<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1999.
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM _______________ TO _______________ .
COMMISSION FILE NUMBER 0-23317
- --------------------------------------------------------------------------------
GENE LOGIC INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
- --------------------------------------------------------------------------------
DELAWARE 06-1411336
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
708 QUINCE ORCHARD ROAD
GAITHERSBURG, MARYLAND 20878
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
(301) 987-1700
(REGISTRANT'S PHONE NUMBER, INCLUDING AREA CODE)
INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS REQUIRED
TO BE FILED BY SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 DURING
THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE REGISTRANT WAS
REQUIRED TO FILE SUCH REPORTS) AND (2) HAS BEEN SUBJECT TO SUCH FILING
REQUIREMENTS FOR THE PAST 90 DAYS: : YES [X] NO [ ]
The number of shares outstanding of the Registrant's Common Stock, $.01 par
value, was 19,898,031 as of July 31, 1999.
================================================================================
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GENE LOGIC INC.
TABLE OF CONTENTS
<TABLE>
<S> <C>
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets at June 30, 1999 and December 31, 1998..........................3
Consolidated Statements of Operations for the Three and Six Months Ended
June 30, 1999 and 1998..............................................................4
Consolidated Statements of Cash Flows for the Six Months Ended
June 30, 1999 and 1998..............................................................5
Notes to Consolidated Financial Statements..................................................6
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of Operations....................................9
Item 3. Quantitative and Qualitative Disclosure About Market Risk..........................15
PART II OTHER INFORMATION
Item 1. Legal Proceedings..................................................................15
Item 2. Changes in Securities and Use of Proceeds..........................................15
Item 3. Defaults Upon Senior Securities....................................................15
Item 4. Submission of Matters to a Vote of Security Holders................................15
Item 5. Other Information..................................................................16
Item 6. Exhibits and Reports on Form 8-K...................................................17
Signatures.................................................................................18
</TABLE>
2.
<PAGE> 3
PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
GENE LOGIC INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT NUMBER OF SHARES AND PAR VALUE)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1999 1998
----------- ------------
(Unaudited)
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents .......................................... $ 7,385 $ 16,191
Marketable securities available-for-sale ........................... 13,090 14,791
Due from collaborators ............................................. 3,774 3,779
Prepaid expenses ................................................... 991 842
Notes receivable from employees .................................... 39 --
Other current assets ............................................... 1,213 875
--------- ---------
Total Current Assets ........................................... 26,492 36,478
Property and Equipment, net ............................................ 10,266 10,189
Notes Receivable from Employees ........................................ 720 --
Goodwill, net .......................................................... 6,485 7,249
Intangible and Other Assets, net ....................................... 1,880 1,650
--------- ---------
Total Assets ................................................... $ 45,843 $ 55,566
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable .................................................. $ 2,040 $ 2,123
Accrued expenses .................................................. 1,344 2,963
Accrued restructuring ............................................. 52 184
Current portion of capital lease obligation ....................... 130 124
Current portion of long-term debt ................................. 1,271 1,292
Deferred revenue .................................................. 4,043 3,219
--------- ---------
Total Current Liabilities ..................................... 8,880 9,905
Capital Lease Obligation ............................................... 34 100
Long-Term Debt ......................................................... 3,552 3,789
Other Noncurrent Liabilities ........................................... 527 484
--------- ---------
Total Liabilities ............................................. 12,993 14,278
--------- ---------
Commitments and Contingencies
Stockholders' Equity:
Common Stock, $.01 par value; 60,000,000 shares authorized;
19,855,540 and 19,651,756 shares issued and outstanding as of
June 30, 1999 and December 31, 1998, respectively ............... 199 197
Preferred Stock, $.01 par value; 10,000,000 shares
authorized; no shares issued and outstanding as of June 30,
1999 and December 31, 1998 ....................................... -- --
Additional paid-in capital ........................................ 102,870 102,670
Deferred compensation on stock options, net ....................... (3,237) (3,986)
Accumulated other comprehensive loss .............................. (100) (46)
Accumulated deficit ............................................... (66,882) (57,547)
--------- ---------
Total Stockholders' Equity ..................................... 32,850 41,288
--------- ---------
Total Liabilities and Stockholders' Equity ..................... $ 45,843 $ 55,566
========= =========
</TABLE>
See accompanying notes.
3.
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GENE LOGIC INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------------ ------------------------
1999 1998 1999 1998
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Revenues ............................................... $ 5,212 $ 3,680 $ 9,279 $ 5,875
Expenses:
Research and development ............................. 7,454 3,907 14,486 7,144
General and administrative ........................... 1,986 1,722 3,759 3,318
Amortization of goodwill ............................. 381 -- 762 --
-------- -------- -------- --------
Total expenses ................................... 9,821 5,629 19,007 10,462
-------- -------- -------- --------
Loss from operations ............................. (4,609) (1,949) (9,728) (4,587)
Interest income, net ................................... 224 491 463 1,099
Other income (expense) ................................. -- -- 30 (80)
-------- -------- -------- --------
Loss before income tax expense ................... (4,385) (1,458) (9,235) (3,568)
Income tax expense ..................................... -- -- 100 --
-------- -------- -------- --------
Net loss ......................................... $ (4,385) $ (1,458) $ (9,335) $ (3,568)
======== ======== ======== ========
Basic and Diluted Net Loss Per Common Share ............ $ (0.22) $ (0.10) $ (0.47) $ (0.25)
======== ======== ======== ========
Shares Used In Computing Basic and Diluted Net Loss
Per Common Share ................................. 19,797 14,219 19,754 14,060
======== ======== ======== ========
</TABLE>
See accompanying notes.
4.
<PAGE> 5
GENE LOGIC INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
------------------------
1999 1998
-------- --------
<S> <C> <C>
Cash Flows From Operating Activities:
Net loss ........................................................ $ (9,335) $ (3,568)
Adjustments to reconcile net loss to net cash flows from
operating activities:
Depreciation and amortization ............................... 1,495 692
Amortization of goodwill .................................... 762 --
Amortization of deferred compensation ....................... 749 828
Loss on disposal of property and equipment .................. -- 81
Changes in operating assets and liabilities:
Due from collaborators ...................................... 5 (1,357)
Prepaid expenses ............................................ (149) (29)
Other current assets ........................................ (338) (427)
Intangibles and other assets ................................ (303) (312)
Accounts payable ............................................ (83) 565
Accrued expenses ............................................ (1,619) 458
Accrued restructuring ....................................... (132) --
Deferred revenue ............................................ 824 (2,019)
Other noncurrent liabilities ................................ 43 59
-------- --------
Net Cash Flows From Operating Activities ................. (8,081) (5,029)
-------- --------
Cash Flows From Investing Activities:
Purchases of property and equipment ......................... (1,496) (4,859)
Increase in notes receivable from employees ................. (759) --
Proceeds from sale and maturity of marketable securities
available-for-sale ........................................ 1,646 --
Purchase of marketable securities available-for-sale ........ -- (4,198)
-------- --------
Net Cash Flows From Investing Activities ................. (609) (9,057)
-------- --------
Cash Flows From Financing Activities:
Proceeds from issuance of common stock ...................... 202 183
Proceeds from equipment loans ............................... -- 3,577
Proceeds from notes payable ................................. 425 --
Repayments of financing agreement ........................... (98) (90)
Repayments of capital lease obligation and
equipment loans ........................................... (645) (257)
-------- --------
Net Cash Flows From Financing Activities ................. (116) 3,413
-------- --------
Net Decrease in Cash and Cash Equivalents ....................... (8,806) (10,673)
Cash and Cash Equivalents, beginning of period .................. 16,191 46,522
-------- --------
Cash and Cash Equivalents, end of period ........................ $ 7,385 $ 35,849
======== ========
Supplemental Disclosure:
Interest expense paid ....................................... $ 211 $ 63
======== ========
</TABLE>
See accompanying notes.
5.
<PAGE> 6
GENE LOGIC INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999
(UNAUDITED)
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The unaudited consolidated financial statements include the accounts of
Gene Logic Inc. and its wholly owned subsidiary (the "Company"). The
accompanying unaudited consolidated financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information and with the instructions to Form 10-Q and Article 10 of Regulation
S-X. The consolidated balance sheet as of June 30, 1999, consolidated statements
of operations for the three and six months ended June 30, 1999 and 1998 and the
consolidated statements of cash flows for the six months ended June 30, 1999 and
1998 are unaudited, but include all adjustments (consisting of normal recurring
adjustments) which the Company considers necessary for a fair presentation of
the financial position, operating results and cash flows for the periods
presented. Although the Company believes that the disclosures in these financial
statements are adequate to make the information presented not misleading,
certain information and footnote information normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted pursuant to the rules and regulations of the
Securities and Exchange Commission.
Results for any interim period are not necessarily indicative of results
for any future interim period or for the entire year. The accompanying unaudited
consolidated financial statements should be read in conjunction with the
financial statements and notes thereto included in the Company's Annual Report
on Form 10-K for the year ended December 31, 1998.
Comprehensive Loss
The Company accounts for comprehensive loss as prescribed by Statement
of Financial Accounting Standards No. 130, "Reporting Comprehensive Income"
("SFAS No. 130"). Comprehensive income is the total net income (loss) plus all
changes in equity during the period except those changes resulting from
investment by owners and distribution to owners. The Company's other
comprehensive loss includes unrealized holding losses from marketable securities
available-for-sale for the three and six months ended June 30, 1999 and 1998 as
follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
---------------------- ----------------------
1999 1998 1999 1998
------- ------- ------- -------
(in thousands) (in thousands)
<S> <C> <C> <C> <C>
Net loss ......................................... $(4,385) $(1,458) $(9,335) $(3,568)
Other comprehensive loss, net of tax:
Unrealized losses on marketable securities ....... (37) (6) (54) (12)
Less - Reclassification adjustment for losses .... -- -- -- 2
------- ------- ------- -------
Total other comprehensive loss ................... (37) (6) (54) (10)
------- ------- ------- -------
Comprehensive loss ............................... $(4,422) $(1,464) $(9,389) $(3,578)
======= ======= ======= =======
</TABLE>
6.
<PAGE> 7
Goodwill
Goodwill, from the acquisition of Oncormed, Inc. ("Oncormed") in
September 1998, represents the excess of the purchase price over the fair market
value of the net assets acquired. Goodwill is being amortized over five years at
a rate of approximately $1.5 million per year. Amortization expense was $381,000
and $762,000 for the three and six months ended June 30, 1999, respectively.
Accumulated amortization of goodwill was $1.1 million at June 30, 1999.
Revenue Recognition
Technology and database access fees are recognized evenly over the term
of the Company's collaboration agreements. Revenues from research and
development support are recognized when they are earned which is ordinarily when
the work is performed or costs are incurred. Milestone payments are recognized
as revenue in accordance with the applicable performance requirements and
contractual terms. Revenues from pharmacogenomic services are recognized upon
completion of the services. Revenues for such amounts are deferred until earned.
Nonrefundable upfront payments received for the value of transferred
technology or other contractual rights that are not contingent upon future
performance under the terms of the collaboration agreements are recognized as
revenue upon execution of the agreements. Under collaboration agreements in
which the Company creates a research database in exchange for a fixed fee,
revenues from such collaborations are recognized on the percentage-of-completion
method, primarily based on man-months incurred to date compared with total
estimated man-months for development of such database.
NOTE 2. NOTES RECEIVABLE FROM EMPLOYEES
During April 1999, the Company issued promissory notes to three officers
of the Company totaling $750,000 to offset tax liabilities for unrealized
capital gains resulting from stock option exercises. One of the notes will be
repaid in four equal annual installments together with accrued interest. The
other two notes are due and payable in April 2004. All promissory notes bear
interest at 5.25% and are secured by either the Company's common stock or
proceeds from the sale of the Company's common stock owned by the officer. The
Company estimates the total fair value of such promissory notes to be $663,000
using a discounted cash flow analysis.
NOTE 3. ACCRUED RESTRUCTURING
In connection with the acquisition of Oncormed, the Company recorded a
restructuring liability of approximately $1.6 million. The objective of the
restructuring plan was to eliminate redundant general and administrative
employees of Oncormed and terminate contracts that the Company deemed to have no
on-going economic value to the Company. The restructuring liability consisted of
$373,000 in costs associated with the involuntary termination of ten Oncormed
employees and approximately $1.2 million in contract termination costs. This
liability was included in the purchase price allocation performed in connection
with the acquisition. Management anticipates the restructuring activities as a
result of the acquisition will be substantially completed in 1999.
7.
<PAGE> 8
The following table details the major components of the restructuring
liability relating to the Oncormed acquisition:
<TABLE>
<CAPTION>
CONTRACT
TERMINATION
PERSONNEL COSTS TOTAL
--------- -------------- ---------
(in thousands)
<S> <C> <C> <C>
Restructuring liability ............ $ 373 $ 1,224 $ 1,597
1998 activity ...................... (239) (1,174) (1,413)
--------- --------- ---------
Balance at December 31, 1998 ....... 134 50 184
Activity through June 30, 1999 ..... (132) -- (132)
--------- --------- ---------
Balance at June 30, 1999 ........... $ 2 $ 50 $ 52
========= ========= =========
</TABLE>
NOTE 4. LONG-TERM DEBT
In June 1999, the Company and the Maryland Economic Development
Corporation ("MEDCO") entered into a Loan Agreement (the "MEDCO Loan") for the
financing of the Company's tenant improvements related to its office and
research laboratory facility. The Company borrowed $425,000 under this
agreement, bearing interest at 5.0% per annum. The MEDCO Loan will be repaid in
equal quarterly installments over ten years beginning in September 1999;
however, the unpaid principal and interest may be due upon demand if the Company
relocates its corporate headquarters outside of Montgomery County, Maryland. The
Company granted MEDCO a security interest collateralized by certain furniture.
NOTE 5. SEGMENT INFORMATION
At December 31, 1998, the Company adopted Statement of Financial
Accounting Standards No. 131, "Disclosure about Segments of an Enterprise and
Related Information" ("SFAS No. 131"). SFAS No. 131 established standards for
reporting information about operating segments in annual and interim financial
statements and related disclosures about its products, services, geographic
areas and major customers. The Company's operations are treated as one operating
segment--genomic information products, software and research services--as the
Company only reports loss information on an aggregate basis to chief operating
decision makers of the Company.
The following is a breakdown of revenue by major collaborators exceeding
ten percent (10%) of such revenues and geographic areas:
<TABLE>
<CAPTION>
MAJOR COLLABORATORS GEOGRAPHIC AREA
--------------------------------------------- --------------------------------
A B C D JAPAN EUROPE US
------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
For the three months ended:
June 30, 1999 .................. 38% 21% 12% 11% 38% 23% 21%
June 30, 1998 .................. 27% 14% 19% 39% 27% 58% 14%
For the six months ended:
June 30, 1999 .................. 38% 23% 14% 12% 38% 26% 23%
June 30, 1998 .................. 37% 17% 21% 24% 37% 45% 17%
</TABLE>
8.
<PAGE> 9
ITEM 2. MANAGEMENT'S DISCUSSIONS AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following Management's Discussion and Analysis of Financial
Condition and Results of Operations contains forward-looking statements,
including statements as to the timing of availability of products under
development, the ability to commercialize products developed under
collaborations, the performance and utility of the Company's products and
services, and the adequacy of capital resources. Such statements reflect
management's current views of future events and are subject to risks and
uncertainties that could cause actual results to differ materially from those
projections. These risks and uncertainties include, but are not limited to, the
extent of utilization of genomic information by the pharmaceutical industry in
both research and development, risks relating to the development of genomic
database products and their use by existing and potential collaborators and
customers of the Company, the Company's ability to manage and maintain multiple,
concurrent collaborations, the Company's reliance on collaborators for
development and commercialization of products, the impact of technological
advances and competition, the Company's ability to enforce its intellectual
property rights, the impact of the intellectual property rights of others, the
Company's ability to obtain additional financing on terms favorable to the
Company and the Company's ability to enter into arrangements with new
collaborators and to maintain new and existing collaborations, the ability of
the Company to implement in a timely manner the programs and actions related to
the Year 2000 issue, as well as other risks and uncertainties included in the
Company's Annual Report on Form 10-K for the year ended December 31, 1998 filed
with the Securities and Exchange Commission.
GeneExpress(TM) and Flow-thru Chip(TM) are trademarks of the Company.
GeneChip(R) is a registered trademark of Affymetrix, Inc. ("Affymetrix").
OVERVIEW
The Company was incorporated in September 1994 and has devoted
substantially all of its resources to the development of its genomics
technologies, bioinformatics systems and database products for use in
pharmaceutical, diagnostic and agricultural product research and development.
The Company has collaborations with the American Home Products Corp.'s
Wyeth-Ayerst Laboratories, Hoechst Schering AgrEvo GmbH, Japan Tobacco Inc.,
Merck & Company Inc., NV Organon, a pharmaceutical unit of Akzo Nobel NV,
Procter & Gamble Pharmaceuticals, Rhone-Poulenc Rorer Inc., Schering-Plough
Corp. and SmithKline Beecham PLC.
These agreements provide the Company with various combinations of
recurring technology and database access fees, research funding and fees for
pharmacogenomic services, certain additional payments upon the attainment of
research and product development milestones, royalty payments based on sales of
any products resulting from the collaborations, and non refundable upfront
payments. Technology and database access fees are recognized evenly over the
term of the Company's collaboration agreements. Revenues from research and
development support are recognized when they are earned which is ordinarily when
the work is performed or costs are incurred. Revenues from pharmacogenomic
services are recognized upon completion of the services. Milestone payments and
royalties are recognized when they are earned in accordance with the applicable
performance requirements and contractual terms. Revenues for such amounts are
deferred until earned. Nonrefundable upfront payments received for the value of
transferred technology or other contractual rights that are not contingent upon
future performance under the terms of the collaboration agreements are
recognized as revenue upon execution of the agreements. The loss of revenues
from any individual material collaboration agreement, if terminated, could have
a material adverse effect on the Company's business, financial condition and
results of operations.
In an effort to address the growing needs of research and development in
the pharmaceutical industry, the Company is investing significant resources in
building its GeneExpress(TM) databases. These databases will contain expression
information from a wide variety of tissues from healthy, diseased and
drug-treated patients and from experimental animals. The initial GeneExpress
database will incorporate
9.
<PAGE> 10
data obtained from GeneChip(R) probe arrays under an agreement with Affymetrix.
The Company commenced marketing the GeneExpress databases to pharmaceutical
companies and expects to receive subscriptions fees from such database users in
late 1999.
Gene Logic's future profitability will depend in part on the successful
establishment of collaborations which include various combinations of genomic
databases, bioinformatics software and genomics technology and the successful
commercialization of its GeneExpress databases. Payments through collaborations
and subscriptions to the GeneExpress databases are expected to be the Company's
primary sources of revenue for the foreseeable future. Significant royalties or
other revenues from commercial sales of products developed from any therapeutic,
diagnostic or agricultural product identified using the Company's technologies
are not expected for several years, if at all. Through June 30, 1999, royalties
or other revenues from commercial sales of products paid to Gene Logic were
immaterial. Revenues under collaborations may be subject to significant
fluctuation in both timing and amount, and, therefore, the Company's results of
operations for any period may not be comparable to the results of operations for
any other period. Furthermore, the generation of significant revenues and
profitability will depend upon the Company's ability to enter into additional
collaborations and successfully commercialize its GeneExpress databases. There
can be no assurance that the Company will enter into additional collaborations
on acceptable terms, if at all, or that current or future collaborations will be
successful or that the Company will be able to successfully commercialize its
GeneExpress databases.
The Company has incurred operating losses in each year since its
inception. At June 30, 1999, excluding the $35.2 million non-recurring charge
incurred in connection with the acquisition of Oncormed, the Company had
accumulated operating losses of approximately $31.7 million. The Company's
losses have resulted principally from costs incurred in research and development
and from general and administrative costs associated with the Company's
operations, in addition to the charge incurred in connection with the
acquisition of Oncormed. These costs have exceeded the Company's revenues which,
to date, have been generated principally from collaborations. The Company
expects to incur additional operating losses at least through 1999, primarily as
a result of increases in its expenses for research and development.
The Company's quarterly operating results may fluctuate significantly as
a result of a variety of factors, including changes in the demand for the
Company's technologies and products, variations in revenues under
collaborations, including milestone payments, royalties, license fees and other
contract revenues, and the timing of new product introductions, if any, by the
Company. The Company's quarterly operating results may also fluctuate
significantly depending on changes in the research and development budgets of
the Company's collaborative partners, the introduction of new products by the
Company's competitors and other competitive factors, the adoption of new
technologies, and the cost, quality and availability of cell and tissue samples
and related reagents.
UPDATE ON IN-PROCESS RESEARCH AND DEVELOPMENT
In connection with the acquisition of Oncormed in September 1998, the
Company allocated $35.2 million of the $39.2 million purchase price to
in-process research and development projects. This allocation represents the
estimated fair value based on discounted cash flows related to the incomplete
research and development projects. At the time of acquisition, the progress of
these projects had not yet reached technological feasibility and the projects
had no alternative future uses. Accordingly, these costs were expensed as of the
acquisition date. The in-process research and development value consists of four
technology projects that involve the development of technologies for either
genomic databases or pharmacogenomics.
At June 30, 1999, additional progress had been achieved on each of the
four technology projects that were underway as of the acquisition. In general,
the Company believes that these research and development projects are on track
with management's plans at the time the acquisition occurred. Through
10.
<PAGE> 11
June 30, 1999, no significant adjustments have been made in the economic
assumptions or expectations that underlie the Company's acquisition decision and
related purchase accounting. All four in-process research and development
projects are active, and the Company is advancing the technology at a rate
consistent with originally projected completion dates. Specifically, the SNP
Analysis Project, Recognizer Project and Gene Chip / Gene Expression Database
Development Project are substantially complete and the Biorepository Project is
expected to be substantially complete during 1999. Because these technologies
are interrelated with respect to the development of genomic database and
pharmacogenomic products, the Company does not expect to derive any significant
economic benefits from them until late 1999.
Remaining development efforts for the projects which are still
incomplete are highly complex and include the development and validation of the
necessary biochemistry, molecular biology and bioinformatic tools and
information, as well as small-scale deployment and commercial introduction.
Funding for such projects has been and is expected to continue from existing
cash balances. The Company estimates the costs to complete the remaining
projects at approximately $443,000 for the remainder of 1999. Total costs to
complete the projects from the date of acquisition are estimated to be
approximately $3.3 million.
Although the Company has substantially completed three of the projects
and intends to complete the development of the remaining project and in-process
technologies and although, management believes in the likelihood of their
feasibility, there can be no assurance that such remaining project or
in-process technologies will be completed successfully, or that any of the
in-process technologies will achieve commercial success. If, at a later date,
the Company decides to no longer pursue one or all of these technologies,
decides to indefinitely postpone the research effort related to one or all of
the technologies, or determines that the discounted expected cash flows will no
longer meet projections, it will disclose that fact to investors--explaining
why it will not pursue commercialization or why the research has been postponed
(and when the research is expected to resume) and how much of the purchase
price the technologies (or projects) represent. If these technologies are not
successfully developed or commercially successful, future results of operations
of the Company may be adversely affected. Additionally, the value of other
intangible assets acquired may become impaired.
Descriptions of the Company's estimates used to determine the value
assigned to the in-process technologies and costs, timing and anticipated
benefits of completing the development of the in-process technologies are
forward-looking statements that involve risks and uncertainties. The Company's
actual costs and timing to complete development of the remaining technologies
and any benefits derived therefrom or from completed technologies will depend on
many factors, including the Company's ability to complete development of the
remaining technologies successfully, to overcome remaining technical obstacles
and competing technologies, to gain market acceptance of products using such
technologies and to adapt to market developments and the availability to the
Company of adequate capital resources to commercialize such technologies. If the
Company is unsuccessful in developing or commercializing such technologies, the
Company will not achieve the benefits expected from acquiring such technologies
or obtain a return on its investment in connection with the acquisition and
would likely discontinue its operations with respect to such technologies.
Additionally, even if successfully completed, these projects will require
maintenance research and development after they have reached a state of
technological and commercial feasibility.
RESULTS OF OPERATIONS
Three Months and Six Months Ended June 30, 1999 and 1998
Revenues increased to $5.2 million and $9.3 million for the three and
six months ended June 30, 1999, respectively, from $3.7 million and $5.9 million
for the same periods in 1998. The increase in revenues was the result of the
addition of new customers and expansion of prior customer relationships. Of the
revenues from major collaborators for the three months ended June 30, 1999,
thirty-eight percent
11.
<PAGE> 12
(38%) was received from Japan Tobacco; twenty-one percent (21%) was received
from Procter & Gamble; twelve percent (12%) was received from Organon; and
eleven percent (11%) was received from AgrEvo. In addition, the Company received
8% of its revenue under a one-time evaluation agreement. Revenue percentages by
major collaborator for the six months ended June 30, 1999 were comparable to
those of the three month period ended June 30, 1999. Revenues received from
other sources were not material.
Research and development expenses increased to $7.5 million and $14.5
million for the three and six months ended June 30, 1999, respectively, from
$3.9 million and $7.1 million for the same periods in 1998. The increase in
research and development expenses for the three and six months ended June 30,
1999 as compared to the same periods in 1998 was primarily attributable to
approximate increases of: (i) fifty percent (50%) in research agreement
expenses, (ii) twenty percent (20%) in personnel expenses, (iii) ten percent
(10%) in laboratory supplies, and (iv) ten percent (10%) in depreciation
expense. The increase in research and development expenses primarily relates to
the Company's efforts in building its GeneExpress databases which started in
1999, expansion of its target discovery and bioinformatics businesses to
accommodate new and expanded collaborations, and further development of its
Flow-thru Chip(TM) program. The Company expects research and development
expenses to increase as the Company expands its GeneExpress databases, maintains
new and expanding target discovery collaborations, and further develops the
Flow-thru Chip.
General and administrative expenses increased to $2.0 million and $3.8
million for the three and six months ended June 30, 1999, respectively, from
$1.7 million and $3.3 million for the same periods in 1998. These costs include
the costs of corporate operations, finance and accounting, human resources and
other general operations. For the three and six months ended June 30, 1999 as
compared to the same periods in 1998, the increase in general and administrative
expenses was primarily attributable to the Company's expansion of its business
development efforts through increased staffing and other general costs necessary
to support the expansion of the Company's operations. The Company expects that
general and administrative expenses will increase as the Company expands its
product line and business development and marketing efforts.
Amortization of goodwill was $381,000 and $762,000 for the three and six
months ended June 30, 1999, respectively, as a result of the acquisition of
Oncormed in September 1998.
Net interest income decreased to $224,000 and $463,000 for the three and
six months ended June 30, 1999, respectively, from $491,000 and $1.1 million for
the same periods in 1998 primarily due to the smaller cash and investment
balance on hand as a result of funding the Company's operating losses through
June 30, 1999.
LIQUIDITY AND CAPITAL RESOURCES
From inception through June 30, 1999, the Company financed its
operations through the sale of equity securities, payments under collaborative
agreements and equipment and tenant improvement financing. In connection with
its collaboration with Procter & Gamble, the Company holds a promissory note of
$500,000 that is due in December 1999. The Company has also obtained $471,000 of
capital lease financing and $6.3 million under equipment and tenant improvement
loans. As of June 30, 1999, the Company had approximately $20.5 million in cash
and marketable securities, compared to $31.0 million as of December 31, 1998.
In connection with the acquisition of Oncormed, the Company acquired
in-process research and development, which is comprised of several technology
projects. The Company expects to spend approximately $3.3 million in total to
develop commercially viable products using such technologies and to begin to
generate revenues from them. Costs to complete the development of these
remaining technologies are estimated to be $443,000 for the remainder of 1999.
Funding for such efforts has been and is expected to continue from existing cash
balances. These estimates are subject to change, given the
12.
<PAGE> 13
uncertainties of the development process, and no assurance can be given that
deviations from these estimates will not occur.
In connection with the acquisition of Oncormed, the Company recorded a
restructuring liability of approximately $1.6 million. The objective of the
restructuring plan was to eliminate redundant general and administrative
employees of Oncormed and terminate contracts that the Company deemed to have no
on-going economic value to the Company. The restructuring liability consisted of
$373,000 in costs associated with the involuntary termination of ten Oncormed
employees and approximately $1.2 million in contract termination costs. At June
30, 1999, approximately $2,000 and $50,000 of the restructuring charge remained
unpaid relating to involuntary employment and contract terminations,
respectively. Management anticipates the restructuring activities as a result of
the acquisition will be substantially completed in 1999.
Net cash used in operating activities was $8.1 million for the six
months ended June 30, 1999 compared to $5.0 million for the six months ended
June 30, 1998. The Company has primarily used cash during 1999 and 1998 to fund
the Company's operating losses in addition to expenditures relating to
intangibles and other assets.
During the six months ended June 30, 1999 and 1998, the Company had
expenditures relating to intangibles and other assets of approximately $303,000
and $312,000, respectively. These expenditures were primarily for patent costs
and license fees. The Company amortizes such patent costs to research and
development expense over the useful life of the underlying patent upon its
issuance. License fees are amortized to research and development expense over
periods of approximately one to seventeen years. These expenditures are
necessary and are expected to increase to protect the Company's intellectual
property and to secure rights to current technology.
The Company's investing activities, other than sales, maturities and
purchases of available-for-sale securities, consisted of capital expenditures,
which totaled $1.5 million and $4.9 million for the six months ended June 30,
1999 and 1998, respectively, and the issuance of promissory notes to three
officers of the Company totaling $750,000 during the six months ended June 30,
1999. The decrease in capital expenditures from year to year was primarily due
to the funding of tenant improvements and furniture purchases in the first
quarter of 1998 relating to the completion of the Company's new office and
research laboratory facility. The Company expects to have additional capital
expenditures in 1999 as it expands its facility requirements and acquires
laboratory and computer equipment to support expanding research and development
activities. The Company's capital expenditures in 1999 are expected to be less
than those in 1998.
Net cash used in financing activities was $116,000 for the six months
ended June 30, 1999 compared to net cash provided by financing activities of
$3.4 million in the six months ended June 30, 1998. During June 1999, the
Company obtained $425,000 to finance tenant improvements compared to $3.6
million of equipment financing received during the same period of 1998. The cash
obtained to finance tenant improvements in 1999 was offset by repayments under
equipment loans and a capital lease obligation.
In June 1998, the Company entered into a loan agreement for the
financing of laboratory, computer and office equipment. Under the loan
agreement, the Company may borrow up to $5.0 million through June 1999. At June
30, 1999, the Company had borrowed approximately $4.8 million. The Company
expects to extend the borrowing period and increase the borrowing amount under
the loan agreement or obtain financing from additional sources in 1999.
In January 1999, the Company entered into a three year agreement with
Affymetrix, pursuant to which Affymetrix will supply its GeneChip probe arrays
to the Company for the development of gene expression databases. Under the terms
of the agreement, the Company will pay Affymetrix subscription fees for access
to the probe arrays, purchase the probe arrays and related instrumentation and
software,
13.
<PAGE> 14
and pay royalties to Affymetrix on revenues generated from certain database
subscriptions fees. The Company's commitments under other research and license
agreements do not represent a significant expenditure in relation to the
Company's total research and development expense.
To date, all revenue received by the Company has been generated
principally from its collaborations. The Company expects that substantially all
revenue for the foreseeable future will come from collaborative partners and
subscriptions to its GeneExpress databases. Furthermore, the Company's ability
to achieve profitability will be dependent upon the ability of the Company to
enter into additional collaborations and successfully commercialize its
GeneExpress databases. There can be no assurance that the Company will be able
to negotiate additional collaborations in the future on acceptable terms, if at
all, or that current or future collaborations will be successful and provide the
Company with expected benefits or that the Company will be able to successfully
commercialize its GeneExpress databases.
The Company believes that existing cash and marketable securities and
anticipated cash flow from its current collaborations will be sufficient to
support the Company's operations at least through the middle of the year 2000.
The estimate for the period for which the Company expects its available cash
balances and estimated cash flow from its current collaborations to be
sufficient to meet its capital requirements is a forward-looking statement that
involves risks and uncertainties. The Company's actual future capital
requirements and the adequacy of its available funds will depend on many
factors, including progress of its discovery programs, the number and breadth
of these programs, the ability of the Company to establish and maintain
additional collaboration and licensing arrangements, the commercial success of
the in-process technologies acquired in the acquisition of Oncormed and the
progress of the development and commercialization efforts of the Company's
collaborative partners. These factors also include the level of the Company's
activities relating to its independent discovery programs and to the
development and commercialization rights it retains in its collaboration
arrangements, competing technological and market developments, the costs
associated with obtaining access to tissue samples and related information and
the costs involved in preparing, filing, prosecuting, maintaining and enforcing
patent claims and other intellectual property rights. The Company expects that
it will require significant additional financing in the future, which it may
seek to raise through public or private equity offerings, debt financing or
additional collaboration and licensing arrangements. No assurance can be given
that additional financing or collaboration and licensing arrangements will be
available when needed, if at all, or that, if available, will be obtained on
terms favorable to the Company and its stockholders. To the extent that the
Company raises additional capital by issuing equity or convertible debt
securities, ownership dilution to stockholders will result. If adequate
financing is not available when needed, the Company may be required to curtail
significantly one or more of its research and development programs or to obtain
funds through arrangements with collaborative partners or others that may
require the Company to relinquish rights to certain of its technologies,
discoveries or potential products, or to grant licenses on terms that are not
favorable to the Company, any of which could have a material adverse effect on
the Company's business, financial condition and results of operations. In the
event that adequate funds are not available, the Company's business would be
adversely affected.
YEAR 2000 COMPLIANCE
Many computer systems and software products are coded to accept two
digit entries in the date code field. These date code fields will need to accept
four digit entries to distinguish 21st century dates from 20th century dates. As
a result, at the end of this year, computer systems and software used by many
companies may need to be upgraded to comply with such "Year 2000" requirements.
The Company uses a significant number of computer software programs and
operating systems in connection with its database products, services and
internal operations. Such software and systems were purchased and installed with
a view towards Year 2000 compliance. Nevertheless, Year 2000 problems could
affect the Company's research and development, financial, administrative and
communication operations.
The Company has implemented a program designed to address Year 2000
problems. A cross-functional Year 2000 project team has performed a
comprehensive review of internal computer systems, electronic devices and
software. In addition, the Company has identified material third parties which
the
14.
<PAGE> 15
Company relies upon for its operations. The Company is performing internal and
external compliance audits and Year 2000 validation testing. The Company is in
the process of receiving Year 2000 certifications from third parties the Company
has material agreements with and formulating contingency plans. Systems critical
to the Company's business that are not Year 2000 compliant are being replaced or
corrected as they are identified through programming modifications and/or
software upgrades. The Company expects these projects to be successfully
completed in the second half of 1999. The estimated timing of completion of
these efforts is a forward-looking statement that involves risk and
uncertainties, including the risk that such efforts will not adequately address
such Year 2000 problems and that, as a result, the Company's business will be
adversely affected.
External and internal costs specifically associated with modifying
internal software for Year 2000 compliance are expensed as incurred. To date,
costs have not been material and are not expected to be in the future. Such
costs do not include normal system upgrades and replacements. Based on the
Company's current plans and efforts to date, the Company believes that changes
mandated by the Year 2000 issue will not cause any material adverse effects on
the Company's business, financial condition and results of operations. There is
no guarantee, however, that all problems will be foreseen and corrected, or that
no material disruption of the Company's business will occur.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
The Company does not hold any financial instruments subject to
significant market risk.
PART II OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is not a party to any legal proceedings.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
During the quarter ended June 30, 1999, the Company has sold and issued
the following securities which were not registered under the Securities Act of
1933, as amended (the "Securities Act"):
On June 3, 1999, the Company sold 25,437 shares of the Company's common
stock to Oxford Bioscience Partners L.P. ("Oxford") and 7,057 shares to Oxford
Bioscience Partners (Bermuda) Limited Partnership ("Oxford Bermuda") pursuant to
their exercise of warrants dated August 31, 1995, at a purchase price of $1.60
per share. The sale and issuance of the securities to Oxford and Oxford Bermuda
were deemed to be exempt from registration under the Securities Act by virtue of
Section 4(2) promulgated thereunder.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company held its Annual Meeting of Stockholders on June 8, 1999 (the
"Annual Meeting"). At the Annual Meeting, the Company's stockholders elected two
directors to the Company's Board of Directors and approved the proposals as more
fully described below.
At the Annual Meeting, 16,778,495 shares out of a total of 19,738,358
shares of Common Stock outstanding at the record date were represented in person
or by proxy.
15.
<PAGE> 16
The proposals considered at the Annual Meeting were voted on as follows:
1. Election of Directors
Proposal to elect two directors to hold office until the 2002 Annual
Meeting of Stockholders or his earlier resignation or removal.
<TABLE>
<CAPTION>
Nominee Votes For Votes Withheld
------- --------- --------------
<S> <C> <C>
Jeffrey D. Sollender 16,508,191 270,304
Alan G. Walton, Ph.D., D.Sc. 16,650,113 128,382
</TABLE>
The following individuals' term of office as a director continue after
the meeting: Charles L. Dimmler III, G. Anthony Gorry, Ph.D., Jules
Blake, Ph.D. and Michael J. Brennan, M.D., Ph.D.
2. Approve the Company's 1997 Equity Incentive Plan, as Amended
Proposal to approve the Company's 1997 Equity Incentive Plan, as
amended, to increase the aggregate number of shares of Common Stock
authorized for issuance under such plan by 1,000,000 shares. The
proposal was approved by a vote of 11,841,917 shares in favor and
1,362,792 shares against.
3. Approve the Company's 1997 Non-Employee Directors' Stock Option Plan, as
Amended
Proposal to approve the Company's 1997 Non-Employee Directors' Stock
Option Plan, as amended, to increase the aggregate number of shares of
Common Stock authorized for issuance under such plan by 200,000 shares
and to increase the number of shares underlying the options which are
automatically granted each year to each non-employee director by 7,500
shares. The proposal was approved by a vote of 11,959,154 shares in
favor and 1,245,555 shares against.
4. Appointment of Independent Auditors
Proposal to ratify the selection of Arthur Andersen LLP as independent
auditors of the Company for its fiscal year ending December 31, 1999.
Proposal was approved by a vote of 16,730,639 shares in favor and 47,856
shares against.
ITEM 5. OTHER INFORMATION
None.
16.
<PAGE> 17
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
A) EXHIBITS:
<TABLE>
<S> <C>
*10.45 Amended and Restated Employment Agreement, dated
April 1, 1999, between the Registrant and Douglas
Dolginow.
*10.51 Promissory Note, dated April 14, 1999, between the
Registrant and Michael J. Brennan.
*10.52 Promissory Note, dated April 14, 1999, between the
Registrant and Mark D. Gessler.
*10.53 Promissory Note, dated April 8, 1999, between the
Registrant and Douglas Dolginow.
*10.54 Pledge and Security Agreement, dated April 8, 1999,
between the Registrant and Douglas Dolginow.
11.1 Statement regarding computation of net loss per
share
27.1 Financial Data Schedule
</TABLE>
* Indicates management compensatory plan, contract or arrangement.
B) REPORTS ON FORM 8-K:
No reports on Form 8-K were filed during the three months ended
June 30, 1999.
17.
<PAGE> 18
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
GENE LOGIC INC.
Date: August 13, 1999 By: /s/ Michael J. Brennan, M.D., Ph.D.
------------------------------------
Michael J. Brennan, M.D., Ph.D.
Chief Executive Officer and Director
(Principal Executive Officer)
Date: August 13, 1999 By: /s/ Mark D. Gessler
------------------------------------
Mark D. Gessler
President, Chief Operating Officer,
Chief Financial Officer and
Secretary (Principal Financial and
Accounting Officer)
18.
<PAGE> 1
EXHIBIT 10.45
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (the "Agreement") is made and entered into as
of April 1, 1999 (the "Effective Date") by and between GENE LOGIC, INC., a
Delaware corporation (the "Company") and Y. DOUGLAS DOLGINOW, M.D., a Maryland
resident ("Dolginow"). This Agreement supersedes the agreement of July 1, 1998,
and that earlier agreement is hereby terminated by mutual assent with no further
obligations owing to either party under that agreement.
RECITALS
The Company desires to secure the service of Dolginow and Dolginow
desires to perform such services for the Company on the terms and conditions as
set forth in this Agreement.
NOW, THEREFORE, in consideration of these premises and the mutual
promises and conditions contained in this Agreement, the parties hereto hereby
agree as follows:
1. Employment and Duties. Subject to the terms and conditions of
this Agreement, the Company shall employ Dolginow as a Senior Vice President of
the Company and Dolginow hereby accepts such employment and such positions.
Dolginow shall devote his full time, ability, attention, knowledge and skill to
performing all duties as Senior Vice President of the Company as lawfully
assigned or delegated to him by the Chief Executive Officer of the Company.
2. Base Salary. In consideration for Dolginow's services to the
Company during the term of his employment under the Agreement, beginning with
the Effective Date of this Agreement, Dolginow shall receive salary at a rate
equal to an annualized salary of $250,000 for 1999. Thereafter, Dolginow shall
receive a salary in such amounts, whether greater or lesser, as may be mutually
agreed upon by Dolginow and the Company. Base salary shall be paid in equal,
semi-monthly installments from which the Company shall withhold and deduct all
applicable federal and state income, social security, disability and other taxes
as required by applicable laws.
3. Stock Option. On the Effective Date of this Agreement, or as soon
as practicable thereafter, the Company will grant Dolginow an option to purchase
an additional 100,000 shares of the Company's Common Stock. Such option shall be
issued under and subject to the Gene Logic, Inc. 1997 Equity Incentive Plan (the
"Plan"). The exercise price per share under such option shall be equal to the
Fair Market Value of a share of the Company's Common Stock as of the grant date
of the option, as determined under the Plan. Such option shall be an Incentive
Stock Option as defined under the Plan to the greatest extent permitted under
the Plan and the remaining portion shall be a Nonstatutory Stock Option as
defined under the Plan. The option shall be exercisable in accordance with the
schedule established by the Company's Board of Directors for the Plan. The
option will be subject to vesting at a rate of 1/48th each month for 48 months,
<PAGE> 2
beginning on its grant date. The option shall be subject to such other terms and
conditions as are set forth in the form of Stock Option Agreement and Stock
Option Grant Notice as are attached hereto.
4. Additional Compensation and Benefits.
4.1 Annual Performance Bonus. During each calendar year while
this Agreement remains in force, commencing in 1999, Dolginow shall receive, in
addition to the base salary specified in Section 2, above, an annual performance
bonus of $25,000 based upon the achievement of goals and successful attainment
of objectives as mutually agreed by Dolginow and the Chief Executive Officer of
the Company.
4.1A Incentive Bonus. As further incentive to Dolginow to
remain employed by the Company through the original term of this Agreement,
Dolginow shall receive an annual incentive bonus of $41,666 payable at the
anniversary of the Effective Date of this Agreement. This bonus shall be payable
only if Dolginow remains actively employed on the anniversary date (or, in the
case of the final year of the original term, on the last day immediately
preceding the anniversary date), except as provided below in this Paragraph
4.1A. Should Dolginow's employment be terminated by the Company without cause,
the unpaid incentive bonus for the remainder of the original term of this
Agreement shall be paid to him within a reasonable period of time following his
termination.
This incentive bonus shall not continue past the original term of
this Agreement. Should this Agreement be renewed under the provisions of
Paragraph 6 below the incentive bonus shall not be applicable and the Company
shall not be obligated to pay any more incentive bonus.
4.2 Medical Benefits, Vacation and Sick Leave. Dolginow shall
be entitled to participate in such medical, health and life insurance plans as
the Company may from time to time implement, and to receive twenty-eight (28)
days of paid vacation per year and sick leave on the same basis as the Company's
other senior executives. This paid time off will be prorated depending on actual
start date to accrue at 2.33 days per month.
4.3 Pension Plan. Dolginow shall be entitled to participate as
a beneficiary under such pension plan(s) as the Company may from time to time
adopt, on the same basis as the Company's other senior executives.
5. Confidentiality and Proprietary Inventions Agreement. Upon the
commencement of the term of this Agreement, Dolginow shall enter into the
Company's standard form of agreement relating to the treatment of the Company's
confidential information and ownership of proprietary inventions.
-2-
<PAGE> 3
6. Term of Employment. Subject to the provisions of Section 7, the
term of the employment engaged by this Agreement shall be a period of four (4)
years commencing on the mutually agreed upon start date and ending four (4)
years later, whereupon the term shall automatically renew for successive one (1)
year periods unless one of the parties to the Agreement shall have given notice
of its intention to terminate the Agreement not later than ninety (90) days
prior to the end of such initial term or any such renewal term.
7. Termination of Employment.
7.1 For Cause. The Company may terminate this Agreement,
effective immediately upon written notice to Dolginow, if at any time, in the
reasonable opinion of the Company's Board of Directors, (a) Dolginow commits any
material act of dishonesty, fraud or embezzlement with respect to the Company or
any subsidiary or affiliate thereof, (b) is convicted of a crime of moral
turpitude, or (c) breaches any material obligation under this Agreement. The
Company's total liability to Dolginow in the event of termination of Dolginow's
employment under this Subsection 7.1 shall be limited to the payment of
Dolginow's salary and benefits through the effective date of termination.
7.2 Without Cause. Should the Company terminate this Agreement
without cause within two years of the Effective Date of this Agreement, the
Company shall pay to Dolginow as severance pay an amount equal to one year of
Dolginow's salary including bonus for that calendar year during which the
termination becomes effective, in addition to such other compensation to which
Dolginow may be entitled prior to the date of termination. Should the Company
terminate this Agreement without cause more than two years from the Effective
Date of this Agreement, the Company shall pay to Dolginow as severance an amount
equal to one-half of Dolginow's salary including his bonus or an amount in
accordance with a Company-wide severance plan applicable to Senior Vice
Presidents (if such a plan is in effect), whichever is greater.
7.3 By Dolginow. Dolginow reserves the right to terminate his
employment hereunder for any reason upon thirty (30) days' written notice to the
Company. The Company's total liability to Dolginow in the event of termination
of Dolginow's employment under this Subsection 7.3 shall be limited to the
payment of Dolginow's salary and benefits through the effective date of
termination and the provisions of Subsection 7.2 shall not apply.
8. Miscellaneous.
8.1 Modification. Any modification of this Agreement shall be
effective only if reduced to writing and signed by the parties to be bound
thereby.
8.2 Entire Agreement. This Agreement constitutes the entire
agreement between the Company and Dolginow pertaining to the subject matter
hereof
-3-
<PAGE> 4
and supersedes all prior or contemporaneous written or verbal agreements and
understandings between the parties in connection with the subject matter hereof.
8.3 Severability. If any provision of this Agreement is held
by a court of competent jurisdiction to be invalid, void or unenforceable, the
remaining provisions shall, nevertheless, continue in full force and effect
without begin impaired or invalidated in any way.
8.4 Waiver. The parties hereto shall not be deemed to have
waived any of their respective rights under this Agreement unless the waiver is
in writing and signed by the waiving party. No delay in exercising any right
shall be a waiver of such right nor shall a waiver of any right on one occasion
operate as a waiver of such right on a future occasion.
8.5 Costs of Enforcement. If any action or proceeding shall be
commenced to enforce this Agreement or any right arising in connection with this
Agreement, each party shall initially bear its own costs and legal fees
associated with such action or proceeding. The prevailing party in any such
action or proceeding shall be entitled to recover from the other party the
reasonable attorneys' fees, costs and expenses incurred by such prevailing party
in connection with such action or proceeding.
8.6 Notices. All notices provided for herein shall be in
writing and delivered personally or sent by United States mail, registered or
certified, postage paid or by Federal Express, addressed as follows:
To the Company: Gene Logic, Inc.
708 Quince Orchard Road
Gaithersburg, MD 20878
To Dolginow: Y. Douglas Dolginow, M.D.
12307 Stoney Creek Road
Potomac, MD 20854
Or such other addresses as either of such parties may from time to time
designate in writing. Any notice given under this Agreement shall be deemed to
have been given on the date of actual receipt, or, if not received during normal
business hours, on the next business day.
IN WITNESS WHEREOF, the parties have executed this Agreement by their
duly authorized officers or agents as of the date first written above.
"Company" "Employee"
GENE LOGIC, INC.
-4-
<PAGE> 5
a Delaware corporation /s/ Y. Douglas Dolginow, M.D
-------------------------------------
Y. Douglas Dolginow, M.D.
By: Mark D. Gessler
Mark D. Gessler
President and Chief Operating Officer
-5-
<PAGE> 1
EXHIBIT 10.51
PROMISSORY NOTE
$350,000 April 14, 1999
Gaithersburg, Maryland
FOR VALUE RECEIVED, MICHAEL J. BRENNAN, M.D., PH.D. ("BORROWER"), hereby
unconditionally promises to pay to the order of GENE LOGIC INC., a Delaware
corporation ("LENDER"), at 708 Quince Orchard Road, Gaithersburg, Maryland
20878, or at such other place as the holder hereof may designate in writing, in
lawful money of the United States of America and in immediately available funds,
the principal amount of Three Hundred Fifty Thousand Dollars ($350,000.00)
together with interest accrued on the unpaid principal.
1. PRINCIPAL REPAYMENT. The outstanding principal amount of this
Note shall be due and payable on April 13, 2004; provided, however, that in the
event that the undersigned's employment by or association with the Company is
terminated for any reason prior to the payment in full of this Note, this Note
shall be accelerated and all unpaid principal and interest shall become due and
payable on the three-month anniversary of the date of such termination.
Notwithstanding the foregoing, until the payment in full of this Note has been
made, Borrower agrees to apply any proceeds from the sale of common stock of
Lender by the Borrower to payment of this Note. If the undersigned fails to pay
any of the principal and accrued interest when due, the Company, at its sole
option, shall have the right to accelerate this Note, in which event the entire
principal balance and all accrued interest shall become immediately due and
payable, and immediately collectible by the Company pursuant to applicable law.
2. INTEREST RATE. Borrower further promises to pay interest on the
outstanding principal amount hereof from the date hereof until payment in full,
which interest shall be payable at the rate of 5.25% per annum or the maximum
rate permissible by law, whichever is less. Interest shall be payable annually
in arrears not later than the first day of each calendar year for the preceding
year and shall be calculated on the basis of a 360-day year for the actual
number of days elapsed.
3. SECURITY. The full payment of this Note is secured by a pledge of
shares of Common Stock of the Lender, and is subject to all of the terms of the
Pledge Agreement of even date herewith between the Borrower and the Lender.
4. APPLICATION OF PAYMENTS. Payment on this Note shall be applied
first to accrued interest, and thereafter to the outstanding principal balance
hereof.
5. COSTS. The Lender shall be entitled to recover, and the
undersigned agrees to pay when incurred, all costs and expenses of collection of
this Note, including, without limitation, reasonable attorneys' fees.
6. WAIVER. Borrower waives presentment and demand for payment,
notice of dishonor, protest and notice of protest of this Note, and shall pay
all costs of collection when
<PAGE> 2
incurred, including, without limitation, reasonable attorneys' fees, costs and
other expenses. The right to plead any and all statutes of limitations as a
defense to any demands hereunder is hereby waived to the full extent permitted
by law.
7. GOVERNING LAW. This Note shall be governed by, and construed and
enforced in accordance with, the laws of the State of Delaware, excluding
conflict of laws principles that would cause the application of laws of any
other jurisdiction.
8. PREPAYMENT. Borrower may prepay the unpaid principal in whole or
in part, without penalty, at any time, upon the payment of all unpaid interest
accrued to the date of such prepayment.
9. NON-TRANSFERABLE. The right of Borrower to request and receive
the amounts under this Note, as well as the other benefits under this Note,
shall not be assignable or otherwise transferable by Borrower.
10. SUCCESSORS AND ASSIGNS. The provisions of this Note shall be
binding on any successor in interest to Borrower and shall inure to the benefit
of any such successor in interest.
/s/ MICHAEL J. BRENNAN, M.D., PH.D.
----------------------------------------
MICHAEL J. BRENNAN, M.D., PH.D.
ACKNOWLEDGED AND AGREED TO:
GENE LOGIC INC.
/S/ MARK D. GESSLER
- -----------------------------------------
MARK D. GESSLER
President, Chief Operating Officer, Chief
Financial Officer and Corporate Secretary
<PAGE> 1
EXHIBIT 10.52
PROMISSORY NOTE
$250,000 April 14, 1999
Gaithersburg, Maryland
FOR VALUE RECEIVED, MARK D. GESSLER ("BORROWER"), hereby unconditionally
promises to pay to the order of GENE LOGIC INC., a Delaware corporation
("LENDER"), at 708 Quince Orchard Road, Gaithersburg, Maryland 20878, or at such
other place as the holder hereof may designate in writing, in lawful money of
the United States of America and in immediately available funds, the principal
amount of Two Hundred Fifty Thousand Dollars ($250,000.00) together with
interest accrued on the unpaid principal.
1. PRINCIPAL REPAYMENT. The outstanding principal amount of this
Note shall be due and payable on April 13, 2004; provided, however, that in the
event that the undersigned's employment by or association with the Company is
terminated for any reason prior to the payment in full of this Note, this Note
shall be accelerated and all unpaid principal and interest shall become due and
payable on the three-month anniversary of the date of such termination.
Notwithstanding the foregoing, until the payment in full of this Note has been
made, Borrower agrees to apply any proceeds from the sale of common stock of
Lender by the Borrower to payment of this Note. If the undersigned fails to pay
any of the principal and accrued interest when due, the Company, at its sole
option, shall have the right to accelerate this Note, in which event the entire
principal balance and all accrued interest shall become immediately due and
payable, and immediately collectible by the Company pursuant to applicable law.
2. INTEREST RATE. Borrower further promises to pay interest on the
outstanding principal amount hereof from the date hereof until payment in full,
which interest shall be payable at the rate of 5.25% per annum or the maximum
rate permissible by law, whichever is less. Interest shall be payable annually
in arrears not later than the first day of each calendar year for the preceding
year and shall be calculated on the basis of a 360-day year for the actual
number of days elapsed.
3. APPLICATION OF PAYMENTS. Payment on this Note shall be applied
first to accrued interest, and thereafter to the outstanding principal balance
hereof.
4. COSTS. The Lender shall be entitled to recover, and the
undersigned agrees to pay when incurred, all costs and expenses of collection of
this Note, including, without limitation, reasonable attorneys' fees.
5. WAIVER. Borrower waives presentment and demand for payment,
notice of dishonor, protest and notice of protest of this Note, and shall pay
all costs of collection when incurred, including, without limitation, reasonable
attorneys' fees, costs and other expenses. The right to plead any and all
statutes of limitations as a defense to any demands hereunder is hereby waived
to the full extent permitted by law.
<PAGE> 2
6. GOVERNING LAW. This Note shall be governed by, and construed and
enforced in accordance with, the laws of the State of Delaware, excluding
conflict of laws principles that would cause the application of laws of any
other jurisdiction.
7. PREPAYMENT. Borrower may prepay the unpaid principal in whole or
in part, without penalty, at any time, upon the payment of all unpaid interest
accrued to the date of such prepayment.
8. NON-TRANSFERABLE. The right of Borrower to request and receive
the amounts under this Note, as well as the other benefits under this Note,
shall not be assignable or otherwise transferable by Borrower.
9. SUCCESSORS AND ASSIGNS. The provisions of this Note shall be
binding on any successor in interest to Borrower and shall inure to the benefit
of any such successor in interest.
/s/ Mark D. Gessler
----------------------------------------
MARK D. GESSLER
ACKNOWLEDGED AND AGREED TO:
GENE LOGIC INC.
/S/ MICHAEL J. BRENNAN, M.D., PH.D.
- -----------------------------------
MICHAEL J. BRENNAN, M.D., PH.D.
Chief Executive Officer
<PAGE> 1
EXHIBIT 10.53
PROMISSORY NOTE
Gaithersburg, Maryland
$150,000 April 8, 1999
FOR VALUE RECEIVED, Y. DOUGLAS DOLGINOW, M.D., a Maryland
resident, (hereinafter called the "Maker"), promises to pay to the order of GENE
LOGIC INC., a Delaware corporation, (hereinafter, together with all subsequent
holders of this Note, called the "Payee") the principal sum of One Hundred and
Fifty Thousand Dollars ($150,000), together with interest on the unpaid
principal balance hereof from time to time outstanding compounded annually at a
rate of interest equal to the Applicable Federal Rate (as appropriate for this
Note) as defined in Section 1274 of the Internal Revenue Code of 1986, as
amended, as such rate may be from time to time adjusted (the "Applicable Federal
Rate"), said principal and interest being due and payable in the following
manner:
(i) commencing on April 8, 2000 and continuing on the eighth day
of each and every April thereafter, to and including April 8, 2003, the
principal hereof shall be payable in four (4) equal, annual installments of
$37,500 each, together with all accrued and unpaid interest on the principal
balance hereof; and
(ii) this Note will mature and the entire unpaid balance of
principal hereof, together with all accrued and unpaid interest hereon, shall
become due and payable on April 8, 2003, if not paid earlier.
Any payment required to be made hereunder (including any payment
of interest and/or principal) which is not made on the date that the same
becomes due and payable shall continue as an obligation of the Maker until it is
fully paid, and the Maker agrees in addition to pay, to the extent permitted by
law, late interest thereon at a rate equal to the Applicable Federal Rate plus
two percent (2%) per annum (the "Late Interest"), such Late Interest to accrue
from the date such over due payment became due and payable until paid. The Maker
shall also pay, promptly upon demand, all costs of collection, including
reasonable attorneys' fees if this Note is referred to an attorney for
collection after default, whether or not any action shall be instituted to
enforce or collect this Note. Time is of the essence hereof for all purposes.
All payments on this Note shall be applied first to the payment
of any accrued but unpaid Late Interest and collection costs, second to the
payment of accrued but unpaid interest, and third to the reduction of the
principal balance hereof. The rate of interest hereon shall be calculated on the
basis of a 360-day year factor applied to actual days elapsed. All payments
hereunder shall be payable in lawful money of the United States of America and
shall be made to the Payee in immediately available funds at 708 Quince Orchard
Road, Gaithersburg, Maryland 20878, or at such other address as the Payee may
from time to time designate in writing to the Maker.
1.
<PAGE> 2
The Maker shall have the right and privilege to prepay this Note,
in whole or in part, at any time upon at least thirty (30) days' prior written
notice of intention to prepay to the Payee; provided that: (a) each partial
prepayment of principal shall be in multiples of $5,000, unless otherwise agreed
by the Payee, (b) each prepayment shall be made on a date when an installment of
interest or principal hereon is due, (c) each prepayment shall include all
accrued and unpaid interest on or with respect to the principal amount to be
prepaid, and (d) partial prepayments of principal shall be applied in inverse
order of maturity. Such prepayment shall not be subject to any premium for
prepayment.
The Maker and any endorsers or guarantors hereof severally waive
presentment and demand for payment, notice of intent to accelerate maturity,
notice of acceleration of maturity, protest or notice of protest and nonpayment,
bringing of suit and diligence in taking any action to collect any sums owing
hereunder or in proceeding against any of the rights and properties securing
payment hereof. From time to time, without affecting the obligation of the Maker
to pay the outstanding principal balance of this Note and to observe the
covenants of the Maker contained herein, without affecting the duties and
obligations of any endorser hereto, without affecting the duties and obligations
of any guarantor hereof, without giving notice to or obtaining the consent of
the Maker or any endorser hereto or guarantor hereof, and without liability on
the part of the Payee, the Payee may, at the option of the Payee, extend the
time for payment of interest hereon and/or principal hereof, reduce the payments
hereunder, release anyone liable on this Note, accept a renewal of this Note,
modify the terms and time of payment of this Note, join in any extension or
subordination or exercise any option or election hereunder, modify the rate of
interest or period of principal repayment or principal due date of this Note or
exercise any option or election hereunder. No one or more of such actions shall
constitute a novation.
If default be made in the payment in whole or in part of any sum
provided for herein, or if an event of default, including the termination or
ending, with or without cause, by Maker or Payee (if Payee is Maker's employer)
of Maker's employment with Gene Logic Inc., shall occur under any instrument or
document executed as security for, as evidence of, or otherwise in connection
with this Note or the indebtedness evidenced hereby or under that certain Pledge
and Security Agreement of even date herewith between the Maker and the Payee
(the "Pledge Agreement") (this Note and the Pledge Agreement being hereinafter
collectively called the "Loan Documents"), then the Payee may, at its option,
without further notice or demand (except as may be otherwise specifically
provided for in the Loan Documents), declare the unpaid principal balance and
accrued interest on this Note at once due and payable, foreclose all liens
securing payment hereof, pursue any and all other rights, remedies and recourses
available to the Payee, or pursue any combination of the foregoing, all remedies
hereunder and under the Loan Documents being cumulative. The Payee shall have
the right to rescind any acceleration in payment of this Note for default as
aforesaid, if the Payee so elects, in which event this Note shall be construed,
interpreted and enforced in the same manner as if the Payee had not elected to
declare the unpaid principal balance and accrued interest of this Note at once
due and payable.
Failure to exercise any of the foregoing options upon the
happening of one or more of the foregoing events shall not constitute a waiver
of the right to exercise the same or any
2.
<PAGE> 3
other option at any subsequent time in respect to the same or any other event,
and no single or partial exercise of any right or remedy shall preclude other or
further exercise of the same or any other right or remedy. The Payee shall have
no duty to exercise any or all of the rights and remedies herein provided or
contemplated. The acceptance by the Payee of any payment hereunder that is less
than payment in full of all amounts due and payable at the time of such payment
shall not constitute a waiver of the right to exercise any of the foregoing
options at that time or at any subsequent time, or nullify any prior exercise of
any such option without the express written consent of the Payee.
This Note is secured, inter alia, by a Pledge and Security
Agreement of even date herewith executed by the Maker for the benefit of the
Payee, covering stock owned by the Maker, as well as a Stock Power executed by
the Maker for the benefit of the Payee, each as more particularly described
therein.
This Note shall be governed by and construed according to the
laws of the State of Maryland, without regard to principles of conflict of laws.
Any attorney at law, or the Clerk of the court where authorized,
may appear in any court of record in the State of Maryland or in the United
States, after demand on this Note following an event of default under any Loan
Document, and waive the issuing of service of process and confess a judgment
against the Maker in favor of the Payee for the amount then appearing due
hereunder, together with interest, costs of suit and attorneys' fees in the
amount of 15% of the amount due hereunder, and thereupon release all errors and
waive all right of appeal.
In any case where the date of maturity of interest on, or
principal of, this Note shall be a Sunday or legal holiday, or a day on which
banking institutions in the city of payment are authorized by law or executive
order to close (any other day being herein referred to as a "Banking Day"), then
payment of interest or principal need not be made on such date, but may be made
on the next succeeding Banking Day; provided, however, that interest shall
continue to accrue through the actual date of payment.
* * * * *
Executed under seal in the City of Gaithersburg, Maryland, and
intending this Note to be a sealed instrument, as of the date and year first
above written.
WITNESS:
/s/ Al Lichtenstein /s/ D. Dolginow (SEAL)
- --------------------------- ---------------------------
Y. DOUGLAS DOLGINOW, M.D.
3.
<PAGE> 4
I hereby authorize Gene Logic Inc. (or any subsequent holders of
this Promissory Note if the holder is also my employer) to deduct any payment
due to the Payee under this Promissory Note from my wages, salary, bonus, or any
other payments (including any final paycheck or bonus payments) due to me as a
result of my employment.
WITNESS:
/s/ Al Lichtenstein /s/ D. Dolginow (SEAL)
- --------------------------- ---------------------------
Y. DOUGLAS DOLGINOW, M.D.
4.
<PAGE> 1
EXHIBIT 10.54
PLEDGE AND SECURITY AGREEMENT
THIS PLEDGE AND SECURITY AGREEMENT (this "Agreement"), dated as
of the eighth day of April 1999, by and between Y. DOUGLAS DOLGINOW, M.D., a
Maryland resident (the "Pledgor"), and GENE LOGIC INC., a Delaware corporation
(the "Secured Party").
RECITALS:
WHEREAS, Pledgor has executed a Promissory Note in favor of the
Secured Party (the "Note") in the aggregate principal amount of $150,000 (the
"Loan");
WHEREAS, in order to induce the Secured Party to make the Loan to
the Pledgor evidenced by the Note, the Pledgor has agreed to enter into this
Agreement; and
WHEREAS, unless otherwise defined or the context otherwise
requires, the defined terms used herein shall have the same meanings assigned to
them in the Note;
NOW, THEREFORE, in consideration of the foregoing and in order to
induce the Secured Party to lend funds as contemplated by the Note, the Pledgor
hereby agrees with the Secured Party as follows:
1.1 Pledge. As collateral security for the full and prompt payment (not
merely the collection) of all amounts due under or with respect to the Note, and
for the complete and prompt observance and performance of all of the Pledgor's
other obligations thereunder, the Pledgor hereby grants to the Secured Party,
its successors and assigns, a continuing security interest in, and pledges and
transfers to the Secured Party, the following property (collectively, the
"Collateral"):
(a) Thirty Thousand (30,000) shares of the common stock of the
Secured Party represented by stock certificate no. GL 0257 issued on April 8,
1999 (the "Certificate");
(b) all cash and non-cash proceeds of the foregoing, including
(without limitation) all dividends and other distributions; and
(c) any Substitute Collateral, as defined in Section 1.2 below.
In order continuously to perfect the security interest in the
Certificate granted hereby, the Pledgor has, simultaneously with the execution
hereof, physically delivered to the Secured Party the Certificate accompanied by
appropriate undated stock powers duly executed by the registered owner thereof
in blank. After an Event of Default (defined in Section 2 below) has occurred,
the Secured Party may at any time cause to be transferred into its name or the
name of its nominee or nominees any and all of the Collateral hereunder. The
Secured Party shall at all times have the right to exchange the Certificate for
certificates of smaller or larger denominations.
1.
<PAGE> 2
In order continuously to perfect the security interest in any
Substitute Collateral, as defined in Section 1.2 below, granted hereby, the
Pledgor will, immediately before any Collateral is released, physically deliver
to the Secured Party any certificates or other documentation representing said
Substitute Collateral as requested by the Secured Party. After an Event of
Default (defined in Section 2 below) has occurred, the Secured Party may at any
time cause to be transferred into its name or the name of its nominee or
nominees any and all of the Substitute Collateral hereunder.
The Secured Party shall have all the rights with respect to the
Collateral afforded to it as a secured party under the Maryland Uniform
Commercial Code (the "UCC").
1.2 Substitute Collateral. If the Pledgor grants, pledges and transfers
to the Secured Party, its successors and assigns, a continuing security interest
in a Cash Equivalent Instrument (defined in Section 1.3 below) equal to no less
than the outstanding principal balance and accrued interest unpaid under the
Note (the "Substitute Collateral") in the manner and in accordance with such
procedures as determined appropriate by the Secured Party in its sole discretion
(including delivery of any documentation as determined appropriate by the
Secured Party), as security for the full and prompt payment (not merely the
collection) of all amounts due under or with respect to the Note, and for the
complete and prompt observance and performance of all of the Pledgor's other
obligations thereunder, and the Secured Party determines in its sole discretion
that such Substitute Collateral is acceptable and adequately secures all amounts
due under the Note, then the Secured Party will release the Certificate to the
Pledgor in accordance with the procedures set forth in Section 18 below, as if
such Certificates constituted Excess Collateral thereunder.
1.3 Cash Equivalent. A Cash Equivalent Instrument shall mean (a) direct
obligations of the United States of America or any agency thereof, or
obligations guaranteed or insured by the United States of America, provided that
in each case such obligations mature within one year from the date of
acquisition thereof, (b) certificates of deposit maturing within one year from
the date of creation thereof issued by any U.S. national or state banking
institution having capital, surplus and undivided profits aggregating at least
$250,000,000 and rated at least A by Standard & Poor's Corporation and A2 by
Moody's Investors Service, Inc., (c) commercial paper with a maturity of 180
days or less issued by a corporation organized under the laws of any state of
the United States or the District of Columbia and rated at least A-1 by Standard
& Poor's Corporation or at least P-1 by Moody's Investors Service, Inc., (d)
repurchase agreements and reverse repurchase agreements relating to marketable
direct obligations issued or unconditionally guaranteed by the United Sates of
America or issued by an agency thereof and backed by the full faith and credit
of the United States of America, in each case maturing within one year from the
date of acquisition; provided that the terms of such agreements comply with the
guidelines set forth in the Federal Financial Agreements of Depository
Institutions with Securities and Others, as adopted by the Comptroller of the
Currency, (e) prime banker's acceptances, (f) money market funds investing in
any of the above, and (g) other investments of equal or greater security and
liquidity as deemed acceptable by the Secured Party in its sole discretion.
2. Event of Default. The term "Event of Default" shall mean (i) the
failure of Pledgor to pay in full any payment when due under the Note to the
Secured Party, (ii) the breach by Pledgor
2.
<PAGE> 3
of any provision hereof, or (iii) the termination or ending, with or without
cause, by Pledgor or the Secured Party of Pledgor's employment with the Secured
Party.
3. Remedies upon Default. If any Event of Default should occur, then the
Secured Party shall be entitled to exercise any one or more of the following
remedies, without first proceeding against any other collateral security
afforded to the Secured Party for any of the obligations secured hereby and
without first asserting a claim against the Pledgor or any guarantor of such
obligations:
(a) The Secured Party may from time to time take whatever action
at law or in equity may appear necessary or desirable in order to collect the
moneys payable hereunder or secured hereby or to enforce performance and
observance of any obligation, agreement or covenant hereunder.
(b) The Secured Party may foreclose its security interest in any
of the Collateral in any way permitted by law; and the Secured Party may
thereupon, or at any time thereafter, in its sole discretion, without notice or
demand (except such notice as may be specifically required by law) and with or
without having the Collateral at the time or place of sale, sell or otherwise
dispose of the Collateral, or any part thereof, at one or more public or private
sales, at any time or place, at such price or prices and upon such terms, either
for cash, credit or future delivery, as the Secured Party may elect. In the
exercise of such remedy, the Secured Party may sell all of the Collateral as a
unit even though the sales price thereof may be in excess of the amounts
remaining unpaid on the Note. The Secured Party is authorized at any sale or
other disposition of the Collateral, if it deems it advisable so to do, to
restrict the prospective bidders or purchasers thereof to persons who will
represent and agree that they are purchasing for their own account for
investment, and not with a view to the distribution or resale of any of the
Collateral. At any such public sale the Secured Party may bid for and become the
purchaser of all or any part of the Collateral, and such sale or sales may be
held without demand of performance, notice of intention to sell, the time or
place of sale or any other matter, except for such notice as may be specifically
required by law; and the purchaser at any such sale or other disposition shall
thereafter hold the Collateral sold absolutely free from any claim or right of
the Pledgor of whatsoever kind, including any right of redemption of the
Pledgor, all such rights being hereby expressly waived and released by the
Pledgor to the extent permitted by law.
(c) The Secured Party may apply for a receiver for the Collateral
and may sell the Collateral pursuant to a judicial sale, and the Pledgor hereby
assents to the passage of a decree for the sale of any of the Collateral by any
court having jurisdiction. The Pledgor hereby authorizes and empowers the
Secured Party to sell its interest in the Collateral in accordance with the
Maryland Rules of Procedure or any other applicable law. Such Collateral or any
interest therein may be sold upon such terms and in as many lots as the person
conducting the sale may, in his sole discretion, elect. No re-advertisements of
any sale shall be required if the sale is adjourned by announcement, at the time
or place set therefor, of the date, time or place to which the same is to be
adjourned.
(d) The Secured Party may exercise any and all rights of
conversion, exchange or subscription and any other rights, privileges or options
pertaining to any of the Collateral, as if
3.
<PAGE> 4
the Secured Party were the absolute owner thereof, including (without
limitation) the right to exchange, at its discretion, any and all of the
Collateral upon the merger, consolidation, reorganization, recapitalization or
other readjustment of the Pledgor or upon the exercise by or on behalf of the
Pledgor or the Secured Party of any right, privilege or option pertaining to any
of the Collateral.
(e) The Secured Party may take possession of the Collateral
pursuant hereto without legal process and without incurring liability to the
Pledgor therefor for the purpose of exercising its rights hereunder.
(f) The Secured Party may exercise any other right or remedy with
respect to any of the Collateral given to secured parties under the UCC or other
applicable law.
(g) Any notification required by Section 9-504 of the UCC shall
be deemed reasonably and properly given if mailed, certified or registered mail,
postage prepaid, to the Pledgor, at least ten (10) days before any sale or
disposition of any of the Collateral which is subject to the UCC. Any
advertisement of the sale or other disposition of such Collateral shall be
deemed to be reasonable if such advertisement is placed in a newspaper of
general circulation in or about the location of the Pledgor's residence, the
chief executive offices or principal place of business of the Pledgor or the
location of the sale at least once in each of the two (2) calendar weeks
immediately preceding the sale.
(h) Any proceeds received from the exercise of any remedy
hereunder, after deducting therefrom any and all costs and expenses incurred in
securing possession of any Collateral, in shipping and storing the Collateral,
in preparing the Collateral for sale or otherwise dealing with Collateral prior
to any sale or other disposition thereof and in connection with the sale or
other disposition thereof (including, without limitation, attorneys' and
accountants' fees and brokers' commissions), shall be applied toward the payment
of any and all amounts due under or with respect to the Note, including
interest, and all other costs and expenses incurred by the Secured Party in
connection with this Agreement or the Note which are then due and payable, in
such order and amounts as the Secured Party, in its sole discretion, may elect.
If such net proceeds should be insufficient to pay the same and a deficiency
shall result, the Pledgor shall nevertheless remain liable for such deficiency;
and if such proceeds should be more than sufficient to pay the same, then in
case of a surplus, such surplus shall be accounted for and, if any amounts due
under the Note remain outstanding, retained by the Secured Party, who shall hold
the same as security for the payment of the Note; otherwise, such surplus shall
be paid over to the Pledgor or to whomsoever a court of competent jurisdiction
shall determine to be entitled thereto.
4. Representations and Warranties. The Pledgor hereby represents and
warrants to the Secured Party as follows:
(a) The Pledgor is and will remain the true and lawful owner of
all the Collateral and, except for the security interest created hereunder, he
has and will continue to have good and marketable title thereto, free and clear
of all liens, charges and encumbrances whatsoever.
4.
<PAGE> 5
(b) The Pledgor has and will continue to have full legal power
and right to pledge and grant the security interest conveyed hereby in the
Collateral and every part thereof; the making of such pledge and the granting of
such security interest do not and will not violate the provisions of any law,
regulation, contract, agreement, restrictive covenant or legend, order of court,
corporate charter or bylaw, stockholders agreement or other instrument binding
upon him or any part of the Collateral; and no consent or approval of any
governmental body or regulatory authority, or any securities exchange, was or is
necessary to the validity or effectiveness thereof.
5. Preservation of Collateral. The Pledgor will pay promptly when due
all taxes, assessments and governmental charges and levies upon or against the
Collateral, in each case before the same become delinquent and before penalties
accrue thereon, unless and to the extent that the same are being contested in
good faith by appropriate proceedings. The Secured Party may, at its option,
make any payments or take any other action it may reasonably deem necessary or
desirable to cure any Event of Default, to remove or discharge any liens,
attachments or levies, whether voluntary or involuntary, or otherwise to
conserve, protect or further perfect its interest in the Collateral. The Pledgor
shall, promptly upon demand, reimburse the Secured Party for all such advances
or expenses incurred by the Secured Party, together with interest at the
Applicable Federal Rate plus two percent (2%), calculated from and including the
date of advance or payment to and including the date of reimbursement.
6. Dividends. All dividends paid upon or in respect of the Collateral
and all stock or property representing stock or liquidating dividends or a
distribution or return of capital upon or in respect of the Collateral or any
part thereof or resulting from a split-up, revision or reclassification of the
Collateral or any part thereof or received in addition to, in substitution of or
in exchange for the Collateral or any part thereof as a result of a merger,
consolidation, recapitalization or otherwise, shall be paid, delivered or
transferred, as appropriate, directly to the Secured Party immediately upon the
receipt thereof by the Pledgor in precisely the form received, and may, in the
case of cash, be applied at the Secured Party's option to the payment of the
Note (in whatever order and priority it may, in its sole discretion, elect),
whether or not the same may then be due or otherwise adequately secured, and
shall, in the case of all other property, together with any cash received by the
Secured Party and not applied as aforesaid, be held by the Secured Party
pursuant hereto as part of the Collateral pledged under and subject to the terms
of this Agreement.
7. Voting Rights. Upon the occurrence and during the continuation of any
Event of Default, the Secured Party may exercise all voting rights and all other
rights conferred on the owner of any shares of stock included among the
Collateral. So long as no Event of Default shall have occurred and be
continuing, the Pledgor shall have the right to vote its shares of voting stock
in the Secured Party on all corporate matters arising in the ordinary course of
business. Under any circumstances and as to any matters not governed by the
foregoing provisions of this Section 7, the Pledgor may only exercise its voting
rights with respect to the Collateral with the prior consent of the Secured
Party.
8. Power of Attorney. The Pledgor does hereby irrevocably constitute and
appoint the Secured Party his true and lawful attorney, with full power of
substitution, for him and in his name, place and stead, after an Event of
Default has occurred, to ask, demand, collect, receive,
5.
<PAGE> 6
receipt for, sue for, compound or give acquittance for any and all sums or
properties which may be or become due, payable or distributable on or in respect
of the Collateral or which constitute a part thereof, with full power to settle,
adjust or compromise any claim thereunder or therefor as fully as the Pledgor
could itself do, and to endorse or sign the name of the Pledgor on all
commercial paper given in payment or in part payment thereof and on all
documents of satisfaction, discharge or receipt required or requested in
connection therewith, and in its discretion, to file any claim or take any other
action or proceeding, either in its own name or in the name of the Pledgor, or
otherwise, which the Secured Party may deem necessary or appropriate to collect
or otherwise realize upon any and all of the Collateral, or to effect a transfer
thereof, or which may be necessary or appropriate to protect and preserve the
right, title and interest of the Secured Party in and to the Collateral and the
security intended to be afforded hereby. The foregoing power of attorney, being
coupled with an interest, is irrevocable during the term of this Agreement.
9. Term. This Agreement shall terminate at such time as the Note has
been paid in full.
10. Possession. (a) The Secured Party shall maintain the Collateral
prior to sale, as well as any part of the Collateral which is not so sold, in a
place of safe-keeping under its control. Upon termination of this Agreement in
accordance with its terms, the Secured Party shall promptly deliver possession
of any of the Collateral then remaining in its possession to the Pledgor. The
Pledgor hereby releases the Secured Party from any liability for any act or
omission relating to the Collateral or this Agreement, except for actual losses
resulting solely from the Secured Party's willful misconduct.
(b) The Secured Party shall permit the Pledgor or his
representatives to inspect the Collateral, upon reasonable notice and at such
times as the Collateral is reasonably accessible during regular business hours,
either before or after the occurrence of an Event of Default hereunder.
11. Perfection. The Pledgor will execute and deliver to the Secured
Party such financing statements, amendments to financing statements,
continuation statements, stock certificates, stock powers and other documents,
certificates, instruments and agreements as the Secured Party deems necessary or
advisable to accomplish or facilitate the transactions contemplated hereby and
will pay all filing, recordation and registration fees and taxes incurred in
connection therewith.
12. Exercise of Rights. Any delay on the part of any party hereto in
exercising any power, option, privilege or right hereunder shall not operate as
a waiver thereof, and no single or partial exercise of any power, option,
privilege or right hereunder shall preclude other or future exercise thereof, or
the exercise of any other power, option, privilege or right. The waiver by the
Secured Party of any Event of Default shall not constitute a waiver of any
subsequent default, but shall be restricted to the default so waived. If any
part of this Agreement should be contrary to any law which the Secured Party
might seek to apply or enforce, or be otherwise defective, the other provisions
of this Agreement shall not be affected thereby, but shall continue in full
force and effect. All rights, remedies and powers of the Secured Party hereunder
are irrevocable and cumulative, and not alternative or exclusive, and shall be
in addition to all other rights, remedies
6.
<PAGE> 7
and powers given hereunder or in or by any other instrument or any law now
existing or hereafter made or enacted. The Pledgor shall, upon demand, reimburse
the Secured Party for all expenses incurred by it in connection with the
exercise of any remedies granted hereunder, which sums shall be secured by the
security interest granted hereunder.
13. Assignment. The Secured Party may assign or transfer the whole or
any part of the indebtedness of the Pledgor secured hereunder, and the Secured
Party may assign and transfer as collateral security therefor its security
interest in the whole or any part of any collateral security provided by the
Pledgor under this Agreement or otherwise. Such transferee(s) of the Secured
Party shall have the same rights and powers with reference to such security
interest, the obligations of the Pledgor and the benefit of this Agreement and
the Collateral conveyed hereunder as are herein given to the Secured Party.
14. Notices. Any notice, request, claim, demand, waiver, consent,
approval or other communication which is required or permitted hereunder shall
be in writing and shall be deemed given if delivered personally, or if sent by
registered or certified mail, postage prepaid, return receipt requested, as
follows:
If to the Secured Party to:
Gene Logic Inc.
708 Quince Orchard Road
Gaithersburg, Maryland 20878
attn: Mark Gessler
with a required copy to:
Mr. Wallace Christner
Venable
1201 New York Ave., N.W.
Suite 1000
Washington, DC 20005
If to the Pledgor to:
Doug Dolginow
12307 Stoney Creek Road
Pototmac, MD 20854
or to such other address as the person to whom notice is to be given may have
specified in a notice duly given to the sender as provided herein.
15. Binding Nature. This Agreement, and all of the terms and conditions
hereof, shall be binding upon the parties hereto and their respective heirs,
personal representatives, successors and assigns, and shall inure to the benefit
of the parties hereto and the transferees, successors and assigns of the Secured
Party, but shall not inure to the benefit of any other person.
7.
<PAGE> 8
16. Construction. When used herein, the singular may also refer to the
plural, and vice versa; and the use of any gender shall be applicable to all
genders. All representations, warranties, covenants, undertakings, obligations,
waivers and other agreements of the Pledgor herein shall survive the effective
date hereof and shall continue in effect throughout the term of this Agreement.
17. Governing Law. The laws of the State of Maryland shall govern the
construction of this Agreement. The Pledgor hereby consents to the jurisdiction
and venue of any proceeding to enforce any of his obligations under this
Agreement which is brought in any state or federal court in the State of
Maryland.
18. Release. Upon the full and final payment, performance and
satisfaction of all of the obligations under the Note, the Secured Party shall
execute and deliver to the Pledgor such releases, termination statements and
estoppel certificates as the Pledgor may reasonably request; provided that all
such documents shall be prepared, reviewed and filed or recorded at the
Pledgor's sole cost and expense (including, without limitation, the reasonable
fees of counsel to the Secured Party).
At such time when a payment is made on the Note in the manner
described in the Note, and only if in the Secured Party's sole and reasonable
discretion it finds that the value of the Collateral exceeds the outstanding
principal balance, accrued interest and all other amounts due under the Note by
a minimum of $5,000 (the "Excess Collateral"), then if requested by Pledgor, the
Secured Party will release the Excess Collateral to the Pledgor in the manner
described in this section.
* * * * *
IN WITNESS WHEREOF, the parties have caused this Pledge Agreement
to be duly executed under seal, intending it to be a sealed instrument, as of
the day and year first above written.
ATTEST or WITNESS: PLEDGOR
/s/ Al Lichtenstein /s/ D. Dolginow (SEAL)
- --------------------------- ---------------------------
Y. DOUGLAS DOLGINOW, M.D.
SECURED PARTY,
GENE LOGIC INC.
8.
<PAGE> 9
/s/ Diane Holland By: /s/ Mark D. Gessler (SEAL)
- --------------------------- ---------------------------
Name: Mark D. Gessler
Title: President & COO
9.
<PAGE> 1
GENE LOGIC INC.
JUNE 30, 1999
EXHIBIT 11.1
Statement Re: Computation of Per Share Earnings
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
------------------------ ------------------------
1999 1998 1999 1998
-------- -------- -------- --------
<S> <C> <C> <C> <C>
BASIC AND DILUTED:
Weighted average common shares outstanding 19,797 14,219 19,754 14,060
Net loss $ (4,385) $ (1,458) $ (9,335) $ (3,568)
======== ======== ======== ========
Net loss per common share $ (0.22) $ (0.10) $ (0.47) $ (0.25)
======== ======== ======== ========
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 6-MOS
<FISCAL-YEAR-END> DEC-31-1999 DEC-31-1999
<PERIOD-START> APR-01-1999 JAN-01-1999
<PERIOD-END> JUN-30-1999 JUN-30-1999
<CASH> 7,385 7,385
<SECURITIES> 13,090 13,090
<RECEIVABLES> 3,774 3,774
<ALLOWANCES> 0 0
<INVENTORY> 0 0
<CURRENT-ASSETS> 26,492 26,492
<PP&E> 14,006 14,006
<DEPRECIATION> 3,740 3,740
<TOTAL-ASSETS> 45,843 45,843
<CURRENT-LIABILITIES> 8,880 8,880
<BONDS> 3,586 3,586
0 0
0 0
<COMMON> 199 199
<OTHER-SE> 32,651 32,651
<TOTAL-LIABILITY-AND-EQUITY> 45,843 45,843
<SALES> 0 0
<TOTAL-REVENUES> 5,212 9,279
<CGS> 0 0
<TOTAL-COSTS> 9,440 18,245
<OTHER-EXPENSES> 157 269
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 0 0
<INCOME-PRETAX> (4,385) (9,235)
<INCOME-TAX> 0 100
<INCOME-CONTINUING> (4,385) (9,335)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (4,385) (9,335)
<EPS-BASIC> (0.22) (0.47)
<EPS-DILUTED> (0.22) (0.47)
</TABLE>
