ii) is an affiliate of a Holder, including a wholly-owned subsidiary or constituent partner (including limited partners and partners who retire from a transferor partnership after the date hereof) of the transferring Holder, (iii) is a family member of the transferring Holder, (iv) is a trust for the benefit of an individual transferor or his family members, or (v) acquires at least 50,000 shares (as presently constituted) of the Registrable Securities held by the transferring Holder. No such transfer or assignment shall be valid or effective unless the proposed transferee or assignee expressly agrees to be subject to all of the provisions of this Agreement relating to such rights, including without limitation the provisions of Sections 2.10 and 2.15 of this Agreement. 2.14 TERMINATION OF REGISTRATION RIGHTS. The registration rights granted pursuant to this Section 2 shall terminate as to any Holder upon the earlier of (i) the sixth anniversary of the effective date of the first registration statement filed by the Company covering an underwritten offering of its securities to the general public at an aggregate offering price of not less than $10,000,000 and at a public offering price equal to or exceeding $5.50 per share (as adjusted for any stock dividends, combinations, or splits with respect to such shares) and (ii) the date such Holder is able to immediately sell all Registrable Securities held or entitled to be held upon conversion by such Holder under Rule 144 during any 90-day period. -12- 2.15 "MARKET STAND OFF" AGREEMENT. Each Holder hereby agrees that it shall not, to the extent requested by the Company and an underwriter of Common Stock (or other securities) of the Company, sell or otherwise transfer or dispose (other than to those who agree to be similarly bound) of any Registrable Securities or any other securities of the Company for a period of up to one hundred and eighty (180) days following the effective date of a registration statement of the Company filed under the Securities Act; provided, however, that (i) such agreement shall only be applicable to the first such registration statement of the Company which covers shares (or securities) to be sold on its behalf to the public in an underwritten offering and (ii) all officers and directors of the Company enter into similar agreements. In order to enforce the foregoing covenant, the Company may impose stop-transfer instructions with respect to the Registrable Securities and Common Stock of each Holder (and the shares or securities of every other person subject to the foregoing restriction) until the end of such one hundred eighty (180) day period. 2.16 INCLUSION OF COMMON STOCK HELD BY FOUNDERS. In connection with any registration effected pursuant to Section 2.6 hereof, each of the Founders, with respect to all Founders' Original Common Stock, shall be entitled to participate in such registration, on the same terms and conditions as Holders selling their Registrable Securities in such registration and, solely for purposes of Section 2.6, (i) each such Founder shall be entitled to all of the rights and shall be subject to all of the obligations applicable to a Holder in connection with such registration, including without limitation the provisions of Sections 2.10 and 2.15 of this Agreement, (ii) all such securities, and any shares of Common Stock issued in respect thereof upon any stock split, stock dividend, recapitalization or similar event, which have not been sold to the public, shall be deemed to be "Registrable Securities," (iii) all references to "Holder" in this Agreement shall be deemed to include such Founder for purposes of such registration and (iv) any Underwriter Cutback shall apply pro rata to the shares so included by the Founders participating in such registration. 2.17 LIMITATIONS ON SUBSEQUENT REGISTRATION RIGHTS. From and after the date of this Agreement, the Company shall not, without the prior written consent of Holders holding more than fifty percent (50%) of the Registrable Securities, enter into any agreement with any holder or prospective holder of any securities of the Company which would allow such holder or prospective holder to (i) require the Company to effect a registration or (ii) include any securities in any registration filed under Sections 2.5, 2.6 or 2.7 hereof unless, under the terms of such agreement, such holder or prospective holder may include such securities in any such registration only to the extent that the inclusion of such securities will not diminish the amount of Registrable Securities which are included in such registration, and such agreement includes the equivalent of Section 2.15 as a term. SECTION 3 AFFIRMATIVE COVENANTS OF THE COMPANY 3.1 FINANCIAL INFORMATION. The Company will furnish the following reports to each Investor for so long as such Investor is a holder of (or is entitled to purchase under this Agreement) -13- at least 100,000 shares of Preferred Stock or Common Stock issued upon conversion of the Preferred Stock or a combination thereof: (a) As soon as practicable after the end of each fiscal year, and in any event within 90 days thereafter, audited consolidated balance sheets of the Company and its subsidiaries, if any, as of the end of such fiscal year, and consolidated statements of income and surplus, consolidated statements of changes in financial position of the Company and its subsidiaries and consolidated statements of changes in stockholders' equity, if any, for such year, prepared in accordance with generally accepted accounting principles and setting forth in each case in comparative form the figures for the previous fiscal year, all in reasonable detail and certified by independent public accountants of recognized national standing selected by the Company; and (b) As soon as practicable after the end of every fiscal quarter and in any event within 45 days thereafter, an unaudited consolidated balance sheet of the Company and its subsidiaries, if any, as of the end of each such quarter, and consolidated statements of income, consolidated statements of changes in financial condition and consolidated statements of changes in stockholders' equity of the Company and its subsidiaries for such period, prepared in accordance with generally accepted accounting principals, subject to changes resulting from year-end audit adjustments. 3.2 INSPECTION. The Company shall permit each Investor, at such Investor's expense, to visit and inspect the Company's properties, to examine its books of account and records and to discuss the Company's affairs, finances and accounts with its officers, all at such reasonable times as may be requested by the Investor provided, however, that the Company shall not be obligated pursuant to this Section 3.2 to provide access to any information which it reasonably considers to be a trade secret or similar confidential information. 3.3 ASSIGNMENT OF RIGHTS TO FINANCIAL INFORMATION. The rights granted pursuant to this Section 3 may be assigned by Investors (or by any permitted transferee of any such rights) only in connection with the transfer to a single transferee of not less than 100,000 shares of Preferred Stock or Common Stock issued upon conversion thereof, or a combination thereof (including, for such purposes transfers by affiliates of a transferor) and only so long as (i) the Company is given notice of any such assignment within thirty (30) days of the date the same is effected, which notice shall disclose the name of such assignee and provide a reasonably detailed description of such assignee's business or principal occupation and the circumstances surrounding such assignment, (ii) the Company reasonably determines that the assignee is not a direct competitor or potential competitor of the Company and (iii) if the Company reasonably believes that it is necessary to protect proprietary information, the Company may require that the assignee execute a confidentiality agreement as a condition to receiving such information. 3.4 TERMINATION OF COVENANTS. The covenants set forth in Section 3 shall terminate and be of no further force or effect after the earlier of (a) the date upon which the first registration statement filed by the Company under the Securities Act in connection with the firm commitment underwritten public offering of its securities at an aggregate offering price of not less than $10,000,000 and at a public offering price equal to or exceeding $5.50 per share (as adjusted for any -14- stock dividends, combinations, or splits with respect to such shares) becomes effective, or (b) the date when none of the Preferred Stock is outstanding. SECTION 4 AFFIRMATIVE COVENANT OF INVESTORS; RIGHT OF FIRST REFUSAL 4.1 CONFIDENTIAL INFORMATION, ETC. Each Investor agrees that all information received by it pursuant to Section 3, and any other information relating to the Company's technology, processes or formulas that is disclosed by the Company to any Investor in writing and is marked "Confidential," shall be considered confidential information. Each Investor further agrees that it shall hold all confidential information relating to the Company in confidence and shall not disclose any such confidential information to any third party other than its counsel or accountants nor shall such Investor use such confidential information for any purpose other than evaluation of such Investor's investment in the Company; provided, however, that the foregoing obligation to hold in confidence and not to disclose confidential information shall not apply to any such information that (a) was known to the public prior to disclosure by the Company, (b) becomes known to the public through no fault of such Investor, (c) is disclosed to such Investor on a non-confidential basis by a third party having a legal right to make such disclosure or (d) is independently developed by such Investor. 4.2 RIGHT OF FIRST REFUSAL. The Company hereby grants to each Purchaser (defined below) the right of first refusal to purchase its Pro Rata Share (defined below) of all (or any part) of any New Securities (defined below) that the Company may from time to time propose to sell and issue. Such Purchaser's "Pro Rata Share," for purposes of this right of first refusal, is the ratio of the number of shares of Common Stock (assuming conversion to Common Stock of all shares of the Preferred Stock) then held by such Purchaser to the total number of shares of Common Stock then outstanding (assuming conversion to Common Stock of all outstanding shares of the Company's Preferred Stock). This right of first refusal shall be subject to the following provisions: (a) "PURCHASER" shall mean, with respect to any issuance of New Securities of the Company, each Founder who then holds any Founders' Original Common Stock and each Investor who then holds any Preferred Stock (or Common Stock issued upon conversion thereof). (b) "NEW SECURITIES" shall mean any Common Stock or any series or class of preferred stock including the Preferred Stock of the Company, whether now authorized or not, and rights, options or warrants to purchase said Common Stock or preferred stock, and securities of any type whatsoever that are, or may become, convertible into or exchangeable for said Common Stock or preferred stock; provided, however, that "New Securities" does not include (i) securities issuable upon conversion of or with respect to preferred stock or any future series of preferred stock; (ii) securities issuable upon exercise of warrants to purchase up to an aggregate of 313,000 shares of Series B Preferred Stock, securities issuable upon exercise of warrants to purchase up to an aggregate of 83,400 shares of Series C Preferred Stock and securities issuable upon exercise of warrants to purchase up to an aggregate of 165,955 shares of Series D Preferred Stock; (iii) securities offered to the public pursuant to a registration statement filed under the Securities Act; -15- (iv) securities issued pursuant to the acquisition of another corporation by the Company by merger, purchase of substantially all of the assets or other reorganization; (v) up to 5,825,000 shares of the Company's Common Stock (or related options or warrants) that are issued to directors, officers or employees of, or consultants to, the corporation pursuant to an agreement or an option or purchase plan or another director, officer, employee or consultant stock incentive program approved by the Board of Directors of the Company; (vi) shares of the Company's Common Stock that are issued in connection with technology licensing, corporate partnering, equipment leasing or similar or related transactions and (vii) shares of the Company's Common Stock or Preferred Stock issued in connection with any stock split, stock dividend, or recapitalization by the Company. (c) In the event that the Company proposes to undertake an issuance of New Securities, it shall give each Purchaser written notice of its intention, describing the type of New Securities, the price, and the general terms upon which the Company proposes to issue the same. Each Purchaser shall have five (5) days from the date of delivery of any such notice to agree to purchase its pro rata share of such New Securities for the price and upon the general terms specified in the notice by giving written notice to the Company and stating therein the quantity of New Securities to be purchased. (d) In the event that Purchasers fail to exercise in full the right of first refusal within said five (5) day period, the Company shall have sixty (60) business days thereafter to sell (or enter into an agreement pursuant to which the sale of New Securities covered thereby shall be closed, if at all, within sixty (60) business days from the date of said agreement) the New Securities respecting which the Purchasers' rights were not exercised, at a price and upon general terms no more favorable to the purchasers thereof than specified in the Company's notice. In the event the Company has not sold the New Securities within said sixty (60) business day period (or sold and issued new Securities in accordance with the foregoing within sixty (60) business days from the date of said agreement), the Company shall not thereafter issue or sell any New Securities, without first offering such securities to the Purchasers in the manner provided above. (e) The right of first refusal granted under this Agreement shall expire upon the closing of the Company's first underwritten public offering of Common Stock at an aggregate offering price of not less than $10,000,000 and at a public offering price equal to or exceeding $5.50 per share (as adjusted for any stock dividends, combinations, or splits with respect to such shares) pursuant to a registration statement declared effective under the Securities Act. (f) This right of first refusal is nonassignable except to any other Purchaser or to any parent, subsidiary or general or limited partner or member of any Purchaser. SECTION 5 MISCELLANEOUS 5.1 GOVERNING LAW. This Agreement shall be governed by the laws of the State of California as applicable to contracts entered into and performed entirely within the State of California. -16- 5.2 SUCCESSORS AND ASSIGNS. Except as otherwise provided herein, the provisions hereof shall inure to the benefit of, and be binding upon, the successors, assigns, heirs, executors and administrators of the parties hereto. 5.3 ENTIRE AGREEMENT. This Agreement constitutes the full and entire understanding and agreement between the parties with regard to the subject matter hereof. 5.4 RIGHTS OF INVESTORS AND FOUNDERS. Each Investor and Founder shall have the absolute right to exercise or refrain from exercising any right or rights that such Investor or Founder may have by reason of this Agreement or the ownership of any Preferred Stock, including without limitation the right to consent to the waiver of any obligation of the Company under this Agreement to such Investor or Founder and to enter into an agreement with the Company for the purpose of modifying this Agreement or any agreement affecting any such modification, and such Investor or Founder shall not incur any liability to any other Investor or holder of Preferred Stock or Founder with respect to exercising or refraining from exercising any such right or rights. 5.5 NOTICES, ETC. All notices and other communications required or permitted hereunder shall be in writing and shall be mailed by registered or certified mail, postage prepaid, or facsimile or otherwise delivered by hand or by messenger, addressed (a) if to an Investor or Founder, at such Investor's or Founder's address set forth below or at such other address as such Investor or Founder shall have furnished to the Company in writing, (b) if to any other holder of Preferred Stock, at such address as such holder shall have furnished the Company in writing or (c) if to the Company, one copy shall be sent to its address set forth above and addressed to the attention of the Corporate Secretary and another copy shall be sent to Wilson Sonsini Goodrich & Rosati, 650 Page Mill Road, Palo Alto, CA 94304, Attention: Michael J. O'Donnell, Esq., or at such other addresses as the Company shall have furnished to the Investors and the Founders. All notices and other communications mailed or sent by facsimile pursuant to the provisions of this Section 5.5 shall be deemed delivered when mailed or sent by facsimile. 5.6 COUNTERPARTS. This Agreement may be executed in counterparts, each of which shall be enforceable against the party actually executing such counterpart, and which together shall constitute one instrument. 5.7 SEVERABILITY. In the event that any provision of this Agreement becomes or is declared by a court of competent jurisdiction to be illegal, unenforceable or void, this Agreement shall continue in full force and effect without said provision; provided that no such severability shall be effective if it materially changes the economic benefit of this Agreement to any party. 5.8 APPROVAL OF AMENDMENTS AND WAIVERS. Any term of this agreement may be amended or terminated and the observance of any term of this Agreement may be waived (either generally or in a particular instance and either retroactively or prospectively) with the written consent of the Company and Investors (or their transferees) holding at least sixty-six and two-thirds percent (66 2/3%) of the then outstanding shares of Registrable Securities, excluding from the determination of such percentage (both in determining the total number of such shares outstanding and the number of such shares consenting or not consenting) all shares previously disposed of by -17- Investors or their transferees pursuant to one or more registration statements under the Securities Act or pursuant to Rule 144 thereunder; provided, however, that no such amendment or waiver shall adversely affect the right of any Founder to participate in registrations under Section 2.6 of this Agreement as provided for in Section 2.16 without such Founder's written consent; it being understood, however, that the amendment of this Agreement to increase the number of shares defined as Registrable Securities or to add additional parties as Investors shall be deemed not to adversely affect such right under Section 2.6. Any amendment, termination or waiver effected in accordance with this section shall be binding upon each Founder, each Investor, each of their transferees and the Company. Each Founder and each Investor acknowledges that, subject to the limitations contained in the first sentence of this Section 5.8, by the operation of this Section 5.8 the holders of sixty-six and two-thirds percent (66 2/3%) of the outstanding Registrable Securities may have the right and power to diminish or eliminate all rights of such Founder or such Investor under this Agreement as provided for above. Notwithstanding anything in this Agreement to the contrary, however, no written consent of the Investors or Founders shall be required to amend this Agreement to add additional parties to this Agreement as Investors who are purchasers at Subsequent Closings of the Series E Agreement pursuant to Section 1.3 of the Series E Agreement. [INTENTIONALLY LEFT BLANK] -18- The foregoing Agreement is hereby executed as of the date first above written. THE COMPANY: CIPHERGEN BIOSYSTEMS, INC. By: ----------------------------- Title: -------------------------- (SIGNATURE PAGE TO FOURTH AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT) THE INVESTORS: ATLAS VENTURE FUND V,L.P. By: Atlas Venture Associates V, L.P. its general partner By: Atlas Venture Associates V, Inc. Its general partner - -------------------------------- Vice President ATLAS VENTURE PARALLEL FUND V-A.C.V. By: Atlas Venture Associates V, L.P. its general partner By: Atlas Venture Associates V, Inc. Its general partner - -------------------------------- Vice President ATLAS VENTURE PARALLEL FUND V-B C.V. By: Atlas Venture Associates V, L.P. its general partner By: Atlas Venture Associates V, Inc. Its general partner - -------------------------------- Vice President (SIGNATURE PAGE TO FOURTH AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT) ATLAS VENTURE ENTREPRENEURS' FUND V,L.P. By: Atlas Venture Associates V, L.P. its general partner By: Atlas Venture Associates V, Inc. Its general partner - ----------------------- Vice President MORGAN STANLEY DEAN WITTER VENTURE PARTNERS IV, L.P. By: MSDW VENTURE PARTNERS IV, LLC, AS GENERAL PARTNER By: MSDW VENTURE PARTNERS IV, INC., AS MEMBER By: -------------------------------- Name: Title: By: -------------------------------- Name: Title: (SIGNATURE PAGE TO FOURTH AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT) ESSEX PRIVATE PLACEMENT FUND III - A, Limited Partnership By: Essex Investment Management Company, LLC its General Partner By: ---------------------------------- Title: ------------------------------- ESSEX PRIVATE PLACEMENT FUND III - B, Limited Partnership By: Essex Investment Management Company, LLC its General Partner By: ---------------------------------- Title: ------------------------------- ORBIMED ADVISORS, LLC By: ---------------------------------- Title: ------------------------------- AP ANLAGE Private Bank AG By: ---------------------------------- Title: ------------------------------- (SIGNATURE PAGE TO FOURTH AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT) CLARIDEN BANK. a CREDIT SUISSE GROUP company By: ---------------------------------- Title: ------------------------------- AMADEUS CAPITAL PARTNERS LIMITED By: ---------------------------------- Title: ------------------------------- PENTECH FINANCIAL SERVICES, INC. By: ---------------------------------- Title: ------------------------------- CHINA DEVELOPMENT INDUSTRIAL BANK INC. By: ---------------------------------- Title: ------------------------------- (SIGNATURE PAGE TO FOURTH AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT) FIRST BIO VENTURE CAPITAL CORPORATION of Cheng Xin Venture Capital Corp By: ---------------------------------- Title: ------------------------------- CENTRAL INVESTMENT HOLDING (B.V.I.) CO., LTD. By: ---------------------------------- Title: ------------------------------- GRAND CAPITAL INTERNATIONAL LIMITED of Bank SinoPac By: ---------------------------------- Title: ------------------------------- MDS, INC. By: ---------------------------------- Title: ------------------------------- (SIGNATURE PAGE TO FOURTH AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT) S. R. ONE, LIMITED By: ---------------------------------- Title: ------------------------------- MDS LIFE SCIENCES TECHNOLOGY BARBADOS INVESTMENT TRUST By: ---------------------------------- Title: ------------------------------- MDS LIFE SCIENCES TECHNOLOGY FUND LIMITED PARTNERSHIP, by its General Partner, MDS Life Sciences Technology Fund (GP) Inc. By: ---------------------------------- Title: ------------------------------- MDS LIFE SCIENCES TECHNOLOGY FUND USA, L.P. by its General Partner, MDS Capital USA (GP) Inc. By: ---------------------------------- Title: ------------------------------- (SIGNATURE PAGE TO FOURTH AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT) THE HEALTH CARE AND BIOTECHNOLOGY VENTURE FUND by its Manager, MDS Capital Corp By: ---------------------------------- Title: ------------------------------- STANFORD RESEARCH SYSTEMS By: ---------------------------------- Title: ------------------------------- WILLIAM R. GREEN By: ---------------------------------- Title: ------------------------------- JAMES AND LINDA GINSBURG By: ---------------------------------- Title: ------------------------------- FALCON TECHNOLOGY PARTNERS, L.P. By: ---------------------------------- Title: ------------------------------- (SIGNATURE PAGE TO FOURTH AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT) FORWARD VENTURES II, L.P. By: ---------------------------------- Title: ------------------------------- ICNA, LTD. By: ---------------------------------- Title: ------------------------------- JOHN A. YOUNG, TRUSTEE for the Young Family Trust By: ---------------------------------- Title: ------------------------------- DIANA K. YOUNG By: ---------------------------------- Title: ------------------------------- GREGORY S. YOUNG By: ---------------------------------- Title: ------------------------------- (SIGNATURE PAGE TO FOURTH AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT) JOHN PETER YOUNG By: ---------------------------------- Title: ------------------------------- HLM/ CB FUND L.P. By: ---------------------------------- Title: ------------------------------- TURTLE & COMPANY c/o Nuland & Arshad, Inc. By: ---------------------------------- Title: ------------------------------- HOOVER ASSOCIATES By: ---------------------------------- Title: ------------------------------- THE MACKOWSKI FAMILY TRUST c/o Mackowski & Shepler By: ---------------------------------- Title: ------------------------------- (SIGNATURE PAGE TO FOURTH AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT) WATERVIEW TRUST By: ---------------------------------- Title: ------------------------------- JOHNATHAN J. KENT By: ---------------------------------- Title: ------------------------------- DANIEL VAPNEK By: ---------------------------------- Title: ------------------------------- GUARANTEE TRUST COMPANY FBO Lenita L. Rich IRA, Dated 8-2-91, No. 20186123 BT Alex Brown By: ---------------------------------- Title: ------------------------------- ONE AND COMPANY as Nominee for Welch & Forbes c/o Charles Haydock By: ---------------------------------- Title: ------------------------------- (SIGNATURE PAGE TO FOURTH AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT) DEAN V. AMBROSE By: ---------------------------------- Title: ------------------------------- EDWARD O. ANSELL By: ---------------------------------- Title: ------------------------------- ROBERT SHEPLER c/o Mackowski & Shepler By: ---------------------------------- Title: ------------------------------- PETER F. DRAKE c/o Prudential Vector Healthcare By: ---------------------------------- Title: ------------------------------- ROBERT AND LORI LUTHER By: ---------------------------------- Title: ------------------------------- (SIGNATURE PAGE TO FOURTH AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT) IKIKO CORPORATION c/o Nuland & Arshad, Inc. By: ---------------------------------- Title: ------------------------------- ANTHONY J. SINSKEY c/o Department of Biology By: ---------------------------------- Title: ------------------------------- R. ANGUS WEST c/o The Boston Family Office. L.L.C. By: ---------------------------------- Title: ------------------------------- MICHAEL G. AND OLWEN PAGE c/o Prudential Vector Healthcare By: ---------------------------------- Title: ------------------------------- ROBERT A. SHAW AND MAUREEN MCLAUGHLIN, Trustees UTD 12-14-90 By: ---------------------------------- Title: ------------------------------- (SIGNATURE PAGE TO FOURTH AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT) SCHEDULE A FOUNDERS' ORIGINAL COMMON STOCK
SHAREHOLDER ISSUE DATE NUMBER OF SHARES - ----------- ---------- ---------------- Dean V. Ambrose 12/27/93 31,648 Edward O. Ansell 12/27/93 31,648 Steven M. Clark 12/27/93 107,500 Jonathan J. Kent 12/27/93 153,889 Stephen B. H. Kent 12/27/93 250,000
(SIGNATURE PAGE TO FOURTH AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT) SCHEDULE B INVESTORS' ORIGINAL COMMON STOCK
SHAREHOLDER ISSUE DATE NUMBER OF SHARES - ----------- ---------- ---------------- S.R. One, Limited 12/29/93 100,000 Forward Ventures II, L.P. 12/29/93 75,000
(SIGNATURE PAGE TO FOURTH AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT) EX-10.3 6 EXHIBIT 10.3 CIPHERGEN BIOSYSTEMS, INC. 1993 STOCK OPTION PLAN (As Amended and Restated on October 27, 1994) (As Amended and Restated on May 10, 1995) (As Amended and Restated on September 5, 1996) (As Amended and Restated on July 31, 1997) (As Amended and Restated on July 28, 1998) (As Amended and restated on September 9,1999) 1. PURPOSES. (a) The purpose of the Plan is to provide a means by which selected Employees and Directors of and Consultants to the Company and its Affiliates, may be given an opportunity to purchase stock of the Company. (b) The Company, by means of the Plan, seeks to retain the services of persons who are now Employees or Directors of or Consultants to the Company, to secure and retain the services of new Employees, Directors and Consultants, and to provide incentives for such persons to exert maximum efforts for the success of the Company and its Affiliates. (c) The Company intends that the Options issued under the Plan shall, in the discretion of the Board or any Committee to which responsibility for administration of the Plan has been delegated pursuant to subsection 3(c), be either Incentive Stock Options or Nonstatutory Stock Options. All Options shall be separately designated Incentive Stock Options or Nonstatutory Stock Options at the time of grant, and in such form as issued pursuant to Section 6, and a separate certificate or certificates will be issued for shares purchased on exercise of each type of Option. 2. DEFINITIONS. (a) "AFFILIATE" means any parent corporation or subsidiary corporation, whether now or hereafter existing, as those terms are defined in Sections 424(e) and (f) respectively, of the Code. (b) "BOARD" means the Board of Directors of the Company. (c) "CODE" means the Internal Revenue Code of 1986, as amended. (d) "COMMITTEE" means a Committee appointed by the Board in accordance with subsection 3(c) of the Plan. (e) "COMPANY" means Ciphergen Biosystems, Inc., a California corporation. (f) "CONSULTANT" means any person, including an advisor, engaged by the Company or an Affiliate to render services and who is compensated for such services, provided that the term "Consultant" shall not include Directors who are paid only a director's fee by the Company or who are not compensated by the Company for their services as Directors. (g) "CONTINUOUS STATUS AS AN EMPLOYEE, DIRECTOR OR CONSULTANT" means the employment or relationship as a Director or Consultant is not interrupted or terminated by the Company or any Affiliate. The Board, in its sole discretion, may determine whether Continuous Status as an Employee, Director or Consultant shall be considered interrupted in the case of: (i) any leave of absence approved by the Board, including sick leave, military leave, or any other personal leave; or (ii) transfers between locations of the Company or between the Company, Affiliates or their successors. (h) "DIRECTOR" means a member of the Board. (i) "DISINTERESTED PERSON" means a Director: (i) who was not during the one year prior to service as an administrator of the Plan granted or awarded equity securities pursuant to the Plan or any other plan of the Company or any of its affiliates entitling the participants therein to acquire -2- equity securities of the Company or any of its affiliates except as permitted by Rule 16b-3(c)(2)(i); or (ii) who is otherwise considered to be a "disinterested person" in accordance with Rule 16b-3(c)(2)(i), or any other applicable rules, regulations or interpretations of the Securities and Exchange Commission. (j) "EMPLOYEE" means any person, including Officers and Directors, employed by the Company or any Affiliate of the Company. Neither service as a Director nor payment of a director's fee by the Company shall be sufficient to constitute "employment" by the Company. (k) "EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended. (l) "FAIR MARKET VALUE" means, as of any date, the value of the common stock of the Company determined by the Board pursuant to Rule 260.140.50 of Title 10 of the California Code of Regulations. (m) "INCENTIVE STOCK OPTION" means an Option intended to qualify as an incentive stock option within the meaning of Section 422 of the Code and the regulations promulgated thereunder. (n) "NONSTATUTORY STOCK OPTION" means an Option not intended to qualify as an Incentive Stock Option. (o) "OFFICER" means a person who is an officer of the Company within the meaning of Section 16 of the Exchange Act and the rules and regulations promulgated thereunder. (p) "OPTION" means a stock option granted pursuant to the Plan. (q) "OPTION AGREEMENT" means a written agreement between the Company and an Optionee evidencing the terms and conditions of an individual Option grant. Each Option Agreement shall be subject to the terms and conditions of the Plan. (r) "OPTIONED STOCK" means the common stock of the Company subject to an Option. -3- (s) "OPTIONEE" means an Employee, Director or Consultant who holds an outstanding Option. (t) "PLAN" means this 1993 Stock Option Plan. (u) "RULE 16b-3" means Rule 16b-3 of the Exchange Act or any successor to Rule 16b-3, as in effect when discretion is being exercised with respect to the Plan. 3. ADMINISTRATION. (a) The Plan shall be administered by the Board unless and until the Board delegates administration to a Committee, as provided in subsection 3(c). (b) The Board shall have the power, subject to, and within the limitations of, the express provisions of the Plan: (1) To determine from time to time which of the persons eligible under the Plan shall be granted Options; when and how such Option shall be granted; whether an Option will be an Incentive Stock Option or a Nonstatutory Stock Option; the provisions of each Option granted (which need not be identical), including the time or times such Option may be exercised in whole or in part; and the number of shares for which an Option shall be granted to each such person; (2) To construe and interpret the Plan and Options granted under it, and to establish, amend and revoke rules and regulations for its administration. The Board, in the exercise of this power, may correct any defect, omission or inconsistency in the Plan or in any Option Agreement, in a manner and to the extent it shall deem necessary or expedient to make the Plan fully effective; and (3) To amend the Plan or an Option as provided in Section 11. (c) The Board may delegate administration of the Plan to a committee composed of not fewer than two (2) members (the "Committee"), all of the members of which Committee shall be -4- Disinterested Persons, if required under subsection 3(d). If administration is delegated to a Committee, the Committee shall have, in connection with the administration of the Plan, the powers theretofore possessed by the Board (and references in this Plan to the Board shall thereafter be to the Committee), subject, however, to such resolutions, not inconsistent with the provisions of the Plan, as may be adopted from time to time by the Board. The Board may abolish the Committee at any time and revest in the Board the administration of the Plan. Additionally, prior to the date of the first registration of an equity security of the Company under Section 12 of the Exchange Act, and notwithstanding anything to the contrary contained herein, the Board may delegate administration of the Plan to any person or persons and the term "Committee" shall apply to any person or persons to whom such authority has been delegated. (d) Any requirement that an administrator of the Plan be a Disinterested Person shall not apply (i) prior to the date of the first registration of an equity security of the Company under Section 12 of the Exchange Act, or (ii) if the Board or the Committee expressly declares that such requirement shall not apply. Any Disinterested Person shall otherwise comply with the requirements of Rule 16b-3. 4. SHARES SUBJECT TO THE PLAN. (a) Subject to the provisions of Section 10 relating to adjustments upon changes in stock, the stock that may be sold pursuant to Options shall not exceed in the aggregate five million eight hundred twenty five thousand (5,825,000) shares of the Company's common stock. If any Option shall for any reason expire or otherwise terminate without having been exercised in full, the stock not purchased under such Option shall revert to and again become available for issuance under the Plan. -5- (b) The stock subject to the Plan may be unissued shares or reacquired shares, bought on the market or otherwise. 5. ELIGIBILITY. (a) Incentive Stock Options may be granted only to Employees. Nonstatutory Stock Options may be granted only to Employees, Directors or Consultants. (b) A Director shall in no event be eligible for the benefits of the Plan unless at the time discretion is exercised in the selection of the Director as a person to whom Options may be granted, or in the determination of the number of shares which may be covered by Options granted to the Director: (i) the Board has delegated its discretionary authority over the Plan to a Committee which consists solely of Disinterested Persons; or (ii) the Plan otherwise complies with the requirements of Rule 16b-3. The Board shall otherwise comply with the requirements of Rule 16b-3. This subsection 5(b) shall not apply (i) prior to the date of the first registration of an equity security of the Company under Section 12 of the Exchange Act, or (ii) if the Board or Committee expressly declares that it shall not apply. (c) No person shall be eligible for the grant of an Option if, at the time of grant, such person owns (or is deemed to own pursuant to Section 424(d) of the Code) stock possessing more than ten percent (10%) of the total combined voting power of all classes of stock of the Company or of any of its Affiliates unless the exercise price of such Option is at least one hundred ten percent (110%) of the Fair Market Value of such stock at the date of grant and the Option is not exercisable after the expiration of five (5) years from the date of grant. 6. OPTION PROVISIONS. Each Option shall be in such form and shall contain such terms and conditions as the Board shall deem appropriate. The provisions of separate Options need not be identical, but each Option -6- shall include (through incorporation of provisions hereof by reference in the Option or otherwise) the substance of each of the following provisions: (a) TERM. No Option shall be exercisable after the expiration of ten (10) years from the date it was granted. (b) PRICE. The exercise price of each Incentive Stock Option shall be not less than one hundred percent (100%) of the Fair Market Value of the stock subject to the Option on the date the Option is granted. The exercise price of each Nonstatutory Stock Option shall be not less than eighty-five percent (85%) of the Fair Market Value of the stock subject to the Option on the date the Option is granted. (c) CONSIDERATION. The purchase price of stock acquired pursuant to an Option shall be paid, to the extent permitted by applicable statutes and regulations, either (i) in cash at the time the Option is exercised, or (ii) at the discretion of the Board or the Committee, at the time of the grant of the Option, (A) by delivery to the Company of other common stock of the Company, (B) according to a deferred payment or other arrangement (which may include, without limiting the generality of the foregoing, the use of other common stock of the Company) with the person to whom the Option is granted or to whom the Option is transferred pursuant to subsection 6(d), or (C) in any other form of legal consideration that may be acceptable to the Board. In the case of any deferred payment arrangement, interest shall be payable at least annually and shall be charged at the minimum rate of interest necessary to avoid the treatment as interest, under any applicable provisions of the Code, of any amounts other than amounts stated to be interest under the deferred payment arrangement. (d) TRANSFERABILITY. An Incentive Stock Option shall not be transferable except by will or by the laws of descent and distribution, and shall be exercisable during the lifetime of the person -7- to whom the Option is granted only by such person. A Nonstatutory Stock Option shall not be transferable except by will or by the laws of descent and distribution or pursuant to a qualified domestic relations order satisfying the requirements of Rule 16b-3 and the rules thereunder (a "QDRO"), and shall be exercisable during the lifetime of the person to whom the Option is granted only by such person or any transferee pursuant to a QDRO. The person to whom the Option is granted may, by delivering written notice to the Company, in a form satisfactory to the Company, designate a third party who, in the event of the death of the Optionee, shall thereafter be entitled to exercise the Option. (e) VESTING. The total number of shares of stock subject to an Option may, but need not, be allotted in periodic installments (which may, but need not, be equal). The Option Agreement may provide that from time to time during each of such installment periods, the Option may become exercisable ("vest") with respect to some or all of the shares allotted to that period, and may be exercised with respect to some or all of the shares allotted to such period and/or any prior period as to which the Option became vested but was not fully exercised. The vesting provisions of individual Options may vary but in each case will provide for vesting of at least twenty percent (20%) of the total number of shares subject to the Option per year. During the remainder of the term of the Option (if its term extends beyond the end of the installment periods), the Option may be exercised from time to time with respect to any shares then remaining subject to the Option. The provisions of this subsection 6(e) are subject to any Option provisions governing the minimum number of shares as to which an Option may be exercised. (f) SECURITIES LAW COMPLIANCE. The Company may require any Optionee, or any person to whom an Option is transferred under subsection 6(d), as a condition of exercising any such Option, (1) to give written assurances satisfactory to the Company as to the Optionee's knowledge -8- and experience in financial and business matters and/or to employ a purchaser representative reasonably satisfactory to the Company who is knowledgeable and experienced in financial and business matters, and that he or she is capable of evaluating, alone or together with the purchaser representative, the merits and risks of exercising the Option; and (2) to give written assurances satisfactory to the Company stating that such person is acquiring the stock subject to the Option for such person's own account and not with any present intention of selling or otherwise distributing the stock. These requirements, and any assurances given pursuant to such requirements, shall be inoperative if (i) the issuance of the shares upon the exercise of the Option has been registered under a then currently effective registration statement under the Securities Act of 1933, as amended (the "Securities Act"), or (ii) as to any particular requirement, a determination is made by counsel for the Company that such requirement need not be met in the circumstances under the then applicable securities laws. (g) TERMINATION OF EMPLOYMENT OR RELATIONSHIP AS A DIRECTOR OR CONSULTANT. In the event an Optionee's Continuous Status as an Employee, Director or Consultant terminates (other than upon the Optionee's death or disability), the Optionee may exercise his or her Option, (to the extent that the Optionee was entitled to exercise it at the date of termination) but only within such period of time ending on the earlier of (i) the date three (3) months after the termination of the Optionee's Continuous Status as an Employee, Director or Consultant (or such longer or shorter period, which in no event shall be less than thirty (30) days, specified in the Option Agreement), or (ii) the expiration of the term of the Option as set forth in the Option Agreement. If, after termination, the Optionee does not exercise his or her Option within the time specified in the Option Agreement, the Option shall terminate, and the shares covered by such Option shall revert to and again become available for issuance under the Plan. -9- (h) DISABILITY OF OPTIONEE. In the event an Optionee's Continuous Status as an Employee, Director or Consultant terminates as a result of the Optionee's disability, the Optionee may exercise his or her Option (to the extent that the Optionee was entitled to exercise it at the date of such termination), but only within such period of time ending on the earlier of (i) the date twelve (12) months following such termination (or such longer or shorter period, which in no event shall be less than six (6) months, specified in the Option Agreement), or (ii) the expiration of the term of the Option as set forth in the Option Agreement. If, at the date of termination, the Optionee is not entitled to exercise his or her entire Option, the shares covered by the unexercisable portion of the Option shall revert to and again become available for issuance under the Plan. If, after termination, the Optionee does not exercise his or her Option within the time specified herein, the Option shall terminate, and the shares covered by such Option shall revert to and again become available for issuance under the Plan. (i) DEATH OF OPTIONEE. In the event of the death of an Optionee during, or within a period specified in the Option after the termination of, the Optionee's Continuous Status as an Employee, Director or Consultant, the Option may be exercised (to the extent the Optionee was entitled to exercise the Option at the date of death) by the Optionee's estate, by a person who acquired the right to exercise the Option by bequest or inheritance or by a person designated to exercise the Option upon the Optionee's death pursuant to subsection 6(d), but only within the period ending on the earlier of (i) the date eighteen (18) months following the date of death (or such longer or shorter period, which in no event shall be less than six (6) months, specified in the Option Agreement), or (ii) the expiration of the term of such Option as set forth in the Option Agreement. If, at the time of death, the Optionee was not entitled to exercise his or her entire Option, the shares covered by the unexercisable portion of the Option shall revert to and again become available for -10- issuance under the Plan. If, after death, the Option is not exercised within the time specified herein, the Option shall terminate, and the shares covered by such Option shall revert to and again become available for issuance under the Plan. (j) EARLY EXERCISE. The Option may, but need not, include a provision whereby the Optionee may elect at any time while an Employee, Director or Consultant to exercise the Option as to any part or all of the shares subject to the Option prior to the full vesting of the Option. Any unvested shares so purchased shall be subject to a repurchase right in favor of the Company, with the repurchase price to be equal to the original purchase price of the stock, or to any other restriction the Board determines to be appropriate; PROVIDED, HOWEVER, that (i) the right to repurchase at the original purchase price shall lapse at a minimum rate of twenty percent (20%) per year over five (5) years from the date the Option was granted, and (ii) such right shall be exercisable only within (A) the ninety (90) day period following the termination of employment or the relationship as a Director or Consultant, or (B) such longer period as may be agreed to by the Company and the Optionee (for example, for purposes of satisfying the requirements of Section 1202(c)(3) of the Code (regarding "qualified small business stock")), and (iii) such right shall be exercisable only for cash or cancellation of purchase money indebtedness for the shares. Should the right of repurchase be assigned by the Company, the assignee shall pay the Company cash equal to the difference between the original purchase price and the stock's Fair Market Value if the original purchase price is less than the stock's Fair Market Value. (k) WITHHOLDING. To the extent provided by the terms of an Option Agreement, the Optionee may satisfy any federal, state or local tax withholding obligation relating to the exercise of such Option by any of the following means or by a combination of such means: (1) tendering a cash payment; (2) authorizing the Company to withhold shares from the shares of the common stock -11- otherwise issuable to the participant as a result of the exercise of the Option; or (3) delivering to the Company owned and unencumbered shares of the common stock of the Company. 7. COVENANTS OF THE COMPANY. (a) During the terms of the Options, the Company shall keep available at all times the number of shares of stock required to satisfy such Options. (b) The Company shall seek to obtain from each regulatory commission or agency having jurisdiction over the Plan such authority as may be required to issue and sell shares of stock upon exercise of the Options; provided, however, that this undertaking shall not require the Company to register under the Securities Act either the Plan, any Option or any stock issued or issuable pursuant to any such Option. If, after reasonable efforts, the Company is unable to obtain from any such regulatory commission or agency the authority which counsel for the Company deems necessary for the lawful issuance and sale of stock under the Plan, the Company shall be relieved from any liability for failure to issue and sell stock upon exercise of such Options unless and until such authority is obtained. 8. USE OF PROCEEDS FROM STOCK. Proceeds from the sale of stock pursuant to Options shall constitute general funds of the Company. 9. MISCELLANEOUS. (a) Neither an Optionee nor any person to whom an Option is transferred under subsection 6(d) shall be deemed to be the holder of, or to have any of the rights of a holder with respect to, any shares subject to such Option unless and until such person has satisfied all requirements for exercise of the Option pursuant to its terms. -12- (b) Subject to Section 59(b) of the Company's Bylaws, throughout the term of any Option, the Company shall deliver to the holder of such Option, not later than one hundred twenty (120) days after the close of each of the Company's fiscal years during the Option term, such financial and other information regarding the Company as comprises the annual report to the stockholders of the Company provided for in the bylaws of the Company. (c) Nothing in the Plan or any instrument executed or Option granted pursuant thereto shall confer upon any Employee, Director, Consultant or Optionee any right to continue in the employ of the Company or any Affiliate (or to continue acting as a Director or Consultant) or shall affect the right of the Company or any Affiliate to terminate the employment or relationship as a Director or Consultant of any Employee, Director, Consultant or Optionee with or without cause. (d) To the extent that the aggregate Fair Market Value (determined at the time of grant) of stock with respect to which Incentive Stock Options granted after 1986 are exercisable for the first time by any Optionee during any calendar year under all plans of the Company and its Affiliates exceeds one hundred thousand dollars ($100,000), the Options or portions thereof which exceed such limit (according to the order in which they were granted) shall be treated as Nonstatutory Stock Options. (e) The Board or the Committee shall have the authority to effect, at any time and from time to time (i) the repricing of any outstanding Options under the Plan and/or (ii) with the consent of the affected holders of Options, the cancellation of any outstanding Options and the grant in substitution therefor of new Options under the Plan covering the same or different numbers of shares of Common Stock, but having an exercise price per share not less than eighty-five percent (85%) of the Fair Market Value (one hundred percent (100%) of the Fair Market Value in the case of an Incentive Stock Option or, in the case of a ten percent (10%) stockholder (as defined in -13- subsection 5(c)), not less than one hundred and ten percent (110%) of the Fair Market Value) per share of Common Stock on the new grant date. 10. ADJUSTMENTS UPON CHANGES IN STOCK. (a) If any change is made in the stock subject to the Plan, or subject to any Option (through merger, consolidation, reorganization, recapitalization, stock dividend, dividend in property other than cash, stock split, liquidating dividend, combination of shares, exchange of shares, change in corporate structure or otherwise), the Plan and outstanding Options will be appropriately adjusted in the class(es) and maximum number of shares subject to the Plan and the class(es) and number of shares and price per share of stock subject to outstanding Options. (b) In the event of: (1) a merger or consolidation in which the Company is not the surviving corporation or (2) a reverse merger in which the Company is the surviving corporation but the shares of the Company's common stock outstanding immediately preceding the merger are converted by virtue of the merger into other property, whether in the form of securities, cash or otherwise then to the extent permitted by applicable law: (i) any surviving corporation shall assume any Options outstanding under the Plan or shall substitute similar Options for those outstanding under the Plan, or (ii) such Options shall continue in full force and effect. In the event any surviving corporation refuses to assume or continue such Options, or to substitute similar options for those outstanding under the Plan, then such Options shall be terminated if not exercised prior to such event. In the event of a dissolution or liquidation of the Company, any Options outstanding under the Plan shall terminate if not exercised prior to such event. 11. AMENDMENT OF THE PLAN AND OPTIONS. (a) The Board at any time, and from time to time, may amend the Plan. However, except as provided in Section 10 relating to adjustments upon changes in stock, no amendment shall be -14- effective unless approved by the stockholders of the Company within twelve (12) months before or after the adoption of the amendment, where the amendment will: (1) Increase the number of shares reserved for Options under the Plan; (2) Modify the requirements as to eligibility for participation in the Plan (to the extent such modification requires stockholder approval in order for the Plan to satisfy the requirements of Section 422 of the Code); or (3) Modify the Plan in any other way if such modification requires stockholder approval in order for the Plan to satisfy the requirements of Section 422 of the Code or to comply with the requirements of Rule 16b-3. (b) It is expressly contemplated that the Board may amend the Plan in any respect the Board deems necessary or advisable to provide Optionees with the maximum benefits provided or to be provided under the provisions of the Code and the regulations promulgated thereunder relating to Incentive Stock Options and/or to bring the Plan and/or Incentive Stock Options granted under it into compliance therewith. (c) Rights and obligations under any Option granted before amendment of the Plan shall not be altered by any amendment of the Plan unless (i) the Company requests the consent of the person to whom the Option was granted and (ii) such person consents in writing. The Board at any time, and from time to time, may amend an Option. However, rights and obligations under any Option granted before the amendment of such Option shall not be impaired by any such amendment unless (i) the Company requests the consent of the person to whom the Option was granted and (ii) such person consents in writing. -15- 12. TERMINATION OR SUSPENSION OF THE PLAN. (a) The Board may suspend or terminate the Plan at any time. Unless sooner terminated, the Plan shall terminate on December 13, 2003, which shall be within ten (10) years from the date the Plan is adopted by the Board or approved by the stockholders of the Company, whichever is earlier. No Options may be granted under the Plan while the Plan is suspended or after it is terminated. (b) Rights and obligations under any Option granted while the Plan is in effect shall not be altered or impaired by suspension or termination of the Plan, except with the consent of the person to whom the Option was granted. 13. EFFECTIVE DATE OF PLAN. The Plan shall become effective as determined by the Board, but no Options granted under the Plan shall be exercised unless and until the Plan has been approved by the stockholders of the Company, and, if required, an appropriate permit has been issued by the Commissioner of Corporations of the State of California. -16- EX-10.8 7 EXHIBIT 10.8 Exhibit 10.8 THE SALE OF THE SECURITIES WHICH ARE THE SUBJECT OF THIS WARRANT HAS NOT BEEN QUALIFIED WITH THE COMMISSIONER OF CORPORATIONS OF THE STATE OF CALIFORNIA AND THE ISSUANCE OF SUCH SECURITIES OR THE PAYMENT OR RECEIPT OF ANY PART OF THE CONSIDERATION THEREFOR PRIOR TO SUCH QUALIFICATION IS UNLAWFUL, UNLESS THE SALE OF SECURITIES IS EXEMPT FROM QUALIFICATION BY SECTION 25100, 25102 OR 25105 OF THE CALIFORNIA CORPORATIONS CODE. THE RIGHTS OF ALL PARTIES TO THIS WARRANT ARE EXPRESSLY CONDITIONED UPON SUCH QUALIFICATION BEING OBTAINED, UNLESS THE SALE IS SO EXEMPT. THIS WARRANT AND THE SECURITIES ISSUABLE UPON EXERCISE OF THIS WARRANT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR UNDER THE SECURITIES LAWS OF CERTAIN STATES. THESE SECURITIES ARE SUBJECT TO RESTRICTIONS ON TRANSFERABILITY AND RESALE AND MAY NOT BE TRANSFERRED OR RESOLD EXCEPT AS PERMITTED UNDER THE ACT AND THE APPLICABLE STATE SECURITIES LAWS, PURSUANT TO REGISTRATION OR EXEMPTION THEREFROM. INVESTORS SHOULD BE AWARE THAT THEY MAY BE REQUIRED TO BEAR THE FINANCIAL RISKS OF THIS INVESTMENT FOR AN INDEFINITE PERIOD OF TIME. THE ISSUER OF THESE SECURITIES MAY REQUIRE AN OPINION OF COUNSEL IN FORM AND SUBSTANCE SATISFACTORY TO THE ISSUER TO THE EFFECT THAT ANY PROPOSED TRANSFER OR RESALE IS IN COMPLIANCE WITH THE ACT AND ANY APPLICABLE STATE SECURITIES LAWS. WARRANT TO PURCHASE SERIES E CONVERTIBLE PREFERRED STOCK OF CIPHERGEN BIOSYSTEMS, INC. VOID AFTER FEBRUARY 28, 2005 This certifies that, for value received, SG Cowen Securities Corporation or its permitted registered assigns ("REGISTERED HOLDER"), is entitled, subject to the terms and conditions of this Warrant, at any time before 5:00 p.m. Pacific Time on February 28, 2005, unless terminated earlier under Section 11 hereof (the "EXPIRATION DATE") to purchase from Ciphergen Biosystems, Inc., a California corporation (the "COMPANY"), up to One Hundred Forty Six Thousand Six Hundred Thirty Five (146,635) shares of the Company's Series E Convertible Preferred Stock, no par value per share (the "WARRANT STOCK"), as constituted on March 8, 2000 (the "ISSUE DATE"), at the price of Two Dollars Seventy Five cents ($2.75) per share (the "PURCHASE PRICE") upon surrender of this Warrant at the principal office of the Company, together with a duly executed subscription in the form attached hereto as EXHIBIT 1 and simultaneous payment of the full Purchase Price therefor in lawful money of the United States as provided herein. The Purchase Price and the number and character of shares of Warrant Stock purchasable hereunder are subject to adjustment as provided herein. Unless the context otherwise requires, the term "Warrant Stock" shall mean and include the stock and other securities and property at any time receivable or issuable upon exercise of this Warrant. The term "Warrant" as used herein, shall include this Warrant and any warrants delivered in substitution or exchange therefor as provided herein. 1. EXERCISE. 1.1 METHOD OF EXERCISE. Subject to the terms and conditions of this Warrant, the Registered Holder may exercise this Warrant in whole or in part, at any time or from time to time, on any business day prior to the Expiration Date by surrendering this Warrant at the principal executive office of the Company, together with the subscription form attached hereto duly executed by the Registered Holder and payment in full of the Purchase Price or adjusted Purchase Price therefor, if applicable (as determined in accordance with the terms hereof) for the number of shares of Warrant Stock to be purchased upon such exercise of this Warrant. 1.2 FORM OF PAYMENT. Payment may be made by (i) a check payable to the Company's order, (ii) wire transfer of funds to the Company, (iii) cancellation of indebtedness of the Company to the Holder, or (iv) any combination of the foregoing. 1.3 PARTIAL EXERCISE. Upon a partial exercise of this Warrant: (i) the Purchase Amount immediately prior to such exercise shall be reduced by the aggregate amount paid to the Company upon such exercise of this Warrant, and (ii) this Warrant shall be surrendered by the Registered Holder and replaced with a new Warrant of like tenor for purchase of the number of remaining shares of Warrant Stock not previously purchased shall be issued by the Company to the Registered Holder. 1.4 NO FRACTIONAL SHARES. No fractional shares may be issued upon any exercise of this Warrant, and any fractions shall be rounded down to the nearest whole number of shares. If upon any exercise of this Warrant a fraction of a share results, the Company will pay the cash value of any such fractional share, calculated on the basis of the Warrant Price. 1.5 RESTRICTIONS ON EXERCISE. This Warrant may not be exercised if the issuance of the Warrant Stock upon such exercise would constitute a violation of any applicable federal or state securities laws or other laws or regulations. As a condition to the exercise of this Warrant, the Registered Holder shall execute the subscription form attached hereto. 1.6 NET EXERCISE ELECTION. The Registered Holder may elect to convert all or a portion of this Warrant, without the payment by the Registered Holder of any additional consideration, by the surrender of this Warrant or such portion to the Company, with the net exercise election selected in the subscription form attached hereto duly executed by the Holder, into up to the number of shares of Warrant Stock that is obtained under the following formula: X = Y (A-B) ------- A 2 where X = the number of shares of Warrant Stock to be issued to the Registered Holder pursuant to this Section 1.6. Y = the Maximum Purchase Amount divided by the Warrant Price. A = the fair market value of one share of Warrant Stock, as determined in good faith by the Company's Board of Directors, as at the time the net exercise election is made pursuant to this Section 1.6. B = the Warrant Price. The Company will promptly respond in writing to an inquiry by the Registered Holder as to the then current fair market value of one share of Warrant Stock. 2. VALID ISSUANCE. All shares of Warrant Stock issued upon the exercise of this Warrant shall be validly issued, fully paid and non-assessable. The Company shall not be required to pay any tax or other charge imposed in connection with any transfer involved in the issue of any certificate for shares of Warrant Stock, or any Common Stock or other securities issuable upon conversion of such Warrant Stock ("CONVERSION STOCK"), in any name other than that of the Registered Holder of this Warrant, and in such case the Company shall not be required to issue or deliver any stock certificate or security until such tax or other charge has been paid, or it has been established to the Company's satisfaction that no tax or other charge is due. 3. TRANSFER AND EXCHANGE. This Warrant and the rights hereunder may not be transferred in whole or in part without the Company's prior written consent and may not be transferred unless such transfer complies with all applicable securities laws and the provisions of Section 10. If a transfer of all or part of this Warrant is permitted by the preceding sentence, then this Warrant and all rights hereunder may be transferred, in whole or in part, on the books of the Company maintained for such purpose at the principal office of the Company referred to above, by the Registered Holder hereof in person, or by duly authorized attorney, upon surrender of this Warrant properly endorsed and upon payment of any necessary transfer tax or other governmental charge imposed upon such transfer. Upon any permitted partial transfer, the Company will issue and deliver to the Registered Holder a new Warrant or Warrants with respect to the shares of Warrant Stock not so transferred. Each taker and holder of this Warrant, by taking or holding the same, consents and agrees that when this Warrant shall have been so endorsed, the person in possession of this Warrant may be treated by the Company, and all other persons dealing with this Warrant, as the absolute owner hereof for any purpose and as the person entitled to exercise the rights represented hereby, any notice to the contrary notwithstanding; PROVIDED, HOWEVER that until a transfer of this Warrant is duly registered on the books of the Company, the Company may treat the Registered Holder hereof as the owner of this Warrant for all purposes. 4. ADJUSTMENT OF PURCHASE PRICE AND NUMBER OF SHARES. The number and character of shares of Warrant Stock issuable upon exercise of this Warrant (or any shares of 3 stock or other securities or property at the time receivable or issuable upon exercise of this Warrant) and the Purchase Price therefor, are subject to adjustment upon occurrence of the following events: 4.1 ADJUSTMENT FOR STOCK SPLITS, STOCK DIVIDENDS, RECAPITALIZATIONS, ETC. The Purchase Price of this Warrant and the number of shares of Warrant Stock issuable upon exercise of this Warrant shall each be proportionally adjusted to reflect any stock dividend, stock split, reverse stock split, combination of shares, reclassification, recapitalization or other similar event altering the number of outstanding shares of Warrant Stock. 4.2 ADJUSTMENT FOR OTHER DIVIDENDS AND DISTRIBUTIONS. In case the Company shall make or issue, or shall fix a record date for the determination of eligible holders entitled to receive, a dividend or other distribution with respect to the Warrant Stock payable in securities of the Company then, and in each such case, the Registered Holder of this Warrant, on exercise of this Warrant at any time after the consummation, effective date or record date of such event, shall receive, in addition to the shares of Warrant Stock (or such other stock or securities) issuable on such exercise prior to such date, the securities of the Company to which such Registered Holder would have been entitled upon such date if such Registered Holder had exercised this Warrant immediately prior thereto (all subject to further adjustment as provided in this Warrant). 4.3 ADJUSTMENT FOR CAPITAL REORGANIZATION, CONSOLIDATION, MERGER. (a) Subject to Section 5.4, if any capital reorganization of the capital stock of the Company, or any consolidation or merger of the Company with or into another corporation, or the sale of all or substantially all of the Company's assets to another corporation shall be effected in such a way that holders of Warrant Stock will be entitled to receive stock, securities or assets with respect to or in exchange for their Warrant Stock, and in each such case, the Registered Holder of this Warrant, upon the exercise of this Warrant (as provided in Section 1), at any time after the consummation of such capital reorganization, consolidation, merger, or sale, shall be entitled to receive, in lieu of the stock or other securities and property receivable upon the exercise of this Warrant prior to such consummation, the stock or other securities or property to which such Registered Holder would have been entitled upon such consummation if such Registered Holder had exercised this Warrant immediately prior thereto, all subject to further adjustment as provided in this Section 6; and in each such case, the terms of this Warrant shall be applicable to the shares of stock or other securities or property receivable upon the exercise of this Warrant after such consummation. (b) In lieu of receiving the stock, securities or assets as referred to in Section 4.3(a), the Holder of this Warrant shall be entitled, at its option, to receive a warrant substantially similar to this Warrant to be issued by the person acquiring the stock or assets of the Company. 4.4 CONVERSION OF WARRANT STOCK. If all the outstanding shares of the Series E Convertible Preferred Stock of the Company are converted into Common Stock pursuant to the Company's Articles of Incorporation or otherwise, or such Series E Convertible Preferred Stock 4 otherwise ceases to exist, then, from and after the date on which such Series E Convertible Preferred Stock is so converted or ceases to exist (the "CONVERSION DATE"): (i) this Warrant will be exercisable for Common Stock of the Company and the term "Warrant Stock" (wherever used in this Warrant) will thereafter mean the Company's Common Stock; and (ii) the Purchase Price will be the price obtained by dividing (a) the Purchase Price in effect immediately prior to the Conversion Date by (b) the number of shares of Common Stock (including fractional shares) into which each share of Series E Convertible Preferred Stock was convertible immediately prior to the Conversion Date (subject to subsequent adjustment as provided herein). 5. NO IMPAIRMENT. Subject to the provisions of Section 4, the Company will not, by amendment of its Articles of Incorporation or bylaws, or through reorganization, consolidation, merger, dissolution, issue or sale of securities, sale of assets or any other voluntary action, willfully avoid or seek to avoid the observance or performance of any of the terms of this Warrant, but will at all times in good faith assist in the carrying out of all such terms and in the taking of all such action as may be necessary or appropriate in order to protect the rights of the Registered Holder of this Warrant against impairment. Without limiting the generality of the foregoing, subject to the provisions of Section 4, the Company (a) will not increase the par value of any shares of stock issuable upon the exercise of this Warrant above the amount payable therefor upon such exercise, and (b) will take all such action as may be necessary or appropriate in order that the Company may validly and legally issue fully paid and non-assessable shares of Warrant Stock upon the exercise of this Warrant. 6. CERTIFICATE AS TO ADJUSTMENTS. In each case of any adjustment in either the Purchase Price or in the number of shares of Warrant Stock, or other stock, securities or property receivable on the exercise of this Warrant, the Chief Financial Officer of the Company shall compute such adjustment in accordance with the terms of this Warrant and prepare a certificate setting forth such adjustment and showing in detail the facts upon which such adjustment is based, including a statement of the adjusted Purchase Price. The Company will forthwith mail a copy of each such certificate to the Registered Holder of this Warrant. 7. NOTICES OF RECORD DATE. In case: (a) the Company shall take a record of the holders of its Warrant Stock (or other stock or securities at the time receivable upon the exercise of this Warrant) for the purpose of entitling them to receive any stock dividend; or (b) of any consolidation or merger of the Company with or into another corporation, or any conveyance of all or substantially all of the assets of the Company to another corporation in which holders of the Company's stock are to receive stock, securities or property of another corporation; or (c) of any voluntary dissolution, liquidation or winding-up of the Company; or (d) of any redemption or conversion into Common Stock of all outstanding Warrant Stock; 5 then, and in each such case, the Company will mail or cause to be mailed to the Registered Holder of this Warrant a notice specifying, as the case may be, (i) the date on which a record is to be taken for the purpose of such dividend, and stating the amount and character of such dividend, or (ii) the date on which such consolidation, merger, conveyance, dissolution, liquidation, winding-up, redemption or conversion is to take place, and the time, if any is to be fixed, as of which the holders of record of Warrant Stock or Common Stock (or such stock or securities as at the time are receivable upon the exercise of this Warrant) shall be entitled to exchange their shares of Warrant Stock or Common Stock (or such other stock or securities) for securities or other property deliverable upon such consolidation, merger, conveyance, dissolution, liquidation or winding-up. Such notice shall be mailed at least ten (10) days prior to the date therein specified. 8. LOSS OR MUTILATION. Upon receipt by the Company of evidence reasonably satisfactory to it of the ownership of and the loss, theft, destruction or mutilation of this Warrant, and of a written indemnity agreement reasonably satisfactory to the Company, and (in the case of mutilation) upon surrender and cancellation of this Warrant, the Company will execute and deliver in lieu thereof a new Warrant of like tenor. 9. RESERVATION OF WARRANT STOCK. Subject to the provisions of Section 5.4, the Company shall at all times reserve and keep available for issue upon the exercise of this Warrant such number of its authorized but unissued shares of Warrant Stock (and Common Stock if the Warrant Stock is not Common Stock) as will be sufficient to permit the exercise in full of this Warrant and the conversion of all shares of Warrant Stock issuable hereunder into Common Stock (if the Warrant Stock is then convertible into Common Stock). 10. NO RIGHTS OR LIABILITIES AS SHAREHOLDER. This Warrant does not by itself entitle the Registered Holder to any voting rights or other rights as a shareholder of the Company. In the absence of affirmative action by Registered Holder to purchase Warrant Stock by exercise of this Warrant, no pro- visions of this Warrant, and no enumeration herein of the rights or privileges of the Registered Holder shall cause such Registered Holder to be a shareholder of the Company for any purpose. 11. REPRESENTATIONS OF THE REGISTERED HOLDER. Because of the exemptions from the registration and qualification requirements of the 1933 Act, and the California Corporation Securities Law of 1968, as amended or such other applicable states' securities laws (the "LAW") relied upon by the Company in issuing this Warrant and Warrant Stock to the Registered Holder, the Registered Holder hereby represents and warrants to the Company that it: 11.1 By reason of its business or financial experience, is able to evaluate the merits and risks of the investment in the Warrant and Warrant Stock, and that it has the capacity to protect its own interests with respect to this investment; 11.2 Is aware that the Warrant and Warrant Stock are highly speculative and that there can be no assurance that it will receive any return on this investment, and further, that 6 it has the financial ability to bear the economic risk of the investment and has no need for liquidity with respect to the investment in the Warrant and Warrant Stock; 11.3 Is aware of the Company's business affairs and financial condition and: (a) has acquired sufficient information about the Company to reach an informed and knowledgeable decision to acquire the Warrant and Warrant Stock; (b) has been given the opportunity to ask questions of and receive answers from the Company with respect to its business and financial condition and with respect to the terms and conditions of this investment; (c) has had the opportunity to obtain any additional information necessary to verify any information received from the Company; 11.4 Is purchasing the Warrant and Warrant Stock for investment for its own account only, not as nominee or agent, and not with a view to, or for resale in connection with, any "distribution" of all or any part of such securities within the meaning of the 1933 Act; 11.5 Understands that the Warrant and Warrant Stock have not been registered under the 1933 Act by reason of a specific exemption therefrom, which exemption may depend upon, among other things, the truth of its representations as expressed in this Warrant; 11.6 Understands that: (a) the Warrant and Warrant Stock are characterized as "restricted securities" under the federal securities laws since the sale of the Warrant and Warrant Stock has not been registered under the 1933 Act; (b) the Warrant and Warrant Stock may be resold without registration under the 1933 Act only in certain limited circumstances; (c) the Registered Holder may be required to hold the Warrant and Warrant Stock indefinitely unless such securities are subsequently registered under the 1933 Act or an exemption from such registration is available; and (d) the Company is not obligated to register such securities under the 1933 Act or assist the Registered Holder in qualifying for any exemption from registration under the 1933 Act; 11.7 Is aware of Rule 144 promulgated under the 1933 Act, which rule provides, in substance, that (a) after one (1) year from the date the securities have been purchased and fully paid for, a purchaser may publicly transfer restricted securities provided certain conditions are met, e.g., certain public information is available about the Company, and specific limitations on the amount of shares which can be sold within certain periods and the manner in which such shares must be sold are complied with, and (b) after two (2) years from the date the securities have been purchased and fully paid for, purchasers who are not "affiliates" of the Company may sell restricted securities without satisfying such conditions; 11.8 Further understands that if the requirements of Rule 144 are not met, registration under the 1933 Act, compliance with Regulation A, or some other registration exemption will be required for any disposition of the Warrant or Warrant Stock; and that, although Rule 144 is not exclusive, the SEC has expressed its opinion that persons proposing to sell restricted securities other than in a registered offering and other than pursuant to Rule 144 will have a substantial burden of proof in establishing that an exemption from registration is 7 available for such offers or sales and that such persons and the brokers who participate in the transactions do so at their own risk; 11.9 Agrees that the Company may place the legends set forth below or similar legends on any stock certificate(s) evidencing the Warrant Shares, together with any other legends that may be required by state or federal securities laws, the Company's Articles of Incorporation or Bylaws, any other agreement between Registered Holder and the Company or any agreement between the Registered Holder and any third party: THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR UNDER THE SECURITIES LAWS OF ANY OTHER JURISDICTIONS. THESE SECURITIES ARE SUBJECT TO RESTRICTIONS ON TRANSFERABILITY AND RESALE AND MAY NOT BE TRANSFERRED OR RESOLD EXCEPT AS PERMITTED UNDER THE ACT AND APPLICABLE STATE SECURITIES LAWS, PURSUANT TO REGISTRATION OR EXEMPTION THEREFROM. INVESTORS SHOULD BE AWARE THAT THEY MAY BE REQUIRED TO BEAR THE FINANCIAL RISKS OF THIS INVESTMENT FOR AN INDEFINITE PERIOD OF TIME. THE ISSUER OF THESE SECURITIES MAY REQUIRE AN OPINION OF COUNSEL IN FORM AND SUBSTANCE SATISFACTORY TO THE ISSUER TO THE EFFECT THAT ANY PROPOSED TRANSFER OR RESALE IS IN COMPLIANCE WITH THE ACT AND ANY APPLICABLE STATE SECURITIES LAWS. THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO A 180 DAY MARKET STAND-OFF RESTRICTION AS SET FORTH IN A CERTAIN WARRANT AGREEMENT BETWEEN THE ISSUER AND THE ORIGINAL HOLDER OF THESE SHARES, A COPY OF WHICH MAY BE OBTAINED AT THE PRINCIPAL OFFICE OF THE ISSUER. AS A RESULT OF SUCH AGREEMENT, THESE SHARES MAY NOT BE TRADED PRIOR TO 180 DAYS AFTER THE EFFECTIVE DATE OF THE INITIAL PUBLIC OFFERING OF THE COMMON STOCK OF THE ISSUER HEREOF. SUCH RESTRICTIONS SHALL BE BINDING ON TRANSFEREES OF THESE SHARES. Registered Holder agrees that, in order to ensure compliance with the restrictions imposed by this Warrant, the Company may issue appropriate "stop-transfer" instructions to its transfer agent, if any, and if the Company transfers its own securities, it may make appropriate notations to the same effect in its own records. 12. "MARKET STAND-OFF" AGREEMENT. Registered Holder agrees in connection with any registration of the Company's securities under the 1933 Act that, upon the request of the Company or the underwriters managing any registered public offering of the Company's securities, Registered Holder will not sell or otherwise dispose of any shares of the Warrant Stock without the prior written consent of the Company or such underwriters, as the case may be, for such period of time (not to exceed one hundred eighty (180) days) after the effective date of 8 such registration requested by such managing underwriters and subject to all restrictions as the Company or the managing underwriters may specify for employee-shareholders generally. Registered Holder further agrees to enter into any agreement reasonably required by the underwriters to implement the foregoing. 13. FINANCIAL INFORMATION. The Company shall provide the Registered Holder with quarterly financial statements so long as the Company is profitable. 14. NOTICES. All notices and other communications from the Company to the Registered Holder shall be mailed by first-class registered or certified mail, postage prepaid, to the address furnished to the Company in writing by the last Registered Holder who shall have furnished an address to the Company in writing. 15. CHANGE; WAIVER. Neither this Warrant nor any term hereof may be changed, waived, discharged or terminated orally but only by an instrument in writing signed by the party against which enforcement of the change, waiver, discharge or termination is sought. 16. HEADINGS. The headings in this Warrant are for purposes of convenience in reference only, and shall not be deemed to constitute a part hereof. 17. LAW GOVERNING. This Warrant shall be construed and enforced in accordance with, and governed by, the internal laws of the State of California, excluding that body of law applicable to conflicts of law. 18. TERMS BINDING. By acceptance of this Warrant, the Registered Holder of this Warrant (and each subsequent assignee, transferee or Registered Holder of this Warrant) accepts and agrees to be bound by all the terms and conditions of this Warrant. Dated: March 8, 2000 ACKNOWLEDGED AND ACCEPTED BY: CIPHERGEN BIOSYSTEMS, INC. REGISTERED HOLDER: By: By: ------------------------------ ------------------------------- Name: Name: ---------------------------- ----------------------------- Title: Title: ---------------------------- ----------------------------- 9 EXHIBIT 1 FORM OF SUBSCRIPTION (To be signed only upon exercise of Warrant) To: Ciphergen Biosystems, Inc. 490 San Antonio Road Palo Alto, CA 94306 (1) The undersigned Holder hereby elects to purchase ________________ shares of Series E Convertible Preferred Stock of _______________ (the "WARRANT STOCK"), pursuant to the terms of the attached Warrant, and tenders herewith payment of the purchase price for such shares in full. [(1) NET EXERCISE ELECTION. THE UNDERSIGNED HOLDER ELECTS TO CONVERT THE WARRANT INTO SHARES OF WARRANT STOCK BY NET EXERCISE ELECTION PURSUANT TO SECTION 1.6 OF THE WARRANT. THIS CONVERSION IS EXERCISED WITH RESPECT TO __________ SHARES OF SERIES E CONVERTIBLE PREFERRED STOCK OF _______________ (THE "WARRANT STOCK") COVERED BY THE WARRANT.] [STRIKE PARAGRAPH ABOVE THAT DOES NOT APPLY] (2) In exercising the Warrant, the undersigned Holder hereby confirms and acknowledges that the representations and warranties set forth in Section 12 of the Warrant as they apply to the undersigned Holder continue to be true and correct as of this date. (3) Please issue a certificate or certificates representing such shares of Warrant Stock in the name or names specified below: - -------------------------------- ---------------------------------- (Name) (Name) - -------------------------------- ---------------------------------- (Address) (Address) - -------------------------------- ---------------------------------- (City, State, Zip Code) (City, State, Zip Code) - -------------------------------- ---------------------------------- (Federal Tax Identification Number) (Federal Tax Identification Number) - -------------------------------- ---------------------------------- (Date) (Signature of Holder) 10 FORM OF ASSIGNMENT FOR VALUE RECEIVED the undersigned Registered Holder of this Warrant hereby sells, assigns and transfers unto the Assignee named below all of the rights of the undersigned under the within Warrant, with respect to the number of shares of Series E Convertible Preferred Stock set forth below: NAME OF ASSIGNEE ADDRESS NO. OF SHARES - ---------------------- ------------- ------------------- and does hereby irrevocably constitute and appoint ________________ Attorney to make such transfer on the books of ___________________, maintained for the purpose, with full power of substitution in the premises. Dated: _____________________ [Registered Holder] By: ------------------------------- Name: ----------------------------- Title: ---------------------------- 11 EX-10.25 8 EXHIBIT 10.25 JOINT VENTURE AGREEMENT This Joint Venture Agreement ("Agreement") is entered into as of the Effective Date (as defined below) by Ciphergen Biosystems, Inc., a California corporation located at 490 San Antonio Road, Palo Alto, California 94306, U.S.A. ("CBI") and Sumitomo Corporation, a Japanese corporation located at 1-2-2 Hitotsubashi Chiyoda-ku, Tokyo 100-8601, Japan ("SC"). Upon Closing (as defined below), JVC (as defined below) shall sign and become a Party (as defined below) to this Agreement. The Parties (as defined below) agree as follows: 1. DEFINITIONS For the purpose of this Agreement, the following definitions shall apply: 1.1 "AFFILIATE" means any entity which is controlled by CBI, SC or JVC. An entity shall be regarded as in control of another entity for purposes of this definition if it owns or controls more than fifty percent (50%) of the shares of the subject entity entitled to vote in the election of directors (or, in the case of an entity that is not a corporation, for the election of the corresponding managing authority); provided, however, that in any country where the local law does not permit equity participation of at least 50%, then Affiliate will include any company in which CBI, SC or JVC owns or controls, directly or indirectly, the maximum percentage of such outstanding stock or voting rights permitted by law. 1.2 "ANNUAL BUDGET" means an estimate of JVC's revenues and expenditures for a specified fiscal year prepared annually by the JVC and presented to JVC's Board on the first quarterly meeting of each fiscal year, submitted as a part of the Business Plan in Section 1.6. 1.3 "ARTICLES" means the Japanese language version of the Articles of Incorporation of JVC attached in the English language as EXHIBIT A, and includes any amendments made under this Agreement and the Commercial Code of Japan. 1.4 "BOARD" means the board of directors of JVC. 1.5 "BOOK VALUE" means JVC's tangible net worth (tangible assets minus total liabilities) at the end of the specified accounting period as defined in Japan GAAP and disclosed in JVC's Financial Statements audited by JVC's public accountants. 1.6 "BUSINESS PLAN" means a plan of JVC operations, management, financial and other business matters presented and approved by the Board on the first quarterly meeting of each fiscal year. 1.7 "BUYOUT OPTION" means CBI's option to purchase JVC shares from SC as provided in Section 5. 1.8 "CBI IPO" means initial underwritten public offering of CBI's equity securities on a national securities exchange or the Nasdaq National or Small Cap Markets. 1.9 "CHANGE IN CONTROL" with respect to a Party means (i) a merger of that Party with or into another Person, or a sale of all or substantially all of a Party's assets to another Person, if as a result of the merger or asset sale the holders of a majority of the Party's voting securities before the transaction hold less than a majority of the voting securities of the surviving entity, or (ii) the acquisition by a Person or a group acting in concert of a majority of a Party's voting securities. 1.10 "CLOSING" is defined in Section 9.3. 1.11 "DISTRIBUTION AND MARKETING AGREEMENT" means the Distribution and Marketing Agreement to be entered into by CBI and JVC attached in EXHIBIT B. 1.12 "EFFECTIVE DATE" means the date on which CBI and SC have executed this Agreement. 1.13 "FAIR MARKET VALUE" is defined in Section 10.8. 1.14 "FINANCIAL STATEMENTS" is defined in Section 4.5(a). 1.15 "HOLDER" means CBI or SC, as applicable. "HOLDERS" means CBI and SC. 1.16 "JAPAN GAAP" means generally accepted accounting principles as applied in Japan. 1.17 "JVC IPO" means initial underwritten public offering of JVC's Shares on a national securities exchange in the United States or Japan, the over-the-counter securities market in Japan, or the Nasdaq National or Small Cap Markets in the United States. 1.18 "JVC" means the limited liability corporation (KABUSHIKI KAISHA) to be incorporated under the Commercial Code of Japan with the English language name "Ciphergen Biosystems K.K." 1.19 "JVC INTEREST" means Shares held by the Holders. 1.20 "OPTION SHARES" is defined in Section 5.1. 1.21 "PARTY" or "PARTIES" means CBI, SC or JVC, as applicable. 1.22 "PERSON" means a natural individual, partnership, firm, company, corporation, and any other form of business association. 1.23 "PRO RATA SHARE" of a Holder means the percentage of JVC Interest that the Holder holds by virtue of those Shares owned by that Holder, after assuming conversion or exercise of any warrant, stock option and other securities of JVC. 1.24 "REPRESENTATIVE DIRECTOR" is defined in Section 4.1(d). -2- 1.25 "REPRESENTATIVE DIRECTOR AGREEMENT" means the Representative Director Agreement to be entered into by the JVC and the Representative Director attached in EXHIBIT C. 1.26 "SC INTEREST RATE" means rate of interest charged on Working Capital Loans from SC to JVC as provided in Section 2.4. 1.27 "SHARE" or "SHARES" means shares of JVC Common Stock with a par value of Y50,000 per share, as specified in the Articles. 1.28 "SHAREHOLDING RATIO" means the ratio of the number of a Holder's Shares to all outstanding Shares, after assuming conversion or exercise of any warrant, stock option and other equity securities of JVC. 1.29 "U.S. GAAP" means the generally accepted accounting principles as applied in the United States. 1.30 "WORKING CAPITAL LOAN" is defined in Section 2.4(a). 1.31 "TERMINATING EVENT" means any event which gives a Holder the right to notify the other Holder of termination of this Agreement under Section 10. 2. JVC ORGANIZATION AND CAPITAL STRUCTURE 2.1 INCORPORATION PROCEDURE AND DOCUMENTATION. SC shall be responsible for the incorporation of JVC and file the application for registration of incorporation as soon as practicable. SC, as the promoter, shall prepare all documents necessary to establish JVC as provided in this Agreement and to allow the Holders to subscribe for JVC's Shares pursuant to Section 2.3. SC shall select a bank in Japan for the deposit of initial paid-in capital ("Deposit Bank"). The initial paid-in capital shall be sent to an account (BETSUDAN YOKIN) designated by the Deposit Bank, and the Deposit Bank shall issue a certificate of custody required for the registration of incorporation. Except as approved by CBI, SC shall deliver to CBI a complete and accurate English language translation of (i) the Articles, (ii) the commercial registration of JVC as of a recent date, and (iii) all such incorporation, subscription and other documents required to be prepared in the Japanese language. All such documents not required to be prepared in the Japanese language shall be prepared and executed in the English language. Pursuant to Section 9.4(b), SC shall provide CBI with a reasonably itemized listing of the out-of-pocket costs SC incurred in incorporating JVC and causing its initial share issuances, which shall be reimbursed by the JVC within 30 days after the Closing. 2.2 CAPITALIZATION. JVC shall have 10,000 authorized Shares. 2.3 SUBSCRIPTION. At the incorporation of JVC, (i) 1,750 Shares shall be issued to SC at the issue price of Y50,000 per Share for an aggregate issue price of Y87,500,000, and at Closing, (ii) 750 Shares shall be issued to CBI at the issue price of Y50,000 per Share for an aggregate issue price of Y37,500,000. Documents for subscription of Shares shall be prepared in the names of the Holders, and JVC shall issue to SC and CBI certificates evidencing the Shares purchased. -3- 2.4 SC WORKING CAPITAL LOANS TO JVC. (a) LOAN TO JVC. SC shall arrange to lend JVC, from the Effective Date to the date that CBI exercises the Buyout Option ("Working Capital Loan Period"), all amounts reasonably required by JVC to fund JVC's operations in the manner described in the Business Plan, to the extent funds received in the initial stock issuance, plus cash generated by JVC operations are not sufficient ("Working Capital Loan"). JVC may draw the Working Capital Loan from an immediately available line of credit from an account designated by SC to JVC. SC shall advance the Working Capital Loan to JVC at any time during the Working Capital Loan Period ("Working Capital Advance") provided that JVC gives SC a 48 hour notice ("Working Capital Loan Notice") before the Working Capital Advance is to be made. JVC or CBI shall not have any additional obligation to SC or any other Person as a result of the Working Capital Loan. (b) WORKING CAPITAL LOAN INTEREST. JVC shall pay interest on the unpaid aggregate principal amount of the outstanding Working Capital Loan advanced to JVC from the date of the Working Capital Advance until the next date on which SC makes another Working Capital Advance, at the rate applicable on the date of Working Capital Advance as SC notifies JVC in writing at that time ("SC Interest Rate") until the next date of Working Capital Advance. SC shall provide the JVC with a schedule of applicable interest rates and use its best efforts to provide the lowest interest rate. Payments on accrued Working Capital interest shall be made 10 days after the last day of each month during the Working Capital Loan Period. When SC makes available a subsequent Working Capital Advance, the interest rate for the aggregate principal amount plus accrued interest shall be the SC Interest Rate applicable on the date of that subsequent Working Capital Advance. The Working Capital interest shall be computed, for actual days elapsed, as if each full calendar year consisted of 360 days. The Working Capital Loan interest shall be limited by the Interest Rate Restriction Law (RISOKU SEIGENHO). (c) WORKING CAPITAL LOAN TERMINATION. JVC shall pay SC any outstanding balance of the Working Capital Loan, plus continuing Working Capital Loan Interest (i) within 10 days after CBI's exercise of the Buyout Option, (ii) immediately upon JVC's bankruptcy, JVC ceasing to do business, JVC's dissolution or liquidation, or (iii) upon the termination of this Agreement following a Termination Event under Section 10. (d) PREPAYMENTS. JVC shall have the right to prepay the Working Capital Loan ("Prepayments") amount at any time during the Working Capital Loan Period, in whole or in part, without premium or penalty. JVC shall give SC notice of each such Prepayment. All Prepayments shall be applied first to accrued and unpaid interest and then to the principal balance of the Working Capital Loan. Such Prepayments shall not affect the availability of the Working Capital Loan for the benefit of JVC. (e) DISBURSEMENT. Each Working Capital Advance shall be disbursed to JVC after the Working Capital Loan Notice and added to the principal amount of the Working Capital Loan and interest shall accrue at the SC Interest Rate applicable on the disbursement date until the next disbursement date. -4- (f) RECORDS. All Working Capital Loan Advances, interest on the Working Capital Loan, Prepayments of the principal amount of the Working Capital Loan, Working Capital Loan Payment, wire transfers and other related transactions shall be recorded and kept up to date by the JVC. JVC's failure to maintain such records shall not affect JVC's obligations to repay the Working Capital Loan. (g) SECURITY INTEREST. The Working Capital Loan shall not be supported by any security interest or guaranty. (h) DEFAULT AND ACCELERATION. If after CBI exercises the Buyout Option, (i) JVC fails to pay the principal of or interest on the Working Capital Loan when due, (ii) JVC files for bankruptcy proceedings, (iii) JVC's creditors file for JVC's bankruptcy and the case has not been dismissed in 60 days, or (iv) JVC ceases to do business or liquidates, then the Working Capital Loan shall terminate and the entire unpaid balance of the principal of and interest on the Working Capital Loan shall immediately become due and payable upon written notice to JVC. (j) FINANCING AFTER CBI EXERCISE OF BUYOUT OPTION. After CBI exercises the Buyout Option and until the JVC IPO, CBI shall use its best efforts to obtain financing for the JVC. If CBI is not able to obtain such financing, then until the JVC IPO, CBI shall provide JVC with Working Capital Loans on the best terms then available. JVC shall pay the outstanding balance of the post-CBI Buyout Working Capital Loan, plus the total Working Capital Loan Interest, upon (i) JVC IPO, or (ii) on demand by CBI to the extent that after payment of the post CBI-Buyout Working Capital Loan and Working Capital Loan Interest, JVC has sufficient working capital. 3. JVC BUSINESS 3.1 PURPOSE. The main purpose of the JVC shall be to distribute and market CBI's Systems and Consumables (as defined in Section 1 of the Distribution and Marketing Agreement as attached) in the life sciences research market in Japan as provided in the Distribution and Marketing Agreement. 3.2 SC MARKETING SUPPORT. Until CBI exercises its Buyout Option, SC shall provide marketing support to JVC. In consideration for SC's marketing support, until CBI exercises its Buyout Option, JVC shall pay SC 20% of U.S. list price for CBI's Systems and Consumables purchased by JVC from CBI and sold to JVC customers in Japan within 10 days of the month end following payments from JVC customers to JVC. 3.3 JVC INITIAL PUBLIC OFFERING IN JAPAN. Each Holder shall cause JVC to take all actions reasonably necessary to permit JVC to effect a JVC IPO, such as (i) conducting its business in accordance with applicable law and regulations, (ii) maintaining adequate records, (iii) obtaining an annual audit of JVC's Financial Statements in Section 4.5(b), (iv) other reasonably necessary actions. Each Holder shall cause JVC to not take any action reasonably expected to prevent or delay a JVC IPO, such as (i) not issuing any additional Shares and satisfying its financing needs through borrowing, and (ii) not entering into any merger transaction or sell or purchase any significant business so long as and to the extent that the rules of any Japanese national securities exchange or the Japanese OTC market prohibit stock issuances, merger transactions or the sale or purchase of any -5- significant business during the period starting on the date one year prior to the end of the most recently concluded fiscal year of JVC and ending on the date of listing or OTC registration, (iii) other actions reasonably expected to prevent or delay a JVC IPO. However, this Section 3.3 does not require a Holder to take any action which it reasonably believes would be detrimental to JVC's or the Holder's business and does not constitute any representation or warranty by a Holder that a JVC IPO shall occur. 4. MANAGEMENT OF JVC 4.1 BOARD OF DIRECTORS. (a) DIRECTOR POSITIONS BEFORE EXERCISE OF BUYOUT OPTION. The Board shall have three authorized positions. Until CBI exercises the Buyout Option, SC as Holder of majority Shares shall have the right to nominate two Board members (one of whom shall be JVC's President and Chief Executive Officer), and CBI as Holder of minority Shares shall have the right to nominate one Board member. Each Holder shall nominate to the Board only individuals who are active in JVC's field of business or related fields of business. Any vacancy on the Board shall be filled pursuant to the nomination procedure described in this Section 4.1(a). The (or one of the) CBI director(s) shall be Chairman of the Board. (b) DIRECTOR POSITIONS AFTER EXERCISE OF BUYOUT OPTION. If CBI exercises the Buyout Option, SC shall immediately cause one of the SC nominees to resign from JVC's Board. After the Buyout Option, CBI as Holder of majority Shares shall have the ongoing right to nominate two Board members and SC as Holder of minority Shares shall have the ongoing right to nominate one Board member. (c) REMOVAL. A Holder shall have the right to request removal of any director which such Holder is entitled to nominate at any time effective upon notice to JVC, the director to be removed and to the other Holder. SC and CBI shall vote all voting Shares held by them or as to which they have the right to direct the vote so as to elect the other Holder's nominees, remove directors for whom removal has been requested, and maintain the Board constituency described in this Section 4.1. (d) REPRESENTATIVE DIRECTOR. The President and Chief Executive Officer of JVC and the (or one of the) director or directors designated by a Holder of minority Shares shall each be a Representative Director of JVC and each enter into the Representative Director Agreement in a form substantially similar to EXHIBIT C. If the individual designated by the Holder of minority Shares resigns as Representative Director or becomes unable to serve, another individual shall be designated to be a Representative Director. (e) COMPENSATION AND EXPENSES. Directors of JVC shall serve without compensation unless the position of JVC director is his or her full-time occupation. No JVC director shall receive a retirement payment for his or her service in that position. Each Holder shall indemnify the other Holder and JVC against any other claim for compensation for service as a director of JVC made by a director nominated by that Holder. JVC shall reimburse reasonable travel costs of any director attending a Board meeting. -6- (f) BOARD MEETINGS. Directors of JVC shall meet in Tokyo, Japan and Palo Alto, California, alternatively, for quarterly Board meetings. (g) BOARD QUORUM AND APPROVAL Without limiting the Articles, a quorum of the Board shall be deemed present at any duly noticed regular or special meeting if a majority of the directors including at least one director nominated by CBI and one director nominated by SC are present physically, and (to the extent permitted by the Japanese Commercial Code) present by telephone, video conference or otherwise. Without limiting the Articles, any action or determination by the Board shall require the affirmative vote of a majority of the Board members present at the meeting. 4.2 OFFICERS. (a) PRESIDENT AND CHIEF EXECUTIVE OFFICER OF JVC. The President shall be the Chief Executive Officer ("CEO") of JVC. Mr. Toru Umehara shall be JVC's Interim President and Interim Chief Executive Officer and shall work at least 50% for the JVC. SC shall assist CBI in searching for and recruiting a senior Japanese biotechnology industry executive to serve permanently as JVC's President and CEO. The Board shall elect as President and CEO the individual selected by SC and approved by CBI, which approval shall not be unreasonably withheld. Upon such election SC shall cause the Interim President and Interim CEO to resign as President and CEO and as a director unless SC wishes to nominate him as an SC director. (b) VICE PRESIDENT. JVC's Vice President of Marketing and Sales shall be Mr. Tsuyoshi Karasawa. He shall work 100% for the JVC until a new President and CEO is elected by the Board. He shall work 75% for the JVC after the new President and CEO is appointed. (c) OTHER OFFICERS Other officers of JVC and JVC's management reporting structure shall be determined by the Board. 4.3 EMPLOYEE MATTERS. (a) LOANED EMPLOYEES. If the Board and a Holder agree that a Holder or its Affiliate will loan an employee on a full- or part-time basis to JVC, then JVC shall reimburse the lender for the salary and benefits actually paid to such employee during the period loaned to JVC, pro-rated based on the percentage of time the employee works for JVC. JVC shall not bear any other costs of loaned employees. (b) CONFIDENTIALITY. Each JVC employee, and any employee of another entity working for JVC but not a regular employee of JVC, shall each sign CBI's standard form confidentiality agreement providing for confidentiality of information or data disclosed by JVC or CBI and for ownership by CBI of inventions or original works of authorship created by such individuals. 4.4 STATUTORY AUDITOR. Except as required by applicable law, JVC shall have one statutory auditor. CBI shall nominate the statutory auditor, subject to SC's approval, which shall not be unreasonably withheld. -7- 4.5 FINANCIAL STATEMENTS AND ACCOUNTING RECORDS. JVC's financial year shall be January 1 through December 31 of every year. JVC's auditors shall be Price Waterhouse Coopers in Japan. JVC shall maintain its accounting records and prepare its Financial Statements (as defined below) in compliance with Japan GAAP. All Financial Statements provided to CBI shall be in English. (a) UNAUDITED MONTHLY FINANCIAL STATEMENTS. JVC shall provide each Holder with a monthly unaudited balance sheet, profit and loss statement and statement of sources and uses of cash ("Financial Statements") within 30 days after each month-end. (b) AUDITED ANNUAL FINANCIAL STATEMENTS. JVC shall provide each Holder with audited Financial Statements within 120 days after each fiscal year end. (c) CBI'S ADDITIONAL INFORMATION RIGHTS. Until the CBI IPO, JVC shall provide CBI with a reconciliation of JVC's annual audited Financial Statements according to U.S. GAAP when JVC delivers its audited Financial Statements. After the CBI IPO, JVC shall continue to provide CBI with monthly unaudited Financial Statements and provide (i) quarterly unaudited Financial Statements within 30 days after the end of each fiscal quarter, and (ii) annual audited Financial Statements within 75 days after the end of each fiscal year, in each case prepared according to U.S. GAAP. 4.6 JVC BUSINESS PLAN. An English version of the annual Business Plan shall be produced. The Business Plan shall include, without limitation, (i) promotion strategy and tactics, (ii) sales and marketing plans, (iii) the Annual Budget, and (iv) other items relating to distribution and marketing of CBI Systems and Consumables. CBI shall review and approve the Business Plan on the first quarterly meeting of each fiscal year. The Board shall discuss, update and approve the Business Plan at least once every fiscal year. 4.7 RIGHT OF INSPECTION. During office hours of JVC, the Holders shall have full access to all properties, books of account, records and the like of JVC with the right to make copies. Any information obtained by the Holders through exercise of this right shall (i) be used by such Holder only for purposes which are consistent with its status as an equity Holder in JVC and not for the pursuit of business interests outside JVC (except to the extent such Holder shall otherwise have rights for access to such information or to the extent used to determine compliance with this Agreement) and (ii) be subject to the confidentiality provisions of Section 11.1. 4.8 MATTERS REQUIRING APPROVAL OF HOLDERS. The following actions shall not be taken by JVC without prior approval of both Holders. A Holder's approval shall be considered given if one of the directors nominated by that Holder votes at a Board meeting or takes action by written consent in favor of such action. (a) Making any basic change in the general nature or scope of business of JVC, including entering a new line of business. -8- (b) Amending the Articles of JVC, including, without limitation, increasing or decreasing the number of authorized Shares of JVC, changing the rights, preferences or privileges of the Shares and increasing or decreasing the authorized number of directors on the Board. (c) Removing the director nominated by the other Holder, unless the director has violated his fiduciary obligations to JVC or has caused JVC to act in a manner intended to harm the other Holder. (d) Dissolving or liquidating JVC before and until CBI exercises the Buyout Option. (e) Issuing any Shares, securities convertible into Shares or debt securities (but excluding Working Capital Loans). (f) Redeeming or canceling Shares. (g) Merging or consolidating JVC with another Person, or selling, leasing, pledging, mortgaging, encumbering or otherwise disposing all or substantially all of the assets of JVC, whether in one transaction or a series of transactions. (h) Establishing a business relationship with any direct competitor of CBI. (i) Allowing a Holder to engage in JVC's field of business that materially competes with JVC and therefore violates Section 7 of this Agreement. (j) Investing in any other Person. (k) Entering into any agreement with any director or shareholder of JVC or an Affiliate of such director or shareholder (except this Agreement and the other agreements contemplated hereby). (l) Changing JVC's executive management or management structure. (m) Declaring dividends. (n) Acquiring assets for consideration in excess of Y31,250,000. (o) Borrowing in excess of Y12,500,000 (except for Working Capital Loans). (p) Approving annual budgets and any business plans. (q) Selling or licensing technology developed by the JVC to third parties, or encumbering such technology. (r) Licensing or sublicensing CBI's technology. (s) Transferring or sublicensing distribution, sale and marketing rights. -9- (t) Opening a branch office. (u) Approving the sale or assignment of Shares. (v) Terminating this Agreement without following the Termination procedures as set forth in Section 10 of this Agreement. (w) Entering into any material transactions except in the ordinary course of business. (x) Effecting a JVC IPO. (y) Amending, attaching any addendum or addenda to any of the terms of this Agreement. 5. CBI BUYOUT OPTION. 5.1 OPTION RIGHT AND EXERCISE PRICE. Until November 30 of each year commencing with November 30, 2001, CBI shall have the right ("Buyout Option") to purchase from SC 1,000 Shares (or such greater number of Shares as is necessary for CBI to hold, after the purchase, 70% of the then outstanding Shares) ("Option Shares"). The Buyout Option shall terminate automatically after November 30, 2004. The aggregate purchase price for the Option Shares shall be Y50,000,000, or if greater than Y50,000,000 the larger of: (a) 8% of JVC's Net Sales during the calendar year ending on the date CBI exercises the Buyout Option, or (b) 40% of JVC's Book Value on December 31 of the year in which CBI exercises the Buyout Option. 5.2 BUYOUT OPTION PROCEDURES. (a) Before November 15 of each year in which the Buyout Option may be exercised, JVC shall provide CBI JVC's estimated year-end Financial Statements prepared in accordance with Japan GAAP. CBI shall give SC CBI's written notice ("Buyout Notice") as to whether CBI exercises the Buyout Option on or before 9:00 a.m. on November 30, Tokyo time. SC shall elect within 10 days after CBI's Buyout Notice whether to have CBI pay the exercise price in cash or in CBI stock. (b) CBI's exercise of the Buyout Option and its election as to the form of payment shall be irrevocable, except that CBI shall have the right to revoke its exercise, for 10 days after CBI receives JVC's audited Financial Statements for the fiscal year at the end of which CBI exercised the Buyout Option, if such audited Financial Statements show that JVC's Net Sales or Book Value were more than 10% higher or lower than the estimated year-end Financial Statements provided to CBI under Section 5.2(a). -10- 5.3 BUYOUT OPTION PAYMENTS. CBI's obligation to pay the Buyout Option exercise price shall first arise when CBI receives JVC's audited Financial Statements for the fiscal year at the end of which CBI elected to exercise the Buyout Option. If SC has elected to be paid the exercise price in cash, CBI shall pay SC the exercise price within 10 days after CBI receives such audited Financial Statements. If SC elects to be paid the exercise price with CBI stock, the number of shares of CBI Common Stock to be issued shall be determined by dividing the exercise price (i) if the CBI IPO has not yet occurred, the same price per share of the CBI Preferred Stock in the most recent private financing or (ii) if the CBI IPO has occurred, the average of the closing price of CBI Common Stock over the 30-day period ending 3 business days before the exercise of the Buyout Option. Any shares issued shall be pursuant to a "private placement" exemption from the registration requirements of U.S. state and federal securities laws and subject to transfer restrictions and legends on stock certificates to the extent required by such laws and regulations. The transfer of the Option Shares, and the transfer of the cash or stock to be paid by CBI, will occur at CBI's office. At that closing, SC will deliver to CBI a certificate representing the Option Shares in the name of CBI and registered by JVC, and CBI shall deliver to SC payment by check or wire transfer of immediately available funds if the exercise price is being paid in cash, or a certificate representing the shares of CBI Common Stock to be delivered in the name of SC. SC will deliver a written statement to CBI that the Option Shares are free of all liens and other encumbrances, and if CBI is delivering CBI Common Stock, CBI will deliver to SC a written statement that the shares of CBI Common Stock are free of all liens and other encumbrances (other than restrictions on transfer under applicable law). 6. PERMITTED TRANSFERS; RIGHT OF FIRST REFUSAL 6.1 RESTRICTIONS. CBI and SC agree to hold their respective JVC Interest from the Effective Date to CBI's exercise of the Buyout Option, subject to this Section 6. CBI and SC further agree not to transfer, sell, assign, hypothecate or in any way alienate any of such Holder's Shares or any right or interest therein except as provided below: (a) Before the CBI Buyout Option is exercised pursuant to Section 5, neither Holder shall be permitted to so transfer its Shares without the prior written consent of the other Holder. (b) After the CBI Buyout Option is exercised pursuant to Section 5, either Holder may transfer such Holder's Shares; provided that the non-offering Holder shall have the right to purchase all (but not less than all) of the Shares offered by the offering Holder ("Right of First Refusal"), which right shall be exercisable by written notice ("Right of First Refusal Notice") to the offering Holder not later than the expiration of 30 days after delivery of the offering Holder's written notice of intention to sell. The price and terms for the non-offering Holder shall be the price and terms stated in the offering Holder's Right of First Refusal Notice. (c) If the non-offering Holder does not exercise its Right of First Refusal on the offered Shares within such 30-day period in Section 6.1(b) above, the offering Holder may within 60 days after expiration of such Right of First Refusal, sell or transfer its Shares to a transferee or transferees named in the Right of First Refusal Notice; provided that (i) such sale or -11- transfer is not at a lower price or on terms more favorable to the transferee or transferees than those specified in the Right of First Refusal Notice; (ii) prior to such sale or transfer, such transferee or transferees agree in writing to become bound by all obligations of the transferor under this Agreement; and (iii) any such sale or transfer shall not serve to excuse or terminate any of the obligations of the transferor either hereunder or under a related agreement to which the transferor is a party if such related agreement does not provide for such excuse or termination upon such transfer. (d) The restrictions and other provisions of this Section 6 shall apply to any Shares acquired by a Holder. (e) The instruments representing the Shares shall bear a legend stating that such Shares are not transferable without the Board's prior written approval. SC and CBI agree to cause the Board not to consent to any transfer of any Shares made other than in accordance with this Section 6. 6.2 PREEMPTIVE RIGHTS. Except for the Shares subscribed under Section 2.3 by the Holders, CBI and SC shall have preemptive rights to purchase newly issued Shares pursuant to the applicable provisions of the Japanese Commercial Code to subscribe for any Shares to be newly issued by JVC to a Person or Persons other than CBI or SC so that CBI and SC shall retain their respective Pro Rata Share in JVC ("Preemptive Rights"). As required by Section 280.5 of the Japanese Commercial Code, JVC shall (i) inform each Holder that JVC intends to issue new and additional Shares, (ii) provide notice to each Holder individually that that Holders may exercise their preemptive rights to the new issue ("Preemptive Rights Notice"), (iii) each Preemptive Rights Notice shall give the exact date on which Holders' preemptive rights will expire (JVC may select any date of expiration as along as JVC provides notice of that date to the Holders), (iv) the Preemptive Rights Notice shall be given to each Holder at least two weeks before the expiration date of preemptive rights. If necessary for the purpose of this Section 6.2, the Holders agree to vote their Shares, and shall cause their Board nominees to vote, in favor of an increase in capital or the number of authorized Shares. 7. NONCOMPETITION 7.1 COMPETITION IN DISTRIBUTION OF PRODUCTS. SC agrees that as long as SC holds a JVC Interest, SC shall not engage, either directly or indirectly, as a principal or for its own account or solely or jointly with others, or as a shareholder in any corporation or joint stock association, in any entity that sells, resells, or distributes any products in the life sciences research market that materially competes with the sale of CBI's Products (as defined in Section 1 of the Distribution and Marketing Agreement attached in EXHIBIT B). This Section 7.1 shall not apply to substitutable or similar products already being sold, resold or distributed by SC before the Effective Date of this Agreement. 7.2 RESEARCH USING CBI PRODUCTS FOR THIRD PARTIES. SC and its Affiliates shall not use any of CBI's Products to conduct research and/or development on behalf of any third party. JVC and its Affiliates shall not use any of CBI's Products to conduct research and/or development on behalf of any third party. -12- 7.3 OWNERSHIP OF INVENTIONS. Title to all inventions and all other intellectual property derived from and relating to the use of CBI's Products made solely by JVC employees or its agents or jointly by employees or the agents of JVC and SC shall be owned by CBI. 7.4 APPLICATIONS FOR RIGHTS. During the term of this Agreement, neither SC nor its Affiliates and the JVC nor its Affiliates shall file any patent, copyright or other similar applications with respect to any intellectual property derived from or related to any of the Products (or modifications thereof) or products which may compete herewith. If new knowledge or experience is gained from the use of the Products, such knowledge or experience shall be fully disclosed to CBI at the time of discovery of the knowledge or experience. JVC shall grant CBI a non-exclusive, royalty-free license with respect to improved or applied inventions by the JVC derived from or related to any of the Products. 7.5 ASSIGNMENT OF RIGHTS. JVC hereby assigns to CBI all of its rights, title and interest it may otherwise hold (i) from the use of the Products or modifications thereof, (ii) from any patent, copyright or other similar applications with respect to any intellectual property derived from or related to any of the Products or modifications thereof, or (iii) from any other intellectual property rights relating to the Products or modifications thereof. JVC shall, at the request of CBI, execute, and deliver or cause to be delivered, all such consents, documents or further instruments of assignment or transfer, and take or cause to be taken all such actions CBI reasonably deems necessary or desirable in order for CBI to obtain the full benefits of the assignment herein. 7.6 INVALIDITY. If any provision contained in this Section 7 shall for any reason be held invalid, illegal or unenforceable in any respect, such invalidity, illegality of unenforceability shall not affect any other provisions of this Section or this Agreement, but this Section and Agreement shall be construed as if such invalid, illegal or unenforceable provision had never been contained herein. It is the intention of CBI, SC and JVC that if any of the restrictions or covenants contained herein is held to cover a geographic area or to be for a length of time which is not permitted by applicable law, or in any way construed to be too broad or to any extent invalid, such provision shall not be construed to be null, void and of no effect, but to the extent such provision would be valid or enforceable under applicable law, a court of competent jurisdiction shall construe and interpret or reform this Section 7 to provide for a covenant having the maximum enforceable geographic area, time period and other provisions (not greater than those contained herein) as shall be valid and enforceable under such applicable law. 8. REPRESENTATIONS 8.1 CBI. CBI represents and warrants as follows to SC as of the date of this Agreement and the date of the Closing: (a) ORGANIZATION AND GOOD STANDING OF CBI. CBI is a corporation duly organized, validly existing and in good standing under the laws of the State of California and has the corporate power and authority to engage in the business CBI is presently engaged in and to enter into this Agreement and to perform its obligations hereunder. -13- (b) AUTHORIZATION. All corporate action on the part of CBI and CBI's officers and directors necessary for the authorization, execution, delivery and performance of this Agreement, the Distribution and Marketing Agreement, and the Representative Directors Agreement has been taken. Each of this Agreement and other agreements constitutes a valid, legally binding and enforceable obligation of CBI. (c) GOVERNMENT AND OTHER CONSENTS. Except for those governmental consents or approvals contemplated by this Agreement, no consent, authorization, license, permit, registration or approval of any governmental or public body or authority is required in connection with CBI's execution and delivery of this Agreement by CBI or with the performance by CBI of its respective obligations hereunder. (d) EFFECT OF AGREEMENT. CBI's execution and delivery of this Agreement, performance of CBI's obligations hereunder and CBI's consummation of the transactions contemplated hereby will not, (i) to CBI's knowledge, violate any provision of any law, statute, rule or regulation to which CBI is subject; (ii) violate any judgment, order, writ, injunction or decree of any court applicable to CBI; (iii) to CBI's knowledge, have any effect on the compliance of CBI with any laws, statutes, rules, regulations, orders, decrees, licenses, permits or authorizations which would materially and adversely affect CBI; (iv) to CBI's knowledge, result in the breach of, or be in conflict with, any term, covenant, condition or provision of, or affect the validity, enforceability and subsistence of any agreement, lease or other commitment to which CBI is a party and which would materially and adversely affect CBI; or (v) to CBI's knowledge, result in the creation or imposition of any lien, pledge, mortgage, claim, charge, or encumbrance upon any assets of CBI. (e) BROKERS, FINDERS. CBI has not retained any person to act on CBI's behalf, nor has any person contended that such person was so retained, to assist CBI as CBI's broker, finder or agent in connection with this joint venture. (f) DISCLOSURE. No representation or warranty by CBI contained in this Agreement and no writing, certificate, exhibit, list or other instrument required to be furnished pursuant hereto contains or will contain any untrue statement of a material fact or omits or will omit any material fact necessary in order to make the statements and information contained therein not misleading. 8.2 SC. SC represents and warrants to CBI as follows as of the date of this Agreement and the date of the Closing: (a) ORGANIZATION AND GOOD STANDING OF SC. SC is a corporation duly organized, validly existing and in good standing under the laws of Japan and has the corporate power and authority to engage in the business SC is presently engaged in and to enter into this Agreement and to perform its obligations hereunder. (b) AUTHORIZATION. All corporate action on the part of SC and its officers and directors necessary for the authorization, execution, delivery and performance of this Agreement, Distribution and Marketing Agreement, and the Representative Directors Agreement has been taken. -14- Each of these Agreements and other agreements constitutes a valid, legally binding and enforceable obligation of SC. (c) GOVERNMENT AND OTHER CONSENTS. Except as to those government consents or approvals contemplated by this Agreement, no consent, authorization, license, permit, registration or approval of governmental or public body or authority is required in connection with execution and delivery of this Agreement by SC or with the performance by SC of any of its respective obligations hereunder. (d) EFFECT OF AGREEMENT. SC's execution and delivery of this Agreement, performance of its obligations hereunder and SC's consummation of the transactions contemplated hereby will not, (i) to SC's knowledge, violate any provision of any law, statute, rule or regulation to which SC is subject; (ii) violate any judgment, order, writ, injunction or decree of any court applicable to SC; (iii) to SC's knowledge, have any effect on the compliance of SC with any laws, statutes, rules, regulations, orders, decrees, licenses, permits or authorizations which would materially and adversely affect SC; (iv) to SC's knowledge, result in the breach of, or be in conflict with, any term, covenant, condition or provision of, or affect the validity, enforceability and subsistence of any agreement, lease or other commitment to which SC is a party and which would materially and adversely affect SC; or (v) to SC's knowledge, result in the creation or imposition of any lien, pledge, mortgage, claim, charge, or encumbrance upon any assets of SC. (e) BROKERS, FINDERS. SC has not retained any person to act on SC's behalf, nor has any person contended that such person was so retained, to assist SC as SC's broker, finder or agent in connection with this joint venture. (f) DISCLOSURE. No representation or warranty by SC contained in this Agreement and no writing, certificate, exhibit, list or other instrument required to be furnished pursuant hereto contains or will contain any untrue statement of a material fact or omits or will omit any material fact necessary in order to make the statements and information contained therein not misleading. 9. CONDITIONS TO CLOSING 9.1 CONDITIONS PRECEDENT TO THE OBLIGATIONS OF SC. The obligations of SC to purchase Shares under this Agreement are subject to satisfaction of each of the following conditions at the Closing (unless waived by SC): (a) REPRESENTATIONS AND WARRANTIES. The representations and warranties of CBI contained in Section 5.1 shall be correct as of the Closing, and CBI shall have delivered to SC a certificate of CBI, dated as of the Closing Date, to this effect. (b) COVENANTS. CBI shall have performed all covenants to be performed by CBI under this Agreement and before the Closing, and CBI shall have delivered to SC a certificate of CBI, dated as of the Closing Date, to this effect. -15- (c) THIRD PARTY NOTIFICATIONS AND CONSENTS. Any government notifications and consents required to be made or obtained prior to the Closing shall have been made or obtained before the closing, and all required waiting periods shall have expired. (d) NO SUITS, PROCEEDINGS. No suit, action, investigation, inquiry or proceeding by any person or by any governmental body, or other legal or administrative proceeding shall have been instituted or threatened which questions the validity or legality of the transactions contemplated hereby. (e) AGREEMENTS. The Distribution and Marketing Agreement as attached in EXHIBIT B and Representative Director Agreement as attached in EXHIBIT C have been executed. 9.2 CONDITIONS PRECEDENT TO THE OBLIGATIONS OF CBI. The obligations of CBI under this Agreement and to purchase Shares at the Closing are subject to satisfaction of the following conditions at the Closing (unless waived by CBI): (a) REPRESENTATIONS AND WARRANTIES. The representation and warranties of SC contained in Section 5.2 of this Agreement shall be true and correct as of the Closing, and SC shall have delivered to CBI a certificate of SC, dated as of the Closing Date, to this effect. (b) COVENANTS. SC shall have performed all covenants to be performed by SC under this Agreement and before the Closing, and SC shall have delivered to CBI a certificate of SC, dated as of the Closing Date, to this effect. (c) THIRD PARTY NOTIFICATIONS AND CONSENTS. Any government notifications and consents required to be made or obtained before the Closing shall have been made or obtained before the Closing, and all required waiting periods shall have expired. (d) NO SUITS, PROCEEDINGS. No suit, action, investigation, inquiry or proceeding by any person or by any governmental body, or other legal or administrative proceeding shall have been instituted or threatened which questions the validity or legality of the transactions contemplated hereby. (e) AGREEMENTS. The Distribution and Marketing Agreement as attached in EXHIBIT B and Representative Director Agreement as attached in EXHIBIT C have been executed. 9.3 TIME AND PLACE OF CLOSING. The Closing shall occur upon the execution of this Agreement by the Holders on December __, 1998 in Tokyo, Japan, or at such time and place as CBI and SC may mutually agree. 9.4 POST-CLOSING EVENTS. (a) SC shall file the application for registration of incorporation of JVC with the corporate registry office in the administrative district where the head office of JVC is to be located. -16- (b) SC shall provide CBI with a reasonably itemized listing of the out-of-pocket costs SC incurred in incorporating JVC and causing its initial share issuances, which shall be reimbursed by the JVC within 30 days after the application for registration of incorporation is approved. (c) As soon as practicable after Closing, JVC shall issue to CBI certificates evidencing the Shares purchased pursuant to Section 2.3 and record issuances of JVC Shares in JVC's shareholders register. (d) Each Holder shall vote all Shares and voting Shares held by the Holder to effect the provisions of this Agreement. (e) JVC and CBI shall execute and deliver to each other the Distribution and Marketing Agreement. 10. TERM AND TERMINATION 10.1 TERM. This Agreement shall continue in full force and effect until terminated as provided herein under this Section 10. 10.2 GROUNDS FOR TERMINATION. This Agreement may terminate only (a) 10 years after the Effective Date of this Agreement; or (b) at such time as only one Holder remains subject to this Agreement; or (c) the Closing does not occur by December 31, 1998. The respective obligations of CBI, SC and JVC pursuant to Sections 6, 7, 10, 11.1 and 11.15 shall survive a termination for any reason. 10.3 TERMINATION UPON BANKRUPTCY OR INSOLVENCY OF A HOLDER. (a) RIGHT TO TERMINATE. A Holder shall have the right to notify the other Holder that this Agreement has terminated if any of the following events occurs with respect to the other Holder after CBI exercises its Buyout Option: (i) Appointment of a custodian for all or substantially all of the property of the other Holder. (ii) The determination by a court or tribunal of competent jurisdiction that the other Holder is insolvent. (iii) The filing of a petition for liquidation (and not for reorganization) in bankruptcy by the majority shareholder on its own behalf or the filing of any such petition against the majority if the proceeding is not dismissed or withdrawn within 60 days thereafter. The majority shareholder shall not file for liquidation of the JVC without the minority shareholder's consent. -17- (iv) An assignment of all or substantially all assets by the other Holder for the benefit of its creditors. (v) The dissolution or liquidation of the other Holder other than in consequence of a merger, amalgamation or other corporate reorganization to which it is a party. (b) NOTICE OF EVENT. If a Holder suffers any such event, that Holder shall immediately notify the other Holder and JVC of the occurrence of such event. (c) RIGHT TO PURCHASE. After notice of termination, the Holders shall consult in good faith for 60 days concerning the disposition of their respective interests in JVC and the future operations of JVC. If the Holders do not sign a written agreement regarding such matters during such 60 days, then the Holder who gave notice of termination shall have the exclusive option to purchase the JVC Interest of the other Holder. 10.4 Termination Upon Bankruptcy or Insolvency of JVC. (a) RIGHT TO TERMINATE. If any of the following events ("Liquidating Event") occurs to the JVC after CBI exercises its Buyout Option and such event is not cured within 60 days following the event, the Holder of majority Shares shall have the right to terminate this Agreement with the consent of the Holder of minority Shares: (i) JVC becomes insolvent or unable to pay any or all of its debts as they mature or ceases to pay any or all of its debts as they mature in the ordinary course of business. (ii) Any application or petition is submitted, by or for JVC, for commencement of proceedings of bankruptcy, composition or other similar proceedings under the applicable law. (b) RIGHT TO DISSOLVE. After the occurrence of a Liquidating Event, the Holders shall consult in good faith for 60 days concerning the disposition of their respective interests in JVC and the future operations of JVC. If the Holders do not sign a written agreement regarding such matters during such 60-day period, then CBI shall have the option to cause liquidation or dissolution of JVC. (c) Right to Purchase or Sell If CBI decides to liquidate or dissolve the JVC after satisfying Sections 10.4(a) and 10.4(b) above, CBI shall give notice to SC ("Liquidation Notice"), and the following procedure shall apply: (i) SC shall provide irrevocable notice to CBI within 30 days after Liquidation Notice that SC desires to have the Fair Market Value ("FMV") of its JVC Shares determined pursuant to Section 10.8; (ii) determination of FMV shall assume that JVC continues to operate so that JVC's liquidation or dissolution does not give effect to any decrease in FMV of JVC Shares; -18- (iii) within 5 days after FMV of JVC Shares is determined, SC shall give irrevocable notice whether to buy or sell its JVC Shares ("Buy-Sell Notice"); (iv) the closing of the purchase or sale of SC's Shares shall occur within 30 days after SC gives the Buy-Sell Notice, and payment shall be made in cash; (v) during the procedure in this Section 10.4(c), CBI or JVC shall not take any action to cause the liquidation or dissolution of JVC. 10.5 TERMINATION UPON MATERIAL BREACH. (a) RIGHT TO TERMINATE. A Holder shall have the right to notify the other Holder and JVC that this Agreement has terminated if the other Holder commits a Material Breach (as defined below) of this Agreement. (b) DEFINITION OF MATERIAL BREACH. The commission of any of the following acts by a Holder, which is not cured within 60 days following notice thereof to the breaching Holder by the other Holder or JVC, shall constitute a Material Breach of this Agreement by such Holder: (i) As to SC (or its Affiliates, if applicable) the material failure by SC, or such Affiliates, to fully comply with its obligations under this Agreement. (ii) As to CBI (or its Affiliates, if applicable) the material failure by CBI, or such Affiliates, to fully comply with its obligations under this Agreement. (c) RIGHT TO PURCHASE OR TO SELL. After notice of termination, the Holders shall consult in good faith for 60 days concerning the disposition of their respective interests in JVC and the future operations of JVC. If the Holders do not resolve such matters in writing within such 60 days, and SC is the breaching Holder, then for an additional 60 days CBI shall have an exclusive option to purchase SC's JVC Interest pursuant to Section 10.8, provided that CBI may offset against the purchase price for SC's JVC Interest the amount of damages sustained by JVC and CBI as a result of such Material Breach. If the Holders do not resolve such matters in writing within such 60 days, and CBI is the breaching Holder, then for an additional 60 days SC shall have the exclusive option to purchase CBI's JVC Interest pursuant to Section 10.8, provided that SC may offset against the purchase price for CBI's JVC Interest the amount of damages sustained by JVC and SC as a result of such Material Breach. (d) REMEDIES NOT AFFECTED. The foregoing shall not limit the ability of JVC or any Holder to seek such legal and equitable remedies (including damages not fully offset by the reduction in purchase price) related to a Material Breach by a Holder or the failure of a Holder to perform any other duty or obligation. 10.6 TERMINATION UPON GOVERNMENTAL ALTERATION OR MODIFICATION. (a) RIGHT TO OBJECT. If at any time any government or agency having jurisdiction over JVC, CBI, or SC should require, directly or indirectly, any alteration or -19- modification of any term or condition of this Agreement, the Distribution and Marketing Agreement, or of the performance by the Holders under such agreements in a manner which has a material adverse effect on any Holder or on the operations or financial condition or prospects of JVC, then the Holder which suffers from such alteration or modification shall have the right to notify the other Holder of its objection to such alteration or modification. (b) RIGHT TO TERMINATE. If a Holder gives such a notice, then (i) the Holders shall negotiate in good faith a mutually satisfactory resolution of such objection for 60 days; (ii) if no resolution results, the President of CBI and the President of SC shall meet personally and negotiate in good faith to resolve such objection within 60 days after the initial 60 day period. If such mutual consultation does not resolve such objection, then the suffering Holder shall have the right to notify the other Holders and the JVC that this Agreement has terminated and to cause dissolution of JVC. Upon such dissolution each Holder and JVC shall take all actions (including voting of the Shares) required to dissolve and liquidate JVC in accordance with applicable laws and regulations. (c) LIMITED LIABILITY. The Holder which terminates this Agreement shall not incur any liability to the other Holders or to the JVC for any alleged default in the performance of this Agreement arising from the exercise of its termination rights under this Section 10.6. 10.7 CONTINUED RIGHT TO PURCHASE. If a Holder terminates this Agreement pursuant to this Section 10, but does not have the necessary number of Shares to cause liquidation or dissolution of JVC and does not purchase the other Holder's entire JVC Interest, then the Shares held by the other Holder shall continue to be subject to any right of purchase held by the Holder which terminated this Agreement. 10.8 PURCHASE PROCEDURES. (a) The purchase price for the Shares to be sold pursuant to this Section 10 shall be the "Fair Market Value" of such Shares. (b) "Fair Market Value" per share shall be determined as follows: (i) If the Shares are publicly traded on a national securities exchange or the Japanese OTC market, the value shall be deemed to be the average of the closing prices of the Shares on such exchange or market, as the case may be, over the 30-day period ending 3 business days prior to the closing of the purchase of the Shares. (ii) If there is no active public market for the Shares, the value shall be the fair market value thereof as determined by good faith negotiation between the selling Holder or Holders ("Seller") and the purchasing Holder or Holders ("Purchaser"). If such negotiation fails to determine the fair market value within 90 days after the date of the notice of termination, the fair market value shall be determined as follows: (1) Seller and Purchaser shall each retain at its expense an investment bank expert in the life sciences research market. If Seller or Purchaser does not select an investment bank within 30 days after the end of the 90-day good faith negotiation period referred to -20- in subsection (ii) above, such Holder or Holders shall not be entitled to retain an investment bank and shall present whatever materials it has available by the deadline regarding the valuation of JVC. (2) Subject to execution of customary confidentiality agreements by the investment banks, JVC shall provide or cause to be provided to each investment bank all material information, including any material changes in such information, reasonably necessary to value JVC or reasonably requested by the investment banks. (3) During the 60-day period after both Seller and Purchaser have selected an investment bank, or the end of the 30-day period in Section 10.8(b)(ii)(1) above if Seller and/or Purchaser does not select an investment bank (the "Negotiation Period"), Seller, Purchaser and their respective investment banks shall meet on at least two occasions to present their respective views on valuation and shall negotiate in good faith to reach a written agreement on the fair market value. (4) If the fair market value has not been agreed to in writing by the end of the Negotiation Period, Seller and Purchaser shall each submit a final valuation proposal with a supporting analysis to the other Holder or Holders and to the "Arbitrator" within 10 days after the end of the Negotiation Period. The "Arbitrator" shall be a Person with expertise in valuing companies in the life sciences research market, shall not have a material business relationship with CBI, SC or JVC and shall be reasonably acceptable to both Seller and Purchaser. (5) If Seller or Purchaser does not submit in a timely manner a final valuation proposal, then the valuation proposal of the other Holder or Holders shall be used to establish the fair market value. If the final proposals differ by less than 15%, then the average of the proposals shall be the fair market value. If the final proposals differ by 15% or more, then the Arbitrator shall choose one or the other proposal. The Arbitrator's determination shall be final and binding on both Seller and Purchase; provided, however, that the Arbitrator must select one of the final valuation proposals as submitted. (c) Each Holder purchasing Shares under this Section 10.8 shall pay in cash or other immediately available funds the aggregate purchase price for the Shares to be sold to such Holder upon receipt of the certificate or certificates for the Shares to be sold to such Holder. (d) When Holders have the right to purchase their pro rata share of another Holder's Shares pursuant to this Section 10.8 and not all of those Holders exercise their purchase right, the Holders exercising their purchase right shall also have the right to purchase the pro rata share of the Shares of the Holders not exercising their purchase right (the "Remaining Shares"). If more than one Holder elects to exercise its purchase right as to the Remaining Shares, each Holder who wishes to purchase the Remaining Shares shall be entitled to purchase that portion of the Remaining Shares as the total number of Shares then owned by such Holder bears to the total number of Shares then owned by all Holders who wish to purchase the Remaining Shares. 10.9 CONTINUATION OF BUSINESS. During any period in which a Holder has the right to purchase or is purchasing the JVC Interest of the other Holder pursuant to this Section 10: -21- (a) JVC shall continue its business in the ordinary course. CBI, SC and JVC shall use their best efforts to maintain and preserve the business of JVC pending the consummation of such purchase. (b) Unless the Holders otherwise agree in writing, no other agreement between the Holders, between any two of the Parties or among the Parties, and other related agreements shall be amended or terminated. (c) The Holders shall negotiate in good faith an agreement providing that employees of such selling Holder working full-time for JVC shall be made available full-time to JVC for such period as is reasonably required up to 6 months to effect an orderly transition to sole ownership by one Holder, and each Holder shall use its best efforts to make all such employees available on this basis. (d) If CBI purchases SC's JVC Interest, then until one year after the purchase has been completed SC shall not assign to its employees who have worked at JVC, or to any employees of JVC who become employees of SC, responsibilities which relate to the development, distribution or marketing of products competitive with the Products (as defined in Section 1 of the Distribution and Marketing Agreement attached in EXHIBIT B) distributed by JVC or which JVC was preparing to distribute, at the time of the purchase. 11. GENERAL PROVISIONS 11.1 CONFIDENTIALITY. (a) Each Party to this Agreement acknowledges and agrees that certain information it receives from any of the other Parties constitutes the confidential and proprietary trade secrets of the disclosing Party, and that the receiving Party's protection thereof is essential to this Agreement and a condition of the receiving Party's use and possession thereof. Each Party shall retain in strict confidence any and all such confidential and proprietary information marked by the disclosing Party as confidential (collectively, "Confidential Information") and use such Confidential Information only as expressly authorized by the Holders. A Party will under no circumstances distribute or in any way disseminate Confidential Information to third parties without the prior written permission of the Holders. (b) Notwithstanding the above, the receiving Party shall have no liability to the disclosing Party with regard to Confidential Information which: (i) was generally known and available in the public domain at the time it was disclosed or becomes generally known and available in the public domain through no fault of the receiving Party; (ii) was known to the receiving Party at the time of disclosure as shown by the files of the receiving Holder in existence at the time of disclosure; (iii) is disclosed with the prior written approval of the disclosing Party; -22- (iv) was independently developed by the receiving Party (or by its employees or agents who have not been exposed to such Confidential Information) without any use of Confidential Information or use of CBI Products; (v) becomes known to the receiving Party from a source other than the disclosing Party without breach of this Agreement or the Distribution and Marketing Agreement attached in EXHIBIT B by the receiving Party and otherwise not in violation of the disclosing Party's rights; or (vi) is disclosed pursuant to the order or requirement of a court, administrative agency, or other governmental body; provided, that the receiving Party shall provide prompt, advanced notice thereof to enable the disclosing Party to seek a protective order or otherwise prevent such disclosure. (c) Each Party will enter into a confidentiality agreement similar to CBI's form confidentiality agreement with each employee who is given access to the Confidential Information of any of the Parties which incorporates the protections and restrictions substantially as set forth herein. (d) Each Party agrees to notify the other Holders in the event of any breach of its security under conditions in which it would appear that Confidential Information was prejudiced or exposed to loss. Each Party shall, upon request of the disclosing Party, take all other reasonable steps necessary to recover any compromised Confidential Information disclosed to or placed in its possession by virtue of this Agreement. The cost of taking such steps shall be borne solely by the receiving Party. (e) Each Party acknowledges that any breach of any of its obligations under this Section 11.1 is likely to cause or threaten irreparable harm to the other Parties, and accordingly, each Party agrees that in such event the disclosing Party shall be entitled to equitable relief to protect its interests, including but not limited to preliminary and permanent injunctive relief, as well as money damages. 11.2 ARBITRATION; FORUM. (a) ARBITRATION. All other disputes, controversies or claims arising out of or relating to this Agreement, or the breach, termination or validity thereof, shall be resolved by one arbitrator under the Rules of International Chamber of Commerce which rules are hereby incorporated by reference into this Section 11.2. The place of arbitration shall be Honolulu, Hawaii. The language to be used in the arbitration proceedings shall be English. The arbitrator may be of any nationality, but must have knowledge of the life sciences research market in Japan and in the United States. The arbitral award shall be rendered in writing and state the reasons for the award. Judgment on any award may be entered by any court of competent jurisdiction or application may be made to such a court for judicial acceptance of the award and any appropriate order including enforcement. -23- (b) EXPENSES OF LITIGATION. In case of litigation arising out of this Agreement, the prevailing Party shall be entitled to recover its reasonable attorneys' fees and expenses from either of the other Parties. In case of arbitration between Holders, the arbitrators shall award reasonable attorneys' fees and expenses to either Holder in such manner and to such extent as the arbitrators deem equitable. (c) OTHER RELIEF. Notwithstanding the foregoing, the Holders may apply to any court of competent jurisdiction for a temporary restraining order, preliminary injunction, or other interim or conservatory relief, as necessary, without breach of this section, and without any abridgement of the powers of the arbitrator. 11.3 FORCE MAJEURE. If the performance of this Agreement or any obligations hereunder is prevented, restricted or interfered with by reason of fire or other casualty or accident, strikes or labor disputes, war or other violence, any law, order, proclamation, regulations, ordinance, demand or requirement of any government agency, or any other act or condition beyond the reasonable control of the Parties to this Agreement, any Party so affected upon giving prompt notice to the other Parties shall be excused from such performance during such prevention, restriction or interference. 11.4 LAW TO GOVERN. This Agreement shall be governed by the laws of Japan. 11.5 PUBLICITY. Prior to issuing any reports, statements, press releases or other disclosures to third parties regarding this Agreement or the transactions contemplated herein, the Holders shall exchange copies of such documents and shall consult with each other Holder regarding their content. Except as otherwise required by law, neither Holder nor the JVC shall issue any such disclosure without the prior approval of the Holders. 11.6 NOTICES AND OTHER COMMUNICATIONS. Every notice by any of the Parties herein shall be in writing and delivered either by personal delivery, or by Express Mail or any similar overnight courier service, or by registered or certified mail, postage prepaid, or by fax or e-mail, addressed to the Party for whom intended at its address set forth above, or at such other address as the intended recipient previously shall have designated by written notice to the other Party. All notices delivered in person shall be deemed to have been delivered to and received by the addressee and shall be effective on the date of personal delivery. All notices delivered by Express Mail or any other similar overnight courier service shall be effective upon receipt. All notices delivered by registered or certified mail, or by fax or e-mail, shall be effective upon receipt. 11.7 COUNTERPARTS. This Agreement may be executed in any number of English language counterparts or duplicate originals, and each such counterpart or duplicate original shall constitute an original instrument, but all such separate counterparts or duplicate originals shall constitute one and the same instrument. 11.8 WRITTEN AGREEMENT TO GOVERN. This Agreement sets forth the entire understanding and supersede all prior and contemporaneous agreements and discussions between the Holders relating to the specific subject matter contained herein or therein, and neither Holder shall be bound by any definition, condition, representation, warranty, covenant or provision other than as -24- expressly stated in or contemplated herein or therein or as subsequently shall be set forth in writing and executed by a duly authorized representative or agent of the Holder to be bound thereby. 11.9 NO WAIVER OF RIGHTS. All waivers hereunder must be made in writing, and failure at any time to require any Party's performance of any obligation under this Agreement shall not affect the right subsequently to require performance of that obligation. No waiver of any breach of any provision of this Agreement shall be construed as a waiver of any continuing or succeeding breach of such provision or a waiver or modification of such provision. 11.10 SEVERABILITY. Whenever possible, each provision of this Agreement shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Agreement should be prohibited or invalid under applicable law, (including, without limitation, objections by the Japanese Fair Trade Commission) such provisions shall be ineffective to the extent of such prohibition or invalidity without invalidating the remainder of such provision or the remaining provisions of this Agreement. In such event, the Holders agree to negotiate, in good faith, a valid, legal and enforceable substitute provision which most nearly effects the Holders' intent in entering into this Agreement. 11.11 SUBJECT HEADINGS. The subject headings of the Sections of this Agreement are included for the purposes of convenience only, and shall not affect the construction or interpretations of any of its provisions. 11.12 FURTHER ASSURANCES. The Parties shall each perform such acts, execute and deliver such instruments and documents, and do all such other things as may be reasonably necessary to accomplish the transactions contemplated in this Agreement. 11.13 EXPENSES AND FINDER'S FEES. The Holders shall each bear their own costs and expenses (including attorneys' fees) incurred in connection with the negotiation and preparation of this Agreement and the consummation of the transactions contemplated hereby. Each Holder shall indemnify the other Holder against any claim for brokerage or finder's fees arising out of the transactions contemplated herein by any person claiming to have been engaged by the indemnifying Holder based upon any action or communication, or any alleged action or communication, by the indemnifying Holder or any of its officers or employees. Pursuant to Section 9.4(b), JVC shall bear the costs of incorporation and issuance of the initial Shares. 11.14 RELATIONSHIP AMONG PARTIES. Each of CBI, SC and JVC will in all matters relating to this Agreement be and act as an independent contractor. None of the Parties will represent that it has any authority to assume or create any obligation, express or implied, on behalf of any of the other Parties, or to represent any of the other Parties as agent, employee, or in any other capacity. 11.15 CONFIDENTIALITY OF AGREEMENT. The Parties shall hold in confidence and not disclose to any third party, without the prior written consent of both Holders, the terms and conditions of the Agreement, provided that each Party may disclose the terms and conditions of this Agreement -25- (a) as required by any court or other governmental body; (b) as otherwise required by law; (c) to legal counsel of each of the Parties; (d) in confidence, to accountants, banks and financing sources and their advisors; (e) in connection with the enforcement of this Agreement or rights under this Agreement; or (f) in confidence, in connection with a merger or acquisition or proposed merger or acquisition, or the like. 11.16 LANGUAGE. This Agreement is in the English language only, which language shall be controlling in all respects, and all versions hereof in any other language shall be for accommodation only and shall not be binding upon all Parties hereto. All communications and notices to be made or given between Holders pursuant to this Agreement shall be in the English language. 11.17 ASSIGNMENT. This Agreement shall inure to benefit of, and shall be binding upon, the Parties and their respective successors and assigns. No Party may assign or delegate this Agreement or any of its rights or duties under this Agreement without the prior written consent of both Holders except as expressly set forth herein or to a Person or entity into which it has merged or which has otherwise succeeded to all or substantially all of the business and assets of the assignor ("Successor"), and which has assumed in writing or by operation of law the assignor's obligations under this Agreement. 11.18 FOREIGN CORRUPT PRACTICES ACT. (a) All of the Parties to this Agreement acknowledge that the laws, rules, regulations and decrees of the various jurisdictions in which JVC conducts its business, and of the United States of America, shall apply to the actions of JVC. The Parties recognize that the United States Foreign Corrupt Practices Act of 1977 (the "Act") may be applicable to JVC's activities. The Parties recognize that the Act prohibits the payment or giving of anything of value either directly or indirectly to a government official for the purpose of influencing an act or decision in his or her official capacity, or for the purpose of inducing him to use his influence with his government to assist a company in obtaining or retaining business for or with, or directing business to, any Person. (b) The Parties represent and warrant that they are familiar with the Act and its purposes, and that none of the Parties nor their owners, officers, directors, partners, principals, employees, staff members, or agents are officials, officers or representatives of any government or political party or candidates for political office. The Parties shall ensure that no part of JVC's capital or other funds will be accepted or used by JVC for any purpose, nor will it take any action, which -26- would constitute a violation of any law of the various jurisdictions in which it conducts business or of the United States of America, including the Act. (c) Should any of the Parties ever receive, directly or indirectly, a request which any of them believes will or might constitute a violation of the Act, it shall immediately notify CBI. -27- IN WITNESS WHEREOF, the undersigned are duly authorized to execute this Agreement on behalf of CBI and SC as applicable. CIPHERGEN BIOSYSTEMS, INC. ("CBI") SUMITOMO CORPORATION ("SC") By: By: ---------------------------------- ------------------------------- Title: Title: ------------------------------- ---------------------------- Dated Dated: ------------------------------- ---------------------------- JVC agrees to be bound by all provisions of this Agreement applicable to it. CIPHERGEN BIOSYSTEMS K.K. ("JVC") By: ---------------------------------- Title: ------------------------------- Dated ------------------------------- -28- EX-10.26 9 EXHIBIT 10.26 DISTRIBUTION AND MARKETING AGREEMENT This DISTRIBUTION AND MARKETING AGREEMENT, including the attached Exhibits ("Agreement"), is made and entered into as of ______________, 1998 (the "Effective Date") by and between CIPHERGEN BIOSYSTEMS, INC., a California corporation with offices at 490 San Antonio Road, Palo Alto, CA 94306, USA ("CBI"), and Ciphergen Biosystems K.K., a Japanese corporation with offices at ______________, Japan ("JVC"). BACKGROUND A. CBI is engaged in the business of developing, manufacturing, distributing, and selling Products (as defined below); and B. JVC desires to solicit orders for Products from, and distribute and sell Products to, customers in the Territory (as defined below); and C. JVC desires to purchase from CBI, and CBI desires to sell to JVC, such Products for the purpose of resale to customers in the Territory. NOW, THEREFORE, in consideration of the mutual promises contained herein, CBI and JVC agree as follows: 1. DEFINITIONS 1.1 "AFFILIATE" means any entity which is controlled by CBI or JVC. An entity shall be regarded as in control of another entity for purposes of this definition if it owns or controls more than fifty percent (50%) of the shares of the subject entity entitled to vote in the election of directors (or, in the case of an entity that is not a corporation, for the election of the corresponding managing authority); provided, however, that in any country where the local law does not permit equity participation of at least 50%, then Affiliate will include any company in which CBI or JVC owns or controls, directly or indirectly, the maximum percentage of such outstanding stock or voting rights permitted by law. 1.2 "CHANGE IN CONTROL" with respect to a Party means (i) a merger of that Party with or into another Person, or a sale of all or substantially all of a Party's assets to another Person, if as a result of the merger or asset sale the holders of a majority of the Party's voting securities before the transaction hold less than a majority of the voting securities of the surviving entity, or (ii) the acquisition by a Person or a group acting in concert of a majority of a party's voting securities. 1.3 "CONSUMABLES" means CBI's ProteinChip-TM- arrays generally made available by CBI for use with Systems and items that CBI sells in the United States and Europe in one time or limited reuse with the Systems for life sciences research market applications. 1.4 "CUSTOMERS" means end users of Products in the Territory and in the Field. 1.5 "EFFECTIVE DATE" means the date first above written in the caption. 1.6 "FIELD" means life science research for internal purposes only. JVC's Customers of Products may not sell clinical diagnostic products or services nor sell information or data generated from Products acquired from JVC. 1.7 "PARTY" or "PARTIES" means CBI and JVC. 1.8 "PERSON" or "PERSONS" means a natural individual, partnership, firm, company, corporation, and any other form of business association. 1.9 "PRODUCTS " means Systems and Consumables manufactured by CBI and/or any third party who has been allowed by CBI to manufacture the same. 1.10"SC" means Sumitomo Corporation. 1.11"SYSTEMS " means CBI's Protein Biology System I and its successors based on CBI's Surface Enhanced Laser Desorption/Ionization (SELDI-TM-) technology, generally made available in the life sciences research market in the United States and Europe. 1.12 "SOFTWARE" means machine control software and bioinformatics software supplied with Systems for use in connection with the Products. 1.13 "SYSTEM SPECIFICATIONS" means operator's guide, package inserts, packaging specifications, label claims, instructional manuals and other material provided by CBI for use with Systems and Consumables. 1.14 "SC" means Sumitomo Corporation. 1.15 "TERM" is defined in Section 12.1. 1.16 "TERRITORY" means Japan. 1.17 "WORKING DAYS" means Monday through Friday, other than public holidays of the United States, the State of California, and Japan. 2. GRANT OF DISTRIBUTION RIGHTS 2.1 APPOINTMENT. (a) Subject to the terms and conditions of this Agreement, CBI hereby grants to JVC the exclusive right, to market, sell and distribute in the Territory CBI's Products to Customers solely for use in the Territory and in the Field. (b) Rights granted under 2.1(a) shall not include any patents, copyrights, maskwork rights, trade secrets, know-how or any other intellectual property of CBI. -2- (c) CBI agrees not to grant licenses on any of its patents, copyrights, maskwork rights, trade secrets, know-how or any other intellectual property to any other Person without specifically excluding the right to market, sell and distribute in the Territory CBI's Products to Customers in the Territory and in the Field. (d) CBI shall not (i) appoint any distributor of Products other than JVC in the Territory and in the Field; and (ii) sell or resell any Products to third parties other than JVC in the Territory and in the Field. 2.2 SOFTWARE LICENSE; NOTICES. (a) CBI hereby grants to JVC a limited, non-exclusive, nontransferable, royalty-free license to use the Software, solely for the purposes of (i) demonstrating the Products, (ii) training and instructing JVC personnel, and (iii) allowing Customer use of the Products, in each case in accordance with the terms and conditions of this Agreement. (b) Software provided to JVC hereunder is subject to this license and is not a sale of title to the Software and it is understood and agreed that CBI retains all right, title, and interest in and to Software. JVC agrees not to directly or indirectly reverse engineer, disassemble, decompile, or otherwise attempt to derive source code from the Software and not to copy the Software or use it for any other purpose except as expressly licensed. (c) The terms of Section 2.2(b) apply in full force and effect to JVC's Customers, and JVC shall ensure that its Customers comply with the requirement not to directly or indirectly reverse engineer, disassemble, decompile, or otherwise attempt to derive source code from the Software and not to copy the Software or use it for any other purpose except as expressly licensed. (d) JVC agrees not to modify, delete, or obscure any and all proprietary notices affixed to the Products, including, without limitation, the Software. (e) JVC agrees to localize the Software for use in the Territory. CBI retains all right, title, and interest in any and all resulting copyrightable materials from such localization. 2.3 NO RIGHTS BEYOND PRODUCTS. It is understood and agreed that the foregoing rights do not include the right to market, license, sell or otherwise distribute any information or data derived from or with the use of Products. 2.4 RESERVATION OF RIGHTS. Except as expressly provided in this Section 2, no right, title, or interest is granted, whether express or implied, by CBI to JVC. Nothing in this Agreement shall be deemed to grant to JVC rights in any products or technology other than the Products, nor shall any provision of this Agreement be deemed to restrict CBI's right to exploit technology, know-how, patents, or any other intellectual property rights relating to the Products and applications other than Products. CBI reserves the rights to market, sell, or otherwise distribute, directly or indirectly, Products in the Territory for use outside the Field. -3- 3. PAYMENT 3.1 PAYMENT (a) JVC shall pay 80% of CBI's then published U.S. list price for the applicable Products. JVC shall pay 40% of CBI's then published U.S. list price for the Consumables purchased by JVC for internal use at JVC and for Customer demonstration. Limited quantities of such Consumables supplied to JVC shall be specified in the annual Business Plan (as defined in Section 1.6 and as required by Section 4.6 of the Joint Venture Agreement). (b) CBI shall submit an invoice to JVC upon shipment by CBI of each Product ordered by JVC. Each such invoice shall state JVC's aggregate and unit transfer price for Products in a given shipment, plus any freight, taxes or other costs incident to the purchase or shipment initially paid by CBI but to be borne by JVC hereunder. Such payment shall be made in U.S. dollars net thirty (30) days by wire transfer after the date of shipment by CBI to JVC and deposited by wire into a bank account designated by CBI. (c) Any payment for Products due which is not paid within five (5) days of the date such payments are due in accordance with Section 3.1(a) shall bear interest at the lesser of one and one-half percent (1-1/2%) per month or the maximum rate permitted by law, calculated on the number of days such payment is delinquent. This Section 3.1(b) shall in no way limit any other remedies available to CBI. 3.2 TAXES. Any and all amounts payable hereunder by JVC under Section 3 do not include any government taxes (including without limitation sales, use, excise, and value added taxes) or duties imposed by any governmental agency that are applicable to the export, import, or purchase of the Products (other than taxes on the net income of CBI), and JVC shall bear all such taxes and duties. JVC shall be responsible to pay all taxes, costs, or payments, if any, which result from compliance with applicable currency control restrictions including the Revised Foreign Exchange and Foreign Trade Control Act (Revised FECA). Any such taxes which are otherwise imposed on payments to CBI or JVC shall be the sole responsibility of JVC. When CBI has the legal obligation to collect and/or pay such taxes, the appropriate amount shall be added to JVC's income and/or paid by JVC, unless JVC provides CBI with a valid tax exemption certificate authorized by the appropriate taxing authority. JVC shall provide CBI with official receipts issued by the appropriate taxing authority or such other evidence as is reasonably requested by CBI to establish that such taxes have been paid. 3.3 RECORDS; INSPECTION. JVC shall keep complete, true and accurate books of account and records for the purpose of determining the amounts payable under Section 3.1. Such books and records shall be kept at JVC's principal place of business for at least three (3) years following the end of the calendar quarter to which they pertain. Such records will be open for inspection during such three (3) year period by a representative or agent of the other Party for the purpose of verifying the amounts payable under Section 3.1. Such inspections may be made no more than once each calendar year, at reasonable times mutually agreed upon by CBI and JVC (each -4- referred to as "Inspecting Party"). The Inspecting Party's representative or agent shall execute a confidentiality agreement prior to commencing any such inspection. Inspections conducted under this Section 3.4 shall be at the expense of the Inspecting Party's, unless a variation or error producing an underpayment in amounts payable exceeding five percent (5%) of the amount paid for any period covered by the inspection is established in the course of any such inspection, whereupon all costs relating to the inspection for such period and any unpaid amounts that are discovered will be paid by the inspected Party, together with interest on such unpaid amounts at the rate specified in Section 3.1(c) above. 4. PURCHASE AND SALE 4.1 FORECASTS AND PURCHASE ORDERS. Beginning on the Effective Date, and thereafter sixty (60) days prior to the first day of each calendar quarter, JVC shall provide to CBI a good faith, quarterly written forecast of Products that JVC expects to purchase and prospective customers over the twelve (12) months commencing with the first day of the next calendar quarter ("Forecasts"). The Parties acknowledge that the Forecasts are for CBI's planning purposes only and shall not be binding upon the Parties. JVC and CBI shall meet, by telephone or in person, not less than once per calendar quarter to review Forecasts. 4.2 ORDER AND ACCEPTANCE. All orders shall be by means of signed written Purchase Orders by JVC to a CBI employee designated in writing by CBI, sent to CBI at CBI's address for notice hereunder and proposing a delivery date that is consistent with the Forecasts and not less than sixty (60) days after CBI's receipt of such Purchase Order unless CBI waives this notice requirement when requested by JVC for a particular order ("Purchase Orders"). Orders shall be placed by a signed written Purchase Order, which may be provided to CBI by fax or e-mail. CBI shall accept Purchase Orders by fax, e-mail or in writing within fourteen (14) days of receipt, it being understood that no Purchase Order shall be binding upon CBI until accepted by CBI. CBI shall fulfill Purchase Orders accepted by CBI pursuant to the terms and conditions of this Agreement. CBI shall maintain full production capacity to meet the Purchase Order, but does not guarantee delivery of Products for delivery dates less than sixty (60) days of the Purchase Order. No partial shipment of an order shall constitute the acceptance of the entire order, absent the written acceptance of such entire order. Once accepted by CBI, JVC may cancel or reschedule Purchase Orders for Products only with CBI's prior written approval. 4.3 SHIPPING. All Products delivered pursuant to the terms of this Agreement shall be suitably packed for surface or air shipment, in JVC's discretion, in CBI's standard shipping cartons, and delivered, at JVC's direction, to JVC or a carrier agent, F.O.B. (as the term "F.O.B." is defined under Section 2319 of the California Uniform Commercial Code as of the Effective Date) the shipping location designated by CBI (the "Shipping Location"), at which time risk of loss shall pass to JVC. CBI shall ship Products using the carrier specified in JVC's Purchase Order provided that if JVC does not provide instructions with respect to the carrier to be used, CBI shall select the carrier. All freight, insurance, and other shipping expenses, as well as any special packing expenses incurred by CBI at the request of JVC, shall be paid by JVC. JVC shall also bear all applicable taxes, export taxes, duties and similar charges, and any charges that may be assessed against the Products after -5- delivery to JVC or the carrier at the Shipping Location. All shipments and freight charges shall be deemed correct unless CBI receives from JVC, no later than forty-five (45) days after the shipping date of a given shipment, a written notice specifying the shipment, the purchase order number, and the exact nature of the discrepancy between the order and shipment or discrepancy in the freight cost, as applicable. 4.4 RETURNS. JVC may return Products only with CBI's prior written approval. Products returned to CBI other than under Section 6 shall be returned F.O.B. the destination point designated by CBI (as the term "F.O.B." is defined under Section 2319 of the California Uniform Commercial Code as of the Effective Date) and shall be subject to a restocking fee in an amount equal to ten percent (10%) of the transfer price paid by JVC to CBI for such Products computed in accordance with Section 3.1(a). JVC shall also bear all applicable taxes, export taxes, duties and similar charges, and any charges that may be assessed against the Products in connection with such delivery to CBI at the destination point. 5. INSPECTION AND ACCEPTANCE JVC shall inspect all Products promptly upon receipt thereof and may reject any Product that fails to conform to the warranties set forth in Section 6 below at the time of delivery to JVC, provided that JVC complies with the provisions of Section 6.3 below. JVC may reject any Product rejected by Customers within thirty (30) days of rejection by Customers. Except as set forth in this Section 5 and Section 6 below, JVC shall return Products to CBI only with CBI's prior written approval. 6. LIMITED WARRANTY 6.1 STANDARD CBI SYSTEMS AND CONSUMABLES WARRANTY. CBI warrants to JVC that subject to the exclusions set forth in this Section 6.1 and in Section 6.2 below, the Systems and Consumables shall substantially conform to System Specifications, during the one-year warranty period after installation, covering parts and labor. The foregoing warranty is contingent upon proper use of the Systems and Consumables with the supplied Software in the applications for which they were intended as indicated in the Systems and Consumables label claims. The above limited warranty applies only to defects reported to CBI in accordance with CBI's standard reporting procedures described in the System Specifications and does not apply to any Systems and Consumables which, after dispatch from the Shipping Location, (i) have been altered, (ii) have not been maintained in accordance with any transportation, storage, handling or maintenance instructions supplied by CBI, (iii) have been damaged by negligence or accident, or (iv) have been damaged by acts of nature, vandalism, burglary, neglect, or misuse. In the event of any breach of the above limited warranty, JVC's exclusive remedy and CBI's sole and exclusive liability shall be, at CBI's sole election, within thirty (30) days after the end of the quarter during which defects are reported to CBI, to replace the Systems and Consumables, with Software supplied therewith, at CBI's expense or to provide JVC with a credit or refund in the amount of the transfer price paid by JVC for the non-conforming Systems, Consumables and Software. -6- 6.2 DISCLAIMER OF OTHER WARRANTIES. Except for the limited warranties provided in Section 6.1 above, CBI grants no other warranties or conditions, express or implied, by statute, or otherwise, regarding any or all of CBI Products and specifically disclaim the implied warranties of fitness for a particular purpose, merchantability, and noninfringement. CBI does not warrant that operation of the Systems, Consumables and Software will be uninterrupted or error-free. Any other representations or warranties made by any person or entity, including employees or representatives of CBI, that are inconsistent herewith shall be disregarded and shall not be binding upon CBI. In no event shall CBI be liable to JVC or any third party for lost profits, or for any special, consequential, incidental, or indirect damages for breach of warranty. This limitation shall apply even where CBI has been advised of the possibility of such damage and notwithstanding the failure of the essential purpose of any limited remedy stated herein. 6.3 END USER WARRANTY AND REPRESENTATIONS. JVC shall pass on to Customers the foregoing standard limited warranties and disclaimer set forth in this Section 6. JVC further agrees not to represent the Products in a manner that is inconsistent with the CBI's System Specifications and any other promotional or instructional manuals produced by CBI or to otherwise misrepresent the Products. 7. EXCHANGE OF DATA 7.1 EXCHANGE. JVC shall promptly provide to CBI all Product data ("Data") made, developed, or acquired by or for JVC with respect to Products. CBI shall provide to JVC access to data from Product studies that CBI possesses as of the Effective Date and that is reasonably necessary for JVC to obtain those governmental approvals that JVC is responsible for obtaining pursuant to Sections 8.1 and 8.2 below, to the extent that CBI has the right to disclose such data to JVC for the foregoing purposes. JVC will provide to CBI access to and copies of all government approval applications and other regulatory and governmental filings made by JVC with respect to Products (including, without limitation, pricing approvals), together with the underlying data, promptly after submission to government authorities and shall provide to CBI copies of all correspondence with government authorities with respect to the Products promptly after receipt or submission thereof. All such data, applications, filings and correspondences necessary for government approval and compliance shall be translated into English and provided to CBI. 7.2 DISCLOSURE. CBI may use, reference, and provide copies of regulatory and governmental filings and Data made, developed, or acquired by JVC relating to the Products, to third parties as is reasonably necessary or useful for CBI's business and/or as required by law or regulation. JVC will only use, reference, and disclose Data relating to the Products to third parties as required to obtain governmental approval to market and distribute Products pursuant to Section 8, as required by law or regulation, or, to the extent CBI has authorized JVC to do so and only with CBI's prior written approval which shall not be unreasonably withheld, to market, sell, distribute and promote the Products. JVC shall not enter into any agreements with third parties or Affiliates involving the development or dissemination of Data for sale or otherwise. 8. GOVERNMENT APPROVAL -7- 8.1 HEALTH REGULATORY APPROVAL. JVC, at JVC's expense, shall use commercially reasonable efforts to obtain regulatory approvals from the Ministry of Health and Welfare (KOSEISHO) and other regulatory agencies in the Territory to the extent required by the foregoing regulatory authorities to market, sell and distribute the Products in the Territory. To the extent permitted by law, all regulatory approvals obtained by JVC shall be made in CBI's name. 8.2 REGISTRATIONS, LICENSES AND PERMITS. Except as expressly provided in Section 7.1 above, if and as required from time to time under the laws of any jurisdiction within the Territory, JVC, at JVC's expense, shall obtain all registrations, licenses, and permits required to comply with the laws and regulations within the Territory for marketing, sale and distribution of the Products. JVC shall provide to CBI complete copies of all applications, and all registrations, licenses and permits obtained therefrom relating to the Products. To the extent permitted by law, all registrations, approvals, and government authorizations obtained by JVC in the Territory with respect to the Products shall be in the name of CBI. Upon the expiration, cancellation, or termination of this Agreement, all registrations, approvals, and government authorizations shall be transferred and delivered to, and shall inure to the benefit of CBI or its designee, to the extent that this is permissible under applicable law, at no cost to CBI other than lawfully imposed transfer fees. 9. REPORTS 9.1 ANNUAL BUSINESS PLANS. JVC shall develop an English version of annual business plan for the Products which shall include, without limitation, promotion strategy and tactics, and sales and other marketing plans ("Business Plan" as defined in Section 1.6 and required by Section 4.6 of the Joint Venture Agreement). Any such Business Plan shall be provided to CBI for prior review and approval, which approval shall not be unreasonably withheld. The Business Plan for the first year of this Agreement shall be provided to CBI within three (3) months after the Effective Date. Thereafter, if requested, Business Plans shall be provided to CBI for review and approval by CBI not later than ninety (90) days before January 1 of the year to which such Business Plan pertains. JVC's Board of Directors shall discuss and update the Business Plan at least once every calendar year. 9.2 SALES AND INVENTORY REPORTS. If requested by CBI, JVC shall provide to CBI semi-annual sales and inventory reports setting forth JVC's sales and inventory of Products, on a Product-by-Product basis, during the prior six (6) month period. If requested, such sales and inventory reports shall be submitted to CBI within thirty (30) days after June 30 and December 31 of each calendar year. 9.3 MARKETING REPORTS. At CBI's request, JVC shall provide CBI, within ten (10) Working Days after the end of each calendar quarter, a general description of JVC's activities in promoting the Products in the Territory during the previous calendar quarter. 9.4 AUDITS. Without limiting the provisions of Section 3.3 above, CBI reserves the right to authorize a CBI representative, at CBI's expense, to audit JVC's records other than the books and records described in Section 3.3, relating to the Products, including, without limitation, sales and -8- inventory records. Upon prior written notice, JVC shall provide reasonable access to such inventory records during normal business hours at JVC's business locations. JVC shall maintain all such records relating to Products at its principal place of business for a minimum of five (5) years. 10. ADDITIONAL OBLIGATIONS OF JVC 10.1 INVENTORY. JVC shall maintain a quantity of each Product at all times during the Term of this Agreement as reasonably necessary in order to meet the demand of JVC's Customers and potential Customers. 10.2 TRANSLATION. JVC shall at its cost provide any and all resources necessary to translate all required manuals, instructions, literature, and package insert data sheets for use in the Territory, and shall provide CBI and the applicable regulatory authorities sufficient quantities of such materials to meet governmental and/or regulatory, and market support requirements. 10.3 TRAINING. JVC shall maintain knowledgeable sales and marketing personnel to provide instructions to Customers in the use of the Products. JVC agrees that such sales and marketing personnel will, at JVC's expense, attend a hands-on sales training session provided by CBI with respect to the Products. CBI agrees to provide such training at CBI's expense under Section 11.1, except that CBI shall not pay for travel or other similar expenses incurred by JVC personnel. 10.4 BUSINESS OBLIGATIONS. Any and all obligations associated with JVC's business shall remain the sole responsibility of JVC. Any and all sales and other agreements between JVC and its customers are and shall remain JVC's exclusive responsibility and shall have no affect on JVC's obligations pursuant to this Agreement. 10.5 COPYRIGHT AND TRADEMARK PROTECTION; NOTICE OF INFRINGEMENT. JVC shall promptly notify CBI of the requirements for copyright and trademark protection and registration for the Products in the Territory and, at CBI's request, shall assist CBI in fulfilling such requirements. JVC agrees to notify CBI of any infringement in the Territory of CBI's intellectual property rights immediately after JVC becomes aware of any such infringement. If Baylor University ("Baylor") or Molecular Analytical Systems, Inc. ("MAS") notifies CBI of any third party claim that a Product infringes on the third party's patent or of any action by Baylor or MAS against a third party whose product infringes on patents held by Baylor or MAS and applicable to any Product, CBI shall immediately notify JVC. CBI shall immediately notify JVC of any breach of the agreements between Baylor and MAS, and between MAS and CBI which could reasonably be expected to result in termination or modification of MAS's or CBI's license to the technology embodied in the Products. CBI shall, promptly after signing this Agreement, send Baylor and MAS a written request for them to send SC a copy of any notice sent to CBI of such an infringement action or breach. 10.6 FOREIGN CORRUPT PRACTICES ACT. In conformity with the United States Foreign Corrupt Practices Act, JVC (including employees, agents, and Affiliates of JVC) shall not directly or indirectly make any offer, payment, promise to pay, or authorize payment, or offer a gift, promise to give, or authorize the giving of anything of value for the purpose of influencing an act or decision of -9- an official of any government within the Territory or the United States Government (including a decision not to act) or inducing such official to use his or her influence to affect any such governmental act or decision in order to assist JVC in obtaining, retaining, or directing any such business. 10.7 ADVERTISING AND PROMOTIONS. JVC shall be responsible for all Product marketing commitments and procedures in the Territory in the Field. JVC shall use reasonable efforts to advertise and promote the Products and to transmit Product information and promotional materials to its Customers, in order to maximize Product sales in the Territory. Such advertising and promotion may take the form of, but shall not be limited to, magazine advertising, direct mail promotion, trade show displays, educational seminars and other activities related to promoting Products. 10.8 MATERIALS. JVC shall provide to CBI for purposes of review, comment, and revision by CBI all promotional, advertising, instructional and educational materials and programs, package data sheets, and other literature relating to the Products ("Materials") at least thirty (30) days prior to the commercial release of such materials or commencement of such programs. JVC shall provide CBI with English versions of the Materials. JVC, at JVC's expense, shall produce Japanese language samples of promotional and marketing support materials for the Products. Such materials shall include, without limitation, brochures and advertising literature. 10.9 PRODUCT PACKAGING AND LABELING. JVC shall not repackage Products supplied to JVC by CBI hereunder without the prior written consent of CBI. In addition, except for the addition of information required by applicable laws and regulations within the Territory, JVC shall not relabel Products supplied to JVC by CBI in Japanese or English without the prior written consent of CBI. CBI hereby agrees that, subject to the terms and conditions of Section 14, JVC may label the Products with the JVC tradename and trademarks, provided JVC agrees to label all Products with the following legend in the Japanese language: "Distributed under authority from Ciphergen Biosystems, Inc.", or a substantially equivalent legend. 10.10 ACCESS. JVC shall, at CBI's request, allow representatives of CBI to visit Customers, purchasers, and any other end users of Products in the Territory with JVC personnel and/or independently to discuss the Products and their performance and potential new products. 11. ADDITIONAL OBLIGATIONS OF CBI 11.1 TRAINING. CBI shall provide regularly scheduled hands-on sales training sessions in the use of Products for JVC's sales, marketing and technical support personnel involved in Product sales and service. All expenses incurred by JVC's personnel in connection with all training including, without limitation, travel and lodging expenses, shall be borne by JVC. Travel and lodging expenses of CBI's personnel in connection with such training shall be borne by CBI. Training shall be conducted at mutually agreed facilities in Japan or in the United States. 11.2 TECHNICAL SUPPORT. CBI shall provide any reasonably necessary technical support to JVC in respect of the Products until six (6) months following the Effective Date, after which time -10- CBI shall provide reasonable technical support to JVC, in a form and amount and on terms to be agreed by the CBI and JVC. 11.3 EQUIPMENT DEMONSTRATIONS. At JVC's request, CBI shall perform equipment demonstrations in Japan or in the United States, including and up to four (4) visits ("Visits") to Japan each year. Equipment demonstrations may be held at Customers' onsite facilities as agreed upon by JVC and CBI. 11.4 SEMINARS. At JVC's request, CBI shall conduct educational or practical seminars in Japan or in the United States, during the Visits under Section 11.3. Seminars may also be held at Customers' onsite facilities as agreed upon by JVC and CBI. 11.5 PAYMENT. JVC shall pay CBI 37,500,000 yen in cash as a non-refundable, advance payment for CBI services under Sections 11.1, 11.2, 11.3, and 11.4 above. Payment shall be made in United States dollars in immediately available funds to a bank account designated by CBI by wire transfer within 15 days of the Effective Date. 12. TERM AND TERMINATION 12.1 TERM. The initial term ("Initial Term") of this Agreement shall commence on the Effective Date and continue in full force and effect until ten (10) years from the Effective Date, unless earlier terminated pursuant to this Section 12. Thereafter, this Agreement will automatically renew for additional renewal terms of one (1) year (each a "Renewal Term"), unless earlier terminated by either Party pursuant to this Section 12 or by written notice to the other Party at least sixty (60) days prior to the expiration of the Initial Term or any Renewal Term. The Initial Term and Renewal Terms are referred to collectively herein as the "Term." 12.2 TERMINATION FOR CAUSE. If a Party has breached or defaulted in the performance of any of its material obligations hereunder, and such breach or default has not been cured within ten (10) days, the non-breaching Party may terminate this Agreement by written notice. 12.3 TERMINATION UPON BANKRUPTCY, INSOLVENCY OR INVOLUNTARY LIQUIDATION OR DISSOLUTION OF JVC. If, before CBI Buyout, JVC becomes subject to any of the following, this Agreement shall terminate. If, after CBI Buyout, JVC becomes subject to any of the following, this Agreement shall continue and shall become assignable to SC if JVC is liquidated or dissolved. (a) JVC becomes insolvent or unable to pay any or all of its debts as they mature or ceases to pay any or all of its debts as they mature in the ordinary course of business. (b) Appointment of a custodian for all or substantially all of JVC's assets. (c) The determination by a court or tribunal of competent jurisdiction that the JVC is insolvent. -11- (d) Any application or petition is submitted, by or for JVC, for commencement of proceedings of bankruptcy, composition or other similar proceedings under the applicable law. (e) Proceedings for liquidation or dissolution are commenced involuntarily. 12.4 TERMINATION UPON VOLUNTARY LIQUIDATION OR DISSOLUTION OF JVC. If, before CBI Buyout, JVC is voluntarily liquidated or dissolved, this Agreement shall terminate. If, after CBI Buyout, JVC is voluntarily liquidated or dissolved, and SC at that time has an equity interest in JVC, this Agreement shall continue and be assigned to SC. 12.5 TERMINATION UPON GOVERNMENTAL ALTERATION OR MODIFICATION. If any government or agency having jurisdiction over JVC requires alteration or modification of this Agreement or the Joint Venture Agreement, and the JVC is liquidated or dissolved upon such alteration or modification, this Agreement shall terminate. 12.6 TERMINATION RELATING TO SALES OF COMPETING PRODUCTS. JVC shall not distribute in the Territory any products that compete with Products in the Field. CBI may, at its sole discretion, terminate this Agreement with ten (10) days notice if JVC shall directly or indirectly develop, market, sell, or otherwise distribute any products, components, chips, chip arrays, which could compete with the Products in the Field, or any information or data derived from the use of Systems, Consumables and Software, or JVC appoints or licenses any third party to develop, market, sell, or otherwise distribute any products or components which could compete with Products in the Field during the Term of this Agreement. 12.7 EFFECT OF TERMINATION. (a) Expiration or termination of this Agreement for any reason shall not release any Party hereto from any liability which, at the time of such termination, has already accrued to the other Party or which is attributable to a period prior to such termination nor preclude either Party from pursuing any rights and remedies it may have hereunder or at law or in equity with respect to any breach of this Agreement. It is understood and agreed that monetary damages may not be a sufficient remedy for any breach of this Agreement and that the non-breaching Party may be entitled to injunctive or other equitable relief as a remedy for any such breach. Such remedy shall not be deemed to be the exclusive remedy for any such breach of this Agreement, but shall be in addition to all other remedies available at law or in equity. (b) Within ten (10) days after the effective date of termination of this Agreement, JVC shall use its reasonable efforts to provide CBI with a complete inventory of Products in JVC's possession, in transit to JVC from CBI or otherwise in JVC's control. Upon any expiration or other termination of this Agreement, CBI may inspect JVC's Product inventory and audit JVC's records in the manner provided in Section 9.4 above. (c) Upon expiration or any termination of this Agreement, CBI or its designee may repurchase (and in the event that CBI terminates this Agreement pursuant this Section 12, CBI -12- or its designee shall repurchase) and JVC shall sell to CBI or its designee, all of JVC's inventory of Products existing on the effective date of termination and ordered from CBI during the six (6) month period prior to the effective date of termination. The price of inventory repurchased upon JVC's termination of this Agreement pursuant to this Section 12 shall be the transfer price paid by JVC net of any prior JVC price adjustment, credits or other allowances. If CBI terminates this Agreement pursuant to this Section 12, then a restocking charge of ten percent (10%) of the repurchase price shall be deducted from the transfer price for Products repurchased upon termination. Products repurchased from JVC by CBI pursuant to this Section 12.6(c) shall be shipped promptly by JVC, at CBI's expense, to a location specified by CBI. 12.8 RETURN OF MATERIALS. Within thirty (30) days after the effective date of termination of this Agreement, JVC shall destroy all tangible items bearing, containing, or contained in, any of the foregoing, in its possession or control and certify such destruction, or prepare such tangible items for shipment, as CBI may direct, at CBI's expense. Effective upon the termination of this Agreement, JVC shall cease to use all trademarks and trade names of CBI, including without limitation the Marks (as defined under Section 14.2 below). 12.9 NO RENEWAL, EXTENSION OR WAIVER. Acceptance of any order from, or sale of, any Product to JVC after the date of termination of this Agreement shall not be construed as a renewal or extension of this Agreement, or as a waiver of termination by CBI. 12.10 LIMITATION OF LIABILITY UPON TERMINATION. In the event of termination by either Party in accordance with any of the provisions of this Agreement, neither Party shall be liable to the other, because of such termination, for compensation, reimbursement or damages on account of the loss of prospective profits or anticipated sales or on account of expenditures, inventory, investments, leases or commitments in connection with the business or goodwill of CBI or JVC. 12.11 SURVIVAL OF CERTAIN TERMS. The provisions of Sections 1, 3.2, 6, 13, 14.1, 14.3, 15, and 16.14 shall survive the expiration or termination of this Agreement for any reason. 13. LIMITED LIABILITY TO JVC AND OTHERS CBI's liability arising out of this agreement and/or the sale of the Products shall be limited to the aggregate amounts paid by JVC to CBI for the Products under this agreement. In no event shall either Party be liable for costs of procurement of substitute goods by anyone. In no event shall either Party be liable to the other Party or any other Person for any special, consequential or incidental damages, however caused and on any theory of liability arising out of this agreement, and whether or not such Party has been advised of the possibility of such damage. These limitations shall apply notwithstanding any failure of essential purpose of any limited remedy provided herein. Notwithstanding the foregoing provisions of this Section 13, the foregoing limitations of liability set forth in this Section 13 shall not apply to liability arising under Sections 2, 7, 10.5, 14, 15, or 16.14 and shall not affect the remedies expressly provided in Section 6. 14. TRADEMARKS AND TRADE NAMES -13- 14.1 RIGHTS. All trademarks, marks, trade names, trade dress, designs, artwork, photographs, samples, literature, sales and promotional aids of every kind relating to the Products shall remain the property of CBI. JVC shall not file any application for the foregoing intellectual property rights without CBI's prior written consent. 14.2 IDENTIFICATION. During the term of this Agreement, JVC shall have the right and agrees to advertise and promote the Products under CBI's trademarks and trade names identified on EXHIBIT A ("Marks"), and as such marks as may be added to EXHIBIT A by CBI's written notice to JVC and as modified by CBI pursuant to this Section 14. CBI reserves the right to modify Marks or substitute alternative marks for any or all of the Marks at any time upon thirty (30) days prior written notice. JVC agrees to use the Marks in connection with Products as may be designated in writing by CBI. The rights granted under this Section 14 shall automatically terminate on termination or expiration of this Agreement. 14.3 USE. JVC shall not remove, modify, translate or obscure Marks affixed to Products without the prior written consent of CBI. Except as set forth in this Section 14.2, nothing contained in this Agreement shall grant to JVC any right, title, or interest in or to Marks, whether or not specifically recognized or perfected under applicable laws, and JVC irrevocably assigns to CBI all such right, title, and interest, if any, in any Marks. At no time during or after the term of this Agreement shall JVC challenge or assist others to challenge Marks or the registration thereof or attempt to register any trademarks, marks, or trade names confusingly similar to Marks. All representations of Marks that JVC intends to use shall first be submitted to CBI for approval (which shall not be unreasonably withheld) of design, color, and other details, including any Japanese translation thereof or shall be exact copies of those used by CBI. In addition, JVC shall fully comply with all reasonable guidelines, if any, communicated by CBI concerning the use of Marks. 15. CONFIDENTIALITY JVC may provide information, technical and otherwise, about Products to prospective Customers if and only if a prospective Customer has signed CBI's standard form confidentiality agreement, a copy of which is attached as EXHIBIT B. CBI may, within fifteen (15) days prior notice to the JVC, amend or change the form confidentiality agreement. 16. GENERAL PROVISIONS 16.1 ARBITRATION; FORUM. (a) All other disputes, controversies or claims arising out of or relating to this Agreement, or the breach, termination or validity thereof, shall be resolved by one arbitrator under the Rules of International Chamber of Commerce which rules are hereby incorporated by reference into this Section 16. The place of arbitration shall be Honolulu, Hawaii. The language to be used in the arbitration proceedings shall be English. The arbitrator may be of any nationality, but must have knowledge of the life sciences research market in Japan and in the United States. The arbitral award shall be rendered in writing and state the reasons for the award. Judgment on any award may be -14- entered by any court of competent jurisdiction or application may be made to such a court for judicial acceptance of the award and any appropriate order including enforcement. (b) In case of litigation arising out of this Agreement, the prevailing Party shall be entitled to recover its reasonable attorneys' fees and expenses from the other Party. In case of arbitration, the arbitrators shall award reasonable attorneys' fees and expenses to either Party in such manner and to such extent as the arbitrators deem equitable. (c) Notwithstanding the foregoing, the Parties may apply to any court of competent jurisdiction for a temporary restraining order, preliminary injunction, or other interim or conservatory relief, as necessary, without breach of this section, and without any abridgement of the powers of the arbitrator. 16.2 INDEPENDENT CONTRACTORS. The relationship of the Parties established by this Agreement is that of independent contractors, and nothing contained in this Agreement shall be construed to (i) give either Party the power to direct or control the day-to-day activities of the other, (ii) constitute the Parties as partners, joint venturers, co-owners or otherwise as participates in a joint or common undertaking, or (iii) allow a Party to create or assume any obligation on behalf of the other Party for any purpose whatever. Neither Party will represent that it has any authority to assume or create any obligation, express or implied, on behalf of the other Party, or to represent the other Party as agent, employee, or in any other capacity. 16.3 FORCE MAJEURE. If the performance of this Agreement or any obligations hereunder is prevented, restricted or interfered with by reason of fire or other casualty or accident, strikes or labor disputes, war or other violence, any law, order, proclamation, regulations, ordinance, demand or requirement of any government agency, or any other act or condition beyond the reasonable control of the Parties hereto, the Party so affected upon giving prompt notice to the other Parties shall be excused from such performance during such prevention, restriction or interference. 16.4 LAW TO GOVERN. This Agreement shall not be governed by the 1980 United Nations Convention on Contracts for the International Sale of Goods. This Agreement and all acts and transactions pursuant hereto and the rights and obligations of the Parties hereto shall be governed, construed and interpreted in accordance with the laws of the State of California, without reference to rules of conflicts or choice of laws. 16.5 PUBLICITY. Prior to issuing any reports, statements, press releases or other disclosures to third parties regarding this Agreement or the transactions contemplated herein, the Parties shall exchange copies of such documents and shall consult with each other regarding their content. Except as otherwise required by law, neither Party shall issue any such disclosure without the prior approval of the other Party. 16.6 NOTICES AND OTHER COMMUNICATIONS. Every notice by either CBI or JVC shall be in writing and delivered either by personal delivery, or by Express Mail or any similar overnight courier service, or by registered or certified mail, postage prepaid, or by facsimile or electronic mail, -15- addressed to the Party for whom intended at its address set forth above, or at such other address as the intended recipient previously shall have designated by written notice to the other Party. All notices delivered in person shall be deemed to have been delivered to and received by the addressee and shall be effective on the date of personal delivery. All notices delivered by Express Mail or any other similar overnight courier service shall be effective upon receipt. All notices delivered by registered or certified mail, or by fax or e-mail, shall be effective upon receipt. 16.7 COUNTERPARTS. This Agreement may be executed in any number of English language counterparts or duplicate originals, and each such counterpart or duplicate original shall constitute an original instrument, but all such separate counterparts or duplicate originals shall constitute one and the same instrument. 16.8 WRITTEN AGREEMENT TO GOVERN. This Agreement sets forth the entire understanding and supersede all prior and contemporaneous agreements and discussions between the Parties relating to the specific subject matter contained herein and therein, and neither Party shall be bound by any definition, condition, representation, warranty, covenant or provision other than as expressly stated in or contemplated herein or therein or as subsequently shall be set forth in writing and executed by a duly authorized representative or agent of CBI or JVC to be bound thereby. 16.9 NO WAIVER OF RIGHTS. All waivers hereunder must be made in writing, and failure at any time to require the other Party's performance of any obligation under this Agreement shall not affect the right subsequently to require performance of that obligation. No waiver of any breach of any provision of this Agreement shall be construed as a waiver of any continuing or succeeding breach of such provision or a waiver or modification of such provision. 16.10 SEVERABILITY. Whenever possible, each provision of this Agreement shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Agreement should be prohibited or invalid under applicable law, (including, without limitation, objections by the Japanese Fair Trade Commission) such provisions shall be ineffective to the extent of such prohibition or invalidity without invalidating the remainder of such provision or the remaining provisions of this Agreement. In such event, the Parties agree to negotiate, in good faith, a valid, legal and enforceable substitute provision which most nearly effects the Parties' intent in entering into this Agreement. 16.11 SUBJECT HEADINGS. The subject headings of the Sections of this Agreement are included for the purposes of convenience only, and shall not affect the construction or interpretations of any of its provisions. 16.12 FURTHER ASSURANCES. The Parties shall each perform such acts, execute and deliver such instruments and documents, and do all such other things as may be reasonably necessary to accomplish the transactions contemplated in this Agreement. 16.13 EXPENSES AND FINDER'S FEES. The Parties shall each bear their own costs and expenses (including attorneys' fees) incurred in connection with the negotiation and preparation of -16- this Agreement and the consummation of the transactions contemplated hereby. Each Party shall indemnify the other against any claim for brokerage or finder's fees arising out of the transactions contemplated herein by any person claiming to have been engaged by the indemnifying Party based upon any action or communication, or any alleged action or communication, by the indemnifying Party or any of its officers or employees. 16.14 CONFIDENTIALITY OF AGREEMENT. CBI and JVC shall hold in confidence and not disclose to any third party, without the prior written consent of the other Party, the terms and conditions of the Agreement, provided that each Party may disclose the terms and conditions of this Agreement: (a) as required by any court or other governmental body; (b) as otherwise required by law; (c) to legal counsel of the Parties; (d) in confidence, to accountants, banks and financing sources and their advisors; (e) in connection with the enforcement of this Agreement or rights under this Agreement; or (f) in confidence, in connection with a merger or acquisition or proposed merger or acquisition, or the like. 16.15 LANGUAGE. This Agreement is in the English language only, which language shall be controlling in all respects, and all versions hereof in any other language shall be for accommodation only and shall not be binding upon the Parties hereto. All communications and notices to be made or given pursuant to this Agreement shall be in the English language. 16.16 ASSIGNMENT. This Agreement shall inure to benefit of, and shall be binding upon, the Parties and their respective successors and assigns. No Party may assign or delegate this Agreement or any of its rights or duties under this Agreement, except that a Party may transfer this Agreement, without the consent of the other Party, to a Person or entity into which it has merged or which has otherwise succeeded to all or substantially all of the business and assets of the assignor ("Successor"), and which has assumed in writing the assignor's obligations under this Agreement. Such a Change of Control shall have no effect whatsoever on either party's rights under this Agreement. CBI agrees that as a part of CBI's Change of Control, CBI shall cause the acquiror to sign an agreement confirming the terms and conditions of this Agreement. -17- IN WITNESS WHEREOF, the undersigned are duly authorized to execute this Agreement on behalf of CBI and JVC as applicable. CIPHERGEN BIOSYSTEMS, INC. Ciphergen Biosystems K.K. ("CBI") ("JVC") By: By: ---------------------------------- ------------------------------- Print Name: Print Name: -------------------------- ----------------------- Title: Title: ------------------------------- ---------------------------- -18- EXHIBIT A --------- MARKS ProteinChip Array-TM- SELDI-TM- EX-10.27 10 EXHIBIT 10.27 [LETTERHEAD] JOINT DEVELOPMENT PROGRAM TIME-OF-FLIGHT MASS SPECTROMETER Stanford Research Systems and Abiotic Systems agree to enter into a joint development program. In consideration of design, development, productizing, and promotional support, and $1,100,000 in cash from Stanford Research Systems, Abiotic Systems will provide to Stanford Research Systems 2,200,000 shares of Series B Preferred Stock. 1) SRS will cover all of its own development and production-engineering costs for the system development. 2) SRS will provide assistance with literature design and preparation (there will be no cost for SRS labor and equipment-time; outside costs and materials will be covered by Abiotic Systems). 3) Abiotic Systems will develop their own proprietary software and analysis package. 4) SRS will sell the complete system to Abiotic Systems for two times the direct material costs for all components for the system except the computer, which will be transferred at cost. If a laser is purchased as an outside end-item, it will also be transferred at cost. If a laser is developed by SRS, it will be transferred at two times material costs. Any fees such as sales tax, royalty payments, etc. will be passed on directly. This discounted selling agreement will last for two years with an option by Abiotic Systems for five additional years. The transfer price of the first 30 systems will not exceed $35,000. 5) Upon execution of this agreement, SRS will pay Abiotic Systems $1,100,000. SRS will receive 1,100,000 shares of Series B Preferred Stock. The remaining 1,100,000 shares will be distributed as follows: a) 275,000 shares upon delivery of a prototype digitizer. b) 275,000 shares upon delivery of a prototype TOF spectrometer. c) 275,000 shares upon delivery of a production digitizer. d) 275,000 shares upon delivery of a production TOF spectrometer. 6) Both parties will have free access to all design and documentation materials for five years. Both parties will have unrestricted right to manufacture and sell this product. These rights and access to design and documentation materials shall also apply to any laser developed during this period. The software and chemicals suite developed by Abiotic Systems shall remain the exclusive property of Abiotic Systems. /s/ WILLIAM R. GREEN /s/ WILLIAM E. RICH -------------------------------- -------------------------------- Stanford Research Systems Abiotic Systems President & CEO President & CEO February 2, 1995 February 2, 1995 EX-23.2 11 EXHIBIT 23.2 EXHIBIT 23.2 CONSENT OF INDEPENDENT ACCOUNTANTS We hereby consent to the use in this Registration Statement on Form S-1 of our report dated March 6, 2000, except for Note 14 for which the date is April , 2000, relating to the financial statements of Ciphergen Biosystems, Inc., which appears in such Registration Statement. We also consent to the references to us under the heading "Experts" in such Registration Statement. /s/ PRICEWATERHOUSECOOPERS LLP PricewaterhouseCoopers LLP San Jose, California March 20, 2000 EX-27.1 12 EXHIBIT 27.1
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE AUDITED FINANCIAL STATEMENTS OF CIPHERGEN BIOSYSTEMS, INC. AS OF DECEMBER 31, 1998 AND 1999 AND FOR THE YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 0000926617 CIPHERGEN BIOSYSTEMS, INC. 1,000 YEAR YEAR YEAR DEC-31-1997 DEC-31-1998 DEC-31-1999 JAN-01-1997 JAN-01-1998 JAN-01-1999 DEC-31-1997 DEC-01-1998 DEC-01-1999 0 7,002 2,799 0 0 0 0 1,112 1,098 0 (40) (100) 0 730 722 0 9,035 4,841 0 1,479 2,017 0 (688) (1,150) 0 10,082 6,147 0 2,419 3,308 0 0 0 0 0 0 0 24,264 25,339 0 16 16 0 (16,998) (23,296) 0 10,082 6,147 1,283 2,933 5,010 1,283 2,933 5,010 1,001 1,066 1,669 1,001 1,066 1,669 6,865 10,034 10,966 0 0 0 236 488 179 (6,809) (8,310) (7,681) 0 0 0 (6,809) (8,310) (7,681) 0 0 0 0 0 0 0 0 0 (6,809) (8,310) (7,681) (1.01) (0.72) (0.52) (1.01) (0.72) (0.52)
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