<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 13, 2000
REGISTRATION NO. 333-
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- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
NETGENICS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
DELAWARE 7371 34-1834775
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
</TABLE>
1717 EAST NINTH STREET, SUITE 1600
CLEVELAND, OHIO 44114
TELEPHONE: (216) 861-4007
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
VINCENT P. KAZMER
EXECUTIVE VICE PRESIDENT AND CHIEF FINANCIAL OFFICER
1717 EAST NINTH STREET, SUITE 1600
CLEVELAND, OHIO 44114
TELEPHONE: (216) 861-4007
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
COPIES TO:
<TABLE>
<S> <C>
CHRISTOPHER M. KELLY, ESQ. WILLIAM T. WHELAN, ESQ.
JONES, DAY, REAVIS & POGUE JOSEPH E. MULLANEY III, ESQ.
NORTH POINT MINTZ, LEVIN, COHN, FERRIS, GLOVSKY & POPEO,
901 LAKESIDE AVENUE P.C.
CLEVELAND, OHIO 44114 ONE FINANCIAL CENTER
TEL: (216) 586-3939 BOSTON, MASSACHUSETTS 02111
FAX: (216) 579-0212 TEL: (617) 542-6000
FAX: (617) 542-2241
</TABLE>
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after this Registration Statement becomes effective.
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,
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, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ] __________
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ] __________
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ] __________
If delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following box. [ ] __________
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
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PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF SECURITIES AMOUNT TO BE OFFERING PRICE PER AGGREGATE OFFERING AMOUNT OF
TO BE REGISTERED REGISTERED (1) SHARE (2) PRICE (2) REGISTRATION FEE
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<S> <C> <C> <C> <C>
Common Stock, par value $0.001
per share.................. 6,325,000 shares $13.00 $82,225,000 $21,708.00
- ---------------------------------------------------------------------------------------------------------------------------------
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</TABLE>
(1) Includes 825,000 shares to cover an over-allotment option granted by the
Registrant to the Underwriters.
(2) Estimated solely for the purpose of determining the registration fee
pursuant to Rule 457(a) promulgated under the Securities Act.
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 THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
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<PAGE> 2
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED.
UNDERWRITERS MAY NOT CONFIRM SALES OF THESE SECURITIES UNTIL THE
REGISTRATION STATEMENT FILED WITH THE SECURITIES AND EXCHANGE COMMISSION
BECOMES EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER TO SELL THESE SECURITIES
AND IT IS NOT SOLICITING OFFERS TO BUY THESE SECURITIES IN ANY JURISDICTION
WHERE THE OFFER OR SALE IS NOT PERMITTED.
SUBJECT TO COMPLETION, DATED MARCH 13, 2000
PROSPECTUS
5,500,000 SHARES
[LOGO]
COMMON STOCK
This is an initial public offering of common stock by NetGenics, Inc. We
are selling 5,500,000 shares of common stock. We estimate that the initial
public offering price will be between $11.00 and $13.00 per share.
------------------
Prior to this offering, there has been no public market for our common
stock. We have applied to have the shares of common stock approved for quotation
on the Nasdaq National Market under the symbol NTGC.
------------------
<TABLE>
<CAPTION>
Per Share Total
--------- -----
<S> <C> <C>
Initial public offering price............................... $ $
Underwriting discounts and commissions......................
Proceeds to NetGenics, before expenses......................
</TABLE>
We have granted the underwriters an option for a period of 30 days to
purchase up to 825,000 additional shares of common stock.
------------------
INVESTING IN OUR COMMON STOCK INVOLVES A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" BEGINNING ON PAGE 9.
------------------
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE
ADEQUACY OR ACCURACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
CHASE H&Q WARBURG DILLON READ
, 2000.
<PAGE> 3
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C>
PROSPECTUS SUMMARY.......................................... 4
RISK FACTORS................................................ 9
FORWARD-LOOKING STATEMENTS; MARKET DATA..................... 15
USE OF PROCEEDS............................................. 16
DIVIDEND POLICY............................................. 16
CAPITALIZATION.............................................. 17
DILUTION.................................................... 18
SELECTED CONSOLIDATED FINANCIAL DATA........................ 19
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS................................. 21
BUSINESS.................................................... 27
MANAGEMENT.................................................. 38
CERTAIN TRANSACTIONS........................................ 46
PRINCIPAL STOCKHOLDERS...................................... 49
DESCRIPTION OF CAPITAL STOCK................................ 51
SHARES ELIGIBLE FOR FUTURE SALE............................. 54
UNDERWRITING................................................ 56
LEGAL MATTERS............................................... 58
EXPERTS..................................................... 58
WHERE YOU CAN FIND MORE INFORMATION......................... 58
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS.................. F-1
</TABLE>
------------------------
NetGenics(R) and SYNERGY(R) are registered trademarks of NetGenics, Inc.
Other trademarks used in this prospectus are the property of their respective
owners.
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<PAGE> 4
PROSPECTUS SUMMARY
This summary highlights selected information contained elsewhere in this
prospectus. You should read the entire prospectus carefully, including the risk
factors and our consolidated financial statements and related notes appearing
elsewhere in this prospectus to understand this offering fully.
OUR BUSINESS
We are a leading provider of bioinformatics solutions. Our information
technology solutions enable life science research companies to convert massive
amounts of raw data into useful information that their scientists can use in the
development of new drugs, gene therapies and agricultural products.
SYNERGY, our proprietary technology platform, together with our strategic
consulting and support services, allows pharmaceutical, biotechnology and
agriscience companies to manage, integrate, sort and mine biological and
chemical data. These capabilities are increasingly vital to the life science
research industry as these companies strive to extract meaningful information
from the overwhelming volume and types of data emerging from such technologies
as genomics, gene expression analysis, SNP mapping, combinatorial chemistry and
high throughput screening. SYNERGY allows for maximum flexibility across
computing and database platforms because it is built on leading-edge,
Internet-based, CORBA and Java programming technologies. This novel framework
allows customers to link multiple and disparate data sets generated through
state-of-the-art drug discovery technologies that provide information about the
sequence and function of genes, their role in disease and their availability as
drug targets. By linking these data sets, scientists can analyze their data in
multiple contexts, accelerating the discovery of relationships within the data
and facilitating the drug discovery process.
We market our products and services to life science research companies, and
our customers have included Abbott Laboratories, American Home Products, Aventis
Crop Sciences and Pfizer. In addition, we have recently entered into a strategic
alliance with IBM to assist in the development of technology solutions for the
life science research industry.
The top 50 life science research companies spent over $40.0 billion on
research and development in 1998, representing an increase of more than 20% over
1997. We believe that 6% of these research and development expenditures, or $2.4
billion, is spent annually on bioinformatics and that research and development
budgets will continue to grow, as will the amount allocated for bioinformatics
solutions.
The life science research industry faces a number of challenges that we
believe will lead to continually increasing demand for our solutions, including
the following:
- deriving value from the massive amounts and disparate types of life
science data;
- integrating and managing the rapidly growing sources of data;
- protecting proprietary life science data;
- resolving the buy vs. build dilemma for bioinformatics solutions; and
- obtaining the best practices for bioinformatics as they evolve.
OUR SOLUTION
We believe that our solution, which includes SYNERGY and our strategic
consulting and support services, addresses many of the challenges life science
research companies face regarding bioinformatics. Our open architecture provides
virtually unlimited flexibility and extendability, which is critical to efforts
to extract valuable information quickly in the drug discovery process. Due to
its component-based design, SYNERGY allows new applications or sources of data
to be added at any time, whether created by us, third-party developers or
internally by our customers.
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This is an important distinction from conventional product offerings, because
our customers can extend or customize their systems in order to conduct their
own proprietary analyses, rather than having to decide between developing their
own software or buying closed, one-size-fits-all, third-party systems. In
addition, our solution provides to our customers a rigorous, tested platform
technology and the benefit of custom design and consulting services from our
bioinformatics team. The result is state-of-the-art technological capabilities
within a secure intranet environment.
OUR STRATEGY
Our objective is to be the preeminent provider of bioinformatics solutions
to the life science research industry. Key elements of our strategy to achieve
this objective include the following:
- establish SYNERGY as the information technology platform of choice for
life science research companies;
- establish a dominant market share for applications on the SYNERGY
platform;
- leverage our complementary products and services to maximize revenue;
- expand our corporate relationships for revenue growth; and
- maintain our technological advantage.
OUR CUSTOMERS AND STRATEGIC ALLIANCES
Our customers have included Abbott, American Home Products, Aventis Crop
Sciences and Pfizer. We extended our core SYNERGY platform to create a tailored
solution for each of these customers. Our work with American Home Products has
produced a technology solution that can integrate the results of functional
genomics experiments with externally provided DNA sequence and metabolic pathway
information. Our initial efforts at Pfizer are producing a solution to provide
Pfizer scientists a single interface to manage, integrate, sort and mine
disparate sets of data, whether developed in-house or received from Pfizer's
corporate collaborators.
We have formed alliances with leaders in both the computing and drug
discovery industries. In October 1999, IBM chose us to integrate and deploy
DiscoveryLink, its technology for creating a virtual database of drug discovery
information. In May 1997, we formed an alliance with Incyte to link SYNERGY with
Incyte's genomics database software under a software development and marketing
agreement.
RECENT DEVELOPMENTS
On January 6, 2000, we completed a $21.3 million offering of 4,623,860
shares of our Series E redeemable convertible preferred stock. The Series E
financing is not reflected in our December 31, 1999 consolidated balance sheet
but is reflected in our unaudited pro forma cash and cash equivalents of $22.7
million as of December 31, 1999.
OUR CORPORATE INFORMATION
Our principal executive offices are located at 1717 East Ninth Street,
Suite 1600, Cleveland, Ohio 44114. Our telephone number is 216.861.4007. We also
have offices in San Diego and Palo Alto, California, Columbus, Ohio and London,
England. Our web site address is www.netgenics.com. The information on our web
site is not a part of this prospectus.
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THE OFFERING
COMMON STOCK OFFERED BY NETGENICS....... 5,500,000 shares
COMMON STOCK TO BE OUTSTANDING AFTER
THIS OFFERING........................... 23,452,656 shares
USE OF PROCEEDS......................... Working capital and general
corporate purposes, including
potential acquisitions. See "Use of
Proceeds."
PROPOSED NASDAQ NATIONAL MARKET
SYMBOL.................................. NTGC
-------------------------
The number of shares of our common stock to be outstanding after the
offering is based on shares outstanding at December 31, 1999, after giving
effect to our recent sale of 4,623,860 shares of Series E redeemable convertible
preferred stock. It excludes:
- 1,087,417 shares issuable upon the exercise of options outstanding
as of December 31, 1999, which have a weighted average exercise
price of $1.04 per share;
- 514,023 shares issuable upon the exercise of warrants outstanding as
of December 31, 1999, which have a weighted average exercise price
of $4.13 per share; and
- 789,270 additional shares reserved as of December 31, 1999 for
future issuance under our stock option plans.
-------------------------
Except where we state otherwise, you should assume the following when
analyzing information contained in this prospectus:
- a one-for-two reverse stock split of our common stock that will be
completed prior to the completion of this offering;
- all of our outstanding redeemable convertible preferred stock will
convert into 14,941,844 shares of common stock upon the completion
of this offering;
- amendments to our certificate of incorporation and bylaws will
become effective upon the completion of this offering; and
- the underwriters will not exercise their option to purchase
additional shares in this offering.
-------------------------
In this prospectus, unless the context indicates otherwise, "NetGenics,"
"we," "us" and "our" refer to NetGenics, Inc. and its subsidiaries. All
references in this prospectus to a year, such as "1999," refer to our fiscal
year ended December 31 of that year.
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SUMMARY CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
We derived the summary consolidated statement of operations data for the
years ended December 31, 1997, 1998 and 1999 and for the period from June 24,
1996 (date of inception) through December 31, 1999 (cumulative development
stage) and the summary consolidated balance sheet data as of December 31, 1999
from our audited consolidated financial statements appearing elsewhere in this
prospectus. We derived the summary consolidated statement of operations data for
the period from June 24, 1996 (date of inception) through December 31, 1996 from
audited financial statements, which are not included in this prospectus. The
summary "as adjusted" consolidated balance sheet data as of December 31, 1999,
give effect to the conversion of all of our outstanding redeemable convertible
preferred stock, including 4,623,860 shares of Series E redeemable convertible
preferred stock issued on January 6, 2000, into common stock as if it occurred
on December 31, 1999, and receipt of estimated net proceeds from the sale of
5,500,000 shares by us in this offering at an assumed initial public offering
price of $12.00 per share, after deducting underwriting discounts and
commissions and the estimated offering expenses payable by us. You should read
the following summary consolidated financial data in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and our consolidated financial statements and related notes
appearing elsewhere in this prospectus.
<TABLE>
<CAPTION>
PERIOD FROM
JUNE 24, 1996 PERIOD FROM
(DATE OF INCEPTION) JUNE 24, 1996
THROUGH YEAR ENDED DECEMBER 31, THROUGH
DECEMBER 31, ----------------------------- DECEMBER 31,
1996 1997 1998 1999 1999(1)
------------------- ------- -------- -------- -------------
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS
DATA:
Revenue............................... $ -- $ 57 $ 405 $ 1,764 $ 2,226
Operating expenses:
Sales and marketing (2)............. 142 697 1,851 2,112 4,802
Research, development and support
(2)............................... 315 1,954 4,630 5,990 12,889
General and administrative (2)...... 230 1,485 3,138 3,662 8,516
Depreciation and amortization....... 51 273 905 1,400 2,629
Non-cash stock compensation......... -- -- -- 22 22
------ ------- -------- -------- --------
Total operating expenses..... 738 4,409 10,524 13,186 28,858
------ ------- -------- -------- --------
Loss from operations during
development stage................... (738) (4,352) (10,119) (11,422) (26,632)
Net loss attributable to common
stockholders during development
stage............................... $ (730) $(4,233) $ (9,635) $(11,265) $(25,863)
====== ======= ======== ======== ========
Basic and diluted net loss
attributable to common stockholders
during development stage per common
share............................... $(0.50) $ (1.47) $ (3.33) $ (3.82) $ (8.94)
====== ======= ======== ======== ========
Basic and diluted weighted average
common shares outstanding (3)....... 1,454 2,888 2,893 2,948 2,895
</TABLE>
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<TABLE>
<CAPTION>
DECEMBER 31, 1999
-----------------------
ACTUAL AS ADJUSTED
-------- -----------
(UNAUDITED)
<S> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents................................... $ 2,572 $82,844
Total assets................................................ 7,034 86,056
Long-term debt, net of current portion...................... 689 689
Total liabilities(4)........................................ 5,705 4,527
Redeemable convertible preferred stock...................... 27,079 --
Total stockholders' equity (deficit) (5).................... $(25,750) $81,529
</TABLE>
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(1) Cumulative development stage.
(2) Exclusive of non-cash stock compensation in 1999 of $3 sales and marketing;
$8 research, development and support; and $11 general and administrative.
(3) We have incurred a net loss during development stage through December 31,
1999, therefore the impact of common shares issuable upon the exercise of
outstanding options or warrants and the conversion of our redeemable
convertible preferred stock has been excluded from all basic and diluted
weighted average common shares outstanding as it is anti-dilutive.
(4) Includes a $2.0 million customer deposit from IBM. See note 9 to our
consolidated financial statements included elsewhere in this prospectus.
(5) During January 2000, we sold 4,623,860 shares of Series E redeemable
convertible preferred stock at $4.60 per share, which raised gross proceeds
of $21.3 million before expenses of $1.3 million related to the issuance.
The issuance resulted in a beneficial conversion feature of $20.0 million
calculated in accordance with Emerging Issues Task Force Issue No. 98-5,
"Accounting for Convertible Securities with Beneficial Conversion Features
or Contingently Adjustable Conversion Ratios." The beneficial conversion
feature is reflected as a dividend in the "as adjusted" consolidated balance
sheet data.
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RISK FACTORS
You should carefully consider the following risk factors and all other
information contained in this prospectus before purchasing our common stock.
Investing in our common stock involves a high degree of risk. Any of the
following risks could harm our business, results of operations and financial
condition and could result in a complete loss of your investment.
RISKS RELATED TO OUR BUSINESS
WE HAVE A HISTORY OF OPERATING LOSSES, EXPECT TO INCUR LOSSES AND NEGATIVE
OPERATING CASH FLOWS FOR THE FORESEEABLE FUTURE AND MAY NEVER ACHIEVE OR
MAINTAIN PROFITABILITY.
We have a limited operating history and have experienced significant
operating losses since our inception. We incurred net losses during development
stage of $4.2 million in 1997, $9.6 million in 1998 and $11.3 million in 1999.
As of December 31, 1999, we had a cumulative net loss during development stage
of $25.9 million. We expect to incur significant increases in our expenses over
the next several years due to our software development efforts and the expansion
of our development, marketing, sales and customer support staffs. As a result,
we expect to incur operating losses through at least 2002.
We may never achieve significant revenues or be profitable. Our ability to
achieve significant revenues or profitability will depend upon the demand for
our current and future products by life science research companies. Our failure
to achieve or maintain profitability could materially and adversely affect the
market price of our common stock and you could lose all or part of your
investment.
OUR TECHNOLOGY AND PRODUCTS ARE UNPROVEN AND MAY NEVER ACHIEVE COMMERCIAL
SUCCESS.
Market acceptance of our products will depend upon many factors, many of
which are not in our control, such as continued growth in the bioinformatics
industry, the availability and price of competing products and technologies, and
the success of our sales efforts. We cannot assure you that we will be capable
of achieving the improvements in our planned products necessary for their
successful commercialization. We also cannot assure you that our products will
replace or compete successfully against existing technologies.
Due to a variety of factors, we may experience delays in developing our
planned products. If we fail to upgrade our products or are unable to introduce
other planned products in a cost-effective and timely manner, our customers may
purchase products from competitors, which would have a material adverse effect
on our business and results of operations. New products may require additional
development work, enhancement, testing, or further refinement before we can make
them commercially available. Even after new products are made commercially
available, unforeseen technical difficulties may arise, which may require us to
spend additional funds to correct those difficulties and may result in further
delays. Further, we cannot assure you that new products will be successfully
developed at all. If our products have performance, reliability or quality
shortcomings, then we may experience reduced orders, higher development costs,
delays in collecting accounts receivable and additional warranty and service
expenses, which would adversely affect our financial condition.
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OUR RESULTS OF OPERATIONS ARE EXPECTED TO VARY FROM QUARTER TO QUARTER IN FUTURE
PERIODS. AS A RESULT, WE MAY FAIL TO MEET THE EXPECTATIONS OF OUR INVESTORS,
WHICH COULD CAUSE OUR STOCK PRICE TO FLUCTUATE OR DECLINE.
Our quarterly operating results are expected to fluctuate on a quarterly
basis as a result of a number of factors, many of which are outside of our
control, including the following:
- the commencement, delay, cancellation or completion of contracts;
- the timing of option, license and milestone payments received under our
agreements;
- the variety of products and services provided by us;
- the timing of expenses for new services and facilities; and
- the timing and integration of acquisitions related to our products and
services.
Due to all of these factors and the other risks discussed in this
prospectus, you should not rely on quarterly comparisons of our financial
results. These comparisons are not necessarily meaningful nor are they a
reliable indicator of future performance. In addition, fluctuations in quarterly
results could affect the market price of our common stock in a manner unrelated
to our longer term operating performance.
THE SALE OF OUR PRODUCTS AND SERVICES INVOLVES A LENGTHY SALES CYCLE. WE MAY
EXPEND SUBSTANTIAL FUNDS AND EFFORTS TO MARKET OUR PRODUCTS BUT BE UNABLE TO
SUCCESSFULLY SELL OUR PRODUCTS OR SERVICES.
In order to successfully sell our products and services we must first
convince customers that our products can accelerate drug discovery and
development efforts. This sales cycle is typically lengthy due to the education
effort that is required, as well as the need to gain approval from a variety of
constituencies within prospective customers, including research and development
and key management personnel. Our revenues are difficult to forecast because of
this lengthy sales cycle. In addition, our agreements with each customer and
partner may contain terms that are unique to that customer or partner. We may
expend substantial funds and effort to negotiate these agreements, but may be
unable to sell our products and services.
WE DEPEND ON OUR RELATIONSHIPS WITH OUR CORPORATE PARTNERS. IF OUR PARTNERSHIPS
ARE NOT SUCCESSFUL, OUR REVENUES MAY BE REDUCED AND OUR BUSINESS COULD BE
HARMED.
Our strategy for developing and commercializing our software and related
services contemplates the formation of multiple corporate partnerships and
licensing arrangements. In October 1999, we formed a sub-contracting
relationship with IBM. IBM may terminate our relationship without cause on short
notice, and we can not assure you that IBM will not exercise this right.
Our success will depend on our ability to enter into additional
partnerships and licensing arrangements with a variety of third parties. We may
not be able to establish additional corporate partnerships or licensing
arrangements on terms acceptable to us, if at all. If we do establish these
relationships, we cannot assure you that they will be successful. We cannot
control the amount and timing of resources our partners devote to our programs
or potential products. The failure of our partners to assist us in
commercializing our products would result in a reduction of our revenues and
would harm our business and operating results.
WE CURRENTLY DEPEND ON A LIMITED NUMBER OF SIGNIFICANT CUSTOMERS, AND OUR
REVENUES COULD BE NEGATIVELY AFFECTED BY THE LOSS OR EARLY TERMINATION OF A
MAJOR PARTNER OR CUSTOMER.
We derive a significant portion of our revenue from a small number of
customers. For example, Abbott accounted for approximately 83% of total revenue
in 1997 and approximately 91% of total revenue in 1998. In 1999, American Home
Products accounted for approximately 62% of total
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revenue and Pfizer accounted for approximately 20% of total revenue. Our
quarterly operating results would be adversely affected if one or more of our
significant customers were to unexpectedly discontinue or significantly reduce
the use of our products. Although we have multi-year contracts, our customers
generally may cancel the contracts on short notice.
COMPETITION IN OUR INDUSTRY IS INTENSE AND THEREFORE WE MAY LOSE SALES TO OUR
COMPETITORS.
We face, and will continue to face, intense competition from third-party
commercial software developers, bioinformatics and genomics companies, academic
institutions and in-house life science research company software development
teams. We also compete with organizations that are pursuing technologies and
products that are similar to our technologies and products. Many of these
organizations that compete with us have greater capital resources, more
experienced research, development, sales, marketing, distribution and service
staffs and superior facilities and marketing capabilities. In addition, research
in the development of bioinformatics systems generally is highly competitive. We
believe that our future success will depend, in large part, on our ability to
maintain a competitive position in the bioinformatics market.
A number of our competitors are attempting to develop bioinformatics
solutions specifically to assist life science research companies in accelerating
drug discovery and development efforts. If our competitors develop
bioinformatics solutions, the potential value of our software could decrease and
our ability to obtain and retain revenue from customers could be adversely
affected. Furthermore, some of our competitors and prospective competitors are
in the process of developing, and may successfully develop, bioinformatics
solutions that may be more advanced than our products. Specifically, we are
aware that there are a number of companies pursuing alternative methods for
using computers to assist in reducing the time taken to discover new
pharmaceutical products. A number of companies have announced their intent to
develop and market software to assist life science research companies and
academic researchers in the management and analysis of their own genomic data,
as well as the analysis of sequence data that is publicly available. We expect
that competition in developing bioinformatics solutions will intensify as
technical advances are made and become more widely known.
The bioinformatics industry is characterized by extensive research efforts
and rapid technological progress. To remain competitive, we must continue to
expand and enhance the functionality of our bioinformatics software. New
developments are expected to continue and we cannot assure you that discoveries
by others, including in-house developers, will not render our products and
services noncompetitive. Further, some of our competitors may develop
technologies that are superior to ours. Because of rapid technological change,
we may be required to expend greater amounts in the development of each new
product, which in turn would require greater revenues to recoup those
expenditures.
WE MAY BE UNABLE TO KEEP OUR COMPETITORS FROM COMMERCIALIZING OUR DISCOVERIES IF
WE ARE UNABLE TO PROTECT OUR PROPRIETARY RIGHTS.
Even if patents do issue on our discoveries, they may not provide us with
sufficient protection.
Our business and competitive position depend on our ability to protect our
proprietary technologies. We may not be able to obtain patents for our software
technologies and, even if we are able to obtain patents, these patents may not
provide us with meaningful protection or be commercially beneficial. The
issuance of a patent does not mean the patent is valid or enforceable, nor does
it permit the patent holder to operate freely while infringing the proprietary
rights of others. A patent could be challenged by litigation and, if the outcome
of such litigation were adverse to us, competitors could be free to use the
technology covered by the patent, or we may be required to license the
technology to others to settle the litigation. The invalidation of key patents
owned by or licensed to us or non-approval of pending patent applications could
increase competition, and materially and adversely affect our business. In
addition, others could claim that
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<PAGE> 12
our technologies infringe their patents or proprietary rights. If such claims
are successful, any licenses that we might need as a result of such infringement
might not be available to us on commercially reasonable terms, if at all.
We cannot be certain that our security measures will protect our
proprietary technologies.
We also rely upon trade secret protection for some of our confidential and
proprietary information. We believe that we have developed proprietary
technology, processes and information systems for use in our software
technologies, including bioinformatics systems. We have taken security measures
to protect our proprietary technologies, processes, information systems and data
and continue to explore ways to enhance such security. These measures, however,
may not provide adequate protection for our trade secrets or other proprietary
information. While we generally require our employees, academic collaborators
and consultants to enter into confidentiality and/or intellectual property
assignments where appropriate, any of the following could still occur:
- our proprietary information could be disclosed;
- our trade secrets could be disclosed; or
- others may independently develop substantially equivalent proprietary
information and techniques or otherwise gain access to our trade secrets
or disclose such technology.
WE DEPEND ON OUR KEY EMPLOYEES AND IF WE WERE TO LOSE THEIR SERVICES, OUR
BUSINESS WOULD BE MATERIALLY AND ADVERSELY AFFECTED. WE MAY NOT BE ABLE TO HIRE
AND RETAIN QUALIFIED EMPLOYEES, WHICH COULD AFFECT OUR ABILITY TO COMPETE
EFFECTIVELY.
We are highly dependent on the principal members of our research and
development and management staff, including Manuel J. Glynias, our President and
Chief Executive Officer. The loss of services of any of these personnel could
materially and adversely affect our business and results of operations. While
our key employees are subject to non-competition agreements, these agreements
may be difficult to enforce. As a result, our key employees may leave us and
work for our competitors or start their own companies that may compete with us.
If we fail to attract and retain key management, our business would be
materially and adversely affected. The number of people with experience in the
field of information technology and in particular bioinformatics, is limited,
and competition for qualified personnel is intense. We cannot assure you that we
will be able to continue to attract and retain such personnel. Failure to
attract and retain our key personnel could materially and adversely affect our
business.
WE MAY NOT BE ABLE TO EFFECTIVELY MANAGE OUR PLANNED EXPANSION, WHICH COULD
MATERIALLY ADVERSELY AFFECT US AND STRAIN OUR EXISTING RESOURCES.
Since our inception, we have experienced significant growth in the number
of our employees and the scope of our operations. This growth has strained, and
is expected to continue to strain, our management and operations. Our ability to
manage our growth effectively will depend upon our ability to strengthen our
management team and our ability to attract and retain skilled employees. Our
success will also depend on the ability of our officers and key employees to
continue to implement and improve our operational, management information and
financial control systems and to expand, train and manage our work force. In
addition, we must continue to take steps to provide resources to support our
customers as their numbers increase. Further, our partners typically have
worldwide operations and may require support at multiple U.S. and foreign sites.
Providing this support may require us to open offices overseas in addition to
our current London, England office, which could result in additional burdens on
our systems and resources. If we are unable to manage our growth effectively our
financial condition and results of operations could be materially and adversely
affected.
12
<PAGE> 13
OUR SOFTWARE PRODUCTS INCORPORATE THIRD PARTY SOFTWARE.
Our products incorporate software programs developed by
government-sponsored research organizations and commercial entities. If these
organizations cease providing support for their software programs, the quality
of our products could deteriorate and our financial condition and results of
operations could be materially and adversely affected. We may not be able to
acquire replacement technologies from third parties or develop replacement
technologies, either alone or with others. The failure to license or otherwise
acquire necessary technologies could materially and adversely affect our
financial condition and results of operations.
WE MAY NEED TO RAISE ADDITIONAL FUNDING THAT MAY NOT BE AVAILABLE ON TERMS
ACCEPTABLE TO US, IF AT ALL.
We anticipate that the proceeds from this offering and our existing capital
resources will be sufficient to fund our future operating plans for the next 12
months. We cannot assure you, however, that we will not need additional
financing in the next 12 months. Further, we expect that we may need to raise
significant additional capital. We anticipate that our operating expenses will
increase substantially in the future as we increase our sales and marketing
operations, develop new products, fund greater levels of research and
development, broaden our technical support and improve our operational and
financial systems. The amount of additional capital which we need to raise will
depend on many factors, including:
- the success of our research and development efforts;
- our ability to introduce and sell new products;
- the level of our sales and marketing expenses;
- the number and breadth of our research programs;
- expenses relative to alliances and license agreements;
- costs incurred in enforcing and defending our patent claims and other
intellectual property rights;
- the cost of financing the purchase of additional capital equipment and
development tools; and
- costs associated with the integration of new operations assumed through
mergers and acquisitions.
We currently anticipate that we will raise any additional capital we
require through public or private equity offerings, debt financings or
collaborations and licensing arrangements. We may not be able to obtain
additional financing when we need it, or, if available, we may not be able to
obtain such financing on terms favorable to us. If we raise additional capital
by issuing equity securities, our stockholders' ownership will be diluted. If we
raise additional funds through collaborations and licensing arrangements, we may
be required to relinquish rights to certain of our technologies or product
candidates, or to grant licenses on unfavorable terms.
RISKS RELATED TO THE LIFE SCIENCE RESEARCH INDUSTRY
CONSOLIDATION WITHIN THE PHARMACEUTICAL AND BIOTECHNOLOGY INDUSTRIES MAY HARM
OUR EFFORTS TO MARKET AND COMMERCIALIZE OUR PRODUCTS.
Consolidation within the pharmaceutical and biotechnology industries has
heightened the competition for services of the type provided by us. If this
consolidation trend continues, it may result in fewer customers for our
services, price erosion and greater competition among us and our competitors.
Our potential partners may consolidate, which could decrease the value of our
13
<PAGE> 14
technologies and shrink the research market we target for our products. We
cannot assure you that consolidation in the pharmaceutical and biotechnology
industries will not have a material adverse effect on us.
THE LIFE SCIENCE RESEARCH INDUSTRY IS SUBJECT TO CHANGING REGULATORY INFLUENCES,
WHICH COULD LIMIT THE USEFULNESS OF OUR SOLUTIONS OR REQUIRE US TO MAKE
EXPENSIVE AND TIME-CONSUMING MODIFICATIONS TO OUR PRODUCTS.
During the past several years, the pharmaceutical and biotechnology
industries have been subject to an increase in governmental regulations and
reform proposals. These reforms may increase governmental involvement in these
industries and otherwise change the operating environment for our customers. Our
customers may react to these proposals and the uncertainty surrounding the
proposals by curtailing or deferring investments, including those for our
bioinformatics solutions.
RISKS RELATED TO THIS OFFERING
WE ARE CONTROLLED BY A SMALL GROUP OF OUR EXISTING STOCKHOLDERS, WHOSE INTERESTS
MAY DIFFER FROM OTHER STOCKHOLDERS.
Our directors, executive officers, employees and principal stockholders and
certain of their respective affiliates beneficially own approximately 75.5% of
our outstanding common stock, and after this offering will beneficially own
approximately 58.2% of our outstanding common stock. Accordingly, they
collectively will have significant influence in determining the outcome of any
corporate transaction or other matter submitted to the stockholders for
approval, including mergers, acquisitions, consolidations and the sale of all or
substantially all of our assets, and also the power to prevent or cause a change
in control. The interests of these stockholders may differ from the interests of
the other stockholders.
PROVISIONS IN BOTH DELAWARE LAW AND OUR CHARTER AND BYLAWS MAY INHIBIT A
TAKEOVER, WHICH COULD ADVERSELY AFFECT THE PRICE INVESTORS MIGHT BE WILLING TO
PAY IN THE FUTURE FOR OUR COMMON STOCK.
Certain provisions of our certificate of incorporation and bylaws, as well
as provisions of Delaware law, may delay or prevent a change in control or
changes in our management that stockholders consider favorable or beneficial. If
a change in control or change in management is delayed or prevented, the market
price of our common stock could decline.
OUR COMMON STOCK MAY HAVE A VOLATILE PUBLIC TRADING PRICE AND LOW TRADING
VOLUME.
There has been no public market for our common stock prior to this
offering, and an active public market for our common stock may not develop or be
sustained. We and the representatives of the underwriters, through negotiations,
will determine the initial public offering price. The initial public offering
price will not necessarily be indicative of the market price at which the common
stock will trade after this offering. The market prices for securities of
companies comparable to us have been highly volatile, and the market has
experienced significant price and volume fluctuations that are unrelated to the
operating performance of the individual companies.
OUR MANAGEMENT WILL HAVE BROAD DISCRETION AS TO THE USE OF PROCEEDS FROM THIS
OFFERING.
We currently intend to use the net proceeds of this offering as described
in "Use of Proceeds." Our management has a great deal of discretion in
allocating the proceeds of this offering, and may allocate the net proceeds
among these purposes as it determines appropriate. In addition, market factors
may require our management to allocate all or portions of the net proceeds for
other purposes.
14
<PAGE> 15
THE LARGE NUMBER OF SHARES ELIGIBLE FOR PUBLIC SALE AFTER THIS OFFERING COULD
CAUSE OUR STOCK PRICE TO DECLINE.
Sales of substantial amounts of our common stock in the public market after
this offering could cause prevailing market prices for our common stock to
decline. These sales might make it difficult or impossible for us to sell
additional securities when we need to raise capital. See "Shares Eligible for
Future Sale" for a description of the number of shares which may be sold by
existing stockholders in the future.
WE HAVE NEVER PAID DIVIDENDS ON OUR CAPITAL STOCK.
We have never paid cash dividends on our capital stock and do not intend to
pay any cash dividends for the foreseeable future. See "Dividend Policy."
FORWARD-LOOKING STATEMENTS; MARKET DATA
We have included forward-looking statements in this prospectus. These
statements relate to our growth strategy and our future financial performance,
including our operations, economic performance, financial condition and
prospects, and other future events. We have attempted to identify forward
looking statements by using such words as "anticipates," "believes," "can,"
"continue," "could," "estimates," "expects," "intends," "may," "plans,"
"potential," "should" or "will" or other similar expressions. These
forward-looking statements are only predictions and are largely based on our
current expectations.
In addition, a number of known and unknown risks, uncertainties and other
factors could affect the accuracy of these statements, including the risks
outlined under "Risk Factors" and elsewhere in this prospectus. Some of the more
significant known risks that we face are the uncertainty regarding market
acceptance of our products and our ability to generate revenues and our reliance
on IBM as a strategic partner. These risks may cause our or our industry's
actual results, levels of activity, performance or achievements to differ
materially from any future results, levels of activity, performance or
achievements expressed or implied by these forward-looking statements.
Other important factors to consider in evaluating our forward-looking
statements include:
- changes in external market factors;
- changes in our business or growth strategy;
- our possible inability to execute our strategy due to changes in our
industry or the economy generally; and
- the success of our competitors and the emergence of new competitors.
Although we believe that the expectations reflected in the forward-looking
statements are reasonable, we cannot guarantee our future results, levels of
activity or performance. Further, neither we nor any other person assumes
responsibility for the accuracy and completeness of these statements. We are
under no duty to update any of the forward-looking statements after the date of
this prospectus or to conform these statements to actual results. You should not
place undue reliance on the forward-looking statements contained in this
prospectus.
The market and industry data we have included in this prospectus are based
on independent industry publications, including Reuters Business Insight,
Pharmaceutical Research and Manufacturing Association Annual Survey and MedAd
News. We have not independently verified this market and industry information
and we cannot assure you that it is accurate or complete.
15
<PAGE> 16
USE OF PROCEEDS
We estimate that our net proceeds from our sale of the 5,500,000 shares of
common stock that we are offering will be approximately $60.2 million, assuming
an initial public offering price of $12.00 per share and after deducting
underwriting discounts and commissions and the estimated offering expenses
payable by us.
The principal reasons for this offering are to obtain additional capital,
to create a public market for our common stock and to facilitate access to
public equity markets. As of the date of this prospectus, we have not allocated
the net proceeds of this offering for specific uses. Accordingly, our management
will retain broad discretion in the allocation of the net proceeds. We intend to
use our net proceeds of this offering for working capital and other general
corporate purposes, including potential acquisitions of products, technologies
or companies that are complementary to us. We currently have no commitments or
agreements to make any acquisitions. Pending these uses, we intend to invest the
net proceeds in short-term, interest-bearing, investment-grade securities.
DIVIDEND POLICY
We have never declared or paid any cash dividends on our capital stock. We
currently intend to support the development of our business and do not
anticipate paying cash dividends in the foreseeable future. Our payment of any
future dividends will be at the discretion of our board of directors after
taking into account various factors, including our financial condition,
operating results, cash needs, growth plans and the terms of any credit
agreements that we may be a party to at the time.
16
<PAGE> 17
CAPITALIZATION
The following table summarizes our capitalization as of December 31, 1999:
- on an actual basis;
- on a pro forma basis to reflect the issuance of 4,623,860 shares of
Series E redeemable convertible preferred stock on January 6, 2000 and
the conversion of all of our outstanding redeemable convertible preferred
stock into common stock upon the completion of this offering; and
- on a pro forma as adjusted basis to reflect our sale of 5,500,000 shares
of common stock at an assumed initial public offering price of $12.00 per
share, after deducting underwriting discounts and commissions and the
estimated offering expenses payable by us.
You should read this table together with our consolidated financial
statements and related notes included elsewhere in this prospectus.
<TABLE>
<CAPTION>
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
------------ ------------ ------------
(UNAUDITED)
<S> <C> <C> <C>
Long-term debt................................... $ 689,349 $ 689,349 $ 689,349
Redeemable convertible preferred stock........... 27,079,377 -- --
Stockholders' equity (deficit):
Preferred stock (undesignated), $0.001 par
value; no shares authorized, actual and pro
forma; 5,000,000 shares authorized and no
shares issued and outstanding, pro forma as
adjusted.................................... -- -- --
Common stock, $0.001 par value; 43,000,000
shares authorized, 3,010,813 shares issued
and outstanding, actual; 43,000,000 shares
authorized, 17,952,656 shares issued and
outstanding, pro forma, and 75,000,000
shares authorized, 23,452,656 shares issued
and outstanding, pro forma as adjusted...... 3,011 17,953 23,453
Additional paid-in capital..................... 3,090,929 70,194,724 130,369,224
Deferred stock compensation.................... (2,992,137) (2,992,137) (2,992,137)
Cumulative deficit during development stage.... (25,863,122) (45,882,802) (45,882,802)
Accumulated other comprehensive income......... 11,136 11,136 11,136
Treasury stock at cost, 46,875 shares actual,
pro forma and pro forma as adjusted......... (81) (81) (81)
------------ ------------ ------------
Total stockholders' equity (deficit)...... (25,750,264) 21,348,793 81,528,793
------------ ------------ ------------
Total capitalization................... $ 2,018,462 $ 22,038,142 $ 82,218,142
============ ============ ============
</TABLE>
The information regarding the number of shares of common stock to be
outstanding after this offering is based on the number of shares outstanding as
of December 31, 1999 and does not include:
- 1,087,417 shares issuable upon the exercise of options outstanding as of
December 31, 1999, at a weighted average exercise price of $1.04 per
share;
- 514,023 shares issuable upon the exercise of warrants outstanding as of
December 31, 1999, at a weighted average exercise price of $4.13 per
share; and
- 789,270 additional shares reserved as of December 31, 1999 for future
issuance under our stock option plans.
17
<PAGE> 18
DILUTION
Our pro forma net tangible book value as of December 31, 1999, after giving
effect to the issuance of 4,623,860 shares of Series E redeemable convertible
preferred stock on January 6, 2000 and the conversion of all outstanding shares
of redeemable convertible preferred stock into common stock, was approximately
$21.3 million, or $1.19 per pro forma share of common stock. Pro forma net
tangible book value per share is determined by dividing the amount of our pro
forma total tangible assets less our total liabilities by the pro forma number
of shares of common stock outstanding. After giving effect to our sale of
5,500,000 shares of common stock at an assumed initial public offering price of
$12.00 per share and after deducting underwriting discounts and commissions and
estimated offering expenses payable by us, our adjusted pro forma net tangible
book value as of December 31, 1999 would have been $81.5 million, or $3.48 per
share. This amount represents an immediate increase in pro forma net tangible
book value to our existing stockholders of $2.29 per share and an immediate
dilution to new investors of $8.52 per share. To the extent outstanding options
and warrants are exercised, there will be further dilution to new investors. The
following table illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............. $12.00
Pro forma net tangible book value per share at December
31, 1999............................................... $1.19
Increase per share attributable to new investors.......... 2.29
-----
Pro forma as adjusted net tangible book value per share
after this offering....................................... 3.48
------
Dilution per share to new investors......................... $ 8.52
======
</TABLE>
The following table summarizes as of December 31, 1999, on a pro forma
basis after giving effect to the conversion of our outstanding redeemable
convertible preferred stock as described above, the number of shares of common
stock purchased from us, the total consideration paid to us and the average
price per share paid by our existing stockholders and by new investors.
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
-------------------- ---------------------- PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
---------- ------- ------------ ------- ---------
<S> <C> <C> <C> <C> <C>
Existing stockholders.......... 17,952,656 76.5% $ 49,841,650 43.0% $ 2.78
New investors.................. 5,500,000 23.5 66,000,000 57.0 12.00
---------- ----- ------------ -----
Total..................... 23,452,656 100.0% $115,841,650 100.0%
========== ===== ============ =====
</TABLE>
The foregoing discussion and tables assume no exercise of any outstanding
stock options or warrants, including:
- 1,087,417 shares issuable upon the exercise of options outstanding as of
December 31, 1999, at a weighted average exercise price of $1.04 per
share;
- 514,023 shares issuable upon the exercise of warrants outstanding as of
December 31, 1999, at a weighted average exercise price of $4.13 per
share; and
- 789,270 additional shares reserved as of December 31, 1999 for future
issuance under our stock option plans.
18
<PAGE> 19
SELECTED CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
We derived the selected consolidated statement of operations data for the
years ended December 31, 1997, 1998 and 1999 and for the period from June 24,
1996 (date of inception) through December 31, 1999 (cumulative development
stage) and the selected consolidated balance sheet data as of December 31, 1998
and December 31, 1999 from our audited consolidated financial statements
appearing elsewhere in this prospectus. We derived the selected consolidated
statement of operations data for the period from June 24, 1996 (date of
inception) through December 31, 1996 and the selected consolidated balance sheet
data as of December 31, 1996 and 1997 from audited financial statements, which
are not included in this prospectus. Our historical results are not necessarily
indicative of operating results to be expected for any future period. You should
read the following selected consolidated financial data in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and our consolidated financial statements and related notes
appearing elsewhere in this prospectus.
<TABLE>
<CAPTION>
PERIOD FROM
JUNE 24, 1996
(DATE OF INCEPTION) PERIOD FROM
THROUGH YEAR ENDED DECEMBER 31, JUNE 24, 1996
DECEMBER 31, ----------------------------- THROUGH
1996 1997 1998 1999 DECEMBER 31, 1999(1)
------------------- ------- -------- -------- --------------------
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF
OPERATIONS DATA:
Revenue......................... $ -- $ 57 $ 405 $ 1,764 $ 2,226
Operating expenses:
Sales and marketing (2)......... 142 697 1,851 2,112 4,802
Research, development and
support (2)................... 315 1,954 4,630 5,990 12,889
General and administrative
(2)........................... 230 1,485 3,138 3,662 8,516
Depreciation and amortization... 51 273 905 1,400 2,629
Non-cash stock compensation..... -- -- -- 22 22
------ ------- -------- -------- --------
Total operating expenses........ 738 4,409 10,524 13,186 28,858
------ ------- -------- -------- --------
Loss from operations during
development stage............. (738) (4,352) (10,119) (11,422) (26,632)
------ ------- -------- -------- --------
Net loss attributable to common
stockholders during
development stage............. $ (730) $(4,233) $ (9,635) $(11,265) $(25,863)
====== ======= ======== ======== ========
Basic and diluted net loss
attributable to common
stockholders during
development stage per common
share......................... $(0.50) $ (1.47) $ (3.33) $ (3.82) $ (8.94)
====== ======= ======== ======== ========
Basic and diluted weighted
average common shares
outstanding (3)............... 1,454 2,888 2,893 2,948 2,895
</TABLE>
19
<PAGE> 20
<TABLE>
<CAPTION>
PERIOD FROM
JUNE 24, 1996
(DATE OF
INCEPTION) THROUGH YEAR ENDED DECEMBER 31,
DECEMBER 31, -------------------------------
1996 1997 1998 1999
------------------ ------- -------- --------
<S> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents................... $ 562 $ 4,264 $ 7,413 $ 2,572
Total assets................................ 832 6,631 11,332 7,034
Notes payable to stockholders (4)........... -- 2,750 -- --
Long-term debt, net of current portion...... -- -- -- 689
Total liabilities (5)....................... 56 3,486 1,529 5,705
Redeemable convertible preferred stock...... 1,500 8,103 24,384 27,079
Total stockholders' equity (deficit)........ $ (724) $(4,958) $(14,581) $(25,750)
</TABLE>
- -------------------------
(1) Cumulative development stage.
(2) Exclusive of non-cash stock compensation in 1999 of $3 sales and marketing;
$8 research, development and support; and $11 general and administrative.
(3) We have incurred a net loss during development stage through December 31,
1999, therefore the impact of common shares issuable upon the exercise of
outstanding options or warrants and the conversion of our redeemable
convertible preferred stock has been excluded from all basic and diluted
weighted average common shares outstanding as it is anti-dilutive.
(4) Pursuant to a bridge note agreement dated December 18, 1997, certain of our
stockholders held $2.75 million of convertible notes payable as of December
31, 1997. The entire principal and accrued interest amount were converted to
697,076 shares of Series D redeemable convertible preferred stock upon
completion of the Series D redeemable convertible preferred stock offering
on March 20, 1998. In connection with the bridge note agreement, we issued
warrants to purchase 68,750 shares of common stock to the lenders at an
exercise price of $0.60 per share.
(5) Includes a $2.0 million customer deposit from IBM. See Note 9 to our
consolidated financial statements included elsewhere in this prospectus.
20
<PAGE> 21
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
You should read the following discussion and analysis in conjunction with
our consolidated financial statements and related notes appearing elsewhere in
this prospectus and the Selected Consolidated Financial Data. Except for
historical information, the discussion in this prospectus contains
forward-looking statements that involve risks and uncertainties. Our actual
results could differ materially from those in these forward-looking statements.
Factors that could cause or contribute to such differences include the risks
discussed in the section titled "Risk Factors" and elsewhere in this prospectus.
OVERVIEW
We are a leading provider of bioinformatics solutions. Our information
technology solutions enable life science research companies to convert massive
amounts of raw data into useful information that their scientists can use in the
development of new drugs, gene therapies and agricultural products.
SYNERGY, our proprietary technology platform, together with our strategic
consulting and support services, allows pharmaceutical, biotechnology and
agriscience companies to manage, integrate, sort and mine biological and
chemical data. These capabilities are increasingly vital to the life science
research industry as these companies strive to extract meaningful information
from the overwhelming volume and types of data emerging from such technologies
as genomics, gene expression analysis, SNP mapping, combinatorial chemistry and
high throughput screening. SYNERGY allows for maximum flexibility across
computing and database platforms because it is built on leading-edge,
Internet-based, CORBA and Java programming technologies. This novel framework
allows customers to link multiple and disparate data sets generated through
state-of-the-art drug discovery technologies that provide information about the
sequence and function of genes, their role in disease and their availability as
drug targets. By linking these data sets, scientists can analyze their data in
multiple contexts, accelerating the discovery of relationships within the data
and facilitating the drug discovery process.
We market our products and services to life science research companies, and
our customers have included Abbott Laboratories, American Home Products, Aventis
Crop Sciences and Pfizer. In addition, we have recently entered into a strategic
alliance with IBM to assist in the development of technology solutions for the
life science research industry.
Historically we have derived almost all of our revenue from service
offerings based on our enterprise SYNERGY software product. Generally, we price
our services based on the number of users and customer sites. As part of the
contract, we grant each customer a set number of service hours ranging from 300
to 1,000 per site, per year, depending on the number of users and sites. These
service hours can be used for projects or customization work. We recognize
revenue evenly over the term of the contract. We start to recognize contract
revenue once our customer has provided us with a notice of product acceptance
and the collection of our fee is probable.
We also derive revenues from consulting services. We bill on a time and
materials basis. In 1999 we concluded our first consulting engagement. During
the year 2000 we expect to expand our consulting services to new and existing
customers.
By the end of 2000 we expect to release our first SYNERGY for Workgroups
product. SYNERGY for Workgroups products have been designed as individual
components capable of operating independently of the enterprise SYNERGY
application. We anticipate producing additional Workgroups products in the
future, which will allow customers to easily convert to an enterprise SYNERGY
license.
21
<PAGE> 22
The timing and amount of cash receipts from customers can vary
significantly depending on specific contract terms and can therefore have a
significant impact on the amount of our deferred revenue in any given period.
Since our inception in 1996, we have incurred substantial costs to develop
our technologies and products, to recruit and train personnel for our software
development, sales and marketing and technical support departments, and to
establish an administrative organization. We anticipate that our operating
expenses will increase substantially in the future as we increase our sales and
marketing operations, develop new products, fund greater levels of research and
development, broaden our technical support and improve our operational and
financial systems. Accordingly, we will need to generate significant quarterly
revenues to achieve profitability. In addition, our limited operating history
makes it difficult for us to predict future operating results and, accordingly,
there can be no assurance in future quarters that we will achieve or sustain
revenue growth or profitability.
We have recorded deferred stock compensation of $1.2 million related to
grants of certain stock options in 1999. This amount represents the difference
between the exercise price of these stock option grants and the amount
subsequently determined to be the fair value of the underlying common stock for
financial reporting purposes at the time of option grant. We amortized $21,565
of deferred stock compensation in 1999. We will amortize $1.1 million of
deferred stock compensation, plus the additional amounts recorded in connection
with any stock options granted after December 31, 1999, ratably over the
remaining vesting periods of the options, generally five years, which will
affect our reported results of operations through 2004. All of these amounts
appear on our consolidated statement of operations as non-cash stock
compensation expense.
We had 91 employees at February 29, 2000, compared to 83 at December 31,
1999 and 48 at December 31, 1997. This growth has placed significant demands on
our management and operational resources. In order to manage our growth
effectively, we must implement and improve our operational systems, procedures
and controls on a timely basis. In addition, we expect that future expansion
will continue to challenge our ability to hire, train, motivate and manage our
employees. Competition is intense for highly qualified technical, sales and
marketing and management personnel. If our total revenue does not increase
relative to our operating expenses, our management systems do not expand to meet
increasing demands, we fail to attract, assimilate and retain qualified
personnel or our management otherwise fails to manage our expansion effectively,
we will not achieve our expected revenues and operating results.
COMPARISON OF FISCAL YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
Revenue. Our revenue was $1.8 million in 1999, $405,480 in 1998 and $57,025
in 1997, representing increases of approximately $1.4 million, or 345%, from
1998 to 1999 and $348,455, or 611%, from 1997 to 1998. These increases were
primarily attributable to recognizing revenue from our first license agreement
in November 1997, our second in August 1998 and our third in January 1999. In
1999, American Home Products accounted for approximately 62% of total revenue
and Pfizer accounted for approximately 20% of total revenue. Abbott accounted
for approximately 91% of total revenue in 1998 and approximately 83% of total
revenue in 1997.
Sales and Marketing Expenses. Sales and marketing expenses consist
primarily of salaries, commissions, payroll taxes and employee benefits as well
as travel, entertainment and discretionary marketing expenses. Sales and
marketing expenses were $2.1 million in 1999, $1.9 million in 1998 and $697,610
in 1997. Sales and marketing expenses represented 16% of total operating
expenses in 1999, 17.6% in 1998 and 15.8% of total operating expenses in 1997.
We opened a sales office in London during July 1998. The increase in sales and
marketing expense in 1999 compared to 1998 was primarily due to a full year of
London office expense and higher sales commission expense as a result of our
revenue growth. To a lesser extent, increases in marketing expenditures for
advertising and promotions and related materials also contributed to the
absolute dollar increases. Staff size as
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of December 31, 1999 was 12. The increase in sales and marketing expense in 1998
compared to 1997 was primarily due to the increases in sales and marketing
personnel, which increased from eight as of December 31, 1997 to 12 at December
31, 1998. In addition, the new London office contributed additional office rent,
telephone and other expenses. We expect sales and marketing expenses to increase
as we continue to hire additional sales and marketing personnel.
Research, Development and Support Expenses. Research, development and
support expenses consist primarily of salaries, payroll taxes, employee benefits
and other costs attributable to research and development activities. Research,
development and support expenses were $6.0 million in 1999, $4.6 million in 1998
and $2.0 million in 1997. Research, development and support expenses represented
45.4% of total operating expenses in 1999, 44.0% in 1998 and 44.3% of total
operating expenses in 1997. The increase in the absolute dollar level of
research, development and support expense in 1999 compared to 1998 was
attributable to additional salaries, benefits and infrastructure costs
associated with an average staff size of 52 in 1999 compared to 46 in 1998.
Staff size as of December 31, 1999 was 52. To a lesser extent, the absolute
dollar level of research, development and support expense in 1999 increased as a
result of additional license agreement expense. The license agreements related
primarily to software used in the development and deployment of our products.
The increase in the absolute dollar level of research, development and support
expense in 1998 compared to 1997 was attributable to recruiting costs, salaries
and benefits associated with the hiring of additional staff, which increased
from 28 as of December 31, 1997, to 52 at December 31, 1998. We expect research,
development and support expenses to increase as we continue to hire additional
research, development and support personnel to develop additional SYNERGY for
Workgroups products, continue to add functionality to enterprise SYNERGY and
expand our consulting practice.
General and Administrative Expenses. General and administrative expenses
consist primarily of salaries, bonuses, payroll taxes, employee benefits and
certain other administrative costs. General and administrative expenses were
$3.7 million in 1999, $3.1 million in 1998 and $1.5 million in 1997. General and
administrative expenses as a percent of total operating expenses represented
27.8% in 1999, 29.8% in 1998 and 33.7% in 1997. The absolute dollar increases in
1999 compared to 1998 were primarily a result of severance charges related to
the separation of our former Chief Financial Officer, Vice President of Sales
and Vice President of Marketing in July 1999. Staff size as of December 31, 1999
was 19. The absolute dollar increase in 1998 compared to 1997 was primarily
related to recruiting costs, salaries and benefits associated with hiring of
additional staff, which increased from 10 as of December 31, 1997, to 16 as of
December 31, 1998. Additional administrative personnel were necessary to support
our increased sales, marketing and development activities. We expect general and
administrative expenses to increase as we expand our infrastructure and incur
additional costs as a result of being a public company.
Depreciation and Amortization Expense. Depreciation and amortization
expense was $1.4 million in 1999, $904,679 in 1998 and $272,825 in 1997.
Purchases of property and equipment were $785,759 in 1999 and $2.0 million in
both 1998 and 1997. The increase in depreciation in 1999 compared to 1998, and
the increase in 1998 compared to 1997, were primarily a result of current year
purchases and a full year of depreciation on prior year purchases. Property and
equipment are depreciated on a straight-line basis over the estimated useful
life of the asset, which ranges from three to five years.
Non-Cash Stock Compensation Expense. We incurred non-cash stock
compensation expense of $21,565 in 1999 related to grants of certain stock
options in 1999 with exercise prices less than the amount subsequently
determined to be the fair value of the underlying common stock for financial
reporting purposes on the date of option grant. The options generally vest over
five years. The remaining deferred compensation expense of approximately $1.1
million will be amortized ratably over the remaining vesting periods of the
options and will affect periods ending after December 31, 1999. From January 1,
2000 to January 27, 2000, options to purchase 27,500 shares were granted
pursuant to the 1996 stock option plan with a weighted average exercise price of
$3.00 per share.
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We estimate that additional deferred compensation of approximately $214,500 will
be recorded as a result of these option grants and amortized to non-cash stock
compensation expense over the vesting period of the options.
Interest Income. Interest income was $251,953 in 1999, $487,197 in 1998 and
$119,368 in 1997. The fluctuation in interest income was primarily the result of
the timing of our issuance of Series C redeemable convertible preferred stock on
June 5, 1997 (gross proceeds of $6.6 million) and the issuance of Series D
redeemable convertible preferred stock on March 20, 1998 (gross proceeds of
$17.7 million) and April 9, 1999 (gross proceeds of $2.7 million). Our net cash
used in development stage activities was $8.1 million in 1999, $8.2 million in
1998 and $3.4 million in 1997.
Interest Expense. Interest expense was $81,359 in 1999 and zero in 1998 and
1997. During 1999, we entered into three equipment-financing loans, each with a
due date of June 30, 2002. Interest expense in 1999 relates entirely to these
three equipment-financing loans.
Income Taxes. We did not record a provision for federal or state income
taxes in 1999, 1998 or 1997, because we have generated net operating loss
carryforwards of approximately $24.7 million from inception through December 31,
1999. As December 31, 1999 and 1998, we recorded a full valuation allowance for
the deferred tax assets related to the future benefits, if any, of these net
operating loss carryforwards. Our net operating loss carryforwards begin to
expire in 2011 and will fully expire in 2019. Our sale of equity securities,
such as in this offering will limit the use of these net operating losses
pursuant to regulations contained in the Internal Revenue Code and similar state
provisions. These annual limitations may result in the expiration of the net
operating loss carryforwards and other tax credits before we are able to use
them.
LIQUIDITY AND CAPITAL RESOURCES
We have funded our operations primarily from $49.8 million of gross
proceeds related to the sale of our redeemable convertible preferred stock,
including our Series E redeemable convertible preferred stock.
Our net cash used in development stage activities was $8.1 million in 1999,
$8.2 million in 1998 and $3.4 million in 1997. Net cash used by development
stage activities in all three years was due primarily to net losses during
development stage after adjusting for non-cash depreciation and amortization
charges and changes in operating assets and liabilities, including the IBM
pre-payment of $2.0 million in 1999.
Our investing activities used net cash of $785,759 in 1999, $2.0 million in
1998 and $2.0 million in 1997. Our investing activities in all three years
consisted entirely of purchases of equipment.
Our financing activities provided cash of $4.0 million in 1999, $13.4
million in 1998 and $9.1 million in 1997. In 1999 net cash provided by financing
activities included $2.7 million of net proceeds from the sale of Series D
redeemable convertible preferred stock, and net proceeds of $1.1 million from
three equipment financing loans. In 1998 and 1997, financing activities
consisted primarily of sales of redeemable convertible preferred stock totaling
$22.8 million of net proceeds. In 1999, we entered into three equipment
financing loans providing gross proceeds of $1.3 million. Repayments on these
loans amounted to $205,007 in 1999 and are anticipated to be $384,211 in 2000.
We have $2.2 million of borrowing capabilities remaining as of December 31,
1999. We were in compliance with all covenants as of December 31, 1999, but we
cannot assure you that we will be able to continue to comply with our loan
covenants in the future.
We intend to continue to invest heavily in the development of new products
and enhancements to our existing products. Our future liquidity and capital
requirements will depend upon numerous factors, including:
- the costs and timing of expansion of product development efforts and the
success of these development efforts;
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- the costs and timing of expansion of sales and marketing activities;
- the extent to which our existing and new products gain market acceptance;
- market developments;
- the costs involved in maintaining and enforcing intellectual property
rights;
- the amount and timing of revenue; and
- available borrowings under loan arrangements.
We believe that the proceeds from this offering, together with our current cash
and investment balances and any cash generated from operations and from
available credit facilities, will be sufficient to meet our operating and
capital requirements through the next 12 months. However, it is possible that we
may require additional financing sooner. We have no current plans to obtain
additional financing following the completion of this offering. The factors
described in this paragraph will affect our future capital requirements and the
adequacy of our available funds. We may be required to raise additional funds
through public or private financing, strategic relationships or other
arrangements. We cannot ensure that such funding, if needed, will be available
to us on terms attractive to us, or at all. Furthermore, any additional equity
financing may be dilutive to stockholders, and debt financing, if available, may
involve restrictive covenants. Strategic arrangements, if necessary to raise
additional funds, may require us to relinquish our rights to certain of our
technologies or products. If we fail to raise capital when needed, our failure
could have a negative impact on our operating results and financial condition.
RECENT ACCOUNTING PRONOUNCEMENTS
In March 1998, the American Institute of Certified Public Accountants, or
AICPA, issued Statement of Position No. 98-1, "Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use." Statement of Position
No. 98-1 requires us to capitalize certain costs related to internal use
software once certain criteria have been met. We adopted Statement of Position
No. 98-1 on January 1, 1999. Because we have a plan to market our internal use
proprietary software in the future, the adoption of Statement of Position 98-1
had no impact on our consolidated financial statements.
In April 1998, the AICPA issued Statement of Position 98-5, "Reporting on
the Costs of Start-up Activities." Statement of Position No. 98-5 requires us to
expense all start-up costs related to new operations as incurred. In addition,
all start-up costs that were capitalized in the past must be written off when we
adopt Statement of Position No. 98-5. We adopted Statement of Position No. 98-5
on January 1, 1999, which resulted in an immaterial amount of organizational
cost being written-off.
The Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 130, "Reporting Comprehensive Income" in June 1997,
effective for fiscal years beginning after December 15, 1997. This statement
established standards for reporting and displaying comprehensive income in a
full set of financial statements. Accordingly, we adopted this reporting
standard in the preparation of these financial statements. Our only
comprehensive income item is the foreign currency translation adjustment.
In June 1997, SFAS No. 131, "Disclosure about Segments of an Enterprise and
Related Information" was issued. SFAS No. 131 supersedes SFAS No. 14, "Financial
Reporting for Segments of a Business Enterprise," and requires companies to
report financial and descriptive information about their reportable operating
segments. The financial information is required to be reported on the same basis
that is used internally for evaluating segment performance and deciding how to
allocate resources to segments. This statement is effective for periods
beginning after December 15, 1997, with interim information required for the
year following adoption. Management has
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determined that we are of single operating segment. The adoption of SFAS No. 131
had no impact on our consolidated financial statements.
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging activities." SFAS No. 133
establishes methods for derivative financial instruments and hedging activities
related to those instruments, as well as other hedging activities. Because we do
not currently hold any derivative instruments and do not engage in hedging
activities, we expect that our adoption of SFAS No. 133 will not have a material
impact on our financial position or results of operations. We will be required
to implement SFAS No. 133 for the fiscal year beginning January 1, 2001.
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 101, "Revenue Recognition," which provides guidance on
the recognition, presentation and disclosure of revenue in financial statements
filed with the Securities and Exchange Commission. Management believes that SAB
101 has no material effect on its financial position, results of operations or
cash flows.
QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK
We develop products in the United States and sell those products primarily
in North America and Europe. In 1999, our revenue from our first sales outside
North America was 8% of total revenue. Our financial results could be affected
by factors such as changes in foreign currency exchange rates or weak economic
conditions in foreign markets. As all of our sales are currently made in U.S.
dollars, a strengthening of the dollar could make our products less competitive
in foreign markets.
Our interest income is sensitive to changes in the general level of U.S.
interest rates, particularly since our investments are in short-term
instruments. Due to the nature of our short-term investments, we have concluded
that we do not have material market risk exposure.
Our investment policy requires us to invest funds in excess of current
operating requirements in:
- obligations of the U.S. government and its agencies;
- investment grade state and local government obligations;
- securities of U.S. corporations rated A1 or P1 by Standard & Poors or the
Moody's equivalents; and/or
- money market funds, deposits or notes issued or guaranteed by the U.S.;
and
- non-U.S. commercial banks meeting certain credit rating and net worth
requirements with maturities of less than two years.
At December 31, 1999, our cash and cash equivalents consisted primarily of
demand deposits and money market funds held by a large institution in the United
States.
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BUSINESS
BACKGROUND
We are a leading provider of bioinformatics solutions. Our information
technology solutions enable life science research companies to convert massive
amounts of raw data into useful information that their scientists can use in the
development of new drugs, gene therapies and agricultural products.
SYNERGY, our proprietary technology platform, together with our strategic
consulting and support services, allows pharmaceutical, biotechnology and
agriscience companies to manage, integrate, sort and mine biological and
chemical data. These capabilities are increasingly vital to the life science
research industry as these companies strive to extract meaningful information
from the overwhelming volume and types of data emerging from such technologies
as genomics, gene expression analysis, SNP mapping, combinatorial chemistry and
high throughput screening. SYNERGY allows for maximum flexibility across
computing and database platforms because it is built on leading-edge,
Internet-based, CORBA and Java programming technologies. This novel framework
allows customers to link multiple and disparate data sets generated through
state-of-the-art drug discovery technologies that provide information about the
sequence and function of genes, their role in disease and their availability as
drug targets. By linking these data sets, scientists can analyze their data in
multiple contexts, accelerating the discovery of relationships within the data
and facilitating the drug discovery process.
We market our products and services to life science research companies, and
our customers have included Abbott Laboratories, American Home Products, Aventis
Crop Sciences and Pfizer. In addition, we have recently entered into a strategic
alliance with IBM to assist in the development of technology solutions for the
life science research industry.
The top 50 life science research companies spent over $40.0 billion on
research and development in 1998, representing an increase of more than 20% over
1997. We believe that 6% of these research and development expenditures, or $2.4
billion, is spent annually on bioinformatics and that research and development
budgets will continue to grow, as will the amount allocated for bioinformatics
solutions.
Life science research companies are under intense pressure to develop
innovative and cost-effective drugs, chemicals and agricultural products in
order to maintain their competitive positions. As a result, they are increasing
both internal and outsourced resources dedicated to early stage drug and crop
development in order to provide more possible product candidates. This trend has
led to the creation of multiple strategic alliances for product candidate
discovery between life science research companies and producers of databases,
data-generating platform technologies and software tools. However, the large
investments in these technologies have not yielded the hoped-for gains in
productivity, in part because the bioinformatics infrastructure in life science
research companies is inadequate to manage and integrate this large volume of
data, and thus limits the effectiveness of the new discovery technologies. A
recent industry survey indicated that the drug discovery phase could be
accelerated by nearly 50% through the use of bioinformatics, genomics,
high-throughput screening, combinatorial chemistry and rational drug design
technologies.
INDUSTRY OVERVIEW
Deriving Value From the Massive Amounts and Disparate Types of Life Science
Data
Over the last five years, there has been an explosion in the amounts and
types of data used in life science research due to the development of new
technologies. For example, GenBank, the database of all publicly available gene
sequences, has grown from 230 million base pairs of DNA five years ago to over
4.6 billion base pairs today, an increase of 2,000%. There has also been a
significant private effort to sequence the human genome. Celera, one of the
commercial providers
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of DNA sequence data, has recently announced that it has successfully sequenced
5.3 billion base pairs of human DNA in the last four months of 1999 alone, and
plans to finish sequencing the human genome by year end.
As the efforts to sequence the human genome near completion, researchers
have shifted their focus to functional genomics, the effort to understand the
role or function of these genes. As a result of new technologies developed by
Affymetrix and others, the volume of functional genomics data is expected to
exceed the volume of DNA sequence data. One of these technologies, gene chips,
uses a miniaturized chip-based format to obtain biological data. The use of
these chips, each of which can contain 40,000 data points, is expected to grow
from 43,800 in 1998 to over 1.0 million in 2001, an increase of 2,200%. Because
the number of data points per chip is growing, there will be an even greater
increase in the amount of available functional genomics data.
Integrating and Managing the Rapidly Growing Sources of Data
The growth in amounts and types of data generated by these new technologies
has caused current life science product development efforts to be characterized
by an excess of data rather than the historical shortage of data. For example, a
large life science research company may obtain genomics data from Incyte and
Celera, gene expression microchips from Incyte and Affymetrix, new combinatorial
chemistry compounds from ArQule and high-throughput screening services from
Aurora Biosciences. The life science research company may then use data analysis
and mining tools from a variety of vendors as well as internal sources to
interpret this data.
In addition, the consolidation occurring among the large life science
research companies has compounded the problem of managing and integrating life
sciences data. These companies need to maximize the return on their investment
in global research and development efforts. However, as these companies merge,
integrating the multiple systems, platforms, databases and sites can be not only
expensive, but an exceedingly complex task.
Protecting Proprietary Life Science Data
Life science research companies must prevent disclosure of their
proprietary research data. Exposing proprietary life science data through the
use of Internet-based information portals represents a significant risk to
confidential information that represents a competitive advantage for the
company. Not only is sending data over the public Internet itself a risk, but
having data analyzed at a third-party site, one not under the control of the
company itself, also poses grave risks to data security and integrity.
Additionally, the public Internet is subject to denial of service security
attacks that may render an Internet-based information portal unusable for time
critical research. The inadequacy of current Internet-based information portals
for the bioinformatics needs of life science research companies makes
intranet-based systems an attractive alternative.
Resolving the Buy vs. Build Dilemma for Bioinformatics Solutions
Life science research companies currently face a dilemma when deciding how
to manage these amounts and types of data. A company may attempt to build a
proprietary advantage in drug discovery by hiring the best possible
bioinformatics specialists and creating its own software in order to find
targets and drugs that its competitors miss. However, in a field as complex and
dynamic as bioinformatics, this approach can be both expensive and risky.
Bioinformatics needs change rapidly; two years ago few life science research
companies had a need for biochip software, today almost every one of these
companies does. It can be a major and very expensive task to create software
that can both manage large amounts and types of data across multiple databases
and be flexible enough to evolve as needs change and data sets grow. As a
result, resources can be wasted as highly paid bioinformaticists are involved in
costly software or database maintenance or are required to continuously train
and support a company's staff scientists.
The alternative, buying pre-packaged bioinformatics software, also has
significant risks. Third-party software is usually based on closed systems that
cannot be changed by the buyer. Because life
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science research companies use many sources of data, including both
internally-generated and external, in-licensed data, software that is not
designed to accept new sources of data can create an expensive problem. Data
must then be transformed into a format that the program can use, therefore,
companies must keep each data set in multiple formats, one for each pre-packaged
program. Additionally, since all buyers of these pre-packaged software programs
have access to the same analytical tools, it is difficult for any one company to
gain a competitive advantage.
Obtaining the Best Practices for Bioinformatics as They Evolve
The strengths of the life science research companies are primarily product
development, chemistry and sales. Typically, they do not have the number of
bioinformatics personnel necessary to both develop and utilize bioinformatics
software. As in many other industries, competitive pressures are causing life
science research companies to consider outsourcing for those needs outside of
their core competence. However, the traditional IT outsourcing firms lack the
scientific expertise to cost-effectively provide fully and integrated
bioinformatics systems.
The life science research industry faces a number of challenges that we
believe will lead to continually increasing demand for our solutions, including
the following:
- deriving value from the massive amounts and disparate types of life
science data;
- integrating and managing the rapidly growing sources of data;
- protecting proprietary life science data;
- resolving the buy vs. build dilemma for bioinformatics solutions; and
- obtaining the best practices for bioinformatics as they evolve.
OUR SOLUTION
We have developed a solution to address the bioinformatics challenges life
science research companies face. Our solution, which includes SYNERGY, our
proprietary technology platform, and our strategic consulting and support
services, has the following characteristics:
- flexibility and extendability due to its open architecture;
- scalability due to its component-based design;
- security due to its intranet format;
- integrity of tested platform technology with the individuality of custom
design; and
- state-of-the-art technologies combined with expert consulting services.
Flexibility and Extendability Due to its Open Architecture
SYNERGY allows life science research companies to manage, integrate, sort
and mine internally or externally generated biological and chemical data
regardless of database format or size. SYNERGY allows for maximum flexibility
across computing platforms and database platforms because it is built on
leading-edge, Internet-based, CORBA and Java programming technologies. This
novel framework allows our customers to link multiple and disparate data sets
generated through state-of-the-art drug discovery technologies that provide
information about the sequence and function of genes, their role in disease and
their availability as drug targets. By linking these data sets, scientists can
analyze their data in multiple contexts, accelerating the discovery of
relationships within the data and facilitating the drug discovery process.
Our proprietary software architecture has been designed to allow new
applications or sources of data to be added at any time, whether created by us,
third-party developers or internally by our customers. This is an important
distinction from conventional software products, because our customers can
extend or customize their systems in order to conduct their own proprietary
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analyses, rather than having to decide between developing their own software or
buying closed third-party systems. For example, existing databases can be
integrated without changing the data format, a common requirement of
conventional software products.
Scalability Due to its Component-Based Design
Our component-based technology allows the analysis and integration of data
from multiple sources. As an example, SYNERGY creates a single software
interface for DNA sequences that allows a scientist to conduct GenBank searches,
and, because the DNA interface is not GenBank specific, it can also be used to
allow access to DNA data from any other source. Once SYNERGY is installed, our
framework allows the interface to be easily adapted to search, for example, the
internal DNA sequence database of the customer, no matter how that database is
constructed, or access data from an in-licensed source, such as Incyte or
Celera. Moreover, a working set of expression data can be created by combining
data from experiments conducted using DNA chips from both Affymetrix and Incyte.
Analyses can be performed on any data, no matter the source, so programs that
analyze expression data do not have to be rewritten when a company in-licenses a
new source of data.
In addition to enabling scientists to analyze and integrate data in new
ways, SYNERGY has been designed to facilitate the sharing of these data and
analyses across all the scientists on a project team, no matter where they are
located worldwide. Members of a team can work collaboratively to analyze and
annotate data, with each scientist having immediate access to new or modified
data created by a teammate. Further, access to this data is restricted to the
team. While certain team members have read and write privileges, others may have
read-only privileges and project data is never available to non-members.
Security Due to its Intranet Format
To enhance the security of valuable, proprietary research data, we install
SYNERGY within a secure intranet operating inside a customer's firewall, thereby
eliminating the danger of data being stolen during transmission across an
unsecured line. We also address the danger of valuable sequences being stored on
personal computers where it can be corrupted or stolen, resulting in expensive
or irreplaceable data loss. SYNERGY provides central, server-based storage for
all data and analysis results, with regular and secure back-up capability.
Integrity of Tested Platform Technology with the Individuality of Custom
Design
We provide a comprehensive software/hardware solution for the
bioinformatics needs of life science research companies, including:
- our proprietary technology platform;
- a suite of applications tailored to the customer's specific needs;
- additional customized software development on an as-needed basis; and
- outsourced support functions, including on-site training and 24/7 system
support.
Our technology platform has been designed to interoperate with existing
systems. Unlike pre-packaged applications, our system is open, allowing
bioinformaticists to develop additional applications or customize existing
applications as needed. We provide products and services that allow a life
science research company to make use of its skilled personnel more efficiently.
When such tasks are outsourced to us, the life science research company's
bioinformatics professionals can concentrate on those tasks that are unique and
proprietary.
State-of-the-Art Technologies Combined with Expert Consulting Services
Our customers use our scientific consulting services to design and build
tailored bioinformatics solutions based on our SYNERGY platform. Our consultants
have the scientific and bioinformatics
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expertise necessary to assess our customers' needs and then deliver a customized
solution to speed their product development.
OUR STRATEGY
Our objective is to be the preeminent provider of bioinformatics solutions
to the life science research industry. Key elements of our strategy to achieve
this objective include the following:
Establish SYNERGY as the Information Technology Platform of Choice for Life
Science Research Companies
Our goal is to make SYNERGY's open architecture technology the information
platform of choice for drug discovery efforts worldwide. We believe that in
order for a technology platform to become the standard in the industry, it must
be flexible, scalable, robust, extendable and fast. The life science research
industry is extremely dynamic and changes rapidly with its use of new drug
discovery technology. In addition, the amounts and types of biological data,
from both public and private sources, are growing exponentially each year. As
the discovery process evolves, information technology systems must be able to
adapt and expand, so that the power of available information can be realized. We
believe that installing SYNERGY with industry leaders is an important step in
establishing our technology platform as the industry standard.
Establish a Dominant Market Share for Applications on the SYNERGY Platform
Our success will depend on gaining market share within our primary target
market, large life science research companies. We are developing applications,
built on our SYNERGY technology platform, that are aimed at solving specific
data analysis and integration problems. In addition, we are encouraging
discovery groups within life science research companies and other third-party
software vendors to write applications that can be run on SYNERGY. We believe
that if third party developers create applications that run on the SYNERGY
technology platform, the number of users of SYNERGY will increase, which will in
turn encourage the creation of still more applications that can be run on
SYNERGY. We intend to continue to publish our programming interfaces and
developer toolkits, facilitating third-party development of tools and databases
compliant with the SYNERGY standard.
Leverage our Complementary Products and Services to Maximize Revenue
We believe that our consulting services can lead to product sales and that
our product sales can lead to more demand for our consulting services. We
believe that our ability to understand and address the technology issues of our
customers is integral to the sale of our products and services. Due to the open
architecture of the SYNERGY technology platform, our custom solutions can
integrate easily with existing systems and databases. We design our solutions
using a combination of core components and components designed exclusively for a
specific customer. This enables us to create solutions that have the benefits of
custom software, but have the rigorous product design, development and testing
of commercial software.
Expand our Corporate Relationships for Revenue Growth
We have corporate relationships, in the form of customers and strategic
partners, that we believe will provide us with opportunities to expand our
business. We believe that developing our relationships with industry leaders
will lead to additional revenue opportunities with new customers. Similarly, we
have formed strategic alliances with companies, such as IBM, with their own
blue-chip client bases, that can enhance our credibility and garner the
attention of senior management at large life science research companies. We
intend to leverage our existing relationships to establish new customers, which
we believe will result in increased revenues.
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Maintain our Technological Advantage
We believe we have a technological advantage based in part on our early
adoption of CORBA and Java, both leading-edge, Internet-based programming
technologies. This combination of technologies has allowed us to build a
flexible technology platform that is:
- adaptable, as different groups within a life science research company
will continue to develop and obtain new data or capabilities;
- scalable enough to integrate the voluminous amounts of data being
generated in the industry; and
- standardized to ensure the interoperability across different networks,
platforms, languages and client global locations.
We have applied for various patents to protect our inventions. We recently
received a notice of allowance from the U.S. Patent and Trademark Office for one
of our patent applications. We plan to continue to file applications where we
believe that the intellectual property is valuable to our business. We believe
that maintaining a deep and broad intellectual property estate will be an
important competitive advantage.
OUR TECHNOLOGY, PRODUCTS AND SERVICES
OUR TECHNOLOGY
SYNERGY has been constructed as a network of object-based components that
work together to solve a problem and that can be extended to solve related
problems. SYNERGY integrates diverse data types and analysis tools by using
"wrappers." A wrapper is a software program that can be easily adapted to
encapsulate the knowledge of each server program's specific requirements and its
input and output formats. The use of wrappers allows SYNERGY to integrate the
activities of these programs and frees the user from the burden of learning how
to operate many different programs. Since the inputs and outputs of the wrapper
are in a common format, all of the data sources and analytical engines available
on any server, including existing systems, can be made to communicate.
CORBA and Java
CORBA and Java provide the foundation upon which we have built a stable,
scalable, extendable client/server framework. CORBA is a software architecture
that was created to answer the need for systems built of inter-operating
software components distributed over a network, regardless of the hardware
platform or programming language used for their implementations. An important
consideration in this design was the need to integrate existing systems.
CORBA lets programmers choose the most appropriate operating system,
execution environment and even programming language to use for each component of
a system under construction. More importantly, CORBA allows the integration of
existing components. In a CORBA-based solution, developers model the legacy
component using the same software interfaces they use for creating new objects,
then write "wrapper" code that translates between the framework and the existing
interfaces.
Java is a platform-independent object-oriented computing language that
supports graphically rich, dynamic, programming. Java's platform independence
means that it can deliver the same program to PCs, iMacs, Sun or Silicon
Graphics work-stations equally well. Development and test time is reduced
because the resultant code is portable to disparate hardware platforms without
re-coding and recompiling.
CORBA and Java together enable client/server systems that allow a user to
access multiple applications and databases across a distributed computing
network. Java allows a user to interact with a graphical user interface, but
still access server computing power normally only available to
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computer experts. CORBA allows new programs and services to be added to the
server in real time, and transparently delivers all the needed information to
the client program to use these new services.
Beyond CORBA and Java
CORBA and Java are powerful technology tools, not functioning
implementations. We have built a software framework on these technologies that
provides for flexibility and maintainability. The SYNERGY platform technology
has been designed so that no data types or analyses are built into it. Instead,
the kinds of data upon which the framework can operate and the analyses
available for these data types are discovered by the program at run time. This
architecture frees each component from having to know any more than is essential
for its own function. Segmenting the system in this way simplifies both
extending and maintaining the system, and provides an architecture that can be
extended by others, both our customers and our partners.
OUR PRODUCTS
The SYNERGY Framework
The SYNERGY framework provides the basis for design and delivery of our
software products and services. Using our components, built on standards-based
interfaces, SYNERGY products allow us and our customers to "plug in" specific
applications or extend the system to add new users and additional locations. The
SYNERGY technology platform is designed as an extendable enterprise system, with
project management, security and connectivity features. SYNERGY for Workgroups,
which we expect to be available in the fourth quarter of 2000, is designed for
use by small research groups situated inside life science research companies and
academic institutions. SYNERGY for Workgroups is compatible with our enterprise
SYNERGY, therefore applications will run identically on both SYNERGY for
Workgroups and enterprise SYNERGY.
SYNERGY applications are designed to address specific needs of researchers
in life science research companies, and represent best-of-breed technologies.
Each is designed to be a part of a total solution that includes 24-hour
maintenance and support services, training, regular software updates and
consulting services. When combined with our SYNERGY technology platform
products, they are built to address the total enterprise integration needs of a
life science research organization.
Sequence Analysis
We released our first product, SYNERGY Sequence Analysis, in September
1997, with updates released approximately quarterly thereafter. This product
allows users to create or import bioinformatics data, including DNA sequences,
protein sequences, DNA and protein multiple alignments and sequence assemblies.
The client program supports multiple views of data, and integrates data,
annotations and results within a secure model. Sequences obtained from databases
such as GenBank, or Incyte's LifeSeq retain their associated annotations and
other information, which is supported in both graphical and text formats.
Individual sequences can easily be imported and entire sequence databases can be
added by our customers into SYNERGY Sequence Analysis.
Gene Expression
SYNERGY Gene Expression has been designed to automate the workflow followed
by scientists when analyzing the results of gene chip experiments. SYNERGY Gene
Expression facilitates the integration of data from genechip experiments, such
as those from Affymetrix Gene Chip or Incyte LifeArray data, with sequence data,
analyses on sequence data, genetic data, literature information and metabolic
pathway data. The goal is to enable a scientist to understand in hours what
previously required days. Because this application is built on the SYNERGY
platform, our customers are able to add their own proprietary analyses and
information and to create links to external data sources.
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Additional Applications
SYNERGY is a scalable framework for data analysis and integration. In each
SYNERGY product, our flexible framework facilitates integrating the
best-of-breed technologies available. Many of the basic designs for new products
are anticipated to be developed from needs identified through our consulting
services. By employing reusable components in building these custom
implementations, we expect to significantly reduce our time to market with new
products.
OUR SERVICES
We offer consulting services to our clients to optimize their drug
discovery and development efforts in the context of a research organization's
overall business strategy. Our consulting practice comprises a
multi-disciplinary team of industry-seasoned professionals who work closely with
each customer to understand and evaluate their needs, recommend solutions and
design a plan for realizing these solutions through software implementations.
As part of the license of SYNERGY, we provide each customer a number of
service hours. SYNERGY customers may elect to use part of their service hours to
work with our development team to develop software specific for customer needs.
Through customization services, we write specialty software solutions that
provide additional functionality to the SYNERGY framework to meet the specific
needs of customers. We can provide support for custom programming, ranging from
consultation and quality assurance, through coding and installation. Customers
also have the ability to purchase additional services from us, over and above
their initial service hours, for special software projects and integration.
USING SYNERGY: THE PROJECT PLATFORM IN PRACTICE
SYNERGY is a team-computing environment. All members of a research project
are notified immediately whenever any team member adds to or modifies the data
of a project. Secure access to data in a project is controlled, with multiple
levels of access. When new data has been validated, it can be shared with the
rest of the project team using a simple drag-and-drop operation.
SYNERGY has been designed to be both easy to learn and use. A help system
is built into SYNERGY, and reference documentation is delivered over the
customer's intranet. Further, at any time the user can, with a single click,
send e-mail to our customer support staff. Additionally, since the SYNERGY
client program is delivered from a central server, software updates are both
transparent and economical. This allows us to update and to repair software with
minimal inconvenience to the customer.
OUR COMPETITION
We face, and will continue to face, competition from third-party commercial
software developers, bioinformatics and genomics companies, academic
institutions and in-house life science research company software development
teams. Our success in competing with these organizations will depend on our
ability to:
- take advantage of available technologies to organize and integrate
biological data;
- develop a quantity and variety of software applications;
- maintain flexibility and adaptability in both our applications and our
business strategy;
- balance open standards with our proprietary advantage;
- maximize the interoperability of our software; and
- deliver on our commitments to our customers.
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We believe that through continuing to develop standard interfaces, we will
have the ability to collaborate with those organizations that would otherwise
represent competitors. In addition to direct commercial competitors, the most
important other source of competition comes from development teams within life
science research companies. In some cases, life science research companies
maintain programming teams that rival, or surpass in size those at commercial
software companies. In many cases, these in-house groups pose the most daunting
competition to us or, indeed, to any commercial software and service vendor. We
must continue to keep focus on the services we provide to customer
organizations, and to stress the benefit that this support lends to the in-house
development effort.
CUSTOMER CASE STUDIES
PFIZER CASE STUDY
Business Opportunity. Pfizer maintains a discovery program involving 7,000
professionals in 30 countries over three continents, with an annual budget
exceeding two billion dollars. Pfizer scientists are involved in more than 180
research projects across 31 major disease groups and employ state-of-the-art
tools ranging from robotic high-throughput screening to sophisticated genomic
studies. In addition, Pfizer has more than 200 partners in academia and
industry, which provide access to novel research and development tools and to
key data on emerging trends. With so many sources of data, Pfizer identified an
opportunity to add value by integrating data generated from its internal efforts
and collaborations across a number of its research projects.
Solution. Pfizer scientists began working with our consulting group, which
proposed that SYNERGY be used to interface with Pfizer's drug discovery software
infrastructure and link multidisciplinary research efforts across Pfizer's
global organization. Working with Pfizer scientists, we were able to build a
dynamic data formatting and presentation application built on the SYNERGY
platform. The application acts as a focal point for information related to
specific projects, enabling Pfizer researchers to share and interrogate data
within an interactive "work space." This solution was developed in collaboration
with internal bioinformatics groups at Pfizer and installed in September 1999,
less than four months from inception. Implementing this software in this time
frame was made possible by the open architecture of our SYNERGY technology,
which used proprietary components previously designed, as well as those created
by Pfizer.
AMERICAN HOME PRODUCTS CASE STUDY
Business Opportunity. American Home Products is a global enterprise serving
the health needs of people in 145 countries. The organization includes
Wyeth-Ayerst Research, which is focused on advancing medical therapy in areas of
critical need and organizes the global efforts of approximately 3,500 employees
worldwide. American Home Products' pharmaceutical research and development
includes research groups at Wyeth-Ayerst, Genetics Institute and Lederle
Veterinary Pharmaceuticals. Genetics Institute is recognized as one of the most
sophisticated users of gene expression technology in the biopharmaceutical
industry. American Home Products' use of Affymetrix data has the goal of making
high-throughput, sensitive gene expression analysis a core discovery technology
platform. The success of this effort has resulted in a massive amount of data.
American Home Products' scientists identified an opportunity to accelerate the
use of this data by better integrating it with other biological data.
Solution. In August 1998 American Home Products entered into a four-year
license and services agreement under which we installed SYNERGY to link
scientists and data at seven research sites across its enterprise. Working with
scientists and bioinformatics professionals at American Home Products, we
proposed the use of the SYNERGY platform as a solution to the challenge of
accelerating the use of gene expression data. We collaboratively designed an
application to integrate gene expression data, based on Affymetrix chips and
stored in an existing database, with
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data on DNA and protein sequences, genetic information, literature references
and metabolic pathways. This process led to the successful installation of this
solution in February 2000.
IBM CASE STUDY
Business Opportunity. IBM is the world's largest information technology
company, with 80 years of leadership in helping businesses innovate. IBM's
recently established Life Sciences organization, which is focused on information
and knowledge management, has recently introduced DiscoveryLink, a combination
of innovative middleware and integration services. To implement this solution,
IBM needed expertise in bioinformatics, a difficult challenge since the number
of people with experience in the field of bioinformatics is extremely limited,
and the competition for qualified professionals in this field is intense.
Solution. In October 1999, we formed an alliance with IBM pursuant to which
we agreed to collaborate with IBM to deploy and integrate the DiscoveryLink
technology to IBM customers and joint IBM/NetGenics customers. We began
implementation of our first DiscoveryLink project at a top pharmaceutical
company in November 1999.
SALES AND MARKETING
Our objective is to be the preeminent provider of bioinformatics solutions
to life science research companies. We believe our best market opportunity will
be derived from installing enterprise SYNERGY solutions at large, life science
research companies. These enterprise-wide solutions are characterized by lengthy
sales cycles which involve the client's concurrence at the highest levels within
management across multiple disciplines and multiple locations.
To penetrate the market quickly and establish a broad customer base, we are
also developing a line of SYNERGY for Workgroups products that target small
research groups focused on specific goals and activities. Because of its lower
price, we expect that the sales cycle for the workgroup products will be shorter
than for enterprise SYNERGY. It is possible that several research groups within
a company may employ SYNERGY for Workgroups applications. Once a critical mass
of users is established within an organization, we can propose a conversion to
enterprise SYNERGY.
Our marketing group works closely with our sales and consulting
organizations to define new applications and services, based on customer and
prospect needs and requirements. Our marketing and communications efforts are
aimed at building brand equity and awareness of us as a software solutions
provider for the life science research industry. The goal is to generate leads
for our regional sales executives for follow-up, qualification and closure.
In addition to our regional sales force, we intend to use targeted direct
marketing campaigns for our SYNERGY for Workgroups applications. We also attend
and participate in trade shows and conferences, including the Human Genome
Conference, in order to obtain broader market exposure.
We seek to be published in prominent journals within the industry, and we
participate in the Object Management Group, or OMG, in order to be involved in
the setting of standards for data within life science research companies. We
believe that through our participation in the OMG, customers will increasingly
look to us for their information technology solutions.
Since a portion of our prospective market is outside the United States and
our prospective market includes many multinational organizations, we plan to
develop international sales capabilities. We currently have a European-based
customer, Aventis Crop Sciences, and we intend to expand our customer base
initially through our London office. Other overseas offices may be opened, on a
country by country basis, as business opportunities arise.
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INTELLECTUAL PROPERTY
We filed a U.S. patent application entitled "System for Facilitating Drug
Discovery Data" in June 1997. We received a Notice of Allowance from the U.S.
Patent and Trademark Office on this patent in November 1999, which indicates
that the application is entitled to issue as a patent subject to the completion
of all formalities. In June 1998 we filed a PCT application with the U.S. Patent
and Trademark Office designating the European Patent Office as search authority
for protection of our SYNERGY design and implementation. We have also filed
applications relating to our interface design and other novel aspects of our
software.
To date, we have been issued U.S. trademarks for the "NetGenics" and
"SYNERGY" names and for the service mark "An Infrastructure for Drug Discovery."
We intend to file additional patent applications in relevant areas, and believe
that we will be able to establish a significant patent portfolio based on our
ongoing research and development. Our commercial success will depend in part on
our ability to obtain commercially valid patent claims and to protect our
intellectual property portfolio. We may not be able to obtain patents for our
software technology and even if we are able to obtain patents, these patents may
not provide us with substantial protection or be commercially beneficial.
In addition, others could claim that our technology infringes patents or
proprietary rights of others. If those claims are successful, any licenses that
we might need as a result of such infringement might not be available to us on
commercially reasonable terms, if at all. We also rely upon trade secret
protection for some of our confidential and proprietary information. The
measures we have taken to protect our trade secrets may not provide adequate
protection for our trade secrets or other proprietary information.
GOVERNMENT REGULATION
Although our products are not regulated by governmental agencies such as
the United States Food and Drug Administration, or FDA, the products of many of
the life science research companies to which we market our products are
regulated by the FDA. The interest of the FDA or other governmental agencies in
our products may increase as the number of life science products developed using
our technology increases.
EMPLOYEES
As of February 29, 2000, we had 91 full-time employees, including 57 in
research, development and support, 13 in sales and marketing and 21 in general
and administration.
FACILITIES
We currently lease 26,668 square feet of office space in Cleveland, Ohio
and have additional offices in Palo Alto and San Diego, California, Columbus,
Ohio, and London, England. We maintain customary insurance policies with respect
to our facilities and equipment. We believe that we will be able to obtain
suitable additional or substitute space as needed at commercially reasonable
rates.
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MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
Our executive officers and directors, and their ages and positions as of
March 1, 2000, are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Manuel J. Glynias......................... 44 President, Chief Executive Officer and Director
Vincent P. Kazmer......................... 50 Executive Vice President, Chief Financial Officer
and Secretary
Michael C. Dickson........................ 38 Chief Technology Officer and Senior Vice
President, Product Development
Joanne A. O'Dell.......................... 30 Vice President, Support Services
Raymond J. Merk........................... 40 Controller and Treasurer
Walter Gilbert, Ph.D.(1)(2)............... 67 Chairman of the Board of Directors
Anthony B. Evnin, Ph.D.(2)................ 58 Director
John Pappajohn(1)(2)...................... 71 Director
Nicole Vitullo............................ 42 Director
Alan G. Walton, Ph.D., D.Sc.(1)........... 62 Director
</TABLE>
- -------------------------
(1) Member of the compensation committee.
(2) Member of the audit committee.
Manuel J. Glynias has served as a director and President since our
inception and is our Chief Executive Officer. From 1988 until our inception, Mr.
Glynias was the President and Chief Executive Officer of MG Software Inc., which
developed GeneWorks, a program marketed and later acquired by Intelligenetics,
and Primer Express, a program marketed and later acquired by PE Biosystems. In
1986, Mr. Glynias developed MacGene, a DNA and protein sequence analysis
program, while a graduate student at Case Western Reserve University. Mr.
Glynias received his A.B. in Biochemistry and Molecular Biology from Harvard
University.
Vincent P. Kazmer joined us in December 1999 as Executive Vice President
and Chief Financial Officer and has served as our Secretary since February 2000.
From August 1995 until November 1999, Mr. Kazmer served as President, Chief
Executive Officer and director of Lark Technologies, Houston, Texas, a molecular
biology contract research organization. Prior to joining Lark, Mr. Kazmer was a
co-founder and President of Copernicus Gene Systems, Inc., a private gene
therapy company. From January 1989 to February 1994 he served as Senior Vice
President of United States Biochemical Corporation with responsibilities for
business development, marketing and sales. While at U.S. Biochemical, Mr. Kazmer
was a co-founder and Vice President of Ribozyme Pharmaceuticals Inc., a
biotechnology company. Mr. Kazmer also served as a nuclear submarine officer and
qualified nuclear engineer in the U.S. Navy. He received his M.B.A. from
Stanford University and his B.S. in computer and information science from Ohio
State University.
Michael C. Dickson has served as our Senior Vice President, Product
Development since January 1998 and in November 1999 was named our Chief
Technology Officer. From our inception until January 1998, Mr. Dickson served as
our Principal Software Architect, and was responsible for the primary design of
SYNERGY. Prior to joining us, Mr. Dickson served as the Manager of the Internet
Infrastructure Group at CompuServe, Inc. from November 1989 to February 1996 and
a member of the technical staff of BSDI from February 1996 to July 1996.
Joanne A. O'Dell has served as our Vice President, Support Services since
September 1999. From October 1996 until September 1999, Ms. O'Dell was our
Director of Quality Assurance, and was principally responsible for creating and
instituting our quality processes. Prior to joining us,
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Ms. O'Dell held several staff positions at Blackbaud, Inc., including Quality
Manager and Software Design Architect. Ms. O'Dell holds a B.A. in Communications
from the University of Toledo.
Raymond J. Merk joined us as Controller in November 1997. Mr. Merk has also
served as our Treasurer since August 1999 and served as our Secretary from
August 1999 to February 2000. Prior to joining us, Mr. Merk was Senior Director
of Financial Reporting for Renaissance Hotel Group N.V. from June 1995 to
November 1997 and Director of Financial Planning for OfficeMax, Inc. from
November 1993 to June 1995. Mr. Merk holds an M.B.A. from Cleveland State
University and a B.S. in Accounting from Ohio Northern University.
Walter Gilbert, Ph.D. has served as chairman of our board of directors
since our inception. Since 1988, Dr. Gilbert has been a Professor at Harvard
University. He developed a method for DNA sequencing for which he was awarded a
Nobel Prize in Chemistry in 1980. He founded Biogen, Inc. and served as its
Chairman of the Board and Chief Executive Officer from 1981 to 1985, founded
Myriad Genetics, Inc., of which he is a director, in March 1992, and
participated in the establishment of the Human Genome Project. Dr. Gilbert
received his Ph.D. in Mathematics from Cambridge University and his B.A. in
Chemistry and in Physics from Harvard University.
Anthony B. Evnin, Ph.D. has served as a director since June 1996. Dr. Evnin
is a general partner of Venrock Associates, a venture capital partnership which
he joined in 1974. Dr. Evnin is a director of the following public companies:
Caliper Technologies Corp., Ribozyme Pharmaceuticals, Inc. and Triangle
Pharmaceuticals, Inc. Dr. Evnin received his Ph.D. in Chemistry from the
Massachusetts Institute of Technology and his A.B. from Princeton University.
John Pappajohn has served as a director since our inception. Since 1969,
Mr. Pappajohn has been the president and principal stockholder of Equity
Dynamics, Inc., a financial consulting firm, and the sole owner of Pappajohn
Capital Resources, a venture capital firm. He also serves as a director of the
following public companies: MC Informatics, Inc., MOMSPharmacy.com, Inc., PACE
Health Management Systems, Inc.; Patient InfoSystems, Inc.; and Radiologix, Inc.
Mr. Pappajohn received his B.A. in Business from the University of Iowa.
Nicole Vitullo has served as a director since March 1998. Since April 1999,
Ms. Vitullo has been Managing Director, Domain Associates, L.L.C. Domain
Associates is a venture capital investment firm focused on the healthcare
industry. Prior to joining Domain, Ms. Vitullo was a Senior Vice President at
Rothschild Asset Management from May 1995 to April 1999. Rothschild Asset
Management Ltd. manages International Biotechnology Trust plc, which is one of
our stockholders, and has been advisor to Biotechnology Investments Limited.
Prior to joining Rothschild in 1992 as a Vice President, Ms. Vitullo was
Director of Corporate Communications and Investor Relations at Cephalon, Inc., a
neuropharmaceutical company. Ms. Vitullo also serves on the board of directors
of Epimmune Incorporated, Corvas International and Onyx Pharmaceuticals. She has
an M.B.A. in finance and a degree in mathematics from the University of
Rochester.
Alan G. Walton, Ph.D., D.Sc. has served as a director since June 1996. Dr.
Walton has been a general partner of Oxford Bioscience Partners, a private
equity investment firm, since July 1987. From July 1981 to June 1987, Dr. Walton
was President and Chief Executive Officer of University Genetics Co., a public
corporation specializing in technology transfer from academic institutions to
industry and in the seed financing of high technology startups. Prior to joining
University Genetics Co., he was a Professor of Macromolecular Science and
Director of the Laboratory for Biological Macromolecules at Case Western Reserve
University. Dr. Walton serves on the board of directors of Gene Logic, Inc. and
Alexandria Real Estate Equities. Dr. Walton received his Ph.D. in Chemistry and
his D.Sc. in Biological Chemistry from Nottingham University, England.
BOARD OF DIRECTORS AND COMMITTEES OF THE BOARD
All directors are elected at the annual meeting of stockholders and hold
office until the election and qualification of their successors at the next
annual meeting of stockholders.
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Our compensation committee consists of Dr. Gilbert, Mr. Pappajohn and Dr.
Walton. The compensation committee makes recommendations to our board of
directors regarding the issuance of stock options and other awards under our
stock plans and determines salaries for the executive officers and incentive
compensation for our employees. Dr. Gibert is the chairperson of the
compensation committee.
Our audit committee consists of Dr. Evnin, Dr. Gilbert and Mr. Pappajohn.
Our audit committee makes recommendations to our board of directors regarding
the selection of independent auditors, reviews the results and scope of the
audit and other services provided by our independent auditors and reviews and
evaluates our audit and control functions. Mr. Pappajohn is the chairperson of
the audit committee.
DIRECTOR COMPENSATION
All of our directors are reimbursed for expenses incurred in attending
meetings of the board of directors and its committees. In addition, our
non-employee directors receive an automatic grant of an option to purchase
25,000 shares of our common stock under our 1996 stock option plan upon their
initial election, and automatic grants of options to purchase 2,500 shares of
our common stock each time they are re-elected. Currently, we do not otherwise
compensate directors for their services as members of the board of directors or
any committee of the board.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The compensation committee of the board of directors currently consists of
Dr. Gilbert, Mr. Pappajohn and Dr. Walton. No interlocking relationship exists
between any member of our board of directors or our compensation committee and
any member of the board of directors or compensation committee of any other
company, and no interlocking relationship has existed in the past.
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EXECUTIVE COMPENSATION
The following table sets forth information concerning the compensation we
paid to our chief executive officer and our other executive officers whose total
annual compensation exceeded $100,000 during the year ended December 31, 1999.
Mr. Dennis A. Rossi and Mr. Vincent P. Kazmer joined us in July and December of
1999, respectively, and salary information for each of them is presented on an
annualized basis and does not reflect compensation actually paid or accrued
during fiscal year 1999.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION AWARDS
ANNUAL COMPENSATION NUMBER OF SHARES
------------------- UNDERLYING
NAME AND PRINCIPAL POSITION(S) SALARY BONUS OPTIONS (#)
------------------------------ -------- ------- -------------------
<S> <C> <C> <C>
Manuel J. Glynias................................... $245,833 $50,000 --
President and Chief Executive Officer
Vincent P. Kazmer................................... 160,000 20,000 92,500
Executive Vice President, Chief Financial Officer
and Secretary
Michael C. Dickson.................................. 166,667 40,000 26,953
Chief Technology Officer and Senior Vice
President, Product Development
Dennis A. Rossi..................................... 175,000 20,000 75,000
Senior Vice President, Sales and Marketing
Joanne A. O'Dell.................................... 104,583 25,000 15,125
Vice President, Support Services
</TABLE>
OPTION GRANTS
The following table sets forth selected information regarding options we
granted to our named executive officers during the fiscal year ended December
31, 1999. We did not grant any stock appreciation rights to these individuals
during 1999.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
PERCENT OF VALUE AT ASSUMED
NUMBER OF TOTAL ANNUAL RATES OF STOCK
SECURITIES OPTIONS PRICE APPRECIATION FOR
UNDERLYING GRANTED TO OPTION TERM
OPTIONS EMPLOYEES IN EXERCISE PRICE EXPIRATION -----------------------
NAME GRANTED(#) FISCAL YEAR PER SHARE DATE 5% 10%
---- ---------- ------------ -------------- ------------ ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Manuel J. Glynias....... -- -- -- -- -- --
Vincent P. Kazmer....... 92,500 17.13% $1.80 12/01/09 $1,641,573 $2,712,554
Michael C. Dickson...... 16,953 3.14% $1.20 Various 311,042 507,332
dates in
2009
10,000 1.85% $1.80 11/11/09 177,467 293,249
Dennis A. Rossi......... 75,000 13.89% $1.20 07/27/09 and 1,376,005 2,244,368
09/23/09
Joanne A. O'Dell........ 2,625 .49% $1.20 Various 48,160 78,553
dates in
2009
12,500 2.31% $1.80 11/11/09 221,834 366,561
</TABLE>
The percentage of total options is based on an aggregate of 539,894 options
that we granted during 1999 to our employees, including the named executive
officers. We granted these options
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with an exercise price equal to the fair market value of our common stock on the
date of grant, as determined in good faith by our board of directors. For the
purposes of this table, we have assumed that the fair market value of our common
stock on December 31, 1999 was $12.00 per share, the assumed initial public
offering price.
The potential realizable values are based on the assumption that our common
stock will appreciate at the annual rate shown, compounded annually, from the
date of grant until the expiration of the ten-year term of the option. These
numbers are calculated based on SEC requirements and do not reflect our
prediction of our stock price performance. The actual gain, if any, on the
exercise of a stock option will depend on the future performance of our common
stock, the optionee's continued employment through the date on which the options
are exercised and the time at which the underlying shares are sold.
OPTION EXERCISES AND YEAR END OPTION VALUES
The following table sets forth selected information regarding exercisable
and non-exercisable options held on December 31, 1999. None of our executive
officers exercised options in fiscal year 1999.
AGGREGATED FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
OPTIONS AT FISCAL YEAR END AT FISCAL YEAR-END
---------------------------- ----------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Manuel J. Glynias........................ -- -- $ -- $ --
Vincent P. Kazmer........................ -- 92,500 -- 943,500
Michael C. Dickson....................... 7,500 56,953 81,000 609,098
Dennis A. Rossi.......................... -- 75,000 -- 810,000
Joanne A. O'Dell......................... 19,474 24,273 223,450 259,023
</TABLE>
The value of unexercised in-the-money options equals the difference between
the fair market value of our common stock on December 31, 1999 and the per share
exercise price, multiplied by the number of shares underlying the option.
Accordingly, solely for the purposes of this table, we have assumed that the
fair market value of our common stock was $12.00 per share, the assumed initial
public offering price.
EMPLOYEE BENEFIT PLANS
401(k) Plan
In 1998, we adopted a retirement savings plan, commonly known as a 401(k)
plan, covering all of our eligible employees. Participants may elect to reduce
their current compensation, on a pre-tax basis, by up to 15% of their taxable
compensation or the statutorily prescribed annual limit, whichever is lower, and
have the amount of the reduction contributed to the 401(k) plan. Participants'
salary reduction contributions are fully vested at all times. The 401(k) plan is
intended to qualify under Section 401(a) of the Internal Revenue Code. We may,
in our sole discretion, make matching or additional employer contributions to
the 401(k) plan in amounts to be determined annually. Participants' interests in
the additional employer contributions, if any, vest in accordance with a
five-year graduated vesting schedule.
1996 Stock Option Plan
Under our 1996 stock option plan we are authorized to issue up to 2.0
million shares of common stock. On December 31, 1999, options to purchase a
total of 1,087,417 shares of common
42
<PAGE> 43
stock were outstanding under the 1996 plan. These options have a weighted
average exercise price of $1.04 per share.
The 1996 plan authorizes the grant of options to purchase common stock
intended to qualify as incentive stock options, as defined in Section 422 of the
Internal Revenue Code, and nonstatutory stock options. The exercise price of
incentive options granted under the 1996 plan must be at least equal to the fair
market value of our common stock on the date of grant. The terms of these
options may not exceed ten years. The exercise price of incentive options
granted to an optionee who owns stock possessing more that 10% of the voting
power of our outstanding capital stock must be at least equal to 110% of the
fair market value of the common stock on the date of grant. This type of
optionee must exercise his or her option within five years from the date of
grant.
The 1996 plan provides that, upon a change of control of our company, all
outstanding options will become immediately exercisable in full.
For these purposes, a "change of control" means the occurrence of any of
the following:
- any person becomes a beneficial owner, directly or indirectly, of 35% or
more of the combined voting power of our outstanding shares;
- during any period of not more than two consecutive years, there is a
change in more than two-thirds of our incumbent board of directors or
their approved successors;
- our merger with another company, other than a merger:
- in which our voting shares outstanding immediately before the
merger represent at least 50% of the combined voting power of the
voting shares of the surviving entity; or
- effected to implement a recapitalization of NetGenics in which no
person acquires more than 50% of the combined voting power of the
voting shares of the new entity; or
- the liquidation, sale or disposition of all or substantially all of our
assets.
Our board of directors has approved an amendment to the 1996 stock option
plan that authorizes an additional 500,000 shares for issuance, which is subject
to the approval of our stockholders. Following the completion of this offering,
the 1996 plan will be administered by our compensation committee.
EMPLOYMENT AGREEMENTS
In June 1996, we entered into a five-year employment agreement with Manuel
J. Glynias to serve as our President and CEO. Mr. Glynias is also a director and
stockholder of NetGenics. Pursuant to the employment agreement, Mr. Glynias is
entitled to an annual base salary of not less than $120,000 and, at our board's
discretion, an annual incentive bonus. The agreement also provides that if we
terminate Mr. Glynias's employment without "cause," he will be entitled to
receive continuation of salary and health care benefits for a period of six
months. For the purposes of Mr. Glynias's employment agreement, "cause" means:
- conviction of a felony or like criminal behavior; or
- material breach of the employment agreement by Mr. Glynias that has not
been cured on a prospective basis following written notice from, and the
opportunity to be heard before, our board of directors.
In November 1999, we entered into an employment agreement with Vincent P.
Kazmer, our Executive Vice President and Chief Financial Officer. Mr. Kazmer's
employment agreement entitles him to a salary of $160,000 during the first year
of his employment. Thereafter, Mr. Kazmer's salary will be subject to annual
review. Mr. Kazmer is also entitled to additional annual compensation in a
43
<PAGE> 44
lump sum of $20,000 if he remains our employee on August 1 of any year including
2000 and after. If we terminate Mr. Kazmer's employment without "cause," we must
continue to pay Mr. Kazmer's then current salary, but not any benefits (except
if required by law) or bonus or bonus payout, for 12 months following the date
of termination. For purposes of Mr. Kazmer's employment agreement, "cause" means
Mr. Kazmer's:
- committing any felony or other crime involving dishonesty or moral
turpitude;
- serious misconduct in the course of employment;
- violation of our company policies; or
- repeated neglect of duties, other than on account of incapacity.
LIABILITY LIMITATIONS AND INDEMNIFICATION
Our certificate of incorporation limits the liability of directors to the
maximum extent permitted by Delaware law. Delaware law expressly permits a
corporation to provide that its directors will not be personally liable for
monetary damages for breach of their fiduciary duties as directors, except
liability for:
- any breach of their duty of loyalty to the corporation or its
stockholders;
- acts or omissions that are not in good faith or that involve intentional
misconduct or a knowing violation of law;
- unlawful payments of dividends or unlawful stock repurchases or
redemptions; or
- any transaction from which the director derived an improper personal
benefit.
These express limitations do not apply to liabilities arising under the
federal securities laws and do not affect the availability of equitable
remedies, including injunctive relief or rescission.
The provisions of Delaware law that relate to indemnification expressly
state that the rights provided by the statute are not exclusive and are in
addition to any rights provided in a certificate of incorporation, bylaws,
agreement or otherwise. Our certificate of incorporation provides that we will
indemnify our directors and officers, and may indemnify other employees and
agents, to the maximum extent permitted by law. Our certificate of incorporation
also permits us to secure insurance on behalf of any officer, director, employee
or agent for any liability arising out of actions in his or her capacity as an
officer, director, employee or agent. We have obtained an insurance policy that
insures our directors and officers against losses, above a deductible amount,
from specified types of claims. Finally, we have entered into agreements with
each of our directors and executive officers that, among other things, require
us to indemnify those and advance expenses to them relating to indemnification
suits to the fullest extent permitted by law. We believe that these provisions,
policies and agreements will help us attract and retain qualified persons as
directors and executive officers.
The limited liability and indemnification provisions in our certificate of
incorporation and indemnification agreements may discourage stockholders from
bringing a lawsuit against our directors for breach of their fiduciary duties
and may reduce the likelihood of derivative litigation against our directors and
officers, even though a derivative action, if successful, might otherwise
benefit us and our stockholders. A stockholder's investment in us may be
adversely affected to the extent we pay the costs of settlement or damage awards
against our directors and officers under these indemnification provisions.
There is no pending litigation or proceeding involving any of our
directors, officers or employees in which indemnification is sought, nor are we
aware of any threatened litigation that may result in claims for
indemnification.
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<PAGE> 45
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to our directors, officers, employees and agents under our
certificate of incorporation, bylaws or indemnification agreements we have been
advised that in the opinion of the SEC this indemnification is against public
policy as expressed in the Securities Act and is, therefore, unenforceable.
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<PAGE> 46
CERTAIN TRANSACTIONS
SALES OF REDEEMABLE CONVERTIBLE PREFERRED STOCK
A number of our directors, executive officers and stockholders that
beneficially own or owned more than 5% of our common stock have participated in
transactions in which they purchased shares of our redeemable convertible
preferred stock. We believe that we sold these shares at their fair market value
and that the terms of these transactions were no less favorable than we could
have obtained from unaffiliated third parties. The following table summarizes
these transactions:
<TABLE>
<CAPTION>
CLASS OF REDEEMABLE
CONVERTIBLE PREFERRED
CLOSING DATE(S) OF TRANSACTION STOCK PRICE PER SHARE NUMBER OF SHARES
------------------------------ ------------------------ --------------- ----------------
<S> <C> <C> <C>
June 5, 1997............................ Series C 2.05 3,220,734
March 20, 1998 and April 9, 1999........ Series D 4.00 5,097,250
January 6, 2000......................... Series E 4.60 4,623,860
</TABLE>
On the closing of this offering, these shares of redeemable convertible
preferred stock will automatically convert into shares of our common stock.
Listed below are the directors, executive officers and 5% stockholders who
participated in the transactions described above, the number of shares purchased
and the aggregate consideration paid therefore.
<TABLE>
<CAPTION>
REDEEMABLE CONVERTIBLE PREFERRED STOCK
-----------------------------------------------------------
MARCH 20, APRIL 9,
1998 1999 AGGREGATE
NAME SERIES C SERIES D SERIES D SERIES E CONSIDERATION
---- -------- --------- -------- --------- -------------
<S> <C> <C> <C> <C> <C>
John Pappajohn...................................... 121,951 63,379 125,904 -- $1,007,132
Edgewater Private Equity Fund II, L.P............... 121,951 63,389 -- -- 503,556
Incyte Pharmaceuticals, Inc......................... 975,610 63,330 -- -- 2,253,321
Oxford Bioscience II, L.P. and affiliates........... 853,659 126,778 102,759 -- 2,668,149
Venrock Associates II, L.P. and affiliates.......... 853,659 214,278 114,401 -- 3,064,717
College Retirement Equities Fund.................... -- 1,250,000 129,362 -- 5,517,448
International Biotechnology Trust, plc.............. -- 1,250,000 129,362 -- 5,517,448
Affiliates of KECALP, Inc., an affiliate of Merrill
Lynch & Co........................................ -- -- -- 1,086,956 4,999,998
Kleinwort Benson Holdings........................... -- -- -- 1,086,956 4,999,998
Lombard Odier & Cie................................. -- -- -- 900,000 4,140,000
Affiliates of OrbiMed Advisors, L.L.C............... -- -- -- 760,869 3,499,997
</TABLE>
Dr. Walter Gilbert has served as our Chairman, and Mr. John Pappajohn has
served as one of our directors, since our inception. Dr. Anthony B. Evnin,
general partner of Venrock Associates, has served as a director since June 1997.
Dr. Alan G. Walton, general partner of Oxford Bioscience Partners, has served as
one of our directors since June 1997. Nicole Vitullo, Managing Director of
Domain Associates, L.L.C., and formerly a Senior Vice President at Rothschild
Asset Management, an affiliate of International Biotechnology Trust, plc, has
served as a director since March 1998.
In connection with our sales of redeemable convertible preferred stock in
the foregoing transactions, we granted rights to the holders of redeemable
convertible preferred stock to require us to register their shares under the
Securities Act and to include their shares in registration statements we file
for our own benefit under the Securities Act. For more information about these
registration rights, please see "Description of Capital Stock -- Registration
Rights."
SALE OF BRIDGE NOTES
In December 1997, we issued bridge notes in an aggregate amount of $2.75
million to seven of our existing stockholders. These bridge notes were
subsequently converted into shares of our
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<PAGE> 47
Series D redeemable convertible preferred stock at the closing of the first sale
of Series D redeemable convertible preferred stock. In connection with the
issuance of the bridge notes, we issued to the lending stockholders warrants to
purchase an aggregate of 68,750 shares of our common stock at an exercise price
of $0.60 per share. These warrants will expire on December 31, 2000.
LOANS FROM STOCKHOLDERS
In April 1997, we executed a promissory note in the aggregate principal
amount of $250,000 in favor of John Pappajohn, one of our directors and
stockholders. No interest was to accrue on this note. The principal amount of
this note was subsequently converted into shares of Series C redeemable
convertible preferred stock at the closing of the sale of Series C redeemable
convertible preferred stock.
In May 1997, we executed a promissory note in the aggregate amount of
$250,000 in favor of Edgewater Private Equity Fund II, L.P., a stockholder of
NetGenics. No interest was to accrue on this note. The principal amount of this
note was subsequently converted into shares of Series C redeemable convertible
preferred stock at the closing of the Series C redeemable convertible preferred
stock issue.
TECHNICAL SERVICES AGREEMENT WITH IBM
In October 1999, we entered into a warrant agreement and a technical
services agreement with IBM. Under the IBM warrant agreement, we issued to IBM
warrants to purchase 75,000 shares of our common stock at an exercise price of
$10.00 per share, subject to adjustment. The number of shares for which the IBM
warrants could be exercised was adjusted from 75,000 to 111,940, and the
exercise price of the warrants was decreased to $6.70, because of our sale of
our Series E redeemable convertible preferred stock. The exercise price and
number of warrants are subject to further adjustment for stock splits,
combinations and dividends, and, subject to specific exceptions, future
issuances of securities at a per share price of less than $6.70. IBM is also
protected against reorganizations, reclassifications, mergers, consolidations
and asset sales.
As a part of the IBM technical services agreement, we received $2.0 million
from IBM as a pre-payment for anticipated services. Upon the presentation of our
invoices for our services rendered, IBM may, at its option, credit the amount of
the invoice against the pre-payment or remit additional payment to us. IBM may,
on any one occasion before the $2.0 million pre-payment is exhausted, utilize up
to one-third of any then-remaining pre-payment amount to purchase additional
warrants for our common stock at a purchase price of $2.00 per warrant. These
warrants may be exercised by IBM to purchase our common stock at a price of
$4.00 per share, subject to adjustment in the circumstances identified above.
Any remaining pre-payment amount may be used by IBM to fund the purchase of our
common stock under these warrants.
All warrants issued to IBM expire on the earlier of the fifth anniversary
of the closing of:
- a transaction in which all or substantially all of our assets are
transferred to any person or group or any person or group acquires the
beneficial ownership of 50% or more of our voting stock; or
- this offering.
AGREEMENTS WITH DIRECTORS AND EXECUTIVE OFFICERS
We have entered into employment agreements with some of our executive
officers. See "Management -- Employment Agreements" for a description of the
employment agreements with each of Messrs. Glynias and Kazmer.
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<PAGE> 48
In August 1999, we entered into severance pay agreements with three of our
executive officers that separated from us at that time. See "Certain
Transactions -- Severance Agreements," for a description of the severance pay
agreements for each of those executive officers.
We have granted stock options to each of our directors and executive
officers. See "Management -- Director Compensation" and "Management -- Employee
Benefit Plans."
We have entered into indemnification agreements with each of our directors
and executive officers. These agreements require us to indemnify those persons
to the fullest extent permitted by Delaware law. See "Management -- Liability
Limitations and Indemnification."
SEVERANCE AGREEMENTS
In August 1999, we entered into a severance agreement with E. David
Callender, our former Vice President of Sales. We agreed to continue to pay Mr.
Callender an annual salary of $130,000 until January 25, 2000. We also agreed
that shares of restricted stock that Mr. Callender purchased from us would
continue to vest through January 25, 2000, and that 3,500 stock options granted
to Mr. Callender on July 31, 1998, vest as of the date of the severance
agreement. Mr. Callender is also entitled to participate in our health insurance
and other employee benefit programs until January 25, 2000 and a maximum of
$10,000 for outplacement services, reimbursement of relocation and other
expenses, and sales commissions owed to him, calculated on a cash collected
basis through January 25, 2000.
In August 1999, we also entered into a severance agreement with Alan
Engelberg, our former Vice President of Marketing. We agreed to continue to pay
Mr. Engelberg an annual salary of $108,000 until July 26, 2000. We also agreed
that shares of restricted stock that Mr. Engelberg purchased from us would
continue to vest through July 26, 2000. Mr. Engelberg is entitled to participate
in our health insurance programs until July 26, 2000, and a maximum of $10,000
in outplacement services rendered prior to July 26, 2000.
In August 1999, we also entered into a severance agreement with Keith T.
Coleman, our former Chief Financial Officer, Treasurer and Secretary. We agreed
to continue to pay Mr. Coleman an annual salary of $160,000 until July 31, 2000,
and to make additional payments of $25,000 that would have become payable on
August 1, 1999 and on August 1, 2000 pursuant to his employment agreement. We
also agreed that all stock options granted to Mr. Coleman that are scheduled to
vest on or before August 12, 2000 shall immediately vest as of the date of his
severance agreement. Mr. Coleman agreed to act as a special consultant to us
until July 31, 2000 and to render in that capacity services that we may
reasonably request (but that would not interfere with Mr. Coleman's alternative
employment) to assist us in the conduct of our business. We agreed to continue
Mr. Coleman's health benefits until July 31, 2000 and to provide a maximum of
$10,000 for outplacement services rendered prior to July 31, 2000.
As of January 31, 2000, our outstanding severance obligations for these
three separated employees were approximately $178,000 in the aggregate.
TERMS OF TRANSACTIONS
We believe that the transactions set forth above were made on terms no less
favorable to us than we could have obtained from unaffiliated third parties. All
future transactions, including loans, between us and our officers, directors,
principal stockholders, and their affiliates will be approved by a majority of
the board of directors, including a majority of the independent and
disinterested outside directors, and will continue to be on terms no less
favorable to us than could be obtained from unaffiliated third parties.
48
<PAGE> 49
PRINCIPAL STOCKHOLDERS
The following table sets forth information regarding beneficial ownership
of our common stock before and after this offering as of March 1, 2000 by each
person who is known by us to own beneficially more than five percent of the
outstanding shares of our common stock, each of our directors, each of our
executive officers and all directors and executive officers as a group.
We have determined beneficial ownership in accordance with the rules of the
SEC. Except as noted below, we believe that the persons named in the table have
sole voting and investment power with respect to all shares of common stock
beneficially owned. Percentage of beneficial ownership before this offering is
based on 17,974,792 shares of common stock outstanding as of March 1, 2000,
including shares into which our redeemable convertible preferred stock will
convert upon completion of this offering. Percentage of beneficial ownership
after this offering is based on 23,474,792 shares of common stock outstanding as
of March 1, 2000, which includes shares into which our redeemable convertible
preferred stock will convert upon completion of this offering and 5,500,000
shares from this offering. Unless otherwise indicated, the address for each
stockholder is c/o NetGenics, Inc., 1717 East Ninth Street, Suite 1600,
Cleveland, Ohio 44114.
<TABLE>
<CAPTION>
PERCENTAGE OF SHARES
NUMBER OF BENEFICIALLY OWNED
SHARES -----------------------
BENEFICIALLY BEFORE AFTER
NAME OF BENEFICIAL OWNER OWNED OFFERING OFFERING(1)
------------------------ -------------- -------- -----------
<S> <C> <C> <C>
College Retirement Equities Fund(2)................ 1,379,362 7.7% 5.9%
International Biotechnology Trust, plc(3).......... 1,379,362 7.7 5.9
Venrock Associates II, L.P. and affiliates(4)...... 1,211,505 6.7 5.2
Edgewater Private Equity Fund II, L.P.(5).......... 1,191,590 6.6 5.1
Oxford Bioscience Partners II, L.P. and
affiliates(6).................................... 1,095,696 6.1 4.7
Affiliates of KECALP Inc., an affiliate of Merrill
Lynch & Co.(7)................................... 1,086,956 6.0 4.6
Incyte Pharmaceuticals, Inc.(8).................... 1,045,190 5.8 4.5
Affiliates of OrbiMed Advisors, L.L.C.(9).......... 1,010,869 5.6 4.3
Lombard Odier & Cie(10)............................ 900,000 5.0 3.8
Manuel Glynias(11)................................. 1,427,500 7.9 6.1
Nicole Vitullo(12)................................. 1,396,028 7.8 5.9
Anthony B. Evnin(13)............................... 1,211,505 6.7 5.2
John Pappajohn(14)................................. 1,201,494 6.7 5.1
Alan G. Walton(15)................................. 1,112,362 6.2 4.7
Walter Gilbert(16)................................. 825,000 4.6 3.5
Michael C. Dickson(17)............................. 48,812 * *
Joanne A. O'Dell(18)............................... 19,812 * *
Raymond J. Merk(19)................................ 5,440 * *
Vincent P. Kazmer.................................. -- -- --
All executive officers and directors as a group (10
persons)(20)..................................... 7,247,953 40.0 30.7
</TABLE>
- -------------------------
* Less than 1%
(1) Based on 23,474,792 shares outstanding after this offering, assuming
5,500,000 shares are issued. Does not reflect shares, if any, purchased by
any listed person in this offering.
(2) College Retirement Equities Fund is located at 30 Third Avenue, NY, NY
10017.
(3) International Biotechnology Trust is located at Five Arrow House, St.
Swithin's Lane, London, England EC4N 8NR.
(footnotes continue on next page)
49
<PAGE> 50
(4) Venrock Associates is located at 30 Rockefeller Plaza, Suite 5508, NY, NY
10112. Includes 16,666 shares subject to options exercisable within 60 days
of March 1, 2000 and warrants to purchase 12,500 shares.
(5) Edgewater is located at 900 N. Michigan Avenue, 14(th) Floor, Chicago, IL
60611. Includes warrants to purchase 6,250 shares.
(6) Oxford Bioscience Partners is located at 315 Post Road West, Westport, CT
06880. Includes warrants to purchase 12,500 shares.
(7) Merrill Lynch KECALP L.P. 1999, Merrill Lynch KECALP L.P. 1997, KECALP Inc.
as Nominee for Merrill Lynch KECALP International L.P. 1999 and KECALP Inc.
as Nominee for Merrill Lynch KECALP International L.P. 1997 are affiliates
of KECALP Inc., which is an affiliate of Merrill Lynch & Co. KECALP's
address is World Financial Center, South Tower, 23(rd) Floor, NY, NY 10080.
(8) Incyte Pharmaceuticals is located at 3174 Porter Dr., Palo Alto, CA 94040.
Includes warrants to purchase 6,250 shares.
(9) OrbiMed Advisors is located at 41 Madison Avenue, 40(th) Floor, NY, NY
10010.
(10) Lombard Odier & Cie is located at Sihlstrasse 20, 8021 Zurich, Switzerland.
(11) Includes 1,377,500 shares held by Glynias Family Investment Company L.P.,
of which Manuel Glynias, who is our President, Chief Executive Officer and
a director, is the general partner. Also includes 25,000 shares held by Mr.
Glynias' spouse, Linda M. Glynias, as custodian for Joseph F. Glynias and
25,000 shares held by Mrs. Glynias as custodian for Marissa A. Glynias, as
to all of which Mr. Glynias disclaims beneficial ownership.
(12) Includes 16,666 shares subject to options exercisable within 60 days of
March 1, 2000. Ms. Vitullo, one of our directors, is the board designee of
International Biotechnology Trust plc. Ms. Vitullo disclaims beneficial
ownership of the shares held by International Biotechnology Trust.
(13) Anthony B. Evnin, one of our directors, is a general partner of Venrock
Associates, an affiliate of Venrock Associates II, L.P. Mr. Evnin disclaims
beneficial ownership in the shares owned by Venrock Associates II, L.P. and
its affiliates, except to the extent of his pecuniary interest, if any.
(14) Includes 125,000 shares held by Halkis, Ltd., a sole proprietorship owned
by Mr. Pappajohn, 125,000 shares held by Mr. Pappajohn's spouse, Mary
Pappajohn, and 125,000 shares owned by Thebes, Ltd., a sole proprietorship
owned by Mary Pappajohn. Mr. Pappajohn disclaims beneficial ownership of
the shares held by Mary Pappajohn and Thebes, Ltd.
(15) Includes 16,666 shares subject to options exercisable within 60 days of
March 1, 2000. Alan G. Walton, one of our directors, is a general partner
of Oxford Bioscience Partners, an affiliate of Oxford Bioscience Partners
II, L.P. Mr. Walton disclaims beneficial ownership of the shares held by
Oxford Bioscience Partners II, L.P. and its affiliates, except to the
extent of his pecuniary interest, if any.
(16) Includes 25,000 shares subject to options exercisable within 60 days of
March 1, 2000. Also includes 250,000 shares owned by Mr. Gilbert's wife,
Celia Gilbert, 150,000 shares owned by Mr. Gilbert's son, John Gilbert, and
150,000 shares owned by Mr. Gilbert's daughter, Kate Gilbert, as to all of
which Mr. Gilbert disclaims beneficial ownership.
(17) Includes 11,312 shares subject to options held by Mr. Dickson exercisable
within 60 days of December 31, 1999.
(18) Consists of 19,812 shares subject to options held by Ms. O'Dell exercisable
within 60 days of December 31, 1999.
(19) Consists of 5,440 shares subject to options held by Mr. Merk exercisable
within 60 days of December 31, 1999.
(20) Includes 111,562 shares subject to options held by executive officers and
directors exercisable within 60 days of March 1, 2000. Also includes
warrants to purchase 31,250 shares of common stock held by executive
officers and directors.
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<PAGE> 51
DESCRIPTION OF CAPITAL STOCK
Upon completion of this offering, our authorized capital stock will consist
of 75.0 million shares of common stock, $0.001 par value, and 5.0 million shares
of undesignated preferred stock, $0.001 par value.
Common Stock
As of December 31, 1999, there were 17,952,656 shares of common stock held
of record by 111 stockholders after giving effect to the issuance of the
redeemable convertible Series E preferred stock.
Holders of common stock are entitled to one vote for each share held of
record on all matters submitted to a stockholder vote and do not have cumulative
voting rights. The holders of common stock are entitled to their proportionate
share of any dividends that may be declared by the board of directors out of
legally available funds, after any superior rights of the holders of preferred
stock have been satisfied. See "Dividend Policy." In the event of our
liquidation, dissolution or winding up, holders of common stock are entitled to
their proportionate share of all assets remaining after payment of liabilities
and any amounts due to the holders of preferred stock. Holders of common stock
have no preemptive rights and no right to convert their common stock into any
other securities. No redemption or sinking fund provisions apply to the common
stock. All outstanding shares of common stock are, and all shares of common
stock to be outstanding upon completion of this offering will be, fully paid and
non-assessable.
Preferred Stock
Immediately prior to this offering, our certificate of incorporation
provided for five series of preferred stock.
Following this offering, our board of directors will be authorized, without
stockholder approval, to issue up to 5.0 million shares of preferred stock in
one or more series and to fix the rights, preferences, privileges and
restrictions granted to or imposed upon the preferred stock, including voting
rights, dividend rights, conversion rights, terms of redemption, liquidation
preference, sinking fund terms and the number of shares constituting any series
or the designation of a series. Our board of directors, without stockholder
approval, can issue preferred stock with voting and conversion rights which
could adversely affect the voting power of the holders of common stock. The
issuance of preferred stock could have the effect of delaying, deferring or
preventing a change in our control. We have no present plan to issue any shares
of preferred stock.
Warrants
In December 1997, we issued warrants to purchase an aggregate of 68,750
shares of common stock at an exercise price of $0.60 per share to seven of our
existing stockholders. The exercise price of these warrants is subject to
adjustment for stock splits, combinations and dividends. The holders of these
warrants are also protected against reorganizations, mergers, consolidations and
asset sales. These warrants will expire on December 31, 2000. On February 17,
2000, John Pappajohn exercised warrants to purchase 6,250 shares of our common
stock at an exercise price of $0.60 per share.
In October 1999, we entered into a warrant agreement and a technical
services agreement with IBM. Under the IBM warrant agreement, we issued to IBM
warrants to purchase 75,000 shares of our common stock at an exercise price of
$10.00 per share, subject to adjustment. The number of shares for which the IBM
warrants could be exercised was adjusted from 75,000 to 111,940, and the
exercise price of the warrants was decreased to $6.70, because of our private
placement of our Series E preferred stock. See "Certain
Transactions -- Technical Services Agreement with IBM."
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<PAGE> 52
Registration Rights
Some of our stockholders have demand, "piggyback" and S-3 registration
rights pursuant to our registration rights agreement with those investors. In
addition, we granted to IBM "piggyback" registration rights. These rights are
summarized below.
After the completion of this offering, holders of 17,443,749 shares of
common stock or their permitted transferees will be entitled to unlimited
"piggyback" registration rights. These rights entitle the holders to notice of
the registration and to include, at our expense, their shares of common stock in
many of our registrations of our common stock. We and our underwriters can
reduce the number of shares of common stock to be included by holders of
piggyback rights in view of market conditions:
- if the registration is our first registered offering of securities to the
public, by excluding pro rata some or all of the securities to be
registered by holders of piggyback rights; and
- for all other registrations, by reducing pro rata among holders
exercising their piggyback rights their securities to be registered to
not less than 30% of all securities to be registered.
On the date 180 days after completion of this offering, the holders of
17,443,749 shares of common stock or their transferees will be entitled to
"demand" rights to register all or a portion of these shares under the
Securities Act if the reasonably anticipated aggregate price to the public of
these shares would exceed $5.0 million. We are obligated to make two of these
demand registrations for these stockholders.
If at any time we are eligible to register our securities on a Form S-3
under the Securities Act, holders of 17,443,749 shares of our common stock will
be able to demand that we file such registration statement if the reasonably
anticipated price to the public (net of underwriting commissions) for those
shares would exceed $1.0 million.
If our stockholders with registration rights cause a large number of
securities to be registered and sold in the public market, those sales could
cause the market price of our common stock to fall. If we are to initiate a
registration and include registrable securities because of the exercise of
registration rights, the inclusion of registrable securities could adversely
affect our ability to raise capital.
ANTI-TAKEOVER PROVISIONS OF DELAWARE LAW, OUR CERTIFICATE OF INCORPORATION AND
OUR BYLAWS
Delaware law, our certificate of incorporation and bylaws contain
provisions that could make it more difficult to acquire us by means of a tender
offer, a proxy contest or otherwise. We expect that these provisions, which are
summarized below, will discourage coercive takeover practices and inadequate
takeover bids and encourage persons seeking to acquire control of us to first
negotiate with our board of directors. We believe that the benefits of increased
protection of our potential ability to negotiate with the proponent of an
unfriendly or unsolicited proposal to acquire or restructure us outweigh the
disadvantages of discouraging takeover or acquisition proposals because
negotiation of these proposals could result in an improvement of their terms.
The description below is not complete and is qualified in its entirety by
reference to the cited provisions of Delaware law our certificate of
incorporation and bylaws.
Delaware Law
Section 203 of the Delaware General Corporation Law applies to corporate
takeovers of Delaware corporations. Subject to specified exceptions, Section 203
provides that a Delaware corporation may not engage in any business combination
with any "interested stockholder" for a three-year period following the date
that the stockholder becomes an interested stockholder unless:
- prior to that date, the board of directors of the corporation approved
either the business combination or the transaction which resulted in the
stockholder becoming an interested stockholder;
52
<PAGE> 53
- upon consummation of the transaction that resulted in the stockholder
becoming an interested stockholder, the interested stockholder owned at
least 85% of the voting stock of the corporation outstanding at the time
the transaction commenced, excluding specified shares; or
- on or subsequent to that date, the business combination is approved by
the board of directors of the corporation and by the affirmative vote of
at least 66 2/3% of the outstanding voting stock that is not owned by the
interested stockholder.
Except as specified in Section 203, an interested stockholder is defined to
include any person that is:
- the owner of 15% or more of the outstanding voting stock of the
corporation;
- an affiliate or associate of the corporation and was the owner of 15% or
more of the outstanding voting stock of the corporation at any time
within three years immediately prior to the relevant date; and
- the affiliates and associates of the above.
Under specific circumstances, Section 203 makes it more difficult for an
"interested stockholder" to effect various business combinations with a
corporation for a three-year period, although the stockholders may, by adopting
an amendment to the corporation's certificate of incorporation or bylaws, elect
not to be governed by this section effective twelve months after adoption. Our
certificate of incorporation and bylaws do not exclude us from the restrictions
imposed under Section 203. We anticipate that the provisions of Section 203 may
encourage companies interested in acquiring us to negotiate in advance with our
board of directors since the stockholder approval requirement would be avoided
if a majority of the directors then in office approve either the business
combination or the transaction that resulted in the stockholder becoming an
interested stockholder.
Certificate of Incorporation and Bylaw Provisions
Upon completion of this offering, our certificate of incorporation and
bylaws will include a number of provisions that may have the effect of deterring
hostile takeovers or delaying or preventing changes in control of us or our
management. First, our certificate of incorporation will provide that all
stockholder actions must be effected at a duly called meeting of stockholders
and not by a consent in writing. Second, our bylaws will provide that special
meetings of the stockholders may be called only by the chairman of the board of
directors, the chief executive officer, or our board of directors pursuant to a
resolution adopted by a majority of the total number of authorized directors.
Third, our certificate of incorporation will provide that our board of directors
can issue up to 5,000,000 shares of preferred stock, as described under
" -- Preferred Stock" above. Finally, our bylaws will establish procedures,
including advance notice procedures with regard to the nomination of candidates
for election as directors and stockholder proposals. These provisions could
discourage potential acquisition proposals and could delay or prevent a change
in control of us or our management.
TRANSFER AGENT AND REGISTRAR
We have appointed National City Bank, N.A., as the transfer agent and
registrar for our common stock.
LISTING
We have applied to have the shares of common stock offered hereby approved
for quotation on the Nasdaq National Market under the symbol NTGC.
53
<PAGE> 54
SHARES ELIGIBLE FOR FUTURE SALE
No public market for our common stock existed before this offering. Future
sales of substantial amounts of our common stock in the public market could
cause our prevailing market prices to decline. A large number of our shares of
common stock outstanding will not be available for sale shortly after this
offering because of contractual and legal restrictions on resale as described
below. Sales of substantial amounts of our common stock in the public market
after these restrictions lapse could depress our prevailing market price and
limit our ability to raise equity capital in the future.
Upon completion of this offering, we will have outstanding an aggregate of
shares of common stock, assuming no exercise of the underwriters'
over-allotment option and no exercise of outstanding options or warrants. All of
the shares sold in this offering, other than those sold to our affiliates, will
be freely tradable without restriction or further registration under the
Securities Act. The remaining shares of common stock held by
existing stockholders are restricted securities. Restricted securities may be
sold in the public market only if registered or if they qualify for an exemption
from registration under the Securities Act.
As a result of the contractual restriction described below and the rules
under the Securities Act, the restricted shares will be available for sale in
the public market as follows:
<TABLE>
<CAPTION>
NUMBER OF SHARES ELIGIBLE
RELEVANT DATES FOR FUTURE SALE COMMENT
-------------- ---------------------------- ----------------------------------
<S> <C> <C>
On effective date............... Shares not locked-up and saleable
under Rule 144
90 days following the effective Shares not locked-up and saleable
date............................ under Rules 144 and 701
180 days following the effective Lock-up released: shares saleable
date............................ under Rules 144 and 701
More than 181 days after the Additional shares becoming
effective date.................. eligible for sale under Rule 144
more than 180 days after the
effective date
</TABLE>
Additionally, of the shares that may be issued upon the
exercise of options outstanding as of , 2000, approximately
shares will be vested and eligible for sale 180 days after the
date of this prospectus.
LOCK-UP AGREEMENTS
All of our officers and directors, and a majority of our stockholders,
warrant holders and option holders, have agreed not to transfer or dispose of,
directly or indirectly, any shares of our common stock or any securities
convertible into or exercisable or exchangeable for shares of our common stock,
for a period of 180 days after the date the registration statement of which this
prospectus is a part is declared effective. Transfers or dispositions can be
made sooner with the prior written consent of Chase Securities Inc.
54
<PAGE> 55
RULE 144
In general, under Rule 144, beginning 90 days after the date of this
prospectus, a person that has beneficially owned shares of our common stock for
at least one year would be entitled to sell within any three-month period a
number of shares that does not exceed the greater of:
- shares immediately after this offering; or
- the average weekly trading volume of the common stock on the Nasdaq
National Market during the four calendar weeks preceding the filing of a
notice on Form 144 with respect to the sale.
Sales under Rule 144 must comply with manner of sale provisions and notice
requirements, and information about us must be publicly available.
RULE 144(k)
Under Rule 144(k), a person that has not been one of our affiliates at any
time during the 90 days preceding a sale, and that has beneficially owned the
shares proposed to be sold for at least two years, is entitled to sell those
shares without complying with the manner of sale, public information, volume
limitation or notice provisions of Rule 144. Therefore, unless otherwise
restricted, 144(k) shares may be sold immediately upon the completion of this
offering.
RULE 701
Any of our employees, officers, directors or consultants who purchased
shares pursuant to a written compensatory plan or contract may be entitled to
rely on the resale provision of Rule 701. Rule 701 permits affiliates to sell
their Rule 701 shares under Rule 144 without complying with the holding period
requirements of Rule 144. Rule 701 further provides that non-affiliates may sell
these shares in reliance on Rule 144 without having to comply with the holding
period, public information, volume limitation or notice provisions of Rule 144.
All holders of Rule 701 shares are required to wait until 90 days after the date
of this prospectus before selling those shares.
We are unable to estimate the number of shares that will be sold under
Rules 144, 144(k) and 701 because the number will depend on the market price for
the common stock, the personal circumstances of the sellers and other factors.
REGISTRATION RIGHTS
On the date 180 days after the completion of this offering, the holders of
17,443,749 shares of our common stock will have rights to require us to register
their shares under the Securities Act. Upon the effectiveness of a registration
statement covering these shares, the shares would become freely tradable. See
"Description of Capital Stock -- Registration Rights."
STOCK OPTIONS
Upon the completion of this offering, we intend to file a registration
statement on Form S-8 under the Securities Act covering, among other things,
shares of common stock covered by outstanding options under our stock option
plan. Based on the number of shares covered by outstanding options and reserved
for issuance under our stock plan as of , 2000, the registration
statement would cover approximately shares. The registration
statement will become effective upon filing. Accordingly, shares registered
under the registration statement on Form S-8 will be available for sale in the
open market immediately thereafter, after complying with Rule 144 volume
limitations applicable to affiliates, and with applicable 180-day lock-up
agreements.
55
<PAGE> 56
UNDERWRITING
Subject to the terms and conditions of the underwriting agreement, the
underwriters named below, through their representatives, Chase Securities Inc.
and Warburg Dillon Read LLC, have severally agreed to purchase from us the
following numbers of shares of common stock:
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITER SHARES
----------- ---------
<S> <C>
Chase Securities Inc........................................
Warburg Dillon Read LLC.....................................
---------
Total............................................. 5,500,000
=========
</TABLE>
The underwriting agreement provides that the obligations of the
underwriters are conditioned on the absence of any material adverse change in
our business and the receipt of certificates, opinions and letters from us, our
counsel and our independent auditors. The underwriters are committed to purchase
all shares of common stock offered in this prospectus if any shares are
purchased.
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 dealers at the public offering price less a concession not in
excess of $ per share. The underwriters may allow and the dealers may
reallow a concession not in excess of $ per share to other dealers. After
the public offering of the shares, the underwriters may change this offering
price and other selling terms. The representatives of the underwriters have
informed us that the underwriters do not intend to confirm discretionary sales
in excess of % of the shares of common stock offered by this prospectus.
We have granted to the underwriters an option, exercisable no later than 30
days after the date of this prospectus, to purchase up to 825,000 additional
shares of common stock at the public offering price, less the underwriting
discount set forth on the cover page of this prospectus. To the extent that the
underwriters exercise this option, each underwriter will have a firm commitment
to purchase a number of shares that approximately reflects the same percentage
of total shares the underwriter purchased in the above table. We will be
obligated to sell shares to the underwriters to the extent the option is
exercised. The underwriters may exercise this option only to cover over-
allotments made in connection with the sale of common stock offered in this
prospectus.
The following table shows the per share and total underwriting discounts
and commissions that we will pay to the underwriters. The underwriting discount
was determined based on an arms' length negotiation between the representatives
of the underwriters and us. These amounts are shown assuming both no exercise
and full exercise of the underwriters' over-allotment option to purchase
additional shares.
<TABLE>
<CAPTION>
PAID BY NETGENICS
----------------------------
NO EXERCISE FULL EXERCISE
----------- -------------
<S> <C> <C>
Per share................................................. $ $
Total..................................................... $ $
</TABLE>
We estimate that our share of the total expenses of this offering,
excluding underwriting discounts and commissions, will be approximately $ .
This offering of the shares is made for delivery when, as and if accepted by the
underwriters and subject to prior sale and to withdrawal,
56
<PAGE> 57
cancellation or modification of this offering without notice. The underwriters
reserve the right to reject an order for the purchase of shares in whole or in
part.
We have agreed to indemnify the underwriters against liabilities, including
liabilities under the Securities Act, and to contribute to payments the
underwriters may be required to make in respect to those liabilities.
Substantially all of our stockholders holding in the aggregate shares
of common stock, and including all of our executive officers and directors, have
agreed that they will not, without the prior written consent of Chase Securities
Inc., offer, sell or otherwise dispose of any shares of common stock, options or
warrants to acquire shares of common stock or securities exchangeable for or
convertible into shares of common stock owned by them during the 180-day period
following the date of this prospectus. We have agreed that we will not, without
the prior written consent of Chase Securities Inc., offer, sell or otherwise
dispose of any shares of common stock, options or warrants to acquire shares of
common stock or securities exchangeable for or convertible into shares of common
stock during the 180-day period following the date of this prospectus, except
that we may issue shares upon the exercise of options under our stock option
plan, provided that, without the prior written consent of Chase Securities Inc.,
any additional options shall not be exercisable during the 180-day period.
At our request, the underwriters have reserved up to five percent (5%) of
the shares of common stock to be sold in this offering to be offered for sale,
at the initial public offering price, to our directors, officers, employees,
business associates such as customers and suppliers and persons related to, or
affiliated with the foregoing persons. The number of shares available for sale
to the general public in this offering will be reduced to the extent these
persons purchase the reserved shares. Any reserved shares not so purchased will
be offered to the general public on the same basis as other shares offered by
this prospectus.
Persons participating in this offering may over-allot or effect
transactions that stabilize, maintain or otherwise affect the market price of
the common stock at levels above those that might otherwise prevail in the open
market, including by entering stabilizing bids, effecting syndicate covering
transactions or imposing penalty bids. 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
this offering. A penalty bid means an arrangement that permits the underwriters
to reclaim a selling concession from a syndicate member in connection with this
offering when shares of common stock sold by the syndicate member are purchased
in syndicate covering transactions. These transactions may be effected on the
Nasdaq National Market, in the over-the-counter market or otherwise.
Stabilizing, if commenced, may be discontinued at any time.
Before this offering, there was no public market for the common stock. The
initial public offering price for the common stock will be determined by
negotiations between ourselves and the representatives of the underwriters.
Among the factors to be considered in determining the initial public offering
price will be prevailing market and economic conditions, our revenues and
earnings, market valuations of other companies engaged in activities similar to
ours, estimates of our business potential and prospects, the present state of
our business operations, our management and other factors deemed relevant.
57
<PAGE> 58
LEGAL MATTERS
Jones, Day, Reavis & Pogue will pass upon the validity of the issuance of
the shares being sold in this offering and other legal matters relating to this
offering. Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C. will act as
counsel for the underwriters.
EXPERTS
The consolidated financial statements of NetGenics, Inc. as of December 31,
1998 and 1999, and for each of the three years in the period ended December 31,
1999 and for the period from June 24, 1996 (date of inception) through December
31, 1999, included in this prospectus have been so included in reliance on the
report of PricewaterhouseCoopers LLP, independent accountants, given on the
authority of said firm as experts in auditing and accounting.
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the Securities and Exchange Commission a registration
statement on Form S-1 under the Securities Act of 1933 with respect to the
common stock we are offering. This prospectus contains all information about
NetGenics and our common stock that would be material to an investor. The
registration statement includes exhibits and schedules to which you should refer
for additional information about us.
You may inspect a copy of the registration statement and the exhibits and
schedules to the registration statement over the Internet at the SEC's web site
at http://www.sec.gov. You may also read and copy any document we file with the
SEC at its public reference facilities at Room 1024, Judiciary Plaza, 450 Fifth
Street, Washington, D.C. 20549. You may also obtain copies of the documents at
prescribed rates by writing to the Public Reference Section of the SEC at Room
1024, 450 Fifth Street, Washington, D.C. 20549. You may obtain information on
the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330.
We intend to send our stockholders annual reports containing audited
financial statements and to make available quarterly reports containing
unaudited financial statements for the first three quarters of each fiscal year.
58
<PAGE> 59
NETGENICS, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Accountants........................... F-2
Consolidated Balance Sheets as of December 31, 1998 and
1999...................................................... F-3
Consolidated Statements of Operations for the years ended
December 31, 1997, 1998 and 1999 and the cumulative totals
for development stage of operations from June 24, 1996
(date of inception) through December 31, 1999............. F-4
Consolidated Statements of Comprehensive Loss for the years
ended December 31, 1997, 1998 and 1999 and the cumulative
totals for development stage of operations from June 24,
1996 (date of inception) through December 31, 1999........ F-5
Consolidated Statements of Redeemable Convertible Preferred
Stock and Stockholders' Equity (Deficit) for the years
ended December 31, 1997, 1998 and 1999 and for the period
from June 24, 1996 (date of inception) through December
31, 1999.................................................. F-6
Consolidated Statements of Cash Flows for the years ended
December 31, 1997, 1998 and 1999 and the cumulative totals
for development stage of operations from June 24, 1996
(date of inception) through December 31, 1999............. F-7
Notes to Consolidated Financial Statements.................. F-8
</TABLE>
F-1
<PAGE> 60
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
NetGenics, Inc. and Subsidiaries
(A Development Stage Company)
The recapitalization described in Note 14 to the consolidated financial
statements has not been consummated at March 9, 2000. When it has been
consummated, we will be in a position to furnish the following report:
"We have audited the accompanying consolidated balance sheets of NetGenics,
Inc. and Subsidiaries (a development stage company) as of December 31, 1998
and 1999, and the related consolidated statements of operations,
comprehensive loss, redeemable convertible preferred stock and
stockholders' equity (deficit) and cash flows for the years ended December
31, 1997, 1998 and 1999, and for the period from June 24, 1996 (date of
inception) through December 31, 1999. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the
consolidated 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. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of
NetGenics, Inc. and Subsidiaries as of December 31, 1998 and 1999, and the
results of its operations and its cash flows for the years ended December
31, 1997, 1998 and 1999, and for the period from June 24, 1996 (date of
inception) through December 31, 1999, in conformity with accounting
principles generally accepted in the United States."
PricewaterhouseCoopers LLP
Cleveland, Ohio
March 9, 2000
F-2
<PAGE> 61
NETGENICS, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 1998 AND 1999
<TABLE>
<CAPTION>
PRO FORMA
DECEMBER 31,
1999
1998 1999 (SEE NOTE 2)
----------- ------------ -------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents......................... $ 7,412,704 $ 2,572,159 $22,664,321
Lease deposit..................................... 260,414 122,564 122,564
Accounts receivable............................... 45,000 247,532 247,532
Prepaid expenses.................................. 353,086 1,550,612 300,538
----------- ------------ -----------
Total current assets........................... 8,071,204 4,492,867 23,334,955
Property and equipment, at cost:
Furniture and fixtures............................ 636,505 665,101 665,101
Computer equipment................................ 2,599,936 3,032,482 3,032,482
Computer software................................. 833,538 853,225 853,225
Leasehold improvements............................ 237,232 339,259 339,259
----------- ------------ -----------
Total property and equipment................... 4,307,211 4,890,067 4,890,067
Less accumulated depreciation..................... (1,225,138) (2,418,746) (2,418,746)
----------- ------------ -----------
3,082,073 2,471,321 2,471,321
Lease deposit....................................... 124,501 -- --
Other assets........................................ 54,382 69,584 69,584
----------- ------------ -----------
Total assets................................... $11,332,160 $ 7,033,772 $25,875,860
=========== ============ ===========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable.................................. $ 206,997 $ 121,278 $ 121,278
Accrued expenses.................................. 760,330 2,256,721 1,079,129
Deferred revenue.................................. 562,300 253,100 253,100
Customer deposit.................................. -- 2,000,000 2,000,000
Current portion of long-term debt................. -- 384,211 384,211
----------- ------------ -----------
Total current liabilities...................... 1,529,627 5,015,310 3,837,718
Long-term debt, net of current portion............ -- 689,349 689,349
----------- ------------ -----------
Total liabilities.............................. 1,529,627 5,704,659 4,527,067
----------- ------------ -----------
Commitments and contingencies (see Note 5)..........
Redeemable convertible preferred stock (see Note
7)................................................ 24,383,554 27,079,377 --
Stockholders' equity (deficit):
Common stock $0.001 par value, 43,000,000 shares
authorized; 2,898,875 and 3,010,813 shares
issued and outstanding in 1998 and 1999,
respectively (17,952,656 shares issued and
outstanding pro forma)......................... 2,899 3,011 17,953
Additional paid-in capital........................ 8,713 3,090,929 70,194,724
Deferred stock compensation....................... -- (2,992,137) (2,992,137)
Cumulative deficit during development stage....... (14,598,318) (25,863,122) (45,882,802)
Accumulated other comprehensive income............ 5,766 11,136 11,136
----------- ------------ -----------
(14,580,940) (25,750,183) 21,348,874
Less treasury stock at cost, 46,875 shares........ 81 81 81
----------- ------------ -----------
Total stockholders' equity (deficit)........... (14,581,021) (25,750,264) 21,348,793
----------- ------------ -----------
Total liabilities and stockholders' equity
(deficit).................................... $11,332,160 $ 7,033,772 $25,875,860
=========== ============ ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE> 62
NETGENICS, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999 AND THE
CUMULATIVE TOTALS FOR DEVELOPMENT STAGE OF OPERATIONS FROM
JUNE 24, 1996 (DATE OF INCEPTION) THROUGH DECEMBER 31, 1999
<TABLE>
<CAPTION>
CUMULATIVE
DEVELOPMENT
STAGE PERIOD FROM
JUNE 24, 1996
YEAR ENDED YEAR ENDED YEAR ENDED THROUGH
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1997 1998 1999 1999
------------ ------------ ------------ -----------------
<S> <C> <C> <C> <C>
Revenue................................ $ 57,025 $ 405,480 $ 1,763,625 $ 2,226,130
Operating expenses:
Sales and marketing (exclusive of
non-cash stock compensation of
$2,515 in 1999)................... 697,610 1,851,169 2,112,133 4,802,448
Research, development and support
(exclusive of noncash stock
compensation of $7,737 in 1999)... 1,953,961 4,630,100 5,989,597 12,888,868
General and administrative (exclusive
of noncash stock compensation of
$11,313 in 1999).................. 1,484,782 3,138,563 3,661,841 8,515,647
Depreciation and amortization........ 272,825 904,679 1,400,163 2,629,139
Non-cash stock compensation.......... -- -- 21,565 21,565
----------- ------------ ------------ ------------
Total operating expenses.......... 4,409,178 10,524,511 13,185,299 28,857,667
----------- ------------ ------------ ------------
Loss from operations during development
stage................................ (4,352,153) (10,119,031) (11,421,674) (26,631,537)
Interest income........................ 119,368 487,197 251,953 867,099
Interest expense....................... -- -- (81,359) (81,359)
Foreign currency loss.................. -- (3,601) (13,724) (17,325)
----------- ------------ ------------ ------------
Net loss attributable to common
stockholders during development
stage................................ (4,232,785) (9,635,435) (11,264,804) (25,863,122)
----------- ------------ ------------ ------------
Cumulative deficit at beginning of
period............................... (730,098) (4,962,883) (14,598,318) --
----------- ------------ ------------ ------------
Cumulative deficit at end of period.... $(4,962,883) $(14,598,318) $(25,863,122) $(25,863,122)
=========== ============ ============ ============
Net loss attributable to common
stockholders during development stage
per common share:
Basic and diluted.................... $ (1.47) $ (3.33) $ (3.82) $ (8.94)
=========== ============ ============ ============
Weighted average common shares
outstanding:
Basic and diluted.................... 2,887,500 2,893,286 2,948,223 2,894,568
=========== ============ ============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE> 63
NETGENICS, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999 AND THE
CUMULATIVE TOTALS FOR DEVELOPMENT STAGE OF OPERATIONS FROM
JUNE 24, 1996 (DATE OF INCEPTION) THROUGH DECEMBER 31, 1999
<TABLE>
<CAPTION>
CUMULATIVE
DEVELOPMENT
STAGE PERIOD
FROM JUNE 24,
1996
YEAR ENDED YEAR ENDED YEAR ENDED THROUGH
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1997 1998 1999 1999
------------ ------------ ------------ ----------------
<S> <C> <C> <C> <C>
Net loss attributable to common
stockholders during development
stage.......................... $(4,232,785) $(9,635,435) $(11,264,804) $(25,863,122)
Other comprehensive income:
Foreign currency translation
adjustments................. -- 5,766 5,370 11,136
----------- ----------- ------------ ------------
Comprehensive loss during
development stage......... $(4,232,785) $(9,629,669) $(11,259,434) $(25,851,986)
----------- ----------- ------------ ------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE> 64
NETGENICS, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF REDEEMABLE CONVERTIBLE PREFERRED
STOCK AND STOCKHOLDERS' EQUITY (DEFICIT)
FOR THE YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999 AND FOR THE PERIOD FROM
JUNE 24, 1996 (DATE OF INCEPTION) THROUGH DECEMBER 31, 1999
<TABLE>
<CAPTION>
REDEEMABLE CONVERTIBLE PREFERRED STOCK
---------------------------------------------
SERIES A SERIES B SERIES C SERIES D
SHARES SHARES SHARES SHARES AMOUNT
--------- --------- --------- --------- -----------
<S> <C> <C> <C> <C> <C>
Sale of common stock on June 25 and September 9, 1996....... -- -- -- -- --
Sale of Series A redeemable convertible preferred stock on
June 26, 1996.............................................. 1,000,000 500,000
Sale of Series B redeemable convertible preferred stock on
June 26, 1996.............................................. 1,000,000 1,000,000
Net loss attributable to common stockholders during
development stage..........................................
--------- --------- --------- --------- -----------
Balance at December 31, 1996................................ 1,000,000 1,000,000 1,500,000
Sale of Series C redeemable convertible preferred stock on
June 5, 1997............................................... 3,220,734 6,602,502
Net loss during development stage...........................
--------- --------- --------- --------- -----------
Balance at December 31, 1997................................ 1,000,000 1,000,000 3,220,734 8,102,502
Sale of Series D redeemable convertible preferred stock on
March 20, 1998, net of issuance costs of $1,412,126........ 3,726,219 13,492,748
Conversion of notes payable to stockholders and accrued
interest to Series D redeemable convertible preferred stock
on March 20, 1998.......................................... 697,076 2,788,304
Stock options exercised from February through December
1998.......................................................
Treasury stock purchased from February through August
1998.......................................................
Foreign currency translation adjustment.....................
Net loss attributable to common stockholders during
development stage..........................................
--------- --------- --------- --------- -----------
Balance at December 31, 1998................................ 1,000,000 1,000,000 3,220,734 4,423,295 24,383,554
Sale of additional Series D redeemable convertible preferred
stock on April 9, 1999..................................... 673,955 2,695,823
Stock options exercised from January through December
1999.......................................................
Foreign currency translation adjustment.....................
Issuance of warrants to purchase common stock...............
Deferred stock compensation.................................
Stock compensation..........................................
Net loss attributable to common stockholders during
development stage..........................................
--------- --------- --------- --------- -----------
Balance at December 31, 1999................................ 1,000,000 1,000,000 3,220,734 5,097,250 $27,079,377
========= ========= ========= ========= ===========
<CAPTION>
STOCKHOLDERS' EQUITY (DEFICIT)
----------------------------------------------
COMMON STOCK TREASURY STOCK
----------------------- ---------------------
SHARES AMOUNT SHARES AMOUNT
----------- --------- --------- --------
<S> <C> <C> <C> <C>
Sale of common stock on June 25 and September 9, 1996....... $ 2,887,500 $ 2,888 -- $ --
Sale of Series A redeemable convertible preferred stock on
June 26, 1996..............................................
Sale of Series B redeemable convertible preferred stock on
June 26, 1996..............................................
Net loss attributable to common stockholders during
development stage..........................................
----------- --------- --------- --------
Balance at December 31, 1996................................ 2,887,500 2,888
Sale of Series C redeemable convertible preferred stock on
June 5, 1997...............................................
Net loss during development stage...........................
---------- --------- --------- --------
Balance at December 31, 1997................................ 2,887,500 2,888
Sale of Series D redeemable convertible preferred stock on
March 20, 1998, net of issuance costs of $1,412,126........
Conversion of notes payable to stockholders and accrued
interest to Series D redeemable convertible preferred stock
on March 20, 1998..........................................
Stock options exercised from February through December
1998....................................................... 11,375 11
Treasury stock purchased from February through August
1998....................................................... (46,875) (81)
Foreign currency translation adjustment.....................
Net loss attributable to common stockholders during
development stage..........................................
---------- --------- --------- --------
Balance at December 31, 1998................................ 2,898,875 2,899 (46,875) (81)
Sale of additional Series D redeemable convertible preferred
stock on April 9, 1999.....................................
Stock options exercised from January through December
1999....................................................... 111,938 112
Foreign currency translation adjustment.....................
Issuance of warrants to purchase common stock...............
Deferred stock compensation.................................
Stock compensation..........................................
Net loss attributable to common stockholders during
development stage..........................................
----------- --------- --------- --------
Balance at December 31, 1999................................ 3,010,813 $ 3,011 (46,875) $ (81)
=========== ========= ========= ========
<CAPTION>
STOCKHOLDERS' EQUITY (DEFICIT)
----------------------------------------------------------
CUMULATIVE ACCUMULATED
ADDITIONAL DEFERRED DEFICIT DURING OTHER
PAID-IN STOCK DEVELOPMENT COMPREHENSIVE
CAPITAL COMPENSATION STAGE INCOME
---------- ------------ -------------- -------------
<S> <C> <C> <C> <C>
Sale of common stock on June 25 and September 9, 1996....... $ 2,887 $ -- $ -- $ --
Sale of Series A redeemable convertible preferred stock on
June 26, 1996..............................................
Sale of Series B redeemable convertible preferred stock on
June 26, 1996..............................................
Net loss attributable to common stockholders during
development stage.......................................... (730,098)
---------- ----------- ------------ -------
Balance at December 31, 1996................................ 2,887 (730,098)
Sale of Series C redeemable convertible preferred stock on
June 5, 1997...............................................
Net loss during development stage........................... (4,232,785)
---------- ----------- ------------ -------
Balance at December 31, 1997................................ 2,887 (4,962,883)
Sale of Series D redeemable convertible preferred stock on
March 20, 1998, net of issuance costs of $1,412,126........
Conversion of notes payable to stockholders and accrued
interest to Series D redeemable convertible preferred stock
on March 20, 1998..........................................
Stock options exercised from February through December
1998....................................................... 5,826
Treasury stock purchased from February through August
1998.......................................................
Foreign currency translation adjustment..................... 5,766
Net loss attributable to common stockholders during
development stage.......................................... (9,635,435)
---------- ----------- ------------ -------
Balance at December 31, 1998................................ 8,713 (14,598,318) 5,766
Sale of additional Series D redeemable convertible preferred
stock on April 9, 1999.....................................
Stock options exercised from January through December
1999....................................................... 68,514
Foreign currency translation adjustment..................... 5,370
Issuance of warrants to purchase common stock............... 1,856,856 (1,856,856)
Deferred stock compensation................................. 1,156,846 (1,156,846)
Stock compensation.......................................... 21,565
Net loss attributable to common stockholders during
development stage.......................................... (11,264,804)
---------- ----------- ------------ -------
Balance at December 31, 1999................................ $3,090,929 $(2,992,137) $(25,863,122) $11,136
========== =========== ============ =======
<CAPTION>
STOCKHOLDERS'
EQUITY
(DEFICIT)
----------------
TOTAL
STOCKHOLDERS'
EQUITY (DEFICIT)
----------------
<S> <C>
Sale of common stock on June 25 and September 9, 1996....... $ 5,775
Sale of Series A redeemable convertible preferred stock on
June 26, 1996..............................................
Sale of Series B redeemable convertible preferred stock on
June 26, 1996..............................................
Net loss attributable to common stockholders during
development stage.......................................... (730,098)
------------
Balance at December 31, 1996................................ (724,323)
Sale of Series C redeemable convertible preferred stock on
June 5, 1997...............................................
Net loss during development stage........................... (4,232,785)
------------
Balance at December 31, 1997................................ (4,957,108)
Sale of Series D redeemable convertible preferred stock on
March 20, 1998, net of issuance costs of $1,412,126........
Conversion of notes payable to stockholders and accrued
interest to Series D redeemable convertible preferred stock
on March 20, 1998..........................................
Stock options exercised from February through December
1998....................................................... 5,837
Treasury stock purchased from February through August
1998....................................................... (81)
Foreign currency translation adjustment..................... 5,766
Net loss attributable to common stockholders during
development stage.......................................... (9,635,435)
------------
Balance at December 31, 1998................................ (14,581,021)
Sale of additional Series D redeemable convertible preferred
stock on April 9, 1999.....................................
Stock options exercised from January through December
1999....................................................... 68,626
Foreign currency translation adjustment..................... 5,370
Issuance of warrants to purchase common stock...............
Deferred stock compensation.................................
Stock compensation.......................................... 21,565
Net loss attributable to common stockholders during
development stage.......................................... (11,264,804)
------------
Balance at December 31, 1999................................ $(25,750,264)
============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE> 65
NETGENICS, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999 AND THE
CUMULATIVE TOTALS FOR DEVELOPMENT STAGE OF OPERATIONS FROM
JUNE 24, 1996 (DATE OF INCEPTION) THROUGH DECEMBER 31, 1999
<TABLE>
<CAPTION>
CUMULATIVE
DEVELOPMENT
STAGE PERIOD FROM
YEAR ENDED YEAR ENDED YEAR ENDED JUNE 24, 1996
DECEMBER 31, DECEMBER 31, DECEMBER 31, THROUGH
1997 1998 1999 DECEMBER 31, 1999
------------ ------------ ------------ -----------------
<S> <C> <C> <C> <C>
Cash flows from development stage
activities:
Net loss during development stage..... $(4,232,785) $(9,635,435) $(11,264,804) $(25,863,122)
Adjustments to reconcile net loss
during development stage to net
cash used in development stage
activities:
Depreciation and amortization...... 272,825 904,679 1,400,163 2,629,139
Non-cash stock compensation........ -- -- 21,565 21,565
Changes in operating assets and
liabilities:
Accounts receivable.............. -- (45,000) (202,532) (247,532)
Prepaid expenses................. (28,553) (306,933) 52,548 (300,538)
Accounts payable................. 202,250 (30,694) (85,719) 121,278
Accrued expenses................. 344,431 432,980 318,799 1,117,433
Deferred revenue................. 132,000 430,300 (309,200) 253,100
Customer deposit................. -- -- 2,000,000 2,000,000
Other, net....................... (40,678) 12,534 (18,852) (69,584)
----------- ----------- ------------ ------------
Net cash used in development
stage activities............ (3,350,510) (8,237,569) (8,088,032) (20,338,261)
Cash flows from investing activities:
Purchases of property and equipment... (2,034,232) (1,998,359) (785,759) (5,092,970)
Other................................. -- -- -- (7,066)
----------- ----------- ------------ ------------
Net cash used in investing
activities.................. (2,034,232) (1,998,359) (785,759) (5,100,036)
Cash flows from financing activities:
Net proceeds from sale of stock....... 6,602,502 13,492,748 2,695,823 24,296,848
Stock options exercised............... -- 5,837 68,626 74,463
Proceeds from long-term debt.......... -- -- 1,278,567 1,278,567
Payments on long-term debt............ -- -- (205,007) (205,007)
Proceeds from notes payable to
stockholders....................... 2,750,000 -- -- 2,750,000
Lease deposit......................... (265,980) (118,935) 262,351 (122,564)
Payments to acquire treasury stock.... -- (81) -- (81)
Other................................. -- -- (72,482) (72,482)
----------- ----------- ------------ ------------
Net cash provided by financing
activities.................. 9,086,522 13,379,569 4,027,878 27,999,744
----------- ----------- ------------ ------------
Effect of exchange rate
changes on cash............. -- 5,344 5,368 10,712
----------- ----------- ------------ ------------
Net change in cash and cash
equivalents................. 3,701,780 3,148,985 (4,840,545) 2,572,159
Cash and cash equivalents at beginning
of period............................. 561,939 4,263,719 7,412,704 --
----------- ----------- ------------ ------------
Cash and cash equivalents at end of
period................................ $ 4,263,719 $ 7,412,704 $ 2,572,159 $ 2,572,159
=========== =========== ============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-7
<PAGE> 66
NETGENICS, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. NATURE OF OPERATIONS:
NetGenics, Inc. and Subsidiaries (the "Company") design and develop
proprietary software for use in technology solutions. These solutions are the
basis of service offerings designed to enable pharmaceutical and biotechnology
companies to reduce the time and cost of drug development. The Company operates
two wholly-owned subsidiaries, NetGenics UK, Ltd. and NetGenics International,
Ltd.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Development Stage
The Company has been in the development stage since its inception on June
24, 1996. The Company's primary activities since inception have been: (i) the
research and development of products; (ii) the marketing of service offerings to
potential customers; (iii) recruiting personnel; and (iv) raising capital. No
significant revenues have been generated from planned principal operations. As
of December 31, 1999, the Company continues to be in the development stage.
Principles of Consolidation
The consolidated financial statements include the accounts of NetGenics,
Inc. and its wholly-owned subsidiaries. All significant intercompany accounts
and transactions have been eliminated.
Recently Issued Accounting Standards
In March 1998, the American Institute of Certified Public Accountants, the
AICPA, issued Statement of Position No. 98-1, "Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use." Statement of Position
No. 98-1 requires the Company to capitalize certain costs related to internal
use software once certain criteria have been met. The Company adopted Statement
of Position No. 98-1 on January 1, 1999. Because the Company has a plan to
market its internal-use proprietary software in the future, the adoption of
Statement of Position 98-1 had no impact on the Company's consolidated financial
statements.
In April 1998, the AICPA issued Statement of Position 98-5, "Reporting on
the Costs of Start-up Activities." Statement of Position No. 98-5 requires the
Company to expense all start-up costs related to new operations as incurred. In
addition, all start-up costs that were capitalized in the past must be written
off when the Company adopts Statement of Position No. 98-5. The Company adopted
Statement of Position No. 98-5 on January 1, 1999, which resulted in an
immaterial amount of organizational costs being written-off.
The Financial Accounting Standards Board issued Statement of Financial
Accounting Standards ("SFAS") No. 130, "Reporting Comprehensive Income" in June
1997, effective for fiscal years beginning after December 15, 1997. This
statement established standards for reporting and displaying comprehensive
income in a full set of financial statements. Accordingly, the Company adopted
this reporting standard in the preparation of these consolidated financial
statements. The Company's only comprehensive income item is the foreign currency
translation adjustment.
In June 1997, SFAS No. 131, "Disclosures about Segments of an Enterprise
and Related Information" was issued. SFAS No. 131 supersedes SFAS No. 14,
"Financial Reporting for Segments of a Business Enterprise," and requires
companies to report financial and descriptive information about their reportable
operating segments. The financial information is required to be reported on the
same basis that is used internally for evaluating segment performance and
deciding how to
F-8
<PAGE> 67
NETGENICS, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
allocate resources to segments. This statement is effective for periods
beginning after December 15, 1997, with interim information required for the
year following adoption. Management has determined that the Company consists of
a single operating segment. The adoption of SFAS No. 131 had no impact on the
Company's consolidated financial statements.
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities." SFAS No. 133
establishes methods for derivative financial instruments and hedging activities
related to those instruments, as well as other hedging activities. Because the
Company does not currently hold any derivative instruments and does not engage
in hedging activities, the Company expects that the adoption of SFAS No. 133
will not have a material impact on the Company's consolidated financial position
or results of operations. The Company will be required to implement SFAS No. 133
for the fiscal year beginning January 1, 2001.
Major Customers and Concentration of Risks
The Company expects that substantially all of its revenues for the
foreseeable future will be derived from service offerings provided primarily to
pharmaceutical, biotechnology, and agriscience companies. Accordingly, the
Company's success in the foreseeable future is directly dependent upon the
success of the companies within those industries and their demand for the
Company's service offerings. The Company currently uses a single supplier to
provide its object database and a single supplier to provide certain hardware
required to develop and produce the Company's software. The Company's service
offerings are provided primarily throughout the U.S. There was no revenue earned
outside of North America prior to 1999. Revenue earned outside of North America
was 8% of total revenue in 1999. Revenue to one major domestic customer
represented approximately 83% and 91% of total net revenue in 1997 and 1998,
respectively. Revenue to two other major domestic customers represented
approximately 62% and 20% of total revenue in 1999. One customer represented the
entire balance of accounts receivable as of December 31, 1998 and 1999. The
Company also has deferred revenue for services of $253,100 with one major
domestic customer as of December 31, 1999.
The Company and its subsidiaries place their cash with high credit quality
financial institutions. These balances, as reflected in the financial
institution's records, are insured in the U.S. by the Federal Deposit Insurance
Corporation for up to $100,000. As of December 31, 1999, cash balances of
foreign subsidiaries aggregated $25,234 and the uninsured cash balances in the
U.S. aggregated $2,446,925 with one financial institution.
Cash and Cash Equivalents
The Company considers all highly liquid investments with a maturity of
three months or less when purchased to be cash equivalents.
Software Development Costs
Costs incurred to develop software technologies internally are expensed as
incurred as research and development until technological feasibility is
established. Based on the Company's development process, technological
feasibility occurs upon the completion of a working model in accordance with
each specific license agreement. As the time period between the completion of a
working model and the general availability of the product to a customer has not
been significant, the Company has not capitalized any software development costs
to date.
F-9
<PAGE> 68
NETGENICS, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Property and Equipment
Property and equipment are stated at cost and are being depreciated on a
straight-line basis over the estimated useful lives of the assets which range
from three to five years. Leasehold improvements are depreciated on a
straight-line basis over the remaining term of the lease. Expenditures for
maintenance and repairs are charged to operating expenses as incurred.
Income Taxes
Deferred income taxes are recognized for the tax consequences in future
years of differences between the tax bases of assets and liabilities and their
financial reporting amounts at each year-end based on enacted tax laws and
statutory tax rates applicable to the periods in which the differences are
expected to affect taxable income. Valuation allowances are established when
necessary to reduce deferred tax assets to the amount expected to be realized.
Use of Estimates
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results could differ
from those estimates.
Stock-Based Compensation
The Company adopted Statement of Financial Accounting Standards No. 123,
"Accounting For Stock Based Compensation" ("SFAS 123"). SFAS 123 allows entities
to continue to measure compensation cost using the intrinsic value based method
of accounting prescribed by Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" ("APB 25"). As permitted by SFAS 123,
the Company has elected to account for its employee stock based compensation
plan under the intrinsic value based method of accounting prescribed by APB 25,
while providing pro forma disclosures of net loss attributable to common
stockholders during development stage as if a fair value basis of accounting
method had been applied.
Currency Translation
For operations outside of the U.S. that prepare financial statements in
currencies other than the U.S. dollar, the Company translates income statement
amounts at average exchange rates for the year, and assets and liabilities are
translated at year-end exchange rates. The accumulated translation adjustments
are shown as a separate component of stockholders' deficit.
Revenue Recognition
The Company earns service fees for providing a specified number of hours of
services per calendar period. In accordance with Staff Accounting Bulletin 101,
"Revenue Recognition in Financial Statements," the Company recognizes revenue as
services are performed. Service hours provided in excess of the number of hours
per calendar period specified in the license agreement are billed at an
agreed-upon hourly billing rate. Revenue from consulting services under time and
materials contracts are recognized as services are performed. Deferred revenue
represents cash received in advance of earned revenues on license agreements and
consulting services.
F-10
<PAGE> 69
NETGENICS, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Advertising Costs
The Company began advertising in 1998 and incurred costs of $100,700 and
$106,487 in 1998 and 1999, respectively. Advertising costs are expensed as
incurred.
Net Loss Per Share
Computations of basic and diluted net loss per share of common stock have
been made in accordance with the Financial Accounting Standards Board's
Statement of Financial Accounting Standards No. 128, "Earnings Per Share". Basic
net loss per share is computed by dividing net loss attributable to common
stockholders during development stage (the numerator) by the weighted average
number of common shares outstanding (the denominator) during the period. Shares
issued during the period are weighted for the portion of the period that they
are outstanding. The computation of diluted net loss per share is similar to the
computation of basic net loss per share except that the denominator is increased
to include the number of additional common shares that would have been
outstanding if the dilutive potential common shares had been issued. The Company
has incurred a net loss for 1997, 1998 and 1999 and the cumulative development
stage period from June 24, 1996 through December 31, 1999, therefore, the impact
of dilutive potential common shares has been excluded from the computation as it
would be anti-dilutive.
The following outstanding stock options and warrants (prior to the
application of the treasury stock method), and redeemable convertible preferred
stock (on an as-converted basis) were excluded from the computation of diluted
net loss per share:
<TABLE>
<CAPTION>
1997 1998 1999
--------- --------- ----------
<S> <C> <C> <C>
Stock options........................ 552,500 922,847 1,087,417
Warrants............................. 68,750 68,750 514,023
Redeemable convertible preferred
stock.............................. 5,220,734 9,644,029 10,317,984
</TABLE>
Pro Forma Balance Sheet (Unaudited)
Upon the closing of the Company's contemplated initial public offering (see
Note 14), all of the outstanding shares of redeemable convertible preferred
stock, including 4,623,860 shares of the Series E Redeemable Convertible
Preferred Stock sold on January 6, 2000, automatically convert into 14,941,844
shares of common stock (see Notes 7 and 14). The December 31, 1999 unaudited pro
forma balance sheet has been prepared assuming the sale of the Series E
Redeemable Convertible Preferred Stock for cash proceeds of $20,019,680, net of
related expenses of $1,250,074 on January 6, 2000, the payment of the associated
accrued liabilities in the amount of $1,177,592, and the conversion of all of
the outstanding redeemable convertible preferred stock, including the Series E
Redeemable Convertible Preferred Stock sold in January 2000, into common stock
as though they occurred on December 31, 1999. In accordance with Emerging Issues
Task Force Issue No. 98-5, "Accounting for Convertible Securities with
Beneficial Conversion Features or Contingently Adjustable Conversion Ratios,"
the issuance of the Series E Redeemable Convertible Preferred Stock results in a
beneficial conversion feature of $20,019,680. The beneficial conversion feature
is reflected as a dividend by a charge to cumulative deficit during development
stage and an increase to additional paid-in capital in the pro forma balance
sheet and will result in an increase to net loss per share attributable to
common stockholders during development stage.
F-11
<PAGE> 70
NETGENICS, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Pro Forma Net Loss Per Share (Unaudited)
The pro forma basic and diluted net loss per share is as follows:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1999
------------
<S> <C>
Pro forma basic and diluted net loss per share
attributable to common stockholders during development
stage................................................... $ (2.39)
-----------
Shares used in computing pro forma basic and diluted net
loss per share attributable to common stockholders
during development stage................................ 13,083,408
===========
</TABLE>
Reclassifications
Certain amounts in the 1997 and 1998 consolidated financial statements have
been reclassified to conform to the 1999 presentation.
3. ACCRUED EXPENSES:
The accrued expenses of the Company are as follows:
<TABLE>
<CAPTION>
1998 1999
-------- ----------
<S> <C> <C>
Accrued vacation pay.............................. $155,831 $ 270,629
Accrued expenses related to Series E
Redeemable Convertible Preferred Stock.......... -- 1,177,592
Other accrued expenses............................ 604,499 808,500
-------- ----------
$760,330 $2,256,721
======== ==========
</TABLE>
4. LONG-TERM DEBT AGREEMENTS:
The long-term debt of the Company is as follows:
<TABLE>
<CAPTION>
1998 1999
-------- ----------
<S> <C> <C>
Equipment financing loan, due June 30, 2002.
Monthly payments of $14,928 plus interest of
prime plus 3% (11.5% at December 31, 1999)...... $ -- $ 447,837
Two equipment financing loans, due June 30, 2002.
Monthly payments aggregating $23,687 include
principal and interest at 14.82% through May 31,
2002, final payments aggregating $74,116 due
June 30, 2002................................... -- 625,723
-------- ----------
-- 1,073,560
Less current maturities........................... -- 384,211
-------- ----------
Long-term debt.................................... $ -- $ 689,349
======== ==========
</TABLE>
F-12
<PAGE> 71
NETGENICS, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
In June 1999, the Company entered into three equipment financing loans,
each due June 30, 2002. Interest expense for 1999 was $81,359. Borrowings under
these loans are collateralized by various receivables, equipment and other
assets of the Company.
Maturities of debt outstanding for the years ended December 31, are as
follows:
<TABLE>
<S> <C>
2000....................................................... $ 384,211
2001....................................................... 416,755
2002....................................................... 272,594
----------
$1,073,560
==========
</TABLE>
5. COMMITMENTS AND CONTINGENCIES:
In the ordinary course of its business, the Company is potentially a party
to litigation regarding the operation of its business. The Company is currently
not the subject of any legal actions.
6. INCOME TAXES:
As of December 31, 1999, the Company had net operating loss carryforwards
("NOL's") of approximately $24,673,000 for income tax purposes. In addition, the
Company had approximately $668,000 in research and development tax credit
carryforwards ("R&D Credits"). Such losses and credits may be carried forward to
reduce future tax liabilities and expire as follows:
<TABLE>
<CAPTION>
YEARS ENDING DECEMBER 31, R&D CREDITS NOL'S
------------------------- ----------- -----------
<S> <C> <C>
2011.................................... $ 27,000 $ 695,000
2012.................................... 107,000 4,170,000
2018.................................... 288,000 9,403,000
2019.................................... 246,000 10,405,000
-------- -----------
$668,000 $24,673,000
======== ===========
</TABLE>
Deferred income taxes are recognized for tax consequences of temporary
differences by applying enacted statutory tax rates, applicable to future years,
to differences between the financial reporting and the tax basis of existing
assets and liabilities. The tax effects of temporary differences that give rise
to deferred tax assets and the liability are as follows:
<TABLE>
<CAPTION>
1998 1999
----------- ------------
<S> <C> <C>
Deferred tax assets.......................... $ 6,221,000 $ 10,756,000
Deferred tax liability....................... (188,000) (94,000)
Valuation allowance.......................... (6,033,000) (10,662,000)
----------- ------------
Net deferred taxes......................... $ -- $ --
=========== ============
</TABLE>
The Company's deferred tax liability relates to accumulated depreciation.
The deferred tax assets relate to the following:
<TABLE>
<CAPTION>
1998 1999
---------- -----------
<S> <C> <C>
Research and development tax credit
carryforwards................................ $ 404,000 $ 668,000
Net operating loss carryforwards............... 5,705,000 9,870,000
Nondeductible accrued liabilities.............. 112,000 218,000
---------- -----------
$6,221,000 $10,756,000
========== ===========
</TABLE>
F-13
<PAGE> 72
NETGENICS, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
As a result of the Company's limited historical performance and its
development stage, management is unable to project future taxable income that
will be sufficient to realize the deferred tax assets. As of December 31, 1999,
a valuation allowance equaling the total amount of net deferred taxes has been
established reflecting the Company's uncertainty regarding future profitability.
Pursuant to the Tax Reform Act of 1986, the utilization, for tax purposes,
of net operating loss and research and development tax credit carryforwards are
subject to an annual limitation as a result of a cumulative change in ownership
of more than 50% over a three-year period.
7. REDEEMABLE CONVERTIBLE PREFERRED STOCK:
The redeemable convertible preferred stock is as follows as of December 31:
<TABLE>
<CAPTION>
1998 1999
----------- -----------
<S> <C> <C>
Series A redeemable convertible preferred stock, $0.001
par value, 2,000,000 shares authorized; 1,000,000
shares issued and outstanding (liquidation preference
$0.50 per share)...................................... $ 500,000 $ 500,000
Series B redeemable convertible preferred stock, $0.001
par value, 2,000,000 shares authorized; 1,000,000
shares issued and outstanding (liquidation preference
$1.00 per share)...................................... 1,000,000 1,000,000
Series C redeemable convertible preferred stock, $0.001
par value, 7,500,000 shares authorized; 3,220,734
shares issued and outstanding (liquidation preference
$2.58 per share)...................................... 6,602,502 6,602,502
Series D redeemable convertible preferred stock, $0.001
par value, 12,000,000 shares authorized; 4,423,295 and
5,097,250 shares issued and outstanding in 1998 and
1999, respectively (liquidation preference $4.48 per
share)................................................ 16,281,052 18,976,875
----------- -----------
Total redeemable convertible preferred
stock....................................... $24,383,554 $27,079,377
=========== ===========
</TABLE>
On June 26, 1996, the Company authorized 2,000,000 shares and issued
1,000,000 shares of Series A Redeemable Convertible Preferred Stock, $0.25 par
value, to a member of the board of directors for $500,000 and 1,000,000 shares
of Series B Redeemable Convertible Preferred Stock, $0.50 par value, to an
investor for $1,000,000.
In April and May 1997, the Company issued two convertible promissory notes,
without interest in the aggregate principal amount of $500,000 to two
stockholders. The principal amount of these notes was subsequently converted
into 243,902 shares of Series C Redeemable Convertible Preferred Stock at the
closing of the sale of the Series C Redeemable Convertible Preferred Stock.
On June 5, 1997, the Company authorized the issuance of 7,500,000 shares of
Series C Redeemable Convertible Preferred Stock, $1.025 par value, and issued
3,220,734 shares of Series C Redeemable Convertible Preferred Stock at $2.05 per
share for total proceeds of $6,602,502. Of the total Series C Redeemable
Convertible Preferred shares issued, 2,073,173 shares were issued to related
parties who are members or observers of the board of directors.
On March 20, 1998, the Company authorized the issuance of 8,900,000 shares
of Series D Redeemable Convertible Preferred Stock, $0.001 par value, and issued
4,423,295 shares of Series D Redeemable Convertible Preferred Stock valued at
$17,693,178, or $4.00 per share. Of the 4,423,295 shares, 3,726,219 shares were
issued for gross proceeds of $14,904,874 before considering expenses of
$1,412,126 related to the issuance. The remaining 697,076 shares were issued
concurrently with
F-14
<PAGE> 73
NETGENICS, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
the closing of the Series D placement as a result of the automatic conversion of
$2,788,304 of notes payable and accrued interest held by certain stockholders of
the Company. These notes payable were issued on December 18, 1997 in the amount
of $2,750,000 and bore interest at a rate of 5.54% per annum. These notes were
convertible to Series D Redeemable Convertible Preferred Stock at $4.00 per
share. In conjunction with these notes, the Company issued warrants to purchase
an aggregate of 68,750 shares of common stock at an exercise price of $0.60 per
share to stockholders. The warrants expire on December 31, 2000 (see Note 9). On
April 9, 1999, the Company authorized the issuance of an additional 3,100,000
shares of Series D Redeemable Convertible Preferred Stock, $0.001 par value, and
issued 673,955 shares of Series D Redeemable Convertible Preferred Stock for
cash proceeds of $2,695,823, or $4.00 per share. Of the total Series D
Redeemable Convertible Preferred shares issued, 4,006,812 shares were issued to
related parties who are members or observers of the board of directors.
On March 20, 1998, the Company adjusted the par value on its Series A,
Series B and Series C Redeemable Convertible Preferred Stock to $0.001 from
$0.25, $0.50 and $1.025, respectively.
All redeemable convertible preferred shares are convertible into common
shares on a 1:1 basis, subject to adjustment which is based upon the issuance of
additional common shares or other convertible securities, without payment of any
additional consideration, at the option of the holder, or other events as
defined. All redeemable convertible preferred shares are entitled to vote on all
matters upon which holders of common stock have the right to vote, to receive
notice of any stockholders meetings, and the number of votes are equal to the
largest number of full shares of common stock into which the redeemable
convertible preferred stock could be converted. Effective upon the closing of an
initial public offering with net proceeds of at least $15,000,000, all
outstanding shares of redeemable convertible preferred stock will automatically
be converted into common stock.
The redeemable convertible preferred shares contain certain preferential
rights upon the liquidation of the Company. In the event of liquidation of the
Company, the holders of outstanding Series A and Series B Redeemable Convertible
Preferred Stock shall be entitled to receive a distribution of the original
price per share, as adjusted for any stock dividends, combinations or splits
with respect to such shares. The liquidation preference for Series A and Series
B Redeemable Convertible Preferred Stock as of December 31, 1999 was $0.50 per
share and $1.00 per share, respectively. In the event of a liquidation or
dissolution of the Company, the holders of outstanding Series C and Series D
Redeemable Convertible Preferred Stock shall be entitled to receive a
distribution of the original price per share, as adjusted for any stock
dividends, combinations or splits with respect to such shares, plus an amount
that reflects a 12% return, compounded annually from the original purchase date,
on the original purchase price for each twelve months that has passed since the
original issue date. The liquidation preference for Series C and Series D
Redeemable Convertible Preferred Stock as of December 31, 1999 was $2.58 per
share and $4.48 per share, respectively.
8. STOCKHOLDERS' EQUITY:
On June 25, 1996, the Company sold 2,687,500 shares of common stock to
directors, officers and employees of the Company for $0.002 per share. During
1996, 200,000 shares of restricted common stock were sold to employees before
software development began at a price of $0.002 per share. These additional
employee shares become unrestricted in annual increments of 25% on the first day
of each year commencing on the first anniversary of the sale. During 1998,
46,875 of the original 200,000 restricted shares were repurchased by the Company
as treasury shares for $81. As of
F-15
<PAGE> 74
NETGENICS, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31, 1998, 68,750 shares were restricted and 84,375 shares were
unrestricted. As of December 31, 1999, 34,375 shares were restricted and 118,750
shares were unrestricted.
On December 21, 1999, the stockholders of the Company approved an increase
in the number of preferred and common shares authorized to 75,750,000.
9. STOCK OPTION PLAN AND WARRANTS:
The Company adopted the NetGenics, Inc. 1996 Stock Option Plan (the "Plan")
on November 20, 1996. Stock options granted under the Plan may be either
incentive stock options or nonqualified stock options. The purpose of the Plan
is to attract, retain and motivate officers, key employees and directors. A
total of 2,000,000 shares of common stock have been authorized for issuance upon
exercise of options under the Plan. Incentive stock options may be granted at a
price equal to or greater than the fair value at the date of grant. If, at the
time the Company grants an incentive stock option, the optionee owns stock
possessing more than 10% of the total combined voting power of all classes of
stock of the Company, the option price shall be at least 110% of the fair value
at the date of grant. Nonqualified stock options may be granted at exercise
prices of no less than 50% of the fair value at the date of grant. All options
granted to employees are incentive stock options and become exercisable in
annual increments of 20% following the date of grant except for a total of
60,000 options, issued to three employees which become exercisable in annual
increments of 25% following the date of grant. All options granted to directors
are nonqualified stock options and become exercisable in annual increments of
33.3% following the date of grant. All options expire 10 years from the date of
grant.
The following table summarizes the transactions of the Company's stock
option plan since its inception date:
<TABLE>
<CAPTION>
WEIGHTED-
NUMBER OF AVERAGE
OPTIONS EXERCISE PRICE
--------- --------------
<S> <C> <C>
BALANCE, DECEMBER 31, 1996...................... 117,500 $0.50
Granted......................................... 460,000 $0.56
Exercised....................................... -- --
Cancelled....................................... (25,000) $0.50
--------- -----
BALANCE, DECEMBER 31, 1997...................... 552,500 $0.56
Granted......................................... 519,543 $1.08
Exercised....................................... (11,375) $0.52
Cancelled....................................... (137,821) $0.76
--------- -----
BALANCE, DECEMBER 31, 1998...................... 922,847 $0.82
Granted......................................... 539,894 $1.40
Exercised....................................... (111,938) $0.62
Cancelled....................................... (263,386) $1.08
--------- -----
BALANCE, DECEMBER 31, 1999...................... 1,087,417 $1.04
========= =====
</TABLE>
During 1997, 412,500 of the 460,000 options issued were issued at an
exercise price greater than the fair value on the date of grant. The
weighted-average exercise price and weighted-average fair value of the 412,500
options was $0.58 and $0.42, respectively. The weighted-average exercise price
of the 47,500 options issued at fair value was $0.52.
F-16
<PAGE> 75
NETGENICS, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
As of December 31, 1999, there were 238,255 options exercisable with a
weighted average exercise price of $0.66, and 789,270 options available for
grant. The range of exercise prices on options granted as of December 31, 1999
was $0.50 -- $3.00. The weighted-average remaining contractual life of options
granted and exercisable as of December 31, 1999 was 8.17 years.
In December 1997, the Company issued warrants to purchase an aggregate of
68,750 shares of common stock at an exercise price of $0.60 per share to
stockholders. The warrants are immediately exercisable and expire on December
31, 2000 (see Note 7). The fair value of the warrants was not material.
In October 1999, the Company entered into a warrant agreement with a
customer to purchase 111,940 shares of the Company's common stock at $6.70 per
share, subject to certain adjustments related to subsequent equity transactions.
Concurrent with the execution of the warrant agreement, this customer
entered into a services agreement and prepaid $2,000,000, for future anticipated
services, or the option to purchase up to 333,333 future warrants at a
conversion price of $2.00 per warrant to allow for the purchase of common stock
at an exercise price of $4.00 per share. This customer may, on any one occasion
before the $2,000,000 is exhausted, utilize up to one-third of any then
remaining prepayment amount to purchase the future warrants. The $2,000,000
prepayment has been recorded as a customer deposit and the fair value of the
related warrants of $1,856,856 has been recognized as a charge to deferred stock
compensation and an increase to additional paid-in capital. Any remaining
prepayment amount may be used to fund the purchase of common stock under these
warrants at an exercise price of $4.00 per share.
All of these warrants are immediately exercisable and expire on the earlier
of the fifth anniversary of the closing of a transaction which transfers
substantially all of the Company's assets or beneficial ownership of 50% or more
to another party or an initial public offering.
10. STOCK-BASED COMPENSATION:
The Company has elected to account for its employee stock options under APB
25. Under APB 25 compensation expense is to be recognized for all options
granted at less than the fair value of the Company's Common Shares on the date
of grant.
SFAS 123 requires the Company to make pro forma disclosures of what net
loss would have been had the fair value based method defined in SFAS 123 been
applied to employee and director stock options. The fair value for these options
was estimated using a Black-Scholes option pricing model with the following
weighted-average assumptions: volatility of 0.01%, risk free interest rate of
6.0%, dividend yield of 0.0% and a weighted-average expected life of the option
of 10 years. For purposes of proforma disclosures, the estimated fair value of
the options is amortized to expense over the options' vesting period. The pro
forma effect of applying SFAS 123 would be an increase in net loss attributable
to common stockholders during development stage of $6,267 in 1997, $23,952 in
1998 and $60,540 in 1999.
If the Company had elected to recognize the compensation cost of the Plan
based on the fair value of all awards under the plan in accordance with SFAS No.
123, fiscal years 1997, 1998 and 1999 pro forma net loss attributable to common
stockholders during development stage and pro
F-17
<PAGE> 76
NETGENICS, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
forma net loss attributable to common stockholders during development stage per
common share would have been as follows:
<TABLE>
<CAPTION>
CUMULATIVE
DEVELOPMENT
STAGE PERIOD
FROM JUNE 24,
1996
FOR THE YEARS ENDED DECEMBER 31, THROUGH
---------------------------------------------- DECEMBER 31,
1997 1998 1999 1999
------------ ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Net loss attributable to common
stockholders during
development stage................. As reported $ (4,232,785) $ (9,635,435) $ (11,264,804) $(25,863,122)
Pro forma (4,239,052) (9,659,387) (11,325,344) (25,953,881)
Net loss attributable to common
stockholders during development
stage per common share:
Basic and diluted................. As reported $ (1.47) $ (3.33) $ (3.82) $ (8.94)
Pro forma (1.47) $ (3.34) $ (3.84) $ (8.97)
</TABLE>
The Company has recorded deferred stock compensation of $1,156,846 during
the year ended December 31, 1999 representing the difference between the
exercise price of the options granted and the deemed fair value of the common
stock. These deferred amounts are being amortized by charges to operations over
the vesting periods of the individual stock options using the graded vesting
method. Such amortization amounted to $21,565 for the year ended December 31,
1999.
11. EMPLOYEE BENEFIT PLAN:
In September 1998, the Company adopted a 401(k) defined contribution plan
(the "Plan") covering substantially all officers and employees. The Plan permits
participants to defer up to a maximum of 15% of their taxable compensation, not
to exceed the statutory limit. The employee's contribution vests immediately.
Employer matching contributions are made at the discretion of the Company and
vest in accordance with a five-year graduated vesting schedule. The Company made
no discretionary contributions to the Plan during the years ended December 31,
1998 and 1999.
12. LEASE COMMITMENTS:
The Company leases its corporate headquarters facility in Cleveland, Ohio
under an operating lease which expires in May 2003. In addition, the Company
leases office space in Palo Alto, California; San Diego, California and
Columbus, Ohio. Total lease expense for 1997, 1998 and 1999 was $109,718,
$544,646 and $687,921, respectively. Minimum future lease payments as of
December 31, 1999 are as follows:
<TABLE>
<CAPTION>
YEARS ENDING DECEMBER 31,
-------------------------
<S> <C>
2000................................................ $ 633,514
2001................................................ 646,033
2002................................................ 660,033
2003................................................ 311,739
2004................................................ 35,690
Thereafter.......................................... 145,736
----------
Total minimum lease payments........................ $2,432,745
==========
</TABLE>
F-18
<PAGE> 77
NETGENICS, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
13. SUPPLEMENTAL CASH FLOW DISCLOSURE:
The Company paid no taxes or interest in 1997 or 1998. The Company paid no
taxes and $81,359 for interest during 1999. In 1998, the Company converted notes
payable to stockholders and related accrued interest in the amount of $2,788,304
to Series D Redeemable Convertible Preferred Stock. Accordingly, this
transaction was excluded from financing activities on the Consolidated Statement
of Cash Flows for the year ended December 31, 1998 and for the cumulative
development stage period from June 24, 1996 through December 31, 1998. During
1999, the Company wrote off fully depreciated computer equipment and software
totaling $202,903. Accordingly, this transaction was excluded from the
Consolidated Statement of Cash Flows. During 1999, the Company incurred
$1,250,074 in costs associated with the Series E Redeemable Convertible
Preferred Stock which is included in prepaid expenses as of December 31, 1999.
The Company paid $72,482 of the costs in 1999 and the remaining balance of
$1,177,592 is included in accrued expenses as of December 31, 1999. Accordingly,
this transaction was excluded from the Consolidated Statement of Cash Flows.
During 1999, the Company recorded a fair value associated with warrants (see
Note 9) in the amount of $1,856,856 with a charge to deferred stock compensation
and an increase to additional paid-in capital which was a non-cash transaction
and excluded from the Consolidated Statement of Cash Flows.
14. SUBSEQUENT EVENTS:
On January 6, 2000, the Company completed the sale of 4,623,860 (9,250,000
shares authorized) shares of Series E Redeemable Convertible Preferred Stock for
net proceeds of $20,019,680. Upon the sale of the Series E Redeemable
Convertible Preferred Stock, the Company received $21,269,754 of the cash
proceeds of the offering which was released from escrow on January 6, 2000. The
issuance of the Series E Redeemable Convertible Preferred Stock will result in a
beneficial conversion feature of $20,019,680, calculated in accordance with
Emerging Issues Task Force Issue No. 98-5, "Accounting for Convertible
Securities with Beneficial Conversion Features or Contingently Adjustable
Conversion Ratios." The beneficial conversion feature will be reflected as a
dividend by a charge to cumulative deficit during development stage and an
increase to additional paid-in capital and will result in an increase to net
loss per share attributable to common stockholders in the first quarter of 2000.
The holders of the Series E Redeemable Convertible Preferred Stock shall be
entitled to a liquidation preference of $4.60 per share and liquidation rights
comparable to the rights of the holders of Series C and Series D Redeemable
Convertible Preferred Stock. Of the total Series E Redeemable Convertible
Preferred shares issued, 106,008 shares were issued to related parties who are
members or observers of the board of directors.
From January 1, 2000 to January 27, 2000, options to purchase 27,500 shares
were granted pursuant to the 1996 Stock Option Plan (the "Plan") with a weighted
average exercise price of $3.00 per share. The Company estimates that additional
deferred compensation of approximately $214,500 will be recorded as a result of
these option grants and amortized to non-cash stock compensation expense over
the vesting period of the options.
On February 24, 2000, the Company's board of directors authorized
management to file a registration statement with the Securities and Exchange
Commission to permit the Company to sell its common stock to the public. Upon
the completion of the Company's initial public offering, all of the outstanding
redeemable convertible preferred stock will be converted into shares of common
stock.
F-19
<PAGE> 78
NETGENICS, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
On February 24, 2000, the Company's board of directors authorized a 1-for-2
reverse stock split that will be completed prior to the completion of the
Company's initial public offering. The accompanying financial statements have
been adjusted retroactively to reflect the reverse split of all outstanding
redeemable convertible preferred stock and common stock.
F-20
<PAGE> 79
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
5,500,000 SHARES
LOGO
COMMON STOCK
---------------------
PROSPECTUS
---------------------
CHASE H&Q
WARBURG DILLON READ
---------------------
, 2000
---------------------
YOU SHOULD RELY ONLY ON INFORMATION CONTAINED IN THIS PROSPECTUS. WE HAVE
NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH INFORMATION DIFFERENT FROM THAT
CONTAINED IN THIS PROSPECTUS. WE ARE OFFERING TO SELL, AND SEEKING OFFERS TO
BUY, SHARES OF COMMON STOCK ONLY IN JURISDICTIONS WHERE OFFERS AND SALES ARE
PERMITTED. THE INFORMATION CONTAINED IN THIS PROSPECTUS IS ACCURATE ONLY AS OF
THE DATE OF THIS PROSPECTUS, REGARDLESS OF THE TIME OF DELIVERY OF THIS
PROSPECTUS OR OF ANY SALE OF OUR COMMON STOCK.
NO ACTION IS BEING TAKEN IN ANY JURISDICTION OUTSIDE THE UNITED STATES TO
PERMIT A PUBLIC OFFERING OF OUR COMMON STOCK OR POSSESSION OR DISTRIBUTION OF
THIS PROSPECTUS IN THAT JURISDICTION. PERSONS WHO COME INTO POSSESSION OF THIS
PROSPECTUS IN JURISDICTIONS OUTSIDE THE UNITED STATES ARE REQUIRED TO INFORM
THEMSELVES ABOUT AND TO OBSERVE ANY RESTRICTIONS AS TO THIS OFFERING AND THE
DISTRIBUTION OF THIS PROSPECTUS APPLICABLE TO THAT JURISDICTION.
UNTIL , 2000 (25 DAYS AFTER THE DAY OF THIS
PROSPECTUS), ALL DEALERS THAT BUY, SELL OR TRADE IN OUR COMMON STOCK, WHETHER OR
NOT PARTICIPATING IN THIS OFFERING, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS IS IN ADDITION TO THE DEALERS' OBLIGATION TO DELIVER A PROSPECTUS WHEN
ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 80
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
Set forth below is an estimate (except for the registration fee and NASD
filing fee) of the fees and expenses payable by us in connection with the sale
of common stock being registered.
<TABLE>
<S> <C>
Registration fee............................................ $ 21,708
NASD filing fee............................................. 8,723
Nasdaq Stock Market Listing Application Fee................. 95,000
Blue sky qualification fees and expenses.................... 12,500
Printing and engraving expenses............................. 250,000
Legal fees and expenses..................................... 400,000
Accounting fees and expenses................................ 300,000
Transfer agent and registrar fees........................... 10,000
Miscellaneous............................................... 102,069
----------
Total............................................. $1,200,000
==========
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
ELIMINATION OF LIABILITY IN CERTAIN CIRCUMSTANCES
Pursuant to the authority conferred by Section 102 of the Delaware General
Corporation Law, our certificate of incorporation contains a provision providing
that none of our directors shall be personally liable to us or our stockholders
for monetary damages for breach of fiduciary duty as a director, except for
liability:
- for any breach of the director's duty of loyalty to us or our
stockholders;
- for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law;
- under Section 174 of the Delaware General Corporation Law; or
- for any transactions from which the director derived an improper personal
benefit.
Our certificate of incorporation also provides that if Delaware law is
amended to further eliminate or limit the liability of directors, then the
liability of our directors shall be eliminated or limited, without further
stockholder action, to the fullest extent permissible under Delaware law as so
amended.
INDEMNIFICATION AND INSURANCE
Section 145 of the Delaware General Corporation Law contains provisions
permitting (and, in some situations, requiring) Delaware corporations such as us
to provide indemnification to their officers and directors for losses and
litigation expense incurred in connection with, among other things, their
service to the corporation in those capacities. Our certificate of incorporation
contains provisions requiring us to indemnify and hold harmless our directors,
officers and employees to the fullest extent permitted by law. Among other
things, these provisions provide that we are required to indemnify any person
who was or is a party or is threatened to be made a party to or is otherwise
involved in any action, suit or proceeding, whether civil, criminal,
administrative or investigative (a "proceeding") by reason of the fact that the
indemnitee is or was acting in an official capacity as our director, officer,
employee or agent, or is or was serving at our request as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust or
other enterprise (including service with respect to any employee benefit plan
against all expenses, liability and loss, including attorneys' fees, judgments,
fines, ERISA excise taxes or penalties and
II-1
<PAGE> 81
amounts paid in settlement) reasonably incurred or suffered by the indemnitee in
connection with such proceeding to the fullest extent permitted by the Delaware
General Corporation Law, as the same exists or may be amended (but, in the case
of any amendment, only to the extent that the amendment permits us to provide
broader indemnification rights than law permitted us to provide prior to the
amendment). These provisions also provide for the advance payment of fees and
expenses incurred by the indemnitee in defense of any such proceeding, subject
to reimbursement by the indemnitee if it is ultimately determined that the
indemnitee is not entitled to be indemnified by us. We have entered into
agreements with our directors and executive officers providing contractually for
indemnification consistent with our certificate of incorporation and bylaws.
Our certificate of incorporation also permits us to secure insurance on
behalf of any director, officer, employee or agent for any liability arising out
of actions in his or her capacity as an officer, director, employee or agent,
regardless of whether Delaware law would permit indemnification. We have
obtained an insurance policy that insures our directors and officers against
losses, above a deductible amount, from specified types of claims.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
Since March 1, 1997, we have sold and issued the following unregistered
securities:
1. From March 1, 1997 through March 13, 2000, we granted stock options to
our employees, directors, officers and a board observer under our 1996
stock option plan covering an aggregate of 1,549,437 shares of common
stock. Of these stock options, 449,545 have been cancelled and made
available for future grants, 145,448 have been exercised and 1,100,036
remain outstanding.
2. In June 1997, we issued an aggregate of 3,220,734 shares of Series C
redeemable convertible preferred stock to 11 investors at $2.05 per
share for an aggregate purchase price of $6.6 million.
3. In December 1997, we issued notes in an aggregate principal amount of
$2.75 million and warrants to purchase an aggregate of 68,750 shares of
common stock at an exercise price of $0.60 per share to ten investors.
4. In March 1998, we issued 4,423,295 shares of Series D redeemable
convertible preferred stock to 27 investors at $4.00 per share, for an
aggregate purchase price of $17.7 million.
5. In April 1999, we issued an additional 673,955 shares of Series D
redeemable convertible preferred stock to 10 investors at $4.00 per
share, for an aggregate purchase price of $2.7 million.
6. In October 1999, we issued warrants to purchase 111,940 shares of common
stock to a customer at an exercise price of $6.70 per share. We also
provided an option to this customer to purchase up to 333,333 future
warrants at a conversion price of $2.00 per warrant to allow for the
purchase of common stock at an exercise price of $4.00 per share.
7. In January 2000, we issued 4,623,860 shares of Series E redeemable
convertible preferred stock to 25 investors at $4.60 per share, for an
aggregate purchase price of $21.3 million.
The issuances of securities described in Item 1 were deemed to be exempt
from registration under the Securities Act by virtue of Rule 701 promulgated
thereunder as transactions pursuant to a written employee compensatory benefit
plan approved by the registrant's board of directors.
The issuances of securities described in Items 2 through 7 were deemed to
be exempt from registration under the Securities Act by virtue of Section 4(2),
Regulation D or Regulation S promulgated thereunder. The recipients represented
their intention to acquire the securities for investment purposes only and not
with a view to the distribution thereof. Appropriate legends are affixed to the
stock certificates issued in such transactions. Similar legends were imposed
with any
II-2
<PAGE> 82
subsequent sales of any of the securities. All recipients either received
adequate information about NetGenics or had access, through employment or other
relationships, to such information.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
<TABLE>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- ----- ------------------------------------------------------------
<C> <S>
*1.1 Form of Underwriting Agreement
3.1 Certificate of Incorporation
3.2 Bylaws
*3.3 Form of Amended and Restated Certificate of Incorporation
*3.4 Form of Amended and Restated Bylaws
4.1 NetGenics, Inc. Stock Purchase Warrant, dated as of October
18, 1999, by and between NetGenics, Inc. and International
Business Machines Corporation
*4.2 Amended and Restated Registration Rights Agreement, dated as
of December 21, 1999, by and among NetGenics, Inc. and the
stockholders named therein
*5.1 Opinion of Jones, Day, Reavis & Pogue
10.1 Form of D&O Indemnification Agreement between NetGenics,
Inc. and its directors and certain executive officers
10.2 Registrant's 1996 Stock Option Plan
10.3 Employment Agreement, dated as of June 25, 1996, by and
between Manuel J. Glynias and NetGenics, Inc.
10.4 Employment Agreement, dated as of November 10, 1999, by and
between NetGenics, Inc. and Vincent P. Kazmer
10.5 Technical Services Agreement, dated as of October 15, 1999,
by and between International Business Machines Corporation
and NetGenics, Inc.
+10.6 SYNERGY License and Services Agreement, dated as of August
27, 1998, by and between NetGenics, Inc. and Genetics
Institute, Inc.
+10.7 SYNERGY Software License and Subscription Agreement, dated
as of April 2, 1999, by and between NetGenics International,
Ltd. and Hoescht Schering AgrEvo GmbH
21.1 Subsidiaries of NetGenics, Inc.
23.1 Consent of PricewaterhouseCoopers LLP
*23.2 Consent of Jones, Day, Reavis & Pogue (included in Exhibit
5.1)
24.1 Powers of Attorney
</TABLE>
- ---------------
* To be filed by amendment
+ Confidential treatment requested as to certain portions, which portions have
been omitted and filed separately with the SEC.
ITEM 17. UNDERTAKINGS.
The undersigned registrant hereby undertakes to provide to the underwriter
at the closing specified in the underwriting agreement, certificates in such
denominations and registered in such names as required by the underwriter to
permit prompt delivery to each purchaser.
The undersigned registrant hereby undertakes that:
1. For purposes of determining any liability under the Securities Act
of 1933, 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
II-3
<PAGE> 83
registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the
Securities Act shall be deemed to be part of this registration
statement as of the time it was declared effective.
2. For the purpose of determining any liability under the Securities
Act of 1933, 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 this offering of
such securities at that time shall be deemed to be the initial bona
fide offering thereof.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
registrant pursuant to the provisions described under Item 14 above 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 Securities Act and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the registrant of expenses incurred or paid by a director, officer or
controlling person of the registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
II-4
<PAGE> 84
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, NetGenics, Inc.
has duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the city of Cleveland, State of Ohio,
on March 9, 2000.
NETGENICS, INC.
By: /s/ MANUEL J. GLYNIAS
------------------------------------
Manuel J. Glynias
President and Chief Executive
Officer
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed on March 9, 2000 by the following persons
in the capacities indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<C> <S>
/s/ MANUEL J. GLYNIAS Chief Executive Officer and Director
- ----------------------------------------------------- (Principal Executive Officer)
Manuel J. Glynias
/s/ VINCENT P. KAZMER Chief Financial Officer
- ----------------------------------------------------- (Principal Financial Officer)
Vincent P. Kazmer
* Controller (Controller or Principal Accounting
- ----------------------------------------------------- Officer)
Raymond J. Merk
* Director
- -----------------------------------------------------
Walter Gilbert
* Director
- -----------------------------------------------------
Anthony B. Evnin
* Director
- -----------------------------------------------------
John Pappajohn
* Director
- -----------------------------------------------------
Nicole Vitullo
* Director
- -----------------------------------------------------
Alan G. Walton
</TABLE>
* Executed by power of attorney.
<PAGE> 85
EXHIBIT INDEX
<TABLE>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- ----- ------------------------------------------------------------
<C> <S>
*1.1 Form of Underwriting Agreement
3.1 Certificate of Incorporation
3.2 Bylaws
*3.3 Form of Amended and Restated Certificate of Incorporation
*3.4 Form of Amended and Restated Bylaws
4.1 NetGenics, Inc. Stock Purchase Warrant, dated as of October
18, 1999, by and between NetGenics, Inc. and International
Business Machines Corporation
*4.2 Amended and Restated Registration Rights Agreement, dated as
of December 21, 1999, by and among NetGenics, Inc. and the
stockholders named therein
*5.1 Opinion of Jones, Day, Reavis & Pogue
10.1 Form of D&O Indemnification Agreement between NetGenics,
Inc. and its directors and certain executive officers
10.2 Registrant's 1996 Stock Option Plan
10.3 Employment Agreement, dated as of June 25, 1996, by and
between Manuel J. Glynias and NetGenics, Inc.
10.4 Employment Agreement, dated as of November 10, 1999, by and
between NetGenics, Inc. and Vincent P. Kazmer
10.5 Technical Services Agreement, dated as of October 15, 1999,
by and between International Business Machines Corporation
and NetGenics, Inc.
+10.6 SYNERGY License and Services Agreement, dated as of August
27, 1998, by and between NetGenics, Inc. and Genetics
Institute, Inc.
+10.7 SYNERGY Software License and Subscription Agreement, dated
as of April 2, 1999, by and between NetGenics International,
Ltd. and Hoescht Schering AgrEvo GmbH
21.1 Subsidiaries of NetGenics, Inc.
23.1 Consent of PricewaterhouseCoopers LLP
*23.2 Consent of Jones, Day, Reavis & Pogue (included in Exhibit
5.1)
24.1 Powers of Attorney
</TABLE>
- ---------------
* To be filed by amendment
+ Confidential treatment requested as to certain portions, which portions have
been omitted and filed separately with the SEC.
<PAGE> 1
Exhibit 3.1
FIFTH AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
OF
NETGENICS, INC.
---------------------------------------------------------
Pursuant to Sections 242 and 245 of the
General Corporation Law of the State of Delaware
---------------------------------------------------------
NetGenics, Inc. (the "Company"), a corporation organized under the
laws of the State of Delaware, hereby certifies as follows:
1. The original certificate of incorporation was filed with the
Secretary of State of Delaware on May 6, 1996.
2. The Certificate of Incorporation has been amended and restated as
set forth in the attached EXHIBIT A (the "Fifth Amended and Restated Certificate
of Incorporation").
3. That the Fifth Amended and Restated Certificate of Incorporation
has been duly adopted by its stockholders in the manner and by the vote
prescribed by Sections 228, 242 and 245 of the General Corporation Law of the
State of Delaware.
IN WITNESS WHEREOF, the Company has caused this Amended and Restated
Certificate to be signed by Raymond J. Merk, its Secretary, on this 30th day of
December, 1999.
NETGENICS, INC.
By: /S/ RAYMOND J. MERK
-------------------------
Name: Raymond J. Merk
Title: Secretary
<PAGE> 2
Exhibit A
---------
FIFTH AMENDED AND RESTATED CERTIFICATE OF INCORPORATION,
AS AMENDED
OF
NETGENICS, INC.
-------------------------------------------------------
Pursuant to Sections 242 and 245 of the
General Corporation Law of the State of Delaware
-------------------------------------------------------
FIRST: The name of the Company is NETGENICS, INC.
SECOND: The address of the Company's registered office in the
State of Delaware is Corporation Trust Center, 1209 Orange Street, Wilmington,
New Castle County, Delaware. The name of its registered agent at such address is
The Corporation Trust Company.
THIRD: The purpose for which the Company is formed is to
engage in any lawful act or activity for which corporations may be organized
under the General Corporation Law of the State of Delaware.
FOURTH: The total number of shares of all classes which the
Corporation shall have authority to issue is Seventy-Five Million Seven Hundred
Fifty Thousand (75,750,000) shares divided into classes as follows:
Two Million (2,000,000) shares shall be Series A Convertible
Preferred Stock, $.001 par value (the "Series A Preferred Stock");
Two Million (2,000,000) shares shall be Series B Convertible
Preferred Stock, $.001 par value (the "Series B Preferred Stock");
Seven Million Five Hundred Thousand (7,500,000) shares shall
be Series C Convertible Preferred Stock, $.001 par value (the "Series C
Preferred Stock");
Twelve Million (12,000,000) shares shall be Series D
Convertible Preferred Stock, $.001 par value (the "Series D Preferred
Stock");
Nine Million Two Hundred Fifty Thousand (9,250,000) shares
shall be Series E Convertible Preferred Stock, $.001 par value (the
"Series E Preferred Stock"); and
Forty-Three Million (43,000,000) shares shall be Common Stock,
$.001 par value (the "Common Stock").
The following is a statement of the powers, preferences, rights and the
qualifications, limitations or restrictions of the Preferred Stock (as
hereinafter defined) and the Common Stock.
<PAGE> 3
SECTION I.
Definitions.
------------
For purposes of this Article FOURTH, the following definitions shall
apply:
(a) "Additional Preferred Stock" shall mean equity securities
of the Company, including Preferred Stock, which have preference over
the Common Stock in right of payment on liquidation.
(b) "Board" shall mean the Board of Directors of the Company.
(c) "Company" or the "Corporation" shall mean NetGenics, Inc.
(d) "Original Issue Date" for a series of Preferred Stock
shall mean the date on which the first share of such series of
Preferred Stock is issued.
(e) "Preferred Stock" shall mean the Series A Preferred Stock,
the Series B Preferred Stock, the Series C Preferred Stock, the Series
D Preferred Stock and the Series E Preferred Stock.
SECTION II.
A. PREFERRED STOCK
The preferences and relative, participating, optional or other
rights, and the qualifications, limitations or restrictions of the Preferred
Stock are in their entirety as follows:
SECTION 1. LIQUIDATION RIGHTS. (a) In the event of any
voluntary or involuntary liquidation, dissolution or winding up of the affairs
of the Corporation or, at the option of each holder of shares of Preferred Stock
in accordance with paragraph (i) of Section 2 below, in the event of any
reorganization, merger, consolidation or sale subject to the provisions of
paragraph (i) of Section 2 below, the holders of each series of Preferred Stock
shall be entitled to receive, prior to and in preference to any distribution of
any of the assets or surplus funds of the Corporation to the holders of the
Common Stock by reason of their ownership thereof, an amount per share as may be
fixed for such series (a "Liquidation Value") plus an amount equal to all
accrued or declared but unpaid dividends on each such share. The Liquidation
Value for each share of Series A Preferred Stock shall be Twenty-Five Cents
($0.25) (as adjusted for any stock dividends, combinations or splits with
respect to such shares). The Liquidation Value for each share of Series B
Preferred Stock shall be Fifty Cents ($0.50) (as adjusted for any stock
dividends, combinations or splits with respect to such shares). The Liquidation
Value for each share of Series C Preferred Stock shall be the sum of (x) One
Dollar and Two and One-Half Cents ($1.025) (as adjusted for any stock dividends,
combinations or splits with respect to such shares) (the "Original Series C
Purchase Price") and (y) an amount that reflects a 12% return, compounded
annually, on the Original Series C Purchase Price for each 12 months that has
passed since the Original Issue Date with respect to the Series C Preferred
Stock. The Liquidation Value for each share of Series D Preferred Stock shall be
the sum of (x) Two Dollars ($2.00) (as adjusted for any stock dividends,
combinations or splits with respect to such
-3-
<PAGE> 4
shares) (the "Original Series D Purchase Price") and (y) an amount that reflects
a 12% return, compounded annually, on the Original Series D Purchase Price for
each 12 months that has passed since the Original Issue Date with respect to the
Series D Preferred Stock. The Liquidation Value for each share of Series E
Preferred Stock shall be the sum of (x) Two Dollars and Thirty Cents ($2.30) (as
adjusted for any stock dividends, combinations or splits with respect to such
shares) (the "Original Series E Purchase Price") and (y) an amount that reflects
a 12% return, compounded annually, on the Original Series E Purchase Price for
each 12 months that has passed since the Original Issue Date with respect to the
Series E Preferred Stock.
All of the preferential amounts to be paid to the holders of
the Preferred Stock under this Section 1 shall be paid or set apart for payment
before the payment or setting apart for payment of any amount for, or the
distribution of any assets of the Corporation to, the holders of the Common
Stock in connection with such liquidation, dissolution or winding up. If the
assets or surplus funds to be distributed to the holders of the Preferred Stock
are insufficient to permit the payment to such holders of their full
preferential amount, the assets and surplus funds legally available for
distribution shall be distributed among the holders of the Series A Preferred
Stock, the Series B Preferred Stock, the Series C Preferred Stock, the Series D
Preferred Stock and the Series E Preferred Stock, in each case in respect of
Liquidation Value and accrued and unpaid dividends, and in each case in
proportion to the full preferential amount each such holder is otherwise
entitled to receive.
(b) After the payment in full to the holders of the Preferred
Stock of the preferential amounts required by paragraph (a) of this Section 1,
if assets or surplus funds remain in the Corporation, the holders of the Common
Stock shall be entitled to receive an amount equal to One Cent ($0.01) per share
(as adjusted for any stock dividends, combinations or splits with respect to
such shares). Subject to the payment in full to the holders of the Preferred
Stock of the preferential amounts required by paragraph (a) of this Section 1,
if the assets or surplus funds to be distributed to the holders of the Common
Stock are insufficient to permit the payment to such holders of the full amount
provided in this paragraph (b), the asset and surplus funds legally available
for distribution shall be distributed pari passu among the holders of the Common
Stock in proportion to the shares of Common Stock then held by them.
(c) After the distributions described in paragraphs (a) and
(b) above have been paid, the remaining assets and surplus of the Corporation
legally available for distribution, if any, shall be distributed among the
holders of the Common Stock, the Series A Preferred Stock, the Series B
Preferred Stock, the Series C Preferred Stock, the Series D Preferred Stock, and
the Series E Preferred Stock, based on the number of shares of Common Stock held
by each such holder (for purposes of such calculation, the shares of Series A
Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, Series D
Preferred Stock and the Series E Preferred Stock being deemed to have been
converted into Common Stock immediately prior to the close of business on the
business day fixed for such distribution).
(d) Nothing in this Section 1 set forth shall affect in any
way the right of each holder of shares of Preferred Stock to convert such shares
at any time and from time to time in accordance with Section 2 below.
-4-
<PAGE> 5
SECTION 2. CONVERSION. The holder of any shares of Preferred
Stock shall have conversion rights as follows (the "Conversion Rights"):
(a) RIGHT TO CONVERT. Each share of Preferred Stock shall be
convertible, without the payment of any additional consideration by the holder
thereof and at the option of the holder thereof, at any time and from time to
time after the date of issuance of such Stock, at the office of the Company or
any transfer agent for such Preferred Stock into such number of fully paid and
nonassessable shares of Common Stock at the Conversion Price (as hereafter
defined) therefore in effect at the time of conversion determined as provided
herein.
(b) CONVERSION PRICE. The Conversion Price for the Preferred
Stock shall be determined as follows: Shares of Series A Preferred Stock shall
be convertible into the number of shares of Common Stock that results from
dividing $0.25 by the conversion price per share (the "Series A Conversion
Price") in effect at the time of conversion for each share of Series A Preferred
Stock being converted. The Series A Conversion Price for the Series A Preferred
Stock at the Original Issue Date shall be $0.25 and shall be subject to
adjustment from time to time as provided herein. Shares of Series B Preferred
Stock shall be convertible into the number of shares of Common Stock that
results from dividing $0.50 by the conversion price per share (the "Series B
Conversion Price") in effect at the time of conversion for each share of Series
B Preferred Stock being converted. The Series B Conversion Price for the Series
B Preferred Stock at the Original Issue Date shall be $0.50 and shall be subject
to adjustment from time to time as provided herein. Shares of Series C Preferred
Stock shall be convertible into the number of shares of Common Stock that
results from dividing $1.025 by the conversion price per share (the "Series C
Conversion Price") in effect at the time of conversion for each share of Series
C Preferred Stock being converted. The Series C Conversion Price for the Series
C Preferred Stock at the Original Issue Date shall be $1.025 and shall be
subject to adjustment from time to time as provided herein. Shares of Series D
Preferred Stock shall be convertible into the number of shares of Common Stock
that results from dividing $2.00 by the conversion price per share (the "Series
D Conversion Price") in effect at the time of conversion for each share of
Series D Preferred Stock being converted. The Series D Conversion Price for the
Series D Preferred Stock at the Original Issue Date shall be $2.00 and shall be
subject to adjustment from time to time as provided herein. Shares of Series E
Preferred Stock shall be convertible into the number of shares of Common Stock
that results from dividing $2.30 by the conversion price per share (the "Series
E Conversion Price") in effect at the time of conversion for each share of
Series E Preferred Stock being converted. The Series E Conversion Price for the
Series E Preferred Stock at the Original Issue Date shall be $2.30 and shall be
subject to adjustment from time to time as provided herein. The "Conversion
Price" shall refer to the Series A Conversion Price, the Series B Conversion
Price, the Series C Conversion Price, the Series D Conversion Price, or the
Series E Conversion Price, as may be appropriate.
(c) AUTOMATIC CONVERSION. (i) Each share of Series A Preferred
Stock and Series B Preferred Stock shall automatically be converted into shares
of Common Stock at the then-effective Series A Conversion Price or Series B
Conversion Price, as the case may be, immediately upon the closing of a Public
Offering (as defined below).
(ii) Each share of Series C Preferred Stock, Series D Preferred Stock
and Series E Preferred Stock shall automatically be converted into shares of
Common Stock at the then-effective Series C Conversion Price, Series D
Conversion Price or Series E Conversion Price, as
-5-
<PAGE> 6
the case may be, immediately upon the earlier of (A) the closing of a Public
Offering or (B) the date specified by vote or written consent or agreement of
(1) in the case of the Series C Preferred Stock, at least 75% of the shares of
the Series C Preferred Stock then outstanding, (2) in the case of the Series D
Preferred Stock, at least 75% of the shares of Series D Preferred Stock then
outstanding, or (3) in the case of the Series E Preferred Stock, at least 75% of
the shares of Series E Preferred Stock then outstanding.
(iii) No such conversion pursuant to clause (i) or (ii)(A) shall occur
unless each holder of Preferred Stock shall have received written notice of the
proposed Public Offering at least 30 days prior to the date the registration
statement relating to that Public Offering becomes effective.
The Company shall have no obligation to issue and deliver to
any such holder of Preferred Stock on the date of automatic conversion a
certificate for the number of shares of Common Stock to which such holder shall
be entitled until such time as such holder has surrendered his certificate or
certificates for his Preferred Stock, duly endorsed, at the office of the
Company or at the office of any transfer agent for the Common Stock or the
holder notifies the Company that such certificates have been lost, stolen or
destroyed and executes an agreement reasonably satisfactory to the Company to
indemnify the Company from any loss incurred by it in connection therewith. All
rights with respect to shares of Preferred Stock shall forthwith after such
automatic conversion pursuant to this paragraph 2(c) terminate, except only the
right of the holders of such shares to receive Common Stock upon surrender of
their certificates for the Preferred Stock and their rights with respect to
unpaid dividends described in paragraph 2(d). "Public Offering" shall be defined
as (i) with respect to the Series C Preferred Stock, the Series D Preferred
Stock and the Series E Preferred Stock, any firm commitment, underwritten public
offering of Common Stock, registered under the Securities Act of 1933, the gross
proceeds of which to the Company (before deducting any underwriting fees and
commissions) are at least $15 million and the public offering price per share
(before deducting any underwriting fees and commissions) of which equals or
exceeds $3.50 per share of Common Stock (as adjusted for any stock dividends,
combinations or splits with respect to such shares), and (ii) with respect to
the Series A Preferred Stock and Series B Preferred Stock, any firm commitment,
underwritten public offering of Common Stock, registered under the Securities
Act of 1933, the gross proceeds of which to the Company and/or selling
shareholders (if any) (before deducting any underwriting fees and commissions)
are at least $5 million.
Notwithstanding the foregoing provisions of this paragraph
2(c), in the event of a Public Offering, then as a condition to the consummation
of Public Offering and the automatic conversion set forth in paragraph 2(c),
there shall be paid in full to all holders of the Preferred Stock to be so
converted, all accrued but unpaid dividends and distributions with respect to
such Preferred Stock.
(d) MECHANICS OF CONVERSION; UNPAID DIVIDENDS. Before any
holder of Preferred Stock shall be entitled to convert the same into shares of
Common Stock, such holder shall surrender the certificate or certificates
therefor, duly endorsed, at the office of the Company or of any transfer agent
for the Preferred Stock or Common Stock, and shall give written notice by mail,
postage prepaid, to the Company at such office that such holder elects to
convert the same and shall state therein the number of shares of Preferred Stock
being converted and the name or names in which the certificate or certificates
for shares of Common Stock are to
-6-
<PAGE> 7
be issued. Thereupon the Company shall promptly issue and deliver at such office
to such holder of Preferred Stock or to the nominee or nominees of such holder a
certificate or certificates for the number of shares of Common Stock to which
such holder shall be entitled. Such conversion shall be deemed to have been made
immediately prior to the close of business on the date of such surrender of the
shares of Preferred Stock to be converted, and the person or persons entitled to
receive the share of Common Stock issuable upon such conversion shall be treated
for all purposes as the record holder or holders of such shares of Common Stock
on such date. All dividends accrued and unpaid prior to surrender of shares of
Preferred Stock surrendered for conversion shall constitute a debt of the
Company payable to the converting shareholder, and no dividend or other
distribution shall be paid on, declared or set apart for the Common Stock until
such debt is fully paid or sufficient funds set apart for the payment thereof.
(e) ADJUSTMENT FOR STOCK SPLITS AND COMBINATIONS. If the
Company shall at any time or from time to time after the Original Issue Date
effect a subdivision or combination of the outstanding Common Stock, the
Conversion Price then in effect immediately before that subdivision shall be
proportionately adjusted. Any adjustment under this paragraph 2(e) shall become
effective at the close of business on the date the subdivision or combination
becomes effective.
(f) ADJUSTMENT FOR CERTAIN DIVIDENDS AND DISTRIBUTIONS. In the
event the Company at any time or from time to time after the Original Issue Date
shall make or issue, or fix a record date for the determination of holders of
Common Stock entitled to receive, a dividend or other distribution payable in
additional shares of Common Stock, then and in each such event the Conversion
Price for the Preferred Stock then in effect shall be decreased as of the time
of such issuance or, in the event such a record date shall have been fixed, as
of the close of business on such record date, by multiplying the Conversion
Price for the Preferred Stock then in effect by a fraction:
(1) the numerator of which shall be the total number of shares
of Common Stock issued and outstanding immediately prior to the time of
such issuance or the close of business on such record date, and
(2) the denominator of which shall be the total number of
shares of Common Stock issued and outstanding immediately prior to the
time of such issuance or the close of business on such record date,
plus the number of shares of Common Stock issuable in payment of such
dividend or distribution; provided, however, if such record date shall
have been fixed and such dividend is not fully paid or if such
distribution is not fully made on the date fixed therefor, the
Conversion Price for the Preferred Stock shall be recomputed
accordingly as of the close of business on such record date and
thereafter the Conversion Price for the Preferred Stock shall be
adjusted pursuant to this paragraph 2(f) as of the time of actual
payment of such dividends or distributions.
(g) ADJUSTMENTS FOR OTHER DIVIDENDS AND DISTRIBUTIONS. In the
event the Company if at any time or from time to time after the Original Issue
Date shall make or issue, or fix a record date for the determination of holders
of Common Stock entitled to receive, a dividend or other distribution payable in
(i) evidences of indebtedness of the Company, (ii) assets of the Company (other
than cash), or (iii) securities of the Company other than shares of Common
Stock, then and in each such event provision shall be made so that the holders
of
-7-
<PAGE> 8
Preferred Stock shall receive upon conversion thereof in addition to the number
of shares of Common Stock receivable thereupon, the amount of such evidences,
assets or securities that they would have received had their Preferred Stock
been converted into Common Stock on the date of such event and had thereafter,
during the period from the date of such event to and including the conversion
date, retained such evidences, assets, or securities receivable by them as
aforesaid during such period giving application to all adjustments called for
during such period under this Section 2 with respect to the rights of the
holders of the Preferred Stock.
(h) ADJUSTMENT FOR RECLASSIFICATION, EXCHANGE OR SUBSTITUTION.
If the Common Stock issuable upon the conversion of the Preferred Stock shall be
changed into the same or a different number of shares of any class or classes of
stock, whether by capital reorganization, reclassification or otherwise (other
than a subdivision or combination of shares or stock dividend provided for
above, or a reorganization, merger, consolidation or sale of assets provided for
elsewhere in this Section 2), then and in each such event the holder of each
share of Preferred Stock shall have the right thereafter to convert such share
into the kind and amounts of shares of stock and other securities and property
receivable upon such reorganization, reclassification or other change, by
holders of the number of shares of Common Stock into which such shares of
Preferred Stock might have been converted immediately prior to such
reorganization, reclassification or change, all subject to further adjustment as
provided herein.
(i) REORGANIZATION, MERGERS, CONSOLIDATIONS OR SALES OF
ASSETS. If at any time or from time to time there shall be a capital
reorganization of the Common Stock (other than a subdivision, combination,
reclassification or exchange of shares provided for elsewhere in this Section 2)
or a merger or consolidation of the Company with or into another corporation, or
the sale of all or substantially all the Company's properties and assets to any
other person, then, as a part of such reorganization, merger, consolidation or
sale, provision shall be made so that the holders of the Preferred Stock shall
thereafter be entitled to receive upon conversion of the Preferred Stock, the
number of shares of stock or other securities or property of the Company, or of
the successor corporation resulting from such merger or consolidation or sale,
to which a holder of that number of shares of Common Stock deliverable upon
conversion of the Preferred Stock would have been entitled on such capital
reorganization, merger, consolidation, or sale. In any such case, appropriate
adjustment shall be made in the application of the provisions of this Section 2
with respect to the rights of the holders of the Preferred Stock after the
reorganization, merger, consolidation or sale to the end that the provisions of
this Section 2 (including adjustment of the Conversion Price then in effect and
the number of shares purchasable upon conversion of the Preferred Stock) shall
be applicable after that event as nearly equivalent as may be practicable. Each
holder of shares of Preferred Stock upon the occurrence of a capital
reorganization, merger or consolidation of the Company or the sale of all or
substantially all its assets and properties as such events are more fully set
forth in this paragraph 2(i) shall have the option of electing treatment of such
holder's shares of Preferred Stock under either this paragraph 2(i) or Section 1
hereof, notice of which election shall be submitted in writing to the Company at
its principal office no later than ten days before the effective date of such
event, PROVIDED that the Company has timely furnished to such holder the notice
required by Section 2(m).
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(j) SALE OF SHARES BELOW CONVERSION PRICE.
(1) (A) If, at any time or from time to time after the
respective Original Issue Date for the Series C Preferred Stock, the
Series D Preferred Stock or the Series E Preferred Stock, as the case
may be, but on or prior to the second anniversary of such respective
Original Issue Date, the Company shall issue or sell Additional Shares
of Common Stock (as hereinafter defined), other than as a dividend as
provided in paragraph 2(f) above, and other than upon subdivision or
combination of shares of Common Stock as provided in paragraph 2(e)
above, without consideration or for a consideration per share less than
the Conversion Price of the Series C Preferred Stock, the Conversion
Price of the Series D Preferred Stock, or the Conversion Price of the
Series E Preferred Stock, as the case may be, in effect immediately
prior to such issuance or sale, then and in each case the Conversion
Price of the Series C Preferred Stock or the Conversion Price of the
Series D Preferred Stock, or the Conversion Price of the Series E
Preferred Stock, as the case may be, shall upon such issuance or sale
be reduced to the price per share at which such Additional Shares of
Common Stock were so issued.
(B) If, with respect to the Series A Preferred Stock and
Series B Preferred Stock at any time or from time to time after the
Original Issue Date for such series of Preferred Stock, or, with
respect to the Series C Preferred Stock, Series D Preferred Stock and
Series E Preferred Stock, at any time or from time to time after the
second anniversary of the respective Original Issue Date with respect
to the Series C Preferred Stock, Series D Preferred Stock and Series E
Preferred Stock, the Company shall issue or sell Additional Shares of
Common Stock (as hereinafter defined), other than as a dividend as
provided in paragraph 2(f) above, and other than upon subdivision or
combination of shares of Common Stock as provided in paragraph 2(e)
above, without consideration or for a consideration per share less than
the Conversion Price for such series in effect immediately prior to
such issuance or sale, then and in each case such Conversion Price for
such series of Preferred Stock shall upon such issuance or sale be
reduced to a price determined by DIVIDING (i) an amount equal to the
sum of (A) the number of shares of Common Stock outstanding immediately
prior to such issue or sale multiplied by the Conversion Price in
effect immediately prior to such issue or sale plus (B) the aggregate
consideration received by the Company for the total number of
Additional Shares of Common Stock so issued, BY (ii) an amount equal to
the sum of (x) the number of shares of Common Stock outstanding
immediately prior to such issue or sale plus (y) the total number of
Additional Shares of Common Stock so issued. "The number of shares of
Common Stock outstanding" at any time for purposes of this paragraph
shall include without limitation all shares of Common Stock then
outstanding and all shares of Common Stock issuable upon the conversion
of any Preferred Stock then outstanding as provided herein. The
adjustment provided for in this paragraph shall first be made for the
Series A Preferred Stock based on the Conversion Price of the Series A
Preferred Stock, Series B Preferred Stock, Series C Preferred Stock,
Series D Preferred Stock and Series E Preferred Stock in effect
immediately prior to such issuance or sale, and then shall be made for
the Series B Preferred Stock based on the Conversion Price of the
Series A Preferred Stock, Series B Preferred Stock, Series C Preferred
Stock, Series D Preferred Stock and Series E Preferred Stock in effect
immediately prior to such issuance or sale, and then shall be made for
the Series C
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<PAGE> 10
Preferred Stock based on the Conversion Price for the Series A
Preferred Stock, Series B Preferred Stock, Series C Preferred Stock,
Series D Preferred Stock and Series E Preferred Stock in effect
immediately prior to such issuance or sale, and then shall be made for
the Series D Preferred Stock based on the Conversion Price for the
Series A Preferred Stock, Series B Preferred Stock, Series C Preferred
Stock, Series D Preferred Stock and Series E Preferred Stock in effect
immediately prior to such issuance or sale, and then shall be made for
the Series E Preferred Stock based on the Conversion Price for the
Series A Preferred Stock, Series B Preferred Stock, Series C Preferred
Stock, Series D Preferred Stock and Series E Preferred Stock in effect
immediately prior to such issuance or sale.
(2) For the purpose of making any adjustment in the Conversion
Price or number of shares of Common Stock purchasable on conversion of
Preferred Stock as provided above, the consideration received by the
Company for any issue or sale of securities shall,
(A) to the extent it consists of cash, be computed at the net
amount of cash received by the Company before deduction of any
underwriting or similar commissions, concessions or
compensation paid or allowed by the Company in connection with
such issue or sale;
(B) to the extent it consists of services or property other
than cash, be computed at the fair value of such services or
property as determined in good faith by the Board; and
(C) if Additional Shares of Common Stock, Convertible
Securities (as hereinafter defined), or rights or options to
purchase either Additional Shares of Common Stock or
Convertible Securities are issued or sold together with other
stock or securities or other assets of the Company for a
consideration that covers both, be computed as the portion of
the consideration so received that may be reasonably
determined in good faith by the Board to be allocable to such
Additional Shares of Common Stock, Convertible Securities or
rights or options.
(3) For the purpose of the adjustment provided in subsection
(1) of this paragraph 2(j), if at any time or from time to time after
the Original Issue Date the Company shall issue any rights or options
for the purchase of, or stock or other securities convertible into,
Additional Shares of Common Stock (such convertible stock or securities
being hereinafter referred to as "Convertible Securities"), then, in
each case, if the Effective Price (as hereinafter defined) of such
rights, options or Convertible Securities shall be less than the then
existing Conversion Price for any series of the Preferred Stock, the
Company shall be deemed to have issued at the time of the issuance of
such rights or options or Convertible Securities the maximum number of
Additional Shares of Common Stock issuable upon exercise or conversion
thereof and to have received as consideration for the issuance of such
shares an amount equal to the total amount of the consideration, if
any, received by the Company for the issuance of such rights or options
or Convertible Securities, plus, in the case of such options or rights,
the minimum amounts of consideration, if any, payable to the Company
upon exercise or conversion of such options, rights or warrants. For
purposes of the foregoing, "Effective
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<PAGE> 11
Price" shall mean the quotient determined by dividing the total of all
such consideration by such maximum number of Additional Shares of
Common Stock. No further adjustment of the Conversion Price adjusted
upon the issuance of such rights, options or Convertible Securities
shall be made as a result of the actual issuance of Additional Shares
of Common Stock on the exercise of any such rights or options or the
conversion of any such Convertible Securities.
If any such rights or options or the conversion privilege
represented by any such Convertible Securities shall expire without
having been exercised, the Conversion Price adjusted upon the issuance
of such rights, options or Convertible Securities shall be readjusted
to the Conversion Price that would have been in effect had an
adjustment been made on the basis that the only Additional Shares of
Common Stock so issued were the Additional Shares of Common Stock, if
any, actually issued or sold on the exercise of such rights or options
or rights of conversion of such Convertible Securities, and such
Additional Shares of Common Stock, if any, were issued or sold for the
consideration actually received by the Company upon such exercise, plus
the consideration, if any, actually received by the Company for the
granting of all such rights or options, whether or not exercised, plus
the consideration received for issuing or selling the Convertible
Securities actually converted plus the consideration, if any, actually
received by the Company on the conversion of such Convertible
Securities.
(4) For the purpose of the adjustment provided for in
subsection (1) of this paragraph 2(j), if at any time or from time to
time after the Original Issue Date the Company shall issue any rights,
options or warrants for the purchase of Convertible Securities, then,
in each such case, if the Effective Price thereof is less than the then
current Conversion Price, the Company shall be deemed to have issued at
the time of the issuance of such rights, options or warrants the
maximum number of Additional Shares of Common Stock issuable upon
conversion of the total amount of Convertible Securities covered by
such rights, options or warrants and to have received as consideration
for the issuance of such Additional Shares of Common Stock an amount
equal to the amount of consideration, if any, payable to the Company
upon the conversion of such Convertible Securities. For purposes of the
foregoing, "Effective Price" shall mean the quotient determined by
dividing the total amount of such consideration by such maximum number
of Additional Shares of Common Stock. No further adjustment of such
Conversion Price adjusted upon the issuance of such rights, options or
warrants shall be made as a result of the actual issuance of the
Convertible Securities upon the exercise of such rights or options or
upon the actual issuance of Additional Shares of Common Stock upon the
conversion of such Convertible Securities.
The provisions of subsection (3) above for the readjustment of
such Conversion Price upon the expiration of rights or options or the rights of
conversion of convertible Securities, shall apply mutatis mutandis to the
rights, options and Convertible Securities referred to in this subsection (4).
(k) DEFINITION. The term "Additional Shares of Common Stock"
as used herein shall mean all shares of Common Stock issued or deemed issued by
the Company other than (1) shares of Common Stock issued upon conversion of the
Preferred Stock, (2) shares of
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<PAGE> 12
Common Stock issued upon exercise of any warrants outstanding as of the Closing
(as defined in the Series E Convertible Preferred Stock Purchase Agreement,
dated as of December __, 1999, among the Company and the purchasers named in
SCHEDULE I attached thereto) and (3) up to an additional 4,000,000 shares of
Common Stock (as adjusted for all stock dividends, stock splits, subdivisions
and combinations) issued before or after the Original Issue Date to employees,
officers, directors, consultants or other persons performing services for the
Company (if so issued solely because of any such person's status as an officer,
director, employee, consultant or other person performing services for the
Company and not as part of any offering of the Company's securities) pursuant to
any stock option plan, stock purchase plan or management incentive plan,
agreement or arrangement approved by the Board of Directors of the Company.
(l) ACCOUNTANTS' CERTIFICATE OF ADJUSTMENT. In each case of an
adjustment or readjustment of the Conversion Price for the number of shares of
Common Stock or other securities issuable upon conversion of the Preferred
Stock, the Company, at its expense, shall cause independent certified public
accountants of recognized standing selected by the Company (who may be the
independent certified public accountants then auditing the books of the Company)
to compute such adjustment or readjustment in accordance herewith and prepare a
certificate showing such adjustment or readjustment, and shall mail such
certificate, by first-class mail, postage prepaid, to each registered holder of
the Preferred Stock at the holder's address as shown in the Company's books. The
certificate shall set forth such adjustment or readjustment, showing in detail
the facts upon which such adjustment or readjustment is based including a
statement of (i) the consideration received or to be received by the Company for
any Additional Shares of Common Stock issued or sold or deemed to have been
issued or sold, (ii) the Conversion Price at the time in effect for each series
of the Preferred Stock, and (iii) the number of Additional Shares of Common
Stock and the type and amount, if any, of other property which at the time would
be received upon conversion of the Preferred Stock.
(m) NOTICES OF RECORD DATE. In the event of (i) any taking by
the Company of a record of the holders of any class or series of securities for
the purpose of determining the holders thereof who are entitled to receive any
dividend or other distribution or (ii) any reclassification or recapitalization
of the capital stock of the Company, any merger or consolidation or the Company,
or any transfer of all or substantially all the assets of the Company to any
other corporation, entity or person, or any voluntary or involuntary
dissolution, liquidation or winding up of the affairs of the Company, the
Company shall mail to each holder of Preferred Stock at least 30 days prior to
the record date or the effective date of such transaction, as applicable,
specified therein, a notice specifying (A) the date on which any such record is
to be taken for the purpose of such dividend or distribution and a description
of such dividend or distribution, (B) the date on which any such reorganization,
reclassification, transfer, consolidation, merger, dissolution, liquidation or
winding up is expected to become effective, and (C) the time, if any is to be
fixed, as to when the holders of record of Common Stock (or other securities)
shall be entitled to exchange their shares of Common Stock (or other securities)
for securities or other property deliverable upon such reorganization,
reclassification, transfer, consolidation, merger, dissolution, liquidation or
winding up.
(n) FRACTIONAL SHARES. No fractional shares of Common Stock
shall be issued upon conversion of shares of Preferred Stock. In lieu of any
fractional shares to which the holder would otherwise be entitled, the Company
shall pay cash equal to the product of such
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<PAGE> 13
fraction multiplied by the fair market value of one share of the Company's
Common Stock on the date of conversion, as determined in good faith by the
Board. Whether or not fractional shares are issuable upon such conversion shall
be determined on the basis of the total number of shares of Preferred Stock the
holder is at the time converting into Common Stock and the number of shares of
Common Stock issuable upon such aggregate conversion.
(o) RESERVATION OF STOCK ISSUABLE UPON CONVERSION. The Company
shall at all times reserve and keep available out of its authorized but unissued
shares of Common Stock, solely for the purpose of effecting the conversion of
the shares of the Preferred Stock, in addition to such number of its shares of
Common Stock as may from time to time be required, at such time, to be issued by
the Company upon exercise of all then-exercisable warrants and options to
purchase shares of Common Stock or the right to convert other convertible
securities into shares of Common Stock, such number of its shares of Common
Stock as shall from time to time be sufficient to effect the conversion of all
outstanding shares of the Preferred Stock. As a condition precedent to the
taking of any action which would cause an adjustment to the Conversion Price,
the Company will take such corporate action as may, in the opinion of its
counsel, be necessary to increase its authorized but unissued shares of Common
Stock to such number of shares as shall be sufficient in order that it may
validly and legally issue the shares of is Common Stock issuable based upon such
adjusted Conversion Price.
(p) NOTICES. Any notice required by the provisions of this
Section 2 to be given to the holder of shares of the Preferred Stock shall be
deemed given when personally delivered to such holder or five business days
after the same has been deposited in the United States mail, certified or
registered mail, return receipt requested, postage prepaid, and addressed to
each holder of record at his address appearing on the books of the Company.
(q) PAYMENT OF TAXES. The Company will pay all taxes and other
governmental charges (other than taxes measured by the revenue or income of the
holders of the Preferred Stock) that may be imposed in respect of the issue or
delivery of shares of Common Stock upon conversion of shares of the Preferred
Stock.
(r) NO DILUTION OR IMPAIRMENT. The Company shall not amend its
Certificate of Incorporation or participate in any reorganization,
recapitalization, transfer of assets, consolidation, merger, dissolution, issue
or sale of securities or any other voluntary action, for the purpose of avoiding
or seeking to avoid the observance or performance of any of the terms to be
observed or performed hereunder by the Company, but will at all times in good
faith assist in carrying out all such action as may be reasonably necessary or
appropriate in order to protect the conversion rights of the holders of the
Preferred Stock against dilution or other impairment
SECTION 3. VOTING RIGHTS.
(a) Except as otherwise expressly provided herein or as
required by law, the holders of each share of Preferred Stock shall be entitled
to vote on all matters upon which holders of Common Stock have the right to vote
and, with respect to such vote, shall be entitled to notice of any stockholders'
meeting in accordance with the By-Laws of the Company, and shall be entitled to
a number of votes equal to the largest number of full shares of Common Stock
into which such shares of Preferred Stock could be converted, pursuant to the
provisions of Section 2 hereof, at the record date for the determination of
shareholders entitled to vote on
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<PAGE> 14
such matters or, if no such record date is established, at the date such vote is
taken or any written consent of stockholders is solicited. Except as otherwise
expressly provided herein, or to the extent class or series voting is otherwise
required by law or agreement, the holders of shares of Preferred Stock and
Common Stock shall vote together as a single class and not as separate classes.
(b) The number of directors constituting the entire Board
shall be fixed at a number not greater than seven and the following persons
shall have been elected as the directors and shall each hold such position as of
the Original Issue Date for the Series D Preferred Stock: one director
designated by International Biotechnology Trust plc ("IBT"), one director
designated by Oxford Bioscience Partners L.P. ("Oxford"), one director
designated by Venrock Associates L.P. ("Venrock"), one director designated by
Incyte Pharmaceuticals, Inc. ("Incyte"), and three directors designated by the
holders of the Common Stock, the Series A Preferred Stock and the Series B
Preferred Stock, acting together as a single class. Each of IBT, Oxford, Venrock
and Incyte shall retain the right to designate one (1) member of the Board of
Directors, so long as it and its affiliates continue to hold at least 125,000
shares of Common Stock or other securities of the Company convertible into at
least 125,000 shares of Common Stock. A vacancy occurring because of the death,
resignation or removal of a director designated by a stockholder as set forth
above may be filled solely by the designee of such stockholder.
SECTION 4. DIVIDEND RIGHTS.
At any time a dividend is declared on the outstanding shares
of Common Stock, a dividend shall be declared on the outstanding shares of
Preferred Stock in an amount equal to that which would have been declared on the
Preferred Stock if such Preferred Stock had been converted into the maximum
number of shares of Common Stock convertible upon exercise of the Conversion
Rights described in Section 2 hereof.
SECTION 5. COVENANTS. (a) So long as fifty percent (50%) or
more of the number of shares of Preferred Stock authorized hereby shall be
outstanding (as adjusted for all subdivisions and combinations), the Company
shall not, without first obtaining the affirmative vote or written consent of a
majority of such outstanding shares of Preferred Stock, voting together as one
class:
(i) amend or repeal any provision of, or add any provision to,
the Corporation's Certificate of Incorporation or By-Laws if such action would
alter or change the preferences, rights, privileges or powers of, or the
restrictions provided for the benefit of the Preferred Stock of any series;
(ii) reclassify any Common Stock into shares having any
preference or priority as to dividends or assets superior to or on a parity with
any such preference or priority of any the Preferred Stock;
(iii) apply any of its assets to the redemption, retirement,
purchase or other acquisition directly or indirectly, through subsidiaries or
otherwise, of any shares of Common Stock of the Company or any rights, options,
warrants to purchase, or securities convertible into, Common Stock of the
Corporation except from employees of the Corporation upon termination of
employment and in any stock option or other agreement entered into by the
Company;
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<PAGE> 15
(iv) (y) create or issue any securities of the Company which
have equity features and which rank on a parity with or senior to any of the
Preferred Stock upon payment of dividends or upon liquidation or other
distribution of assets or with a conversion price lower than that of any of the
Preferred Stock or terms more favorable than those of any of the Preferred
Stock, or (z) sell or issue any shares of Common Stock of the Company for which
the consideration is other than cash;
(v) increase the authorized number of shares of any series of
Preferred Stock;
(vi) merge, consolidate, sell, lease, exchange or otherwise
dispose of all or substantially all its property and assets unless the Company
is the surviving corporation following such merger or consolidation; or
(vii) increase the authorized number of directors constituting
the Board of Directors of the Company.
(b) So long as 250,000 shares of Series C Preferred Stock shall be
outstanding, the Company shall not, without first having obtained the
affirmative vote or written consent of the holders of not less than sixty-six
and two-thirds percent (66-2/3%) of such outstanding shares of Series C
Preferred Stock;
(i) amend or repeal any provision of, or add any provision to,
the Corporation's Certificate of Incorporation or By-Laws if such action would
alter or change the preferences, rights, privileges or powers of, or the
restrictions provided for the benefit of, the Series C Preferred Stock;
(ii) reclassify any Common Stock or Preferred Stock into
shares having any preference or priority as to assets superior to or on a parity
with any such preference or priority of the Series C Preferred Stock;
(iii) create, authorize or issue any other class or classes of
stock or series of Common Stock or Preferred Stock or any security convertible
into or evidencing the right to purchase shares of any class or series of Common
Stock or Preferred Stock or any capital stock of the Company having a preference
over or being on a parity with the Series C Preferred Stock as to dividends,
voting, liquidation, redemption, or other distributions of assets or having
rights equal or superior to any of the rights of the Series C Preferred Stock;
(iv) effect any sale, lease, assignment, transfer or other
conveyance of all or substantially all of the assets of the Company or any of
its subsidiaries, any liquidation, dissolution or winding up of, or any
consolidation or merger involving the Company or any of its subsidiaries or any
recapitalization of the Company or any transaction or series of transactions in
which more than 50% of the voting power of the Company is disposed of;
(v) apply any of its assets to the redemption, retirement,
purchase or other acquisition directly or indirectly, through subsidiaries or
otherwise, of any shares of Common Stock of the Company or any rights, options,
warrants to purchase, or securities convertible into, Common Stock of the
Corporation except from employees of the Corporation upon termination of
employment and in any stock option or other agreement entered into by the
Company;
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<PAGE> 16
(vi) (y) create or issue any securities of the Company which
have equity features and which rank on a parity with or senior to any of the
Preferred Stock upon payment of dividends or upon liquidation or other
distribution of assets or with a conversion price lower than that of any of the
Preferred Stock or terms more favorable than those of any of the Preferred
Stock, or (z) sell or issue any shares of Common Stock of the Company for which
the consideration is other than cash;
(vii) pay or declare any dividend on the Common Stock or any
junior equity security other than a dividend payable in Common Stock;
(viii) increase the authorized number of shares of Series C
Preferred Stock; or
(ix) increase the authorized number of directors constituting
the Board of Directors of the Company.
(c) So long as 250,000 shares of Series D Preferred Stock shall be
outstanding, the Company shall not, without first having obtained the
affirmative vote or written consent of the holders of sixty-six and two-thirds
percent (66-2/3%) of such outstanding shares of Series D Preferred Stock;
(i) amend or repeal any provision of, or add any provision to,
the Corporation's Certificate of Incorporation or By-Laws if such action would
alter or change the preferences, rights, privileges or powers of, or the
restrictions provided for the benefit of, the Series D Preferred Stock;
(ii) reclassify any Common Stock or Preferred Stock into
shares having any preference or priority as to assets superior to or on a parity
with any such preference or priority of the Series D Preferred Stock;
(iii) create, authorize or issue any other class or classes of
stock or series of Common Stock or Preferred Stock or any security convertible
into or evidencing the right to purchase shares of any class or series of Common
Stock or Preferred Stock or any capital stock of the Company having a preference
over or being on a parity with the Series D Preferred Stock as to dividends,
voting, liquidation, redemption, or other distributions of assets or having
rights equal or superior to any of the rights of the Series D Preferred Stock;
(iv) effect any sale, lease, assignment, transfer or other
conveyance of all or substantially all of the assets of the Company or any of
its subsidiaries, any liquidation, dissolution or winding up of, or any
consolidation or merger involving the Company or any of its subsidiaries or any
recapitalization of the Company or any transaction or series of transactions in
which more than 50% of the voting power of the Company is disposed of;
(v) apply any of its assets to the redemption, retirement,
purchase or other acquisition directly or indirectly, through subsidiaries or
otherwise, of any shares of Common Stock of the Company or any rights, options,
warrants to purchase, or securities convertible into, Common Stock of the
Corporation except from employees of the Corporation upon termination of
employment and in any stock option or other agreement entered into by the
Company;
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<PAGE> 17
(vi) (y) create or issue any securities of the Company which
have equity features and which rank on a parity with or senior to any of the
Preferred Stock upon payment of dividends or upon liquidation or other
distribution of assets or with a conversion price lower than that of any of the
Preferred Stock or terms more favorable than those of any of the Preferred
Stock, or (z) sell or issue any shares of Common Stock of the Company for which
the consideration is other than cash;
(vii) pay or declare any dividend on the Common Stock or any
junior equity security other than a dividend payable in Common Stock;
(viii) increase the authorized number of shares of Series D
Preferred Stock; or
(ix) increase the authorized number of directors constituting
the Board of Directors of the Company.
(d) So long as 250,000 shares of Series E Preferred Stock shall be
outstanding, the Company shall not, without first having obtained the
affirmative vote or written consent of the holders of sixty-six and two-thirds
percent (66-2/3%) of such outstanding shares of Series E Preferred Stock;
(i) amend or repeal any provision of, or add any provision to,
the Corporation's Certificate of Incorporation or By-Laws if such action would
alter or change the preferences, rights, privileges or powers of, or the
restrictions provided for the benefit of, the Series E Preferred Stock;
(ii) reclassify any Common Stock or Preferred Stock into
shares having any preference or priority as to assets superior to or on a parity
with any such preference or priority of the Series E Preferred Stock;
(iii) create, authorize or issue any other class or classes of
stock or series of Common Stock or Preferred Stock or any security convertible
into or evidencing the right to purchase shares of any class or series of Common
Stock or Preferred Stock or any capital stock of the Company having a preference
over or being on a parity with the Series E Preferred Stock as to dividends,
voting, liquidation, redemption, or other distributions of assets or having
rights equal or superior to any of the rights of the Series E Preferred Stock;
(iv) effect any sale, lease, assignment, transfer or other
conveyance of all or substantially all of the assets of the Company or any of
its subsidiaries, any liquidation, dissolution or winding up of, or any
consolidation or merger involving the Company or any of its subsidiaries or any
recapitalization of the Company or any transaction or series of transactions in
which more than 50% of the voting power of the Company is disposed of;
(v) apply any of its assets to the redemption, retirement,
purchase or other acquisition directly or indirectly, through subsidiaries or
otherwise, of any shares of Common Stock of the Company or any rights, options,
warrants to purchase, or securities convertible into, Common Stock of the
Corporation except from employees of the Corporation upon termination of
employment and in any stock option or other agreement entered into by the
Company;
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<PAGE> 18
(vi) (y) create or issue any securities of the Company which
have equity features and which rank on a parity with or senior to any of the
Preferred Stock upon payment of dividends or upon liquidation or other
distribution of assets or with a conversion price lower than that of any of the
Preferred Stock or terms more favorable than those of any of the Preferred
Stock, or (z) sell or issue any shares of Common Stock of the Company for which
the consideration is other than cash;
(vii) pay or declare any dividend on the Common Stock or any
junior equity security other than a dividend payable in Common Stock;
(viii) increase the authorized number of shares of Series E
Preferred Stock; or
(ix) increase the authorized number of directors constituting
the Board of Directors of the Company.
B. COMMON STOCK
Each share of Common Stock shall have one vote upon all matters to be
voted on by the holders of Common Stock. Each share of Common Stock shall be
entitled to participate equally in all dividends payable with respect to the
Common Stock and to share ratably, subject to the rights and preferences of any
series of Preferred Stock, in all assets of the Company in the event of any
voluntary or involuntary liquidation, dissolution or winding up of the affairs
of the Company, or upon any distribution of the assets of the Company.
FIFTH: To the fullest extent permitted by the General
Corporation Law of the State of Delaware, as the same exists or may hereafter be
amended, a Director of the Company shall not be liable to the Company or its
stockholders for monetary damages for breach of a fiduciary duty as a Director.
Any repeal or modification of the foregoing provisions of this
Article FIFTH by the stockholders of the Company shall be prospective only and
shall not adversely affect any right or protection of a Director of the Company
existing at the time of such repeal or modification for or with respect to any
acts or omissions of a Director occurring prior to such repeal or modification.
SIXTH: Elections of Directors need not be by written ballot
unless and to the extent that the By-Laws so provide.
SEVENTH: The Board of Directors is authorized to make, alter
or repeal the By-Laws of the Company.
EIGHTH: Any one or more Directors may be removed with or
without cause, by the vote or written consent of the holders of a majority of
the issued and outstanding shares of stock of the Company entitled to be voted
at an election of Directors.
For purposes of this Article EIGHTH, so long as IBT holds at
least 1,250,000 shares of Series D Preferred Stock, removal with "cause" shall
mean: (i) any willful action which, in the good faith judgment of a majority of
the Board of Directors, materially adversely
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affects the Company, or the business or property of the Company, (ii) the
commission of a felony (as determined by a plea or a finding of guilt in a court
of competent jurisdiction), or (iii) failure or refusal to perform material
duties as a director, such as the continual failure to attend meetings of the
Board of Directors, which failure or refusal remains uncured (by the director
whose removal for cause is under consideration) for 15 days following written
notice, specifying such failure or refusal, to such director.
Meetings of stockholders shall be held at such place, within
or without the State of Delaware, as may be designated by or in the manner
provided in the By-Laws, or, if not so designated, at the registered office of
the Company in the State of Delaware. Elections of directors need not be by
written ballot unless and to the extent that the By-Laws so provide.
-19-
<PAGE> 1
Exhibit 3.2
AMENDED AND RESTATED
BY-LAWS
OF
NETGENICS, INC.
ARTICLE I
MEETINGS OF STOCKHOLDERS
Section 1. ANNUAL MEETINGS. The annual meeting of stockholders shall be
held at such time and place and on such date in each year as may be fixed by the
board of directors and stated in the notice of the meeting, for the election of
directors, the consideration of reports to be laid before such meeting and the
transaction of such other business as may properly come before the meeting.
Section 2. SPECIAL MEETINGS. Special meetings of the stockholders shall
be called upon the written request of the chairman of the board of directors,
the president, the directors by action at a meeting, a majority of the directors
acting without a meeting, or of the holders of shares entitling them to exercise
a majority of the voting power of the Corporation entitled to vote thereat.
Calls for such meetings shall specify the purposes thereof. No business other
than that specified in the call shall be considered at any special meeting.
Section 3. NOTICES OF MEETINGS. Unless waived, and except as provided
in Section 230 of the General Corporation Law of the State of Delaware, written
notice of each annual or special meeting stating the date, time, place and
purposes thereof shall be given by personal delivery or by mail to each
stockholder of record entitled to vote at or entitled to notice of the meeting,
not more than sixty days nor less than ten days before any such meeting. If
mailed, such notice shall be directed to the stockholder at his address as the
same appears upon the records of the Corporation. Any stockholder, either before
or after any meeting, may waive any notice required to be given by law or under
these By-Laws.
Section 4. PLACE OF MEETINGS. Meetings of stockholders shall be held at
the principal office of the Corporation unless the board of directors determines
that a meeting shall be held at some other place within or without the State of
Delaware and causes the notice thereof to so state.
Section 5. QUORUM. The holders of shares entitling them to exercise a
majority of the voting power of the Corporation entitled to vote at any meeting,
present in person or by proxy, shall constitute a quorum for the transaction of
business to be considered at such meeting; provided, however, that no action
required by law or by the Certificate of Incorporation or these By-Laws to be
authorized or taken by the holders of a designated proportion of the shares of
any particular class or of each class may be authorized or taken by a lesser
proportion; and provided, further, that if a separate class vote is required
with respect to any matter, the holders of a majority of the outstanding shares
of such class, present in person or by proxy, shall constitute a quorum of such
class, and the affirmative vote of the majority of shares of such class so
present shall be the act of such class. The holders of a majority of the voting
shares represented at a
<PAGE> 2
meeting, whether or not a quorum is present, may adjourn such meeting from time
to time, until a quorum shall be present.
Section 6. RECORD DATE. The board of directors may fix a record date
for any lawful purpose, including, without limiting the generality of the
foregoing, the determination of stockholders entitled to (i) receive notice of
or to vote at any meeting of stockholders or any adjournment thereof or to
express consent to corporate action in writing without a meeting, (ii) receive
payment of any dividend or other distribution or allotment of any rights, or
(iii) exercise any rights in respect of any change, conversion or exchange of
stock. Such record date shall not precede the date on which the resolution
fixing the record date is adopted by the board of directors. Such record date
shall not be more than sixty days nor less than ten days before the date of such
meeting, nor more than sixty days before the date fixed for the payment of any
dividend or distribution or the date fixed for the receipt or the exercise of
rights, nor more than ten days after the date of which the resolution fixing the
record date for such written consent is adopted by the board of directors, as
the case may be.
If a record date shall not be fixed in respect of any such matter, the
record date shall be determined in accordance with the General Corporation Law
of the State of Delaware.
Section 7. PROXIES. A person who is entitled to attend a stockholders'
meeting, to vote thereat, or to execute consents, waivers or releases, may be
represented at such meeting or vote thereat, and execute consents, waivers and
releases, and exercise any of his other rights, by proxy or proxies appointed by
a writing signed by such person.
ARTICLE II
----------
Directors
---------
Section 1. NUMBER OF DIRECTORS. Until changed in accordance with the
provisions of this section, the number of directors of the Corporation, none of
whom need be stockholders, shall be three (3). The number of directors may be
fixed or changed by amendment of these By-Laws or by resolution of the board of
directors.
Section 2. ELECTION OF DIRECTORS. Directors shall be elected at the
annual meeting of stockholders, but when the annual meeting is not held or
directors are not elected thereat, they may be elected at a special meeting
called and held for that purpose. Such election shall be by ballot whenever
requested by any stockholder entitled to vote at such election, but unless such
request is made the election may be conducted in any manner approved at such
meeting.
At each meeting of stockholders for the election of directors, the
persons receiving the greatest number of votes shall be directors.
Section 3. TERM OF OFFICE. Each director shall hold office until the
annual meeting next succeeding his election and until his successor is elected
and qualified, or until his earlier resignation, removal from office or death.
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<PAGE> 3
Section 4. REMOVAL. All the directors, or all the directors of a
particular class, or any individual director may be removed from office, without
assigning any cause, by the vote of the holders of a majority of the voting
power entitling them to elect directors in place of those to be removed.
Section 5. VACANCIES. Vacancies in the board of directors may be filled
by a majority vote of the remaining directors until an election to fill such
vacancies is held. Stockholders entitled to elect directors shall have the right
to fill any vacancy in the board (whether the same has been temporarily filled
by the remaining directors or not) at any meeting of the stockholders called for
that purpose, and any directors elected at any such meeting of stockholders
shall serve until the next annual election of directors and until their
successors are elected and qualified.
Section 6. QUORUM AND TRANSACTION OF BUSINESS. A majority of the whole
authorized number of directors shall constitute a quorum for the transaction of
business, except that a majority of the directors in office shall constitute a
quorum for filling a vacancy on the board. Whenever less than a quorum is
present at the time and place appointed for any meeting of the board, a majority
of those present may adjourn the meeting from time to time, until a quorum shall
be present. The act of a majority of the directors present at a meeting at which
a quorum is present shall be the act of the board.
Section 7. ANNUAL MEETING. Annual meetings of the board of directors
shall be held immediately following annual meetings of the stockholders, or as
soon thereafter as is practicable. If no annual meeting of the stockholders is
held, or if directors are not elected thereat, then the annual meeting of the
board of directors shall be held immediately following any special meeting of
the stockholders at which directors are elected, or as soon thereafter as is
practicable. If such annual meeting of directors is held immediately following a
meeting of the stockholders, it shall be held at the same place at which such
stockholders' meeting was held.
Section 8. REGULAR MEETINGS. Regular meetings of the board of directors
shall be held at such times and places, within or without the State of Delaware,
as the board of directors may, by resolution, from time to time determine. The
secretary shall give notice of each such resolution to any director who was not
present at the time the same was adopted, but no further notice of such regular
meeting need be given.
Section 9. SPECIAL MEETINGS. Special meetings of the board of directors
may be called by the chairman of the board, the president, any vice president or
any two members of the board of directors, and shall be held at such times and
places, within or without the State of Delaware, as may be specified in such
call.
Section 10. NOTICE OF ANNUAL OR SPECIAL MEETINGS. Notice of the time
and place of each annual or special meeting shall be given to each director by
the secretary or by the person or persons calling such meeting. Such notice need
not specify the purpose or purposes of the meeting and may be given in any
manner or method and at such time so that the director receiving it may have
reasonable opportunity to attend the meeting. Such notice shall, in all events,
be deemed to have been properly and duly given if mailed at least forty-eight
hours prior to the meeting and directed to the residence of each director as
shown upon the secretary's
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records. The giving of notice shall be deemed to have been waived by any
director who shall attend and participate in such meeting and may be waived, in
a writing, by any director either before or after such meeting.
Section 11. COMPENSATION. The directors, as such, shall be entitled to
receive such reasonable compensation, if any, for their services as may be fixed
from time to time by resolution of the board, and expenses of attendance, if
any, may be allowed for attendance at each annual, regular or special meeting of
the board. Nothing herein contained shall be construed to preclude any director
from serving the Corporation in any other capacity and receiving compensation
therefor. Members of the executive committee or of any standing or special
committee may by resolution of the board be allowed such compensation for their
services as the board may deem reasonable, and additional compensation may be
allowed to directors for special services rendered.
ARTICLE III
-----------
Committees
----------
Section 1. EXECUTIVE COMMITTEE. The board of directors may from time to
time, by resolution passed by a majority of the whole board, create an executive
committee of three or more directors, the members of which shall be elected by
the board of directors to serve during the pleasure of the board. If the board
of directors does not designate a chairman of the executive committee, the
executive committee shall elect a chairman from its own number. Except as
otherwise provided herein and in the resolution creating an executive committee,
such committee shall, during the intervals between the meetings of the board of
directors, possess and may exercise all of the powers of the board of directors
in the management of the business and affairs of the Corporation, other than
that of filling vacancies among the directors or in any committee of the
directors or except as provided by law. The executive committee shall keep full
records and accounts of its proceedings and transactions. All action by the
executive committee shall be reported to the board of directors at its meeting
next succeeding such action and shall be subject to control, revision and
alteration by the board of directors, provided that no rights of third persons
shall be prejudicially affected thereby. Vacancies in the executive committee
shall be filled by the directors, and the directors may appoint one or more
directors as alternate members of the committee who may take the place of any
absent member or members at any meeting.
Section 2. MEETINGS OF EXECUTIVE COMMITTEE. Subject to the provisions
of these By-Laws, the executive committee shall fix its own rules of procedure
and shall meet as provided by such rules or by resolutions of the board of
directors, and it shall also meet at the call of the chairman of the board, the
president, the chairman of the executive committee or any two members of the
committee. Unless otherwise provided by such rules or by such resolutions, the
provisions of Section 10 of Article II relating to the notice required to be
given of meetings of the board of directors shall also apply to meetings of the
members of the executive committee. A majority of the executive committee shall
be necessary to constitute a quorum. The executive committee may act in a
writing without a meeting, but no such action of the executive committee shall
be effective unless concurred in by all members of the committee.
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<PAGE> 5
Section 3. OTHER COMMITTEES. The board of directors may by resolution
provide for such other standing or special committees as it deems desirable, and
discontinue the same at its pleasure. Each such committee shall have such powers
and perform such duties, not inconsistent with law, as may be delegated to it by
the board of directors. The provisions of Section 1 and Section 2 of this
Article shall govern the appointment and action of such committees so far as
consistent, unless otherwise provided by the board of directors. Vacancies in
such committees shall be filled by the board of directors or as the board of
directors may provide.
ARTICLE IV
----------
Officers
--------
Section 1. GENERAL PROVISIONS. The board of directors shall elect a
president, such number of vice presidents, if any, as the board may from time to
time determine, a secretary and a treasurer. The board of directors may also
elect a chairman of the board of directors and may from time to time create such
offices and appoint such other officers, subordinate officers and assistant
officers as it may determine. The chairman of the board, if one be elected,
shall be, but the other officers need not be, chosen from among the members of
the board of directors. Any two or more of such offices, other than those of
president and vice president, may be held by the same person, but no officer
shall execute, acknowledge or verify any instrument in more than one capacity.
Section 2. TERM OF OFFICE. The officers of the Corporation shall hold
office during the pleasure of the board of directors, and, unless sooner removed
by the board of directors, until the annual meeting of the board of directors
following the date of their election and until their successors are chosen and
qualified. The board of directors may remove any officer at any time, with or
without cause. Subject to the provisions of Section 6 of Article V of these
By-Laws, a vacancy in any office, however created, shall be filled by the board
of directors.
ARTICLE V
---------
Duties of Officers
------------------
Section 1. CHAIRMAN OF THE BOARD. The chairman of the board, if one be
elected, shall preside at all meetings of the board of directors and meetings of
stockholders and shall have such other powers and duties as may be prescribed by
the board of directors.
Section 2. PRESIDENT. The president shall be the chief executive
officer of the Corporation and shall exercise supervision over the business of
the Corporation and over its several officers, subject, however, to the control
of the board of directors. In the absence of the chairman of the board, or if
none be elected, the president shall preside at meetings of stockholders. The
president shall have authority to sign all certificates for shares and all
deeds, mortgages, bonds, agreements, notes, and other instruments requiring his
signature; and shall
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<PAGE> 6
have all the powers and duties prescribed by the General Corporation Law of the
State of Delaware and such others as the board of directors may from time to
time assign to him.
Section 3. VICE PRESIDENTS. The vice presidents shall have such powers
and duties as may from time to time be assigned to them by the board of
directors, the chairman of the board or the president. At the request of the
president, or in the case of his absence or disability, the vice president
designated by the president (or in the absence of such designation, the vice
president designated by the board) shall perform all the duties of the president
and, when so acting, shall have all the powers of the president. The authority
of vice presidents to sign in the name of the Corporation certificates for
shares and deeds, mortgages, bonds, agreements, notes and other instruments
shall be coordinate with like authority of the president.
Section 4. SECRETARY. The secretary shall keep minutes of all the
proceedings of the stockholders and the board of directors and shall make proper
record of the same, which shall be attested by him; shall have authority to
execute and deliver certificates as to any of such proceedings and any other
records of the Corporation; shall have authority to sign all certificates for
shares and all deeds, mortgages, bonds, agreements, notes and other instruments
to be executed by the Corporation which require his signature; shall give notice
of meetings of stockholders and directors; shall produce on request at each
meeting of stockholders a certified list of stockholders arranged in
alphabetical order; shall keep such books and records as may be required by law
or by the board of directors; and, in general, shall perform all duties incident
to the office of secretary and such other duties as may from time to time be
assigned to him by the board of directors, the chairman of the board or the
president.
Section 5. TREASURER The treasurer shall have general supervision of
all finances; he shall have in charge all money, bills, notes, deeds, leases,
mortgages and similar property belonging to the Corporation, and shall do with
the same as may from time to time be required by the board of directors. He
shall cause to be kept adequate and correct accounts of the business
transactions of the Corporation, including accounts of its assets, liabilities,
receipts, disbursements, gains, losses, stated capital and shares, together with
such other accounts as may be required; and he shall have such other powers and
duties as may from time to time be assigned to him by the board of directors,
the chairman of the board or the president.
Section 6. ASSISTANT AND SUBORDINATE OFFICERS. Each other officer shall
perform such duties as the board of directors, the chairman of the board or the
president may prescribe. The board of directors may, from time to time,
authorize any officer to appoint and remove subordinate officers, to prescribe
their authority and duties, and to fix their compensation.
Section 7. DUTIES OF OFFICERS MAY BE DELEGATED. In the absence of any
officer of the Corporation, or for any other reason the board of directors may
deem sufficient, the board of directors may delegate, for the time being, the
powers or duties, or any of them, of such officers to any other officer or to
any director.
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ARTICLE VI
----------
Indemnification and Insurance
-----------------------------
Section 1. INDEMNIFICATION IN NON-DERIVATIVE ACTIONS. The Corporation
shall indemnify any person who was or is a party or is threatened to be made a
party to any threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative or investigative (other than an action
by or in the right of the Corporation) by reason of the fact that he is or was a
director or officer of the Corporation, or is or was serving at the request of
the Corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise, against
expenses (including attorneys' fees), judgments, fines and amounts paid in
settlement actually and reasonably incurred by him in connection with such
action, suit or proceeding if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
Corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful. The termination of any
action, suit or proceeding by judgment, order, settlement, conviction, or upon a
please of nolo contendere or its equivalent, shall not, of itself, create a
presumption that the person did not act in good faith and in a manner which he
reasonably believed to be in or not opposed to the best interests of the
Corporation and, with respect to any criminal action or proceeding, he had
reasonable cause to believe that his conduct was unlawful.
Section 2. INDEMNIFICATION IN DERIVATIVE ACTIONS. The Corporation shall
indemnify any person who was or is a party or is threatened to be made a party
to any threatened, pending or completed action or suit by or in the right of the
Corporation to procure a judgment in its favor by reason of the fact that he is
or was a director or officer of the Corporation, or is or was serving at the
request of the Corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise, against
expenses (including attorneys' fees) actually and reasonably incurred by him in
connection with the defense or settlement of such action or suit if he acted in
good faith and in a manner he reasonably believed to be in or not opposed to the
best interests of the Corporation and except that no indemnification shall be
made in respect of any claim, issue or matter as to which such person shall have
been adjudged to be liable to the Corporation unless and only to the extent that
the Court of Chancery or the court in which such action or suit was brought
shall determine upon application that, despite the adjudication of liability but
in view of all the circumstances of the case, such person is fairly and
reasonably entitled to indemnity for such expenses which the Court of Chancery
or such other court shall deem proper.
Section 3. INDEMNIFICATION AS A MATTER OF RIGHT. To the extent that a
director, officer, employee or agent of the Corporation has been successful on
the merits or otherwise in defense of any action, suit or proceeding referred to
in Sections 1 and 2 of this Article VI, or in defense of any claim, issue or
matter therein, he shall be indemnified against expenses (including attorneys'
fees) actually and reasonably incurred by him in connection therewith.
Section 4. DETERMINATION OF CONDUCT. Any indemnification under Sections
1 and 2 of this Article VI (unless ordered by a court) shall be made by the
Corporation only as authorized in the specific case upon a determination that
indemnification of the director, officer, employee or agent is proper in the
circumstances because he has met the applicable standard of
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<PAGE> 8
conduct set forth in Sections 1 and 2 of this Article VI. Such determination
shall be made (1) by the board of directors by a majority vote of a quorum
consisting of directors who were not parties to such action, suit or proceeding,
or (2) if such a quorum is not obtainable, or, even if obtainable a quorum of
disinterested directors so directs, by independent legal counsel in a written
opinion, or (3) by the stockholders.
Section 5. ADVANCE PAYMENT OF EXPENSES. Expenses incurred in defending
a civil or criminal action, suit or proceeding may be paid by the Corporation in
advance of the final disposition of such action, suit or proceeding upon receipt
of an undertaking by or on behalf of the director, officer, employee or agent to
repay such amount if it shall ultimately be determined that he is not entitled
to be indemnified by the Corporation as authorized in this section.
Section 6. NONEXCLUSIVITY. The indemnification and advancement of
expenses provided by, or granted pursuant to, this Article VI shall not be
deemed exclusive of any other rights to which those seeking indemnification or
advancement of expenses may be entitled under any by-law, agreement, vote of
stockholders or disinterested directors or otherwise, both as to action in his
official capacity and as to action in another capacity while holding such
office.
Section 7. LIABILITY INSURANCE. The Corporation shall have the power to
purchase and maintain insurance on behalf of any person who is or was a
director, officer, employee or agent of the Corporation, or is or was serving at
the request of the Corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise
against any liability asserted against him and incurred by him in any such
capacity, or arising out of his status as such, whether or not the Corporation
would have the power to indemnify him against such liability under the
provisions of this section.
Section 8. CORPORATION. For purposes of this Article VI, references to
"the Corporation" shall include, in addition to the resulting corporation, any
constituent corporation (including any constituent of a constituent) absorbed in
a consolidation or merger which, if its separate existence had continued, would
have had power and authority to indemnify its directors, officers, and
employees, or agents, so that any person who is or was a director, officer,
employee or agent of such constituent corporation, or is or was serving at the
request of such constituent corporation as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust or other
enterprise, shall stand in the same position under the provisions of this
Article VI with respect to the resulting or surviving corporation as he would
have with respect to such constituent corporation if its separate existence had
continued.
Section 9. EMPLOYEE BENEFIT PLANS. For purposes of this Article VI,
references to any "other enterprise" shall include employee benefit plans;
references to "fines" shall include any excise taxes assessed on a person with
respect to an employee benefit plan; and references to "serving at the request
of the Corporation" shall include any service as a director, officer, employee
or agent of the Corporation which imposes duties on, or involves services by,
such director, officer, employee or agent with respect to an employee benefit
plan, its participants, or beneficiaries; and a person who acted in good faith
and in a manner he reasonably believed to be in the interest of the participants
and beneficiaries of an employee benefit plan shall be deemed to have acted in a
manner "not opposed to the best interests of the Corporation" as referred to in
this Article VI.
8
<PAGE> 9
Section 10. CONTINUATION. The indemnification and advancement of
expenses provided by, or granted pursuant to, this Article VI shall, unless
otherwise provided when authorized or ratified, continue as to a person who has
ceased to be a director, officer, employee or agent and shall inure to the
benefit of the heirs, executors and administrators of such a person.
ARTICLE VII
-----------
Certificates for Shares
-----------------------
Section 1. FORM AND EXECUTION. Certificates for shares, certifying the
number of full-paid shares owned, shall be issued to each stockholder in such
form as shall be approved by the board of directors. Such certificates shall be
signed by the chairman or vice-chairman of the board of directors or the
president or a vice president and by the secretary or an assistant secretary or
the treasurer or an assistant treasurer; provided, however, that the signatures
of any of such officers and the seal of the Corporation upon such certificates
may be facsimiles, engraved, stamped or printed. If any officer or officers who
shall have signed, or whose facsimile signature shall have been used, printed or
stamped on any certificate or certificates for shares, shall cease to be such
officer or officers, because of death, resignation or otherwise, before such
certificate or certificates shall have been delivered by the Corporation, such
certificate or certificates shall nevertheless be as effective in all respects
as though signed by a duly elected, qualified and authorized officer or
officers, and as though the person or persons who signed such certificate or
certificates, or whose facsimile signature or signatures shall have been used
thereon, had not ceased to be an officer or officers of the Corporation.
Section 2. REGISTRATION OF TRANSFER. Any certificate for shares of the
Corporation shall be transferable in person or by attorney upon the surrender
thereof to the Corporation or any transfer agent therefor (for the class of
shares represented by the certificate surrendered) properly endorsed for
transfer and accompanied by such assurances as the Corporation or such transfer
agent may require as to the genuineness and effectiveness of each necessary
endorsement.
Section 3. LOST, DESTROYED OR STOLEN CERTIFICATES. A new share
certificate or certificates may be issued in place of any certificate
theretofore issued by the Corporation which is alleged to have been lost,
destroyed or wrongfully taken upon (i) the execution and delivery to the
Corporation by the person claiming the certificate to have been lost, destroyed
or wrongfully taken of an affidavit of the fact, specifying whether or not, at
the time of such alleged loss, destruction or taking, the certificate was
endorsed, and (ii) the furnishing to the Corporation of indemnity and other
assurances, if any, satisfactory to the Corporation and to all transfer agents
and registrars of the class of shares represented by the certificate against any
and all losses, damages, costs, expenses or liabilities to which they or any of
them may be subjected by reason of the issue and delivery of such new
certificate or certificates or in respect of the original certificate.
Section 4. REGISTERED STOCKHOLDERS. A person in whose name shares are
of record on the books of the Corporation shall conclusively be deemed the
unqualified owner and holder thereof for all purposes and to have capacity to
exercise all rights of ownership. Neither the Corporation nor any transfer agent
of the Corporation shall be bound to recognize any equitable
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<PAGE> 10
interest in or claim to such shares on the part of any other person, whether
disclosed upon such certificate or otherwise, nor shall they be obliged to see
to the execution of any trust or obligation.
ARTICLE VIII
------------
Fiscal Year
-----------
The fiscal year of the Corporation shall commence on such date in each
year as shall be designated from time to time by the board of directors. In the
absence of such designation, the fiscal year of the Corporation shall commence
on January 1 in each year.
ARTICLE IX
----------
Seal
----
The board of directors may provide a suitable seal containing the name
of the Corporation. If deemed advisable by the board of directors, duplicate
seals may be provided and kept for the purposes of the Corporation.
ARTICLE X
---------
Amendments
----------
These By-Laws shall be subject to alteration, amendment, repeal, or the
adoption of new By-Laws either by the affirmative vote or written consent of a
majority of the whole board of directors, or by the affirmative vote or written
consent of the holders of record of a majority of the outstanding stock of the
Corporation, present in person or represented by proxy and entitled to vote in
respect thereof, given at an annual meeting or at any special meeting at which a
quorum shall be present.
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Exhibit 4.1
EXECUTION COPY
THIS WARRANT AND THE SHARES ISSUABLE UPON EXERCISE OF THIS WARRANT HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"),
OR THE SECURITIES LAWS OF ANY STATE OF THE UNITED STATES OR ANY OTHER
JURISDICTION. THE SECURITIES REPRESENTED HEREBY MAY NOT BE OFFERED OR SOLD IN
THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER
APPLICABLE SECURITIES LAWS UNLESS OFFERED, SOLD OR TRANSFERRED PURSUANT TO AN
AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THOSE LAWS.
Right to Purchase Shares of Common Stock
Date: October 18, 1999
NETGENICS, INC.
STOCK PURCHASE WARRANT
FOR VALUE RECEIVED, NETGENICS, INC., a Delaware corporation (the
"Company"), hereby grants, subject to the terms set forth below, INTERNATIONAL
BUSINESS MACHINES CORPORATION ("IBM" and each of its successors and assigns, a
"Holder"), a warrant (this "Warrant") to purchase the Warrant Shares at the
Purchase Price (as such terms are defined below):
1. Certain Definitions. This Warrant is granted pursuant to and in
consideration of that certain Technical Services Agreement, of even date
herewith (the "Services Agreement"), among the Company and IBM. In addition to
the terms defined throughout this Warrant, the following terms shall have the
following meanings:
(a) "Acquisition Transaction" shall mean (i) the sale, lease or other
transfer, in one or a series of transactions, of all or substantially all of the
Company's assets to any person or group (as such term is defined in Section
13(d)(3) of the Exchange Act) (a "Group"), or (ii) the consummation of any
transaction or series of transactions the result of which is that any person or
Group beneficially owns, directly or indirectly, 50% or more of the voting power
of the voting stock of the Company, provided, that transfers of assets of the
Company to any Affiliate shall not constitute an Acquisition Transaction
(subject to Section 5(b) below).
(b) "Affiliate" shall mean any entity directly or indirectly controlled
by, controlling or under common control with another entity.
(c) "Base Warrant Purchase Price" shall mean $5.00 per share of Common
Stock with respect to the Base Warrant Shares.
(d) "Base Warrant Shares" shall mean 150,000 shares of Common Stock.
(e) "Common Stock" shall mean the common shares of the Company.
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(f) "Conversion Election" shall mean a writing delivered by IBM to the
Company evidencing IBM's election to convert the Services Converted Fee Amount
into the Services Fee Warrant Shares.
(g) "Dilutive IPO" shall mean an IPO in which the per share offering
price is less than $3.00.
(h) "IPO" shall mean a bona fide public offering and sale of Common
Stock pursuant to a registration statement filed under the Securities Act of
1933 and declared effective by the U.S. Securities and Exchange Commission.
(i) "Piggyback Registration Right" shall mean a right of the Holder
under Section 7(a)(i) and (ii) hereof.
(j) "Purchase Price" shall mean the Base Warrant Purchase Price with
respect to the Base Warrant Shares and the Services Fee Warrant Purchase Price
with respect to the Services Fee Warrant Shares, respectively.
(k) "Registrable Securities" shall mean the Warrant Shares issued or
issuable with respect to the Warrant.
(l) "Registration Expenses" shall mean all expenses incident to the
Company's performance of or compliance with the registration provisions of
Section 7 herein, including without limitation (i) all fees and expenses of
compliance with federal securities and state securities laws; (ii) all printing
expenses; (iii) all fees and disbursements of counsel for the Company; and (iv)
all fees and disbursements of accountants of the Company, but excluding (i)
underwriter's discounts relating to securities sold by the Selling Holder; (ii)
Commission and state securities laws filing fees relating to securities sold by
the Selling Holder; (iii) filings made with the NASD and counsel fees in
connection therewith; and (iv) fees and disbursements of counsel for the Selling
Holder.
(m) "Services Agreement" shall mean the Technical Services Agreement,
of even date herewith, between the Company and IBM.
(n) "Services Converted Fee Amount" shall mean one-third of the
Services Outstanding Fee Amount.
(o) "Services Fee Warrant Purchase Price" shall mean $2.00 per share of
Common Stock with respect to the Services Fee Warrant Shares.
(p) "Services Fee Warrant Shares" shall mean that number of shares of
Common Stock equal to the Services Converted Fee Amount divided by $1.
(q) "Services Post-Conversion Fee Amount" shall mean (A) the Services
Outstanding Fee Amount, minus (B)(1) the Services Converted Fee Amount plus (2)
the dollar value of the services performed by the Company under the Services
Agreement (as determined pursuant to
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the Services Agreement and as mutually agreed to by IBM and the Company)
subsequent to the date on which the Conversion Election is delivered by IBM.
(r) "Services Outstanding Fee Amount" shall mean the Services Total Fee
Amount minus the dollar value of the services performed by the Company under the
Services Agreement (as determined pursuant to the Services Agreement and as
mutually agreed to by IBM and the Company) at any point in time.
(s) "Services Total Fee Amount" shall mean $2,000,000.
(t) "Warrant Shares" shall mean the Base Warrant Shares and the
Services Fee Warrant Shares, as may be adjusted from time to time pursuant to
Section 3 hereof.
2. Exercise and Expiration of Warrant.
(a) This Warrant is immediately exercisable, at any time or from time
to time on or after the date of initial issuance of this Warrant and shall
expire upon the earlier of the fifth anniversary of (i) the closing of an
Acquisition Transaction, or (ii) the closing of an IPO (such periods, the
"Exercise Period"), PROVIDED, that this Warrant shall only become effective with
respect to the Services Fee Warrant Shares upon the delivery of the Conversion
Election by IBM to the Company (it being understood and agreed that IBM may only
deliver one Conversion Election to the Company, unless otherwise agreed to by
IBM and the Company).
(b) This Warrant may be exercised during the Exercise Period by the
Holder, in whole or in part, (i) by surrendering this Warrant at the principal
office of the Company, or at such other office or agency as the Company may
designate, accompanied by payment in full, in lawful money of the United States,
of the Purchase Price payable in respect of the number of Warrant Shares
purchased upon such exercise, (ii) if the Holder is effectuating a Cashless
Exercise (as defined in Section 14(a) hereof) pursuant to Section 14(a) hereof,
by delivery to the Company of a written notice of an election to effect a
Cashless Exercise for the Warrant Shares specified in the Exercise Agreement
(attached hereto), or (iii) with respect to the Services Fee Warrant Shares, by
IBM electing to apply the Services Post-Conversion Fee Amount toward the
Services Fee Warrant Purchase Price.
(c) Each exercise of this Warrant shall be deemed to have been effected
immediately prior to the close of business on the day on which this Warrant
shall have been surrendered to the Company as provided in Section 2(b) above.
(d) As soon as practicable after the exercise of this Warrant in full
or in part, the Company, at its expense, will cause to be issued in the name of,
and delivered to, the Holder (i) a certificate or certificates for the number of
full Warrant Shares to which the Holder shall be entitled upon such exercise
plus, in lieu of any fractional share to which the Holder would otherwise be
entitled, cash in an amount determined pursuant to Section 6 hereof; and (ii) in
case such exercise is in part only, a new warrant or warrants (dated the date
hereof) of like tenor, calling in the aggregate on the face or faces thereof for
the number of Warrant Shares equal (without giving effect to any adjustment
therein) to the number of such shares called for by the
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terms of this Warrant minus the number of such shares purchased by the Holder
upon such exercise. In the event IBM has delivered a Conversion Election to the
Company prior to such exercise, the new warrant or warrants shall specify the
number of new Warrant Shares that constitute Base Warrant Shares and Services
Fee Warrant Shares.
3. Adjustments.
(a) General. The Purchase Price shall be subject to adjustment from
time to time pursuant to the terms of this Section 3.
(b) Diluting Issuances.
(i) Special Definitions. For purposes of this Section 3(b),
the following definitions shall apply: (A) "Option" shall mean rights, options
or warrants to subscribe for, purchase or otherwise acquire Common Stock or
Convertible Securities; (B) "Conversion Date" shall mean the first day of the
Exercise Period; (C) "Convertible Securities" shall mean any evidences of
indebtedness, shares or other securities directly or indirectly convertible into
or exchangeable for Common Stock; (D) "Additional Shares of Common Stock" shall
mean all shares of Common Stock issued (or, pursuant to Section 3(b)(iii) below,
deemed to be issued) by the Company after the Conversion Date other than (i)
shares of Common Stock issued upon exercise of the Warrants, (ii) shares of
Common Stock issued upon conversion of the preferred stock or warrants
outstanding as of the date hereof, (iii) up to an additional 4,000,000 shares of
Common Stock (as adjusted for stock splits, stock dividends and other
adjustments to the Company's Common Stock) issued before or after the date
hereof to employees, officers, directors or other persons performing services
for the Company pursuant to any stock option plan, stock purchase plan or
management incentive plan, agreement or arrangement approved by the Board of
Directors of the Company, (iv) the sale of convertible or other securities of
the Company (not to exceed a total investment of $15,000,000) within nine months
after the date hereof, or (v) shares of Common Stock issued in an IPO at a price
per share in excess of the Services Fee Warrant Purchase Price.
(ii) No Adjustment of Purchase Price. No adjustments to the
Purchase Price under this Section 3 shall be made unless the consideration per
share (determined pursuant to Section 3(b)(v)) for an Additional Share of Common
Stock issued or deemed to be issued by the Company is less than the Purchase
Price in effect on the date of, and immediately prior to, the issue of such
Additional Shares of Common Stock.
(iii) Issue of Securities Deemed Issue of Additional Shares of
Common Stock. If the Company at any time or from time to time after the
Conversion Date shall issue any Options or Convertible Securities or shall fix a
record date for the determination of holders of any class of securities entitled
to receive any such Options or Convertible Securities, then the maximum number
of shares of Common Stock (as set forth in the instrument relating thereto
without regard to any provision contained therein for a subsequent adjustment of
such number) issuable upon the exercise of such Options or, in the case of
Convertible Securities and Options therefor, the conversion or exchange of such
Convertible Securities, shall be deemed to be Additional Shares of Common Stock
issued as of the time of such issue or, in case such a record date shall have
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been fixed, as of the close of business on such record date, provided that
Additional Shares of Common Stock shall not be deemed to have been issued unless
the consideration per share (determined pursuant to Section 3(b)(v) hereof) of
such Additional Shares of Common Stock would be less than the Purchase Price in
effect on the date of and immediately prior to such issue, or such record date,
as the case may be, and provided further that in any such case in which
Additional Shares of Common Stock are deemed to be issued:
(A) No further adjustment in the Purchase Price shall
be made upon the subsequent issue of Convertible Securities or shares of Common
Stock upon the exercise of such Options or conversion or exchange of such
Convertible Securities;
(B) If such Options or Convertible Securities by
their terms provide, with the passage of time or otherwise, for any increase in
the consideration payable to the Company, upon the exercise, conversion or
exchange thereof, the Purchase Price computed upon the original issue thereof
(or upon the occurrence of a record date with respect thereto), and any
subsequent adjustments based thereon, shall, upon any such increase becoming
effective, be recomputed to reflect such increase insofar as it affects such
Options or the rights of conversion or exchange under such Convertible
Securities;
(C) Upon the expiration or termination of any
unexercised Option, the Purchase Price shall not be readjusted, but the
Additional Shares of Common Stock deemed issued as the result of the original
issue of such Option shall not be deemed issued for the purposes of any
subsequent adjustment of the Purchase Price;
(D) In the event of any change in the number of
shares of Common Stock issuable upon the exercise, conversion or exchange of any
Option or Convertible Security, including, but not limited to, a change
resulting from the anti-dilution provisions thereof, the Purchase Price then in
effect shall forthwith be readjusted to such Purchase Price as would have
obtained had the adjustment which was made upon the issuance of such Option or
Convertible Security not exercised or converted prior to such change been made
upon the basis of such change; and
(E) No readjustment pursuant to Clause (B) or (D)
above shall have the effect of increasing the Purchase Price to an amount which
exceeds the lower of (i) the Purchase Price on the original adjustment date, or
(ii) the Purchase Price that would have resulted from any issuances of
Additional Shares of Common Stock between the original adjustment date and such
readjustment date.
(iv) Adjustment of Purchase Price Upon Issuance of Additional
Shares of Common Stock. In the event the Company shall at any time after the
Conversion Date issue Additional Shares of Common Stock (including Additional
Shares of Common Stock deemed to be issued pursuant to Section 3(b)(iii), but
excluding shares issued as a dividend or distribution or upon a stock split or
combination as provided in Section 3(c)), without consideration or for a
consideration per share less than the Purchase Price in effect on the date of
and immediately prior to such issue, then and in such event, such Purchase Price
shall be reduced, concurrently with such issue, to a price (calculated to the
nearest cent) determined by multiplying such Purchase
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Price by a fraction, (A) the numerator of which shall be (1) the number of
shares of Common Stock outstanding immediately prior to such issue plus (2) the
number of shares of Common Stock which the aggregate consideration received or
to be received by the Company for the total number of Additional Shares of
Common Stock so issued would purchase at such Purchase Price; and (B) the
denominator of which shall be the number of shares of Common Stock outstanding
immediately prior to such issue plus the number of such Additional Shares of
Common Stock so issued; provided that, (i) for the purpose of this Section
3(b)(iv), all shares of Common Stock issuable upon exercise or conversion of
Options or Convertible Securities outstanding immediately prior to such issue
shall be deemed to be outstanding (other than shares excluded from the
definition of "Additional Shares of Common Stock" by virtue of Section
3(b)(i)(D)), and (ii) the number of shares of Common Stock deemed issuable upon
conversion of such outstanding Options and Convertible Securities shall not give
effect to any adjustments to the conversion price or conversion rate of such
Options or Convertible Securities resulting from the issuance of Additional
Shares of Common Stock that is the subject of this calculation.
(v) Determination of Consideration. For purposes of this
Section 3(b), the consideration received by the Company for the issue of any
Additional Shares of Common Stock shall be computed as follows:
(A) Cash and Property: Such consideration shall (I)
insofar as it consists of cash, be computed at the aggregate of cash received by
the Company, excluding amounts paid or payable for accrued interest or accrued
dividends; (II) insofar as it consists of property other than cash, be computed
at the fair market value thereof at the time of such issue, as determined in
good faith by the Board of Directors; and (III) in the event Additional Shares
of Common Stock are issued together with other shares or securities or other
assets of the Company for consideration which covers both, be the proportion of
such consideration so received, computed as provided in clauses (I) and (II)
above, as determined in good faith by the Board of Directors.
(B) Options and Convertible Securities. The
consideration per share received by the Company for Additional Shares of Common
Stock deemed to have been issued pursuant to Section 3(b)(iii), relating to
Options and Convertible Securities, shall be determined by dividing (x) the
total amount, if any, received or receivable by the Company as consideration for
the issue of such Options or Convertible Securities, plus the minimum aggregate
amount of additional consideration (as set forth in the instruments relating
thereto, without regard to any provision contained therein for a subsequent
adjustment of such consideration) payable to the Company upon the exercise of
such Options or the conversion or exchange of such Convertible Securities, or in
the case of Options for Convertible Securities, the exercise of such Options for
Convertible Securities and the conversion or exchange of such Convertible
Securities, by (y) the maximum number of shares of Common Stock (as set forth in
the instruments relating thereto, without regard to any provision contained
therein for a subsequent adjustment of such number) issuable upon the exercise
of such Options or the conversion or exchange of such Convertible Securities.
(vi) Multiple Closing Dates. In the event the Company shall issue on
more than one date Additional Shares of Common Stock which are comprised of
shares of the same series or class of capital stock, and such issuance dates
occur within a period of no more than 60 days, then the
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Purchase Price shall be adjusted only once on account of such issuances, with
such adjustment to occur upon the final such issuance (but not later than ten
days prior to the end of the Exercise Period) and to give effect to all such
issuances as if they occurred on the date of the final such issuance.
(c) Recapitalizations. If outstanding shares of the Company's Common
Stock shall be subdivided into a greater number of shares or a dividend in
Common Stock shall be paid in respect of Common Stock, the Purchase Price in
effect immediately prior to such subdivision or at the record date of such
dividend shall simultaneously with the effectiveness of such subdivision or
immediately after the record date of such dividend be proportionately reduced.
If outstanding shares of Common Stock shall be combined into a smaller number of
shares, the Purchase Price in effect immediately prior to such combination
shall, simultaneously with the effectiveness of such combination, be
proportionately increased.
(d) Mergers, etc. If there shall occur any capital reorganization or
reclassification of the Company's Common Stock (other than a subdivision or
combination as provided for in Section 3(c) above), or any consolidation or
merger of the Company with or into another corporation, or a transfer of all or
substantially all of the assets of the Company, then, as part of any such
reorganization, reclassification, consolidation, merger or sale, as the case may
be, lawful provision shall be made so that the Holder of this Warrant shall have
the right thereafter to receive upon the exercise hereof the kind and amount of
shares of stock or other securities or property which such Holder would have
been entitled to receive if, immediately prior to any such reorganization,
reclassification, consolidation, merger or sale, as the case may be, such Holder
had held the number of shares of Common Stock which were then purchasable upon
the exercise of this Warrant. In any such case, appropriate adjustment (as
reasonably determined in good faith by the Board of Directors of the Company)
shall be made in the application of the provisions set forth herein with respect
to the rights and interests thereafter of the Holder of this Warrant, such that
the provisions set forth in this Section 3 (including provisions with respect to
adjustment of the Purchase Price) shall thereafter be applicable, as nearly as
is reasonably practicable, in relation to any shares of stock or other
securities or property thereafter deliverable upon the exercise of this Warrant.
(e) Adjustment in Number of Warrant Shares. When any adjustment is
required to be made in the Purchase Price, the number of Warrant Shares
purchasable upon the exercise of this Warrant shall be changed to the number
determined by dividing (i) an amount equal to the number of shares issuable upon
the exercise of this Warrant immediately prior to such adjustment, multiplied by
the Purchase Price in effect immediately prior to such adjustment, by (ii) the
Purchase Price in effect immediately after such adjustment.
(f) Certificate of Adjustment. When any adjustment is required to be
made pursuant to this Section 3, the Company shall promptly mail to the Holder a
certificate setting forth the Purchase Price after such adjustment and setting
forth a brief statement of the facts requiring such adjustment. Such certificate
shall also set forth the kind and amount of stock or other securities or
property into which this Warrant shall be exercisable following such adjustment.
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(g) Adjustments for Non-Stock Dividends and Distributions. In the
event that the Company shall issue or pay to holders of Common Stock a dividend
or other distribution payable other than in securities of the Company, then and
in each such event provision shall he made so that Holder shall receive upon
exercise of this Warrant, in addition to the Warrant Shares issued upon
exercise, the dividend or other distribution which Holder would have received if
it had been the holder of such Warrant Shares at the time of such dividend or
other distribution.
(h) Other Notices. In case at any time:
(i) the Company shall declare any dividend upon the Common Stock
payable in shares of stock of any class or make any other distribution (other
than dividends or distributions payable in cash out of retained earnings
consistent with the Company's past practices with respect to declaring dividends
and making distributions) to the holders of the Common Stock;
(ii) the Company shall offer for subscription pro rata to the
holders of the Common Stock any additional shares of stock of any class or other
rights;
(iii) there shall be any capital reorganization of the Company,
or reclassification of the Common Stock, or consolidation or merger of the
Company with or into, or sale of all or substantially all of its assets to,
another corporation or entity; or
(iv) there shall be a voluntary or involuntary dissolution,
liquidation or winding-up of the Company;
then, in each such case, the Company shall give to the Holder (a) notice of the
date on which the books of the Company shall close or a record shall be taken
for determining the holders of Common Stock entitled to receive any such
dividend, distribution, or subscription rights or for determining the holders of
Common Stock entitled to vote in respect of any such reorganization,
reclassification, consolidation, merger, sale, dissolution, liquidation or
winding-up and (b) in the case of any such reorganization, reclassification,
consolidation, merger, sale, dissolution, liquidation or winding-up, notice of
the date (or, if not then known, a reasonable estimate thereof by the Company)
when the same shall take place. Such notice shall also specify the date on which
the holders of Common Stock shall be entitled to receive such dividend,
distribution, or subscription rights or to exchange their Common Stock for stock
or other securities or property deliverable upon such reorganization,
reclassification, consolidation, merger, sale, dissolution, liquidation, or
winding-up, as the case may be. Such notice shall be given at least thirty (30)
days prior to the record date or the date on which the Company's books are
closed in respect thereto. Failure to give any such notice or any defect therein
shall not affect the validity of the proceedings referred to in clauses (i),
(ii), (iii) and (iv) above.
(i) Certain Events. If, at any time during the Exercise Period, any
event occurs of the type contemplated by the adjustment provisions of this
Section 3 but not expressly provided for by such provisions, the Company will
give notice of such event , and the Company's Board of Directors will make an
appropriate adjustment in the Exercise Price and the number of shares of Common
Stock acquirable upon exercise of this Warrant so that the rights of the Holder
shall be neither enhanced nor diminished by such event.
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(j) Special Exclusive Adjustment for Services Fee Warrant Shares in the
Event of a Dilutive IPO. In the event that IBM has delivered a Conversion
Election prior to the date on which the Company completes a Dilutive IPO, then
upon the closing of the Dilutive IPO (i) the number of Services Fee Warrant
Shares shall be adjusted by multiplying the Services Fee Warrant Shares by a
fraction, the numerator of which is 3 and the denominator of which is the per
share offering price in the Dilutive IPO, and (ii) the Services Fee Warrant
Purchase Price shall be adjusted by multiplying the Services Fee Warrant
Purchase Price by a fraction, the numerator of which is the per share offering
price in the Dilutive IPO and the denominator of which is 3. It is understood
and agreed that this adjustment to the Services Fee Warrant Shares and the
Services Fee Warrant Purchase Price shall be the exclusive adjustment to such
shares and such price in the event of a Dilutive IPO, notwithstanding the other
provisions of this Section 3.
4. Acquisition Transaction. If the Company undertakes an Acquisition
Transaction then, simultaneously with and as a condition to the Acquisition
Transaction, the Company shall, at the Company's election, either (i) cause the
Company Acquiror (as defined below) to assume this Warrant and cause provision
to be made so that the Holder shall thereafter be entitled to receive, upon
exercise of this Warrant, the Warrant Shares, whereupon the Company shall be
released from this Warrant, or (ii) cause the Company Acquiror to pay the
Warrant Value (as defined below) to the Holder upon consummation of the
Acquisition Transaction. If this Warrant becomes exercisable by reason of an
Acquisition Transaction and the Company does not cause the Company Acquiror to
pay the Warrant Value to the Holder, this Warrant shall remain outstanding in
accordance with its terms and all references herein to the "Company" shall
thereafter be deemed to apply to the Company Acquiror and all references herein
to the "Warrant Shares" shall thereafter be deemed to apply to the common stock
of the Company Acquiror. "Company Acquiror" shall mean the Company or other
entity, as applicable, surviving the Acquisition Transaction. In the event of
the consummation of any transaction or series of transactions the result of
which is that any person or Group beneficially owns, directly or indirectly, 50%
or more of the voting power of the voting stock of the Company (such transaction
or transactions, a "Stock Acquisition"), "Warrant Value" shall mean the value of
this Warrant calculated as if the Holder had exercised this Warrant at such time
pursuant to Section 14(a) hereof with the Market Price equal to the per share
consideration paid in the Stock Acquisition. Otherwise, "Warrant Value" shall
mean the fair market value of this Warrant immediately prior to the closing of
the Acquisition Transaction, as determined by an investment banking firm of
established national reputation selected by the Holder and stated in a written
opinion delivered to the Company and the Holder. The fees and expenses of such
investment banking firm shall be shared equally by the Company and the Holder
and its determination of the Warrant Value shall be conclusive and binding on
all parties in the absence of fraud or manifest error.
5. Acquisition or IPO by Affiliate.
(a) IPO by Affiliate. If, prior to an IPO, the Company transfers all or
substantially all of its assets to any Affiliate and the Affiliate subsequently
undertakes a transaction which would constitute an IPO (an "Affiliate IPO") if
undertaken by the Company, then, simultaneously with
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and as a condition to the Affiliate IPO, the Affiliate shall assume this
Warrant, provision shall be made so that the Holder shall be entitled to
receive, upon exercise of this Warrant, shares of stock or other securities or
property of the Affiliate to which it is entitled under this Warrant, and the
Company shall be released from this Warrant.
(b) Acquisition by Affiliate. If, prior to an Acquisition Transaction,
the Company transfers all or substantially all of its assets to an Affiliate and
the Affiliate subsequently undertakes a transaction which would constitute an
Acquisition Transaction (an "Affiliate Acquisition") if undertaken by the
Company, then, simultaneously with and as a condition to the Affiliate
Acquisition, the Company shall, at the Company's election, either (i) cause the
Affiliate Acquiror (as defined below) to assume this Warrant and cause provision
to be made so that the Holder shall thereafter be entitled to receive, upon
exercise of this Warrant, the Warrant Shares, whereupon the Company shall be
released from this Warrant, or (ii) cause the Affiliate Acquiror to pay the
Warrant Value (as defined above, except that references to Acquisition
Transaction shall mean Affiliate Acquisition) to the Holder upon consummation of
the Affiliate Acquisition. If this Warrant becomes exercisable by reason of a
Affiliate Acquisition and the Affiliate does not cause the Affiliate Acquiror to
pay the Warrant Value to the Holder, this Warrant shall remain outstanding in
accordance with its terms and all references herein to the "Company" shall
thereafter be deemed to apply to the Affiliate Acquiror and all references
herein to the "Warrant Shares" shall thereafter be deemed to apply to the common
stock of the Affiliate Acquiror. "Affiliate Acquiror" shall mean the Affiliate
or other entity, as applicable, surviving the Affiliate Acquisition.
6. Fractional Shares. The Company shall not be required upon the
exercise of this Warrant to issue any fractional shares, but shall make an
adjustment therefor in cash on the basis of the fair market value per share of
Common Stock, as determined in good faith by the Company's Board of Directors.
7. Registration Rights.
(a) Piggyback Registration
(i) Participation - IPO. If the Company elects to file a
registration statement under the Securities Act in connection with an IPO, the
Company shall give written notice thereof to the Holder at least twenty business
days before filing. The Holder shall have the right to participate in the IPO on
a pro rata basis with any other holders entitled to participate in such offering
upon the giving of notice to the Company within ten business days of receipt by
it of notice from the Company. If the Holder notifies the Company of its intent
to exercise such Piggyback Registration Right, subject to Section 7(a)(iii), the
Company shall include in such registration statement such number of shares of
Registrable Securities equal to the same percentage of the total number of
Registrable Securities issuable upon exercise of the Warrant as the number of
shares of the other holders' Common Stock to be registered bears to such other
holders' aggregate ownership of Common Stock. Such Registrable Securities shall
be included in the underwriting for the IPO on the same terms and conditions as
the securities otherwise being sold in such offering.
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(ii) Participation - Other Offerings. If the Company elects to
file a registration statement under the Securities Act covering the offer and
sale of any Common Stock (or equity securities converted into Common Stock) in
connection with any public offering after the IPO (other than a registration
statement on Form S-8 or Form S-4, or their successors, or any other form for a
similar limited purpose, or any registration statement covering only securities
proposed to be issued in exchange for securities or assets of another
corporation), the Company shall give written notice thereof to the Holder at
least twenty business days before filing. The Holder shall have a Piggyback
Registration Right to participate in such offering on a pro rata basis with the
Company and any other Holders upon the giving of notice to the Company within
ten business days of receipt by it of notice from the Company. If the Holder
notifies the Company of its intent to exercise such Piggyback Registration
Right, subject to Section 7(a)(iii), the Company shall include in such
registration statement such number of shares of Registrable Securities equal to
the percentage of the total number of Warrant Shares held by the Holder
multiplied by the number of shares proposed to be registered in the offering.
Such Registrable Securities shall be included in the underwriting for the public
offering on the same terms and conditions as the securities otherwise being sold
in such offering.
(iii) Underwriter's Cutback. If, in the opinion of the
managing underwriter of such offering the inclusion of all of the shares of
Registrable Securities and other Common Stock requested to be registered would
be inappropriate, then the number of shares of Registrable Securities and other
Common Stock to be included in the offering shall be reduced, with the
participation in such offering to be in the following order of priority: (1)
first, securities to be issued by the Company shall be included, and (2) second,
any other Common Stock required to be included pursuant to any demand
registration right granted to such other Holder of Common Stock shall be
included, and (3) third Registrable Securities and any other Common Stock
requested to be included, on a pro rata basis, shall be included.
(iv) Registrant Controls. The Company may decline to file a
Registration Statement after giving notice to any Holder, or withdraw a
Registration Statement after filing and after such notice, but prior to the
effectiveness thereof, provided that such registrant shall promptly notify each
Holder of Registrable Securities in writing of any such action and provided
further that such registrant shall bear all reasonable expenses incurred by such
Holder of Registrable Securities or otherwise in connection with such withdrawn
Registration Statement.
(vi) Underwriting Agreement. In connection with any
registration under this Section 7(a) involving an underwriting, the Company
shall not be required to include any Registrable Shares in such registration
unless the Holder accepts the terms of the underwriting as determined by the
underwriters selected by the Company (provided that such terms must be
consistent with this Agreement and provided, further, that any inability of the
Holder to agree with the underwriters shall not restrict the ability of the
Company to proceed with the registration).
(b) Indemnification.
(i) Indemnification by the Company. The Company agrees to
indemnify and hold harmless any Holder of Registrable Securities which has
included Registrable Securities in
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a registration statement, its officers, directors and agents and each Person, if
any, who controls such Holder within the meaning of Section 15 of the Securities
Act or Section 20 of the Securities Exchange Act of 1934, as amended (the
"Exchange Act") from and against any and all losses, claims, damages,
liabilities and expenses (including reasonable costs of investigation) arising
out of or based upon any untrue statement or alleged untrue statement of a
material fact contained in any registration statement or final prospectus
relating to the Registrable Securities or in any amendment or supplement thereto
or in any preliminary prospectus, or arising out of or based upon any omission
or alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading, except
insofar as such losses, claims, damages, liabilities or expenses arise out of,
or are based upon, any such untrue statement or omission based upon information
furnished in writing to Company by the Holder of the Registrable Securities or
on such Holder's behalf expressly for use therein; provided, that with respect
to any untrue statement or omission made in any preliminary prospectus, the
indemnity agreement contained in this paragraph shall not apply to the extent
that any such loss, claim, damage, liability or expense results from the fact
that a current copy of the prospectus was not sent or given to the person
asserting any such loss, claim, damage, liability or expense at or prior to the
written confirmation of the sale of the Registrable Securities concerned if it
is determined that it was the responsibility of the Holder of such Registrable
Securities to provide such person with a current copy of the prospectus and such
current copy of the prospectus would have cured the defect giving rise to such
loss, claim, damage, liability or expense. The Company also agrees to indemnify
any underwriters of the Registrable Securities, their officers and directors and
each person who controls such underwriters on substantially the same basis as
that of the indemnification of the Holder of such Registrable Securities
provided in this Section 7(b).
(ii) Indemnification by the Holder of Registrable Securities. The
Holder of Registrable Securities, to the extent it is selling Registrable
Securities ("Selling Holder"), agrees to indemnify and hold harmless the
Company, its directors and officers and each Person, if any, who controls the
Company within the meaning of either Section 15 of the Securities Act or Section
20 of the Exchange Act to the same extent as the foregoing indemnity from the
Company to the Selling Holder, but only with respect to information furnished in
writing by the Selling Holder or on the Selling Holder's behalf expressly for
use in any registration statement or final prospectus relating to the
Registrable Securities (or any amendment or supplement thereto, or any
preliminary prospectus) which contained an untrue statement or alleged untrue
statement of a material fact or omitted or allegedly omitted to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading . In case any action or proceeding shall be brought
against the Company or its directors or officers, or any such controlling
Person, in respect of which indemnity may be sought against such Selling Holder,
such Selling Holder shall have the rights and duties given to the Company, and
the Company or its directors or officers or such controlling Person shall have
the rights and duties given to such Selling Holder, by the preceding subsection.
The Selling Holder also agrees to indemnify and hold harmless the underwriters
on substantially the same basis of that of the indemnification of the Company
provided in the preceding subsection.
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(c) Contribution. If the indemnification provided for in Section 7(b)
hereof is unavailable to the Company, the Selling Holder or the underwriters in
respect of any losses, claims, damages, liabilities, expenses or judgments
referred to herein, then each such indemnifying party, in lieu of indemnifying
such indemnified party, shall contribute to the amount paid or payable by such
indemnified party as a result of such losses, claims, damages, liabilities,
expenses and judgments (i) as between the Company and the Selling Holder on the
one hand and the underwriters on the other, in such proportion as is appropriate
to reflect the relative benefits received by the Company and the Selling Holder
on the one hand and the underwriters on the other from the offering of the
Registrable Securities, or if such allocation is not permitted by applicable
law, in such proportion as is appropriate to reflect not only such relative
benefits but also the relative fault of the Company and the Selling Holder on
the one hand and of the underwriters on the other in connection with the
statements or omissions which resulted in such losses, claims, damages,
liabilities, expenses or judgments, as well as any other relevant equitable
considerations and (ii) as between the Company on the one hand and each Selling
Holder on the other, in such proportion as is appropriate to reflect the
relative fault of the Company and of each Selling Holder in connection with such
statements or omissions, as well as any other relevant equitable considerations.
The relative benefits received by the Company and the Selling Holder on the one
hand and the underwriters on the other shall be deemed to be in the same
proportion as the total proceeds from the offering (net of underwriting
discounts and commissions but before deducting expenses) received by the Company
and the Selling Holder bear to the total underwriting discounts and commissions
received by the underwriters, in each case as set forth in the table on the
cover page of the prospectus. The relative fault of the Company on the one hand
and of each Selling Holder on the other shall be determined by reference to,
among other things, whether the untrue or alleged untrue statement of a material
fact or the omission or alleged omission to state a material fact relates to
information supplied by such party, and the party's relative intent, knowledge,
access to information and opportunity to correct or prevent such statement or
omission.
The Company and the Holder agree that it would not be just and
equitable if contribution pursuant to this Section 7(c) were determined by pro
rata allocation or by any other method of allocation which does not take account
of the equitable considerations referred to in the immediately preceding
paragraph. The amount paid or payable by an indemnified party as a result of the
losses, claims, damages, liabilities, expenses or judgments referred to in the
immediately preceding paragraph shall be deemed to include, subject to the
limitations set forth above, any legal or other expenses reasonably incurred by
such indemnified party in connection with investigating or defending any such
action or claim. Notwithstanding the provisions of this Section 7(c), no
underwriter shall be required to contribute any amount in excess of the amount
by which the total price at which the Registrable Securities underwritten by it
and distributed to the public were offered to the public exceeds the amount of
any damages which such underwriter has otherwise been required to pay by reason
of such untrue or alleged untrue statement or omission or alleged omission, and
no Selling Holder shall be required to contribute any amount in excess of the
amount by which the total price at which the Registrable Securities of such
Selling Holder were offered to the public exceeds the amount of any damages
which such Selling Holder has otherwise been required to pay by reason of such
untrue or alleged untrue statement or omission or alleged omission. No person
guilty of fraudulent misrepresentation (within the
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meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation.
(d) Registration Expenses.
(i) Piggyback Registrations. The Company shall bear all
Registration Expenses incurred in connection with Piggyback Registrations.
(ii) Expenses of Registrant. The Company will, in any event,
pay its internal expenses (including, without limitation, all salaries and
expenses of its officers and employees performing legal or accounting duties),
the expense of any annual audit, the fees and expenses incurred in connection
with any listing of the securities to be registered on a securities exchange,
and the fees and expenses of any person, including special experts, retained by
the Company.
8. Assignment of Registration Rights.
The rights of the Holders hereunder, including the right to have the
Company register Registrable Securities pursuant to this Agreement, shall be
automatically assignable by each Holder to any transferee of all or any portion
of the Warrant or the Registrable Securities if: (i) the Holder agrees in
writing with the transferee or assignee to assign such rights, and a copy of
such agreement is furnished to the Company after such assignment, (ii) the
Company is furnished with written notice of (a) the name and address of such
transferee or assignee, and (b) the securities with respect to which such
registration rights are being transferred or assigned, (iii) following such
transfer or assignment, the further disposition of such securities by the
transferee or assignee is restricted under the Securities Act and applicable
state securities laws, (iv) the transferee or assignee agrees in writing for the
benefit of the Company to be bound by all of the provisions contained herein,
and (v) such transfer shall have been made in accordance with the applicable
requirements of the Warrant.
9. Representations.
(a) By the Holder. By accepting this Warrant, the Holder hereof
represents that this Warrant is acquired for the Holder's own account for
investment purposes and not with a view to any offering or distribution and that
the Holder has no present intention of selling or otherwise disposing of the
Warrant or any portion hereof or the underlying shares of Common Stock in
violation of applicable securities laws.
(b) By the Company.
(i) Neither the Company, nor any of its affiliates, nor any
person acting on its or their behalf, has directly or indirectly made any offers
or sales of any security or solicited any offers to buy any security under
circumstances that would require registration, or the filing of a prospectus
qualifying the distribution, of this Warrant being issued hereby under the
Securities Act or cause the issuance of this Warrant to be integrated with any
prior offering of securities of the Company for purposes of the Securities Act.
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(ii) The Company represents and warrants that as of the date
hereof, it has outstanding 28,569,839 shares of Common Stock, calculated on a
fully diluted basis, giving effect to the conversion of all options, warrants,
rights and other securities convertible into, or exchangeable for, Common Stock.
10. Certain Agreements of the Company. The Company hereby covenants and
agrees as follows:
(a) Shares to be Fully Paid. All Warrant Shares will, upon issuance in
accordance with the terms of this Warrant, be validly issued, fully paid, and
nonassessable and free from all taxes, liens, claims and encumbrances.
(b) Authorization of Shares. During the Exercise Period, the Company
shall at all times have authorized a sufficient number of shares of Common
Stock, free from preemptive rights and from any other restrictions imposed by
the Company without the consent of the Holder, to provide for the exercise in
full of this Warrant.
(c) Listing. The Company shall promptly secure the listing of the
shares of Common Stock issuable upon exercise of this Warrant upon each national
securities exchange or automated quotation system, if any, upon which shares of
Common Stock are then listed or become listed (subject to official notice of
issuance upon exercise of this Warrant) and shall maintain, so long as any other
shares of Common Stock shall be so listed, such listing of all shares of Common
Stock from time to time issuable upon the exercise of this Warrant; and the
Company shall so list on each national securities exchange or automated
quotation system, as the case may be, and shall maintain such listing of, any
other shares of capital stock of the Company issuable upon the exercise of this
Warrant if and so long as any shares of the same class shall be listed on such
national securities exchange or automated quotation system.
(d) Certain Actions Prohibited. The Company will not, by amendment of
its charter or through any reorganization, transfer of assets, consolidation,
merger, dissolution, issue or sale of securities, or any other voluntary action,
avoid or seek to avoid the observance or performance of any of the terms to be
observed or performed by it hereunder, but will at all times in good faith
assist in the carrying out of all the provisions of this Warrant and in the
taking of all such action as may reasonably be requested by the Holder of this
Warrant in order to protect the exercise privilege of the Holder of this Warrant
against dilution or other impairment, consistent with the tenor and purpose of
this Warrant. Without limiting the generality of the foregoing, the Company will
take all such actions as may be necessary or appropriate in order that the
Company may validly and legally issue fully paid and nonassessable shares of
Common Stock upon the exercise of this Warrant.
(e) Successors and Assigns. This Warrant will be binding upon any
entity succeeding to the Company by merger, consolidation, or acquisition of all
or substantially all of the Company's assets.
(f) Blue Sky Laws. The Company shall, on or before the date of
issuance of any Warrant Shares, take such actions as the Company shall
reasonably determine are necessary to qualify the
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Warrant Shares for, or obtain exemption for the Warrant Shares for, sale to the
Holder of this Warrant upon the exercise hereof under applicable securities or
"blue sky" laws of the states of the United States, and shall provide evidence
of any such action so taken to the Holder of this Warrant prior to such date;
provided, however, that the Company shall not be required to qualify as a
foreign corporation or file a general consent to service of process in any such
jurisdiction.
(g) No Integrated Offerings. The Company shall not make any offers or
sales of any security under circumstances that would require registration, or
qualification of the distribution, of the Warrant under the Securities Act or
cause the issuance of this Warrant to be integrated with any other offering of
securities by the Company for purposes of the Securities Act.
11. Transfer, Exchange, Redemption and Replacement of Warrant.
(a) Transferability. This Warrant and the rights granted to the
Holder hereof are transferable, in whole or in part, upon surrender of this
Warrant, together with a properly executed assignment in the form attached
hereto, at the office or agency of the Company referred to in Section 12 below.
Until due presentment for registration of transfer on the books of the Company,
the Company may treat the registered Holder hereof as the owner hereof for all
purposes, and the Company shall not be affected by any notice to the contrary.
(b) Warrant Exchangeable for Different Denominations. This Warrant is
exchangeable, upon the surrender hereof by the Holder hereof at the office or
agency of the Company referred to in Section 12 below, for new Warrants of like
tenor of different denominations representing in the aggregate the right to
purchase the number of shares of Common Stock which may be purchased hereunder,
each of such new Warrants to represent the right to purchase such number of
shares as shall be designated by the Holder hereof at the time of such
surrender.
(c) Replacement of Warrant. Upon receipt of evidence reasonably
satisfactory to the Company of the loss, theft, destruction, or mutilation of
this Warrant and, in the case of any such loss, theft, or destruction, upon
delivery of an indemnity agreement reasonably satisfactory in form and amount to
the Company, or, in the case of any such mutilation, upon surrender and
cancellation of this Warrant, the Company, at its expense, will execute and
deliver, in lieu thereof, a new Warrant of like tenor.
(d) Cancellation; Payment of Expenses. Upon the surrender of this
Warrant in connection with any transfer, exchange, or replacement as provided in
this Section 11, this Warrant shall be promptly canceled by the Company. The
Company shall pay all taxes (other than securities transfer taxes) and all other
expenses (other than legal expenses, if any, incurred by the Holder or
transferees) and charges payable in connection with the preparation, execution,
and delivery of Warrant pursuant to this Section 11. The Company shall indemnify
and reimburse the Holder of this Warrant for all costs and expenses (including
legal fees) incurred by such Holder in connection with the enforcement of its
rights hereunder.
(e) Warrant Register. The Company shall maintain, at its principal
executive offices (or such other office or agency of the Company as it may
designate by notice to the Holder hereof),
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a register for this Warrant, in which the Company shall record the name and
address of the person in whose name this Warrant has been issued, as well as the
name and address of each transferee and each prior owner of this Warrant.
(f) Exercise or Transfer Without Registration. If, at the time of the
surrender of this Warrant in connection with any exercise, transfer, or exchange
of this Warrant, this Warrant (or, in the case of any exercise, the Warrant
Shares issuable hereunder), shall not be registered under the Securities Act and
under applicable state securities or blue sky laws, the Company may require, as
a condition of allowing such exercise, transfer, or exchange, (i) that the
Holder or transferee of this Warrant, as the case may be, furnish to the Company
a written opinion of counsel (which opinion shall be in form, substance and
scope customary for opinions of counsel in comparable transactions) to the
effect that such exercise, transfer, or exchange may be made without
registration under the Securities Act and under applicable state securities or
blue sky laws, (ii) that the Holder or transferee execute and deliver to the
Company an investment letter in form and substance acceptable to the Company and
(iii) that the transferee be an "accredited investor" as defined in Rule 501(a)
promulgated under the Securities Act; provided that no such opinion, letter, or
status as an "accredited investor" shall be required in connection with a
transfer pursuant to Rule 144 under the Securities Act.
12. Notices. Any notices required or permitted to be given under the
terms of this Warrant shall be sent by certified or registered mail (return
receipt requested) or delivered personally or by courier or by confirmed
telecopy, and shall be effective five days after being placed in the mail, if
mailed, or upon receipt or refusal of receipt, if delivered personally or by
courier, or by confirmed telecopy, in each case addressed to a party. The
addresses for such communications shall be:
If to the Company:
NetGenics, Inc.
1717 East Ninth Street
Cleveland, OH 44114
If to the Holder, at such address as such Holder shall have provided in writing
to the Company, or at such other address as such Holder furnishes by notice
given in accordance with this Section 12.
13. Governing Law; Jurisdiction. This Warrant shall be governed by and
construed in accordance with the laws of the State of New York applicable to
contracts made and to be performed in New York. The Company irrevocably consents
to the exclusive jurisdiction of the United States federal courts and state
courts located in the State of New York in the County of Westchester in any suit
or proceeding based on or arising under this Warrant and irrevocably agrees that
all claims in respect of such suit or proceeding may be determined in such
courts. The Company irrevocably waives any objection to the laying of venue and
the defense of an inconvenient forum to the maintenance of such suit or
proceeding. The Company further agrees that service of process upon the Company
mailed by certified or registered mail shall be deemed in every respect
effective service of process upon the Company in any such suit or proceeding.
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Nothing herein shall affect the holder's right to serve process in any other
manner permitted by law. The Company agrees that a final non-appealable judgment
in any such suit or proceeding shall be conclusive and may be enforced in other
jurisdictions by suit on such judgment or in any other lawful manner.
14. Miscellaneous.
(a) Cashless Exercise. Notwithstanding anything to the contrary
contained in this Warrant, this Warrant may be exercised at any time during the
Exercise Period, by presentation and surrender of this Warrant to the Company at
its principal executive offices with a written notice of the holder's intention
to effect a cashless exercise, including a calculation of the number of shares
of Common Stock to be issued upon such exercise in accordance with the terms
hereof (a "Cashless Exercise"). In the event of a Cashless Exercise, in lieu of
paying the Exercise Price in cash, the Holder shall surrender this Warrant for
that number of shares of Common Stock determined by multiplying the number of
Warrant Shares to which it would otherwise be entitled by a fraction, the
numerator of which shall be the difference between the then current Market Price
of a share of the Common Stock on the date of exercise and the Exercise Price,
and the denominator of which shall be the then current Market Price per share of
Common Stock. "Market Price," as of any date, means the following: (i) the
average of the closing sale prices for the shares of Common Stock as reported on
the principal trading market for the Common Stock for the five (5) consecutive
trading days immediately preceding such date, or if no sale price is so reported
for such period, the last bid price for such period, or (ii) if the foregoing
does not apply, the last sale price of such security in the over-the-counter
market on the pink sheets or bulletin board for such security on the last
trading day immediately preceding such date, or if no sale price is so reported
for such security, the average of the last bid and ask price for such security
on the last trading day immediately preceding such date,, or (iii) if market
value cannot be calculated as of such date on any of the foregoing bases, the
Market Price shall be the average fair market value as reasonably determined by
an investment banking firm selected by the Company and reasonably acceptable to
the Holder, with the costs of the appraisal to be borne by the Company.
(b) Amendments. This Warrant and any provision hereof may only be
amended by an instrument in writing signed by the Company and the Holder hereof.
(c) U.S. Dollars. All references in this Warrant to "dollars" or "$"
shall mean the U.S. dollar.
(d) Descriptive Headings. The descriptive headings of the several
Sections of this Warrant are inserted for purposes of reference only, and shall
not affect the meaning or construction of any of the provisions hereof.
(e) Business Day. For purposes of this Warrant, the term "business day"
means any day, other than a Saturday or Sunday or a day on which banking
institutions in New York, New York are authorized or obligated by law,
regulation or executive order to close.
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IN WITNESS WHEREOF, the Company has caused this Warrant to be signed by
its duly authorized officer.
NETGENICS, INC.
By: /S/ MANUEL J. GLYNIAS
---------------------
Name: Manuel J. Glynias
Title: President and Chief Executive Officer
WITNESS:_/S/ ELIZABETH SUMP-KLEINHENZ
- -------------------------------------
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FORM OF EXERCISE AGREEMENT
--------------------------
(To be Executed by the Holder in order to Exercise the Warrant)
To: Netgenic, Inc.
1717 East Ninth Street
Cleveland, OH 44114
The undersigned hereby irrevocably exercises the right to purchase
_____________ shares of the Common Stock of Netgenics, Inc. (the "Company"),
evidenced by the attached Warrant, and herewith makes payment of the Exercise
Price with respect to such shares in full, all in accordance with the conditions
and provisions of said Warrant.
(i) The undersigned agrees not to offer, sell, transfer or otherwise
dispose of any Common Stock obtained on exercise of the Warrant, except under
circumstances that will not result in a violation of the Securities Act of 1933,
as amended, or any state securities laws, and agrees that the following legend
may be affixed to the stock certificate for the Common Stock hereby subscribed
for if resale of such Common Stock is not registered or if Rule 144 is
unavailable:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES LAWS OF ANY
STATE OF THE UNITED STATES. THE SECURITIES REPRESENTED HEREBY MAY NOT BE
OFFERED OR SOLD IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT FOR
THE SECURITIES UNDER APPLICABLE SECURITIES LAWS UNLESS OFFERED, SOLD OR
TRANSFERRED PURSUANT TO AN AVAILABLE EXEMPTION FROM THE REGISTRATION
REQUIREMENTS OF THOSE LAWS.
(ii) The undersigned requests that stock certificates for such shares be
issued, and a Warrant representing any unexercised portion hereof be issued,
pursuant to the Warrant in the name of the Holder and delivered to the
undersigned at the address set forth below:
Dated:
-----------------
- ----------------------------
Signature of Holder
- -------------------------------------
Name of Holder (Print)
Address:
- -------------------------------------
- -------------------------------------
- -------------------------------------
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FORM OF ASSIGNMENT
FOR VALUE RECEIVED, the undersigned hereby sells, assigns, and transfers
all the rights of the undersigned under the within Warrant, with respect to the
number of shares of Common Stock covered thereby set forth hereinbelow, to:
Name of Assignee Address No of Shares
, and hereby irrevocably constitutes and appoints ______________________________
as agent and attorney-in- fact to transfer said Warrant on the books of the
within-named corporation, with full power of substitution in the premises.
Dated:
---------------------, ----
In the presence of
- ------------------
Name:
Signature:
-----------------------
Title of Signing Officer or Agent (if any):
------------------------
Address:
--------------------
--------------------
Note: The above signature should correspond exactly with the name on the face of
the within Warrant.
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Exhibit 10.1
D&O INDEMNIFICATION AGREEMENT
-----------------------------
This D&O Indemnification Agreement, dated as of ___________ ___, 200_
(this "Agreement"), is made by and between NetGenics, Inc., a Delaware
corporation (the "Company"), and __________________ ("Indemnitee").
RECITALS
A. It is important to the Company to attract and retain as directors
and officers the most capable persons reasonably available.
B. Indemnitee is a director and/or officer of the Company.
C. Both the Company and Indemnitee recognize the increased risk of
litigation and other claims being asserted against directors and officers of
companies in today's environment.
D. The Company's Certificate of Incorporation and/or By-laws (the
"Constituent Documents") provide that the Company will indemnify its directors
and officers and will advance expenses in connection therewith, and Indemnitee's
willingness to serve as a director and/or officer of the Company is based in
part on Indemnitee's reliance on such provisions.
E. In recognition of Indemnitee's need for substantial protection
against personal liability in order to enhance Indemnitee's continued service to
the Company in an effective manner, and Indemnitee's reliance on the aforesaid
provisions of the Constituent Documents, and to provide Indemnitee with express
contractual indemnification (regardless of, among other things, any amendment to
or revocation of such provisions or any change in the composition of the
Company's Board of Directors (the "Board") or any acquisition or business
combination transaction relating to the Company), the Company wishes to provide
in this Agreement for the indemnification of and the advancement of Expenses (as
defined in Section 1(c)) to Indemnitee as set forth in this Agreement and, to
the extent insurance is maintained, for the continued coverage of Indemnitee
under the Company's directors' and officers' liability insurance policies.
NOW, THEREFORE, the parties hereby agree as follows:
1. CERTAIN DEFINITIONS. In addition to terms defined elsewhere herein,
the following terms have the following meanings when used in this Agreement with
initial capital letters:
(a) "AFFILIATE" has the meaning given to that term in Rule 405
under the Securities Act of 1933, provided, however, that for purposes of this
Agreement the Company and its subsidiaries will not be deemed to constitute
Affiliates of Indemnitee or the Indemnitee.
(b) "CLAIM" means any threatened, pending or completed action,
suit or proceeding, or any inquiry or investigation, whether instituted, made or
conducted by the Company or any other party, including without limitation any
governmental entity, that Indemnitee determines might lead to the institution of
any such action, suit or proceeding, whether civil, criminal, administrative,
arbitrative, investigative or other.
<PAGE> 2
(c) "EXPENSES" includes attorney's and experts' fees, expenses
and charges and all other costs, expenses and obligations paid or incurred in
connection with investigating, defending, being a witness in or participating in
(including on appeal), or preparing to defend, be a witness in or participate
in, any Claim.
(d) "INDEMNIFIABLE LOSSES" means any and all Expenses,
damages, losses, liabilities, judgments, fines, penalties and amounts paid in
settlement (including without limitation all interest, assessments and other
charges paid or payable in connection with or in respect of any of the
foregoing) (collectively, "Losses") relating to, resulting from or arising out
of any act or failure to act by the Indemnitee, or his or her status as any
person referred to in clause (i) of this sentence, (i) in his or her capacity as
a director, officer, employee or agent of the Company, any of its Affiliates or
any other entity as to which the indemnitee is or was serving at the request of
the Company as a director, officer, employee, member, manager, trustee or agent
of another corporation, limited liability company, partnership, joint venture,
trust or other entity or enterprise, whether or not for profit and (ii) in
respect of any business, transaction or other activity of any entity referred to
in clause (i) of this sentence.
2. BASIC INDEMNIFICATION ARRANGEMENT. The Company will indemnify and
hold harmless Indemnitee, to the fullest extent permitted by the laws of the
State of Delaware in effect on the date hereof or as such laws may from time to
time hereafter be amended to increase the scope of such permitted
indemnification, against all Indemnifiable Losses relating to, resulting from or
arising out of any Claim. The failure by Indemnitee to notify the Company of
such Claim will not relieve the Company from any liability hereunder unless, and
only to the extent that, the Company did not otherwise learn of the Claim and
such failure results in forfeiture by the Company of substantial defenses,
rights or insurance coverage. Except as provided in Section 17, however,
Indemnitee will not be entitled to indemnification pursuant to this Agreement in
connection with any Claim initiated by Indemnitee against the Company or any
director or officer of the Company unless the Company has joined in or consented
to the initiation of such Claim. If so requested by Indemnitee, the Company will
advance within two business days of such request any and all Expenses to
Indemnitee which Indemnitee determines reasonably likely to be payable,
provided, however, that Indemnitee will return, without interest, any such
advance which remains unspent at the final conclusion of the Claim to which the
advance related.
3. INDEMNIFICATION FOR ADDITIONAL EXPENSES. Without limiting the
generality or effect of the foregoing, the Company will indemnify Indemnitee
against and, if requested by Indemnitee, will within two business days of such
request advance to Indemnitee, any and all attorneys' fees and other Expenses
paid or incurred by Indemnitee in connection with any Claim asserted or brought
by Indemnitee for (i) indemnification or advance payment of Expenses by the
Company under this Agreement or any other agreement or under any provision of
the Company's Constituent Documents now or hereafter in effect relating to
Claims for Indemnifiable Losses and/or (ii) recovery under any directors' and
officers' liability insurance policies maintained by the Company, regardless of
whether Indemnitee ultimately is determined to be entitled to such
indemnification, advance expense payment or insurance recovery, as the case may
be.
4. PARTIAL INDEMNITY, ETC. If Indemnitee is entitled under any
provision of this Agreement to indemnification by the Company for some or a
portion of any Indemnifiable Loss but not for all of the total amount thereof,
the Company will nevertheless indemnify Indemnitee
<PAGE> 3
for the portion thereof to which Indemnitee is entitled. Moreover,
notwithstanding any other provision of this Agreement, to the extent that
Indemnitee has been successful on the merits or otherwise in defense of any or
all Claims relating in whole or in part to an Indemnifiable Loss or in defense
of any issue or matter therein, including without limitation dismissal without
prejudice, Indemnitee will be indemnified against all Expenses incurred in
connection therewith. In connection with any determination as to whether
Indemnitee is entitled to be indemnified hereunder, there will be a presumption
that Indemnitee is so entitled, which presumption the Company may overcome only
by its adducing clear and convincing evidence to the contrary.
5. NO OTHER PRESUMPTION. For purposes of this Agreement, the
termination of any Claim by judgment, order, settlement (whether with or without
court approval) or conviction, or upon a plea of nolo contendere or its
equivalent, will not create a presumption that Indemnitee did not meet any
particular standard of conduct or have any particular belief or that a court has
determined that indemnification is not permitted by applicable law.
6. NON-EXCLUSIVITY, ETC. The rights of Indemnitee hereunder will be in
addition to any other rights Indemnitee may have under the Constituent
Documents, or the substantive laws of the Company's jurisdiction of
incorporation, any other contract or otherwise (collectively, "Other Indemnity
Provisions"); PROVIDED, HOWEVER, that (i) to the extent that Indemnitee
otherwise would have any greater right to indemnification under any Other
Indemnity Provision, Indemnitee will be deemed to have such greater right
hereunder and (ii) to the extent that any change is made to any Other Indemnity
Provision which permits any greater right to indemnification than that provided
under this Agreement as of the date hereof, Indemnitee will be deemed to have
such greater right hereunder. The Company will not adopt any amendment to any of
the Constituent Documents the effect of which would be to deny, diminish or
encumber Indemnitee's right to indemnification under this Agreement or any Other
Indemnity Provision.
7. LIABILITY INSURANCE AND FUNDING. To the extent the Company maintains
an insurance policy or policies providing directors' and officers' liability
insurance, Indemnitee will be covered by such policy or policies, in accordance
with its or their terms, to the maximum extent of the coverage available for any
director or officer of the Company. The Company may, but will not be required
to, create a trust fund, grant a security interest or use other means, including
without limitation a letter of credit, to ensure the payment of such amounts as
may be necessary to satisfy its obligations to indemnify and advance expenses
pursuant to this Agreement.
8. SUBROGATION. In the event of payment under this Agreement, the
Company will be subrogated to the extent of such payment to all of the related
rights of recovery of Indemnitee against other persons or entities (other than
Indemnitee's successors). The Indemnitee will execute all papers reasonably
required to evidence such rights (all of Indemnitee's reasonable Expenses,
including attorneys' fees and charges, related thereto to be reimbursed by or,
at the option of Indemnitee, advanced by the Company).
9. NO DUPLICATION OF PAYMENTS. The Company will not be liable under
this Agreement to make any payment in connection with any Indemnifiable Loss
made against Indemnitee to the extent Indemnitee has otherwise actually received
payment (net of Expenses incurred in connection therewith) under any insurance
policy, the Constituent Documents and Other Indemnity Provisions or otherwise of
the amounts otherwise indemnifiable hereunder.
<PAGE> 4
10. DEFENSE OF CLAIMS. The Company will be entitled to participate in
the defense of any Claim or to assume the defense thereof, with counsel
reasonably satisfactory to the Indemnitee, PROVIDED that in the event that (i)
the use of counsel chosen by the Company to represent Indemnitee would prevent
such counsel with an actual or potential conflict, (ii) the named parties in any
such Claim (including any impleaded parties) include both the Company and
Indemnitee and Indemnitee shall conclude that there may be one or more legal
defenses available to him or her that are different from or in addition to those
available to the Company, or (iii) any such representation by the Company would
be precluded under the applicable standards of professional conduct then
prevailing, then Indemnitee will be entitled to retain separate counsel (but not
more than one law firm plus, if applicable, local counsel in respect of any
particular Claim) at the Company's expense. The Company will not, without the
prior written consent of the Indemnitee, effect any settlement of any threatened
or pending Claim which the Indemnitee is or could have been a party unless such
settlement solely involves the payment of money and includes an unconditional
release of the Indemnitee from all liability on any claims that are the subject
matter of such Claim.
11. SUCCESSORS AND BINDING AGREEMENT. (a) The Company will require any
successor (whether direct or indirect, by purchase, merger, consolidation,
reorganization or otherwise) to all or substantially all of the business or
assets of the Company, by agreement in form and substance satisfactory to
Indemnitee and his or her counsel, expressly to assume and agree to perform this
Agreement in the same manner and to the same extent the Company would be
required to perform if no such succession had taken place. This Agreement will
be binding upon and inure to the benefit of the Company and any successor to the
Company, including without limitation any person acquiring directly or
indirectly all or substantially all of the business or assets of the Company
whether by purchase, merger, consolidation, reorganization or otherwise (and
such successor will thereafter be deemed the "Company" for purposes of this
Agreement), but will not otherwise be assignable or delegatable by the Company.
(b) This Agreement will inure to the benefit of and be enforceable by
the Indemnitee's personal or legal representatives, executors, administrators,
successors, heirs, distributees, legatees and other successors.
(c) This Agreement is personal in nature and neither of the parties
hereto will, without the consent of the other, assign or delegate this Agreement
or any rights or obligations hereunder except as expressly provided in Sections
11(a) and 11(b). Without limiting the generality or effect of the foregoing,
Indemnitee's right to receive payments hereunder will not be assignable, whether
by pledge, creation of a security interest or otherwise, other than by a
transfer by the Indemnitee's will or by the laws of descent and distribution,
and, in the event of any attempted assignment or transfer contrary to this
Section 11(c), the Company will have no liability to pay any amount so attempted
to be assigned or transferred.
12. NOTICES. For all purposes of this Agreement, all communications,
including without limitation notices, consents, requests or approvals, required
or permitted to be given hereunder will be in writing and will be deemed to have
been duly given when hand delivered or dispatched by electronic facsimile
transmission (with receipt thereof orally confirmed), or five business days
after having been mailed by United States registered or certified mail, return
receipt requested, postage prepaid or one business day after having been sent
for next-day delivery by a nationally recognized overnight courier service,
addressed to the Company (to the attention of the Secretary
<PAGE> 5
of the Company) and to the Indemnitee at the addresses shown on the signature
page hereto, or to such other address as any party may have furnished to the
other in writing and in accordance herewith, except that notices of changes of
address will be effective only upon receipt.
13. GOVERNING LAW. The validity, interpretation, construction and
performance of this Agreement will be governed by and construed in accordance
with the substantive laws of the State of Delaware, without giving effect to the
principles of conflict of laws of such State. Each party consents to
non-exclusive jurisdiction of any Delaware state or federal court or any court
in any other jurisdiction in which a Claim is commenced by a third person for
purposes of any action, suit or proceeding hereunder, waives any objection to
venue therein or any defense based on forum non conveniens or similar theories
and agrees that service of process may be effected in any such action, suit or
proceeding by notice given in accordance with Section 12.
14. VALIDITY. If any provision of this Agreement or the application of
any provision hereof to any person or circumstance is held invalid,
unenforceable or otherwise illegal, the remainder of this Agreement and the
application of such provision to any other person or circumstance will not be
affected, and the provision so held to be invalid, unenforceable or otherwise
illegal will be reformed to the extent, and only to the extent, necessary to
make it enforceable, valid or legal.
15. MISCELLANEOUS. No provision of this Agreement may be waived,
modified or discharged unless such waiver, modification or discharge is agreed
to in writing signed by Indemnitee and the Company. No waiver by either party
hereto at any time of any breach by the other party hereto or compliance with
any condition or provision of this Agreement to be performed by such other party
will be deemed a waiver of similar or dissimilar provisions or conditions at the
same or at any prior or subsequent time. No agreements or representations, oral
or otherwise, expressed or implied with respect to the subject matter hereof
have been made by either party that are not set forth expressly in this
Agreement. References to Sections are to references to Sections of this
Agreement.
16. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which will be deemed to be an original but all of which
together will constitute one and the same agreement.
17. LEGAL FEES AND EXPENSES. It is the intent of the Company that the
Indemnitee not be required to incur legal fees and or other Expenses associated
with the interpretation, enforcement or defense of Indemnitee's rights under
this Agreement by litigation or otherwise because the cost and expense thereof
would substantially detract from the benefits intended to be extended to the
Indemnitee hereunder. Accordingly, without limiting the generality or effect of
any other provision hereof, if it should appear to the Indemnitee that the
Company has failed to comply with any of its obligations under this Agreement or
in the event that the Company or any other person takes or threatens to take any
action to declare this Agreement void or unenforceable, or institutes any
litigation or other action or proceeding designed to deny, or to recover from,
the Indemnitee the benefits provided or intended to be provided to the
Indemnitee hereunder, the Company irrevocably authorizes the Indemnitee from
time to time to retain counsel of Indemnitee's choice, at the expense of the
Company as hereafter provided, to advise and represent the Indemnitee in
connection with any such interpretation, enforcement or defense, including
without limitation the initiation or defense of any litigation or other legal
action,
<PAGE> 6
whether by or against the Company or any director, officer, stockholder or other
person affiliated with the Company, in any jurisdiction. Notwithstanding any
existing or prior attorney-client relationship between the Company and such
counsel, the Company irrevocably consents to the Indemnitee's entering into an
attorney-client relationship with such counsel, and in that connection the
Company and the Indemnitee agree that a confidential relationship shall exist
between the Indemnitee and such counsel. Without respect to whether the
Indemnitee prevails, in whole or in part, in connection with any of the
foregoing, the Company will pay and be solely financially responsible for any
and all attorneys' and related fees and expenses incurred by the Indemnitee in
connection with any of the foregoing.
18. CERTAIN INTERPRETIVE MATTERS. No provision of this Agreement will
be interpreted in favor of, or against, either of the parties hereto by reason
of the extent to which any such party or its counsel participated in the
drafting thereof or by reason of the extent to which any such provision is
inconsistent with any prior draft hereof or thereof.
<PAGE> 7
IN WITNESS WHEREOF, Indemnitee has executed and the Company has caused
its duly authorized representative to execute this Agreement as of the date
first above written.
NETGENICS, INC.
1700 East Ninth Street, Suite 1600
Cleveland, Ohio 44114
By:
-----------------------------------
Name:
Title:
[INDEMNITEE]
[Address]
-----------------------------------
[Indemnitee]
<PAGE> 1
Exhibit 10.2
NETGENICS, INC.
1996 STOCK OPTION PLAN
EFFECTIVE DATE: NOVEMBER 20, 1996
AS AMENDED ON MARCH 20, 1998 AND SEPTEMBER 4, 1998
<PAGE> 2
NETGENICS, INC.
1996 STOCK OPTION PLAN
1. PURPOSE. The purpose of the Plan is to provide additional
incentive to those officers, key employees and consultants of the Company and
its Subsidiaries whose substantial contributions are essential to the continued
growth and success of the Company's business in order to strengthen their
commitment to the Company and its Subsidiaries, to motivate such officers and
employees to faithfully and diligently perform their assigned responsibilities
and to attract and retain competent and dedicated individuals whose efforts will
result in the long term growth and profitability of the Company. An additional
purpose of the Plan is to build a proprietary interest among the Company's
Non-Employee Directors and thereby secure for the Company's stockholders the
benefits associated with common stock ownership by those who will oversee the
Company's future growth and success. To accomplish such purposes, the Plan
provides that the Company may grant Incentive Stock Options, or Nonqualified
Stock Options. The provisions of the Plan are intended to satisfy the
requirements of Section 16(b) of the Exchange Act.
2. DEFINITIONS. For purposes of this Plan:
(a) "Agreement" means the written agreement
evidencing the grant of an Option and setting forth the terms and conditions
thereof.
(b) "Affiliate" means a corporation which, for
purposes of Section 424 of the Code, is a parent or subsidiary of the Company,
direct or indirect.
(c) "Board" means the Board of Directors of the
Company.
(d) "Change in Capitalization" means any increase,
reduction, or change or exchange of Shares for a different number or kind of
shares or other securities of the Company by reason of a reclassification,
recapitalization, merger, consolidation, reorganization, issuance of warrants or
rights, stock dividend, stock split or reverse stock split, combination or
exchange of Shares, repurchase of Shares, change in corporate structure or
otherwise.
(e) "Change in Control" means one of the following
events:
(i) any "person" (as defined in Sections
13(d) and 14(d) of the Exchange Act), other than the Company, any
trustee or other fiduciary holding securities under an employee benefit
plan of the Company or any Subsidiary, or any corporation owned,
directly or indirectly, by the stockholders of the Company, in
substantially the same proportions as their ownership of stock of the
Company, acquires "beneficial ownership" (as defined in rule 13d-3
under the Exchange Act) of securities representing 35% of the combined
voting power of the Company; or (ii) during any period of not more than
two consecutive years, individuals who at the beginning of such period
constitute the Board and any new directors (other than any director
designated by a person who has entered into an agreement with the
Company to effect a transaction described in subsections 2(e)(i),
2(e)(iii) or 2(e)(iv)) whose election by the Board or nomination for
election by the Company's stockholders was approved by a vote of at
least two-thirds (2/3) of the directors then still in office who either
were directors at the beginning of the
<PAGE> 3
period or whose election or nomination for election was previously so approved,
cease for any reason to constitute a majority thereof; or (iii) the stockholders
of the Company approve a merger other than (A) a merger that would result in the
voting securities of the Company outstanding immediately prior thereto
continuing to represent (either by remaining outstanding or by being converted
into voting securities of the surviving entity), in combination with the
ownership of any trustee or other fiduciary holding securities under an employee
benefit plan of the Company or any Subsidiary, at least 50% of the combined
voting power of all classes of stock of the Company or such surviving entity
outstanding immediately after such merger or (B) a merger effected to implement
a recapitalization of the Company (or similar transaction) in which no person
acquires more than 50% of the combined voting power of the Company's then
outstanding securities; or (iv) the stockholders of the Company approve a plan
of complete liquidation of the Company or a sale of all or substantially all of
the assets of the Company.
(f) "Code" means the Internal Revenue Code of 1986,
as amended.
(g) "Committee," means a committee appointed by the
Board to administer the Plan to perform the functions set forth herein.
(h) "Company" means NetGenics, Inc., a Delaware
corporation.
(i) "Consultants" includes scientific advisors and
other consultants to the Company, including observers of the Board of Directors,
as determined from time to time by the Board.
(j) "Disability" means the inability, due to illness
or injury, to engage in any gainful occupation for which the individual is
suited by education, training or experience, which condition continues for at
least six (6) months.
(k) "Eligible Employee" means any officer or other
key employee or consultant or member of the Scientific Advisory Board of the
Company or a Subsidiary designated by the Committee as eligible to receive
Options subject to the conditions set forth herein.
(l) "Exchange Act" means the Securities Exchange Act
of 1934, as amended.
(m) "Fair Market Value" means the fair market value
of the Shares as determined by the Committee in its sole discretion; PROVIDED,
HOWEVER, that (A) if the Shares are the admitted to trading on a national
securities exchange, the Fair Market Value on any date shall be the last sale
price reported for the Shares on such exchange on such date or on the last date
preceding such date on which a sale was reported, (B) if the Shares are admitted
to quotation on the National Association of Securities Dealers Automated
Quotation System ("Nasdaq") or other comparable quotation system and have been
designated as a National Market System ("NMS) security, the Fair Market Value on
any date shall be the last sale price reported for the Shares on such system on
such date or
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<PAGE> 4
on the last day preceding such date on which a sale was reported or (C) if the
Shares are admitted to quotation on Nasdaq Stock Market and have not been
designated a NMS security, the Fair Market Value on any date shall be the
average of the highest bid and lowest asked prices of the shares on such system
on such date.
(n) "Incentive Stock Option" means an incentive stock
option within the meaning of Section 422 of the Code.
(o) "Non-Employee Director" shall have the definition
set forth in Section 16(b)3(b)(3) of the Exchange Act.
(p) "Nonqualified Stock Option" means an Option that
is not an Incentive Stock Option.
(q) "Option" means a Incentive Stock Option, a
Nonqualified Stock Option, or either or both of them, as the context requires.
(r) "Optionee" means a person to whom an Option has
been granted under the Plan.
(s) "Parent" means any corporation in an unbroken
chain of corporations ending with the Company, if, at the time of the granting
of the Option, each of the corporations other than the Company owns stock
possessing 50% or more of the total combined voting power of all classes of
stock of one of the other corporations in such chain.
(t) "Participant" means a Key Employee, director or
consultant to whom one or more Options are granted under the Plan. As used
herein, "Participant" shall include "Participant's Survivors" where the context
requires.
(u) "Plan" means the NetGenics, Inc. 1996 Stock
Option Plan, as amended from time to time.
(v) "Securities Act" means the Securities Act of
1933, as amended.
(w) "Shares" means shares of the common stock, $.00l
par value per share, of the Company (including any new, additional or different
stock or securities resulting from a Change in Capitalization), as the case may
be.
(x) "Subsidiary" means any corporation in an unbroken
chain of corporations beginning with the Company, if, at the time of the
granting of the Option, each of the corporations other than the last corporation
in the unbroken chain owns stock possessing 50% or more of the total combined
voting power of all classes of stock in one of the other corporations in such
chain.
-4-
<PAGE> 5
(y) "Ten-Percent Stockholder" means an
Eligible Employee, who, at the time an Incentive Stock Option is to be
granted to such Eligible Employee, owns (within the meaning of Section
422(b)(6) of the Code) stock possessing more than ten percent (10%) of
the total combined voting power of all classes of stock of the Company,
a Parent or a Subsidiary within the meaning of Sections 424(e) and
424(f), respectively, of the Code.
3. ADMINISTRATION.
(a) The Plan shall be administered by the Board or by
a Committee, which Committee shall at all times satisfy the provisions of Rule
16b-3 under the Exchange Act. All references herein to the Committee and the
rights, duties and obligations of the Committee shall also be references to the
Board and the rights, duties and obligations of the Board if the Board is
administering the Plan directly. The Committee shall hold meetings at such times
as may be necessary for the proper administration of the Plan. The Committee
shall keep minutes of its meetings. A majority of the Committee shall constitute
a quorum and a majority of a quorum may authorize any action. Any decision
reduced to writing and signed by a majority of the members of the Committee
shall be fully effective as if it had been made at a meeting duly held. No
member of the Committee shall be personally liable for any action, determination
or interpretation made in good faith with respect to the Plan or Options, and
all members of the Committee shall be fully indemnified by the Company with
respect to any such action, determination or interpretation. The Company shall
pay all expenses incurred in the administration of the Plan.
(b) Subject to the express terms and conditions set
forth herein, the Committee shall have the power from time to time:
(i) to determine those Eligible Employees to
whom Options shall be granted under the Plan and the number of
Nonqualified Stock Options and/or Incentive Stock Options, (provided,
however, that in no event shall options to purchase more than One
Million (1,000,000) Shares be granted to any Participant in any
calendar year) to be granted to each Eligible Employee and to prescribe
the terms and conditions (which need not be identical) of each Option,
including the purchase price per share of each Option;
(ii) to construe and interpret the Plan and
the Options granted hereunder and to establish, amend and revoke rules
and regulations for the administration of the Plan, including, but not
limited to, correcting any defect or supplying any omission, or
reconciling any inconsistency in the Plan or in any Agreement, in the
manner and to the extent it shall deem necessary or advisable to make
the Plan fully effective, and all decisions and determinations by the
Committee in the exercise of this power shall be final and binding upon
the Company or a Subsidiary, and the optionees, as the case may be;
(iii) to determine the duration and purposes
for leaves of absence which may be granted to an Optionee without
constituting a termination of employment or service for purposes of the
Plan; and
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<PAGE> 6
(iv) generally, to exercise such powers and
to perform such acts as are deemed necessary or advisable to promote
the best interests of the Company with respect to the Plan.
4. STOCK SUBJECT TO PLAN.
(a) The maximum number of Shares that may be issued
or transferred pursuant to Options is 4,000,000 (or the number and kind of
shares of stock or other securities that are substituted for those Shares or to
which those Shares are adjusted upon a Change in Capitalization), and the
Company shall reserve for the purposes of the Plan, out of its authorized but
unissued Shares or out of Shares held in the Company's treasury, or partly out
of each, such number of Shares as shall be determined by the Board.
(b) Whenever any outstanding Option or portion
thereof expires, is cancelled or is otherwise terminated (other than by exercise
of the Option), the Shares allocable to the unexercised portion of such Option
may again be the subject of Options hereunder, to the extent permitted by Rule
16b-3 under the Exchange Act.
5. ELIGIBILITY. Subject to the provisions of the Plan, the
Committee shall have full and final authority to select those Eligible Employees
who will receive Options.
6. OPTIONS. The Committee may grant Options in accordance with
the Plan, the terms and conditions of which shall be set forth in an Agreement.
Each Option and Agreement shall be subject to the following conditions:
(a) PURCHASE PRICE. The purchase price or the manner
in which the purchase price is to be determined for Shares under each Option
shall be set forth in the Agreement; PROVIDED, HOWEVER, that the purchase price
per Share under each Nonqualified Stock Option shall not be less than 50% of the
Fair Market Value of a Share at the time the Option is granted, 100% in the case
of an Incentive Stock Option generally and 110% in the case of an Incentive
Stock Option granted to a Ten-Percent Stockholder.
(b) DURATION. Options granted hereunder shall be for
such term as the Committee shall determine; PROVIDED, HOWEVER, that no Option
shall be exercisable after the expiration of ten (10) years from the date it is
granted (five (5) years in the case of an Incentive Stock Option granted to a
Ten Percent Stockholder). The Committee may, subsequent to the granting of any
Option, extend the term thereof but in no event shall the term as so extended
exceed the maximum term provided for in the preceding sentence.
(c) NON-TRANSFERABILITY. No Option granted hereunder
shall be transferable by the Optionee to whom such option is granted otherwise
than by will or the laws of descent and distribution, and an option may he
exercised during the lifetime of such optionee only by the Optionee or such
optionee's guardian or legal representative. The terms of such Option shall be
binding upon the beneficiaries, executors, administrators, heirs and successors
of the Optionee.
(d) VESTING. Subject to subsection 6(e) below, unless
otherwise set forth in the Agreement, each Option shall become exercisable as to
20 percent of the Shares
-6-
<PAGE> 7
covered by the Option on the first anniversary of the date the option was
granted and as to an additional 20 percent of the Shares covered by the Option
on each of the following four (4) anniversaries of such date of grant. To the
extent not exercised, installments shall accumulate and be exercisable, in whole
or in part, at any time after becoming exercisable, but not later than the date
the option expires. The Committee may accelerate the exercisability of any
option or portion thereof at any time.
(e) ACCELERATED VESTING. Notwithstanding the
provisions of subsection 6(d) above, each Option granted to an optionee shall
become immediately exercisable in full upon the occurrence of a Change in
Control.
(f) TERMINATION OF EMPLOYMENT. In the event that an
Optionee ceases to be employed by the Company or any Subsidiary, any outstanding
Options held by such Optionee shall, unless the Agreement evidencing such Option
provides otherwise, terminate as follows:
(i) If the Optionee's termination of
employment is due to his death or disability, the Option (to the extent
exercisable at the time of the Optionee's termination of employment)
shall be exercisable for a period of one (1) year following such
termination of employment, and shall thereafter terminate; and
(ii) Except as otherwise provided in the
pertinent Option Agreement, the following rules apply if the
Participant's service (whether as an employee, director or consultant)
with the Company or an Affiliate is terminated "for cause" prior to the
time that all of his or her outstanding Options have been exercised:
a. All outstanding and unexercised options
as of the date the Participant is notified his or her
service is terminated "for cause" will immediately be
forfeited.
b. For purposes of this Paragraph, "cause"
shall include (and is not limited to) dishonesty with
respect to the employer, insubordination, substantial
malfeasance or nonfeasance of duty, unauthorized
disclosure of confidential information, and conduct
substantially prejudicial to the business of the
Company or any Affiliate. The determination of the
Committee as to the existence of cause will be
conclusive on the Participant and the Company.
c. "Cause" is not limited to events which
have occurred prior to a Participant's termination of
service, nor is it necessary that the Committee's
finding of "cause" occur prior to termination. If the
Committee determines, subsequent to a Participant's
termination of service but prior to the exercise of
an Option, that either prior or subsequent to the
Participant's termination the Participant engaged in
conduct which would constitute "cause", then the
right to exercise any Option is forfeited.
d. Any definition in an agreement between
the Participant and the Company or an Affiliate,
which contains a conflicting definition of "cause"
for termination and which is in effect at the time of
such
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<PAGE> 8
termination, shall supersede the definition in this
Plan with respect to such Participant.
(iii) If the Optionee's termination of
employment is for any other reason (including an
Optionee's ceasing to be employed by a Subsidiary as
a result of the sale of such Subsidiary or an
interest in such Subsidiary), the Option (to the
extent exercisable at the time of the Optionee's
termination of employment) shall be exercisable for a
period of thirty (30) days following such termination
of employment , and shall thereafter terminate.
Notwithstanding the foregoing, the Committee may provide,
either at the time an Option is granted or thereafter, that the option may be
exercised after the periods provided for in this Section 6(f), but in no event
beyond the term of the Option.
(g) METHOD OF EXERCISE. The exercise of an option
shall be made only by a written notice delivered to the Secretary of the Company
at the Company's principal executive office, specifying the number of Shares to
be purchased and accompanied by payment therefor and otherwise in accordance
with the Agreement pursuant to which the Option was granted. The purchase price
for any Shares purchased pursuant to the exercise of an Option shall be paid in
full upon such exercise in cash, by check, or, at the discretion of the
Committee and upon such terms and conditions as the Committee shall approve, by
transferring Shares to the Company or by such other method as the Committee may
determine. Any Shares transferred to the Company as payment of the purchase
price under an Option shall be valued at their Fair Market Value on the day
preceding the date of exercise of such Option. If requested by the Committee,
the Optionee shall deliver the Agreement evidencing the Option to the Secretary
of the Company who shall endorse thereon a notation of such exercise and return
such Agreement to the Optionee. Not less than 100 Shares may be purchased at any
time upon the exercise of an Option unless the number of Shares so purchased
constitutes the total number of Shares then purchasable under the Option.
(h) RIGHTS OF OPTIONEES. No Optionee shall be deemed
for any purpose to be the owner of any Shares subject to any option unless and
until (i) the Option shall have been exercised pursuant to the terms thereof,
(ii) the Company shall have issued and delivered the Shares to the Optionee, and
(iii) the Optionee's name shall have been entered as a stockholder of record on
the books of the Company. Thereupon, the Optionee shall have full voting,
dividend and other ownership rights with respect to such Shares.
(i). LIMITATION ON YEARLY EXERCISE. Incentive Stock
Option Agreements shall restrict the amount of Options which may be exercisable
in any calendar year (under this or any other Incentive Stock Option plan of the
Company or an Affiliate) so that the aggregate Fair Market Value (determined at
the time each Incentive Stock Option is granted) of the stock with respect to
which Incentive Stock Options are exercisable for the first time by the
Participant in any calendar year does not exceed one hundred thousand dollars
($100,000), provided that this subparagraph (e) shall have no force or effect if
its inclusion in the Plan is not necessary for options issued as Incentive Stock
Options to qualify as Incentive Stock Options pursuant to Section 422(d) of the
Code.
7. ADJUSTMENT UPON CHANGES IN CAPITALIZATION.
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(a) In the event of a Change of Capitalization, the
Committee shall conclusively determine the appropriate adjustments, if any, to
the maximum number and class of shares of stock with respect to which Options
may be granted under the Plan, and to the number and class of shares of stock as
to which Options have been granted under the Plan, and the purchase price
therefor, if applicable.
(b) Any such adjustment in the Shares or other
securities subject to outstanding Incentive Stock Options (including any
adjustments in the purchase price) shall be made in such manner as not to
constitute a modification as defined by Section 424(h)(3) of the Code and only
to the extent otherwise permitted by Sections 422 and 424 of the Code.
8. NON-EMPLOYEE DIRECTOR OPTIONS. Notwithstanding any of the
other provisions of the Plan to the contrary, the provisions of this Section 8
shall apply only to grants of Options to Non-Employee Directors. Except as set
forth in this Section 8, the other provisions of the Plan shall apply to grants
of Options to Non-Employee Directors to the extent not inconsistent with this
Section. For purposes of interpreting Section 6 of the Plan, a Non- Employee
Director's service as a member of the Board shall be deemed to be employment
with the Company or its Subsidiaries.
(a) GENERAL. Non-Employee Directors shall receive
Nonqualified Stock Options in accordance with this Section 8 and may not be
granted Incentive Stock Options under this Plan. Prior to the Offering Date, the
purchase price or the manner in which the purchase price is to be determined for
Shares purchasable under Options granted to Non-Employee Directors shall be
determined by the Board. On and after the offering Date, the purchase price per
Share purchasable under options granted to Non-Employee Directors shall be the
Fair Market Value of a Share on the date of grant. No Agreement with any
Non-Employee Director may alter the provisions of this Section and no Option
granted to a Non-Employee Director may be subject to a discretionary
acceleration of exercisability.
(b) INITIAL GRANT. On the effective date of this
Plan, and after Board approval of such grant, each Non-Employee Director as of
such date shall be granted automatically, without action by the Committee, an
Option to purchase 50,000 Shares.
(c) GRANTS TO NEW NON-EMPLOYEE DIRECTORS. Each
Non-Employee Director who, after the effective Date of this Plan is elected or
appointed to the Board for the first time will, at the time such director is
elected or appointed and duly qualified, and after Board approval of such grant,
be granted automatically, without action by the Committee, an option to purchase
50,000 Shares.
(d) VESTING. Subject to accelerated vesting pursuant
to Section 6(e) hereof, each option granted to Non-Employee Directors shall be
exercisable as to 33-1/3 percent of the Shares covered by the Option on each of
the first three anniversaries of the date the Option was granted. To the extent
not exercised, installments shall accumulate and be exercisable, in whole or in
part, at any time after becoming exercisable, but not later than the date the
Option expires. Sections 6(d) and 6(f) hereof shall not apply to options granted
to Non-Employee Directors.
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<PAGE> 10
(e) DURATION. Subject to the immediately following
sentence, each Option granted to a Non-Employee Director shall be for a term of
10 years. Upon the cessation of a Non-Employee Director's membership on the
Board for any reason, Options granted to such Non-Employee Director shall expire
upon the earlier of (i) three (3) years from the date of such cessation of Board
membership or (ii) expiration of the term of the Option. The Committee may not
provide for an extended exercise period beyond the periods set forth in this
Section 8(e).
9. RELEASE OF FINANCIAL INFORMATION. A copy of the Company's
annual report to stockholders shall be delivered to each Optionee if and at the
time any such report is distributed to the Company's stockholders. Upon request
by any Optionee, the Company shall furnish to such Optionee a copy of its most
recent annual report and each quarterly report and current report filed under
the Exchange Act since the end of the Company's prior fiscal year.
10. TERMINATION AND AMENDMENT OF THE PLAN. The Plan shall
terminate on the day preceding the tenth anniversary of its effective date,
except with respect to Options outstanding on such date, and no Options may be
granted thereafter. The Board may sooner terminate or amend the Plan at any
time, and from time to time; PROVIDED, HOWEVER, that, except as provided in
Section 7 hereof, no amendment shall be effective unless approved by the
stockholders of the Company where stockholder approval of such amendment is
required (a) to comply with Rule 16b-3 under the Exchange Act subsequent to the
registration of a class of equity securities of the Company under Section 12 of
the Exchange Act of (b) to comply with any other law, regulation or stock
exchange rule.
Except as provided in Section 7 hereof, rights and
obligations under any Option granted before any amendment of the Plan shall not
be adversely altered or impaired by such amendment, except with the consent of
the Optionee.
11. NON-EXCLUSIVITY OF THE PLAN. The adoption of the Plan by
the Board shall not be construed as amending, modifying or rescinding any
previously approved incentive arrangement or as creating any limitations on the
power of the Board to adopt such other incentive arrangements as it may deem
desirable, including, without limitation, the granting of stock options
otherwise than under the Plan, and such arrangements may be either applicable
generally or only in specific cases.
12. LIMITATION OF LIABILITY. As illustrative of the
limitations of liability of the Company, but not intended to be exhaustive
thereof, nothing in the Plan shall be construed to:
(a) give any employee any right to be granted an
Option other than at the sole discretion of the Committee;
(b) give any person any rights whatsoever with
respect to Shares except as specifically provided in the Plan;
(c) limit in any way the right of the Company or its
Subsidiaries to terminate the employment of any person at any time; or
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(d) be evidence of any agreement or understanding,
expressed or implied, that the Company or its Subsidiaries will employ any
person in any particular position, at any particular rate of compensation or for
any particular period of time.
13. REGULATIONS AND OTHER APPROVALS; GOVERNING LAW.
(a) This Plan and the rights of all persons claiming
hereunder shall be construed and determined in accordance with the laws of the
State of Delaware, without giving effect to the choice of law principles
thereof.
(b) The obligation of the Company to sell or deliver
Shares with respect to options granted under the Plan shall be subject to all
applicable laws, rules and regulations, including all applicable federal and
state securities laws, and the obtaining of all such approvals by governmental
agencies as may be deemed necessary or appropriate by the Committee.
(c) Subsequent to the registration of a class of
equity securities of the Company under Section 12 of the Exchange Act, any
provisions of the Plan inconsistent with Rule 16b-3 under Exchange Act shall be
inoperative and shall not affect the validity of the Plan.
(d) Except as otherwise provided in Section 12, the
Board may make such changes as may be necessary or appropriate to comply with
the rules and regulations of any government authority or to obtain for Optionees
granted Incentive Stock Options, the tax benefits under the applicable
provisions of the Code and regulations promulgated thereunder.
(e) Each Option is subject to the requirement that,
if at any time the Committee determines, in its absolute discretion, that the
listing, registration or qualification of Shares issuable pursuant to the Plan
is required by any securities exchange or under any state or federal law, or the
consent or approval of any governmental regulatory body is necessary or
desirable as a condition of, or in connection with, the grant of an Option or
the issuance of Shares, no Options shall be granted or payment made or Shares
issued, in whole or in part, unless listing, registration, qualification,
consent or approval has been effected or obtained free of any conditions as
acceptable to the Committee.
(f) In the event that the disposition of Shares
acquired pursuant to the Plan is not covered by a then current registration
statement under the Securities Act and is not otherwise exempt from such
registration, such Shares shall be restricted against transfer to the extent
required by the Securities Act or regulations thereunder, and the Committee may
require an Optionee receiving Shares pursuant to the Plan, as a condition
precedent to receipt of such Shares, to represent to the Company in writing that
the Shares acquired by such optionee are acquired for investment only and not
with a view to distribution.
14. MISCELLANEOUS.
(a) MULTIPLE AGREEMENTS. The terms of each Option may
differ from other options granted under the Plan at the same time, or at any
other time. The Committee may also grant more than one option to a given
Optionee during the term of the Plan, either in addition to, or in substitution
for, one or more Options previously granted to that Optionee. The
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<PAGE> 12
grant of multiple Options may be evidenced by a single Agreement or multiple
Agreements, as determined by the Committee.
(b) WITHHOLDING OF TAXES. The Company shall have the
right to deduct from any payment of cash to any Optionee an amount equal to the
federal, state and local income taxes and other amounts required by law to be
withheld with respect to any Option. Notwithstanding anything to the contrary
contained herein, if an Optionee is entitled to receive Shares upon exercise of
an option, the Company shall have the right to require such Optionee, prior to
the delivery of such Shares, to pay to the Company the amount of any federal,
state or local income taxes and other amounts that the Company is required by
law to withhold. The Agreement evidencing any Incentive Stock Options granted
under this Plan shall provide that if the Optionee makes a disposition, within
the meaning of Section 424(c) of the Code and regulations promulgated
thereunder, of any Share or Shares issued to such optionee pursuant to such
Optionee's exercise of the Incentive Stock option, and such disposition occurs
within the two year period commencing on the day after the date of grant of such
option or within the one- year period commencing on the day after the date of
transfer of the Share or Shares to the Optionee pursuant to the exercise of such
Option, such optionee shall, within ten (10) days of such disposition, notify
the Company thereof and thereafter immediately deliver to the Company any amount
of federal, state or local income taxes and other amounts that the Company
informs the Optionee the Company is required to withhold.
(c) DESIGNATION OF BENEFICIARY. Each Optionee may,
with the consent of the Committee, designate a person or persons to receive in
the event of such Optionee's death, any Option or any amount of Shares payable
pursuant thereto, to which such Optionee would then be entitled. Such
designation shall be made upon forms supplied by and delivered to the Company
and may be revoked or changed in writing. In the event of the death of an
Optionee and in the absence of a beneficiary validly designated under the Plan
who is living at the time of such Optionee's death, the Company shall deliver
such options and/or amounts payable to the executor or administrator of the
estate of the Optionee, or if no such executor or administrator has been
appointed (to the knowledge of the Company), the Company, in its discretion, may
deliver such Options and/or amounts payable to the spouse or to any one or more
dependents or relatives of the Optionee, or if no spouse, dependent or relative
is known to the Company, then to such other person as the Company may designate.
15. EFFECTIVE DATE. The effective date of the Plan is November
20, 1996.
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Exhibit 10.3
NETGENICS EXECUTIVE
EMPLOYMENT AGREEMENT
--------------------
MANUEL GLYNIAS
This Agreement is made as of this 25th day of June, 1996, by and
between MANUEL GLYNIAS, an individual ("Mr. Glynias"), and NETGENICS, INC., a
Delaware corporation ("NetGenics").
WHEREAS, Mr. Glynias and NetGenics desire to enter into an employment
relationship;
NOW, THEREFORE, IN CONSIDERATION of the mutual covenants and promises
herein contained, and subject to the terms and conditions herein set forth, Mr.
Glynias and NetGenics hereby agree as follows:
1. TERM OF EMPLOYMENT; DUTIES.
a. The "Term of Employment" shall commence on the date of
this Agreement and shall terminate on the fifth anniversary of the date hereof
or as provided below.
b. During the Term of Employment, NetGenics shall employ
Mr. Glynias, and Mr. Glynias shall work for NetGenics, as President and Chief
Executive Officer. In this capacity, Mr. Glynias shall have such duties as are
customarily associated with and incidental to such position and as may be
assigned to Mr. Glynias from time to time by the Board of Directors of NetGenics
(the "Board"), specifically including without limitation acting as one of the
members of the Board. Mr. Glynias shall report to and be responsible to the
Board. Mr. Glynias shall perform such other or further duties as shall from time
to time be requested by the Board which are consistent with his position as an
executive officer of NetGenics or as may be mutually agreed upon by Mr. Glynias
and the Board.
c. During the Term of Employment, Mr. Glynias shall devote
one hundred percent of Mr. Glynias's business time to carrying out Mr. Glynias's
duties hereunder, will not engage in any activity which would be inconsistent
with such duties or with the objectives and business of NetGenics and will
diligently perform Mr. Glynias's obligations and discharge Mr. Glynias's duties
hereunder.
2. COMPENSATION. During the Term of Employment, the
following compensation and benefits shall be payable and provided to Mr.
Glynias:
a. NetGenics shall pay Mr. Glynias at the annual rate of
$120,000 which will be payable in accordance with the standard practice of
NetGenics in the payment of salaries of its employees;
<PAGE> 2
b. Mr. Glynias's annual rate of pay shall be reviewed
annually on January 1 of each year, commencing January 1, 1997, and shall be
subject to increase, but not decrease, in the sole discretion of the Board;
c. NetGenics may (but shall not be required to) provide Mr.
Glynias with an annual incentive bonus upon such terms as the Board shall
approve and which shall be considered annually at the time as salary increases
as provided above.
d. NetGenics will provide Mr. Glynias with such "fringe"
benefits as are appropriate for an executive employee and as shall be approved
by the Board.
e. NetGenics shall promptly reimburse Mr. Glynias for all
business expenses incurred in furtherance of the business of NetGenics in
accordance with policies established from time to time by the Board.
3. EARLY TERMINATION: DEATH. Notwithstanding anything to the
contrary in paragraph 1 hereof: if Mr. Glynias dies during the Term of
Employment, the Term of Employment shall terminate. Upon such termination, Mr.
Glynias's estate or beneficiaries shall be entitled to receive any salary and
other benefits earned and accrued prior to the date of termination and
reimbursement for expenses incurred prior to the date of termination, and his
beneficiary shall be entitled to any proceeds of insurance payable to such
beneficiary pursuant to any life insurance maintained by NetGenics for the
benefit of Mr. Glynias including without limitation the $500,000 of life
insurance provided for below.
4. EARLY TERMINATION: DISABILITY. Notwithstanding anything to
the contrary in paragraph 1 hereof: if Mr. Glynias by virtue of ill health or
other disability has at any time been unable to perform substantially and
continuously the duties assigned to Mr. Glynias under this Agreement for a
period of 180 days and such disability is expected to be permanent and
continuous thereafter for the balance of the then Term of Employment, then
NetGenics shall have the right to terminate the Term of Employment upon notice
to Mr. Glynias. Upon such termination, Mr. Glynias shall be entitled to receive
any salary and other benefits earned and accrued prior to the date of
termination, and reimbursement for expenses incurred prior to the date of
termination. The parties shall have no further obligation under this Agreement,
EXCEPT that Mr. Glynias shall not be relieved of Mr. Glynias's obligations under
paragraph 8 concerning confidentiality and non-competition.
5. EARLY TERMINATION: TERMINATION BY NETGENICS FOR CAUSE.
Notwithstanding anything to the contrary in paragraph 1 hereof: the Term of
Employment may be terminated by NetGenics upon notice to Mr. Glynias for
"cause." The term "cause" shall mean Mr. Glynias's (i) conviction of a felony or
like criminal conduct as determined by the Board or (ii) material breach of this
Agreement which has not been cured of a prospective basis following written
notice from the Board and the opportunity to be heard before the Board. Upon
such termination, Mr. Glynias shall be entitled to receive any salary and other
benefits earned and accrued prior to the date of termination, and reimbursement
for expenses incurred prior to the date of termination. The parties shall have
no further obligation under this Agreement EXCEPT
2
<PAGE> 3
that Mr. Glynias shall not be relieved of Mr. Glynias's obligations under
paragraph 8 concerning confidentiality and non-competition.
6. EARLY TERMINATION: TERMINATION BY NETGENICS WITHOUT CAUSE.
Notwithstanding anything to the contrary in paragraph 1 hereof: the Term of
Employment may be terminated by NetGenics upon notice of Mr. Glynias without
cause, which shall mean for any reason other than one permitting termination for
"cause." Upon such termination, Mr. Glynias shall be entitled to receive any
salary and other benefits earned and accrued prior to the date of termination,
and reimbursement for expenses incurred prior to the date of termination, and
continuation of salary and health care benefits hereunder for a period of six
months. The parties shall have no further obligation under this Agreement EXCEPT
that Mr. Glynias shall not be relieved of Mr. Glynias's obligations under
paragraph 8 concerning confidentiality and non-competition.
7. EARLY TERMINATION: TERMINATION BY RESIGNATION OF MR.
GLYNIAS. Notwithstanding anything to the contrary in paragraph 1 hereof: the
Term of Employment may be terminated by Mr. Glynias upon not less than 90 days
notice of resignation to NetGenics (provided that circumstances did not then
exist that would permit NetGenics to terminate Mr. Glynias for cause). Upon such
termination, Mr. Glynias shall be entitled to receive any salary and other
benefits earned and accrued prior to the date of termination, and reimbursement
for expenses incurred prior to the date of termination. The parties shall have
no further obligation under this Agreement EXCEPT that Mr. Glynias shall not be
relieved of Mr. Glynias's obligations under paragraph 8 concerning
confidentiality and non-competition.
8. CONFIDENTIALITY AND NON-COMPETITION.
a. Mr. Glynias acknowledges that Mr. Glynias has had or
will have unlimited access to the confidential information and business methods
relating to NetGenics's business and operations and that NetGenics would be
irreparably injured and the goodwill of NetGenics would be irreparably damaged
if Mr. Glynias were to breach the covenants set forth in this paragraph 8. Mr.
Glynias further acknowledges that the covenants set forth in this paragraph 8
are reasonable in scope and duration and do not unreasonably restrict Mr.
Glynias's association with other business entities, either as an employee or
otherwise as set forth herein.
b. During the Term of Employment and thereafter, Mr.
Glynias shall not disclose to any person, firm or other organization in any
manner, directly or indirectly, any confidential information or data relevant to
the business of NetGenics disclosed by NetGenics to Mr. Glynias, whether of a
technical or commercial nature, or use, in any manner, directly or indirectly,
any such confidential information or data, excepting only use of such data or
information as is (i) at the time disclosed, through no act or failure to act on
the part of Mr. Glynias, generally known or available; (ii) furnished to Mr.
Glynias by a third party as a matter of right and without restriction on
disclosure; or (iii) required to be disclosed by court order. Upon termination
of the Term of Employment, Mr. Glynias shall return to NetGenics any and all
materials and information in tangible or electronic form concerning the business
and affairs of NetGenics.
3
<PAGE> 4
c. During the Term of Employment anywhere in the world, and
for six months thereafter in any country in the world where NetGenics then has
made sales or granted licenses or otherwise done business or is actively
contemplating doing any of such activities, Mr. Glynias shall not engage,
directly or indirectly, whether as an individual on Mr. Glynias's own account,
or as a shareholder, partner, joint venturer, director, officer, employee,
consultant, creditor and/or agent, of any person, firm or organization or
otherwise, directly or indirectly, in any or all of the following activities:
(1) Enter into or engage in any business which competes
with the business carried on by NetGenics;
(2) Solicit customers or business patronage which
results in competition with the business of NetGenics;
(3) Promote or assist, financially or otherwise, any
person, firm, association, corporation or other entity engaged in any business
which competes with NetGenics; or
(4) Approach or solicit or hire, or own any interest in
any firm, association, corporation or other entity that approaches or solicits
or hires any employee of NetGenics with respect to a business in competition
with NetGenics.
d. Notwithstanding anything herein to the contrary, Mr.
Glynias shall be permitted to own shares of any class of capital stock of any
publicly held corporation so long as the aggregate holdings of Mr. Glynias
represent less than 1% of the outstanding shares of such class of capital stock.
9. RIGHTS AND REMEDIES UPON BREACH.
a. Mr. Glynias acknowledges and agrees that NetGenics's
remedy at law for any breach of any of Mr. Glynias's obligations under paragraph
8 hereof would be inadequate, and agrees and consents that temporary and
permanent injunctive relief may be granted in any proceeding which may be
brought to enforce any provision of paragraph 8 without the necessity of proof
of actual damage.
b. With respect to any provision of this Agreement finally
determined by a court of competent jurisdiction to be unenforceable, Mr. Glynias
and NetGenics hereby agree that such court shall have jurisdiction to reform
such provision so that it is enforceable to the maximum extent permitted by law,
and the parties agree to abide by such court's determination. In the event that
any provision of this Agreement cannot be reformed, such provision shall be
deemed to be severed from this Agreement, but every other provision of this
Agreement shall remain in full force and effect.
4
<PAGE> 5
10. COVENANTS.
a. Mr. Glynias agrees to cooperate (including taking any
required physical exams and making any required disclosures) with NetGenics so
that NetGenics can obtain and pay the premiums on insurance on his life in the
amount of $1,500,000 as promptly as possible, with NetGenics to be the
beneficiary of $1,000,000 and with Mr. Glynias to have the right to designate
the beneficiary of the remaining $500,000 of such insurance.
b. Mr. Glynias represents and warrants that he is free to
enter into and perform this Agreement and that the same will not result in the
breach or violation of any other agreement to which he is a party or bound, and
that his performance as contemplated hereunder will not violate any restriction
or other obligation or commitment to which he is subject.
11. BINDING EFFECT. This Agreement shall be binding on and
inure to the benefit of the parties and their respective successors, permitted
assigns heirs, executors and legal representatives.
12. AMENDMENTS, WAIVER. No amendment, modification, or waiver
of any provision of this Agreement, nor consent to any departure by Mr. Glynias
therefrom, shall be effective unless the same shall be in writing and signed by
NetGenics and approved by the Board. The failure of NetGenics at any time or
from time to time to require performance of any Mr. Glynias's obligations under
this Agreement shall in no manner affect the right to enforce any provision of
this Agreement at a subsequent time, and the waiver of any rights arising out of
any breach shall not be construed as a waiver of any rights arising out of any
subsequent or prior breach.
13. GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the laws of the State of Ohio.
14. NOTICES. Any notices or other communications required or
permitted under this Agreement shall be deemed to have been effectively given
and made if in writing and if served either by personal delivery or facsimile
transmission to the party for whom it is intended or by being deposited postage
prepaid, in the first class United States mail, certified or registered mail,
return receipt requested, addressed as follows:
If to NetGenics:
NetGenics, Inc.
c/o Baker & Hostetler
Attention: James B. Griswold
3200 National City Center
1900 East Ninth Street
Cleveland, Ohio 44114
5
<PAGE> 6
If to Mr. Glynias:
Mr. Manuel Glynias
2180 Radcliffe Drive
Westlake, Ohio 44145
15. ATTORNEY FOR MR. GLYNIAS. Mr. Glynias acknowledges that
Mr. Glynias has retained such separate and independent legal counsel and advice
as Mr. Glynias deems appropriate to advise Mr. Glynias in connection with the
execution and delivery of this Agreement, and that Mr. Glynias understands the
terms and conditions hereof which have been reviewed with Mr. Glynias and
explained by such separate and independent legal counsel as Mr. Glynias deems
appropriate.
IN WITNESS WHEREOF, the parties hereto have executed or caused
to be executed this instrument on the day first above written.
/s/ Manuel J. Glynias
---------------------
MANUEL GLYNIAS
NETGENICS, INC.
By: /s/ Walter Gilbert
-------------------------------------
Its: Chairman of the Board of Directors
-------------------------------------
6
<PAGE> 1
Exhibit 10.4
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (this "Agreement"), dated as of
November 10, 1999, is by and between NetGenics, Inc , a Delaware corporation
(the "Company"), and Vincent P. Kazmer ("Executive").
In consideration of their mutual promises, agreements and
covenants and subject to the terms and conditions hereinafter set forth, the
Company and Executive hereby agree as follows:
1. POSITION; DUTIES; COMPENSATION. (A) Beginning on December
1, 1999, the Company shall employ Executive in the position of Executive Vice
President and Chief Financial Officer on an at-will basis, and Executive accepts
such employment on the terms and conditions hereinafter set forth During his
employment, Executive shall devote his entire business time and all reasonable
efforts to his employment, shall perform diligently such duties as are
customarily performed by the Chief Financial Officer of a company the size and
structure of the Company, and shall perform diligently such other duties as may
be assigned from time to time.
(B) In consideration for the services to be rendered
by Executive pursuant to this Agreement, the Company shall pay Executive at a
rate of One Hundred and Sixty Thousand dollars ($160,000) per year during the
first year of this Agreement. For any subsequent years of this Agreement,
Executive's salary rate shall be subject to annual review. Executive's salary
shall be payable to Executive in accordance with the Company's regular payroll
practices applicable to senior management personnel.
(C) If Executive is on the company's payroll as an
employee on August 1 of any year including 2000 and after, Executive shall be
entitled to additional compensation in the amount of $20,000, paid in a lump
sum.
2. BENEFITS; EXPENSES. Executive shall be entitled to take
three (3) weeks of vacation during each year of this Agreement, to be taken at
such times as the parties mutually agree. Unless otherwise specified in this
Section, the Company shall provide Executive with the same level of other
benefits (such as health insurance, life insurance, 401(k)) provided by the
Company from time to time to its other personnel.
3. STOCK OPTIONS. Subject to approval by the Directors of the
Company, Executive shall receive options to purchase 185,000 shares of the
Company under the Company's 1996 Stock Option Plan, a copy of which is attached
hereto.
Subject to approval by the Directors of the Company,
Executive shall be able to earn additional performance stock options based on
achievement of personal and company milestones or objectives as set by and as
determined by the Company.
4. TERMINATION Executive may terminate his employment at any
time by giving to the Company no less than one (1) month or more than two (2)
months' prior written notice. In the event Executive gives such notice, the
Company may, at its option, immediately discontinue Executive's duties. In such
event, however, the Company shall be obliged to continue Executive's salary and
benefits until the date of termination specified in Executive's notice.
Thereafter, Executive will have no right to further payments or to participate
in Company benefit plans, except as required by state or federal law.
<PAGE> 2
The Company may terminate Executive's employment at any time
without cause. In the event of such termination, the Company will continue
Executive's salary, but not any benefits (except if required by law) or bonus or
bonus payout, for twelve (12) months from the date of termination. In such
event, such payments will be at the same rate as prior to termination. In the
event Executive is discharged for cause, Executive's salary and benefits shall
not be continued for any period after discharge, except as required by state or
federal law (e.g., COBRA). For purposes of this Agreement, "cause" means
Executive's committing of any felony or other crime involving dishonesty or
moral turpitude, Executive's serious misconduct in the course of employment,
Executive's violation of Company policy, or Executive's repeated neglect of
duties (other than on account of incapacity).
5. CONFIDENTIAL AND PROPRIETARY INFORMATION. Executive shall
sign, and hereby agrees to be bound by, the NetGenics, Inc. "Confidentiality and
Non-Competition Agreement," which is incorporated herein by reference.
6. ARBITRATION. Any dispute arising under this Agreement, or
in the interpretation of this Agreement, or from Executive's employment or
ending of such employment, shall be resolved by submission to the American
Arbitration Association pursuant to the AAA's rules relating to the resolution
and determination of such disputes. In rendering his or her decision, the
arbitrator shall be bound by the principle that Executive has only those
contractual rights specifically enumerated in this Agreement, and that Executive
is otherwise an employee-at-will.
7. RELOCATION EXPENSES. Executive shall be entitled to
reimbursement for moving expenses of up to $2,000 incurred in relocating his
personal and household possessions from Houston, Texas to Hudson Ohio Before
being reimbursed or paid, Executive shall be required to present suitable
documentation of these expenses and/or claimed tax effects.
8. ENTIRE AGREEMENT; MODIFICATIONS. This Agreement supersedes
all previous agreements, arrangements and understandings, written or oral,
between Executive and the Company with respect to the subject matter hereof. No
modification, waiver, amendment or addition to any of the terms of this
Agreement shall be effective unless set forth in a writing signed by Executive
and the Company.
9. SEVERABILITY. All provisions contained in this Agreement
are severable, and in the event that any one of them shall be held to be invalid
by any court of competent jurisdiction, this Agreement shall be interpreted as
if such provision was not contained herein, and such determination shall not
otherwise affect the validity of any other provision.
10. GOVERNING LAW; VENUE. This Agreement shall be governed by
and construed in accordance with the laws of the State of Ohio, without regard
to any such laws relating to choice or conflict of laws.
11. COUNTERPARTS. This Agreement may be executed in multiple
counterparts, each of which shall be considered an original, but all of which
shall constitute one and the same instrument.
IN WITNESS WHEREOF, Executive and the Company, having read and
fully understood each of the foregoing provisions, have executed this Agreement
as of the date first set forth above.
<PAGE> 3
EXECUTIVE:
/s/ Vincent P. Kazmer
----------------------------------------------------
EXECUTIVE: Vincent P. Kazmer
COMPANY:
NETGENICS, INC.
By: /s/ Manuel J. Glynias
------------------------------------------------
Name: Manuel J. Glynias
Title: President and CEO
<PAGE> 1
Exhibit 10.5
[IBM LOGO]
TECHNICAL SERVICES AGREEMENT
AGREEMENT NUMBER # 1999-10
This Agreement dated as of October 15, 1999 ("EFFECTIVE DATE"), between
International Business Machines Corporation ("BUYER") and NetGenics, Inc.
("SUPPLIER"), establishes the basis for a multinational procurement relationship
under which Supplier will provide Buyer the Deliverables and Services described
in SOWs issued under this Agreement.
1.0 DEFINITIONS:
"AFFILIATES" means entities that control, are controlled by, or are under common
control with a party to this Agreement and that have signed a PA.
"AGREEMENT" means this agreement and any relevant Statements of Work ("SOW"),
Work Authorizations ("WA"), Participation Attachments ("PA"), and other
attachments or appendices specifically referenced in this Agreement.
"APPEARANCE DESIGN" means the appearance presented by an object, formed in
hardware or by software, that creates a visual impression on an observer.
Appearance Design refers to the ornamental and not the functional aspects of the
object.
"BUYER" means either IBM or one of its Affiliates which purchases or licenses
Deliverables or Services under this Agreement.
"BUYER PERSONNEL" means agents, employees, contractors or remarketers engaged by
Buyer.
"DELIVERABLE" means any item that Supplier prepares for or provides to Buyer as
described in a SOW. Deliverables include Developed Works, Preexisting Materials,
and Tools.
"DERIVATIVE WORK" means a work that is based on an underlying work and that
would be a copyright infringement if prepared without the authorization of the
copyright owner of the underlying work.
"DEVELOPED WORKS" means Deliverables including their Externals, developed in the
performance of this Agreement that Buyer will own, and does not include
Preexisting Materials, Tools, or items specifically excluded in a SOW.
"EXTERNALS" means any pictorial, graphic, or audiovisual works generated by
execution of code and any programming interfaces, languages or protocols
implemented in code to enable interaction with other computer programs or end
users. Externals do not include the code that implements them.
"INVENTION" means any idea, design, concept, technique, invention, discovery or
improvement, whether or not patentable, conceived or reduced to practice by
Supplier or Supplier Personnel in performance of this Agreement.
"JOINT INVENTION" means any Invention made by Supplier or Supplier Personnel
with Buyer Personnel.
"PARTICIPATION ATTACHMENT" or "PA" means an attachment to this Agreement which
evidences the signing Affiliate's intent to conduct transactions, if any, in
accordance with this Agreement.
"PREEXISTING MATERIALS" means items including their Externals, contained within
a Deliverable, in which the copyrights are owned by Supplier prepared or that
were prepared outside the scope of this Agreement. Preexisting Materials exclude
Tools, but may include material that is created by the use of Tools.
Page 1 of 6
<PAGE> 2
"PRICES" means the agreed upon prices and currency for Deliverables and
Services, including all applicable fees, royalty payments and taxes, as
specified in the relevant SOW.
"SERVICES" means the services identified in the relevant SOW.
"STATEMENT OF WORK" or "SOW" means any document attached to or included in this
Agreement which describes the Deliverables and Services, including any
requirements, specifications or schedules.
"SUPPLIER" means either Supplier or one of its Affiliates.
"SUPPLIER PERSONNEL" means agents, employees or subcontractors engaged by
Supplier.
"TOOLS" means not commercially available software, and their Externals, required
for the development, maintenance or implementation of a software Deliverable.
"WORK AUTHORIZATION" or "WA" means a purchase order or other Buyer designated
document, such as a Work Order, in either electronic or hard copy form, issued
by Buyer's procurement personnel, and is the only authorization for Supplier to
perform any work under this Agreement. A SOW is a WA only if designated as such
in writing by Buyer.
2.0 STATEMENT OF WORK: Supplier will provide Deliverables and Services as
specified in the relevant SOW only when specified in a WA. Supplier will begin
work only after receiving written authorization from Buyer. Buyer may request
changes to a SOW and Supplier will submit to Buyer the impact of such changes.
Changes accepted by Buyer will be specified in an amended SOW or change order
signed by both parties.
3.0 TERM AND TERMINATION
3.1 TERM: Deliverables and Services acquired by Buyer on or after the
Effective Date will be covered by this Agreement. This Agreement will remain in
effect until terminated.
3.2 TERMINATION OF THIS AGREEMENT: Either party may terminate this Agreement,
without any cancellation charge, for a material breach of the Agreement by the
other party or if the other party becomes insolvent or files or has filed
against it a petition in bankruptcy ("Cause"), to the extent permitted by law.
Such termination will be effective at the end of a thirty (30) day written
notice period if the Cause remains UNCURED. Either party may terminate this
Agreement without Cause when there are no outstanding SOWs.
3.3 TERMINATION OF A SOW OR WA: Buyer may terminate a SOW or a WA with or
without Cause. Upon termination, in accordance with Buyer's written direction,
Supplier will immediately: (i) cease work; (ii) prepare and submit to Buyer an
itemization of all completed and partially completed Deliverables and Services;
(iii) deliver to Buyer Deliverables satisfactorily completed up to the date of
termination at the agreed upon Prices in the relevant SOW; and (iv) deliver upon
request any work in process. In the event Buyer terminates without Cause, Buyer
will compensate Supplier for the actual and reasonable expenses incurred by
Supplier for work in process up to and including the date of termination,
provided such expenses do not exceed the Prices.
4.0 PRICING
4.1 PRICING: Supplier will provide Deliverables and Services to Buyer for the
Prices. Except for pre-approved expenses specified in the relevant SOW, the
Prices for Deliverables and Services specified in a WA and accepted by Buyer
will be the only amount due to Supplier from Buyer.
4.2 COMPETITIVE PRICING: If Supplier offers lower prices to another customer
for like or lesser quantities of Deliverables or Services during the same period
and under similar terms and conditions as Buyer, those prices will be made known
and available to Buyer at the time of their availability to the customer. Prices
will at least be competitive with industry prices and, if not, Supplier will use
reasonable efforts to adjust its Prices so that they are competitive.
5.0 PAYMENTS AND ACCEPTANCE: Terms for payment will be specified in the relevant
SOW or WA. Payment of invoices will not be deemed acceptance of Deliverables or
Services, but rather such Deliverables or Services will be subject to
inspection, test and rejection in accordance with the acceptance or completion
criteria as specified in the relevant SOW. Buyer may, at its option, either
reject Deliverables or Services that do not comply with the acceptance or
completion criteria for a refund, or require Supplier, upon Buyer's written
instruction, to repair or replace such Deliverables or re-perform such Service,
without charge and in a timely manner.
Page 2 of 6
<PAGE> 3
6.0 WARRANTIES
6.1 ONGOING WARRANTIES: For a period of three (3) years from the completion
of any SOW under this Agreement, Supplier makes the following ongoing
representations and warranties: (i) it has the right to enter into this
Agreement and its performance of this Agreement will not violate the terms of
any contract, obligation, law, regulation or ordinance to which it is or becomes
subject; (ii) no claim, lien, or action exists or is threatened against Supplier
that would interfere with Buyer's rights under this Agreement; (iii)
Deliverables are safe for any use consistent with and will comply with the
warranties, specifications and requirements in this Agreement; (iv) Services
will be performed using reasonable care and skill and in accordance with the
relevant SOW; (v) Deliverables and Services are Year 2000 ready such that they
are capable of correctly processing, providing, receiving and displaying date
data, as well as exchanging accurate date data with all products with which the
Deliverables or Services are intended to be used within and between the
twentieth and twenty-first centuries so long as any and all IBM hardware or
software provided by Buyer which exchanges date data with the Deliverables are
also Year 2000 ready as defined in this sub-paragraph; and provided that, with
respect to third party hardware and software, such hardware and software
properly exchanges date data with Supplier's Deliverable and Services (vi)
Deliverables will be tested for, and do not contain, harmful code; (vii)
Deliverables and Services do not infringe any privacy, publicity, reputation or
intellectual property right of a third party; and (viii) all authors have agreed
not to assert their moral rights (personal rights associated with authorship of
a work under applicable law) in the Deliverables, to the extent permitted by
law.
THE WARRANTIES AND CONDITIONS IN THIS AGREEMENT ARE IN LIEU OF ALL OTHER
WARRANTIES AND CONDITIONS, EXPRESS OR IMPLIED, INCLUDING THE IMPLIED WARRANTIES
OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE.
6.2 WARRANTY REDEMPTION: If Deliverables or Services do not comply with the
warranties in this Agreement, Supplier will repair or replace Deliverables or
re-perform Services, without charge and in a timely manner. If Supplier fails to
do so, Buyer may repair or replace Deliverables or re-perform Services and
Supplier will reimburse Buyer for actual and reasonable expenses.
7.0 DELIVERY: Deliverables or Services will be delivered as specified in the
relevant SOW. If Supplier cannot comply with a delivery commitment, Supplier
will promptly notify Buyer of a revised delivery date and Buyer may: (i) cancel
without charge Deliverables or Services not yet delivered; (ii) procure such
Deliverables or Services elsewhere and charge Supplier the cost differential;
and (iii) exercise all other remedies provided at law, in equity and in this
Agreement.
8.0 INTELLECTUAL PROPERTY
8.1 WORK MADE FOR HIRE: All Developed Works belong exclusively to Buyer and
are works made for hire. If any Developed Works are not considered works made
for hire owned by Buyer by operation of law, Supplier assigns the ownership of
copyrights in such works to Buyer. SUPPLIER WILL HAVE NO LICENSE OR OTHER RIGHTS
IN THE DEVELOPED WORKS DELIVERED PURSUANT TO THE AGREEMENT. IF BUYER
DISCONTINUES DEVELOPING AND MARKETING OF THE SOLUTION RELATED TO THE DEVELOPED
WORKS, BUYER AGREES TO ENTER INTO GOOD FAITH NEGOTIATIONS TO LICENSE THE
DEVELOPED WORKS TO NETGENICS UNDER REASONABLE AND MUTUALLY AGREEABLE TERMS AND
CONDITIONS.
8.2 PREEXISTING MATERIALS: Neither Party will include any Preexisting
Materials in any Deliverable unless they are listed in the relevant SOW or WA.
Prior to including any Preexisting Materials that contain copyrights , patents
or other intellectual property rights owned by third parties, the party
proposing to use third party materials shall notify the other party of such
Preexisting Materials, and the parties shall determine whether existing third
party licenses and any other intellectual property rights are adequate to use
such third party copyrighted materials as required under the WA. Neither party
will use such third party materials unless and until the parties agree that the
third party's license or other rights provided are adequate for the intended use
by the parties, the Customers, or other relevant third parties. Supplier grants
Buyer a nonexclusive, worldwide, perpetual, irrevocable, paid-up, license to
prepare and have prepared Derivative Works of Preexisting Materials and to use,
have used, execute, reproduce, transmit, display, perform, transfer, distribute,
and sublicense Preexisting Materials or their Derivative Works. The rights and
licenses granted by Supplier to Buyer under this Subsection include the right of
Buyer to authorize or sublicense others to exercise any of the rights granted to
Buyer in this Subsection.
8.3 TOOLS: Supplier will not include Tools in Deliverables unless they are
listed in the relevant SOW. Supplier grants Buyer a nonexclusive, worldwide,
perpetual, irrevocable, paid-up, license to prepare and have prepared Derivative
Works of Tools, and to use, have used, execute, reproduce, transmit, display and
perform Tools or their Derivative Works.
Page 3 of 6
<PAGE> 4
8.4 INVENTION RIGHTS: Supplier will promptly provide to Buyer a complete
written disclosure for each Invention which identifies the features or concepts
which Supplier believes to be new or different. Inventions are owned by
Supplier, except for Joint Inventions and Inventions relating to an Appearance
Design. Supplier grants to Buyer an irrevocable, nonexclusive, worldwide,
paid-up license under these Inventions (including any patent applications filed
on or patents issued claiming Inventions). The license scope is to make, have
made, use, have used, sell, license or transfer items and to practice and have
practiced methods. Supplier assigns to Buyer all Inventions, and patents issuing
on them, relating to an Appearance Design.
8.5 JOINT INVENTION RIGHTS: The parties will jointly own all Joint Inventions
and resulting patents. Either party may license others under Joint Inventions
(including any patent applications filed on or patents issued claiming Joint
Inventions) without accounting to or consent from the other.
8.6 PERFECTION OF COPYRIGHTS: Upon request, Supplier will provide to Buyer a
"Certificate of Originality" or equivalent documentation to verify authorship of
Deliverables. Supplier will confirm assignment of copyright for Developed Works
using the "Confirmation of Assignment of Copyright" form and will assist Buyer
in perfecting such copyrights. Supplier will be responsible for registration,
maintenance and enforcement of copyrights for Preexisting Materials. If Supplier
does not register a copyright in Preexisting Materials, Supplier authorizes
Buyer to act as its agent in the copyright registration of such Preexisting
Materials.
8.7 PERFECTION OF INVENTION RIGHTS: Supplier will identify all countries in
which it will seek patent protection for each Invention. Supplier authorizes
Buyer to act as its agent in obtaining patent protection for the Inventions in
countries where Supplier does not seek patent protection. Supplier will, at
Buyer's expense, assist in the filing of patent applications on Inventions and
have required documents signed.
8.8 TRADEMARKS: This Agreement does not grant either party the right to use
the other party's trademarks, trade names or service marks.
9.0 INDEMNIFICATION
9.1 GENERAL INDEMNIFICATION: Supplier will defend, hold harmless and
indemnify, including attorney's fees, Buyer and Buyer Personnel against claims
that arise or are alleged to have arisen as a result of negligent or intentional
acts or omissions of Supplier or Supplier Personnel or breach by Supplier of any
term of this Agreement.
9.2 INTELLECTUAL PROPERTY INDEMNIFICATION: Supplier will defend, or at
Buyer's option cooperate in the defense of, hold harmless and indemnify,
including attorney's fees, Buyer and Buyer Personnel from claims that Supplier's
Deliverables or Services infringe the intellectual property rights of a third
party. If such a claim is or is likely to be made, Supplier will, at its own
expense, exercise the first of the following remedies that is practicable: (i)
obtain for Buyer the right to continue to use, sell and license the Deliverables
and Services consistent with this Agreement; (ii) modify Deliverables and
Services so they are non-infringing and in compliance with this Agreement; (iii)
replace the Deliverables and Services with non-infringing ones that comply with
this Agreement; or (iv) at Buyer's request, accept the cancellation of
infringing Services and the return of infringing Deliverables and refund any
amount paid.
9.3 EXCEPTIONS TO INDEMNIFICATION: Supplier will have no obligation to
indemnify Buyer or Buyer Personnel for claims that Supplier's Deliverables or
Services infringe the intellectual property rights of a third party to the
extent such claims arise as a result of: (i) Buyer's combination of Deliverables
or Services with other products or services not reasonably expected by Supplier;
(ii) Supplier's implementation of a Buyer originated design; or (iii) Buyer's
modification of the Deliverables.
10.0 LIMITATION OF LIABILITY: Except for liability under the Section entitled
Indemnification, in no event will either party be liable to the other for any
lost revenues, lost profits, incidental, indirect, consequential, special or
punitive damages.
11.0 SUPPLIER AND SUPPLIER PERSONNEL: Supplier is an independent contractor and
this Agreement does not create an agency relationship between Buyer and Supplier
or Buyer and Supplier Personnel. Buyer assumes no liability or responsibility
for Supplier Personnel. Supplier will: (i) ensure it and Supplier Personnel are
in compliance with all laws, regulations, ordinances, and licensing
requirements; (ii) be responsible for the supervision, control, compensation,
withholdings, health and safety of Supplier Personnel; (iii) ensure Supplier
Personnel performing Services on Buyer's premises comply with the On Premises
Guidelines; and (iv) inform Buyer if a former employee of Buyer will be assigned
work under this Agreement, such assignment subject to Buyer approval.
12.0 ELECTRONIC COMMERCE: Supplier will use best efforts to participate in
Electronic Data Interchange ("EDI") or other electronic commerce approach, under
which the parties will electronically transmit and receive legally binding
purchase and sale obligations ("Documents"), including electronic credit entries
transmitted by Buyer to the Supplier
Page 4 of 6
<PAGE> 5
account specified in the relevant SOW. Each party, at its own expense, will
provide and maintain the equipment, software, services and testing necessary for
it to effectively and reliably transmit and receive such Documents. Either party
may use a third party service provider for network services, provided the other
party is given sixty (60) days prior written notice of any changes to such
services. A Document will be deemed received upon arrival at the receiving
party's mailbox or Internet address and the receiving party will promptly send
an acknowledgment of such receipt. The receiving party will promptly notify the
originating party if a Document is received in an unintelligible form, provided
that the originating party can be identified. In the absence of such notice, the
originating party's record of the contents of such Document will prevail. Each
party will authenticate Documents using a digital signature or User ID, as
specified by Buyer, and will maintain security procedures to prevent its
unauthorized use.
13.0 RECORDKEEPING AND AUDIT RIGHTS: Supplier will maintain (and provide to
Buyer upon request) relevant accounting records to support invoices under this
Agreement and proof of required permits and professional licenses, for three (3)
years following completion or termination of the relevant SOW. All accounting
records will be maintained in accordance with generally accepted accounting
principles.
14.0 GENERAL
14.1 AMENDMENTS: This Agreement may only be amended by a writing specifically
referencing this Agreement which has been signed by authorized representatives
of the parties.
14.2 ASSIGNMENT: Neither party will assign their rights or delegate or
subcontract their duties under this Agreement to third parties or affiliates
without the prior written consent of the other party, such consent not to be
withheld unreasonably, except that Buyer may assign this Agreement in
conjunction with the sale of a substantial part of its business utilizing this
Agreement or any intellectual property assigned or licensed under this
Agreement. Any unauthorized assignment of this Agreement is void.
14.3 CHOICE OF LAW AND FORUM; WAIVER OF JURY TRIAL; LIMITATION OF ACTION:
This Agreement and the performance of transactions under this Agreement will be
governed by the laws of the country in which the transaction is performed,
except that the laws of the State of New York applicable to contracts executed
in and performed entirely within that State will apply if any part of the
transaction is performed within the United States. The United Nations Convention
on Contracts for the International Sale of Goods does not apply. The parties
expressly waive any right to a jury trial regarding disputes related to this
Agreement. Unless otherwise provided by local law without the possibility of
contractual waiver or limitation, any legal or other action related to a breach
of this Agreement must be commenced no later than two (2) years from the date of
the breach in a court sited within the country in which the breach occurred, or
in a court sited in the State of New York if any part of the transaction is
performed within the United States.
14.4 COMMUNICATIONS: All communications between the parties regarding this
Agreement will be conducted through the parties' representatives as specified in
the relevant SOW.
14.5 COUNTERPARTS: This Agreement may be signed in one or more counterparts,
each of which will be deemed to be an original and all of which when taken
together will constitute the same agreement. Any copy of this Agreement made by
reliable means is considered an original.
14.6 EXCHANGE OF INFORMATION: Unless required otherwise by law, all
information exchanged by the parties will be considered non-confidential. If the
parties require the exchange of confidential information, such exchange will be
made under a confidentiality agreement. The parties will not publicize the terms
or conditions of this Agreement in any advertising, marketing or promotional
materials except as may be required by law, provided the party publicizing
obtains any confidentiality treatment available. Supplier will use information
regarding this Agreement only in the performance of this Agreement.
14.7 FREEDOM OF ACTION: This Agreement is nonexclusive and either party may
design, develop, manufacture, acquire or market competitive products or
services. Buyer will independently establish prices for resale of Deliverables
or Services and is not obligated to announce or market any Deliverables or
Services and does not guarantee the success of its marketing efforts, if any.
14.8 FORCE MAJEURE: Neither party will be in default or liable for any delay
or failure to comply with this Agreement due to any act beyond the control of
the affected party, excluding labor disputes, provided such party immediately
notifies the other.
14.9 OBLIGATIONS OF AFFILIATES: Affiliates will acknowledge acceptance of the
terms and conditions of this Agreement through the signing of a PA before
conducting any transaction under this Agreement.
Page 5 of 6
<PAGE> 6
14.10 PRIOR COMMUNICATIONS AND ORDER OF PRECEDENCE: This Agreement replaces
any prior oral or written agreements or other communication between the parties
with respect to the subject matter of this Agreement, excluding any confidential
disclosure agreements. In the event of any conflict in these documents, the
order of precedence will be: (i) the quantity, payment and delivery terms of the
relevant WA; (ii) the relevant SOW; (iii) the relevant PA; (iv) this agreement;
and (v) the remaining terms of the relevant WA.
14.11 SEVERABILITY: If any term in this Agreement is found by competent
judicial authority to be unenforceable in any respect, the validity of the
remainder of this Agreement will be unaffected, provided that such
unenforceability does not materially affect the parties' rights under this
Agreement.
14.12 SURVIVAL: The provisions set forth in the following Sections and
Subsections of this Agreement will survive after termination of this Agreement
and will remain in effect until fulfilled: "Ongoing Warranties", "Intellectual
Property", "Indemnification", "Limitation of Liability", "Record Keeping and
Audit Rights", "Choice of Law and Forum; Waiver of Jury Trial; Limitation of
Action", "Exchange of Information", and "Prior Communications and Order of
Precedence".
14.13 WAIVER: An effective waiver under this Agreement must be in writing
signed by the party waiving its right. A waiver by either party of any instance
of the other party's noncompliance with any obligation or responsibility under
this Agreement will not be deemed a waiver of subsequent instances.
14.14 PUBLICITY: There shall be no publicity of any kind regarding the
Agreement by either Party without the prior written consent of the other.
ACCEPTED AND AGREED TO:
IBM CORPORATION
By /s/ Daniel P. McCurdy 10/19/99
----------------------------------------
Authorized Signature Date
Daniel P. McCurdy
Vice President, Life Sciences, IBM Corporation
ACCEPTED AND AGREED TO:
NETGENICS, INC.
By /s/ Manuel J. Glynias
----------------------------------------
Authorized Signature Date
Manuel J. Glynias
President and Chief Executive Officer, NetGenics, Inc.
Page 6 of 6
<PAGE> 1
Exhibit 10.6
NETGENICS, INC. HAS REQUESTED THAT
THE MARKED PORTIONS OF THIS
DOCUMENT BE ACCORDED CONFIDENTIAL
TREATMENT PURSUANT TO RULE 406
UNDER THE SECURITIES ACT OF 1933
NETGENICS, INC./GENETICS INSTITUTE, INC
SYNERGY(TM) LICENSE
AND
SERVICES AGREEMENT
1
<PAGE> 2
SYNERGY(TM) LICENSE AND SERVICES AGREEMENT
------------------------------------------
THIS SYNERGY(TM) LICENSE AND SERVICES AGREEMENT (this
"Agreement"), made as of the 27th day of August, 1998, is by and between
NETGENICS, Inc., a Delaware corporation with business offices at 1717 East Ninth
Street, Suite 1700, Cleveland, Ohio 44114 ("Licensor"), and GENETICS INSTITUTE,
INC. with business offices at 87 CambridgePark Drive, Cambridge, MA 02140.
(Genetics Institute, Inc., and its Affiliates, collectively, shall be referred
to herein as "Licensee"). "Affiliate", as used herein, shall mean any
corporation or other business entity directly or indirectly controlled by, or
under common control with American Home Products Corporation; as used herein,
the term "control" means possession of the power to direct, or cause the
direction of the management and policies of a corporation or entity, whether
through the ownership of voting securities, by contract or otherwise.
INTRODUCTION:
-------------
Licensor has developed and owns certain interactive computer
software and hardware known as SYNERGY(TM) for use in the storage and analysis
of drug discovery data in a collaborative environment and provides certain
services, including but not limited to services to maintain and extend such
software and hardware; and
Licensor is willing to license the SYNERGY(TM) System (as
defined below) and provide the Services (as defined below) to Licensee upon and
subject to the terms and conditions of this Agreement; and Licensee desires to
license such System and obtain such Services upon such terms and conditions.
In consideration of the premises and the conditions and mutual
covenants contained in this Agreement, the parties agree as follows:
I. DEFINITIONS
-----------
1.1 "Calendar Quarter" shall mean the three month period commencing on July 1,
October 1, January 1 and April 1 of each Contract Year during the term of this
Agreement. "Contract Year" shall mean the four Calendar Quarters following the
Commencement Date, and each successive Four Quarter period thereafter.
1.2 "Commencement Date" shall mean the effective date of this Agreement as set
forth above.
1.3 "Custom Software Module" shall mean the software, if any, developed for
Licensee by Licensor in accordance with the Custom Software Specifications and
Section 4 hereof.
1
<PAGE> 3
1.4 "Custom Software Specifications" shall mean the specifications, if any,
hereinafter agreed upon in writing by Licensor and Licensee and on which
Licensor will rely in enhancing, modifying, adapting or otherwise altering the
Licensed Software pursuant to this Agreement, as set forth on EXHIBIT D.
1.5 "Designated Location(s)" or "Site(s)" shall mean the location of business
facilities at which the Systems will be installed and for which Licensee has
paid a Fee, as set forth on EXHIBIT C.
1.6 "Fee" shall mean the consideration for the agreement of Licensor to: (a)
grant the License for the particular Designated Locations, and (b) provide
Services with respect to such Designated Locations. Fees shall be based upon the
License Type selected and any upgrade pursuant to Section 9.1, below.
1.7 "Hardware" shall mean the computer hardware and the third party software
described in EXHIBIT B; provided, however, that Licensor reserves the right to
substitute such hardware or software with functionally equivalent hardware or
software at any time during the term of this Agreement upon written notice to
Licensee. At a minimum, "functionally equivalent hardware or software" shall
mean hardware or software which: (a) is compatible with the Licensed Software
Specifications, the Custom Software Specifications, the Licensed Software, and
the Custom Software Modules, if any; (b) and is compatible with Licensee
Software which conforms to the Licensor Custom Software Guidelines, and which
does not materially alter or adversely affect the use of the System or the
Software or the Licensee Software which conforms to the Licensor Custom Software
Guidelines.
1.8 "License Type" shall mean the license of the System as provided for in this
Agreement, which shall provide access to the number of Users licensed under
EXHIBIT C for each Site and providing for the Licensor to provide to Licensee
Service Hours per Calendar Quarter as outlined in Exhibit I in exchange for a
Fee as set forth in Section 9.1 of this Agreement.
1.9 "Licensed Software" shall mean those components of the Software, in object
code form, to be delivered by Licensor to Licensee, and as described as such in
EXHIBIT A.
1.10 "Licensed Software Specifications" shall mean the specifications as
described in EXHIBIT A and in any documentation and release notes supplied with
subsequent Subscription Releases and Custom Software Modules, including, without
limitation, the functionality as described in EXHIBIT H as it is specified.
1.11 "Licensee Confidential Information" and "Licensor Confidential Information"
shall have the meanings ascribed to each of them in Section 10.22 of this
Agreement.
2
<PAGE> 4
1.12 "Licensee Intellectual Property Rights" shall mean the rights in Licensee
Software, Proprietary Components of Custom Software Modules (as defined in
Section 3.2 (e) herein) and Pharmaceutical Know-How (as defined in Section
2.4(a) herein), including, without limitation, patent, copyright, trademark,
service mark, trade secret and trade name rights therein. Notwithstanding the
foregoing, Licensee Intellectual Property shall not include any information
which: (A) was in the public domain prior to development by Licensee; (B) which,
after development by Licensee, becomes part of the public domain through
publication or otherwise except by breach of this Agreement or (C) which is
received from an independent third party which has the right to disclose it.
1.13 "Licensee Software" shall mean the software, if any, developed by, or on
behalf of, and owned by Licensee and incorporated or integrated into the
Software in accordance with the Licensor's Custom Software Guidelines as set
forth in EXHIBIT E.
1.14 "Licensor Custom Software Guidelines" shall mean the guidelines, if any,
used by Licensor and provided in writing by Licensor to Licensee, to which
Licensee must adhere in creating, enhancing, modifying, adapting or otherwise
altering Licensee Software.
1.15 "Licensor Intellectual Property Rights" shall mean Licensor's intellectual
property rights in the System, including, without limitation, patent, copyright,
trademark, service mark, trade secret and trade name rights therein.
Notwithstanding the foregoing, Licensor Intellectual Property shall not include
any information which: (A) was in the public domain prior to development by
Licensor; (B) which, after development by Licensor, becomes part of the public
domain through publication or otherwise except by breach of this Agreement or
(C) which is received from an independent third party which has the right to
disclose it.
1.16 "Party" shall mean Licensor or Licensee, or when used in plural, shall mean
both Licensor and Licensee.
1.17 "Services" shall mean all training, software planning and design, data
conversion, monitoring, support, providing updates, maintenance, enhancements
and modifications to the Licensed Software which Licensor makes available to its
licensees generally (e.g., Subscription Releases), providing hardware upgrades
(a) necessary to meet mutually agreeable minimum performance specifications and
data storage requirements and (b) which Licensor otherwise makes available to
its licensees generally, providing hardware maintenance for the Systems, and
hardware and software quality assurance testing, remote monitoring, telephone
and e-mail support services, on-site monitoring and customization services
provided by or on behalf of Licensor to Licensee pursuant to this Agreement.
1.18 "Service Hours" shall mean the number of hours designated for Services
under Exhibit I attached hereto to be provided by Licensor to Licensee for the
Services according to Sections 3.2, 4.1, and 4.3 of this Agreement.
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1.19 "Software" shall mean the Licensed Software, any and all Custom Software
Modules, any and all additions, enhancements, and modifications to the Licensed
Software and any Custom Software Module and any and all adaptations and
derivatives of the Licensed Software and any Custom Software Module in whatever
form, tangible or intangible (other than source code) including, without
limitation, additions, enhancements, modifications, adaptations and derivatives
incorporated in any Subscription Release or in any Custom Software
Specifications, and any portion and any copy or duplicate of any of the
foregoing. Notwithstanding the foregoing, Software shall not include Licensee
Software or Proprietary Components of Custom Software Modules, as defined in
Section 3.2(e).
1.20 "Specifications" shall mean the Licensed Software Specifications or any
Custom Software Specifications, as the context requires.
1.21 "Subscription Release" shall mean subsequent releases related to
Synergy(TM) Product 1 which Licensor shall use commercial diligence to deliver
on a periodic basis and to include bug fixes and enhancements to the Licensed
Software.
1.22 "System" shall mean the Software and the Hardware.
1.23 "User" shall mean (a) an employee, agent, consultant, contractor engaged by
Licensee and working at a Designated Location, or (b) an employee or agent of a
research or corporate collaborator who works for or on behalf of Licensee or as
part of a research or corporate collaboration and working at a Designated
Location, and (c) up to twenty-five (25) additional employees, agents,
consultants, contractors engaged by Licensee, or employees or agents of a
research or corporate collaborator who work for or on behalf of Licensee as part
of a research or corporate collaboration other than at a Designated Location;
provided, that Licensee shall provide written notice to Licensor of all such
Users, which notice shall contain the name, location and employer of such User,
and that no person who is not an employee of Licensee shall be deemed to be a
User until such person has delivered to Licensee the documentation referred to
in Section 2.3 (c) hereof .
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II. LICENSE
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2.1 GRANT OF LICENSE. Upon and subject to the terms and conditions of this
Agreement, Licensor hereby grants to Licensee a nonexclusive, nontransferable,
personal license (the "License") to: (i) have Licensee's Users use the System,
including Subscription Releases, principally at each User's Designated Location
and solely in connection with pharmaceutical, agricultural, and
biopharmaceutical business of Licensee conducted at such User's Designated
Location, and (ii) have up to twenty-five (25) additional Users access and use
the System, including Subscription Releases, from business facilities which are
not Designated Locations solely in connection with Licensee's pharmaceutical,
agricultural, and biopharmaceutical business.
2.2 RESTRICTIONS ON LICENSEE'S USE OF THE SYSTEM.
(a) Except as expressly permitted in this Agreement, Licensee shall not
use, sublicense, sell, assign, convey, transfer, disclose, publish, display,
copy, duplicate, adapt, merge, embed, disassemble, decompile, translate, reverse
engineer or otherwise modify any portion of the System.
(b) Without limiting the generality of the restrictions contained in
Section 2.2(a), Licensee shall not (i) make any claim or representation of
ownership, or act as the owner, of any portion of the System or any right
therein, or permit or facilitate the performance of any act that is inconsistent
with or in violation of this Agreement or that might jeopardize the Licensor
Intellectual Property Rights, (ii) install the System at any location other than
the Designated Location(s), (iii) use the System to provide data processing,
computer service bureau computer time sharing or similar services to any other
person or entity, (iv) allow more than the number of Users designated in the
License Type to use the System, (v) allow any user other than a User to use the
System, (vi) use the System other than for the internal information processing
needs of Licensee in connection with the storage and analysis of data in
Licensee's pharmaceutical, agricultural, and biopharmaceutical business
(provided, that internal information processing needs of Licensee shall include
research activities of Licensee which are or may be performed in conjunction
with third party research or corporate collaborators, so long as members of such
research or corporate collaborators are provided access to the System pursuant
to Section 10.22 herein), (vii) modify any portion of the System without
Licensor's prior written consent, (which shall be deemed to have been granted in
connection with the development of Licensee Software in accordance with the
Licensor Custom Software Guidelines) and, to the extent applicable and provided
to Licensee, other than in accordance with Licensor's specifications therefor,
(viii) provide maintenance of or modify any portion of the System without
Licensor's prior written consent, which shall be deemed to have been granted
without request in connection with maintenance provided by third party software
and hardware comprising the Hardware when furnished by third parties with
respect to their components, and, to the extent any Specifications are
applicable and have been provided to Licensee in writing, other than in
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accordance with Licensor's Specifications therefor or (ix) allow access to more
than 12 Users from the same business facility other than a Designated Location.
2.3 PROTECTION OF INTELLECTUAL PROPERTY RIGHTS.
(a) The rights granted to Licensee in the System hereunder are only the
rights of a licensee, and no title or ownership of any component or
manifestation of any portion of the System is transferred to Licensee hereby.
All Licensor Intellectual Property Rights are and shall remain the exclusive
property of Licensor and all Licensee Intellectual Property Rights are and shall
remain the exclusive property of Licensee. Except as expressly set forth in this
Agreement, Licensee shall not have any right or interest in any component or
manifestation of any portion of the System.
(b) Licensee acknowledges that the System has been and will be
developed at great expense to Licensor, that the System constitutes valuable,
confidential and trade secret information of Licensor and that Licensor
possesses and will possess the Licensor Intellectual Property Rights therein.
Licensor acknowledges that the Licensee Software, as well as any Proprietary
Components of Custom Software Modules (defined in Section 3.2(e) and enumerated
as needed in EXHIBIT D), have been and/or will be developed at great expense to
Licensee, that the Licensee Software and Proprietary Components of Custom
Software Modules constitute valuable, confidential and trade secret information
of Licensee and that Licensee possesses and will possess the Licensee
Intellectual Property Rights therein. Accordingly, each Party shall use its
commercially reasonable and diligent efforts to ensure that the intellectual
property rights of the other Party are preserved for the other Party to the
fullest extent possible under the law including, without limitation, taking such
reasonable security precautions as the other Party may from time to time request
and such other precautions as are taken by that Party to protect its own
confidential information and proprietary rights, provided that each Party's
standard of care is at least reasonable according to software and pharmaceutical
industry standards.
(c) Licensee shall keep confidential and not disclose or permit access
to the System, Services or Licensee Software, except as provided in this Section
2.3(c). Licensee shall use the System, Services and Licensee Software only for
purposes consistent with the terms of this Agreement. Licensee shall advise its
employees, collaborators, consultants, agents and contractors of the
confidential and proprietary nature of the System, Services and Licensee
Software, and of the restrictions imposed by this Agreement, and shall: (i)
obtain from any and all non-employee Users (or from the employers of such
non-employee Users) their written agreement to comply with the obligations of
Licensee imposed by Article II and Section 10.22 of this Agreement and (ii)
shall be responsible for any breach of such agreement by any User, and (iii) use
its commercial and reasonably diligent efforts (so long as those efforts are at
least as diligent as those Licensee uses to protect Licensee Intellectual
Property Rights and are considered reasonable in the pharmaceutical and software
industries) to ensure that no unauthorized
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person has access to the System or the Services and that those persons who are
granted access to the System or the Services protect the Licensor Intellectual
Property in accordance with the terms of this Agreement.
(d) Licensee shall notify Licensor immediately of the possession, use,
or knowledge of any portion of the System, Services or Licensee Software by any
person or entity not authorized by this Agreement to have such possession, use
or knowledge. Licensee shall, to the best of its knowledge, (i) promptly furnish
to Licensor full details of Licensee's knowledge of such possession, use or
knowledge, (ii) reasonably assist Licensor, at no expense to Licensor (if
Licensee is responsible for such unauthorized possession) or at Licensor's
expense for Licensee's reasonable and actual person hours and costs incurred (if
Licensee is not responsible for such unauthorized possession), in stopping and
preventing the recurrence of such possession, use or knowledge, shall cooperate,
at Licensor's request and expense, with Licensor in any litigation deemed
necessary by Licensor to protect the Licensor Intellectual Property Rights, and
shall take no action regarding claims of infringement or alleged infringers of
the System, Services or Licensee Software without Licensor's written consent.
Compliance by Licensee with this Section 2.3(d) shall not be construed as a
waiver of any right of Licensor to recover damages or obtain other relief
against Licensee in connection with any such unauthorized possession, use or
knowledge.
(e) Each Party acknowledges and agrees that the affixation of a
copyright notice to the Software shall not, of itself, be deemed to constitute
or acknowledge a publication of the Software.
(f) Licensor shall be entitled to audit Licensee's use of the System
for compliance with the terms and conditions of this Agreement (either directly
or through its independent, nationally recognized outside auditors which are not
compensated on a commission or percentage basis) at any time, but not more than
once per Contract Year by any such outside auditor, during the term of this
Agreement and for one year thereafter. Licensor shall not unreasonably interfere
with Licensee's business operations during any such audit, and Licensee shall
provide such cooperation as Licensor may reasonably request in connection with
any such audit. In connection with any such audit, Licensor agrees to (i)
protect all Licensee Confidential Information with the same degree of care as
Licensor uses in protecting its own confidential information, but no less a
degree than is required under Section 10.22 of this Agreement; (ii) have any
outside auditors sign Licensee's customary confidentiality agreement; (iii) use
outside auditors (at Licensee's request and reasonable expense) when Licensee
reasonably determines there is a risk of competitive injury from disclosure of
Licensee Confidential Information to Licensor and (iv) provide Licensee with a
copy of its audit results.
(g) Without limiting the generality of the foregoing in this Section
2.3, each party acknowledges that the intellectual property rights of any third
party, including,
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without limitation, any rights in any third party software incorporated into the
System by way of a Custom Software Module, are the exclusive rights of that
party.
2.4 OWNERSHIP/ INVENTIONS. Licensee and Licensor acknowledge that performance of
this Agreement may result in the development of new concepts, methods,
techniques, data, know-how, processes, adaptations, ideas and expressions of
ideas.
(a) INVENTIONS RELATING TO PHARMACEUTICAL COMPOUNDS AND LICENSEE
SOFTWARE. Concepts, methods, techniques, data, know-how, processes, adaptations,
compounds, compositions of matter, ideas and expressions of ideas relating to
pharmaceuticals developed by or on behalf of Licensee ("Pharmaceutical
Know-How") and any Licensee Software developed by or on behalf of Licensee prior
to or during the course of this Agreement shall be and remain the exclusive
property of Licensee. Licensor shall have no right and no title or ownership of
any component or manifestation of any such Pharmaceutical Know-How, Proprietary
Components of Custom Software Modules, Licensee Software or resulting
pharmaceutical product developed by or on behalf of Licensee. All rights in such
Pharmaceutical Know-How, Proprietary Components of Custom Software Modules,
Licensee Software or resulting pharmaceutical products are and shall remain the
exclusive property of Licensee. Concepts, methods, techniques, data, know-how,
processes, adaptations, ideas and expressions of ideas relating to Licensee
Software or Proprietary Components of Custom Software Modules that incorporate
any Licensor Intellectual Property or Licensor Confidential Information, shall
be used by Licensee exclusively in conjunction with the System. Licensee
Software shall be owned by Licensee and Licensor shall only have right to use
Licensee Software for the benefit of Licensee for the purposes set forth in this
Agreement. Licensee grants to Licensor a non-exclusive, nontransferable right to
use Licensee Software at the Designated Locations in connection with the System
and Services provided in this Agreement.
(b) INVENTIONS RELATING TO LICENSED SOFTWARE, HARDWARE AND CUSTOM
SOFTWARE MODULES (OTHER THAN PROPRIETARY COMPONENTS OF CUSTOM SOFTWARE MODULES).
Concepts, methods, techniques, know-how, processes, adaptations, ideas and
expressions of ideas relating to the Licensed Software or any Custom Software
Module developed by or on behalf of Licensor during the course of this Agreement
shall be and remain the exclusive property of Licensor provided, however, that
(i) Licensor grants to Licensee a non-exclusive, nontransferable right to use
the Custom Software Module at the Designated Location(s) under the terms and
conditions of this Agreement, (ii) Licensor's rights in the Custom Software
Module shall not extend to any Licensee Software or to any proprietary software
of any third party person or entity which has been incorporated into the Custom
Software Module which is separately licensed by Licensor to Licensee as a
distributor or OEM of such products and (iii) Licensor shall have no rights,
other than as specified in this Agreement, and no title or ownership in any
Proprietary Components of Custom Software Modules as identified on Exhibit D by
the System Committee, pursuant to Section 3.2(e) herein. Custom Software Modules
shall not be used other than in conjunction with the System, unless the prior
written consent of Licensor has been
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obtained for each instance of such use, such consent from Licensor not to be
unreasonably withheld. Licensee's request for consent shall detail the nature
and scope of such use, including details regarding any other third-party
software that will interact with the Custom Software Module. In the event
Licensee has obtained written consent of Licensor for the use of a Custom
Software Module other than in conjunction with the System, Licensee acknowledges
that (A) Licensee shall not have the right to disclose any Licensor Intellectual
Property or Licensor Confidential Information to any non-employee of Licensee or
its Affiliates (regardless of whether such non-employee is otherwise deemed a
User within the context of this Agreement); (B) Licensor shall in no event be
obligated to provide Services in conjunction with any such use; and (C) no
warranties or indemnification of any kind shall extend to any Custom Software
Module used other than in conjunction with the System.
(c) PATENT APPLICATIONS RELATING TO THE USE OF THE SYSTEM, LICENSEE
SOFTWARE OR COMPONENTS OF CUSTOM SOFTWARE MODULES COMPRISED OF LICENSEE
PROPRIETARY INFORMATION. Licensor shall own all patent rights and shall have the
sole right, at its expense, to obtain patent protection relating to any
invention or discovery made relating to the System . Licensee shall own all
patent rights and shall have the sole right, at its expense, to obtain patent
protection relating to any invention or discovery made relating to the Licensee
Software, any Pharmaceutical Know-How and any Proprietary Component of Custom
Software Modules as identified by the System Committee and enumerated in Exhibit
D. The foregoing allocations of patent rights shall apply whether such invention
was invented solely by employees of Licensor, jointly by employees of Licensor
and Licensee, or solely by employees of Licensee. To the extent any such
invention or discovery was made by an employee of a party not having ownership
and patent responsibility (the "Filing Party"), the other party agrees to
cooperate, at the Filing Party's expense and request, in the filing and
prosecution of any such patent, and agrees to assign its interest in any such
invention to the Filing Party.
III. SUPPORT SERVICES
----------------
3.1 SUPPORT SERVICES. Licensee shall be entitled to receive Services from
Licensor during the term of this Agreement as described below. Services provided
pursuant to Section 3.1 shall not be treated as Service Hours and shall not be
subject to any additional charges or fees:
(a) REMOTE SYSTEM SUPPORT. Licensor will provide unlimited remote
consultation regarding the System, comprised of support, problem determination
and resolution Service by telephone and electronic mail 24 hours per day, 365
days per year.
(b) REMOTE ACCESS AND SYSTEM MONITORING. Licensee shall, upon request
and as needed, grant Licensor remote access to the System to fulfill obligations
to be performed by Licensor pursuant to this Agreement, including, but not
limited to, purposes of monitoring the performance and integrity of the System
and for problem
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determination and resolution and for other purposes consistent with the terms of
this Agreement; provided, however, that Licensee, at its option, may require
that Licensor perform such monitoring Services on site at the Designated
Locations pursuant to Section 3.2. Licensee and Licensor shall mutually agree on
any necessary access conditions for non-critical access and maintenance.
(c) RESPONSE TIME. All requests by Licensee for support shall be made
by way of designated phone, email or pager to Licensor's client services group
shall be responded to by Licensor according to the escalation procedures set
forth on EXHIBIT J.
Subsection (d) is an open issue
(d) LICENSOR EXTENSIONS TO THE SYSTEM. Licensor agrees to complete, at
no cost to Licensee, the release of the features set forth on EXHIBIT H for
acceptance on or before December 31, 1998, which shall be part of the System. If
Licensor is unable to deliver such functionality as set forth in Exhibit H by
December 31, 1998, Licensee shall have the right to defer payment of the Fee for
the first Calendar Quarter of 1999, and any subsequent Calendar Quarter (s),
until all of such functionality listed on EXHIBIT H is substantially completed,
unless otherwise agreed between the Parties. In the event that such EXHIBIT H
functionality remains unaccepted as of March 31, 1999 under the procedures
outlined in Section 5.1, either Party shall have the right to terminate this
Agreement and Licensee shall have the right to return the System(s) for a
complete refund of all Fees paid to date. In addition, Licensor agrees to
develop, as a priority, the additional post-1998 functionality set forth on
EXHIBIT H on a mutually-agreed schedule. The parties shall, in good faith, agree
upon specifications for such additional post-1998 functionality, on the number
(if any) of Service Hours to be used for the completion of such functionality,
on a timetable for the development of such functionality, and on a remedy for
non-performance on or before December 31, 1998. Licensor and Licensee agree to
abide by the process set forth in Section 4.1 (a) of this Agreement (with the
exception that disputes shall be resolved by the Steering Committee as defined
in Section 10.10, in lieu of an outside arbitrator as otherwise provided), which
otherwise pertain to the development of Custom Software Modules, in reaching
agreement on the aforementioned items. The specifications and the timetable
shall balance Licensees needs to have such functionality available in 1999, and
the feasibility of developing such functionality. If the parties are unable to
reach agreement upon these matters on or before December 31, 1998, then Licensee
shall have the right to treat such failure as a failure to deliver the EXHIBIT H
functionality required for delivery on or before December 31, 1998 and exercise
the Fee deferral rights described above.
(e) LIMITATIONS. Licensor shall in no event be obligated to provide
support, under this Section 3.1, to Users who are not working from a Designated
Location, insofar as any request for support is directly related to, or directly
caused by, User's access to the system from a remote location (other than a
Designated Location).
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3.2 USE OF SERVICE HOURS. As a part of the Fee, Licensee is entitled to receive
from Licensor the number of Service Hours set forth in EXHIBIT I of this
Agreement. Section 3.2 sets forth the manner in which Service Hours may be used
by Licensee. Except as expressly provided for in this Agreement, any unordered
Service Hours at the end of a Calendar Quarter shall be forfeited and canceled.
Service Hours may be allocated among such types of Service in any combination
selected by Licensee. Except as expressly set forth in EXHIBIT L (Use of Service
Hours), which may be revised from time to time as necessary, the number of
Service Hours deemed to be used for any Service request shall be the number
specified by written notice to Licensee prior to the commencement of such
Services, as determined by Licensor in its reasonable discretion.
(a) If the Service Hours referred to in the previous paragraph are
requested, and Licensor is unable or unwilling to provide such Services for the
purposes ordered during such Calendar Quarter, Licensor shall have the right
once per Contract Year to delay the provision of such requested Service Hours
until the next Calendar Quarter subsequent to the Calendar Quarter for which the
request is made, and the Service Hours associated with the completion of such
request shall be credited to that next subsequent Calendar Quarter, for the
completion of such requested Service. If Licensor is unable or unwilling to
provide such Services during that subsequent Calendar Quarter, such unfurnished
Service Hours shall, at the option of Licensee, be credited at the rate of
[******] per hour against the amount reflected in the Fee for such Service Hours
the subsequent Calendar Quarter(s) or refunded to Licensee, in addition to any
other remedies available under this Agreement.
(b) During one (1) Calendar Quarter per Contract Year, an "Advance" may
be requested for additional Service Hours in that Calendar Quarter. Such request
for an Advance delivery of Service Hours shall not exceed one thousand one
hundred and twenty-five (1125) Service Hours (plus one hundred and twenty five
(125) Service Hours per Calendar Quarter in the first Contract Year), and can be
drawn, at Licensee's option, from the Service Hours to be delivered during the
one or more of the remaining Calendar Quarters in that Contract Year. A request
for an "Advance" shall be made in writing, not less than thirty (30) days in
advance of the requested delivery of Service Hours to be Advanced. In the event
that a request for Service Hours under an Advance is made during the Calendar
Quarter in which the Services Hours are requested, Licensor may, at its
discretion, limit the Service Hours to be Advanced to twenty (20) incremental
hours per week during that Calendar Quarter. Notwithstanding the foregoing,
Licensee may not request an Advance of hours, prior to December 31, 1998, for
the purposes of designing or developing Custom Software Modules.
(c) ON-SITE SYSTEM SUPPORT. Licensor agrees to provide support
personnel, on or near Licensee's Andover, MA site, for a period of four (4)
weeks following the Commencement Date. Upon request from Licensee, Licensor
shall use all commercially reasonable efforts to provide Licensee with on-site
support Services, and the number of Service Hours shall be deducted from the
Service Hours available to
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CONFIDENTIAL MATERIAL HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES
AND EXCHANGE COMMISSION. ASTERISKS DENOTE SUCH OMISSIONS.
<PAGE> 13
Licensee in exchange for such on-site Services, provided, however, that Licensee
shall be charged with a minimum of four (4) Service Hours for any on-site visit.
Licensor shall be provided with a mutually-agreed maintenance window on the
System of no less than one (1) hour per week in which Licensor may take the
System down for routine maintenance at scheduled times without causing a breach
of this Agreement.
(d) CUSTOMIZATION SERVICES. Licensee may request, and Licensor shall be
obligated to provide in accordance with the terms of this Agreement,
customization Services from Licensor by completing a Customization Software
Request in the form attached hereto as EXHIBIT D, detailing the customization
Services requested. Licensor shall estimate the amount and type of Services
required for such customization, and forward to Licensee a written response.
After review and approval in writing by the parties of the completed EXHIBIT D
covering a customization project, Licensor shall perform such customization
Services. During a customization project, the amount of the number of Service
Hours set forth in EXHIBIT D as completed shall be deducted from those available
to Licensee under this Agreement. Payment for Services provided by Licensor on a
customization project in excess of such available Service Hours shall be based
on the hourly rates of Licensor set forth on EXHIBIT G or as otherwise mutually
agreed in writing by the parties. The maximum number of Service Hours to be used
for any Service request shall be the number agreed to pursuant to Section 4.1 of
this Agreement.
(e) PROPRIETARY COMPONENTS OF CUSTOM SOFTWARE MODULES. Except as
otherwise provided in Section 4.1 of this Agreement, Licensee shall have the
right to request and Licensor shall be obligated to design and deliver Custom
Software Modules containing Licensee Intellectual Property, Licensee
Confidential Information and/or Licensee Pharmaceutical Know-How. In each such
instance, the System Committee (as defined in Section 10.10 of this Agreement)
shall meet and shall jointly determine which concepts, methods, techniques,
data, know-how, processes, adaptations, compounds, compositions of matter, ideas
and expressions of ideas both: (a) are necessary to the Custom Software Module
(b) do not contain Licensor Intellectual Property, (c) provide competitive
advantage to Licensee (such components, jointly and separately, known
"Proprietary Components of Custom Software Modules") As used here, a Proprietary
Component of a Custom Software Module may be recognized as a stand-alone
package. All Proprietary Components of Custom Software Modules shall be
identified in writing on EXHIBIT D, as same may be amended from time to time.
Proprietary Components of Custom Software Modules shall not be used by Licensor
in any customization request submitted by any third party customer of Licensor.
In the event the System Committee is unable to agree on any part of the
procedure outlined in this subparagraph, the dispute shall be resolved according
to the procedure outlined in Section 10.10 of this Agreement. Nothing contained
herein shall restrict Licensor from developing Custom Software Modules for any
third party that do not contain any Proprietary Components of Custom Software
Modules as defined in this Section 3.2 (e).
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(f) ON- SITE SYSTEM MONITORING. In the event Licensee requests that
Licensor provide on-site monitoring in lieu of remote site support otherwise
available under Section 3.1(b) of this Agreement, Licensee shall be charged
fifty-two (52) Service Hours each Calendar Quarter therefor, prorated on a daily
basis for any partial Calendar Quarter, and shall pay all of Licensor's
reasonable out-of-pocket expenses incurred in connection with performing such
monitoring services, including, without limitation, travel, lodging and meals
expenses.
(g) ACCOUNTING OF SERVICE HOURS; REPORTS. Service Hours shall be
accounted for on a Calendar Quarter basis and Licensor shall provide Licensee
with monthly cumulative reports during each Calendar Quarter detailing projects
for which Service Hours were used and the number of Service Hours used. Until
Licensee has exhausted its Service Hours for any Calendar Quarter, all such
on-site Services (except on-site System monitoring described in the previous
paragraph) including, without limitation, any reasonable out-of-pocket expenses
incurred by Licensor in connection therewith, shall be at Licensor's expense.
Once Licensee has exhausted its Service Hours for any Calendar Quarter, it shall
be charged for any such additional Service at the billing rates set forth in
EXHIBIT G (or as otherwise mutually agreed in writing by the parties), and shall
reimburse Licensor for any reasonable out-of-pocket expenses incurred by
Licensor in connection therewith, including, without limitation, travel, lodging
and meals expenses. Licensee shall have the right to request reasonable
documentation and receipts in support of any reimbursement of out-of-pocket
expenses.
3.3 ADDITIONAL SERVICES. Licensor shall have the right in its sole discretion to
agree to provide Services to Licensee beyond Licensee's available then unused
Service Hours, or in addition to the support services to be provided pursuant to
Section 3 hereof, including, without limitation, Services in connection with any
Custom Software Specifications or other programming Services, training services
and data conversion Services. All such Services shall be performed at the
billing rates set forth in EXHIBIT G and upon and pursuant to such other terms
and conditions as Licensor and Licensee mutually agree in writing.
3.4 Hardware Upgrades. Licensor shall notify Licensee as soon as is practicable,
but at least one (1) month in advance, of any routine Hardware upgrade or
substitution to be made by Licensor. Prior to or concurrent with such advance
notice, Licensor shall provide Licensee with a project plan covering such
upgrade or substitution which shall contain details regarding the scope, upgrade
process, Hardware specifications and upgrade procedure. Licensee shall have the
right to review, comment upon and approve routine Hardware Upgrades, and shall
have the right, upon written notification to Licensor prior to any such planned
Hardware upgrade, to defer implementation of same for up to six (6) months.
Licensee's approval to any routine Hardware upgrade shall be evidenced by its
written countersignature to the Hardware upgrade or substitution project plan.
In the event Licensee fails to implement a Hardware upgrade which is
functionally equivalent (as defined in Section 1.8 of this Agreement) under the
procedure set forth in
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this paragraph, Licensor shall have the right, to the extent affected by
Licensee's delay, to defer (a) Licensee's receiving Software upgrades, in the
form of Subscription Releases and Custom Software Modules (including any
Proprietary Components thereof) and (b) support obligations for Licensee
Software, and the warranties and indemnification obligations (in each case, to
the extent any such Hardware upgrade is necessary to provide such support or to
fulfill such warranty or indemnification obligation) described in this Agreement
shall cease to apply. In the event that a Hardware upgrade is not functionally
equivalent, Licensor shall be obligated to correct any failures to perform, or
to revert to the prior System configuration (including Hardware and any
Software) until Licensor is able to do so.
IV. CUSTOMIZATION METHODOLOGY
-------------------------
4.1 CUSTOMER SOFTWARE SPECIFICATIONS.
(a) If Licensee desires that the Licensed Software be modified,
customized or adapted in any respect to suit Licensee's specific requirements
through the development of Custom Software Modules, Licensee shall deliver to
Licensor written notice thereof, in the form of EXHIBIT D attached hereto,
specifying Licensee's requirements in as much detail as possible. Upon receipt
of such notice, Licensor and Licensee shall cooperate in good faith to agree
upon the scope of such Services, the Custom Software Specifications, any
portions of the Custom Software Module to be deemed a Proprietary Component of
the Custom Software Module, timetable for development and implementation and
cost therefor, provided, however, that nothing in this Agreement shall be deemed
to (i) obligate Licensor to perform any Services in excess of those available by
way of Licensee's then available Service Hours or (ii) provide Services related
to Custom Software Modules which are infeasible. Such agreement shall be set
forth in writing referencing this Agreement and shall be incorporated herein as
EXHIBIT D. If the parties are unable to agree on the number of Service Hours
needed for a particular project or projects after good faith discussions over a
thirty (30) day period, the Licensee shall have the right to either drop the
request for services or submit the matter to the System Committee (as defined in
Section 10.10 of this Agreement) for dispute resolution as provided for
thereunder. If the matter cannot be resolved by the System Committee within five
(5) business days of submission, each Party shall pick a final reasonable
estimate of the Services Hours they estimate for the project, and the two
estimates shall be considered by the officers designated in Section 10.10. If
such officers cannot resolve the matter within five (5) business days, each
Party's final reasonable estimate shall be provided to a mutually agreeable
expert within ten (10) additional days. The parties shall promptly meet with the
expert and explain the basis for their estimates, and the expert shall pick the
estimate that he or she determines is most reasonable and shall not be
authorized to fashion an alternate solution. The selection of one Party's
estimate shall be a final and binding decision on the number of Service Hours to
be charged for the project. If the expert selects Licensor's final estimate,
Licensee shall have the right to rescind the request for such Services. In the
event Licensee rescinds such request,
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Licensor's time used in development of requirements and design for such request
shall be charged against Licensee's then-available Service Hours.
(b) To the extent the number of Service Hours that Licensor estimates
will be required to complete a Custom Software Module during a Calendar Quarter
exceeds Licensee's then unused Service Hours for such Calendar Quarter, such
customization Services shall be charged to Licensee at the billing rates set
forth on EXHIBIT G or at such other rates as the parties mutually agree in
writing. However, nothing in this Section 4.1 (b) shall constitute an obligation
of the Licensor to provide a Custom Software Module in excess of the
then-available Service Hours for the Calendar Quarter. Licensor shall have the
right, at its sole discretion, to defer any such Custom Software Module to a
subsequent Calendar Quarter. In the event Licensor elects to defer any such
Custom Software Module, the Custom Software Module shall be charged against
Licensee's available Service Hours for that subsequent Calendar Quarter.
(c) Subject to the limitations set forth in Sections, 7.1 (e) and 7.2
hereto, Licensor warrants that a Custom Software Module, once completed and
accepted by Licensee in accordance with the terms hereof, shall perform in all
material respects in accordance with the Custom Software Specifications, and
Licensor shall correct any errors or failures to perform within the time period
specified for error or failure correction in a Custom Software Module request
and provide Licensee written notice of such correction If Licensor fails to
correct any error or failure as set forth in the previous sentence, Licensee
shall have the right to either (i) extend the period of time for Licensor to
correct such error or defect, (ii) accept the Custom Software Module as is,
(iii) accept the Custom Software Module with a refund of a reasonably agreed
pro-rata portion of Service Hours or supplemental payments allocable to the
value of the non-performing Custom Software Module or (iv) return the Custom
Software Module for a refund of Service Hours and/or any supplemental payments
made by Licensee to Licensor for such Custom Service Module in amount equal to:
(a) 50% of such Service Hours where the Custom Software Module is a Proprietary
Component of a Custom Software Module and 100% of such Service Hours where it is
a not proprietary to Licensee. Notwithstanding the foregoing, Licensor shall not
be obligated to refund Service Hours, in the event that the Steering Committee
determines the failure of any such Custom Software Module is due to cause other
than failure of Licensor to meet the Custom Software Specifications.
4.2 CUSTOM SOFTWARE MODULE INSTALLATION AND ACCEPTANCE.
(a) Licensor shall use all commercially reasonable efforts to install
Custom Software Modules in accordance with the schedule set forth in EXHIBIT D,
subject to Licensee performing its obligations under this Agreement and
providing such cooperation as Licensor may reasonably request to facilitate such
installation. Such installation with respect to any Custom Software Module shall
be deemed complete upon written notice from Licensor to Licensee.
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(b) A Custom Software Module, with respect to which any notice has been
provided by Licensor, shall not be deemed to be accepted under this Agreement
unless and until:
(I) such Custom Software Module materially conforms to the
Custom Software Specifications as agreed in Exhibit D therefor; and
(II) Licensee fails to give notice of non-acceptance to
Licensor within the time period specified in a Custom Software Module
request (which shall be not less than ten (10) or more than forty-five
(45) days after the receipt by Licensee of a Custom Software Module)
pursuant to Licensor's notice of Custom Software Module installation.
Any notice of non-acceptance shall state specifically the specifications, and
manner in which the Custom Software Module fails to conform to such
specifications, with sufficient specificity to permit Licensor to correct such
nonconformity. Licensor shall use reasonable efforts to correct any such
nonconformity found to exist and notify Licensee of the completion of such
correction. If Licensor is unable to make such corrections, Licensee's remedy
shall be as provided in Section 4.1 (c) of this Agreement.
4.3 LICENSEE SOFTWARE.
(a) Prior to developing any module of Licensee Software to be covered
by the warranty provisions of Section 7.1, Licensee shall have: (i) received
from Licensor a current copy of Licensor Custom Software Guidelines described in
EXHIBIT E covering such module,(ii) submitted a proposal to Licensor describing
the methodology, specifications and timetable of such Licensee Software and
(iii) received Licensor's approval to the development of such Licensee Software.
Licensee shall then have the right to develop Licensee Software modules in
accordance with the Licensor Custom Software Guidelines covering such module.
Licensor shall provide certification for Licensee Software modules to be
incorporated into the System according to the Licensor Custom Software
Guidelines following quality assurance testing of such Licensee Software by
Licensor. All Licensor activities under this section 4.3 (a) shall be charged
against the Licensee's then-available Service Hours for the Calendar Quarter.
Licensee Software developed other than in accordance with all provisions of this
Section 4.3 (a) shall void warranty rights as provided in Section 7.1 (d)
herein, to the extent that any such claim of warranty is attributable to the
implementation of such Licensee Software.
(b) Subject to the scope of any Licensor Custom Software Guideline,
Licensor warrants that the Licensor Custom Software Guidelines shall be written
in sufficient detail to provide Licensee with adequate information about the
Licensed Software and the System so that a reasonably skilled software
programmer will be able to design Licensee Software modules compatible with the
Licensed Software. During the course of this Agreement, Licensor agrees to
provide any Licensor Custom Software Guidelines to
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Licensee as soon as is practicable after they are produced, and shall provide
such revisions to Licensor Custom Software Guidelines as are appropriate. Upon
request, Licensor shall produce such Licensor Custom Software Guidelines as are
needed and shall provide same to Licensee. Notwithstanding the foregoing, the
Parties agree that Licensor shall not be under an obligation to produce Licensor
Custom Software Guidelines covering software modules that are unfeasible.
V. INSTALLATION, ACCEPTANCE AND TRAINING
-------------------------------------
5.1 INSTALLATION AND ACCEPTANCE OF SYSTEM AND THE LICENSED SOFTWARE.
(a) Licensor shall use all commercially reasonable efforts to install
the first System and the Licensed Software in Andover, MA and the Development
System (defined in EXHIBIT C) in Cambridge, MA (collectively, the "First
Systems") on or before the Commencement Date, subject to Licensee performing its
obligations under this Agreement and providing such cooperation as Licensor may
reasonably request to facilitate the installations of the First Systems.
Subsequent installations of the System (each an "Additional System") shall be
made pursuant to and in accordance with an installation roll-out plan approved
in writing by the Parties within forty-five (45) days of the Commencement Date.
Such installation with respect to each System and the Licensed Software shall be
deemed complete upon written notification from Licensor; however, each System
shall not be deemed to be accepted under this Agreement unless and until the
earlier of Licensee providing written notice of acceptance based on conformance
of the System to an acceptance plan to be provided by Licensor or:
(I) For the First Systems, the System materially conforms to and
performs in accordance with the Specifications therefor; and Licensee
fails to give notice of non-acceptance within ten (10) business days
after receipt of installation notice.
(II) For each Additional System, such Additional System is connected to
and synchronized with each of the other Systems installed at that time
(except for the Development System, which shall not be synchronized
with any of the Systems); and Licensee fails to give notice of
non-acceptance within forty-five (45) days after receipt of
installation notice.
Any notice of non-acceptance shall state specifically the Specifications, and
manner in which a System fails to conform to such Specifications, with
sufficient specificity to permit Licensor to correct such nonconformity.
Licensor shall use reasonable efforts to correct any such nonconformity found to
exist and notify Licensee of the completion of such correction. If Licensor is
unable to make such corrections, Licensee's remedy shall be limited to
correction or replacement of the nonconforming portion of the System. Licensee
shall cooperate with Licensor in correcting such nonconformity. In the event
that a System remains non-accepted for more than thirty (30) days after a notice
of non-acceptance is received by Licensor from Licensee, Licensee shall have the
right to
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withhold a pro-rata portion of a Calendar Quarter payment of the applicable Fee
until such non-acceptance is corrected by Licensor. For this purpose, the
pro-rata portion of the Calendar Quarter payment shall be the percentage of the
non-accepted Systems scheduled to be installed under the roll-out plan. If,
after three (3) months, Licensor is unable to make such corrections, either
Party, at its option, shall have the right to terminate this Agreement, and
Licensee shall have the additional right to return the System(s), and Service
Hours previously charged to Licensee shall be refunded less a pro-rata share of
amounts paid for any Sites which the System was previously accepted. For this
purpose, the pro-rata share shall be the percentage of the accepted Systems
scheduled to have been installed under the roll-out plan. All provisions of this
Section 5.1 shall also be subject to the provision set forth in Section 3.1 (d)
of this Agreement.
(b) TRAINING. Upon the initial installation and acceptance by Licensee
of the Licensed Software as provided in this Section 5.1(a), Licensor shall
provide two (2) days of on-Site end User training per System at no additional
charge to Licensee. Licensee shall also provide three (3) days training to up to
three (3) developers per Site at no additional charge to Licensee. Both of these
training options are "open attendance", and trainees at any Site can attend a
training session at another Site. Additional training beyond the initial days of
training per System described above will be deducted from the Licensee's Service
Hours or, if Licensee has exhausted its Service Hours for the quarter, will be
charged to Licensee at Licensor's the billing rates set forth in EXHIBIT G.
VI. LICENSEE RESPONSIBILITIES
-------------------------
6.1 Licensor's performance under this Agreement is contingent upon Licensee
providing such cooperation as Licensor may reasonably request including, but not
limited to providing or performing, the following:
(a) Following the construction of the new computer room in
Licensee's Andover facility which is expected to be completed in August 1998,
sufficient and appropriate physical space at each Site for the Hardware in a
controlled area such as a data center or computer room such that the Hardware is
physically secured and environmentally controlled;
(b) Electrical power source in close proximity to the location of
the Hardware;
(c) Physical connection to Licensee's network, firewall or gateway
(as applicable), in proximity to the location of the Hardware;
(d) Technical information regarding the addressing and configuration
of Licensee's DNS (Domain Name Services) and electronic mail servers sufficient
to allow Licensor's server to communicate with Licensee's servers;
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(e) A minimum of two (2) valid network names (host, node or machine
names) and their associated Internet Protocol addresses; and
(f) Reasonable assistance of Licensee's personnel.
It being understood by the Parties that all Systems included on EXHIBIT
C are intended to be installed and synchronized under the mutually-agreed
roll-out plan referenced in Section 5.1 (a), that no Additional Systems (other
than the Cambridge System) shall be installed until the functionality listed on
Exhibit H is completed and accepted, and that Licensee shall have it facilities
available for installation and acceptance on the date(s) the Systems are
mutually agreed to be installed, according to the aforementioned plan. A choice
by Licensee not to implement the System at a Site will not alter the Fees under
this Agreement unless it is attributable to the non-performance of the Licensor.
VII. WARRANTY; DISCLAIMER; LIMITATIONS; INDEMNIFICATION
--------------------------------------------------
7.1 WARRANTY; DISCLAIMER.
(a) Licensor warrants that from the date that the System or a Custom
Software Module (including any applicable Proprietary Component of a Custom
Software Module used in conjunction with that Custom Software Module), as the
case may be, is accepted by Licensee, the System or such Custom Software Module
will perform in all material respects in accordance with the Specifications
therefor, provided the System or such Custom Software Module is used on the
Hardware (or as otherwise agreed by Licensor) in accordance with the
instructions therefor.
(b) Licensor further represents and warrants that System (including,
without limitation, any Custom Software Modules) will correctly calculate,
compare and manage data involving dates and will not cause an abnormal
termination of or within the System or result in incorrect or invalid values or
calculations generated involving such dates, provided that all products not
supplied by Licensor which exchange date data with the System do so correctly
and in a form compatible with the System. In the event the System or any
Proprietary Component of any Custom Software Module is non-compliant with
respect to this Section 7.1 (b), Licensor shall, at no cost to Licensee, use all
commercially reasonable efforts to promptly correct such non-compliance and
provide such correction to Licensee.
(c) THE HARDWARE MAY CONTAIN THIRD-PARTY SOFTWARE WHICH IS THE SUBJECT
OF LICENSES BETWEEN LICENSOR AND THE MANUFACTURER OF SUCH THIRD-PARTY SOFTWARE.
LICENSOR WARRANTS, THAT TO THE BEST OF ITS KNOWLEDGE, IT HAS NOT INCLUDED ANY
THIRD PARTY HARDWARE OR SOFTWARE WHICH INFRINGES THE INTELLECTUAL PROPERTY
RIGHTS OF A THIRD PARTY. LICENSOR DOES NOT WARRANT ANY SUCH THIRD-PARTY
SOFTWARE, AND
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NO SUCH THIRD PARTY ASSUMES ANY LIABILITY REGARDING THE USE OF SUCH THIRD-PARTY
SOFTWARE OR UNDERTAKES TO FURNISH THE LICENSEE WITH ANY SUPPORT OR INFORMATION
REGARDING SUCH THIRD-PARTY SOFTWARE UNLESS IT IS PURSUANT TO A SEPARATE
AGREEMENT BETWEEN SAID THIRD PARTY AND LICENSEE. ANY LIABILITY OF ANY SUCH
MANUFACTURER OF SUCH THIRD-PARTY SOFTWARE SHALL BE LIMITED IN SCOPE TO ANY
AGREEMENT BETWEEN LICENSOR AND ANY SUCH MANUFACTURER. THIRD PARTY MANUFACTURERS
OF SOFTWARE WHICH IS INCORPORATED INTO THE SYSTEM MAY BE LICENSOR'S THIRD PARTY
BENEFICIARIES TO THIS AGREEMENT.
(d) UPON RECEIPT OF CERTIFICATION OF LICENSOR IN ACCORDANCE WITH
SECTION 4.3 (a) APPLYING TO ANY LICENSEE SOFTWARE, LICENSOR WARRANTS THAT THE
SYSTEM INCORPORATING ANY SUCH LICENSEE SOFTWARE SHALL PERFORM IN ACCORDANCE WITH
THE SYSTEM SPECIFICATIONS. EXCEPT AS EXPRESSLY SET FORTH IN THIS SECTION 7.1
(d), LICENSOR DOES NOT MAKE ANY AND EXPRESSLY DISCLAIMS ANY AND ALL WARRANTIES
WITH RESPECT TO LICENSEE SOFTWARE
(e) LICENSOR DOES NOT MAKE ANY AND EXPRESSLY DISCLAIMS ALL WARRANTIES
OTHER THAN THE WARRANTY EXPRESSLY MADE IN SECTIONS 4.1, 4.3, 7.1(a), 7.1(b) AND
7.1(d) HEREOF, WHETHER ORAL OR WRITTEN, EXPRESS OR IMPLIED, OR ARISING BY USAGE
OF TRADE OR COURSE OF DEALING INCLUDING, WITHOUT LIMITATION, THE WARRANTIES OF
MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE.
7.2 LIMITATIONS.
(a) LICENSEE'S EXCLUSIVE REMEDY FOR ANY BREACH OF THE WARRANTY MADE IN
SECTIONS 4.1(c), 4.3(b), AND 7.1 (a ) AND (b) SHALL BE LIMITED TO (i) THE
CORRECTION OR REPLACEMENT OF THE NONCONFORMING PORTION OF THE SYSTEM, OR, IF (i)
IS NOT SUCCESSFUL IN A REASONABLE PERIOD OF TIME, EITHER (ii)THE REFUND
RETROACTIVELY AND FUTURE REDUCTION PROSPECTIVELY OF A PRO RATA PORTION OF THE
FEE WITHOUT THE RETURN OF THE SYSTEM, OR (iii) A REFUND OF ALL FEES PAID TO
DATE, WITH THE RETURN OF THE ENTIRE SYSTEM, WHICHEVER SHALL BE ELECTED BY
LICENSEE. LICENSEE'S EXCLUSIVE REMEDY FOR ANY BREACH OF THE WARRANTY MADE IN
SECTION 7.1 (d) SHALL BE THE (I) CORRECTION OF THE SYSTEM AND/OR THE LICENSEE
SOFTWARE, OR IF (I) IS NOT SUCCESSFUL, A REFUND OF A PRO-RATA PORTION OF THE FEE
WITHOUT THE RETURN OF THE SYSTEM,
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WHICHEVER SHALL BE ELECTED BY LICENSEE. THE WARRANTIES SET FORTH IN SECTION 4.1
(c), 4.3 (b) AND 7.1 (a) AND (d) SHALL RUN FOR A PERIOD OF ONE (1) YEAR
FOLLOWING THE ACCEPTANCE OF WARRANTED ITEM. THE WARRANTY SET FORTH IN SECTION
7.1(b) SHALL RUN UNTIL DECEMBER 31, 2001.
(b) NEITHER PARTY SHALL IN ANY EVENT BE LIABLE FOR ANY CONSEQUENTIAL
(EXCEPT FOR THE INDEMNIFICATION OBLIGATION UNDER SECTION 7.3, INSOFAR AS IT
COVERS PERSONAL INJURY OR PROPERTY DAMAGE, AND CONFIDENTIALITY AND USE
RESTRICTION OBLIGATIONS UNDER SECTION 2.3 AND CONFIDENTIAL INFORMATION UNDER
SECTION 10.22), INCIDENTAL, EXEMPLARY OR SPECIAL DAMAGES, INCLUDING BUT NOT
LIMITED TO LOST PROFITS OR REVENUES, LOSS OF DATA, BUSINESS INTERRUPTION OR
LOSS, RECOVERY OR SUBSTITUTION COSTS, CLAIMS BY THIRD PARTIES, OR ECONOMIC
DAMAGES, WHETHER CLAIMED UNDER CONTRACT, TORT OR ANY OTHER LEGAL THEORY, ARISING
OUT OF THE USE OF OR INABILITY TO USE THE SYSTEM.
(c) IF ANY OF THE LIMITATIONS ON THE LIABILITY OF LICENSOR PROVIDED FOR
IN THIS AGREEMENT ARE FOUND TO BE INVALID FOR ANY REASON WHATSOEVER BY A COURT
OF COMPETENT JURISDICTION, LICENSEE AND LICENSOR EXPRESSLY AGREE THAT THE
MAXIMUM LIABILITY OF LICENSOR UNDER SUCH CIRCUMSTANCE SHALL NOT EXCEED ONE
HUNDRED PERCENT (100%) OF THE TOTAL FEES PAID BY LICENSEE TO LICENSOR IN THE
TERM SUCH LIABILITY WAS FIRST ALLEGED, IN ADDITION TO ANY OTHER EXPRESS REMEDIES
PROVIDED FOR UNDER THE TERMS OF THIS AGREEMENT THAT DO NOT PERTAIN TO THE
REPAYMENT OF FEES.
(d) THE WARRANTIES MADE UNDER THIS AGREEMENT EXTEND ONLY TO LICENSEE.
7.3 INDEMNIFICATION. If any claim is made against Licensee asserting that the
System or any Custom Software Module, or any Proprietary Component of such
Custom Software Module (developed by Licensor used in connection with that
Custom Software Module) infringes any United States patent, copyright or other
intellectual property right, Licensor shall, at the option of Licensor, either
(a) defend Licensee against such claim; (b) acquire for Licensee the right to
continue using such System or such Custom Software Module; or (c) replace such
System or such Custom Software Module with other Hardware or Software or Custom
Software Module for which there exists no infringement claim or modify such
System or such Custom Software Module to make it non-infringing so long as it
serves substantially the same purpose and function and does not materially
affect the performance of the System as being used by Licensee; provided,
however, that Licensor shall have no liability or obligation to Licensee under
this Section
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7.3 to the extent any such copyright infringement claim is attributable to : (i)
Licensor's compliance with any Licensee specifications; (ii) any modification of
any portion of the System or Custom Software Module by Licensee not agreed to in
writing by Licensor; (iii) failure of Licensee to use the then most current
version of the System or Custom Software Module (should Licensor give notice to
Licensee that such updated versions of the System remedy such non-performance or
infringement); (iv) the use of the System, Custom Software Module (or
Proprietary Component thereof) or Services in combination with software or
hardware not licensed by Licensor; (v) the use of the System or Custom Software
Module, any Proprietary Component of any Customer Software Module, any Licensee
Software or Services in a manner inconsistent with this Agreement; (vi) a
patent, copyright or other intellectual property right claim in which Licensee
or any affiliate or subsidiary of Licensee has any direct or indirect interest
by license or otherwise which Licensee has the right to practice without
incurring additional royalties or other payments and with respect to which
Licensee has the right to control enforcement against Licensor or (vii) any
material breach by Licensee of the terms of this Agreement which increases
Licensor's liability under this Section. If Licensor elects (a) above, Licensor
shall have the right to control the defense and settlement, at the expense of
Licensor, of any such claim and Licensee shall cooperate with Licensor in such
defense and settlement. If Licensor elects (c) above, Licensee shall return to
Licensor the claimed infringing Software, along with any copies, duplicates and
other manifestations thereof in whatever form. If Licensor is unable to provide
the remedies provided for in (a), (b) or (c) or the remedy results in a System
or Custom Software Module which does not serve substantially the same purpose
and function or materially affects the performance of the System or Custom
Software Module, Licensee, at its option, shall have the right to return the
System for a full refund of the Fee for the System or the Service Hours or the
amount paid as outlined in Section 4.1(c) for the Custom Software Module.
Notwithstanding the foregoing, the limitation under 7.3 (i) above shall apply
only to the Licensee's use of any Custom Software Module, and shall not apply to
Licensor's use of such Custom Software Module for the benefit of any third party
licensee of the System.
7.4 NOTICE. If Licensee believes that Licensor has breached the warranty set
forth in this Agreement or that Licensee is entitled to indemnification pursuant
to Section 7.3 hereof, Licensee shall notify Licensor in writing within ten (10)
business days of the time Licensee becomes aware of such alleged breach or
entitlement to indemnification. Any such notice which is given in connection
with this Section 7.4 shall, to the extent known to Licensee, state specifically
with respect to the System or any Custom Software Module (or Proprietary
Component thereof) the Specifications to which the affected System or Custom
Software Module (or Proprietary Component thereof) fails to conform and the
manner in which the System or Custom Software Module fails (or Proprietary
Component thereof) to conform to such Specifications with sufficient specificity
to permit Licensor to correct such nonconformity and any such notice given in
connection with Section 7.3 shall state with reasonable specificity the nature
of the
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claimed infringement. The failure of Licensee to notify Licensor in accordance
with this Section shall relieve Licensor of its obligations under Sections 7.1
and 7.3.
VIII. TERM; BREACH; TERMINATION
-------------------------
8.1 TERM. The License shall commence as of the Commencement Date and shall
terminate upon the fourth (4th) anniversary of the Commencement Date occurs;
provided, however, that (i) Licensee may terminate this Agreement at any time
beginning six (6) months after the Commencement Date upon not less than thirty
(30) days written notice to Licensor (which may be given as early as five (5)
months after the Commencement Date), and (ii) so long as Licensee is not in
material breach of any of the terms hereof, Licensee may renew this Agreement
for successive 1 year terms by sending written notice of Licensee's desire to
renew within 30 days before the end of each then-current term in the form
attached as EXHIBIT F. All such renewals shall be subject to the Fees then in
effect for each License Type, such Fee subject to the provisions of Section
10.12 (a) of this Agreement.
8.2 BREACH. Upon the happening of any of the following events there shall be
deemed to be a material breach of the terms of this Agreement by Licensee, and
without intending to waive, remove, limit, or restrict any legal or equitable
right or remedy otherwise available to Licensor attendant upon such material
breach, Licensor shall have the right to cease performance hereunder until such
breach is remedied or to terminate this Agreement: (a) Licensee fails to make
any payment when due as required by this Agreement for a period of 30 days
following its receipt from Licensor of a written notice specifying such
violation or failure and demanding that it be cured; (b) Licensee violates or
fails to perform any of the other material covenants or agreements contained in
this Agreement for a period of 30 days following its receipt from Licensor of a
written notice specifying such violation or failure and demanding that it be
cured (if such violation or failure is capable of being cured); or (c) Licensee
ceases doing business as a going concern; makes an assignment for the benefit of
creditors; admits in writing its inability to pay its debts as they become due;
files a voluntary petition in bankruptcy; is adjudicated an insolvent; files a
petition seeking reorganization, arrangement, composition, readjustment,
liquidation, dissolution or similar arrangement under any present or future
statute, law or regulation, or files an answer admitting the material
allegations of a petition filed against it in any such proceeding; consents to
or acquiesces in the appointment of a trustee, receiver or liquidator of it or
all or any substantial part of its assets or properties, or takes any action
with a view to its dissolution or liquidation; or if within 60 days after the
commencement of any proceedings against it seeking reorganization, arrangement,
readjustment, liquidation, dissolution or similar relief under any present or
future statute, law or regulation, such proceedings shall not have been
dismissed; or if within 60 days after the appointment without Licensee's consent
or acquiescence of any trustee, receiver or liquidator of Licensee of all or any
part of its assets or properties, such appointment shall not be vacated.
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8.3 TERMINATION.
(a) EFFECT. Upon the termination of this Agreement, whether by
expiration of its term, default, or other cause specified in this Agreement, or
upon the valid cancellation of the License, Licensee shall, except as provided
under Subsection (b): (i) immediately discontinue exercising any rights granted
hereunder relating to the System or any Custom Software Module which has been
used outside of the System, pursuant to Section 2.4 (a) of this Agreement, (ii)
promptly return to Licensor all components of the System (including any Custom
Software Module which has been used outside of the System, pursuant to the terms
of Section 2.4 (b) of this Agreement) by an appropriate means of delivery and
insured against loss for the full replacement cost thereof, all at the expense
of Licensee, and (iii) certify in writing under oath that, to the best of its
knowledge, all materials required to be delivered to Licensor hereunder have
been delivered to Licensor and that it has violated none of the material
provisions of Section 2.2 or 2.3 hereof. The expiration or termination of this
Agreement shall be without prejudice to any rights of Licensor against Licensee
and such expiration or termination shall not relieve Licensee of any of its
obligations to Licensor existing at the time of expiration or termination.
(b) CUSTOM SOFTWARE MODULES: LICENSE. In the event Licensee has
obtained permission from Licensor to use any Custom Software Module outside of
the System, as provided in Section 2.4 (b) of this Agreement, Licensee shall
have the right to obtain a fully-paid, perpetual right and license to continue
to use such Custom Software Module for such purposes, provided that termination
of this Agreement is not for breach of this Agreement by Licensee. If Licensee
chooses to obtain such perpetual license, Licensee shall notify Licensor in
writing, within thirty (30) days of the termination date of this Agreement. Upon
payment of a consideration fee, equal to the number of Service Hours originally
charged for the development of such Custom Software Module, multiplied by
[******], Licensor shall grant such perpetual license to Licensee.
Notwithstanding anything to the contrary above, Licensee shall in no event be
obligated to pay any consideration fee for any portion of such Custom Software
Module that is designated a Proprietary Component of such Custom Software
Module. Such license shall be subject to the other restrictions contained in
Section 2.4 (b) of this Agreement, and all other provisions of this Agreement
designated in Section 10.17 as surviving termination.
8.4 SOURCE CODE ESCROW. Licensor agrees to make Licensee a beneficiary under the
Licensor's Source Code Escrow Agreement attached hereto as EXHIBIT K . which
shall provide Licensee with access to the source code for supporting and
maintaining the Licensed Software in the event Licensee ceases to continue its
business in support thereof.
IX. PAYMENT, CHARGES AND SUPPORT
----------------------------
24
CONFIDENTIAL MATERIAL HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES
AND EXCHANGE COMMISSION. ASTERISKS DENOTE SUCH OMISSIONS.
<PAGE> 26
9.1 LICENSE FEE.
(a) LICENSE FEE. Licensee shall pay to Licensor a Fee per Calendar
Quarter of [******], plus any upgrade costs as set forth in Exhibit C, with the
first payment to be made fifteen (15) days after acceptance of the First Systems
by Licensee pursuant to Section 5.1, above. Each subsequent payment shall be
made no later than fifteen (15) days after the beginning of the Calendar Quarter
for which payment is due. For any partial Calendar Quarter, Licensee shall pay
Licensor the Fee prorated on a daily basis, and any applicable Service Hours as
set forth in EXHIBIT I shall be similarly prorated. As specified in Section 3.1
(d), Licensee may hold the Fee for the first Calendar Quarter of 1999 and any
subsequent Calendar Quarter(s), until such time as the obligations under Section
3.1(d) are completed by Licensor. In the event such Fee(s) are held, such Fee(s)
shall be due and payable no later than ten (10) days after the obligations under
Section 3.1(d) are completed by Licensor.
(b ) REQUIREMENT TO PAY FEE. The Fees are in consideration of the
agreement of Licensor to grant the License and provide Services hereunder in
accordance with the License Type selected and shall be so payable regardless of
whether Licensee refuses or is unable to accept the full performance of Licensor
hereunder or whether Licensor's performance hereunder is delayed for reasons not
within the control of Licensor.
9.2 EXPENSES. If Licensee has exhausted its available Service Hours for any
applicable Calendar Quarter, Licensee shall pay to Licensor upon Licensor's
request all reasonable out-of-pocket expenses incurred by Licensor in performing
Services for Licensee under this Agreement including, without limitation,
expenses incurred for travel, meals, lodging, long distance telephone calls,
document reproduction, postage, and cost of storage media such as disks and
tapes.
9.3 TAXES. Licensee shall pay when due, and only when due, any sales, use,
excise, property or other federal, state, local or foreign taxes, duties,
tariffs or other assessments (other than any tax based solely on the net income
of Licensor) and related interest and penalties that Licensor is at any time
obligated to pay or collect in connection with or arising out of the
transactions contemplated by this Agreement. Licensee agrees to indemnify and
hold harmless Licensor from any and all of such duly paid taxes, duties, tariffs
or other assessments. If Licensor pays any such amounts which Licensee is
obligated to pay under this Section 9.3, Licensee shall promptly reimburse
Licensor in an amount equal to the amount so paid by Licensor.
25
CONFIDENTIAL MATERIAL HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES
AND EXCHANGE COMMISSION. ASTERISKS DENOTE SUCH OMISSIONS.
<PAGE> 27
X. MISCELLANEOUS
-------------
10.1 EMPLOYEES. During the term of this Agreement and for a period of one (1)
year thereafter, neither Party shall solicit any employee of the other Party who
was directly involved with performance of this Agreement; it being understood
that this provision shall not prohibit either Party from hiring employees of the
other Party who have applied for positions on their own without solicitation by
the hiring Party.
10.2 FORCE MAJEURE. If the performance of Licensor or Licensee hereunder is
delayed or prevented at any time due to circumstances beyond the control of
Licensor or Licensee, including without limitation those resulting from labor
disputes, fire, floods, riots, civil disturbances, weather conditions, control
exercised by a governmental entity, unavoidable casualties or acts of God or a
public enemy, the performance of Licensor or Licensee shall be excused until
such condition no longer exists; provided that the non-performing Party uses
commercially reasonable and diligent efforts to eliminate the force majeure
event.
10.3 GOVERNING LAW. This Agreement shall be governed by and construed under and
pursuant to the laws of the State of Ohio, without regard to my such laws
relating to choice or conflict of laws.
10.4 INTEGRATION. This Agreement constitutes the entire agreement between the
parties with respect to the subject matter hereof and shall supersede all
contemporaneous or previous proposals, both oral and written, brochures, sales
materials, negotiations, representations, commitments, writings, agreements, and
all other communications between the parties. It may not be released,
discharged, changed or modified other than in accordance with its terms except
by an instrument in writing signed by a duly authorized representative of each
of the parties.
10.5 HEADINGS. The headings and captions used in this Agreement are intended and
shall for all Purposes be deemed to be for convenience only and shall have no
force or effect whatsoever in the interpretation of this Agreement.
10.6 ASSIGNMENT. Except as otherwise provided hereto, neither Licensor nor
Licensee shall sell, convey, sublicense, assign or otherwise transfer any of the
Software, any component thereof or any right therein, this Agreement, or any of
its rights or obligations under this Agreement, to any other Party, either
voluntarily or involuntarily, directly or indirectly, whether by operation of
law or otherwise without the prior written consent of the other Party.
Notwithstanding the foregoing, any merger, consolidation, sale of a controlling
interest or combination of interests resulting in a change in control of either
Party shall not require the consent of the other Party in the event of an
assignment to a successor in interest in connection therewith; provided that the
successor in interest agrees to be bound to all of the terms and conditions of
this Agreement. Any assignment in violation of the terms hereof shall be void
and of no force or effect.
26
<PAGE> 28
10.7 COUNTERPARTS CLAUSE. This Agreement may be executed in two or more
counterparts each of which shall be deemed originals for all purposes.
10.8 SEVERABILITY. If any term, clause or provision of this Agreement shall be
judged invalid for any reason whatsoever, such invalidity shall not affect the
validity or operation of any other term, clause or provision and such invalid
term, clause or provision shall be deemed to have been deleted from this
Agreement.
10.9 NOTICES. All notices, requests, demands and other communications required
or permitted under this Agreement shall be deemed to have been duly given and
made if in writing and served either by personal delivery to the Party for whom
it is intended, sent by telecopy or electronic mail if followed by hard copy the
next day, or by being deposited postage prepaid, certified or registered mail,
return receipt requested (or such form of mail as may be substituted therefor by
postal authorities), in the United States mail, bearing the address shown in
this Agreement for, or such other address as may be designated in writing
hereafter by such Party:
If to Licensor: NETGENICS, Inc.
1717 East Ninth Street
Cleveland, Ohio 44114
(216) 861-4007
Telecopy No. (216) 861-4777
Attention: Manuel J. Glynias, President
With a copy to: Baker & Hostetler LLP
3200 National City Center 1900 East
9th Street Cleveland, OH 44114-3485
(216) 621-0200
Telecopy No.: (216) 621-0740
Attention: Jerry Grisko, Esq.
If to LICENSEE: American Home Products, Inc
c/o Genetics Institute, Inc.
87 CambridgePark Drive
Cambridge, MA 02140
(617) 498-8455
Telecopy No.: (617) 876-5851
Attention: Bruce Leicher, Vice President-Law
10.10 SYSTEM COMMITTEE; DISPUTES. As soon as reasonably practicable after the
Commencement Date, the Parties shall form a committee comprised of two (2) to
three (3) representatives (as designated by the Steering Committee, as defined
below) from
27
<PAGE> 29
each Party (the "System Committee"). The System Committee shall meet no less
often than on a quarterly basis and shall be charged with the following duties:
(a) overseeing roll-out process of the Systems, (b) overseeing Hardware upgrades
and replacements, (c) formulating, discussing and agreeing to Custom Software
Module requests, including the number of Service Hours to be used in designing
and delivering a Custom Software Module and whether any Proprietary Component of
a Custom Software Module or Licensee Confidential Information exists in a Custom
Software Module and issues relating to the acceptance of Custom Software Modules
and (d) except as otherwise provided in Section 4.1, resolving any and all
disputes between the Parties arising out of or in connection with this
Agreement. If the System Committee cannot resolve a dispute arising out of or in
connection with this Agreement, then such dispute shall be referred to their
respective officers designated below or their successors (such officers, along
with any duly-appointed additional members, comprising the "Steering
Committee"), for attempted resolution by good faith negotiations within thirty
(30) days after such notice is received:
For NetGenics: President
For Licensee: Senior Vice President - Discovery Research
Except for disputes arising under Section 4.1 of this Agreement, which are to be
resolved as provided therein, all such disputes which are not so resolved
between the Parties or the designated officers within such thirty day period
shall, be subject to litigation in a court with proper jurisdiction over the
parties.
10.11 CONFLICT. Each Party (the "Representing Party") represents and warrants to
the other Party that neither the execution nor delivery of this Agreement by the
other Party will conflict with or result in the breach of any material terms,
conditions or provisions of any agreement, contract or instrument to which the
Representing Party is a party or will result in the creation or imposition upon
or against the Representing Party of any claim, charge, encumbrance or
restriction of any nature whatsoever.
10.12 MOST FAVORED LICENSEE.
(a) If during the term of this Agreement Licensor reduces its published
list prices then Licensor shall notify Licensee of such price reductions as they
become effective and Licensor shall extend any reduced price to Licensee.
(b) Licensor shall, upon written request from Licensee (which request
shall be made no more than one (1) time per Calendar Quarter), provide to
Licensee terms (redacted to protect confidentiality of other licensees) of its
SYNERGY license agreements comprising (i) the number of Designated Locations and
License Type for each Designated Location, (ii) the number of Service Hours to
be provided, (iii) the Term of the agreement and (iv) the Fee. In the event that
Licensor extends to other licensees terms that are materially more favorable
than those extended to Licensee herein, Licensee
28
<PAGE> 30
shall have the right to amend this Agreement to incorporate the terms of the
more favorable Agreement. Licensee shall have the right to request that an
independent auditor be employed, at the wrongful Party's expense, to certify
complete disclosure by Licensor pursuant to this Section 10.12 (b).
(c) In the event that Licensee elects to exercise its rights under
Section 10.12 (b) of this Agreement, Licensee shall also be subject all other
material terms, as limited to and outlined in that Section 10.12 (b), that may
be less favorable than the terms of this Agreement. Any such election shall
remain in force for the remaining Term of this Agreement.
10.13 WAIVER. The failure of either Party to enforce at any time any of the
provisions of this Agreement, or the failure to require at any time performance
by the other Party of any of the provisions of this Agreement, shall in no way
be construed to be a present or future waiver of such provisions, nor in any way
affect the validity of either Party to enforce each and every such provision
thereafter. The express waiver by either Party of any provision, condition or
requirement of this Agreement shall not constitute a waiver of any future
obligation to comply with such provision, condition or requirement.
10.14 REMEDIES. All rights and remedies conferred upon a Party under this
Agreement or by any other instrument or law shall be cumulative and may be
exercised singularly or concurrently.
10.15 BINDING EFFECT. This Agreement shall be binding upon and inure to the
benefit of Licensor and Licensee and their respective successors and permitted
assigns.
10.16 RISK OF LOSS. Licensee assumes all risks of and shall be liable to
Licensor for loss or damage to the System while on the premises of or otherwise
in the possession or control of Licensee.
10.17 SURVIVAL. Notwithstanding the termination of this Agreement, by expiration
or otherwise, the following provisions shall survive such termination: 2.2, 2.3,
2.4, 7.1 through 7.4, inclusive, 8.2, 8.3, 10.1, 10.3, 10.4, 10.6, 10.8 through
10.19 and 10.22.
10.18 INJUNCTIVE RELIEF. Each Party acknowledges that because of the
confidential and proprietary nature of the System, the Licensee Software, the
Proprietary Components of Custom Software Modules, the Licensee Confidential
Information and the Licensor Confidential information, neither termination of
this Agreement nor an action at law would be an adequate remedy for a breach by
either Party of this Agreement. Accordingly, each Party agrees and consents that
in the event of such breach, in addition to all other remedies which such Party
may have, such Party shall be entitled to relief in equity, including a
temporary restraining order, temporary or preliminary injunction, and permanent
mandatory or prohibitory injunction to restrain the continuation of any such
29
<PAGE> 31
breach or to compel compliance with the provisions of said sections without the
necessity of proof of actual damage.
10.19 INDEMNIFICATION. Except as provided in Sections 7.1 through 7.3 hereof and
below, Licensee shall indemnify and hold harmless Licensor, its agents,
employees, successors and assigns from and against any and all liabilities,
losses, damages, claims, suits and expenses, including, without limitation,
reasonable attorney's fees, of whatsoever kind and nature imposed on, incurred
by, or asserted against Licensor, its agents, employees, officers, directors,
stockholders, successors and assigns relating to or arising out of the
possession or use of the System by Licensee or any failure on the part of
Licensee to perform or comply with the terms and conditions of this Agreement.
Notwithstanding the foregoing, such indemnification shall not apply to any
claims for infringement or misappropriations of any patent or other intellectual
property rights by a third Party which arise of the marketing, development,
manufacture, delivery and license of the System by Licensor to customers such as
Licensee.
10.20 EXHIBITS AND SCHEDULES. Each reference in this Agreement to a Schedule or
Exhibit shall mean a Schedule or Exhibit attached to this Agreement and
incorporated into this Agreement by such reference.
10.21 PRESS RELEASES AND REFERENCES. Upon execution of this Agreement, Licensor
and Licensee agree to discuss in good faith the preparation of a joint press
release stating that the parties have entered into a software license and
service agreement; provided, however, that neither Party may disclose the terms
of this Agreement or the substance of any discussions between Licensor and
Licensee without the prior written consent of the other Party. Upon acceptance
of the System or Custom Software Module thereof by Licensee and satisfactory
performance of the same, as the case may be and as defined in Section 5.1(a) or
4.2(b), Licensee agrees, upon request of Licensor, to act as a reference for the
System and the Licensor. Such duties may include responding to (i) requests for
references by other potential Licensees of the System and (ii) interview
requests by Licensor, the press, business analysts or other parties with an
interest in the System. All responses shall be subject to the prior written
approval of Licensee, and such requests shall be reasonably considered and not
unreasonably denied.
10.22 CONFIDENTIAL INFORMATION. Licensor understands and agrees that Licensee
has developed and will develop scientific, technical, trade and/or business
information which is treated by Licensee as confidential, including, without
limitation, algorithms, gene expression information, genetic sequence data,
formulations, techniques, tests, data, know-how, Proprietary Components of
Custom Software Modules, and inventions, whether patentable or not ("Licensee
Confidential Information"). Licensee understands and agrees that Licensor has
developed and will develop scientific, technical, trade and/or business
information which is treated by Licensor as confidential, including, without
limitation, the System and all source and object code, test plans and data
related to the
30
<PAGE> 32
System, customer and price lists, know-how, inventions, whether patentable or
not, and the terms of this Agreement. ("Licensor Confidential Information")
(a) Licensor agrees that Licensee is the sole owner of Licensee Confidential
Information. Licensor agrees to hold all Licensee Confidential Information in
confidence, to use it solely for the purposes authorized in this Agreement, and
to not disclose such Licensee Confidential Information to any third party,
except as required by order of a court of law or appropriate government agency.
All Proprietary Components of Custom Software Modules (as enumerated on Exhibit
D in accordance with Section 3.2 (e) herein), and Licensee Software, including
without limitation, Licensee-derived genetic sequence data, gene expression
information, formulations, novel proteins and protein utility data, shall in any
event be deemed to be Licensee Confidential Information. All other Licensee
Confidential Information, including Pharmaceutical Know-How, shall be marked
"confidential" and disclosed to Licensor in writing or, if disclosed orally or
visually to Licensor, reduced to writing and delivered to Licensor marked
"confidential".
(b) Licensee agrees that Licensor is the sole owner of Licensor Confidential
Information. Licensee agrees to hold all Licensor Confidential Information in
confidence, to use it solely for the purposes authorized under this Agreement
and not to disclose such Licensor Confidential Information to any third party,
except as required by order of a court of law or appropriate government agency.
The System and all source and object code test, plans and data related to the
System, and customer and price lists shall in any event be deemed to constitute
Licensor Confidential Information. All other Licensor Confidential Information
shall be marked "confidential" and disclosed to Licensee in writing or, if
disclosed orally or visually to Licensor, reduced to writing and delivered to
Licensee marked "confidential"; provided that Licensee may disclose Licensor
Confidential Information to third parties of Licensee who meet the
qualifications of a "User" as defined in Section 1.23 hereunder and who have
agreed to be bound by the terms of this Agreement.
Notwithstanding anything to the contrary contained in Sections 10.22 (a) or (b),
neither Licensee Confidential Information nor Licensor Confidential Information
shall include any information: (a) was in the public domain prior to the time of
disclosure to the receiving Party; (b) which, after disclosure, becomes part of
the public domain through publication or otherwise except by breach of this
obligation; (c) which was in the possession of the receiving Party prior to
disclosure by the disclosing Party; (d) which the receiving Party receives from
an independent third party which has the right to disclose it to the receiving
Party. The obligations of this Section 10.22 shall extend beyond any termination
of this Agreement for a period of five (5) years.
IN WITNESS WHEREOF, the parties have executed this Agreement
as of the date first above written.
31
<PAGE> 33
LICENSOR: LICENSEE:
NETGENICS, INC. AMERICAN HOME PRODUCTS CORPORATION
By:_/s/ Manuel J. Glynias By: /s/ Glenn Larsen
----------------------- -----------------
Name: Manuel J. Glynias Name: Glenn Larsen, Ph.D.
Title: President and C.E.O. Title: Senior Vice President,
Discovery Research
<PAGE> 1
Exhibit 10.7
NETGENICS, INC. HAS REQUESTED THAT
THE MARKED PORTIONS OF THIS
DOCUMENT BE ACCORDED CONFIDENTIAL
TREATMENT PURSUANT TO RULE 406
UNDER THE SECURITIES ACT OF 1933
NETGENICS INTERNATIONAL, LTD.
-----------------------------
SYNERGY(TM) SOFTWARE LICENSE
----------------------------
AND SUBSCRIPTION AGREEMENT
--------------------------
This SYNERGY(TM) Software License and Subscription Agreement ("Agreement") is
entered into as of April 2, 1999 ("Effective Date"), by and between NetGenics
International, Ltd., an Ohio Limited Liability Corporation with offices at 1717
East Ninth Street, Suite 1600, Cleveland, Ohio 44114 ("NetGenics"), and Hoechst
Schering AgrEvo GmbH., a German corporation with offices at Miraustrasse 54,
Berlin, D-13509, Germany (Hoechst Schering AgrEvo GmbH and its Affiliates (as
defined below), collectively, shall be referred to herein as "Subscriber").
W H E R E A S
NetGenics has developed and owns certain interactive computer software
and hardware known as SYNERGYTM for use in the storage and analysis of research
data in a collaborative environment and provides certain services, including,
but not limited to, services to maintain and extend such software and hardware;
and
NetGenics is willing to license the SYNERGY TM Software (as defined
below) and provide the Services (as defined below) to Subscriber upon and
subject to the terms and conditions of this Agreement; and Subscriber desires to
license such Software and to obtain such Services upon such terms and
conditions.
NOW, THEREFORE, in consideration of the mutual promises and covenants
contained herein, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows.
1. DEFINITIONS The following terms, when used herein with initial capital
letters, shall have the respective meanings set forth in this Article 1.
1.1 "Affiliate", as used herein, shall mean any corporation or other
business entity controlling, controlled by, or under common control with Hoechst
Schering AgrEvo,
<PAGE> 2
GmbH.; as used herein, the term "control" means the direct or indirect ownership
of at least fifty percent (50%) of the voting shares/stock of a company, or the
power to nominate at least half of the directors, or the power otherwise to
determine the policy and direction of a company or organization.
1.2 "Confidential Information" shall mean that information which is not
generally known to the public or which would constitute a trade secret under the
United States Uniform Trade Secrets Act and which is owned, developed or
acquired by the disclosing party including, without limitation, all programming,
systems and use documentation (including, without limitation, any of the
foregoing as may be embodied in the Licensed Program, the Development System and
Documentation), customer lists, pricing information, technical information,
technology, formulae, information, designs, ideas, inventions, data, data
formats and files, know-how, techniques, sequences, methods, genes, gene
functions, plasmids, proteins, plants, parts of plants, seeds and other
biological or non-biological material, terms of this Agreement, and all copies
and tangible embodiments thereof; provided, however, that any of the foregoing
shall not be considered Confidential Information if it: (i) becomes publicly
known through no wrongful act or breach of any obligation of confidentiality on
the receiving party's or any third party's part; (ii) was in the lawful
knowledge and possession of, or was independently developed by, the receiving
party prior to the time it was disclosed to, or learned by, the receiving party
as evidenced by written records kept in the ordinary course of business by the
receiving party or by written or other documentary proof of actual use by the
receiving party; (iii) was received from a third party not in violation of any
contractual, legal or fiduciary obligation by such third party; or (iv) was
approved for public release by prior written authorization by the disclosing
party.
1.3 "Designated Location" shall mean the location or locations set
forth on EXHIBIT C, attached hereto, as amended from time to time by the
parties.
1.4 "Development System" shall mean hardware and software provided or
approved by NetGenics to Subscriber at a Designated Location solely for the
purpose of development of Subscriber Software. A Development System shall not
include Services as described in Article 6 of this Agreement.
1.5 "Documentation" shall mean the SYNERGY(TM) user and developer
training manuals, release notes and help documentation, as well as documentation
relating to the Integrated Software (as same may be requested by Subscriber), as
same may be modified from time to time, including, without limitation,
modifications and enhancements thereto, owned by or licensed to NetGenics.
1.6 "Hardware" shall mean the computer hardware and Integrated Software
necessary to the operation of the Product, provided by NetGenics as a part of
the Subscription, and only insofar as it relates to the software set forth on
Exhibit B, as same may be amended from time to time as needed. Hardware shall
not include any specialty
2
<PAGE> 3
or computational hardware necessary to run Third Party Software, unless mutually
agreed.
1.7 "Integrated Software" shall mean software that is provided by
NetGenics, on behalf of a third party, and integrated as a part of the Software
or Hardware (as defined on Exhibits A and B). Integrated Software shall not
include any software that requires Subscriber to execute a separate agreement
with any third party, in order to be used as a part of the Product. Integrated
Software shall not include Third Party Software.
1.8 "Licensed Program" shall mean the Software and Object Code versions
of other Integrated Software programs provided by NetGenics which are used in
conjunction with the Software to perform certain functions as described in the
Documentation and on EXHIBIT A, attached hereto.
1.9 "Object Code" shall mean the machine readable computer software
code substantially in binary form and which is directly executable by a computer
after processing, but without compilation or assembly.
1.10 "Product" shall mean the Licensed Program, the Hardware, and the
Documentation.
1.11 "Services" shall mean all training, software planning and design,
data conversion, support, quality assurance testing, remote monitoring,
telephone and e-mail support services, on-site monitoring and customization
services provided by or on behalf of NetGenics to Subscriber pursuant to this
Agreement.
1.12 "Service Hours" shall mean the applicable number of hours of
training, software planning and design, data conversion, support services,
quality assurance testing, on-site monitoring services, if any, and all
customization services provided by NetGenics to Subscriber, including any
associated preparation, follow-up and travel time (from NetGenics' London (UK)
office) for activities enumerated on EXHIBIT G.
1.13 "Software" shall mean the Object Code versions of SYNERGY(TM)
including, without limitation, all modifications and enhancements thereto, as
further described on EXHIBIT A, attached hereto and as same may be modified from
time to time, which have been, or may be, developed, and are owned, by
NetGenics. Software does not include other third party software programs
provided by NetGenics and incorporated as part of the Licensed Program. Software
may include methods, routines or interfaces to Third Party Software (defined in
Section 1.18), but does not include Third Party Software itself.
1.14 "Source Code" shall mean computer software code displayed in a
form readable and understandable by a programmer of ordinary skill.
3
<PAGE> 4
1.15 "Subscriber Know-How" shall mean concepts, methods, techniques,
data, know-how, compounds, compositions of matter, ideas and inventions,
developed by or on behalf of Subscriber during the term of this Agreement, and
which provides a distinct competitive advantage to Subscriber. Subscriber
Know-How shall not include any information which (a) is in the public domain,
(b) becomes part of the public domain through publication or otherwise except by
breach of this Agreement, (c) was in the possession of NetGenics prior to
disclosure by Subscriber, (d) is received from an independent third party which
has the right to disclose it, or (e) is developed by NetGenics independent of
any disclosure by Subscriber.
1.16 "Subscriber Software" shall mean software, if any, developed by or
on behalf of Subscriber by a third party and incorporated or integrated into the
Licensed Program in accordance with NetGenics' Subscriber Software development
guidelines described in Section 7.3 and set forth as part of the Documentation
as needed. Notwithstanding the foregoing, no software produced by Subscriber
shall be considered Subscriber Software, if such software functions
independently of the Product.
1.17 "Subscription" shall mean the Product, any elected Development
System, and the Services, installed at a Designated Location.
1.18 "Third Party Software" shall mean that software not manufactured
by NetGenics, but which is used in conjunction with the Licensed Program.
Subscriber may be required to license Third Party Software under separate
agreements with the owner of such Third Party Software, in accordance with
Article 4 of this Agreement.
1.19 "User" shall mean a user of the Product who is an employee of
Subscriber, or a collaborator, consultant, agent or contractor of Subscriber who
works principally from a Designated Location, as well as an employee of
Subscriber engaged in work for Subscriber in the Domain Area (as defined in
Section 5.1) other than at a Designated Location; provided, that Subscriber
shall provide written notice to NetGenics of all such Users, which notice shall
contain the name, Domain Area, and location of such User. Notwithstanding the
foregoing, no non-employee of Subscriber shall be considered a User, as defined
in this Section 1.19, unless Subscriber has obtained written agreement from any
such non-employee to abide by all provisions contained in this Agreement, with
special consideration to the covenants of confidentiality as described in
Section 5.5 of this Agreement. The number of Users which shall be allowed to
access the Product shall be the number specified in EXHIBIT C of this Agreement.
The system administrator shall not be considered a User.
4
<PAGE> 5
2. DELIVERY AND INSTALLATION; ACCEPTANCE PROCEDURES
------------------------------------------------
2.1 NetGenics shall deliver and install the Product at each Designated
Location by a date to be mutually agreed upon by the parties. Such installation
with respect to the Product shall be accepted if (i) NetGenics has delivered an
installation notice to Subscriber, (ii) Subscriber does not give notice of
non-acceptance within sixty (60) days of such installation notice, (iii)
Subscriber does not terminate this Agreement, pursuant to Section 2.3 below and
(iv) the Licensed Program performs in accordance with the Documentation provided
by NetGenics and any mutually-agreed applicable acceptance plan at the
Designated Location(s).
2.2 As a condition to NetGenics performing its obligations as set forth
in Section 2.1, Subscriber shall cooperate with NetGenics in the installation of
the Licensed Program and shall perform its responsibilities necessary for such
installation in a timely manner.
2.3 NetGenics shall provide the Subscription to Subscriber, at no
charge, for a period of thirty (30) days from the initial installation at the
first Designated Location and delivery of an installation notice. If, during the
initial thirty (30) day period, Subscriber finds the Subscription to be
unacceptable for any reason, Subscriber may terminate this Agreement and incur
no expense nor further obligation pursuant thereto. Should Subscriber elect to
terminate this Agreement, for any reason, during the thirty (30) day period
immediately following the above-referenced no-charge trial period, Subscriber
may do so upon payment of a consideration equivalent to one month's Fees as
described in EXHIBIT C (and appropriately pro-rated, if necessary). Subscriber
shall bear no further obligation to NetGenics upon termination (excepting
reasonable cooperation in any necessary recovery of NetGenics property) as
described in this Section 2.3. Should Product be inoperable for periods of time
during the trial period described in this Section 2.3 for reasons not the
responsibility of Subscriber, such trial period shall be lengthened accordingly
to compensate for any such period of inoperability.
3. HARDWARE
--------
3.1 NetGenics will provide, as part of the Subscription, the necessary
Hardware to be used by the Licensed Program from NetGenics. NetGenics will
provide Services for the Hardware, as needed, to ensure proper function of the
Product, and reserves the right to interrupt the operation of the Product for
the performance of regular maintenance, at mutually-agreed scheduled times and
with notice to Subscriber. NetGenics reserves the right to substitute the
Hardware with functionally equivalent or superior Hardware upon no less than
forty-five (45) days' written notice to Subscriber, and at no additional cost to
Subscriber.
3.2 Representations, warranties, guarantees, covenants or agreements, if
any, as to any Hardware supplied by NetGenics are those granted directly by the
manufacturer(s)
5
<PAGE> 6
of such Hardware to its customers, and are attached hereto as EXHIBIT H.
NetGenics hereby agrees to take any action as may be reasonable to permit
Subscriber to obtain the benefit of such warranties. NETGENICS MAKES NO
REPRESENTATIONS OR WARRANTIES AS TO ANY HARDWARE PROVIDED BY NETGENICS TO
SUBSCRIBER, INCLUDING, WITHOUT LIMITATION, IMPLIED WARRANTIES OF MERCHANTABILITY
AND FITNESS FOR A PARTICULAR PURPOSE.
4. THIRD PARTY SOFTWARE
--------------------
4.1 At Subscriber's request, NetGenics, from time to time, may provide
Subscriber access to certain Third Party Software for use in connection with the
Subscription. Should Subscriber elect to access such Third Party Software,
Subscriber shall be obligated to obtain and maintain licenses to such Third
Party Software for the term of this Agreement.
4.2 Representations, warranties, guarantees, covenants or agreements,
if any, as to the Third Party Software are those granted directly by the
manufacturer(s) of the Third Party Software to such users of the Third Party
Software. NETGENICS MAKES NO REPRESENTATIONS OR WARRANTIES AS TO THE THIRD PARTY
SOFTWARE, INCLUDING, WITHOUT LIMITATION, IMPLIED WARRANTIES OF MERCHANTABILITY
AND FITNESS FOR A PARTICULAR PURPOSE.
5. LICENSE
-------
5.1 Subject to the terms and conditions of this Agreement, NetGenics
hereby grants to Subscriber a non-exclusive, non-transferable right and license
solely to use the Product at the Designated Location(s) for its internal Crop
Science (the "Domain Area(s)") research and development purposes for the Term
(as defined herein) of this Agreement. Additionally, Subscriber may allow access
to the Product to no more than six (6) Users at a location other than a
Designated Location, upon appropriate notice to NetGenics not to exceed,
however, the total Users as set forth in EXHIBIT C.
5.2 Subscriber agrees that it will certify to NetGenics, in writing, by
January first, April first, July first and October first (each a calendar
quarter) of each year any substantive changes (e.g. number of Users, network
configuration, etc.) in the existing Designated Locations. Subscriber agrees
that it will make its records available to NetGenics or its appointed agent at
reasonable times and upon reasonable notice for NetGenics to verify any such
certifications or locations. In the event an appointed agent is used for such
verification, such agent must agree in writing to Subscriber's standard
confidentiality agreement, prior to commencement of any verification activities.
5.3 Except as set forth in Section 5.1, Subscriber shall have no right
or license to do any of the following: (i) sublicense the Product or any portion
thereof; (ii) print, copy, reproduce, distribute, modify, transfer (whether
physically or electronically), assign
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<PAGE> 7
(except as set forth in Section 16.3) or in any other manner duplicate the
Licensed Program or Documentation, in whole or in part except that Subscriber
may retain one (1) tape back-up copy on the Hardware as provided by NetGenics
for disaster recovery only; (iii) allow more than the number of Users set forth
on EXHIBIT C to use the Subscription at a Designated Location (iv) permit the
use by or for the benefit of any non-Affiliate, non Domain-Area third party
(except as set in (vi) forth below) of the Subscription; (v) decompile,
disassemble or otherwise reverse engineer the Product or any part thereof
(except in cases where NetGenics has not fulfilled its obligations under Section
7.3 (a) herein); (vi) use the Subscription other than for the internal
information processing needs of Subscriber in connection with the storage and
analysis of its research data (in the Domain Area(s) specified in Section 5.1)
in a collaborative environment (provided, that the internal information
processing needs of Subscriber may include research activities of Subscriber
which are or may be performed in conjunction with third-party research or
corporate collaborators, so long as members of such research or corporate
collaborators are not provided access to the Software, any Development System or
the Licensed Program, without the prior written consent of NetGenics, which
consent shall not be unreasonably withheld, but which consent may require
written proof of compliance with the provisions of Section 5.5 of this
Agreement) or (vii) provide access to the Product to more than six (6) Users at
any location other than a Designated Location. In addition, except pursuant to
Section 11, Subscriber shall have no right to obtain or use the Source Code for
any Licensed Program.
5.4 All right, title and interest in and to the Software and
Documentation shall at all times be solely vested in NetGenics. All right, title
and interest in and to the third party software programs licensed to NetGenics
as part of the Licensed Program or Hardware shall at all times be solely vested
in the owner(s) of such software program(s). No rights or licenses, express or
implied, other than those granted in Section 5.1 hereof are granted by this
Agreement.
5.5 Subscriber shall keep confidential and not disclose or permit
access to the Subscription or Subscriber Software, except as provided in this
Section 5.5. Subscriber shall use the Subscription only for purposes consistent
with the terms of this Agreement. Subscriber shall advise its employees,
Affiliates, collaborators, consultants, agents and contractors of the
confidential and proprietary nature of the Subscription, and of the restrictions
imposed by this Agreement, and shall: (i) obtain from any and all non-employees
of Subscriber who are provided access to the Subscription (regardless of whether
such non-employees are otherwise deemed Users under this Agreement) their
written agreement to comply with the obligations of Subscriber under this
Agreement, (ii) be responsible for any breach of such agreement by any User, and
(iii) use its best efforts to ensure that no unauthorized person has access to
the Licensed Program and that those persons who are granted access to the
Licensed Program protect such Confidential Information in accordance with the
terms of this Agreement.
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<PAGE> 8
5.6 Subscriber shall notify NetGenics immediately of its knowledge of
the possession, use, or knowledge of any portion of the Subscription by any
person or entity not authorized by this Agreement to have such possession, use
or knowledge. Subscriber shall (i) promptly furnish to NetGenics full details of
such possession, use or knowledge; (ii) assist NetGenics (at no expense to
NetGenics) in stopping and preventing the recurrence of such possession, use or
knowledge; (iii) in the event such unauthorized possession, use or knowledge of
the Subscription is the result of a breach of Section 5.5 (ii) above, shall
provide cooperation to NetGenics in any and all litigation deemed necessary to
protect the Subscription and (iv) in any other event, reasonably consider
cooperation with NetGenics in any litigation deemed necessary by NetGenics to
protect the Subscription, such cooperation not to be unreasonably withheld.
Compliance by Subscriber with this Section 5.6 shall not be construed as a
waiver of any right of NetGenics to recover damages or obtain other relief
against Subscriber in connection with any such unauthorized possession, use or
knowledge.
5.7 NetGenics shall be entitled to audit Subscriber's use of the
Subscription for compliance with the terms and conditions of this Agreement
(either directly or through independent outside auditors or representatives) at
mutually-agreed times (but no more often than two (2) times during any calendar
year), during the term of this Agreement and for one (1) year after the
termination of this Agreement. NetGenics shall not unreasonably interfere with
Subscriber's business operations during any such audit, and Subscriber shall
provide such cooperation as NetGenics may reasonably request in connection with
any such audit. In the event NetGenics elects to employ independent parties in
the conduct of activities anticipated by this Section 5.7, such independent
parties shall agree to be bound by Subscriber's standard confidentiality
agreements.
5.8 Subscriber and NetGenics acknowledge that the performance of this
Agreement may result in the development of new concepts, methods, techniques,
data, know-how, processes, adaptations, ideas and expressions of ideas.
(a) Subscriber Know-How developed by or on behalf of Subscriber
shall be and remain the exclusive property of Subscriber. NetGenics shall have
no right and no title or ownership of any component or manifestation of any such
Subscriber Know-How or resulting Domain Area product developed by or on behalf
of Subscriber. All rights in such Subscriber Know-How or resulting Domain Area
products are and shall remain the exclusive property of Subscriber. Concepts,
methods, techniques, data, know-how, processes, adaptations, ideas and
expressions of ideas relating to Subscriber Software shall be and shall remain
the exclusive property of Subscriber; provided, that such concepts, methods,
techniques, know-how, processes, adaptations, ideas and expressions of ideas
relating to the Subscriber Software that contain NetGenics Confidential
Information may only be used by Subscriber in connection with the Licensed
Program. Subscriber agrees not to pursue or assign patent protection to
Subscriber Software. Provided that Subscriber is contractually entitled to do
so, Subscriber hereby grants to NetGenics a non-exclusive, nontransferable right
to use Subscriber Software at the
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<PAGE> 9
Designated Location(s) solely for purposes of providing support to Subscriber
relating to the Licensed Programs pursuant to this Agreement and performing the
other obligations required to be performed by NetGenics pursuant to this
Agreement.
(b) Concepts, methods, techniques, know-how, processes,
adaptations, ideas and expressions of ideas relating to the Subscription and any
to custom software modules (excluding Subscriber Know-How) shall be and shall
remain the exclusive property of NetGenics.
5.9 Subscriber may, at any time during the Term of this Agreement,
upgrade the License type from a Small License to a Medium or a Large License, or
from a Medium License to a Large License (each as described on EXHIBIT C) upon
thirty (30) days written notice. The number of Users, Service Hours, and the
Fees for the upgraded License Type shall become effective as of thirty (30) days
from receipt of notice, and shall continue in force for the remainder of the
Term of this Agreement. Should additional Designated Locations be added to this
Agreement, pursuant to Sections 5.10 or 5.11 below, subsequent upgrade of a
License type shall entitle Subscriber to the discounted Fees as set forth in
those Sections.
5.10 During the Term of this Agreement, Subscriber may add one
additional Designated Location to this Agreement, upon no less than thirty (30)
days written notice. The Fees for the two Designated Locations shall be as
designated herein below with respect to the Fees set forth on EXHIBIT C. The
Designated Location shall be installed as mutually agreed between the parties
but at no additional cost to Subscriber. No more than one additional site may be
added to the Agreement under the provisions of this Section 5.10:
[******]
[******]
[******]
[******]
[******]
[******]
5.11 During the initial eighteen (18) months following the Effective
Date, Subscriber may add additional Designated Locations(s) (beyond the second
Designated Location as provided in Section 5.10 above), upon no less than thirty
(30) days' written notice and according to the following Fees:
[******]
[******]
[******]
[******]
9
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[******]
[******]
[******]
[******]
[******]
5.12 Subscriber may, upon no less than thirty (30) days notice to
NetGenics, downgrade the License type at a Designated Location from a Large
License to a Medium or a Small License, or from a Medium to a Small License,
each as defined on, and at the Fees set forth on, EXHIBIT C. Any discounts
otherwise associated with multiple Licenses, as described in Section 5.10 or
5.11, shall not extend to any License downgraded pursuant to this Section 5.12.
5.13 Subscriber may, upon no less than ninety (90) days' written
notice, terminate a Designated Location, (added pursuant to Sections 5.10 or
5.11 above) from this Agreement. Termination of a Designated Location pursuant
to this Section 5.13 shall affect the Fees as follows: for each License at a
Designated Location terminated according to this Section 5.13, any discount in
the Fees (as otherwise provided under Section 5.10 or 5.11) for the smallest
remaining License shall be forfeited for the remaining Term. Notwithstanding the
foregoing, should termination of a Designated Location be accompanied by a
License upgrade (as set forth in Section 5.9 herein) at one of the remaining
Designated Locations, then the Fees schedules set forth in Sections 5.10 or 5.11
(as appropriate) shall apply as written. All termination provisions set forth in
Section 13.5 of this Agreement shall apply to any Designated Location terminated
according to this Section 5.13. Should Subscriber terminate a Designated
Location upon less than ninety (90) days' written notice, then Subscriber shall
pay consideration to NetGenics equal to one calendar quarter's Fees for that
Designated Location.
6. SUPPORT SERVICES
----------------
6.1 Subscriber shall be entitled to receive Services from NetGenics
during the term of this Agreement as described below. Services provided pursuant
to this Section 6.1 shall not reduce the number of Service Hours available to
Subscriber for a particular calendar quarter, except as expressly noted herein:
(a) NetGenics shall provide to Subscriber unlimited remote
consultation regarding the Product, comprised of support, problem determination
and resolution Service by telephone and electronic mail (as described in EXHIBIT
F) 24 hours per day, seven days per week. Such remote consultation shall not be
charged against Subscriber's Service Hours.
(b) Subscriber shall provide NetGenics remote access to the
Product, at no charge to Service Hours, for any and all purposes relating to the
obligations to be performed by NetGenics pursuant to this Agreement, including,
but not limited to, for
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purposes of monitoring the performance and integrity of the Licensed Program or
the Hardware and for problem determination and resolution and for other purposes
consistent with the terms of this Agreement; provided, however, that Subscriber,
at its option, may reasonably limit the duration and timing of such access or
may require that NetGenics perform such Services on-site at a Designated
Location pursuant to Section 6.2 (c). Material costs associated with such remote
access (including, but not limited to, telecom, network, or equipment fees),
shall be borne by Subscriber
(c) All requests by Subscriber for support shall be made by way of
designated methods (as described in EXHIBIT F) to NetGenics' client services
group and NetGenics shall respond to same according to the escalation procedures
set forth on EXHIBIT F.
(d) Upon the initial installation and acceptance by Subscriber of the
Licensed Program as provided in Section 2, NetGenics shall provide two (2) days
of on-site end-user training to Subscriber at a Designated Location at no
additional charge to Subscriber. Additional training beyond the initial two (2)
days of training described above shall be deducted from the Service Hours as set
forth in EXHIBIT G, or, if Subscriber has utilized all Service Hours for that
calendar quarter, shall be charged to Subscriber at NetGenics' standard billing
rates then in effect.
(e) As a part of the installation, NetGenics shall install one Object
Request Broker (ORB) on one computational server at Subscriber's Designated
Location at no cost to Subscriber's Service Hours.
6.2 Subscriber is entitled to receive from NetGenics the number of Service
Hours per calendar year as set forth in EXHIBIT C. This Section 6.2 and EXHIBIT
G attached hereto sets forth the manner in which Service Hours may be used by
Subscriber. Any unused Service Hours at the end of a calendar year shall be
forfeited and canceled.
(a) Upon receipt of reasonable advance notice from Subscriber,
NetGenics shall use commercially reasonable efforts to provide Subscriber with
on-site support Services, and the number of Service Hours shall be deducted from
the Service Hours available to Subscriber in exchange for such on-site Services,
as provided in EXHIBIT G attached hereto.
(b) Subscriber shall request Services (including, but not limited to,
development of custom software modules) from NetGenics by completing the form
attached hereto as EXHIBIT D, detailing the Services requested. NetGenics shall
determine the amount and type of Services required, and the schedule for such
Services and forward to Subscriber a response in the form of a statement of
Services, on EXHIBIT E attached hereto. After Subscriber's review and approval
in writing of the statement of Services covering a Services project, NetGenics
shall perform the Services. During a Services project, the number of Service
Hours set forth in the statement of Services shall be
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<PAGE> 12
deducted from those available to Subscriber under this Agreement. Payment for
Services provided by NetGenics on a Services project in excess of such available
Service Hours shall be based on the hourly rates of NetGenics in effect at the
time such Services are provided. Hourly rates for such Services are detailed on
EXHIBIT I, which may be changed, from time to time, upon written notice to
Subscriber. The number of Service Hours deemed to be used for any Service
request shall be the number specified in the statement of Services to Subscriber
prior to the commencement of such Services. Should such Services include the
design and development of custom software modules, such Services shall be
performed according to the procedure in Sections 7.1 and 7.2 of this Agreement.
(c) In the event Subscriber requests that NetGenics provide on-site
monitoring in lieu of remote site support otherwise available under Section
6.1(b) of this Agreement, Subscriber shall be charged Service Hours each
calendar quarter for such on-site monitoring as set forth in EXHIBIT G.
(d) Service Hours will be accounted for on a calendar quarter basis and
NetGenics shall provide Subscriber with monthly cumulative reports during each
calendar quarter detailing projects for which Service Hours were used and the
number of Service Hours used. Once Subscriber has exhausted its Service Hours
for any calendar year, Subscriber shall be charged for any such additional
Services at NetGenics' standard billing rates then in effect, in addition to all
out-of-pocket expenses incurred by NetGenics in connection therewith as
described in Section 10.2.
(e) Except as provided in Section 10.2 and EXHIBIT G of this Agreement,
each party shall bear its own travel expenses related to the performance of this
Agreement.
(f) NetGenics acknowledges that Subscriber may request Services which
relate to the integration of the Licensed Program with Third Party Software or
to creating interfaces between the Licensed Program and other CORBA-based
systems. NetGenics shall use best commercial efforts to deliver such Services to
Subscriber, pursuant to this Section 6.2 and Article 7 herein. Notwithstanding
the foregoing, any delivery of Services which involve any Third Party Software
or CORBA-based systems shall be dependent upon the cooperation and timely
disclosure of requested and necessary technical information from the owner(s) of
any such Third Party Software or CORBA-based systems and shall not require
NetGenics to disclose its Confidential Information to any third party which
NetGenics, in its sole estimation, deems to be competitive with its business.
Subscriber agrees to provide reasonable assistance to NetGenics in the
attainment of such cooperation and technical information as might be required by
NetGenics in conjunction with the delivery of such requested Services.
(g) NetGenics shall be obligated to provide disaster recover/restore
Services to Subscriber, in the event a full system restore is needed. Unless
such restore
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Services are directly caused by defects otherwise covered under Warranty,
Subscriber shall incur charges to Service Hours for such Services.
6.3 NetGenics shall deliver Service Hours to Subscriber as
mutually-agreed in the System Committee; provided, however, that NetGenics shall
not be obligated to provide Service Hours during any one calendar quarter in
excess of one half (1/2) the total number of service hours allotted for one
calendar year.
6.4 As soon as reasonably practicable after the Effective Date, the
parties shall form a committee comprised of no more than three (3)
representatives from each party (the "System Committee"). The System Committee
shall meet no less often than on a quarterly basis (with the venue alternating
between a Subscriber Designated Location and a NetGenics location, unless
otherwise mutually agreed) and shall be charged with the following duties: (a)
coordinating the installation of the Product and the training as provided in
Section 6.1(d) above, (b) overseeing Hardware upgrades and replacements, (c)
formulating, discussing and agreeing to Service requests, including the number
of Service Hours to be used in designing and delivering custom software and
whether any Subscriber Know-How exists in custom software requested by
Subscriber and issues relating to the acceptance of custom software and (d)
except as otherwise provided in Section 7.2 (b), resolving disputes between the
parties arising out of or in connection with this Agreement.
7. CUSTOMIZATION METHODOLOGY
-------------------------
7.1 (a) If Subscriber desires that the Licensed Program be modified,
customized or adapted in any respect to suit Subscriber's specific requirements
through the development of custom software modules, Subscriber shall deliver to
NetGenics written notice thereof, in the form of EXHIBIT D, specifying
Subscriber's requirements in as much detail as possible. Upon receipt of such
notice, NetGenics and Subscriber shall cooperate in good faith to agree upon the
scope of such Services, detailed requirements, high-level design, the timetable
for development and implementation and cost (or Service Hours) therefor;
provided, however, that nothing in this Agreement shall be deemed to (i)
obligate NetGenics to perform any Services in excess of those available by way
of Subscriber's then available Service Hours or (ii) provide Services related to
custom software modules deemed by NetGenics, in its sole discretion, to be
unfeasible. Such agreement shall be set forth in writing, referencing this
Agreement, and shall be incorporated herein as EXHIBIT E.
(b) To the extent the number of Service Hours that NetGenics
estimates will be required to complete a custom software module, as specified in
the aforementioned, mutually agreed development schedule during a calendar year
exceeds Subscriber's then-unused Service Hours for such calendar year, such
customization Services shall be charged to Subscriber at NetGenics' standard
billing rates then in effect.
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(c) Subject to the limitations set forth in Section 14 hereto,
NetGenics warrants that a custom software module, once completed and accepted by
Subscriber in accordance with the terms hereof, shall perform in all material
respects in accordance with the established, mutually-agreed detailed
requirements specified on EXHIBIT E.
(d) Subscriber and NetGenics acknowledge that a custom software
module may contain Subscriber Know-How. In the event Subscriber seeks to
designate part of a custom software module as Subscriber Know-How, Subscriber
shall inform NetGenics of same in writing as a part of EXHIBIT D, and NetGenics
and Subscriber shall jointly agree on the scope of such Subscriber Know-How, and
the extent to which such Subscriber Know-How (i) is necessary to the custom
software module, (ii) does not contain NetGenics Confidential Information, and
(iii) provides competitive advantage to Subscriber, and shall designate same on
EXHIBIT E. NetGenics shall not re-use or incorporate such Subscriber Know-How in
the design or development of any custom software module for any third-party
subscriber of the Software. Notwithstanding the foregoing, NetGenics shall not
be restricted in providing any custom software module to any third party
subscriber which (A) does not contain Subscriber Know-How, or (B) is designed by
NetGenics according to such third party's independent specifications. Service
Hours charged for such customer software modules may be adjusted to reflect lack
of re-use by NetGenics. The System Committee (defined in Section 6.4) shall
determine the scope of Subscriber Know-How and shall resolve any disputes
relating to Service Hours charged for Customer Software Modules.
7.2 (a) NetGenics shall use commercially reasonable efforts to install
custom software modules in accordance with the schedule set forth in the
completed EXHIBIT E, subject to Subscriber performing its obligations under this
Agreement and providing such cooperation as NetGenics may reasonably request to
facilitate such installation. Such installation with respect to any custom
software module shall be deemed complete upon written notice from NetGenics to
Subscriber.
(b) Subscriber shall be deemed to have accepted a custom software
module with respect to which any installation notice has been provided by
NetGenics unless (i) such installed custom software module materially fails to
conform to the specifications as set forth on EXHIBIT E therefor, (ii)
Subscriber gives notice of nonacceptance to NetGenics within thirty (30) days
after the date of such installation notice, and (iii) any such notice of
non-acceptance states specifically with respect to such installed custom
software module, the custom software specifications to which such installed
custom software module fails to conform with sufficient specificity to permit
NetGenics to correct such nonconformity. NetGenics shall use commercially
reasonable efforts to correct any nonconformity found to exist and notify
Subscriber in writing upon the completion of such correction. If NetGenics is
unable to make such corrections, Subscriber's remedy shall be limited, at
NetGenics' sole discretion, to correction of the nonconforming portion of the
custom software
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<PAGE> 15
module or return of the custom software module to NetGenics and the crediting of
expended Service Hours. Subscriber shall cooperate with NetGenics in correcting
such nonconformity.
7.3 Prior to developing any module of Subscriber Software to be covered
by the warranty provisions of Section 14, Subscriber shall have: (a) received
from NetGenics a current copy of any applicable Subscriber Software development
guidelines as described and updated from time to time on the Documentation and
covering such module, (b) submitted a proposal to NetGenics for approval
describing the methodology, specifications and timetable of such Subscriber
Software module, and (c) received NetGenics' written approval for the
development of such Subscriber Software. Subscriber hereby agrees to develop
Subscriber Software modules only in conjunction with a Development System, and
in accordance with the Subscriber Software development guidelines covering such
module. Upon completion of Subscriber Software, Subscriber shall submit
completed Subscriber Software to NetGenics for quality assurance testing, and
shall not install any such Subscriber Software on the Product until NetGenics
has completed such quality assurance testing and provided final approval to
Subscriber. All NetGenics activities under this Section 7.3 shall be charged
against Subscriber's then-available Service Hours, under guidelines as set forth
in EXHIBIT G attached hereto. Subscriber Software developed other than in
accordance with all provisions of this Section 7.3 herein shall void any
warranty rights.
8. SUBSCRIBER RESPONSIBILITIES
---------------------------
8.1 The obligation of NetGenics to perform under this Agreement is
contingent upon Subscriber providing such cooperation as NetGenics may
reasonably request including, but not limited to, providing or performing the
following:
(a) Sufficient and appropriate physical space for the Hardware at
each Designated Location, in a controlled area such as a data center or computer
room, where the hardware is physically secured and environmentally controlled;
(b) Electrical power source in close proximity to the location of
the hardware;
(c) Physical connection to Subscriber's network, firewall or gateway
(as applicable), in proximity to the location of the hardware;
(d) Technical information regarding the addressing and configuration
of Subscriber's DNS (Domain Name Services) and electronic mail servers
sufficient to allow NetGenics' server to communicate with Subscriber's servers;
(e) A minimum of two (2) valid network names (host, node or machine
names) per Designated Location and their associated Internet Protocol addresses;
and
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<PAGE> 16
(f) Reasonable assistance of Subscriber's personnel.
(g) Reasonable assistance and cooperation in the provision of
requested Support Services, as well as other activities within the scope of this
Agreement, for the term of the Agreement.
8.2 It shall be understood by the parties that all Product(s) are intended
to be installed at their respective Designated Location(s) as mutually agreed,
and that Subscriber shall have all necessary facilities available for
installation and acceptance as agreed.
9. SUBSCRIPTION RELEASES
---------------------
9.1 Subject to the provisions of Section 9.3 below, standard upgrades made
by NetGenics to the Subscription (such upgrades "Subscription Releases") at any
time during the term of this Agreement will be offered to Subscriber at no
additional charge.
9.2 If any standard upgrades made to any of the Third Party Software by
their respective owners at any time during the term of this Agreement are
necessary for the Product's continued maintenance, then, at Subscriber's option,
it may purchase such upgrade from the Third Party Software vendor or, if
available, from NetGenics at NetGenics' then current prices. These upgrades
shall be installed at the Designated Location. Subscriber will be responsible
for the cost of the installation of any such upgrades (or if Service Hours are
available, such hours will count against the Service Hours) at NetGenics' then
current hourly rates. Failure by Subscriber to purchase such upgrades as are
identified by NetGenics as essential to the Subscription's continued maintenance
may result in Subscriber forfeiting its rights to receive future Subscription
Releases.
9.3 NetGenics shall furnish the number of full sets of Documentation as
designated in EXHIBIT C for each Designated Location, at no charge to
Subscriber. NetGenics shall provide such updates to the furnished Documentation
as are necessary, in conjunction with Subscription Releases. NetGenics shall, at
Subscriber's request and at NetGenics' then current published prices, furnish
additional sets of the Documentation, together with any revisions therein or
additions thereto.
10. FEES
----
10.1 Unless this Agreement is terminated pursuant to Section 2.3,
Subscriber shall pay to NetGenics consideration (the "Fee") in the amount of
[******] per year, to be paid on a quarterly basis, with the first payment of
[******] to be made within thirty (30) days after the delivery of an invoice,
prorated for any partial calendar quarter and for the no-charge trial period
described in Section 2.3, and with Service Hours for that calendar quarter
similarly prorated. Each subsequent payment of [******] shall be made no later
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<PAGE> 17
than five (5) days after the beginning of the calendar quarter for which payment
is due. The Fee as set forth in this Section 10.1 may be changed to reflect
changes in the Designated Location(s) pursuant to Sections 5.9 through 5.13 of
this Agreement, and as amended on EXHIBIT C.
10.2 If Subscriber has exhausted its available Service Hours for any
applicable calendar year, Subscriber shall pay to NetGenics, upon NetGenics'
request, fifty percent (50%) of all reasonable out-of-pocket expenses incurred
by NetGenics in performing Services for Subscriber under this Agreement
including, without limitation, expenses incurred for travel, meals, lodging,
long distance telephone calls, document reproduction, postage, and cost of
storage media such as disks and tapes.
10.3 Subscriber shall pay when due any sales, use, excise, property or
other federal, state, local or foreign taxes, duties, tariffs or other
assessments (other than any tax based solely on the net income of NetGenics) and
related interest and penalties that NetGenics is at any time obligated to pay or
collect in connection with or arising out of the transactions contemplated by
this Agreement. Subscriber agrees to indemnify and hold harmless NetGenics from
any and all of such taxes, duties, tariffs or other assessments. If NetGenics
pays any such amounts which Subscriber is obligated to pay under this Section
10.3, Subscriber shall promptly reimburse NetGenics in an amount equal to the
amount so paid by NetGenics.
10.4 Any payments due NetGenics hereunder which are not paid when due shall
bear interest at the lower of the rate of one and one-half percent (1.5%) per
month or the highest rate permitted by law.
11. SOURCE CODE
-----------
11.1 NetGenics agrees to make Subscriber a beneficiary under the NetGenics'
existing Source Code Escrow Agreement, which shall provide Subscriber with
access to the Source Code for supporting and maintaining the Licensed Program in
the event NetGenics ceases to do business in its regular course.
11.2 NetGenics may make limited examples of Source Code available to
Subscriber, as needed and at NetGenics' sole discretion. All such Source Code
shall be treated as Confidential Information of NetGenics as set forth in this
Agreement.
17
<PAGE> 18
12. PROPRIETARY RIGHTS
------------------
12.1 Except for release of Source Code, as set forth in Section 11.1 above,
Subscriber acknowledges that NetGenics is the sole and exclusive owner of the
Software, Services and Documentation and the Source Code of the Software, and
all proprietary rights therein, including, without limitation, all associated
patents, copyrights and trade secrets rights.
12.2 All proprietary notices incorporated in or fixed to the Licensed
Program or Documentation shall be duplicated by Subscriber on all copies or
extracts thereof and shall not be altered, removed or obliterated. A copyright
notice on the Licensed Program or Documentation does not, by itself, constitute
evidence of publication or public disclosure.
12.3 NetGenics and Subscriber acknowledge that the other party's
Confidential Information constitutes commercially valuable proprietary trade
secrets, patent applications, patents, plant breeders' rights, plant variety
protection registration etc. of the disclosing party, including, without
limitation, copyrights, trade secrets and may include software for which patents
have been applied for or issued. The receiving party shall (i) not disclose or
allow access to the Confidential Information to any party other than its
employees, solely on a need-to-know basis, who have signed a nondisclosure
agreement conforming as to intent and effect to this Section 12; (ii) use its
best efforts to protect the Confidential Information against any unauthorized or
unlawful use, disclosure, dissemination or copying; (iii) not use any of the
Confidential Information other than as permitted under the terms of this
Agreement; (iv) not provide or disclose to third parties the Confidential
Information in any form, and (v) not provide or permit public access to the
Confidential Information in whole or in part, including, without limitation, by
computer networks, periodicals, newspapers or any other accessible or
distributed media.
13. TERM
----
13.1 Unless sooner terminated as herein provided, this Agreement shall
commence on the Effective Date and shall terminate upon the third (3rd)
anniversary of the Effective Date (the "Term"). This agreement may be renewed
for subsequent one (1) year terms, at NetGenics' then current license fees, upon
mutual agreement within thirty (30) days of the expiration of the Term.
13.2 Subscriber may terminate this Agreement any time after the first
anniversary of the Effective Date by providing thirty (30) days written notice
thereof to NetGenics.
13.3 Either party may terminate this Agreement if the other party
materially breaches a provision of the Agreement, including, without limitation,
payment obligations, and fails to correct the breach within sixty (60) days
following written notice of the breach.
18
<PAGE> 19
13.4 If either party to this Agreement files a petition in bankruptcy, or
if a petition in bankruptcy is filed against it, or if it becomes insolvent, or
makes an assignment for the benefit of creditors or an arrangement pursuant to
any bankruptcy law, the other party shall have the right to terminate this
license upon thirty (30) days' written notice.
13.5 Upon termination of this Agreement for any reason, Subscriber shall:
(i) pay immediately all amounts which are due and payable; (ii) have no further
right and license to use the Subscription or NetGenics' Confidential Information
(except as provided in Sections 13.6 and 13.7); (iii) return, at its cost, the
Product, together with any and all copies, modifications and merged portions in
any form, and all tangible embodiments of the Confidential Information, (unless
it provides assurances reasonably satisfactory to NetGenics that the
Documentation and Confidential Information and all copies thereof have been
destroyed). NetGenics shall have the right to supervise the return or
destruction of all such materials.
13.6 In the event of termination for any reason other than as provided
under Section 2.3 of this Agreement, NetGenics shall provide any outstanding
Services for which Fees have been paid, and shall provide reasonable commercial
assistance to Subscriber in transferring any Subscriber data, held within the
Product prior to termination, into a mutually-agreed, machine-readable form.
Such assistance shall be provided at cost to Service Hours, and should remaining
Service Hours be exhausted, shall be provided at NetGenics' then-current hourly
rates. In addition, NetGenics shall maintain a tape back-up version of the
Product, in Subscriber's system configuration, for a period of five (5) years
after termination. Upon payment to NetGenics of consideration equal to the fair
market value of the Hardware then in use at Subscriber's Designated Location,
the aforementioned tape back-up version of the Product, along with the Hardware
then in use at Subscriber's Designated Location, shall be placed in escrow with
a mutually-agreed escrow agent. Subscriber shall have the right to request, and
NetGenics shall have the obligation to provide, access to the Product,
integrating Subscriber's data as of the date of termination, during the
above-referenced five-year period. Such access shall be subject to no less than
thirty (30) days' written notice from Subscriber, and shall be provided at
NetGenics then-current hourly rates, plus any and all necessary travel and other
expenses, including reasonable and actual expenses incurred for transportation,
meals, telephone, hardware rental, and shipping costs.
13.7 In the event that Subscriber terminates this Agreement on or after the
third anniversary of the Effective Date, Subscriber shall be entitled, upon
payment of a consideration equal to one (1) year's Subscription Fee (as
designated on EXHIBIT C) in effect at the time of such termination, to continue
use of the Product for a period of eighteen (18) months, subject to the
following conditions: (i) Subscriber access shall be "read-only"; i.e. data may
be viewed using the Product, but no new data may be created or analyzed using
the Product, and (ii) no more than twelve (12) persons may have access
19
<PAGE> 20
to the Product. NetGenics audit rights, as provided in Section 5.7, shall remain
in force during the above-described extension period.
14. REPRESENTATIONS, WARRANTIES AND LIMITATION OF LIABILITY
-------------------------------------------------------
14.1 NetGenics represents that it has the right and authority to enter
into this Agreement and grant the license contained herein.
14.2 NetGenics warrants to Subscriber from the date of acceptance and
for the Term of this Agreement that: (i) the Product, any custom software
modules developed by NetGenics for Subscriber and any Subscriber Software will
substantially conform to the Documentation, provided that it is used at the
Designated Location and with the environment for which it was designed; (ii) the
Product and any custom software modules developed by NetGenics for Subscriber
will process dates accurately prior to, during and after the calendar year 2000
(including, without limitation, accurate century recognition, ability to
accommodate same century and multi-century formulas and date values and
interface values reflecting the appropriate century); and, (iii) any media on
which the Licensed Program, any custom software modules developed by NetGenics
for Subscriber and the Documentation are distributed will be free from defects
in materials and workmanship under normal use and service.
14.3 NetGenics' entire liability and Subscriber's sole and exclusive
remedy in the event of substantial nonconformity of the Licensed Program or
defective media or Documentation, shall be, at NetGenics' sole discretion, the
correction or work-around of such substantial errors in the Licensed Program,
replacement of the defective media or Documentation, or a refund of a pro-rata
portion of the subscription fee, corresponding to the period of time in which
the Product was non-usable due to non-conformance. Any correction of substantial
errors to the Licensed Program or any replacement media or documentation which
is supplied is warranted for the remainder of the original warranty period.
14.4 Such services and any required warranty service pursuant to this
Section 14 will be performed, by mutual agreement, (i) by telephonic
communication, (ii) via modem from NetGenics' facility, (iii) by NetGenics at
the site of Subscriber or (iv) otherwise as determined by NetGenics and agreed
by Subscriber.
14.5 The warranty contained in Section 14.2 shall be void and of no
effect in the event (i) the Product has been modified, altered or changed in any
manner by Subscriber or any party acting on behalf of Subscriber (other than as
set forth herein), (ii) if any media has been damaged as a result of accident,
misuse or abuse by Subscriber or any party acting on behalf of Subscriber (other
than by NetGenics or its authorized representatives), or (iii) any substantial
nonconformity of the Product is due, through no fault of NetGenics, to the
failure of, or defects in, any Third Party Software used in
20
<PAGE> 21
connection with the Licensed Program, including any Subscriber Software
developed other than as provided in Section 7.3 of this Agreement.
14.6 EXCEPT AS SET FORTH IN SECTIONS 14.1 AND 14.2, NETGENICS EXPRESSLY
DISCLAIMS ALL WARRANTIES OR REPRESENTATIONS WITH RESPECT TO THE SUBSCRIPTION
(INCLUDING, WITHOUT LIMITATION, ANY RESULTS CREATED FROM USE OF THE SUBSCRIPTION
HEREUNDER), EXPRESS OR IMPLIED, INCLUDING, WITHOUT LIMITATION, THE IMPLIED
WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE.
14.7 NETGENICS SHALL NOT BE LIABLE TO SUBSCRIBER FOR ANY DIRECT DAMAGES
OR CLAIMS IN EXCESS OF THE FEES PAID BY SUBSCRIBER HEREUNDER. NETGENICS SHALL
NOT BE LIABLE TO SUBSCRIBER OR ITS AFFILIATES FOR ANY INDIRECT, SPECIAL,
CONSEQUENTIAL, EXEMPLARY OR INCIDENTAL DAMAGES (INCLUDING, WITHOUT LIMITATION,
LOST REVENUES, ANTICIPATED REVENUES OR PROFITS RELATING TO THE SAME) ARISING
FROM ANY CLAIM RELATING DIRECTLY OR INDIRECTLY TO THIS AGREEMENT, WHETHER A
CLAIM FOR SUCH DAMAGES IS BASED ON WARRANTY, CONTRACT, TORT (INCLUDING, WITHOUT
LIMITATION, NEGLIGENCE OR STRICT LIABILITY), EVEN IF AN AUTHORIZED
REPRESENTATIVE OF NETGENICS IS ADVISED OF THE LIKELIHOOD OR POSSIBILITY OF SAME.
SUBSCRIBER ACKNOWLEDGES AND AGREES THAT PAYMENT BY NETGENICS OR RETENTION BY
SUBSCRIBER OF DIRECT DAMAGES AS LIMITED BY THE FOREGOING SENTENCE SHALL BE
SUBSCRIBER'S SOLE AND EXCLUSIVE REMEDY IN EXHAUSTION OF ALL OTHER REMEDIES UNDER
THIS AGREEMENT, AT LAW OR IN EQUITY, AND THAT SUCH REMEDY SHALL NOT BE DEEMED OR
ALLEGED BY SUBSCRIBER TO HAVE FAILED OF ITS ESSENTIAL PURPOSE. IN NO EVENT SHALL
NETGENICS BE LIABLE FOR ANY DAMAGES CAUSED BY SUBSCRIBER'S OR ANY THIRD PARTY'S
ACTS OR OMISSIONS.
15. INDEMNIFICATION
---------------
15.1 NetGenics shall indemnify and hold harmless Subscriber against any
costs, fees or damages arising out of, or related to, any claim that
Subscriber's authorized use or possession of the Product or that the license
infringes or violates any United States or European Patent Office copyright,
patent or trademark of any third party; provided however, that (i) NetGenics has
sole control of the defense and/or settlement, (ii) Subscriber notifies
NetGenics promptly, but no later than thirty (30) days upon receipt by
Subscriber of notice of such claim in writing of each such claim or suit and
gives NetGenics all information known to Subscriber relating thereto, and (iii)
Subscriber cooperates with NetGenics in the settlement and/or defense.
Subscriber shall be reimbursed for all reasonable out-of-pocket expenses
incurred in providing any
21
<PAGE> 22
cooperation requested by NetGenics. Failure of Subscriber to so notify NetGenics
will result in the forfeiture by Subscriber of its rights to indemnification
under this Section 15.
15.2 In the event that all or any part of the Product is, or in the
opinion of NetGenics may become, the subject of any claim or suit for
infringement of any third party trademark, patent or copyright, or if
Subscriber's use of the Product is permanently enjoined, NetGenics shall, in its
sole discretion and at its expense, do one of the following: (i) procure for
Subscriber the right to use the Product or the affected part thereof; (ii)
replace the Product or affected part with other suitable software, hardware and
documentation; (iii) modify the Product or affected part to make it
non-infringing; or (iv) refund the license fee paid by Subscriber and terminate
the licensed rights granted herein. Any such refund shall be prorated to reflect
the reasonable value for the use of the Subscription. NetGenics shall be
obligated to advise Subscriber of its intended activities within thirty (30)
days of initial notification of infringement. In the event NetGenics elects
options (ii) or (iii) above, and the resulting Product lacks significant
functionality as described in the Documentation, Subscriber may elect to
terminate this Agreement and incur no further cost nor obligation hereunder.
15.3 NetGenics shall have no obligations under this Section 15 to the
extent a claim is based upon any of the following: (i) the Product or any
portion thereof has been modified, altered or changed in any manner by
Subscriber or any party acting on behalf of Subscriber (other than by NetGenics
or its authorized representatives), if such infringement would have been avoided
in the absence of the use of such altered Product; (ii) the combination,
operation or use of the Product with software which was not provided by
NetGenics, if such infringement would have been avoided in the absence of such
combination operation or use; or (iii) the use of the Software and Documentation
on or in connection with a computer system or hardware components which have not
been approved by NetGenics and/or which are used at a location other than at the
Designated Location without NetGenics' prior written approval.
15.4 This Section 15 states NetGenics' entire liability for any alleged
infringement by the Product or any part thereof.
16. GENERAL
-------
16.1 Sections 5.8, 12.1 through 12.3, 13.5 through 13.7, 14.1, 14.3,
14.5 through 14.7, Article 15 in its entirety, 16.1, 16.7, 16.13 and 16.15 shall
survive the termination of this Agreement for any reason.
16.2 This Agreement and all Exhibits attached hereto and incorporated
herein by this reference contain the entire agreement between the parties hereto
with respect to the subject matter hereof and supersedes any previous
understandings or agreements, whether written or oral, in respect of such
subject matter.
22
<PAGE> 23
16.3 This Agreement shall be binding upon and inure to the benefit of
the parties, their successors and assigns. This Agreement or any portion
thereof, or any right or responsibility hereunder, shall not be assignable
(except to a successor or Affiliate) by Subscriber without the prior written
consent of NetGenics, such consent not to be unreasonably withheld. Any
attempted assignment which does not comply with the terms of this Section 16.3
shall be void and of no effect.
16.4 None of the terms of this Agreement shall be deemed to be waived or
amended by either party unless such a waiver or amendment specifically
references this Agreement and is in a writing signed by the party to be bound.
16.5 The illegality, invalidity or unenforceability of any part of this
Agreement shall not affect the legality, validity or enforceability of the
remainder of this Agreement. If any part of this Agreement shall be found to be
illegal, invalid or unenforceable, this Agreement shall be given such meaning as
would make this Agreement legal, valid and enforceable in order to give effect
to the intent of the parties.
16.6 All communications, notices and exchanges of information
contemplated herein or required or permitted to be given hereunder shall be in
writing and shall be deemed properly given when personally delivered, or when
one delivers it to an established courier service, with fees prepaid, or
transmits it by facsimile (with hard copy to follow), addressed to the other
party to the addresses set forth on the first page of this Agreement (or such
other address of which such party shall have given written notice).
16.7 Both Subscriber and NetGenics acknowledge that a breach or failure
to comply with any of the provisions of this Agreement (other than payment
obligations) will irreparably harm the business of the other party, and that
neither Subscriber nor NetGenics will have an adequate remedy at law in the
event of such breach or non-compliance. Therefore, Subscriber and NetGenics
acknowledge that either party shall be entitled to injunctive relief and/or
specific performance without the posting of bond or other security, in addition
to whatever other remedies it may have, at law or in equity, in any court of
competent jurisdiction against any acts of such breach or non-compliance.
16.8 Subscriber will be responsible for the payment of all taxes based
on work performed or products delivered pursuant to this Agreement, except for
taxes based on NetGenics' net income.
16.9 Each party has the right to use the name, logos and trademarks of
the other party in publicity releases or advertising, including customer lists,
or for other promotional purposes, upon the prior written approval of the other
party, such approval not to be unreasonably withheld.
16.10 Nothing herein shall be construed to create any relationship of
employer and employee, agent and principal, partnership or joint venture between
the parties. Neither
23
<PAGE> 24
party shall assume, either directly or indirectly, any liability of or for the
other party. Neither party shall have the authority to bind or obligate the
other party and neither party shall represent that it has such authority.
16.11 Notwithstanding anything to the contrary contained in this
Agreement, neither Subscriber nor NetGenics will be responsible for any failure
to perform its obligations hereunder caused by strikes, lockouts, riots,
epidemics, war, governmental regulations, fire, communication line failures,
power failures, acts of God or other causes beyond its control, including acts
or omissions of third parties, and the occurrence of any such event will toll
the time period provided in this Agreement for performance by NetGenics or
Subscriber.
16.12 The article and section headings in this Agreement are for
reference purposes only and will not be deemed to be a part of this Agreement,
nor are they intended to describe, interpret, define or limit the scope or
extent of this Agreement or any provision hereof.
16.13 This Agreement shall be governed by and construed in accordance
with the domestic laws of the State of Delaware, United States of America,
without giving effect to its choice of law or conflict of law provisions.
16.14 If the parties cannot resolve a dispute arising out of or in
connection with this Agreement, then any party may, upon written notice to the
other, have such dispute referred to their respective officers designated below
or their successors, for attempted resolution by good faith negotiations within
thirty (30) days after such notice is received:
For NetGenics: President
For Subscriber: Head of Biotechnology Research
Any such dispute which is not so resolved between the parties or the designated
officers within such thirty (30) day period shall, upon written notice from one
Party to be resolved by final and binding arbitration under the then current
Licensing Agreement Arbitration Rules of the American Arbitration Association
("AAA"). If the claim is filed by one party, then the venue for arbitration
shall be proximate to that of the other party. The arbitration shall be
conducted by a panel of three arbitrators who are knowledgeable in the subject
matter which is at issue in the dispute (the "Panel"). Each party shall have the
right to appoint one member of the Panel, with the third member to be mutually
agreed upon by the two Panel members appointed by the parties or, failing such
agreement, to be selected according to the AAA rules. Notwithstanding the
foregoing, no panel member appointed in pursuit to this Section 16.14 shall be a
resident of the state of Ohio or the Principality of Belgium. In conducting the
arbitration, the panel shall determine what discovery will be permitted,
consistent with the goal of limiting the cost and time which the parties must
expend for discovery (and provided that the Panel shall permit such
24
<PAGE> 25
discovery deemed necessary to permit an equitable resolution to the dispute).
The decision of the Panel shall be in writing and shall set forth the basis
therefor. The Panel shall also determine the steps, if any, that a Party should
take to correct any failure or breach by such Party pertaining to any such
dispute. The Parties shall share equally the Panel's fees and expenses. The
decision of the Panel shall be final and may be enforced by the Party in whose
favor it runs, and such award may be enforced and executed upon in any court
having jurisdiction over the Party against whom the enforcement of such an award
is sought.
16.15 During the Term of this Agreement and for one (1) year thereafter,
neither Subscriber nor NetGenics shall directly solicit for employment any
employee of the other party who was directly involved with the performance of
this Agreement, without the prior consent of that party. Notwithstanding the
foregoing, the provision of this Section 16.15 shall not prohibit either party
from hiring employees of the other party who have applied for positions on their
own and without solicitation by the hiring party.
16.16 Upon execution of this Agreement, NetGenics and Subscriber agree
to cooperate in the preparation of a joint press release stating that the
parties have entered into a software license and service agreement. NetGenics
hereby warrants that it will not use any trademark or make reference to products
or services of Subscriber or its subsidiaries without obtaining the prior
written permission of Subscriber.
***
IN WITNESS WHEREOF the parties hereto have caused this Software
License Agreement to be executed by their duly authorized representatives as of
the date first above written.
NetGenics International, Ltd. Hoechst Schering AgrEvo GmbH
By: /s/ Keith T. Coleman By: /s/ Dr. Jiujeu Aphauer
--------------------------- ------------------------------------
(Signature) (Signature)
Keith T. Coleman Dr. Jiujeu Aphauer
- ------------------------------- ----------------------------------------
(Printed Name) (Printed Name)
Title: Chief Financial Officer Title: Member of Agrevo Board
----------------------- --------------------------------
By: /s/ B. Convent
------------------------------------
(Signature)
B. Convent
(Printed Name)
Title: Head, Research and Development,
-------------------------------
Biotechnology
-------------
25
<PAGE> 1
Exhibit 21.1
LIST OF SUBSIDIARIES OF NETGENICS, INC.
The following is a list of the subsidiaries of NetGenics, Inc., a
Delaware corporation (the "Corporation"). The equity interests of each entity
listed below are wholly owned by the Corporation.
NAME OF CORPORATION JURISDICTION OF ORGANIZATION
NetGenics UK, Ltd. United Kingdom
NetGenics International, Ltd. Ohio
<PAGE> 1
Exhibit 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
----------------------------------
We hereby consent to the use in this Registration Statement on Form S-1 of our
report dated March 9, 2000 relating to the consolidated financial statements of
NetGenics, Inc. and Subsidiaries, which appears in such Registration Statement.
We also consent to the reference to us under the heading "Experts" in such
Registration Statement.
PricewaterhouseCoopers LLP
Cleveland, Ohio
March 13, 2000
<PAGE> 1
Exhibit 24.1
DIRECTOR AND/OR OFFICER OF NETGENICS, INC.
REGISTRATION STATEMENT ON FORM S-1
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each of the undersigned directors
and officers of NetGenics, Inc., a Delaware corporation, hereby constitutes and
appoints Manuel J. Glynias and Vincent P. Kazmer and both of them, as his or her
true and lawful attorney-in-fact or attorneys-in-fact, with full power of
substitution and resubstitution, for him or her and in his or her name, place
and stead, in any and all capacities, to sign and file with the Securities and
Exchange Commission under the Securities Act of 1933 (the "Securities Act") one
or more Registration Statement(s) on Form S-1 relating to the registration for
sale of common stock, $0.001 par value per share, of the Company, with any and
all amendments, supplements and exhibits thereto, including pre-effective and
post-effective amendments or supplements or any additional registration
statement filed pursuant to Rule 462 promulgated under the Securities Act, with
power and authority to do and perform any and all acts and things whatsoever
required, necessary or desirable to be done in the premises, hereby ratifying
and approving the act of said attorneys-in-fact and any of them and any such
substitute.
This Power of Attorney may be executed in multiple counterparts, each
of which shall be deemed an original with respect to the person executing it.
Executed as of this 7th day of March 2000.
<TABLE>
<S> <C>
/s/ Manuel J. Glynias
- ------------------------------------ -------------------------------------------
Manuel J. Glynias Anthony B. Evnin
Chief Executive Officer and Director Director
- ------------------------------------ -------------------------------------------
Vincent P. Kazmer John Pappajohn
Chief Financial Officer Director
- ------------------------------------ -------------------------------------------
Raymond J. Merk Nicole Vitullo
Controller Director
- ------------------------------------ -------------------------------------------
Walter Gilbert Alan G. Walton
Director Director
</TABLE>
<PAGE> 2
DIRECTOR AND/OR OFFICER OF NETGENICS, INC.
REGISTRATION STATEMENT ON FORM S-1
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each of the undersigned directors
and officers of NetGenics, Inc., a Delaware corporation, hereby constitutes and
appoints Manuel J. Glynias and Vincent P. Kazmer and both of them, as his or her
true and lawful attorney-in-fact or attorneys-in-fact, with full power of
substitution and resubstitution, for him or her and in his or her name, place
and stead, in any and all capacities, to sign and file with the Securities and
Exchange Commission under the Securities Act of 1933 (the "Securities Act") one
or more Registration Statement(s) on Form S-1 relating to the registration for
sale of common stock, $0.001 par value per share, of the Company, with any and
all amendments, supplements and exhibits thereto, including pre-effective and
post-effective amendments or supplements or any additional registration
statement filed pursuant to Rule 462 promulgated under the Securities Act, with
power and authority to do and perform any and all acts and things whatsoever
required, necessary or desirable to be done in the premises, hereby ratifying
and approving the act of said attorneys-in-fact and any of them and any such
substitute.
This Power of Attorney may be executed in multiple counterparts, each
of which shall be deemed an original with respect to the person executing it.
Executed as of this 24th day of February 2000.
<TABLE>
<S> <C>
/s/ Anthony B. Evnin
- ------------------------------------ -------------------------------------------
Manuel J. Glynias Anthony B. Evnin
Chief Executive Officer and Director Director
- ------------------------------------ -------------------------------------------
Vincent P. Kazmer John Pappajohn
Chief Financial Officer Director
- ------------------------------------ -------------------------------------------
Raymond J. Merk Nicole Vitullo
Controller Director
- ------------------------------------ -------------------------------------------
Walter Gilbert Alan G. Walton
Director Director
</TABLE>
<PAGE> 3
DIRECTOR AND/OR OFFICER OF NETGENICS, INC.
REGISTRATION STATEMENT ON FORM S-1
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each of the undersigned directors
and officers of NetGenics, Inc., a Delaware corporation, hereby constitutes and
appoints Manuel J. Glynias and Vincent P. Kazmer and both of them, as his or her
true and lawful attorney-in-fact or attorneys-in-fact, with full power of
substitution and resubstitution, for him or her and in his or her name, place
and stead, in any and all capacities, to sign and file with the Securities and
Exchange Commission under the Securities Act of 1933 (the "Securities Act") one
or more Registration Statement(s) on Form S-1 relating to the registration for
sale of common stock, $0.001 par value per share, of the Company, with any and
all amendments, supplements and exhibits thereto, including pre-effective and
post-effective amendments or supplements or any additional registration
statement filed pursuant to Rule 462 promulgated under the Securities Act, with
power and authority to do and perform any and all acts and things whatsoever
required, necessary or desirable to be done in the premises, hereby ratifying
and approving the act of said attorneys-in-fact and any of them and any such
substitute.
This Power of Attorney may be executed in multiple counterparts, each
of which shall be deemed an original with respect to the person executing it.
Executed as of this 26th day of February 2000.
<TABLE>
<S> <C>
- ------------------------------------ -------------------------------------------
Manuel J. Glynias Anthony B. Evnin
Chief Executive Officer and Director Director
/s/ Vincent P. Kazmer
- ------------------------------------ -------------------------------------------
Vincent P. Kazmer John Pappajohn
Chief Financial Officer Director
- ------------------------------------ -------------------------------------------
Raymond J. Merk Nicole Vitullo
Controller Director
- ------------------------------------ -------------------------------------------
Walter Gilbert Alan G. Walton
Director Director
</TABLE>
<PAGE> 4
DIRECTOR AND/OR OFFICER OF NETGENICS, INC.
REGISTRATION STATEMENT ON FORM S-1
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each of the undersigned directors
and officers of NetGenics, Inc., a Delaware corporation, hereby constitutes and
appoints Manuel J. Glynias and Vincent P. Kazmer and both of them, as his or her
true and lawful attorney-in-fact or attorneys-in-fact, with full power of
substitution and resubstitution, for him or her and in his or her name, place
and stead, in any and all capacities, to sign and file with the Securities and
Exchange Commission under the Securities Act of 1933 (the "Securities Act") one
or more Registration Statement(s) on Form S-1 relating to the registration for
sale of common stock, $0.001 par value per share, of the Company, with any and
all amendments, supplements and exhibits thereto, including pre-effective and
post-effective amendments or supplements or any additional registration
statement filed pursuant to Rule 462 promulgated under the Securities Act, with
power and authority to do and perform any and all acts and things whatsoever
required, necessary or desirable to be done in the premises, hereby ratifying
and approving the act of said attorneys-in-fact and any of them and any such
substitute.
This Power of Attorney may be executed in multiple counterparts, each
of which shall be deemed an original with respect to the person executing it.
Executed as of this 23rd day of February 2000.
<TABLE>
<S> <C>
- ------------------------------------ -------------------------------------------
Manuel J. Glynias Anthony B. Evnin
Chief Executive Officer and Director Director
/s/ John Pappajohn
- ------------------------------------ -------------------------------------------
Vincent P. Kazmer John Pappajohn
Chief Financial Officer Director
- ------------------------------------ -------------------------------------------
Raymond J. Merk Nicole Vitullo
Controller Director
- ------------------------------------ -------------------------------------------
Walter Gilbert Alan G. Walton
Director Director
</TABLE>
<PAGE> 5
DIRECTOR AND/OR OFFICER OF NETGENICS, INC.
REGISTRATION STATEMENT ON FORM S-1
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each of the undersigned directors
and officers of NetGenics, Inc., a Delaware corporation, hereby constitutes and
appoints Manuel J. Glynias and Vincent P. Kazmer and both of them, as his or her
true and lawful attorney-in-fact or attorneys-in-fact, with full power of
substitution and resubstitution, for him or her and in his or her name, place
and stead, in any and all capacities, to sign and file with the Securities and
Exchange Commission under the Securities Act of 1933 (the "Securities Act") one
or more Registration Statement(s) on Form S-1 relating to the registration for
sale of common stock, $0.001 par value per share, of the Company, with any and
all amendments, supplements and exhibits thereto, including pre-effective and
post-effective amendments or supplements or any additional registration
statement filed pursuant to Rule 462 promulgated under the Securities Act, with
power and authority to do and perform any and all acts and things whatsoever
required, necessary or desirable to be done in the premises, hereby ratifying
and approving the act of said attorneys-in-fact and any of them and any such
substitute.
This Power of Attorney may be executed in multiple counterparts, each
of which shall be deemed an original with respect to the person executing it.
Executed as of this 29th day of February 2000.
<TABLE>
<S> <C>
- ------------------------------------ -------------------------------------------
Manuel J. Glynias Anthony B. Evnin
Chief Executive Officer and Director Director
- ------------------------------------ -------------------------------------------
Vincent P. Kazmer John Pappajohn
Chief Financial Officer Director
/s/ Raymond J. Merk
- ------------------------------------ -------------------------------------------
Raymond J. Merk Nicole Vitullo
Controller Director
- ------------------------------------ -------------------------------------------
Walter Gilbert Alan G. Walton
Director Director
</TABLE>
<PAGE> 6
DIRECTOR AND/OR OFFICER OF NETGENICS, INC.
REGISTRATION STATEMENT ON FORM S-1
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each of the undersigned directors
and officers of NetGenics, Inc., a Delaware corporation, hereby constitutes and
appoints Manuel J. Glynias and Vincent P. Kazmer and both of them, as his or her
true and lawful attorney-in-fact or attorneys-in-fact, with full power of
substitution and resubstitution, for him or her and in his or her name, place
and stead, in any and all capacities, to sign and file with the Securities and
Exchange Commission under the Securities Act of 1933 (the "Securities Act") one
or more Registration Statement(s) on Form S-1 relating to the registration for
sale of common stock, $0.001 par value per share, of the Company, with any and
all amendments, supplements and exhibits thereto, including pre-effective and
post-effective amendments or supplements or any additional registration
statement filed pursuant to Rule 462 promulgated under the Securities Act, with
power and authority to do and perform any and all acts and things whatsoever
required, necessary or desirable to be done in the premises, hereby ratifying
and approving the act of said attorneys-in-fact and any of them and any such
substitute.
This Power of Attorney may be executed in multiple counterparts, each
of which shall be deemed an original with respect to the person executing it.
Executed as of this 24th day of February 2000.
<TABLE>
<S> <C>
- ------------------------------------ -------------------------------------------
Manuel J. Glynias Anthony B. Evnin
Chief Executive Officer and Director Director
- ------------------------------------ -------------------------------------------
Vincent P. Kazmer John Pappajohn
Chief Financial Officer Director
/s/ Nicole Vitullo
- ------------------------------------ -------------------------------------------
Raymond J. Merk Nicole Vitullo
Controller Director
- ------------------------------------ -------------------------------------------
Walter Gilbert Alan G. Walton
Director Director
</TABLE>
<PAGE> 7
DIRECTOR AND/OR OFFICER OF NETGENICS, INC.
REGISTRATION STATEMENT ON FORM S-1
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each of the undersigned directors
and officers of NetGenics, Inc., a Delaware corporation, hereby constitutes and
appoints Manuel J. Glynias and Vincent P. Kazmer and both of them, as his or her
true and lawful attorney-in-fact or attorneys-in-fact, with full power of
substitution and resubstitution, for him or her and in his or her name, place
and stead, in any and all capacities, to sign and file with the Securities and
Exchange Commission under the Securities Act of 1933 (the "Securities Act") one
or more Registration Statement(s) on Form S-1 relating to the registration for
sale of common stock, $0.001 par value per share, of the Company, with any and
all amendments, supplements and exhibits thereto, including pre-effective and
post-effective amendments or supplements or any additional registration
statement filed pursuant to Rule 462 promulgated under the Securities Act, with
power and authority to do and perform any and all acts and things whatsoever
required, necessary or desirable to be done in the premises, hereby ratifying
and approving the act of said attorneys-in-fact and any of them and any such
substitute.
This Power of Attorney may be executed in multiple counterparts, each
of which shall be deemed an original with respect to the person executing it.
Executed as of this 24th day of February 2000.
<TABLE>
<S> <C>
- ------------------------------------ -------------------------------------------
Manuel J. Glynias Anthony B. Evnin
Chief Executive Officer and Director Director
- ------------------------------------ -------------------------------------------
Vincent P. Kazmer John Pappajohn
Chief Financial Officer Director
- ------------------------------------ -------------------------------------------
Raymond J. Merk Nicole Vitullo
Controller Director
/s/ Walter Gilbert
- ------------------------------------ -------------------------------------------
Walter Gilbert Alan G. Walton
Director Director
</TABLE>
<PAGE> 8
DIRECTOR AND/OR OFFICER OF NETGENICS, INC.
REGISTRATION STATEMENT ON FORM S-1
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each of the undersigned directors
and officers of NetGenics, Inc., a Delaware corporation, hereby constitutes and
appoints Manuel J. Glynias and Vincent P. Kazmer and both of them, as his or her
true and lawful attorney-in-fact or attorneys-in-fact, with full power of
substitution and resubstitution, for him or her and in his or her name, place
and stead, in any and all capacities, to sign and file with the Securities and
Exchange Commission under the Securities Act of 1933 (the "Securities Act") one
or more Registration Statement(s) on Form S-1 relating to the registration for
sale of common stock, $0.001 par value per share, of the Company, with any and
all amendments, supplements and exhibits thereto, including pre-effective and
post-effective amendments or supplements or any additional registration
statement filed pursuant to Rule 462 promulgated under the Securities Act, with
power and authority to do and perform any and all acts and things whatsoever
required, necessary or desirable to be done in the premises, hereby ratifying
and approving the act of said attorneys-in-fact and any of them and any such
substitute.
This Power of Attorney may be executed in multiple counterparts, each
of which shall be deemed an original with respect to the person executing it.
Executed as of this 29th day of February 2000.
<TABLE>
<S> <C>
- ------------------------------------ -------------------------------------------
Manuel J. Glynias Anthony B. Evnin
Chief Executive Officer and Director Director
- ------------------------------------ -------------------------------------------
Vincent P. Kazmer John Pappajohn
Chief Financial Officer Director
- ------------------------------------ -------------------------------------------
Raymond J. Merk Nicole Vitullo
Controller Director
/s/ Alan G. Walton
- ------------------------------------ -------------------------------------------
Walter Gilbert Alan G. Walton
Director Director
</TABLE>
