<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 9, 1997
REGISTRATION NO. 333-38109
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------------
AMENDMENT NO. 1 TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
--------------------------
VYSIS, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
DELAWARE 2835 36-3803405
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of Classification Code Number) Identification
incorporation or organization) Number)
</TABLE>
3100 WOODCREEK DRIVE, DOWNERS GROVE, ILLINOIS 60515
(630) 271-7000
(Address, including zip code, and telephone number, including
area code, of registrant's principal executive offices)
JOHN L. BISHOP
PRESIDENT AND CHIEF EXECUTIVE OFFICER
VYSIS, INC.
3100 WOODCREEK DRIVE, DOWNERS GROVE, ILLINOIS 60515
(630) 271-7000
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
--------------------------
COPIES TO:
DAVID A. SCHUETTE WILLIAM J. GRANT, JR.
Mayer, Brown & Platt Willkie Farr & Gallagher
190 S. LaSalle Street One Citicorp Center
Chicago, Illinois 60603 153 East 53rd Street
(312) 782-0600 New York, New York 10022
(212) 821-8000
--------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
AS SOON AS PRACTICABLE AFTER THE EFFECTIVE DATE OF THIS REGISTRATION STATEMENT.
--------------------------
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box: / /
If this Form is filed to register additional securities for an offering
pursuant to rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box: / /
--------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO OFFERING PRICE AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED BE REGISTERED(1) PER SHARE(2) OFFERING PRICE(2) REGISTRATION FEE
<S> <C> <C> <C> <C>
Common Stock, $0.001 par value.............. 4,025,000 $15.00 $60,375,000 $18,296(3)
</TABLE>
(1) Includes 525,000 shares which the Underwriters have the option to purchase
to cover over-allotments, if any. See "Underwriting."
(2) Estimated solely for purposes of calculating the registration fee pursuant
to Rule 457 under the Securities Act.
(3) Previously Paid.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
SUBJECT TO COMPLETION, DATED DECEMBER 9, 1997
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
<PAGE>
PROSPECTUS
3,500,000 SHARES
[LOGO]
COMMON STOCK
All of the shares of Common Stock offered hereby are being sold by Vysis,
Inc., a Delaware corporation ("Vysis" or the "Company"). Prior to this offering,
there has been no public market for the Common Stock of the Company. It is
currently estimated that the initial public offering price will be between
$13.00 and $15.00 per share. See "Underwriting" for a discussion of the factors
to be considered in determining the initial public offering price. The Company
has applied to have the Common Stock approved for quotation on the Nasdaq Stock
Market under the symbol "VYSI."
THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" BEGINNING ON PAGE 8.
---------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF
THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
UNDERWRITING
DISCOUNTS AND PROCEEDS TO
PRICE TO PUBLIC COMMISSIONS(1) COMPANY(2)
<S> <C> <C> <C>
Per Share................................. $ $ $
Total(3).................................. $ $ $
</TABLE>
(1) The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended. See "Underwriting."
(2) Before deducting expenses payable by the Company, estimated at $ .
(3) The Company has granted to the several Underwriters a 30-day option to
purchase up to 525,000 additional shares of Common Stock solely to cover
over-allotments, if any. If all such shares are purchased, the total Price
to Public, Underwriting Discounts and Commissions and Proceeds to Company
will be $ , $ and $ , respectively. See
"Underwriting."
------------------------
The shares are being offered by the several Underwriters when, as and if
delivered to and accepted by the Underwriters, and subject to various prior
conditions, including the right to reject orders in whole or in part. It is
expected that delivery of share certificates will be made against payment
therefor at the offices of Furman Selz LLC in New York, New York on or about
, 1997.
FURMAN SELZ
DEUTSCHE MORGAN GRENFELL
EVEREN SECURITIES, INC.
---------------
The date of this Prospectus is , 1997.
<PAGE>
INSIDE FRONT COVER
(GRAPHICS)
A two-color collage of four photographs arranged within a box and entitled
"Genomic Diagnostics." Overlaid in the center of the box is the term "Genetic
Assessment." The picture in the upper left-hand corner of the box is a young
girl being examined by a physician with a stethoscope. The picture in the upper
right-hand corner of the box is that of an unborn fetus in utero. The picture in
the lower left-hand corner of the box is an elderly man dressed in a hospital
robe. The picture in the lower right-hand corner of the box is a woman
performing a self breast exam to screen for breast cancer. At the bottom of the
page is the Company's logo and the words "Managing Disease With Molecular
Techniques."
GATEFOLD, 2 PAGE SPREAD
(GRAPHICS)
A color spread of seven photographs entitled "Product Platforms for Genomic
Diagnostics." The photographs are grouped into three categories. The first
category has the heading entitled "FISH System" and is placed on the top
two-thirds of the left-hand page and contains three photographs. One of the
three photographs is a computer workstation with a woman looking at the computer
screen and has the caption "Quips-TM- FISH Workstation." The second photograph
is a cell with multiple colored spots (signals) and has the caption
"MultiVysion-TM- PGT 5-color FISH probe panel for preimplantation genetic
testing for chromosomes 13, 18, 21, X and Y." The third and last photograph in
this group shows multiple chromosomes each represented in a different color with
the caption "Quips mFISH Software for multi-color fluorescence probe imaging and
analysis."
The second category of photographs positioned on the bottom third of the
left-hand page contains two photographs and is entitled "gCGH-TM- Array." One of
the photographs has the caption "gCGH Array for simultaneous assessment of
multiple genes" and is a drawing of the gCGH disposable device, a blow-up of an
example array and a mock report showing which genes in the example array are
amplified or deleted. The second photograph in this group is a color image of an
actual hybridized array and has the caption "Hybridized gCGH Array."
The third category of photographs positioned on the right-hand page is
entitled "Molecular Lawn-TM-" and contains two photographs. One of the
photographs is a drawing of the Molecular Lawn amplification reaction and has
the caption "Molecular Lawn Amplification Reaction." The second photograph is a
drawing of a prototype Molecular Lawn device with the caption "Molecular Lawn
Disposable Test Device."
A DNA double helix weaves throughout the three categories of platforms. The
Company's logo and the words "Managing Disease With Molecular Techniques" are
placed at the bottom of the right-hand page.
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN, OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK,
INCLUDING BY ENTERING STABILIZING BIDS OR EFFECTING SYNDICATE COVERING
TRANSACTIONS. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING."
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED
INFORMATION, INCLUDING "RISK FACTORS," AND CONSOLIDATED FINANCIAL STATEMENTS,
INCLUDING THE NOTES THERETO, APPEARING ELSEWHERE IN THIS PROSPECTUS. UNLESS
OTHERWISE INDICATED, THE INFORMATION IN THIS PROSPECTUS (I) REFLECTS A
1-FOR-1.37 REVERSE STOCK SPLIT EFFECTED ON NOVEMBER 21, 1997, (II) REFLECTS THE
CONVERSION OF ALL OUTSTANDING SHARES OF PREFERRED STOCK OF THE COMPANY INTO
COMMON STOCK UPON COMPLETION OF THIS OFFERING AND (III) ASSUMES THAT THE
UNDERWRITERS' OVER-ALLOTMENT OPTION IS NOT EXERCISED. EXCEPT FOR HISTORICAL
INFORMATION CONTAINED HEREIN, THIS PROSPECTUS CONTAINS FORWARD LOOKING
STATEMENTS THAT INVOLVE RISKS AND UNCERTAINTIES, SUCH AS STATEMENTS OF THE
COMPANY'S PLANS, OBJECTIVES, EXPECTATIONS AND INTENTIONS. THE CAUTIONARY
STATEMENTS MADE IN THIS PROSPECTUS SHOULD BE READ AS BEING APPLICABLE TO ALL
RELATED FORWARD LOOKING STATEMENTS WHEREVER THEY APPEAR IN THIS PROSPECTUS. THE
COMPANY'S ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE DISCUSSED HEREIN.
UNLESS THE CONTEXT OTHERWISE REQUIRES, ALL REFERENCES TO THE "COMPANY" AND
"VYSIS" SHALL MEAN VYSIS, INC., A DELAWARE CORPORATION, AND ITS PREDECESSORS AND
SUBSIDIARIES, AND ALL REFERENCES TO "AMOCO" SHALL MEAN AMOCO CORPORATION, AN
INDIANA CORPORATION, AND ITS WHOLLY OWNED SUBSIDIARY, AMOCO TECHNOLOGY COMPANY,
A DELAWARE CORPORATION. A GLOSSARY OF TECHNICAL TERMS USED IN THIS PROSPECTUS IS
ANNEXED HERETO.
GENOMIC DIAGNOSTICS
Genetic abnormalities are a fundamental source of human disease. Genetic
based diseases and disorders include cancer, birth defects, mental retardation,
coronary artery disease, autoimmune diseases and diabetes. Genomic Diagnostics
is an emerging field that seeks to develop new genetic tests based on
correlations between genetic abnormalities and disease. Genomic Diagnostic
tests, by providing new information not currently available through existing
methods, enable physicians to diagnose disease more quickly and accurately, to
determine the most appropriate treatment and to monitor disease progression and
recurrence during therapy. Genomic Diagnostic tests also enable the detection of
disease at the very early or developing stages when treatment is likely to be
most effective. In addition, Genomic Diagnostic tests allow physicians to
identify genetic predisposition to disease well before the disease is
manifested, thus enabling early intervention either through lifestyle changes or
preventive therapy.
THE COMPANY
Vysis is a leading Genomic Diagnostics company that develops, commercializes
and markets clinical products that provide information critical to the
evaluation and management of cancer, prenatal disorders and other genetic
diseases. The Company has assembled a management team experienced in developing,
commercializing and marketing DNA based diagnostic products and associated
genetic workstations. The Company was the first to obtain Food and Drug
Administration ("FDA") clearance for a genetic diagnostic product using
fluorescence IN SITU hybridization ("FISH"). Vysis currently markets five FDA
cleared clinical products in addition to distributing over 240 research products
through its direct sales operations in the United States and Europe and a
worldwide distribution network covering 28 countries. It has an installed base
of over 320 proprietary genetic workstations at 224 laboratories in 18
countries. The Company has a pipeline of nine clinical products under
development and an expanding list of clinical product leads based upon its
collaborations with leading medical research institutions which include the
University of California, San Francisco, the Mayo Clinic, St. Jude Children's
Research Hospital, the University of Chicago and the Reproductive Genetics
Institute. The Company's revenues have grown from $5.4 million in 1994 to $13.2
million in 1996. The Company's revenues for the first nine months of 1997 were
$12.2 million compared to $9.0 million for the first nine months of 1996. The
Company had net losses of $18.7 million, $17.7 million, and $18.2 million for
the years ended December 31, 1994, 1995 and 1996, respectively. The net loss for
the first nine months of 1996 as compared to 1997 has declined from $13.8
million to $11.5 million.
The Company's business represents the consolidation of multiple research
units and programs of Amoco. Over the past ten years, Amoco has invested over
$80 million to fund Vysis' research and
3
<PAGE>
development in nucleic acid technologies and related business operations. As a
result of this investment, Vysis has compiled a broad portfolio of intellectual
property and expertise, which forms the basis of its core technologies. Vysis
owns or has an exclusive license to 92 issued United States patents or allowed
United States patent applications and 69 pending United States patent
applications that protect its core technologies, diagnostic platforms and
genetic targets. Upon completion of this offering, Amoco will beneficially own
approximately 63% of the Company's outstanding Common Stock.
The Company is currently focusing its cancer product development efforts on
leukemia, breast, bladder, prostate and cervical cancers. The American Cancer
Society estimates that approximately 1.4 million people in the United States
will be diagnosed with some form of cancer in 1997. Approximately 27,600
patients developed some form of leukemia in 1996. Breast cancer is the second
leading cause of death from cancer among women aged 35 to 54, and prostate
cancer is the second leading cause of death from cancer in men. The American
Cancer Society estimates that in 1996 there were approximately 52,900 new cases
of bladder cancer. Approximately 62 million Papanicolaou ("PAP") tests are
performed annually in the United States to screen for cervical cancer.
Studies indicate that early detection and the selection of appropriate
therapies can improve the survival rates of certain types of cancer. Vysis'
initial clinical cancer products are expected to improve patient survival rates
and quality of life by providing information that will enable selection of the
best possible therapy. Three of the Company's products for leukemia and other
myeloid disorders are currently FDA cleared for clinical diagnostic use in the
United States. The Company's first breast cancer product, currently in late
stage clinical trials, is for the detection of HER-2/neu gene amplification, an
important predictive marker for the response to various therapeutic agents.
The Company's prenatal testing products provide information on genetic
abnormalities involved in mental retardation and other birth defects. The
Company estimates that in the United States and Western Europe more than 600,000
amniocentesis procedures were performed in 1996. Using traditional technology, 7
to 10 days are required to complete chromosomal testing from amniocentesis
specimens. In contrast, Vysis' clinical products provide accurate test results
within 24 hours. The French regulatory agency, Agence du Medicament, has
registered the Company's TriGen-TM- prenatal panel for the diagnosis of Down
syndrome and sex chromosome abnormalities. Marketing of this product was
initiated in France in June 1997. In the United States, the Company's
AneuVysion-TM- prenatal panel for the diagnosis of Down syndrome, sex chromosome
abnormalities and two additional chromosomal abnormalities, which together
account for 85% to 90% of chromosomal causes of mental retardation and other
birth defects, has been cleared by the FDA and its marketing was begun in
October 1997.
TECHNOLOGY PLATFORMS AND PRODUCTS
Genomic Diagnostic testing requires the ability to assess abnormalities of
chromosomes, individual genes within chromosomes and specific DNA sequences
within genes. No single technology is capable of assessing all of these
different types of abnormalities. To address this issue, the Company has
developed three complementary technology platforms that detect the full range of
genetic abnormalities from large chromosomal aberrations to smaller
abnormalities associated with abnormal numbers of the same gene and the smallest
mutations within specific gene sequences. The Company believes these
complementary technologies will enable the clinician to provide a comprehensive
approach to genomic assessment in the management of disease.
Vysis' three technology platforms include: the FISH SYSTEM, which detects
chromosomal copy number and rearrangement (large genetic structures), the
GCGH-TM- ARRAY SYSTEM, which detects gene copy number and expression (smaller
genetic structures), and the MOLECULAR LAWN-TM- SYSTEM, which detects specific
gene sequences and their mutations (smallest genetic structures). Each platform
provides the advantage of being able to simultaneously detect multiple genetic
abnormalities in the same specimen. Vysis expects to
4
<PAGE>
introduce a broad range of products based on each of these platforms. This
product development strategy is expected to reduce the time to market and
associated development costs for each product.
- FISH SYSTEM: This platform uses FISH technology, which provides the
ability to simultaneously assess multiple chromosomal and gene
abnormalities in a single intact cell. FISH also provides the ability to
perform cell by cell quantitative assessment of genetic changes in tissue
specimens routinely used by pathologists for diagnosis. The Company's FISH
System consists of instruments and image analysis workstations used with
the Company's patented direct label FISH probes. Vysis believes that its
direct label FISH probes are superior because the result produced is
easier to obtain and interpret. Three of the Company's FISH System
products for leukemia and other myeloid disorders are currently cleared
for clinical diagnostic use in the United States. Additionally, a FISH
based clinical diagnostic product for prenatal testing is registered and
marketed in France, and a similar product has been cleared by the FDA for
marketing in the United States. Clinical trials are underway for a breast
cancer product (HER-2/neu), which is intended to allow physicians to
choose the most effective and appropriate patient therapy.
- GCGH ARRAY SYSTEM: This platform uses the Company's patented comparative
genomic hybridization technology to survey the entire genome for
chromosomal changes in a single test, when a suspected genetic aberration
is unknown. Vysis is developing a ready-to-use array of DNA probes on a
miniaturized chip ("gCGH Array"). A camera based array reader and
customized software will be used to analyze each target on the array. This
system is intended to enable simultaneous assessment of a large number of
genes in a patient's specimen for abnormalities in the specific gene
count. The Company is currently developing products that are intended to
detect in a single specimen substantially all genes known to be amplified
in certain cancers. The Company is also developing a prenatal product that
is intended to simultaneously detect in a single test essentially all
chromosomal abnormalities known to be associated with common mental
retardation and other birth defects.
- MOLECULAR LAWN SYSTEM: This platform uses the Company's patented Q-beta
replicase ("QBR") amplification technology to detect specific gene
sequences. QBR provides a quantitative measure of a specific gene sequence
in either human, viral or bacterial DNA. Because the Molecular Lawn is a
self contained system and is being specifically designed for clinical use,
this QBR based system is intended to provide a more accurate, simple and
cost-effective alternative to other amplification technologies such as
polymerase chain reaction. This technology platform enables the detection
of small genetic targets associated with disease predisposition and early
detection of disease. The system includes a disposable test device and an
automated reader that will provide both qualitative and quantitative
results. The Company's initial product will be designed for the detection
of Human Papilloma Virus, which causes cervical cancer.
An integral part of the Company's technology platforms is its Image Analysis
Software, which is comprised of proprietary algorithms that enable the automated
display and analysis of FISH, gCGH Array and Molecular Lawn tests. The Company
believes that this technology will be essential to the development of its future
automated diagnostic systems.
5
<PAGE>
COMPANY STRATEGY
The Company's goal is to strengthen its position as a leading Genomic
Diagnostics company providing products for the clinical assessment and
management of cancer, prenatal disorders and other genetic diseases. The key
elements of the Company's strategy are to:
- Focus on clinical disease management by developing rapid, accurate,
reliable, cost-effective and easy-to-use products that assess the genome
at all levels.
- Leverage the existing FISH System to develop products providing the
highest near-term medical value and significant revenue potential while
continuing to develop the next generation of Genomic Diagnostic products
utilizing the gCGH Array and Molecular Lawn platforms.
- Capitalize on the Company's existing international sales and marketing
infrastructure to expand access to market opportunities worldwide.
- Obtain additional product leads through collaborations with leading
medical research institutions, incorporation of research results from the
Human Genome Project and continued expansion of the research product line
to help establish new clinical correlations.
- Continue to expand and strengthen the Company's intellectual property
position.
THE OFFERING
<TABLE>
<S> <C>
Common Stock offered by the Company.......... 3,500,000 shares
Common Stock to be outstanding after the
offering (1)................................ 9,501,260 shares
Use of Proceeds.............................. To accelerate product development, expand
sales and marketing capability, acquire
complementary technologies and intellectual
property rights as opportunities arise and
repay indebtedness. See "Use of Proceeds."
Proposed Nasdaq Stock Market symbol.......... VYSI
</TABLE>
- ------------------------
(1) Includes 4,525,547 shares issuable upon the conversion of the Company's
outstanding Series A Preferred Stock and 403,741 shares issuable upon the
conversion of the Company's outstanding Series B Preferred Stock, all of
which preferred stock is owned by Amoco Technology Company ("ATC"). See
"Description of Capital Stock." Excludes, as of December 1, 1997, 953,468
shares issuable upon exercise of outstanding stock options under the
Company's Stock Incentive Plan. See "Management-- Stock Incentive Plan."
6
<PAGE>
SUMMARY FINANCIAL INFORMATION
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
---------------------------------- ----------------------
1994 1995 1996 1996 1997
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
Product sales....................................... $ 5,373 $ 6,296 $ 11,022 $ 7,324 $ 10,558
Grant and other revenue............................. 30 921 2,216 1,647 1,667
---------- ---------- ---------- ---------- ----------
Total revenue..................................... 5,403 7,217 13,238 8,971 12,225
Cost of goods sold.................................... 3,486 4,022 5,529 3,742 4,773
---------- ---------- ---------- ---------- ----------
Gross profit.......................................... 1,917 3,195 7,709 5,229 7,452
---------- ---------- ---------- ---------- ----------
Operating expenses:
Research and development............................ 11,639 8,871 9,456 6,536 7,762
Selling, general and administrative................. 8,937 12,025 16,286 12,500 10,785
---------- ---------- ---------- ---------- ----------
Total operating expense........................... 20,576 20,896 25,742 19,036 18,547
---------- ---------- ---------- ---------- ----------
Loss from operations.................................. (18,659) (17,701) (18,033) (13,807) (11,095)
---------- ---------- ---------- ---------- ----------
Interest income--Amoco................................ -- -- 107 107 --
Interest expense--Amoco............................... -- -- (255) (88) (367)
---------- ---------- ---------- ---------- ----------
Net loss.............................................. $ (18,659) $ (17,701) $ (18,181) $ (13,788) $ (11,462)
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
Pro forma net loss per share(1)....................... $ (2.98) $ (2.26) $ (1.88)
---------- ---------- ----------
---------- ---------- ----------
Shares used in computing pro forma net loss per
share(1)............................................ 6,107 6,107 6,107
</TABLE>
<TABLE>
<CAPTION>
SEPTEMBER 30, 1997
-----------------------
AS
ACTUAL ADJUSTED(2)
---------- -----------
<S> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................................................................ $ 294 $ 37,733
Working capital (deficit)................................................................ (7,284) 37,536
Total assets............................................................................. 15,093 52,532
Notes payable--Amoco..................................................................... 7,381 --
Accumulated deficit...................................................................... (26,457) (26,457)
Total stockholders' equity............................................................... 56 44,876
</TABLE>
- ------------------------
(1) See Note 1 to the Consolidated Financial Statements for information
concerning the number of shares used in computing pro forma net
loss per share.
(2) As adjusted to give effect to the sale of 3,500,000 shares of Common Stock
offered by the Company at an assumed initial public offering price of $14.00
per share and the application of the net proceeds therefrom. See "Use of
Proceeds," "Capitalization" and "Description of Capital Stock."
7
<PAGE>
RISK FACTORS
IN ADDITION TO THE OTHER INFORMATION IN THIS PROSPECTUS, PROSPECTIVE
INVESTORS SHOULD CONSIDER CAREFULLY THE FOLLOWING RISK FACTORS:
UNCERTAIN CLINICAL MARKET ACCEPTANCE OF COMPANY PRODUCTS
Most of the Company's genetic testing products are currently being
distributed for research use only ("RUO"). If the Company's clinical diagnostic
products receive regulatory approval, Vysis will seek to introduce them into the
larger clinical diagnostic market. Acceptance of such products by geneticists,
clinicians, pathologists, oncologists, physicians and their patients for use in
clinical markets and the rate of such acceptance, if any, is uncertain and will
depend upon, among other things, the Company's ability to (i) increase the level
of awareness of its FISH, CGH, QBR and other technologies among the clinical
laboratories and physicians who are expected to order such tests, (ii) educate
the medical community regarding the benefits of managing disease with Genomic
Diagnostics, (iii) provide data demonstrating clinical correlations to disease
outcomes of the gene targets or genetic abnormalities detected by the Company's
products and (iv) obtain third party payers' approval of the Company's products.
There can be no assurance that the clinical market will accept the Company's
products to the extent necessary to make them commercially viable. Failure of
the Company to gain acceptance of its diagnostic products in the clinical market
or any significant delay in such acceptance may have a material adverse effect
on the Company's business, financial condition and results of operations.
GOVERNMENT REGULATION; NO ASSURANCE OF REGULATORY APPROVAL
The preclinical and clinical testing, manufacturing, labeling, distribution
and promotion of the Company's products are subject to extensive and rigorous
government regulation in the United States and other countries. Noncompliance
with applicable requirements can result in enforcement action by the Food and
Drug Administration ("FDA") or comparable foreign regulatory bodies including,
among other things, warning letters, fines, injunctions, civil penalties, recall
or seizure of products, refusal to grant premarket clearances or approvals,
withdrawal of marketing clearances or approvals and criminal prosecution. Any
such enforcement action could have a material adverse effect on the Company's
business, financial condition and results of operations.
The Company generally is prohibited from marketing its diagnostic products
in the United States unless it obtains either 510(k) clearance or premarket
application ("PMA") approval from the FDA. The Company believes that it usually
takes from four to 12 months from submission to obtain 510(k) clearance, but it
can take longer. The process of obtaining PMA approval is much more costly,
lengthy and uncertain. In any event, there can be no assurance that 510(k)
clearance or PMA approval will be obtained in a timely fashion or at all. Such
clearance or approval may also have limitations on how the device may be
marketed that will limit its sales potential.
Distribution of the Company's products outside the United States is also
subject to regulation, which varies widely from country to country. The time
required to obtain needed regulatory clearance by particular foreign governments
may be longer or shorter than that required for FDA clearance or approval. In
addition, the export by the Company of certain of its products that have not yet
been cleared for domestic distribution may be subject to FDA export
restrictions. There can be no assurance that the Company will receive on a
timely basis, if at all, any foreign government or United States export
approvals necessary for the marketing of its products.
The Company's AKS-C- II Karyotype Imaging System (now named Quips-TM-)
received 510(k) clearance in 1990. The Company has made modifications to this
device that the Company believes do not require the submission of new 510(k)
notices. There can be no assurance, however, that the FDA would agree with any
of the Company's determinations not to submit a new 510(k) notice for any of
these changes or would not
8
<PAGE>
require the Company to submit a new 510(k) notice for any of the changes made to
the device. If the FDA requires the Company to submit a new 510(k) notice for
any device modification, the Company may be prohibited from marketing the
modified device until the 510(k) notice is cleared by the FDA.
The Company believes that its FISH, gCGH Array and Molecular Lawn tests will
be placed in the "high complexity" category under the Clinical Laboratory
Improvement Amendments of 1988 ("CLIA") regulations, which will likely limit
their use to larger hospitals and clinical reference laboratories. There can be
no assurance that the CLIA regulations or future administrative interpretations
of CLIA will not have a material adverse impact on the Company by limiting the
potential market for the Company's FISH tests and other products.
Any devices manufactured or distributed by the Company pursuant to FDA
clearances or approvals will be subject to pervasive and continuing regulation
by the FDA and certain state agencies. The Company will be subject to routine
inspection by the FDA and will have to comply with the host of regulatory
requirements that usually apply to medical devices marketed in the United
States, including labeling regulations, the Quality System Regulation ("QSR"),
the Medical Device Reporting regulation (which requires a manufacturer to report
to the FDA certain types of adverse events involving its products), and the
FDA's prohibitions against promoting products for unapproved or "off-label"
uses. Unanticipated changes in existing regulatory requirements or adoption of
new requirements could have a material adverse effect on the Company's business,
financial condition and results of operations. The Company's failure to comply
with applicable regulatory requirements could result in enforcement action by
the FDA or foreign governments, which could have a material adverse effect on
the Company's business, financial condition and results of operations. See
"Business--Government Regulation."
HISTORY OF LOSSES; UNCERTAINTY OF FUTURE PROFITABILITY
The Company has incurred operating losses in each year since its inception.
The Company's losses have resulted principally from costs incurred in research
and development and from selling, general and administrative costs associated
with the Company's operations. These costs have exceeded the Company's revenues
which, to date, have principally been due to genetic testing product sales to
the clinical research market, food testing product sales, funding from
government research grants and payments from collaborators. The Company may
incur additional operating losses as a result of increases in its expenses for
research and product development, litigation, clinical trials/regulatory
approvals and expansion of sales and marketing capability.
The amount of future operating losses and time required by the Company to
reach profitability, if ever, are highly uncertain. The Company's ability to
generate significant revenues and become profitable is dependent in large part
on the ability of the Company to successfully commercialize products for
delivery to the clinical market. Delays in receipt of any necessary regulatory
approvals by the Company, or receipt of approvals by competitors, could
adversely affect the successful commercialization of the Company's products.
There can be no assurance that the Company will successfully commercialize any
of the clinical products that it is currently developing.
INTENSE COMPETITION
Competition in clinical diagnostics and genomics is intense and is expected
to increase as the market for Genomic Diagnostic products develops. Competition
is and will continue to be based on quality, reliability, accuracy, ease of use,
price and product line offering. Oncor, Inc. ("Oncor") is a major competitor in
the supply of FISH products to the clinical research market and is seeking to
enter the clinical market with FISH products. Applied Imaging Corp. and
Perceptive Scientific Instruments, Inc. compete with Vysis in the marketing of
genetic imaging workstations. The Company is aware of other entities that
currently market RUO nucleic acid products, which may have the ability to
compete with the
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Company in the clinical market. In addition, many reference laboratories and
research institutions produce their own FISH probes for internal use.
Other companies are developing genomic assessment products, including "DNA
Chip" products for assessment of gene expression or gene sequence with potential
use for clinical diagnostics. Other diagnostic companies may enter the genetic
disease diagnostic market with nucleic acid based technologies. Many of the
Company's existing and potential competitors have substantially greater
financial, marketing, sales, distribution and technological resources than the
Company or may have substantial advantages over the Company in terms of research
and development expertise, experience in conducting clinical trials, experience
in regulatory matters, manufacturing efficiency, name recognition, ability to
obtain necessary intellectual property licenses, sales and marketing expertise
and distribution channels. There can be no assurance that the Company will be
able to compete successfully against current or future competitors. See
"Business--Competition."
DEPENDENCE UPON THE GENE DISCOVERY AND DISEASE CORRELATION EFFORTS OF OTHERS;
NEED TO OBTAIN DIAGNOSTIC APPLICATIONS OF DISCOVERIES
The Company's future prospects are dependent upon the rate at which
particular genes or genetic abnormalities are discovered and are correlated with
disease and upon the Company's ability to obtain the necessary rights to develop
and sell genetic tests based on these discoveries. There are a number of other
companies, institutions and government-financed entities engaged in the
discovery of the structure and function of the human genome, many of which have
greater financial, technical and human resources than the Company and its
collaborators. In addition, there are a finite number of genes in the human
genome, and companies and institutions performing gene discovery may seek to
identify, sequence and determine in the shortest time possible the biological
function of a large number of genes in order to obtain proprietary positions.
The Company's ability to obtain such rights also depends in part upon its
research collaborations and its ability to maintain and expand such
collaborations. No assurance can be given that the Company will be able to
obtain, on commercially reasonable terms, the rights to genes or correlations of
genetic abnormalities to disease necessary for marketing the Company's clinical
products. Failure to obtain such rights may have a material adverse effect on
the Company's business, financial condition and results of operations. See
"Business--Collaborations" and "Business--Ability to Practice Technology."
UNCERTAINTIES RELATING TO TECHNOLOGICAL APPROACHES
There can be no assurance that the Company will be able to overcome
technical challenges that may arise in connection with the development of its
clinical diagnostic products or, if resolved, the ultimate products will be
suitable for successful clinical commercialization. The development of such
products will require additional investment by the Company of its financial,
technical and other resources. Products incorporating the Company's technology
will also need to compete against well-established techniques and enhancements
to such techniques for analyzing genes and for diagnostics. There can be no
assurance that the Company's technology will compete successfully against
existing or future diagnostic techniques and products. In addition, the
development and commercialization of the Company's planned clinical products
will be subject to the risks of failure inherent in the development and
commercialization of any new technology. These risks include the possibilities
that any products based on these technologies will be found to be ineffective or
otherwise fail to receive the necessary regulatory clearances; that proprietary
rights of third parties will preclude the Company from marketing the products;
or that government and private third party payers will increasingly attempt to
contain health care costs by limiting both the extent of coverage and the
reimbursement rate for new diagnostic products and services.
The Company's development of its genetic imaging software products is
subject to all of the risks of the software development industry. There can be
no assurance that the Company's software development will not be adversely
impacted or delayed due to changes in its suppliers' products or software,
unforeseen programming needs, delay or failure to receive software development
services from third parties, or the
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Company's inability to obtain necessary computer products, software and
components on a timely basis. Any inability of the Company to develop its
genetic imaging software products on a timely basis may have a material adverse
effect on the Company.
DEPENDENCE UPON COLLABORATIVE PARTNERS
The Company relies on its relationships with collaborators at academic and
other institutions that conduct research in areas of interest to the Company.
These collaborators are not employees of the Company. As a result, the Company
has limited control over their activities and, except as otherwise required by
its collaboration agreements, can expect only limited amounts of their time to
be dedicated to the Company's activities. The Company's collaborations with
third parties are an important element of the Company's strategy to obtain
rights to gene discoveries. There can be no assurance that the Company will be
able to negotiate additional collaboration arrangements with others or that its
existing or future collaborations will be successful. See
"Business--Collaborations" and "Business--Ability to Practice Technology."
UNCERTAIN ABILITY TO PRACTICE TECHNOLOGY
The Company's success will depend to a substantial degree upon its ability
to operate its business and to develop, manufacture, market and sell its
products without infringing the proprietary rights of third parties. However,
numerous United States and foreign issued patents and pending patent
applications, which are owned by third parties, exist in the general fields of
nucleic acid technology and clinical diagnostic technology. The Company expects
that additional United States and foreign patents owned by third parties will
issue and additional United States. and foreign patent applications owned by
third parties will be filed in these fields. The Company further believes that
the level of patent competition in these fields is sufficiently high that patent
litigation in these fields is likely to occur.
Consequently, the Company believes that its management of the business risks
presented by the intense patent competition in these fields is critical to its
ability to operate its business and to develop, manufacture, market and sell its
products. There can be no assurance that the Company will be able to
successfully manage these patent business risks to avoid infringing the
proprietary rights of others nor can there be any assurance that patent
infringement suits will not be brought against the Company. Any failure in its
management of these patent business risks may have a material adverse impact on
the Company's business, financial condition and results of operations.
The Company's success will also depend to a substantial degree upon its
ability to obtain and maintain patent protection, both in the United States and
in foreign countries, for its diagnostic products and methods and other
inventions that the Company believes patentable, as well as upon the Company's
ability to preserve its trade secrets and to protect its copyrights in software.
The Company's success will also depend to a substantial degree upon its
collaborators' and future licensors' ability to obtain and maintain patent
protection, both in the United States and in foreign countries, on gene
discoveries, the correlations of disease to genomic abnormalities and other
inventions relevant to the Company's business, as well as upon the Company's
collaborators' and future licensors' ability to preserve trade secrets and to
protect copyrights in software.
The patent position of a company utilizing biotechnology generally is highly
uncertain and involves complex legal and factual questions. There can be no
assurance that any patents owned by or licensed to the Company will not be
challenged and subsequently invalidated or circumvented, or that such patents
will be sufficiently broad to afford protection against third parties who
develop or use similar technology, or that any of such patents will be
successfully asserted against any infringing activity, or that any of the
Company's patent rights will be successfully cross-licensed to third parties in
exchange for a license under their patent rights. In addition, there can be no
assurance that any pending U.S. or foreign patent applications owned or licensed
by the Company or those acquired or licensed by the Company in the
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future will result in issued patents, or that such applications will not be
subject to foreign opposition seeking the revocation of a Company patent or to
United States patent interference seeking a determination that the Company or
its collaborators were not the first inventor of a particular patent or patent
application, or that the Company or its collaborators will develop additional
technologies that are patentable, or that any patents owned or licensed to the
Company will provide a basis for commercially viable products or services.
The Company is also aware of issued United States and foreign patents and
pending patent applications owned or controlled by third parties, which are
related to the Company's current or anticipated technologies. Specifically, the
Company is aware of issued United States and foreign patents and pending patent
applications owned or controlled by third parties, which are related to
significant elements of the Company's FISH, CGH and direct labeling
technologies, or to significant elements of the Company's anticipated use of its
QBR technologies, or to reagents useful in the performance of CGH or gCGH
assays. Although the Company believes that certain of these issued patents are
not infringed by the Company's current and planned operations, there can be no
assurance that the Company would be able to successfully assert such a position
in the courts, nor that such a position could be asserted without the Company's
incurring substantial or prohibitive costs. Furthermore, because United States
patent applications are maintained under conditions of confidentiality while the
applications are pending in the United States Patent and Trademark Office, there
may be pending patent applications filed by third parties of which the Company
is unaware and which relate to the Company's current or planned technologies. In
addition, third parties may in the future file patent applications having claims
that relate to the Company's services, processes or products. Persons holding or
licensing patent rights could bring legal actions against the Company claiming
that any of the Company's marketing, services, processes or products, of the
Company's collaborators' or its suppliers' services or products or of the
Company's customers' use of the Company's services or products infringe one or
more of their patents, and seek damages or injunctive relief. Patent litigation
is costly, and there can be no assurance that the Company would prevail in any
patent litigation brought against it. Further, the Company could be subject to
significant liabilities to such persons, may be required to obtain licenses from
such persons, or may be required to cease certain activities, and any of these
could have a material adverse effect upon the Company's business, financial
condition or results of operations. In addition, there can be no assurance that
the Company will be able to obtain such licenses on commercially reasonable
terms, or at all.
The Company also relies upon copyrights, copyright licenses and trade
secrets to protect its software and upon trade secrets to protect certain of its
unpatented proprietary technology. There can be no assurance that the Company
will be able to adequately protect its rights in such software and such
unpatented proprietary technology or that others will not independently develop
substantially equivalent technology or information, or that others will not
otherwise gain access to the Company's software and unpatented proprietary
technology or disclose the Company's software and unpatented proprietary
technology to third parties in a non-confidential manner.
The Company operates its business under various license and license option
agreements with other parties which provide rights to use technologies
fundamental to the Company's business. In addition, the Company's use of
technology licensed to it or developed by it with United States government
grants is also subject to the United States government's ability to exercise
rights to use such technology under the applicable license or grant. The
Company's failure to maintain in force any or all of these agreements or the
exercise of such government rights may have a material adverse effect on the
Company's business, financial condition and results of operations. The Company's
collaborators are also subject to risks which could limit or prevent their
practice of technology necessary for the success of their collaborations with
the Company. See "Business--Ability to Practice Technology."
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LITIGATION
The Regents of the University of California (the "Regents") and the Company,
as exclusive licensee, are plaintiffs in a patent infringement suit against
Oncor in the United States District Court in San Francisco, California. The suit
asserts that Oncor's marketing of various DNA probe products infringes the
Regents' U.S. Patent No. 5,447,841. Oncor's answer to the complaint asserts that
the patent is invalid based on prior art and the failure to disclose the best
mode of practicing the invention and that it is unenforceable due to inequitable
conduct that occurred during prosecution of the patent. In a pre-trial order
dated August 19, 1997, the court granted the Company summary judgment that the
patent's claims are valid over the prior art and that use of certain of Oncor's
probes infringe the claims. The trial of the remaining issues is scheduled to
begin in April 1998. If Oncor were to succeed in invalidating the patent or
having it declared unenforceable, this may have a material adverse effect on the
Company's market position and future business prospects.
The Company and Amoco are defendants in a suit pending in the United States
District Court in San Diego, California brought by Gen-Probe, Inc.
("Gen-Probe"). The suit alleges infringement of U.S. Patent Nos. 4,851,330 and
5,288,611 (the "Kohne Patents"). The Kohne Patents are alleged to apply
generally to the detection, identification and quantification of non-viral
organisms using DNA probes selected to target sequences of ribosomal RNA. The
allegedly infringing activities are the manufacture, use and sale of reagents
and kits for detecting certain food and environmental pathogens. The suit also
alleges various claims that the Company competed unfairly with Gen-Probe. This
suit has been stayed pending the outcome of a separate suit brought against
Gen-Probe by the Center for Neurologic Study ("CNS") challenging Gen-Probe's
claim to sole ownership of the Kohne Patents. CNS asserts that the invention of
the Kohne Patents were made by David Kohne while he was affiliated with CNS and
supported by a grant from the National Institutes of Health naming CNS as the
grantee institution. CNS seeks damages and title in the Kohne Patents. The
Company has contingent rights to acquire an exclusive license with the right to
grant sub-licenses under such rights as CNS may obtain in the Kohne Patents.
Further, the Company has contractually agreed with CNS to grant sub-licenses at
commercially fair and reasonable terms under the Kohne patents should it acquire
the exclusive license. However, there can be no assurance that the Company will
obtain rights under such Kohne Patents.
Counterpart applications to the Kohne Patents were filed in Europe, Japan
and elsewhere. Patents were granted and the Company has opposed these patents in
Europe and Japan. The opposition has not been resolved in Europe. In Japan, the
Company's opposition has been rejected and the patent maintained.
There can be no assurance that Gen-Probe will not assert additional counts
of infringement based on any additional patents issued from the applications
underlying the Kohne Patents or will not assert additional causes of action
against the Company. Although the Company believes that it has meritorious
defenses to the suit by Gen-Probe against the Company, there can be no assurance
that the Company will ultimately prevail. An adverse determination could include
an award of treble damages and/or attorneys' fees, which could have a material
adverse effect on the financial condition and results of operations of the
Company. Furthermore, an adverse determination in such suit may limit future
business opportunities that the Company might otherwise be able to exploit in
the area of infectious disease detection.
Prior to the closing of this offering, the Company and Amoco, will enter
into a Cooperation Agreement that will provide that Amoco and the Company will
cooperate in the defense of the suit brought by Gen-Probe and will include an
agreement relating to the allocation of any resulting liability between the
Company and Amoco. See "Business--Litigation."
SOCIAL AND LEGAL IMPLICATIONS OF GENETIC DIAGNOSTIC TESTING
The use of genetic tests raises a number of social issues and concerns and
is the subject of considerable controversy. These controversies may lead to
efforts (including legislative efforts) to prohibit
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or otherwise limit the use of such products. These efforts could result in a
reduction in the size of the potential market for the Company's products. The
Company is unable to predict how concerns regarding the social and legal
implications of genetic testing will affect the market for genetic diagnostic
tests.
The prospect of broadly available diagnostic tests which evaluate genetic
predisposition to disease has also raised issues regarding the appropriate
utilization and the confidentiality of information provided by such testing. It
is possible that insurers or employers could discriminate against persons with a
genetic predisposition for disease. Such discrimination could cause governmental
authorities, for social or other purposes, to limit the use of genetic testing
or prohibit testing for genetic predispositions to certain conditions. If
efforts by the Company and others to mitigate potential discrimination are not
successful, the Company could experience a delay or reduction in test
acceptance, which could have a material adverse effect on the Company's ability
to commercialize its potential diagnostic products for genetic predisposition.
FUTURE CAPITAL REQUIREMENTS; UNCERTAINTY OF ADDITIONAL FUNDING
The Company has funded its operations to date primarily through capital
contributions and loans from Amoco. Amoco has advised the Company that it does
not intend to continue such funding following this offering. The Company's
future capital requirements will depend on many factors, including progress of
the Company's research and development programs, the results and cost of
clinical correlation testing of the Company's genetic products, the cost of
filing, prosecuting, enforcing and defending patent claims, the cost and timing
associated with obtaining regulatory approval for proposed clinical products,
competing technological and market developments, payments received or disbursed
under collaborative agreements, changes in collaborative research relationships,
payments under government research grants, the costs and license revenue
associated with potential commercialization of its gene discovery opportunities
and other administrative and legal expenses. Because of the Company's potential
long-term capital requirements, it may need to access the public or private
equity or debt markets from time to time. There can be no assurance that any
such additional funding will be available to the Company, or if available, that
it will be on reasonable terms. If adequate funds are not available, the Company
may be required to scale down research and development programs, curtail capital
expenditures, and reduce marketing and other operating expenses. There can be no
assurance that the Company will be successful in conducting its operations on an
independent basis. See "Certain Transactions."
DEPENDENCE ON THIRD-PARTY REIMBURSEMENT
The future success of the Company's diagnostic products in the clinical
market will depend, in part, on the availability of adequate reimbursement from
third-party payers such as United States or foreign government entities, managed
care organizations and private insurance plans. Significant uncertainty exists
concerning third-party reimbursement for the use of medical tests incorporating
new technology. Reimbursement by a third-party payer generally depends on
factors such as the payer's determination that the product is clinically useful
and cost-effective, is not experimental or investigational, and is medically
necessary and appropriate for the specific patient. Since reimbursement approval
is required from each individual payer, seeking such approvals is a time
consuming and costly process which requires the Company to provide scientific
and clinical support for the use of its products for their approved indications
to each payer separately. There can be no assurance that third-party
reimbursement will be consistently available for the Company's products or that
such third-party reimbursement will be adequate. In addition, health care
reimbursement systems vary from country to country and, accordingly, there can
be no assurance that third-party reimbursement will be available for the
Company's products in any particular country in which the Company markets its
products.
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LIMITED SALES AND MARKETING EXPERIENCE
To date the Company has sold almost all of its genetic testing products for
RUO purposes and has only limited experience in selling to the clinical market.
There can be no assurance that the Company will be able to establish a sales
force sufficient to meet the demands of the clinical market, educate the market
as to the utility of the Company's products or otherwise successfully distribute
its products. Failure to do so would have a material adverse effect on the
Company's business, financial condition and results of operations. See
"Business--Sales and Marketing."
LIMITED MANUFACTURING EXPERIENCE
The Company has limited commercial scale manufacturing experience and
capabilities. The Company anticipates it will need to expand substantially its
manufacturing capabilities in order to commercialize effectively its clinical
products. There can be no assurance that the Company will be able to recruit and
retain skilled manufacturing personnel to establish sufficient manufacturing
capability and capacity or manufacture the Company's products in a timely
manner, at a cost or in quantities necessary to make them commercially viable,
in conformance with ISO 9001 requirements or the FDA's QSR, or in a manner that
otherwise ensures product quality. See "Business--Manufacturing."
UNCERTAINTIES RELATED TO GOVERNMENT FUNDING
A substantial portion of the Company's current genetic testing products are
sold to reference laboratories and academic institutions for research purposes.
Certain of these entities rely on United States or foreign government grants to
fund their research efforts. In addition, government funding supports many of
the gene discovery efforts and disease correlation studies currently conducted
by academic research institutions and others. A significant reduction in
government funding of these entities may have a material adverse effect on the
Company by reducing sales of the Company's RUO products or by slowing the rate
of gene discoveries or of correlations of abnormalities to disease on which new
diagnostic products will be based.
PRODUCT LIABILITY
The Company's business is subject to product liability risks inherent in the
design, development, testing, manufacturing and marketing of the Company's
products, including its clinical diagnostics and its food testing products, for
their particular applications. There can be no assurance that product liability
claims will not be asserted against the Company nor any assurance that product
liability claims or defense of such claims will not have a material adverse
effect on the Company's financial results. There is also a significant
difference in the applicable federal law governing preemption of state law based
product liability claims concerning medical devices that are certified by the
FDA under the 510(k) process, compared to those approved by the FDA under a PMA.
The United States Supreme Court recently held that there is no federal
preemption of such state law claims where the medical device is certified under
the 510(k) process. Thus a federal preemption defense may not be available in
product liability claims against medical devices approved via the 510(k)
process, whereas the defense may be available for PMA approved devices. The
Company currently maintains product liability insurance coverage of $1.0 million
per occurrence, and $10 million in the aggregate. There can be no assurance that
this coverage will be adequate to protect the Company against future product
liability claims or that product liability insurance will be available to the
Company in the future on commercially reasonable terms, if at all. Furthermore,
there can be no assurance that the Company will be able to avoid significant
adverse publicity resulting from any future product liability claims.
ENVIRONMENTAL REGULATION
The Company is subject to a variety of local, state and federal government
regulations relating to the storage, discharge, handling, emission, generation,
manufacture and disposal of toxic, infectious or other
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hazardous substances used to manufacture the Company's products and in the
Company's research. The failure to comply with current or future regulations
could result in the imposition of substantial fines against the Company,
suspension of production or research, alteration of its manufacturing processes
or cessation of operations. There can be no assurance that the Company will not
be required to incur significant costs to comply with any such laws and
regulations in the future, or that such laws or regulations will not have a
material adverse effect on the Company's business, financial condition and
results of operations. Any failure by the Company to control the use, disposal,
removal or storage of, or to adequately restrict the discharge of, or assist in
the cleanup of, hazardous chemicals or hazardous, infectious or toxic substances
could subject the Company to significant liabilities, including joint and
several liability under certain statutes. The imposition of such liabilities may
have a material adverse effect on the Company's business, financial condition
and results of operations.
DEPENDENCE ON SINGLE SOURCE SUPPLIERS
Certain key components of the Company's products are currently provided to
the Company by single sources. The Company does not have long-term supply
contracts with any of such suppliers, and the Company has not arranged
alternative supply sources. In the event that the Company is unable to obtain
sufficient quantities of such components on commercially reasonable terms, or in
a timely manner, the Company would not be able to manufacture its products on a
timely and cost-competitive basis.
DEPENDENCE ON KEY PERSONNEL
Because of the specialized scientific nature of the Company's business, the
Company is highly dependent upon its ability to attract and retain qualified
scientific and executive personnel. There can be no assurance that the Company
will be successful in attracting and retaining these skilled persons who
generally are in high demand by pharmaceutical and biotechnology companies and
by universities and other research institutions. The loss of, or the inability
to attract, key scientific and executive personnel may have a material adverse
effect on the Company. The Company does not have employment agreements with any
of its employees and does not maintain any "key-man" life insurance policies.
See "Business-- Employees."
INTERNATIONAL BUSINESS UNCERTAINTIES
Approximately 35% of the Company's revenues in 1996 was generated from
sources outside of the United States and significant future growth potential for
the Company's products is located outside of the United States. In the near
term, product revenue from sources outside the United States may increase as a
percentage of total product revenue due to the introduction of clinical
diagnostic products in the European market prior to their introduction in the
United States. As a result of this significant foreign source revenue, the
Company's business is subject to the risks of doing business abroad, including
exchange rate fluctuations, import and export regulations, possible restrictions
on the transfer of funds and greater difficulty in collecting accounts
receivable. In addition, products made available in the United States and
internationally may be subject to regulation by various foreign countries
pursuant to laws which may vary widely from those in the United States. The
Company may incur substantial expense in complying with such laws. Finally,
legal and non-legal entry barriers may prevent the Company from entering certain
foreign markets or limit its market penetration.
CONTINUED CONTROL BY PRINCIPAL STOCKHOLDER
Following completion of this offering, Amoco will beneficially own
approximately 63% of the Company's outstanding shares of Common Stock (or
approximately 60% if the Underwriters' over-allotment option is exercised in
full). As a result, Amoco will control the Company and will be able to elect all
of the Company's directors and to determine the outcome of corporate actions
requiring stockholder approval. Amoco also will be able to prevent a change of
control of the Company. The Company anticipates that immediately following this
offering three of the Company's seven directors will be employees of Amoco.
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NO PRIOR MARKET FOR COMMON STOCK; POSSIBLE VOLATILITY OF STOCK PRICE
Prior to this offering, there has been no public market for the Common
Stock, and there can be no assurance that an active trading market for the
Common Stock will develop or be sustained. The initial public offering price
will be determined through negotiations between the Company and the
representatives of the Underwriters and may not be indicative of prices that
will prevail in the trading market. See "Underwriting" for information relating
to the factors considered in determining the initial public offering price. The
stock market in recent years has experienced extreme price and volume
fluctuations that have particularly affected the market prices of many
biotechnology companies. These fluctuations, as well as factors such as
announcements of technological developments or new products by the Company or
its competitors, litigation involving the Company or its licensors, developments
concerning intellectual property rights, regulatory changes, or variations in
the Company's quarterly results of operations, as well as announcements relating
to the Company's industry generally, may materially and adversely affect the
market price of the Common Stock.
ANTI-TAKEOVER PROVISIONS
The Company's Certificate of Incorporation allows the Board of Directors,
without stockholder approval, to issue additional shares of Common Stock or
establish one or more series of preferred stock with such preferences and rights
as the Board of Directors may determine. This provision may have the effect of
making it more difficult for a third party to acquire, or of discouraging a
third party from attempting to acquire, control of the Company. In addition, the
Company is subject to Section 203 of the Delaware General Corporation law which
restricts the ability of certain stockholders of the Company to enter into a
merger or other business combination with the Company. The foregoing could limit
the price that certain investors might be willing to pay in the future for
shares of Common Stock. See "Description of Capital Stock."
FUTURE SALES OF COMMON STOCK
Upon completion of this offering, there will be 9,501,260 shares of Common
Stock outstanding. The 3,500,000 shares of Common Stock sold pursuant to this
offering (plus any shares sold pursuant to the Underwriters' over-allotment
option) will be tradeable without restrictions by persons other than
"affiliates" of the Company. Amoco may also sell shares into the market pursuant
to Rule 144 promulgated under the Securities Act of 1933, as amended (the
"Securities Act"). Pursuant to a registration rights agreement with the Company,
Amoco, the Company's principal stockholder, may demand that the Company register
its shares of Common Stock under the Securities Act at any time following 180
days after the date of this Prospectus. (However, Amoco has agreed with the
Underwriters that it will not sell any shares of Common Stock for a period of
one year following the date of this Prospectus without the consent of Furman
Selz LLC. See "Underwriting.") The Company intends to file, shortly after
completion of this offering, a registration statement covering all 985,402
shares of Common Stock reserved for issuance in connection with the Company's
Stock Incentive Plan. Sales of any of the foregoing shares into the public
market could adversely affect the then prevailing market price of the Common
Stock. See "Shares Eligible for Future Sale."
DILUTION
Based upon an assumed initial public offering price per share of $14.00 (and
assuming no exercise of the Underwriters' over-allotment option), the Company's
pro forma net tangible book value per share of Common Stock as of September 30,
1997, after giving effect to the transactions set forth in "Capitalization,"
would be $4.43. Accordingly, purchasers of Common Stock offered hereby would
suffer immediate and substantial dilution in book value per share of $9.57. See
"Dilution."
17
<PAGE>
THE COMPANY
The Company was incorporated in Delaware on April 18, 1991. The Company's
business represents the consolidation of multiple research units and programs of
Amoco. In 1994, Amoco began consolidation of all of its medical diagnostic
businesses and related research under the Company. In March 1994, Amoco
contributed to the Company all of its genetic disease related assets, including
the stock of Imagenetics Incorporated (an Illinois corporation). Also in March
1994, Amoco contributed all of its infectious disease related assets and the
stock of Gene-Trak, Inc. to the Company. Gene-Trak, Inc. had previously acquired
certain infectious disease related assets from Genzyme Corporation and Amoco,
including all of the interest in Gene-Trak Systems, a joint venture partnership
for infectious disease diagnostics established by Amoco and Integrated Genetics
in 1986. The Company's wholly owned subsidiary, Gene-Trak Systems Industrial
Diagnostics Corporation, manufactures and markets food testing kits based on DNA
probes.
The Company's executive offices are located at 3100 Woodcreek Drive, Downers
Grove, Illinois 60515 and its telephone number is (630) 271-7000.
USE OF PROCEEDS
The Company will receive approximately $44,820,000 from the sale of the
3,500,000 shares of Common Stock in this offering based on an assumed price to
the public of $14.00 per share (after deducting underwriting discounts and
commissions and estimated expenses payable by the Company). The Company intends
to use the net proceeds of this offering to: (i) accelerate product development,
including the gCGH Array and Molecular Lawn platforms and related automated
instrumentation, (ii) expand direct sales and marketing capability in the United
States and Europe in anticipation of further clinical product introductions,
(iii) acquire complementary technologies and intellectual property rights as
opportunities arise and (iv) repay outstanding principal and accrued interest
(approximately $7.4 million as of September 30, 1997) on a note held by Amoco,
which bears interest at 7.5% per annum, and which is due and payable upon
completion of this offering. Such indebtedness was used to finance the Company's
operating losses, which are primarily the result of the Company's continuing
research and development activities and the expansion of its sales and marketing
capability. The remainder of the net proceeds will be used for working capital
and general corporate purposes.
Other than repayment of indebtedness owed to Amoco, the Company has not
determined the portion of the net proceeds to be allocated to any of the uses
decribed above. Actual expenditures by the Company for any of these purposes may
vary significantly depending upon a number of factors, including progress of the
Company's product development programs, the cost and timing associated with
obtaining regulatory approvals for clinical products and whether or not
appropriate acquisition opportunities become available. Pending use of the net
proceeds as set forth above, they will be invested in short-term, investment
grade, interest bearing securities.
DIVIDEND POLICY
The Company currently intends to retain its earnings to finance future
growth and does not anticipate paying any cash dividends on its Common Stock in
the foreseeable future. Any determination as to the payment of dividends will
depend upon the future results of operations, capital requirements and financial
condition of the Company and its subsidiaries and such other facts as the Board
of Directors of the Company may consider, including any contractual or statutory
restrictions on the Company's ability to pay dividends.
18
<PAGE>
CAPITALIZATION
The following table sets forth, as of September 30, 1997, (i) the actual
capitalization of the Company, (ii) pro forma to give effect to the conversion
of all of the outstanding shares of Series A and Series B Convertible Preferred
Stock into 4,525,547 and 403,741 shares, respectively, of Common Stock upon
completion of this offering (the "Conversion") and (iii) pro forma as adjusted
to give effect to the Conversion and to give effect to the sale by the Company
of the 3,500,000 shares of Common Stock offered hereby at an assumed initial
public offering price of $14.00 per share, after deducting underwriting
discounts and commissions and estimated expenses of the offering payable by the
Company and the application of the net proceeds therefrom. See "Use of
Proceeds." This table should be read in conjunction with the Company's
Consolidated Financial Statements and the Notes thereto included elsewhere
herein.
<TABLE>
<CAPTION>
SEPTEMBER 30, 1997
------------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
---------- ----------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
Notes payable - Amoco........................................................ $ 7,381 $ 7,381 $ --
---------- ----------- -----------
Stockholders' equity:
Series A convertible preferred stock, $0.001 par value; 6,200,000 shares
designated, issued and outstanding actual; none issued and outstanding
pro forma and pro forma as adjusted...................................... 6 -- --
Series B convertible preferred stock, $0.001 par value; 553,126 shares
designated, issued and outstanding actual; none issued and outstanding
pro forma and pro forma as adjusted...................................... 1 -- --
Common stock, $0.001 par value; 35,000,000 shares authorized; 1,071,972
shares issued and outstanding actual; 6,001,260 shares issued and
outstanding pro forma and 9,501,260 shares issued and outstanding pro
forma as adjusted(1)..................................................... 1 6 10
Additional paid-in capital................................................. 27,012 27,014 71,830
Deferred compensation...................................................... (259) (259) (259)
Cumulative translation adjustment.......................................... (248) (248) (248)
Accumulated deficit........................................................ (26,457) (26,457) (26,457)
---------- ----------- -----------
Total stockholders' equity............................................... 56 56 44,876
---------- ----------- -----------
Total capitalization..................................................... $ 7,437 $ 7,437 $ 44,876
---------- ----------- -----------
---------- ----------- -----------
</TABLE>
- ------------------------
(1) Excludes as of December 1, 1997 (i) 953,468 shares of Common Stock issuable
upon exercise of outstanding options and (ii) 18,356 shares of Common Stock
available for future option grants or stock issuances under the Company's
Stock Incentive Plan. See "Management--Stock Incentive Plan," and Note 8 of
Notes to Consolidated Financial Statements.
19
<PAGE>
DILUTION
The pro forma net tangible book value of the Company at September 30, 1997
was approximately $(2,708,000), or $(0.45) per share. "Pro forma net tangible
book value" per share is determined by dividing net tangible book value of the
Company (total tangible assets less total liabilities) by the number of shares
of Common Stock outstanding (after giving effect to the conversion of all
outstanding shares of Series A and Series B Preferred Stock of the Company).
Without taking into account any other changes in the net tangible book value at
September 30, 1997, other than to give effect to the receipt by the Company of
the net proceeds from the sale of 3,500,000 shares of Common Stock by the
Company offered hereby at an assumed initial public offering price of $14.00 per
share, and after deducting estimated underwriting discounts and commissions and
offering expenses, the Company's pro forma net tangible book value as of
September 30, 1997 would have been $42,112,000, or $4.43 per share. This
represents an immediate increase in pro forma net tangible book value of $4.88
per share to existing stockholders and an immediate dilution of $9.57 per share
to new investors purchasing Common Stock in this offering. The following table
illustrates this dilution:
<TABLE>
<CAPTION>
<S> <C> <C>
Assumed initial public offering price.................................................... $ 14.00
Pro forma net tangible book value per share at September 30, 1997........................ $ (0.45)
Increase per share attributable to new investors in this offering........................ 4.88
---------
Pro forma net tangible book value per share after offering............................... 4.43
---------
Dilution per share to new investors...................................................... $ 9.57
---------
---------
</TABLE>
The following table summarizes, on a pro forma basis at September 30, 1997,
the difference between existing stockholders and new investors with respect to
the number of shares of Common Stock purchased from the Company, the total
consideration paid to the Company and the average consideration paid per share:
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
------------------------ ------------------------ PRICE PER
NUMBER PERCENT AMOUNT PERCENT SHARE
------------- --------- ------------- --------- --------------
<S> <C> <C> <C> <C> <C>
Existing stockholders (1).................... 6,001,260 63.2% $ 26,530,000 35.1% $ 4.42
New investors in this offering (2)........... 3,500,000 36.8 49,000,000 64.9 14.00
------------- --------- ------------- ---------
9,501,260 100.0% $ 75,530,000 100.0% 7.95
------------- --------- ------------- ---------
------------- --------- ------------- ---------
</TABLE>
- ------------------------
(1) Includes 4,525,547 and 403,741 shares issuable upon the conversion of the
Company's outstanding Series A and Series B Preferred Stock, respectively,
all of which preferred stock is owned by Amoco. See "Description of Capital
Stock."
(2) If the Underwriters' over-allotment option is exercised in full, the shares
purchased from the Company will increase to 4,025,000 (40.1% of the shares
outstanding after this offering) and the total consideration paid to the
Company by new investors will increase to $56,350,000 (68.0% of the
consideration paid to the Company by all shareholders).
The foregoing tables assume no exercise of options to purchase an aggregate
of 957,969 shares of Common Stock outstanding at September 30, 1997. To the
extent outstanding options are exercised, there will be further dilution to new
investors. See Note 8 of Notes to Consolidated Financial Statements.
20
<PAGE>
SELECTED FINANCIAL INFORMATION
The statement of operations data presented below for the years ended
December 31, 1994, 1995 and 1996 and for the nine months ended September 30,
1997, and the balance sheet data at December 31, 1995 and 1996 and September 30,
1997 have been derived from the financial statements of the Company, which have
been audited by Price Waterhouse LLP, independent accountants. The statement of
operations data for the years ended December 31, 1992 and 1993, the balance
sheet data at December 31, 1992, 1993 and 1994, the statement of operations data
for the nine months ended September 30, 1996 are unaudited but have been
prepared on the same basis as the audited consolidated financial statements and
in the opinion of management include all adjustments, consisting of normal
recurring adjustments, necessary for the fair presentation thereof. The data for
the nine months ended September 30, 1997 are not necessarily indicative of the
results for an entire year. The data presented below should be read in
conjunction with the Company's Consolidated Financial Statements and Notes
thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
----------------------------------------------------- --------------------
1992 1993 1994 1995 1996 1996 1997
--------- --------- --------- --------- --------- --------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
Product sales..................... $ 4,541 $ 3,513 $ 5,373 $ 6,296 $ 11,022 $ 7,324 $ 10,558
Grant and other revenue........... -- 67 30 921 2,216 1,647 1,667
--------- --------- --------- --------- --------- --------- ---------
Total revenue................... 4,541 3,580 5,403 7,217 13,238 8,971 12,225
Cost of goods sold.................. 2,383 2,831 3,486 4,022 5,529 3,742 4,773
--------- --------- --------- --------- --------- --------- ---------
Gross profit........................ 2,158 749 1,917 3,195 7,709 5,229 7,452
--------- --------- --------- --------- --------- --------- ---------
Operating expenses:
Research and development.......... 11,601 10,550 11,639 8,871 9,456 6,536 7,762
Selling, general and
administrative.................. 2,920 4,541 8,937 12,025 16,286 12,500 10,785
--------- --------- --------- --------- --------- --------- ---------
Total operating expenses........ 14,521 15,091 20,576 20,896 25,742 19,036 18,547
--------- --------- --------- --------- --------- --------- ---------
Loss from operations................ (12,363) (14,342) (18,659) (17,701) (18,033) (13,807) (11,095)
--------- --------- --------- --------- --------- --------- ---------
Interest income--Amoco.............. -- -- -- -- 107 107 --
Interest expense--Amoco............. -- -- -- -- (255) (88) (367)
--------- --------- --------- --------- --------- --------- ---------
Net loss............................ $ (12,363) $ (14,342) $ (18,659) $ (17,701) $ (18,181) $ (13,788) $ (11,462)
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
Pro forma net loss per
share(1)(2)....................... $ (2.98) $ (2.26) $ (1.88)
--------- --------- ---------
--------- --------- ---------
Shares used in computing pro forma
net loss per share(1)(2).......... 6,107 6,107 6,107
</TABLE>
21
<PAGE>
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
--------------------------------------------------------- -------------
1992 1993 1994 1995 1996 1997
--------- ---------- ---------- ---------- ---------- -------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash.................................... $ -- $ -- $ 10 $ 247 $ 48 $ 294
Working capital (deficit)............... 1,179 1,045 758 (2,250) (5,334) (7,284)
Total assets............................ 5,414 12,718 17,574 19,167 15,115 15,093
Notes payable--Amoco.................... -- -- -- -- 5,106 7,381
Accumulated deficit..................... -- -- -- -- (14,995) (26,457)
Total stockholders' equity.............. 4,340 11,720 15,510 13,185 2,493 56
</TABLE>
- ------------------------
(1) See Note 1 to Consolidated Financial Statements for information concerning
the number of shares used in computing pro forma net loss per share.
(2) Pro forma supplementary net loss per share for the nine months ended
September 30, 1997 amounts to $(1.66) based upon an assumed 6,683,000
weighted average common shares outstanding and a net loss of $(11,095,000).
Pro forma supplementary net loss per share is calculated as if the Company
sold on January 1, 1997, 576,190 shares of Common Stock, representing the
number of shares of Common Stock required to be sold at the initial public
offering price of $14.00 per share, net of underwriting discounts
commissions and estimated expenses, in order for the Company to repay the
note payable to Amoco.
22
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
Vysis is a leading Genomic Diagnostics company that develops, commercializes
and markets clinical products that provide information critical to the
evaluation and management of cancer, prenatal disorders and other genetic
diseases. Vysis currently markets five FDA cleared clinical products in addition
to distributing over 240 research products through its direct sales operations
in the United States and Europe and a worldwide distribution network covering 28
countries. It also markets proprietary genetic imaging workstations for clinical
and research use, with an installed base of over 320 proprietary genetic
workstations at 224 laboratories in 18 countries. The Company also develops,
manufactures and commercializes products used by food processors and quality
control laboratories for the detection and identification of food-borne
pathogens. See Note 9 of Notes to Consolidated Financial Statements for
financial information of the Company by geographic area.
RESULTS OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1997 AND SEPTEMBER 30, 1996
Total revenue increased to $12.2 million for the nine months ended September
30, 1997 from $9.0 million for the nine months ended September 30, 1996, an
increase of $3.2 million or 36%. Product sales accounted for the increase,
primarily as a result of increased product shipments in the United States and
the incorporation of nine full months of operations in France and the United
Kingdom. Grant and other revenue in 1997 of $1.7 million included $1.1 million
earned under two United States Department of Commerce research grants awarded to
Vysis in 1995. Both grants are administered through the Advanced Technology
Program of the National Institute of Standards and Technology. Grant and other
revenue in 1997 also included revenue of $450,000 from Fujisawa Pharmaceutical
Co., Ltd. ("Fujisawa") pursuant to a distribution agreement signed in July 1995.
Grant and other revenue for the nine months ended September 30, 1996 of $1.6
million consisted primarily of $1.4 million earned under the Company's two above
mentioned research grants and the Fujisawa agreement.
Cost of goods sold increased to $4.8 million for the nine months ended
September 30, 1997 from $3.7 million for the nine months ended September 30,
1996. The increase in cost of goods sold resulted from an increase in the volume
of product sold. As a percentage of total revenue, gross profit increased from
58.3% for the nine months ended September 30, 1996 to 61.0% for the nine months
ended September 30, 1997, primarily as a result of a change in product sales mix
toward higher margin products.
Research and development expense increased to $7.8 million for the nine
months ended September 30, 1997 from $6.5 million for the nine months ended
September 30, 1996. The $1.3 million increase reflects the hiring of additional
scientists to support the development of the Company's three technology
platforms and expense of $900,000 for the nine months ended September 30, 1997
relating to an agreement with a collaborative partner.
Selling, general and administrative expense decreased to $10.8 million for
the nine months ended September 30, 1997 from $12.5 million for the nine months
ended September 30, 1996. This decrease was due to reduced general and
administrative expenses of $2.8 million primarily attributable to lower
litigation costs, partially offset by a $1.1 million increase in selling expense
primarily due to the hiring of additional sales and marketing personnel and
other expenses incurred in line with the overall expansion of operations.
The Company sold two buildings in Framingham, Massachusetts in January 1996
for $6.7 million in cash. The Company earned interest income from Amoco of
$107,000 during the nine months ended September 30, 1996 as a result of Amoco's
investment of the Company's real estate sale proceeds. The
23
<PAGE>
Company incurred interest expense of $367,000 during the nine months ended
September 30, 1997 and $88,000 during the nine months ended September 30, 1996
related to the note payable to Amoco.
TWELVE MONTHS ENDED DECEMBER 31, 1996 AND DECEMBER 31, 1995
Total revenue increased to $13.2 million for the twelve months ended
December 31, 1996 from $7.2 million for the twelve months ended December 31,
1995, an increase of $6.0 million or 83%. Product sales, primarily DNA probe
products and genetic imaging workstations, increased by $4.7 million primarily
as a result of increased product shipments in the United States and Germany and
the incorporation of approximately nine months of operations in France and the
United Kingdom. Grant and other revenue in 1996 of $2.2 million consisted
primarily of $1.4 million earned in connection with the two United States
Department of Commerce grants and approximately $600,000 recognized pursuant to
the Fujisawa agreement. Grant and other revenue in 1995 of $900,000 included
$559,000 earned in connection with the two United States Department of Commerce
grants and approximately $300,000 recognized pursuant to the Fujisawa agreement.
Cost of goods sold increased to $5.5 million for the twelve months ended
December 31, 1996 from $4.0 million for the twelve months ended December 31,
1995. The increase in cost of goods sold resulted from an increase in the volume
of product sold. As a percentage of total revenue, gross profit increased from
44.3% during 1995 to 58.2% for 1996, primarily as a result of an increase in
grant and other revenue and as a result of a change in product sales mix toward
higher margin products.
Research and development expense increased to $9.5 million for the twelve
months ended December 31, 1996 from $8.9 million for the twelve months ended
December 31, 1995. The hiring of additional scientists in 1996 to support
development of the Company's three technology platforms and DNA probe products
accounted for a majority of the $600,000 increase.
Selling, general and administrative expense increased to $16.3 million for
the twelve months ended December 31, 1996 from $12.0 million for the twelve
months ended December 31, 1995. This increase was due to incremental general and
administrative expenses of $2.2 million primarily attributable to the hiring of
additional administrative personnel and other expenses incurred to support the
Company's growth and incremental selling expense of $2.1 million primarily due
to the hiring of additional sales and marketing personnel and other expenses
incurred in line with the overall expansion of operations.
Interest income in 1996 totaled $107,000 from Amoco based on the proceeds
from the sale of two facilities in Framingham, Massachusetts. Interest expense
in 1996 of $255,000 related to the note payable to Amoco.
TWELVE MONTHS ENDED DECEMBER 31, 1995 AND DECEMBER 31, 1994
Total revenue increased to $7.2 million for the twelve months ended December
31, 1995 from $5.4 million for the twelve months ended December 31, 1994, an
increase of $1.8 million or 33%. Product sales increased by $923,000, primarily
as a result of increased product shipments. Grant and other revenue in 1995
included $559,000 earned in connection with the two United States Department of
Commerce grants and approximately $300,000 recognized pursuant to the Fujisawa
agreement.
Cost of goods sold increased to $4.0 million for the twelve months ended
December 31, 1995 from $3.5 million for the twelve months ended December 31,
1994. The increase in cost of goods sold resulted from an increase in the volume
of product sales. As a percentage of total revenue, gross profit increased from
35.5% during 1994 to 44.3% for 1995, primarily as a result of an increase in
grant and other revenue and as a result of a change in product sales mix toward
higher margin products.
Research and development expense decreased to $8.9 million for the twelve
months ended December 31, 1995 from $11.6 million for the twelve months ended
December 31, 1994. The $2.7 million decrease
24
<PAGE>
reflected a more clearly defined research and development effort and the
consolidation of the Company's two research and development locations into one
facility.
Selling, general and administrative expense increased to $12.0 million for
the twelve months ended December 31, 1995 from $8.9 million for the twelve
months ended December 31, 1994. This increase was due to $2.8 million of
incremental general and administrative expenses primarily attributable to
additional litigation costs and $300,000 of additional selling expenses. See
"Business--Litigation."
INCOME TAXES
During the years ended December 31, 1994, 1995 and 1996, and during the nine
months ended September 30, 1997, the Company's results of operations were
included in the consolidated income tax returns of Amoco, accordingly, the
Company's domestic net operating losses have been utilized by Amoco in its
consolidated income tax returns and are not available to offset the Company's
future taxable income.
A full valuation allowance has been provided for all deferred tax assets
(net of liabilities) at September 30, 1997, as management does not consider
realization of such amounts more likely than not. On an unaudited pro forma
separate income tax return basis, assuming the Company was not included in the
consolidated income tax returns of Amoco, no tax provision or benefit would have
been recorded in the consolidated financial statements due to the ongoing losses
of the Company.
LIQUIDITY AND CAPITAL RESOURCES
Since inception, the Company has financed its operations primarily through
capital contributions and loans from Amoco. Capital contributions totaled $22.4
million, $15.4 million and $2.3 million for the years ended December 31, 1994,
1995 and 1996, respectively. Loans from Amoco totaled $10.1 million during the
year ended December 31, 1996 and $11.4 million during the nine months ended
September 30, 1997. The amounts due to Amoco under these loans have been reduced
by $5.0 million and [$4.1] million, respectively, for the tax benefits recorded
by Amoco resulting from the inclusion of the Company's domestic net operating
losses in Amoco's consolidated income tax returns. Additional working capital
was provided as a result of the Company having sold, in January 1996, its two
facilities in Framingham, Massachusetts. Net sale proceeds totaled $6.7 million
and were sufficient to fund the Company's operations for the first five months
of 1996. The net amount due under the note payable to Amoco of $5.1 million at
December 31, 1996 was converted into 553,126 shares of Series B Preferred Stock
during September 1997. Amounts received under research grants and a distribution
agreement have provided cumulative funding of approximately 4.7 million through
September 30, 1997.
Net cash used in operating activities was $9.5 million for the nine months
ended September 30, 1997; $18.3 million, $11.7 million and $16.2 million for the
years ended December 31, 1996, 1995 and 1994, respectively. Cash used in
operating activities relates primarily to ongoing operating losses associated
with research and development of the Company's products and the development of a
sales and administrative infrastructure to support the Company's business plan.
Net cash used in investing activities was $1.7 million for the nine months
ended September 30, 1997; $3.0 million and $4.8 million for the years ended
December 31, 1995 and 1994, respectively, primarily relating to the purchase of
property and equipment. Net cash provided by investing activities was $5.7
million for the year ended December 31, 1996, primarily resulting from the sales
of two properties in Framingham, Massachusetts. The Company does not have any
current material commitments for capital expenditures.
Net cash provided by financing activities was $11.4 million for the nine
months ended September 30, 1997; $12.4 million, $14.9 million and $21.0 million
for the years ended December 31, 1996, 1995 and 1994, respectively, resulting
from capital contributions and loans received from Amoco.
25
<PAGE>
The Company has entered into various license agreements pursuant to which it
has been granted exclusive use of certain patented technologies. The agreements
require the Company to pay royalties ranging from 0.5% to 8.0% on net sales of
specified products, with certain minimum royalties due each year. As additional
consideration for certain of the licenses, the Company is obligated to fund
certain research of the licensors. Future minimum amounts due under all such
agreements range from $300,000 to $1.8 million per year for 1998 through 2002.
See Note 6 of Notes to Consolidated Financial Statements.
At September 30, 1997, the Company had cash of $294,000 and an accumulated
deficit of $26.5 million (post-recapitalization). Amoco intends to provide
financial support to the Company through the earlier of the completion of this
offering or December 31, 1998, which will result in an increase in the note
payable to Amoco. Amoco has advised the Company, however, that it does not
intend to continue such funding following the completion of the offering. The
Company has experienced negative cash flows from operations for the three years
ended December 31, 1996 and the nine months ended September 30, 1997. The
Company believes that the net proceeds from the offering, and the interest to be
earned thereon, will be sufficient to fund the Company's operations well into
1999. The Company's estimate of the time period for which cash funds will be
adequate to fund its operations is a forward looking estimate subject to risks
and uncertainty, and actual results may differ materially.
The Company's requirements for additional capital will depend on many
factors, including payments received under existing and potential collaborative
agreements; the availability of government research grant payments; the progress
of the Company's collaborative and independent research and development
projects; the costs of preclinical and clinical trials for the Company's
products; the prosecution, defense and enforcement of patent claims and other
intellectual property rights; and the development of manufacturing, sales and
marketing capabilities. To the extent capital resources, including payments from
existing and possible future collaborative agreements and grants, together with
the net proceeds of this offering are insufficient to meet future capital
requirements, the Company will have to raise additional funds to continue the
development of its technologies. There can be no assurance that such funds will
be available on favorable terms, or at all. To the extent that additional
capital is raised through the sale of equity or convertible debt securities, the
issuance of such securities could result in dilution to the Company's
shareholders. If adequate funds are not available, the Company may be required
to curtail operations significantly or to obtain funds through entering into
collaborative agreements on unattractive terms. The Company's inability to raise
capital as and when needed would have a material adverse effect on the Company's
business, financial condition and results of operations.
RECENT ACCOUNTING PRONOUNCEMENTS
In February 1997, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 128 "Earnings Per Share," which establishes new standards for computing
and presenting earnings per share information. SFAS No. 128 will be effective
for the Company's 1997 annual financial statements. Reported pro forma net loss
per share data for 1996 and the nine months ended September 30, 1997 are the
same as that computed under the new standard.
In June 1997, the FASB issued SFAS No. 131 "Disclosures about Segments of an
Enterprise and Related Information." SFAS No. 131 establishes new standards for
reporting information about operating segments in interim and annual financial
statements. SFAS No. 131 will be effective for the Company in 1998. The Company
is currently evaluating the impact, if any, this statement will have on
disclosures in the consolidated financial statements.
26
<PAGE>
BUSINESS
INTRODUCTION
Vysis is a leading Genomic Diagnostics company that develops, commercializes
and markets clinical products that provide information critical to the
evaluation and management of cancer, prenatal disorders and other genetic
diseases. The Company has assembled a management team experienced in developing,
commercializing and marketing DNA based diagnostic products and associated
genetic workstations. The Company was the first to obtain Food and Drug
Administration ("FDA") clearance for a genetic diagnostic product using
fluorescence IN SITU hybridization ("FISH"). Vysis currently markets four FDA
cleared clinical products in addition to distributing over 240 research products
through its direct sales operations in the United States and Europe and a
worldwide distribution network covering 28 countries. It has an installed base
of over 320 proprietary genetic workstations at 224 laboratories in 18
countries. The Company has a pipeline of nine clinical products under
development and an expanding list of clinical product leads based upon its
collaborations with leading medical research institutions, which include the
University of California, San Francisco, the Mayo Clinic, St. Jude Children's
Research Hospital, the University of Chicago and the Reproductive Genetics
Institute. The Company's revenues have grown from $5.4 million in 1994 to $13.2
million in 1996. The Company's revenues for the first nine months of 1997 were
$12.2 million compared to $9.0 million for the first nine months of 1996.
The Company's business represents the consolidation of multiple research
units and programs of Amoco. Over the past ten years, Amoco has invested over
$80 million to fund Vysis' research and development in nucleic acid technologies
and related business operations. As a result of this investment, Vysis has
compiled a broad portfolio of intellectual property and expertise, which forms
the basis of its core technologies. Vysis owns or has an exclusive license to 92
issued United States patents or allowed United States patent applications, and
69 pending United States patent applications that protect its core technologies,
diagnostic platforms and genetic targets. Upon completion of this offering,
Amoco will beneficially own approximately 63% of the Company's outstanding
Common Stock.
The Company is currently focusing its cancer product development efforts on
leukemia, breast, bladder, prostate and cervical cancers. The American Cancer
Society estimates that approximately 1.4 million people in the United States
will be diagnosed with some form of cancer in 1997. Approximately 27,600
patients developed some form of leukemia in 1996. Breast cancer is the second
leading cause of death from cancer among women aged 35 to 54, and prostate
cancer is the second leading cause of death from cancer in men. The American
Cancer Society estimates that in 1996 there were approximately 52,900 new cases
of bladder cancer. Approximately 62 million Papanicolaou ("PAP") tests are
performed annually in the United States to screen for cervical cancer.
Studies indicate that early detection and the selection of appropriate
therapies can improve the survival rates of certain types of cancer. Vysis'
initial clinical cancer products are expected to improve patient survival rates
and quality of life by providing information that will enable selection of the
best possible therapy. Three of the Company's products for leukemia and other
myeloid disorders are currently FDA cleared for clinical diagnostic use in the
United States. The Company's first breast cancer product, currently in late
stage clinical trials, is for the detection of HER-2/neu gene amplification, an
important predictive marker for the response to various therapeutic agents.
The Company's prenatal testing products provide information on genetic
abnormalities involved in mental retardation and other birth defects. The
Company estimates that in the United States and Western Europe more than 600,000
amniocentesis procedures were performed in 1996. Using traditional technology, 7
to 10 days are required to complete chromosomal testing from amniocentesis
specimens. In contrast, Vysis' clinical products provide accurate test results
within 24 hours. The French regulatory agency, Agence du Medicament, has
registered the Company's TriGen-TM- prenatal panel for the diagnosis of Down
syndrome and sex chromosome abnormalities. Marketing of this product was
initiated in France in June 1997. In the United States, the Company's
AneuVysion-TM- prenatal panel for the diagnosis of Down
27
<PAGE>
syndrome, sex chromosome abnormalities and two additional chromosomal
abnormalities, which together account for 85% to 90% of chromosomal causes of
mental retardation and other birth defects, was cleared by the FDA as a 510(k)
in October 1997 and its marketing has begun.
SCIENTIFIC OVERVIEW
Genetic abnormalities are a fundamental source of human disease. Genetic
based diseases and disorders include cancer, birth defects, mental retardation,
coronary artery disease, autoimmune diseases and diabetes. Genomic Diagnostics
is an emerging field that uses new genetic tests based on correlations between
genetic abnormalities and disease. Genomic Diagnostic tests, by providing new
information not currently available through existing methods, enable physicians
to diagnose disease more quickly and accurately, to determine the most
appropriate treatment and to monitor disease progression and recurrence during
therapy. Genomic Diagnostic tests also enable the detection of disease at the
very early or developing stages when treatment is likely to be most effective.
In addition, Genomic Diagnostic tests allow physicians to identify genetic
predisposition to disease well before the disease is manifested, thus enabling
early intervention either through lifestyle changes or preventive therapy.
The genetic code, consisting of DNA, contains all the information necessary
for any organism to develop and function. The information is encoded in the
specific sequence of DNA's four nucleotide bases: Adenine, Thymine, Cytosine and
Guanine. These units, or "bases," are strung together like beads on a string.
DNA is a double-stranded molecule composed of two single strands entwined around
the other in the form of a double helix. The bases of one strand always bind to
the bases of the other in a specific fashion: A pairs with T, and C with G. This
pairing of bases is referred to as base pairs.
STRUCTURE OF HUMAN GENETIC INFORMATION
[GRAPHIC]
GENOMIC DIAGNOSTICS: HUMAN DNA IS CONTAINED IN 46 CHROMOSOMES AND EACH
CHROMOSOME HAS, ON AVERAGE, 5,400 GENES. AN AVERAGE GENE IS BUILT FROM A
SEQUENCE OF 24,000 NUCLEOTIDE BASES (A, T, G, C), THE MOST FUNDAMENTAL PART OF A
GENE. GENETIC DISEASE CAN BE ASSOCIATED WITH A LARGE CHROMOSOMAL ABNORMALITY,
SUCH AS A MISSING OR EXTRA CHROMOSOME; WITH A GENE ABNORMALITY, SUCH AS GENE
DELETION OR AMPLIFICATION OR WITH A SINGLE NUCLEOTIDE ABNORMALITY, SUCH AS A
BASE PAIR MUTATION.
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<PAGE>
Cells carry out their normal biological functions through the genetic
instructions encoded in their DNA. This process, known as gene expression,
involves several steps. In the first step, bases in a gene are copied into a
related nucleic acid molecule called messenger ribonucleic acid ("mRNA"). In the
second step, mRNA instructs the cells to produce proteins. Proteins are
molecules that regulate or perform most of the physiological functions of the
body. Because the order of bases in each gene is different, each gene directs
the production of a different protein. Each organism's characteristics are,
therefore, ultimately determined by proteins encoded by its DNA.
Aberrations in the genetic code, that is, changes in the arrangement of the
nucleic acid bases, can cause a wide range of diseases and defects. Some genetic
diseases are manifested by "gross changes" at the chromosomal level such as an
extra copy (a "trisomy") of an entire chromosome, e.g., Down syndrome; a missing
("deleted") or extra ("duplicated") part of a chromosome, e.g., Cri-du-chat
syndrome; or different chromosomes exchanging parts or combining (a
"translocation"), e.g., the bcr/abl translocation causing chronic myelogenous
leukemia ("CML"). Some diseases are associated with an abnormal number of a
particular gene ("gene amplification") such as the HER-2/neu gene amplification
exhibited in some forms of breast cancer. Other genetic-related diseases or
defects are caused by changes at a more minute level, such as a change in the
sequence of only a few base pairs, e.g., the change at location 508 in the
cystic fibrosis ("CF") gene as evidenced in certain cases of CF, or a change in
only one base pair, known as a point mutation, e.g., sickle cell disease.
A principal method of detecting genomic abnormalities in medical research is
through the use of DNA probes. DNA probes are designed to identify the presence,
absence or location of a particular target sequence by hybridization or the
failure to hybridize to the particular target sequence. A DNA probe is a
particular single stranded piece of DNA or RNA, which is configured to have the
specific sequence of bases, which is complementary to, and thus will bind to a
specific target sequence. This binding of two complementary nucleic acid strands
is called "hybridization." The DNA probe and the sample DNA or RNA extracted
from or in a cell are mixed under conditions which permit the probe to hybridize
to its target. The DNA probes are generally labeled with markers, such as
fluorescent molecules, to permit their detection upon hybridization. The
unreacted probe is washed away and the mixture is then examined to detect the
presence of the label on the hybridized probe.
TECHNOLOGY PLATFORMS
Genomic Diagnostic testing requires the ability to assess abnormalities of
chromosomes, individual genes within chromosomes and specific DNA sequences
within genes. No single technology is capable of assessing all of these
different types of abnormalities. To address this issue, the Company has
developed three complementary technology platforms that detect the full range of
genetic abnormalities from large chromosomal aberrations to smaller
abnormalities associated with abnormal numbers of the same gene and the smallest
mutations within specific gene sequences. The Company believes these
complementary technologies will enable the clinician to provide a comprehensive
approach to genomic assessment in the management of disease.
Vysis' three technology platforms include: the FISH SYSTEM, which detects
chromosomal copy number and rearrangement (large genetic structures), the
GCGH-TM- ARRAY SYSTEM, which detects gene copy number and expression (smaller
genetic structures), and the MOLECULAR LAWN-TM- SYSTEM, which detects specific
gene sequences and their mutations (smallest genetic structures). Each platform
provides the advantage of being able to simultaneously detect multiple genetic
abnormalities in the same specimen. Vysis expects to introduce a broad range of
products based on each of these platforms. This product development strategy is
expected to reduce time to market and associated development costs for each
product. Each of these three technology platforms also relies upon the Company's
image analysis software, which is comprised of proprietary algorithms that
enable the automated display and analysis of FISH, gCGH Array and Molecular Lawn
tests.
29
<PAGE>
FISH SYSTEM
The FISH System provides the ability to simultaneously assess multiple
chromosomal and gene abnormalities in a single intact cell. FISH also provides
the ability to perform cell by cell quantitative assessment of genetic changes
in tissue specimens routinely used by pathologists for diagnosis. The Company's
FISH System consists of instruments and image analysis workstations used with
the Company's patented direct label FISH probes.
FISH, illustrated in the figure below, is generally faster, easier-to-use
and more cost-effective than alternate technologies. FISH assays test the DNA of
a sample while in its native setting in the cell ("IN SITU") and thus provide
genomic assessment on intact cells. Alternate technologies destroy surrounding
tissue and cells resulting in the loss of valuable diagnostic information. FISH
probes can be used to detect chromosomal abnormalities present in "interphase
cells" commonly found in tissues processed in pathology laboratories. This
eliminates the time-consuming culture of tissue to obtain metaphase cells, which
in the case of many solid tumor cancers is difficult, if not impossible. FISH
technology provides clinical information on certain genetic abnormalities in
interphase cells not obtainable with any other techniques known to the Company.
DIRECT LABEL FISH TECHNOLOGY
[GRAPHIC]
FISH: SLIDES WITH TISSUE SPECIMENS ON THEM, SIMILAR TO THOSE USED IN ROUTINE
PATHOLOGY LABORATORIES FOR CLINICAL DIAGNOSIS, ARE HYBRIDIZED WITH FLUORESCENTLY
LABELED FISH PROBES. WITH THE USE OF A FLUORESCENCE MICROSCOPE, A GENETICIST OR
PATHOLOGIST IS ABLE TO SEE CHROMOSOMAL AND GENE ABNORMALITIES IN THE NUCLEUS OF
INDIVIDUAL CELLS ON THE SLIDE. (FLUORESCENT LABEL ATTACHMENT POINT NOT SHOWN)
30
<PAGE>
FISH uses DNA probes that are large, typically at least 30,000 base pairs in
length. Consequently, FISH is useful primarily to detect gross or large
chromosomal changes, such as extra chromosomes, missing chromosomes, chromosomal
translocations, and gene amplifications and deletions.
Vysis' FISH technology uses its patented direct label DNA probes. The
Company has pioneered the use of direct label FISH probes and the high-quality,
reproducible manufacture of these probes. Vysis believes that its direct label
FISH probes are superior to other probes because they produce sharper and
brighter fluorescent signals and decrease assay time by eliminating procedural
steps and reagents which are required with indirect label probes. All of these
benefits produce results that are easier to obtain and interpret.
FISH provides the unique ability to simultaneously assess multiple
chromosomal and gene abnormalities in a single intact cell. Currently as many as
seven different FISH probes can be identified in a single interphase cell with
the Company's multi-color direct label technology. This provides physicians with
the ability to detect multiple genetic aberrations in the same cell, which is
important for certain cancers and prenatal birth defects. The Company is not
aware of any other molecular diagnostic technology that has this capability.
Vysis has developed and is continuing to refine instruments and image
analysis workstations used in conjunction with the Company's direct label FISH
probes. The Company's HYBrite-TM- instrument automates the hybridization process
in a temperature controlled environment. The Company's Quips Genetic
Workstations provide integrated solutions to enhance and automate the
visualization, analysis, and storage of FISH images. The Company is currently
undertaking development of a high throughput instrument that will automate both
specimen preparation and the hybridization process. This development program and
subsequent manufacturing is expected to be completed in conjunction with an
outside engineering firm.
GCGH-TM- ARRAY SYSTEM
The gCGH Array System uses the Company's patented comparative genomic
hybridization ("CGH") technology to survey the entire genome for chromosomal
changes in a single test. The fundamental principle of CGH is to compare an
abnormal or test DNA (or RNA) specimen to a reference DNA (or RNA) in order to
detect genetic aberrations. This method, like the FISH System, does not require
culturing of "metaphase cells" for a metaphase spread preparation from the
sample. For this reason, CGH enables genetic testing of tissues that are not
amenable to culture such as tumor tissues. In contrast to traditional FISH
technology that typically involves use of a specific probe to a known
chromosomal abnormality, CGH can be used to investigate an entire genome even
when a suspected genetic aberration is unknown.
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<PAGE>
Vysis is developing a ready-to-use array of DNA probes on a miniaturized
chip ("gCGH array") which incorporates its patented CGH technology. Each element
of the array will contain DNA from a defined location on a normal human
chromosome and, in total, the collection of elements may represent the entire
genome. This system is intended to enable simultaneous assessment of a large
number of genes in a patient's specimen for abnormalities in the specific gene
count. An example of a gCGH array is shown below.
GCGH ARRAY SYSTEM
[GRAPHIC]
GCGH ARRAY: PATIENT DNA, LABELED WITH A GREEN (BLACK IN THE PICTURE),
FLUORESCENT MOLECULE, IS MIXED WITH NORMAL REFERENCE DNA, LABELED WITH A RED
FLUORESCENT MOLECULE (WHITE IN THE PICTURE), AND APPLIED TO A GCGH ARRAY
CONTAINING 10'S TO 1,000'S OF INDIVIDUAL GENE TARGETS. UPON COMPLETION OF THE
REACTION, THE GCGH ARRAY IS READ BY MEASUREMENT OF THE RATIO OF GREEN TO RED
FLUORESCENT LIGHT AND THE RESULTS REPORTED, INDICATING WHETHER THE PATIENT DNA
HAS TOO MANY OR TOO FEW COPIES OF A PARTICULAR GENE.
By allowing the simultaneous assessment of abnormalities in multiple genes
associated with cancer, the Company believes that the use of gCGH arrays will
allow the clinician to more reliably select the most effective treatment for
cancer patients and will also provide important prognostic information. The
Company also believes that gCGH arrays will simplify determination of prenatal
abnormalities by the simultaneous detection of chromosome aneusomies,
microdeletions and unbalanced chromosome translocations. These abnormalities may
account for essentially all of the causes of common mental retardation and other
birth defects detectable with conventional amniocentesis and karyotyping. The
Company expects that the automation possible with arrays will improve the
reliability and accuracy of diagnosis, reduce the time to obtain the result and
reduce the cost for prenatal testing. The Company further believes that
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<PAGE>
gCGH arrays will be applicable to the determination of gene expression which may
provide an indication of early disease manifestation.
The gCGH Array System, consisting of individual arrays, a high speed camera
based reader and specimen processing reagents is currently at the prototype
stage of development. The Company currently has the capability of manufacturing
research quantities of gCGH Arrays and is developing a high throughput robotic
system for production of commercial quantities of arrays.
MOLECULAR LAWN SYSTEM
The Molecular Lawn System uses the Company's patented Q-beta replicase
("QBR") amplification technology to detect specific gene sequences. QBR provides
a quantitative measure of a specific gene sequence in either human, viral or
bacterial DNA. Because the Molecular Lawn is a self contained system and is
being specifically designed for clinical use, this QBR based product is intended
to provide a more accurate, simple and cost-effective alternative to other
amplification technologies such as polymerase chain reaction ("PCR"). This
technology platform enables the detection of small genetic targets associated
with disease predisposition and early detection of disease. The system includes
a disposable test device and an automated reader that will provide both
qualitative and quantitative results. The Company's initial product will be
designed for the detection of Human Papilloma Virus ("HPV"), which causes
cervical cancer.
A Molecular Lawn consists of individual or multiple probe sequences attached
to the surface of a miniaturized solid support, similar to the blades of grass
on a lawn (see figure below).
MOLECULAR LAWN SYSTEM
[GRAPHIC]
MOLECULAR LAWN: PATIENT SPECIMEN IS PLACED ON THE MOLECULAR LAWN, CONTAINING
HALF PROBE MOLECULES. THE SECOND HALF OF THE PROBE MOLECULES ARE THEN PLACED ON
THE SURFACE OF THE MOLECULAR LAWN CONTAINING THE CAPTURED DNA IN THE PATIENT
SPECIMEN. IF A PARTICULAR HUMAN, VIRAL OR BACTERIAL DNA EXISTS IN THE PATIENT
SPECIMEN, A SIGNAL WILL BE GENERATED BY QBR. IF THE PARTICULAR HUMAN, VIRAL OR
BACTERIAL DNA BEING TESTED FOR DOES NOT EXIST, A SIGNAL WILL NOT BE PRESENT.
33
<PAGE>
PRODUCTS
CLINICAL DIAGNOSTIC PRODUCTS
Vysis is developing, commercializing and marketing clinical products that
provide information critical to the evaluation and management of cancer,
prenatal disorders and other genetic diseases. Having already received four FDA
approvals for its reagent products via the 510(k) process, the Company has
established a track record of successfully obtaining required regulatory
clearances for its products. As advances in molecular biology lead to the
discovery of additional correlations between genetic mutations and disease, the
Company believes that it is well positioned to take advantage of these
developments and the resulting increase in market demand for Genomic Diagnostic
products. The Company's clinical diagnostic product commercialization process
involves four distinct stages prior to marketing which include, in order,
research, development, clinical trials and regulatory review.
CLINICAL PRODUCTS
<TABLE>
<CAPTION>
PRODUCT TECHNOLOGY PLATFORM DISEASE/PROCEDURE INTENDED UTILITY STAGE
- ----------------- --------------------- ----------------- ----------------- ------------
<S> <C> <C> <C> <C>
CANCER
CEP-Registered Trademark- FISH System Chronic Disease MARKETING
8 Myelogenous monitoring (FDA 510(k)
Leukemia, myeloid cleared
disorders November
1996)
CEP-Registered Trademark- FISH System Chronic Disease MARKETING
12 Lymphocytic progression and (FDA 510(k)
Leukemia disease cleared
monitoring January
1997)
CEP-Registered Trademark- FISH System Bone marrow Disease MARKETING
X/Y transplantation monitoring (FDA 510(k)
cleared
January
1997)
HER-2/neu FISH System Breast cancer Selection of CLINICAL
therapy and TRIALS
prognosis
bcr/abl ES FISH System Chronic Diagnosis and DEVELOPMENT
Myelogenous disease
Leukemia monitoring
Breast Panel gCGH Array System Breast cancer Selection of RESEARCH
therapy and
prognosis
Bladder Panel FISH System Bladder cancer Disease RESEARCH
recurrence
monitoring
Prostate Panel gCGH Array System Prostate cancer Disease RESEARCH
progression
Human Papilloma Molecular Lawn System Cervical cancer Early disease RESEARCH
Virus Panel detection
</TABLE>
34
<PAGE>
CLINICAL PRODUCTS (CONTINUED)
<TABLE>
<CAPTION>
PRODUCT TECHNOLOGY PLATFORM DISEASE/PROCEDURE INTENDED UTILITY STAGE
- ----------------- --------------------- ----------------- ----------------- ------------
<S> <C> <C> <C> <C>
PRENATAL
TriGen-TM- Panel FISH System Down syndrome, Detection of MARKETING
sex chromosome mental (ADM
disorders retardation and registered
other birth in France
defects June 1997)
AneuVysion-TM- FISH System Down syndrome, Detection of MARKETING
and other mental (FDA 510(k)
chromosomal retardation and cleared
disorders other birth October
defects 1997)
Aneu-Del-Tel-TM- gCGH Array System Down syndrome, Detection of RESEARCH
Chip and other essentially all
chromosomal chromosomal
disorders abnormalities
causing common
mental
retardation and
other birth
defects
Fetal Screen FISH System Down syndrome, Detection of RESEARCH
and other mental
chromosomal retardation and
disorders other birth
defects from
fetal cells in
maternal blood
circulation
</TABLE>
CANCER PRODUCTS
The American Cancer Society estimates that approximately 1.4 million people
in the United States will be diagnosed with some form of cancer in 1997.
Approximately $35 billion is spent annually in the United States alone on direct
medical costs in managing cancer patients. For most cancers, five year survival
rates increase by a factor of up to 100% if diagnosed and treated in a localized
state; however, only 54% of breast cancers, 57% of prostate cancers and 51% of
cervical cancers are detected in a localized state.
In the management of patients with cancer, there is an unmet clinical need
for tests that will diagnose disease at an earlier stage, predict therapeutic
response to chemotherapy and monitor patients for disease recurrence at an
earlier stage. Vysis' initial Genomic Diagnostic cancer products are expected to
enable selection of the best possible therapy and thereby improve patient
survival rates and quality of life. The Company is directing its product
development and commercialization efforts toward various cancers including
leukemia, breast, bladder, prostate and cervical.
LEUKEMIA. There are four primary forms of leukemia with an estimated
aggregate of 27,600 new cases in 1996, approximately evenly divided between
acute leukemia and chronic leukemia. CML accounts for approximately one-fourth
of all leukemia cases, with an incidence of approximately 1 case per 100,000
persons. In the United States, there are about 6,000 newly diagnosed patients
each year. The disease has two major phases: the initial chronic phase and the
terminal blast crisis phase. The transition from chronic to blast phase is often
associated with abnormal occurrence of three copies of chromosome 8 (trisomy 8)
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<PAGE>
which is present in approximately 20% to 50% of those patients entering the
blast phase. This abnormality often precedes the clinical blast phase by 2 to 6
months. The success rate of long term survival following bone marrow
transplantation is less than 20% for patients in blast crisis as compared to a
40% to 70% success rate for patients treated before the onset of blast crisis.
The detection of trisomy 8 in conjunction with other tests may serve as an early
indication to initiate bone marrow transplantation when the patient has a better
chance for survival.
The Company's first clinical product, CEP 8 Probe Kit, which is based on the
FISH System, was cleared by the FDA in November 1996 by a 510(k) premarket
notification. The CEP 8 Probe Kit is used for the detection of trisomy 8. Used
in conjunction with other tests, this product is used to monitor disease
activity during treatment to assess therapeutic effectiveness and during
remission for disease recurrence. This information provides the physician with
an indication of early blast crisis which is important when considering bone
marrow transplantation therapy.
The Company's second clinical product, CEP 12 Probe Kit, which is based on
the FISH System, was cleared by the FDA in January 1997 by a 510(k) premarket
notification. The CEP 12 Probe Kit is used for the detection of trisomy 12, one
of the more common genetic abnormality in chronic lymphocytic leukemia ("CLL").
The incidence of CLL in the United States is approximately 7,200 new cases per
year with about 60,000 individuals currently afflicted with this disease. These
patients have a widely variable clinical course and many do not require therapy
at the time of diagnosis. The detection of trisomy 12 provides the physician the
ability to distinguish patients whose disease will rapidly progress. These
patients may require immediate treatment while others may be monitored for
disease progression without therapeutic intervention.
The Company's third clinical product, CEP X/Y Probe Kit, which is based on
the FISH System, was cleared by the FDA in January 1997 by a 510(k) premarket
notification. The CEP X/Y Probe Kit is used to assess how well donor cells are
accepted by the recipient in sex-mismatched bone marrow transplantation and to
determine the recurrence of malignant cells. In the management of many leukemias
and other myeloid disorders, bone marrow transplantation is a critical
therapeutic strategy. Approximately 4,200 sex-mismatched transplantations were
performed in the United States in 1996. Having an estimate of the proportions of
donor and recipient cells following a transplanation can be useful in assessing
the success of the procedure and to diagnose recurrence. The improved
sensitivity and precision of the CEP X/Y product, as compared to standard
cytogenetic analysis, permits a more reliable detection of therapeutic efficacy
or failure at a stage when modification of therapy will still be possible.
A fourth product, a bcr/abl translocation probe currently under development,
is expected to be submitted for regulatory review in the United States and
Europe. The bcr/abl ES product, which is based on the FISH System, is intended
to be used to confirm the diagnosis of CML and to monitor the presence of
residual disease.
BREAST CANCER. Breast cancer is the second leading cause of cancer-related
deaths among women age 35 to 54. In 1996 there were approximately 184,300 new
cases of breast cancer diagnosed in the United States. Over 900,000 biopsies to
determine the presence of breast cancer are performed in the United States each
year. According to the American Cancer Society, the annual direct medical cost
of breast cancer management in the United States alone is approximately $6
billion.
The management of breast cancer is difficult because there has been no
reliable method to determine the response of individual women to different
therapeutic options, each of which have different toxicities and side-effects.
These toxicities and side-effects impact the quality of life and long term
survival of individual patients. It is clearly beneficial to identify which
women have progressive disease and to restrict aggressive treatment to that
group. The specific genetic abnormalities of a tumor are associated with
progressive disease and therapeutic response. A Genomic Diagnostic test that
adds to the physician's ability to select the most appropriate therapy during
clinical decision-making and that results in a more favorable outcome for the
patient would be highly valued.
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<PAGE>
The Company's first breast cancer product, currently in late stage clinical
trials, is HER-2/neu. Results from the HER-2/neu test are intended to rapidly
assess the amplification of HER-2/neu gene for use as a predictive marker for
response to chemotherapy and/or hormone therapy. Results will also be used as a
prognostic marker for risk assessment.
HER-2/neu is an oncogene whose normal function is to serve as a growth
factor receptor. Amplification of this gene is associated with rapid growth of
the tumor cells and resistance to less toxic chemotherapy and/or hormone
therapy. Approximately 25% to 30% of breast cancers have amplification of this
gene. A study of 442 breast cancer patients, published in the NEW ENGLAND
JOURNAL OF MEDICINE in May 1994, supports the use of HER-2/neu gene
amplification as a predictive marker for response to chemotherapy. This study
demonstrated that lymph node positive women with HER-2/neu amplification in
their tumor cells respond to higher doses of adriamycin chemotherapy
substantially better than those without amplification. Further, patients without
amplification do not appear to benefit from the more aggressive adriamycin
treatment. The ability to identify amplification in breast cancer patients will
allow such patients to be more effectively treated with aggressive chemotherapy,
which in turn should produce better patient outcomes. Additionally, those
patients who are not amplified do not require the more aggressive chemotherapy
and may benefit from an improved quality of life by avoiding the side effects
inherent with the more aggressive therapeutic approach. Another study at
Georgetown University's Lombardi Cancer Center on 94 breast cancer patients
indicates that women with HER-2/neu amplified tumors respond more poorly to
hormone therapy than women without amplification.
The Company's HER-2/neu product, which is based on the FISH System, is a
locus specific, direct label DNA probe for the HER-2/neu gene. This assay is
designed for the detection and quantification of the HER-2/neu gene and
chromosome 17 in cells. Occasionally, extra copies of the chromosome 17 will
result in a false positive HER-2/neu result. The Company's product includes a
second DNA probe specific for chromosome 17, which is intended to serve as a
built in control for false positive results due to extra copies of chromosome
17. The Company, in collaboration with independent laboratories, conducted
performance studies of the Company's HER-2/neu gene product which indicate that
the product may be able to detect HER-2/neu amplification in 50 percent more
women with breast cancer than detected by antibody based immunohistochemistry in
standard paraffin tissue sections.
Vysis expects that this product will provide reliable and accurate
determination of HER-2/neu gene amplification to physicians to assist them in
selection of the most appropriate therapeutic alternatives for the patient. The
product's initial claim will be for prediction of response to low or high dose
adriamycin therapy. Adriamycin and its equivalents are among the most commonly
used cancer therapeutics.
The Company's strategy is to maximize value to the medical community by
expanding the utility of the HER-2/neu product through supplemental clinical
trials. These trials include studies to determine selection of therapy between
methotrexate and adriamycin based on HER-2 amplification, to determine whether
the patient will benefit from hormone therapy and to predict the risk that
benign breast lesions will progress to cancer.
Because cancer is considered a multi-gene event, the Company believes that
appropriate patient management may require simultaneous testing for multiple
genetic abnormalities, such as amplification of the c-myc gene, the Cyclin D1
gene and the q13.2 region on chromosome 20 in addition to HER-2/neu. The Company
is developing products based on the Company's gCGH Array System which are
intended to provide the ability to simultaneously detect both gene amplification
abnormalities and gene deletion abnormalities, such as deletion of the p53 tumor
suppressor gene.
BLADDER CANCER. The American Cancer Society estimates there were
approximately 52,900 new cases of bladder cancer in 1996. The most common
symptom of this cancer is blood in the urine, which occurs in approximately 80%
of diagnosed patients. The diagnosis of a tumor often is confirmed by performing
urine cytology, which has a false negative rate of about 25%. Due to poor
sensitivity of cytology and other existing tests, examination of the bladder
wall with a cystoscope, a slender tube fitted with a lens and light that is
inserted through the urethra, is required to confirm the presence of bladder
cancer.
37
<PAGE>
Bladder cancer can be divided into superficial and invasive tumors.
Superficial tumors have not grown through the wall of the bladder to its
muscular lining. While the majority of tumors are superficial and are associated
with a high five-year survival rate (75% overall), approximately 80% of the
superficial tumors will recur. The most successful treatments are performed
early in the course of the diagnosis and include regular monitoring for disease
recurrence through the frequent use of cystoscopy. While cystoscopy will provide
definitive results, it is an invasive procedure requiring that the patient be
under anesthesia and is therefore expensive, costing over $500 per procedure.
Tests are currently on the market which will provide a result from a urine
specimen. However, these tests are relatively insensitive, detecting only 40% to
70% of positive specimens. For this reason, patients continue to have cystoscopy
procedures 1 to 4 times per year. The Company believes that a non-invasive
Genomic Diagnostic test with high sensitivity and specificity that enables
physicians to easily monitor patients on a quarterly basis for disease
recurrence would be highly valued.
The Company is developing a highly sensitive product based on the FISH
System technology platform intended to provide simultaneous analysis of multiple
genetic markers for bladder cancer from a routine urine specimen. A number of
published studies have demonstrated that these genetic markers are correlated to
bladder cancer.
PROSTATE CANCER. Prostate cancer is the second leading cause of death from
cancer in men in the United States with an estimated 317,100 new cases in 1996.
Between 1989 and 1993, prostate cancer incidence rates increased 50%. Further
increased incidence detection is expected with continuing widespread use of
prostate serum screening tests. The incidence of prostate cancer increases with
age; over 80% of all prostate cancers are diagnosed in men over age 65. The
American Cancer Society recommends that men age 50 and over have an annual PSA
(prostate specific antigen) blood test and a digital rectal exam. If either
result is suspicious, further evaluation is recommended. This has resulted in
over 725,000 prostate biopsies being performed in the United States in 1996.
According to the American Cancer Society, the annual direct medical cost of
prostate cancer management in the United States alone is approximately $5
billion. The management of prostate cancer is difficult because its course is
extremely variable. Some prostate cancers grow rapidly, quickly leading to
death, while others grow so slowly as not to compromise expected life duration.
It is estimated that approximately 30% of men who die over the age of 45 from
various causes also have concurrent asymptomatic prostate cancer. Because there
is no reliable method to determine which cancers will progress, patients are
currently receiving unnecessary radical prostatectomies which have significant
side effects, which may negatively impact the quality of life. Side effects of
radical prostatectomy include impotence in about 30% of cases, bladder
incontinence in 10% to 20% of cases and difficulty with urination in about 10%
of cases. It is clearly beneficial to identify which men have progressive
disease and to restrict aggressive treatment to that group. A Genomic Diagnostic
test that adds to the physician's ability to determine which patients to treat
versus which patients to monitor has been identified as highly desirable by the
medical community.
The Company believes that information regarding the genetic composition of
prostate cancer tumors could distinguish between men who should be monitored
without surgical intervention and those whose prostates should be removed. The
Company is developing a product that includes a panel of genetic markers
designed to provide information indicating which patients should receive more
aggressive therapeutic intervention. Because prostate cancer is also considered
a multi-gene event, the Company believes that appropriate patient management
will require simultaneous testing for multiple genetic abnormalities. Products
based on the Company's gCGH Array System are intended to provide the ability to
simultaneously detect both gene amplification abnormalities and gene deletion
abnormalities, each of which have been associated with disease progression. In
conjunction with the Mayo Clinic, the Company is evaluating several potential
leads for its initial gCGH Array product panel.
CERVICAL CANCER. An estimated 15,700 cases of invasive cervical cancer were
diagnosed in the United States in 1996 with an estimated 4,900 cervical cancer
deaths. Eighty-eight percent of patients survive one year after diagnosis, and
the five-year relative survival rate is 68%. However, for women diagnosed in the
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early stages of the disease, the five-year survival rate is 91%; but only 51%
are diagnosed in the early stages of the disease.
The American Cancer Society recommends that women who are, or have been,
sexually active or who have reached age 18, have an annual pelvic exam and a PAP
test. Approximately 62 million PAP tests are performed annually in the United
States at an estimated patient cost of $7 to $15 per test. Although PAP testing
has been useful in reducing deaths due to cervical cancer, the PAP test has
significant limitations. PAP testing has a false negative rate of 10% to 50% and
a false positive rate of 1% to 10%. A false-negative test means that a true
carcinoma has escaped detection and may advance to potentially irreversible
disease before an accurate test is performed. A false-positive result can lead
to unwarranted patient anxiety as well as unnecessary inconvenience, discomfort,
and expense for follow-up diagnostic procedures. Given the frequency of false
positive and false negative tests, the Company estimates that each year there
are about 5 million inaccurate test results. Positive PAP test results are
typically confirmed by a second PAP test, a colposcopy costing the patient
approximately $150, or cryosurgery costing approximately $500.
According to the American Cancer Society and the National Institutes of
Health ("NIH"), cervical cancer risk is closely linked to certain types of HPV,
a common sexually transmitted infection. Studies have shown that several types
of HPV have been directly implicated as a cause of cervical cancer. Furthermore,
there is a delay between HPV infection and the earliest manifestation of cancer.
The Company believes that a test specific for HPV performed in conjunction with
PAP testing would significantly improve the rate of early detection of cervical
cancer.
Vysis is developing a product for the simultaneous detection of specific
high and low risk types of HPV based on the Company's Molecular Lawn System
technology platform. The initial product application will be to test patient
specimens classified as atypical with PAP testing. The Company expects that this
product would be introduced as a patient screening test performed in conjunction
with a PAP test. The Company believes this product will be easier to use and
more cost effective than currently available technologies.
Additionally, the Company believes that assessing changes in the genetic
composition of cervical cells will also be important for the early
identification of cells in a pre-cancerous state. Combined with HPV testing,
genetic screening has a high potential for accurately predicting malignant
transformation not currently possible. The Company is assessing potential
genetic targets to be combined with its HPV tests.
PRENATAL PRODUCTS
Each year there are approximately 4 million live births in the United States
and a similar number in Western Europe. Chromosomal disorders are relatively
common affecting approximately 1 in 200 births. This has led to efforts to
perform screening to identify pregnancies at risk for fetal mental retardation
or other birth defects. In an attempt to diagnose fetal abnormalities, indirect
tests have been employed such as the immunoassay based blood tests known as the
"Triple Screen." Indirect testing has a high rate of false positive and false
negative results. Because of the inadequacies of indirect testing, a more
definitive genetic test is required to confirm the presence of fetal
abnormalities. To perform direct genetic testing, it is necessary to obtain
fetal cells. These cells may be obtained either through sampling the fluid
surrounding the fetus (amniocentesis), chorionic villus sampling, or potentially
through isolation of fetal cells that have crossed the placenta and are
circulating in the mother's blood. Pregnancies at high risk for chromosomal
abnormalities include women over age 35, a family history of chromosome
abnormalities, an abnormal Triple Screen result or abnormal ultrasound results.
AMNIOCENTESIS TESTING. Amniocentesis is an invasive procedure required to
obtain the fetal cells for diagnosis of chromosomal abnormalities. In
amniocentesis, amniotic fluid containing fetal cells is removed from the uterus
with an ultrasound-guided needle passed through the abdominal wall. Traditional
testing of the fetal cells is accomplished by direct visualization of stained
chromosomes. This analysis, which is known as karyotyping, is a standard
cytogenetic method which requires 7 to 10 days for completion at an estimated
patient cost of $400 to $800 per analysis. The Company believes that a Genomic
Diagnostic test
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<PAGE>
which provides rapid test results for chromosomal abnormalities enabling timely
decisions regarding patient treatment and care would be highly valued by
expecting parents and physicians.
The Company's first prenatal diagnostic product, based on the FISH System,
is the TriGen Assay for the direct diagnosis of Down syndrome (three copies of
chromosome 21) and sex chromosome abnormalities (aneuploidies of chromosomes X
and Y). The product is designed to diagnose these abnormalities on a single
slide within 24 hours from cells obtained by amniocentesis. Clinical trials
conducted by the Company at 18 laboratories involving 558 patients demonstrated
100% correlation of TriGen results to standard karyotyping results. The French
regulatory agency, Agence du Medicament ("ADM"), registered the product in May
1997, as a stand alone diagnostic test.
In December 1996, France became the first country to provide reimbursement
for testing of chromosome 21 disorders for all pregnancies regardless of age.
The French Cytogenetics Society has recommended to the French government a
reimbursement rate specifically for a FISH based prenatal test of approximately
$425 per test.
The Company's AneuVysion-TM- product is a FISH System for the direct
diagnosis of Down syndrome, sex chromosome abnormalities and two additional
chromosomal abnormalities. The Company's 510(k) submission on its AneuVysion
prenatal product was cleared by the FDA in October 1997 and a submission was
made to the French ADM in October 1997. Clinical trials conducted by the Company
at 31 laboratories involving 1,516 patients demonstrated 99.9% correlation of
AneuVysion results to standard karyotyping for those chromosomal abnormalities
that represent 85% to 90% of the chromosomal abnormalities associated with
mental retardation and other birth defects. In the United States, the AneuVysion
product is cleared as an adjunct to standard cytogenetic testing of
amniocentesis specimens while in Europe the Company expects the product to be
registered as a stand alone diagnostic test.
The Company is developing a gCGH Array prenatal product that is intended to
simultaneously detect multiple chromosome aneusomies, microdeletions and
unbalanced chromosome translocations. These abnormalities may account for
essentially all of the causes of common mental retardation and other birth
defects detectable with conventional amniocentesis and karyotyping.
MATERNAL BLOOD TESTING. Due to the invasive nature of the amniocentesis
procedure, current prenatal genetic testing is indicated only in high risk
pregnancies. Although the risk of having a child with Down syndrome increases
with maternal age, most pregnancies occur in younger women and, hence, most
births of children with Down syndrome occur to younger women for whom
amniocentesis is not indicated. The ability to detect and analyze fetal cells in
maternal blood would permit women to be routinely screened for genetic
abnormalities associated with mental retardation and birth defects by direct
genetic analysis of fetal cells.
Maternal blood has been shown to contain cells derived from the fetus,
although these cells are exceedingly rare. The feasibility of genetic analysis
of fetal cells isolated from maternal blood has been demonstrated, but obtaining
a sufficient number of fetal blood cells for analysis has been difficult and
generally not suitable to routine clinical application. Vysis is currently
researching a system to identify fetal cells in maternal blood specimens and
detect chromosomal abnormalities in those cells. Such a system is expected to
include reagents to identify fetal cells, the Company's currently developed FISH
probe products (for chromosomes 13, 18, 21, X and Y) and a rapid imaging system.
Several other companies are also developing approaches to fetal cell
detection and identification. However, the Company believes that chromosomal
abnormalities in fetal cells derived from maternal blood specimens will be more
effectively analyzed with FISH probes. Based upon its patented technology, the
Company expects to participate in this market either through strategic
partnering with other companies who will use the Company's FISH probes to
complete the genetic analysis, or through the introduction of its own fetal cell
detection and identification system.
RESEARCH PRODUCTS
Vysis currently markets over 240 research use only ("RUO") DNA probes and
related reagent products. The Company's principal customers are genetics testing
laboratories and research centers
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around the world. The Company expects to introduce 49 new RUO products in 1997.
The research reagent product line represented approximately $600,000 of the
Company's $5.4 million of product revenues in 1994, approximately $1.5 million
of the Company's $6.3 million of product revenue in 1995, and approximately $2.8
million of the Company's $11.0 million product revenue in 1996. In addition to
providing the Company with significant revenues, research reagent products
provide the Company with the ability to participate in clinical research
programs to establish correlations of various genes and genetic markers to
disease occurrence and outcome. Once correlations to disease have been
established, the Company believes that certain of its RUO products may become
candidates for high volume clinical use. Because RUO products are not used for
routine clinical diagnosis, these products are not subject to regulatory review.
Although not required to do so, the Company manufactures all of these RUO
products according to the FDA's QSR guidelines. See "Business--Government
Regulation."
The Company's research product commercialization process involves three
distinct stages prior to marketing which include, in order, research,
development and trials.
RESEARCH PRODUCTS
<TABLE>
<CAPTION>
PRODUCT TECHNOLOGY PLATFORM DISEASE/PROCEDURE POSSIBLE UTILITY STAGE
- ----------------- --------------------- ----------------- ----------------- ------------
<S> <C> <C> <C> <C>
WCP-Registered Trademark- FISH system Prenatal, Analysis of MARKETING
Probes (103 postnatal and metaphase
products) cancer chromosomes,
additions,
deletions and
translocations
CEP-Registered Trademark- FISH System Prenatal, Determination of MARKETING
Probes (45 postnatal and chromosome copy
products) cancer number
LSI-Registered Trademark- FISH System Prenatal, Determination of MARKETING
Probes (41 postnatal and gene copy number,
products) cancer chromosomal
translocations,
and presence of
microdeletions
CGH Probes and FISH System Prenatal, Determination of MARKETING
solutions (10 postnatal and chromosome region
products) cancer of amplification
and deletion
</TABLE>
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<PAGE>
RESEARCH PRODUCTS (CONTINUED)
<TABLE>
<CAPTION>
PRODUCT TECHNOLOGY PLATFORM DISEASE/PROCEDURE POSSIBLE UTILITY STAGE
- ----------------- --------------------- ----------------- ----------------- ------------
<S> <C> <C> <C> <C>
MultiVysion-TM- FISH System Preimplantation Improved success MARKETING
PGT genetic testing rate of IN VITRO
fertilization
implantation and
successful birth
Telomere Probes FISH System Mental Detects hidden DEVELOPMENT
(42 products retardation chromosomal
planned) analysis deletions and/or
translocations
not possible with
traditional
karyotyping
Spectral FISH System Cancer and Detects hidden DEVELOPMENT
Karyotyping prenatal chromosomal
Reagent karyotyping rearrangements
analysis in 24 not possible with
colors traditional
karyotyping
Ampli-Onc-TM- gCGH Array System All cancers Detects RESEARCH
Chip substantially all
genes amplified
in cancer
Onc-Express-TM- gCGH Array System All cancers Detects genes RESEARCH
Chip expressed in
cancer
</TABLE>
The Company markets three FISH probe product lines, respectively marketed as
WCP-Registered Trademark-, CEP-Registered Trademark- and
LSI-Registered Trademark- probes and various reagents. These products are used
in a wide range of genetic research.
WCP WHOLE CHROMOSOME PAINT FISH PROBES. WCP probes fluorescently label or
"paint" the unique sequences of an entire chromosome allowing analysis of the
chromosome number as well as indicating chromosome additions and simple and
complex translocations in human metaphase cells.
CEP CHROMOSOME ENUMERATION FISH PROBES. CEP probes hybridize to repeat
sequence targets on specific chromosomes. This allows for rapid counting of
chromosomes to determine if there are too few or too many chromosomes within
interphase or metaphase cells.
LSI LOCUS SPECIFIC IDENTIFIER FISH PROBES. LSI probes hybridize to specific
locations on individual chromosomes and identify specific sequences of DNA,
which are typically gene or disease specific. By highlighting specific regions
of the chromosome, these probes quickly identify if specific genes are present
as expected or whether certain gross chromosomal changes exist.
COMPARATIVE GENOMIC HYBRIDIZATION (CGH) REAGENTS. CGH reagents are a line
of products for performing comparative genomic hybridization, a tool for
determining previously unidentified gene amplifications and deletions in genetic
diseases and cancers.
PREIMPLANTATION GENETIC TESTING ("PGT"). It is estimated that each year
some two million couples in the United States are treated for infertility
resulting in approximately 35,000 IN VITRO fertilization ("IVF") cycles. It is
not unusual for patients to undergo two or three cycles before they successfully
conceive. The direct cost for a single fertilization cycle is approximately
$7,800. Overall, approximately $2 billion is spent in the United States annually
on infertility treatments. An important contributing factor for a failed
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attempt at IN VITRO fertilization is the presence of a chromosomal abnormality
in the implanted embryo. Therefore, the IVF success rate may be improved by
using embryos that do not have chromosomal abnormalities. With only a single
cell available for this analysis, it is necessary to use a chromosomal
assessment technology capable of detecting a large number of abnormalities in a
single cell. FISH is currently the only diagnostic technology known to the
Company that has this capability.
The Company's first PGT product, based on the FISH System, is MultiVysion
PGT, which simultaneously detects abnormalities of chromosomes 13, 18, 21, X and
Y in a single cell within 4 hours. The Company believes that completing a PGT
analysis using Vysis' patented multi-color probes will increase the probability
of a successful implantation and birth at a substantially lower cost for
patients undergoing this procedure.
TELOMERE PROBES. Telomeres are unique sequences of DNA at the end of
chromosomes that contain a large number of genes. Telomeres play an integral
role in chromosome biology, structure, and function. Changes in telomeres, such
as deletions or translocations frequently missed by traditional karyotyping,
have been implicated as causes of mental retardation and cancer. There are
approximately 60,000 peripheral blood lymphocyte specimens tested each year to
evaluate patients for chromosomal causes of mental retardation. The Company is
developing a line of individual locus specific FISH probes and a multi-color
telomere panel for research in chromosomal causes of mental retardation and
cancer.
SPECTRAL KARYOTYPING REAGENT. Traditional karyotypes employ black and white
images of chromosomes and interpretation of these karyotypes requires
sophisticated training in recognition of chromosome patterns and changes in the
chromosomes. Frequently subtle translocations are missed utilizing traditional
black and white karyotyping. The Company's Spectral Karyotyping Reagent is
intended to simplify and improve the accuracy of karyotyping by providing a
unique color to each chromosome, thus allowing the detection of chromosomal
rearrangements not possible with traditional karyotyping. The Company is
developing a spectral karyotyping system comprised of a 24 color probe reagent
set and a genetic workstation that incorporates proprietary software for image
analysis of the multi-color karyotype provided by the reagent.
AMPLI-ONC AND ONC-EXPRESS CHIPS. The Company is developing an Ampli-Onc
Chip based on its gCGH Array System that will detect substantially all currently
known genes amplified in cancer. This ready-to-use array of DNA probes on a
miniaturized chip is intended to enable simultaneous assessment of a large
number of genes in patient specimens for abnormalities in specific gene counts.
The Company is also developing Onc-Express Chip, an array of DNA probes for the
simultaneous assessment of a large number of expressed genes in patient
specimens. The Company believes that simultaneous testing for multiple genetic
abnormalities is likely to accelerate research and provide clinical correlations
between chromosomal abnormalities and disease. Both of these products may enable
researchers to discover new correlations that may yield Genomic Diagnostic
products for improved diagnosis, prognosis and predictive outcome.
INSTRUMENT PRODUCTS
Vysis currently markets a line of instrument products which includes genetic
imaging workstations and other processing instruments. Because instrument
products are developed for use in connection with both clinical and research
products, the commercialization process for instrument products mirrors the
previously described commercialization process for clinical or research reagent
products. See "--Products: Clinical Diagnostic Products" and "--Products:
Research Products." These workstations provide an integrated solution to enhance
and automate the visualization, analysis, and storage of FISH, mFISH
(simultaneous imaging of multiple FISH probes), CGH, and karyotype images. These
workstations integrate proprietary software, and readily available hardware,
such as high-resolution cameras, microscopes and desktop computer systems. The
Company's principal customers for these workstations are genetic testing
laboratories and research centers around the world. The Company has an installed
base of over 320 proprietary genetic workstations at 224 laboratories in 18
countries. The Company expects to introduce three new instrument products in
1997. The instrument product line represented approximately
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<PAGE>
$2.2 million of the Company's $5.4 million of product revenue in 1994,
approximately $2.2 million of the Company's $6.3 million of product revenues in
1995, and approximately $4.3 million of the Company's $11.0 million of product
revenues in 1996.
INSTRUMENT PRODUCTS
<TABLE>
<CAPTION>
PRODUCT TECHNOLOGY PLATFORM DISEASE/PROCEDURE UTILITY STAGE
- ------------------- ----------------------- ------------------- ------------------- -------------
<S> <C> <C> <C> <C>
Karyotyping Image Analysis Software Cancer and prenatal Clinical and MARKETING
Software testing research automated (FDA 510(k)
classification of cleared
chromosomes February
1990)
FISH Software FISH System Cancer and prenatal Clinical and MARKETING
testing research imaging of
FISH probes
CGH Software FISH System All cancers Research for MARKETING
chromosomal
amplifications and
deletions
Lab Manager-TM- Database Software Cancer and prenatal Patient data MARKETING
Software testing management
incorporated in
karyotyping, CGH
and FISH software
HYBrite-TM- System FISH System Cancer and prenatal Clinical and MARKETING
testing research semi-
automated
hybridization of
FISH probes
Quips mFISH FISH System Cancer and prenatal Clinical and MARKETING
Software testing research
simultaneous
imaging of multiple
FISH probes
Spectral FISH System Cancer and prenatal Clinical and DEVELOPMENT
Karyotyping testing research automated
Software classification and
imaging of
chromosomes in
24-colors
Automated Specimen FISH System, gCGH Cancer, prenatal Automates steps of RESEARCH
Processor and Test Arrays System, and viral testing FISH, gCGH Array
Instrument Molecular Lawn System and Molecular Lawn
assays
gCGH Array Reader gCGH Array System Cancer and prenatal Reads gCGH Arrays RESEARCH
testing
Molecular Lawn Molecular Lawn System Cancer, prenatal Reads Molecular RESEARCH
Reader and viral testing Lawn tests
</TABLE>
QUIPS-TM- GENETIC WORKSTATIONS AND IMAGING SOFTWARE. Genetic workstations
consist of computer hardware, imaging cameras, microscopes purchased from third
party vendors and proprietary software designed to capture, analyze, document
and store data required for cytogenetic analyses. The genetic workstation
product line includes various combinations of hardware and software for
karyotyping, FISH, mFISH (multi-target FISH) and CGH.
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<PAGE>
HYBRITE-TM-. HYBrite is a semi-automated instrument for denaturation and
hybridization of FISH probes. The HYBrite system eliminates the need for
denaturation reagents and other temperature devices. The HYBrite shortens assay
time, eliminates steps and reduces user variability.
FOOD TESTING PRODUCTS
The Company develops, manufactures and commercializes products for the
detection and identification of food-borne pathogens to food processors and
quality control laboratories. These products, marketed under the
Gene-Trak-Registered Trademark- name, include both DNA probe products and
antibody kits for the detection of organisms found to contaminate food such as
Salmonella, E. coli, Listeria and Listeria monocytogenes. The Company's food
testing product sales were approximately $2.5 million in 1994, 1995 and 1996,
respectively.
SALES AND MARKETING
MARKETS AND CUSTOMERS
There are approximately 350 cytogenetics laboratories in the United States
that include hospital-based laboratories and non-hospital-based reference
laboratories. In addition, there are approximately 5,200 hospital-based
pathology laboratories and approximately 200 cancer research laboratories in the
United States. The combination of these laboratories creates more than 5,750
potential customers for the Company's products in the United States alone. The
Company estimates the international market for its products to be approximately
two times the size of the United States market.
MARKETING STRATEGY
The Company currently markets its products to cytogenetic laboratories,
hospitals, reference laboratories, academic and commercial research institutions
and managed care organizations. Vysis expects that the principal customers for
its clinical diagnostic products will include cytogeneticists, pathologists,
oncologists and other physicians. In order to accelerate clinical market
acceptance of its Genomic Diagnostic products, the Company is developing
programs designed to (i) increase the level of awareness of FISH System products
among the clinical laboratories and the physicians who are expected to order
these tests, (ii) educate the medical community regarding the benefits of
managing disease with Genomic Diagnostic tests, and (iii) provide data
demonstrating clinical correlation of the disease target to disease outcome,
progression and predisposition. The Company will pursue these programs through
the use of collaborations with external laboratories and scientists who are
influential opinion leaders, the use of third-party published articles and the
publication of data obtained in product clinical trials.
SALES STRATEGY
Sales in the United States are conducted by a direct sales force, currently
consisting of a national sales manager and eight technical sales
representatives. Four representatives are dedicated to clinical and research
reagent sales. The remaining four representatives are dedicated to sales of
genetic workstations.
European sales are managed by country specific managers supported by a nine
person direct sales organization for Germany, France and the United Kingdom.
This organization is further supported by independent distributors in Austria,
Czech Republic, Egypt, Finland, Greece, Holland/Belgium, Hungary, India, Israel,
Italy, Poland, Saudi Arabia, Spain, Sweden, Switzerland, Turkey and the United
Arab Emirates.
Sales and marketing in Japan is conducted through a marketing partnership
with Fujisawa Pharmaceutical Co., Ltd. ("Fujisawa"). The partnership, entered
into in July 1995, provides Fujisawa with a ten-year exclusive distribution
right to market Vysis FISH probes and genetic workstations in Japan. Fujisawa is
responsible for funding all clinical regulatory compliance for the Japanese
market. Vysis will supply all of its United States and European clinical trial
data for its FISH products to assist Fujisawa in its regulatory approval
efforts. The agreement provides that Fujisawa will pay the Company $600,000 per
year through July 1999. Fujisawa introduced the Company's clinical research
reagent product line in December 1995 and released the Company's genetic
workstations in 1996.
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<PAGE>
Sales in the other world markets are conducted through the use of local
distributors. To date, additional Far East distribution channels have been
established in Australia, China, Korea, Philippines, Singapore, Taiwan and
Thailand. Other distributors have also been established for Canada and
Argentina. These distributors are supported through the Company's United States
headquarters. See Note 9 of Notes to Consolidated Financial Statements for
financial information of the Company organized by geographic area.
MANUFACTURING
The Company's manufacturing operations encompass the production and
packaging of DNA probes and reagents, as well as the integration of the
Company's imaging software with off-the-shelf electronic cameras, computer
systems and other computer peripheral equipment. The Company's manufacturing
operations utilize a complete material requirements planning system fully
integrated with the Company's finance department for operational control. The
Company believes that current manufacturing processes are readily scaleable to
meet expected growth.
The reagent and instrument manufacturing processes are performed according
to the FDA's Quality System Regulation ("QSR"), which replaced the FDA's Good
Manufacturing Practices ("GMP") criteria. The Company trains employees for
compliance with current QSR requirements as specified by the FDA. See
"Business--Government Regulation." The Company is ISO 9001 certified. ISO 9001
is the most comprehensive of all the International Organization for
Standardization quality standards and is an important element of the Company's
strategy to commercialize its products globally.
COLLABORATIONS
The Company has established a series of collaborations designed to
accelerate gene discovery efforts and correlation studies to link genetic
abnormalities to disease outcomes, from which it will obtain diagnostic and
therapeutic rights. The Company also monitors on-going worldwide medical
research in this area, such as the Human Genome Project. It is anticipated that
the Human Genome Project will complete the sequencing of the entire human genome
by 2005, which the Company believes will give rise to additional clinical
product leads. In addition, the Company has collaborations for the further
development of its technology platforms.
UNIVERSITY OF CALIFORNIA, SAN FRANCISCO
The Company funds research at the Department of Laboratory Medicine,
University of California, San Francisco ("UCSF") Cancer Center at the UCSF
Medical School, directed by Dr. Joseph Gray, in the field of molecular
cytometry. This research examines correlations of chromosome abnormalities to
disease and discovery of genes related to regions of abnormalities identified by
CGH. This research has resulted in CGH studies of samples of all major solid
tumor cancers to identify common regions of chromosome abnormality. These
studies will be used as leads for gene discovery efforts. This work has resulted
in the discovery of gene sequences in the chromosome region 20q13.2 related to
an aggressive form of breast cancer. The Company has an exclusive license to
patent rights covering inventions made from this research which relate to FISH
or CGH. The Company has an option to obtain an exclusive license for both
diagnostic and therapeutic use to patent rights covering gCGH and any gene
discoveries made from this research. The research collaboration with UCSF also
involves work on imaging software with the Company holding an exclusive license
to any software improvements.
THE MAYO CLINIC
The Company funds research by Dr. Robert Jenkins at the Mayo Clinic's
Department of Cytology in the area of correlation of chromosomal abnormalities
to aggressive forms of prostate cancer and genes associated with metastatic
potential. As part of the collaboration, Dr. Jenkins has developed correlations
of chromosomal aneuploidies to prostate cancers. These correlations are under
investigation as potential targets for clinical products relating to prostate
cancer. The Company has an option to obtain an exclusive license to any
correlations discovered during this collaboration.
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<PAGE>
DIGITAL SCIENTIFIC
In January 1996, the Company and Digital Scientific Ltd. ("Digital") entered
into an exclusive marketing and software co-development agreement to market
Digital's SmartCapture-TM- FISH imaging software under which the Company also
acquired a worldwide exclusive license to market all of Digital's imaging
software products. In addition, the Company and Digital agreed to co-develop
imaging software to be marketed by the Company as part of its Quips Genetic
Workstations. The Company and Digital will co-own the software products
developed under the agreement. The Company has an option to acquire an exclusive
license from Digital on certain of these co-owned products.
PUBLIC HEALTH RESEARCH INSTITUTE OF NEW YORK
The Company funds a research and development collaboration and supports
broad based QBR research activities in the laboratory of Dr. Fred Kramer at the
Public Health Research Institute ("PHRI") of New York in New York City. Dr.
Kramer is one of the principal inventors of QBR amplification technology and has
been actively involved in QBR research since 1985. The Company has an exclusive
license to pending United States and foreign patent applications claiming
QBR-based binary probe ligation assay, as well as to any inventions made at PHRI
in this collaboration.
INCYTE PHARMACEUTICALS
In July 1996, the Company entered into a collaboration with Incyte
Pharmaceuticals, Inc. ("Incyte"), a leading genomic database company, and with
Genome Systems, Inc., a subsidiary of Incyte providing positional cloning and
library screening services, to produce a "bottoms-up" genomic map which will map
expressed human gene sequences to their human chromosome locations. The Company
expects that use of the map and its associated BAC library will reduce the time
to generate a BAC based "contig" by one to two years. As part of the
collaboration, the Company will have access to Incyte's LifeSeq-TM- database for
sequence data on expressed human gene sequences, use of the developed genomic
map and the associated BAC contigs.
The Company believes that the BAC contigs will be used to develop additional
FISH RUO probes and may provide a source of targets to be placed on the gCGH
Arrays. The Company believes that access to the LifeSeq database and the map
will accelerate the discovery of genes located in regions of chromosomes
identified as important in cancer by CGH technology.
PRODUCT LEAD COLLABORATIONS
The Company has also established additional research collaborations aimed at
generating clinical product opportunities, although there can be no assurances
of successful development of clinical reagent products based upon any of these
research efforts. A collaboration with the University of Chicago is aimed at
producing a set of telomere probes for each human chromosome and establishing
clinical use of these probes for the diagnosis of mental retardation. The
Company is developing a RUO FISH probe for detection of a chromosomal
translocation in pediatric leukemia under an exclusive license from St. Jude
Children's Research Hospital. The Company's collaboration with the Reproductive
Genetics Institute is directed at establishing the utility of the Company's FISH
probes in pre-implantation genetic testing.
NATIONAL INSTITUTE OF STANDARDS AND TECHNOLOGY GRANTS
The Company has been awarded two United States Department of Commerce grants
totaling $4 million for research related to the Company's technologies. These
grants are administered through the Advanced Technology Program ("ATP") of the
National Institute of Standards and Technology ("NIST") within the United States
Department of Commerce. The first grant, for research related to the gCGH
technology platform, was initiated in March 1995 and runs through March 1998.
The second grant, for research related to the development of the Company's
Molecular Lawn technology platform and other research, was initiated in August
1995 and will run through August 1998.
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PATENTS AND LICENSE RIGHTS AND PROPRIETARY INFORMATION
The Company currently holds or has exclusive licenses to 92 issued United
States patents or allowed United States patent applications, to 69 pending
United States patent applications, and to additional foreign patents and pending
patent applications in various areas of genetic and infectious disease testing.
The exclusive licenses held by the Company relating to these patents and patent
applications also grant the Company the exclusive right to grant sublicenses.
The Company believes that its patent portfolio covering FISH, CGH, gCGH and QBR
contains several patents of commercial significance to its activities in the
clinical market. The Company also believes that its FISH, CGH and gCGH patent
portfolio will provide opportunities to obtain an exclusive position in the
clinical market on certain general assay formats as well as particular targets
and to seek licenses and cross-licenses. The Company further believes that, in
the absence of any licensing or cross-licensing to third parties by the Company,
its QBR patent portfolio will provide an exclusive opportunity to use QBR
amplification methods. The following describes significant patent assets of the
Company.
FISH TECHNOLOGY
U.S. Patent 5,447,841, issued September 5, 1995, licensed exclusively from
the University of California covers methods of IN SITU hybridization using
unique sequence probes and unlabeled blocking DNA. These methods permit the use
as DNA probes of DNA sequences which are produced by standard cloning procedures
without removal of any repeat DNA sequences which are present. The Company
believes that the alternative manufacturing technologies to produce labeled FISH
probes which do not contain the repeat DNA sequences are difficult to implement
and are not proven commercially. The Company is also licensed exclusively under
three pending United States divisional patent applications stemming from the
'841 patent. Each of these applications claims priority of the '841 patent
applications filed on January 16, 1986 and December 1, 1986. The divisional
applications cover other embodiments of IN SITU hybridization using unique
sequence probes, including detection of abnormalities on chromosome 21 and
detection of gene amplification or gene deletion.
DIRECT LABELING TECHNOLOGY
U.S. Patent 5,491,224, issued February 13, 1996, and its pending foreign
counterpart applications, claim the Company's direct label FISH DNA probes and
their manufacture. U.S. Patent 5,663,319, issued September 2, 1997 covers
multiple direct label FISH probe compositions. The Company has received a
counterpart European patent on its direct label FISH DNA probes and on methods
of IN SITU hybridization using multiple direct label FISH DNA probes. The
Company has a pending United States divisional patent application of the '224
patent claiming use of direct label FISH DNA probes.
CGH AND GCGH TECHNOLOGY
The Company is exclusively licensed by the University of California under
U.S. Patent 5,665,549, issued September 9, 1997, and other pending United States
and foreign patent applications claiming basic CGH methods to detect changes in
copy number of DNA sequences at a particular chromosome location. The Company
also holds an option from the University of California to obtain an exclusive
license to pending U.S. and foreign patent applications claiming gCGH assays.
Q-BETA REPLICASE TECHNOLOGY
The Company holds exclusive licenses from Columbia University/Salk Institute
and from PHRI on United States and foreign patents and pending patent
applications relating to the use of QBR as an amplification technology to detect
nucleic acid targets. These include U.S. Patent 4,786,600 issued November 22,
1988, claiming "substrate" molecules having inserted probe sequences which are
replicatable by QBR and U.S. Patent 4,957,858, issued September 18, 1990,
claiming nucleic acid detection assays
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using QBR. The Company also has a number of United States and foreign patents
and pending patent applications covering QBR and the Molecular Lawn technology.
CORRELATIONS OF CHROMOSOMAL ABNORMALITIES TO DISEASE
The Company is pursuing a strategy to acquire rights to methods correlating
particular genetic aberrations to disease. These rights will potentially provide
opportunities for exclusive positions on clinical assays. For example, U.S.
Patent 5,472,842 and its pending foreign counterpart applications, licensed
exclusively from the University of California, cover methods of detection of a
chromosomal abnormality on chromosome 20 at locus 20q13 which has been
correlated to certain forms of breast cancer. The Company holds an option from
the University of California for an exclusive license for therapeutic and
diagnostic uses to United States and foreign patent applications claiming gene
sequences in the chromosome 20q13 locus. The Company is also exclusively
licensed under United States and foreign patent applications from the University
of California, St. Jude Children's Research Hospital and Canji, Inc. claiming
methods to diagnose disease based upon correlations of particular chromosomal
abnormalities for colon cancer, breast cancer, lung cancer, bladder cancer,
ovarian cancer, prostate cancer, gliomas and leukemias.
ABILITY TO PRACTICE TECHNOLOGY
The Company's success will depend to a substantial degree upon its ability
to operate its business and to develop, manufacture, market and sell its
products without infringing the proprietary rights of third parties. However,
numerous United States and foreign issued patents and pending patent
applications, which are owned by third parties, exist in the general fields of
nucleic acid technology and clinical diagnostic technology. A partial list of
more specific technologies in these general fields includes patents and patent
applications relevant to nucleic acid probe manufacturing, labels for nucleic
acid probes, nucleic acid probe compositions, nucleic acid probe hybridization
assays, nucleic acid amplification methods, full length gene sequences, full
length expressed gene sequences, partial gene and expressed gene sequences, gene
expression assays, correlations of chromosome or gene abnormalities to disease,
gene point mutation detection assays, oligonucleotide array hybridization
methods, patient sample processing, fetal cell identification and separation,
imaging apparatus and methods, infectious disease detection assays, food testing
assays and apparatus related to these technologies. The Company expects that
additional United States and foreign patents owned by third parties will issue
and additional United States and foreign patent applications owned by third
parties will be filed in these fields. The Company further believes that the
level of patent competition in these fields is sufficiently high that patent
litigation in these fields is likely to occur.
Consequently, the Company believes that its management of the business risks
presented by the intense patent competition in these fields is critical to its
ability to operate its business and to develop, manufacture, market and sell its
products. There can be no assurance that the Company will be able to
successfully manage these patent business risks to avoid infringing the
proprietary rights of others nor can there be any assurance that patent
infringent suits will not be brought against the Company. Any failure in its
management of these patent business risks may have a material adverse impact on
the Company's business, financial condition and results of operations.
The Company's success will also depend to a substantial degree upon its
ability to obtain and maintain patent protection, both in the United States and
in foreign countries, for its diagnostic products and methods and other
inventions, which the Company believes patentable, as well as upon the Company's
ability to preserve its trade secrets and to protect its software copyrights.
The Company's success will also depend to a substantial degree upon its
collaborators' and future licensors' ability to obtain and maintain patent
protection, both in the United States and in foreign countries, on gene
discoveries, the correlations of disease to genomic abnormalities and other
inventions relevant to the Company's business, as well as upon the Company's
collaborators' and future licensors' ability to preserve trade secrets and to
protect their software copyrights.
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The patent position of a company utilizing biotechnology generally is highly
uncertain and involves complex legal and factual questions. There can be no
assurance that any patents owned by or licensed to the Company will not be
challenged and subsequently invalidated or circumvented, or that such patents
will be sufficiently broad to afford protection against third parties who
develop or use similar technology, or that any of such patents will be
successfully asserted against any infringing activity, or that any of the
Company's patent rights will be successfully cross-licensed to third parties in
exchange for a license under their patent rights. In addition, there can be no
assurance that any pending United States or foreign patent applications owned or
licensed by the Company or those acquired or licensed by the Company in the
future will result in issued patents, or that such applications will not be
subject to foreign opposition seeking the revocation of a Company patent or to
United States patent interference seeking a determination that the Company or
its collaborators were not the first inventor of a particular patent or patent
application, or that the Company or its collaborators will develop additional
technologies that are patentable, or that any patents owned or licensed to the
Company will provide a basis for commercially viable products or services.
The Company is also aware of issued United States and foreign patents and
pending patent applications owned or controlled by third parties, which are
related to the Company's current or anticipated technologies. Specifically, the
Company is aware of issued United States and foreign patents and pending patent
applications owned or controlled by third parties, which are related to
significant elements of the Company's FISH, CGH and direct labeling
technologies, or to significant elements of the Company anticipated use of its
QBR technologies, or to reagents useful in the performance of CGH or gCGH
assays. Although the Company believes that certain of these issued patents are
not infringed by the Company's current and planned operations, there can be no
assurance that the Company would be able to successfully assert such a position
in the courts, nor that such a position could be asserted without the Company
incurring substantial or prohibitive costs. Furthermore, because United States
patent applications are maintained under conditions of confidentiality while the
applications are pending in the United States Patent and Trademark Office, there
may be pending patent applications filed by third parties of which the Company
is unaware and which relate to the Company's current or planned technologies. In
addition, third parties may in the future file patent applications having claims
that relate to the Company's services, processes or products. Persons holding or
licensing patent rights could bring legal actions against the Company claiming
that any of the Company's marketing, services, processes or products, or the
Company's collaborators' or its suppliers' services or products or of the
Company's customers' use of the Company's services or products infringe one or
more of their patents, and seek damages or injunctive relief. Patent litigation
is costly, and there can be no assurance that the Company would prevail in any
patent litigation brought against it. Further, the Company could be subject to
significant liabilities to such persons, may be required to obtain licenses from
such persons, or may be required to cease certain activities, and any of these
could have a material adverse effect upon the Company's business, financial
condition or results of operations. In addition, there can be no assurance that
the Company will be able to obtain such licenses on commercially reasonable
terms, or at all.
The Company is party to various license and license option agreements
(including but not limited to agreements with the University of California, Ciba
Corning Diagnostics, PHRI, Columbia University and the Salk Institute), which
give the Company rights to use certain technologies fundamental to the Company's
business. Although the Company believes it is currently in compliance with all
performance criteria contained in such license and option agreements, failure of
the Company to meet such criteria in the future could cause the loss of such
licenses or options, or a change in license status from exclusive to
nonexclusive. Furthermore, any contractual relationship with a third party may
involve complications and the potential for disputes. Licensors of the Company
may disagree with the Company as to the interpretation of the terms and
conditions of the Company's licenses, as to whether the Company or licensor have
properly fulfilled the provisions of such license contracts, and may challenge
the Company's activities under such licenses in the courts or in arbitration
proceedings. Any of the foregoing could have a material adverse effect on the
Company's business, financial condition and results of operations.
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Certain of the Company's licensed patent rights claim inventions, which were
developed in whole or in part using grants or funding from United States
Government agencies, such as the National Institutes of Health and the
Department of Energy. The Company is also developing technology funded in part
by two ATP grants from the NIST. The Company expects that patentable inventions
and patent rights covering such inventions could result from the activities
funded by these two ATP grants. The terms of the United States Government's
funding of the Company's licensors and of the Company provide that the United
States Government is provided certain rights to use the technology developed by
the grants or funding and to practice or license under the applicable patent
rights for the United States Government's benefit. The applicable United States
statute governing the United States government's rights (the "Dole-Bayh Act")
also provides that third parties may petition the government for a grant of a
non-exclusive license upon reasonable terms under these patent rights owned or
exclusively licensed to the Company if the Company is found to not be diligently
developing the technology or market covered by the patent(s) in question. There
can be no assurance that the United States Government will not exercise such
rights, or that the exercise of such rights would not have a material adverse
effect on the Company.
The Company also relies upon copyrights, copyright licenses and trade
secrets to protect all of its software and upon trade secrets to protect certain
of its unpatented proprietary technology. There can be no assurance that the
Company will be able to adequately protect its rights in such software and such
unpatented proprietary technology or that others will not independently develop
substantially equivalent technology or information, or that others will not
otherwise gain access to the Company's software and unpatented proprietary
technology or disclose the Company's software and unpatented proprietary
technology to third parties in a non-confidential manner.
The Company's development of its imaging software products is subject to all
of the risks of the software development industry. There can be no assurance
that the Company's software development will not be adversely impacted or
delayed due to changes in its suppliers' products or software, unforeseen
programming needs, delay or failure to receive software development services
from third parties, or the Company's inability to obtain necessary computer
products, software and components on a timely basis. Any inability of the
Company to develop its imaging software products or its disease modeling
software on a timely basis may have a material adverse impact on the Company.
The Company does not presently attempt to obtain patent rights covering its
software developments. However, third parties may have pending patent
applications or obtain patents covering imaging software or disease modeling
software technologies. There can be no assurance that the Company would not be
forced to begin additional patenting efforts in the imaging software and disease
modeling software fields, nor that the Company's attempts to obtain such patents
on its software developments would be successful, nor that the Company would not
be adversely affected by third parties obtaining patents on such software.
Any of the risks and uncertainties concerning the ability to practice
technology which are described herein apply to the Company's collaborators just
as they apply to the Company itself. As a licensee or strategic partner of such
collaborators, the Company could be materially adversely affected by any event
adversely affecting one or more of the Company's collaborators.
COMPETITION
Competition in clinical diagnostics and genomics is intense and is expected
to increase as the market for Genomic Diagnostic products develops. Competition
is and will continue to be based on quality, reliability, accuracy, ease of use,
price and product line offering. Oncor, Inc. ("Oncor") is a major competitor in
the supply of FISH products to the research market and is seeking to enter the
clinical market with FISH products. Applied Imaging Corp. and Perceptive
Scientific Instruments, Inc. compete with Vysis in the marketing of genetic
imaging workstations. The Company is aware of other entities that currently
market RUO nucleic acid products, which may have the ability to compete with the
Company in
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the clinical market. In addition, many reference laboratories and research
institutions produce their own FISH probes for internal use.
Other companies are developing genomic assessment products including "DNA
Chip" products for assessment of gene expression or gene sequence with potential
use for clinical diagnostics. Other diagnostic companies may enter the genetic
disease diagnostic market with nucleic acid based technologies. Many of the
Company's existing and potential competitors have substantially greater
financial, marketing, sales, distribution and technological resources than the
Company or may have substantial advantages over the Company in terms of research
and development expertise, experience in conducting clinical trials, experience
in regulatory matters, manufacturing efficiency, name recognition, ability to
obtain necessary intellectual property licenses, sales and marketing expertise
and distribution channels. There can be no assurance that the Company will be
able to compete successfully against current or future competitors.
LITIGATION
The Regents of the University of California (the "Regents") and the Company
as exclusive licensee, are plaintiffs in a patent infringement suit filed
September 5, 1995, against Oncor. The suit was filed in the United States
District Court in San Francisco, California and asserts that Oncor's marketing
of various DNA probe products infringes the Regents' U.S. Patent No. 5,447,841.
The Company and the Regents share equally the legal costs of this suit. Oncor's
answer to the complaint asserts that the patent is invalid based on prior art
and the failure to disclose the best mode of practicing the invention and that
it is unenforceable due to inequitable conduct which occurred during prosecution
of the patent. On August 19, 1997, the court issued an order which (i) granted
the Regents' and Vysis' motion for claim construction and denied Oncor's
competing motion for claim construction, (ii) granted the Regents' and Vysis'
motion for summary judgment that the claims were novel and denied Oncor's motion
for summary judgment that the claims were invalid as anticipated, (iii) granted
the Regents' and Vysis' motion for summary judgment that the claims were
unobvious and denied Oncor's motion for summary judgment that the claims were
invalid as obvious, (iv) granted in part and denied in part the Regents' and
Vysis' motion for summary judgment that Oncor's use and marketing of its
challenged FISH probes infringed the claims and denied Oncor's motion for
summary judgment that none of its FISH probes infringed, (v) granted in part and
denied in part the Regents' and Vysis' motion for summary judgment regarding the
best mode of practicing the invention, (vi) denied Oncor's motion for summary
judgment that the claims were unenforceable because of material
misrepresentations made to the U.S. Patent & Trademark Office by the Regents
during prosecution of the patent, and (vii) struck Oncor's motion for summary
judgment that the claims were unenforceable because the Regents failed to submit
material prior art to the U.S. Patent & Trademark Office. The trial of the
remaining issues is scheduled to begin in April 1998. If Oncor were to succeed
in invalidating the patent or having it declared unenforceable, this may have a
material adverse effect on the Company's market position and future business
prospects.
The Company and Amoco are defendants in a suit pending in the United States
District Court in San Diego, California brought by Gen-Probe, Inc. ("Gen-Probe")
in June 1995. The suit alleges infringement of U.S. Patent Nos. 4,851,330 and
5,288,611 (the "Kohne Patents"). The Kohne Patents are alleged to apply
generally to the detection, identification and quantification of non-viral
organisms using DNA probes selected to target sequences of ribosomal RNA. The
allegedly infringing activities are the manufacture, use and sale of reagents
and kits for detecting certain food and environmental pathogens currently used
in the Company's food testing business. The suit also alleges various claims
that the Company competed unfairly with Gen-Probe. This suit has been stayed
pending the outcome of a separate suit brought in California Superior Court in
San Diego, California against Gen-Probe by the Center for Neurologic Study
("CNS") challenging Gen-Probe's claim to sole ownership of the Kohne Patents.
CNS asserts that the invention of the Kohne Patents were made by David Kohne
while he was affiliated with CNS and supported by a grant from the National
Institutes of Health naming CNS as the grantee
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institution. CNS seeks damages and title in the Kohne Patents. Pursuant to
separate agreements between Amoco and CNS, which has been assigned to the
Company by Amoco, the Company reimburses CNS for legal costs incurred in the
suits. In return, the Company receives contingent rights to acquire an exclusive
license with the right to grant sub-licenses under such rights as CNS may obtain
in the Kohne Patents. Further, the Company has contractually agreed with CNS to
grant sub-licenses at commercially fair and reasonable terms under the Kohne
Patents should it acquire the exclusive license. Discovery is closed and the
suit is set for trial in December 1997. There can be no assurance that the
Company will obtain rights under the Kohne Patents.
Counterpart applications to the Kohne Patents were filed in Europe, Japan
and elsewhere. Patents were granted and the Company has opposed these patents in
Europe and Japan. The opposition has not been resolved in Europe. In Japan, the
Company's opposition has been rejected and the patent maintained. There can be
no assurance that Gen-Probe will not assert additional counts of infringement
based on any additional patents issued from the applications underlying the
Kohne Patents or will not assert additional causes of action against the
Company. Although the Company believes that it has meritorious defenses to the
suit by Gen-Probe against the Company, there can be no assurance that the
Company will ultimately prevail. An adverse determination could include an award
of treble damages and/or attorneys' fees, which could have a material adverse
effect on the financial condition and results of operations of the Company.
Furthermore, an adverse determination in such suit may limit future business
opportunities that the Company might otherwise be able to exploit in the area of
infectious disease detection.
Prior to the closing of this offering, the Company and Amoco will enter into
a Cooperation Agreement relating to the establishment of the Company as a
stand-alone entity. The Cooperation Agreement will provide that Amoco and the
Company will cooperate in the defense of the suit brought by Gen-Probe and will
include an allocation of any liability arising from the Gen-Probe suit or the
suit brought by CNS. Under this allocation, Amoco will agree to indemnify the
Company against any loss or damage based upon Gen-Probe's allegations of unfair
competition and related claims in the suit. The Company will agree to indemnify
Amoco against any loss or damage based upon the patent infringement count in the
suit or any other cause of action not yet asserted by Gen-Probe. Under this
indemnity the Company will also be responsible for the attorney's fees and costs
associated with the defense of the patent infringement count. There can be no
assurance that the indemnity of the Company by Amoco will prevent an adverse
determination from having a material adverse impact upon the Company.
GOVERNMENT REGULATION
The preclinical and clinical testing, manufacturing, labeling, distribution
and promotion of the Company's products are subject to extensive and rigorous
government regulation in the United States and other countries. Noncompliance
with applicable requirements can result in enforcement action by the Food and
Drug Administration ("FDA") or comparable foreign regulatory bodies including,
among other things, warning letters, fines, injunctions, civil penalties, recall
or seizure of products, refusal to grant premarket clearances or approvals,
withdrawal of marketing approvals and criminal prosecution.
Unless specifically exempted, a medical device may be marketed in the United
States only with the FDA's prior authorization. Devices classified by FDA as
posing less risk are placed either in class I or II and require the manufacturer
to seek 510(k) clearance from the FDA. Such clearance generally is granted when
submitted information establishes that a proposed device is "substantially
equivalent" in intended use and safety and effectiveness to a "predicate
device," which is either a class I or II device already legally on the market or
a "preamendment" class III device (i.e., one that has been in commercial
distribution since before May 28, 1976) for which the FDA has not called for PMA
applications. Obtaining a 510(k) clearance usually takes from four to twelve
months or more from the date of submission. There can be no assurance that
510(k) clearance will ever be obtained. During this process, the FDA may
determine that it needs additional information or that a proposed device is
precluded from receiving clearance because it is not substantially equivalent to
a predicate device. After a device receives clearance, any modification that
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could significantly affect its safety or effectiveness, or would constitute a
major change in the intended use of the device, will require a new 510(k)
submission.
A device that does not qualify for 510(k) clearance is placed in class III,
which is reserved for devices classified by the FDA as posing the greatest risk
(E.G., life-sustaining, life-supporting or implantable devices, or devices that
are not substantially equivalent to a predicate device). A class III device
generally must obtain PMA approval, which requires the manufacturer to establish
the safety and effectiveness of the device to the FDA's satisfaction. A PMA
application must provide extensive preclinical and clinical trial data and also
information about the device and its components regarding, among other things,
manufacturing, labeling and promotion. As part of the PMA review, the FDA will
inspect the manufacturer's facilities for compliance with the Quality System
Regulation ("QSR"), which mandates elaborate testing, control, documentation and
other quality assurance procedures.
Upon submission, the FDA determines if the PMA application is sufficiently
complete to permit a substantive review, and, if so, the application is accepted
for filing. The FDA then commences an in-depth review of the PMA application,
which typically takes one to three years or more. The review time is often
significantly extended as a result of the FDA asking for more information or
clarification of information already provided. The FDA also may respond with a
"not approvable" determination based on deficiencies in the application and
require additional clinical trials that are often expensive and time consuming
and can delay approval for months or even years. During the review period, an
FDA advisory committee, typically a panel of clinicians, likely will be convened
to review the application and recommend to the FDA whether, or upon what
conditions, the device should be approved. Although the FDA is not bound by the
advisory panel decision, the panel's recommendation is important to the FDA's
overall decision making process.
If the FDA's evaluation of the PMA application is favorable, the FDA
typically issues an "approvable letter" requiring the applicant's agreement to
specific conditions (E.G., changes in labeling) or specific additional
information (E.G., submission of final labeling) in order to secure final
approval of the PMA application. Once the approvable letter is satisfied, the
FDA will issue a PMA for the approved indications, which can be more limited
than those originally sought by the manufacturer. The PMA can include
postapproval conditions that the FDA believes necessary to ensure the safety and
effectiveness of the device including, among other things, restrictions on
labeling, promotion, sale and distribution.
Failure to comply with the conditions of approval can result in material
adverse enforcement actions, including the loss or withdrawal of the approval.
The PMA process can be expensive and lengthy, and no assurance can be given that
any PMA application will ever be approved for marketing. Even after approval of
a PMA, a new PMA or PMA supplement is required in the event of a modification to
the device, its labeling or its manufacturing process.
The Company is conducting clinical trials for the FISH detection of
HER-2/neu amplification in breast cancer. The clinical trial protocols were
reviewed by the FDA for adequate design to meet the intended use and clinical
utility claims. The Company obtained verbal permission in March 1997 to conduct
these trials. Clinical trials are scheduled to be completed in late 1997 with a
PMA submission made to the FDA by the end of 1997. There can be no assurance,
however, that the FDA's PMA Advisory Panel will agree with the adequacy of the
study design. There can be no assurance that this product will be approved by
the FDA.
Although clinical investigations of most devices are subject to the
investigational device exemption ("IDE") requirements, clinical investigations
of IN VITRO diagnostic ("IVD") tests are exempt from the IDE requirements,
including FDA approval of investigations, provided that the testing meets
certain exemption criteria. IVD manufacturers must also establish distribution
controls to assure that IVDs distributed for the purpose of conducting research
use or clinical investigations are used only for that purpose and are not
commercialized. Pursuant to current FDA policy, manufacturers of IVDs labeled
for research use only ("RUO") or investigational use only ("IUO") are strongly
encouraged by the FDA to establish a
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certification program under which investigational IVDs are distributed to or
utilized only by individuals, laboratories or health care facilities that have
provided the manufacturer with a written certification of compliance indicating
that the RUO or IUO product will be restricted in use and will, among other
things, meet institutional review board ("IRB") and informed consent
requirements. The FDA recently issued a Compliance Policy Guide setting forth,
among other things, the FDA's intent to undertake a heightened enforcement
effort with respect to RUO and IUO devices improperly commercialized prior to
receipt of FDA clearance or approval.
The Company has developed tests, software and instrument systems that it
distributes in the United States on a RUO or IUO basis. Failure of the Company
or recipients of the Company's RUO and IUO devices to comply with the regulatory
limitations on the distribution and use of such devices could result in
enforcement action by the FDA that would adversely affect the Company's ability
to distribute the tests prior to obtaining FDA clearance or approval. Such
restrictions could have a material adverse effect on the Company's business,
financial condition and results of operations.
Purchasers of the Company's clinical diagnostic products in the United
States may be regulated under the Clinical Laboratory Improvement Amendments of
1988 ("CLIA") and related federal and state regulations. CLIA is intended to
ensure the quality and reliability of clinical laboratories in the United States
by mandating specific standards in the areas of personnel qualifications,
administration, participation in proficiency testing, patient test management,
quality control, quality assurance and inspections. The regulations promulgated
under CLIA established three levels of diagnostic tests ("waived", "moderately
complex" and "highly complex") and the standards applicable to a clinical
laboratory depend on the level of the tests it performs. The Company believes
that its FISH, gCGH Array and Molecular Lawn tests will be placed in the "high
complexity" category under CLIA regulations, which will likely limit their use
to larger hospitals and clinical reference laboratories. CLIA requirements may
prevent some clinical laboratories from using any or all of the Company's
diagnostic products. There can be no assurance that the CLIA regulations and
future administrative interpretations of CLIA will not have a material adverse
impact on the Company by limiting the potential market for the Company's FISH
and other products.
Some clinical laboratories prepare their own finished diagnostic tests using
purchased reagents. The FDA has generally not exercised regulatory authority
over these individual reagents or such finished tests. In November 1997, the FDA
issued new rules for these reagents, individually termed an analyte specific
reagent ("ASR"), that would apply a regulatory framework to them, including
restrictions on sales or promotional claims that could be made about these
products and the restriction of sales to clinical laboratories certified under
CLIA as high complexity testing laboratories. The Company sells on an RUO basis
a number of individual reagents that likely fall within the ASR regulatory
framework, which may therefore require changes in the Company's marketing and
labeling of such products. The Company is currently evaluating the new ASR
regulatory framework in order to assess the possible impact upon the Company's
ongoing operations and the marketing of its products as ASRs.
The Company anticipates marketing a panel of FISH probes for use in
connection with IN VITRO fertilization ("IVF") procedures for preimplantation
genetic testing ("PGT"). Current FDA policy permits the distribution of certain
IN VITRO assays on an RUO basis, provided that the assays are not commercialized
on an unrestricted basis. The Company believes that it can distribute its
MultiVysion PGT panel, as well as its Quips Genetic Workstations, to IVF centers
on an RUO basis. In addition, the Company believes that FDA policy regarding its
IVF panel and similar products may evolve over time in a manner which would
permit such products to be commercially distributed on an unrestricted basis
with only specified labeling and QSR requirements being imposed. The FDA has to
date not developed a definitive policy in this area, and there can be no
assurance that FDA will not issue guidelines or take other regulatory actions
which might adversely impact the Company's anticipated revenues from its RUO
sales or subsequent unrestricted commercial sales of its MultiVysion PGT panel
to IVF centers.
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Any devices manufactured or distributed by the Company pursuant to FDA
clearances or approvals will be subject to pervasive and continuing regulation
by the FDA and certain state agencies. The Company will be subject to routine
inspection by the FDA and will have to comply with the host of regulatory
requirements that usually apply to medical devices marketed in the United
States, including labeling regulations, the QSR, the Medical Device Reporting
regulation (which requires a manufacturer to report to the FDA certain types of
adverse events involving its products), and the FDA's prohibitions against
promoting products for unapproved or "off-label" uses. Unanticipated changes in
existing regulatory requirements or adoption of new requirements could have a
material adverse effect on the Company. The Company's failure to comply with
applicable regulatory requirements could result in enforcement action by the FDA
or foreign governments, which could have a material adverse effect on the
Company's business, financial condition and results of operations.
The President recently signed into law the Food and Drug Administration
Modernization Act of 1997. This legislation makes changes to the device
provisions of the Food, Drug and Cosmetic Act and other provisions in the Act
affecting the regulation of devices. Among other things, the changes will affect
the IDE, 510(k) and PMA processes, and also will affect device standards and
data requirements, procedures relating to humanitarian and breakthrough devices,
tracking and postmarket surveillance, accredited third party review, and the
dissemination of off-label information. The Company cannot predict how or when
these changes will be implemented or what effect the changes will have on the
regulation of the Company's products. There can be no assurance that the new
legislation will not impose additional costs or lengthen review times for the
Company's products.
Unanticipated changes in existing regulatory requirements, failure of the
Company to comply with such requirements or adoption of new requirements could
have a material adverse effect on the Company. The Company also is subject to
numerous federal, state and local laws relating to such matters as safe working
conditions, manufacturing practices, environmental protection, fire hazard
control and hazardous substance disposal. There can be no assurance the Company
will not be required to incur significant costs to comply with such laws and
regulations in the future or that such laws or regulations will not have a
material adverse effect upon the Company's business, financial condition and
results of operations.
Distribution of the Company's products outside the United States is also
subject to regulation, which varies widely from country to country. The time
required to obtain needed regulatory clearance by particular foreign governments
may be longer or shorter than that required for FDA clearance or approval. In
addition, the export by the Company of certain of its products that have not yet
been cleared for domestic distribution may be subject to FDA export
restrictions. There can be no assurance that the Company will receive on a
timely basis, if at all, any foreign government or United States export
approvals necessary for the marketing of its products.
EMPLOYEES
As of September 30, 1997, the Company had 151 full-time employees, of whom
33 hold Ph.D. degrees, one holds an M.D. degree and 26 hold other advanced
degrees. Of the Company's total work force, 44 are in research and development,
44 are in sales/marketing, 17 are in regulatory affairs, 24 are in operations,
and 22 are in business development, legal, finance, human resources, and
administration. The Company believes that its future success will depend, in
part, on its continuing ability to attract, retain, and motivate qualified
scientific, technical, and managerial personnel. The Company faces intense
competition in this regard from other companies, research and academic
institutions, government entities and other organizations. None of the Company's
employees is represented by a collective bargaining agreement, nor has the
Company experienced work stoppages. The Company believes that its relations with
its employees are good.
56
<PAGE>
FACILITIES
The Company's executive offices, research and development activities,
manufacturing operations and administrative support are located in Downers
Grove, Illinois. This 56,551 square foot facility is leased pursuant to a lease
that expires on November 30, 2004. Capacity exists at such location to expand
production to accommodate future growth.
The Company also leases 3,300 square feet of space in Stuttgart, Germany
under a lease that expires in October 2000. The Company has leased 3,014 square
feet near Paris, France under a lease that expires in May 2005. The Company's
food testing business leases 10,237 square feet in Hopkinton, Massachusetts
under a lease that expires in January 1999.
SCIENTIFIC ADVISORY BOARD
The following individuals comprise Vysis' Scientific Advisory Board, which
plays an active role in guiding Vysis' research and development activities.
KURT HIRSCHHORN, M.D., is Professor of Pediatrics, Human Genetics and
Medicine, Mount Sinai School of Medicine, New York, New York. Dr. Hirschhorn is
a founding member of the American College of Medical Genetics; serves on the
Editorial Board or Committee of eight scientific journals; and has worked on IN
SITU hybridization since the early 1970's.
ROBERT B. JENKINS, M.D., PH.D., is Associate Professor of Laboratory
Medicine, and co-Director of the clinical Cytogenetics and clinical Molecular
Genetic Laboratories at the Mayo Clinic, Rochester, Minnesota. Dr. Jenkins is
the Associate Director of the Mayo Clinic's Cytogenetics Laboratory and has
on-going research programs into the molecular pathology of prostate, breast and
ovarian cancers and gliomas. Dr. Jenkins has published 43 scientific articles on
the use of FISH to assess cancer pathology.
FRED R. KRAMER, PH.D., is Chairman, Department of Molecular Genetics, Public
Health Research Institute, New York, New York. Dr. Kramer is the co-author of
over 30 scientific articles; is the inventor or co-inventor on fundamental
patents covering QBR based diagnostic assays, which are exclusively licensed to
the Company; and has led active research on QBR assays since 1985.
DAVID H. LEDBETTER, PH.D., is Professor of Genetics and Director of the
Center for Medical Genetics, University of Chicago, Chicago, Illinois. He served
as Chief, Diagnostic Development Branch of the National Center for Human Genome
Research at the National Institutes of Health from 1993 to May 1996, is a
Founding Fellow of the American College of Medical Genetics, is on the Editorial
Board of HUMAN MOLECULAR GENETICS and is also the Chairman of the Company's
Scientific Advisory Board.
KENNETH L. MELMON, M.D., is Professor of Medicine and Molecular
Pharmacology, Stanford University School of Medicine, Department of Medicine and
Clinical Pharmacology, Stanford, California. Dr. Melmon was the Arthur L.
Bloomfield Professor of Medicine at Stanford University School of Medicine from
1978-1988; was the Chairman from 1978 to 1984 and Associate Chairman from 1989
to 1993 of the Department of Medicine at Stanford University School of Medicine;
is the Associate Dean for Postgraduate Medical Education; and serves as an
Editorial Board member or consultant for six scientific journals.
DAVID H. PERSING, M.D., PH.D., is Associate Professor, Department of
Laboratory Medicine and Pathology and Department of Clinical Microbiology, Mayo
Clinic, Rochester, Minnesota. Dr. Persing leads active research into infectious
disease diagnosis by nucleic acid detection; is the inventor of two pending U.S.
patent applications on detection of particular pathogens by nucleic acid
amplification assays; and serves as a regular reviewer for the NEW ENGLAND
JOURNAL OF MEDICINE.
DAN PINKEL, PH.D., is Professor, Department of Laboratory Medicine, UCSF
Cancer Center, University of California, San Francisco. Dr. Pinkel is the author
or co-author of over 50 publications on the uses of FISH; is the co-inventor of
U.S. patents on FISH probes for specific chromosomal locations and CGH; and
leads active research on gCGH assays.
HANS J. TANKE, PH.D., is Chairman, Department of Cytochemistry and
Cytometry, Sylvius Laboratory, Leiden University, Leiden, The Netherlands. Dr.
Tanke is the author or co-author of over 130 publications
57
<PAGE>
in the fields of cytology and molecular biology; is a member of the Editorial
Board of CYTOMETRY, ANALYTICAL CELLULAR PATHOLOGY AND BIOIMAGING; is the
Chairman of the EC Network "FISH and Image Analysis"; and leads active research
programs on detection of IN SITU hybridization results.
STEPHEN T. WARREN, PH.D., is Investigator, Howard Hughes Medical Institute,
the William Patterson Timmie Professor of Human Genetics, and Professor of
Biochemistry and of Pediatrics at Emory University School of Medicine, Atlanta,
Georgia. Dr. Warren is a Founding Fellow of the American College of Medical
Genetics and is board certified in clinical cytogenetics and clinical molecular
genetics; is on the Editorial Boards of the AMERICAN JOURNAL OF MEDICAL
GENETICS, GENOMICS, MAMMALIAN GENOME, BIOCHEMICAL AND MOLECULAR MEDICINE, and
HUMAN MOLECULAR GENETICS; and leads active research into the molecular basis of
X chromosome-linked diseases and trinucleotide repeat expansion disorders.
58
<PAGE>
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The directors and executive officers of the Company, their ages as of
October 1, 1997 and their present positions with the Company are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------------------ --- ---------------------------------------------------------------------
<S> <C> <C>
John L. Bishop...................... 52 President, Chief Executive Officer and Director
George R. Kennedy................... 43 Senior Vice President, Sales and Marketing
Russel K. Enns...................... 48 Vice President, Regulatory Affairs
James J. Habschmidt................. 42 Vice President of Finance and Chief Financial Officer
James P. Marcella................... 54 Vice President, Operations
William E. Murray................... 44 General Counsel and Secretary
Steven A. Seelig.................... 48 Vice President, Research and Development and Chief Medical Officer
Robert C. Carr...................... 57 Chairman of the Board of Directors
William M. Bartlett................. 65 Director
Kenneth L. Melmon................... 62 Director
Walter R. Quanstrom................. 54 Director
Frank J. Sroka...................... 48 Director
Richard C. Williams................. 54 Director
</TABLE>
All Directors are elected to serve until the next annual meeting of
stockholders and until their successors are elected and qualified. Officers
serve at the pleasure of the Board of Directors.
MR. JOHN L. BISHOP has served as President and as a Director since November
1993 and became Chief Executive Officer in February 1996. Mr. Bishop has over 25
years experience in developing and operating diagnostics businesses. From 1991
until November 1993, Mr. Bishop was Chairman and Chief Executive Officer of
MicroProbe Corporation, a manufacturer of DNA probe diagnostics and therapeutics
and, from 1987 until 1991 of Source Scientific Systems, an original equipment
manufacturer of automated diagnostic systems. From 1984 until 1986, Mr. Bishop
was President and Chief Operating Officer of Gen-Probe, Inc., a developer and
manufacturer of DNA probe diagnostics for infectious diseases. From 1968 until
1984, Mr. Bishop held various management positions with American Hospital Supply
Company and its affiliates, including a three year assignment in Japan as an
Executive Vice President and Chief Executive Officer of International Reagents
Corp., a joint venture between American Hospital Supply Company and Green Cross
Corporation.
MR. GEORGE R. KENNEDY has served as Senior Vice President, Sales and
Marketing since September 1997. From April 1996 to September 1997 he served as
Vice President, Sales and Marketing. Prior to joining the Company in April 1996,
Mr. Kennedy was Director of Sales and Marketing of Difco Laboratories, a
microbiology diagnostic products manufacturer, from June 1992 to April 1996.
From May 1990 to June 1992, Mr. Kennedy was Director of Marketing for Dianon
Systems, Inc., an oncology reference laboratory.
DR. RUSSEL K. ENNS, PH.D. has served as Vice President, Regulatory Affairs
since he joined the Company in December 1995. Prior to joining the Company, Dr.
Enns was Vice President of Technical Affairs of MicroProbe Corporation from
February 1992 to November 1995. From August 1984 to February 1992, Dr. Enns held
several positions with Gen-Probe, Inc., including Director of Product
Development and Clinical Development and Director, Technical Affairs.
MR. JAMES J. HABSCHMIDT became Vice President of Finance and Chief Financial
Officer in November 1997. From September 1993 until November 1997, Mr.
Habschmidt served as Vice President,
59
<PAGE>
Development & Finance and Chief Financial Officer of Rand McNally & Co., a maker
and publisher of maps. From January 1991 to September 1993 he served as
Executive Vice President Operations & Finance of Silvestri Corporation, a
designer and marketer of home accessories. From 1986 until 1991, Mr. Habschmidt
was Vice President, Finance and Administration of Kewaunee Scientific
Corporation, a developer and manufacturer of laboratory equipment, furnishings
and accessories. From 1982 until 1986 he served in financial management
positions at American Hospital Supply Company prior to and after its acquisition
by Baxter International, a diagnostic product manufacturer.
MR. JAMES P. MARCELLA has served as Vice President, Operations since March
1994. Prior to then Mr. Marcella held various managerial positions in
manufacturing and operations with the Company since December 1991. From April
1990 to December 1991 he served as Chief Executive Officer of Betagen
Corporation, a biotechnology company.
MR. WILLIAM E. MURRAY, J.D., has served as Vice President and Secretary of
the Company since March 1994 and Assistant Secretary of the Company from
September 1992 to March 1994, while employed by Amoco. In January 1996, Mr.
Murray joined the Company as an executive officer, assuming the additional role
of General Counsel. Mr. Murray served from 1983 through 1995 in Amoco's Law
department in both attorney and patent attorney positions.
DR. STEVEN A. SEELIG, M.D., PH.D., has served as Vice President, Research
and Development and Chief Medical Officer since February 1996. He has held
various research management positions with the Company and its predecessors
since May 1989. Dr. Seelig was Associate Professor and Director of pediatric
endocrinology and metabolism at the University of Minnesota from 1985 to 1989.
MR. ROBERT C. CARR was appointed to the Board of Directors of the Company in
October 1993 and was elected Chairman of the Company's Board of Directors in
February 1997. Mr. Carr has served as President of ATC since October 1993. Mr.
Carr joined Amoco in 1990 and has held various positions with Amoco, including
Vice President of Chemicals Development and Diversification, Vice President and
Treasurer, Vice President of Planning and Administration, and Vice President and
Controller. He has served as Vice President Corporate Planning since May 1997.
MR. WILLIAM M. BARTLETT has been a Director since September 1997. For more
than the last five years, Mr. Bartlett has served as a consultant to various
companies in the healthcare industry. Mr. Bartlett is a director of Medco
Research, Inc., an adenosine technology and cardiovascular development company,
and a director and Vice Chairman of Medicor Corporation, a privately held
manufacturer of minimally invasive surgical instruments. Mr. Bartlett has a
significant amount of experience in the health care industry, having been Chief
Executive Officer--Medical Products Group and Corporate Vice President for G.D.
Searle & Co., a manufacturer and distributor of hospital equipment and
diagnostic equipment from 1978 to 1982. He was also President, Atlantic
International Division of American Hospital Supply Company from 1975 to 1978 and
of the V. Mueller Surgical Instrument Division from 1971 to 1975.
DR. KENNETH L. MELMON, M.D., has been a Director since September 1997. Mr.
Melmon has been a Scientific Advisory Board member of the Company since August
1994. He is also a director of Epoch, Inc. a biotechnology corporation. Since
July 1994 he has been Associate Dean, Postgraduate Medical Education at Stanford
University School of Medicine. Dr. Melmon was Associate Chairman, Department of
Medicine at the Stanford University School of Medicine from July 1989 to July
1993 and was Chairman, Stanford University Hospital Technology Transfer Program
from July 1988 to July 1993. He was Chairman, Department of Medicine at the
Stanford University School of Medicine from 1978 to 1984 and has been Professor
of Medicine and Molecular Pharmacology since 1978.
DR. WALTER R. QUANSTROM, PH.D., has been a Director since September 1997.
Dr. Quanstrom is presently Vice President of Environment, Health and Safety and
has held such position with Amoco since 1987.
60
<PAGE>
MR. FRANK J. SROKA, J.D., was appointed to the Board of Directors of the
Company in September 1993. Mr. Sroka has served as General Attorney for Amoco
with responsibility for the legal matters of ATC and its subsidiaries since
September 1993. Prior to such position, Mr. Sroka held positions in the
Research, Patents & Licensing and Law departments of Amoco since 1970.
MR. RICHARD C. WILLIAMS has been a Director since September 1997. Mr.
Williams has served as President of Connor-Thoele Limited, a consulting and
financial advisory firm which serves the healthcare and pharmaceuticals industry
since March 1989. Mr. Williams has served as Chairman of the Board of Directors
since October 1992 and as a director of Medco Research, Inc. since January 1991,
as a director of Centaur, Inc., a private equine diagnostic company, since
January 1991 and as a director of Immunomedics, Inc., a biopharmaceutical
research company, since March 1993. Prior to these positions Mr. Williams has
gained extensive experience in the healthcare industry, most notably as Vice
President and Chief Financial Officer of Erbamont, N.V., a pharmaceutical
company, and at Abbott Laboratories and American Hospital Supply Company where
he held a variety of financial management positions.
The Board of Directors has established Audit and Compensation Committees.
The members of the Audit Committee are Messrs. Bartlett, Sroka and Williams. The
Audit Committee is empowered by the Board of Directors to review the financial
books and records of the Company in consultation with the Company's accounting
staff and its independent auditors and to review with the accounting staff and
independent auditors any questions raised with respect to accounting and
auditing policy and procedure. The members of the Compensation Committee are
Messrs. Bartlett, Carr, Melmon, and Williams. The Compensation Committee will
make recommendations to the Board of Directors as to general levels of
compensation for all employees of the Company and the annual salary of each of
the executive officers of the Company. In addition, the Compensation Committee
will grant options to employees under the Company's option plan, and review and
approve compensation and benefit plans of the Company.
61
<PAGE>
EXECUTIVE COMPENSATION
The following table sets forth the amounts paid during the fiscal year ended
December 31, 1996 by the Company to (i) the Company's Chief Executive Officer
(the "CEO") and (ii) the four other most highly compensated executive officers
(the "Named Executive Officers") whose compensation exceeded $100,000 for
services rendered to the Company.
<TABLE>
<CAPTION>
STOCK ALL OTHER
NAMES AND PRINCIPAL POSITION SALARY BONUS OPTIONS# COMPENSATION(1)
- -------------------------------------------------------------- ---------- --------- ----------- ----------------
<S> <C> <C> <C> <C>
John L. Bishop................................................ $ 210,000 $ 36,500 131,387 $ 18,946
President and
Chief Executive Officer
Steven A. Seelig.............................................. 130,200 -- 65,694 4,007
Vice President
Research and Development and
Chief Medical Officer
James P. Marcella............................................. 125,000 15,000 32,847 3,822
Vice President
Operations
George R. Kennedy............................................. 123,258 -- 36,497 36,480
Senior Vice President
Sales and Marketing
Russel K. Enns................................................ 110,000 -- 21,898 635
Vice President
Regulatory Affairs
</TABLE>
- ------------------------
(1) Amounts represent the Company's 401(k) contributions made on behalf of each
of the named individuals and the reimbursement of relocation expenses in the
amounts of $14,446 for Mr. Bishop and $34,305 for Mr. Kennedy.
DIRECTOR COMPENSATION
Messrs. Bartlett, Melmon and Williams will each receive a fee of $2,000 per
month and $2,000 per board meeting attended. None of the remaining directors
will receive any compensation for serving on the Board of Directors.
62
<PAGE>
STOCK OPTION GRANTS IN LAST FISCAL YEAR
The following table summarizes options to purchase shares of the Company's
common stock granted during the fiscal year ended December 31, 1996 to the
Company's CEO and the Named Executive Officers. The amounts shown as potential
realizable values on the options identified in the table are based on assumed
annualized rates of appreciation in the price of the Common Stock of five
percent and ten percent over the term of the options, as set forth in the rules
of the Securities and Exchange Commission. Actual gains, if any, on stock option
exercises depend on the future performance of the common stock. There can be no
assurance that the potential realizable values reflected in this table will be
achieved.
<TABLE>
<CAPTION>
POTENTIAL REALIZED
VALUE AT ASSUMED
NUMBER OF ANNUAL RATES OF STOCK
SHARES % OF TOTAL PRICE APPRECIATION
UNDERLYING OPTIONS GRANTED FOR OPTION TERM
OPTIONS TO EMPLOYEES IN EXERCISE EXPIRATION ---------------------
NAME GRANTED FISCAL YEAR PRICE DATE 5% 10%
- -------------------------------------- ----------- --------------- ----------- ----------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
John L. Bishop........................ 131,387 14.9% $ 0.53 11/1/05 $ 43,793 $ 110,980
Steven A. Seelig...................... 65,694 7.5 0.53 11/1/05 21,897 55,491
James P. Marcella..................... 32,847 3.7 0.53 11/1/05 10,948 27,745
George R. Kennedy..................... 36,497 4.2 0.53 4/8/06 12,165 30,828
Russel K. Enns........................ 21,898 2.5 0.53 12/1/05 7,299 18,497
</TABLE>
AGGREGATE OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION VALUES
The following table sets forth for the Company's CEO and the Named Executive
Officers aggregated information concerning each exercise of stock options during
the fiscal year ended December 31, 1996, and the fiscal year-end value of
unexercised options.
<TABLE>
<CAPTION>
NUMBER OF VALUE OF
UNEXERCISED UNEXERCISED IN-THE-
OPTIONS AT MONEY OPTIONS AT
FISCAL YEAR-END FISCAL YEAR-END
(#) ($)(1)
---------------- -------------------
SHARES ACQUIRED VALUE EXERCISABLE/ EXERCISABLE/
NAME ON EXERCISE (#) REALIZED ($) UNEXERCISABLE UNEXERCISABLE
- --------------------------------------------------- --------------- ------------- ---------------- -------------------
<S> <C> <C> <C> <C>
John L. Bishop..................................... -- -- 38,323/93,064 $ 84,694/$205,671
Steven A. Seelig................................... -- -- 19,162/46,532 42,348/102,836
James P. Marcella.................................. -- -- 9,581/23,266 21,174/51,418
George R. Kennedy.................................. -- -- 0/36,497 0/80,658
Russel K. Enns..................................... -- -- 6,388/15,510 14,117/34,277
</TABLE>
- ------------------------
(1) Based on a December 31, 1996 estimate of fair market value of $2.74 per
share.
STOCK INCENTIVE PLAN
The Company has adopted and the stockholder of the Company has approved, the
Vysis, Inc. 1996 Stock Incentive Plan (the "Stock Incentive Plan"). The
committee appointed under the Stock Incentive Plan may make awards of stock
options (both incentive and nonqualified) and rights to purchase shares of
restricted stock to officers, employees, board members and service providers of
the Company; provided, however, that incentive stock options ("ISOs") can be
awarded only to officers or other key employees of the Company.
63
<PAGE>
Options may be granted at not less than 100% of the fair market value of the
Common Stock of the Company on the date of grant (or 110% of the fair market
value if the option is an ISO and the grantee is a 10% shareholder of the
Company or its affiliates). Options granted under the Incentive Plan are
generally exercisable for a period specified at the time of grant, not to exceed
10 years from the date of grant (5 years for an ISO granted to a 10%
shareholder). ISOs are also subject to other requirements imposed by section 422
of the Internal Revenue Code of 1996.
Upon a change in control of the Company (as defined in the Stock Incentive
Plan), all unexercised stock options and purchase rights shall become fully
exercisable.
The maximum number of shares of Common Stock reserved for issuance under the
Stock Incentive Plan is 985,402 shares, subject to adjustment as provided in the
Stock Incentive Plan to reflect certain corporate transactions affecting the
number or type of outstanding shares.
CONSULTING AGREEMENTS
Prior to their appointment to the Board of Directors in September 1997, each
of Messrs. Bartlett, Melmon and Williams was a party to an advisory board
consulting agreement with the Company pursuant to which each of such individuals
provided consulting services to the Company through service on the Company's
advisory board. Such advisory board had been maintained since August 1994 for
the purpose of rendering informal advice to the Company regarding medical and
technology issues as well as business, operational and financial matters. Under
such consulting agreements, these individuals were paid in cash the following
amounts in 1994, 1995, 1996 and through September 30, 1997, respectively: Mr.
Bartlett, $18,136, $36,717, $87,572 and $45,733; Mr. Melmon, $13,552, $53,891,
$82,396 and $35,283; and Mr. Williams, $19,323, $37,979, $64,236 and $52,344.
(In the case of Mr. Williams, the amounts shown include amounts paid to
Conner-Thoele Limited, an advisory firm of which Mr. Williams is president).
Such consulting agreements have been terminated.
In addition, as consideration for rendering services relating to attendance
at meetings of the Board of Directors, the Company granted during 1996 to each
of Messrs. Bartlett, Melmon and Williams, options to purchase 18,249 shares of
Common Stock at an exercise price of $0.53 per share. In February 1997, such
individuals were granted additional options to purchase an aggregate of 25,549
shares of Common Stock at an exercise price of $2.74 per share as follows: Mr.
Bartlett, 7,300 shares; Mr. Melmon, 10,949 shares; and Mr. Williams, 7,300
shares. Mr. Melmon also was granted options to purchase 1,095 shares of Common
Stock in each of 1996 and 1997, with exercise prices of $0.53 and $2.74 per
share, respectively, as consideration for rendering consulting services as a
member of the Company's Scientific Advisory Board.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Compensation information with respect to the Company's CEO and the Named
Executive Officers for 1996 reflects compensation earned while the Company was
an indirect, wholly owned subsidiary of Amoco. During 1996, the Company had no
compensation committee. Executive compensation levels during 1996 were
established by the Company's Board of Directors.
64
<PAGE>
PRINCIPAL STOCKHOLDER AND SECURITIES OWNERSHIP OF MANAGEMENT
OWNERSHIP OF COMPANY COMMON STOCK
The following table sets forth certain information regarding the beneficial
ownership of Common Stock by each person known by the Company to be the
beneficial owner of 5% or more of the outstanding Common Stock, by each of the
Company's directors and the Named Executive Officers and by all directors and
executive officers of the Company as a group, as of October 1, 1997, and as
adjusted for the sale by the Company of the shares in the offering. The
beneficial ownership reflected in the following table is calculated in
accordance with Section 13(d) of the Exchange Act after giving effect to the
conversion of all outstanding Preferred Stock into Common Stock. Unless
otherwise indicated, ownership includes sole voting and investment power.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY OWNED SHARES BENEFICIALLY
OWNED AFTER THE
BEFORE THE OFFERING(1) OFFERING(1)
-------------------------- ---------------------
NAME NUMBER PERCENT NUMBER PERCENT
- ------------------------------------------------------------------ ------------- ----------- ---------- ---------
<S> <C> <C> <C> <C>
Amoco Corporation................................................. 5,987,682(2) 99.8% 5,987,682 63.0%
200 East Randolph Drive
Chicago, Illinois 60601
John L. Bishop.................................................... 68,429 1.1 68,429 *
Russel K. Enns.................................................... 10,948 * 10,948 *
George R. Kennedy................................................. 15,205 * 15,205 *
James P. Marcella................................................. 17,107 * 17,107 *
Steven A. Seelig.................................................. 34,215 * 34,215 *
William M. Bartlett............................................... 7,222 * 7,222 *
Robert C. Carr.................................................... -- * -- *
Kenneth L. Melmon................................................. 7,222 * 7,222 *
Walter R. Quanstrom............................................... -- * -- *
Frank J. Sroka.................................................... -- * -- *
Richard C. Williams............................................... 7,222 * 7,222 *
Directors and Executive Officers as a Group (12 persons).......... 175,173 2.8 175,173 1.8
</TABLE>
- ------------------------
* Less than 1%
(1) Except in the case of Amoco, shares listed as beneficially owned represent
shares subject to options granted by the Company, which are exercisable
within 60 days of October 1, 1997.
(2) Includes 1,058,394 outstanding shares of Common Stock, 4,929,288 shares of
Common Stock issuable upon conversion of the Company's outstanding Series A
and Series B Preferred Stock. All such shares of Common Stock and Preferred
Stock are owned of record by ATC, a wholly owned subsidiary of Amoco.
65
<PAGE>
OWNERSHIP OF PARENT STOCK
The following table sets forth at October 6, 1997, the ownership of common
stock, no par value per share, of Amoco Corporation by the Company's directors,
the Named Executive Officers, and all directors and executive officers of the
Company as a group. Unless otherwise indicated, the persons named below have
sole voting and investment power with respect to the shares beneficially owned
by them. The directors and executive officers of Vysis own in the aggregate less
than one percent of the common stock of Amoco Corporation.
<TABLE>
<CAPTION>
TOTAL SHARES
BENEFICIALLY
NAME OWNED(1)
- -------------------------------------------------------------------------------------------- --------------------
<S> <C>
John L. Bishop.............................................................................. 55
Russel K. Enns.............................................................................. --
George R. Kennedy........................................................................... --
James P. Marcella........................................................................... --
Steven A. Seelig............................................................................ 3,636
William M. Bartlett......................................................................... --
Robert C. Carr.............................................................................. 59,547
Kenneth L. Melmon........................................................................... --
Walter R. Quanstrom(2)...................................................................... 71,956
Frank J. Sroka(3)........................................................................... 29,550
Richard C. Williams......................................................................... --
Directors and Executive Officers as a Group (12 persons)(2)(3).............................. 167,172
</TABLE>
- ------------------------
(1) The share amounts include those shares as to which the following persons had
a right to acquire beneficial ownership by exercising stock options as of
October 6, 1997, or within 60 days after that date: Mr. Seelig, 800 shares;
Mr. Carr, 59,500 shares; Mr. Quanstrom, 55,000 shares; Mr. Sroka, 19,800;
and all directors and executive officers as a group, 135,100 shares. Also
included are shares owned in the Amoco Performance Share Plan and those
allocable to the Amoco Stock Fund accounts of participants in the Amoco
Employee Savings Plan.
(2) Includes 500 shares as to which Mr. Quanstrom shares voting and dispositive
authority.
(3) Includes 2,068 shares as to which Mr. Sroka shares voting and dispositive
authority.
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<PAGE>
CERTAIN TRANSACTIONS
Prior to the consummation of this offering, the Company operated as a
subsidiary of Amoco. In connection therewith, the Company engaged in a variety
of transactions with Amoco and may continue to do so on a more limited basis in
the future.
The Company has in the past received certain legal services (internal and
external), research and development support, and administrative support from
Amoco and has paid for such services and support on an actual usage or pro rata
basis. The amount of these costs allocated to the Company aggregated
$11,569,000, $3,058,000, $304,000 and $142,000 in 1994, 1995, 1996 and the nine
months ended September 30, 1997, respectively. Amoco has informed the Company
that it does not intend to provide any such services or support after completion
of this offering. In addition, the Company received funding requirements and
assets from Amoco.
The costs of these services, funding requirements and asset transfers were
accounted for by Amoco as intercompany receivables from Vysis. These receivables
were periodically converted into equity of Vysis. This investment by Amoco in
the Company aggregated $22,445,000, $15,384,000 and $2,315,000 in 1994, 1995 and
1996. Additionally in 1996, such amounts were also represented by a note payable
to Amoco. At December 31, 1996, the balance of the note payable was $5,106,000.
This note was subsequently converted into 553,126 shares of Series B Preferred
Stock. In 1997, the sharing of costs and funding has continued, with the
aggregate amount of such costs and funding represented by a promissory note that
bears interest at 7.5% per annum. At September 30, 1997, the balance of the note
payable was $7,381,000 due from the Company to Amoco. Amoco will fund ongoing
cash requirements through the completion of this offering resulting in an
increase to the 1997 note payable. This note will not be converted into equity
but will be retired with a portion of the proceeds of this offering. Amoco has
advised the Company that it does not intend to continue such funding after
completion of this offering. See "Use of Proceeds."
The Company and Amoco will enter into a Cooperation Agreement, which sets
out the terms on which Amoco and the Company will cooperate after the closing of
this offering in handling various matters. These matters include (i)
documentation of the assignment to the Company of certain intellectual property
rights, (ii) the Gen-Probe litigation, (iii) retention by Amoco of certain
liabilities relating to ATC's discontinued operations, and (iv) access to
Amoco's and the Company's business records. See "Business--Litigation."
Prior to the completion of this offering, the Company has been included in
the consolidated or combined federal and state income tax returns of Amoco. For
periods after the completion of this offering, the Company will no longer be
included in Amoco's federal consolidated returns, although it may continue to be
included in one or more state or local combined returns. Pursuant to a Tax
Allocation Agreement, for periods during which the Company is included in
Amoco's federal consolidated return, the Company generally receives no credit
for tax benefits accruing during such periods to other members of the Amoco
consolidated group as a result of any deductions or losses incurred by the
Company; except that beginning in 1996, debt obligations of the Company owed to
Amoco are to be reduced to the extent of any such tax benefits. For any combined
state or local return in which the Company is included, the Company pays Amoco,
or Amoco pays the Company, as the case may be, on the basis of a comparison
between the actual combined tax liability and the liability that would have
arisen had the Company been excluded.
Immediately prior to the completion of this offering, Vysis and Amoco will
enter into a registration rights agreement (the "Registration Agreement")
pursuant to which Vysis will grant Amoco registration rights under the
Securities Act with respect to the shares of Common Stock owned by Amoco. Under
the Registration Agreement, Amoco will have the right commencing 180 days after
the date of this Prospectus to demand that the Company register its shares under
the Securities Act. However, Amoco has agreed with the Underwriters that it will
not sell any shares of Common Stock for a period of one year following the date
of this Prospectus without the prior written consent of Furman Selz LLC. See
"Underwriting." Under the Registration Agreement, Amoco may only sell securities
under one effective demand registration per
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calender year and the right may only be exercised with respect to specified
minimum amounts of shares of Common Stock. The Company may postpone such a
demand under certain circumstances. Amoco will have the right to include shares
of Common Stock owned by it in any registration proposed by the Company under
the Securities Act, subject to certain limitations.
Three current directors of the Company (Messrs. Bartlett, Melmon and
Williams) have provided consulting services to the Company from time to time.
See "Management--Consulting Agreements."
DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of the Company consists of 35,000,000 shares of
Common Stock, $0.001 par value, and 10,000,000 shares of Preferred Stock, $0.001
par value. Upon completion of this offering there will be 9,501,260 shares of
Common Stock outstanding (10,026,260 shares if the Underwriters' over-allotment
option is exercised in full), and no shares of Preferred Stock outstanding. The
authorized and unissued shares of the Preferred Stock and Common Stock may be
utilized for a variety of corporate purposes, including future public offerings
and corporate acquisitions, and could be utilized, under certain circumstances,
as a method of preventing or making more difficult a takeover or change in
control of the Company.
COMMON STOCK
Prior to completion of the offering 1,071,972 shares of Common Stock were
issued and outstanding and were held of record by six holders. All such shares
are validly issued, fully paid and nonassessable. All shares of Common Stock are
entitled to participate in dividends, subject to preference rights of holders of
the Preferred Stock, when, as and if declared by the Board of Directors out of
funds legally available therefor, are entitled to participate equally in the
assets of the Company, after paying or setting aside sufficient assets to fully
pay the preferential amounts owed to holders of Preferred Stock, in the event of
liquidation, and have no right of conversion, redemption, preemptive or
preferential rights to subscribe for any additional shares of any class of
capital stock of the Company, whether now or hereafter authorized. Holders of
Common Stock are entitled to one vote per share on all matters submitted to a
vote of the stockholders. Such voting rights are non-cumulative, so that
stockholders holding more than 50% of the outstanding shares entitled to vote
are able to elect all members of the Board of Directors. See "Risk
Factors--Continued Control by Principal Stockholder."
PREFERRED STOCK
No shares of Preferred Stock will be outstanding after this offering. The
Board of Directors is authorized to issue, by resolution and without any action
by stockholders, up to 10,000,000 shares of Preferred Stock and may establish
the designations, dividend rights, conversion rights, voting rights, terms of
redemption, liquidation preference, sinking fund terms and all other
preferences, relative rights and limitations of the shares of each series of
Preferred Stock.
SERIES A CONVERTIBLE PREFERRED STOCK.
Prior to the completion of this offering, 6,200,000 shares of Preferred
Stock are issued and outstanding, designated as Series A Preferred Stock.
CONVERSION INTO COMMON STOCK. Each share of Series A Preferred Stock is
convertible at any time, at the option of the holder, into shares of Common
Stock. The Series A Preferred Stock will automatically convert into an aggregate
of 4,525,547 shares of Common Stock upon completion of this offering.
VOTING RIGHTS. Each share of Series A Preferred Stock is entitled to a
number of votes per share equal to the number of shares of Common Stock into
which such share is then convertible. Each holder of Series
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A Preferred Stock is entitled to vote on all matters submitted to a vote of the
holders of the Common Stock, voting together as a single class.
DIVIDENDS. Holders of Series A Preferred Stock are entitled to receive,
before any dividends are declared and set aside for any class or series of stock
ranking as to dividends or upon liquidation junior to the Series A Preferred
Stock, when, as and if declared by the Board of Directors, dividends in cash
equal to six percent per annum times the liquidation preference (initially
$8.064) per share. Such dividends are cumulative, and unless such cumulative
dividends are paid, no sums may be set aside for or applied to the purchase or
redemption of, and no dividends may be declared or paid or any other
distribution ordered or made upon, any shares of any class or series of stock
ranking as to dividends or upon liquidation junior to the Series A Preferred
Stock. Holders of Series A Preferred Stock are also entitled to share in any
dividends paid on the Common Stock in an amount equal to the product of the per
share amount of such dividend times the number of shares of Common Stock into
which such Series A Preferred Stock is then convertible.
LIQUIDATION RIGHTS. In the event of any liquidation, dissolution or winding
up of the Company, whether voluntary or involuntary, the holders of Series A
Preferred Stock are entitled to receive out of the assets of the Company legally
available for distribution to stockholders, prior and in preference to any
distribution of any assets to the holders of Common Stock or any stock ranking
junior in liquidation to the Series A Preferred Stock, the sum of $8.064 per
share plus any unpaid dividends with respect to such shares. If the assets of
the Company available for distribution are insufficient to pay the holders of
Series A Preferred Stock the amounts to which they are entitled, the holders of
Series A Preferred Stock share ratably in any such distribution of assets. After
payment to the holders of Series A Preferred Stock as described above, the
entire remaining assets of the Company legally available for distribution are to
be distributed among the holders of the Series A Preferred Stock and the Common
Stock in proportion to number of shares of Common Stock into which such Series A
Preferred shares are convertible, or the number of shares of Common Stock held
by such holders, as the case may be.
SERIES B CONVERTIBLE PREFERRED STOCK.
Prior to the completion of this offering, 553,126 shares of Preferred Stock
are issued and outstanding, designated as Series B Preferred Stock. The Series B
Preferred Stock is identical to the Series A Preferred Stock except that the
liquidation preference of the Series B Preferred Stock is equal to $9.23 per
share. The Series B Preferred Stock will automatically convert into an aggregate
of 403,741 shares of Common Stock upon completion of this offering.
DELAWARE ANTI-TAKEOVER LAW
The Company is a Delaware corporation that is subject to Section 203 of the
Delaware General Corporation Law ("Section 203"). Under Section 203 certain
"business combinations" between a Delaware corporation, whose stock generally is
publicly traded or held of record by more than 2,000 stockholders, and an
"interested stockholder" are prohibited for a three-year period following the
date that such stockholder became an interested stockholder, unless (i) the
corporation has elected in its certificate of incorporation not to be governed
by Section 203 (the Company has not made such election), (ii) the business
combination was approved by the board of directors of the corporation before the
other party to the business combination became an interested stockholder, (iii)
upon consummation of the transaction that made it an interested stockholder, the
interested stockholder owned at least 85% of the voting stock of the corporation
outstanding at the commencement of the transaction (excluding voting stock owned
by directors who are also officers or held in employee benefit plans in which
the employees do not have a confidential right to tender or vote stock held by
the plan) or (iv) the business combination is approved by the board of directors
of the corporation and ratified by two-thirds of the voting stock which the
interested stockholder did not own. The three-year prohibition also does not
apply to certain business combinations proposed by an interested stockholder
following the announcement or notification of certain
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extraordinary transactions involving the corporation and a person who had not
been an interested stockholder during the previous three years or who became an
interested stockholder with the approval of a majority of the corporation's
directors. The term "business combination" is defined generally to include
mergers or consolidations between a Delaware corporation and an interested
stockholder, transactions with an interested stockholder involving the assets or
stock of the corporation or its majority-owned subsidiaries, and transactions
which increase an interested stockholder's percentage ownership of stock. The
term "interested stockholder" is defined generally as those stockholders who
become beneficial owners of 15% or more of a Delaware corporation's voting
stock, together with the affiliates or associates of that stockholder.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Company's Common Stock is First
Chicago Trust Company of New York.
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SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has been no market for the Common Stock.
Future sales of substantial amounts of Common Stock in the public market
following this offering could adversely affect the prevailing market price of
the Common Stock.
Upon completion of this offering, the Company will have 9,501,260 shares of
Common Stock outstanding. Of these shares, the 3,500,000 shares sold in the
offering will be freely tradeable without restriction under the Securities Act,
except any shares purchased by persons deemed to be "affiliates" of the Company
which will be subject to certain resale limitations of Rule 144 under the
Securities Act. The remaining shares, all but 13,578 of which will be owned by
Amoco, will be "restricted securities" within the meaning of Rule 144 and may
not be sold unless registered under the Securities Act or sold in accordance
with an exemption therefrom, such as Rule 144 or Rule 701 thereunder.
In general, under Rule 144, as currently in effect, if a period of at least
one year has elapsed between the later of the date on which "restricted
securities" were acquired from the Company or an "affiliate" of the Company then
the holder of such restricted securities is entitled to sell a number of shares
within any three-month period that does not exceed the greater of (i) one
percent of the then outstanding shares of the Common Stock (approximately 95,000
after the offering) or (ii) the average weekly reported volume of trading of the
Common Stock during the four calendar weeks preceding such sale. Sales under
Rule 144 are also subject to certain requirements pertaining to the manner of
such sales, notices of such sales and the availability of current public
information concerning the Company. Affiliates of the Company may sell shares
not constituting restricted shares in accordance with the foregoing volume
limitations and other requirements but without regard to the one-year period.
Under Rule 144(k), if a period of at least two years has elapsed between the
later of the date on which restricted shares were acquired from the Company or
the date on which they were acquired from an affiliate of the Company, a holder
of such restricted shares who is not an affiliate of the Company at the time of
the sale and has not been an affiliate of the Company for at least three months
prior to the sale would be entitled to sell the shares immediately without
regard to the volume limitations and other conditions described above. Amoco is
an affiliate of the Company and could begin selling shares of Common Stock of
the Company owned by it pursuant to Rule 144 subject to the volume restrictions
described above.
Rule 701 may be relied upon with respect to the resale of securities
originally purchased from the Company by its employees, directors, officers,
consultants or advisers prior to the closing of this offering, pursuant to
written compensatory benefit plans or written contracts relating to the
compensation of such persons. Securities issued in reliance on Rule 701 are
restricted securities and, beginning 90 days after the date of this Prospectus,
may be sold by non-affiliates subject only to the manner of sale provisions of
Rule 144, and by affiliates under Rule 144 without compliance with its one-year
minimum holding period requirement.
The Company has agreed that during the period beginning from the date of
this Prospectus and continuing to and including the date 180 days after the date
of this Prospectus, not to offer, sell, contract to sell or otherwise dispose of
any shares of Common Stock, any securities of the Company that are substantially
similar to the shares of the Common Stock or that are convertible or
exchangeable into securities that are substantially similar to the shares of the
Common Stock (other than pursuant to employee stock option plans existing on the
date of this Prospectus) without the prior written consent of Furman Selz LLC,
except for the shares of Common Stock offered in connection with this offering.
The Company has also agreed to require, pursuant to its rights under the Stock
Incentive Plan, that each option holder not sell or otherwise transfer or
dispose of any shares of Common Stock acquired upon exercise of such holders'
options, without the prior written consent of Furman Selz LLC, during the same
180 day period. Amoco has agreed that during the period beginning from the date
of this Prospectus and continuing to and including the date one year after the
date of this Prospectus, not to offer, sell, contract to sell or otherwise
dispose of any shares of Common Stock, any securities of the Company that are
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substantially similar to the shares of Common Stock or that are convertible or
exchangeable into Common Stock or securities, which are substantially similar to
the shares of Common Stock without the prior written consent of Furman Selz LLC.
See "Underwriting."
The Company will grant Amoco registration rights with respect to shares of
Common Stock owned by Amoco. See "Certain Transactions."
The Company intends to file, shortly after completion of this offering, a
registration statement covering all 985,402 shares of Common Stock reserved for
issuance under the Stock Incentive Plan. Following the registration of such
shares, all shares purchased under such plan will be available for resale to the
public market without restriction, except that affiliates of the Company must
comply with the provisions of Rule 144 other than the holding period
requirement.
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UNDERWRITING
Each of the Underwriters named below (collectively, the "Underwriters"), for
which Furman Selz LLC, Deutsche Morgan Grenfell Inc. and EVEREN Securities, Inc.
are acting as representatives (the "Representatives"), have severally agreed,
subject to the terms and conditions set forth in the underwriting agreement
dated as of , 1997 (the "Underwriting Agreement"), to purchase, and
the Company has agreed to sell to each of the Underwriters, the aggregate number
of shares of Common Stock set forth opposite its name below:
<TABLE>
<CAPTION>
NUMBER OF
NAME SHARES
- --------------------------------------------------------------------------------- ----------
<S> <C>
Furman Selz LLC..................................................................
Deutsche Morgan Grenfell Inc.....................................................
EVEREN Securities, Inc...........................................................
----------
Total........................................................................ 3,500,000
</TABLE>
The Underwriting Agreement provides that the obligations of the several
Underwriters are subject to the approval of certain legal matters by counsel and
various other conditions. The nature of the Underwriters' obligations is such
that they are committed to purchase all of the above shares if any are
purchased. The Representatives have advised the Company that the Underwriters
propose to offer the shares of Common Stock directly to the public at the public
offering price set forth on the cover page of this Prospectus and to certain
dealers at such price less a concession not in excess of $ per share. The
Underwriters may allow, and such dealers may re-allow, a concession not in
excess of $ per share to certain other dealers. After the offering, the
offering price and other selling terms may be changed by the Representatives.
Prior to the offering made hereby, there has been no public market for the
Common Stock. Accordingly, the initial public offering price for the Common
Stock will be determined by negotiations among the Company and the
Representatives. Among the factors to be considered in such negotiations are the
Company's results of operations and current financial condition, estimates of
the business potential and prospects of the Company, the experience of the
Company's management, the economics of the industry in general, the general
condition of the equities market and other relevant factors. There can be no
assurance that any active trading market will develop for the Common Stock or as
to the price at which the Common Stock may trade in the public market from time
to time subsequent to the offering.
Certain persons participating in the offering may over-allot or effect
transactions that stabilize, maintain or otherwise affect the market price of
the Common Stock at levels above those which might otherwise prevail in the open
market, including by entering stabilizing bids or effecting syndicate covering
transactions. A stabilizing bid means the placing of any bid or the effecting of
any purchase, for the purpose of pegging, fixing or maintaining the price of the
Common Stock. A syndicate covering transaction means the placing of any bid on
behalf of the underwriting syndicate or the effecting of any purchase to reduce
a short position created in connection with the offering. Such transactions may
be effected on the Nasdaq National Market, in the over-the-counter market, or
otherwise. Such stabilizing, if commenced, may be discontinued at any time.
The Company has granted to the Underwriters an option, expiring 30 days from
the date of this Prospectus, to purchase up to 525,000 additional shares of
Common Stock on the same terms as set forth on the cover page of this
Prospectus, solely to cover over-allotments, if any, incurred in the sale of the
shares of Common Stock offered hereby. If the Underwriters exercise the option,
each Underwriter will
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have a firm commitment, subject to certain conditions, to purchase such number
of additional shares of Common Stock as is proportional to such Underwriter's
initial commitment to purchase shares from the Company.
The Company has agreed that during the period beginning from the date of
this Prospectus and continuing to and including the date 180 days after the date
of this Prospectus, not to offer, sell, contract to sell or otherwise dispose of
any shares of Common Stock, any securities of the Company that are substantially
similar to the shares of the Common Stock or that are convertible or
exchangeable into securities that are substantially similar to the shares of the
Common Stock (other than pursuant to employee stock option plans existing on the
date of this Prospectus) without the prior written consent of Furman Selz LLC,
except for the shares of Common Stock offered in connection with this offering.
The Company has also agreed to require, pursuant to its rights under the Stock
Incentive Plan, that each option holder not sell or otherwise transfer or
dispose of any shares of Common Stock acquired upon exercise of such holders'
options without the prior written consent of Furman Selz LLC during the same 180
day period. Amoco has agreed that during the period beginning from the date of
this Prospectus and continuing to and including the date one year after the date
of this Prospectus, not to offer, sell, contract to sell or otherwise dispose of
any shares of Common Stock, any securities of the Company that are substantially
similar to the shares of Common Stock or that are convertible or exchangeable
into Common Stock or securities that are substantially similar to the shares of
Common Stock without the prior written consent of Furman Selz LLC.
The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act, or to contribute to
payments that the Underwriters may be required to make in respect thereof.
The Representatives have informed the Company that the Underwriters do not
intend to confirm sales to any accounts over which they exercise discretionary
authority.
The principal address of Furman Selz LLC is 230 Park Avenue, New York, New
York 10169. The principal address of Deutsche Morgan Grenfell Inc. is 31 West
52nd Street, New York, New York 10019. The principal address of EVEREN
Securities, Inc. is 77 West Wacker Drive, 31st Floor, Chicago, Illinois 60601.
LEGAL MATTERS
The validity of the shares of Common Stock offered hereby will be passed
upon for the Company by Mayer, Brown & Platt, Chicago, Illinois. Certain legal
matters relating to this offering will be passed upon for the Underwriters by
Willkie Farr & Gallagher, New York, New York.
EXPERTS
The consolidated financial statements as of December 31, 1995 and 1996 and
September 30, 1997 and for each of the three years in the period ended December
31, 1996 and for the nine months ended September 30, 1997 included in this
Prospectus have been so included in reliance on the report of Price Waterhouse
LLP, independent accountants, given on the authority of said firm as experts in
auditing and accounting.
The statements set forth in this Prospectus under the captions "Risk
Factors--Uncertain Ability to Practice Technology," "Business--Ability to
Practice Technology," "Business--Litigation" and "Business--Patents and License
Rights and Proprietary Information" have been passed upon by McCutchen, Doyle,
Brown & Enerson, San Francisco, California, patent counsel to the Company, as
experts on such matters, and are included herein based upon that review and
approval.
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AVAILABLE INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") a registration statement on Form S-1 (the "Registration
Statement," which term shall include any and all amendments, exhibits, annexes
and schedules thereto) under the Securities Act with respect to the shares of
Common Stock offered hereby. This Prospectus does not contain all of the
information set forth in the Registration Statement and the exhibits and
schedules thereto. For further information with respect to the Company and such
Common Stock, reference is hereby made to such Registration Statement, which can
be inspected and copied at the public reference facilities maintained by the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, and at the
Regional Offices of the Commission at Seven World Trade Center, New York, New
York 10048 and 500 West Madison Street, Chicago, Illinois 60661. Copies of such
material also can be obtained from the Public Reference Section of the
Commission, 450 Fifth Street, N.W., Washington, D.C. 20549 at prescribed rates.
In addition, the Registration Statement may be accessed electronically at the
Commission's site on the World Wide Web at http://www.sec.gov.
Statements contained in this Prospectus as to the contents of any contract
or other document are not necessarily complete, and in each instance reference
is made to the copy of such contract or other document filed as an exhibit to
the Registration Statement, each such statement being qualified in all respects
by such reference.
The Company is not currently subject to the informational requirements of
the Securities Exchange Act of 1934, as amended (the "Exchange Act"). As a
result of the offering of the Company's Common Stock, the Company will become
subject to the informational requirements of the Exchange Act. The Company
intends to furnish its stockholders with annual reports containing financial
statements audited by independent accountants.
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ANNEX
GLOSSARY
AMNIOCENTESIS: An invasive procedure used to test for fetal abnormalities in
which amniotic fluid (which contains fetal cells) is withdrawn by syringe and
needle from the amniotic sac surrounding the fetus.
AMNIOCYTE: A particular type of embryo cell that is contained within amniotic
fluid. Cells contained in the amniotic fluid are sloughed off from the fetus and
are representative of the genetic make-up of the fetus.
AMPLIFICATION: An increase in amount or intensity. Gene amplification refers to
an increase in the number of copies of a gene beyond the normal number. This
occurs spontaneously in many forms of cancer. Amplification also refers to the
copying of gene sequences, for example, as in PCR or Q-beta replicase
amplification, to increase the number of copies of gene sequences available for
detection.
ANEUPLOIDY: See Aneusomy.
ANEUSOMY: Having an abnormal number of chromosomes other than the normal pair
per cell. Also termed aneuploidy.
ARRAY: A matrix of DNA probes that are attached to a solid surface, where the
identity of each probe and its location on the surface is known.
BAC (BACTERIAL ARTIFICIAL CHROMOSOME): Used for molecular cloning of DNA
fragments that are approximately 100 to 200 kilobases in length.
BANDING: A technique of staining chromosomes to produce a characteristic pattern
of lateral bands across a metaphase chromosome.
BASE: Refers to the part of a nucleotide in a DNA molecule such as Adenine,
Thymine, Guanine or Cytosine, which chemically distinguishes them from one
another.
BASE PAIR (BP): Base pair refers to a complementary set of nucleotides in DNA.
Adenine (A) is always paired to thymine (T), and guanine (G) is always paired to
cytosine (C). A thousand base pairs is one kilobase (kb). The base pair is a
unit of measurement of the length of double stranded DNA sequence.
CELL: The smallest unit of living structure capable of independent existence,
composed of a membrane-enclosed mass of protoplasm and containing a nucleus.
CENTROMERE OR CENTROMERIC REGION: The constricted region usually near the center
of a chromosome consisting of highly repeated DNA sequences.
CHEMOTHERAPY: The use of drugs (such as methotrexate and adriamycin) in the
treatment or control of diseases.
CHORIONIC VILLI: Fingerlike projections extending from the vascular region of
the membrane surrounding the fetus to the uterine lining. The cells in this
tissue have the same genetic profile as that of the embryo and therefore can be
used to detect genetic defects of the embryo.
CHORIONIC VILLI SAMPLING (CVS): A procedure used to obtain a specimen of
chorionic villi for the purposes of prenatal diagnosis at 8 to 10 weeks
gestation.
CHROMOSOME: Structure in a cell on which genes are located, consisting of a
highly compacted stretch of DNA with associated proteins.
C-MYC: An oncogene found on chromosome 8 at locus 8q24. Translocation or
amplification of this oncogene may result in cancer.
COMPARATIVE GENOMIC HYBRIDIZATION (CGH): A method for analyzing DNA for
unbalanced genetic alterations. Using CGH one can observe the gains and losses
of whole chromosomes or parts of chromosomes.
CONTIG: A set of DNA clones or probes which collectively span, without gaps, a
particular gene region.
A-1
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CRI-DU-CHAT SYNDROME: A non-hereditary congenital disease caused by the loss of
DNA on the short arm of chromosome 5.
CYSTOSCOPY: The use of a flexible scope inserted through the urethra to examine
the bladder.
CYTOGENETICS: The study of heredity, human chromosomes and their abnormalities.
CYTOLOGY: The study of cells, their formation, structure, function and
pathology.
DENATURATION: The separation of double stranded chromosomal DNA into its
component single strands.
DIRECT LABELING: The attachment of a fluorophore directly onto a DNA probe.
DNA: An acronym for deoxyribonucleic acid, the chemical basis of heredity. DNA
contains all the information necessary for any organism to develop and function.
The four chemical building blocks of DNA are Adenine, Thymine, Cytosine and
Guanine.
DOWN SYNDROME: A non-hereditary congenital disease caused by an extra copy of
chromosome 21 (trisomy 21).
FLUORESCENCE: Visible light of various colors that is emitted by certain
fluorescent molecules when irradiated with light of a particular wavelength.
FLUORESCENCE IN SITU HYBRIDIZATION (FISH): A technique utilizing a fluorophore
labeled DNA probe to detect a particular chromosome or gene that is visualized
by fluorescence microscopy.
FLUOROPHORE: A fluorescent dye that may be attached to another molecule such as
a DNA probe which emits fluorescent light to detect the presence or location of
the molecule.
GENE: A functional unit of heredity which occupies a specific place or locus on
a chromosome.
GENE AMPLIFICATION: Increase in the normal copy number of a gene.
GENE DELETION: Loss of a copy of a gene.
GENE EXPRESSION: The process by which a gene's coded information creates the
structures present and operating in the cell. Expressed genes include those that
are transcribed into the mRNA and then translated into protein and those that
are transcribed into RNA but not translated into protein.
GENE TRANSLOCATION: Movement of a gene from its normal chromosomal location to
another location on the same or different chromosome.
GENOME: The entire complement of genetic material of an organism.
GENOMIC DNA: DNA representative of the entire genome.
GENOMIC DIAGNOSTICS: An emerging field that seeks to develop new genetic tests
based on correlations between genetic abnormalities and disease.
HER-2/NEU: An oncogene associated with progression of certain cancers, e.g.,
breast and ovarian.
HYBRIDIZATION (E.G., DNA HYBRIDIZATION): The binding of complementary sequences
of DNA or RNA through specific base pairing of A:T and G:C.
IN SITU: In the natural or original position in the cell.
IN SITU HYBRIDIZATION: Hybridization occurring within an intact cell.
IN VITRO: Outside the living body.
INTERPHASE: The period of the cell cycle when the cell is not actively dividing.
IVF (IN VITRO FERTILIZATION): A process in which fertilization occurs between an
egg and sperm in an artificial environment outside of the body.
KARYOTYPE: The chromosomal characteristics (number, size and morphology) of an
individual cell, usually presented as a systematized display.
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KARYOTYPING: The process of generating a karyotype which is documented by the
use of a photomicrograph or a digital image generated by a genetic workstation.
METAPHASE: The stage of cell division when chromosomes are aligned at the center
of the cell prior to separation. A "metaphase spread" refers to the view of a
cell's chromosomes in the metaphase stage on a slide.
MESSENGER RNA (MRNA): An RNA that carries the genetic code for a particular gene
from the chromosome in the nucleus into the cytoplasm and acts as a template for
the formation of the protein product of the gene.
MYELOID: Cells of the blood.
NUCLEIC ACID: DNA or RNA.
NUCLEIC ACID PROBE: A specifically designed piece of DNA or RNA used to detect a
homologous target sequence of chromosomes, genes or gene sequences by nucleic
acid hybridization.
NUCLEIC ACID SEQUENCE: Refers to the order of the nucleotides in a segment of
DNA or RNA.
NUCLEOTIDE: A subunit of DNA or RNA consisting of a base (adenine, guanine,
thymine, or cytosine in DNA), a phosphate molecule and a sugar (deoxyribose)
molecule.
NUCLEUS: A cellular organelle enclosed in a definite membrane that is essential
to cell function (as reproduction and protein synthesis) and that contains
chromosomes.
OLIGONUCLEOTIDE: A synthetically developed short linear sequence of up to
approximately 40 to 50 nucleotides.
ONCOGENE: A gene that causes a cell to grow in an uncontrolled manner and is
responsible for tumor development. Mutation, over-expression, or amplification
of oncogenes in cells may cause the cell to "transform" to a cancerous state.
PAP (PAP TEST): A common test utilizing cells that are scraped from the cervix
and vagina. The cells are studied for histological and physiological changes
that may be indicative of disease after being treated with Papanicolaou stain.
PCR (POLYMERASE CHAIN REACTION): An enzymatic method of directing replication of
a segment containing a specific DNA sequence of interest, to rapidly produce
many copies of the sequence.
POINT MUTATION: A single base change of DNA sequence.
Q-BETA REPLICASE (QBR): A RNA polymerase occurring naturally in the
bacteriophage QB. Its enzymic function is to make many copies of its RNA
substrate and can be used as a sensitive method of rapidly generating an easily
detectable signal, serving as a functional alternative amplification technology.
Q-BETA REPLICASE AMPLIFICATION (QBR AMPLIFICATION): Amplification of the probe
(as opposed to the target) by Q-beta replicase provides a sensitive method of
generating a large detectable signal. QBR amplification achieves a billion-fold
increase of the probe in as little as 30 minutes without temperature cycling.
RNA (RIBONUCLEIC ACID): Any of a family of polynucleotides characterized by
their component sugar (ribose) and one of their pyrimidines (uracil). There are
three classes of RNA: messenger RNA (mRNA), ribosomal RNA (rRNA) and transfer
RNA (tRNA).
RECEPTOR: (1) A chemical group or protein molecule in a cell that has an
affinity for a specific hormone, chemical, molecule or virus or (2) a cellular
entity that acts as an intermediary between a chemical agent and a tissue in
which the interaction results in an identifiable physical response by the cells
of tissue.
TRISOMY: A chromosomal abnormality where three copies of a chromosome exist
within a cell nucleus.
A-3
<PAGE>
VYSIS, INC.
(AN INDIRECT SUBSIDIARY
OF AMOCO CORPORATION)
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Report of Independent Accountants..................................................... F-2
Consolidated Balance Sheet............................................................ F-3
Consolidated Statement of Operations.................................................. F-4
Consolidated Statement of Stockholders' Equity........................................ F-5
Consolidated Statement of Cash Flows.................................................. F-6
Notes to Consolidated Financial Statements............................................ F-7
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of
Vysis, Inc.
In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of operations, of stockholders' equity and of cash flows
present fairly, in all material respects, the financial position of Vysis, Inc.
(an indirect subsidiary of Amoco Corporation) and its subsidiaries at December
31, 1995 and 1996 and September 30, 1997, and the results of their operations
and their cash flows for each of the three years in the period ended December
31, 1996 and the nine month period ended September 30, 1997, in conformity with
generally accepted accounting principles. These financial statements are the
responsibility of Vysis, Inc.'s management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with generally accepted auditing
standards which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
Chicago, Illinois
November 21, 1997
F-2
<PAGE>
VYSIS, INC.
(AN INDIRECT SUBSIDIARY
OF AMOCO CORPORATION)
CONSOLIDATED BALANCE SHEET
(IN THOUSANDS OF DOLLARS,
EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
PRO FORMA
STOCKHOLDERS'
DECEMBER 31, SEPTEMBER 30, EQUITY
-------------------- ------------- AT SEPTEMBER
1995 1996 1997 30,
--------- --------- ------------- 1997
(NOTE 1)
---------------
(UNAUDITED)
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash..................................................... $ 247 $ 48 $ 294
Accounts receivable, net................................. 1,568 2,801 3,391
Inventories.............................................. 1,336 2,390 2,688
Other current assets..................................... 581 2,049 1,380
--------- --------- -------------
Total current assets................................... 3,732 7,288 7,753
Property and equipment, net................................ 13,205 5,557 4,954
Investments................................................ 715 100 100
Goodwill, net.............................................. -- 388 276
Other assets............................................... 1,515 1,782 2,010
--------- --------- -------------
Total assets........................................... $ 19,167 $ 15,115 $ 15,093
--------- --------- -------------
--------- --------- -------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities................. $ 5,632 $ 7,109 $ 7,104
Notes payable--Amoco..................................... -- 5,106 7,381
Deferred revenue......................................... 350 407 552
--------- --------- -------------
Total current liabilities.............................. 5,982 12,622 15,037
--------- --------- -------------
Commitments and contingencies (Notes 6, 10 and 12)
Stockholders' equity:
Convertible preferred stock, $0.001 par value; 10,000,000
shares authorized:
Series A; none issued and outstanding at December 31,
1995; 6,200,000 shares designated, issued and
outstanding at December 31, 1996 and September 30,
1997; none issued and outstanding pro forma............ -- 6 6 $ --
Series B; none issued and outstanding at December 31,
1995 and 1996; 553,126 designated, issued and
outstanding at September 30, 1997; none issued and
outstanding pro forma.................................. -- -- 1 --
Common stock, $0.001 par value; 35,000,000 shares
authorized; none issued and outstanding at December 31,
1995; 1,058,394 shares issued and outstanding at
December 31, 1996, 1,071,972 issued and outstanding at
September 30, 1997; 6,001,260 shares issued and
outstanding pro forma.................................. -- 1 1 6
Additional paid-in capital............................... -- 17,555 27,012 27,014
Capital contribution--Amoco.............................. 13,189 -- -- --
Deferred compensation.................................... -- (90) (259) (259)
Cumulative translation adjustment........................ (4) 16 (248) (248)
Accumulated deficit...................................... -- (14,995) (26,457) (26,457)
--------- --------- ------------- ---------------
Total stockholders' equity............................. 13,185 2,493 56 $ 56
--------- --------- ------------- ---------------
---------------
Total liabilities and stockholders' equity............. $ 19,167 $ 15,115 $ 15,093
--------- --------- -------------
--------- --------- -------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE>
VYSIS, INC.
(AN INDIRECT SUBSIDIARY
OF AMOCO CORPORATION)
CONSOLIDATED STATEMENT OF OPERATIONS
(IN THOUSANDS OF DOLLARS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
---------------------------------- -----------------------
1994 1995 1996 1997
---------- ---------- ---------- 1996 ----------
-----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues:
Product sales...................................... $ 5,373 $ 6,296 $ 11,022 $ 7,324 $ 10,558
Grant and other revenue............................ 30 921 2,216 1,647 1,667
---------- ---------- ---------- ----------- ----------
Total revenue.................................... 5,403 7,217 13,238 8,971 12,225
Cost of goods sold................................... 3,486 4,022 5,529 3,742 4,773
---------- ---------- ---------- ----------- ----------
Gross profit......................................... 1,917 3,195 7,709 5,229 7,452
---------- ---------- ---------- ----------- ----------
Operating expenses:
Research and development........................... 11,639 8,871 9,456 6,536 7,762
Selling, general and administrative................ 8,937 12,025 16,286 12,500 10,785
---------- ---------- ---------- ----------- ----------
Total operating expenses......................... 20,576 20,896 25,742 19,036 18,547
---------- ---------- ---------- ----------- ----------
Loss from operations................................. (18,659) (17,701) (18,033) (13,807) (11,095)
---------- ---------- ---------- ----------- ----------
Interest income--Amoco............................... -- -- 107 107 --
Interest expense--Amoco.............................. -- -- (255) (88) (367)
---------- ---------- ---------- ----------- ----------
Net loss............................................. $ (18,659) $ (17,701) $ (18,181) $ (13,788) $ (11,462)
---------- ---------- ---------- ----------- ----------
---------- ---------- ---------- ----------- ----------
Pro forma net loss per share......................... $ (2.98) $ (2.26) $ (1.88)
---------- ----------- ----------
---------- ----------- ----------
Shares used in computing pro forma
net loss per share................................. 6,107 6,107 6,107
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE>
VYSIS, INC.
(An indirect subsidiary
of Amoco Corporation)
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
------------------------------------- ------------------
1994 1995 1996 1997
----------- ----------- ----------- ------------------
<S> <C> <C> <C> <C>
Convertible preferred stock:
Beginning balance.................................... $ -- $ -- $ -- $ 6
Recapitalization..................................... -- -- 6 --
Issuance of Series B convertible preferred stock..... -- -- -- 1
----------- ----------- ----------- ----------
Ending balance....................................... -- -- 6 7
----------- ----------- ----------- ----------
Common stock:
Beginning balance.................................... -- -- -- 1
Recapitalization..................................... -- -- 1 --
----------- ----------- ----------- ----------
Ending balance....................................... -- -- 1 1
Additional paid-in capital:
Beginning balance.................................... -- -- -- 17,555
Recapitalization..................................... -- -- 12,311 --
Income tax benefit from Amoco........................ -- -- 5,031 4,067
Deferred compensation................................ -- -- 213 277
Conversion of note payable--Amoco.................... 5,105
Exercise of stock options............................ 8
----------- ----------- ----------- ----------
Ending balance....................................... -- -- 17,555 27,012
----------- ----------- ----------- ----------
Capital contribution - Amoco:
Beginning balance.................................... 11,720 15,506 13,189 --
Net loss (pre-recapitalization)...................... (18,659) (17,701) (3,186) --
Advances from Amoco.................................. 22,445 15,384 2,315 --
Recapitalization..................................... -- -- (12,318) --
----------- ----------- ----------- ----------
Ending balance....................................... 15,506 13,189 -- --
----------- ----------- ----------- ----------
Deferred compensation:
Beginning balance.................................... -- -- -- (90)
Stock option grants.................................. -- -- (213) (277)
Amortization......................................... -- -- 123 108
----------- ----------- ----------- ----------
Ending balance....................................... -- -- (90) (259)
----------- ----------- ----------- ----------
Cumulative translation adjustment:
Beginning balance.................................... -- 4 (4) 16
Current period activity.............................. 4 (8) 20 (264)
----------- ----------- ----------- ----------
Ending balance....................................... 4 (4) 16 (248)
----------- ----------- ----------- ----------
Accumulated deficit:
Beginning balance.................................... -- -- -- (14,995)
Net loss (post-recapitalization)..................... -- -- (14,995) (11,462)
----------- ----------- ----------- ----------
Ending balance....................................... -- -- (14,995) (26,457)
----------- ----------- ----------- ----------
Total stockholders' equity............................. $ 15,510 $ 13,185 $ 2,493 $ 56
----------- ----------- ----------- ----------
----------- ----------- ----------- ----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE>
VYSIS, INC.
(An indirect subsidiary
of Amoco Corporation)
CONSOLIDATED STATEMENT OF CASH FLOWS
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
---------------------------------- -----------------------
1994 1995 1996 1997
---------- ---------- ---------- 1996 ----------
-----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss........................................... $ (18,659) $ (17,701) $ (18,181) $ (13,788) $ (11,462)
Reconciliation of net loss to net cash used in
operating activities:
Depreciation and amortization.................... 2,019 2,065 1,805 1,435 2,360
Loss (gain) on disposition of assets............. 11 305 (246) (32) 5
Donation of marketable securities................ -- -- 515 515 --
Stock compensation............................... -- -- 123 103 108
Changes in assets and liabilities:
Accounts receivable............................ (418) (480) (943) (169) (756)
Inventories.................................... (273) 204 (804) (1,243) (380)
Other current assets........................... 22 (22) (1,380) (582) 634
Accounts payable and accrued liabilities....... 1,066 3,568 770 53 (178)
Deferred revenue............................... -- 350 57 150 145
---------- ---------- ---------- ----------- ----------
Net cash used in operating activities............ (16,232) (11,711) (18,284) (13,558) (9,524)
---------- ---------- ---------- ----------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment................ (4,234) (2,873) (509) (372) (249)
Acquisition of Techgen............................. -- -- (295) (295) --
Proceeds from sale of property and equipment....... -- -- 6,778 6,778 7
Proceeds from sale of investment................... -- -- 314 -- --
Increase in other assets........................... (521) (110) (635) (1,711) (1,439)
---------- ---------- ---------- ----------- ----------
Net cash provided by (used in) investing
activities..................................... (4,755) (2,983) 5,653 4,400 (1,681)
---------- ---------- ---------- ----------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Capital contributions--Amoco, net.................. 9,424 11,882 2,315 2,118 --
Increase in notes payable--Amoco................... -- -- 9,649 6,686 10,939
Expenses funded by Amoco........................... 11,569 3,058 452 197 509
Proceeds from exercise of stock options............ -- -- -- -- 8
---------- ---------- ---------- ----------- ----------
Net cash provided by financing activities........ 20,993 14,940 12,416 9,001 11,456
Effect of exchange rate changes on cash.............. 4 (9) 16 12 (5)
---------- ---------- ---------- ----------- ----------
Net increase (decrease) in cash...................... 10 237 (199) (145) 246
Cash at beginning of period.......................... -- 10 247 247 48
---------- ---------- ---------- ----------- ----------
Cash at end of period................................ $ 10 $ 247 $ 48 $ 102 $ 294
---------- ---------- ---------- ----------- ----------
---------- ---------- ---------- ----------- ----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE>
VYSIS, INC.
(An indirect subsidiary
of Amoco Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 IS UNAUDITED)
NOTE 1--ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES:
ORGANIZATION AND BUSINESS
Vysis, Inc. ("Vysis" or the "Company") was incorporated in Delaware in 1991.
The Company's principal stockholder is Amoco Technology Company ("ATC"), which
is a wholly owned subsidiary of Amoco Corporation ("Amoco"). In 1991, ATC
acquired from Genzyme its remaining interest in Gene-Trak Systems, a joint
venture focused on infectious disease diagnostics originally formed by Amoco and
Integrated Genetics in 1986, and established Gene-Trak, Inc., a Delaware
corporation, which at that time was named Gene-Trak Systems Corporation. In
March 1994, ATC contributed all of its infectious disease business related
assets and the stock of Gene-Trak, Inc. to the Company. Also, in March 1994, ATC
contributed to the Company all of its genetic disease business related assets,
including the stock of Vysis, Inc. (an Illinois corporation), which at that time
was named Imagenetics, Incorporated. In January 1995, ATC contributed to the
Company all of the assets of its bioinformatics software activities. All assets
contributed by Amoco were recorded by the Company at Amoco's net book value at
the date of transfer. All references to Amoco shall mean Amoco Corporation, an
Indiana corporation, and its wholly owned subsidiary Amoco Technology Company, a
Delaware corporation.
Vysis is a genomic diagnostics company focused on developing and marketing
clinical products to assess the structure and function of the human genome. The
Company's DNA probe technologies provide the clinician with an enhanced ability
to manage disease by assessing the human genome at all levels, including the
ability to determine the presence, absence, number and structure of chromosomes,
individual genes, and specific base pair mutations within genes. The Company
currently markets its genomic testing products for research and clinical use and
markets its food testing products for commercial use.
BASIS OF PRESENTATION
The accompanying consolidated financial statements include those assets,
liabilities, revenues and expenses directly attributable to the Company's
operations. The Company's organization, capitalization and outstanding shares
prior to the 1996 recapitalization, as described in Note 7, are not indicative
of the Company's future structure. Consequently, the accumulated deficit, net
loss and equity contributions are reflected as a single line item "Capital
Contribution - Amoco" in the accompanying consolidated financial statements
prior to February 29, 1996.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company
and its wholly owned subsidiaries. All significant intercompany accounts and
transactions have been eliminated.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect certain reported amounts. Actual results may differ from
those estimates.
F-7
<PAGE>
VYSIS, INC.
(An indirect subsidiary
of Amoco Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 IS UNAUDITED)
NOTE 1--ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
INTERIM FINANCIAL INFORMATION
Interim financial information for the nine month periods ended September 30,
1996 included herein is unaudited; however, in the opinion of management, the
interim financial information includes all adjustments, consisting of only
normal recurring adjustments, necessary for a fair presentation of the results
for the interim periods. The results of operations for the nine months ended
September 30, 1997 are not necessarily indicative of the results for the entire
year.
INITIAL PUBLIC OFFERING
In October 1997, the Board of Directors authorized the Company to proceed
with an initial public offering of the Company's Common Stock (the "Offering").
In connection with the Offering, all of the Company's Convertible Preferred
Stock will automatically convert into 4,929,288 shares of Common Stock. The pro
forma effect of this conversion has been reflected on the accompanying pro forma
balance sheet assuming it had occurred at September 30, 1997 and is unaudited.
PROFITABILITY UNCERTAIN AND NEED FOR FUTURE CAPITAL
The Company has funded its operations to date primarily through capital
contributions and loans from Amoco and cash flows from operations. Amoco intends
to provide financial support to the Company through the earlier of the
completion of the Offering or December 31, 1998. In order to continue operating
and expand its business, however, the Company will need to raise additional
funds. There can be no assurance that any such additional capital will be
available to the Company, or if available, that it will be available on terms
acceptable to Vysis management. The inability of the Company to obtain
additional financing beyond 1998 would have a material adverse impact on the
Company's ability to execute its business plan.
REVENUE RECOGNITION
Product sales revenue is recognized upon shipment of products to customers.
No rights to return products exist other than under normal warranty provisions.
Grant and license fee revenue is recognized as earned pursuant to the related
agreement and is not subject to repayment. Payments received under these
agreements prior to the completion of the related work are recorded as deferred
revenue. Revenue on equipment maintenance contracts is deferred and recognized
ratably over the period of the contract, generally one year.
RESEARCH AND DEVELOPMENT EXPENDITURES
Research and development costs are expensed as incurred and include amounts
relating to grant revenues.
INVENTORIES
Inventories are stated at the lower of cost or market. Cost is determined on
the first-in, first-out method. Inventories are reassessed periodically to
determine whether any potential impairment exists.
F-8
<PAGE>
VYSIS, INC.
(An indirect subsidiary
of Amoco Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 IS UNAUDITED)
NOTE 1--ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
Provision for potentially obsolete or slow moving inventory is made based on
management's analysis of inventory levels and anticipated future sales.
CAPITALIZED SOFTWARE COSTS
Software development costs incurred subsequent to the establishment of
technological feasibility are capitalized in accordance with Statement of
Financial Accounting Standards ("SFAS") No. 86, "Accounting for the Cost of
Computer Software to be Sold, Leased, or Otherwise Marketed." Amortization of
capitalized software development costs is the greater of the amount computed
using (a) the ratio of current revenues to the total of current and anticipated
future revenues or (b) the straight-line method over the estimated economic life
of the product.
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost. Depreciation is provided on the
straight-line basis over the following expected useful lives:
Buildings and improvements 10 to 45 years
Furniture, fixtures and equipment 3 to 7 years
Leasehold improvements are depreciated over the shorter of their useful life or
lease term. Significant improvements are capitalized and repairs and maintenance
charges are expensed as incurred.
INTANGIBLE ASSETS
Intangible assets include capitalized license fees, which are carried at
cost less accumulated amortization, and goodwill. Amortization expense is
calculated on a straight-line basis over the estimated economic useful lives of
the assets, ranging from one to seventeen years. The Company periodically
reviews the recoverability of these assets based primarily upon estimated future
cash flows.
FINANCIAL INSTRUMENTS
The carrying value of accounts receivable, accounts payable and the note
payable to Amoco approximates their fair value. Financial instruments that
potentially subject the Company to concentrations of credit risk consist
principally of accounts receivable. Such credit risk is generally limited due to
the large number of organizations comprising the Company's customer base and
their dispersion across different geographic locations. The Company maintains an
allowance for potentially doubtful accounts based upon specific circumstances,
historical trends and other information.
FOREIGN CURRENCY TRANSLATION
The functional currency for the Company's foreign subsidiaries is the local
currency. Translation from the applicable foreign currency to U.S. dollars is
performed for assets and liabilities using exchange rates in effect at the
balance sheet date and for the statement of operations using the average
exchange rates in effect during the period. Gains or losses from such
translations are accumulated in a separate component
F-9
<PAGE>
VYSIS, INC.
(An indirect subsidiary
of Amoco Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 IS UNAUDITED)
NOTE 1--ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
of stockholders' equity. Gains and losses resulting from foreign currency
transactions are included in the results of operations and have not been
significant.
STOCK-BASED COMPENSATION
Effective January 1, 1996, the Company adopted the disclosure requirements
of SFAS No. 123 "Accounting for Stock-Based Compensation." As permitted, the
Company continues to recognize stock-based compensation costs under the
intrinsic value based method of accounting as prescribed by Accounting
Principles Board Opinion No. 25. The pro forma effects of applying the
provisions of SFAS No. 123 are shown in Note 8 to the consolidated financial
statements.
INCOME TAXES
Amoco has utilized the tax benefits associated with the Company's net
operating losses for the years ended December 31, 1994, 1995 and 1996 and for
the nine months ended September 30, 1997, pursuant to the terms of a tax sharing
agreement. The Company did not record any tax benefit associated with its losses
for the years ended December 31, 1994 and 1995 (see Note 2).
RECENT ACCOUNTING PRONOUNCEMENTS
In February 1997, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 128 "Earnings Per Share," which establishes new standards for computing
and presenting earnings per share information. SFAS No. 128 will be effective
for the Company's 1997 annual financial statements. Reported pro forma net loss
per share data for 1996 and the nine months ended September 30, 1997 are the
same as that computed under the new standard.
In June 1997, the FASB issued SFAS No. 131 "Disclosures about Segments of an
Enterprise and Related Information." SFAS No. 131 establishes new standards for
reporting information about operating segments in interim and annual financial
statements. SFAS No. 131 will be effective for the Company in 1998. The Company
is currently evaluating the impact, if any, this statement will have on
disclosures in its consolidated financial statements.
PRO FORMA NET LOSS PER SHARE AND PRO FORMA SHAREHOLDERS' EQUITY
The Company's historical capital structure is not indicative of its
prospective structure given the conversion of all shares of Preferred Stock into
Common Stock concurrent with the closing of the Company's anticipated initial
public offering. Accordingly, historical net loss per common share is not
considered meaningful and has not been presented herein. The calculation of
shares used in computing pro forma net loss per share includes the effect of the
conversion of the Series A and Series B Convertible Preferred Stock into
4,525,547 and 403,741 shares, respectively, of Common Stock. These conversions
are assumed to occur concurrent with the closing of the Company's anticipated
initial public offering as if they were converted as of January 1, 1996. Common
Stock equivalent shares arising from stock options and warrants are excluded
from the calculation because their effect is antidilutive, except that Common
Stock equivalent shares arising from stock options and warrants (using the
treasury stock method and the
F-10
<PAGE>
VYSIS, INC.
(An indirect subsidiary
of Amoco Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 IS UNAUDITED)
NOTE 1--ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
anticipated initial public offering price) issued during the twelve month period
preceding the initial public offering are included in the computation of pro
forma net loss per share in accordance with SEC Staff Accounting Bulletin No.
83.
NOTE 2--RELATED PARTY TRANSACTIONS:
The Company has in the past received certain legal services, research and
development support, and administrative support from Amoco and has paid for such
services and support on an actual usage or pro rata basis. The amounts of these
costs included in the consolidated statement of operations were as follows (in
thousands):
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
------------------------------- --------------------
1994 1995 1996 1996 1997
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Research and development......................... $ 8,441 $ 2,099 $ -- $ -- $ --
Selling, general and administrative.............. 3,128 959 304 216 142
--------- --------- --------- --------- ---------
$ 11,569 $ 3,058 $ 304 $ 216 $ 142
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
</TABLE>
Management of the Company believes these costs are reasonable under the
circumstances. These charges may not be indicative of the actual costs that
would have been incurred if the Company had operated independently. The Company
also received cash advances, to meet its working capital requirements, and other
capital assets from Amoco. Through December 31, 1995, all such amounts were
recorded as contributed capital and aggregated $22,445,000 and $15,384,000 in
1994 and 1995, respectively. During 1996, such amounts consisted of contributed
capital of $2,315,000 and advances of $10,137,000 under a note payable to Amoco.
During the nine months ended September 30, 1997 such advances aggregated
$11,448,000 under a note payable to Amoco.
The Company has entered into a tax sharing agreement with Amoco effective
January 1, 1996 which provides for a capital contribution to the Company in an
amount approximating the tax effect of including the Company's results of
operations in Amoco's consolidated income tax returns. Under this agreement,
$5,031,000 and $4,067,000 were recorded as contributed capital and a related
reduction of the note payable to Amoco during 1996 and the nine months ended
September 30, 1997, respectively. Under the terms of the tax sharing agreement,
the Company will continue to receive during the remainder of 1997 and beyond a
capital contribution approximating the amounts realized by Amoco, which relate
to deductions or losses to be generated by the Company, for as long as the
Company is included in Amoco's consolidated tax returns.
The Company participates in Amoco's centralized cash management program. As
a result, excess cash receipts are transferred to a centralized cash account
maintained by Amoco.
The note payable to Amoco of $5,106,000 at December 31, 1996 included
accrued interest of $148,000. The note bore interest at 7.5% and was converted
into 553,126 shares of Series B Preferred Stock in September 1997 (see Note 7).
The note payable to Amoco of $7,381,000 at September 30, 1997, includes accrued
interest expense of $367,000, bears interest at 7.5% and is due on the earlier
of the date the Company completes the Offering or December 31, 1998.
F-11
<PAGE>
VYSIS, INC.
(An indirect subsidiary
of Amoco Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 IS UNAUDITED)
NOTE 3--COMPOSITION OF BALANCE SHEET COMPONENTS:
Accounts receivable consisted of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
-------------------- -------------
1995 1996 1997
--------- --------- -------------
<S> <C> <C> <C>
Accounts receivable........................................ $ 1,788 $ 2,957 $ 3,573
Less: allowance for doubtful accounts...................... (220) (156) (182)
--------- --------- ------
$ 1,568 $ 2,801 $ 3,391
--------- --------- ------
--------- --------- ------
</TABLE>
Inventories consisted of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
-------------------- -------------
1995 1996 1997
--------- --------- -------------
<S> <C> <C> <C>
Raw materials and supplies................................. $ 588 $ 997 $ 1,046
Finished goods............................................. 748 1,393 1,642
--------- --------- ------
$ 1,336 $ 2,390 $ 2,688
--------- --------- ------
--------- --------- ------
</TABLE>
Property and equipment consisted of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
-------------------- -------------
1995 1996 1997
--------- --------- -------------
<S> <C> <C> <C>
Land..................................................... $ 1,320 $ -- $ --
Buildings and improvements............................... 6,516 2,382 2,382
Furniture, fixtures and equipment........................ 11,005 8,191 8,663
--------- --------- ------
18,841 10,573 11,045
Less: accumulated depreciation........................... (5,636) (5,016) (6,091)
--------- --------- ------
$ 13,205 $ 5,557 $ 4,954
--------- --------- ------
--------- --------- ------
</TABLE>
F-12
<PAGE>
VYSIS, INC.
(An indirect subsidiary
of Amoco Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 IS UNAUDITED)
NOTE 3--COMPOSITION OF BALANCE SHEET COMPONENTS: (CONTINUED)
Other assets consisted of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
-------------------- -------------
1995 1996 1997
--------- --------- -------------
<S> <C> <C> <C>
License fees (net of accumulated amortization of $144, $509
and $1,369 in 1995, 1996 and 1997, respectively).......... $ 1,385 $ 2,535 $ 1,582
Prepaid royalties.......................................... 402 -- --
Software development costs (net of accumulated amortization
of $0, $40 and $112 in 1995, 1996 and 1997,
respectively)............................................. 97 535 906
Other...................................................... 6 -- --
--------- --------- ------
1,890 3,070 2,488
Less: current portion...................................... 375 1,288 478
--------- --------- ------
$ 1,515 $ 1,782 $ 2,010
--------- --------- ------
--------- --------- ------
</TABLE>
Accounts payable and accrued liabilities consisted of the following (in
thousands):
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
-------------------- -------------
1995 1996 1997
--------- --------- -------------
<S> <C> <C> <C>
Trade accounts payable..................................... $ 3,523 $ 3,546 $ 3,218
Accrued rent............................................... 828 1,141 1,119
Employee related costs..................................... 577 743 585
Other taxes payable........................................ 189 423 400
Accrued legal costs........................................ 75 504 521
Other...................................................... 440 752 1,261
--------- --------- ------
$ 5,632 $ 7,109 $ 7,104
--------- --------- ------
--------- --------- ------
</TABLE>
NOTE 4--INVESTMENTS:
CANJI, INC.
The Company entered into a license agreement with Canji, Inc. ("Canji") in
1994, whereby the Company was granted an exclusive license to use certain
patented technology. In exchange for the license, the Company paid $600,000 in
cash and surrendered preferred stock of Canji aggregating approximately
$900,000. Accumulated amortization related to the license aggregated $132,000
and $221,000 at December 31, 1995 and 1996, respectively, and $287,000 at
September 30, 1997. The agreement provides that the Company will pay Canji
royalties of up to 5 percent of net sales of the licensed products.
Additionally, at December 31, 1995, the Company held preferred stock in Canji, a
private company, which was carried at cost and approximated $515,000. In 1996,
Canji was acquired by Schering-Plough Corporation and the Company's investment
in Canji was exchanged for shares of Schering-Plough. During September 1996, the
F-13
<PAGE>
VYSIS, INC.
(An indirect subsidiary
of Amoco Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 IS UNAUDITED)
NOTE 4--INVESTMENTS: (CONTINUED)
Company donated its investment in Schering-Plough to a not-for-profit
organization affiliated with Amoco.
GENOME SYSTEMS, INC.
In 1994, the Company acquired 1,400 shares of preferred stock in Genome
Systems, Inc. for cash consideration of $200,000. In 1996, Genome Systems, Inc.
was acquired by Incyte Pharmaceuticals, Inc. ("Incyte") and the Company's
investment was exchanged for restricted common stock of Incyte, a publicly held
company. During 1996, a portion of this investment with a cost of $100,000 was
sold and a gain of $214,000 was included in the Company's results of operations.
The remaining investment balance consists of Incyte restricted common stock and
is therefore recorded at cost of $100,000 at December 31, 1996 and September 30,
1997.
NOTE 5--INCOME TAXES:
During the years ended December 31, 1994, 1995 and 1996, and during the nine
months ended September 30, 1997, the Company's results of operations were
included in the consolidated income tax returns of Amoco, accordingly, the
Company's domestic net operating losses have been utilized by Amoco in its
consolidated income tax returns and are not available to offset the Company's
future taxable income.
The approximate income tax effect of each temporary difference giving rise
to deferred tax assets and liabilities is as follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
-------------------- -------------
1995 1996 1997
--------- --------- -------------
<S> <C> <C> <C>
Deferred tax assets:
Patents and purchased software........................... $ 274 $ 255 $ 362
Deferred rent............................................ 318 457 448
Foreign net operating loss carryforwards................. 200 374 584
Accrued vacation......................................... 117 130 122
Bad debt accrual......................................... 88 62 71
Other.................................................... 40 158 524
--------- --------- -------------
Total deferred tax assets.................................. 1,037 1,436 2,111
Valuation allowance........................................ (997) (790) (1,582)
--------- --------- -------------
Net deferred tax assets.................................... 40 646 529
Deferred tax liabilities:
Software development costs and license fees.............. (40) (646) (529)
--------- --------- -------------
Net deferred tax assets.................................... $ -- $ -- $ --
--------- --------- -------------
--------- --------- -------------
</TABLE>
F-14
<PAGE>
VYSIS, INC.
(An indirect subsidiary
of Amoco Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 IS UNAUDITED)
NOTE 5--INCOME TAXES: (CONTINUED)
The Company had foreign net operating loss carryforwards of $1,459,000 at
September 30, 1997 of which approximately $546,000 will expire at varying dates
through 2001 and the remainder of which may be carried forward indefinitely.
A full valuation allowance has been provided for all deferred tax assets
(net of liabilities) as management does not consider realization of such amounts
more likely than not. On an unaudited pro forma separate income tax return
basis, assuming the Company was not included in the consolidated income tax
returns of Amoco, no tax provision or benefit would have been recorded in the
consolidated financial statements due to the ongoing losses of the Company.
NOTE 6--DEVELOPMENT AND LICENSE AGREEMENTS:
The Company has entered into various license agreements pursuant to which it
has been granted exclusive and non-exclusive licenses to certain patented
technologies. The agreements require the Company to pay royalties ranging from
0.5 to 8.0 percent on net sales of specified products, with certain agreements
requiring minimum royalties due each year. As additional consideration for
certain of the licenses, the Company is obligated to fund certain research of
the licensors. Future minimum amounts due for such licenses, minimum royalties
and research funding are as follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDING
DECEMBER 31,
- -------------------------------------------------------------------------------------
<S> <C>
1997 (remaining three months)........................................................ $ --
1998................................................................................. 645
1999................................................................................. 1,835
2000................................................................................. 1,800
2001................................................................................. 600
2002................................................................................. 300
Thereafter........................................................................... --
---------
$ 5,180
---------
---------
</TABLE>
NOTE 7--RECAPITALIZATION:
On February 29, 1996, pursuant to a recapitalization, the Company issued
6,200,000 shares of its Series A Convertible Preferred Stock, par value $0.001
per share, and 1,058,394 shares of its Common Stock, par value $0.001 per share,
to Amoco as consideration for the cumulative investment by Amoco in the Company,
which was $12,318,000. The investment by Amoco in the Company included assets
contributed by Amoco which were recorded at Amoco's net book value at the date
of transfer. In connection with the recapitalization, $6,000 and $1,000 was
assigned to the par value of the Series A Convertible Preferred Stock and Common
Stock, respectively, while the remaining $12,311,000 was credited to additional
paid-in capital.
F-15
<PAGE>
VYSIS, INC.
(An indirect subsidiary
of Amoco Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 IS UNAUDITED)
NOTE 7--RECAPITALIZATION: (CONTINUED)
In September 1997, the Company converted $5,106,000 of the note payable due
to Amoco into 553,126 shares of its Series B Convertible Preferred Stock, par
value $0.001 per share.
The holder of Series A and Series B Convertible Preferred Stock is entitled
to receive cumulative dividends at an annual rate of 6 percent of the Series A
and Series B liquidation value (initially $8.0645 and $9.23 per share,
respectively), when and if declared by the Board of Directors. In the event of a
liquidation, the holder of the Series A and Series B Convertible Preferred Stock
shall receive the sum of $8.0645 and $9.23 per share, respectively, and any
declared but unpaid dividends. Additionally, the holder of the Series A and
Series B Convertible Preferred Stock is entitled to share in any dividends paid
on Common Stock.
The holder of the Series A and Series B Convertible Preferred Stock is
entitled to vote together with the holders of Common Stock, as a single class in
all matters. The Series A and Series B holder is entitled to votes equal to the
number of common shares into which such holder's shares are convertible. Each
share of Series A and Series B Convertible Preferred Stock is convertible, at
any time at the option of the holder, into .73 share of Common Stock. Each share
of Series A and Series B Convertible Preferred Stock shall automatically convert
into .73 share of Common Stock upon closing of an initial public offering of the
Company's Common Stock resulting in aggregate net proceeds of not less than
$10,000,000. In the event of any one or more third party equity investments,
prior to the closing of an initial public offering, the Series A and Series B
Convertible Preferred Stock is subject to anti-dilution adjustments. The Company
has reserved an adequate number of its Common Stock to provide for the
conversion of the Series A and Series B shares.
NOTE 8--EMPLOYEE BENEFIT PLANS:
In February 1996, the Company adopted the 1996 Stock Incentive Plan (the
"1996 Plan"). A total of 985,402 shares of Common Stock have been authorized for
issuance under the 1996 Plan, subject to anti-dilution and other adjustments. In
general, under the 1996 Plan, incentive or nonqualified stock options may be
granted at a price not less than 100 percent of the estimated fair value of the
Common Stock on the date of grant, as determined by the Compensation Committee
of the Board of Directors. Options generally vest over 4 years and expire within
10 years from the date of grant.
F-16
<PAGE>
VYSIS, INC.
(An indirect subsidiary
of Amoco Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 IS UNAUDITED)
NOTE 8--EMPLOYEE BENEFIT PLANS: (CONTINUED)
Option activity under the 1996 Plan is summarized below:
<TABLE>
<CAPTION>
WEIGHTED
NUMBER OF AVERAGE
SHARES PRICE
--------- -----------
<S> <C> <C>
Granted................................................ 878,994 $ 0.58
Exercised.............................................. -- --
Surrendered or terminated.............................. 21,642 $ 0.60
---------
Balance at December 31, 1996........................... 857,352 $ 0.58
Granted................................................ 162,007 $ 3.59
Exercised.............................................. 13,578 $ 0.53
Surrendered or terminated.............................. 47,812 $ 0.57
---------
Balance at September 30, 1997.......................... 957,969 $ 1.08
Options exercisable at September 30, 1997................ 355,408 $ 0.56
Options available for future grant at September 30,
1997.................................................... 13,855
Weighted-average fair value of options granted during the
year ended December 31, 1996............................ $ 0.34
Weighted-average fair value of options granted during the
nine months ended September 30, 1997.................... $ 2.69
Weighted-average fair value of options granted below
estimated fair value for the nine months ended September
30, 1997................................................ $ 3.54
</TABLE>
During 1996, the Company issued options to consultants to purchase 44,162
shares of Common Stock at an exercise price of $0.53 per share, exercisable
through 2006. The Company recorded deferred compensation of $213,000 in
connection with these options, based upon the difference between the estimated
fair value of the services received and the exercise price of the options
granted. The Company recognized $123,000 as stock compensation expense during
the year ended December 31, 1996.
During the nine months ended September 30, 1997, the Company issued options
to employees to purchase 78,249 shares of Common Stock at an exercise price of
$2.74 per share, exercisable through 2007. The Company recorded deferred
compensation of $277,000 in connection with these options based upon differences
between the estimated fair value of the underlying stock and the exercise price
of the related options. The Company recognized $108,000 as stock compensation
expense during the nine months ended September 30, 1997.
F-17
<PAGE>
VYSIS, INC.
(An indirect subsidiary
of Amoco Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 IS UNAUDITED)
NOTE 8--EMPLOYEE BENEFIT PLANS: (CONTINUED)
The following summarizes information about stock options outstanding at
September 30, 1997:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
----------------------------
WEIGHTED
AVERAGE OPTIONS EXERCISABLE
REMAINING ------------------------------
RANGE OF NUMBER CONTRACTUAL WEIGHTED AVERAGE NUMBER
EXERCISE PRICES OUTSTANDING LIFE EXERCISE PRICE EXERCISABLE
- ----------------- ----------- --------------- ----------------- -----------
<S> <C> <C> <C> <C>
$0.53 758,117 8.5 $ 0.53 342,850
1.34 38,577 8.8 1.34 12,558
2.74 127,698 9.7 2.74 --
6.85 33,577 9.9 6.85 --
----------- -----------
957,969 355,408
----------- -----------
----------- -----------
</TABLE>
The fair value of each option was estimated on the date of grant using the
Black-Scholes option pricing model. The principal determinants of option pricing
are: the estimated fair value of the Company's Common Stock at the date of
grant, expected volatility, risk-free interest rate, expected option lives and
dividend yields. Weighted average assumptions employed by the Company were as
follows:
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED ENDED
DECEMBER 31, SEPTEMBER 30,
1996 1997
--------------- -------------
<S> <C> <C>
Expected volatility............................................. 50.3% 47.5%
Risk free interest rate......................................... 6.2% 6.4%
Expected option life (years).................................... 7 7
Dividend yield.................................................. 0 0
</TABLE>
The Company applies Accounting Principles Board Opinion No. 25 in accounting
for its fixed stock option plan and, accordingly, has not recognized
compensation cost in the accompanying consolidated statement of operations for
options granted and exercisable at their estimated fair value on the grant date.
Had compensation cost been recognized based on fair value as of the grant dates
as defined in SFAS No. 123, the Company's net loss would have increased by
approximately $57,000 and $70,000, or $0.01 and $0.01 per share pro forma, for
the year ended December 31, 1996 and for the nine months ended September 30,
1997, respectively.
The Company also maintains the Vysis, Inc. Savings and Investment Plan (the
"Savings Plan"), as amended, which allows for participant contributions pursuant
to Section 401(k) of the Internal Revenue Code. Substantially all the Company's
U.S. employees are eligible to participate in the Savings Plan and may
contribute up to 17% of their eligible compensation to the Savings Plan. The
Company made contributions to the Savings Plan of $176,000, $210,000, $164,000
and $138,000 in 1994, 1995, 1996 and the nine months ended September 30, 1997,
respectively.
F-18
<PAGE>
VYSIS, INC.
(An indirect subsidiary
of Amoco Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 IS UNAUDITED)
NOTE 9--SEGMENT AND GEOGRAPHIC INFORMATION:
The Company operates in one business segment. Substantially all revenues
result from the sale of genomic testing products and related instrumentation and
the receipt of grant and other revenue. All significant intercompany revenues
and expenses are eliminated in the presentation of revenues and net loss.
Certain geographic information is as follows (in thousands):
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED DECEMBER 31, ENDED SEPTEMBER
---------------------------------- 30,
1994 1995 1996 1997
---------- ---------- ---------- ----------------
<S> <C> <C> <C> <C>
Revenues:
United States........................... $ 4,716 $ 5,488 $ 8,655 $ 7,525
Europe.................................. 687 1,729 4,583 4,700
---------- ---------- ---------- --------
Total............................... $ 5,403 $ 7,217 $ 13,238 $ 12,225
---------- ---------- ---------- --------
---------- ---------- ---------- --------
Net (loss) income:
United States........................... $ (18,076) $ (17,334) $ (18,094) $ (11,641)
Europe.................................. (583) (367) (87) 179
---------- ---------- ---------- --------
Total............................... $ (18,659) $ (17,701) $ (18,181) $ (11,462)
---------- ---------- ---------- --------
---------- ---------- ---------- --------
<CAPTION>
DECEMBER 31,
---------------------------------- SEPTEMBER 30,
1994 1995 1996 1997
---------- ---------- ---------- ----------------
<S> <C> <C> <C> <C>
Assets:
United States........................... $ 16,853 $ 17,155 $ 12,166 $ 11,704
Europe.................................. 721 2,012 2,949 3,389
---------- ---------- ---------- --------
Total............................... $ 17,574 $ 19,167 $ 15,115 $ 15,093
---------- ---------- ---------- --------
---------- ---------- ---------- --------
</TABLE>
Export sales from U.S. operations amounted to approximately $353,000,
$547,000 and $694,000 for the years ended December 31, 1994, 1995 and 1996,
respectively, and $928,000 for the nine months ended September 30, 1997, and
consisted of sales principally to customers in the Far East. There were no sales
to individual customers that exceeded 10 percent of total revenues for any
period presented.
NOTE 10--LEASE OBLIGATIONS:
The Company operates in leased facilities and also leases certain
manufacturing and other equipment. These leases generally require the Company to
pay taxes, maintenance, insurance and certain other operating costs of the
leased property. Most of the Company's leases contain renewal clauses.
F-19
<PAGE>
VYSIS, INC.
(An indirect subsidiary
of Amoco Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 IS UNAUDITED)
NOTE 10--LEASE OBLIGATIONS: (CONTINUED)
Future minimum lease payments under non-cancelable operating leases are as
follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDING
DECEMBER 31,
- -------------------------------------------------------------------------------------
<S> <C>
1997 (remaining three months)........................................................ $ 175
1998................................................................................. 748
1999................................................................................. 570
2000................................................................................. 521
2001................................................................................. 523
2002................................................................................. 679
Thereafter........................................................................... 1,301
---------
$ 4,517
---------
---------
</TABLE>
Rental expense totaled $140,000, $695,000 and $606,000 in 1994, 1995 and
1996, respectively and $462,000 for the nine months ended September 30, 1997.
NOTE 11--ACQUISITION:
On April 3, 1996, the Company acquired all of the outstanding common stock
of TechGen International Sarl ("TechGen") for $295,000. TechGen is a French
distributor of chemical, biological, health and hygiene products and equipment.
The acquisition has been accounted for under the purchase method of accounting.
Accordingly, the cash paid of $295,000 and liabilities assumed of $711,000 were
allocated to the tangible assets acquired. The excess of the purchase price over
the estimated fair value of net assets acquired of $457,000 has been assigned to
goodwill and is being amortized using the straight-line method over a five year
period.
The following unaudited pro forma financial information presents the
combined results of operations of the Company and TechGen as if the acquisition
had occurred at the beginning of each fiscal year. The pro forma information is
based on historical results of operations and does not necessarily reflect the
actual results that would have occurred, nor is it necessarily indicative of
future results of operations of the combined enterprises (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER
31,
----------------------
1995 1996
---------- ----------
<S> <C> <C>
Revenues.............................................................. $ 8,549 $ 13,285
Net loss.............................................................. $ (17,796) $ (18,230)
</TABLE>
NOTE 12--COMMITMENTS AND CONTINGENCIES:
The Company is an exclusive licensee of certain technology. The Company and
the licensor of the technology are plaintiffs in a patent infringement suit
filed in September 1995 against one of the Company's competitors. The Company
and the licensor share the legal costs of this matter equally. In
F-20
<PAGE>
VYSIS, INC.
(An indirect subsidiary
of Amoco Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 IS UNAUDITED)
NOTE 12--COMMITMENTS AND CONTINGENCIES: (CONTINUED)
August 1997, the court ruled in favor of the Company and its licensor in several
aspects of this matter. The trial of the remaining issues has been scheduled for
April 1998. An unfavorable outcome for the Company is considered neither
probable nor remote by management. The Company does not believe that loss of
this lawsuit would have a material adverse impact on the results of operations
or the Company's financial position as set forth in the accompanying
consolidated financial statements.
The Company and Amoco are defendants in a law suit pending in the U.S.
District Court in California alleging infringement of certain patents. The suit
has been stayed pending the outcome of another suit brought against the
plaintiff challenging the plaintiff's claim to sole ownership to the patents at
issue in the first lawsuit. Pursuant to a separate agreement between Amoco and
the plaintiff in the latter lawsuit (the "Plaintiff"), the Company reimburses
the legal costs incurred by the Plaintiff in that suit. In return, the Company
receives contingent rights to acquire an exclusive license with right to
sublicense under such rights as the Plaintiff may obtain in the patents. The
Company has agreed with the Plaintiff to grant sub-licenses at commercially fair
and reasonable terms should it acquire the exclusive license. The trial in the
latter case has been scheduled for December 1997. Although the Company believes
that it has meritorious defenses in the first suit, there can be no assurance
that the Company will ultimately prevail. An unfavorable outcome for the Company
is considered neither probable nor remote by management. An estimate of a
possible loss or range of a possible loss cannot currently be made. However, an
adverse determination against the Company, which may include a finding of
willful infringement and the awarding of plaintiff's attorney's fees, could have
a material adverse effect on the Company's financial position and results of
operations.
In October 1997, the Company entered into an Asset Puchase Agreement (the
"Agreement") to purchase certain patents and other intellectual property. The
Agreement calls for Vysis to pay the seller $250,000 in cash and issue 80,291
shares of its Common Stock concurrent with the closing of the transaction, which
is expected to occur in January 1998.
NOTE 13--SUPPLEMENTAL CASH FLOW INFORMATION:
Amoco contributed property and equipment aggregating $532,000, $444,000 and
$36,000 to the Company in 1994, 1995 and 1996, respectively, and did not make
any such contributions during the nine months ended September 30, 1997 and
$920,000 of other assets in 1994. These amounts were reflected by the Company as
a capital contribution from Amoco and recorded at Amoco's net book value.
NOTE 14--STOCK SPLIT
On November 21, 1997 the Company effected a 1 for 1.37 reverse stock split
of its Common Stock. All share and per share amounts in the consolidated
financial statements and notes thereto have been adjusted retroactively to
reflect this stock split.
F-21
<PAGE>
INSIDE BACK COVER
(GRAPHICS)
A collage of eight color photographs representing a variety of the Company's
products and entitled "Current Products for Genomic Diagnostics." The first
photograph in the upper left-hand corner is a snapshot of three of the Company's
clinical products and has the caption, "CEP-Registered Trademark- 8, CEP 12 and
CEP X/Y Kits for the assessment of leukemia and myeloid disorders." The
photograph in the upper right-hand corner is an image of a tissue section with
cells containing multiple colored spots (signals) and has the caption "Breast
tumor section hybridized with LSI-Registered Trademark- HER-2/neu and CEP 17
control probes. Multiple pink fluorescent signals indicate amplification of the
HER-2/neu gene (currently in clinical trials)."
In the center left of the page is a pair of photographs each showing a cell
containing multiple colored spots (signals) and has the caption "TriGen-TM-
Assay. Fluorescence images demonstrating hybridization of the CEP X/Y and LSI 21
probes on uncultured amniocytes. The cell on the left is normal for sex
chromosome X (green signal) and Y (pink signal). The cell on the right
demonstrates three copies of chromosome 21 (pink signal), indicating Down
syndrome."
In the center right of the page is a pair of photographs each showing a cell
containing multiple colored spots (signals) and has the caption "AnueVysion-TM-.
Fluorescence images demonstrating hybridization of CEP 18, X and Y, and LSI 13
and 21 probes on uncultured amniocytes. The cell on the left shows three copies
of chromosome 18 (aqua signal) and normal copies of chromosome X (green signal)
and Y (pink signal). The cell on the right is normal for chromosomes 13 (green
signal) and 21 (pink signal)."
In the lower left-hand corner of the page is a photograph of a computer
screen from one of the Company's software products and has the caption "Quips
CGH Software showing color karyotype of metaphase cells." The photograph in the
lower right-hand corner is a snapshot of the Company's HYBrite system and is
captioned "HYBrite-TM- semi-automatic system for IN SITU hybridization."
The Company's logo and the words "Managing Disease With Molecular
Techniques" are placed at the bottom center of the page.
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR THE UNDERWRITERS.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN
OFFER TO BUY ANY SECURITIES OTHER THAN THE SECURITIES TO WHICH IT RELATES OR ANY
OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY SUCH SECURITIES IN ANY
CIRCUMSTANCES IN WHICH SUCH OFFER OR SOLICITATION IS UNLAWFUL. NEITHER THE
DELIVERY OF THIS PROSPECTUS NOR ANY OFFER OR SALE MADE HEREUNDER SHALL, UNDER
ANY CIRCUMSTANCES, CREATE AN IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE
AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT THE INFORMATION HEREIN IS
CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary........................................................ 3
Risk Factors.............................................................. 8
The Company............................................................... 18
Use of Proceeds........................................................... 18
Dividend Policy........................................................... 18
Capitalization............................................................ 19
Dilution.................................................................. 20
Selected Financial Information............................................ 21
Management's Discussion and Analysis of Financial Condition and Results of
Operations.............................................................. 23
Business.................................................................. 27
Management................................................................ 59
Principal Stockholder and Securities Ownership of Management.............. 65
Certain Transactions...................................................... 67
Description of Capital Stock.............................................. 68
Shares Eligible for Future Sale........................................... 71
Underwriting.............................................................. 73
Legal Matters............................................................. 74
Experts................................................................... 74
Available Information..................................................... 75
Glossary.................................................................. A-1
Financial Statements...................................................... F-1
</TABLE>
UNTIL , 1997 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL DEALERS
EFFECTING TRANSACTIONS IN THE COMMON STOCK, WHETHER OR NOT PARTICIPATING IN THIS
DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN ADDITION TO
THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS
AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
3,500,000 SHARES
[LOGO]
COMMON STOCK
------------------
PROSPECTUS
------------------
FURMAN SELZ
DEUTSCHE MORGAN GRENFELL
EVEREN SECURITIES, INC.
, 1997
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
INFORMATION NOT REQUIRED IN THE PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
Expenses of the Registrant in connection with the issuance and distribution
of the securities being registered, other than underwriting discounts and
commissions, are as set forth below. All expenses listed below are estimates,
except for the Commission, NASD and Nasdaq fees.
<TABLE>
<S> <C>
Securities and Exchange Commission Registration Fee............................ $ 18,296
NASD Filing Fee................................................................ 6,538
Nasdaq Filing Fee.............................................................. *
Blue Sky Fees and Expenses (including attorneys' fees)......................... *
Printing and Engraving Expenses................................................ *
Legal Fees and Expenses........................................................ *
Accounting Fees and Expenses................................................... *
Transfer Agent and Registrar Fees and Expenses................................. *
Miscellaneous.................................................................. *
---------
Total...................................................................... $ *
---------
---------
</TABLE>
- ------------------------
* To be filed by amendment.
ITEM 14. INDEMNIFICATION OF OFFICERS AND DIRECTORS
Section 145 of the Delaware General Corporation Law authorizes
indemnification of directors and officers of the Company; allows the advancement
of costs of defending against litigation; and permits companies incorporated in
Delaware to purchase insurance on behalf of directors and officers against
liabilities whether or not in the circumstances such companies would have the
power to indemnify against such liabilities under the provisions of the statute.
The Company's Certificate of incorporation provides for indemnification of
the Company's officers and directors to the fullest extent permitted by Section
145 of the Delaware General Corporation Law. The Company intends to obtain
directors and officers insurance covering its executive officers and directors.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
On February 29, 1996, in connection with the reorganization of the Company,
each share of Common Stock, par value $1.00 per share, of the Company was
converted into 14,356.43564 shares of Common Stock, par value $0.001 per share
of the Company and 61,386.13861 shares of Series A Preferred Stock, par value
$0.001 per share of the Company. All such shares (which totaled 1,450,000 shares
of Common Stock and 6,200,000 shares of Series A Preferred Stock) were issued to
Amoco Technology Company ("ATC"), the Company's principal stockholder, in
reliance upon the exemption contained in Section 3(a)(9) of the Securities Act.
On March 1, 1996, the Company granted an option to purchase 36,497 shares of
Common Stock at $0.53 per share to Colin Grace, a consultant to the Company.
Such option was granted in reliance upon Rule 701 under the Securities Act as
consideration for bona fide consulting services provided by Mr. Grace.
On April 30, 1996, the Company granted an option to purchase 1,095 shares of
Common Stock at $0.53 per share to each of the following members of its
scientific advisory board: Kurt Hirschhorn, M.D., Fred R. Kramer, Ph.D., David
H. Ledbetter, Ph.D., Kenneth L. Melmon, M.D., Dan Pinkel, Ph.D., Hans J. Tanke,
Ph.D., and Stephen T. Warren, Ph.D. (collectively, the "SAB Members"). Each
option was granted
II-1
<PAGE>
in reliance upon Rule 701 under the Securities Act as consideration for bona
fide advisory services provided by each such SAB Member.
On February 28, 1997, the Company granted an option to purchase 1,095 shares
of Common Stock at $2.74 per share to each SAB Member. Each option was granted
in reliance upon Rule 701 under the Securities Act as consideration for bona
fide advisory services provided by each such SAB Member.
On September 17, 1997, the Company issued 553,126 shares of Series B
Preferred Stock to ATC, the Company's principal stockholder, in reliance upon
the exemption contained in Section 4(2) of the Securities Act. The shares of
Series B Preferred Stock were issued in settlement of a $5,106,000 intercompany
balance between the Company and ATC.
On September 30, 1997, the Company issued an aggregate of 13,578 shares of
Common Stock to five individuals upon exercise of employee stock options held by
them, in reliance upon Rule 701 under the Securities Act. The aggregate exercise
price of such options was $7,255.
On October 15, 1997, the Company agreed to issue an aggregate of 80,291
shares of Common Stock to Aprogenex, Inc., a corporation engaged in the
development of diagnostic test systems, as partial consideration for certain
patents and other intellectual property rights of such corporation. The shares
are to be issued in reliance upon the exemption contained in Section 4(2) of the
Securities Act.
All of the share amounts in this Item 15 have been adjusted to reflect the
Company's 1-for-1.37 reverse stock split effected November 21, 1997.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibit Index
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- ---------- ------------------------------------------------------------------------------------------------------
<S> <C>
1.1** Form of Underwriting Agreement.
3.1.1* Certificate of Incorporation of Vysis, Inc. (formerly Framingham Development Company) filed April 18,
1991.
3.1.2* Certificate of Amendment of Certificate of Incorporation filed March 30, 1994.
3.1.3* Certificate of Merger filed February 1, 1996.
3.1.4* Certificate of Amendment of Certificate of Incorporation filed February 29, 1996.
3.1.5* Certificate of Correction of Certificate of Amendment filed July 22, 1996.
3.1.6* Certificate of Amendment of Certificate of Incorporation filed September 16, 1997.
3.1.7* Certificate of Designations of Series B Preferred Stock, filed September 17, 1997.
3.1.8 Certificate of Amendment of Certificate of Incorporation filed November 21, 1997.
3.2** Bylaws of Vysis, Inc.
4.1 Form of Common Stock Certificate.
5.1 Opinion of Mayer, Brown & Platt.
10.1* Vysis, Inc. 1996 Stock Incentive Plan.
10.2 Industrial Building Lease between American National Bank and Trust Company of Chicago and Vysis, Inc.
dated November 29, 1994.
10.3* License Agreement for Chromosome Analysis Technology with Chromosome-Specific Probes between ATC and
The Regents of The University of California dated August 15, 1989, as amended October 6, 1989; July 1,
1991; April 15, 1992; June 1, 1994; June 6, 1994; June 28, 1994; July 1, 1994; September 1, 1994.
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- ---------- ------------------------------------------------------------------------------------------------------
<S> <C>
10.4* Exclusive License Agreement between The Regents of The University of California and Imagenetics for
Inventions made in the field of Molecular Cytogenetics dated July 1, 1994.
10.5* Option Agreement between The Regents of The University of California and Imagenetics for Inventions
made in the field of Molecular Cytogenetics dated July 1, 1994.
10.6* Exclusive Option Agreement between Vysis and the University of California for the Glass Chromosome.
10.7* Exclusive License Agreement between the Regents of the University of California and Vysis, Inc. for
Molecular Cytogenetics Software dated June 1, 1995.
10.8* Exclusive License Agreement between the Regents of The University of California and ATC dated July 30,
1992, as amended, December 7, 1994.
10.9 License Agreement between The Trustees of Columbia University, The Salk Institute for Biological
Studies and Gene-Trak Systems dated October 7, 1988, as amended June 15, 1996.
10.10* Research and License Agreement between Gene-Trak Inc. and Public Health Research Institute dated July
14, 1994 and Letter re: Research and License Agreement dated July 18, 1994.
10.11* Exclusive Distributor Agreement between Vysis, Inc. and Fujisawa Pharmaceutical Co., Ltd. dated July
31, 1995.
+10.12* Sublicense Agreement between Ciba Corning Diagnostics Corp. and Vysis, Inc. dated May 24, 1996.
10.13* Software Development and Marketing Agreement between Digital Scientific Limited and Vysis, Inc. dated
January 1, 1996.
10.14 Form of Cooperation Agreement between the Company and Amoco Technology Company.
10.15* Form of Registration Rights Agreement between the Company and Amoco Technology Company.
10.16* Tax Allocation Agreement between the Company and Amoco Technology Company.
11.1 Statement Re Computation of Pro Forma Net Loss Per Share.
21.1* Subsidiaries of Vysis, Inc.
23.1 Consent of Price Waterhouse LLP
23.2 Consent of Mayer, Brown & Platt (appears in Exhibit 5.1).
23.3** Consent of McCutchen, Doyle, Brown & Enerson
24.1* Power of Attorney.
27.1 Financial Data Schedule.
</TABLE>
- ------------------------
* previously filed
** to be filed by amendment
+ confidential treatment requested
(b) Financial Statement Schedules
The following financial statement schedules of the Company are filed as part
of this Registration Statement and should be read in conjunction with the
Consolidated Financial Statements of the Company:
II-3
<PAGE>
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
Schedules other than those listed above have been omitted for the reason
that they are not required or are not applicable, or the required information is
shown in the financial statements or notes thereto.
ITEM 17. UNDERTAKINGS
Insofar as indemnification for liabilities arising under the Securities Act
of 1933, as amended, may be permitted to directors, officers and controlling
persons of the registrant pursuant to the foregoing provisions, or otherwise,
the registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act of
1933, as amended, the information omitted from the form of prospectus
filed as part of this Registration Statement in reliance upon Rule 430A
and contained in a form of prospectus filed by the registrant pursuant to
Rule 424(b)(1) or (4) or 497(h) under the Securities Act of 1933, as
amended, shall be deemed to be part of this registration statement as of
the time it was declared effective.
(2) For purposes of determining any liability under the Securities Act of
1933, as amended, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at
that time shall be deemed to be the initial bona fide offering thereof.
The undersigned registrant hereby undertakes to provide to the Underwriters
at the closing specified in the underwriting agreement certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
certifies that it has duly caused this registration statement, or amendment
thereto, to be signed on its behalf by the undersigned, thereunto duly
authorized, in Downers Grove, Illinois on December 9, 1997.
<TABLE>
<S> <C> <C>
VYSIS, INC.
By: /s/ JOHN L. BISHOP
-----------------------------------------
Name: John L. Bishop
TITLE: PRESIDENT AND CHIEF EXECUTIVE
OFFICER
</TABLE>
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATE INDICATED.
<TABLE>
<CAPTION>
SIGNATURES TITLE (CAPACITY) DATE
- ------------------------------ -------------------------- -------------------
<C> <S> <C>
President, Chief Executive
/s/ JOHN L. BISHOP Officer and
- ------------------------------ Director (Principal December 9, 1997
John L. Bishop Executive
Officer and Director)
Vice President of Finance
/s/ JAMES J. HABSCHMIDT and Chief Financial
- ------------------------------ Officer December 9, 1997
James J. Habschmidt (Principal Financial and
Accounting Officer)
*
- ------------------------------ Director December 9, 1997
William M. Bartlett
*
- ------------------------------ Director December 9, 1997
Robert C. Carr
- ------------------------------ Director December , 1997
Kenneth L. Melmon
*
- ------------------------------ Director December 9, 1997
Walter R. Quanstrom
</TABLE>
II-5
<PAGE>
<TABLE>
<CAPTION>
SIGNATURES TITLE (CAPACITY) DATE
- ------------------------------ -------------------------- -------------------
<C> <S> <C>
*
- ------------------------------ Director December 9, 1997
Frank J. Sroka
*
- ------------------------------ Director December 9, 1997
Richard C. Williams
</TABLE>
*By: /s/ JOHN L. BISHOP
-------------------------
John L. Bishop
ATTORNEY-IN-FACT
II-6
<PAGE>
VYSIS, INC.
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
AND THE NINE MONTHS ENDED SEPTEMBER 30, 1997
(In thousands)
<TABLE>
<CAPTION>
BALANCE AT BALANCE AT
DESCRIPTION OF BEGINNING END OF
ALLOWANCE AND RESERVES OF PERIOD ADDITIONS DEDUCTIONS PERIOD
- ------------------------------------------------------------------ ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
1994
Allowance for doubtful accounts................................... $ 115 $ 50 $ 5 $ 160
1995
Allowance for doubtful accounts................................... $ 160 $ 60 $ -- $ 220
1996
Allowance for doubtful accounts................................... $ 220 $ -- $ 64 $ 156
Nine months ended September 30, 1997
Allowance for doubtful accounts................................... $ 156 $ 67 $ 41 $ 182
</TABLE>
II-7
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- ----------- -----------------------------------------------------------------------------------------------------
<S> <C>
1.1** Form of Underwriting Agreement.
3.1.1* Certificate of Incorporation of Vysis, Inc. (formerly Framingham Development Company) filed April 18,
1991.
3.1.2* Certificate of Amendment of Certificate of Incorporation filed March 30, 1994.
3.1.3* Certificate of Merger filed February 1, 1996.
3.1.4* Certificate of Amendment of Certificate of Incorporation filed February 29, 1996.
3.1.5* Certificate of Correction of Certificate of Amendment filed July 22, 1996.
3.1.6* Certificate of Amendment of Certificate of Incorporation filed September 16, 1997.
3.1.7* Certificate of Designations of Series B Preferred Stock, filed September 17, 1997.
3.1.8 Certificate of Amendment of Certificate of Incorporation filed November 21, 1997.
3.2** Bylaws of Vysis, Inc.
4.1 Form of Common Stock Certificate.
5.1 Opinion of Mayer, Brown & Platt.
10.1* Vysis, Inc. 1996 Stock Incentive Plan.
10.2 Industrial Building Lease between American National Bank and Trust Company of Chicago and Vysis, Inc.
dated November 29, 1994.
10.3* License Agreement for Chromosome Analysis Technology with Chromosome-Specific Probes between ATC and
The Regents of The University of California dated August 15, 1989, as amended October 6, 1989; July
1, 1991; April 15, 1992; June 1, 1994; June 6, 1994; June 28, 1994; July 1, 1994; September 1, 1994.
10.4* Exclusive License Agreement between The Regents of The University of California and Imagenetics for
Inventions made in the field of Molecular Cytogenetics dated July 1, 1994.
10.5* Option Agreement between The Regents of The University of California and Imagenetics for Inventions
made in the field of Molecular Cytogenetics dated July 1, 1994.
10.6* Exclusive Option Agreement between Vysis and the University of California for the Glass Chromosome.
10.7* Exclusive License Agreement between the Regents of the University of California and Vysis, Inc. for
Molecular Cytogenetics Software dated June 1, 1995.
10.8* Exclusive License Agreement between the Regents of The University of California and ATC dated July
30, 1992, as amended, December 7, 1994.
10.9 License Agreement between The Trustees of Columbia University, The Salk Institute for Biological
Studies and Gene-Trak Systems dated October 7, 1988, as amended June 15, 1996.
10.10* Research and License Agreement between Gene-Trak Inc. and Public Health Research Institute dated July
14, 1994 and Letter re: Research and License Agreement July 18, 1994.
10.11* Exclusive Distributor Agreement between Vysis, Inc. and Fujisawa Pharmaceutical Co., Ltd. dated July
31, 1995.
+10.12* Sublicense Agreement between Ciba Corning Diagnostics Corp. and Vysis, Inc. dated May 24, 1996.
10.13* Software Development and Marketing Agreement between Digital Scientific Limited and Vysis, Inc. dated
January 1, 1996.
10.14 Form of Cooperation Agreement between the Company and Amoco Technology Company.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- ----------- -----------------------------------------------------------------------------------------------------
<S> <C>
10.15* Form of Registration Rights Agreement between the Company and Amoco Technology Company.
10.16* Tax Allocation Agreement between the Company and Amoco Technology Company.
11.1 Statement Re Computation of Per Share Net Loss.
21.1* Subsidiaries of Vysis, Inc.
23.1 Consent of Price Waterhouse LLP
23.2 Consent of Mayer, Brown & Platt (appears in Exhibit 5.1).
23.3** Consent of McCutchen, Doyle, Brown & Enerson
24.1* Power of Attorney.
27.1 Financial Data Schedule.
</TABLE>
- ------------------------
* previously filed
** to be filed by amendment
+ confidential treatment requested
<PAGE>
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
VYSIS, INC.
VYSIS, INC., a corporation organized and existing under the General
Corporation Law of the State of Delaware (the "Corporation"), does hereby
certify:
FIRST: That the Board of Directors of the Corporation has duly adopted
resolutions setting forth a proposed amendment of the Certificate of
Incorporation of the Corporation, declaring said amendment to be advisable
and directing said amendment to be submitted to the stockholders of the
Corporation. The resolution setting forth the proposed amendment is as
follows:
RESOLVED, that Paragraph A of Article FOURTH of the Certificate of
Incorporation of the Corporation be amended to read, in its entirety, as
follows:
"This Company is authorized to issue two classes of shares to be
designated, respectively, Preferred Stock ("PREFERRED STOCK") and Common
Stock ("COMMON STOCK"). The total number of shares of capital stock that
this Company shall have authority to issue is Forty-five Million
(45,000,000). The total number of shares of Preferred Stock this Company
shall have authority to issue is Ten Million (10,000,000). The total
number of shares of Common Stock this Company shall have authority to issue
is Thirty-five Million (35,000,000). The Preferred Stock shall have a par
value of $0.001 per share and the Common Stock shall have a par value of
$0.001 per share."
At the effective time of this amendment to the Certificate of Incorporation,
each 1.37 issued and outstanding shares of Common Stock shall be combined into
one validly issued, fully paid and nonassessable share of Common Stock. No
scrip or fractional shares shall be issued by reason of this amendment and each
holder of Common Stock shall be entitled to receive cash in lieu thereof, based
on the fair value of such fractional share as of the effective time of this
amendment.
SECOND: The foregoing amendment of the Certificate of Incorporation of the
Corporation was duly adopted by the stockholders of the Corporation by written
consent given in accordance with the applicable provisions of Sections 228 and
242 of the General Corporation Law of the State of Delaware and written notice
of such action has been given as provided in Section 228 of the General
Corporation Law of the State of Delaware.
<PAGE>
IN WITNESS WHEREOF, the Corporation has caused this Certificate of
Amendment to be executed by John L. Bishop, its President, and attested to by
William E. Murray, its Secretary, this 20 day of November, 1997.
VYSIS, INC.
By: /s/ John L. Bishop
------------------------
John L. Bishop
President
ATTEST:
By: /s/ William E. Murray
------------------------
William E. Murray
Secretary
<PAGE>
NUMBER [LOGO] SHARES
COMMON STOCK COMMON STOCK
INCORPORATED UNDER THE LAWS VYSIS, INC. CUSIP 928961 10 1
OF THE STATE OF DELAWARE SEE REVERSE FOR CERTAIN DEFINITIONS
This Certifies that
is the owner of
FULLY PAID AND NON-ASSESSABLE SHARES OF COMMON STOCK, $.001 PAR VALUE, OF
---------------------------- VYSIS, INC. ---------------------------------
transferable on the books of the Corporation by the holder hereof in person
or by duly authorized attorney under surrender of this Certificate properly
endorsed or accompanied by a proper assignment.
This certificate and the shares represented hereby are issued and shall
be held subject to all of the provisions of the Certificate of Incorporation
and the By-laws of the Corporation, and all amendments thereto, copies of
which are on file at the principal office of the Corporation and the Transfer
Agent, to all of which the holder of this Certificate by acceptance hereof
consents.
The Certificate is not valid unless countersigned by the Transfer Agent and
registered by the Registrar.
WITNESS the facsimile seal of the Corporation and the signatures of its
duly authorized officers
Dated:
/s/ Will E. Murray [SEAL] /s/ John L. Bishop
GENERAL COUNSEL AND SECRETARY PRESIDENT AND CHIEF EXECUTIVE OFFICER
COUNTERSIGNED AND REGISTERED:
FIRST CHICAGO TRUST COMPANY
OF NEW YORK
TRANSFER AGENT AND REGISTRAR,
AUTHORIZED SIGNATURE
[STAMP]
<PAGE>
The following abbreviations, when used in the inscription on the face of
this certificate, shall be construed as though they were written out in
full according to applicable laws or regulations:
<TABLE>
<CAPTION>
<S> <C>
TEN COM -- as tenants in common UNIF GIFT MIN ACT -- ...........Custodian............
TEN ENT -- as tenants by the entireties (Cust) (Minor)
JT TEN -- as joint tenants with right of Under Uniform Gifts to Minors
survivorship and not as tenants Act.............................
in common (State)
UNIF TRF MIN ACT -- .......Custodian (until age....)
(Cust)
.........Under Uniform Transfers
(Minor)
to Minors Act...................
(State)
</TABLE>
Additional abbreviations may also be used though not in the above list.
FOR VALUE RECEIVED, ________________________________________ hereby sell,
assign and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
_______________________________
|_______________________________|
_______________________________________________________________________________
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE
_______________________________________________________________________________
_______________________________________________________________________________
_________________________________________________________________ Common Shares
represented by the within Certificate, and do hereby irrevocably constitute and
appoint
______________________________________________________________________ Attorney
to transfer the said stock on the books of the within named Corporation with
full power of substitution in the premises.
Dated ________________________
X _____________________________________________
X _____________________________________________
NOTICE: THE SIGNATURE(S) TO THIS ASSIGNMENT MUST
CORRESPOND WITH THE NAME(S) AS WRITTEN UPON
THE FACE OF THE CERTIFICATE IN EVERY
PARTICULAR, WITHOUT ALTERATION OR ENLARGEMENT
OR ANY CHANGE WHATEVER.
Signature(s) Guaranteed
By ___________________________________________
THE SIGNATURE(S) SHOULD BE GUARANTEED BY AN
ELIGIBLE GUARANTOR INSTITUTION (BANKS,
STOCKBROKERS, SAVINGS AND LOAN ASSOCIATIONS
AND CREDIT UNIONS WITH MEMBERSHIP IN AN
APPROVED SIGNATURE MEDALLION PROGRAM), PURSUANT
TO S.E.C. RULE 17Ad-15.
[STAMP]
<PAGE>
December 5, 1997
Vysis, Inc.
3100 Woodcreek Drive
Downers Grove, Illinois 60515
Re: Vysis, Inc.
Registration Statement on Form S-1
----------------------------------
Dear Sirs:
We have represented Vysis, Inc., a Delaware corporation (the "Company"), in
connection with the registration of 4,025,000 shares of common stock, $0.001 par
value per share, of the Company (the "Shares").
In connection with our representation, we have examined the corporate
records of the Company, including its Certificate of Incorporation and all
amendments thereto, its ByLaws, and other corporate records and documents and
have made such other examinations as we consider necessary to render this
opinion. Based upon the foregoing, it is our opinion that:
1. the Company is a corporation duly organized and validly existing in
good standing under the laws of the State of Delaware; and
2. the Shares are legally authorized and, upon receipt by the Company of
the purchase price therefor, will be legally issued and outstanding, fully paid
and non-assessable.
We consent to the filing of this opinion as an exhibit to the registration
statement referred to above and to all references to this firm in such
registration statement.
Very truly yours,
/s/ Mayer, Brown & Platt
------------------------
Mayer, Brown & Platt
<PAGE>
INDUSTRIAL BUILDING LEASE
LANDLORD AMERICAN NATIONAL BANK AND TRUST COMPANY OF
CHICAGO, not personally but as Trustee under Trust Agreement
dated December 30, 1985 and known as Trust No. 66360
TENANT: VYSIS, INC., an Illinois corporation
LEASED PREMISES: 3101 WOODCREEK DR.
DOWNERS GROVE, IL
LEASE PREPARED BY: MICHAEL I. FREEMAN, P.C.
2 North LaSalle Street - Suite 1400
Chicago, IL 60602
<PAGE>
INDUSTRIAL BUILDING LEASE
THIS LEASE is made this 29th day of November, 1994, by and between AMERICAN
NATIONAL BANK AND TRUST COMPANY OF CHICAGO, not personally but as Trustee under
Trust Agreement dated December 30, 1985 and known as Trust No. 66360
(hereinafter sometimes referred to as "Landlord") and VYSIS, INC., an Illinois
corporation (hereinafter sometimes referred to as "Tenant"), who hereby mutually
covenant and agree as follows:
I. GRANT, TERM, DEFINITIONS AND BASIC LEASE PROVISIONS
1.0 GRANT. Landlord, for and in consideration of the rents herein
reserved and of the covenants and agreements herein contained on the part of
Tenant to be performed, hereby leases to Tenant, and Tenant hereby lets from
Landlord, the real estate legally described on an exhibit which is attached
hereto, identified as EXHIBIT A (hereinafter sometimes referred to as the "Real
Estate"), together with all improvements now located or to be located on said
premises during the Term of this Lease, together with all appurtenances
hereinafter sometimes jointly or severally, as the context requires, referred to
as "Leased Premises").
1.1 TERM. The term ("Term") of this Lease shall commence on December
1, 1994, (hereinafter sometimes referred to as "Commencement Date"), and shall
end on November 30, 2004, unless sooner terminated as herein set forth.
1.2 AGENT. As used in this Lease, the term "Agent" shall mean the agent
of Landlord (but if Landlord is an Illinois land trust, the term "Agent" shall
mean the agent of the beneficiary or beneficiaries of Landlord). Until
otherwise designated by notice in writing from Landlord, Agent shall be: COHEN
REALTY SERVICES LIMITED PARTNERSHIP.
Tenant may rely upon consent or approval given in writing by Agent or
upon notice from Agent or from the attorneys for Agent or Landlord.
1.3 BASIC LEASE PROVISIONS.
(a) Purpose (See Section 3.0): The Leased Premises may be used for
any lawful purpose.
(b) Annual rent (see Section 4.0)
Period Annual Rent Monthly Installments
------ ----------- --------------------
12/01/94 - 10/31/96 $-0- $-0-
11/01/96 - 11/30/97 $452,408.04 $37,700.67
12/01/97 - 11/30/01 $508,959.00 $42,413.25
12/01/01 - 11/30/04 $678,612.00 $56,551.00
2
<PAGE>
(c) Payee (See Section 4.0)
(d) Payee's Address (See Sections 4.0 and 4.1):
(e) Security Deposit (See Section 20.0): None
(f) Tenant's Address (for notices) (see Section 21.4):
Amoco Corporation, Real Estate Manager
200 East Randolph, Mail Code 3504
Chicago, IL 60601
(g) Landlord's Address (for notices) (See Section 21.4):
COHEN REALTY SERVICES LIMITED PARTNERSHIP
2 North LaSalle Street
Chicago, IL 60602
(h) Landlord's Broker(s) (See Section 21.12):
BAIRD & WARNER CORPORATE SERVICES, INC.
- AND -
CB COMMERCIAL REAL ESTATE GROUP, INC.
(i) Guarantor's Name and Address (See Separate Guaranty):
None.
(j) Form of Insurance (See Article VI): The insurance specified in
Section 6.0 shall comply with the provisions of Section 6.1.
II. POSSESSION
2.0 POSSESSION. Except as otherwise expressly provided herein (or by
written instrument signed by Landlord or Agent), Landlord shall deliver
possession of the Leased Premises to Tenant on or before the Commencement Date
in their condition as of the execution and delivery hereof, reasonable wear and
tear excepted. If Landlord gives possession prior to the Commencement Date,
such occupancy shall be subject to all the terms and conditions of this Lease
(except that Tenant shall not be required to pay annual rent under Section 4.0
hereof during such occupancy).
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III. PURPOSE
3.0 PURPOSE. The Leased Premises shall be used and occupied only for the
Purpose set forth in Section 1.3(a) hereof, except that no such use shall (a)
violate any certificate of occupancy, or law, ordinance or other governmental
regulation in effect from time to time affecting the Leased Premises or the use
thereof, (b) cause injury to the improvements, (c) cause the value or usefulness
of the Leased Premises or any part thereof to diminish, (d) constitute a public
or private nuisance or waste, (e) authorize Tenant to use, treat, store or
dispose of hazardous or toxic materials on the real estate except in accordance
with law or (f) render the insurance on the Leased Premises void or the
insurance risk more hazardous.
IV. RENT
4.0 ANNUAL RENT. Beginning with the Commencement Date, Tenant shall pay
annual rent as set forth in Section 1.3(b) hereof payable monthly in advance in
installments as set forth in said Section. Rent shall be paid to or upon the
order of Payee at the Payee's Address. Except as otherwise provided herein,
Landlord shall have the right to change the Payee or the Payee's Address by
giving written notice thereof to Tenant. All payments of rent shall be made
without deduction, set off, discount or abatement in lawful money of the United
States.
4.1 INTENTIONALLY OMITTED.
4.2 INTEREST ON LATE PAYMENTS. Each and every installment of rent and
each and every payment of other charges hereunder which shall not be paid when
due shall bear interest at a rate per annum equal to two percent (2%) in excess
of a base or prime rate of interest of American National Bank and Trust Company
of Chicago in effect on the due date of such payment, from the date when the
same is payable under the Terms of this Lease until the same shall be paid.
Anything contained in the preceding sentence to the contrary notwithstanding,
the interest rate referred to in the preceding sentence shall not be assessed on
any such delinquent payment referred to in the preceding sentence until five (5)
days after Landlord shall have given written notice thereof to Tenant except to
the extent that any such delinquency shall occur more often than one time during
any twelve month period.
V. IMPOSITIONS
5.0 PAYMENT BY TENANT. Tenant shall pay as additional rent for the
Leased Premises, all taxes and assessments, general and special, water rates
and all other impositions, ordinary and extraordinary, of every kind and
nature whatsoever, which may be levied, assessed, charged or imposed during
the Term of the Lease upon the Leased Premises, or any part thereof, or upon
any improvements at any time situated thereon, including without limitation,
any assessment by any association of owners of property in the complex of
which the Leased Premises are a part
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("Impositions"), provided, however, that Impositions levied against the Leased
Premises shall be prorated between Landlord and Tenant as of the Commencement
Date for the first year of the Lease Term and as of the expiration date of the
Lease Term for the last year of the Lease Term. The basis of the proration
between Landlord and Tenant as of the Expiration Date of the Lease Term for the
last year of the Lease Term shall be based upon one hundred ten percent (110%)
of the Impositions levied, assessed, charged or imposed against the Leased
Premises for the year which precedes the last year of the Lease Term and
Landlord and Tenant agree to reprorate the Impositions for the last year of the
Lease Term when the amount of such Impositions shall become ascertainable.
Impositions shall also include fees and costs incurred by Landlord during or
prior to the Lease Term for the purpose of contesting or protesting tax
assessments or rates, to the extent such fees and costs relate to savings
applicable during the Term of the Lease and any extension thereof. Tenant may
take the benefit of the provisions of any statute or ordinance permitting any
assessment to be paid over a period of years, and Tenant shall be obligated to
pay only those installments falling due during the Term of this Lease. For the
purpose of this Article V and for no other purpose whatsoever, the Term of this
Lease shall have deemed to have commenced on February 1, 1995.
5.1 ALTERNATIVE TAXES. If at any time during the Term of this Lease the
method of taxation prevailing at the commencement of the Term hereof shall be
altered so that any new tax, assessment, levy, imposition or charge, or any part
thereof, shall be measured by or be based in whole or in part upon the Lease, or
the Leased Premises, or the rent, additional rent or other income therefrom and
shall be imposed upon the Landlord, then all such taxes, assessments, levies,
impositions, or charges, or the part thereof, to the extent that they are so
measured or based, shall, subject to the last sentence of this section, be
deemed to be included within the Term Impositions for the purposes hereof to the
extent that such Impositions would be payable if the Leased Premises were the
only property of Landlord subject to such Impositions, and Tenant shall pay and
discharge the same as herein provided in respect of the payment of Impositions.
There shall be excluded from Impositions all federal income taxes, state and
local net income tax, federal excess profit taxes, franchise, capital stock and
federal or state estate or inheritance taxes of Landlord.
5.2 INTENTIONALLY OMITTED.
5.3 RIGHT TO CONTEST. Tenant shall not be required to pay any Imposition
or charge upon or against the Leased Premises, or any part thereof, or the
improvements at any time situated thereon, so long as the Tenant shall, in good
faith and with due diligence, contest the same or the validity thereof by
appropriate legal proceeding which shall have the effect of preventing the
collection of the Imposition or charge so contested; provided that pending any
such legal proceedings Tenant shall give Landlord such reasonable security as
may be deemed satisfactory to Landlord to insure payment of the amount of the
Imposition or charge, and all interest and penalties thereon. If, at any time
during the continuance of such contest, the Leased Premises or
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any part thereof is, in the reasonable judgment of Landlord, in imminent danger
of being forfeited or lost, Landlord may use such security for the payment of
such Imposition.
VI. INSURANCE
6.0 KINDS AND AMOUNTS. Tenant shall procure and maintain policies of
insurance, at its own cost and expense, insuring:
(a) Landlord, Agent, Landlord's Mortgagee, if any, of which tenant
is given written notice, and Tenant from all claims, demands or actions made by,
or on behalf of, any person or persons, firm or corporation and arising from,
related to or connected with the Leased Premises, for bodily injury to or
personal injury to or death of any person, or more than one (1) person, or for
damage to property in an aggregate amount of not less than a packaged maximum of
$2,000,000.00 per location and an occurrence limit of not less than
$1,000,000.00 combined single limit and fire legal liability insurance in an
amount not less than $100,000.00. Said insurance shall be written on an
"occurrence" basis and not on a "claims made" basis. If at any time during the
term of this Lease, Tenant owns or rents more than one location, the policy
shall contain an endorsement to the effect that the aggregate limit in the
policy shall apply separately to each location owned or rented by Tenant.
Landlord shall have the right, exercisable by giving written notice thereof to
Tenant, to require Tenant to increase such limit if, in Landlord's reasonable
judgment, the amount thereof is insufficient to protect Landlord, Agent and
Tenant from judgments which might result from such claims, demands or actions.
Said insurance shall also fully cover the indemnity set forth in Section 13.0(a)
hereof and, to the extent such insurance is available, the indemnity set forth
in Section 18.2 hereof;
(b) Tenant from all worker's compensation claims; and
(c) All of Tenant's equipment, trade fixtures, appliances,
furniture, furnishing and personal property, from time to time, in, on or upon
the Leased Premises in an amount not less than the full replacement cost without
deduction for depreciation from time to time during the Term providing
protection against all perils included within the classification of fire,
extended coverage, vandalism, malicious mischief, special extended apparel ("All
Risk Coverage Insurance"), boiler, flood, glass breakage and sprinkler leakage.
6.1 FORM OF INSURANCE. The aforesaid insurance shall be in companies and
in form, substance and amount (where not stated above) satisfactory from time to
time to Landlord and any mortgagee of Landlord. The aforesaid insurance shall
unconditionally provide that it is not subject to cancellation or non-renewal
except after at least thirty (30) days' prior written notice to Landlord and any
mortgagee of Landlord, for the purpose of assuring such notice as to liability
insurance, Landlord shall be designated therein as the "First Named Insured" or
the "Additional Named Insured", as the case may be. The original insurance
policies (or certificates thereof satisfactory to Landlord) together with
satisfactory evidence of payment of the premiums thereon,
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shall be deposited with Landlord at the Commencement Date, and renewals thereof
not less than thirty (30) days prior to the end of the term of each such
coverage. If Landlord is an Illinois land trust the insurance referred to in
subsection 6.0(a) hereof shall also insure the beneficiary or beneficiaries
thereof, and their agents. As long as VYSIS, INC. is the Tenant in possession
of the Leased Premises and provided that Amoco Corporation shall have a plan of
self-insurance to cover the losses of the types as to which insurance is
required under Section 6.0 Amoco Corporation may protect against such risks by
such plan of self-insurance and said plan of self-insurance shall not be deemed
to alter the provisions set forth in Sections 6.4, 13.0 and 13.1 hereof.
6.2 FIRE PROTECTION. Tenant shall conform with all applicable fire codes
of any governmental authority, and with the rules and regulations of Landlord's
fire underwriters and their fire protection engineers, including, without
limitation, the installation of adequate fire extinguishers. In the event that
the Leased Premises are served by a sprinkler system, but are not served by a
sprinkler monitoring system with direct connection to the local fire department
or a monitoring service, then Tenant shall, at its sole cost and expense,
install such a monitoring system, cause it to be connected to the local fire
department or to a qualified monitoring service approved by Landlord and
maintain the same in effect at all times during the entire Lease term.
6.3 KINDS AND AMOUNTS.
(a) Landlord shall procure and maintain policies of insurance, at
its own cost and expense, but subject to reimbursement by Tenant as hereinafter
set forth, insuring the building at any time situated upon the Leased Premises
under "All Risk Coverage Insurance" for an amount equal to not less than ninety
percent (90%) of the fair replacement cost of said building, written on a
replacement basis and with a replacement cost endorsement (without
depreciation)( and an agreed amount endorsement pertaining to the co-insurance
clause. Landlord shall be named as the insured and all proceeds of insurance
shall be payable to Landlord. The insurance to be provided by Landlord as set
forth in this Section 6.3 shall contain standard mortgage clauses satisfactory
to Landlord's mortgagee.
(b) Landlord shall procure and maintain policies of insurance, at its
own cost and expense, but subject to reimbursement by Tenant as hereinafter set
forth, insuring Landlord from loss of Annual Rent specified in Section 1.3,
impositions under Article V, the payment of insurance premiums under Section
6.3(c), the payment of the sums under Sections 9.2(b) and 9.2(d) and the payment
of utilities under Article XII during the period while the Leased Premises are
untenantable due to fire or other casualty, or explosion or breakdown of
boilers, air-conditioning equipment and miscellaneous electrical apparatus (for
the maximum period for which such insurance is available).
(c) Landlord shall provide Tenant with a copy of the invoice for the
premiums of insurance which Landlord is to procure and maintain as set forth in
Section 6.3(a) and Section
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6.3(b), and Tenant shall pay Landlord as additional rent hereunder within ten
(10) days following written notice from Landlord to Tenant, which written notice
shall contain a copy of each such invoice, the amount thereof. Tenant shall be
obligated to pay only a portion of such premium for the last year of the Lease
Term, which portion shall be determined by multiplying the amount of such
premium by a fraction, the numerator of which is the number of days for the last
year of the Lease Term and the denominator of which is three hundred sixty-five
(365).
6.4. MUTUAL WAIVER OF SUBROGATION RIGHTS. Whenever: (a) any loss, cost,
damage or expense resulting from fire, explosion or any other casualty or
occurrence is incurred by either of the parties to this Lease, or anyone
claiming by, through, or under it in connection with the Leased Premises, and
(b) such party is then covered in whole or in part by insurance with respect to
such loss, cost, damage or expense or is required under this Lease to be so
insured, then, anything contained in this Lease to the contrary notwithstanding
and without limiting any release or waiver of claims, liability or recovery set
forth elsewhere in this Lease, and notwithstanding anything in this Lease which
may appear to be to the contrary, the party so insured (or so required) hereby
releases the other party from any liability said other party may have on account
of such loss, cost, damage or expense to the extent of any amount recovered by
reason of such insurance (or which could have been recovered had such insurance
been carried as so required) and waives any right of subrogation which might
otherwise exist in or accrue to any person on account thereof, provided that
such release of liability and waiver of the right of subrogation shall not be
operative in any case where the effect thereof is to invalidate such insurance
coverage or increase the cost thereof (except that in the case of increased
cost, the other party shall have the right, within thirty (30) days following
written notice, to pay such increased cost, thereby keeping such release and
waiver in full force and effect). If the party released from liability
hereunder is Landlord, the term "Landlord", for the purpose of this Section 6.3
only, shall include Agent, and if Landlord is an Illinois land trust, shall also
include the Trustee, its agents, its beneficiary or beneficiaries and their
agents. Landlord and Tenant agree to have all property damage insurance which
may be carried by either of them endorsed with the clause providing that any
release from liability of or waiver of claim for recovery from the other party
entered into in writing by the insured thereunder prior to any loss or damage
shall not affect the validity of said policy or the right of the insured or
recover thereunder and providing further that the insurer waives all rights of
subrogation which such insurer might have against the other party, to the extent
that such clause is obtainable.
VII. DAMAGE OR DESTRUCTION
7.0 LANDLORD'S OBLIGATIONS TO REBUILD. If the Lease Premises is damaged
by fire or other casualty, the Landlord, at the Landlord's expense, but only to
the extent of the net amount of insurance proceeds payable to Landlord pursuant
to Section 6.3 above after deducting therefrom all costs and expenses incurred
in the collection thereof, shall restore the Leased Premises, excluding Tenant's
property referred to in Section 6.0(c) above, to substantially the same
condition as before such damage. Restoration shall be commenced by Landlord
within sixty (60)
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days after such damage shall have occurred and shall be substantially completed
with reasonable diligence, due allowance being made for delay in the
commencement or completion or restoration occasioned by causes beyond the
Landlord's control, including any inability or delay in the collection of
insurance proceeds. If the Landlord does not commence such restoration within
such sixty (60) day period, and proceed therewith with reasonable diligence, due
allowance being made for delays occasioned as aforesaid, the Tenant may
terminate this Lease as of the date of such damage (as its sole and exclusive
remedy) by serving notice on the Landlord after the expiration of such period,
and while the Landlord not being delayed in any aforesaid causes is not
diligently proceeding with such restoration promptly, provided, however, that if
the damage or destruction is material and substantial, Landlord shall have the
right, subject to the consent of any first mortgagee whose consent thereto is
required, to terminate this Lease, effective on the date of such damage or
destruction, by giving written notice thereof to Tenant within sixty (60) days
after the event causing the damage or destruction.
7.1 RENTAL ABATEMENT. In the event all or any part of the Lease Premises
are rendered untenantable because of damage by fire or other casualty, the
Annual Rent payable by Tenant pursuant to Section 1.3, the payments of
impositions under Article V, the payment of insurance premiums under Section
6.3(c), the payment of the sums under Sections 9.2(b) and 9.2(d) and the payment
of utilities under Article XII shall abate during the period in which the Leased
Premises or any portion thereof is untenantable. The payments so abated shall
be computed on a per diem basis and shall be a proportionate abatement of such
payments to be computed on the basis of the relationship which the gross
rentable square foot area of the buildings located on the Leased Premises
rendered untenantable bears to the gross rentable square footage of the
buildings located on the Leased Premises. Gross rentable square foot area of
the buildings is deemed to be 56,551 square feet for the purpose of this Section
7.1.
VIII. CONDEMNATION
8.0 TAKING OF WHOLE. If the whole of the Leased Premises shall be taken
or condemned for a public or quasi-public use or purpose by a competent
authority, or if such a portion of the Leased Premises shall be so taken that as
a result thereof the balance cannot be used for the same purpose and with
substantially the same utility to Tenant as immediately prior to such taking,
then in any of such events, the Lease Term shall terminate upon delivery of
possession to the condemning authority, and any award, compensation or damages
(hereinafter sometimes called the "Award") shall be paid to and be the sole
property of Landlord whether the Award shall be made as compensation for
diminution of the value of the leasehold estate or the fee of the Leased
Premises and Tenant hereby assigns to Landlord all of Tenant's right, title and
interest in and to any and all of the Award. Tenant shall continue to pay rent
and other charges hereunder until the Lease is terminated and any Impositions
and insurance premiums prepaid by Tenant or any unpaid Impositions or other
charges which accrue prior to the termination, shall be adjusted between the
parties. Anything contained in this Section 8.0 to the contrary
notwithstanding, Tenant shall have the right to make a separate claim against
recover from the condemning authority for such
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compensations as may be separately awarded or recovered by Tenant in Tenant's
own right on account of any and all damage to Tenant's business as a result of
such condemnation and all losses and the expenses incurred by Tenant in
relocating to other premises and removing its personal property, provided that
any such claim and recovery shall not reduce the amount of the Award.
8.1 PARTIAL TAKING. If only a part of the Leased Premises shall be so
taken or condemned, but the Lease is not terminated pursuant to Section 8.0
hereof, Landlord, at its sole cost and expense, but only to the extent of the
net proceeds of the Award after deducting therefrom all costs and expenses
incurred in the collection thereof (including costs and expenses incurred in any
proceedings arising out of said condemnation or negotiations with respect to any
conveyance in lieu thereof), shall repair and restore the Leased Premises and
all improvements thereon to as reasonably near as possible the condition of the
Leased Premises and such improvements that existed prior to said condemnation.
There shall be an equitable reduction in any rental because of such taking or
condemnation.
IX. MAINTENANCE, ALTERATIONS AND COMPLIANCE WITH LAW
9.0 MAINTENANCE.
(a) Except as set forth in Section 9.2, Tenant shall keep and
maintain the entire exterior and interior of the Leased Premises, specifically
including, without limitation, the heating, ventilating and air conditioning
equipment, in good condition and repair. As used herein, each and every
obligation of Tenant to keep, maintain and repair shall include, without
limitation, all replacements. The obligation of Tenant to maintain, repair and
replace the Leased shall require, without limiting the generality of the
foregoing, the Tenant to tuckpoint, scrape and paint all windows, repair all
steps, sidewalks and driveways or when necessary, replace all interior and
exterior doors and overhead doors and replace all cracked or broken windows.
The obligation of Tenant to maintain, repair and replace is intended to require
the Tenant to preserve and extend the useful life and value of the Premises
through on-going regular repair and maintenance of the Leased Premises. As to
any repairs costing in excess of $5,000.00, and as to any replacements
whatsoever, Tenant shall, in connection therewith, comply with the requirements
of Section 9.1(b) hereof. Tenant shall, to the extent possible, keep the Leased
Premises from falling temporarily out of repair or deteriorating. Tenant shall
further keep and maintain the Leased , including the improvements at any time
situated upon the Leased Premises, and all sidewalks and areas adjacent thereto,
safe, secure, clean and sanitary and, to the extent Tenant is required to so
maintain hereunder shall do so, in full compliance with all laws, statutes,
rules, regulations, ordinances or orders of any kind whatsoever having
jurisdiction over the Leased as such laws, statutes, rules, regulations,
ordinances or orders relate to the manner in which Tenant is then using the
Leased Premises (including but not limited to, zoning and building laws and
ordinances, environmental protection laws and regulations, the rules,
regulations and orders of any governmental agency and any building or
environmental permit) and any condition, easement, right-of-way, covenant or
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restriction of record. Nothing in Section 1.3(a) shall be deemed to limit
Tenant's obligations under this Section 9.0(a).
(b) Without limiting Tenant's obligations under Section 9.0(a)
hereof, Tenant shall, at all times during the Term of this Lease, have and keep
in force a maintenance contract, in form and with a contractor reasonably
satisfactory to Landlord, providing for inspection at least once each calendar
quarter of the heating, air conditioning and ventilating equipment (which
inspection shall encompass the work described on Schedule I attached hereto and
made a part hereof), and providing for necessary repairs thereto. Said contract
shall provide that it will not be cancelable by either party thereto except upon
thirty (30) days' prior written notice to Landlord.
9.1 ALTERATIONS.
(a) Tenant shall make all additions, improvements and alterations
(hereinafter "Alterations") on the Leased Premises, and on and to the
improvements, parking areas, sidewalks, and equipment thereon, required pursuant
to Section 9.1(c) below or which may be made necessary by the act or neglect of
Tenant, its employees, agents or contractors, or any persons, firm or
corporation, claiming by, through or under Tenant. Tenant shall have the right
during the Lease Term to make Alterations as may be proper and necessary for the
conduct of its business and for the full beneficial use of the Leased Premises
permitted herein, provided Landlord shall have first approved the Alteration if
the Alteration is an Approval Alteration (as hereinafter defined) and provided
further Tenant shall pay when due all costs, expenses and charges thereof, and
shall fully and completely indemnify Landlord against any mechanic's lien or
other liens or claims in connection with the making of any such Alterations.
Approval Alterations shall constitute any Alteration that shall diminish the
fair market or rental value of the Leased Premises, or any Alteration of a
structural nature to the interior or exterior of the Leased Premises, or any
Alterations to the main electrical, plumbing, heating, ventilating and
air-conditioning systems. Tenant shall not make, nor permit to be made any
Approval Alterations of the Leased Premises without first obtaining Landlord's
approval thereof, which approval shall not be unreasonably withheld. Tenant
shall promptly repair any damage to the Leased Premises caused by any
Alterations of the Leased Premises by Tenant. Tenant shall be obligated to
remove Approval Alterations which Landlord has consented to the extent that the
consent of Landlord was conditioned upon the removal of such Alterations by
Tenant.
(b) As to any Alterations which Tenant is required hereunder to
perform or to which Landlord consents, and as to any repairs costing in excess
of $5,000.00, and as to any replacements whatsoever, or as to any work performed
pursuant to Article XVIII hereof, such work shall be performed with rebuilt
materials that are comparable to new materials and have been approved by
Landlord or with new materials, in a good and workmanlike manner, strictly in
accordance with plans and specifications therefor received by Landlord prior to
the commencement of construction of the Alteration and first approved in writing
by Landlord (which approval shall not be unreasonably withheld), if the
Alteration is an Approval Alteration, and in
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accordance with all applicable laws and ordinances. Upon completion of any such
work by or on behalf of Tenant, Tenant shall provide Landlord with such
documents as Landlord may require (including, without limitation, sworn
contractors' statements and supporting lien waivers) evidencing payment in full
for such work, and "as built" working drawings. In the event Tenant performs
any work not in compliance with the provisions of this Section 9.1(b), Tenant
shall, upon written notice from Landlord, as expeditiously as possible remove
such work and restore the Leased Premises to their condition immediately prior
to the performance thereof.
(c) Tenant shall make all Alterations on the Premises, and on and to
the improvements, parking areas, sidewalks and equipment thereon required by any
governmental authority and relating to Tenant's then actual use of the Leased
Premises. Tenant shall not violate any law, ordinance or other governmental
regulation in effect from time to time which relates to the manner in which the
Tenant is then using the Leased Premises. Landlord has not received any written
notice stating that the Leased Premises and said improvements, parking areas,
sidewalks and equipment thereon are not in material compliance with all laws,
ordinances or other governmental regulations.
9.2 LANDLORD'S OBLIGATIONS REGARDING MAINTENANCE.
(a) Landlord shall, at its sole cost and expense perform all
maintenance, repair and replacements of the roof and structural members of the
Leased Premises. Landlord shall make all additions, improvements and
alterations on the Premises and on and to the improvements, parking areas,
sidewalks and equipment thereon required by any governmental authority, except
to the extent that such additions, improvements and alterations are to be made
by Tenant as set forth in Section 9.1(c).
(b) Further, Landlord shall replace, when necessary, the Parking Lot
and all steps, sidewalks and driveways. Further, Landlord shall replace the
heating, ventilating and air-condition equipment and major mechanical systems of
the building including but not limited to electrical, plumbing, elevators and
sewer lines in the Leased Premises to the extent that such replacement is
necessary and after having received written notice thereof from the Tenant.
Landlord's obligation to replace the parking lot, steps, sidewalks and
driveways, heating, ventilating and air-conditioning equipment and said major
mechanical systems are herein referred to as the "Replacement Obligations."
Tenant shall pay to Landlord its share of all of the and expenses incurred by
Landlord in fulfilling its Replacement Obligations. Tenant's share of the costs
and expenses incurred by Landlord in fulfilling its Replacement Obligations
shall be determined by multiplying the cost incurred by Landlord to replace any
such item replaced by Landlord (such cost shall include the cost of any permits
issued by any governmental authority having jurisdiction and the amounts paid to
any architect or engineer retained in connection with the design, installation
and/or construction of any such item) by a fraction, the numerator of which is
the number of years including the fraction of any partial year remaining in the
Term of this Lease at the time of the installation of such item (such time of
installation to be certified (the
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"Certification") by the contractor who installed the same or the architect or
engineer who designed the same) and the denominator of which is the depreciable
life of such item as determined by Landlord in accordance with generally
accepted accounting principles. The produce of such calculation shall
constitute Tenant's share of the costs and expenses incurred by Landlord in
fulfilling its Replacement Obligations, and if the number of years including the
fraction of any partial year remaining in the Term of this Lease at the time of
the with respect to any such item shall be longer than the depreciable life
thereof as determined by Landlord as aforesaid, then Tenant shall pay the entire
amount of the costs and expenses incurred by Landlord in fulfilling its
Replacement Obligations with respect thereto. Should Tenant extend the term of
this Lease as set forth in Section 20.22 hereof, Landlord shall recalculate
Tenant's share of the costs of said replaced items under this Section 9.2(b) by
including the First Renewal Period or the Second Renewal Period, as the case may
be, in the remaining Term of this Lease for the purpose of determining Tenant's
share of the costs and expenses incurred by Landlord in fulfilling its
Replacement Obligations.
(c) If the necessity of any maintenance, repairs or replacements to
be performed by Landlord pursuant to Section 9.2(a) or 9.2(b) results from any
act or omission or negligence of Tenant, its agents, employees, contractors,
customers or invitees, Tenant shall pay to Landlord all of the costs and
expenses incurred by Landlord in fulfilling its Replacement Obligations, which
payments shall be paid to Landlord as additional rent hereunder and shall be
paid to Landlord within ten (10) days after Landlord bills Tenant therefor.
(d) Each amount that Tenant is to pay to Landlord as set forth in
Section 9.2(b) above is hereinafter referred to as a "Principal Sum." The
amount of each Principal Sum together with interest thereon at the Repayment
Rate (as hereinafter defined) shall be paid in equal monthly installments of
principal and interest, each such installment to be in an amount necessary to
fully amortize each Principal Sum together with interest thereon from the
applicable Certification Date over the number of months remaining in the Term of
this Lease commencing with the month (the "Commencement Month") that follows the
month during which the construction or installation of the replacement item is
substantially completed as set forth in the Certification. The Repayment Rate
shall be an interest rate equal to the announced base or prime interest rate of
American National Bank and Trust Company of Chicago in effect on the date of the
Certification plus two per cent (2%).
Should Tenant terminate this Lease as set forth in Section 21.21
hereof, the termination payment of Six Hundred Thousand No/100 Dollars
($600,000.00) set forth in said Section 21.21 shall be increased by the
unauthorized portion of each Principal Sum.
Should Tenant extend the Term of this Lease as set forth in
Section 21.22 hereof, the additional Principal Sum, if any, which Tenant is to
pay as a result of the recalculation referred to in Section 9.2(b) shall
constitute a Principal Sum, and said Principal Sum together with
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interest thereon at the Repayment Rate shall be repaid in equal monthly
installments over the First Renewal Period or Second Renewal Period as the case
may be.
Each monthly installment which Tenant is to pay as set forth in
this Section 9.2(d), whether principal or interest, shall constitute additional
rent hereunder and shall be due and payment on the 1st day of each month during
the Term commencing with the Commencement Month and on the 1st day of the month
during the Renewal Period or Second Renewal Period, as applicable. Each
monthly installment of a Principal Sum, together with accrued and unpaid
interest therein shall be applied first to interest and second to principal.
Landlord agrees that Landlord's records of such costs and expenses incurred by
Landlord in fulfilling its Replacement Obligations and the calculations
regarding the depreciable life thereof shall be made available for examination
by Tenant, upon the request of Tenant.
Following the receipt by Landlord of the Certification for each
replacement item, Landlord shall furnish to Tenant written notice ("Replacement
Notice") which shall contain a copy of the Certification, the amount of the
costs and expenses incurred by Landlord in fulfilling its Replacement
Obligations with respect to each such item replaced and the calculation of
Tenant's share of the cost thereof. Unless Tenant shall make written exception
(a "Replacement Notice Exception") to any Replacement Notice within thirty (30)
days after the giving of the same by Landlord to Tenant, such Replacement Notice
shall be considered as final and accepted by Tenant. Should Tenant give
Landlord a Replacement Notice Exception within said thirty (30) day period, the
payment of additional rent with respect thereto shall not be delayed or
postponed (Tenant to remain obligated to pay such additional rent as the same
shall become due and payable as aforesaid) but such payments of additional rent
with respect to any item described in Replacement Notice Exception shall be
deemed paid by Tenant with a reservation of rights in Tenant to contest, by
appropriate judicial proceedings, the Replacement Notice with respect thereto.
Should Tenant fail to initiate judicial proceedings with respect to any
Replacement Notice with respect to which Tenant has given a Replacement Notice
Exception within two hundred seventy (270) days of the giving of such
Replacement Notice Exception, such Replacement Notice Exception shall be deemed
withdrawn and the Replacement Notice referred to therein shall be considered as
final and accepted by the Tenant.
Anything contained herein to the contrary notwithstanding, should
any Replacement Notice not be given to Tenant prior to the applicable
Commencement Month, the additional rent with respect thereto that became due and
payable prior to the giving of such Replacement Notice need not be paid and
shall not be considered due and payable until the giving of such Replacement
Notice.
X. ASSIGNMENT AND SUBLETTING
10.0 CONSENT REQUIRED.
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(a) Tenant shall not, without Landlord's prior written consent, (i)
assign, convey or mortgage this Lease or any interest under it; (ii) allow any
transfer thereof or any lien upon Tenant's interest by operation of law; (iii)
sublet the Leased Premises or any part thereof; (iv) amend a sublease previously
consented to by Landlord; or (v) permit the use or occupancy of the Leased
Premises or any part thereof by anyone other than Tenant. If Tenant proposes to
assign the Lease or enter into any sublease of the Leased Premises, Tenant shall
deliver written notice thereof to Landlord, together with a copy of the proposed
assignment or sublease agreement at least thirty (30) days prior to the
effective date of the proposed assignment, or the commencement date of the Term
of the proposed sublease. Any proposed assignment or sublease shall be
expressly subject to all of the terms, conditions and covenants of this Lease.
Any proposed assignment shall contain an express written assumption by assignee
of all of Tenant's obligations under this Lease. Any proposed sublease shall
(i) provide that the sublessee shall procure and maintain a policy of insurance
as required of Tenant under subsection 6.0(h) hereof; (ii) contain a provision
for the benefit of Landlord, substantially in the form set forth in Section 6.3
hereof; (iii) provide for a copy to Landlord of notice of default by either
party; and (iv) otherwise be reasonably acceptable in form to Landlord.
(b) Landlord's consent to any assignment or subletting shall not
unreasonably be withheld, in making its determination as to whether to consent
to any proposed assignment or sublease, Landlord may consider, among other
things, the credit-worthiness and business reputation of the proposed assignee
and any guarantor of assignee's obligations or subtenant, the intended manner of
use of the Leased Premises by the proposed assignee or subtenant, the estimated
vehicular traffic on or about the Leased Premises which would be generated by
the proposed assignee or subtenant or by its manner of use of the Leased
Premises, and any other factors which Landlord may reasonably deem relevant.
Tenant's remedy, in the event that Landlord shall unreasonably withhold its
consent to any assignment or subletting, shall be limited to injunctive relief
or declaratory judgment and in no event shall Landlord be liable for damages
resulting therefrom. No consent by Landlord to any assignment or subletting
shall be deemed to be a consent to any further assignment or subletting or to
any sub-subletting. Anything contained herein to the contrary notwithstanding,
Landlord shall not be obligated to consent to any assignment, conveyance or
mortgage of this Lease or any interest under it as set forth in Section 10.0(a)
above, unless Amoco Corporation, if it is the then guarantor of Tenant's
obligations hereunder, has consented in writing to such assignment.
(c) In the event that Tenant proposes to assign the Lease or to
enter into a sublease of all or substantially all of the Leased Premises,
Landlord shall have the right, in lieu of consenting thereto, to terminate this
Lease, effective as of the effective date of the proposed assignment or the
commencement date of the proposed sublease, as the case may be. Landlord may
exercise said right by giving Tenant written notice thereof within twenty (20)
days after receipt by Landlord of Tenant's notice, given in compliance with
Section 10.0(a) hereof, of the proposed assignment or sublease. In the event
that Landlord exercises such right, Tenant shall surrender the Leased Premises
on the effective date of the termination and this Lease shall
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thereupon terminate. Landlord may, in the event of such termination, enter into
a lease with any proposed assignee or subtenant for the Leased Premises.
(d) In the event that Tenant subleases only a portion of the Leased
Premises, Tenant shall pay to Landlord monthly, as additional rent hereunder,
fifty percent (50%) of the amount calculated by subtracting from the rent and
other charges and consideration payable from time to time by the subtenant to
Tenant for said space, the amount of rent and other charges payable by Tenant to
Landlord under this Lease, allocated (based on the relative rentable square foot
area of the total Leased Premises and of that portion of the Leased Premises so
subleased by Tenant) to the subleased portion of the Leased Premises.
(e) No permitted assignment shall be effective and no permitted
sublease shall commence unless and until any default by Tenant hereunder shall
have been cured. Except as set forth in Section 10.1, no permitted assignment
or subletting shall relieve Tenant from Tenant's obligations and agreements
hereunder and Tenant shall continue to be liable as a principal and not as a
guarantor or surety to the same extent as though no assignment or subletting had
been made.
10.1 MERGER OR CONSOLIDATION. Tenant may, without Landlord's consent,
assign this Lease to any corporation resulting from a merger or consolidation of
the Tenant upon the following conditions: (a) that the total assets and net
worth of such assignee after such consolidation or merger shall be equal to or
more than that of Tenant immediately prior to such consolidation or merger; (b)
that Tenant is not at such time in default hereunder; and (c) that such
successor shall execute an instrument in writing fully assuming all of the
obligations and liabilities imposed upon Tenant hereunder and deliver the same
to Landlord prior to the effective date of such assignment. If the aforesaid
conditions are satisfied, Tenant shall be discharged from any further liability
hereunder.
10.2 TRANSFER TO AFFILIATE. Further, Tenant may, without Landlord's
consent, assign this Lease or sublet all or any portion of the Leased Premises
to Amoco Corporation or any corporation whose voting securities are owned,
directly or indirectly through one or more intermediaries, by Amoco Corporation.
10.3 OTHER TRANSFER OF LEASE. Tenant shall not allow or permit any
transfer of this Lease, or any interest hereunder, by operation of law, or
convey, mortgage, pledge, or encumber this Lease or any interest herein.
XI. LIENS AND ENCUMBRANCES
11.0 ENCUMBERING TITLE. Tenant shall not do any act which shall in any
way encumber the title of Landlord in and to the Leased Premises, nor shall the
interest or estate of Landlord in the Leased Premises in any way be subject to
any claim by way of lien or encumbrance resulting from any act of Tenant,
whether by operation of law or virtue of any express or implied contract
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by Tenant. Any claim to, or lien upon, the Leased Premises arising from any act
or omission of Tenant shall accrue only against the leasehold estate of Tenant
and shall be subject and subordinate to the paramount title and rights of
Landlord in and to the Leased Premises.
11.1 LIENS AND RIGHT TO CONTEST. Tenant shall not permit the Leased
Premises to become subject to any mechanics', laborers' or materialmen's lien on
account of labor or material furnished to Tenant or claimed to have been
furnished to Tenant in connection with work of any character performed or
claimed to have been performed on the Leased Premises by, or at the direction of
Tenant; provided, however, that Tenant shall have the right to contest, in good
faith and with reasonable diligence, the validity of any such lien or claimed
lien if Tenant shall give to Landlord such security as may be deemed reasonably
satisfactory to Landlord to assure payment thereof and to prevent any sale,
foreclosure, or forfeiture of the Leased Premises by reason of nonpayment
thereof; provided further, that on final determination of the lien or claim for
lien, Tenant shall immediately pay any judgment rendered, with all proper costs
and charges, and shall have the lien released and any judgment satisfied and
thereupon Landlord shall return to Tenant any security held by Landlord to
assure the payment thereof.
XII. UTILITIES
12.0 UTILITIES. Tenant shall purchase all utility services, including but
not limited to fuel, water, sewerage and electricity, from the utility or
municipality providing such service, and shall pay for such services when such
payments are due.
XIII. INDEMNITY AND WAIVER
13.0 INDEMNITY.
(a) Subject to Section 6.4, Tenant will protect, indemnify and save
harmless Landlord (for the purpose of this Article XIII and Section 18.2 only,
the term "Landlord" shall also include Agent and, if Landlord is an Illinois
land trust, shall also include the Trustee, its agents, its beneficiary or
beneficiaries and their agents and, further, for the purpose of this Article
XIII and Section 18.2, the term "Landlord" shall also include each mortgagee of
Landlord and the agents or each such mortgagee and any purchaser of the Real
Estate who acquires title from any such mortgagee or who acquires title as a
result of the foreclosure of the mortgage to any such mortgagee) from and
against all liabilities, obligations, claims, damages, penalties, causes of
action, costs and expenses (including without limitation, reasonable attorneys'
fees and expenses) imposed upon or incurred by or asserted against Landlord by
reason of:
(i) Personal injury, death or property damage caused by the
negligence or willful misconduct of Tenant, its agents, employees or invitees;
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(ii) Incidents occurring in or about the Leased Premises caused
by the negligence or willful misconduct of Tenant, its agents, employees or
invitees.
When the claim is caused by the joint negligence or willful misconduct of Tenant
and Landlord or Tenant and a third party unrelated to Tenant, except Tenant's
Agents employees or invitees, Tenant's duty to protect, indemnify and save
harmless the parties referred to above shall be in proportion to Tenant's
allocable share of the joint negligence or wilful misconduct.
(b) In case any action, suit or proceeding is brought against
Landlord by reason of any occurrence described in Section 13.0(a), Tenant will,
at Tenant's expense, by counsel approved by Landlord, resist and defend such
action, suit or proceeding, or cause the same to be resisted and defended. The
obligations of Tenant under this Section 13.0(b) shall survive the expiration or
earlier termination of this Lease.
(c) Subject to Sections 6.4 and 13.1 hereof, Landlord will protect,
indemnify and save harmless Tenant from and against all liabilities,
obligations, damages, penalties, causes of action, costs and expenses
(including, without limitation reasonable attorneys' fees and expenses) imposed
upon or incurred by or asserted against Tenant and any affiliate thereof by
reason of:
(i) Personal injury, death or property damage caused by the
negligence or willful misconduct of Landlord, its agents, employees or invitees:
(ii) Incidents occurring in or about the Leased Premises caused
by the negligence or wilful misconduct of Landlor, its agents, employees or
invitees. When the claim is caused by the joint negligence or willful
misconduct of Tenant and Landlord or Landlord and a third party unrelated to
Landlord, except Landlord's Agents employees or invitees, Landlord's duty to
protect, indemnify and save Tenant harmless shall be in proportion to
Landlord's allocable share of the joint negligence or wilful misconduct.
(d) In case any action, suit or proceeding is brought against Tenant
by reason of any occurrence described in Section 13.0(c), Landlord will, at
Landlord's expense, by counsel approved by Tenant, resist and defend such
action, suit or proceeding, or cause the same to be resisted and defended. The
obligations of Landlord under this Section 13.0(d) shall survive the expiration
or earlier termination of this Lease.
13.1 WAIVER OF CERTAIN CLAIMS. All property belonging to Tenant or any
occupant of the Leased Premises that is in or on any part of the Leased Premises
shall be there at the risk of Tenant or of such other person only, and Landlord
shall not be liable for any damage thereto or for the theft or misappropriation
thereof. Tenant waives all claims it may have against Landlord for damage or
injury to property sustained by Tenant or any persons claiming through Tenant or
by any occupant of the Leased Premises, or by any other person, resulting from
any part of the Leased Premises or any of its improvements, equipment or
appurtenances becoming out of repair,
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or resulting from any accident on or about the Leased Premises, or resulting
directly or indirectly from any act or neglect of any person, including Landlord
to the extent permitted by law. This Section 13.1 shall include, but not by way
of limitation, damage caused by water, snow, frost, steam, excessive heat or
cold, sewage, gas, odors, or noise, or caused by bursting or leaking of pipes or
plumbing fixtures, and shall apply equally whether any such damage results from
the act or neglect of Tenant or any other person, including Landlord, to the
extent permitted by law and whether such damage be caused by or result from any
thing or circumstance above-mentioned or referred to or to any other thing or
circumstance whether of a like nature or of a wholly different nature.
XIV. RIGHTS RESERVED TO LANDLORD
14.0 RIGHTS RESERVED TO LANDLORD. Without limiting any other rights
reserved or available to Landlord under this Lease, at law or in equity,
Landlord, on behalf of itself and Agent reserves the following rights to be
exercised at Landlord's election:
(a) To inspect the Leased Premises and, without being liable in
damages for a breach of the covenant of quiet enjoyment, to make repairs,
additions or alterations to the Leased Premises;
(b) To show the Leased Premises to prospective purchasers or
mortgagees, and at any time within nine (9) months prior to the expiration of
the Lease Term (the same having not been extended) to persons wishing to rent
the Leased Premises;
(c) During the last nine (9) months of the Lease Term (the same
having not been extended), to place and maintain the usual "For Rent" sign in or
on the Leased Premises or the Real Estate;
(d) If Tenant shall theretofore have abandoned the Leased Premises
(but not earlier than during the last ninety (90) days of the Lease Term), to
decorate, remodel, repair, alter, or otherwise prepare the Leased Premises for
new occupancy; and
(e) To place and maintain "For Sale" signs on the Real Estate and on
the exterior of the building of which the Leased Premises are a part.
Landlord may enter upon the Leased Premises for any and all of said
purposes and may exercise any and all of the foregoing rights hereby reserved,
during normal business hours unless an emergency exists, without being deemed
guilty of any eviction or disturbance of Tenant's use or possession of the
Leased Premises.
XV. QUIET ENJOYMENT
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15.0 QUITE ENJOYMENT. So long as no event of default shall have occurred
which has not been waived in writing by Landlord, this Lease and Tenant's quiet
and peaceable enjoyment of the Leased Premises shall not be disturbed or
interfered with by Landlord or by any person claiming by, through or under
Landlord.
XVI. SUBORDINATION OR SUPERIORITY
16.0 SUBORDINATION OR SUPERIORITY. If the mortgagee or trustee named in
any first mortgage or first trust deed hereafter made shall agree that, if it
becomes the owner of the Leased Premises by foreclosure or deed in lieu of
foreclosure, it will recognize the rights and interest of Tenant under the Lease
and not disturb Tenant's and occupancy of the Leased Premises if and so long as
no event of default shall have occurred which has not been waived in writing by
Landlord (which agreement may, at such mortgagee's option, require attornment by
Tenant), then all or a portion of the rights and interests of Tenant under this
Lease shall be subject and subordinate to such first mortgage or first trust
deed and to any and all advances to be made thereunder, and to the interest
thereon, and all renewals, replacements and extensions thereof. Any such
mortgagee or trustee may elect that, instead of making this Lease subject and
subordinate to its first mortgage or first trust deed, the rights and interest
of Tenant under this Lease shall have priority over the lien of its mortgage or
trust deed. Tenant agrees that it will, within twenty (20) days after demand in
writing, execute and deliver whatever instruments may be required, either to
make the Lease subject and subordinate to such a mortgage or trust deed, or to
give the Lease priority over the lien of the mortgage or trust deed, whichever
alternative may be elected by the mortgagee or trustee, provided that any such
instrument shall not modify any provision of this Lease.
XVII. SURRENDER
17.0 SURRENDER. Upon the termination of this Lease, whether by
forfeiture, lapse of time or otherwise, or upon termination of Tenants' right to
possession of the Leased Premises, Tenant will at once surrender and deliver up
the Leased Premises, together with all improvements thereon, to Landlord, broom
swept, in good condition and repair, except: (i) ordinary wear and tear
(conditions existing because of Tenant's failure to perform maintenance repairs
or replacements as required herein or to have in force a maintenance contract
required by Section 9.0(b) hereof shall not be deemed ordinary wear and tear);
(ii) condemnation; (iii) damage arising from any cause not required to be
repaired or replaced by Tenant; and (iv) Alterations which do not constitute
Approval Alterations and Approval Alterations which Tenant is not required to
remove as set forth in Section 9.1(a). Tenant shall deliver to Agent all keys
to all doors therein. As used herein, the term "improvements" shall include,
without limitation, all plumbing, lighting, electrical, heating, cooling and
ventilating fixtures and equipment, and all Alterations (as said
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term is defined in Section 9.1 hereof) whether or not permitted under Section
9.1. All Alterations, temporary or permanent, made in or upon the Leased
Premises by Tenant shall become Landlord's property and shall remain upon the
Leased Premises on any such termination without compensation, allowance or
credit to Tenant, provided, however, that Landlord shall have the right to
require Tenant to remove any Approval Alterations and restore the Leased
Premises to their condition prior to the making of such Alterations, repairing
any damage occasioned by such removal and restoration to the extent that the
approval by Landlord of any Approval Alteration was conditioned upon the removal
of the same. Said right shall be exercised by Landlord's giving written notice
thereof to Tenant on or before ten (10) days after such termination. If
Landlord requires removal of any Alterations as set forth in Section 9.1(a) and
Tenant does not make such removal in accordance with this Section at the time of
such termination, or within ten (10) days after such request, whichever is
later, Landlord may remove the same (and repair any damage occasioned thereby),
and dispose thereof or, at its election, deliver the same to any other place of
business of Tenant or warehouse the same. Tenant shall pay the costs of such
removal, repair, delivery and warehousing to Landlord on demand.
17.1 REMOVAL OF TENANT'S PROPERTY. Upon the termination of this Lease by
lapse of time, Tenant shall remove Tenant's articles of personal property
incident to Tenant's business ("Trade Fixtures"); provided, however, that Tenant
shall repair any injury or damage to the Leased Premises which may result from
such removal, and shall restore the Leased Premises as near as reasonably
possible to the same condition, subject to normal wear and tear, as prior to the
installation thereof. If Tenant does not remove Tenant's Trade Fixtures from
the Leased Premises prior to the expiration or earlier termination of the Lease
Term, Landlord may, at its option, remove the same (and repair any damage
occasioned thereby) and dispose thereof or deliver the same to any other place
of business of Tenant or warehouse the same, and Tenant shall pay the cost of
such removal, repair, delivery and warehousing to Landlord on demand, or
Landlord may treat such Trade Fixtures as having been conveyed to Landlord with
this Lease as a Bill of Sale, without further payment or credit by Landlord to
Tenant. Anything contained in Section 17.1 to the contrary notwithstanding,
with respect to the following Trade Fixtures. Tenant shall not be required to
remove utility lines used to furnish utilities to said Trade Fixtures and to
remove equipment associated with said utility lines. Tenant will cause any
utility services supplied to the Leased Premises to operate said Trade Fixtures
to be terminated and will cause said utility lines to be capped and rendered
inoperative in accordance with applicable building code:
(a) three autoclaves;
(b) water systems;
(c) clean air compressors; and
(d) wire mesh caging.
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17.2 HOLDING OVER. Tenant shall have no right to occupy the Leased
Premises or any portion thereof after the expiration of the Lease or after
termination of the Lease or of Tenant's right to possession pursuant to Section
19.0 hereof. In the event Tenant or any party claiming by, through or under
Tenant holds over, Landlord may exercise any and all remedies available to it at
law or in equity to recover possession of the Leased Premises, and for damages.
For each and every month or partial month that Tenant or any party claiming by,
through or under Tenant remains in occupancy of all or any portion of the Leased
Premises after the expiration of the Lease or after termination of the Lease or
Tenant's right to possession, Tenant shall pay, as minimum damages and not as a
penalty, monthly rental at a rate equal to double the rate of rent and other
charges payable by Tenant hereunder immediately prior to the expiration or other
termination of the Lease or of Tenant's right to possession. The acceptance by
Landlord of any lesser sum shall be construed as a payment on account and not in
satisfaction of damages for such holding over.
XVIII. ENVIRONMENTAL CONDITIONS
18.0 "ENVIRONMENTAL CONDITION" DEFINED. As used in this Lease, the phrase
"Environmental Condition" shall mean: (a) any adverse condition relating to
surface water, ground water, drinking water supply, land, surface or subsurface
strata or the ambient air, and includes, without limitation, air, land and water
pollutants, noise, vibration, light and odors, or (b) any condition which may
result in a claim of liability under the Comprehensive Environment Response
Compensation and Liability Act, as amended ("CERCLA"), or the Resource
Conservation and Recovery Act ("RCRA"), or any claim of violation of the Clean
Air Act, the Clean Water Act, the Toxic Substance Control Act ("TSCA"), or any
claim of liability or of violation under any federal statute hereafter enacted
dealing with the protection of the environment or with the health and safety of
employees or members of the general public, or under any rule, regulation,
permit or plan under any of the foregoing, or under any law, rule or regulation
now or hereafter promulgated by the state in which the Leased Premises are
located, or any political subdivision thereof, relating to such matters
(collectively "Environmental Laws").
18.1 COMPLIANCE BY TENANT. Tenant shall, at all times during the Lease
term, comply with all Environmental Laws applicable to its use and occupancy of
the Leased Premises and shall not, in the use and occupancy of the Leased
Premises, cause or contribute to, or permit any party claiming by, through or
under Tenant, to cause or contribute to any Environmental Condition. Without
limiting the generality of the foregoing, Tenant shall not, without the prior
written consent of a Landlord, receive, keep, maintain or use on or about the
Leased Premises any substance as to which filing with a local emergency planning
committee, the State Emergency Response Commission or the fire department having
jurisdiction over the Leased Premises is required pursuant to Section 311 and/or
Section 312 of the CERCLA, as amended by the Superfund Amendment and
Reauthorization Act of 1986 ("SARA") (which latter Act includes the Emergency
Planning and Community Right-To-Know Act of 1986); in the event Tenants make a
filing pursuant to SARA, Tenant shall simultaneously deliver copies thereof to
Agent.
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18.2 ENVIRONMENTAL INDEMNITY. Tenant will protect, indemnify and save
harmless Landlord from and against all liabilities, obligations, claims,
damages, penalties, causes of action, costs and expenses (including, without
limitation, reasonable attorneys' fees and expenses) of whatever kind or nature,
known or unknown, incurred or imposed, based upon any Environmental Laws or
resulting from any Environmental Condition which is caused by the use or
occupancy of the Leased Premises by Tenant or any party claiming by, through or
under Tenant. In case any action, suit or proceeding is brought against any of
the parties indemnified herein by reason of any occurrence described in this
Section 18.2, Tenant will, at Tenant's expense, resist and defend such action,
suit or proceeding, or cause the same to be resisted and defended. The
obligations of Tenant under this Section 18.2 shall survive the expiration or
earlier termination of this Lease. Landlord covenants and agrees that it will
not seek to impose upon Tenant or any party claiming by, through or under Tenant
at any time, liability or responsibility for any Environmental Condition
pre-existing from Tenant's occupancy or resulting from prior occupancies of the
Leased Premises.
18.3 TESTING AND REMEDIAL WORK. Landlord may conduct tests in or about the
Leased Premises for the purpose of determining the presence of any Environmental
Condition. If such tests indicate the presence of an Environmental Condition
caused by the use or occupancy of the Leased Premises by Tenant or any party
claiming by, through or under Tenant, Tenant shall, in addition to its other
obligations hereunder, reimburse Landlord for the cost of conducting such tests.
Without limiting Tenant's liability under Section 18.2 hereof, in the event of
any such Environmental Condition, Tenant shall promptly and at its sole cost and
expense, take any and all steps necessary to remedy the same, complying with all
provisions of applicable law and with Section 9.1(b) hereof, or shall, at
Landlord's election, reimburse Landlord for the cost to Landlord of remedying
the same. The reimbursement shall be paid by Tenant to Landlord from time to
time after Landlord bills Tenant therefor as Landlord shall perform such work
and upon completion of such work by Landlord, Tenant shall pay to Landlord any
shortfall promptly after Landlord bills Tenant therefor, or Landlord shall
promptly refund to Tenant any excess payment, as the case may be.
18.4 REICHHOLD INDEMNITY. Reference is made to that certain lease dated
December 30, 1985, as amended by that certain Lease Amendment bearing the
effective date of February 28, 1994 (the "Amendment"). Section 3 of the
Amendment contains covenants and indemnities of Reichhold Chemicals, Inc.
Attached to this lease as Exhibit B is an indemnification agreement of Reichhold
Chemicals, Inc. ("Reichhold Indemnity") extending Tenant certain
indemnifications with respect to environmental matters. Tenant understands and
agrees that should the Reichhold Indemnity be unenforceable for any reason or
should Reichhold Chemicals, Inc., fail to perform its obligations and
indemnifications thereunder for any reason, either such event shall not impair
the validity or enforceability of this Lease or will give the Tenant any right
of setoff, discount or abatement of the rent and other charges to be paid by
Tenant hereunder or excuse Tenant from its performance of the terms, covenants
and provisions under this Lease which it has agreed to perform.
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XIX. REMEDIES
19.0 DEFAULTS. Tenant agrees that any one or more of the following events
shall be considered events of default as said term is used herein:
(a) Tenant shall be adjudged an involuntary bankrupt, or a decree or
order approving, as properly filed, a petition or answer filed against Tenant
asking reorganization of Tenant under the Federal bankruptcy laws as now or
hereafter amended, or under the laws of any state, shall be entered, and any
such decree or judgment or order shall not have been vacated or set aside within
sixty (60) days from the date of the entry or granting thereof; or
(b) Tenant shall file or admit the jurisdiction of the court and the
material allegations contained in any petition in bankruptcy or any petition
pursuant or purporting to be pursuant to the Federal bankruptcy laws as now or
hereafter amended, or Tenant shall institute any proceeding or shall give its
consent to the institution of any proceedings for any relief of Tenant under any
bankruptcy or insolvency laws or any laws relating to the relief of debtors,
readjustment or indebtedness, reorganization, arrangements, composition or
extension; or
(c) The Lease Premises are levied upon by any revenue officer or
similar officer; or
(d) A decree or order appointing a receiver of the property of Tenant
shall be made and such decree or order shall not have been vacated or set aside
within sixty (60) days from the date of entry or granting thereof; or
(e) Tenant shall abandon the Leased Premises during the Term hereof;
or
(f) Tenant shall default in any payment of rent or in any other
payment required to be made by Tenant hereunder when due as herein provided, or
shall default under Sections 6.0 or 6.1 hereof, and any such default shall
continue for five (5) days after notice thereof in writing to Tenant; or
(g) Tenant shall fail to contest the validity of any lien or claimed
lien caused by Tenant and give security to Landlord to assure payment thereof,
or, having commenced to contest the same and having given such security, shall
fail to prosecute such contest with diligence, or shall fail to have the same
released and satisfy any judgment rendered thereon, and such default continues
for ten (10) days after notice thereof in writing to Tenant; or
(h) Tenant shall default in keeping, observing or performing any of
the other covenants agreements herein contained to be kept, observed and
performed by Tenant, and such default shall continue for thirty (30) days after
notice thereof in writing to Tenant.
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19.1 REMEDIES. Upon the occurrence of any one or more of such events of
default, Landlord may at its election terminate this Lease or terminate Tenant's
right to possession only, without terminating the Lease. Upon termination of
the Lease, or upon any termination of the Tenant's right to possession without
termination of the Lease, the Tenant shall surrender possession thereof to the
Landlord, and hereby grants to the Landlord the full and free right, without
demand or notice of any kind to Tenant (except as hereinabove expressly provided
for), to enter into and upon the Leased Premises in such event with or without
process of law and to repossess the Leased Premises as the Landlord's former
estate and to expel or remove the Tenant and any others who may be occupying or
within the Leased Premises without being deemed in any manner guilty of
trespass, eviction, or forcible entry or detainer, without incurring any
liability for any damage resulting therefrom and without relinquishing the
Landlord's rights to rent or any other right given to the Landlord hereunder or
by operation of law. Upon termination of the Lease, Landlord shall be entitled
to recover as damages all rent and other sums due and payable by Tenant on the
date of termination, plus (a) an amount equal to the excess (discounted to
present value at six percent (6%) of (i) the rent and other sums provided herein
to be paid by Tenant for the residue of the stated Term hereof over (ii) the
fair rental value of the Leased Premises for the residue of the Term (taking
into account the reasonable time and expense necessary to obtain a replacement
tenant or tenants, including reasonable expenses hereinafter described relating
to the recovery of the Leased Premises, preparation for reletting and for
reletting itself), (b) the cost of performing any other covenants to be
performed by the Tenant and (c) the unamortized portion of each Principal Sum,
which unamortized portion shall be due and payable in its entirety upon
termination of this Lease. If the Landlord elects to terminate the Tenant's
right to possession only without terminating the Lease, the Landlord may, at the
Landlord's option, enter into the Leased Premises, remove the Tenant's signs and
other evidences of tenancy, and take and hold possession thereof as hereinabove
provided, without such entry and possession terminating the Lease or releasing
the Tenant, in whole or in part, from the Tenant's obligations to pay the rent
hereunder for the full Term or from any other of its obligations under this
Lease. Landlord may relet all or any part of the Leased Premises for such rent
and upon such terms as shall be satisfactory to Landlord (including the right to
relet the Leased Premises as a part of a larger area, and the right to change
the character or use made of the Leased Premises). For the purpose of such
reletting, Landlord may decorate or make any repairs, changes, alterations or
additions in or to the Leased Premises that may be necessary or convenient. If
Landlord does not relet the Leased Premises, Tenant shall pay to Landlord on
demand damages equal to the amount of the rent, and other sums provided herein
to be paid by Tenant for the remainder of the Lease Term. If the Leased
Premises are relet and a sufficient sum shall not be realized from such
reletting after paying all of the expenses of such decorations, repairs,
changes, alterations, additions, the expenses of such reletting and the
collection of the rent accruing therefrom (including, but not by way of
limitation, attorneys' fees and brokers' commission), to satisfy the rent and
other charges herein provided to be paid for the remainder of the Lease Term,
Tenant shall pay to Landlord on demand any deficiency and Tenant agrees that
Landlord may file suit to recover any sums failing due under the terms of this
Section from time to time. If the Landlord elects to terminate the Tenant's
right to possession only without terminating this Lease, the Landlord may elect
to cause the
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unamortized portion of each Principal Sum to be immediately due and payable and
upon such election each shall be and become so due and payable. Landlord shall
use reasonable efforts to mitigate its damages arising out of Tenant's default.
If Tenant shall default under Section 19.0(i) and if such default cannot with
due diligence be cured within said period of thirty (30) days after notice in
writing shall have been given to Tenant, and if Tenant promptly commences to
eliminate the causes of such default, then Landlord shall not have the right to
declare said Term ended by reason of such default or to repossess without
terminating the Lease so long as Tenant is proceeding diligently and with
reasonable dispatch to take all steps and do all work required to cure such
default, and does so cure such default, provided, however, that the curing of
any default in such manner shall not be construed to limit or restrict the right
of Landlord to declare the said Term ended or to repossess without terminating
the Lease, and to enforce all of its rights and remedies hereunder for any other
default not timely cured.
19.2 REMEDIES CUMULATIVE. No remedy herein or otherwise conferred upon or
reserved to Landlord shall be considered to exclude or suspend any other remedy
but the same shall be cumulative and shall be in addition to every other remedy
given hereunder, or now or hereafter existing at law or in equity or by statute,
and every power and remedy given by this Lease to Landlord may be exercised from
time to time and so often as occasion may arise or as may be deemed expedient.
19.3 NO WAIVER. No delay or omission of either party hereto to exercise
any right or power arising from any default of the other party, shall impair any
such right or power or be construed to be a waiver of any such default or any
acquiescence therein. No waiver of any breach of any of the covenants of this
Lease by either party hereto shall be construed, taken or held to be a waiver of
any other breach, or as a waiver, acquiescence in or consent to any further or
succeeding breach of the same covenant. The acceptance by Landlord of any
payment of rent or other charges hereunder after the termination by Landlord of
this Lease or of Tenant's right to possession hereunder shall not, in the
absence of the agreement in writing to the contrary by Landlord, be deemed to
restore this Lease or Tenant's right to possession hereunder, as the case may
be, but shall be construed as a payment on account, and not in satisfaction of
damages due from Tenant to Landlord.
XX. SECURITY DEPOSIT
20.0 INTENTIONALLY OMITTED.
XXI. MISCELLANEOUS
21.0 INTENTIONALLY OMITTED.
21.1 ESTOPPEL CERTIFICATES. Tenant shall at any time and from time to
time, upon not less than ten (10) days' prior written request from Landlord,
execute, acknowledge and deliver to
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Landlord, in form reasonably satisfactory to Landlord and/or Landlord's
mortgagee, a written statement certifying (if true) that Tenant has accepted the
Leased Premises, that this Lease is unmodified and in full force and effect (or,
if there have been modifications, that the same is in full force and effect as
modified and stating the modifications), that Landlord is not in default
hereunder, the date to which the rental and other charges have been paid in
advance, if any, and such other accurate certifications as may reasonably be
required by Landlord or Landlord's mortgagee, agreeing to give copies to any
mortgagee of Landlord of all notices by Tenant to Landlord and agreeing to
afford Landlord's mortgagee a reasonable opportunity to cure any default of
Landlord. It is intended that any such statement delivered pursuant to this
subsection may be relied upon by any prospective purchaser or mortgagee of the
Leased Premises and their respective successors and assigns.
21.2 LANDLORD'S RIGHT TO CURE. Landlord may, but shall not be obligated
to, cure any default by Tenant (specifically including, but not by way of
limitation, Tenant's failure to make repairs, or satisfy lien claims); and
whenever Landlord so elects, all costs and expenses paid by Landlord in curing
such default, including without limitation reasonable attorneys' fees, shall be
so much additional rent due on the next rent date after such payment, together
with interest (except in the case of said attorneys' fees) at a rate per annum
equal to two percent (2%) in excess of the announced base rate or equivalent
rate of interest of American National Bank and Trust Company of Chicago (as
publicly announced by said Bank) in effect on the date of such advance, from the
date of the advance to the date of repayment by Tenant to Landlord.
21.3 AMENDMENTS MUST BE IN WRITING. None of the covenants, terms or
conditions of this Lease, to be kept and performed by either party, shall in any
manner be altered, waived, modified, changed or abandoned except by a written
instrument duly signed and delivered by the other party.
21.4 NOTICES. All notices to or demands upon Landlord or Tenant desired or
required to be given under any of the provisions hereof shall be in writing.
Any notices or demands from Landlord to Tenant shall be deemed to have been duly
and sufficiently given if a copy thereof has been mailed by United States
registered or certified mail in an envelope properly stamped and addressed or
sent by courier service, with receipt to Tenant at Tenant's Address or at such
other address as Tenant may theretofore have designated by written notice to
Landlord; and any notices or demands from Tenant to Landlord shall be deemed to
have been duly and sufficiently given if mailed by United States registered or
certified mail in an envelope properly stamped and addressed or sent by courier
service, with receipt to Landlord at Landlord's Address or at such other address
or to such other agent as Landlord or Agent may theretofore have designated by
written notice to Tenant, with a copy to any first mortgagee of the Leased
Premises, the identity and address of which Tenant shall have received written
notice. The effective date of any mailed notice shall be one (1) day after
delivery of the same to the United States Postal Service or if sent by courier
or overnight mail delivery then the date of receipt.
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21.5 SHORT FORM LEASE. This Lease shall not be recorded, but the parties
agree, at the request of either of them, to execute a Short Form Lease for
recording, containing the names of the parties, the legal description and the
Term of the Lease.
21.6 TIME OF ESSENCE. Time is of the essence of this Lease, and all
provisions herein relating thereto shall be strictly construed.
21.7 RELATIONSHIP OF PARTIES. Nothing contained herein shall be deemed or
construed by the parties hereto, or by any third party, as creating the
relationship of principal and agent or of partnership or of joint venture, by
the parties hereto, it being understood and agreed that no provision contained
in this Lease nor any acts of the parties hereto shall be deemed to create any
relationship other than the relationship of landlord and tenant.
21.8 CAPTIONS. The captions of this Lease are for convenience only and are
not to be construed as part of this Lease and shall not be construed as defining
or limiting in any way the scope or intent of the provisions hereof.
21.9 SEVERABILITY. If any Term or provision of this Lease shall to any
extent be held invalid or unenforceable, the remaining terms and provisions of
this Lease shall not be affected thereby, but each term and provision of this
Lease shall be valid and be enforced to the fullest extent permitted by law.
21.10 LAW APPLICABLE. This Lease shall be construed and enforced in
accordance with the laws of the state where the Leased Premises are located.
21.11 COVENANTS BINDING ON SUCCESSORS. All of the covenants,
agreements, conditions and undertakings contained in this Lease shall extend and
inure to and be binding upon the heirs, executors, administrators, successors
and assigns of the respective parties hereto, the same as if they were in every
case specifically named, and wherever in this Lease reference is made to either
of the parties hereto, it shall be held to include and apply to, wherever
applicable, the heirs, executors, administrators, successors and assigns of such
party. Nothing herein contained shall be construed to grant or confer upon any
person or persons, firm, corporation or governmental authority, other than the
parties hereto, their heirs, executors, administrators, successors and assigns,
any right, claim or privilege by virtue of any covenant, agreement, condition or
undertaking in this Lease contained.
21.12 BROKERAGE. Tenant and Landlord warrant that neither has had any
dealings with any broker or agent in connection with this Lease other than
Landlord's Brokers, whose commissions shall be paid by Reichhold Chemicals, Inc.
and other than Trammel Crow, who acted on behalf of Tenant and whose commissions
shall be paid by Landlord's Brokers. Each party covenants to pay, hold
harmless, indemnify and defend the other from and against any and all costs,
expenses or liability for any compensation, commissions and charges claimed by
any
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broker or agent with whom the indemnifying party has dealt with in contravention
of the warranty referred to above.
21.13 LANDLORD MEANS OWNERS. The term "Landlord" as used in this
Lease, so far as covenants or obligations on the part of Landlord are concerned,
shall be limited to mean and include only the owner or owners at the time in
question of the fee of the Real Estate, and in the event of any transfer or
transfers of the title to such fee, Landlord herein named (and in case of any
subsequent transfer or conveyances, the then grantor) shall be automatically
freed and relieved, from and after the date of such transfer or conveyance, of
all liability as respects the performance of any covenants, or obligations on
the part of Landlord contained in this Lease thereafter to be performed;
provided that any funds in the hands of such Landlord or the then grantor at the
time of such transfer, in which Tenant has an interest, shall be turned over to
the grantee, and any amount then due and payable to Tenant by Landlord or the
then grantor under any provisions of this Lease shall be paid to Tenant.
21.14 LANDLORD PAYMENT. Landlord shall, upon the Commencement Date,
pay Two Hundred Eighty-Two Thousand Seven Hundred Fifty-Five and No/100 Dollars
($282,755.00) to Tenant to offset Tenant's cost of installing Alterations to the
Leased Premises.
21.15 SIGNS. Tenant shall install no exterior sign without Landlord's
prior written approval of detailed plans and specifications therefor, which
approval shall not be unreasonably withheld or delayed. If Landlord has a
standard form of identity sign for tenants in the industrial park of which the
Leased Premises are a part, and if Tenant desires to have an identity sign on
the Leased Premises, Tenant shall advise Landlord of the name it desires to have
on its sign, and Landlord shall install its standard sign showing such name.
Tenant shall reimburse Landlord for Landlord's costs of producing and erecting
said sign within ten (10) days after being billed therefor by Landlord.
21.16 FORCE MAJEURE. Landlord shall not be deemed in default with
respect to any of the terms, covenants and conditions of this Lease on
Landlord's part to be performed, if Landlord's failure to timely perform same is
due in whole or in part to any strike, lockout, labor trouble (whether legal or
illegal), civil disorder, failure of power, restrictive governmental laws and
regulations, riots, insurrections, war, shortages, accidents, casualties, acts
of God, acts caused directly by Tenant or Tenant's agents, employees and
invitees, or any other cause beyond the reasonable control of the Landlord.
Tenant shall not be deemed in default with respect to any of the terms,
covenants and conditions of this Lease on Tenant's part to be performed, if
Tenant's failure to timely perform same is due in whole or in part to any
strike, lockout, labor trouble (whether legal or illegal), civil disorder,
failure of power, restrictive governmental laws and regulations, riots,
insurrections, war, shortages, accidents, casualties, acts of God, acts caused
directly by Landlord or Landlord's agents, employees and invitees, or any other
cause beyond the reasonable control of the Tenant.
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21.17 LANDLORD'S EXPENSES. Tenant agrees to pay on demand Landlord's
expenses, including reasonable attorneys' fees, expenses and administrative
hearing and court costs incurred either directly or indirectly in curing any
default by Tenant as provided in Section 21.2, in connection with appearing,
defending or otherwise participating in any action or proceeding arising from
the filing, imposition, contesting, discharging or satisfaction of any lien or
claim for lien, in defending or otherwise participating in any legal proceedings
initiated by or on behalf of Tenant wherein Landlord is not adjudicated to be in
default under this Lease, or in connection with any investigation or review of
any conditions or documents in the event Tenant requests Landlord's approval or
consent to any action of Tenant which may be desired by Tenant or required of
Tenant hereunder. In the event of litigation between the parties in which it is
alleged that one or the other has defaulted under the provisions of this Lease,
the losing party shall pay the reasonable attorneys' fees and court costs of the
prevailing party.
21.18 EXECUTION OF LEASE BY LANDLORD. The submission of this document
for examination and negotiation does not constitute an offer to lease, or a
reservation of, or option for, the Leased Premises and this document shall
become effective and binding only upon the execution and delivery hereof by
Tenant and by Landlord. All negotiations, considerations, representations and
understandings between Landlord and Tenant are incorporated herein.
21.19 TENANT'S AUTHORIZATION. If Tenant is a corporation, partnership,
association or any other entity, Tenant shall furnish to Landlord, within ten
(10) days after written request therefor from Landlord, certified resolutions of
Tenant's directors or other governing person or body authorizing execution and
delivery of this Lease and performance by Tenant of its obligations hereunder,
and evidencing that the person who physically executed the Lease on behalf of
Tenant was duly authorized to do so.
21.20 EXCULPATORY CLAUSE. This Lease is executed by AMERICAN NATIONAL
BANK AND TRUST COMPANY OF CHICAGO, not personally, but as Trustee as aforesaid,
in the exercise of the power and authority conferred upon and vested in it as
such Trustee, and under the express direction of the beneficiaries of a certain
Trust Agreement dated December 30, 1985 and known as Trust Number 66360 at said
Bank. It is expressly understood and agreed that nothing in this Lease
contained shall be construed as creating any liability whatsoever against said
Trustee personally or said beneficiaries, and in particular, without limiting
the generality of the foregoing, there shall be no personal liability to pay any
indebtedness accruing hereunder or to perform any covenant, either express or
implied, herein contained, nor to keep, preserve or sequester any property of
said Trust, and that all personal liability of said Trustee (and said
beneficiaries to the extent permitted by law), of every sort, if any, is hereby
expressly waived by Tenant, and by every person now or hereafter claiming any
right or security hereunder; and that so far as the parties hereto are concerned
the owner of any indebtedness or liability accruing hereunder shall look solely
to the Trust Estate from time to time subject to the provisions of said Trust
Agreement for the payment thereof. It is further understood and agreed that the
said Trustee has no agents or employees and merely holds naked title to the
property herein described
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and has no control over the management thereof or the income therefrom and has
no knowledge respecting rentals, leases or other factual matter with respect to
said premises, except as represented to it by the beneficiary or beneficiaries
of said Trust.
21.21 OPTION TO TERMINATE. Tenant shall have the option to terminate
this Lease as of November 30, 2001 ("Option Termination Date") provided that
Tenant gives Landlord written notice (the "Termination Notice") of such
termination at least nine (9) months prior to the Option Termination Date.
Should Tenant elect to terminate this Lease, Tenant shall pay to Landlord, which
payment shall accompany the Termination Notice, the sum of Six Hundred Thousand
and No/100 Dollars ($600,000.00) plus the amount, if any, that Tenant is
obligated to pay to Landlord as set forth in Section 9.2(b), which payment shall
not reduce the rent or other costs and charges to be paid by Tenant hereunder
and all rent which has accrued to the Option Termination Date, shall continue to
be the obligation of the Tenant. The Termination Notice shall be ineffective
unless:
(a) it includes such payment of Six Hundred Thousand and No/100
Dollars ($600,000.00); and
(b) Tenant shall pay to Landlord, within thirty (30) days of written
notice from Landlord to Tenant, which notice shall advise Tenant of the
unamortized portion of each Principal Sum as set forth in Section 9.2(b) hereof,
the amount, if any, that Tenant is obligated to pay to Landlord as set forth in
Section 9.2(b) and which written notice shall be delivered to Tenant not later
than thirty (30) days prior to the Option Termination Date.
21.22 OPTION TO EXTEND. Provided that no Event of Default shall have
occurred which remains uncured and provided that Tenant or any permitted
assignee or sublease shall be in possession of the Leased Premises, Tenant shall
have the right, exercisable by given written notice ("First Renewal Notice")
thereof to Landlord at least nine (9) months but not before twelve (12) months
prior to the expiration of the original Term of this Lease, to extend the Term
of this Lease for an additional term of sixty (60) calendar months ("First
Renewal Period") upon all of the terms, covenants and conditions contained in
this Lease, except that the annual rent shall be Market Rent. The First Renewal
Notice shall be deemed inoperative and of no force and effect unless Landlord
shall receive within thirty (30) days of the First Renewal Notice a written
statement from Amoco Corporation, if it is the then guarantor of Tenant's
obligations hereunder, consenting to the First Renewal Notice.
Landlord shall give Tenant notice ("Landlord's Renewal Notice") of
Landlord's determination of Market Rent, which shall not be less than Six
Hundred Seventy-Eight Thousand Six Hundred Twelve and No/100 Dollars
($678,612.00) per year, for the First Renewal Period not later than ten (10)
days after Landlord's receipt of the First Renewal Notice. In the event that
Tenant disagrees with Landlord's determination of Market Rent, Tenant agrees to
notify Landlord within ten (10) days after receipt of Landlord's Renewal Notice
and thereafter Landlord and
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Tenant shall attempt for a period of thirty (30) days following the giving of
Landlord's Renewal Notice to agree upon the Market Rent paid during the First
Renewal Period. In the event that Landlord and Tenant fail to agree in writing
upon the determination of Market Rent for the First Renewal Period by the date
which is thirty (30) days after the date of Landlord's Renewal Notice, Tenant's
exercise of such option to extend shall be null and void and neither Landlord
nor Tenant shall have any further rights or liabilities with respect thereto.
Provided that no event of default shall have occurred which remains
uncured, and provided that Tenant or any permitted assignee or sublessee shall
be in possession of the Leased Premises, and provided the Term of this Lease has
been extended for the First Renewal Period, Tenant shall have the right,
exercisable by giving notice ("Second Renewal Notice") thereof to Landlord at
least nine (9) months but not before twelve (12) months prior to the expiration
of the First Renewal Period, to extend the term of this Lease for an additional
term of sixty (60) calendar months ("Second Renewal Period") upon all of the
terms, covenants and conditions contained in this Lease except that the annual
rental shall be Market Rent. The Second Renewal Notice shall be deemed
inoperative and of no force and effect unless Landlord shall receive within
thirty (30) days of the Second Renewal Notice a written statement from Amoco
Corporation, if it is the then guarantor of Tenant's obligations hereunder,
consenting to the Second Renewal Notice.
Landlord shall give Tenant notice ("Landlord's Renewal Notice") of
Landlord's determination of Market Rent, which shall not be less than the annual
rent payable during the First Renewal Period, for the Second Renewal Period not
later than ten (10) days after Landlord's receipt of the Second Renewal Notice.
In the event that Tenant disagrees with Landlord's determination of Market Rent,
Tenant agrees to notify Landlord within ten (10) days after receipt of
Landlord's Renewal Notice and thereafter Landlord and Tenant attempt for a
period of thirty (30) days following the giving of Landlord's Renewal Notice to
agree upon the Market Rent to be paid during the Second Renewal Period. In the
event that Landlord and Tenant shall fail to agree in writing upon the
determination of Market Rent for the Second Renewal Period by the date which is
thirty (30) days after the date of Landlord's Renewal Notice, Tenant's exercise
of such option to extend shall be null and void and neither Landlord nor Tenant
shall have any further rights or liabilities with respect thereto.
21.23 SELF HELP. In the event that Landlord shall, subject to any
limitations set forth in this Lease, fail to perform its obligations set forth
in Sections 9.2(a) and 9.2(b) hereof and if such failure shall continue for
thirty (30) days after Tenant's written notice thereof to Landlord and to any
first mortgagee of Landlord's interest in the Leased Premises whose name and
address has theretofore been given to Tenant (such thirty (30) day period to be
extended for each day of delay due in whole or in part to any strike, lockout,
labor trouble (whether legal or illegal), civil disorder, failure of power,
restrictive governmental laws and regulations, riots, insurrections, war,
shortages, accidents, casualties, acts of God, acts caused directly by Tenant or
Tenant's agents, employees and invitees, or any other causes beyond the
reasonable control of and affecting both Landlord and Tenant) Tenant may, but
shall not be required to, perform or pay for the
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performance of such work; provided, however, that if Landlord shall within said
thirty (30) day period (as said thirty (30) day period may be extended as
aforesaid) commence to cure such failure or failures and shall be diligently
pursuing the same, then Tenant shall have no right to proceed hereunder. All
reasonable sums paid by Tenant for the performance of such work under the terms
of this self-help provision shall constitute a credit Annual Rent to be paid
under Section 1.3(b) hereof and may be deducted from current Annual Rent next
payable hereunder. Should Tenant perform any work to be performed by Landlord
as part of Landlord's Replacement Obligations, Tenant shall pay to Landlord its
share of said costs, except for interest thereon, as set forth in this Lease but
Annual Rent shall be abated to cover Tenant's cost of such replacement. In that
regard, Tenant shall supply Landlord with the Certification, together with
evidence of the costs of such work, together with such information reasonably
requested by Landlord so that Landlord may determine the depreciable life of any
such items so replaced by Tenant, and Tenant may not offset any amounts with
respect thereto against Annual Rent as set forth in Section 1.3(b) hereof until
Tenant has given such information to Landlord so that Landlord may supply Tenant
with the Replacement Notice with respect thereto.
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IN WITNESS WHEREOF, Landlord and Tenant have executed this Lease the day
and year first above written.
LANDLORD: AMERICAN NATIONAL BANK AND TRUST COMPANY
OF CHICAGO, not personally but as
Trustee as aforesaid
By: /s/ Peter Johansen
-----------------------------------
Its: Second V.P.
-----------------------------
ATTEST:
By: /s/ Gregory S. Kasprzyk
-------------------------
Its (Assistant) Secretary
TENANT: VYSIS, INC., an Illinois corporation
By: /s/ R.C. Carr
-----------------------------------
Its: Vice President
-----------------------------
ATTEST:
By: /s/ Audrey D. Johnson
-------------------------------
Its (Assistant) Secretary
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STATE OF ILLINOIS )
) SS
COUNTY OF _______________)
I, Sol Flores, a Notary Public in and for said County, in the State
aforesaid, DO HEREBY CERTIFY THAT Peter Johansen, Second Vice President,
President of AMERICAN NATIONAL BANK AND TRUST COMPANY OF CHICAGO, not
personally but as Trustee under Trust Agreement dated December 30, 1985 and
known as Trust No. 66360, and Gregory S. Kasprzyk, Assistant Trust
Officer/Assistant Cashier/Assistant Secretary of said Bank, who are
personally known to me to be the same persons whose names are subscribed to
the foregoing instrument as such Second Vice President; and Assistant Trust
Officer/Assistant Cashier/Assistant Secretary, respectively, appeared before
me this day in person and acknowledged that they signed and delivered the
said instrument as their own free and voluntary act and as the free and
voluntary act of said Bank as Trustee as aforesaid, for the uses and purposes
therein set forth; and the said Assistant Trust Officer/Assistant
Cashier/Assistant Secretary then and there acknowledged that Peter Johansen,
as Custodian of the seal of said Bank, did affix the seal to said instrument
as Trustee own free and voluntary act and as the free and voluntary act of
said Bank as Trustee as aforesaid, for the uses and purposes therein set
forth.
GIVEN under my hand and Notarial Seal this 1 day of December, A.D. 1994.
/s/ Sol Flores
-----------------------------------
Notary Public
<PAGE>
A C K N O W L E D G M E N T
(If Tenant is a Corporation)
STATE OF ILLINOIS )
) SS
COUNTY OF COOK )
I, Theresa M. Salazar, a Notary Public in and for said County, in the
State aforesaid, do hereby certify that R. C. Carr, personally known to me to
be the Vice President of VYSIS, INC., an Illinois corporation, duly licensed
to transact business in the State of Illinois, and Audrey D. Johnson,
personally known to me to be the (Assistant) Secretary of said corporation
and personally known to me to be the persons whose names are subscribed to
the foregoing instrument, appeared before me this day in person and severally
acknowledged that they signed and delivered the said instrument as
___________________ President and (Assistant) Secretary of said corporation,
and caused the Corporate Seal of said corporation to be affixed thereto,
pursuant to authority given by the Board of Directors of said corporation, as
their free and voluntary act and as the free and voluntary act and deed of
said corporation, for the uses and purposes therein set forth.
GIVEN under my hand and Notarial Seal this 23rd day of November, A.D.
1994.
/s/ Theresa M. Salazar
-----------------------------------------
Notary Public
<PAGE>
SCHEDULE 1
The following work will be required in accordance with the maintenance
contract required in Article IX of the above Lease:
1. Check performance of all major components.
2. Lubricate moving parts as required.
3. Check refrigerant charges (during cooling season).
4. Inspect for oil and refrigerant leaks.
5. Check operating and safety controls.
6. Check pressures and temperatures.
7. Inspect condensers.
8. Inspect fans, motors and starters.
9. Tighten electrical connections at equipment.
10. Test amperages and voltages.
11. Check belts and drives.
12. Change oil and filters, or dryers, as required.
13. Check temperature on control system.
14. Thoroughly inspect heat exchanger.
<PAGE>
EXHIBIT A
Lot 5 in Woodcreek Business Park Resubdivision, being a resubdivision of Lots 1
through 14 and vacated Edge Brook Place, all in Woodcreek Business Park, being a
subdivision of parts of Sections 25 and 36, Township 39 North, Range 10 East of
the Third Principal Meridian, according to the plat of said resubdivision
recorded September 22, 1983 as Document No. R83-68220, in DuPage County,
Illinois
1
<PAGE>
EXHIBIT B
INDEMNIFICATION AGREEMENT
This Indemnification Agreement (the "Agreement") is entered into as of
the ___ day of November, 1994, by and between Reichhold Chemicals, Inc., a
Delaware corporation, and Vysis, Inc., an Illinois corporation.
W I T N E S S E T H:
WHEREAS, contemporaneously herewith, Vysis, Inc., shall enter into an
Industrial Building Lease, leasing certain premises commonly known as 3100
Woodcreek Drive, Downers Grove, Illinois (the "Premises"), from American
National Bank and Trust Company of Chicago, not personally but as Trustee under
Trust Agreement dated December 30, 1985 and known as Trust No. 66360 (the
"Landlord"); and
WHEREAS, contemporaneously herewith, Reichhold Chemicals, Inc. and Landlord
have entered into a Memorandum of Termination of Lease with respect to the
Premises, whereby Landlord has agreed to terminate the tenancy of Reichhold
Chemicals, Inc. at the Premises upon the execution and delivery of the
aforementioned Industrial Building Lease; and
WHEREAS, as a condition to the Industrial Building Lease and as further
inducement to Vysis, Inc., to enter into the Industrial Building Lease,
Reichhold Chemicals, Inc. (hereinafter referred to as the "Indemnitor") has
agreed to indemnify Vysis, Inc., its successors, assigns, subsidiaries, parent
companies, and affiliates, and the officers, directors, employees and
shareholders of the foregoing (collectively, hereinafter referred to as the
"Indemnitees") with respect to environmental mattes arising in connection with
the Premises;
NOW, THEREFORE, in consideration of the premises and covenants herein
contained and other good and valuable consideration, the parties hereto covenant
and agree as follows:
1. Indemnitor agrees and covenants to protect, indemnify and save
harmless Indemnitees from and against all liabilities, obligations, claims,
damages, penalties, causes of action, costs and expenses (including, without
limitation, reasonable attorneys' fees and expenses) of whatever kind or nature,
contingent or otherwise, known or unknown, incurred or imposed, based upon any
Environmental Laws (as defined herein) or resulting from any Environmental
Condition (as defined herein) which is or was caused or contributed to by the
use or occupancy of the Premises by Indemnitor or any party claiming by, through
or under Indemnitor. In case any action, suit or proceeding is brought against
any of the parties indemnified herein by reason of any occurrence described in
this paragraph 1, Indemnitor will, at Indemnitor's expense, by counsel approved
by the Indemnitees, resist and defend such action, suit or proceeding, or cause
the same to be resisted
<PAGE>
and defended. The obligations of Indemnitor to Indemnitees under this Agreement
shall survive the expiration or earlier termination of the Industrial Building
Lease.
2. Without limiting the generality of the preceding paragraph 1, in the
event of any Environmental Condition that has been caused or was contributed to
by the use or occupancy of the Premises by Indemnitor or any party claiming by,
through or under Indemnitor, Indemnitor shall promptly, at its sole cost and
expenses, take any and all steps necessary to remedy the same, comply with all
provisions of applicable law or shall, at the election of Indemnitees, reimburse
Indemnitees for the cost to Indemnitees of remedying the same. The
reimbursement shall be paid by Indemnitor to Indemnitees in advance of
Indemnitees' performing such work based upon Indemnitees' reasonable estimate of
the cost thereof and upon completion of such work by Indemnitees, Indemnitor
shall pay to Indemnitees any shortfall promptly after Indemnitees bill
Indemnitor therefor or Indemnitees shall promptly refund to Indemnitor any
excess deposit, as the case may be.
3. As used in this Lease, the phrase "Environmental Condition" shall
mean: (a) any adverse condition relating to surface water, groundwater, drinking
water supply, land, surface or subsurface strata or the ambient air, and
includes, without limitation, air, land and water pollutants, noise, vibration,
light and odors, or (b) any condition which may result in a claim of liability
under the Comprehensive Environment Response Compensation and Liability Act, as
amended ("CERCLA"), or the Resource Conservation and Recovery Act ("RCRA"), or
any claim of violation of the Clean Air Act, the Clean Water Act, the Toxic
Substance Control Act ("TSCA"), or any claim of liability or of violation under
any federal statute hereafter enacted dealing with the protection of the
environment or with the health and safety of employees or members of the general
public, or under any rule, regulation, permit or plan under any of the
foregoing, or under any law, rule or regulation now or hereafter promulgated by
the state in which the Premises are located, or any political subdivision
thereof, relating to such matters (collectively, "Environmental Laws").
4. The provisions of this Indemnification Agreement shall extend to and
shall bind and inure to the benefit not only of Indemnitor and each of the
Indemnitees, but also to their respective heirs, legal representatives,
successors and assigns.
5. This Indemnification Agreement may be executed simultaneously in two
or more counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument.
2
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Indemnification
Agreement as of the date and year first above written.
Reichhold Chemicals, Inc.
By:
-----------------------------------
Its:
----------------------------------
Vysis, Inc.
By:
-----------------------------------
Its:
----------------------------------
3
<PAGE>
Exhibit 10.9
LICENSE AGREEMENT
Between THE TRUSTEES OF COLUMBIA UNIVERSITY IN THE CITY OF NEW YORK, a not-for-
profit corporation of the State of New York ("Columbia"), THE SALK INSTITUTE FOR
BIOLOGICAL STUDIES, a not-for-profit institute of the State of California
("Salk"), and GENE-TRAK SYSTEMS ("GTS"), an Illinois Partnership.
WITNESSETH
WHEREAS, Columbia is the assignee of U.S. Patent Application Serial No.
614,350, entitled "Autocatalytic Replication of Recombinant RNA, "by Kramer,
Miele, and Mills, including all related domestic continuations,
continuations-in-part, divisions, reissues, and reexaminations, and all patents
and related foreign counterpart application and patents issued thereon;
WHEREAS, Salk and Columbia are coassignees of U.S. Patent Application
Serial No. 852,692, entitled "Replicative RNA Reporter System", by Kramer, Chu,
Lizardi, and Orgel, including all related foreign counterpart applications, all
domestic and foreign continuations, continuations-in-part, divisions, reissues,
and reexaminations, and all patents issued thereon; and
WHEREAS, Columbia and/or Salk are the assignees of additional patent
applications covering related subject matter; and
WHEREAS, Columbia, and Salk are willing to grant a license to GTS and GTS
is willing to accept a license under the following terms and conditions:
Page 1
<PAGE>
NOW, THEREFORE, in consideration of the premises and the mutual promises
and covenants set forth below, GTS, Columbia, and Salk mutually agree as
follows:
1. DEFINITIONS.
a. "Affiliate" shall mean any corporation or other entity which
directly or indirectly controls, is controlled by, or is under
common control with GTS. Control means ownership or other
beneficial interest in 40% or more of the voting stock or other
voting interest corporation or other business entity.
b. "Effective Date" shall mean the date on which the last
of all parties shall have attached its authorized
signature hereto.
c. "Application 1" shall mean the Patent Application
filed May 25, 1984, in the United States Patent
and Trademark Office (USPTO) by Kramer, Miele and
Mills, U.S. Serial No. 614,350, entitled
"Autocatalytic Replication of Recombinant RNA"
including continuations, continuations-in-part,
divisions, reissues, and reexaminations and
related foreign counterpart applications on any
continuation-in-part applications.
d. "Application 2" shall mean the Patent Application
filed April 16, 1986, in the USPTO by Kramer, Chu,
Lizardi and Orgel, U.S. Serial No. 852,692,
entitled "Replicative RNA Reporter Systems,"
including continuations, continuations-in-part
including without limitation USSN 191,450, filed
May 9, 1988, divisions, reissues, reexaminations,
and all foreign counterpart patent applications.
Page 2
<PAGE>
e. "Application 3" shall mean the Patent Application filed September
8, 1988 in the USPTO by Chu et al., U.S. Serial No. 241,969,
entitled "Replicative RNA-based Amplification/Detection Systems",
including continuations, continuations-in-part, divisions,
reissues, reexaminations, and all foreign counterpart patent
applications.
f. "Application 4" shall mean the Patent Application filed September
8, 1988 in the USPTO by Chu et al., U.S. Serial No. 241,942,
entitled "Replicative RNA-based Amplification/Detection Systems",
including continuations, continuations-in-part, divisions,
reissues, reexaminations, and all foreign counterpart patent
applications.
g. "Application 5" shall mean the Patent Application filed September
8, 1988 in the USPTO by Axelrod et al., U.S. Serial No. 241,624,
entitled "Replicative RNA-based Amplification/Detection Systems",
including continuations, continuations-in-part, divisions,
reissues, reexaminations, and all foreign counterpart patent
applications.
h. "Patent 1" shall mean any patent issuing on Application 1 and
all continuations, continuations-in-part, divisions, reissues,
and reexaminations and foreign counterpart applications on
continuations-in-part.
i. "Patent 2" shall mean any patent issuing on Application 2 and on
all continuations, continuations-in-part, divisions, reissues,
reexaminations, and foreign counterpart applications of
Application 2.
Page 3
<PAGE>
j. "Patent 3" shall mean any patent issuing on Application 3 and all
continuations, continuations-in-part, divisions, reissues, and
reexaminations and foreign counterpart applications on
continuations-in-part.
k. "Patent 4" shall mean any patent issuing on Application 4 and all
continuations, continuations-in-part, divisions, reissues, and
reexaminations and foreign counterpart applications on
continuations-in-part.
l. "Patent 5" shall mean any patent issuing on Application 5 and all
continuations, continuations-in-part, divisions, reissues, and
reexaminations and foreign counterpart applications on
continuations-in-part.
m. "Licensed Patents" shall mean Patent 1, Patent 2, Patent 3,
Patent 4, Patent 5, Application 1, Application 2, Application 3,
Application 4, Application 5, and any other patent applications
filed covering inventions which are conceived of by employees of
Salk and/or by Dr. F. Kramer up to July 1, 1991, including
continuations, continuations-in-part, divisions, reissues,
reexaminations, and foreign counterpart applications thereof, and
any patents issuing thereon, which relate to RNA-based
amplification/detection systems which employ exponential
amplification of replicative RNA by QB Replicase or a related
enzyme, and which is owned or controlled by Columbia and/or Salk.
n. "Licensed Products" shall mean all assays, kits, compositions,
reagents used in assays, and Diagnostic
Page 4
<PAGE>
Instruments for performing assays where GTS realizes a profit on
cumulative Net Sales of such Diagnostic Instruments, which relate
to RNA-based amplification/detection systems which employ
exponential amplification of replicative RNA by QB Replicase or a
related enzyme, whether or not used in or on Diagnostic
Instruments, and which are covered by a claim of a Licensed
Patent that has neither expired nor been declared invalid by a
court of last resort ("Issued Valid Claim"), or which use
Licensed Research Information. "Licensed Products" shall exclude
reusable physical structures such as, by way of example,
containment, filters, detection means, temperature control
elements, transport mechanisms, sonication means, mixing
elements, film software, computing hardware, manuals, recording
devices, paper and packing.
o. "Licensed Research Information" shall mean information developed,
owned or controlled by Columbia and/or Salk up to July 1, 1991,
which relates to RNA-based amplification/detection systems which
employ exponential amplification of replicative RNA by QB
Replicase or a related enzyme, but is not covered by a claim of a
Licensed Patent and is not published or part of the public
domain.
p. "Diagnostic Instrument" shall mean a manual, semi-automated or
automated instrument in which or with which Licensed Products may
be utilized and which is manufactured by or for GTS or a GTS
sublicensee.
q. "Net Sales" shall mean all fees or other payments charged by GTS
or an Affiliate for the use, sale, rental or lease of Licensed
Products, less credits for returns and customary trade discounts
actually taken, outbound
Page 5
<PAGE>
freight, value added, sales or use taxes and custom duties. In
the case of sale, rental, lease or use of Licensed Products by an
Affiliate, Net Sales shall be based upon the greater of: i) the
total fee and payment per Licensed Product charged to an
Affiliate, or ii) the total fee or payment per Licensed Product
charged by the Affiliate to its customers.
r. "First Commercial Sale" shall mean the first date upon which GTS
or a GTS Affiliate or sublicensee shall sell a Licensed Product
to an independent third party in an arms-length transaction.
s. "Payment Year" shall mean a one-year period beginning with the
Effective Date hereof and a one-year period beginning upon each
annual anniversary thereafter; Payment Year One shall be the
first such year, Payment Year Two shall the second such year,
such series continuing thereafter and in like manner.
t. "Sublicensees" shall mean third parties to whom GTS has granted
sublicensees pursuant to this Agreement
2. LICENSE GRANT.
a. Columbia and Salk grant to GTS, upon and subject to all terms and
conditions of this Agreement:
(i) a worldwide exclusive license under the Licensed Patents
to manufacture, have manufactured, use, sell, rent and
lease Licensed Products for the term provided under
Section 17 hereof;
Page 6
<PAGE>
(ii) a worldwide exclusive license to use any Licensed Research
Information to manufacture, have manufactured, use, sell,
rent and lease Licensed Products for the term provided
under Section 17 hereof or until such time as such
information is published or otherwise publicly distributed
after which GTS shall have a fully paid up royalty free
license to such published information;
(iii) in the event GTS makes the election set forth in section
2(c), a worldwide non-exclusive license to use the
Licensed Patents to manufacture, have Manufactured, use,
sell, rent and lease Licensed Products for the term set
forth in Section 17 hereof, and a worldwide non-exclusive
license to use Licensed Research Information to
manufacture, have manufactured, use, sell, rent or lease
Licensed Products for the term set forth in Section 17
hereof or until such information is published or otherwise
publicly distributed after which GTS shall have a fully
paid up royalty free license to such published
information; and
(iv) For so long as GTS possesses an exclusive license under
this Agreement, a first right of refusal to a license
under Licensed Patents and/or Licensed Research
Information for application of technology covered thereby
which applications do not constitute Licensed Products
within the terms of this Agreement. Such license, which
may be exclusive or non-exclusive, shall not be offered to
any other party upon financial terms more
Page 7
<PAGE>
favorable than those offered GTS without first providing
GTS a 60 day opportunity to accept such license with such
more favorable terms.
b. Columbia and Salk grant to GTS the right to provide standard
Uniform Commercial Code rights to customers during the term of
any licenses granted hereunder, and the right to sublicense third
parties so long as GTS retains an exclusive license under this
Agreement, provided that the terms and conditions of this
Agreement are met where applicable and that GTS obtains the
approval of Columbia and Salk of any proposed sublicense prior to
execution, which approval shall not be unreasonably withheld by
Columbia and Salk, and which shall be granted or denied within
thirty days of receipt of notice by Columbia and Salk of a
proposed sublicense and which shall be deemed granted if Columbia
and Salk do not respond to such notice. In the event GTS makes
the election set forth in Section 2(c), any sublicense granted by
GTS hereunder, excluding those to customers, shall be transferred
to Columbia and Salk, at the sole discretion of Columbia and
Salk.
c. GTS, at its sole exclusive option and upon thirty days written
notice to Columbia and Salk, may elect to transform the exclusive
license set forth in Section 2(a)(i) and (ii) to the non-
exclusive license set forth in Section 2(a)(iii) at any time
after the payments specified in Section 3(a) are made to
Columbia and Salk. In the event GTS elects to maintain a
non-exclusive license, GTS shall have no further obligation to
make payments under Sections 3(b), 3(c) and Section 4(b).
However, all payments made prior to such election shall be
non-refundable.
Page 8
<PAGE>
d. All rights granted by Columbia and Salk to GTS under this Section
2 and under this Agreement are subject to the requirements of
Public Law 96-517, as amended, and implementing regulations.
3. LICENSE PAYMENTS.
a. In consideration of the licenses and rights granted under this
Agreement, GTS shall pay or cause to be paid $500,000 to
Columbia/Salk in the following manner:
(i) $100,000 upon the Effective Date of this Agreement;
(ii) $150,000 one hundred eighty days after the Effective Date
of this Agreement;
(iii) $250,000 one year after the Effective Date of this
Agreement.
b. In order to maintain an exclusive license hereunder, GTS shall
further pay or cause to be paid $500,000 to Columbia/Salk in the
following manner:
(i) $250,000 eighteen months after the Effective Date of this
Agreement;
(ii) $250,000 twenty-four months after the Effective Date of
this Agreement.
c. In order to maintain an exclusive license hereunder, GTS shall
make or cause to be made, in addition to the payments under
Sections 3(a) and 3(b), the milestone payments described below,
but not earlier than fourteen months after the Effective Date of
this Agreement:
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<PAGE>
(i) $300,000 to Columbia/Salk upon the earlier of: (A) 30 days
after the First Commercial Sale of a Diagnostic
Instrument; or (B) December 31, 1991;
(ii) $200,000 to Columbia within 30 days of receipt of written
notice to GTS of the issuance of a patent on Patent
Application U.S. Serial No. 614,350, filed May 25, 1984 in
the USPTO by Kramer, Miele and Mills, entitled
"Autocatalytic Replication of Recombinant RNA."
(iii) $500,000 to Columbia/Salk within 30 days of receipt of
written notice to GTS of the issuance of a patent
Application U.S. Serial No. 852,692, filed April 16, 1986
in the USPTO by Kramer, Chu, Lizardi and Orgel, entitled
"Replicative RNA Reporter Systems".
(iv) $500,000 to Columbia/Salk within 30 days of receipt of
written notice to GTS of the issuance of the foreign
counterpart of the patent described in subsection (iii)
above from the European Patent Office.
d. All license payments pursuant to Section 3(c) above shall be
fully creditable against future royalties payable under Section
4, and shall be rolled over quarter to quarter until fully
consumed.
e. If GTS does not make any payments in accordance with Sections
3(b) and 3(c) above, its exclusive license shall be converted to
a non-exclusive license, upon 30 days' written notice by Columbia
and Salk, provided such
Page 10
<PAGE>
payment deficiency is not cured during such period, and
thereafter Columbia and Salk shall be free to grant other parties
a non-exclusive license to the Licensed Patents and Licensed
Research Information.
f. License payments pursuant to this Section 3 shall be paid to
Columbia's Office of Science and Technology Development, which
shall receive such payments on behalf of both Columbia and Salk.
4. ROYALTIES.
a. In further consideration of the licenses and rights hereunder,
GTS shall pay to Columbia/Salk a royalty as follows:
(i) Until July 1, 1991, a royalty of 4 1/2% shall be paid on
all Net Sales by GTS or an Affiliate of Licensed Product
regardless of whether such Licensed Product is covered by
an Issued Valid Claim of Patent 1 and/or Patent 2.
(ii) After July 1, 1991, a royalty of 4 1/2% shall be paid on
all Net Sales by GTS or an Affiliate of Licensed Product
provided such is covered by an Issued Valid Claim of a
patent within Licensed Patents in the country of sale or
manufacture.
(iii) After July 1, 1991, if no Issued Valid Claim of a patent
within Licensed Patents cover a Licensed Product in the
country of sale or manufacture, no royalty shall be paid
on Net Sales of such Licensed Product until such a claim
does issue regardless whether such Licensed Product
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<PAGE>
incorporates Licensed Research Information, except as
provided in subsections (iv) and (v) below.
(iv) Notwithstanding subsections (i) through (iii) above, if
GTS manufactures, has manufactured, uses, sells, rents or
leases a Licensed Product which is not covered by an
Issued Valid Claim of Patent l or Patent 2, but which uses
new technology comprising a new Licensed Patent defined
by the filing of Patent 3, Patent 4 or Patent 5 or
another patent application, covering technology not
previously disclosed in Patent Applications 1 or 2, then a
royalty of 4 1/2% on all Net Sales by GTS or an Affiliate
of such Licensed Product shall be paid for five years
following the initial filing of Patent 3, Patent 4, Patent
5 or such another patent application covering such new
technology.
(v) For five years following the First Commercial Sale on a
country-by-country basis, a royalty of 1% shall be paid on
all Net Sales of Licensed Product which, although not
covered by an Issued Valid Claim of a Licensed Patent,
uses Licensed Research Information.
(vi) Only a single royalty obligation under paragraphs 4a(i)
through 4a(v) shall be payable on Net Sales of any
individual Licensed Product.
(vii) If GTS exercises its option pursuant to Section 2(c) of
this Agreement to convert its exclusive license to a non-
exclusive license, GTS shall continue to pay the royalty
rates specified in
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<PAGE>
this Section 4(a), but not the minimum royalties
specified in Section 4(b) below, until such time as
Columbia and/or Salk grant a non-exclusive license for
commercial purposes to a third party, at which time the
royalty rates paid by GTS for a non-exclusive license
shall be the lower of:
(a) one-half the rates specified in this section 4(a), or
(b) the royalty rates specified in such commercial
third-party license.
b. In order to maintain an exclusive license hereunder and in lieu
of any best efforts obligation, GTS shall pay Columbia/Salk
minimum annual royalties within 60 days of the end of a Payment
Year as specified in Schedule A below. If royalties paid by GTS
under this Agreement plus supplemental payments made by GTS, in
any Payment Year do not equal or exceed the Minimum Annual
Royalty for such Payment Year as set forth in Schedule A, then
upon 30 days written notice by Columbia and Salk, such
circumstance shall be deemed an election by GTS under Section
2(c) to maintain a non-exclusive license unless such deficiency
shall be cured during such period.
SCHEDULE A
The schedule of minimum annual royalties payable at the end of a Payment
Year is as follows:
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<PAGE>
Payment Year Royalty Minimum Annual
-------------------- --------------
4 100,000
5 200,000
6 300,000
7 400,000
8 500,000
9 600,000
10 and each year 700,000
thereafter in
which royalties
are paid under
Section 4(a)
c. In the event GTS exercises its option pursuant to Section 2c of
this Agreement to convert its exclusive license to a
non-exclusive license, the royalties payable under this Agreement
shall be solely as set forth in Section 4a and GTS shall have no
obligation to pay any minimum annual royalties.
d. In consideration of the right to sublicense third parties granted
under Section 2b, GTS shall pay to Columbia/Salk a total of 40%
of all royalties, license fees, and other payments or
consideration (including stock), received by GTS pursuant to its
sublicense, which payments shall constitute royalties paid under
this Agreement for purposes of GTS satisfying the requirements to
pay minimum annual royalties pursuant to Section 4b above.
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<PAGE>
e. Royalties payable to Columbia/Salk under sections 4a-d shall be
reduced in any country, on a country-by-country-basis, where a
compulsory license is granted. The new royalty rate shall be the
royalty rate mandated by the compulsory license or the royalty
rate for a non exclusive license under Section 4a(vii), whichever
is lower.
5. REPORTS AND PAYMENTS.
a. Beginning with the earlier of (i) the First Commercial Sale of a
Licensed Product or (ii) the First Commercial Sale of a
Diagnostic Instrument, or (iii) Payment Year Four, GTS shall
deliver or cause to be delivered to Columbia and Salk, within 60
days after the end of each calendar quarter, a written report
with respect to the preceding calendar quarter (the "Payment
Report") stating:
(i) Net Sales of Licensed Products made by GTS and any
Affiliate during such quarter;
(ii) In the case of transfers or sales of Licensed Products by
GTS to an Affiliate for sale by the Affiliate, Net Sales
made by GTS to the Affiliate and by the Affiliate to its
customers during such quarters;
(iii) Amounts accruing to GTS from its Sublicensees under
section 4d during such quarter;
(iv) Net Sales made by Sublicensees during such quarter; and
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<PAGE>
(v) A calculation under Section 4 of the amounts due to
Columbia, making reference to each subsection.
All such royalty reports shall be treated as Confidential
Information subject to Section 14c and except to the extent
disclosure is required i) for audit purposes, ii) by contract,
or iii) by law.
b. Simultaneously with the submission of each Payment Report to
Columbia, GTS shall make payments to Columbia's Office of Science
and Technology Development of the amounts due for the calendar
quarter covered by the Payment Report, and Columbia shall receive
such payment on behalf of both Columbia and Salk.
c. GTS shall maintain usual books of account and records showing its
actions under this Agreement. Upon reasonable notice, but not
more frequently than once in each calendar year, such books and
records shall be open to inspection, and copying solely with
respect to the information required under Section 5a, at its
principal office, during usual business hours, by an independent
certified public accountant to whom GTS has no reasonable
objection, for two years after the calendar quarter to which they
pertain, for purposes of verifying the accuracy of the amount
paid by GTS under this Agreement. Said accountant shall not
disclose to Columbia, Salk or any other party any information
except that which should properly be contained in the royalty
report required under this Agreement.
d. Royalties on Net Sales of Licensed Products shall accrue and be
computed in the currency of the country in which such sales have
been made by GTS or its Affiliates and shall be paid to a
location or person designated by Salk
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<PAGE>
and Columbia in the United States in United States Dollars, at
the rate of exchange quoted by the Wall Street Journal for the
last business day of the calendar quarter in which such royalties
were earned. If by law, regulations, or fiscal policy of a
particular country, conversion into or transfer to the United
States in United States Dollars is restricted or forbidden,
notice therefore in writing will be given to Salk and Columbia,
and no such royalties shall be paid until such conversion or
transfer can be made legally, at which time royalties shall be
paid in United States dollars at the rate of exchange as quoted
by the Wall Street Journal for the last business day of the
quarter during which the restriction on conversion was lifted.
However, Columbia and Salk shall have the right to have royalties
paid by GTS or its Affiliate in the blocked currency by
depositing the same in Columbia and Salk's name in a foreign bank
in any such country as designated by Columbia and Salk, at which
time the royalties shall be deemed paid. However, in the event
GTS chooses to use the earned royalty in the country from which
conversion or transfer cannot be made, GTS shall cause such
royalties to be paid to Columbia and Salk in U.S. dollars based
upon the last rate of exchange quoted (in the Wall Street Journal
or if not there in any other similar publication) or, if none is
available, at such other rate mutually agreed upon by the
parties.
6. USE FOR RESEARCH PURPOSES OF LICENSES GRANTED.
Columbia and Salk reserve the right to use the Licensed Patents and
Licensed Research Information for research purposes and to permit
other entities or individuals to use same for research purposes
provided such is without the
Page 17
<PAGE>
payment of royalties, license fees, stock or other compensation.
Columbia and Salk shall obtain from all such entities or individuals
an agreement in writing not to use the Licensed Patents or Licensed
Research Information for commercial purposes and shall inform GTS of
the identity of such entities or individuals.
7. PROSECUTION.
a. Columbia and Salk shall with due diligence file, prosecute and
maintain patent applications and the Licensed Patents, when in
any party's judgment such action may be reasonable, proper and
justified. Columbia and Salk shall copy GTS on all patent office
related correspondence and provide GTS a reasonable opportunity
to comment thereon. Columbia and Salk shall reasonably confer
with GTS, at such times as is appropriate, upon the selection of
foreign countries for purposes of filing patent applications.
b. GTS will pay Columbia and Salk 50% of the expenses incurred after
the Effective Date in filing and prosecuting the Licensed Patents
including reasonable outside attorney's fees, taxes, annuities,
issue fees, working fees, maintenance fees, and renewal charges
(Patent Expenses), until such time as Columbia and/or Salk grant
a non-exclusive license to a third party, whereupon GTS shall pay
Columbia and Salk its pro rata share of the Patent Expenses
incurred thereafter which pro-rata share shall be computed by
dividing the Patent Expenses by the number of third-party
licenses granted.
8. INFRINGEMENT.
a. Columbia and/or Salk shall have the first right to protect their
Licensed Patents from infringement and prosecute infringers at
their own expense when in their
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<PAGE>
sole judgment such action may be reasonably necessary, proper
and justified.
b. If GTS shall have supplied Columbia and Salk with written
evidence demonstrating to Columbia's and Salk's reasonable
satisfaction prima facie infringement of a claim of a Licensed
Patent or misappropriation of Licensed Research Information by a
third party, GTS may by notice request Columbia and Salk to take
steps to protect the Licensed Patent or Licensed Research
Information. Unless Columbia and/or Salk shall within three
months of the receipt of such notice either (i) cause such
infringement to terminate or (ii) initiate and diligently pursue
legal proceedings against the infringer, GTS may upon notice to
Columbia and Salk initiate legal proceedings against the
infringer at GTS's expense and in Columbia and Salk's name if
appropriate. In such event GTS may deduct from payments due
hereunder to Columbia and Salk reasonable costs and legal fees
incurred to conduct such proceedings, but in no event shall any
such payments be reduced by more than 50 percent of the amount
otherwise due to Columbia and Salk hereunder. Any recovery by GTS
in such proceedings shall (i) first be used to reimburse GTS for
reasonable costs and legal fees incurred to conduct such
proceedings, (ii) next be used to pay any amounts withheld from
Columbia and Salk by GTS under this Section 8 during the pendency
of the proceedings, (iii) thereafter 40% of the remainder to
Columbia and Salk, until $500,000 shall have been paid to
Columbia and Salk, and (iv) finally, any remainder shall be kept
by GTS.
c. In the event one party shall initiate or carry on legal
proceedings to enforce any Licensed Patent against an alleged
infringer, the other party shall use all
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<PAGE>
reasonable efforts to fully cooperate with and shall
supply all assistance reasonably requested by the party
initiating or carrying on such proceedings. The party which
institutes any proceeding to protect or enforce a Licensed Patent
shall have sole control of that proceeding and shall bear the
reasonable expenses incurred by said other party in providing
such assistance and cooperation as is requested pursuant to this
paragraph.
d. In the event that the Licensed Patents cannot be practiced
without infringing an issued patent in the country where
practiced, GTS shall have the right, at GTS' sole election,
either:
(i) to stop use of Licensed Patents under this Agreement in
such country and to stop all royalty payment for such
country upon giving Columbia and Salk one month's notice;
or
(ii) to practice Licensed Patents directly or through its
sublicensees and to negotiate a license, the terms of
which shall be subject to Columbia/Salk's reasonable
approval (not to be unreasonably withheld or delayed),
and/or stand suit for patent infringement, in which case
GTS shall be permitted to deduct from 50% of the royalties
payable hereunder in such country, the costs of such
license or suit, and/or the royalty to which GTS and/or
any sublicense shall become obligated to pay to said third
party through negotiated agreement, settlement or final
order of a court of competent jurisdiction for the right
to continue to use Licensed Patents in that country free
from charges of infringement thereafter.
Page 20
<PAGE>
e. If the cumulative royalties that GTS must pay to Columbia, Salk
and third parties to manufacture, use and sell Licensed Products
make such manufacturing use or sale commercially unattractive to
GTS, then, upon request by GTS, Columbia, Salk and GTS shall meet
and in good faith discuss whether royalties and payments due
hereunder can be reduced.
9. WARRANTY.
9.1 Nothing in this Agreement shall be construed as a warranty or
representation by any party as to the validity of any Licensed
Patent. Nothing in this Agreement shall be construed as a
warranty or representation by any party that anything made, used,
sold or otherwise disposed of under any license granted under
this Agreement is or will be free from infringement of domestic
or foreign patents of other parties.
9.2 Columbia and Salk hereby represent and warrant that:
(i) Columbia and/or Salk are the Assignees of Licensed Patents
and to the best of their knowledge that it (they) has
(have) good and complete valid title in and to Patent 1,
Patent 2, Patent 3, Patent 4, and Patent 5 and that it
(they) has (have) to the best of their knowledge the
complete and sole right to license same and Licensed
Research Information to GTS pursuant to the terms of this
Agreement;
(ii) Columbia and Salk are unaware of any patents owned by
others and any trade secret or proprietary rights of
others which would be infringed or violated by the use of
Licensed
Page 21
<PAGE>
Patents or Licensed Research Information by GTS, its
Affiliates and/or sublicensees anywhere in the world;
(iii) to the best of their knowledge, there are no adverse
actions, suits or claims pending against Columbia or Salk
or any of their Affiliates in any court or by or before
any governmental body or agency with respect to Licensed
Patents or Licensed Research Information and no such
actions, suits or claims have been threatened;
(iv) for so long as the licenses granted to GTS pursuant to
this Agreement remain exclusive in favor of GTS, Columbia
and Salk, and any of their agents or anyone acting on
their behalf will not grant any licenses to Licensed
Patents and/or Licensed Research Information to third
parties other than as specified in Section 2(a)(iv) and
Section 6. If prior to July 1, 1991 Columbia and/or Salk
invents an alternative nucleic acid amplification
technology other than the Licensed Patents or Licensed
Research Information, Columbia and/or Salk, as the case
may be, shall not license such alternative technology to
any third party without first discussing the technology
with GTS, unless Columbia and/or Salk is contractually
prevented from making such disclosure.
10. PROHIBITION AGAINST USE OF NAME.
a) Neither party shall use the name, insignia, or symbols of any
other party, its faculties or departments, or any variation or
combination thereof, or the name of any trustee, faculty member,
other employee or student of any other party for any purpose
whatsoever without the prior written consent of such other party
whose name is sought to he used.
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<PAGE>
b) No party shall unreasonably withhold or delay its consent
requested pursuant to 10a to an announcement of the existence of
this Agreement or to such other announcement which in the opinion
of legal counsel to the party making such announcement is
required by law or practice to be made. The party making any
announcement shall give the party whose name is to be used, an
opportunity to review the form of the announcement before it is
made and comments from such reviewing party shall be reasonably
incorporated. It is presently anticipated that GTS will issue,
subject to review pursuant to this Section, a press release
regarding generally the licensure of Q-Beta replicase technology
to GTS. Routine oral references to this Agreement and the
arrangements hereunder without undue frequency and without
emphasis shall be allowed in the usual course of business
provided that notice of such use is given to the other party.
11. COMPLIANCE WITH GOVERNMENTAL OBLIGATIONS.
a. Notwithstanding any provisions in this agreement, Columbia and
Salk disclaim any obligations or liabilities arising under the
license provisions of this Agreement if GTS is charged in a
governmental action for not complying with or fails to comply
with governmental regulations in the course of taking effective
steps to bring any Licensed Product to a point of practical
application.
b. GTS shall comply upon reasonable notice from Columbia and/or Salk
with all governmental requests authorized by statute, regulation,
or judicial decree and directed to either Columbia, Salk, or GTS
and provide the necessary information and assistance to comply
with such governmental requests regarding this Agreement.
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<PAGE>
c. GTS shall insure that research, development, and marketing under
this Agreement will comply with all government regulations in
force and effect including, but not limited to, Federal, State,
and Municipal legislation.
12. INDEMNITY AND INSURANCE.
a. GTS will indemnify and hold Columbia and Salk harmless against
any and all actions, suits, claims, demands, prosecutions,
liabilities, costs and expenses (including reasonable attorney's
fees) based on or arising out of this Agreement, including,
without limitation, the manufacture, packaging, use, sale, rental
or lease of Licensed Products or Licensed Research Information by
GTS, its Affiliates, its Sublicensees or its (or their) customers
and any representation made or warranty given by GTS, its
Affiliates or Sublicensees with respect to Licensed Products.
This indemnity does not apply to liabilities, costs and expenses
arising out of any action, suits, claims, demands or prosecutions
between the parties to this Agreement.
b. GTS shall maintain, during the term of this Agreement,
comprehensive general liability insurance, and beginning with the
First Commercial Sale further maintain products liability
insurance in the same or separate policy, with reputable and
financially secure insurance carriers, to cover the activities of
GTS and its Affiliates, for minimum limits of $2,000,000
combined single limit for bodily injury and property damage per
occurrence and in the aggregate. Any sublicensee(s) shall be
required to carry insurance of like character and amount. Such
insurance shall include Columbia, Salk, and the trustees,
directors, officers, employees, and agents of
Page 24
<PAGE>
each, as additional insureds. GTS shall furnish a certificate of
insurance evidencing such coverage, within 30 days written notice
to Columbia and Salk of cancellation or material change.
The GTS insurance shall be primary coverage; any insurance
Columbia and Salk may purchase shall be excess and
non-contributory. Such insurance shall be written to cover claims
incurred, discovered, manifested, or made during or after the
expiration of this Agreement. GTS shall at all times comply with
all statutory workers' compensation and employers' liability
requirements covering its employees with respect to activities
performed under this Agreement.
13. MARKETING.
Prior to the issuance of patents GTS will, where feasible, mark
Licensed Products made, sold, or otherwise disposed of by it under the
license granted under Licensed Patents in the Agreement with the words
"Patent Pending" and following the issuance of one or more Licensed
Patents, with the numbers of such patent.
14. CONFIDENTIALITY.
a. GTS will treat as confidential all information, and materials
furnished hereunder which Columbia or Salk has designated as
"Confidential". For the term of this Agreement and for three
years following termination, GTS will not disclose or make
available such confidential information to any third party
without the prior written permission of the other parties.
b. Columbia and Salk may, but are not obligated to, receive
confidential information from GTS. Columbia and Salk will not
disclose or make available confidential information received from
GTS to third parties without
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<PAGE>
GTS's written permission. Columbia's and Salk's obligations under
this paragraph apply only to information which GTS has designated
in writing as "Confidential" and which GTS submits so marked to
Columbia's Office of Science and Technology Development and to
Salk.
c. The obligations of confidentiality under this Section 14 do not
apply to any information which:
(i) was known to the party receiving the information prior to
receipt thereof from the other party;
(ii) was or becomes a matter of public information or publicity
available through no act or failure to act on the part of
the party receiving the information;
(iii) is acquired by the party receiving the information from a
third party entitled to disclose the information to it;
(iv) the receiving party develops independently;
(v) GTS must disclose in order to commercially exploit and/or
sublicense the licenses granted herein to GTS; or
(vi) GTS is reasonably required to disclose pursuant to
governmental regulation, statute or agency request.
15. FREEDOM OF PUBLICATION.
GTS acknowledges that Columbia and Salk are each dedicated to a free
scholarly exchange and to public dissemination of the
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<PAGE>
results of their scholarly activity. Regarding Licensed Patents and
Licensed Research Information, Salk agrees, that up to July 1, 1991,
it shall provide to GTS a copy of any invention memorandum, manuscript
accepted for publication or anything regarding oral disclosures,
received by the Patent Administration at the Salk Institute of
Biological Studies, whenever possible at least 60 days in advance of
such public dissemination or publication in order to allow GTS the
opportunity to review same in order to ensure the filing of
appropriate patent application(s) prior to publication or
dissemination. Except as set forth in Section 14 and this section
nothing in this agreement shall restrict the right of Columbia or
Salk, or the faculty, employees and students of each, to publish,
disseminate or otherwise disclose information relating to their
research activities, however, when they do so, such no longer
qualifies as Licensed Research Information.
16. BREACH AND CURE.
a. In addition to applicable legal standards, GTS shall be
considered to be in material breach of this Agreement for (i)
failure to comply with governmental requests pursuant to Section
11b.
b. Any party shall have the right to cure its material breach. The
cure shall be effected within a reasonable period of time but in
no event later than thirty days after notice of any breach given
by the party alleging the breach.
17. TERM OF AGREEMENT.
a. This Agreement shall be effective as of the Effective Date and
shall continue in full force and effect until its expiration or
termination in accordance with this Section 17.
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<PAGE>
b. Unless terminated earlier under any provision of this Agreement,
the term of the exclusive license granted under the Licensed
Patents and Licensed Research Information shall extend until the
expiration of the last to expire of the Licensed Patents after
which GTS shall have a fully paid up, royalty free license
thereto.
c. The license granted under this Agreement may be terminated (i) by
either GTS or Columbia and Salk upon 30 days written notice to
the other party of its material breach of the Agreement and such
party fails to cure such material breach; or (ii) by Columbia and
Salk should GTS commit any act of bankruptcy or insolvency act.;
or (iii) after one year after the Effective Date hereof, by GTS
upon ninety days written notice to Columbia and Salk.
d. Upon any termination of this Agreement pursuant to Section 17c
(i), all sublicenses granted by GTS shall be assigned to Columbia
and Salk.
18. NOTICES.
Any notice required under this Agreement shall be sufficient if sent
by certified mail (return receipt requested), postage prepaid.
If to Columbia, to: Office of Science and
Technology Development
Columbia University
411 Low Library
New York, New York 10027
copy to: General Counsel
Columbia University
110 Low Library
New York, New York 10027
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<PAGE>
If to Salk, to: The Salk Institute For
Biological Studies
10010 North Torrey Pines Rd.
La Jolla, California 92037
Attention: Ms. Natalie Jensen
Patent Administrator
copy to: Dr. Julius Tabin
Fitch, Even, Tabin & Flannery
125 South La Salle Street
Chicago, Illinois 60603
If to GTS, to: GENE-TRAK Systems
31 New York Avenue
Framingham, Massachusetts 01701
Attention: Patrick J. Connoy
President
Copies to: Amoco Technology Co.
Warrenville Road
P.O. Box 400
Naperville, Illinois 60566
Attention: John Triebe
and: Integrated Genetics
One Mountain Road
Framingham, Massachusetts 01701
Attention: Mark A. Hofer, Esq.
Chief Patent Counsel
or to such other address as a party may specify by notice hereunder
19. ASSIGNMENT.
This Agreement may not be assigned without the written consent of the
other parties, provided, however, that GTS may assign, upon prior
written notice to Columbia and Salk, its rights and obligations to an
Affiliate or to an assignee or purchaser acquiring all or
substantially all of GTS's business assets to which this Agreement
pertains.
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<PAGE>
20. AMENDMENTS.
This Agreement may be amended only by an instrument in writing duly
executed on behalf of each of the parties.
21. GOVERNING LAW.
This Agreement shall be governed by New York law applicable to
agreements made to be performed in New York.
22. WAIVER.
The waiver by any of the parties of this Agreement or any provision
hereof by another party shall not be construed to be a waiver of any
succeeding breach of any such provision or a waiver of the provision
itself.
23. FORCE MAJEURE.
Neither party shall be liable for failure to perform as required by
any provision of this Agreement where such failure results from a
force majeure beyond such party's control. In the event of any delay
attributable to a force majeure, the time for performance affected
thereby shall be extended for a period equal to the time lost by
reason of the delay
24. REPRESENTATIONS.
a. All parties are acting as independent contractors and nothing
contained herein shall be construed as making Columbia, Salk or
GTS the agent, representative or employee of the other.
b. Each party hereto acknowledges and agrees:
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<PAGE>
(i) that this Agreement is not being entered into on the basis
of, or in reliance on, any promise or representation,
expressed or implied, covering the subject matter hereof,
other than those which are set forth expressly in this
Agreement; and
(ii) that each party has had the opportunity to be represented
by counsel of its own choice in this matter, including
negotiations which preceded the execution of this
Agreement.
IN WITNESS THEREOF, Columbia, Salk and GTS have caused this Agreement to be
executed by their duly authorized representatives as of the day and year first
written above.
THE TRUSTEES OF COLUMBIA UNIVERSITY IN THE CITY OF NEW YORK
By: /s/ Jack M. Granowitz
--------------------------------
Title: Director, Office of Science
----------------------------
and Technology Development
----------------------------
Date: October 7, 1988
----------------------------
THE SALK INSTITUTE FOR BIOLOGICAL
STUDIES
By: /s/ Dilbert E. Glanz
--------------------------------
Title: Vice President Operations
----------------------------
Date: October 7, 1988
----------------------------
GENE-TRAK SYSTEMS
By: /s/ Patrick Connoy
--------------------------------
Title: President
----------------------------
Date: October 8, 1988
----------------------------
Page 31
<PAGE>
Exhibit 10.9a
AMENDMENT TO OCTOBER 7, 1988 LICENSE AGREEMENT BETWEEN THE
TRUSTEES OF COLUMBIA UNIVERSITY IN THE CITY OF NEW YORK, THE SALK
INSTITUTE FOR BIOLOGICAL STUDIES, AND GENE-TRAK SYSTEMS
AMENDMENT effective as of June 15, 1996 ("Amendment") to the License
Agreement dated October 7, 1988 (the "License Agreement") between The Trustees
of Columbia University in the City of New York ("Columbia"), The Salk Institute
for Biological Studies ("Salk") and Vysis, Inc., a Delaware corporation
("Vysis").
In consideration of the premises and mutual covenants contained herein and
in the License Agreement, the parties agree as follows:
1) All references to GENE-TRAK Systems and GTS are to be replaced by
Vysis, Inc. and Vysis, respectively. Vysis, Inc., a Delaware Corporation, is
the successor in interest to GENE-TRAK Systems, the Illinois partnership, which
is now dissolved.
2) Section 1.n. shall be deleted and replaced by: "Licensed Products"
shall mean all assays, kits, compositions and reagents used in assays, and
Diagnostic Instruments for performing assays where Vysis or an Affiliate
realizes a direct profit on cumulative Net Sales of such Diagnostic Instruments,
which relate to RNA-based amplification/detection systems which employ
exponential amplification of replicative RNA by Q-Beta Replicase or a related
enzyme, whether or not used in or on Diagnostic Instruments, and which are
covered by a claim of a Licensed Patent that has neither expired nor been
declared invalid by a court of last resort ("Issued Valid Claim"), or which use
Licensed Research Information. "Licensed Products" shall exclude reusable
physical structures such as, by way of example, containment, filters, detection
means, temperature control elements, transport mechanisms, sonication means,
mixing elements, film software, computing hardware, manuals, recording devices,
paper and packing.
3) Section 1.p. shall be deleted and replaced by: "Diagnostic Instrument"
shall mean a manual, semi-automated or automated instrument in which or with
which Licensed Products may be utilized and which is manufactured by or for
Vysis or an Affiliate.
4) Section 3.d shall be deleted and replaced by: All license payments
pursuant to Section 3 (c) above shall be fully creditable against (i) past
minimum annual royalties through year 8 totaling $1,500,000 that were called
for but not paid because of the credit and (ii) future royalties payable
under Section 4(a), (c), (d), and (e) and shall be rolled over quarter to
quarter until fully consumed, but are not creditable against the payments to
be made by Vysis in accordance with Section 6 (starting October 1, 1998) and
Section 7 of this Amendment.
5) Following Section 4.a. (ii), insert new Subsection 4.a. (ii) A:
After July 1, 1997, and if payment is received by Columbia and Salk pursuant
to Section 7 of this Amendment, the royalty shall be reduced from 4.5% to
2.0% and shall be paid on all Net
<PAGE>
Sales by Vysis or an Affiliate of Licensed Product provided such is covered by
an Issued Valid Claim or a patent within Licensed Patents in the country of sale
or manufacture.
6) Schedule A of Section 4.b. shall be deleted and replaced by:
SCHEDULE A
The schedule of minimum annual royalties payable at the end of a Payment
Year is as follows:
Payment Year/Date Royalty Minimum Annual
- -------------------------- ----------------
4 $100,000
5 $200,000
6 $300,000
7 $400,000
8 $500,000
October 1, 1998 $200,000
October 1, 1999 $300,000
October 1, 2000 $400,000
October 1, 2001 $400,000
October 1, 2002 $400,000
October 1, 2003 $400,000
October 1, 2004 $400,000
October 1, 2005 $400,000
October 1, 2006 $400,000
7) In consideration of the reduction in payments to Columbia and Salk
contained in this Amendment, Vysis agrees to make the following payments to
Columbia and Salk:
June 25, 1996 $200,000
January 1, 1997 $200,000
July 1, 1997 $200,000
Notwithstanding Section 3.f. of the License Agreement, the first three payments
above will be in the form of individual $100,000 payments made directly to
Columbia and Salk. Notwithstanding Section 2(c) of the License Agreement, Vysis
cannot elect to covert the exclusive license to a non-exclusive license unless
Columbia and Salk receive all of the payments called for this Section 7 of the
Amendment.
8) All other terms of the License Agreement remain the same and continue in
full force and effect.
<PAGE>
The parties have caused this Amendment to be executed by their duly
authorized officers as of the day and year first written above.
THE TRUSTEES OF COLUMBIA UNIVERSITY
IN THE CITY OF NEW YORK
By /s/ Jack M. Granowitz
----------------------------------
Jack M. Granowitz
Executive Director
Columbia Innovation Enterprise
THE SALK INSTITUTE FOR BIOLOGICAL
STUDIES
By /s/ Delbert E. Glanz
-----------------------------------
Title: Executive Vice President
VYSIS, INC.
By /s/ John L. Bishop
-----------------------------------
Title: President
<PAGE>
COOPERATION AGREEMENT
THIS COOPERATION AGREEMENT is made the ____ day of December, 1997, between
VYSIS, INC. ("Vysis"), a Delaware corporation, and AMOCO TECHNOLOGY COMPANY
("ATC"), a Delaware corporation.
WHEREAS, Vysis is a former wholly-owned subsidiary of ATC and ATC has
consolidated its medical diagnostics businesses and research efforts (the
"Diagnostics Business") into Vysis;
WHEREAS, ATC has previously made capital contributions to Vysis of various
assets of the Diagnostics Business, including the stock of Vysis, Inc., an
Illinois corporation, and of Gene-Trak, Inc., a Delaware corporation; and
WHEREAS, as part of this consolidation ATC and Vysis wish to set out their
agreement on corporate transactions necessary to complete the consolidation and
establishment of Vysis as a stand-alone company.
NOW, THEREFORE, for and in consideration of the mutual covenants, and
subject to the terms and conditions contained herein, the parties hereto agree
as follows:
1. DOCUMENTATION OF ASSET TRANSFERS TO VYSIS
(a) ATC agrees to execute and deliver, or cause to be executed and
delivered, to Vysis all such additional documents as shall be reasonably
requested by Vysis in order to fully evidence in Vysis title to any intellectual
property assets previously assigned to Vysis pursuant to an assignment dated
September 27, 1996, including without limitation, assignments of foreign patents
and patent applications. ATC and Vysis acknowledge and agree that the necessary
filings in the appropriate patent offices to evidence the assignment of the
patents and patent applications to Vysis may take an extended period of time to
complete. ATC and Vysis will cooperate in carrying out these filings. Vysis
agrees that the filing costs and fees associated with any such assignments are
its sole responsibility.
(b) ATC hereby assigns, subject to any necessary consents of third
parties, to Vysis: (i) the License Agreement between ATC and the University of
California signed July 30, 1992, and (ii) the Agreement between ATC and the
Center for Neurological Studies dated June 3, 1993. ATC and Vysis will
cooperate in obtaining any necessary consents of the University or the Center
for these assignments.
2. LITIGATION
(a) ATC and Vysis and their respective affiliates are defendants in a
patent infringement suit, Gen-Probe, Inc. v. Amoco Corporation, et al., pending
in the Federal Court for the Southern District of California (the "Gen-
<PAGE>
Probe suit"). The Gen-Probe suit alleged two counts of patent infringement
of U.S. Patent Numbers 4,851,330 and 5,288,611 (the "Kohne patents"), based
upon (a) Vysis' Food Diagnostics business operations and (b) the Gallileo
infectious disease program. The suit also alleged three additional counts:
(c) unfair competition, (d) conspiracy to commit unfair competition and (e)
violation of the Cartwright Act. The conspiracy to commit unfair competition
and violation of the Cartwright Act counts have been dismissed without
prejudice. ATC and Vysis agree to allocate any liabilities which may arise
from the Gen-Probe suit or from any suit filed against ATC and Vysis and
their affiliates by Gen-Probe, Gen-Probe's affiliates or any successor in
interest to or assignee of Gen-Probe in any jurisdiction as follows:
(i) ATC indemnifies Vysis and its subsidiaries against any and
all liabilities and claims arising from any of the pending unfair competition
count in the Gen-Probe suit or from any reinstatement of a claim of
substantially similar content to the dismissed counts of conspiracy to commit
unfair competition and violation of the Cartwright Act which may be brought by
Gen-Probe or its affiliates, successors or assignees, and
(ii) Vysis indemnifies ATC and Amoco Corporation and their
affiliates against any and all other liabilities and claims arising from the
Gen-Probe suit (including the two pending counts of patent infringement) or from
the facts and circumstances relating to the Gen-Probe suit or any litigation
concerning the ownership of the Kohne patents.
(iii) Vysis and ATC agree that Vysis shall be responsible for the
attorney's fees incurred in defending the Gen-Probe suit; provided that ATC
shall have the right to be represented by separate counsel at its expense and
ATC shall be responsible for any attorney's fees for counsel which the parties
agree to retain to represent Vysis and ATC with respect to the unfair
competition count.
(b) Vysis and ATC further agree to cooperate in the defense of the
Gen-Probe suit. Vysis and ATC agree that neither will settle any claim or
liability to Gen-Probe arising from the Gen-Probe suit, any successor suit to
it or from the activities related to the Gen-Probe suit without the consent
of the other party.
(c) Vysis and ATC agree to cooperate in prosecuting the pending European
patent opposition filed against the European counterpart of the Kohne
patents. Vysis and ATC agree that Vysis shall be responsible for all legal
fees for prosecution of this European opposition.
3. ACCESS TO RECORDS
Vysis and ATC agree that each shall afford the other party and its
authorized accountants, counsel and designated representatives reasonable access
to their employees and shall make available or provide reasonable access and
duplicating rights to all records, books, contracts, instruments, computer data
and other data and information within their possession and
2
<PAGE>
relating to the Diagnostics Business insofar as such information is
reasonably required for the purposes of financial and governmental compliance
and reporting, tax calculation and reporting and third party claims and
litigation handling and resolution.
4. LIABILITIES FROM DISCONTINUED OPERATIONS
ATC agrees that it shall retain responsibility for matters arising from the
following discontinued business and research efforts of certain of its prior
businesses related to the Diagnostics Business (the "Discontinued Operations")
as follows: (i) except as otherwise provided in Paragraph 2. above, the Galileo
infectious disease program, (ii) the Nissui Termination Agreement, (iii) the
shut-down of the Diagnostics Business' operations in Framingham, Massachusetts,
(iv) the sale of the Diagnostics Business' facility in Framingham,
Massachusetts, (v) the Betagen business, (vi) the investment in and dealings
with GDP Technologies, and (vii) the operations and sale of IntelliGenetics,
Inc. ATC therefore indemnifies Vysis and its subsidiaries against any
liabilities and claims arising from the Discontinued Operations, whether or not
these liabilities and claims are alleged as or are due to the negligence of
Vysis or any of its subsidiaries, including without limitation employee
severance claims and litigation, COBRA medical payment liabilities, obligations
under contractual settlement agreements and reasonable attorneys' fees spent in
preparing for or responding to any such liabilities or claims, except to the
extent that Vysis specifically accepts a liability or claim under this
Cooperation Agreement. Vysis agrees to notify ATC promptly after it receives
notice of any liability or claim subject to this indemnity and to cooperate with
ATC in the handling and resolution of any such liability or claim.
5. GOVERNING LAW
This Agreement shall be governed by and construed under the laws of the
State of Illinois, excluding any choice of law rules which would direct the
application of the law of another jurisdiction.
In witness whereof, Vysis and ATC show their agreement by signing below.
VYSIS, INC. AMOCO TECHNOLOGY COMPANY
- -------------------------- ----------------------------
President President
3
<PAGE>
EXHIBIT 11.1
VYSIS, INC.
STATEMENT RE COMPUTATION OF PRO FORMA NET LOSS PER SHARE
(IN THOUSANDS, EXCEPT NET LOSS PER SHARE)
<TABLE>
<CAPTION>
PRO FORMA FOR THE NINE
-------------------------------------
FOR THE YEAR MONTHS ENDED SEPTEMBER SUPPLEMENTAL
ENDED 30, ------------------
DECEMBER 31, ----------------------- FOR THE NINE
1996 1997 MONTHS ENDED
------------ ---------- SEPTEMBER 30, 1997
1996 ------------------
----------- (UNAUDITED)
(UNAUDITED)
<S> <C> <C> <C> <C>
Net loss per statement of operations.................. $ (18,181) $ (13,788) $ (11,462) $ (11,095)
Weighted average common shares outstanding:
Shares attributable to common stock outstanding..... 1,058 1,058 1,058 1,058
Shares attributable to common stock equivalents..... 4,929 4,929 4,929 4,929
Shares attributable to options pursuant to SEC Staff
Accounting Bulletin No. 83........................ 120 120 120 120
Shares to be issued in proposed offering............ -- -- -- 576
------------ ----------- ---------- --------
Total............................................... 6,107 6,107 6,107 6,683
------------ ----------- ---------- --------
------------ ----------- ---------- --------
Pro forma net loss per share.......................... $ (2.98) $ (2.26) $ (1.88)
------------ ----------- ----------
------------ ----------- ----------
Supplemental pro forma net loss per share............. $ (1.66)
--------
--------
</TABLE>
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of this
Registration Statement on Form S-1 of our report dated November 21, 1997,
relating to the consolidated financial statements of Vysis, Inc., which appears
in such Prospectus. We also consent to the application of such report to the
Financial Statement Schedule for the three years ended December 31, 1996 and the
nine months ended September 30, 1997 listed under Item 16(b) of this
Registration Statement when such schedule is read in conjunction with the
consolidated financial statements referred to in our report. The audits referred
to in such report also include this schedule. We also consent to the references
to us under the headings "Experts" and "Selected Financial Information" in such
Prospectus. However, it should be noted that Price Waterhouse LLP has not
prepared or certified such "Selected Financial Information."
PRICE WATERHOUSE LLP
Chicago, Illinois
December 5, 1997
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> YEAR 6-MOS
<FISCAL-YEAR-END> DEC-31-1996 DEC-31-1997
<PERIOD-START> JAN-01-1996 JAN-01-1997
<PERIOD-END> DEC-31-1996 SEP-30-1997
<CASH> 48 294
<SECURITIES> 0 0
<RECEIVABLES> 2957 3573
<ALLOWANCES> (156) (182)
<INVENTORY> 2390 2688
<CURRENT-ASSETS> 7288 7753
<PP&E> 10573 11045
<DEPRECIATION> (5016) (6091)
<TOTAL-ASSETS> 15115 15093
<CURRENT-LIABILITIES> 12622 15037
<BONDS> 0 0
0 0
6 7
<COMMON> 1 1
<OTHER-SE> 2486 48
<TOTAL-LIABILITY-AND-EQUITY> 15115 15093
<SALES> 11022 10558
<TOTAL-REVENUES> 13238 12225
<CGS> 5529 4773
<TOTAL-COSTS> 31271 23320
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 67
<INTEREST-EXPENSE> 255 367
<INCOME-PRETAX> (18181) (11462)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (18181) (11462)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (18181) (11462)
<EPS-PRIMARY> (2.98) (1.88)
<EPS-DILUTED> (2.98) (1.88)
</TABLE>
