<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2000
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission File Number: 0-27118
PHARMACOPEIA, INC.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 33-0557266
- ------------------------------- -------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
CN 5350, Princeton, New Jersey 08543-5350
- ---------------------------------------- ----------
(Address of principal executive offices) (Zip code)
(609) 452-3600
----------------------------------------------------
(Registrant's telephone number, including area code)
Not Applicable
----------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
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 such shorter period that 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 the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date:
CLASS OUTSTANDING AT MAY 5, 2000
- ----------------------------------- ---------------------------------
Common Stock, $.0001 par value 22,968,477
<PAGE>
PHARMACOPEIA, INC. AND SUBSIDIARIES
FORM 10-Q
TABLE OF CONTENTS
<TABLE>
<CAPTION>
ITEM PAGE
- ---- ----
PART I. FINANCIAL INFORMATION
<S> <C>
Item 1. Consolidated Unaudited Financial Statements:
Balance Sheets - March 31, 2000 and December 31, 1999 3
Statements of Operations - Three Months Ended March 31, 2000 and
1999 4
Statements of Cash Flows - Three Months Ended March 31, 2000 and 1999 5
Notes to Consolidated Unaudited Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations 8
Item 3. Quantitative and Qualitative Disclosures about Market Risk 12
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 13
Item 2. Changes in Securities and Use of Proceeds 13
Item 3. Defaults upon Senior Securities 13
Item 4. Submission of Matters to a Vote of Security Holders 13
Item 5. Other Information 13
Item 6. Exhibits and Reports on Form 8-K 13
Signature 14
Exhibits 15
</TABLE>
2
<PAGE>
PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
PHARMACOPEIA, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
2000 1999
----------- -------------
ASSETS (UNAUDITED)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 39,738 $ 17,157
Marketable securities 137,178 51,875
Trade receivables, net of allowance for doubtful
accounts of $576 and $624, respectively 11,701 26,836
Prepaid expenses and other current assets 5,797 5,251
------------ -----------
Total current assets 194,414 101,119
Property and equipment - net 11,266 11,362
Capitalized software - net 6,243 3,353
Goodwill and other intangibles - net 24,554 9,071
Other assets 1,328 1,354
------------ -----------
Total assets $ 237,805 $ 126,259
------------ -----------
------------ -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 2,689 $ 3,479
Accrued liabilities 15,336 18,409
Deferred revenue, current portion 20,244 20,212
Notes payable, current portion 166 292
------------ -----------
Total current liabilities 38,435 42,392
Notes payable, long-term portion 225 -
Other long-term liabilities 64 69
Deferred revenue, long-term 4,645 5,052
Commitments and Contingencies
Stockholders' equity:
Capital stock 2 1
Additional paid-in capital 270,425 148,862
Accumulated deficit (74,846) (69,049)
Accumulated comprehensive loss (1,145) (1,068)
------------ -----------
Total stockholders' equity 194,436 78,746
------------ -----------
Total liabilities and stockholders' equity $ 237,805 $ 126,259
------------ -----------
------------ -----------
</TABLE>
See accompanying notes to these unaudited financial statements.
3
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PHARMACOPEIA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED, IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS
ENDED MARCH 31,
2000 1999
------------- -------------
<S> <C> <C>
Revenue:
Drug discovery services $ 10,630 $ 9,076
Software license, service and other 12,256 12,423
Hardware 964 1,794
-------- --------
Total revenue 23,850 23,293
Cost of revenue:
Drug discovery services 5,876 5,837
Software license, service and other 1,870 1,837
Hardware 918 1,477
-------- --------
Total cost of revenue 8,664 9,151
Gross Margin 15,186 14,142
Operating costs and expenses:
Research and development 5,690 6,697
Sales, general and administrative 9,253 8,950
Amortization of goodwill 327 -
Write-off of in-process research and development 6,400 -
-------- --------
Total operating costs and expenses 21,670 15,647
-------- --------
Operating loss (6,484) (1,505)
Interest and other income, net 812 979
-------- --------
Loss before provision for income taxes (5,672) (526)
Provision for income taxes 125 40
-------- --------
Net loss $ (5,797) $ (566)
======== ========
Net loss per share - Basic $ (0.27) $ (0.03)
======== ========
Net loss per share - Diluted $ (0.27) $ (0.03)
======== ========
Weighted average number of common stock
outstanding - Basic 21,106 19,275
Weighted average number of common stock
outstanding - Diluted 21,106 19,275
</TABLE>
See accompanying notes to these unaudited financial statements.
4
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PHARMACOPEIA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED, DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
2000 1999
-------------- --------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (5,797) $ (566)
Adjustments to reconcile net loss to net cash
used in operations
Depreciation 1,305 1,383
Amortization 931 494
Contribution of stock to 401 (k) members 252 241
Write-off of in-process research and development 6,400 -
Changes in assets and liabilities:
Accounts receivable 15,359 8,112
Prepaid and other current assets (799) (1,478)
Accounts payable (918) (1,771)
Accrued liabilities (3,643) (5,966)
Deferred revenue (938) 129
Other (48) (990)
--------- ---------
Net cash provided by (used in) operating activities 12,104 (412)
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (572) (907)
Purchases of marketable securities (112,382) (8,377)
Proceeds form sales of marketable securities 26,929 6,019
Acquisition of Synopsys, net of cash acquired (23,169) -
Acquisition of distribution rights and joint venture interest - (10,037)
Increase in capitalized software development costs (360) (353)
--------- ---------
Net cash used in investing activities (109,554) (13,655)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock 120,113 742
Principal payments on notes payable (117) (700)
Principal payments under capital lease obligations (38) (188)
--------- ---------
Net cash provided by (used in) financing activities 119,958 (146)
Exchange rate effect on cash and equivalents 73 (136)
--------- ---------
Net increase (decrease) in cash and equivalents 22,581 (14,349)
Cash and equivalents, beginning of period 17,157 36,863
--------- ---------
Cash and equivalents, end of period $ 39,738 $ 22,514
========= =========
SUPPLEMENTAL SCHEDULE OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest $ 8 $ 167
========= =========
Income taxes $ 212 $ 26
========= =========
</TABLE>
See accompanying notes to these unaudited financial statements.
5
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PHARMACOPEIA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE (1) - BASIS OF PRESENTATION
The accompanying unaudited financial statements have been prepared in accordance
with generally accepted accounting principles for interim financial information
and with instructions to Form 10-Q and Article 10 of Regulation S-X.
Accordingly, these unaudited financial statements do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of management, all adjustments
(consisting of normal recurring accruals) considered necessary for a fair
presentation of the financial statements have been included.
Interim results are not necessarily indicative of the results that may be
expected for the year. For further information, refer to the financial
statements and footnotes thereto included in the Company's Annual Report on Form
10-K for the year ended December 31, 1999, as amended.
NOTE (2) - SEGMENT INFORMATION
The Company operates in two business segments: drug discovery services and
software (which includes software licenses, maintenance, hardware and other).
Summarized information concerning industry segment operations for the three
month periods ended March 31, 2000 and 1999, and for industry segment assets
as of March 31, 2000 and December 31, 1999, is presented below.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31, 2000
--------------------------------------------
Drug
Discovery
Software Services Total
------------ -------------- --------------
<S> <C> <C> <C>
Revenue:
Drug discovery services $ - $ 10,630 $ 10,630
Software licenses, service and other 12,256 - 12,256
Hardware 964 - 964
============ ============== ==============
Total revenue $13,220 $ 10,630 $ 23,850
============ ============== ==============
Operating income (loss) $ (7,162) $ 678 $ (6,484)
============ ============== ==============
Total assets - March 31, 2000 $ 64,903 $ 172,902 $237,805
============ ============== ==============
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31, 1999
--------------------------------------------
Drug
Discovery
Software Services Total
------------ -------------- --------------
<S> <C> <C> <C>
Revenue:
Drug discovery services $ - 9,076 $ 9,076
Software licenses, service and other 12,423 - 12,423
Hardware 1,794 - 1,794
============ ============== ==============
Total revenue $ 14,217 $ 9,076 $ 23,293
============ ============== ==============
Operating income (loss) $ 504 $ (2,009) $ (1,505)
============ ============== ==============
Total assets - December 31, 1999 $ 59,985 $ 66,274 $ 126,259
============ ============== ==============
</TABLE>
6
<PAGE>
NOTE (3) - ACQUISITION OF SYNOPSYS
On February 29, 2000, the Company acquired Synopsys Scientific Systems, Ltd.
("Synopsys"), a U.K.- based company providing chemical database software,
chemical data content and system integration services to the pharmaceutical,
biotechnology and chemical industries. The Company paid $25.6 million for
Synopsys, consisting of $23.7 million cash, $.7 million transaction costs, and
19,142 shares of the Company's common stock valued at $1.2 million. The common
stock issued in this transaction was unregistered and was valued at $62.62 per
share (representing an 8% discount to its traded market value at the time the
transaction closed).
The acquisition has been accounted for by the purchase method of accounting and,
accordingly, the assets acquired and liabilities assumed have been recorded at
their estimated fair values. The Company recorded a first quarter 2000 charge of
$6.4 million related to the write-off of the portion of the purchase price that
was allocated to in-process research and development. The remainder of the
purchase price was allocated $0.3 million to net tangible assets (including cash
acquired of $.5 million), $3.0 million to developed software, $3.4 million to
customer lists and other identified intangible assets, and $12.5 million to
goodwill. The developed software, customer lists and other identified intangible
assets are being amortized over three years, and the goodwill is being amortized
over five years.
The operating results of Synopsys have been included in the Company's results
of operations since the acquisition date. The unaudited pro forma results of
operations required to be disclosed by Accounting Principles Board Opinion
No. 16 (assuming that Synopsys had been acquired at the beginning of 1999)
are not presently available. Management expects to provide the information in
the Company's next Form 10-Q filing. The primary effect on the Company's
historical operating results for the three months ended March 31, 2000 and
1999 would be the amortization expense from the acquired intangibles of $.8
million in 2000 and $1.2 million in 1999 and the lost interest income on the
net cash used in the acquisition of $155 thousand in 2000 and $232 thousand
in 1999.
NOTE (4) - PRIVATE PLACEMENT
On March 8, 2000, the Company completed the sale of 1,860,000 shares of its
common stock to selected institutional investors for net proceeds of
approximately $110 million. The shares were sold at $63.00 per share (which
equaled their market value on the date of the transaction less an 8% discount
because the shares issued were unregistered).
7
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion and analysis of financial condition and results of
operations of Pharmacopeia Inc. ("Pharmacopeia" or the "Company") should be
read in conjunction with the Unaudited Financial Statements and related notes
included elsewhere in this Form 10-Q, and also in conjunction with the
Consolidated Financial Statements and related notes included in the Company's
Form 10-K for the year ended December 31, 1999. This Management's Discussion
and Analysis of Financial Condition and Results of Operations and other parts
of this Form 10-Q contain forward-looking statements that involve risks and
uncertainties that may cause actual results, levels of activity, performance,
or achievements to be materially different from any future results, levels of
activity, performance, or achievements expressed or implied by such
forward-looking statements. In some cases, forward-looking statements can be
identified by terminology such as "may," "will," "should," "could," "would,"
"expect," "plan," "anticipate," "believe," "estimate," "continue," or the
negative of such terms or expressions. All forward-looking statements
included in this document are based on information available to the Company
on the date hereof, and the Company assumes no obligation to update any such
forward-looking statements.
The Company's registration statement on Form S-3 (Reg. No. 333-34478) and
most recent Form 10-K describe certain risk factors and uncertainties that
may cause actual results, levels of activity, performance, or achievements to
be materially different from any future results, levels of activity,
performance, or achievements expressed or implied by forward-looking
statements in this Form 10-Q. These risk factors and uncertainties should be
considered in connection with any investment in the Company's common stock.
These uncertainties include the acceptance by potential customers of
combinatorial chemistry and analysis of compounds provided by the Company as
an effective tool in drug discovery, the ability of the Company to establish
additional collaborative or licensing arrangements on terms favorable to the
Company, the expertise of third parties in developing and commercializing
products based on library compounds produced and lead compounds discovered by
the Company, and the ability of the Software Segment to achieve increased
market acceptance and penetration.
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 2000 AND 1999
Total revenue grew 2% to $23.8 million in the first quarter of 2000 compared to
$23.3 million in the first quarter of 1999.
Drug discovery services revenue increased 17% to $10.6 million in the quarter
ended March 31, 2000 compared to $9.1 million in the first quarter of 1999.
This increase was attributable to a February 2000 exclusive out-license of
certain high-throughput screening technology originally developed by the
Company for its internal use and which is now expected to be commercialized
by the co-licensees. The Company will be owed future royalties, including
minimum future royalties, for any products sold by the licensees that use the
technology developed by the Company. Absent the first quarter technology
out-license fees described above, drug discovery services revenue decreased
primarily because of a decrease in collaborative, lead optimization work and
library outlicensing revenue. This decrease resulted from the expiration of
certain lead optimization and library outlicensing contracts in the second
quarter of 1999. Since that time, the Company's strategy has been to replace
this work primarily with high-throughput screening based
8
<PAGE>
Lead Discovery Service (LDS) work, but this transition is not yet complete.
Total revenue (including software license, service, and other revenue and
hardware revenue) generated from the Software Segment decreased 7% to $13.2
million in the first quarter of 2000 compared to $14.2 million in the
comparable quarter of 1999. This Software Segment revenue decline was
primarily due to a decline in hardware revenue, which is generated from the
resale of computers at low margins. Hardware revenue decreased 46% to $1.0
million in the first quarter compared to $1.8 million in the prior year
quarter primarily because of a reorganization in the distribution channel of
the Company's sole supplier of hardware for resale.
Software license, service and other revenue decreased 1% to $12.3 million in
the 2000 first quarter compared to $12.4 million in the 1999 first quarter.
This slight decline consisted of a 17% increase in Asia territory revenues
resulting primarily from the 1999 reorganization of the Company's
distribution channel in Japan, offset by a 5% decline in software license,
service and other revenue in the combined Europe and US regions.
Management believes that the 5% decline in software license, service and other
revenue in the combined Europe and US regions resulted from several factors.
First and foremost, the first quarter is typically a slow period as it follows
the Company's historically strong fourth quarter in which the Company's
customers' spending cycle tends to drain the pipeline of revenue opportunities.
As a result, the first quarter historically involves, and the 2000 first quarter
did involve, a substantial effort toward refilling this opportunity pipeline.
Also, software sales efforts in the first quarter of 2000 may have been slightly
disrupted by the learning curve associated with the Company's new lines of
cheminformatics and Material Studio software products. Lastly, the factors
described above that tended to temper the first quarter software license,
service and other revenue were somewhat offset by one month of revenues ($.5
million) generated from the February 29, 2000 acquisition of Synopsys.
Compared to the 1% decline in total software license, service and other
revenue in the 2000 first quarter, in the 1999 first quarter the decline was
5% compared to the 1998 first quarter. However, by year-end 1999, software
license, service and other revenues had increased by 12% year over year.
Management expects that this trend of low or declining first quarter software
revenue growth rates, followed by increased growth rates throughout the
remainder of the year, will continue in future periods.
Gross margin generated from the Drug Discovery Services Segment increased 47% to
$4.8 million (45% of related sales) in the first quarter of 2000 compared to
$3.2 million (36% of related sales) in the comparable quarter of 1999. This
improvement resulted from the first quarter technology license fee described
above, which fee carried no related first quarter cost of sales.
Gross margin generated from the Software Segment decreased 4% to $10.4
million (79% of related sales) in the 2000 first quarter compared to $10.9
million (77% of related sales) in the 1999 first quarter. The decrease in the
amount of gross margin resulted from the decrease in Software Segment
revenue. The slight increase in gross margin as a percentage of related sales
resulted from the change in mix of sales which led to a higher proportion of
software license, service and other sales relative to hardware sales.
Research and development expenses declined 15% to $5.7 million in the first
quarter of 2000 compared to $6.7 million in the first quarter of 1999. Research
and development costs include
9
<PAGE>
costs associated with internal drug discovery programs, software development,
ultra high-throughput screening and informatics. The decline in research and
development expenses is attributable to the reduction of internally funded
drug development activities.
Within its Drug Discovery Services segment, the Company began to decrease its
internally funded drug discovery efforts in 1999, and the Company intends to
focus primarily on externally funded Drug Discovery Services in 2000.
However, future research and development expenses may increase in total, even
as internally funded drug discovery activities decrease, as the Company may
further expand its software, ultra high-throughput screening, compound design
and development, informatics and other development endeavors.
Sales, general and administrative expenses increased by 3% to $9.3 million (39%
of total revenue) in the 2000 first quarter compared to $8.9 million (38% of
total revenue) in the 1999 first quarter. The quarter to quarter increase of $.4
million is primarily attributable to annual increases in employee compensation
levels.
On February 29, 2000 the Company acquired Synopsys as more fully described in
the Notes to Financial Statements included elsewhere herein. As a result of this
acquisition the Company recorded a first quarter 2000 charge of $6.4 million
related to the write-off of the portion of the Synopsys purchase price that was
allocated to in-process research and development. In addition, the first quarter
2000 results include amortization of goodwill related to this and other
acquisitions of $0.3 million. Also included in cost of sales and in sales,
general and administrative expenses are $0.1 million and $0.1 million,
respectively, of amortization related to the Synopsys acquisition. Total
acquisition related charges were $6.9 million in the first quarter of 2000 and
zero in the first quarter of 1999.
The Company recorded interest and other income of $0.8 million and $1.0 million
for the first quarters of 2000 and 1999, respectively. This decrease resulted
primarily from foreign exchange losses in 2000, primarily in Japan.
The Company recorded an income tax provision of $125 thousand for the first
quarter of 2000 and $40 thousand for the first quarter of 1999. The 2000 and
1999 tax provisions are primarily due to foreign taxable income generated from
the software segment. These provisions differ from the Federal tax rate
primarily because of the effect of permanent book-tax differences, net operating
loss carryforwards, and net operating loss carrybacks.
As a result of the increased revenue, the increased gross margins, the decreased
research and development costs, the increased acquisition related charges, and
the other matters described above, the Company generated a net loss of $5.8
million ($0.27 per diluted share) in the current quarter compared to $0.6
million ($0.03 per diluted share) in the comparable prior year quarter.
LIQUIDITY AND CAPITAL RESOURCES
The Company has funded its activities to date primarily through the sale of
equity securities, drug discovery services, software licenses, software
maintenance services and hardware. As of March 31, 2000, the Company had working
capital of $156.0 million compared to $58.7 million as of December 31, 1999. The
majority of this $97.3 million increase in working capital was generated from
the $110 million private placement described more fully in the Notes to
Financial Statements included elsewhere herein, and from $10.0 million received
upon the exercise of stock options,
10
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offset by the $23.2 million of net cash paid for the acquisition of Synopsys
which is also described more fully in the Notes to Financial Statements
included elsewhere herein.
As of March 31, 2000, the Company's cash, cash equivalents and marketable
securities totaled $176.9 million, which are invested in U.S. Treasury and
government agency obligations, investment grade commercial paper and other
short-term money market instruments. This represents an increase of $107.9
million from the 1999 year end level of $69.0 million. This increase was
primarily the result of the factors contributing to the $97.3 million increase
in working capital described above, plus a $15.4 million reduction in accounts
receivable, offset by a $4.6 million decrease in accounts payable and accrued
liabilities.
As of March 31, 2000, the Company had outstanding commitments for equipment
purchases totaling $0.5 million. The Company anticipates that its capital
requirements may increase in future periods as the Company expands its research
and development activities, expands its facilities, and acquires additional
equipment. However, as the Company curtails its internally funded drug discovery
activities, these increases may be temporarily offset or delayed by the
Company's redeployment of laboratory equipment and facilities from internal drug
discovery work to collaborative work, if and when needed for such collaborative
work. The Company's capital requirements may also increase in future periods as
the Company seeks to expand its technology platform through investments,
licensing arrangements, technology alliances or acquisitions.
The Company anticipates that its existing capital resources will be adequate
to fund the Company's operations at least through 2001. However, 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 extend existing
drug discovery services agreements and to enter into additional arrangements,
the ability of the Company to continue to generate software sales, 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 and the
outcome of related litigation, the purchase of additional capital equipment,
acquisitions of other businesses or technologies, 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 factors described earlier in this paragraph
will impact the Company's future capital requirements and the adequacy of its
available funds.
11
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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company's international operations are subject to risks inherent with
exchange rate fluctuations. In the first quarter of 2000, approximately 32% of
the Company's consolidated revenue was derived from customers outside the United
States. Approximately 20% of the Company's revenue was derived from customers in
Europe and approximately 12% was derived from customers in the Asia/Pacific
region for the same period. The Company's exchange rate risk is greatest for
dollar/euro and dollar/yen fluctuations. The Company's direct international
sales generally are denominated in local currencies. Fluctuations in the value
of currencies in which the Company conducts business relative to the United
States dollar result in currency transaction gains and losses. When deemed
appropriate, the Company engages in exchange rate-hedging transactions in an
attempt to mitigate the impact of adverse exchange rate fluctuations. At March
31, 2000, the Company had no material hedging transactions in effect.
The Company does not use derivative financial instruments in its operations or
investment portfolio. However, the Company regularly invests excess cash in
overnight repurchase agreements that are subject to changes in short-term
interest rates. A hypothetical 100 basis point adverse move in interest rates
along the entire interest rate yield curve would not materially affect the fair
value of the Company's interest sensitive financial instruments as of March 31,
2000.
The Company does not have exposure to market risks associated with changes in
interest rates as it has no variable interest rate debt outstanding. The Company
does not believe that it has any other material exposure to market risks
associated with interest rates.
12
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PART II
OTHER INFORMATION
ITEM 1. Legal Proceedings
The Company is not a party to any material litigation and is
not aware of any threatened material litigation.
ITEM 2. Changes in Securities and Use of Proceeds
On March 8, 2000, the Company completed the sale of 1,860,000
shares of its Common Stock, $.0001 par value per share, to
selected institutional investors for net proceeds of
approximately $110 million. The shares were sold at their fair
value on the date of the transaction for $63 per share. The
Company relied on Section 4(2) of the Securities Act of 1933,
as amended (the "Securities Act") for exemption from the
registration requirements of the Securities Act.
Deutsche Banc Alex Brown acted as placement agent for the
sale. Aggregate commissions of $7,070,800 were paid and were
divided among Deutsche Banc Alex Brown, Cowen & Co., ING
Barings, Punk Zeigel & Company, L.P., Janney Montgomery Scott
LLC and Legg Mason Inc.
ITEM 3. Defaults upon Senior Securities - None
ITEM 4. Submission of Matters to a Vote of Security Holders - None
ITEM 5. Other Information - None
ITEM 6. Exhibits and Reports on Form 8-K
(a) Exhibits - See Exhibit Index on Page 15
(b) Reports on Form 8-K
(i) Current report on Form 8-K dated March 9, 2000
reported under Item 5 relating to the completion
of the acquisition of Synopsys Scientific
Systems, Ltd. by the Company.
13
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SIGNATURE
Pursuant to the requirements 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/ BRUCE C. MYERS
----------------------------------
Bruce C. Myers
Executive Vice President and
Chief Financial Officer
(Duly Authorized Officer and Chief
Accounting Officer)
Date: May 15, 2000
14
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PHARMACOPEIA, INC.
INDEX TO EXHIBITS
No. EXHIBIT
2.0 Share Acquisition Agreement for the exchange of the entire issued share
capital of Synopsys Scientific Systems Limited. (1)
10.52 Executive Non-Qualified Deferred Compensation Plan, effective January
1, 2000.
10.53 Form of Stock Purchase Agreement, dated as of March 8, 2000, among
Pharmacopeia, Inc. and the investors set forth therein.
27.1 Financial Data Schedule, March 31, 2000
- --------------
(1) Incorporated by reference to the exhibit filed with the
Company's Form 8-K dated March 9, 2000.
15
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Exhibit 10.52
PHARMACOPEIA/MSI
EXECUTIVE DEFERRED COMPENSATION PLAN RECOMMENDATION
COMPENSATION COMMITTEE OF THE BOARD OF DIRECTORS
PLAN SUMMARY:
The Pharmacopeia Deferred Compensation Plan is designed to allow key executives
and members of the Board of Directors to defer compensation from federal taxes
and to provide a vehicle for tax-deferred investment growth. It also functions
as a retention mechanism through the use of a vesting schedule for Company-made
matches and bonus awards. The planned effective date of the plan is 1/1/00.
PARTICIPANT ELIGIBILITY:
Participation in this plan is restricted to full, US-based Vice Presidents of
the Company and members of its Board of Directors, and includes the below named
eligible participants who represent approximately 3.5% of the total US-based
employee population. New participants must be approved by the Board of
Directors.
SCHEDULE OF CURRENT PARTICIPANTS:
Joe Mollica-CEO, Saiid Zarrabian-COO, Bruce Myers-CFO, Jack Baldwin-CSO, Tom
Carney-General Counsel, Steve Herbert-MSI VP Life Sciences Software Sales, Akira
Niwayama-VP Asia Pacific Operations, John Newsam-MSI CSO, Steve Spearman-EVP
Drug Discovery Services, Dick Walsh-SVP Business Dev & Mktg, Scott Kahn-VP Life
Sciences Software R&D, John Babiak-VP, Technology, Frank Baldino-BOD Member,
Paul Bartlett-BOD Member, Peter Booth-BOD Member, Gary Costley-BOD Member, Edith
Martin-BOD Member, Charles Sanders-BOD Member
ANNUAL DEFERRAL AMOUNTS & ELECTION TIMING:
The deferred compensation arrangement will be provided as a benefit enhancement
for key executives and members of the Board of Directors allowing deferrals of
up to 100% of annual compensation. Deferral elections must be made prior to
January 1st of the year in which the deferred compensation is earned.
INVESTMENT OPTIONS:
Deferrals will be invested into the Merrill Lynch- trusteed permissible
investment options under the oversight of Merrill Lynch and at the direction of
the participant. Individuals may direct their deferrals into stocks, bonds
and/or preferreds that meet Merrill Lynch Trust requirements (must be rated by
S&P or Moody's: stock as B+ or higher, and debt securities as BBB or higher,
commercial paper as A2 or higher). In addition, the following summarizes the
Merrill Lynch mutual fund options:
<TABLE>
<CAPTION>
----------------------- ----------------------- ---------------------- --------------------
<S> <C> <C> <C>
Aim Dreyfus Lord Albert Provident
----------------------- ----------------------- ---------------------- --------------------
Alger Eaton Vance Mainstay Funds Putnam
----------------------- ----------------------- ---------------------- --------------------
Alliance Capital Evergreen Merrill Lynch Saloman Bros
----------------------- ----------------------- ---------------------- --------------------
American Funds Federated Investors MFS Seligman
----------------------- ----------------------- ---------------------- --------------------
Aquila Fidelity Advisor Montgomery Stagecoach
----------------------- ----------------------- ---------------------- --------------------
Blackrock Forum funds Munder Statestreet
----------------------- ----------------------- ---------------------- --------------------
Calamos FPA Funds Nations Funds SunAmerica
----------------------- ----------------------- ---------------------- --------------------
Calvert Franklin/Templeton New England Funds Van Eck
----------------------- ----------------------- ---------------------- --------------------
Chase Vista GAM Funds Northstar Funds Van Kampen
----------------------- ----------------------- ---------------------- --------------------
Cohen & Steers Hartford Funds Nuveen Victory Funds
----------------------- ----------------------- ---------------------- --------------------
Conseco Ivy Funds Oppenheimer
----------------------- ----------------------- ---------------------- --------------------
Countrywide John Hancock Pacific Capital
----------------------- ----------------------- ---------------------- --------------------
Davis Funds Jundt Funds Phoenix
----------------------- ----------------------- ---------------------- --------------------
Dean Funds Kemper Pilgrim America
----------------------- ----------------------- ---------------------- --------------------
Delaware Voyager Kopp Funds Pimco
----------------------- ----------------------- ---------------------- --------------------
Deutche Funds Liberty Funds Pioneer Funds
----------------------- ----------------------- ---------------------- --------------------
</TABLE>
COMPANY CONTRIBUTIONS:
MATCHING CONTRIBUTIONS: At its discretion, the Company may recommend to the
Board of Directors that it make a discretionary matching contribution of up to
$5,000 annually per eligible participant. This contribution will be contingent
upon the individual participant making an equivalent annual salary deferral
during the plan year for which the match would be awarded. The maximum 1999
annual payment amount at 100% of eligible participant participation and at a
100% award-level would have been approximately $90,000.
BONUS CONTRIBUTIONS: Participants will be eligible for a bonus contribution
based upon the stock performance of Pharmacopeia relative to the performance of
the Wilshire Small Cap Index*. The bonus will be awarded based upon Pharmacopeia
stock out-performing the above named and chosen index on a percentage over
percentage basis. For each percentage point that Pharmacopeia stock out-performs
the above named and chosen index, the participant will be eligible to receive a
bonus equivalent to that percentage of his/her base salary or director's fees up
to a maximum bonus
<PAGE>
PHARMACOPEIA/MSI
EXECUTIVE DEFERRED COMPENSATION PLAN RECOMMENDATION
COMPENSATION COMMITTEE OF THE BOARD OF DIRECTORS
award of 20% of base salary or of director's fees. Bonus achievement will be
determined based upon stock versus index performance on a calendar year basis
(growth or decline between 1/1 and 12/31of a given year). The maximum 1999
annual payment amount at a 100% award-level would have been approximately
$540,000. In the event that Pharamcopeia Inc. has negative stock price
performance for a given year, the Board of Directors reserves the right to make
a discretionary determination regarding whether or not a bonus contribution
payment is to be made and to its amount, even if such stock price performance is
better than the Wilshire Small Cap Index.
VESTING SCHEDULE: Company-made Matching Contributions and Bonus Contributions
will vest over 3-years at 33 1/3% per year. Vesting will be rolling and commence
on the date the contribution is made on behalf of the eligible individual.
EXAMPLE- BONUS CONTRIBUTION SCHEDULE: THE FOLLOWING ILLUSTRATES WHAT
PAYMENTS TO THE PLAN WOULD HAVE BEEN USING PREVIOUS YEARS' RESULTS AND
AN AVERAGE BASE SALARY OF $150,000.
<TABLE>
<CAPTION>
- ---------------- --------------- ------------------ ---------------- -------------------
YEAR PCOP AVERAGE WILSHIRE SMALL PCOP ESTIMATED BONUS
PERFORMANCE CAP INDEX PERFORMANCE CONTRIBUTION
AVERAGE RELATIVE TO AWARD
PERFORMANCE WILSHIRE SMALL
CAP INDEX
- ---------------- --------------- ------------------ ---------------- -------------------
<S> <C> <C> <C> <C>
YTD 1999 48.70% 10.15% 38.55% $540,000
- ---------------- --------------- ------------------ ---------------- -------------------
1998 -41.98% 4.13% -46.12% $ 0
- ---------------- --------------- ------------------ ---------------- -------------------
1997 -17.42% 25.42% -42.84 $ 0
- ---------------- --------------- ------------------ ---------------- -------------------
1996 -30.80% 19.36% -50.16% $ 0
- ---------------- --------------- ------------------ ---------------- -------------------
</TABLE>
*THE WILSHIRE SMALL CAP INDEX MEASURES 250 COMPANIES WITH AN AVERAGE MARKET
CAPITALIZATION OF $933MM. IT PROVIDES A BROAD REPRESENTATION OF INDUSTRY SECTORS
AND HAS DEMONSTRATED A HIGH CORRELATION WITH OTHER SMALL CAP INDICES. THE INDEX
WAS CREATED IN 1980 AND WAS DESIGNED SPECIFICALLY TO REFLECT THE TRUE CHARACTER
OF THE SMALL CAP MARKET SEGMENT.
PLAN DISTRIBUTIONS:
Distributions may be made at either in a lump sum on a pre-determined date as
directed by the participant at the time of deferral or at termination of
employment.
PLAN ADMINISTRATION:
The deferred compensation plan will be approved and administered at the
direction of the Compensation Committee of Pharmacopeia's Board of Directors.
The record-keeping administration will be conducted by PenCal Inc., a
third-party administration service provider based in San Ramon, CA. The
estimated annual administration charge of the plan is approximately $2,500.
<PAGE>
Exhibit 10.53
STOCK PURCHASE AGREEMENT
Pharmacopeia, Inc.
CN 5350
Princeton, NJ 08543-5340
The undersigned (the "Investor"), hereby confirms its agreement with you as
follows:
1. This Stock Purchase Agreement (the "Agreement") is made as of the date set
forth below between Pharmacopeia, Inc., a Delaware corporation (the "Company"),
and the Investor.
2. The Company has authorized the sale and issuance of up to 3 million shares
(the "Shares") of common stock of the Company, $.0001 par value per share (the
"Common Stock"), subject to adjustment by the Company's Board of Directors, to
certain investors in a private placement (the "Offering").
3. The Company and the Investor agree that the Investor will purchase from the
Company and the Company will issue and sell to the Investor ____________ shares,
for a purchase price of $_________________ per share, or an aggregate purchase
price of $____________________, pursuant to the Terms and Conditions for
Purchase of Shares attached hereto as Annex I and incorporated herein by this
reference as if fully set forth herein. Unless otherwise requested by the
Investor, certificates representing the Shares purchased by the Investor will be
registered in the Investor's name and address as set forth below.
4. The Investor represents that, except as set forth below, (a) it has had no
position, office or other material relationship within the past three years with
the Company or its affiliates, (b) neither it, nor any group of which it is a
member or to which it is related, beneficially owns (including the right to
acquire or vote) any securities of the Company and (c) it has no direct or
indirect affiliation or association with any NASD member. Exceptions:
- --------------------------------------------------------------------------------
(If no exceptions, write "none." If left blank, response will be deemed to be
"none.")
Please confirm that the foregoing correctly sets forth the agreement between us
by signing in the space provided below for that purpose.
DATED AS OF: ___________________, 2000
---------------------------------------------
"INVESTOR"
By:
------------------------------------------
Print Name:
----------------------------------
Title:
-------------------------------------
Address:
-------------------------------------
-------------------------------------
AGREED AND ACCEPTED:
PHARMACOPEIA, INC.
By:
------------------------------
Title:
---------------------------
<PAGE>
ANNEX I
TERMS AND CONDITIONS FOR PURCHASE OF SHARES
1. AUTHORIZATION AND SALE OF THE SHARES. Subject to the terms and
conditions of this Agreement, the Company has authorized the sale of the Shares.
2. AGREEMENT TO SELL AND PURCHASE THE SHARES; SUBSCRIPTION DATE.
2.1 At the Closing (as defined in Section 3), the Company will sell to
the Investor, and the Investor will purchase from the Company, upon the terms
and conditions hereinafter set forth, the number of Shares set forth on the
signature page to which these Terms and Conditions for Purchase of Shares are
attached as Annex I (the "Signature Page") at the purchase price set forth on
such Signature Page.
2.2 The Company proposes to enter into this same form of Stock
Purchase Agreement with certain other investors (the "Other Investors") and
expects to complete sales of Shares to them. (The Investor and the Other
Investors are hereinafter sometimes collectively referred to as the "Investors,"
and this Agreement and the Stock Purchase Agreements executed by the Other
Investors are hereinafter sometimes collectively referred to as the
"Agreements.") The Company will accept executed Agreements from Investors for
the purchase of Shares commencing upon the date on which the Company provides
the Investors with the proposed purchase price per Share and concluding upon the
date (the "Subscription Date") on which the Company has (i) executed Agreements
with Investors for the purchase of Shares in the aggregate amount of at least
$20,000,000 and (ii) notified Deutsche Bank Securities, Inc. (in its capacity as
Placement Agent for the Shares, the "Placement Agent") in writing that it is no
longer accepting Agreements from Investors for the purchase of Shares.
2.3 Investor acknowledges that the Company intends to pay the
Placement Agent a fee in respect of the sale of Shares to the Investor.
3. DELIVERY OF THE SHARES. The completion of the purchase and sale of the
Shares (the "Closing") shall occur at a place and time (the "Closing Date") to
be specified by the Company and the Placement Agent, and of which the Investors
will be notified in advance by the Placement Agent. After receipt of payment
therefor at the Closing, the Company shall direct the transfer agent of the
Company to deliver to the Investor one or more stock certificates representing
the number of Shares set forth on the signature page hereto, each such
certificate to be registered in the name of the Investor or, if so indicated on
the Stock Certificate Questionnaire attached hereto as Exhibit A, in the name of
a nominee designated by the Investor. The Company shall ensure that such stock
certificates are delivered to the Investor within three business days of the
Closing.
The Company's obligation to issue the Shares to the Investor shall be
subject to the following conditions, any one or more of which may be waived by
the Company: (a) Investors shall have executed Agreements for the purchase of
Shares in the aggregate of at least $20 million; (b) receipt by the Company of
the purchase price in same day funds for the Shares being purchased hereunder as
set forth on the Signature Page hereto; (c) completion of all purchases and
sales under the Agreements with the Other Investors; and (d) the accuracy of the
<PAGE>
representations and warranties made by the Investors and the fulfillment of
those undertakings of the Investors to be fulfilled prior to the Closing.
The Investor's obligation to purchase the Shares shall be subject to the
following conditions, any one or more of which may be waived by the Investor:
(a) Investors shall have executed Agreements for the purchase of Shares in the
aggregate amount of at least $20,000,000; and (b) the satisfaction of all of the
conditions set forth in the Engagement Letter between the Company and the
Placement Agent. Subject to clause (a) above, the Investor's obligations are
expressly not conditioned on the purchase by any or all of the other Investors
of the Shares that they have agreed to purchase from the Company.
4. REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE COMPANY. Except as
otherwise described in the Company's regular reports on Form 10-Q, 10-K, and 8-K
as filed by the Company with the Securities and Exchange Commission in 1999 (the
"SEC Documents") and in the Company's press releases since September 30, 1999,
which reports and press releases qualify the following representations and
warranties in their entirety, the Company hereby represents and warrants to, and
covenants with, the Investor, as follows:
4.1 ORGANIZATION. The Company is duly incorporated and validly
existing in good standing under the laws of the jurisdiction of its
organization. The Company has full power and authority to own, operate and
occupy its properties and to conduct its business as presently conducted and is
registered or qualified to do business and in good standing in each jurisdiction
in which it owns or leases property or transacts business and where the failure
to be so qualified would have a material adverse effect upon the business,
financial condition, properties or operations of the Company and its
subsidiaries, taken as a whole ("Material Adverse Effect"), and no proceeding
has been instituted in any such jurisdiction revoking, limiting or curtailing,
or seeking to revoke, limit or curtail, such power and authority or
qualification.
4.2 DUE AUTHORIZATION. The Company has all requisite power and
authority to execute, deliver and perform its obligations under the Agreements,
and the Agreements have been duly authorized and validly executed and delivered
by the Company and constitute legal, valid and binding agreements of the Company
enforceable against the Company in accordance with their terms, except as rights
to indemnity and contribution may be limited by state or federal securities laws
or the public policy underlying such laws, except as enforceability may be
limited by applicable bankruptcy, insolvency, reorganization, moratorium or
similar laws affecting creditors' and contracting parties' rights generally and
except as enforceability may be subject to general principles of equity
(regardless of whether such enforceability is considered in a proceeding in
equity or at law).
4.3 NON-CONTRAVENTION. The execution and delivery of the Agreements,
the issuance and sale of the Shares to be sold by the Company under the
Agreements, the fulfillment of the terms of the Agreements and the consummation
of the transactions contemplated thereby will not (A) conflict with or
constitute a violation of, or default (with the passage of time or otherwise)
under, (i) any material bond, debenture, note or other evidence of indebtedness,
or any material lease, contract, indenture, mortgage, deed of trust, loan
agreement, joint venture or other agreement or instrument to which the Company
is a party or by which it or its property is bound, where such conflict,
violation or default is likely to result in a Material Adverse Effect,
-2-
<PAGE>
(ii) the charter, by-laws or other organizational documents of the Company, or
(iii) any law, administrative regulation, ordinance or order of any court or
governmental agency, arbitration panel or authority binding upon the Company or
its property, where such conflict, violation or default is likely to result in a
Material Adverse Effect, or (B) result in the creation or imposition of any
lien, encumbrance, claim, security interest or restriction whatsoever upon any
of the material properties or assets of the Company or an acceleration of
indebtedness pursuant to any obligation, agreement or condition contained in any
material bond, debenture, note or any other evidence of indebtedness or any
material indenture, mortgage, deed of trust or any other material agreement or
instrument to which the Company is a party or by which it is bound or to which
any of the material property or assets of the Company is subject. No consent,
approval, authorization or other order of, or registration, qualification or
filing with, any regulatory body, administrative agency, or other governmental
body in the United States is required for the execution and delivery of the
Agreements and the valid issuance and sale of the Shares to be sold pursuant to
the Agreements, other than such as have been made or obtained, and except for
any securities filings required to be made under federal or state securities
laws.
4.4 CAPITALIZATION. The capitalization of the Company is described in
the Company's SEC Documents, as of the dates set forth therein. The Company has
not issued any capital stock since September 30, 1999 other than (i) 48,220
shares of Common Stock issued pursuant to the exercise of certain warrants, (ii)
certain shares issued pursuant to employee benefit plans (the "Benefit Plans"),
as described in the Company's SEC Documents, and (iii) as set forth in Schedule
I attached hereto. The Shares to be sold pursuant to the Agreements have been
duly authorized, and when issued and paid for in accordance with the terms of
the Agreements, will be duly and validly issued, fully paid and nonassessable.
The outstanding shares of capital stock of the Company have been duly and
validly issued and are fully paid and nonassessable, have been issued in
compliance with all federal and state securities laws, and were not issued in
violation of any preemptive rights or similar rights to subscribe for or
purchase securities. Except as set forth in or contemplated by the Company's SEC
Documents, there are no outstanding rights (including, without limitation,
preemptive rights), warrants or options to acquire, or instruments convertible
into or exchangeable for, any unissued shares of capital stock or other equity
interest in the Company, or any contract, commitment, agreement, understanding
or arrangement of any kind to which the Company is a party and relating to the
issuance or sale of any capital stock of the Company, any such convertible or
exchangeable securities or any such rights, warrants or options, other than
those issued pursuant to the Benefit Plans. Without limiting the foregoing, no
preemptive right, co-sale right, registration right, right of first refusal or
other similar right exists with respect to the issuance and sale of the Shares.
Except as disclosed in the Company's SEC Documents, there are no stockholders
agreements, voting agreements or other similar agreements with respect to the
Common Stock to which the Company is a party. The Company is required to file a
registration statement for the 19,142 shares of Common Stock issued in
connection with the acquisition of Synopsys Scientific Systems, Ltd, as
described on Schedule I, within 30 days of the date of such acquisition, and the
Company has granted incidental registration rights covering the 48,220 shares of
Common Stock referenced in subsection (i) above, to which a 20 day notice period
applies with respect to any registration statement filed by the Company.
4.5 LEGAL PROCEEDINGS. There is no legal or governmental proceeding
pending to which the Company is a party or of which the business or property of
the Company is
-3-
<PAGE>
subject that has or could be reasonably deemed to have a Material Adverse
Effect, except as disclosed in the Company's SEC Documents.
4.6 NO VIOLATIONS. The Company is not in violation of its charter,
bylaws or other organizational document, or in violation of any law,
administrative regulation, ordinance or order of any court or governmental
agency, arbitration panel or authority applicable to the Company, which
violation, individually or in the aggregate, would be reasonably likely to have
a Material Adverse Effect, or is in default (and there exists no condition
which, with the passage of time or otherwise, would constitute a default) in the
performance of any material bond, debenture, note or any other evidence of
indebtedness in any indenture, mortgage, deed of trust or any other material
agreement or instrument to which the Company is a party or by which the Company
is bound or by which the property of the Company is bound, which would be
reasonably likely to have a Material Adverse Effect.
4.7 GOVERNMENTAL PERMITS, ETC. With the exception of the matters which
are dealt with separately in Sections 4.1, 4.12, and 4.13, the Company has all
necessary franchises, licenses, certificates and other authorizations from any
foreign, federal, state or local government or governmental agency, department
or body that are currently necessary for the operation of the business of the
Company as currently conducted except where the failure to currently possess
could not reasonably be expected to have a Material Adverse Effect.
4.8 INTELLECTUAL PROPERTY.
(a) Except as described in the Company's SEC Documents, the
Company has ownership or license or legal right to use all patent, copyright,
trade secret, trademark, customer lists, designs, manufacturing or other
processes, computer software, systems, data compilation, research results or
other proprietary rights used in the business of the Company and material to the
Company and its subsidiaries, taken as a whole, (collectively, "Intellectual
Property") other than Intellectual Property generally available on commercial
terms from other sources. All of such patents, trademarks and registered
copyrights owned by the Company have been duly registered in, filed in or issued
by the United States Patent and Trademark Office, the United States Register of
Copyrights or the corresponding offices of other jurisdictions and have been
maintained and renewed in accordance with all applicable provisions of law and
administrative regulations in the United States and all such jurisdictions,
except where the failure to do so could not reasonably be expected to have a
Material Adverse Effect.
(b) All material licenses or other material agreements under
which (i) the Company is granted rights in Intellectual Property, other than
Intellectual Property generally available on commercial terms from other
sources, and (ii) the Company has granted rights to others in Intellectual
Property owned or licensed by the Company, are, to the knowledge of the Company,
after due investigation, in full force and effect and, to the knowledge of the
Company, there is no material default by the Company thereto.
(c) The Company believes it has taken all steps required in
accordance with sound business practice and business judgment to establish and
preserve its ownership of all material copyright, trade secret and other
proprietary rights with respect to its products and technology.
-4-
<PAGE>
(d) Except as described in the Company's SEC Documents, to the
knowledge of the Company, the present business, activities and products of the
Company do not infringe any intellectual property of any other person, except
where such infringement would not have a Material Adverse Effect on the Company.
Except as described in the Company's SEC Documents, no proceeding charging the
Company with infringement of any adversely held Intellectual Property has been
filed. To the knowledge of the Company, the Company is not making unauthorized
use of any confidential information or trade secrets of any person. Neither the
Company nor, to the knowledge of the Company, any of its employees have any
agreements or arrangements with any persons other than the Company related to
confidential information or trade secrets of such persons, other than such
agreements that would not materially restrict the Company from conducting its
business as currently conducted.
(e) No proceedings have been instituted or are pending which
challenge in a material manner the rights of the Company in respect to the
Company's right to the use of the Intellectual Property. The Company has the
right to use, free and clear of material claims or rights of other persons, all
of its customer lists, designs, computer software, systems, data compilations,
and other information that are material to the Company and its subsidiaries,
taken as a whole, and required for its products or its business as presently
conducted.
4.9 FINANCIAL STATEMENTS. The financial statements of the Company and
the related notes contained in the Company's SEC Documents present fairly, in
accordance with generally accepted accounting principles, the financial position
of the Company as of the dates indicated, and the results of its operations and
cash flows for the periods therein specified. Such financial statements
(including the related notes) have been prepared in accordance with generally
accepted accounting principles applied on a consistent basis throughout the
periods therein specified, except as disclosed in the Company's SEC Documents.
4.10 NO MATERIAL ADVERSE CHANGE. Except as disclosed in the Company's
SEC Documents or press releases, since September 30, 1999, there has not been
(i) any Material Adverse Effect affecting the Company, (ii) any obligation,
direct or contingent, that is material to the Company and its subsidiaries
considered as one enterprise, incurred by the Company, except obligations
incurred in the ordinary course of business, (iii) any dividend or distribution
of any kind declared, paid or made on the capital stock of the Company, or (iv)
any loss or damage (whether or not insured) to the physical property of the
Company which has been sustained which has a Material Adverse Effect.
4.11 NASDAQ COMPLIANCE. The Company's Common Stock is registered
pursuant to Section 12(g) of the Exchange Act and is listed on The Nasdaq
National Market (the "Nasdaq Stock Market"), and the Company has taken no action
designed to, or likely to have the effect of, terminating the registration of
the Common Stock under the Exchange Act or delisting the Common Stock from the
Nasdaq Stock Market.
4.12 REPORTING STATUS. The Company has filed in a timely manner all
documents that the Company was required to file under the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), during the 12 months preceding the
date of this Agreement. The following documents complied in all material
respects with the SEC's requirements as of their respective filing dates, and
the information contained therein as of the date thereof did not
-5-
<PAGE>
contain an untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein in
light of the circumstances under which they were made not misleading:
(a) The Company's Annual Report on Form 10-K for the year ended
December 31, 1998 (the "10-K");
(b) The Company's Quarterly Reports on Form 10-Q for each of the
quarters ended March 31, 1999, June 30, 1999 and September 30, 1999; and
(c) All other documents, if any, filed by the Company with the
Securities and Exchange Commission since December 31, 1998 pursuant to the
reporting requirements of the Exchange Act.
4.13 LISTING. The Company shall comply with all requirements of the
National Association of Securities Dealers, Inc. with respect to the issuance of
the Shares and the listing thereof on the Nasdaq Stock Market, and use its best
efforts to have such Shares listed on the Nasdaq Stock Market on or before the
first date that the Registration Statement is declared effective by the SEC.
4.14 FOREIGN CORRUPT PRACTICES. Neither the Company nor, to the
knowledge of the Company, any agent or other person acting on behalf of the
Company, have (i) directly or indirectly, used any corporate funds for unlawful
contributions, gifts, entertainment or other unlawful expenses related to
foreign or domestic political activity, (ii) made any unlawful payment to
foreign or domestic government officials or employees or to foreign or domestic
political parties or campaigns from corporate funds, (iii) failed to disclose
fully any contribution made by the Company or made by any person acting on its
behalf and of which the Company is aware in violation of law or (iv) violated in
any material respect any provision of the Foreign Corrupt Practices Act of 1977,
as amended.
4.15 NO MANIPULATION OF STOCK. The Company has not taken and will not,
in violation of applicable law, take, any action outside the ordinary course of
business designed to or that might reasonably be expected to cause or result in
unlawful manipulation of the price of the Common Stock to facilitate the sale or
resale of the Shares.
4.16 ACCOUNTANTS. To the knowledge of the Company, Ernst & Young LLP,
who the Company expects will express their opinion with respect to the financial
statements to be incorporated by reference from the Company's Annual Report on
Form 10-K for the year ended December 31, 1999 into the Registration Statement
(as defined below) and the Prospectus which forms a part thereof, are
independent accountants as required by the Securities Act and the rules and
regulations promulgated thereunder (the "Rules and Regulations").
4.17 CONTRACTS. The contracts described in the SEC Documents or
incorporated by reference therein that are material to the Company are, to the
knowledge of the Company, in full force and effect on the date hereof, and
neither the Company nor, to the Company's knowledge, any other party to such
contracts is in breach of or default under any of such contracts which would
have a Material Adverse Effect.
-6-
<PAGE>
4.18 TRANSFER TAXES. On the Closing Date, all stock transfer or other
taxes (other than income taxes) which are required to be paid in connection with
the sale and transfer of the Shares to be sold to the Investor hereunder will
be, or will have been, fully paid or provided for by the Company and all laws
imposing such taxes will be or will have been fully complied with.
4.19 INVESTMENT COMPANY. The Company is not an "investment company" or
an "affiliated person" of, or "promoter" or "principal underwriter" for an
investment company, within the meaning of the Investment Company Act of 1940, as
amended.
4.20 INSURANCE. The Company maintains and will continue to maintain
insurance of the types and in the amounts that the Company reasonably believes
is adequate for its business, including, but not limited to, insurance covering
all real and personal property owned or leased by the Company against theft,
damage, destruction, acts of vandalism and all other risks customarily insured
against by similarly situated companies, all of which insurance is in full force
and effect.
4.21 LEGAL OPINION. The Company shall cause to be delivered to the
Investors and the Placement Agent by counsel to the Company (i) a customary
legal opinion pertaining to the availability of an exemption from the
registration provisions of the Securities Act and (ii) a customary letter
pertaining to Rule 10b-5 under the Exchange Act.
4.22 OFFERING MATERIALS. Other than the SEC Documents, the Company has
not distributed and will not distribute prior to the Closing Date any offering
material in connection with the offering and sale of the Shares. The Company has
not in the past nor will it hereafter take any action independent of the
Placement Agent to sell, offer for sale or solicit offers to buy any securities
of the Company which would bring the offer, issuance or sale of the Shares, as
contemplated by this Agreement, within the provisions of Section 5 of the
Securities Act, unless such offer, issuance or sale was or shall be within the
exemption of Section 4 of the Securities Act.
5. REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE INVESTOR.
5.1 The Investor represents and warrants to, and covenants with, the
Company that: (i) the Investor is an "accredited investor" as defined in
Regulation D under the Securities Act and the Investor is also knowledgeable,
sophisticated and experienced in making, and is qualified to make decisions with
respect to, investments in shares presenting an investment decision like that
involved in the purchase of the Shares, including investments in securities
issued by the Company and investments in comparable companies, and has
requested, received, reviewed and considered all information it deemed relevant
in making an informed decision to purchase the Shares; (ii) the Investor is
acquiring the number of Shares set forth on the Signature Page hereto in the
ordinary course of its business and for its own account for investment only and
with no present intention of distributing any of such Shares or any arrangement
or understanding with any other persons regarding the distribution of such
Shares; (iii) the Investor will not, directly or indirectly, offer, sell,
pledge, transfer or otherwise dispose of (or solicit any offers to buy, purchase
or otherwise acquire or take a pledge of) any of the Shares except in compliance
with the Securities Act, applicable state securities laws and the respective
rules and
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regulations promulgated thereunder; (iv) the Investor has answered all questions
on the Signature Page hereto and the Investor Questionnaire attached hereto as
Exhibit B for use in preparation of the Registration Statement and the answers
thereto are true and correct as of the date hereof and will be true and correct
as of the Closing Date; (v) the Investor will notify the Company immediately of
any change in any of such information until such time as the Investor has sold
all of its Shares or until the Company is no longer required to keep the
Registration Statement effective; and (vi) the Investor, in connection with its
decision to purchase the number of Shares set forth on the signature page
hereto, relied only upon the Company's SEC Documents and the representations and
warranties of the Company contained herein. Investor understands that its
acquisition of the Shares has not been registered under the Securities Act of
1933, as amended (the "Securities Act"), or registered or qualified under any
state securities law in reliance on specific exemptions therefrom, which
exemptions may depend upon, among other things, the bona fide nature of the
Investor's investment intent as expressed herein. Investor has completed or
caused to be completed and delivered to the Company the Investor Questionnaire
attached hereto as Exhibit B, which questionnaire is true and correct in all
material respects.
5.2 The Investor acknowledges, represents and agrees that no action
has been or will be taken in any jurisdiction outside the United States by the
Company or the Placement Agent that would permit an offering of the Shares, or
possession or distribution of offering materials in connection with the issue of
the Shares, in any jurisdiction outside the United States where action for that
purpose is required. Each Investor outside the United States will comply with
all applicable laws and regulations in each foreign jurisdiction in which it
purchases, offers, sells or delivers Shares or has in its possession or
distributes any offering material, in all cases at its own expense. The
Placement Agent is not authorized to make any representation or use any
information in connection with the issue, placement, purchase and sale of the
Shares.
5.3 The Investor hereby covenants with the Company not to make any
sale of the Shares without complying with the provisions of this Agreement,
including Section 7.2 hereof, and without effectively causing the prospectus
delivery requirement under the Securities Act to be satisfied, and the Investor
acknowledges that the certificates evidencing the Shares will be imprinted with
a legend that prohibits their transfer except in accordance therewith. The
Investor acknowledges that there may occasionally be times when the Company,
based on the advice of its counsel, determines that it must suspend the use of
the Prospectus forming a part of the Registration Statement until such time as
an amendment to the Registration Statement has been filed by the Company and
declared effective by the SEC or until the Company has amended or supplemented
such Prospectus.
5.4 The Investor further represents and warrants to, and covenants
with, the Company that (i) the Investor has full right, power, authority and
capacity to enter into this Agreement and to consummate the transactions
contemplated hereby and has taken all necessary action to authorize the
execution, delivery and performance of this Agreement, and (ii) this Agreement
constitutes a valid and binding obligation of the Investor enforceable against
the Investor in accordance with its terms, except as enforceability may be
limited by applicable bankruptcy, insolvency, reorganization, moratorium or
similar laws affecting creditors' and contracting parties' rights generally and
except as enforceability may be subject to general principles of equity
(regardless of whether such enforceability is considered in a proceeding in
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equity or at law) and except as the indemnification agreements of the Investors
herein may be legally unenforceable.
5.5 Investor will not, prior to the effectiveness of the Registration
Statement, directly or indirectly sell, offer to sell, solicit offers to buy,
dispose of, loan, pledge or grant any right with respect to (collectively, a
"Disposition"), the Shares, nor will Investor engage in any hedging or other
transaction which is designed to or could reasonably be expected to lead to or
result in a Disposition of the Shares by the Investor or any other person or
entity. Such prohibited hedging or other transactions would include, without
limitation, effecting any short sale or having in effect any short position
(whether or not such sale or position is against the box and regardless of when
such position was entered into) or any purchase, sale or grant of any right
(including, without limitation, any put or call option) with respect to the
Common Stock of the Company or with respect to any security (other than a
broad-based market basket or index) that includes, relates to or derives any
significant part of its value from the Common Stock of the Company.
5.6 The Investor understands that nothing in this Agreement or any
other materials presented to the Investor in connection with the purchase and
sale of the Shares constitutes legal, tax or investment advice. The Investor has
consulted such legal, tax and investment advisors as it, in its sole discretion,
has deemed necessary or appropriate in connection with its purchase of Shares.
6. SURVIVAL OF REPRESENTATIONS, WARRANTIES AND AGREEMENTS. Notwithstanding
any investigation made by any party to this Agreement or by the Placement Agent,
all covenants, agreements, representations and warranties made by the Company
and the Investor herein shall survive the execution of this Agreement, the
delivery to the Investor of the Shares being purchased and the payment therefor.
7. REGISTRATION OF THE SHARES; COMPLIANCE WITH THE SECURITIES ACT.
7.1 REGISTRATION PROCEDURES AND EXPENSES. The Company shall:
(a) subject to receipt of necessary information from the
Investors, prepare and file with the SEC, as soon as practicable, but in no
event later than thirty (30) days after the Closing Date, a registration
statement on Form S-3 (or in the event that the Company is unable to use Form
S-3, then on Form S-1) (the "Registration Statement") to enable the resale of
the Shares by the Investors from time to time through the automated quotation
system of the Nasdaq Stock Market or in privately-negotiated transactions;
(b) use its reasonable efforts, subject to receipt of necessary
information from the Investors, to cause the Registration Statement to become
effective as soon as practicable, but in no event later than ninety (90) days
after the Registration Statement is filed by the Company. Notwithstanding the
foregoing, if the Registration Statement is not declared effective by July 15,
2000 (the "Final Effectiveness Date") and does not remain effective for thirty
(30) continuous days thereafter, the Investor shall be entitled to a stock
dividend in the amount of two percent (2%) of the Shares purchased by such
Investor hereunder, provided that an additional stock dividend in the amount of
one and one-half percent (1.5%) of the Shares
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purchased hereunder shall be made at each of the first two three-month
anniversaries of the Final Effective Date if the Registration Statement has not
been declared effective and remained effective for thirty (30) continuous days
from the date of the first effectiveness as of such three month anniversaries;
provided further that any such stock dividend shall not exceed in the aggregate
five percent (5%).
(c) use its reasonable efforts to prepare and file with the SEC
such amendments and supplements to the Registration Statement and the Prospectus
used in connection therewith as may be necessary to keep the Registration
Statement current and effective for a period not exceeding, with respect to each
Investor's Shares purchased hereunder, the earliest of (i) the second
anniversary of the Closing Date, (ii) the date on which the Investor may sell
all Shares then held by the Investor without restriction by the volume
limitations of Rule 144(e) of the Securities Act or (iii) such time as all
Shares purchased by such Investor in this Offering have been sold pursuant to a
registration statement.
(d) furnish to the Placement Agent and to the Investor with
respect to the Shares registered under the Registration Statement such number of
copies of the Registration Statement, Prospectuses and Preliminary Prospectuses
in conformity with the requirements of the Securities Act and such other
documents as the Investor may reasonably request, in order to facilitate the
public sale or other disposition of all or any of the Shares by the Investor,
provided, however, that the obligation of the Company to deliver copies of
Prospectuses or Preliminary Prospectuses to the Investor shall be subject to the
receipt by the Company of reasonable assurances from the Investor that the
Investor will comply with the applicable provisions of the Securities Act and of
such other securities or blue sky laws as may be applicable in connection with
any use of such Prospectuses or Preliminary Prospectuses;
(e) file documents required of the Company for normal blue sky
clearance in states specified in writing by the Investor, provided, however,
that the Company shall not be required to qualify to do business or consent to
service of process in any jurisdiction in which it is not now so qualified or
has not so consented;
(f) bear all expenses in connection with the procedures in
paragraph (a) through (e) of this Section 7.1 and the registration of the Shares
pursuant to the Registration Statement, other than fees and expenses, if any, of
counsel or other advisors to the Investors, provided, however, that the Company
shall pay the reasonable fees and expenses of one firm of attorneys for the
Investors as a group, or underwriting discounts, brokerage fees and commissions
incurred by the Investors, if any; and
(g) advise the Investors, promptly after it shall receive notice
or obtain knowledge of the issuance of any stop order by the SEC delaying or
suspending the effectiveness of the Registration Statement or of the initiation
of any proceeding for that purpose; and it will promptly use its commercially
reasonable efforts to prevent the issuance of any stop order or to obtain its
withdrawal at the earliest possible moment if such stop order should be issued.
(h) with a view to making available to the Investor the benefits
of Rule 144 (or its successor rule) and any other rule or regulation of the SEC
that may at any time permit the Investor to sell Shares to the public without
registration, the Company covenants and
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agrees to: (i) make and keep public information available, as those terms are
understood and defined in Rule 144, until the earlier of (A) such date as all of
the Investor's Shares may be resold pursuant to Rule 144(k) or any other rule of
similar effect or (B) such date as all of the Investor's Shares shall have been
resold; (ii) file with the SEC in a timely manner all reports and other
documents required of the Company under the Securities Act and under the
Exchange Act; and (iii) furnish to the Investor upon request, as long as the
Investor owns any Shares, (A) a written statement by the Company that it has
complied with the reporting requirements of the Securities Act and the Exchange
Act, (B) a copy of the Company's most recent Annual Report on Form 10-K or
Quarterly Report on Form 10-Q, and (C) such other information as may be
reasonably requested in order to avail the Investor of any rule or regulation of
the SEC that permits the selling of any such Shares without registration.
It shall be a condition precedent to the obligations of the Company to take
any action pursuant to this Section 7.1 that the Investor shall furnish to the
Company such information regarding itself, the Shares to be sold by Investor,
and the intended method of disposition of such securities as shall be required
to effect the registration of the Shares.
The Company understands that the Investor disclaims being an underwriter,
but the Investor being deemed an underwriter by the SEC shall not relieve the
Company of any obligations it has hereunder, provided, however, that if the
Company receives notification from the SEC that the Investor is deemed an
underwriter, then the period by which the Company is obligated to submit an
acceleration request to the SEC shall be extended to the earlier of (i) the 90th
day after such SEC notification, or (ii) 120 days after the initial filing of
the Registration Statement with the SEC.
7.2 TRANSFER OF SHARES AFTER REGISTRATION; SUSPENSION.
(a) The Investor agrees that it will not effect any Disposition
of the Shares or its right to purchase the Shares that would constitute a sale
within the meaning of the Securities Act except as contemplated in the
Registration Statement referred to in Section 7.1 and as described below, and
that it will promptly notify the Company of any changes in the information set
forth in the Registration Statement regarding the Investor or its plan of
distribution.
(b) Except in the event that paragraph (c) below applies, the
Company shall: (i) if deemed necessary by the Company, prepare and file from
time to time with the SEC a post-effective amendment to the Registration
Statement or a supplement to the related Prospectus or a supplement or amendment
to any document incorporated therein by reference or file any other required
document so that such Registration Statement will not contain an untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein not misleading, and
so that, as thereafter delivered to purchasers of the Shares being sold
thereunder, such Prospectus will not contain an untrue statement of a material
fact or omit to state a material fact required to be stated therein or necessary
to make the statements therein, in light of the circumstances under which they
were made, not misleading; (ii) provide the Investor copies of any documents
filed pursuant to Section 7.2(b)(i); and (iii) inform each Investor that the
Company has complied with its obligations in Section 7.2(b)(i) (or that, if the
Company has filed a post-effective amendment to the Registration Statement which
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has not yet been declared effective, the Company will notify the Investor to
that effect, will use its reasonable efforts to secure the effectiveness of such
post-effective amendment as promptly as possible and will promptly notify the
Investor pursuant to Section 7.2(b)(i) hereof when the amendment has become
effective).
(c) Subject to paragraph (d) below, in the event: (i) of any
request by the SEC or any other federal or state governmental authority during
the period of effectiveness of the Registration Statement for amendments or
supplements to a Registration Statement or related Prospectus or for additional
information; (ii) of the issuance by the SEC or any other federal or state
governmental authority of any stop order suspending the effectiveness of a
Registration Statement or the initiation of any proceedings for that purpose;
(iii) of the receipt by the Company of any notification with respect to the
suspension of the qualification or exemption from qualification of any of the
Shares for sale in any jurisdiction or the initiation of any proceeding for such
purpose; or (iv) of any event or circumstance which necessitates the making of
any changes in the Registration Statement or Prospectus, or any document
incorporated or deemed to be incorporated therein by reference, so that, in the
case of the Registration Statement, it will not contain any untrue statement of
a material fact or any omission to state a material fact required to be stated
therein or necessary to make the statements therein not misleading, and that in
the case of the Prospectus, it will not contain any untrue statement of a
material fact or any omission to state a material fact required to be stated
therein or necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading; then the Company shall
deliver a certificate in writing to the Investor (the "Suspension Notice") to
the effect of the foregoing and, upon receipt of such Suspension Notice, the
Investor will refrain from selling any Shares pursuant to the Registration
Statement (a "Suspension") until the Investor's receipt of copies of a
supplemented or amended Prospectus prepared and filed by the Company, or until
it is advised in writing by the Company that the current Prospectus may be used,
and has received copies of any additional or supplemental filings that are
incorporated or deemed incorporated by reference in any such Prospectus. In the
event of any Suspension, the Company will use its reasonable efforts to cause
the use of the Prospectus so suspended to be resumed as soon as reasonably
practicable within 20 business days after delivery of a Suspension Notice to the
Investors. In addition to and without limiting any other remedies (including,
without limitation, at law or at equity) available to the Investor, the Investor
shall be entitled to specific performance in the event that the Company fails to
comply with the provisions of this Section 7.2(c).
(d) Notwithstanding the foregoing paragraphs of this Section 7.2,
the Investor shall not be prohibited from selling Shares under the Registration
Statement as a result of Suspensions on more than three occasions of not more
than 30 days each in any twelve month period, unless, in the good faith judgment
of the Company's Board of Directors, upon advice of counsel, the sale of Shares
under the Registration Statement in reliance on this paragraph 7.2(d) would be
reasonably likely to cause a violation of the Securities Act or the Exchange Act
and result in potential liability to the Company.
(e) Provided that a Suspension is not then in effect the
Investor may sell Shares under the Registration Statement, provided that it
arranges for delivery of a current Prospectus to the transferee of such
Shares. Upon receipt of a request therefor, the Company has
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agreed to provide an adequate number of current Prospectuses to the Investor and
to supply copies to any other parties requiring such Prospectuses.
(f) In the event of a sale of Shares by the Investor, the
Investor shall deliver to the Company's transfer agent, with a copy to the
Company, a Certificate of Subsequent Sale substantially in the form attached
hereto as Exhibit C, so that the shares may be properly transferred.
7.3 INDEMNIFICATION. For the purpose of this Section 7.3:
(a) the term "Selling Stockholder" shall include the Investor and
any officer, director, trustee or affiliate of such Investor, and "affiliate"
shall mean any person who controls the Investor within the meaning of Section 15
of the Securities Act;
(b) the term "Registration Statement" shall include any final
Prospectus, exhibit, supplement or amendment included in or relating to the
Registration Statement referred to in Section 7.1; and
(c) the term "untrue statement" shall include any untrue
statement or alleged untrue statement, or any omission or alleged omission to
state in the Registration Statement a material fact required to be stated
therein or necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading.
(i) The Company agrees to indemnify and hold harmless each
Selling Stockholder from and against any losses, claims, damages or liabilities
to which such Selling Stockholder may become subject (under the Securities Act
or otherwise) insofar as such losses, claims, damages or liabilities (or actions
or proceedings in respect thereof) arise out of, or are based upon, (i) any
untrue statement of a material fact contained in the Registration Statement, or
(ii) any failure by the Company to fulfill any undertaking included in the
Registration Statement, and the Company will reimburse such Selling Stockholder
for any reasonable legal or other expenses reasonably incurred in investigating,
defending or preparing to defend any such action, proceeding or claim, provided,
however, that the Company shall not be liable in any such case to the extent
that such loss, claim, damage or liability arises out of, or is based upon, an
untrue statement made in such Registration Statement in reliance upon and in
conformity with written information furnished to the Company by or on behalf of
such Selling Stockholder specifically for use in preparation of the Registration
Statement or the failure of such Selling Stockholder to comply with its
covenants and agreements contained in Sections 5.1, 5.2, 5.3 or 7.2 hereof or
any statement or omission in any Prospectus that is corrected in any subsequent
Prospectus that was delivered to the Investor prior to the pertinent sale or
sales by the Investor.
(ii) The Investor agrees to indemnify and hold harmless the
Company (and each person, if any, who controls the Company within the meaning of
Section 15 of the Securities Act, each officer of the Company who signs the
Registration Statement and each director of the Company) from and against any
losses, claims, damages or liabilities to which the Company (or any such
officer, director or controlling person) may become subject (under the
Securities Act or otherwise), insofar as such losses, claims, damages or
liabilities (or
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actions or proceedings in respect thereof) arise out of, or are based upon, (i)
any failure to comply with the covenants and agreements contained in Section
5.1, 5.2, 5.3 or 7.2 hereof, or (ii) any untrue statement of a material fact
contained in the Registration Statement if such untrue statement was made in
reliance upon and in conformity with written information furnished by or on
behalf of the Investor specifically for use in preparation of the Registration
Statement, and the Investor will reimburse the Company (or such officer,
director or controlling person), as the case may be, for any legal or other
expenses reasonably incurred in investigating, defending or preparing to defend
any such action, proceeding or claim. In no event shall the Investor's liability
hereunder exceed the gross proceeds received from the sale of Shares.
(iii) Promptly after receipt by any indemnified person of a
notice of a claim or the beginning of any action in respect of which indemnity
is to be sought against an indemnifying person pursuant to this Section 7.3,
such indemnified person shall notify the indemnifying person in writing of such
claim or of the commencement of such action, but the omission to so notify the
indemnifying party will not relieve it from any liability which it may have to
any indemnified party under this Section 7.3 (except to the extent that such
omission materially and adversely affects the indemnifying party's ability to
defend such action) or from any liability otherwise than under this Section 7.3.
Subject to the provisions hereinafter stated, in case any such action shall be
brought against an indemnified person, the indemnifying person shall be entitled
to participate therein, and, to the extent that it shall elect by written notice
delivered to the indemnified party promptly after receiving the aforesaid notice
from such indemnified party, shall be entitled to assume the defense thereof,
with counsel reasonably satisfactory to such indemnified person. After notice
from the indemnifying person to such indemnified person of its election to
assume the defense thereof, such indemnifying person shall not be liable to such
indemnified person for any legal expenses subsequently incurred by such
indemnified person in connection with the defense thereof, provided, however,
that if there exists or shall exist a conflict of interest that would make it
inappropriate, in the reasonable opinion of counsel to the indemnified person,
for the same counsel to represent both the indemnified person and such
indemnifying person or any affiliate or associate thereof, the indemnified
person shall be entitled to retain its own counsel at the expense of such
indemnifying person; provided, however, that no indemnifying person shall be
responsible for the fees and expenses of more than one separate counsel
(together with appropriate local counsel) for all indemnified parties. In no
event shall any indemnifying person be liable in respect of any amounts paid in
settlement of any action unless the indemnifying person shall have approved the
terms of such settlement; provided that such consent shall not be unreasonably
withheld or delayed. No indemnifying person shall, without the prior written
consent of the indemnified person, effect any settlement of any pending or
threatened proceeding in respect of which any indemnified person is or could
have been a party and indemnification could have been sought hereunder by such
indemnified persn, unless such settlement includes an unconditional release of
such indemnified person from all liability on claims that are the subject matter
of such proceeding.
(iv) If the indemnification provided for in this Section 7.3
is unavailable to or insufficient to hold harmless an indemnified party under
subsection (i) or (ii) above in respect of any losses, claims, damages or
liabilities (or actions or proceedings in respect thereof) referred to therein,
then each indemnifying party shall contribute to the amount paid or payable by
such indemnified party as a result of such losses, claims, damages or
liabilities (or actions in respect thereof) in such proportion as is appropriate
to reflect the relative fault of the
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Company on the one hand and the Investors on the other in connection with the
statements or omissions or other matters which resulted in such losses, claims,
damages or liabilities (or actions in respect thereof), as well as any other
relevant equitable considerations. The relative fault shall be determined by
reference to, among other things, in the case of an untrue statement, whether
the untrue statement relates to information supplied by the Company on the one
hand or an Investor on the other and the parties' relative intent, knowledge,
access to information and opportunity to correct or prevent such untrue
statement. The Company and the Investors agree that it would not be just and
equitable if contribution pursuant to this subsection (iv) were determined by
pro rata allocation (even if the Investors were treated as one entity for such
purpose) or by any other method of allocation which does not take into account
the equitable considerations referred to above in this subsection (iv). The
amount paid or payable by an indemnified party as a result of the losses,
claims, damages or liabilities (or actions in respect thereof) referred to above
in this subsection (iv) shall be deemed to include any legal or other expenses
reasonably incurred by such indemnified party in connection with investigating
or defending any such action or claim. Notwithstanding the provisions of this
subsection (iv), no Investor shall be required to contribute any amount in
excess of the amount by which the gross amount received by the Investor from the
sale of the Shares to which such loss relates exceeds the amount of any damages
which such Investor has otherwise been required to pay by reason of such untrue
statement. No person guilty of fraudulent misrepresentation (within the meaning
of Section 11(f) of the Securities Act) shall be entitled to contribution from
any person who was not guilty of such fraudulent misrepresentation. The
Investors' obligations in this subsection to contribute are several in
proportion to their sales of Shares to which such loss relates and not joint.
(v) The parties to this Agreement hereby acknowledge that
they are sophisticated business persons who were represented by counsel during
the negotiations regarding the provisions hereof including, without limitation,
the provisions of this Section 7.3, and are fully informed regarding said
provisions. They further acknowledge that the provisions of this Section 7.3
fairly allocate the risks in light of the ability of the parties to investigate
the Company and its business in order to assure that adequate disclosure is made
in the Registration Statement as required by the Act and the Exchange Act. The
parties are advised that federal or state public policy as interpreted by the
courts in certain jurisdictions may be contrary to certain of the provisions of
this Section 7.3, and the parties hereto hereby expressly waive and relinquish
any right or ability to assert such public policy as a defense to a claim under
this Section 7.3 and further agree not to attempt to assert any such defense.
7.4 TERMINATION OF CONDITIONS AND OBLIGATIONS. The conditions
precedent imposed by Section 5 or this Section 7 upon the transferability of the
Shares shall cease and terminate as to any particular number of the Shares when
such Shares shall have been effectively registered under the Securities Act and
sold or otherwise disposed of in accordance with the intended method of
disposition set forth in the Registration Statement covering such Shares or at
such time as an opinion of counsel satisfactory to the Company shall have been
rendered to the effect that such conditions are not necessary in order to comply
with the Securities Act.
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7.5 INFORMATION AVAILABLE. So long as the Registration Statement is
effective covering the resale of Shares owned by the Investor, the Company will
furnish to the Investor:
(a) as soon as practicable after it is available, one copy of (i)
its Annual Report to Stockholders (which Annual Report shall contain financial
statements audited in accordance with generally accepted accounting principles
by a national firm of certified public accountants) and (ii) if not included in
substance in the Annual Report to Stockholders, its Annual Report on Form 10-K
(the foregoing, in each case, excluding exhibits);
(b) upon the reasonable request of the Investor, all exhibits
excluded by the parenthetical to subparagraph (a)(ii) of this Section 7.5 as
filed with the SEC and all other information that is made available to
shareholders; and
(c) upon the reasonable request of the Investor, an adequate
number of copies of the Prospectuses to supply to any other party requiring such
Prospectuses; and the Company, upon the reasonable request of the Investor, will
meet with the Investor or a representative thereof at the Company's headquarters
to discuss all information relevant for disclosure in the Registration Statement
covering the Shares and will otherwise cooperate with any Investor conducting an
investigation for the purpose of reducing or eliminating such Investor's
exposure to liability under the Securities Act, including the reasonable
production of information at the Company's headquarters; provided, that the
Company shall not be required to disclose any confidential information to or
meet at its headquarters with any Investor until and unless the Investor shall
have entered into a confidentiality agreement in form and substance reasonably
satisfactory to the Company with the Company with respect thereto.
7.6 PUBLIC DISCLOSURES. The Company will not issue any public
statement, press release or any other public disclosure listing the Investor as
one of the purchasers of the Shares without the Investor's prior written
consent.
8. NOTICES. All notices, requests, consents and other communications
hereunder shall be in writing, shall be mailed (A) if within the domestic United
States by first-class registered or certified airmail, or nationally recognized
overnight express courier, postage prepaid, or by facsimile, or (B) if delivered
from outside the United States, by International Federal Express or facsimile,
and shall be deemed given (i) if delivered by first-class registered or
certified mail domestic, three business days after so mailed, (ii) if delivered
by nationally recognized overnight carrier, one (1) business day after so
mailed, (iii) if delivered by International Federal Express, two (2) business
days after so mailed, (iv) if delivered by facsimile, upon electric confirmation
of receipt and shall be delivered as addressed as follows:
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(a) if to the Company, to:
Pharmacopeia, Inc.
CN 5350
Princeton, NJ 08543-5340
Attn: Chief Executive Officer
cc: General Counsel
Phone: 609-452-3600
Telecopy: 609-452-3655
(b) with a copy mailed to:
Dechert Price & Rhoads
Princeton Pike Corporate Center
P.O. Box 5218
Princeton, NJ 08543-5218
Attn: James J. Marino
Phone: 609-620-3230
Telecopy: 609-620-3259
(c) if to the Investor, at its address on the Signature Page
hereto, or at such other address or addresses as may have been furnished to the
Company in writing.
9. CHANGES. This Agreement may not be modified or amended except pursuant
to an instrument in writing signed by the Company and the Investor.
10. HEADINGS. The headings of the various sections of this Agreement have
been inserted for convenience of reference only and shall not be deemed to be
part of this Agreement.
11. SEVERABILITY. In case any provision contained in this Agreement should
be invalid, illegal or unenforceable in any respect, the validity, legality and
enforceability of the remaining provisions contained herein shall not in any way
be affected or impaired thereby.
12. GOVERNING LAW. This Agreement shall be governed by, and construed in
accordance with, the internal laws of the State of Delaware, without giving
effect to the principles of conflicts of law.
13. COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall constitute an original, but all of which, when
taken together, shall constitute but one instrument, and shall become effective
when one or more counterparts have been signed by each party hereto and
delivered to the other parties.
14. CONFIDENTIAL DISCLOSURE AGREEMENT. Notwithstanding any provision of
this Agreement to the contrary, any confidential disclosure agreement previously
executed by the Company and the Investor in connection with the transactions
contemplated by this Agreement shall remain in full force and effect in
accordance with its terms following the execution of this Agreement and the
consummation of the transactions contemplated hereby.
-17-
<PAGE>
EXHIBIT A
PHARMACOPEIA
STOCK CERTIFICATE QUESTIONNAIRE
Pursuant to Section 5 of the Agreement, please provide us with the
following information:
1. The exact name that your Shares are to be -----------------------------
registered in (this is the name that will
appear on your stock certificate(s)). You
may use a nominee name if appropriate:
2. The relationship between the Investor and -----------------------------
the registered holder listed in response
to item 1 above:
3. The mailing address of the registered holder -----------------------------
listed in response to item 1 above:
4. The Social Security Number or Tax -----------------------------
Identification Number of the registered
holder listed in the response to item 1
above:
A-1
<PAGE>
EXHIBIT B
PHARMACOPEIA, INC.
INVESTOR QUESTIONNAIRE
(ALL INFORMATION WILL BE TREATED CONFIDENTIALLY)
To: Pharmacopeia, Inc.
This Investor Questionnaire ("Questionnaire") must be completed by each
potential investor in connection with the offer and sale of the shares of the
common stock, par value $0.001 per share, of Pharmacopeia, Inc. (the
"Securities"). The Securities are being offered and sold by Pharmacopeia, Inc.
(the "Corporation") without registration under the Securities Act of 1933, as
amended (the "Act"), and the securities laws of certain states, in reliance on
the exemptions contained in Section 4(2) of the Act and on Regulation D
promulgated thereunder and in reliance on similar exemptions under applicable
state laws. The Corporation must determine that a potential investor meets
certain suitability requirements before offering or selling Securities to such
investor. The purpose of this Questionnaire is to assure the Corporation that
each investor will meet the applicable suitability requirements. The information
supplied by you will be used in determining whether you meet such criteria, and
reliance upon the private offering exemption from registration is based in part
on the information herein supplied.
This Questionnaire does not constitute an offer to sell or a solicitation
of an offer to buy any security. Your answers will be kept strictly
confidential. However, by signing this Questionnaire you will be authorizing the
Corporation to provide a completed copy of this Questionnaire to such parties as
the Corporation deems appropriate in order to ensure that the offer and sale of
the Securities will not result in a violation of the Act or the securities laws
of any state and that you otherwise satisfy the suitability standards applicable
to purchasers of the Securities. All potential investors must answer all
applicable questions and complete, date and sign this Questionnaire. Please
print or type your responses and attach additional sheets of paper if necessary
to complete your answers to any item.
A. BACKGROUND INFORMATION
Name:
---------------------------------------------------------------------------
Business Address:
---------------------------------------------------------------
(Number and Street)
- --------------------------------------------------------------------------------
(City) (State) (Zip Code)
Telephone Number: ( )
-------------------------------------------------------
Residence Address:
--------------------------------------------------------------
(Number and Street)
- --------------------------------------------------------------------------------
(City) (State) (Zip Code)
Telephone Number: ( )
-------------------------------------------------------
If an individual:
Age:______ Citizenship:__________ Where registered to vote:_______________
If a corporation, partnership, limited liability company, trust or other entity:
Type of entity:
----------------------------------------------------------------
State of formation:______________ Date of formation:__________________
Social Security or Taxpayer Identification No.
----------------------------------
Send all correspondence to (check one): __ Residence Address __ Business Address
B-1
<PAGE>
B. STATUS AS ACCREDITED INVESTOR
The undersigned is an "accredited investor" as such term is defined in
Regulation D under the Act, as at the time of the sale of the Securities the
undersigned falls within one or more of the following categories (Please initial
one or more, as applicable):(1)
_____(1) a bank as defined in Section 3(a)(2) of the Act, or a savings and loan
association or other institution as defined in Section 3(a)(5)(A) of the Act
whether acting in its individual or fiduciary capacity; a broker or dealer
registered pursuant to Section 15 of the Securities Exchange Act of 1934; an
insurance company as defined in Section 2(13) of the Act; an investment company
registered under the Investment Corporation Act of 1940 or a business
development company as defined in Section 2(a)(48) of that Act; a Small Business
Investment Corporation licensed by the U.S. Small Business Administration under
Section 301(c) or (d) of the Small Business Investment Act of 1958; a plan
established and maintained by a state, its political subdivisions, or any agency
or instrumentality of a state or its political subdivisions for the benefit of
its employees, if such plan has total assets in excess of $5,000,000; an
employee benefit plan within the meaning of the Employee Retirement Income
Security Act of 1974 if the investment decision is made by a plan fiduciary, as
defined in Section 3(21) of such Act, which is either a bank, savings and loan
association, insurance company, or registered investment adviser, or if the
employee benefit plan has total assets in excess of $5,000,000 or, if a
self-directed plan, with the investment decisions made solely by persons that
are accredited investors;(1)
_____(2) a private business development company as defined in Section
202(a)(22) of the Investment Adviser Act of 1940;
_____(3) an organization described in Section 501(c)(3) of the Internal Revenue
Code of 1986, as amended, corporation, Massachusetts or similar business trust,
or partnership, not formed for the specific purpose of acquiring the Securities
offered, with total assets in excess of $5,000,000;
_____(4) a natural person whose individual net worth, or joint net worth with
that person's spouse, at the time of such person's purchase of the Securities
exceeds $1,000,000;
_____(5) a natural person who had an individual income in excess of $200,000 in
each of the two most recent years or joint income with that person's spouse in
excess of $300,000 in each of those years and has a reasonable expectation of
reaching the same income level in the current year;
_____(6) a trust, with total assets in excess of $5,000,000, not formed for the
specific purpose of acquiring the Securities offered, whose purchase is directed
by a sophisticated person as described in Rule 506(b)(2)(ii) of Regulation D;
and
_____(7) an entity in which all of the equity owners are accredited investors
(as defined above).
- ----------
(1) As used in this Questionnaire, the term "net worth" means the excess of
total assets over total liabilities. In computing net worth for the purpose
of subsection (4), the principal residence of the investor must be valued
at cost, including cost of improvements, or at recently appraised value by
an institutional lender making a secured loan, net of encumbrances. In
determining income, the investor should add to the investor's adjusted
gross income any amounts attributable to tax exempt income received, losses
claimed as a limited partner in any limited partnership, deductions claimed
for depiction, contributions to an IRA or KEOGH retirement plan, alimony
payments, and any amount by which income from long-term capital gains has
been reduced in arriving at adjusted gross income.
B-2
<PAGE>
C. REPRESENTATIONS
The undersigned hereby represents and warrants to the Corporation as follows:
1. Any purchase of the Securities would be solely for the account of the
undersigned and not for the account of any other person or with a view to any
resale, fractionalization, division, or distribution thereof.
2. The information contained herein is complete and accurate and may be
relied upon by the Corporation, and the undersigned will notify the Corporation
immediately of any material change in any of such information occurring prior to
the closing, if any, with respect to the purchase of Securities by the
undersigned or any co-purchaser.
3. There are no suits, pending litigation, or claims against the
undersigned that could materially affect the net worth of the undersigned as
reported in this Questionnaire.
4. The undersigned acknowledges that there may occasionally be times when
the Corporation, based on the advice of its counsel, determines that it must
suspend the use of the Prospectus forming a part of the Registration Statement
(as such terms are defined in the Stock Purchase Agreement to which this
Questionnaire is attached) until such time as an amendment to the Registration
Statement has been filed by the Company and declared effective by the Securities
and Exchange Commission or until the Corporation has amended or supplemented
such Prospectus. The undersigned is aware that, in such event, the Securities
will not be subject to ready liquidation, and that any Securities purchased by
the undersigned would have to be held during such suspension. The overall
commitment of the undersigned to investments which are not readily marketable is
not excessive in view of the undersigned's net worth and financial
circumstances, and any purchase of the Securities will not cause such commitment
to become excessive. The undersigned is able to bear the economic risk of an
investment in the Securities.
5. In addition to reviewing the Corporation's SEC Documents, as defined in
the Stock Purchase Agreement to which this questionnaire is an exhibit, the
undersigned has carefully considered the potential risks relating to the
Corporation and a purchase of the Securities, and fully understands that the
Securities are speculative investments which involve a high degree of risk of
loss of the undersigned's entire investment. Among others, the undersigned has
carefully considered each of the risks described under the heading "Risk
Factors" in the Corporation's most recent annual report on Form 10-K.
IN WITNESS WHEREOF, the undersigned has executed this Questionnaire this _____
day of _____________, 2000, and declares under oath that it is truthful and
correct.
Print Name
By:
------------------------------------
Signature
Title:
---------------------------------
(required for any purchaser that
is a corporation, partnership,
trust or other entity)
B-3
<PAGE>
EXHIBIT C
PHARMACOPEIA, INC.
CERTIFICATE OF SUBSEQUENT SALE
American Stock Transfer and Trust Company
RE: Sale of Shares of Common Stock of Pharmacopeia, Inc. (the "Company")
pursuant to the Company's Prospectus dated _______________, 2000 (the
"Prospectus")
Dear Sir/Madam:
The undersigned hereby certifies, in connection with the sale of shares of
Common Stock of the Company included in the table of Selling Shareholders in the
Prospectus, that the undersigned has sold the Shares pursuant to the Prospectus
and in a manner described under the caption "Plan of Distribution" in the
Prospectus and that such sale complies with all applicable securities laws,
including, without limitation, the Prospectus delivery requirements of the
Securities Act of 1933, as amended.
Selling Shareholder (the beneficial owner):
--------------------------------
Record Holder (e.g., if held in name of nominee):
--------------------------
Restricted Stock Certificate No.(s):
---------------------------------------
Number of Shares Sold:
-----------------------------------------------------
Date of Sale:
--------------------------------------------------------------
In the event that you receive a stock certificate(s) representing more
shares of Common Stock than have been sold by the undersigned, then you should
return to the undersigned a newly issued certificate for such excess shares in
the name of the Record Holder and BEARING A RESTRICTIVE LEGEND. Further, you
should place a stop transfer on your records with regard to such certificate.
Very truly yours,
By:
------------------------------------
Print Name:
----------------------------
Title:
---------------------------------
Dated:
--------------------
cc: Investor Relations
Pharmacopeia, Inc.
CN 5350
Princeton, NJ 08543-5340
C-1
<PAGE>
SCHEDULE I
EXCEPTIONS
1. On February 29, 2000, the Company acquired all of the issued and
outstanding stock of Synopsys Scientific Systems Ltd for an aggregate purchase
price of $25 million, which consisted of approximately $23,687,000 in cash and
the balance in shares of common stock of the Company.
See Form 8-K, Item 5, filed on March [ ], 2000.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS FOR THE THREE MONTHS ENDED MARCH 31, 2000 AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 39,738
<SECURITIES> 137,178
<RECEIVABLES> 12,277
<ALLOWANCES> (576)
<INVENTORY> 0
<CURRENT-ASSETS> 194,414
<PP&E> 31,983
<DEPRECIATION> (20,717)
<TOTAL-ASSETS> 237,805
<CURRENT-LIABILITIES> 38,435
<BONDS> 0
0
0
<COMMON> 2
<OTHER-SE> 194,434
<TOTAL-LIABILITY-AND-EQUITY> 237,805
<SALES> 964
<TOTAL-REVENUES> 23,850
<CGS> 918
<TOTAL-COSTS> 8,664
<OTHER-EXPENSES> 21,670
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (5,672)
<INCOME-TAX> (125)
<INCOME-CONTINUING> (5,797)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (5,797)
<EPS-BASIC> (.27)
<EPS-DILUTED> (.27)
</TABLE>
