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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[X] Annual Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the Fiscal Year Ended December 31, 1996
[_] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the Period From _________ to __________.
Commission File Number: 0-27188
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PHARMACOPEIA, INC.
(Exact name of Registrant as specified in its charter)
Delaware 33-0557266
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification number)
101 College Road East, Princeton, NJ 08540
(Address of principal executive offices and zip code)
(609) 452-3600
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act: None
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Securities registered pursuant to Section 12(g) of the Act: Common
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Stock $.0001 Par Value
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Indicate by check mark whether the Registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter periods as the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
YES X NO
-- --
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [_]
The approximate aggregate market value of voting stock held by
nonaffiliates of the Registrant was $151,580,618 based on the last sale price of
Common Stock reported on The Nasdaq National Market on January 31, 1997.
3,594,086 shares of Common Stock held by officers, directors, and holders of 5%
or more of the outstanding Common Stock have been excluded in that such persons
may be deemed to be affiliates. This determination of affiliate status is not
necessarily a conclusive determination for other purposes.
As of January 31, 1997, the number of outstanding shares of the
Registrant's Common Stock was 11,269,054.
DOCUMENTS INCORPORATED BY REFERENCE
Certain information required by Part III of Form 10-K is incorporated
by reference from the Registrant's Proxy Statement for the Annual Stockholders
Meeting to be held May 9, 1997 (the "Proxy Statement"), which will be filed with
the Securities and Exchange Commission within 120 days after the close of the
Registrant's fiscal year ended December 31, 1996.
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PHARMACOPEIA, INC.
1996 Form 10-K
Table of Contents
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Page
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PART I...................................................................... 3
ITEM 1. BUSINESS............................................... 3
ITEM 2. PROPERTIES.............................................17
ITEM 3. LEGAL PROCEEDINGS......................................17
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS....17
PART II.....................................................................18
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS....................................18
ITEM 6. SELECTED FINANCIAL DATA................................19
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS....................20
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA............22
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE....................22
PART III....................................................................22
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.....22
ITEM 11. EXECUTIVE COMPENSATION.................................23
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT.............................................23
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.........23
PART IV.....................................................................23
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS
ON FORM 8-K............................................23
SIGNATURES..................................................................27
REPORT OF INDEPENDENT AUDITORS.............................................F-1
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PART I
ITEM 1. BUSINESS
Overview
Since its inception in March 1993, Pharmacopeia, Inc. ("Pharmacopeia"
or the "Company"), a Delaware corporation, has focused its research efforts in
developing a novel, proprietary technology for accelerating the pace of drug
discovery for its pharmaceutical and biotechnology customers. The Company's
Encoded Combinatorial Library on Polymeric Support ("ECLiPS(TM)") technology
addresses a key challenge in the drug discovery process: generating and
evaluating large numbers of diverse and readily identifiable small molecule
compounds to find new, orally active drugs. ECLiPS enables the Company to
generate hundreds of thousands of small molecule compounds at a fraction of the
cost of traditional chemical synthesis methods. The Company focuses on drug
discovery, and seeks customers to develop, manufacture, market and sell
resulting drugs. To date, the Company has signed contracts with several
customers, including Schering Corporation and Schering-Plough Ltd. (collectively
"Schering-Plough"), Berlex Laboratories, Inc. ("Berlex"), Sandoz Pharmaceutical
Ltd. ("Sandoz"), Bayer Corporation ("Bayer"), Daiichi Pharmaceutical Co., Ltd.
("Daiichi") and N.V. Organon ("Organon").
The Company's technology supports its pharmaceutical and
biotechnology customers in improving their drug discovery productivity. The
Company uses "pool and split" combinatorial chemistry to build collections, or
libraries, of 10,000 to 500,000 or more small molecule compounds by performing
only 50 to 200 individual chemical reactions. The Company's ECLiPS technology
offers substantial productivity improvements as compared to the 10,000 to
500,000 or more reactions that would be required to prepare similarly sized
chemical libraries by synthesizing each compound individually. The ECLiPS
productivity advantage results from the Company's synthesis of compounds on tiny
plastic beads in large mixtures. After each solid phase synthesis step,
proprietary tags are attached to the beads to indicate the chemical building
block and reaction conditions used in that step. These stable, easily detectable
tags enable the Company to rapidly identify from the mixture any compound that
is active in a biological screening assay. The Company's tagging technology is
licensed exclusively from Columbia University ("Columbia") and Cold Spring
Harbor Laboratory ("Cold Spring").
Pharmacopeia's objective is to be among the industry leaders in the
discovery and optimization of novel drug candidates. The Company's
commercialization strategy is to pursue collaborations with pharmaceutical and
biotechnology companies. Pursuant to collaborative agreements, the Company
licenses its libraries for screening by customers, forms drug discovery
collaborations with its customers and plans to license internally developed
compounds. The Company's technology strategy is to enhance productivity through
cost reductions and increased throughput and to build the Company's library
collection and its knowledge base of the relationships between chemical
structures and biological targets for use in future drug discovery programs.
When used in this Report, the words "expects", "believes",
"anticipates", "estimates" and similar expressions are intended to identify
forward-looking statements. Such statements are subject to risks and
uncertainties, including those set forth under the caption "Business --
Important Factors Regarding Forward Looking Statements" and elsewhere in this
Report, that could cause actual results to differ materially from those
projected. These forward-looking statements speak only as of the date of this
Report and the Company disclaims any undertaking to publicly update or revise
any forward-looking statements contained herein to reflect any change in the
Company's expectations with regard thereto or any change in events, conditions
or circumstances on which any such statement is based.
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Pharmacopeia's Drug Discovery Technology
A major bottleneck in the drug discovery process is the limited
number and diversity of available chemical compounds. Using traditional manual
chemical synthesis techniques, a chemist is usually able to synthesize only 25
to 50 compounds per year. The low productivity of manual synthesis severely
constrains the number of compounds available for screening in order to identify
active compounds and provide the basis for initial structure-activity
relationships ("SAR") analysis. Manual synthesis also slows the optimization
process by limiting the number of analogs synthesized and tested.
Numerous technologies have been developed to accelerate the synthesis
of chemical compounds. Several early methods were based on either automated or
combinatorial chemical synthesis of oligonucleotides and peptides, which are not
generally useful as oral drugs. Combinatorial chemistry involves the synthesis
of large numbers of different chemical compounds by creating all possible
combinations of a set of chemical components, or building blocks. More recent
methods include robotic synthesis and various combinatorial chemistry approaches
to synthesizing libraries of small molecules, which are generally preferred by
pharmaceutical companies as drug development candidates.
The Company believes that its drug discovery technology offers a
unique solution to the bottleneck that constrains the drug discovery process.
The Company's combinatorial chemistry technology generates large, diverse
libraries of the small molecules favored by pharmaceutical companies for
development. Most importantly, Pharmacopeia's technology uses solid phase
synthesis and an encoding system to permit rapid identification of compounds
synthesized in combinatorial mixtures.
Pharmacopeia's ECLiPS technology uses "pool and split" combinatorial
chemistry to generate large, diverse libraries of 10,000 to 500,000 or more
small molecule compounds by performing only 50 to 200 individual chemical
reactions. The Company is able to synthesize a large number of widely diverse
libraries of small molecule compounds because its chemists can combine a nearly
unlimited set of chemical building blocks using a wide variety of reactions.
Although large libraries of peptides, oligonucleotides and other oligomers can
be generated, their diversity is constrained by the limited number of building
blocks and the fewer reactions available to combine them.
The Company uses ECLiPS to build libraries of small, low molecular
weight (less than 700 Daltons) compounds, predominantly heterocycles. These low
molecular weight compounds are preferred by pharmaceutical companies because
they are more likely to be orally active (effective as drugs in tablet or
capsule form), tend to have longer duration of action and are less expensive to
manufacture. In contrast, natural peptide and oligonucleotide drugs are usually
degraded by human digestive system enzymes and generally must be administered by
injection. In addition, peptide and oligonucleotide drugs are often quickly
eliminated from the body, which limits their duration of action.
Pharmacopeia's ECLiPS technology allows the Company to quickly
identify the chemical structure of individual small compounds synthesized in
combinatorial mixtures. This identification is made possible through the use of
the Company's encoded solid phase synthesis technology. Solid phase synthesis
generally refers to the synthesis of compounds on tiny plastic beads. Encoding
refers to the tags that the Company attaches to each bead as a compound is
synthesized. These tags allow the Company to rapidly identify the chemical
structure of each compound.
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Description of Pharmacopeia's Drug Discovery Technology
The Company's drug discovery approach encompasses its ECLiPS
technology, assay technology, production automation, information systems and
quality assurance programs.
ECLiPS Technology
The ECLiPS technology is the central component of the Company's
integrated drug discovery approach. ECLiPS includes solid phase synthesis,
combinatorial chemistry and encoding molecules.
Solid Phase Synthesis. The Company has developed proprietary methods
and procedures for performing a variety of small molecule chemical reactions on
tiny plastic beads. In this approach to chemical synthesis, known as solid phase
synthesis, compounds are bound to these tiny plastic beads using special
linkers. This approach offers several advantages over solution phase synthesis.
Solid phase synthesis can often result in higher yields because the beads can be
repeatedly re-exposed to reactants until the desired reaction product has
reached a satisfactorily high yield. Solid phase synthesis also facilitates the
isolation of individual compounds. Beads can be washed with solvents to remove
byproducts, and an individual compound can then be isolated from a mixture by
removing a single bead and breaking the linkage to detach the compound from the
bead.
The Company believes that its experience in solid phase synthesis of
diverse, heterocyclic, small compounds is a key competitive advantage. Large,
diverse libraries of these small molecules are more difficult to synthesize than
libraries of oligonucleotides or peptides. The great diversity of chemical
building blocks and the variety of chemical reactions that must be used in
synthesizing these small molecules require a wide range of reaction conditions,
including temperature, pH, solvents, catalysts and other variables. Each
chemical reaction must be optimized to achieve high yields of the desired
compound.
Combinatorial Chemistry. The Company's ECLiPS technology employs
"pool and split" combinatorial chemistry. For example, a chemist using a five
step reaction sequence and ten building blocks per step can synthesize a mixture
of 100,000 different chemicals by performing only 50 chemical reactions. Using
larger numbers of building blocks or steps can create larger libraries. This
technology offers substantial productivity improvement in comparison to parallel
synthesis and other techniques currently employed to generate chemical
libraries. Parallel synthesis is the performance of a series of individual
chemical reactions, usually several dozen simultaneously, typically using
robotics. In parallel synthesis, 111,110 individual chemical reactions would be
required to synthesize the same 100,000 compounds that Pharmacopeia's technology
can accomplish in 50 reactions. Parallel synthesis requires extensive labor and
time and a significant capital investment in robotics. The labor and time
disadvantage increases exponentially with library size.
A major complication of the "pool and split" approach is that the
result is a mixture of diverse compounds. Once an active compound is found in
the mixture, its structure must be determined. The common approach to identify
an active compound from a combinatorial mixture is deconvolution. In
deconvolution, the active compound must be "reverse engineered" by
resynthesizing and testing various component combinations until the structure of
the active compound is deduced. Deconvolution is a slow, labor-intensive
process. Determining the identity of a single active compound from a mixture may
require several weeks of scientists' time. This process is also likely to
generate "false positives" in which activity is the result of the sum of the
activity of many weakly active compounds.
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Encoding Molecules. The Company overcomes the challenge of
identifying active compounds from combinatorial mixtures through its use of a
proprietary set of chemically stable small molecules, or tags, to encode each
bead used in solid phase synthesis. This enables the Company to quickly identify
the structure of an active compound prepared using the "pool and split"
technique without resorting to deconvolution. During each step of the Company's
solid phase synthesis process, specific tags are attached to the beads to
indicate the chemical reagent and reaction conditions used in that step. By the
end of the synthesis process, each bead has collected a set of tags that
represent all of the building blocks used to create the compound on that bead.
When an active compound is found in an assay, the bead from which the active
compound was extracted is analyzed. The tags are detached from the bead using
specific chemical reactions that break the linkage between the tag and the bead.
The detached tags are read using conventional gas chromatography techniques. The
results, which resemble a bar code, are captured in a database that identifies
and stores data regarding the active compound.
The Company's proprietary tags have the following important
characteristics:
Stability. The Company's proprietary tags are relatively unreactive.
For this reason the tags do not break or decompose as a result of heat, vigorous
shaking or other harsh reaction conditions. Thus, the tags rarely interfere with
or limit the solid phase chemical reactions used to create potential new drug
compounds. By contrast, the oligonucleotides and peptides used as tags by some
companies are more fragile because they are more reactive. These large molecule
tags may therefore interfere with chemical reactions or may be decomposed or
altered chemically during compound synthesis. These factors constrain the range
of chemicals that can be synthesized in solid phase when oligonucleotide or
peptide tags are used.
Size and Detectability. In contrast to the relatively large size of
oligonucleotide and peptide tags, the Company's tags are small and easy to
attach to and detach from the beads. The highly sensitive detection methods
available for these tags allow the Company to use them in extremely small
quantities. The Company's tags do not occupy a significant portion of the beads'
capacity and do not interfere with the extraction or testing of detached
compounds.
Thus, using its proprietary ECLiPS technology, the Company can
synthesize a large combinatorial mixture of compounds and rapidly identify the
specific structure of individual active compounds found in the library. To date,
the Company has used its ECLiPS technology to synthesize libraries containing an
aggregate of more than 2.3 million unique chemical compounds. Many of these
libraries have initially been licensed to customers for their exclusive use for
varying periods of time.
ECLiPS also assists the Company in protecting its intellectual
property. When a customer licenses the Company's libraries, the Company ships
microtiter plates containing library compounds detached from the beads for
screening in the customer's laboratories. The beads containing the tags never
leave the Company's facility. When the customer finds an active compound in an
assay, the customer asks the Company to decode the compound. This process
notifies the Company of active compounds identified by its customers.
Assay Technology
The second component of the Company's integrated drug discovery
approach is its proprietary assay technology. The Company employs 96-well
microtiter plate solution phase assays, a standard format in the pharmaceutical
and biotechnology industry, to evaluate the biological activity of compounds in
the Company's libraries. The Company's adoption of this format facilitates the
use of its libraries in assays performed by its customers.
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The Company has improved the 96-well microtiter plate assays it
performs for its collaborators and its internal drug discovery programs. These
improvements include increasing the sensitivity of detection, increasing the
number of assays that can be run daily, reducing labor and materials required to
execute assays and allowing simultaneous collection of information on the
activity of a single compound against multiple targets.
The Company is also developing new, ultra-high throughput screening
technologies for future use in screening millions of compounds as quickly as
thousands are currently screened. For example, the Company has developed gel
permeation assays that can test many more compounds than can be accommodated in
microtiter plates. The Company plans to continue its research and development to
further improve its assay technology.
Production Automation
Production automation technology is the third component of the
Company's integrated drug discovery approach. The Company has developed
proprietary instruments and methods for quickly and cost effectively
manipulating large numbers of small plastic beads and the compounds that are
detached from these beads. The Company's proprietary technology includes bead
washing and synthesis vessels that support the synthesis process. The production
automation technology also includes proprietary engineering methods and
automated systems for placing individual compounds in 96-well microtiter plates
and processing these plates in preparation for screening. Screening a single
50,000 compound library against 20 or more targets can require the loading,
processing and testing of thousands of 96-well microtiter plates.
Information Systems
The Company has developed proprietary software to support its drug
discovery activities. Pharmacopeia's information systems assist the Company's
scientists in managing the extensive data generated during library production
and testing. First, the software tracks the chemical building blocks, reaction
steps and tags used to create each library. The Company's systems then track the
thousands of bar-coded microtiter plates filled and processed as libraries are
screened. As active compounds are identified and decoded, the Company's software
integrates the tag decoding results with the original library design database to
quickly provide the Company's scientists with the specific chemical structure
and synthesis steps for the active compound.
The Company's information systems also include analytical and
database tools. Databases of available chemical building blocks and reactions
are used as reference sources in the library design process. Molecular modeling,
structure analysis and statistical programs are available for designing
optimization libraries. In addition, analytical and database software is used to
collect and analyze the results of individual assays.
Quality Assurance
The Company's drug discovery approach includes an extensive quality
assurance program. As libraries are synthesized, representative compounds are
analyzed at each reaction step to assure that yields are high and compounds are
sufficiently pure. During library production, samples are tested at each
reaction step to assure that the tags have been satisfactorily attached and can
be decoded. Representative compounds are also tested to identify optimal
solvents and detachment conditions for removing compounds from beads to perform
screening assays. Production plates containing compounds for screening include
control samples to further assure that plates to be screened in assays have been
prepared appropriately.
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Pharmacopeia's Drug Discovery Programs
Pharmacopeia has several active drug discovery programs underway
using its drug discovery technology. The Company is presently conducting nine
programs pursuant to collaborative agreements with five of its customers. The
Company is also using its drug discovery technology for internal programs. As of
December 31, 1996, the Company was performing high throughput assays for eleven
biological targets selected by the Company for its internal programs. These
targets include receptors and enzymes in therapeutic areas, including
inflammation, cancer, certain neurological disorders, and metabolic and
cardiovascular diseases. In an effort to identify lead compounds, the Company
has commenced the screening of several of its combinatorial libraries against
these targets and has identified several active compounds in these assays. In
the future, activities may be extended to include the optimization of lead
compounds and preclinical animal studies to determine bioavailability and
toxicity. The Company may seek financial support from pharmaceutical companies
for the optimization of lead compounds identified by internal screening. In
return for such support, the Company would offer the funding pharmaceutical
company an option to license the resulting drug development candidate for
commercialization. The Company may also invest its own funds to optimize these
lead compounds into development candidates for outlicensing to pharmaceutical
companies.
Business Strategy
Pharmacopeia's objective is to be the industry leader in the
discovery and optimization of novel drug candidates. The Company seeks to
minimize its financing requirements and shorten its time to profitability by
pursuing drug discovery collaborations with multiple pharmaceutical and
biotechnology companies. The Company does not currently plan to develop,
manufacture and sell its own pharmaceutical products. The Company's business
strategy exploits the emerging trend in the pharmaceutical industry to outsource
certain products and services that can be more efficiently provided by third
parties. Pharmacopeia's commercialization and technology strategy has several
components.
Commercialization Strategy
The Company's commercialization strategy is to provide collections of
compounds and drug development candidates to multiple pharmaceutical and
biotechnology customers. Under these arrangements, the Company's customers are
responsible for the clinical development and eventual manufacture and sale of
resulting drugs. Customers compensate the Company through (i) funding or fees
during or upon completion of its research and (ii) milestone payments and
royalties on drugs based on the Company's technology and developed by the
Company's customers. Each collaboration is tailored to the individual customer's
needs but is developed within three broad frameworks:
Form Drug Discovery Collaborations. The Company synthesizes targeted
and optimization libraries of compounds and, using its high throughput screening
technology, screens these libraries and the Company's internal libraries to
identify drug development candidates.
License Libraries. Pharmacopeia creates and licenses large libraries
of compounds to customers who screen these compounds using their own assays and
facilities. This increases the potential value of the Company's libraries by
having them screened in drug discovery assays against many biological targets.
These libraries are most often licensed on an exclusive basis and become
non-exclusive after the expiration of defined time frames.
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Outlicense Compounds from Internal Discovery Programs. The Company
will seek to license to third parties drug development candidates identified by
the Company. The Company may also seek pharmaceutical sponsors for various
internal development programs, giving the sponsor an option to license any
resulting drug development candidates.
Technology Strategy
The Company's technology strategy is to enhance productivity through
cost reductions and increased throughput and to build the Company's library
collection and its knowledge base of the relationships between chemical
structures and biological targets for use in future drug discovery programs.
Enhance Productivity. Pharmacopeia seeks to leverage its existing
technology by increasing productivity through cost reductions and significant
increases in throughput. The Company's internal research and development efforts
focus on: (i) advances in the Company's automated systems; (ii) the development
of enhanced software; (iii) the development of new materials and reactions for
solid phase synthesis; and (iv) new high throughput screening formats; and (v)
the discovery and optimization of lead compounds for the Company's internal
programs.
Develop Collection of Libraries and Knowledge Base. The Company is
building sets of libraries that will eventually aggregate millions of compounds
available for future screening programs. This collection of compounds will
increase as new libraries are created and as outlicensed libraries are returned
to the Company upon the expiration of customers' exclusivity periods. The
Company believes that this growing library collection will provide a valuable
source of leads for future drug discovery programs. The Company also intends to
build a knowledge base of the relationships between classes of chemical
structures and classes of biological targets. This knowledge base will grow as
the Company designs, synthesizes and screens large numbers of compounds against
a growing number of targets. The Company believes that this knowledge base will
provide a future competitive advantage by enabling the Company to identify more
quickly active compounds for newly identified targets.
Collaborative Arrangements
The Company has signed collaborative agreements with Schering-Plough,
Berlex, Sandoz, Bayer, Daiichi and Organon as described below.
Schering-Plough. In December 1994, the Company and Schering-Plough
signed a collaborative agreement for (i) the optimization of lead compounds that
interact with a specific molecular target in the field of cancer and (ii) the
identification and optimization of lead compounds that interact with specific
molecular targets in the field of asthma. The Company and Schering-Plough also
signed an agreement under which the Company is to provide Schering-Plough with
combinatorial libraries for screening by Schering-Plough in a wide range of
Schering-Plough's internal drug screening assays. Schering-Plough has paid the
Company $9 million for research to be performed through the third year of the
agreement. The agreements provide Schering-Plough with exclusive worldwide
rights to develop and commercialize lead compounds discovered by the Company
that are active against the specified molecular targets or discovered by
Schering-Plough to be active in its assays. Compounds contained in libraries
created by the Company for Schering-Plough will be exclusive to Schering-Plough
for various time periods. These exclusivity periods can be extended upon payment
of additional fees. In the event Schering-Plough successfully identifies,
develops and obtains regulatory approval for drugs based upon the Company's
compounds, Schering-Plough will make additional milestone payments to the
Company. During 1996 Schering-Plough made its first milestone payment.
Schering-Plough will also be obligated to pay to the Company royalties on the
sale of any drugs that result
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from this relationship. In connection with the collaboration, Schering-Plough
has made investments totaling $20 million in the Company.
Berlex. In February 1995, Pharmacopeia and Berlex signed a
collaborative agreement for the identification and optimization of lead
compounds which interact with a specific molecular target that may have
applications in the treatment of multiple sclerosis. Under the terms of this
agreement, Berlex has paid the Company an aggregate of $5.5 million over the
first two years of the agreement for library synthesis and screening to be
conducted by the Company. During 1996 Berlex extended the agreement for an
additional seven months. Berlex is also obligated to make additional payments
upon the achievement of certain milestones and to pay royalties on sales of
drugs that may result from the relationship. The agreement provides Berlex with
exclusive worldwide rights to develop and commercialize compounds active against
the specified molecular target. The agreement also provides for an exclusivity
period on the compounds provided to Berlex. In connection with the
collaboration, an affiliate of Berlex made a $3.5 million equity investment in
the Company and purchased an additional $2.5 million of the Common Stock sold in
the Company's initial public offering.
Sandoz. Effective October 1, 1995, the Company entered into an
agreement with Sandoz to create libraries in collaboration with Sandoz for
screening by Sandoz. Under this agreement, the Company is obligated to provide
certain numbers of compounds during each of the five years of the program. The
agreement grants Sandoz an exclusivity period on the libraries, which may be
extended for a fee. Under the terms of this agreement, Sandoz has paid the
Company $4 million and is obligated to pay at least an additional $2 million
during each subsequent year of the agreement. Sandoz has the right to terminate
the collaboration period after two years provided that it makes an additional $1
million payment in the year following termination notice. The agreement provides
Sandoz with exclusive worldwide rights to develop and commercialize certain
products based on active compounds discovered using these libraries. In the
event Sandoz successfully identifies and develops drugs based on the Company's
compounds, Sandoz will make milestone payments to the Company. Sandoz will also
be obligated to pay to the Company royalties on the sale of any drugs that
result from the relationship.
Bayer. Effective December 31, 1995, the Company entered into (i) a
collaborative agreement with Bayer for the identification and optimization of
lead compounds that interact with specific molecular target(s) selected by
Bayer, and (ii) an agreement under which the Company is to provide Bayer with
combinatorial libraries for screening by Bayer in Bayer's internal screening
assays. Bayer has paid the Company $4 million through the second year of the
agreement for library creation. Bayer is also obligated to fund research
conducted by the Company during the period from July 1, 1996 through February
15, 1999 in the amount of $5.5 million. A minimum of an additional $2.75 million
of research funding is due if Bayer exercises an option to extend the term of
the research program for a third year. Bayer has paid the Company $2.75 million
for research to be performed through the first year of the agreement. The
agreements provide Bayer with exclusive worldwide rights to develop and
commercialize lead compounds discovered by the Company that are active against
the specified molecular targets or discovered by Bayer to be active in its
assays. Compounds contained in libraries created by the Company for Bayer will
be exclusive to Bayer for various time periods. These exclusivity periods can be
extended upon payment of additional fees. In the event Bayer successfully
identifies, develops and obtains regulatory approval for drugs based upon the
Company's compounds, Bayer will make milestone payments to the Company. Bayer
will also be obligated to pay to the Company royalties on the sale of any
products that result from this relationship. In connection with the
collaboration, Bayer made a $10 million equity investment in the Company in
February 1996.
Daiichi. Effective March 29, 1996, Pharmacopeia and Daiichi signed a
collaborative agreement for the identification and optimization of lead
compounds which interact with a specific molecular target(s) selected by
Daiichi. Over the first three years of the agreement, Daiichi is obligated to
pay the Company approximately $14 million in research and development funding
and license fees, of which, Daiichi has paid the Company $4.9 million. The
agreement provides Daiichi with exclusive worldwide rights to develop and
commercialize compounds active against the specified molecular targets or
discovered by Daiichi to be active in its assays. In the event Daiichi
successfully, identifies, develops and obtains regulatory approval for drugs
based upon the Company's compounds, Daiichi will make milestone payments to the
Company. Daiichi will also be obligated to pay to the
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Company royalties on the sale of any products that result from this
relationship. In connection with the collaboration, Daiichi has made a $5
million equity investment in the Company in March 1996. Daiichi is also
obligated to make an additional equity investment subject to the Company meeting
a specific milestone.
Organon. Effective May 31, 1996, the Company entered into a
collaborative agreement with Organon for the identification and optimization of
lead compounds that interact with specific molecular target(s) selected by
Organon. Under the terms of the agreement, Organon is required to pay the
Company a total of $10.7 million in research and development funding and license
fees, over the initial three year term, of which, $3.1 million has been paid.
Organon is also obligated to make additional payments upon the achievement of
certain milestones and to pay royalties on sales of drugs that may result from
the relationship. The agreement provides Organon with exclusive worldwide rights
to develop and commercialize lead compounds active against the specified
molecular targets or discovered by Organon to be active in its assays. In the
event Organon successfully identifies, develops and obtains regulatory approval
for drugs based upon the Company's compounds, Organon will make milestone
payments to the Company. Organon will also be obligated to pay to the Company
royalties on the sale on any products that result from the relationship. In
connection with the collaboration, Organon has made a $4.2 million equity
investment in the Company in May 1996 and is obligated to make an additional
$4.2 million equity investment on the first anniversary of the effective date.
Customers
During 1996 the Company recognized $14.8 million in revenue from six
customers, of which, 36% of revenue came from Schering-Plough, 19% from Berlex
Laboratories, 9% from Sandoz, 6% from Bayer, 16% from Daiichi and 14% from
Organon. See Note 10 of Notes to Financial Statements.
Research and Development Funding
Pharmacopeia's expenses for research and development activities were
as follows:
<TABLE>
<CAPTION>
Year ended December 31 (in thousands)
1994 1995 1996
---------------- --------------- ----------------
<S> <C> <C> <C>
Collaborative - $5,563 $13,129
Proprietary $5,785 5,468 8,111
</TABLE>
These increased amounts primarily reflect additional costs incurred with the
expansion of the Company's chemical library production and screening efforts for
collaborations and for its own use.
Competition
Many organizations are actively attempting to identify and optimize
compounds for potential pharmaceutical development. Pharmacopeia competes with
the research departments of pharmaceutical companies, biotechnology companies,
other combinatorial chemistry companies and research and academic institutions.
Many of these competitors have greater financial and human resources, and more
experience in research and development, than the Company. Historically,
pharmaceutical companies have maintained close
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<PAGE>
control over their research activities, including the synthesis, screening and
optimization of chemical compounds. Many of these companies, which represent the
greatest potential market for Pharmacopeia's products and services, are
developing combinatorial chemistry and other methodologies to improve
productivity, including major investments in robotics technology to permit the
automated parallel synthesis of compounds. In addition, these companies may
already have large collections of compounds previously synthesized or ordered
from chemical supply catalogs or other sources against which they may screen new
targets. Other sources of compounds include compounds extracted from natural
products such as plants and microorganisms and compounds created using rational
drug design. Academic institutions, governmental agencies and other research
organizations are also conducting research in areas in which the Company is
working, either on their own or through collaborative efforts.
The Company competes with several alternative technologies in the
design and synthesis of new chemical libraries for drug discovery programs.
Combinatorial chemistry libraries of oligonucleotides and peptides can be
synthesized in extremely large numbers. These molecules are also sequenceable,
making it easy to identify the structure of an individual oligonucleotide or
peptide found to be active in an assay. However, oligonucleotides and peptides
are not usually effective as oral drugs because they are usually not
bioavailable. These molecules are also usually quickly metabolized in the human
bloodstream. Other, unnatural oligomer libraries have also been prepared, but
these are less easily sequenceable than peptides and oligonucleotides. In
addition, unnatural oligomer libraries lack the diversity of structures of the
small molecule libraries prepared by the Company.
Libraries of small molecule compounds, which are preferred as drug
candidates due to their increased potential for oral bioavailability and long
duration of action, have recently been developed using competitive techniques.
Two such techniques are based on the "pool and split" solid phase combinatorial
chemistry approach used by the Company. The first uses oligonucleotide or
peptide tags on each bead to identify each synthesis step. These large molecule
tags are relatively fragile, which limits the nature of reaction conditions
(temperature, pressure, etc.) and reagents (acids, bases, etc.) that can be used
to build compounds. In addition, these large molecule tags complicate the
synthesis of compounds or beads. The Company's proprietary tags, in comparison,
are durable, simple to attach and detach, and allow the Company to make larger
and more diverse libraries of small compounds. The second "pool and split"
combinatorial chemistry technique uses deconvolution to identify the chemical
structure of compounds found active in assays. Deconvolution is a slow,
labor-intensive process, and may require several weeks of scientists' time to
determine the structure of a single active compound. The Company's tags permit
hundreds of structures to be determined each day.
A third competitive approach is to perform a series of individual
chemical reactions, typically using a robotic system. The result of robotic
synthesis is compounds in individually labeled vessels. Robotic synthesis also
yields larger quantities of each compound than are usually achieved in
combinatorial mixtures such as the Company's. Using robotic synthesis, however,
requires extensive labor and time when compared with pool and split
combinatorial chemistry. This labor and time disadvantage increases
exponentially with library size.
Exclusive License with Columbia University and Cold Spring Harbor Laboratory
In 1993, the Company entered into an exclusive license agreement with
Columbia and Cold Spring (jointly, the "Licensors") covering technology related
to tagged combinatorial chemical libraries and methods of preparing and
utilizing such libraries. The licensed technology includes a patent and patent
applications filed by Columbia and Cold Spring covering the use of encoding tags
to implement the drug discovery process using combinatorial chemistry libraries.
In addition, the Company has an exclusive right of negotiation through July 1998
for any inventions in related fields made by Dr. W. Clark Still at Columbia and
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<PAGE>
Dr. Michael H. Wigler at Cold Spring. The Company is obligated to pay a minimum
annual license fee of $100,000. Additionally, the Company has met its
obligations under the agreement to expend $3.0 million and $4.0 million for the
one year periods ending July 1996 and 1997, respectively in development and
commercialization of the licensed technology. The term of the agreement is the
later of (i) 20 years or (ii) the expiration of the last patent relating to the
technology, at which time the Company has a fully paid license to the
technology. The Company is also obligated to pay royalties to the Licensors
based on net sales of pharmaceutical products developed by the Company as well
as a percentage of all other payments and royalties received by the Company from
customers where the Company has utilized the technology licensed from the
Licensors.
Patents and Proprietary Information
The Company and its licensors currently have one issued U.S. patent
and a number of pending U.S. and foreign patent applications relating to various
aspects of the Company's technology, including its molecular tags, certain
screening technologies and its libraries or compounds contained therein. These
patent applications are either owned by the Company or rights under them are
licensed to the Company. The Company's success will depend in large part on its
ability, and the ability of its licensees and its licensors, to obtain patents
for its technologies and the compounds and other products, if any, resulting
from the application of such technologies, defend patents once obtained,
maintain trade secrets and operate without infringing upon the proprietary
rights of others, both in the United States and in foreign countries.
The patent positions of pharmaceutical and biotechnology companies,
including the Company, are uncertain and involve complex legal and factual
questions for which important legal questions are largely unresolved. Certain
patent applications, relating to types of encoded combinatorial libraries not
being developed by the Company, have been filed by others prior to the Company's
patent applications. The Company has learned that the European Patent Office has
granted to Affymax, a subsidiary of Glaxo, certain patent claims which, if
valid, would cover the synthesis of encoded small molecule libraries of the type
developed by the Company. The Affymax European Patent application is presently
subject to a nine-month opposition period, which may be followed by proceedings
to determine whether such patent claims are valid. The Company may oppose these
claims as invalid. If these claims are found valid and are enforceable, the
Company's ability to practice its ECLiPS technology in Europe would be
restricted unless the Company obtains appropriate licenses from the owner of
such patents. Although the Company has business relationships with a number of
European customers, the Company does not currently practice its technology in
Europe. However, if any such licenses were required, there can be no assurance
that such licenses would be available to the Company or would be available upon
terms reasonably acceptable to the Company. The Company does not know of any
patent applications by others that would preclude the Company from obtaining
patent protection in the United States or elsewhere for its ECLiPS technology.
However, disputes may arise between the Company and other patent holders as to
claims of infringement, which could involve protracted periods of litigation.
Some of the Company's competitors have, or are affiliated with companies having,
substantially greater resources than the Company, and such competitors may be
able to sustain the costs of complex patent litigation to a greater degree and
for longer periods of time than the Company. Uncertainties resulting from the
initiation and continuation of any patent or related litigation could have a
material adverse effect on the Company's ability to compete in the marketplace
pending resolution of the disputed matters.
There can be no assurance that patents will issue as a result of any
pending applications or that, if issued, such patents will be sufficiently broad
to afford protection against competitors with similar technology. Moreover,
there can be no assurance that the Company or its customers will be able to
obtain patent protection for lead compounds or pharmaceutical products based
upon the Company's technology. There can be no assurance that any patents issued
to the Company or its collaborative partners, or for which
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<PAGE>
the Company has license rights, will not be challenged, invalidated or
circumvented, or that the rights granted thereunder will provide competitive
advantages to the Company. Litigation, which could result in substantial cost to
the Company, may be necessary to enforce the Company's patent and license rights
or to determine the scope and validity of others' proprietary rights. Further,
U.S. patents do not provide any remedies for infringement that occurred before
the patent is granted.
The commercial success of the Company will also depend upon avoiding
the infringement of patents issued to competitors and upon maintaining the
technology licenses upon which certain of the Company's current products are, or
any future products under development might be, based. If competitors of the
Company prepare and file patent applications in the United States that claim
technology also claimed by the Company, the Company may have to participate in
interference proceedings declared by the U.S. Patent and Trademark Office
("PTO") to determine the priority of invention, which could result in
substantial cost to the Company, even if the outcome is favorable to the
Company. An adverse outcome could subject the Company to significant liabilities
to third parties and require the Company to license disputed rights from third
parties or cease using the technology. A U.S. patent application is maintained
under conditions of confidentiality while the application is pending in the PTO,
so that the Company cannot determine the inventions being claimed in pending
patent applications filed by its competitors in the PTO.
The Company currently has certain licenses from third parties and in
the future may require additional licenses from other parties to develop,
manufacture and market commercially viable products effectively. There can be no
assurance that such licenses will be obtainable on commercially reasonable
terms, if at all, that the patents underlying such licenses will be valid and
enforceable or that the proprietary nature of the patented technology underlying
such licenses will remain proprietary.
The Company relies substantially on certain technologies which are
not patentable or proprietary and are therefore available to the Company's
competitors. The Company also relies on certain proprietary trade secrets and
know-how, which are not patentable. Although the Company has taken steps to
protect its unpatented trade secrets and know-how, in part through the use of
confidentiality agreements with its employees, consultants and certain of its
contractors, there can be no assurance that these agreements will not be
breached, that the Company would have adequate remedies for any breach, or that
the Company's trade secrets will not otherwise become known or be independently
developed or discovered by competitors.
Government Regulation
Regulation by governmental entities in the United States and other
countries will be a significant factor in the production and marketing of any
pharmaceutical products that may be developed by a customer of the Company or,
in the event the Company decides to develop a drug beyond the preclinical phase,
by the Company. The nature and the extent to which such regulation may apply to
the Company's customers will vary depending on the nature of any such
pharmaceutical products. Virtually all pharmaceutical products developed by the
Company's customers will require regulatory approval by governmental agencies
prior to commercialization. In particular, human pharmaceutical therapeutic
products are subject to rigorous preclinical and clinical testing and other
approval procedures by the U.S. Food and Drug Administration ("FDA") and by
foreign regulatory authorities. Various federal and, in some cases, state
statutes and regulations also govern or influence the manufacturing, safety,
labeling, storage, record keeping and marketing of such pharmaceutical products.
The process of obtaining these approvals and the subsequent compliance with
appropriate federal and foreign statutes and regulations are time consuming and
require the expenditure of substantial resources.
Generally, in order to gain FDA approval, a company must conduct
preclinical studies in the laboratory and in animal models to gain preliminary
information on a compound's efficacy and to identify
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<PAGE>
any safety problems. The results of these studies are submitted as a part of an
Investigational New Drug application ("IND") that the FDA must review before
human clinical trials of an investigational drug can start. In order to
commercialize any products, the Company or its customer will be required to
sponsor and file an IND and will be responsible for initiating and overseeing
the clinical studies to demonstrate the safety and efficacy that are necessary
to obtain FDA approval of any such products. Clinical trials are normally done
in three phases and generally take two to five years, but may take longer, to
complete. After completion of clinical trials of a new product, FDA and foreign
regulatory authority marketing approval must be obtained. If the product is
classified as a new drug, the Company or its customer will be required to file a
New Drug Application ("NDA") and receive approval before commercial marketing of
the drug. The testing and approval processes require substantial time and effort
and there can be no assurance that any approval will be granted on a timely
basis, if at all. NDAs submitted to the FDA can take, on average, two to five
years to obtain approval. If questions arise during the FDA review process,
approval can take more than five years. Even if FDA regulatory clearances are
obtained, a marketed product is subject to continual review, and later discovery
of previously unknown problems or failure to comply with the applicable
regulatory requirements may result in restrictions on the marketing of a product
or withdrawal of the product from the market as well as possible civil or
criminal sanctions. For marketing outside the United States, the Company will
also be subject to foreign regulatory requirements governing human clinical
trials and marketing approval for pharmaceutical products. The requirements
governing the conduct of clinical trials, product licensing, pricing and
reimbursement vary widely from country to country.
The research and development processes of the Company involve the
controlled use of hazardous materials. The Company is subject to federal, state
and local laws and regulations governing the use, manufacture, storage, handling
and disposal of such materials and certain waste products. Although the Company
believes that its activities currently comply with the standards prescribed by
such laws and regulations, the risk of accidental contamination or injury from
these materials cannot be eliminated. In the event of such an accident, the
Company could be held liable for any damages that result and any liability could
exceed the resources of the Company. In addition, there can be no assurance that
the Company will not be required to incur significant costs to comply with
environmental laws and regulations in the future.
Sources of Supply
The Company currently relies on a single supplier to provide the
plastic beads used in the solid phase chemical synthesis of its compounds. While
other beads are available, the Company does not believe that such beads are as
effective as the beads currently used. The Company is attempting to build a
significant inventory of beads and to negotiate a long term supply agreement to
protect the Company in the event of a supply disruption. No assurance can be
given that the beads used by the Company will remain available in commercial
quantities at commercially reasonable rates, if at all, or that the Company will
succeed in obtaining a longer-term agreement with its supplier. Should the
Company be unable to obtain an adequate supply of these or comparable beads at
commercially reasonable rates, its ability to continue to identify and optimize
lead compounds and development candidates would be materially and adversely
affected.
Pharmaceutical Manufacturing and Marketing
The Company does not expect to directly manufacture or market
pharmaceutical products. However, the Company may, in the future, consider
undertaking such activities if it believes they are appropriate under the
circumstances. The Company has no experience in developing pharmaceutical
products or in manufacturing or marketing products on a commercial scale. The
Company may not have the resources to develop or to manufacture or market by
itself on a commercial scale any products identified by it. In the event the
Company decides to establish a manufacturing facility, the Company will require
substantial
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<PAGE>
additional funds, and will be required to hire and train significant additional
personnel and comply with the extensive FDA "good manufacturing practice"
regulations applicable to such a facility.
Employees
As of December 31, 1996, the Company had 175 regular employees, 144
of whom were in research and development, including 67 chemists, biologists and
engineers holding doctorate degrees. None of the Company's employees is covered
by collective bargaining agreements. Management considers its relations with its
employees to be good.
Important Factors Regarding Forward Looking Statements
Certain discussions set forth above regarding the Company's strategy
for the development and commercialization of its products and services as well
as its ability to achieve profitability in the near term are forward-looking
statements. This strategy depends upon the acceptance by potential customers of
combinatorial chemistry and analysis of compounds provided by the Company as an
effective tool in new drug discovery and the Company's ability to maintain the
arrangements it currently has in place. Historically, pharmaceutical companies
have conducted lead compound identification and optimization within their own
research departments, due to the highly proprietary nature of the activities
being conducted, the central importance of these activities to their drug
discovery and development efforts, and the desire to obtain maximum patent and
other proprietary protection on the results of their internal programs. In order
to achieve its business objectives, the Company must convince these companies
that the Company's technology and expertise justify the outsourcing of these
programs to the Company. There can be no assurance that the Company will be able
to attract customers on acceptable terms for its products and services or
develop a sustainable profitable business. Moreover, the pricing and nature of
the Company's combinatorial libraries is such that there may only be a limited
number of pharmaceutical companies that are potential customers for such
libraries. There can be no assurance that the Company will be able to establish
additional collaborative or licensing arrangements, that any such arrangements
or licenses will be on terms favorable to the Company, or that current or future
collaborative or licensing arrangements will ultimately be successful.
Further, Pharmacopeia's receipt of revenues from collaborative
arrangements is affected by the timing of efforts expended by the Company and
the timing of lead compound identification. The Company's products and services
will only result in commercialized pharmaceutical products generating milestone
payments and royalties upon significant preclinical and clinical development,
requisite regulatory approvals, the establishment of manufacturing capabilities
and successful marketing. The Company does not currently intend to perform any
of these activities, other than in some instances preclinical work. Therefore,
the Company will be dependent upon the expertise and dedication of sufficient
resources by third parties to develop and commercialize products based on
library compounds produced and lead compounds discovered by the Company. Should
a collaborative partner fail to develop or commercialize a compound or product
to which it has rights from the Company, the Company may not receive any future
milestone payments or royalties associated with such compound or product. The
Company's contractual arrangements with its customers do not obligate the
customers to develop or commercialize lead compounds discovered by the Company.
In addition, there can be no assurance that any such development or
commercialization would be successful. The compound basis for drugs developed by
a customer may be a derivative or optimized version of the lead compound
provided to the customer by the Company. While the Company's existing
collaborative agreements provide that the Company will receive milestone
payments and royalties with respect to certain products developed from certain
derivative compounds, there can be no assurance that disputes will not arise
over the application of payment provisions to such products. There can be no
assurance that current or future collaborative partners will not pursue
alternative technologies, or develop alternative products either on their
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<PAGE>
own or in collaboration with others, including the Company's competitors, as a
means for developing treatments based on the targets which are the subject of
the collaborative arrangements with the Company.
The Company's success will also depend upon certain issues arising in
connection with the Company's patents and proprietary technology. See "Business
- -- Patents and Proprietary Information."
ITEM 2. PROPERTIES
The Company currently leases and occupies approximately 84,000 square feet
of laboratory and office space in four buildings in or near Princeton, New
Jersey. This includes approximately 67,000 square feet of laboratory space and
approximately 17,000 square feet of administrative office space. These leases
expire at various dates between 1997 and 2005.
ITEM 3. LEGAL PROCEEDINGS
The Company is not a party to any legal proceedings.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
EXECUTIVE OFFICERS OF THE REGISTRANT
The executive officers of the Company are as follows:
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>
Joseph A. Mollica, Ph.D. 56 Chairman of the Board, President and
Chief Executive Officer
John C. Chabala, Ph.D. 48 Chief Scientific Officer
Lewis J. Shuster 41 Executive Vice President, Corporate
Development and Chief Financial Officer
Stephen A. Spearman, Ph.D. 47 Executive Vice President of Operations
John J. Baldwin, Ph.D. 62 Senior Vice President of Chemistry
Nolan H. Sigal, M.D., Ph.D. 47 Senior Vice President of Drug Discovery
</TABLE>
Dr. Mollica has served as the Chairman of the Board and Chief
Executive Officer of Pharmacopeia since February 1994 and was appointed
President in August 1996. From 1987 to December 1993, Dr. Mollica was employed
initially by the DuPont Company and then by The DuPont Merck Pharmaceutical
Company, most recently as President and Chief Executive Officer. Dr. Mollica is
a director of USP, Inc. and ImPath, Inc. Dr. Mollica received a Ph.D. from the
University of Wisconsin, and a Doctor of Science, h.c., from the University of
Rhode Island.
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<PAGE>
Dr. Chabala has served as Chief Scientific Officer since June 1993
and was a director and President of the Company from 1993 to August 1996. Since
August 1996, Dr. Chabala has been on long-term disability. From December 1991 to
May 1993, Dr. Chabala was employed by Bristol-Myers Squibb Company, most
recently as Vice President of Discovery Chemistry. From 1975 to December 1991,
Dr. Chabala held several positions with Merck & Company, Inc., most recently as
Executive Director, Basic Chemistry. Dr. Chabala is co-inventor of ivermectin,
the largest selling parasiticide. Dr. Chabala received a Ph.D. in Organic
Chemistry from the Massachusetts Institute of Technology.
Mr. Shuster has served as Chief Financial Officer since November 1994
and appointed Executive Vice President, Corporate Development and Chief
Financial Officer in August 1996. Mr. Shuster served as Executive Vice
President, Operations and Finance for Human Genome Sciences, Inc., a
biotechnology company, from September 1992 to November 1994. From 1986 to June
1992, Mr. Shuster was with Microbiological Associates, Inc., a biological safety
testing services company, most recently as President and Chief Executive
Officer. Mr. Shuster received an M.B.A. from Stanford University Graduate
School of Business.
Dr. Spearman has served as Executive Vice President, Operations
since August 1996. From 1975 to August 1996, Dr. Spearman held several positions
at CIBA-GEIGY Corporation, most recently as Project Leader. Dr. Spearman
received his Ph.D. and M.S. from Emory University. Dr. Spearman also holds an
M.B.A. in Finance from Bryant College.
Dr. Baldwin has served as Vice President of Chemistry since July 1993
and was appointed Senior Vice President of Chemistry in August 1996. For a
period of thirty years, prior to joining the Company, Dr. Baldwin held a variety
of scientific and management positions with Merck Sharp & Dohme Research
Laboratories, most recently as Distinguished Senior Scientist. Dr. Baldwin holds
more than 140 U.S. patents and is the inventor of Trusopt, a drug for preventing
glaucoma. Dr. Baldwin received a Ph.D. in Organic Chemistry from the University
of Minnesota.
Dr. Sigal has served as Vice President of Biology since January 1994
and was appointed Senior Vice President, Drug Discovery in August 1996. From
1983 to December 1993, Dr. Sigal held several positions at Merck Research
Laboratories, most recently as Executive Director of the Department of
Immunology Research. Dr. Sigal received an M.D. and Ph.D. from the University of
Pennsylvania.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
Market for Common Stock
The Company's Common Stock trades on the Nasdaq National Market tier
of The Nasdaq Stock Market under the symbol PCOP since the Company's initial
public offering on December 5, 1995. The following table sets forth for the
periods indicated the high and low sale prices of the Common Stock.
<TABLE>
<CAPTION>
1996 1995
High Low High Low
---- --- ---- ---
<S> <C> <C> <C> <C>
First Quarter $31.50 $23.38 - -
Second Quarter 28.50 19.38 - -
Third Quarter 22.88 12.13 - -
Fourth Quarter 25.25 15.88 $24.50 $16.75
</TABLE>
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<PAGE>
Holders of Record
As of January 31, 1997, there were approximately 248 holders of
record.
Dividends
The Company has never paid cash dividends on its capital stock. The
Company currently expects that it will retain its future earnings for use in the
operation and expansion of its business and does not anticipate paying any cash
dividends in the foreseeable future.
Recent Sales of Unregistered Securities
<TABLE>
<CAPTION>
Transaction Number of Aggregate
Date Securities Securities (1) Offering Price
----------------------- ---------------------- ------------------- ----------------------
<S> <C> <C> <C> <C>
Bayer February 2, 1996 Common Stock 329,259 $10,000,000
Daiichi March 29, 1996 Common Stock 193,634 $5,000,000
Organon May 31, 1996 Common Stock 168,623 $4,165,000
Schering-Plough December 18, 1996 Common Stock 281,690 $6,000,000
</TABLE>
(1) Transaction exempt from the registration requirements of Section 5 of the
Securities Act of 1933, as amended, by virtue of the exemption contained in
Section 4(2) of such act.
ITEM 6. SELECTED FINANCIAL DATA
(in thousands, except share data)
<TABLE>
<CAPTION>
Period From
March 26, 1993
(inception) to Year Ended
December 31, December 31,
------------------------------------------------------------------------------
1993 1994 1995 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Statements of Operations Data:
Total revenue....................................... $ - $ - $ 5,151 $ 14,799
Operating loss...................................... (2,134) (8,472) (9,661) (12,058)
Net loss............................................ (2,107) (8,349) (8,956) (8,383)
Net loss per share.................................. (1.24) (3.15) (2.77) (.77)
Weighted average number of common
shares outstanding/1/............................. 1,701,022 2,648,268 3,231,102 10,833,980
Cash dividends declared per common share............ - - - -
</TABLE>
<TABLE>
<CAPTION>
As of December 31,
------------------------------------------------------------------------------
1993 1994 1995 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Balance Sheet Data:
Cash, cash equivalents, and marketable securities.. $ 1,658 $ 13,490 $ 60,900 $ 81,482
Total assets........................................ 2,299 15,512 65,541 91,979
Notes payable, and deferred revenue, long-term
portion........................................... 78 254 969 3,451
Accumulated deficit................................. (2,107) (10,456) (19,412) (27,795)
Total stockholders' equity.......................... 1,916 10,980 54,334 69,748
</TABLE>
- -----------------------------
(1) Computed on the basis described for net loss per share in Note 2 of
Notes to Financial Statements.
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<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Overview
The Company is engaged in research and development and chemical library
production for collaborations and for its own use. The Company's research and
development has focused on efficient, cost effective, high throughput systems
for synthesizing and screening large libraries of chemicals for new drug
discovery and optimization. During 1996, the Company signed new agreements with
Bayer, Daiichi and NV Organon, to bring the total number of pharmaceutical
company collaborators to six. In addition, the Company signed contracts to
extend the Schering-Plough and Berlex agreements. The Company recognized revenue
from all six collaborations during 1996. The Company received its initial
revenues in the year ended December 31, 1995 pursuant to drug discovery
collaboration and chemical library licensing agreements with Schering-Plough and
Berlex. The Company was in the development stage through December 1994 and has
incurred cumulative net losses of approximately $27.8 million since inception
through December 31, 1996.
Results of Operations
The Company expects that its revenue sources for at least the next several years
will be limited to future collaboration payments from Schering-Plough, Berlex,
Sandoz, Bayer, Daiichi and NV Organon and from other customers under
arrangements that may be entered into in the future. The timing and amounts of
such revenues, if any, will likely fluctuate. Historical results should not be
viewed as indicative of future operating results. The Company will be required
to conduct significant research, development and production activities during
the next several years to fulfill its obligations under the Schering-Plough,
Berlex, Sandoz, Bayer, Daiichi, and NV Organon collaborative agreements and to
develop other collaborations and technologies. The Company does not anticipate
having net income in the next several years.
Years Ended December 31, 1996 and 1995
Revenues increased to $14.8 million in 1996, compared to $5.2 million in 1995.
The increase of $9.6 million primarily reflects expanded efforts in the
Company's collaborations with Schering-Plough, Berlex, Sandoz, Bayer, Daiichi
and NV Organon. The 1995 revenues were attributable entirely to the
Schering-Plough and Berlex collaborations. The Company's sources of revenues for
the next several years will be interest income, payments under its current
collaborations and payments from other customers, to the extent that the Company
enters into any additional arrangements.
The Company incurred research and development expenses of $21.2 million and
$11.0 million in the years ended December 31, 1996 and 1995, respectively. These
increased amounts primarily reflect increased salaries and personnel expenses as
the Company continued to hire additional research and development personnel,
equipment depreciation and facilities expenses and laboratory supplies purchased
in connection with the expansion of the Company's chemical library production
and screening efforts for collaborations and for its own use. Research and
development expenses are expected to continue to increase as the Company further
expands its activities and incurs, among other things, expenses related to
additional staff increases, increased rent for expanded facilities, and
increased equipment and reagent purchases.
General and administrative expenses were $5.6 million and $3.8 million in the
years ended December 31, 1996 and 1995, respectively. The increase is primarily
attributable to increased payroll and personnel expenses as the Company hired
additional management and administrative personnel and incurred additional
legal, insurance and other professional fees in connection with the overall
scale-up of the Company's
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<PAGE>
operations. General and administrative expenses are also expected to increase as
the Company's research staff continues to expand.
Years ended December 31, 1995 and 1994
Revenue from the Schering-Plough and Berlex collaborations totaled approximately
$5.2 million for the year ended December 31, 1995. The Company did not have any
revenue during 1994.
The Company incurred research and development expenses of approximately $11.0
million and $5.8 million in the years ended December 31, 1995 and 1994,
respectively. These amounts were spent primarily for salaries, equipment
depreciation and facilities expense, and laboratory supplies. The increase in
1995 from 1994 reflects the increase in the Company's research and development
activities attributable to the new collaborative agreements with Schering-Plough
and Berlex.
General and administrative expenses were approximately $3.8 million and $2.7
million in the years ended December 31, 1995 and 1994, respectively. These
expenses include salaries, legal and accounting fees and other expenses.
Liquidity and Capital Resources
As of December 31, 1996, the Company had working capital of $64.2 million. The
Company has funded its activities through December 31, 1996 primarily through
the sale of equity securities and funding under collaborative arrangements. From
inception through December 31, 1996, the Company received $97.5 million in net
proceeds from equity financing and received $33.2 million in research and
development and license fees under collaborative agreements.
The Company's funds are currently invested in U.S. Treasury and government
agency obligations, investment grade commercial paper and other short-term money
market instruments. The Company may also invest such proceeds in investment
grade, interest-bearing securities having a maximum maturity of two years. As of
December 31, 1996, the Company's cash and cash equivalents totaled $17.1
million. In addition, the Company had marketable securities of $64.4 million.
See Note 2 of Notes to Financial Statements.
In connection with the Company's agreement with the Trustees of Columbia
University and Cold Spring Harbor Laboratory, the Company is required to pay
annual license fees. As of December 31, 1996, the Company had met its obligation
under the agreement to expend $3.0 million and $4.0 million in development and
commercialization of the licensed technology for the one year periods ending
July 1996 and July 1997, respectively. The Company is also required to pay to
Columbia University certain royalties.
In addition, as of December 31, 1996, the Company had outstanding commitments
for construction and equipment purchases totaling $1.3 million. The Company
anticipates that its capital requirements will increase over the next two years
as the Company expands its research and development activities. In connection
with such expansion, the Company expects to incur substantial expenditures for
hiring additional management, scientific and administrative personnel and for
planned expansion of its facilities and replacement of laboratories currently
subleased, including acquisition of additional equipment.
As of December 31, 1996, the Company had federal net operating loss
carryforwards of $28.0 million. These carryforwards will expire beginning in the
year 2008. Utilization of the net operating loss carryforwards will be subject
to limitation under Section 382 of the Internal Revenue Service Code. See Note 7
of Notes to Financial Statements.
-21-
<PAGE>
The Company anticipates that its existing capital resources will be adequate to
fund the Company's operations at least through 1998. There can be no assurance
that changes will not occur that would consume available capital resources
before such time. The Company's capital requirements depend on numerous factors,
including the ability of the Company to enter into additional collaborative
arrangements, competing technological and market developments, changes in the
Company's existing collaborative relationships, the cost of filing, prosecuting,
defending and enforcing patent claims and other intellectual property rights,
the purchase of additional capital equipment, acquisitions of other business or
technologies, the progress of the Company's drug discovery programs and the
progress of the Company's customers' milestone and royalty producing activities.
There can be no assurance that additional funding, if necessary, will be
available on favorable terms, if at all. The Company's forecasts of the period
of time through which its financial resources will be adequate to support its
operations is forward looking information, and actual results could vary. The
factors described earlier in this paragraph will impact the Company's future
capital requirements and the adequacy of its available funds.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Company's financial statements and notes thereto and the
independent auditors' report appear on pages F-1 through F-15 of this Report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
(a) The information required by this Item concerning the Company's
directors is incorporated by reference from the section captioned "Election of
Directors" in the Company's Proxy Statement related to the 1997 Annual Meeting
of Stockholders to be held on May 9, 1997, to be filed with the Securities and
Exchange Commission within 120 days after the Company's fiscal year end (the
"Proxy Statement"). Two of the Company's Directors, Mr. Bock and Mr. Byers, are
not included in the Proxy Statement because they have advised the Company of
their decision not to stand for re-election at the Company's 1997 Annual Meeting
of Stockholders. Information concerning both Mr. Bock and Mr. Byers is set forth
below.
Mr. Bock, age 37, a founder of the Company, was elected a director in
March 1993. Mr. Bock had been a general partner of Avalon Ventures, a venture
capital firm, from 1988 through 1996. Mr. Bock is currently a director of
several closely held companies.
Mr. Byers, age 51, was elected a director in July 1993. Mr. Byers has
been a partner at Kleiner Perkins Caufield & Byers, a venture capital firm,
since 1977. Mr. Byers is currently a director of Arris Pharmaceuticals
Corporation, Onyx Pharmaceuticals, Inc. and several closely held companies.
(b) The information required by this Item concerning the Company's
executive officers is set forth in Part I of this Form 10-K.
-22-
<PAGE>
(c) The information required by this Item concerning compliance with
Section 16(a) of the Exchange Act is incorporated by reference from the section
captioned "Section 16(a) Beneficial Ownership Reporting Compliance" contained in
the Proxy Statement.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item is incorporated by reference
from the section captioned "Executive Compensation" in the Company's Proxy
Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this Item is incorporated by reference
from the section captioned "Stock Ownership of Principal Stockholders and
Management" in the Company's Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this Item is incorporated by reference
from the sections captioned "Certain Transactions" in the Company's Proxy
Statement.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a)(1) Financial Statements
The following Financial Statements are included:
Report of Independent Auditors
Balance Sheets as of December 31, 1995 and 1996
Statements of Operations for the years ended December 31, 1994, 1995
and 1996
Statement of Stockholders' Equity for the years ended
December 31, 1994, 1995 and 1996
Statements of Cash Flows for the years ended December 31, 1994,
1995 and 1996
Notes to Financial Statements
(a)(2) Financial Statement Schedules
All financial statement schedules are omitted because they are not
applicable, or not required, or because the required information is included in
the financial statements or notes thereto.
(a)(3) Exhibits
3.1 Restated Certificate of Incorporation of the Registrant.
3.3 Bylaws of the Registrant, as amended.
4.3* Stockholders Rights Agreement, dated February 15, 1995.
-23-
<PAGE>
10.1* Series A and Series B Preferred Stock Purchase Agreement, dated
July 21, 1993.
10.2* Series B Preferred Stock Purchase Agreement, dated March 11,
1994.
10.3* Series C Preferred Stock Purchase Agreement, dated December 22,
1994.
10.4* Series D Preferred Stock Purchase Agreement, dated February 15,
1995.
10.5(D) Amended 1994 Incentive Stock Plan.
10.6*(D) 1995 Employee Stock Purchase Plan.
10.7*(D) 1995 Director Option Plan.
10.8*+ Library Collection Agreement, dated as of October 1, 1995,
between Pharmacopeia and Sandoz Pharma Ltd.
10.9*+ Research, License, and Royalty Agreement, dated as of February
15, 1995, between Pharmacopeia and Berlex Laboratories, Inc.
10.10*+ License Agreement, dated as of October 6, 1995, among
Pharmacopeia, the Trustees of Columbia University in the City of
New York and Cold Spring Harbor Laboratory.
10.11*+ Collaboration Agreement, dated as of December 22, 1994, between
Pharmacopeia and Schering Corporation and Schering-Plough, Ltd.
10.12*+ Random Library Agreement, dated as of December 22, 1994, between
Pharmacopeia and Schering Corporation and Schering-Plough, Ltd.
10.13* Lease Agreement between Pharmacopeia and Eastpark at 8A.
10.13(a)** Amendment dated as of January 22, 1996 to Lease Agreement
between Pharmacopeia and Eastpark at 8A.
10.13(b)**** Third Amendment to Lease Agreement dated March 31, 1996 between
Pharmacopeia and Eastpark at 8A.
10.14* Sublease, dated as of December 7, 1994, between Pharmacopeia and
Enichem Americas, Inc.
10.15* Lease, dated as of May 2, 1994, between Pharmacopeia and College
Road Associates Limited, as amended.
10.15(a)** Lease dated as of December 1, 1995 between Pharmacopeia and
College Road Associates, as amended.
10.15(b)**** Third Execution and Modification of lease dated June 7, 1996,
between Pharmacopeia and College Road Associates Limited.
10.17*(D) Employment Agreement, dated October 4, 1994, between the Company
and Lewis J. Shuster.
10.18*(D) Employment Agreement, dated January 18, 1994, between the
Company and Joseph A. Mollica, Ph.D.
10.19*(D) Employment Agreement, dated May 18, 1993, between the Company
and John C. Chabala, Ph.D.
10.20*(D) Employment Agreement, dated June 3, 1993, between the Company
and John J. Baldwin, Ph.D.
10.21*(D) Employment Agreement, dated December 2, 1993, between the
Company and Nolan H. Sigal, M.D., Ph.D.
10.22*(D) Consulting Agreement, dated April 30, 1993, between the Company
and W. Clark Still, Ph.D.
10.23* Warrant to purchase Common Stock issued to Columbia University.
10.24* Warrant to purchase Common Stock issued to Cold Spring Harbor
Laboratory.
10.25**+ Collaboration Agreement effective as of December 31, 1995
between Pharmacopeia and Bayer
10.26**+ Random Library Agreement effective as of December 31, 1995
between Pharmacopeia and Bayer
10.29**(D) Employment Agreement, dated January 24, 1996, between the
Company and Nancy M. Gray, Ph.D.
10.30***+ Collaborative Agreement dated as of March 29, 1996 with Daiichi
Pharmaceutical Co., Ltd.
10.31****+ Research Agreement, between Pharmacopeia, Inc. and N.V. Organon
dated May 31, 1996
10.32*****(D) Employment Agreement, dated June 20, 1996, between the Company
and Stephen A. Spearman, Ph.D.
10.33***** Lease Agreement, dated June 21, 1996, between Pharmacopeia and
South Brunswick Rental I, Ltd.
-24-
<PAGE>
11.1* Statement re Computation of Per Share Earnings.
23.1 Consent of Ernst & Young LLP.
24.1 Powers of Attorney (see signature page).
27.1 Financial Data Schedule
- ----------------------
* Incorporated by reference to the same numbered exhibit filed with the
Company's Registration Statement on Form S-1 No. 33-93460.
** Incorporated by reference to the same numbered exhibit filed with the
Company's Form 10-K for the year ended December 31, 1995.
*** Incorporated by reference to the same numbered exhibit filed with the
Company's Form 10-Q for the quarter ended March 31, 1996.
**** Incorporated by reference to the same numbered exhibit filed with the
Company's Form 10-Q for the quarter ended June 30, 1996.
***** Incorporated by reference to the same numbered exhibit filed with the
Company's Form 10-Q for the quarter ended September 30, 1996.
+ Confidential treatment granted.
(D) Represents a management contract or compensatory plan or arrangement
required to be filed as an exhibit hereto pursuant to Item 14 (c) of this
Report.
(b) Reports on Form 8-K
There were no reports on Form 8-K required to be filed for the quarter
ended December 31, 1996.
(c) Exhibits
See Item 14(a)(3) above.
(d) Financial Statement Schedule
See Item 14(a)(2) above.
-25-
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be signed on
its behalf by the undersigned, thereunto duly authorized.
PHARMACOPEIA, INC.
By: /s/ LEWIS J. SHUSTER
--------------------
Lewis J. Shuster
Executive Vice President,
Corporate Development and
Chief Financial Officer
(Principal Accounting Officer)
Date: March 21, 1997
[Rest of page intentionally left blank]
-26-
<PAGE>
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Lewis J. Shuster and Joseph A. Mollica,
Ph.D., jointly and severally, as his attorney-in-fact, each with full power of
substitution, for him or her, in any and all capacities, to sign each amendment
to this Report on Form 10-K, and to file the same, with exhibits thereto and
other documents in connection therewith, with the Securities and Exchange
Commission, hereby ratifying and confirming all that each of said attorneys-in-
fact or his or her substitute or substitutes may lawfully do or cause to be done
by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934,
this Report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated:
<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----
<S> <C> <C>
/s/ JOSEPH A. MOLLICA, Ph.D. Chairman of the Board and Chief Executive March 21, 1997
(Joseph A. Mollica, Ph.D.) Officer (Principal Executive Officer)
/s/ LEWIS J. SHUSTER Executive Vice President, Corporate March 21, 1997
(Lewis J. Shuster) Development and Chief Financial Officer
(Principal Financial and Accounting Officer)
/s/ FRANK BALDINO, Ph.D. Director March 21, 1997
(Frank Baldino, Ph.D.)
/s/ LAWRENCE A. BOCK Director March 21, 1997
(Lawrence A. Bock)
/s/ BROOK H. BYERS Director March 21, 1997
(Brook H. Byers)
/s/ SAMUEL D. COLELLA Director March 21, 1997
(Samuel D. Colella)
/s/ EILEEN M. MORE Director March 21, 1997
(Eileen M. More)
/s/ GARY E. COSTLEY Ph.D. Director March 21, 1997
(Gary E. Costley, Ph.D.)
/s/ W. CLARK STILL, Ph.D. Director March 21, 1997
(W. Clark Still, Ph.D.)
/s/ MAX WILHELM, Ph.D. Director March 21, 1997
(Max Wilhelm, Ph.D.)
</TABLE>
-27-
<PAGE>
Pharmacopeia, Inc.
Index To Financial Statements
Contents
Report of Independent Auditors............................F-1
Balance Sheets............................................F-2
Statements of Operations..................................F-3
Statements of Stockholders' Equity........................F-4
Statements of Cash Flows..................................F-5
Notes to Financial Statements.............................F-6
-28-
<PAGE>
Report of Independent Auditors
The Board of Directors and Stockholders
Pharmacopeia, Inc.
We have audited the accompanying balance sheets of Pharmacopeia, Inc. as of
December 31, 1995 and 1996, and the related statements of operations,
stockholders' equity and cash flows for each of the three years in the period
ended December 31, 1996. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free from
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Pharmacopeia, Inc. at December
31, 1995 and 1996 and the results of its operations and its cash flows for each
of the three years in the period ended December 31, 1996 in conformity with
generally accepted accounting principles.
ERNST & YOUNG LLP
Princeton, New Jersey
January 29, 1997
F-1
<PAGE>
Pharmacopeia, Inc.
Balance Sheets
(Dollars in thousands, except share data)
<TABLE>
<CAPTION>
December 31
1995 1996
------------------------------------------
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 28,612 $ 17,059
Marketable securities 32,288 64,423
Prepaid expenses and other current assets 1,155 1,525
------------------------------------------
Total current assets 62,055 83,007
Property and equipment, net 2,928 8,295
Other assets 558 677
------------------------------------------
$ 65,541 $ 91,979
==========================================
Liabilities and stockholders' equity
Current liabilities:
Accounts payable $ 501 $ 742
Accrued liabilities 1,741 2,240
Notes payable, current portion 398 710
Deferred revenue 7,598 15,088
------------------------------------------
Total current liabilities 10,238 18,780
Notes payable, long-term portion 969 1,405
Deferred revenue, long-term 2,046
Commitments
Stockholders' equity:
Preferred stock, $.0001 par value, 2,000,000
shares authorized; none issued and outstanding
Common stock, $.0001 par value; 40,000,000 shares
authorized; 10,272,527 and 11,267,499 shares
issued and outstanding at December 31, 1995 and
1996, respectively 1 1
Additional paid-in capital 73,745 97,542
Accumulated deficit (19,412) (27,795)
------------------------------------------
Total stockholders' equity 54,334 69,748
------------------------------------------
$ 65,541 $ 91,979
==========================================
</TABLE>
See accompanying notes.
F-2
<PAGE>
Pharmacopeia, Inc.
Statements of Operations
(Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
Year ended December 31
1994 1995 1996
---------------------------------------------------------------
<S> <C> <C> <C>
Contract revenue $ 5,151 $ 14,799
Operating expenses:
Research and development:
Collaborative 5,563 13,129
Proprietary $ 5,785 5,468 8,111
General and administrative 2,687 3,781 5,617
---------------------------------------------------------------
Operating loss (8,472) (9,661) (12,058)
Interest income 171 798 3,938
Interest expense (48) (93) (263)
---------------------------------------------------------------
Net loss $(8,349) $(8,956) $(8,383)
===============================================================
Net loss per share $(3.15) $(2.77) $(.77)
===============================================================
</TABLE>
See accompanying notes.
F-3
<PAGE>
Pharmacopeia, Inc.
Statements of Stockholders' Equity
(Dollars in thousands, except share data)
<TABLE>
<CAPTION>
Convertible Stock Subscriptions
Preferred Stock Common Stock Receivable
----------------------------------------------------------------------------------
Number of Number of Number of
Shares Amount Shares Amount Shares Amount
----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1994 3,600,880 $ 2,186,750 $ (1,027,000) $ (2)
Sales of Convertible Series B preferred stock 4,300,000 1
Sale of Convertible Series C preferred stock 500,000
Sales of common stock 486,000
Collection of stock subscriptions receivable 1,027,000 2
Acquisition of treasury stock
Net loss
----------------------------------------------------------------------------------
Balance at December 31, 1994 8,400,880 1 2,672,750 - -
Sale of Convertible Series D preferred stock 350,000
Sales of common stock 1,094
Acquisition of treasury stock
Retirement of treasury stock (64,521)
Mandatory conversion of Convertible
preferred stock to common stock (8,750,880) (1) 4,375,446 1
Common stock issued based on anti-dilution
provisions 43,750
Exercise of warrant 15,750
Issuance of common stock in initial public
offering, net of expenses 2,990,000
Issuance of common stock for exercise of options 5,700
Issuance of common stock in private placement 232,558
Net loss
----------------------------------------------------------------------------------
Balance at December 31, 1995 - - 10,272,527 1 - -
Acquisition of treasury stock
Retirement of treasury stock (7,594)
Issuance of common stock in private placements 973,206
Issuance of common stock for exercise of options 22,189
Issuance of common stock in employee stock
purchase plan 7,171
Net loss
----------------------------------------------------------------------------------
Balance at December 31, 1996 - $ - 11,267,499 $ 1 - $ -
==================================================================================
<CAPTION>
Treasury Stock
Additional --------------------------- Total
Paid-in Number of Accumulated Stockholders'
Capital Shares Amount Deficit Equity
-------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance at January 1, 1994 $ 4,025 $ - $ (2,107) $ 1,916
Sales of Convertible Series B preferred stock 10,319 10,320
Sale of Convertible Series C preferred stock 7,000 7,000
Sales of common stock 100 100
Collection of stock subscriptions receivable 2
Acquisition of treasury stock 45,000 (9) (9)
Net loss (8,349) (8,349)
-------------------------------------------------------------------------------
Balance at December 31, 1994 21,444 45,000 (9) (10,456) 10,980
Sale of Convertible Series D preferred stock 3,500 3,500
Sales of common stock 1 1
Acquisition of treasury stock 19,521 (2) (2)
Retirement of treasury stock (11) (64,521) 11 -
Mandatory conversion of Convertible
preferred stock to common stock -
Common stock issued based on anti-dilution
provisions -
Exercise of warrant -
Issuance of common stock in initial public
offering, net of expenses 43,808 43,808
Issuance of common stock for exercise of options 3 3
Issuance of common stock in private placement 5,000 5,000
Net loss (8,956) (8,956)
-------------------------------------------------------------------------------
Balance at December 31, 1995 73,745 - - (19,412) 54,334
Acquisition of treasury stock 7,594 (2) (2)
Retirement of treasury stock (2) (7,594) 2
Issuance of common stock in private placements 23,641 23,641
Issuance of common stock for exercise of options 47 47
Issuance of common stock in employee stock
purchase plan 111 111
Net loss (8,383) (8,383)
-------------------------------------------------------------------------------
Balance at December 31, 1996 $97,542 - $ - (27,795) $69,748
===============================================================================
</TABLE>
F-4
<PAGE>
Pharmacopeia, Inc.
Statement of Cash Flows
(Dollars in thousands)
<TABLE>
<CAPTION>
Year ended December 31
1994 1995 1996
----------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities
Net loss $ (8,349) $ (8,956) $ (8,383)
Adjustments to reconcile net loss to net cash provided by (used in)
operating activities:
Depreciation 161 554 1,467
Amortization 41 40 40
Changes in operating assets and liabilities:
Increase in prepaid expenses and other current assets (341) (691) (370)
Increase in other assets (187) (238) (159)
Increase in accounts payable 232 26 241
Increase in accrued liabilities 659 1,046 499
Increase in deferred revenue 3,000 4,599 9,536
------------------------------------------------------
Net cash provided by (used in) operating activities (4,784) (3,620) 2,871
Cash flows from investing activities
Capital expenditures (781) (2,410) (6,834)
Purchases of marketable securities (4,005) (41,391) (95,750)
Proceeds from sales of marketable securities 13,108 63,615
(Increase) decrease in segregated cash (125) 125
------------------------------------------------------
Net cash used in investing activities (4,911) (30,568) (38,969)
Cash flows from financing activities
Net proceeds from issuance of common stock 93 48,810 23,797
Net proceeds from issuance of convertible preferred stock 17,320 3,500
Increase in notes payable 199 1,233 1,344
Repayments of note payable (90) (228) (596)
------------------------------------------------------
Net cash provided by financing activities 17,522 53,315 24,545
------------------------------------------------------
Increase (decrease) in cash and cash equivalents 7,827 19,127 (11,553)
Cash and cash equivalents at beginning of year 1,658 9,485 28,612
------------------------------------------------------
Cash and cash equivalents at end of year $ 9,485 $ 28,612 $ 17,059
======================================================
Non cash investing and financing activities
Acquisition of equipment under financing agreements $ 149
======================================================
Interest paid $ 40 $ 93 $ 263
======================================================
</TABLE>
See accompanying notes.
F-5
<PAGE>
Pharmacopeia, Inc.
Notes to Financial Statements
(Dollars in thousands, except for share and per share data)
December 31, 1996
1. Organization and Description of Business
Pharmacopeia, Inc. (the "Company"), which was incorporated in Delaware in March
1993, develops combinatorial chemical libraries and uses these libraries alone,
and through collaborations, to discover new, low molecular weight compounds
principally for use as pharmaceuticals.
Through December 1994, the Company was in the development stage. Beginning in
January 1995, the Company started receiving and expects to continue to receive
revenue from collaboration agreements (see Note 10). As a result, the Company is
no longer considered to be in the development stage. Included in accumulated
deficit is $10,456 accumulated during the development stage.
The Company's approach to drug discovery represents a newly created business for
which there is little precedent. The Company's expansion of its operations and
enhancements to its drug discovery technology will result in significant
expenses over the next several years that may not be offset by significant
revenues. The Company expects that any revenues for the foreseeable future and
the Company's ability to achieve profitability will be dependent upon the
ability of the Company to enter into additional collaborative arrangements with
customers.
2. Significant Accounting Policies
Use of Estimates
The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
Cash Equivalents
The Company considers all highly-liquid investments with an original maturity of
three months or less to be cash equivalents. The Company invests its cash in
deposits with major financial institutions, money market funds, U.S. Treasury
securities and other investment grade securities such as prime rated commercial
paper.
Marketable Securities
Marketable securities consist of fixed income investments with a maturity of
greater than three months which can be readily purchased or sold using
established markets. Such securities are carried at market which approximates
cost.
F-6
<PAGE>
Pharmacopeia, Inc.
Notes to Financial Statements
(Dollars in thousands, except for share and per share data)
December 31, 1996
2. Significant Accounting Policies (continued)
Property and Equipment
Property and equipment is stated at cost. Depreciation is provided over the
estimated useful lives of the related assets which range from three to ten years
using the straight-line method. Assets under capital leases are amortized over
the lesser of the useful life of the assets or the applicable lease terms,
whichever is shorter, which approximates 5 years.
Intangible Assets
Intangible assets are included in other assets and consist primarily of licensed
technology which represents the initial payment for certain exclusive licenses
granted to the Company as of the date of incorporation and are being amortized
over four years. Accumulated amortization at December 31, 1995 and 1996 was $102
and $142, respectively.
Revenue Recognition
Research and development contract revenue is recognized as the services are
performed on a percentage of completion basis. Amounts received in advance of
services to be performed are recorded as deferred revenue.
Research and Development
All research and development costs are charged to operations as incurred.
Stock Based Compensation
As permitted by FASB Statement No. 123, "Accounting for Stock-Based
Compensation" (FASB 123), the Company has elected to follow Accounting Principal
Board Opinion No. 25, "Accounting for Stock Issued to Employees" (APB 25) and
related interpretations in accounting for its employee stock option plans. Under
APB 25, no compensation expense is recognized at the time of option grant
because the exercise price of the Company's employee stock option equals the
fair market value of the underlying common stock on the date of grant.
F-7
<PAGE>
Pharmacopeia, Inc.
Notes to Financial Statements
(Dollars in thousands, except for share and per share data)
December 31, 1996
2. Significant Accounting Policies (continued)
Net Loss Per Share
The net loss per common share is based on net loss for the year, divided by the
weighted average number of common shares outstanding during the year. Common
stock equivalents such as convertible preferred stock, stock options and
warrants are not included as their effect is anti-dilutive. However, 1,648
options granted during 1994 and 53,591 options granted during the first nine
months of 1995 have been treated as outstanding for all periods presented.
Shares used in computing net loss per share were 2,648,268, 3,231,102 and
10,833,980 for the years ended December 31, 1994, 1995 and 1996 respectively.
Impairment of Long-Lived Assets
During 1996, the Company adopted SFAS No. 121, Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of, which had no
effect on its financial condition or results of operations. The Company records
impairment losses on long-lived assets used in operations or expected to be
disposed when events and circumstances indicate that the assets might be
impaired and the undiscounted cash flows estimated to be generated by those
assets are less than the carrying amounts of those assets. No such events and
circumstances have occurred.
Reclassifications
Certain December 31, 1995 balances have been reclassified to conform with the
December 31, 1996 presentation.
3. Property and Equipment
Property and equipment consist of the following:
<TABLE>
<CAPTION>
December 31
1995 1996
---------------------------------------
<S> <C> <C>
Laboratory equipment $2,324 $4,904
Furniture, fixtures and equipment 161 1,227
Computers and software 779 1,649
Leasehold improvements 353 2,716
Construction in progress 60 15
---------------------------------------
3,677 10,511
Less accumulated depreciation and amortization (749) (2,216)
---------------------------------------
Property and equipment, net $2,928 $8,295
=======================================
</TABLE>
F-8
<PAGE>
Pharmacopeia, Inc.
Notes to Financial Statements
(Dollars in thousands, except for share and per share data)
December 31, 1996
4. Leases
The Company has a total of four leases or sub-leases for office and laboratory
space which expire at various dates through November 30, 2005.
The future minimum lease commitments at December 31, 1996 are as follows:
<TABLE>
<S> <C>
1997 $ 2,594
1998 2,600
1999 2,423
2000 1,133
2001 703
Thereafter 2,752
</TABLE>
Rent expense for the years ended December 31, 1994, 1995 and 1996 was $398,
$1,255 and $1,783, respectively.
5. Accrued Liabilities
Accrued liabilities consist of the following:
<TABLE>
<CAPTION>
December 31
1995 1996
-----------------------------------
<S> <C> <C>
Accrued bonus $ 443 $ 623
Accrued vacation 66 208
Accrued relocation 223 573
Accrued licensing costs - related party (Note 11) 300 300
Other 709 536
------------------------------------
$1,741 $2,240
====== ======
</TABLE>
6. Notes Payable
The Company has entered into Equipment Financing Agreements primarily for the
purchase of certain laboratory and research related equipment. Under the terms
of these agreements, the Company may finance up to $2,850 of equipment and
leasehold improvements. At December 31, 1996, the Company had twenty-two
separate secured notes payable under these agreements. The notes payable expire
at various dates through June 2000.
F-9
<PAGE>
Pharmacopeia, Inc.
Notes to Financial Statements
(Dollars in thousands, except for share and per share data)
December 31, 1996
6. Notes Payable (continued)
The following is a schedule, by year, of the future principal payments under
equipment financing agreements as of December 31, 1996:
<TABLE>
<S> <C>
1997 $710
1998 694
1999 481
2000 224
================
Total principal payments $ 2,109
================
</TABLE>
7. Income Taxes
The Company utilizes the liability method to account for income taxes. Deferred
income taxes reflect the net effects of temporary differences between the
carrying amounts of assets and liabilities for financial reporting purposes and
the amounts used for income tax purposes. Significant components of the
Company's net deferred tax asset, which is considered noncurrent, are as
follows:
<TABLE>
<CAPTION>
December 31
1995 1996
-------------------------------------
<S> <C> <C>
Deferred tax assets
Net operating loss carryforward $ 7,669 $ 11,218
Research credit 476 722
Deferred tax asset valuation reserve (8,145) (11,940)
-------------------------------------
Net deferred tax asset $ - $ -
=====================================
</TABLE>
In 1994, 1995 and 1996, the Company recorded valuation reserves of $4,398,
$8,145 and $11,940, respectively.
At December 31, 1996, the Company has federal net operating loss (NOL)
carryforwards of approximately $28,000 which expire in 2008 ($2,131), 2009
($8,475), 2010 ($9,100) and 2011 ($8,294). An ownership change pursuant to
Section 382 of the Internal Revenue Code occurred in December 1995 as a result
of the public offering of the Company's common stock. The effect of the
ownership change is that use of approximately $11,800 of the NOL carryforward is
restricted to approximately $6,700 per year. The Company has state NOL
carryforwards of approximately $28,000 at December 31, 1996, which expire in
2000 ($2,100), 2001 ($8,500), 2002 ($9,100) and 2003 ($8,300).
F-10
<PAGE>
Pharmacopeia, Inc.
Notes to Financial Statements
(Dollars in thousands, except for share and per share data)
December 31, 1996
7. Income Taxes (continued)
The Company has federal research tax credit carryforwards of approximately $590
at December 31, 1996 which expire from 2008 through 2011. Approximately $476 of
the carryforwards are subject to limitation pursuant to Section 382. In
addition, the Company has a state research tax credit carryforward of
approximately $200 which expires in 2002.
8. Stockholders' Equity
Preferred Stock
On October 6, 1995, the Company authorized the issuance of 2,000,000 shares of
preferred stock, $.0001 par value, per share. No shares have been issued.
Common Stock
During 1994, the Company sold a total of 486,000 shares of common stock at
prices ranging from $0.20 to $0.48 per share. During 1995, the Company sold
1,094 shares of common stock at $0.48 per share, all of which was sold prior to
September 30, 1995.
On October 6, 1995, the Company increased the authorized common stock of the
Company to 40,000,000 and approved a one-for-two reverse stock split of the
Company's common stock. All references in the financial statements with regard
to shares, per share amounts, share prices, warrants and stock options have been
adjusted for this change.
On December 5 and 8, 1995, the Company sold a total of 2,990,000 shares of
common stock for $16.00 per share in an initial public offering and pursuant to
the underwriter's over-allotment option resulting in net proceeds to the Company
of approximately $43,800.
During 1995 the Company received $7,000 from Schering-Plough for the purchase of
232,558 shares of common stock and for certain research activities. Of this
amount $5,000 is included in equity and $2,000 was amortized into contract
revenue during 1996 (see Note 10).
During 1996 the Company received a total of $25,165 in proceeds from the sale to
four corporate partners of 973,206 newly issued shares of Pharmacopeia common
stock. Of the total proceeds, $23,641 was recognized as equity. The balance of
$1,524 was initially recorded on the balance sheet as deferred revenue and is
being recognized as revenue over the balance of the term of the associated
corporate collaboration agreements.
F-11
<PAGE>
Pharmacopeia, Inc.
Notes to Financial Statements
(Dollars in thousands, except for share and per share data)
December 31, 1996
9. Stock Plans
The Company has three Stock Plans, the 1994 Incentive Stock Plan, the 1995
Employee Stock Purchase Plan and the 1995 Director Option Plan.
In accordance with the 1994 Incentive Stock Plan (the "Plan"), the Company may
grant up to 1,250,000 shares of both incentive or non-qualified stock options or
stock purchase rights to officers, directors, employees, sales representatives
and consultants of the Company. The term of each incentive and non-qualified
stock option and stock purchase right is ten years or ten years and one day from
the date of grant. Vesting generally occurs over a period of not greater than
five years.
At December 31, 1996, 132,715 of the outstanding options and stock purchase
rights were exercisable and there were 328,729 shares available for future
grants. All stock purchase rights which are not vested are subject to repurchase
by the Company.
In 1995, the Company adopted the 1995 Employee Stock Purchase Plan ("ESPP")
under Section 423 of the Internal Revenue Code. An aggregate of 250,000 shares
of common stock are reserved for offering under the ESPP. In 1996, 7,171 shares
of common stock were purchased at a price of $15.51 per share, as determined by
the ESPP.
In accordance with the 1995 Directors Option Plan, the Company may grant up to
150,000 options to purchase shares of common stock to non-employee members of
the Board. The exercise price of the stock options shall be equal to the fair
market value per share of common stock on the option grant date. Each option has
a term of ten years from the option grant date and shall become exercisable in a
series of three equal and successive annual installments. During 1996 55,000
options were granted at exercise prices ranging from $21.50 to $26.75 per share.
At December 31, 1996, none of the outstanding options were exercisable and there
were 95,000 shares available for future grants.
FASB 123 requires pro forma information regarding net income and earnings per
share as if the Company has accounted for its employee stock options and
warrants granted subsequent to December 31, 1994 and shares of common stock
purchased by employees in connection with the ESPP ("equity awards") under the
fair value method of FASB 123. The fair value of these equity awards was
estimated at the date of grant using a Black-Scholes option pricing model with
the following weighted average assumptions for 1995 and 1996, respectively:
risk-free interest rates of 6.06% and 6.17%; expected volatility of 59.70;
expected option life of 1.6 years from vesting and an expected dividend yield of
0.0%.
For purposes of pro forma disclosures, the estimated fair value of the equity
awards is amortized to expense over the options' vesting period. The Company's
pro forma information is as follows:
<TABLE>
<CAPTION>
1995 1996
---- ----
<S> <C> <C>
Pro forma net loss.................................................$(9,565) $(9,474)
Pro forma net loss per share of common stock.......................$(2.96) $(.87)
</TABLE>
F-12
<PAGE>
Pharmacopeia, Inc.
Notes to Financial Statements
(Dollars in thousands, except for share and per share data)
December 31, 1996
9. Stock Plans (continued)
Because FASB 123 is applicable only to equity awards granted subsequent to
December 31, 1994, its pro forma effect will not be fully reflected until 1997.
A summary of the Company's stock option activity, and related information for
the years ended December 31, 1995 and 1996 follows:
<TABLE>
<CAPTION>
1995 1996
------------------------------------------- -----------------------------------------
Weighted Weighted
Common Average Common Average
Stock Exercise Stock Exercise
Options Price Options Price
------------------- ------------------- ------------------ -------------------
<S> <C> <C> <C> <C>
Outstanding at beginning of year.... 120,000 $ .48 363,575 $ 2.10
Granted........................... 250,900 2.83 598,220 20.90
Exercised......................... (6,794) .49 (22,189) 2.76
Forfeited......................... (531) .84 (18,335) 7.83
------------------- ------------------
Outstanding at end of year........ 363,575 2.10 921,271 14.19
=================== ==================
Exercisable at end of year........ 36,959 132,715
=================== ==================
Weighted average fair value of options granted
during the year................... 2.81 13.03
</TABLE>
Stock options outstanding at December 31, 1996 are summarized as
follows:
<TABLE>
<CAPTION>
Weighted
Outstanding Weighted Average Average
Range of Options at Remaining Exercise
Exercise Prices December 31, 1996 Contractual Life Price
- --------------------------- ------------------------------- -------------------------------- ----------------------
<S> <C> <C> <C>
$ .48 99,890 7.9 $ .48
$ 1.24 - $20.00 229,411 8.4 $ 2.84
$ 19.00 - $26.75 591,970 9.6 $ 20.91
-------------------------------
$.48 - $26.75 921,271 9.1 $ 14.19
===============================
</TABLE>
F-13
<PAGE>
Pharmacopeia, Inc.
Notes to Financial Statements
(Dollars in thousands, except for share and per share data)
December 31, 1996
10. Collaborative Agreements
On December 22, 1994, the Company entered into a Collaboration Agreement, a
Random Library Agreement and a Stock Purchase Agreement with Schering
Corporation and Schering-Plough Ltd. (collectively "Schering-Plough") which
provides for research funding, product development milestone payments and
royalties on net product sales. Research funding of $3,000 was received in each
of December 1994 and December 1995 and was recognized as contract revenue during
1995 and 1996, respectively.
In December 1995, Schering-Plough purchased shares of the Company's common stock
for $7,000. The purchase price represented a premium of $2,000 over the then
fair market value of the common stock. This premium represented consideration
for research activities to be performed by the Company and was amortized into
income during 1996.
On February 15, 1995, the Company entered into a Collaboration Agreement with
Berlex Laboratories, Inc. ("Berlex") and a stock purchase agreement with an
affiliate of Berlex. The term of Collaboration Agreement is for two years from
the effective date. Berlex has agreed to pay the Company research funding,
product development milestone payments, and royalties on net product sales.
On October 1, 1995, the Company entered into an agreement with Sandoz Pharma
Ltd. ("Sandoz") to create libraries in collaboration with Sandoz for screening
by Sandoz. Under this agreement, the Company is obligated to provide certain
numbers of compounds during each of the five years of the program. In return,
Sandoz is obligated to pay the Company research funding during each year of the
agreement. Sandoz has also agreed to pay the Company milestone payments and
royalties on the sale of any drugs that result from the relationship.
During 1996 the Company signed contracts to extend the Schering-Plough
agreement for one year and to extend the Berlex Laboratories agreement for an
additional 7 months. (See Note 8.)
During 1996 the Company signed new agreements with Bayer, Daiichi, and NV
Organon. The effective date of the Bayer agreement was December 31, 1995. Under
these agreements each of these companies purchased Pharmacopeia stock (see Note
8) and committed to fund certain licensing and research and development ("R&D")
programs at Pharmacopeia. Pharmacopeia received a total of $14,698 in R&D and
license funding during 1996 from these three organizations. The agreements
provide for a total of $10,585 in further R&D funding during 1997. These firms
also agreed to pay the Company milestone payments and royalties on the sale of
drugs that result from the relationships.
The Company received all of its 1995 and 1996 revenues from two and six
customers, respectively. During 1995 58% and 42% of total revenues were received
from Schering-Plough and Berlex Laboratories, respectively. During 1996 the
Company received 36% of revenue from Schering-Plough, 19% from Berlex
Laboratories, 9% from Sandoz, 6% from Bayer, 16% from Daiichi, and 14% from NV
Organon.
F-14
<PAGE>
Pharmacopeia, Inc.
Notes to Financial Statements
(Dollars in thousands, except for share and per share data)
December 31, 1996
11. Commitments
On July 16, 1993, the Company entered into a license agreement with the Trustees
of Columbia University and Cold Spring Harbor Laboratory. The agreement grants
to the Company an exclusive, worldwide license to certain technology for making
and using combinatorial chemical libraries. The agreement includes annual
license fees and certain royalties to be made by the Company. The Company has
met its obligation under the agreement to expend $3,000 and $4,000 for the one
year periods ending July 1996 and 1997, respectively, in development and
commercialization of the licensed technology. In October 1995, the Company
amended its license agreement with the Trustees of Columbia University and Cold
Spring Harbor Laboratories. In connection with this amendment, the Company
issued warrants to purchase 100,000 shares of common stock at $10.00 per share,
exercisable through October 5, 2000 or earlier as defined in the warrants.
During the years ended December 31, 1994, 1995 and 1996, the Company paid
royalties and license fees to Columbia University of $156, $419, and $590,
respectively.
In addition, the Company had commitments for construction and equipment of
approximately $1,300 at December 31, 1996.
12. Subsequent Events
On January 29, 1997, the Company entered into a Library Screening Agreement with
Zeneca Limited ("Zeneca") to create libraries in collaboration with Zeneca for
screening by Zeneca. Under the terms of the Library Screening Agreement, Zeneca
will provide Library preparation fees and milestone payments along with
royalties on net product sales.
F-15
<PAGE>
Pharmacopeia, Inc.
Report on Form 10-K for
the year ended December 31, 1996
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit Exhibit Name Sequentially
Number Numbered Page
<S> <C>
3.1 Restated Certificate of Incorporation of the Registrant.
3.3 Bylaws of the Registrant, as amended.
23.1 Consent of Ernst & Young LLP.
24.1 Powers of Attorney (see page 27).
27.1 Financial Data Schedule (filed electronically with the SEC only)
</TABLE>
<PAGE>
Exhibit 3.1
RESTATED CERTIFICATE OF INCORPORATION
OF PHARMACOPEIA, INC.
Pharmacopeia, Inc., a corporation organized and existing under the
laws of the State of Delaware, hereby certifies as follows:
A. The name of the corporation is Pharmacopeia, Inc. The original
Certificate of Incorporation of the corporation was filed with the Secretary of
State of the State of Delaware on March 26, 1993.
B. Pursuant to Sections 228, 242 and 245 of the General Corporation Law
of the State of Delaware, this Restated Certificate of Incorporation restates
and integrates the provisions of the Certificate of Incorporation of this
corporation.
C. The text of the Certificate of Incorporation as heretofore amended or
supplemented is hereby amended and restated in its entirety to read as follows:
ONE. The name of this corporation is "Pharmacopeia, Inc."
---
TWO. The address of the corporation's registered office in the State of
---
Delaware is 1013 Centre Road, Wilmington, Delaware 19805-1297, New Castle
County. The name of its registered agent at such office is The Prentice-Hall
Corporation System, Inc.
THREE. The nature of the business or purposes to be conducted or
-----
promoted is to engage in any lawful act or activity for which corporations may
be organized under the General Corporation Law of Delaware.
FOUR. This corporation is authorized to issue two classes of stock to
----
be designated, respectively, "Common Stock" and "Preferred Stock." The total
number of shares of Common Stock which the corporation is authorized to issue is
Forty Million (40,000,000) shares, par value $.0001. The total number of shares
of Preferred Stock which the corporation is authorized to issue is Two Million
(2,000,000), par value $.0001 per share.
The Board of Directors is authorized, subject to limitations prescribed by
law and the provisions of this Article FOUR, to provide for the issuance of the
shares of Preferred Stock in series, and by filing a certificate pursuant to the
applicable law of the State of Delaware, to
<PAGE>
establish from time to time the number of shares to be included in each such
series, and to fix the designation, powers, preferences, and rights of the
shares of each such series and the qualifications, limitations or restrictions
thereof.
The authority of the Board with respect to each series shall include,
but not be limited to, determination of the following:
(a) The number of shares constituting that series and the
distinctive designation of that series;
(b) The dividend rate on the shares of that series, whether
dividends shall be cumulative, and, if so, from which date;
(c) Whether that series shall have voting rights, in addition to
the voting rights provided by law, and, if so, the terms of such voting
rights;
(d) Whether that series shall have conversion privileges, and, if
so, the terms and conditions of such conversion, including provision for
adjustment of the conversion rate in such events as the Board of Directors
shall determine;
(e) Whether or not the shares of that series shall be redeemable,
and, if so, the terms and conditions of such redemption, including the date
or date upon or after which they shall be redeemable, and the amount per
share payable in case of redemption, which amount may vary under different
conditions and at different redemption dates;
(f) Whether that series shall have a sinking fund for the
redemption or purchase of shares of that series, and, if so, the terms and
amount of such sinking fund;
(g) The rights of the shares of that series in the event of
voluntary or involuntary liquidation, dissolution or winding up of the
corporation, and the relative rights or priority, if any, of payment of
shares of that series; and
(h) Any other relative rights, preferences and limitations of that
series.
1. Dividends. Dividends may be declared and paid upon the Common
---------
Stock in any fiscal year of the corporation only if dividends shall have been
paid to or declared and set apart for payment to all shares of Preferred Stock.
The holders of Preferred Stock and Common Stock shall be entitled, when, as and
if declared by the Board of Directors, to dividends out of the corporation's
assets legally available therefor; provided, however, that no such dividends may
be declared or paid on any shares of Common Stock or Preferred Stock unless at
the same time an equivalent dividend is declared and paid on all outstanding
shares of Common Stock and Preferred Stock. The right to dividends on shares of
the Common Stock or Preferred Stock shall not be cumulative, and no right shall
accrue to holders of Common Stock or Preferred Stock by reason of the fact that
dividends on said shares are not declared in any prior period.
-2-
<PAGE>
2. Voting Rights.
-------------
(a) Common Stock. Each holder of shares of Common Stock shall be
entitled to one vote for each share thereof held.
(b) Election by Ballot. The election of directors need not be by
------------------
written ballot unless the Bylaws of the corporation shall so provide.
Two. The corporation is to have perpetual existence.
----
Three. In furtherance and not in limitation of the powers conferred by
------
statute, the Board of Directors is expressly authorized to make, alter, amend or
repeal the Bylaws of the corporation.
Four. The number of directors of the corporation shall be fixed from time
-----
to time by a bylaw or amendment thereof duly adopted by the Board of Directors
or by the stockholders.
The Board of Directors shall be and is divided into three classes:
Class I, Class II and Class III, which shall be as nearly equal in number as
possible. Each director shall serve for a term ending on the date of the third
annual meeting of stockholders following the annual meeting at which the
director was elected; provided, however, that each initial director in Class I
shall hold office until the annual meeting of stockholders in 1996; each initial
director in Class II shall hold office until the annual meeting of stockholders
in 1997; and each initial director in Class III shall hold office until the
annual meeting of stockholders in 1998. Notwithstanding the foregoing provisions
of this Article, each director shall serve until his successor is duly elected
and qualified or until his death, resignation or removal.
In the event of any increase or decrease in the authorized number of
directors, (1) each director then serving as such shall nevertheless continue as
a director of the class of which he is a member until the expiration of his
current term, or his earlier resignation, removal from office or death, and (2)
the newly created or eliminated directorship resulting from such increase or
decrease shall be apportioned by the Board of Directors among the three classes
of directors so as to maintain such classes as nearly equal as possible.
Five. Meetings of stockholders may be held within or without the State of
-----
Delaware, as the Bylaws may provide. The books of the corporation may be kept
(subject to any provisions contained in the statutes) outside the State of
Delaware at such place or places as may be designated from time to time by the
Board of Directors or in the Bylaws of the corporation.
Six.
----
(a) The corporation shall indemnify each of the corporation's
directors and officers in each and every situation where, under Section 145
of the General Corporation
-3-
<PAGE>
Law of the State of Delaware, as amended from time to time ("Section 145"),
the corporation is permitted or empowered to make such indemnification. The
corporation may, in the sole discretion of the Board of Directors of the
corporation, indemnify any other person who may be indemnified pursuant to
Section 145 to the extent the Board of Directors deems advisable, as
permitted by Section 145. The corporation shall promptly make or cause to
be made any determination required to be made pursuant to Section 145.
(b) No person shall be personally liable to the corporation or its
stockholders for monetary damages for breach of fiduciary duty as a
director, provided, however, that the foregoing shall not eliminate or
-------- -------
limit the liability of a director (i) for any breach of the director's duty
of loyalty to the corporation or its stockholders, (ii) for acts or
omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (iii) under Section 174 of the General
Corporation Law of the State of Delaware or (iv) for any transaction from
which the director derived an improper personal benefit. If the General
Corporation Law of the State of Delaware is subsequently amended to further
eliminate or limit the liability of a director, then a director of the
corporation, in addition to the circumstances in which a director is not
personally liable as set forth in the preceding sentence, shall not be
liable to the fullest extent permitted by the amended General Corporation
Law of the State of Delaware. For purposes of this Article NINE, "fiduciary
duty as a director" shall include any fiduciary duty arising out of serving
at the corporation's request as a director of another corporation,
partnership, joint venture or other enterprise, and "personal liability to
the corporation or its stockholders" shall include any liability to such
other corporation, partnership, joint venture, trust or other enterprise,
and any liability to the corporation in its capacity as a security holder,
joint venturer, partner, beneficiary, creditor or investor of or in any
such other corporation, partnership, joint venture, trust or other
enterprise.
(c) Neither any amendment nor repeal of this Article NINE, nor the
adoption of any provision of this Certificate of Incorporation inconsistent
with this Article NINE, shall eliminate or reduce the effect of this
Article NINE in respect of any matter occurring, or any cause of action,
suit or claim that, but for this repeal or adoption of an inconsistent
provision.
Seven. Advance notice of new business and stockholder nominations for the
------
election of directors shall be given in the manner and to the extent provided in
the Bylaws of the corporation.
Eight. Whenever a compromise or arrangement is proposed between this
------
corporation and its creditors or any class of them and/or between this
corporation and its stockholders or any class of them, any court of equitable
jurisdiction within the State of Delaware may, on the application in a summary
way of this corporation or of any creditor or stockholder thereof or on the
application of any receiver or receivers appointed for this corporation under
the provisions of Section 291 of Title 8 of the Delaware Code or on the
application of trustees in dissolution or of any receiver or receivers appointed
for this corporation under the provisions of Section 279 of
-4-
<PAGE>
Title 8 of the Delaware Code, order a meeting of the creditors or class of
creditors, and/or of the stockholders or class of stockholders of this
corporation, as the case may be, to be summoned in such manner as the said court
directs. If a majority in number representing three-fourths in value of the
creditors or class of creditors, and/or of the stockholders or class of
stockholders of this corporation, as the case may be, agree to any compromise or
arrangements and to any reorganization of this corporation as consequence of
such compromise or arrangement, the said compromise or arrangement and the said
reorganization shall, if sanctioned by the court to which the said application
has been made, be binding on all the creditors or class of creditors, and/or on
all the stockholders or class of stockholders, of this corporation, as the case
may be, and also on this corporation.
Nine. The corporation reserves the right to amend, alter, change or repeal
-----
any provisions contained in this Certificate, in the manner now or hereafter
prescribed by statute, and all rights conferred upon stockholders herein are
granted subject to this reservation.
-5-
<PAGE>
IN WITNESS WHEREOF, the corporation has caused this Certificate to be
signed by Joseph A. Mollica, its Chief Executive Officer, and attested by Lewis
J. Shuster, its Assistant Secretary, this 8th day of December 1995.
PHARMACOPEIA, INC.
By:
---------------------------------
Joseph A. Mollica
Chief Executive Officer
ATTEST:
-------------------------
Lewis J. Shuster
Assistant Secretary
<PAGE>
Exhibit 3.3
BYLAWS
OF
PHARMACOPEIA, INC.
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE 1 - CORPORATE OFFICES.....................................................................................1
1.1. REGISTERED OFFICE.................................................................................1
1.2. OTHER OFFICES.....................................................................................1
ARTICLE 2 - MEETINGS OF STOCKHOLDERS..............................................................................1
2.1. PLACE OF MEETINGS.................................................................................1
2.2. ANNUAL MEETING....................................................................................1
2.3. SPECIAL MEETING...................................................................................2
2.4. NOTICE OF STOCKHOLDERS' MEETINGS..................................................................2
2.5. MANNER OF GIVING NOTICE: AFFIDAVIT OF NOTICE......................................................2
2.6. QUORUM............................................................................................2
2.7. ADJOURNED MEETING: NOTICE.........................................................................3
2.8. CONDUCT OF BUSINESS...............................................................................3
2.9. VOTING............................................................................................3
2.10. WAIVER OF NOTICE..................................................................................4
2.11. STOCKHOLDER ACTION BY WRITTEN CONSENT WITHOUT A MEETING...........................................4
2.12. RECORD DATE FOR STOCKHOLDER NOTICE: VOTING; GIVING CONSENTS.......................................4
2.13. PROXIES...........................................................................................5
2.14. LIST OF STOCKHOLDERS ENTITLED TO VOTE.............................................................5
ARTICLE 3 - DIRECTORS.............................................................................................6
3.1. POWERS............................................................................................6
3.2. NUMBER OF DIRECTORS...............................................................................6
3.3. ELECTION, QUALIFICATION AND TERM OF OFFICE OF DIRECTORS...........................................6
3.4. RESIGNATION AND VACANCIES.........................................................................6
3.5. PLACE OF MEETINGS, MEETINGS BY TELEPHONE..........................................................7
3.6. REGULAR MEETINGS..................................................................................7
3.7. SPECIAL MEETINGS; NOTICE..........................................................................8
</TABLE>
-i-
<PAGE>
<TABLE>
<S> <C>
3.8. QUORUM.............................................................................................8
3.9. WAIVER OF NOTICE...................................................................................8
3.10. BOARD ACTION BY WRITTEN CONSENT WITHOUT A MEETING..................................................9
3.11. FEES AND COMPENSATION OF DIRECTORS.................................................................9
3.12. APPROVAL OF LOANS TO OFFICERS......................................................................9
3.13. REMOVAL OF DIRECTORS...............................................................................9
ARTICLE 4 - COMMITTEES...........................................................................................10
4.1. COMMITTEES OF DIRECTORS...........................................................................10
4.2. COMMITTEE MINUTES.................................................................................10
4.3. MEETINGS AND ACTION OF COMMITTEES.................................................................11
ARTICLE 5 - OFFICERS.............................................................................................11
5.1. OFFICERS..........................................................................................11
5.2. APPOINTMENT OF OFFICERS...........................................................................11
5.3. SUBORDINATE OFFICERS..............................................................................11
5.4. REMOVAL AND RESIGNATION OF OFFICERS...............................................................12
5.5. VACANCIES IN OFFICES..............................................................................12
5.6. CHAIRMAN OF THE BOARD.............................................................................12
5.7. PRESIDENT.........................................................................................12
5.8. VICE PRESIDENTS...................................................................................12
5.9. SECRETARY.........................................................................................13
5.10. CHIEF FINANCIAL OFFICER...........................................................................13
5.11. ASSISTANT SECRETARY...............................................................................14
5.12. ASSISTANT TREASURER...............................................................................14
5.13. REPRESENTATION OF SHARES OF OTHER CORPORATIONS....................................................14
5.14. AUTHORITY AND DUTIES OF OFFICERS..................................................................14
ARTICLE 6 - INDEMNITY............................................................................................14
6.1. THIRD PARTY ACTIONS...............................................................................14
6.2. ACTIONS BY OR IN THE RIGHT OF THE CORPORATION.....................................................15
</TABLE>
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<TABLE>
<S> <C>
6.3. SUCCESSFUL DEFENSE................................................................................15
6.4. DETERMINATION OF CONDUCT..........................................................................16
6.5. PAYMENT OF EXPENSES IN ADVANCE....................................................................16
6.6. INDEMNITY NOT EXCLUSIVE...........................................................................16
6.7. INSURANCE INDEMNIFICATION.........................................................................16
6.8. THE CORPORATION...................................................................................16
6.9. EMPLOYEE BENEFIT PLANS............................................................................17
6.10. CONTINUATION OF INDEMNIFICATION AND ADVANCEMENT OF EXPENSES.......................................17
ARTICLE 7 - RECORDS AND REPORTS..................................................................................17
7.1. MAINTENANCE AND INSPECTION OF RECORDS.............................................................17
7.2. INSPECTION BY DIRECTORS...........................................................................18
7.3. ANNUAL STATEMENT TO STOCKHOLDERS..................................................................18
ARTICLE 8 - GENERAL MATTERS......................................................................................18
8.1. CHECKS............................................................................................18
8.2. EXECUTION OF CORPORATE CONTRACTS AND INSTRUMENTS..................................................19
8.3. STOCK CERTIFICATES: PARTLY PAID SHARES............................................................19
8.4. SPECIAL DESIGNATION ON CERTIFICATES...............................................................19
8.5. LOST CERTIFICATES.................................................................................20
8.6. CONSTRUCTION: DEFINITIONS.........................................................................20
8.7. DIVIDENDS.........................................................................................20
8.8. FISCAL YEAR.......................................................................................20
8.9. SEAL..............................................................................................21
8.10. TRANSFER OF STOCK.................................................................................21
8.11. STOCK TRANSFER AGREEMENTS.........................................................................21
8.12. REGISTERED STOCKHOLDERS...........................................................................21
ARTICLE 9 - AMENDMENTS...........................................................................................21
</TABLE>
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<PAGE>
BYLAWS
------
OF
--
PHARMACOPEIA, INC.
------------------
ARTICLE 1
---------
CORPORATE OFFICES
-----------------
1.1. REGISTERED OFFICE
-----------------
The registered office of the corporation shall be in the City of Dover,
County of New Castle, State of Delaware. The name of the registered agent of the
corporation at such location is The Prentice Hall Corporation System, Inc.
1.2. OTHER OFFICES
-------------
The board of directors may at any time establish other offices at any
place or places where the corporation is qualified to do business.
ARTICLE 2
MEETINGS OF STOCKHOLDERS
------------------------
2.1. PLACE OF MEETINGS
-----------------
Meetings of stockholders shall be held at any place, within or outside
the State of Delaware, designated by the board of directors. In the absence of
any such designation, stockholders' meetings shall be held at the registered
office of the corporation.
2.2. ANNUAL MEETING
--------------
The annual meeting of stockholders shall be held each year on a date
and at a time designated by the board of directors. In the absence of such
designation the annual meeting of shareholders shall be held on the second
Tuesday of May of each year at 10:00 a.m. However, if such day falls on a legal
holiday, then the meeting shall be held at the same time and place on the next
succeeding business day. At the meeting, directors shall be elected and any
other proper business may be transacted.
<PAGE>
2.3. SPECIAL MEETING
---------------
A special meeting of the stockholders may be called at any time by the
board of directors, or by the chairman of the board, or by the president, or by
one or more stockholders holding shares in the aggregate entitled to cast not
less than ten percent of the votes at that meeting.
If a special meeting is called by any person or persons other than the
board of directors, the request shall be in writing, specifying the time of such
meeting and the general nature of the business proposed to be transacted, and
shall be delivered personally or sent by registered mail or by telegraphic or
other facsimile transmission to the chairman of the board, the president or the
secretary of the corporation. No business may be transacted at such special
meeting otherwise than specified in such notice. The officer receiving the
request shall cause notice to be promptly given to the stockholders entitled to
vote, in accordance with the provisions of Sections 2.4 and 2.5 of this Article
II, that a meeting will be held at the time requested by the person or persons
calling the meeting, not less than ten (10) nor more than sixty (60) days after
the receipt of the request. Nothing contained in this paragraph of this Section
2.3 shall be construed as limiting, fixing, or affecting the time when a meeting
of stockholders called by action of the board of directors may be held.
2.4. NOTICE OF STOCKHOLDERS' MEETINGS
--------------------------------
All notices of meetings with stockholders shall be in writing and shall
be sent or otherwise given in accordance with Section 2.5 of these bylaws not
less than ten (10) nor more than sixty (60) days before the date of the meeting
to each stockholder entitled to vote at such meeting. The notice shall specify
the place, date, and hour of the meeting, and, in the case of a special meeting,
the purpose or purposes for which the meeting is called.
2.5. MANNER OF GIVING NOTICE: AFFIDAVIT OF NOTICE
--------------------------------------------
Written notice of any meeting of stockholders, if mailed, is given when
deposited in the United States mail, postage prepaid, directed to the
stockholder at his address as it appears on the records of the corporation. An
affidavit of the Secretary or an Assistant Secretary or of the transfer agent of
the corporation that the notice has been given shall, in the absence of fraud,
be prima facie evidence of the facts stated therein.
2.6. QUORUM
------
The holders of a majority of the stock issued and outstanding and
entitled to vote thereat, present in person or represented by proxy, shall
constitute a quorum at all meetings of the stockholders for the transaction of
business except as otherwise provided by statute or by the certificate of
incorporation. If, however, such quorum is not present or represented at any
meeting of the stockholders, then either (i) the Chairman of the meeting or (ii)
the stockholders entitled to vote thereat, present in person or represented by
proxy, shall have power to adjourn the meeting from time to time, without notice
other than announcement at the meeting, until a
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<PAGE>
quorum is present or represented. At such adjourned meeting at which a quorum is
present or represented, any business may be transacted that might have been
transacted at the meeting as originally noticed.
2.7. ADJOURNED MEETING: NOTICE
-------------------------
When a meeting is adjourned to another time or place, unless these
bylaws otherwise require, notice need not be given of the adjourned meeting if
the time and place thereof are announced at the meeting at which the adjournment
is taken. At the adjourned meeting the corporation may transact any business
that might have been transacted at the original meeting. If the adjournment is
for more than thirty (30) days, or if after the adjournment a new record date is
fixed for the adjourned meeting, a notice of the adjourned meeting shall be
given to each stockholder of record entitled to vote at the meeting.
2.8. CONDUCT OF BUSINESS
-------------------
The chairman of any meeting of stockholders shall determine the order
of business and the procedure at the meeting, including such regulation of the
manner of voting and the conduct of business.
2.9. VOTING
------
The stockholders entitled to vote at any meeting of stockholders shall
be determined in accordance with the provisions of Section 2.12 of these bylaws,
subject to the provisions of Sections 217 and 218 of the General Corporation Law
of Delaware (relating to voting rights of fiduciaries, pledgers and joint owners
of stock and to voting trusts and other voting agreements).
Except as provided in the last paragraph of this Section 2.9, or as may
be otherwise provided in the certificate of incorporation, each stockholder
shall be entitled to one vote for each share of capital stock held by such
stockholder.
At a stockholders' meeting at which directors are to be elected, each
stockholder shall be entitled to cumulate votes (i.e., cast for any candidate a
number of votes greater than the number of votes which such stockholder normally
is entitled to cast) if the candidates' names have been properly placed in
nomination (in accordance with these bylaws) prior to commencement of the voting
and the stockholder requesting cumulative voting or any other stockholder voting
at the meeting in person or by proxy has given notice prior to commencement of
the voting of the stockholder's intention to cumulate votes. If cumulative
voting is properly requested, each holder of stock, or of any class or classes
or of a series or series thereof, who elects to cumulate votes shall be entitled
to as many votes as equals the number of votes which (absent this provision as
to cumulative voting) he would be entitled to cast for the election of directors
with respect to his shares of stock multiplied by the number of directors to be
elected by him, and he may cast all of such votes for a single director or may
distribute them among the number to be voted for, or for any two or more of
them, as he may see fit.
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<PAGE>
2.10. WAIVER OF NOTICE
----------------
Whenever notice is required to be given under any provision of the
General Corporation Law of Delaware or of the certificate of incorporation or
these bylaws, a written waiver thereof, signed by the person entitled to notice,
whether before or after the time stated therein, shall be deemed equivalent to
notice. Attendance of a person at a meeting shall constitute a waiver of notice
of such meeting, except when the person attends a meeting for the express
purpose of objecting, at the beginning of the meeting, to the transaction of any
business because the meeting is not lawfully called or convened. Neither the
business to be transacted at, nor the purpose of, any regular or special meeting
of the stockholders need be specified in any written waiver of notice unless so
required by the certificate of incorporation or these bylaws.
2.11. STOCKHOLDER ACTION BY WRITTEN CONSENT WITHOUT A MEETING
-------------------------------------------------------
Unless otherwise provided in the certificate of incorporation, any
action required by this chapter to be taken at any annual or special meeting of
stockholders of a corporation, or any action that may be taken at any annual or
special meeting of such stockholders, may be taken without a meeting, without
prior notice, and without a vote if a consent in writing, setting forth the
action so taken, is signed by the holders of outstanding stock 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.
Prompt notice of the taking of the corporate action without a meeting
by less than unanimous written consent shall be given to those stockholders who
have not consented in writing. If the action which is consented to is such as
would have required the filing of a certificate under any section of the General
Corporation Law of Delaware if such action had been voted on by stockholders at
a meeting thereof, then the certificate filed under such section shall state, in
lieu of any statement required by such section concerning any vote of
stockholders, that written notice and written consent have been given as
provided in Section 228 of the General Corporation Law of Delaware.
2.12. RECORD DATE FOR STOCKHOLDER NOTICE; VOTING; GIVING CONSENTS
-----------------------------------------------------------
In order that the corporation may determine the stockholders entitled
to notice of or to vote at any meeting of stockholders or any adjournment
thereof, or entitled to express consent to corporate action in writing without a
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 stock or for the purpose of any other lawful
action, the board of directors may fix, in advance, a record date, which shall
not be more than sixty (60) nor less than ten (10) days before the date of such
meeting, nor more than sixty (60) days prior to any other action.
-4-
<PAGE>
If the board of directors does not so fix a record date:
The record date for determining stockholders entitled to notice
of or to vote at a meeting of stockholders shall be at the close of business on
the day next preceding the day on which notice is given, or, if notice is
waived, at the close of business on the day next preceding the day on which the
meeting is held.
(i) The record date for determining stockholders entitled to
express consent to corporate action in writing without a meeting, when no prior
action by the board of directors is necessary, shall be the day on which the
first written consent is expressed.
(ii) The record date for determining stockholders 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.
A determination of stockholders of record entitled to notice of or to
vote at a meeting of stockholders shall apply to any adjournment of the meeting;
provided, however, that the board of directors may fix a new record date for the
adjourned meeting.
2.13. PROXIES
-------
Each stockholder entitled to vote at a meeting of stockholders or to
express consent or dissent to corporate action in writing without a meeting may
authorize another person or persons to act for him by a written proxy, signed by
the stockholder and filed with the secretary of the corporation, but no such
proxy shall be voted or acted upon after three (3) years from its date, unless
the proxy provides for a longer period. A proxy shall be deemed signed if the
stockholder's name is placed on the proxy (whether by manual signature,
typewriting, telegraphic transmission or otherwise) by the stockholder or the
stockholder's attorney-in-fact. The revocability of a proxy that states on its
face that it is irrevocable shall be governed by the provisions of Section
212(c) of the General Corporation Law of Delaware.
2.14. LIST OF STOCKHOLDERS ENTITLED TO VOTE
-------------------------------------
The officer who has charge of the stock ledger of a corporation shall
prepare and make, at least ten (10) days before every meeting of stockholders, a
complete list of the stockholders entitled to vote at the meeting, arranged in
alphabetical order, and showing the addresses of each stockholder and the number
of shares registered in the name of each stockholder. Such list shall be open to
the examination of any stockholder, for any purpose germane to the meeting,
during ordinary business hours, for a period of at least ten (10) days prior to
the meeting, either at a place within the city where the meeting is to be held,
which place shall be specified in the notice of the meeting, or, if not so
specified, at the place where the meeting is to be held. The list shall also be
produced and kept at the time and place of the meeting during the whole time
thereof, and may be inspected by any stockholder who is present. Such list shall
presumptively determine the identity of the stockholders entitled to vote at the
meeting and the number of shares held by each of them.
-5-
<PAGE>
ARTICLE 3
DIRECTORS
3.1. POWERS
------
Subject to the provisions of the General Corporation Law of Delaware
and any limitations in the certificate of incorporation or these bylaws relating
to action required to be approved by the stockholders 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.
3.2. NUMBER OF DIRECTORS
-------------------
The board of directors shall consist of one (1) or more members, the
number thereof to be determined from time to time by resolution of the board of
directors.
No reduction of the authorized number of directors shall have the
effect of removing any director before that director's term of office expires.
3.3. ELECTION, QUALIFICATION AND TERM OF OFFICE OF DIRECTORS
-------------------------------------------------------
Except as provided in Section 3.4 of these bylaws, directors shall be
elected at each annual meeting of stockholders to hold office until the next
annual meeting. Directors need not be stockholders unless so required by the
certificate of incorporation or these bylaws, wherein other qualifications for
directors may be prescribed. Each director, including a director elected to fill
a vacancy, shall hold office until his successor is elected and qualified or
until his earlier resignation or removal.
Elections of directors need not be by written ballot.
3.4. RESIGNATION AND VACANCIES
-------------------------
Any director may resign at any time upon written notice to the
attention of the Secretary of the corporation. When one or more directors so
resigns and the resignation is effective at a future date, a majority of the
directors then in office, including those who have so resigned, shall have power
to fill such vacancy or vacancies, the vote thereon to take effect when such
resignation or resignations shall become effective, and each director so chosen
shall hold office as provided in this section in the filling of other vacancies.
Unless otherwise provided in the certificate of incorporation or these
bylaws:
(i) Vacancies and newly created directorships resulting from any
increase in the authorized number of directors elected by all of the
stockholders having the right to vote as a
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<PAGE>
single class may be filled by a majority of the directors then in office,
although less than a quorum, or by a sole remaining director.
(ii) Whenever the holders of any class or classes of stock or
series thereof are entitled to elect one or more directors by the provisions of
the certificate of incorporation, vacancies and newly created directorships of
such class or classes or series may be filled by a majority of the directors
elected by such class or classes or series thereof then in office, or by a sole
remaining director so elected.
If at any time, by reason of death or resignation or other cause, the
corporation should have no directors in office, then any officer or any
stockholder or an executor, administrator, trustee or guardian of a stockholder,
or other fiduciary entrusted with like responsibility for the person or estate
of a stockholder, may call a special meeting of stockholders in accordance with
the provisions of the certificate of incorporation or these bylaws, or may apply
to the Court of Chancery for a decree summarily ordering an election as provided
in Section 211 of the General Corporation Law of Delaware.
If, at the time of filling any vacancy or any newly created
directorship, the directors then in office constitute less than a majority of
the whole board (as constituted immediately prior to any such increase), then
the Court of Chancery may, upon application of any stockholder or stockholders
holding at least ten (10) percent of the total number of the shares at the time
outstanding having the right to vote for such directors, summarily order an
election to be held to fill any such vacancies or newly created directorships,
or to replace the directors chosen by the directors then in office as aforesaid,
which election shall be governed by the provisions of Section 211 of the General
Corporation Law of Delaware as far as applicable.
3.5. PLACE OF MEETINGS; MEETINGS BY TELEPHONE
----------------------------------------
The board of directors of the corporation may hold meetings, both
regular and special, either within or outside the State of Delaware.
Unless otherwise restricted by the certificate of incorporation or
these bylaws, members of the board of directors, or any committee designated by
the board of directors, may participate in a meeting of the board of directors,
or any committee, by means of conference telephone or similar communications
equipment by means of which all persons participating in the meeting can hear
each other, and such participation in a meeting shall constitute presence in
person at the meeting.
3.6. REGULAR MEETINGS
----------------
Regular meetings of the board of directors may be held without notice
at such time and at such place as shall from time to time be determined by the
board.
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<PAGE>
3.7. SPECIAL MEETINGS; NOTICE
------------------------
Special meetings of the board of directors for any purpose or purposes
may be called at any time by the chairman of the board, the president, any vice
president, the secretary or any two (2) directors .
Notice of the time and place of special meetings shall be delivered
personally or by telephone to each director or sent by first-class mail or
telegram, charges prepaid, addressed to each director at that director's address
as it is shown on the records of the corporation. If the notice is mailed, it
shall be deposited in the United States mail at least four (4) days before the
time of the holding of the meeting. If the notice is delivered personally or by
telephone or by telegram, it shall be delivered personally or by telephone or to
the telegraph company at least forty-eight (48) hours before the time of the
holding of the meeting. Any oral notice given personally or by telephone may be
communicated either to the director or to a person at the office of the director
who the person giving the notice has reason to believe will promptly communicate
it to the director. The notice need not specify the purpose or the place of the
meeting, if the meeting is to be held at the principal executive office of the
corporation.
3.8. QUORUM
------
At all meetings of the board of directors, a majority of the authorized
number of directors shall constitute a quorum for the transaction of business
and the act of a majority of the directors present at any meeting at which there
is a quorum shall be the act of the board of directors, except as may be
otherwise specifically provided by statute or by the certificate of
incorporation. If a quorum is not present at any meeting of the board of
directors, then the directors present thereat may adjourn the meeting from time
to time, without notice other than announcement at the meeting, until a quorum
is present.
A meeting at which a quorum is initially present may continue to
transact business notwithstanding the withdrawal of directors, if any action
taken is approved by at least a majority of the required quorum for that
meeting.
3.9. WAIVER OF NOTICE
----------------
Whenever notice is required to be given under any provision of the
General Corporation Law of Delaware or of the certificate of incorporation or
these bylaws, a written waiver thereof, signed by the person entitled to notice,
whether before or after the time stated therein, shall be deemed equivalent to
notice. Attendance of a person at a meeting shall constitute a waiver of notice
of such meeting, except when the person attends a meeting for the express
purpose of objecting, at the beginning of the meeting, to the transaction of any
business because the meeting is not lawfully called or convened. Neither the
business to be transacted at, nor the purpose of, any regular or special meeting
of the directors, or members of a committee of directors, need be specified in
any written waiver of notice unless so required by the certificate of
incorporation or these bylaws.
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<PAGE>
3.10. BOARD ACTION BY WRITTEN CONSENT WITHOUT A MEETING
-------------------------------------------------
Unless otherwise restricted by the certificate of incorporation or
these bylaws, any action required or permitted to be taken at any meeting of the
board of directors, or of any committee thereof may be taken without a meeting
if all members of the board or committee, as the case may be, consent thereto in
writing and the writing or writings are filed with the minutes of proceedings of
the board or committee.
3.11. FEES AND COMPENSATION OF DIRECTORS
----------------------------------
Unless otherwise restricted by the certificate of incorporation or
these bylaws, the board of directors shall have the authority to fix the
compensation of directors.
3.12. APPROVAL OF LOANS TO OFFICERS
-----------------------------
The corporation may lend money to, or guarantee any obligation of, or
otherwise assist any officer or other employee of the corporation or of its
subsidiary, including any officer or employee who is a director of the
corporation or its subsidiary, whenever, in the judgment of the directors, such
loan, guaranty or assistance may reasonably be expected to benefit the
corporation. The loan, guaranty or other assistance may be with or without
interest and may be unsecured, or secured in such manner as the board of
directors shall approve, including, without limitation, a pledge of shares of
stock of the corporation. Nothing in this section contained shall be deemed to
deny, limit or restrict the powers of guaranty or warranty of the corporation at
common law or under any statute.
3.13. REMOVAL OF DIRECTORS
--------------------
Unless otherwise restricted by statute, by the certificate of
incorporation or by these bylaws, any director or the entire board of directors
may be removed, with or without cause, by the holders of a majority of the
shares then entitled to vote at an election of directors; provided, however,
that, so long as shareholders of the corporation are entitled to cumulative
voting, if less than the entire board is to be removed, no director may be
removed without cause if the votes cast against his removal would be sufficient
to elect him if then cumulatively voted at an election of the entire board of
directors.
No reduction of the authorized number of directors shall have the
effect of removing any director prior to the expiration of such director's term
of office.
ARTICLE 4
COMMITTEES
4.1. COMMITTEES OF DIRECTORS
-----------------------
The board of directors may, by resolution passed by a majority of the
whole board, designate one or more committees, with each committee to consist of
one or more of the directors
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<PAGE>
of the corporation. The board may designate one or more directors as alternate
members of any committee, who may replace any absent or disqualified member at
any meeting of the committee. In the absence or disqualification of a member of
a committee, the member or members thereof present at any meeting and not
disqualified from voting, whether or not he or they constitute a quorum, may
unanimously appoint another member of the board of directors to act at the
meeting in the place of any such absent or disqualified member. Any such
committee, to the extent provided in the resolution of the board of directors or
in the bylaws of the corporation, shall have and may exercise all the powers and
authority of the board of directors in the management of the business and
affairs of the corporation, and may authorize the seal of the corporation to be
affixed to all papers that may require it; but no such committee shall have the
power or authority to (i) amend the certificate of incorporation (except that a
committee may, to the extent authorized in the resolution or resolutions
providing for the issuance of shares of stock adopted by the board of directors
as provided in Section 151(a) of the General Corporation Law of Delaware, fix
the designations and any of the preferences or rights of such shares relating to
dividends, redemption, dissolution, any distribution of assets of the
corporation or the conversion into, or the exchange of such shares for, shares
of any other class or classes or any other series of the same or any other class
or classes of stock of the corporation or fix the number of shares of any series
of stock or authorize the increase or decrease of the shares of any series),
(ii) adopt an agreement of merger or consolidation under Sections 251 or 252 of
the General Corporation Law of Delaware, (iii) recommend to the stockholders the
sale, lease or exchange of all or substantially all of the corporation's
property and assets, (iv) recommend to the stockholders a dissolution of the
corporation or a revocation of a dissolution, or (v) amend the bylaws of the
corporation; and, unless the board resolution establishing the committee, the
bylaws or the certificate of incorporation expressly so provide, no such
committee shall have the power or authority to declare a dividend, to authorize
the issuance of stock, or to adopt a certificate of ownership and merger
pursuant to Section 253 of the General Corporation Law of Delaware.
4.2. COMMITTEE MINUTES
-----------------
Each committee shall keep regular minutes of its meetings and report
the same to the board of directors when required.
4.3. MEETINGS AND ACTION OF COMMITTEES
---------------------------------
Meetings and actions of committees shall be governed by, and held and
taken in accordance with, the provisions of Article III of these bylaws, Section
3.5 (place of meetings and meetings by telephone), Section 3.6 (regular
meetings), Section 3.7 (special meetings and notice), Section 3.8 (quorum),
Section 3.9 (waiver of notice), and Section 3.10 (action without a meeting),
with such changes in the context of those bylaws as are necessary to substitute
the committee and its members for the board of directors and its members;
provided, however, that the time of regular meetings of committees may be
determined either by resolution of the board of directors or by resolution of
the committee, that special meetings of committees may also be called by
resolution of the board of directors and that notice of special meetings of
committees
-10-
<PAGE>
shall also be given to all alternate members, who shall have the right to attend
all meetings of the committee. The board of directors may adopt rules for the
government of any committee not inconsistent with the provisions of these
bylaws.
ARTICLE 5
OFFICERS
5.1. OFFICERS
--------
The officers of the corporation shall be a president, a secretary, and
a chief financial officer. The corporation may also have, at the discretion of
the board of directors, a chairman of the board, one or more vice presidents,
one or more assistant vice presidents, one or more assistant secretaries, one or
more assistant treasurers, and any such other officers as may be appointed in
accordance with the provisions of Section 5.3 of these bylaws. Any number of
offices may be held by the same person.
5.2. APPOINTMENT OF OFFICERS
-----------------------
The officers of the corporation, except such officers as may be
appointed in accordance with the provisions of Sections 5.3 or 5.5 of these
bylaws, shall be appointed by the board of directors, subject to the rights, if
any, of an officer under any contract of employment.
5.3. SUBORDINATE OFFICERS
--------------------
The board of directors may appoint, or empower the president to
appoint, such other officers and agents as the business of the corporation may
require, each of whom shall hold office for such period, have such authority,
and perform such duties as are provided in these bylaws or as the board of
directors may from time to time determine.
5.4. REMOVAL AND RESIGNATION OF OFFICERS
-----------------------------------
Subject to the rights, if any, of an officer under any contract of
employment, any officer may be removed, either with or without cause, by an
affirmative vote of the majority of the board of directors at any regular or
special meeting of the board or, except in the case of an officer chosen by the
board of directors, by any officer upon whom such power of removal may be
conferred by the board of directors.
Any officer may resign at any time by giving written notice to the
corporation. Any resignation shall take effect at the date of the receipt of
that notice or at any later time specified in that notice; and, unless otherwise
specified in that notice, the acceptance of the resignation shall not be
necessary to make it effective. Any resignation is without prejudice to the
rights, if any, of the corporation under any contract to which the officer is a
party.
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<PAGE>
5.5. VACANCIES IN OFFICES
--------------------
Any vacancy occurring in any office of the corporation shall be filled
by the board of directors.
5.6. CHAIRMAN OF THE BOARD
---------------------
The chairman of the board, if such an officer be elected, shall, if
present, preside at meetings of the board of directors and exercise and perform
such other powers and duties as may from time to time be assigned to him by the
board of directors or as may be prescribed by these bylaws. If there is no
president, then the chairman of the board shall also be the chief executive
officer of the corporation and shall have the powers and duties prescribed in
Section 5.7 of these bylaws.
5.7. PRESIDENT
---------
Subject to such supervisory 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 chief executive officer of the corporation and shall,
subject to the control of the board of directors, have general supervision,
direction, and control of the business and the officers of the corporation. He
shall preside at all meetings of the stockholders and, in the absence or
nonexistence of a chairman of the board, at all meetings of the board of
directors. He shall have the general powers and duties of management usually
vested in the office of president of a corporation and shall have such other
powers and duties as may be prescribed by the board of directors or these
bylaws.
5.8. VICE PRESIDENTS
---------------
In the absence or disability of the president, the vice president; if
any, in order of their rank as fixed by the board of directors or, if not
ranked, a vice president designated by the board of directors, 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 upon, the president. The vice presidents
shall have such other powers and perform such other duties as from time to time
may be prescribed for them respectively by the board of directors, these bylaws,
the president or the chairman of the board.
5.9. SECRETARY
---------
The secretary shall keep or cause to be kept, at the principal
executive office of the corporation or such other place as the board of
directors may direct, a book of minutes of all meetings and actions of
directors, committees of directors, and stockholders. The minutes shall show the
time and place of each meeting, whether regular or special (and, if special, how
authorized and the notice given), the names of those present at directors'
meetings or committee meetings, the number of shares present or represented at
stockholders' meetings, and the proceedings thereof.
The secretary shall keep, or cause to be kept, at the principal
executive office of the corporation or at the office of the corporation's
transfer agent or registrar, as determined by resolution of the board of
directors, a share register, or a duplicate share register, showing the names of
all
-12-
<PAGE>
stockholders and their addresses, the number and classes of shares held by
each, the number and date of certificates evidencing such shares, and the number
and date of cancellation of every certificate surrendered for cancellation.
The secretary shall give, or cause to be given, notice of all meetings
of the stockholders and of the board of directors required to be given by law or
by these bylaws. He shall keep the seal of the corporation, if one be adopted,
in safe custody and shall have such other powers and perform such other duties
as may be prescribed by the board of directors or by these bylaws.
5.10. CHIEF FINANCIAL OFFICER
-----------------------
The chief financial officer shall keep and maintain, or cause to be
kept and maintained, adequate and correct books and records of accounts of the
properties and business transactions of the corporation, including accounts of
its assets, liabilities, receipts, disbursements, gains, losses, capital
retained earnings, and shares . The books of account shall at all reasonable
times be open to inspection by any director.
The chief financial officer shall deposit all moneys and other
valuables in the name and to the credit of the corporation with such
depositories as may be designated by the board of directors. He shall disburse
the funds of the corporation as may be ordered by the board of directors, shall
render to the president and directors, whenever they request it, an account of
all his transactions as chief financial officer and of the financial condition
of the corporation, and shall have other powers and perform such other duties as
may be prescribed by the board of directors or these bylaws.
The chief financial officer shall be the treasurer of the corporation.
5.11. ASSISTANT SECRETARY
-------------------
The assistant secretary, or, if there is more than one, the assistant
secretaries in the order determined by the stockholders or board of directors
(or if there be no such determination, then in the order of their election)
shall, in the absence of the secretary or in the event of his or her inability
or refusal to act, perform the duties and exercise the powers of the secretary
and shall perform such other duties and have such other powers as may be
prescribed by the board of directors or these bylaws.
5.12. ASSISTANT TREASURER
-------------------
The assistant treasurer, or, if there is more than one, the assistant
treasurers, in the order determined by the stockholders or board of directors
(or if there be no such determination, then in the order of their election),
shall , in the absence of the chief financial officer or in the event of his or
her inability or refusal to act, perform the duties and exercise the powers of
the chief financial officer and shall perform such other duties and have such
other powers as may be prescribed by the board of directors or these bylaws.
-13-
<PAGE>
5.13. REPRESENTATION OF SHARES OF OTHER CORPORATIONS
----------------------------------------------
The chairman of the board, the president, any vice president, the chief
financial officer, the secretary or assistant secretary of this corporation, or
any other person authorized by the board of directors or the president or a vice
president, is authorized to vote, represent, and exercise on behalf of this
corporation all rights incident to any and all shares of any other corporation
or corporations standing in the name of this corporation. The authority granted
herein may be exercised either by such person directly or by any other person
authorized to do so by proxy or power of attorney duly executed by such person
having the authority.
5.14. AUTHORITY AND DUTIES OF OFFICERS
--------------------------------
In addition to the foregoing authority and duties, all officers of the
corporation shall respectively have such authority and perform such duties in
the management of the business of the corporation as may be designated from time
to time by the board of directors or the stockholders.
ARTICLE 6
INDEMNITY
6.1. THIRD PARTY ACTIONS
-------------------
The corporation shall indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending, or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative
(other than an action by or in the right of the corporation) by reason of the
fact that he is or was a director, officer, employee or agent of the
corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement (if such settlement is
approved in advance by the corporation, which approval shall not be unreasonably
withheld) actually and reasonably incurred by him in connection with such
action, suit or proceeding if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful. The termination of any
action, suit or proceeding by judgment, order, settlement, 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 or not opposed to the best interest of the
corporation, and, with respect to any criminal action or proceeding, had
reasonable cause to believe that his conduct was unlawful.
6.2. ACTIONS BY OR IN THE RIGHT OF THE CORPORATION
---------------------------------------------
The corporation shall indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action or
suit by or in the right of the corporation to procure a judgment in its favor by
reason of the fact that he is or was a director, officer, employee or
-14-
<PAGE>
agent of corporation, or is or was serving at the request of the corporation as
a director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise against expenses (including attorneys'
fees) and amounts paid in settlement (if such settlement is approved in advance
by the corporation, which approval shall not be unreasonably withheld) actually
and reasonably incurred by him in connection with the defense or settlement of
such action or suit if he acted in good faith and in a manner he reasonably
believed to be in or not opposed to the best interests of the corporation,
except that no indemnification shall be made in respect of any claim, issue or
matter as to which such person shall have been adjudged to be liable to the
corporation unless and only to the extent that the Delaware Court of Chancery or
the court in which such action or suit was brought shall determine upon
application that, despite the adjudication of liability but in view of all the
circumstances of the case, such person is fairly and reasonably entitled to
indemnity for such expenses which the Delaware Court of Chancery or such other
court shall deem proper. Notwithstanding any other provision of this Article VI,
no person shall be indemnified hereunder for any expenses or amounts paid in
settlement with respect to any action to recover short-swing profits under
Section 16(b) of the Securities Exchange Act of 1934, as amended.
6.3. SUCCESSFUL DEFENSE
------------------
To the extent that a director, officer, employee or agent of the
corporation has been successful on the merits or otherwise in defense of any
action, suit or proceeding referred to in Sections 6.1 and 6.2, or in defense of
any claim, issue or matter therein, he shall be indemnified against expenses
(including attorneys' fees) actually and reasonably incurred by him in
connection therewith.
6.4. DETERMINATION OF CONDUCT
------------------------
Any indemnification under Sections 6.1 and 6.2 (unless ordered by a
court) shall be made by the corporation only as authorized in the specific case
upon a determination that the indemnification of the director, officer, employee
or agent is proper in the circumstances because he has met the applicable
standard of conduct set forth in Sections 6.1 and 6.2. Such determination shall
be made (l) by the Board of Directors or the Executive Committee by a majority
vote of a quorum consisting of directors who were not parties to such action,
suit or proceeding or (2) or if such quorum is not obtainable or, even if
obtainable, a quorum of disinterested directors so directs, by independent legal
counsel in a written opinion, or (3) by the stockholders. Notwithstanding the
foregoing, a director, officer, employee or agent of the corporation shall be
entitled to contest any determination that the director, officer, employee or
agent has not met the applicable standard of conduct set forth in Sections 6.1
and 6.2 by petitioning a court of competent jurisdiction.
6.5. PAYMENT OF EXPENSES IN ADVANCE
------------------------------
Expenses incurred in defending a civil or criminal action, suit or
proceeding, by an individual who may be entitled to indemnification pursuant to
Section 6.1 or 6.2, shall be paid by the corporation in advance of the final
disposition of such action, suit or proceeding upon receipt of an undertaking by
or on behalf of the director, officer, employee or agent to repay such amount if
it shall ultimately be determined that he is not entitled to be indemnified by
the corporation as authorized in this Article VI.
-15-
<PAGE>
6.6. INDEMNITY NOT EXCLUSIVE
-----------------------
The indemnification and advancement of expenses provided by or granted
pursuant to the other sections of this Article VI shall not be deemed exclusive
of any other rights to which those seeking indemnification or advancement of
expenses may be entitled under any by-law, agreement, vote of stockholders or
disinterested directors or otherwise, both as to action in his official capacity
and as to action in another capacity while holding such office.
6.7. INSURANCE INDEMNIFICATION
-------------------------
The corporation shall have the power to purchase and maintain insurance
on behalf of any person who is or was a director, officer, employee or agent of
the corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, against any liability asserted against him
and incurred by him in any such capacity or arising out of his status as such,
whether or not the corporation would have the power to indemnify him against
such liability under the provisions of this Article VI.
6.8. THE CORPORATION
---------------
For purposes of this Article VI, references to the corporation shall
include, in addition to the resulting corporation, any constituent corporation
(including any constituent of a constituent, absorbed in a consolidation or
merger which, if its separate existence had continued, would have had power and
authority to indemnify its directors, officers, and employees or agents, so that
any person who is or 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 and subject to the provisions of this Article VI (including,
without limitation the provisions of Section 6.4) with respect to the resulting
or surviving corporation as he would have with respect to such constituent
corporation if its separate existence had continued.
6.9. EMPLOYEE BENEFIT PLANS
----------------------
For purposes of this Article VI, references to "other enterprises"
shall include employee benefit plans; references to "fines" shall include any
excise taxes assessed on a person with respect to an employee benefit plan; and
references to "serving at the request of the corporation" shall include any
service as a director, officer, employee or agent of the corporation which
imposes duties on, or involves services by, such director, officer, employee, or
agent with respect to an employee benefit plan, its participants, or
beneficiaries; and a person who acted in good faith and in a manner he
reasonably believed to be in the interest of the participants and beneficiaries
of an employee benefit plan shall be deemed to have acted in a manner "not
opposed to the best interests of the corporation" as referred to in this Article
VI.
-16-
<PAGE>
6.10. CONTINUATION OF INDEMNIFICATION AND ADVANCEMENT OF EXPENSES
-----------------------------------------------------------
The indemnification and advancement of expenses provided by, or granted
pursuant to, this Article VI shall, unless otherwise provided when authorized or
ratified, continue as to a person who has ceased to be a director, officer,
employee or agent and shall inure to the benefit of the heirs, executors and
administrators of such a person.
ARTICLE 7
RECORDS AND REPORTS
7.1. MAINTENANCE AND INSPECTION OF RECORDS
-------------------------------------
The corporation shall, either at its principal executive office or at
such place or places as designated by the board of directors, keep a record of
its stockholders listing their names and addresses and the number and class of
shares held by each stockholder, a copy of these bylaws as amended to date,
accounting books, and other records.
Any stockholder of record, in person or by attorney or other agent,
shall, upon written demand under oath stating the purpose thereof, have the
right during the usual hours for business to inspect for any proper purpose the
corporation's stock ledger, a list of its stockholders, and its other books and
records and to make copies or extracts therefrom. A proper purpose shall mean a
purpose reasonably related to such person's interest as a stockholder. In every
instance where an attorney or other agent is the person who seeks the right to
inspection, the demand under oath shall be accompanied by a power of attorney or
such other writing that authorizes the attorney or other agent so to act on
behalf of the stockholder. The demand under oath shall be directed to the
corporation at its registered office in Delaware or at its principal place of
business.
The officer who has charge of the stock ledger of the corporation shall
prepare and make, at least ten (10) days before every meeting of stockholders, a
complete list of the stockholders entitled to vote at the meeting, arranged in
alphabetical order, showing the address of each stockholder and the number of
shares registered in the name of each stockholder. Such list shall be open to
the examination of any stockholder, for any purpose germane to the meeting,
during ordinary business hours, for a period of at least ten (10) days prior to
the meeting, either at a place within the city where the meeting is to be held,
which place shall be specified in the notice of the meeting, or, if not so
specified, at the place where the meeting is to be held. The list shall also be
produced and kept at the time and place of the meeting during the whole time
thereof, and may be inspected by any stockholder who is present.
7.2. INSPECTION BY DIRECTORS
-----------------------
Any director shall have the right to examine the corporation's stock
ledger, a list of its stockholders, and its other books and records for a
purpose reasonably related to his position as a director. The Court of Chancery
is hereby vested with the exclusive jurisdiction to determine whether
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<PAGE>
a director is entitled to the inspection sought. The Court may summarily order
the corporation to permit the director to inspect any and all books and records,
the stock ledger, and the stock list and to make copies or extracts therefrom.
The Court may, in its discretion, prescribe any limitations or conditions with
reference to the inspection, or award such other and further relief as the Court
may deem just and proper.
7.3. ANNUAL STATEMENT TO STOCKHOLDERS
--------------------------------
The board of directors shall present at each annual meeting, and at any
special meeting of the stockholders when called for by vote of the stockholders,
a full and clear statement of the business and condition of the corporation.
ARTICLE 8
GENERAL MATTERS
8.1. CHECKS
------
From time to time, the board of directors shall determine by resolution
which person or persons may sign or endorse all checks, drafts, other orders for
payment of money, notes or other evidences of indebtedness that are issued in
the name of or payable to the corporation, and only the persons so authorized
shall sign or endorse those instruments.
8.2. EXECUTION OF CORPORATE CONTRACTS AND INSTRUMENTS
------------------------------------------------
The board of directors, except as otherwise provided in these bylaws,
may authorize any officer or officers, or agent or agents, to enter into any
contract or execute any instrument in the name of and on behalf of the
corporation; such authority may be general or confined to specific instances.
Unless so authorized or ratified by the board of directors or within the agency
power of an officer, 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 for any amount.
8.3. STOCK CERTIFICATES; PARTLY PAID SHARES
--------------------------------------
The shares of the corporation shall be represented by certificates,
provided that the board of directors of the corporation may provide by
resolution or resolutions that some or all of any or all classes or series of
its stock shall be uncertificated shares. Any such resolution shall not apply to
shares represented by a certificate until such certificate is surrendered to the
corporation. Notwithstanding the adoption of such a resolution by the board of
directors, every holder of stock represented by certificates and upon request
every holder of uncertificated shares shall be entitled to have a certificate
signed by, or in the name of the corporation by the chairman or vice-chairman of
the board of directors, or the president or vice-president, and by the chief
financial officer or an assistant treasurer, or the secretary or an assistant
secretary of such corporation representing the
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<PAGE>
number of shares registered in certificate form. Any or all of the signatures on
the certificate may be a facsimile. In case any officer, transfer agent or
registrar who has signed or whose facsimile signature has been placed upon a
certificate has 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 he were such officer, transfer agent or registrar at the date of
issue.
The corporation may issue the whole or any part of its shares as partly
paid and subject to call for the remainder of the consideration to be paid
therefor. Upon the face or back of each stock certificate issued to represent
any such partly paid shares, upon the books and records of the corporation in
the case of uncertificated partly paid shares, the total amount of the
consideration to be paid therefor and the amount paid thereon shall be stated.
Upon the declaration of any dividend on fully paid shares, the corporation shall
declare a dividend upon partly paid shares of the same class, but only upon the
basis of the percentage of the consideration actually paid thereon.
8.4. SPECIAL DESIGNATION ON CERTIFICATES
-----------------------------------
If the corporation is authorized to issue more than one class of stock
or more than one series of any class, then the powers, the designations, the
preferences, and the relative, participating, optimal or other special rights of
each class of stock or series thereof and the qualifications, limitations or
restrictions of such preferences and/or rights shall be set forth in full or
summarized on the face or back of the certificate that the corporation shall
issue to represent such class or series of stock; provided, however, that,
except as otherwise provided in Section 202 of the General Corporation Law of
Delaware, in lieu of the foregoing requirements there may be set forth on the
face or back of the certificate that the corporation shall issue to represent
such class or series of stock a statement that the corporation will furnish
without charge to each stockholder who so requests the powers, the designations,
the preferences, and the relative, participating, optional or other special
rights of each class of stock or series thereof and the qualifications,
limitations or restrictions of such preferences and/or rights.
8.5. LOST CERTIFICATES
-----------------
Except as provided in this Section 8.5, no new certificates for shares
shall be issued to replace a previously issued certificate unless the latter is
surrendered to the corporation and canceled at the same time. The corporation
may issue a new certificate of stock or uncertificated shares in the place of
any certificate theretofore issued by it, alleged to have been lost, stolen or
destroyed, and the corporation may require the owner of the lost, stolen or
destroyed certificate, or his legal representative, to give the corporation a
bond sufficient to indemnify it against any claim that may be made against it on
account of the alleged loss, theft or destruction of any such certificate or the
issuance of such new certificate or uncertificated shares.
-19-
<PAGE>
8.6. CONSTRUCTION; DEFINITIONS
-------------------------
Unless the context requires otherwise, the general provisions, rules of
construction, and definitions in the Delaware General Corporation Law shall
govern the construction of these bylaws. Without limiting the generality of this
provision, the singular number includes the plural, the plural number includes
the singular, and the term "person" includes both a corporation and a natural
person.
8.7. DIVIDENDS
---------
The directors of the corporation, subject to any restrictions contained
in (i) the General Corporation Law of Delaware or (ii) the certificate of
incorporation, may declare and pay dividends upon the shares of its capital
stock. Dividends may be paid in cash, in property, or in shares of the
corporation's capital stock.
The directors of the corporation may set apart out of any of the funds
of the corporation available for dividends a reserve or reserves for any proper
purpose and may abolish any such reserve. Such purposes shall include but not be
limited to equalizing dividends, repairing or maintaining any property of the
corporation, and meeting contingencies.
8.8. FISCAL YEAR
-----------
The fiscal year of the corporation shall be fixed by resolution of the
board of directors and may be changed by the board of directors.
8.9. SEAL
----
The corporation may adopt a corporate seal, which shall be adopted and
which may be altered by the board of directors, and may use the same by causing
it or a facsimile thereof to be impressed or affixed or in any other manner
reproduced.
8.10. TRANSFER OF STOCK
-----------------
Upon surrender to the corporation or the transfer agent of the
corporation of a certificate for shares duly endorsed or accompanied by proper
evidence of succession, assignation or authority to transfer, it shall be the
duty of the corporation to issue a new certificate to the person entitled
thereto, cancel the old certificate, and record the transaction in its books.
8.11. STOCK TRANSFER AGREEMENTS
-------------------------
The corporation shall have power to enter into and perform any
agreement with any number of stockholders of any one or more classes of stock of
the corporation to restrict the transfer of shares of stock of the corporation
of any one or more classes owned by such stockholders in any manner not
prohibited by the General Corporation Law of Delaware.
-20-
<PAGE>
8.12. REGISTERED STOCKHOLDERS
-----------------------
The corporation shall be entitled to recognize the exclusive right of a
person registered on its books as the owner of shares to receive dividends and
to vote as such owner, shall be entitled to hold liable for calls and
assessments the person registered on its books as the owner of shares, and shall
not be bound to recognize any equitable or other claim to or interest in such
share or shares on the part of another person, whether or not it shall have
express or other notice thereof, except as otherwise provided by the laws of
Delaware.
ARTICLE 9
AMENDMENTS
The bylaws of the corporation may be adopted, amended or repealed by
the stockholders entitled to vote; provided, however, that the corporation may,
in its certificate of incorporation, confer the power to adopt, amend or repeal
bylaws upon the directors. The fact that such power has been so conferred upon
the directors shall not divest the stockholders of the power, nor limit their
power to adopt, amend or repeal bylaws.
-21-
<PAGE>
CERTIFICATE OF AMENDMENT
OF THE BYLAWS OF
PHARMACOPEIA, INC.
On November 27, 1995, the Bylaws of this corporation were
amended as follows:
The first paragraph of Article 2, Section 2.3 of the Bylaws of
this corporation was amended in its entirety to read as follows:
2.3 SPECIAL MEETING
---------------
A special meeting of the stockholders may be called at any
time by the board of directors, or by the chairman of the board, or by
the president, or by one or more stockholders holding shares in the
aggregate entitled to cast not less than fifty percent of the votes at
that meeting.
Article 2, Section 2.9 was amended in its entirety to read as
follows:
2.9 VOTING
------
The stockholders entitled to vote at any meeting of
stockholders shall be determined in accordance with the provisions of
Section 2.12 of these bylaws, subject to the provisions of Sections 217
and 218 of the General Corporation Law of Delaware (relating to voting
rights of fiduciaries, pledgers and joint owners of stock and to voting
trusts and other agreements).
Each stockholder shall be entitled to one vote for each share
of capital stock held by such stockholder.
Article 3, Section 3.2 was amended in its entirety to read as
follows:
3.2 NUMBERS OF DIRECTORS
--------------------
The number of directors which shall constitute the whole Board
of Directors shall be seven (7).
Article 3, Section 3.13 was amended in its entirety to read as
follows:
3.13 REMOVAL OF DIRECTORS
--------------------
Unless otherwise restricted by statute, by the certificate of
incorporation or by these bylaws, any director or the entire board of
directors may be removed, with or without cause, by the holders of a
majority of the shares then entitled to vote at an election of
directors.
<PAGE>
No reduction of the authorized number of directors shall have
the effect of removing any director prior to the expiration of such
director's term of office.
-23-
<PAGE>
CERTIFICATE OF AMENDMENT
OF THE BYLAWS OF
PHARMACOPEIA, INC.
Effective at the close of business on May 8, 1997, Article 3,
Section 3.2 of the Bylaws of this corporation is amended in its
entirety to read as follows:
3.2 NUMBER OF DIRECTORS
-------------------
The number of directors which shall constitute the whole
Board of Directors shall be eight (8).
-24-
<PAGE>
Exhibit 23.1
Consent of Independent Auditors
-------------------------------
We consent to the incorporation by reference in the Registration Statement (Form
S-8 No. 33-80341) pertaining to the 1994 Incentive Stock Plan of Pharmacopeia,
Inc., the 1995 Director Option Plan of Pharmacopeia, Inc. and the 1995 Employee
Stock Purchase Plan of Pharmacopeia, Inc. and in the Registration Statement
(Form S-8 No. 333-20883) pertaining to the 1994 Incentive Stock Plan of
Pharmacopeia, Inc. of our report dated January 29, 1997, with respect to the
financial statements of Pharmacopeia, Inc. included in the Annual Report (Form
10-K) for the year ended December 31, 1996.
Princeton, New Jersey
March 24, 1997
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS FOR THE TWELVE MONTHS ENDED DECEMBER 31, 1996 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE IN SUCH STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 17,059
<SECURITIES> 64,423
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 83,007
<PP&E> 10,511
<DEPRECIATION> (2,216)
<TOTAL-ASSETS> 91,979
<CURRENT-LIABILITIES> 18,780
<BONDS> 0
0
0
<COMMON> 1
<OTHER-SE> 69,747
<TOTAL-LIABILITY-AND-EQUITY> 91,979
<SALES> 0
<TOTAL-REVENUES> 14,799
<CGS> 0
<TOTAL-COSTS> 12,058
<OTHER-EXPENSES> 9,898
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 263
<INCOME-PRETAX> (8,383)
<INCOME-TAX> 0
<INCOME-CONTINUING> (8,383)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (8,383)
<EPS-PRIMARY> (.77)
<EPS-DILUTED> 0
</TABLE>
