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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 SEPTEMBER 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 19,912,425 as of October 31, 1999.
- --------------------------------------------------------------------------------
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GENE LOGIC INC.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
<S> <C>
Consolidated Balance Sheets at September 30, 1999 and December 31, 1998..................3
Consolidated Statements of Operations for the Three and Nine Months Ended
September 30, 1999 and 1998............................................4
Consolidated Statements of Cash Flows for the Nine Months Ended
September 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.......................................16
Item 3. Defaults Upon Senior Securities.................................................16
Item 4. Submission of Matters to a Vote of Security Holders.............................16
Item 5. Other Information...............................................................16
Item 6. Exhibits and Reports on Form 8-K................................................16
Signatures .............................................................................17
</TABLE>
2.
<PAGE> 3
PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
GENE LOGIC INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1999 1998
-------------- --------------
(Unaudited)
ASSETS
<S> <C> <C>
Current Assets:
Cash and cash equivalents ................................................. $ 4,400 $ 16,191
Marketable securities available-for-sale................................... 12,192 14,791
Due from collaborators..................................................... 3,502 3,779
Prepaid expenses........................................................... 1,910 842
Notes receivable from employees............................................ 41 -
Other current assets....................................................... 825 875
------------ -------------
Total Current Assets.......................................... 22,870 36,478
Property and Equipment, net .................................................... 10,796 10,189
Notes Receivable from Employees................................................. 727 -
Goodwill, net................................................................... 6,104 7,249
Intangible and Other Assets, net ............................................... 2,477 1,650
------------ -------------
Total Assets ................................................. $ 42,974 $ 55,566
============ =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable .......................................................... $ 2,937 $ 2,123
Accrued expenses........................................................... 2,117 2,963
Accrued restructuring...................................................... - 184
Current portion of capital lease obligation................................ 132 124
Current portion of long-term debt.......................................... 1,307 1,292
Deferred revenue........................................................... 4,638 3,219
------------ -------------
Total Current Liabilities..................................... 11,131 9,905
Long-Term Debt.................................................................. 3,207 3,789
Other Noncurrent Liabilities.................................................... 549 584
------------ -------------
Total Liabilities............................................. 14,887 14,278
------------ -------------
Commitments and Contingencies
Stockholders' Equity:
Common Stock, $.01 par value; 60,000,000 shares authorized;
19,905,994 and 19,651,756 shares issued and outstanding as of
September 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 September 30, 1999 and December 31,
1998...................................................................... - -
Additional paid-in capital ................................................ 103,140 102,670
Deferred compensation on stock options, net ............................... (2,934) (3,986)
Accumulated other comprehensive loss ...................................... (49) (46)
Accumulated deficit ....................................................... (72,269) (57,547)
------------ -------------
Total Stockholders' Equity.................................... 28,087 41,288
------------ -------------
Total Liabilities and Stockholders' Equity.................... $ 42,974 $ 55,566
============ =============
</TABLE>
See accompanying notes.
3.
<PAGE> 4
GENE LOGIC INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
---------------------------- ------------------------------
1999 1998 1999 1998
----------- ----------- ------------ ----------
<S> <C> <C> <C> <C>
Revenues........................................................ $ 4,223 $ 2,743 $ 13,502 $ 8,618
Expenses:
Research and development..................................... 7,020 4,090 21,506 11,234
General and administrative................................... 2,335 1,673 6,094 4,991
Amortization of goodwill..................................... 381 - 1,143 -
Acquired in-process research and development................. - 35,196 - 35,196
----------- ----------- ------------ ----------
Total expenses................................... 9,736 40,959 28,743 51,421
----------- ----------- ------------ ----------
Loss from operations............................. (5,513) (38,216) (15,241) (42,803)
Interest income, net............................................ 126 428 589 1,527
Other income (expense).......................................... - - 30 (80)
----------- ----------- ------------ ----------
Loss before income tax expense................... (5,387) (37,788) (14,622) (41,356)
Income tax expense.............................................. - - 100 -
----------- ----------- ------------ ----------
Net loss......................................... $ (5,387) $ (37,788) $ (14,722) $ (41,356)
=========== =========== ============ ==========
Basic and Diluted Net Loss Per Common Share..................... $ (0.27) $ (2.54) $ (0.74) $ (2.88)
=========== =========== ============ ==========
Shares Used In Computing Basic and Diluted Net Loss
Per Common Share........................................ 19,887 14,906 19,799 14,345
=========== =========== ============ ==========
</TABLE>
See accompanying notes.
4.
<PAGE> 5
GENE LOGIC INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
----------------------------------
1999 1998
-------------- --------------
<S> <C> <C>
Cash Flows From Operating Activities:
Net loss....................................................................... $ (14,722) $ (41,356)
Adjustments to reconcile net loss to net cash flows from operating
activities:
Depreciation and amortization ......................................... 2,343 1,141
Amortization of goodwill............................................... 1,143 -
Amortization of deferred compensation ................................. 1,148 1,203
Acquired in-process research and development .......................... - 35,196
Loss on disposal of property and equipment............................. - 81
Changes in operating assets and liabilities (net of effects of acquisition):
Due from collaborators................................................. 277 (1,433)
Prepaid expenses....................................................... (1,068) (69)
Other current assets................................................... 50 (224)
Intangibles and other assets........................................... (937) (523)
Accounts payable ...................................................... 814 703
Accrued expenses....................................................... (846) 318
Accrued restructuring ................................................. (184) -
Deferred revenue ...................................................... 1,419 (2,815)
Other noncurrent liabilities........................................... 65 89
-------------- --------------
Net Cash Flows From Operating Activities ..................... (10,498) (7,689)
-------------- --------------
Cash Flows From Investing Activities:
Purchases of property and equipment ................................... (2,838) (5,582)
Increase in notes receivable from employees............................ (768) -
Payment of acquisition costs, net of cash acquired..................... - (755)
Pre-acquisition advances to Oncormed................................... - (1,843)
Proceeds from sale and maturity of marketable securities
available-for-sale ................................................ 2,596 -
Purchase of marketable securities available-for-sale................... - (10,470)
-------------- --------------
Net Cash Flows From Investing Activities...................... (1,010) (18,650)
-------------- --------------
Cash Flows From Financing Activities:
Proceeds from issuance of common stock................................. 376 340
Proceeds from equipment loans.......................................... - 4,284
Proceeds from note payable............................................. 425 -
Repayments of financing agreement...................................... (98) (136)
Repayments of capital lease obligation,
equipment loans and note payable................................. (986) (526)
-------------- --------------
Net Cash Flows From Financing Activities...................... (283) 3,962
-------------- --------------
Net Decrease in Cash and Cash Equivalents...................................... (11,791) (22,377)
Cash and Cash Equivalents, beginning of period................................. 16,191 46,522
-------------- --------------
Cash and Cash Equivalents, end of period....................................... $ 4,400 $ 24,145
============== ==============
Supplemental Disclosure:
Interest expense paid.................................................. $ 311 $ 117
============== ==============
Non-Cash Transactions:
Issuance of Common Stock in Acquisition ............................... $ - $ 38,217
============== ==============
</TABLE>
See accompanying notes.
5.
<PAGE> 6
GENE LOGIC INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 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 September 30, 1999, consolidated
statements of operations for the three and nine months ended September 30, 1999
and 1998 and the consolidated statements of cash flows for the nine months ended
September 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".
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 gain (loss) includes
unrealized holding gains(losses) from marketable securities available-for-sale
for the three and nine months ended September 30, 1999 and 1998 as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
---------------------------- ---------------------------
1999 1998 1999 1998
------------ ------------- ------------ ------------
(in thousands) (in thousands)
<S> <C> <C> <C> <C>
Net loss .............................................. $ (5,387) $ (37,788) $ (14,722) $ (41,356)
Other comprehensive loss, net of tax:
Unrealized gains(losses) on marketable securities. 51 2 (3) (10)
Less - Reclassification adjustment for losses .... - - - 2
------------ ------------- ----------- --------------
Total other comprehensive gain(loss) ......... 51 2 (3) (8)
------------ ------------- ----------- --------------
Comprehensive loss .................................... $ (5,336) $ (37,786) $ (14,725) $ (41,364)
============ ============= =========== ==============
</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
$1.1 million for the three and nine months ended September 30, 1999,
respectively. Accumulated amortization of goodwill was $1.5 million at September
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.
Software Development Costs
In accordance with the provisions of the Financial Accounting Standards
Board Statement No. 86, "Accounting for the Costs of Computer Software to be
Sold, Leased or Otherwise Marketed," the Company has capitalized certain
software development costs incurred in developing certain products once
technological feasibility of the products was demonstrated. The Company recorded
capitalized software costs of $517,000 for the three and nine months ended
September 30, 1999. The Company will begin amortization of such costs when the
products are available for general release to customers, which is expected to
occur in the fourth quarter of 1999.
NOTE 2. 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. The restructuring activities as a result of the
acquisition were substantially completed in the third quarter of 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 September 30, 1999..................... (134) (50) (184)
--------------- ---------------------- ----------------
Balance at September 30, 1999........................... $ - $ - $ -
=============== ====================== ================
</TABLE>
NOTE 3. 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" that establishes standards for reporting information about
operating segments in annual and interim financial statements and related
disclosures about 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 by 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:
September 30, 1999....................... 48% 26% - 13% 48% 13% 26%
September 30, 1998....................... 34% 18% 36% 11% 34% 47% 18%
For the nine months ended:
September 30, 1999........................ 41% 24% 11% 13% 41% 24% 24%
September 30, 1998........................ 36% 17% 26% 21% 36% 47% 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 Research unit, 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., SmithKline Beecham PLC and UCB Research Inc., a division of UCB Pharma.
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 nonrefundable 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
9.
<PAGE> 10
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 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
subscription 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 September 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 September 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 $37.1 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 for the foreseeable future, 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.
10.
<PAGE> 11
At September 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 these research and development projects are on track with
management's plans at the time the acquisition occurred. Through September 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 by the end of 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 2000.
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 $111,000
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 in the aggregate, 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.
11.
<PAGE> 12
RESULTS OF OPERATIONS
Three Months and Nine Months Ended September 30, 1999 and 1998
Revenues increased to $4.2 million and $13.5 million for the three and nine
months ended September 30, 1999, respectively, from $2.7 million and $8.6
million for the same periods in 1998. The increase in revenues was the result of
the expansion of the Company's collaborations with Japan Tobacco and Procter &
Gamble in late 1998, offset partially by the timing of revenue recognized
under other existing collaborations.
Research and development expenses increased to $7.0 million and $21.5
million for the three and nine months ended September 30, 1999, respectively,
from $4.1 million and $11.2 million for the same periods in 1998. The increase
of $2.9 million for the three months ended September 30, 1999 as compared to the
same period in 1998 was primarily attributable to approximate increases of
$900,000 in research agreement expenses and $800,000 in laboratory supplies. The
increase of $10.3 million for the nine months ended September 30, 1999 as
compared to the same period in 1998 was primarily attributable to approximate
increases of $4.2 million in research agreement expenses, $2.2 million in
personnel expenses, and $1.8 million in laboratory supplies. Both of these
increases primarily relate 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 $2.3 million and $6.1
million for the three and nine months ended September 30, 1999, respectively,
from $1.7 million and $5.0 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 nine months ended
September 30, 1999 as compared to the same periods in 1998, the increases of
$662,000 and $1.1 million, respectively, were primarily attributable to
approximate increases of $200,000 and $800,000, respectively, in personnel
expenses and $300,000 for both periods in professional fees. These increases
primarily relate to the Company's expansion of its business development efforts,
marketing costs of new products, 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 lines
and its sales and marketing efforts.
Amortization of goodwill was $381,000 and $1.1 million for the three and
nine months ended September 30, 1999, respectively, as a result of the
acquisition of Oncormed in September 1998.
Acquired in-process research and development was $35.2 million for the
three and nine months ended September 30, 1998, respectively, as a result of the
non-recurring charge for the acquisition of Oncormed in September 1998.
Net interest income decreased to $126,000 and $589,000 for the three and
nine months ended September 30, 1999, respectively, from $428,000 and $1.5
million for the same periods in 1998 primarily due to smaller cash and
investment balances as a result of funding the Company's operating losses
through September 30, 1999 and additional interest expense paid on equipment
loans.
LIQUIDITY AND CAPITAL RESOURCES
From inception through September 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
12.
<PAGE> 13
of capital lease financing and $6.3 million under equipment and tenant
improvement loans. As of September 30, 1999, the Company had approximately $16.6
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 $111,000 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 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. During
the three months ending September 30, 1999, the Company substantially completed
its restructuring activities.
Net cash used in operating activities was $10.5 million for the nine months
ended September 30, 1999 compared to $7.7 million for the nine months ended
September 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 nine months ended September 30, 1999 and 1998, the Company had
expenditures relating to intangibles and other assets of approximately $937,000
and $523,000, 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 as a result of continuing efforts 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 $2.8 million and $5.6 million for the nine months ended September
30, 1999 and 1998, respectively, and the issuance of promissory notes to three
officers of the Company totaling $750,000 during the nine months ended September
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 facility. The
Company expects to have additional capital expenditures in the fourth quarter of
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 $283,000 for the nine months
ended September 30, 1999 compared to net cash provided by financing activities
of $4.0 million in the nine months ended September 30, 1998. During the nine
months ended September 30, 1999, the Company obtained $425,000 to finance tenant
improvements compared to $4.3 million of equipment financing received during the
same period in 1998. The cash obtained in these periods was offset by increased
repayments under equipment loans and a capital lease obligation during 1999.
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
13.
<PAGE> 14
through June 1999. At September 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 similar financing from
additional sources during the fourth quarter of 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, 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.
In September 1999, the Company renegotiated certain elements of its
existing Genomic Database Collaboration and License Agreement with N.V. Organon.
As amended, the agreement permits Organon to terminate the collaboration on
February 27, 2000 upon payment of a specified amount to the Company. In the
event that Organon elects early termination at that time, the Company would
purchase rights to data valuable for its GeneExpress databases.
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.
14.
<PAGE> 15
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, and identified material third parties which the Company relies upon
for its operations.
In October 1999, the Company substantially completed its compliance audits
and Year 2000 validation testing on its internal computer systems, electronic
devices and software, noting that systems critical to the Company's business
that were not Year 2000 compliant have been, or are in the process of being,
replaced or corrected as identified through programming modifications and/or
software upgrades.
The Company has also evaluated the status of Year 2000 compliance of third
parties with whom the Company has material relationships through Year 2000
surveys and review of public documents and third-party web sites. As a result,
the Company has determined that the majority of such third parties represent
being compliant with regards to Year 2000 while the remainder are still in
the process of becoming Year 2000 compliant. The Company will continue to
monitor their progress.
The Company expects to complete its Year 2000 efforts in the fourth quarter
of 1999. As the Company completes its overall assessments of its Year 2000
requirements, it will develop and implement, if necessary, appropriate
contingency plans to mitigate, to the extent possible, the effects of Year 2000
noncompliance on the Company's operations. The preceding discussion, including
the estimated timing of completion of these efforts, includes forward-looking
statements that involve risk and uncertainties, including the risk that such
efforts will not adequately address such Year 2000 problems, the risk that
third-party assurances regarding Year 2000 compliance are inaccurate or
incomplete, and the risk that the Company will not be able to successfully
implement its contingency plans in a timely manner. If any of these
circumstances occur, 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 material 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 issues 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
On October 19, 1999 a lawsuit was filed in the Circuit Court of Cook
County, Illinois against Oncormed, Inc. and Gene Logic Inc. alleging that
Oncormed was negligent in determining and reporting laboratory test results of a
genetic test conducted by Oncormed.
15.
<PAGE> 16
Oncormed sold its testing business to a third-party company prior to its
acquisition by Gene Logic. The Company is not engaged in any type of genetic
testing, nor has it plans to enter such markets. The Company maintains the
usual and customary protection against such claims and does not believe this
action will have a material adverse impact on the Company.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
A) EXHIBITS:
*10.55 Executive Severance Plan, adopted March 19, 1999
++++10.56 First Amendment to Genomic Database Collaboration
and License Agreement, executed September 1999,
between Registrant and N.V. Organon
++++10.57 Letter Agreement, dated September 28, 1999, between
Registrant and Japan Tobacco, Inc.
11.1 Statement regarding computation of net loss per
share
27.1 Financial Data Schedule
------------------------
* Indicates management compensatory plan, contract or
arrangement.
++++ Confidential treatment has been requested with
respect to certain portions of this exhibit.
Omitted portions have been filed separately with the
Securities and Exchange Commission.
B) REPORTS ON FORM 8-K:
No reports on Form 8-K were filed during the three months ended
September 30, 1999.
16.
<PAGE> 17
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: November 15, 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: November 15, 1999 By: /s/ Philip L. Rohrer, Jr.
--------------------------------------
Philip L. Rohrer, Jr.
Chief Financial Officer
(Principal Financial and Accounting Officer)
17.
<PAGE> 1
EXHIBIT 10.55
GENE LOGIC INC.
EXECUTIVE SEVERANCE PLAN
ADOPTED MARCH 19, 1999
SECTION 1. INTRODUCTION.
The Gene Logic Inc. Executive Severance Plan (the "Plan") was approved by
the Board of Directors of Gene Logic Inc. on March 19, 1999. The purpose of the
Plan is to encourage eligible employees of the Company to continue as employees
of the Company in the event of a Change of Control (as defined herein) and to
provide for the payment of severance benefits to such employees in the event
their employment with the Company is terminated, as provided herein, within a
specified period preceding or following a Change of Control. Except as otherwise
stated herein, this Plan shall supersede both any severance benefit plan, policy
or practice previously maintained by the Company and any employment agreement
entered into by the Company with an individual employee, but only to the extent
that such plan, policy, practice or individual employment agreement addressed
the provision of severance benefits under circumstances covered by the Plan.
Notwithstanding the foregoing, this Plan shall not limit or restrict in any way
the provisions of the Gene Logic Inc. Equity Incentive Plan, as amended (the
"Equity Incentive Plan"), including but not limited to the provisions of that
section entitled "Adjustments upon Changes in Stock," and any provisions of the
Plan relating to the treatment of stock awards issued under the Equity Incentive
Plan shall be construed only to provide additional benefits to Eligible
Employees holding one or more stock awards granted under the Equity Incentive
Plan. This Plan document is also the Summary Plan Description for the Plan.
SECTION 2. ELIGIBILITY FOR BENEFITS.
(a) "Eligible Employees" are the Chief Executive Officer, President,
and Chief Operating Officer of the Company, all employees who hold the position
of senior vice president of the Company, and selected employees who hold the
title vice president, "director" or "senior director" with the Company and are
designated in writing by the Company, in its sole and absolute discretion, as
eligible to receive benefits under the Plan. No other employees of or
consultants to the Company shall be eligible to receive benefits under the Plan.
An Eligible Employee shall be eligible for benefits under the Plan if such
Eligible Employee's employment with the Company terminates due to an Involuntary
Termination Without Cause or a Constructive Termination, in either case on or
within three (3) months prior to, upon the occurrence of, or on or within
thirteen (13) months following, the effective date of a Change of Control. In
addition, an Eligible Employee shall be eligible for benefits under the Plan if
such Eligible Employee's employment with the Company terminates due to death or
Disability on or within thirteen (13) months following the effective date of a
Change of Control. An employee who otherwise is an Eligible Employee will not
receive benefits under the Plan if the Eligible Employee's employment with the
Company is terminated due to any reason other than Involuntary Termination
Without Cause, Constructive Termination, death or Disability.
1.
<PAGE> 2
(b) In order to be eligible to receive benefits under the Plan, an
Eligible Employee must execute the form of Acknowledgement and Acceptance of
Plan Benefits in the form attached hereto as Exhibit A and must execute a
general waiver and release in the form attached hereto as Exhibits B and Exhibit
C, as appropriate.
SECTION 3. BENEFITS.
(a) Eligible Employees will receive the benefits described in the
appropriate Benefit Schedule covering the job title held by the Eligible
Employee at the time of his or her Termination Date and for which the Eligible
Employee has been designated by the Company, as applicable, which Benefit
Schedule is attached hereto. In the event that the Eligible Employee holds one
or more job titles for which different benefits are provided under the Plan, the
Eligible Employee shall be eligible to receive benefits under the schedule with
the more valuable set of benefits.
(b) COBRA CONTINUATION.
(i) Each Eligible Employee who is enrolled in a group health
plan sponsored by the Company may be eligible to continue coverage under such
group health plan under the Consolidated Omnibus Budget Reconciliation Act of
1985 ("COBRA") at the time of the Eligible Employee's termination of employment.
The Company will notify the individual of any such right to continue health
coverage at the time of termination.
(ii) The Company will pay the Eligible Employee's COBRA premiums
during the Severance Period. The Company will pay the COBRA premiums for the
Eligible Employee's dependents during the Severance Period if, and only to the
extent that, such dependents were enrolled in a group health plan sponsored by
the Company prior to the Eligible Employee's Termination Date and some or all of
such dependents' premiums under such plan were paid by the Company prior to the
Eligible Employee's Termination Date. No provision of this Plan will affect the
continuation coverage rules under COBRA, except that the Company's payment of
any applicable premiums during the Severance Period will be credited as payment
by the Eligible Employee for purposes of the Eligible Employee's payment
required under COBRA. Therefore, the period during which an Eligible Employee
must elect to continue the Company's group health coverage at his or her own
expense under COBRA, the length of time during which COBRA coverage will be made
available to the Eligible Employee, and all other rights and obligations of the
Eligible Employee under COBRA (except the obligation to pay premiums that the
Company pays during the Severance Period) will be applied in the same manner
that such rules would apply in the absence of this Plan. At the conclusion of
the Severance Period the Eligible Employee will be responsible for the entire
payment of premiums required under COBRA for the duration of the COBRA period,
if any.
(c) OUTPLACEMENT BENEFITS. Each Eligible Employee will receive
outplacement services through a vendor of the Company's choice following the
Eligible Employee's Involuntary Termination Without Cause or Constructive
Termination. Payment for such outplacement services shall be made directly to
the service provider, and the Company shall not be obligated to make any
payments to the Eligible Employee regardless of whether he or she utilizes such
outplacement services and what the cost of any such outplacement services are.
2.
<PAGE> 3
The total cost to the Company of such outplacement services shall not exceed the
amounts described in the Benefit Schedule attached hereto.
SECTION 4. LIMITATIONS ON BENEFITS.
(a) PARACHUTE PAYMENTS.
(i) If any payment or benefit an Eligible Employee would receive
under this Plan ("Payment"), when combined with any other payment or benefit
such Eligible Employee receives which is treated as contingent on the occurrence
of a change in ownership of the Company within the meaning of Section 280G of
the Internal Revenue Code of 1986, as amended (the "Code") and the regulations
promulgated thereunder, ("Payment") would (i) constitute a "parachute payment"
within the meaning of Section 280G of the Code, and (ii) but for this sentence,
be subject to the excise tax imposed by Section 4999 of the Code (the "Excise
Tax"), then such Payment shall be either (x) the full amount of such Payment or
(y) such lesser amount (with cash payments being reduced before stock option
compensation) as would result in no portion of the Payment being subject to the
Excise Tax, whichever of the foregoing amounts, taking into account applicable
federal, state and local employment taxes, income taxes, the Excise Tax, and any
other applicable taxes, results in the Eligible Employee's receipt, on an
after-tax basis, of the greater portion of the Payment notwithstanding that all
or some portion of the Payment may be subject to the Excise Tax.
(ii) Unless the Company and Eligible Employee otherwise agree in
writing, any determination required under this subsection shall be made in
writing by the Company's independent public accountants (the "Accountants"),
whose determination shall be conclusive and binding upon the Eligible Employee
and the Company for all purposes. For purposes of making the calculations
required by this subsection, the Accountants may make reasonable assumptions and
approximations concerning applicable taxes and may rely on reasonable, good
faith interpretations concerning the application of Sections 280G and 4999 of
the Code. The Company and Eligible Employee shall furnish to the Accountants
such information and documents as the Accountants may reasonably request in
order to make a determination under this subsection. The Company shall bear all
costs the Accountants may reasonably incur in connection with any calculations
contemplated by this subsection.
(iii) If, notwithstanding any reduction described in this
subsection, the IRS determines that the Eligible Employee is liable for the
Excise Tax as a result of the receipt of the payment of benefits as described
above, then the Eligible Employee shall be obligated to pay back to the Company,
within thirty (30) days after a final IRS determination or in the event that the
Eligible Employee challenges the final IRS determination, a final judicial
determination, a portion of the payment equal to the "Repayment Amount." The
Repayment Amount with respect to the payment of benefits shall be the smallest
such amount, if any, as shall be required to be paid to the Company so that the
Eligible Employee's net after-tax proceeds with respect to any payment of
benefits (after taking into account the payment of the Excise Tax and all other
applicable taxes imposed on such payment) shall be maximized. The Repayment
Amount with respect to the payment of benefits shall be zero if a Repayment
Amount of more than zero would not result in the Eligible Employee's net
after-tax proceeds with respect to the payment of such
3.
<PAGE> 4
benefits being maximized. If the Excise Tax is not eliminated pursuant to this
paragraph, the Eligible Employee shall pay the Excise Tax.
(iv) Notwithstanding any other provision of this Subsection 4(a),
if (A) there is a reduction in the payment of benefits as described in this
subsection, (B) the IRS later determines that the Eligible Employee is liable
for the Excise Tax, the payment of which would result in the maximization of the
Eligible Employee's net after-tax proceeds (calculated as if the Eligible
Employee's benefits had not previously been reduced), and (C) the Eligible
Employee pays the Excise Tax, then the Company shall pay to the Eligible
Employee those benefits which were reduced pursuant to this subsection
contemporaneously or as soon as administratively possible after the Eligible
Employee pays the Excise Tax so that the Eligible Employee's net after-tax
proceeds with respect to the payment of benefits is maximized.
(v) If the Eligible Employee either (1) brings any action to
enforce rights pursuant to this subsection 4(a), or (2) defends any legal
challenge to his or her rights hereunder, the Eligible Employee shall be
entitled to recover attorneys' fees and costs incurred in connection with such
action, regardless of the outcome of such action; provided, however, that in the
event such action is commenced by the Eligible Employee, the court finds the
claim was brought in good faith.
(b) DUPLICATION OF BENEFITS. Notwithstanding any other provision of
the Plan to the contrary, any benefits payable to an Eligible Employee under
this Plan shall be in lieu of any severance benefits payable by the Company to
such individual under any other arrangement covering the individual, unless
expressly otherwise agreed to by the Company in writing. In the event that any
severance benefits under any other arrangement covering an Eligible Employee
become payable to such individual prior to the time that the Company's liability
to pay any severance benefits under the Plan pursuant to Subsection 5(a)(i)
below becomes certain, then payment of the benefits under such other arrangement
shall be in lieu of any and all severance benefits payable under the Plan,
unless such other benefits are repaid to the Company in full by such individual
prior to the occurrence of a Change of Control, in which case the Company shall
provide the severance benefits payable under the Plan to such Eligible Employee.
(c) NON-HEALTH EMPLOYEE BENEFITS. All non-health benefits (such as
life insurance and disability coverage) shall terminate as of the employee's
Termination Date or as otherwise provided under the terms of the policy or
agreement setting forth the terms of such benefits (except to the extent that
any conversion privilege, at the Eligible Employee's expense, is available
thereunder).
SECTION 5. TIME OF PAYMENT AND FORM OF BENEFIT; INDEBTEDNESS.
(a) Cash benefits under this Plan as described under the attached
Benefit Schedules (less applicable tax withholdings) shall be paid in a lump sum
to the Eligible Employee or his or her assignee according to the following
schedule (which schedule shall also correspond to the time of acceleration of
vesting of outstanding options as described under the attached Benefit
Schedules):
4.
<PAGE> 5
(i) if an Eligible Employee's employment terminates either (A)
on or within three (3) months prior to the effective date of a Change of Control
or (B) upon the occurrence of a Change of Control, in either case due to an
Involuntary Termination Without Cause or a Constructive Termination, the
benefits shall be payable (and the acceleration of vesting of outstanding
options shall occur) at the time at which the Change of Control becomes
effective; or
(ii) if an Eligible Employee's employment terminates upon or
within thirteen (13) months following the effective date of a Change of Control
due to an Involuntary Termination Without Cause, Constructive Termination, death
or Disability, the benefits shall be payable (and the acceleration of vesting of
outstanding options shall occur) upon the Eligible Employee's Termination Date.
(b) Notwithstanding the foregoing, no payment shall be made (and no
acceleration of vesting of outstanding options shall occur) under this Plan
prior to the last day of any waiting period or revocation period as required by
applicable law in order for the general waiver and release required by Section
2(b) of this Plan to be effective.
(c) If an Eligible Employee is indebted to the Company on his or her
Termination Date, the Company reserves the right to offset any severance
payments under the Plan by the amount of such indebtedness. In addition, the
Company shall withhold appropriate federal, state, local and foreign income and
employment taxes from any payments hereunder. In no event shall payment of any
Plan benefit be made prior to the Eligible Employee's Termination Date.
SECTION 6. RIGHT TO INTERPRET PLAN; AMENDMENT AND TERMINATION; OTHER
ARRANGEMENTS; BINDING NATURE OF PLAN.
(a) EXCLUSIVE DISCRETION. The Plan Administrator shall have the
exclusive discretion and authority to establish rules, forms, and procedures for
the administration of the Plan, and to construe and interpret the Plan and to
decide any and all questions of fact, interpretation, definition, computation or
administration arising in connection with the operation of the Plan, including,
but not limited to, the eligibility to participate in the Plan and the amount of
benefits paid under the Plan. The rules, interpretations, computations and other
actions of the Plan Administrator shall be binding and conclusive on all
persons.
(b) TERM OF PLAN. This Plan shall be effective until amended,
suspended or terminated by the Company.
(c) AMENDMENT, SUSPENSION OR TERMINATION. The Company reserves the
right to amend, suspend or terminate this Plan or the benefits provided
hereunder at any time; provided, however, that no such amendment, suspension or
termination shall affect the right to any unpaid benefit of any Eligible
Employee whose Termination Date has occurred prior to amendment, suspension or
termination of the Plan; and further provided, that for the period of thirteen
(13) months following the effective date of a Change of Control, the Plan shall
not be amended, suspended or terminated, the Plan Administrator shall not be
removed, and no Eligible Employee shall be reclassified in any manner that would
adversely affect the interests of such Eligible Employee without the written
consent of the Eligible Employee so affected. Subject to the foregoing, this
Plan establishes and vests in each Eligible Employee a contractual right to the
5.
<PAGE> 6
benefits to which such Eligible Employee is entitled hereunder, enforceable by
the Eligible Employee against the Company. Any action amending, suspending or
terminating the Plan may be taken only by the Chief Executive Officer of the
Company or the Compensation Committee of the Board of Directors and shall be in
writing, which writing must be executed by the Chief Executive Officer of the
Company or Compensation Committee, as applicable; provided, however, that any
material amendments to the Plan must be approved by the Compensation Committee.
(d) OTHER SEVERANCE ARRANGEMENTS. The Company reserves the right to
make other arrangements regarding severance benefits in special circumstances.
(e) BINDING EFFECT ON SUCCESSOR TO COMPANY. This Plan shall be binding
upon any successor or assignee, whether direct or indirect, by purchase, merger,
consolidation or otherwise, to all or substantially all of the business or
assets of the Company, or upon any successor to the Company as the result of a
Change of Control, and any such successor or assignee shall be required to
perform the Company's obligations under the Plan, in the same manner and to the
same extent that the Company would be required to perform if no such succession
or assignment or Change of Control had taken place. In such event, the term
"Company," as used in the Plan, shall mean the Company as hereinafter defined
and any successor or assignee as described above which by reason hereof becomes
bound by the terms and provisions of this Plan.
SECTION 7. DEFINITIONS.
Capitalized terms used in this Plan, unless defined elsewhere in this
Plan, shall have the following meanings:
(a) CAUSE means (i) conviction of, a guilty plea with respect to, or a
plea of nolo contendere to, a charge that the Eligible Employee has committed a
felony under the laws of the United States or of any state or a crime involving
moral turpitude, including, but not limited to, fraud, theft, embezzlement or
any crime that results in or is intended to result in personal enrichment at the
expense of the Company; (ii) material breach of any agreement entered into
between the Eligible Employee and the Company that impairs the Company's
interest therein; (iii) willful misconduct or gross neglect by the Eligible
Employee of the Eligible Employee's duties; or (iv) engagement in any activity
that constitutes a material conflict of interest with the Company.
(b) CHANGE OF CONTROL means the occurrence of one or more of the
following events: (1) a sale of all or substantially all of the assets of the
Company; (2) a merger or consolidation in which the Company is not the surviving
corporation and the stockholders of the Company immediately prior to such merger
or consolidation fail to acquire at least fifty percent (50%) of the beneficial
ownership of the securities of the surviving corporation (or an entity
controlling the surviving corporation); (3) a reverse merger in which the
Company is the surviving corporation but the shares of the Company's common
shares outstanding immediately preceding the merger are converted by virtue of
the merger into other property, whether in the form of securities, cash or
otherwise and the stockholders of the Company immediately prior to such merger
fail to acquire at least fifty percent (50%) of the beneficial ownership of the
securities of
6.
<PAGE> 7
the Company (or an entity controlling the Company); or (4) the acquisition by
any person, entity or group within the meaning of Section 13(d) or 14(d) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), or any
comparable successor provisions (excluding any employee benefit plan, or related
trust, sponsored or maintained by the Company) of the beneficial ownership
(within the meaning of Rule 13d-3 promulgated under the Exchange Act, or
comparable successor rule) of securities of the Company representing at least
fifty percent (50%) of the combined voting power entitled to vote in the
election of directors. "Change of Control" shall also mean the sale by the
Company of one or more of the Company's product groups, but only with respect to
those Eligible Employees working exclusively or primarily with the affected
group or groups.
(c) COMPANY means Gene Logic Inc., a Delaware corporation, including
any successor as provided in Section 6(e) hereof, and any affiliate or related
entity of Gene Logic Inc. that is designated by the Board of Directors of Gene
Logic Inc.
(d) CONSTRUCTIVE TERMINATION means that an Eligible Employee
voluntarily terminates his or her employment with the Company after any of the
following are undertaken without the Eligible Employee's express written
consent:
(i) the assignment to the Eligible Employee of any duties or
responsibilities which result in any diminution or adverse change of the
Eligible Employee's position, status or circumstances of employment as in effect
at the beginning of the three (3) month period immediately prior to a Change of
Control, an adverse change in the Eligible Employee's titles or offices or
reporting relationships as in effect at the beginning of the three (3) month
period immediately prior to the effective date of a Change of Control, or any
removal of the Eligible Employee from or any failure to reelect the Eligible
Employee to any of such positions, except in connection with the termination of
the Eligible Employee's service on account of death, disability, retirement, for
Cause, or any voluntary termination of service by the Eligible Employee other
than Constructive Termination;
(ii) a reduction by the Company in the Eligible Employee's annual
base compensation;
(iii) any failure by the Company to continue in effect any benefit
plan or arrangement, including incentive plans or plans to receive securities of
the Company, in which the Eligible Employee is participating at the time of a
Change of Control (hereinafter referred to as "Benefit Plans"), or the taking of
any action by the Company which would adversely affect the Eligible Employee's
participation in or reduce the Eligible Employee's benefits under any Benefit
Plan or deprive the Eligible Employee of any fringe benefit enjoyed by the
Eligible Employee at the time of a Change of Control; provided, however, that
the Eligible Employee will not incur a Constructive Termination following a
Change of Control based on this clause (iii) if the Company offers a range of
benefit plans and programs which, taken as a whole, are comparable to the
Benefit Plans;
(iv) a relocation of the Eligible Employee or the Company's
offices to a location more than twenty five (25) miles from the location at
which the Eligible Employee performed his or her duties prior to a Change of
Control, except for required travel by the Eligible Employee on
7.
<PAGE> 8
the Company's business to an extent substantially consistent with the Eligible
Employee's business travel obligations at the time of a Change of Control;
(v) any breach by the Company of any provision of this Plan; or
(vi) any failure by the Company to obtain the assumption of this
Plan by any successor or assign of the Company.
(e) DISABILITY means the inability of an Eligible Employee, in the
opinion of a qualified physician acceptable to the Company, in the good faith
determination of the Company, to perform the major duties of that Eligible
Employee's position with the Company because of the sickness or injury of the
Eligible Employee.
(f) ELIGIBLE EMPLOYEE means an employee of the Company who is eligible
to participate in the Plan as specified in Section 2 hereof.
(g) INVOLUNTARY TERMINATION WITHOUT CAUSE means the Eligible
Employee's dismissal or discharge by the Company (or, if applicable, by any
successor entity) for a reason other than "Cause." Termination due to an
Eligible Employee's death or Disability shall not constitute Involuntary
Termination Without Cause.
(h) PAY means the Eligible Employee's base pay (exclusive of bonuses,
shift differentials, overtime and other forms of supplemental compensation) at
the rate in effect during the last regularly scheduled payroll period
immediately preceding the Eligible Employee's Termination Date.
(i) PLAN means this Gene Logic Inc. Executive Severance Plan.
(j) SEVERANCE PERIOD means the number of months of Pay used for
calculating the Eligible Employee's cash severance benefits, as specified in the
Benefit Schedule attached hereto.
(k) TERMINATION DATE means the last date on which the Eligible
Employee is in active pay status with the Company. A holiday cannot constitute a
Termination Date unless the Eligible Employee actively provided services for the
Company on such holiday.
SECTION 8. NO IMPLIED EMPLOYMENT CONTRACT.
The Plan shall not be deemed (i) to give any employee or other person any
right to be retained in the employ of the Company or (ii) to interfere with the
right of the Company to discharge any employee or other person at any time and
for any reason or no reason, with or without notice, which right is hereby
reserved.
SECTION 9. MODIFICATION; WAIVER; ENTIRE AGREEMENT; NON-PUBLICATION.
(a) No provisions of the Plan may be modified, waived or discharged
unless such waiver, modification or discharge is agreed to in writing signed by
the Eligible Employee and the Chief Executive Officer of the Company. No waiver
by either party hereto at any time of any
8.
<PAGE> 9
breach by the other party of, or compliance with, any condition or provision of
the Plan to be performed by such other party shall be deemed a waiver of similar
or dissimilar provisions or conditions at the same or any prior or subsequent
time. No agreements or representations, oral or otherwise, express or implied,
with respect to the subject matter hereof have been made by either party which
are not expressly set forth in or referred to in the Plan.
(b) The parties mutually agree not to disclose publicly the terms of
the Plan except to the extent that disclosure is mandated by applicable law.
SECTION 10. LEGAL CONSTRUCTION.
This Plan is intended to be governed by and shall be construed in
accordance with the Employee Retirement Income Security Act of 1974, as amended
("ERISA") and, to the extent not preempted by ERISA, the laws of the State of
Maryland.
SECTION 11. CLAIMS, INQUIRIES AND APPEALS.
(a) APPLICATIONS FOR BENEFITS AND INQUIRIES. Any application for
benefits, inquiries about the Plan or inquiries about present or future rights
under the Plan must be submitted to the Plan Administrator in writing. The Plan
Administrator is:
GENE LOGIC INC.
708 Quince Orchard Road
Gaithersburg, Maryland 20878
Attn: Vice President of Human Resources and Administration
(b) DENIAL OF CLAIMS. In the event that any application for benefits
is denied in whole or in part, the Plan Administrator must notify the applicant,
in writing, of the denial of the application, and of the applicant's right to
review the denial. The written notice of denial will be set forth in a manner
designed to be understood by the employee, and will include specific reasons for
the denial, specific references to the Plan provision upon which the denial is
based, a description of any information or material that the Plan Administrator
needs to complete the review and an explanation of the Plan's review procedure.
This written notice will be given to the employee within 90 days after
the Plan Administrator receives the application, unless special circumstances
require an extension of time, in which case, the Plan Administrator has up to an
additional 90 days for processing the application. If an extension of time for
processing is required, written notice of the extension will be furnished to the
applicant before the end of the initial 90-day period.
This notice of extension will describe the special circumstances
necessitating the additional time and the date by which the Plan Administrator
is to render its decision on the application. If written notice of denial of the
application for benefits is not furnished within the specified time, the
application shall be deemed to be denied. The applicant will then be permitted
to appeal the denial in accordance with the Review Procedure described below.
(c) REQUEST FOR A REVIEW. Any person (or that person's authorized
representative) for whom an application for benefits is denied (or deemed
denied), in whole or in part, may
9.
<PAGE> 10
appeal the denial by submitting a request for a review to the Plan Administrator
within 60 days after the application is denied (or deemed denied). The Plan
Administrator will give the applicant (or his or her representative) an
opportunity to review pertinent documents in preparing a request for a review. A
request for a review shall be in writing and shall be addressed to:
GENE LOGIC INC.
ATTN: Plan Administrator for the
Executive Severance Plan
708 Quince Orchard Road
Gaithersburg, Maryland 20878
A request for review must set forth all of the grounds on which it is based, all
facts in support of the request and any other matters that the applicant feels
are pertinent. The Plan Administrator may require the applicant to submit
additional facts, documents or other material as it may find necessary or
appropriate in making its review.
(d) DECISION ON REVIEW. The Plan Administrator will act on each
request for review within 60 days after receipt of the request, unless special
circumstances require an extension of time (not to exceed an additional 60
days), for processing the request for a review. If an extension for review is
required, written notice of the extension will be furnished to the applicant
within the initial 60-day period. The Plan Administrator will give prompt,
written notice of its decision to the applicant. In the event that the Plan
Administrator confirms the denial of the application for benefits in whole or in
part, the notice will outline, in a manner calculated to be understood by the
applicant, the specific Plan provisions upon which the decision is based. If
written notice of the Plan Administrator's decision is not given to the
applicant within the time prescribed in this subsection (d), the application
will be deemed denied on review.
(e) RULES AND PROCEDURES. The Plan Administrator will establish rules
and procedures, consistent with the Plan and with ERISA, as necessary and
appropriate in carrying out its responsibilities in reviewing benefit claims.
The Plan Administrator may require an applicant who wishes to submit additional
information in connection with an appeal from the denial (or deemed denial) of
benefits to do so at the applicant's own expense.
(f) EXHAUSTION OF REMEDIES. No legal action for benefits under the
Plan may be brought until the claimant (i) has submitted a written application
for benefits in accordance with the procedures described by Section 11(a) above,
(ii) has been notified by the Plan Administrator that the application is denied
(or the application is deemed denied due to the Plan Administrator's failure to
act on it within the established time period), (iii) has filed a written request
for a review of the application in accordance with the appeal procedure
described in Section 11(c) above and (iv) has been notified in writing that the
Plan Administrator has denied the appeal (or the appeal is deemed to be denied
due to the Plan Administrator's failure to take any action on the claim within
the time prescribed by Section 11(d) above).
SECTION 12. BASIS OF PAYMENTS TO AND FROM PLAN.
All benefits under the Plan shall be paid by the Company. The Plan shall
be unfunded, and benefits hereunder shall be paid only from the general assets
of the Company.
10.
<PAGE> 11
SECTION 13. OTHER PLAN INFORMATION.
(a) EMPLOYER AND PLAN IDENTIFICATION NUMBERS. The Employer
Identification Number assigned to Gene Logic Inc. (which is the "Plan Sponsor"
as that term is used in ERISA) by the Internal Revenue Service is 06-1411336.
The Plan Number assigned to the Plan by the Plan Sponsor pursuant to the
instructions of the Internal Revenue Service is 510.
(b) ENDING DATE FOR PLAN'S FISCAL YEAR. The date of the end of the
fiscal year for the purpose of maintaining the Plan's records is December 31.
(c) AGENT FOR THE SERVICE OF LEGAL PROCESS. The agent for the service
of legal process with respect to the Plan is Vice President of Human Resources
and Administration, Gene Logic Inc., 708 Quince Orchard Road, Gaithersburg,
Maryland 20878. The service of legal process may also be made on the Plan by
serving the Plan Administrator.
(d) PLAN SPONSOR AND ADMINISTRATOR. The "Plan Sponsor" and the "Plan
Administrator" of the Plan is Gene Logic Inc., 708 Quince Orchard Road,
Gaithersburg, Maryland 20878. The Plan Sponsor's and Plan Administrator's
telephone number is (301) 987-1700. The Plan Administrator is the named
fiduciary charged with the responsibility for administering the Plan.
SECTION 14. STATEMENT OF ERISA RIGHTS.
Participants in this Plan (which is a welfare benefit plan sponsored by
GENE LOGIC INC.) are entitled to certain rights and protections under ERISA. If
you are an Eligible Employee, you are considered a participant in the Plan and,
under ERISA, you are entitled to:
(a) Examine, without charge, at the Plan Administrator's office and at
other specified locations, such as work sites, all Plan documents and copies of
all documents filed by the Plan with the U.S. Department of Labor, such as
detailed annual reports;
(b) Obtain copies of all Plan documents and Plan information upon
written request to the Plan Administrator. The Administrator may make a
reasonable charge for the copies;
(c) Receive a summary of the Plan's annual financial report, in the
case of a plan which is required to file an annual financial report with the
Department of Labor. (Generally, all pension plans and welfare plans with 100 or
more participants must file these annual reports.)
In addition to creating rights for Plan participants, ERISA imposes
duties upon the people responsible for the operation of the employee benefit
plan. The people who operate the Plan, called "fiduciaries" of the Plan, have a
duty to do so prudently and in the interest of you and other Plan participants
and beneficiaries.
No one, including your employer or any other person, may fire you or
otherwise discriminate against you in any way to prevent you from obtaining a
Plan benefit or exercising your rights under ERISA. If your claim for a Plan
benefit is denied in whole or in part, you must receive a written explanation of
the reason for the denial. You have the right to have the Plan review and
reconsider your claim.
11.
<PAGE> 12
Under ERISA, there are steps you can take to enforce the above rights.
For instance, if you request materials from the Plan and do not receive them
within 30 days, you may file suit in a federal court. In such a case, the court
may require the Plan Administrator to provide the materials and pay you up to
$110 a day until you receive the materials, unless the materials were not sent
because of reasons beyond the control of the Plan Administrator. If you have a
claim for benefits that is denied or ignored, in whole or in part, you may file
suit in a state or federal court. If it should happen that the Plan fiduciaries
misuse the Plan's money, or if you are discriminated against for asserting your
rights, you may seek assistance from the U.S. Department of Labor, or you may
file suit in a federal court. The court will decide who should pay court costs
and legal fees. If you are successful, the court may order the person you have
sued to pay these costs and fees. If you lose, the court may order you to pay
these costs and fees, for example, if it finds your claim is frivolous.
If you have any questions about this statement or about your rights under
ERISA, you should contact the nearest office of the Pension and Welfare Benefits
Administration, U.S. Department of Labor, listed in your telephone directory, or
the Division of Technical Assistance and Inquiries, Pension and Welfare Benefit
Administration, U.S. Department of Labor, 200 Constitution Avenue N.W.,
Washington, D.C. 20210.
SECTION 15. EXECUTION.
To record the adoption of the Plan as set forth herein, effective as of
March 19, 1999, the date on which the Plan was adopted by the Board of Directors
of Gene Logic Inc., Gene Logic Inc. has caused its duly authorized officer to
execute the same.
GENE LOGIC INC.
By: /S/ MICHAEL J. BRENNAN, M.D., PH.D.
-----------------------------------
Title: Chief Executive Officer
--------------------------------
12.
<PAGE> 13
BENEFIT SCHEDULE
FOR THE
GENE LOGIC INC.
EXECUTIVE SEVERANCE PLAN
SENIOR EXECUTIVE OFFICERS
THE COMPANY SHALL DETERMINE IN ITS SOLE AND ABSOLUTE DISCRETION IN WHICH
CATEGORY AN ELIGIBLE EMPLOYEE SHALL BE PLACED FOR PURPOSES OF RECEIVING
SEVERANCE BENEFITS UNDER THIS PLAN. THE COMPANY'S DETERMINATION SHALL BE FINAL
AND SHALL BE BINDING AND CONCLUSIVE ON ALL PERSONS. THE COMPANY RETAINS THE
RIGHT TO RECLASSIFY AN ELIGIBLE EMPLOYEE PRIOR TO THE TIME OF THE OCCURRENCE OF
A CHANGE OF CONTROL, AND THEREAFTER TO THE EXTENT PERMITTED BY THE PLAN.
1. If an Eligible Employee terminates due to an Involuntary Termination
Without Cause or a Constructive Termination, the cash severance benefit payable
under this Plan for Senior Executive Officers shall be a lump sum payment equal
to twelve (12) months of Pay and an amount equal to the annual maximum bonus
award that the Eligible Employee is eligible to receive as of the Termination
Date. If an Eligible Employee's bonus is calculated on a monthly or quarterly
basis, the maximum bonus award for these purposes shall be the amount derived by
annualizing the maximum monthly or quarterly payment. Any bonus payments that
have been made to an Eligible Employee during the calendar year that includes
the Termination Date (excluding payments that were earned in past years) will
reduce the amount of the maximum annual bonus award herein.
2. If an Eligible Employee terminates due to death or Disability, the cash
severance benefit payable under this Plan for Senior Executive Officers shall be
a lump sum payment equal to six (6) months of Pay and an amount equal to the
annual maximum bonus award that the Eligible Employee is eligible to receive as
of the Termination Date. If an Eligible Employee's bonus is calculated on a
monthly or quarterly basis, the maximum bonus award for these purposes shall be
the amount derived by annualizing the maximum monthly or quarterly payment. Any
bonus payments that have been made to an Eligible Employee during the calendar
year that includes the Termination Date (excluding payments that were earned in
past years) will reduce the amount of the maximum annual bonus award herein.
3. An Eligible Employee who becomes eligible to receive benefits under this
Plan shall become 100% fully vested in the Eligible Employee's nonvested stock
options, if any, that were previously granted to the Eligible Employee under the
Company's discretionary stock compensation plans, including, without limitation,
the Gene Logic Inc. 1997 Equity Incentive Plan. In addition, the Company's
repurchase option with respect to any unvested option shares that were acquired
on or before the Termination Date will expire in full.
4. The Company shall pay, on an Eligible Employee's behalf, the cost of
outplacement services, which cost shall not exceed fourteen thousand five
hundred dollars ($14,500).
<PAGE> 14
5. Payment of the Eligible Employee's COBRA premiums as set forth in Section
3(b) of the Plan.
For purposes of this Benefit Schedule, the following definition shall apply:
SENIOR EXECUTIVE OFFICERS shall mean those Eligible Employees who are serving on
the Company's Executive Committee and whose title is Senior Vice President or
above as reflected on the personnel records of the Company as of the earlier of
the Eligible Employee's Termination Date or effective date of a Change of
Control.
<PAGE> 15
BENEFIT SCHEDULE
FOR THE
GENE LOGIC INC.
EXECUTIVE SEVERANCE PLAN
SELECTED VICE PRESIDENTS AND DIRECTORS
THE COMPANY SHALL DETERMINE IN ITS SOLE AND ABSOLUTE DISCRETION IN WHICH
CATEGORY AN ELIGIBLE EMPLOYEE SHALL BE PLACED FOR PURPOSES OF RECEIVING
SEVERANCE BENEFITS UNDER THIS PLAN. THE COMPANY'S DETERMINATION SHALL BE FINAL
AND SHALL BE BINDING AND CONCLUSIVE ON ALL PERSONS. THE COMPANY RETAINS THE
RIGHT TO RECLASSIFY AN ELIGIBLE EMPLOYEE PRIOR TO THE TIME OF THE OCCURRENCE OF
A CHANGE OF CONTROL, AND THEREAFTER TO THE EXTENT PERMITTED BY THE PLAN.
1. If an Eligible Employee terminates due to an Involuntary Termination
Without Cause or a Constructive Termination, the cash severance benefit payable
under this Plan for Selected Vice Presidents And Directors shall be a lump sum
payment equal to nine (9) months of Pay and an amount equal to three quarters
(3/4) of the annual maximum bonus award that the Eligible Employee is eligible
to receive as of the Termination Date. If an Eligible Employee's bonus is
calculated on a monthly or quarterly basis, the maximum bonus award for these
purposes shall be the amount derived by annualizing the maximum monthly or
quarterly payment. Any bonus payments that have been made to an Eligible
Employee during the calendar year that includes the Termination Date (excluding
payments that were earned in past years) will reduce the amount of the maximum
annual bonus award herein.
2. If an Eligible Employee terminates due to death or Disability, the cash
severance benefit payable under this Plan for Selected Vice Presidents And
Directors shall be a lump sum payment equal to six (6) months of Pay and an
amount equal to three quarters (3/4) of the annual maximum bonus award that the
Eligible Employee is eligible to receive as of the Termination Date. If an
Eligible Employee's bonus is calculated on a monthly or quarterly basis, the
maximum bonus award for these purposes shall be the amount derived by
annualizing the maximum monthly or quarterly payment. Any bonus payments that
have been made to an Eligible Employee during the calendar year that includes
the Termination Date (excluding payments that were earned in past years) will
reduce the amount of the maximum annual bonus award herein.
3. An Eligible Employee who becomes eligible to receive benefits under this
Plan shall become 100% fully vested in the Eligible Employee's nonvested stock
options, if any, that were previously granted to the Eligible Employee under the
Company's discretionary stock compensation plans, including, without limitation,
the Gene Logic Inc. 1997 Equity Incentive Plan. In addition, the Company's
repurchase option with respect to any unvested option shares that were acquired
on or before the Termination Date will expire in full.
4. The Company shall pay the cost of outplacement services on an Eligible
Employee's behalf, which cost shall not exceed eleven thousand five hundred
dollars ($11,500).
<PAGE> 16
5. Payment of the Eligible Employee's COBRA premiums as set forth in Section
3(b) of the Plan.
For purposes of this Benefit Schedule, the following definition shall apply:
SELECTED VICE PRESIDENTS AND DIRECTORS shall mean those Eligible Employees whose
title is Vice President (other than Eligible Employees who are members of the
Company's Executive Committee) or Senior Director or Director as reflected on
the personnel records of the Company and who are designated by the Company, in
the Company's sole and absolute discretion, to be Selected Vice Presidents and
Directors as of the earlier of the Eligible Employee's Termination Date or the
effective date of a Change of Control.
"Senior Director" or "Director" as used herein shall not refer to or include the
members of the Board of Directors of the Company.
<PAGE> 17
EXHIBIT A
ACKNOWLEDGEMENT AND ACCEPTANCE OF PLAN BENEFITS
The undersigned has been identified by the Company as an "Eligible
Employee" under the Company's Executive Severance Plan (the "Plan"), which
provides for the payment of certain severance benefits for such Eligible
Employee in the event of a specified termination of employment of such Eligible
Employee within a specified period preceding or following a Change of Control of
the Company, as defined in the Plan ("Change of Control").
The undersigned acknowledges receipt of, and understands and agrees to,
the terms of the Plan.
The undersigned further acknowledges that as of the date hereof, the Plan
sets forth the entire understanding between the undersigned and the Company
regarding the payment of severance benefits in the event the undersigned's
employment with the Company or its successor terminates (i) on or within
thirteen (13) months following the effective date of a Change of Control for any
reason or (ii) on or within three (3) months prior to, upon the occurrence of,
or on the effective date of a Change of Control for any reason other than death
or Disability, as defined in the Plan. Accordingly, the Plan supersedes all
prior oral and written agreements related to severance benefits, including, but
not limited to, any plan, policy, practice or employment agreement.
The undersigned further acknowledges that, as a condition of receiving
benefits under the Plan, he or she shall have no right or claim for benefits
against the Company for severance benefits originating under any such other
plan, policy, practice or employment agreement under the circumstances described
above.
The undersigned hereby authorizes the Company to offset any severance
payment to which he or she is entitled under the Company's Executive Severance
Plan by the amount of my indebtedness to the Company at the time the severance
payment is made, which amount shall be [_____________.]
GENE LOGIC INC. ELIGIBLE EMPLOYEE:
By:
----------------------------- ------------------------------
Signature
Title: Name:
-------------------------- -------------------------
Date: Date:
--------------------------- -------------------------
<PAGE> 18
EXHIBIT B
RELEASE
(INDIVIDUAL TERMINATION)
Certain capitalized terms used in this Release ("Release") are defined in
the Gene Logic Inc. Executive Severance Plan (the "Plan") which I have reviewed.
I hereby confirm my obligations under the Company's proprietary
information and inventions agreement.
In exchange for the benefits I will receive under the Plan, I hereby
release, acquit and forever discharge the Company, its parents and subsidiaries,
its Benefit Plans (except as specifically provided in the Plan), and their
officers, directors, agents, servants, employees, shareholders, successors,
assigns and affiliates, of and from any and all claims, liabilities, demands,
causes of action, costs, expenses, attorneys fees, damages, indemnities and
obligations of every kind and nature, in law, equity, or otherwise, known and
unknown, suspected and unsuspected, disclosed and undisclosed, arising out of or
in any way related to claims and demands directly or indirectly arising out of
my employment with the Company or the termination of that employment, including
but not limited to, claims of intentional and negligent infliction of emotional
distress, any and all tort claims for personal injury, claims or demands related
to salary, bonuses, commissions, or any other ownership interests in the
Company, vacation pay, fringe benefits, expense reimbursements, severance pay,
or any other form of disputed compensation; claims pursuant to any federal,
state or local law or cause of action including, but not limited to, the federal
Civil Rights Act of 1964, as amended; the federal Age Discrimination in
Employment Act of 1967, as amended ("ADEA"); the federal Employee Retirement
Income Security Act of 1974, as amended; the federal Americans with Disabilities
Act of 1990; the California Fair Employment and Housing Act, as amended; Article
49(B) of the Maryland Code (Human Relations Commission Discrimination in
Employment); tort law; contract law; statutory law; common law; wrongful
discharge; discrimination; fraud; defamation; and breach of the implied covenant
of good faith and fair dealing; provided, however, that nothing in this
paragraph shall be construed in any way to release the Company from its
obligation to indemnify me from any third party action brought against me based
on my employment with the Company, pursuant to any applicable agreement or
applicable law or to reduce or eliminate any coverage I may have under the
Company's director and officer liability policy, if any.
I acknowledge that I am knowingly and voluntarily waiving and releasing
any rights I may have under ADEA. I also acknowledge that the consideration
given under the Plan for the waiver and release in the preceding paragraph
hereof is in addition to anything of value to which I was already entitled. I
further acknowledge that I have been advised by this writing, as required by the
ADEA, that: (A) my waiver and release do not apply to any rights or claims that
may arise on or after the date I execute this Release; (B) I should consult with
an attorney prior to executing this Release; (C) I have twenty-one (21) days to
consider this Release (although I may choose to voluntarily execute this Release
earlier); (D) I have seven (7) days following the execution of this Release by
the parties to revoke the Release; and (E) this Release shall not be
<PAGE> 19
effective until the date upon which the revocation period has expired, which
shall be the eighth day after this Release is executed by me.
I acknowledge that this Release is a general release of claims. I
acknowledge that as such, this Release extends to claims which I may not know or
suspect to exist in my favor at the time of executing this Release, even if my
knowledge of such claims would have materially affected my settlement with the
Company. I acknowledge that I have read and understand Section 1542 of the
California Civil Code which reads as follows: "A general release does not extend
to claims which the creditor does not know or suspect to exist in his favor at
the time of executing the release, which if known by him must have materially
affected his settlement with the debtor." I hereby expressly waive and
relinquish all rights and benefits under California Civil Code Section 1542 and
any law of any jurisdiction of similar effect with respect to my release of any
claims I may have against the Company.
[NAME OF EMPLOYEE]
Date:
---------------------------- -----------------------------------
<PAGE> 20
EXHIBIT C
RELEASE
(GROUP TERMINATION)
Certain capitalized terms used in this Release ("Release") are defined in
the Gene Logic Inc. Executive Severance Plan (the "Plan") which I have reviewed.
I hereby confirm my obligations under the Company's proprietary
information and inventions agreement.
In exchange for the benefits I will receive under the Plan, I hereby
release, acquit and forever discharge the Company, its parents and subsidiaries,
its Benefit Plans (except as specifically provided in the Plan) and their
officers, directors, agents, servants, employees, shareholders, successors,
assigns and affiliates, of and from any and all claims, liabilities, demands,
causes of action, costs, expenses, attorneys fees, damages, indemnities and
obligations of every kind and nature, in law, equity, or otherwise, known and
unknown, suspected and unsuspected, disclosed and undisclosed, arising out of or
in any way related to claims and demands directly or indirectly arising out of
my employment with the Company or the termination of that employment, including
but not limited to, claims of intentional and negligent infliction of emotional
distress, any and all tort claims for personal injury, claims or demands related
to salary, bonuses, commissions, or any other ownership interests in the
Company, vacation pay, fringe benefits, expense reimbursements, severance pay,
or any other form of disputed compensation; claims pursuant to any federal,
state or local law or cause of action including, but not limited to, the federal
Civil Rights Act of 1964, as amended; the federal Age Discrimination in
Employment Act of 1967, as amended ("ADEA"); the federal Employee Retirement
Income Security Act of 1974, as amended; the federal Americans with Disabilities
Act of 1990; the California Fair Employment and Housing Act, as amended; Article
49(B) of the Maryland Code (Human Relations Commission Discrimination in
Employment; tort law; contract law; statutory law; common law; wrongful
discharge; discrimination; fraud; defamation; and breach of the implied covenant
of good faith and fair dealing; provided, however, that nothing in this
paragraph shall be construed in any way to release the Company from its
obligation to indemnify me from any third party action brought against me based
on my employment with the Company, pursuant to any applicable agreement or
applicable law or to reduce or eliminate any coverage I may have under the
Company's director and officer liability policy, if any.
I acknowledge that I am knowingly and voluntarily waiving and releasing
any rights I may have under ADEA. I also acknowledge that the consideration
given under the Plan for the waiver and release in the preceding paragraph
hereof is in addition to anything of value to which I was already entitled. I
further acknowledge that I have been advised by this writing, as required by the
ADEA, that: (A) my waiver and release do not apply to any rights or claims that
may arise on or after the date I execute this Release; (B) I should consult with
an attorney prior to executing this Release; (C) I have forty-five (45) days to
consider this Release (although I may choose to voluntarily execute this Release
earlier); (D) I have seven (7) days following the
<PAGE> 21
execution of this Release by the parties to revoke the Release; (E) this Release
shall not be effective until the date upon which the revocation period has
expired, which shall be the eighth day after this Release is executed by me; and
(F) I have received with this Release a detailed list of the job titles and ages
of all employees who were terminated in this group termination and the ages of
all employees of all employees in the same job classification or organizational
unit who were not terminated.
I acknowledge that this Release is a general release of claims. I
acknowledge that as such, this Release extends to claims which I may not know or
suspect to exist in my favor at the time of executing this Release, even if my
knowledge of such claims would have materially affected my settlement with the
Company. I acknowledge that I have read and understand Section 1542 of the
California Civil Code which reads as follows: "A general release does not extend
to claims which the creditor does not know or suspect to exist in his favor at
the time of executing the release, which if known by him must have materially
affected his settlement with the debtor." I hereby expressly waive and
relinquish all rights and benefits under California Civil Code Section 1542 and
any law of any jurisdiction of similar effect with respect to my release of any
claims I may have against the Company.
[NAME OF EMPLOYEE]
Date:
------------------------------ -------------------------------------
<PAGE> 1
EXHIBIT 10.56
CONFIDENTIAL TREATMENT REQUESTED UNDER 17 C.F.R. Sections 200.800(b)(4), 200.83
and 240.24b-2
FIRST AMENDMENT TO
GENOMIC DATABASE COLLABORATION AND LICENSE AGREEMENT
THIS FIRST AMENDMENT (the "First Amendment") to the Genomic Database
Collaboration and License Agreement by and between GENE LOGIC INC. ("Gene
Logic"), a Delaware corporation, located at 708 Quince Orchard Road, Maryland
20878, and N.V. ORGANON ("Organon"), a corporation organized under the laws of
The Netherlands, located at Kloosterstraat 6, 5349 AB, Oss, The Netherlands,
dated as of December 31, 1997 (the "Agreement") is entered into as of May 27,
1999. Capitalized terms used but not otherwise defined in this First Amendment
shall have the meanings given such terms in the Agreement.
WHEREAS, Organon and Gene Logic under the Agreement anticipated
development of a Research Database that would contain data derived from multiple
tissue samples delivered by Organon to Gene Logic analyzed using a READS(TM)
platform, in conjunction with the GeneExpress(TM) Normal database, for the
identification of putative gene targets for the development and
commercialization of pharmaceutical products;
WHEREAS, such development was initially directed to the identification of
gene targets in the fields of the [***] and [***]; and
WHEREAS, the parties now wish to limit the scope of the Research Plan to
gene target discovery in specific projects and therefore wish to amend the
Research Plan, the term of the Research Program, and the rights to be obtained
by the respective parties to the results of the work performed under the
Research Plan and to agree upon the contribution of the parties to the further
development and the consideration to be paid by the respective parties for the
results obtained.
AGREEMENT
NOW, THEREFORE, in consideration of the mutual promises hereinafter set
forth, the parties hereto agree as follows:
1. EFFECTIVE DATE. Notwithstanding the provisions of Section 1.9 of the
Agreement, for purposes of the Agreement and this First Amendment, the term
"Effective Date" shall mean May 27, 1998.
2. AMENDMENT AND RESTATEMENT OF SECTION 2.1. Section 2.1 of the Agreement is
hereby amended and restated in its entirety as follows:
"2.1 UNDERTAKING AND SCOPE. During the 45 days after the Agreement
Date, Organon will work to develop a plan for the creation and use of the
Research Database, with input as appropriate from Gene Logic. The RMC will
review and, in its discretion, approve or modify the general direction of such
plan. Such plan, as approved by the RMC for any year of the Research Program, is
referred to herein as the "Research Plan." During the Research Term, at least 30
days before each of February 27, 2000 and 2001, Organon will propose to the RMC
a Research Plan for the periods from February 27, 2000 to February 27, 2001 and
from February 27, 2001 to
*CONFIDENTIAL TREATMENT REQUESTED
1.
<PAGE> 2
February 27, 2002, respectively, providing for such additional quantities and
types of Samples to be analyzed and included in the Research Database during
such period of the Research Program, with input as appropriate from Gene Logic,
and the RMC shall review, modify if appropriate, and approve such Research Plan
by February 27, 2000 or February 27, 2001, as applicable. At any time, the RMC
may modify or amend any such Research Plan as appropriate or necessary to
reflect the parties' experiences in performing the Research Program. Each party
agrees to use all reasonable efforts to perform the activities detailed in the
Research Plan in a professional and timely manner. The parties agree that the
Research Program will not include any research, discovery or development
activities primarily directed toward the discovery and characterization of genes
associated with the indications listed on Schedule 2.1 and that the
collaboration between the parties contemplated by this Agreement will not cover
the indications listed on Schedule 2.1."
3. AMENDMENT AND RESTATEMENT OF SECTION 2.5. Section 2.5 of the Agreement is
hereby amended and restated in its entirety as follows:
"2.5. TERM OF THE RESEARCH PROGRAM.
(a) Work under the Research Program will commence as of the
Effective Date and, unless terminated earlier by either party pursuant to the
terms of this Agreement or extended by mutual agreement of the parties, will
terminate upon expiration of the Research Term.
(b) Organon may terminate the Research Term effective as of
February 27, 2000 by providing written notice to Gene Logic no earlier than
[***] and no later than [***] and paying Gene Logic [***] by February 27, 2000
in consideration of the rights granted to Organon under subsection (i) below. If
Organon terminates the Research Term early pursuant to this Section 2.5(b), no
payment shall be due to Gene Logic under Section 6.1(a)(ii). Upon early
termination by Organon of the Research Term pursuant to this Section 2.5(b):
(i) Organon shall be entitled to retain all data and
progeny derived from the Samples during the course of the Research Program in
the [***] (the "[***]") and shall have the perpetual, exclusive, worldwide
license to use the Research Database (as it exists at the time of such
termination) in the [***] solely for its internal research purposes (which shall
include rights under Section 5.3 to Gene Targets selected under the Agreement),
subject only to the obligations of Organon to make the milestone and royalty
payments described in Sections 6.3, 6.4 and 7; and
(ii) all licenses granted to Gene Logic pursuant to
Section 5.7 shall remain in full force and effect, but shall exclude the [***];
and
(iii) Gene Logic shall be entitled to retain all data and
progeny derived from the Samples during the course of the Research Program in
the field of the [***] (the "[***]"), and Organon hereby grants to Gene Logic an
exclusive, irrevocable, perpetual, worldwide, fully-paid license, with right to
sublicense through multiple tiers of sublicense, under any Patent Rights and
other proprietary rights Controlled by Organon covering any such data and
progeny in the [***]. Organon's rights set forth in Sections 2.6 and 5.3 with
respect to such data and progeny in the [***] will, however, remain unchanged in
*CONFIDENTIAL TREATMENT REQUESTED
2.
<PAGE> 3
effect until termination of the Research Term, and Organon's rights under
Section 5.3 with respect to any Gene Target selected under the Agreement shall
continue following termination of the Research Term. By February 27, 2000, Gene
Logic shall pay Organon [***] in consideration of the rights granted to Gene
Logic under this Section 2.5(b)(iii).
(c) If Organon has not terminated the Research Term pursuant to
Section 2.5(b) above, Organon may terminate the Research Term after February 27,
2000 by providing 90 days' prior written notice to Gene Logic. Upon early
termination by Organon of the Research Term pursuant to this Section 2.5(c):
(i) all licenses granted to Organon pursuant to Section
5.1 and all licenses granted to Gene Logic pursuant to Section 5.2 shall
terminate and be of no further force or effect;
(ii) all licenses granted to Gene Logic pursuant to
Section 5.7 shall remain in full force and effect; and
(iii) Organon shall be entitled to retain all data and
progeny derived from the Samples during the course of the Research Program and
shall have a perpetual, non-exclusive, worldwide license (without the right to
sublicense) to use the Research Database (as it exists at the time of such
termination) solely for its internal research purposes (which shall include
rights under Section 5.3 to Gene Targets selected under the Agreement), subject
only to the obligations of Organon to make the milestone and royalty payments
described in Sections 6.3, 6.4 and 7."
4. AMENDMENT TO ADD SECTION 2.7. Section 2 of the Agreement is hereby
amended to add Section 2.7 as follows:
"2.7 GENEEXPRESS(TM) NORMAL DATABASE. Gene Logic will provide Organon
with access to the GeneExpress(TM) Normal Database in accordance with the terms
of this Agreement when such database is made commercially available to other
third parties. If Organon requires local access to the GeneExpress(TM) Normal
Database, Organon will reimburse Gene Logic for the cost of all hardware
(including, without limitation, the server) and software that may be required.
The plan for access to the GeneExpress(TM) Normal Database and any associated
equipment purchases must be approved in advance by Organon."
5. AMENDMENT AND RESTATEMENT OF SECTIONS 5.1 AND 5.2. Sections 5.1 and 5.2
of the Agreement are hereby amended and restated in their entirety as follows:
"5.1 RESEARCH DATABASE AND GENEEXPRESS(TM) NORMAL DATABASE LICENSE TO
ORGANON. Subject to the terms and conditions of this Agreement and except as
provided in Section 2.1, Gene Logic hereby grants to Organon an exclusive,
worldwide license to use the Research Database, together with a non-exclusive,
worldwide license to use the GeneExpress(TM) Normal Database, in each case
solely for its internal research purposes to identify Gene Targets during the
Research Term. Organon will have no right to sublicense to Third Parties under
such rights and shall not provide the Research Database, the Gene Express(TM)
Normal Database or any Gene Logic Technology or Gene Logic Software with respect
thereto, to any Third Party (other
*CONFIDENTIAL TREATMENT REQUESTED
3.
<PAGE> 4
than consultants to whom disclosure is permitted under Section 8.3) without
prior written consent of Gene Logic. Following the expiration of the Research
Term, and provided Organon has paid to Gene Logic all of the Database Access
Fees set forth in Section 6.1, Gene Logic hereby grants to Organon a perpetual,
exclusive, worldwide license to use the Research Database solely for its
internal research purposes, subject only to the obligations of Organon to make
the milestone and royalty payments described in Sections 6.3, 6.4 and 7.
Following early termination of the Research Term pursuant to Section 2.5(b),
Organon shall have the license granted under Section 2.5(b)(i). Notwithstanding
the foregoing, Organon may provide Gene Targets to a Third Party so long as
Organon obtains Gene Logic's prior written approval of the provision of Gene
Targets to such Third Party, which approval will not unreasonably be withheld,
and any use of the Gene Targets by such Third Party is subject to all of the
terms and conditions (including, without limitation, the economic terms) of this
Agreement. Organon may elect to extend the term of the foregoing non-exclusive
Gene Express(TM) Normal Database license following the expiration of the
Research Term upon financial terms and other conditions mutually satisfactory to
the parties by providing written notice of such election to Gene Logic at least
90 days prior to the date upon which such rights would otherwise expire.
5.2 LICENSE OF SAMPLES TO GENE LOGIC. Organon grants to Gene Logic a
non-exclusive, fully-paid, worldwide license to use and analyze the Samples
provided by Organon and the data and progeny derived therefrom for purposes of
the Research Program during the Research Term. Following early termination of
the Research Term under Section 2.5(b), rights to data and progeny derived from
the Samples in the course of the Research Program will be determined in
accordance with Section 2.5(b)."
6. AMENDMENT AND RESTATEMENT OF SECTION 6.1. Section 6.1 of the Agreement is
hereby amended and restated in its entirety as follows:
"6.1 DATABASE ACCESS PAYMENTS TO GENE LOGIC. The following payments
("Database Access Fees") will be made to Gene Logic to defray research costs
associated with creating the Research Database and analyzing Samples pursuant to
the Research Plan:
(a) Organon shall pay Gene Logic (i) [***] upon the Agreement
Date and (ii) [***] on [***] if Gene Logic has developed a Research Database
containing READS(TM) data for [***] Samples or [***] of such number of Samples
supplied by Organon during the first year of the Research Term by such date.
Organon shall not be required to make the payment required under Section
6.1(a)(ii) if Organon has terminated the Research Term effective as of February
27, 2000 pursuant to Section 2.5(b).
(b) Organon shall pay Gene Logic [***] on [***]; provided that
the Research Term has not been terminated pursuant to Section 2.5 prior to that
date. In the event that the Research Term is terminated pursuant to Section 2.5
after February 27, 2000 but prior to [***], then Organon shall, within 10
business days following such termination, pay Gene Logic a pro rata portion of
such [***] payment for such partial Research Term year, calculated by
multiplying [***] by a fraction the numerator of which is the number of days
from and including the first anniversary of the Effective Date through the
effective date of such termination and the denominator of which is 365.
*CONFIDENTIAL TREATMENT REQUESTED
4.
<PAGE> 5
(c) Organon shall pay Gene Logic [***] on [***]; provided that
the Research Term has not been terminated pursuant to Section 2.5 prior to that
date. In the event that the Research Term is terminated pursuant to Section 2.5
after [***] but prior to [***], then Organon shall, within 10 business days
following such termination, pay Gene Logic a pro rata portion of such [***]
payment for such partial Research Term year, calculated by multiplying [***] by
a fraction the numerator of which is the number of days from and including the
second anniversary of the Effective Date through the effective date of such
termination and the denominator of which is 365."
7. AMENDMENT TO ADD SECTION 6.2(d). Section 6.2 of the Agreement is hereby
amended to add subsection (d) as follows:
"(d) No payment of financial support for the Research Program for Gene
Logic's Scientific FTEs will be due from Organon to Gene Logic pursuant to this
Section 6.2 for the period from [***] to [***]."
8. FURTHER AMENDMENT. The parties may further amend any of the terms and
conditions of the Agreement, as amended by this First Amendment, in accordance
with Section 12.11 of the Agreement.
9. SURVIVAL. In addition to the provisions set forth in Section 10.5 of the
Agreement and Sections 2.5 (including the provisions therein that are
contemplated to continue following the termination) shall survive any expiration
or termination of the Agreement.
10. FULL FORCE AND EFFECT. Except as specifically amended by this First
Amendment, the terms and conditions of the Agreement shall remain in full force
and effect.
11. GOVERNING LAW. This First Amendment shall be governed by and interpreted
in accordance with the laws of the State of Maryland other than those provisions
governing conflicts of law.
12. COUNTERPARTS. This First Amendment may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
*CONFIDENTIAL TREATMENT REQUESTED
5.
<PAGE> 6
IN WITNESS WHEREOF, the parties have executed this First Amendment on the
day and year first written above.
N.V. ORGANON GENE LOGIC INC.
By: /S/ G B A STEELE By: /S/ MICHAEL BRENNAN
----------------------------- ----------------------------------
Michael J. Brennan, M.D., Ph.D.
Name: DRS G B A Steele Chief Executive Officer
---------------------------
Title: Managing Director
--------------------------
By: /s/ H J VERGOUWEN By: /s/ MARK D. GESSLER
----------------------------- ----------------------------------
Mark D. Gessler
Name: DRS H J Vergouwen President, Chief Operating Officer
--------------------------- Chief Financial Officer
Title: Managing Director R&D
--------------------------
6.
<PAGE> 1
EXHIBIT 10.57
CONFIDENTIAL TREATMENT REQUESTED UNDER 17 C.F.R. SECTIONS 200.800(b)(4), 200.83
and 240.24b-2
[GENE LOGIC LETTERHEAD]
September 28, 1999
Mr. K. Kiyose
Japan Tobacco Inc.
Pharmaceutical Division
JT Building 2-1, Toranomon 2-chome
Minato-ku, Tokyo 105-8422 Japan
Dear Mr. Kiyose:
As we have discussed, this letter (the "Letter Agreement") will confirm our
agreement regarding certain amendments to the Drug Target and Drug Lead
Discovery Collaboration Agreement between Gene Logic Inc. ("Gene Logic") and
Japan Tobacco Inc. ("JT"), dated as of September 9, 1997 and amended as of
December 29, 1998 (the "Agreement"). This Letter Agreement will be made
effective as of October 1, 1999 upon execution by both Parties. Capitalized
terms used but not otherwise defined in this Letter Agreement shall have the
meanings given such terms in the Agreement.
1. Section 1.18 of the Agreement shall be amended and restated in its
entirety as follows:
"1.18 "GENE LOGIC TECHNOLOGY" shall mean (i) all discoveries,
inventions, information, data, know-how, trade secrets and materials
(whether or not patentable) that are Controlled by Gene Logic as of the
Agreement Date or during the Research Term, including without limitation,
the Research Databases, GENE EXPRESS(TM) and Gene Logic's READS(TM),
MuST(TM), microarray and sequencing technologies, excluding the Gene
Logic Software and any technology related to the Gene Logic Assays, and
(ii) all Patent Rights of Gene Logic covering the foregoing. All current
patent applications with respect to GENE EXPRESS(TM) and Gene Logic's
READS(TM) and MuST(TM) technologies are listed on Schedule 1.18, such
schedule to be updated by Gene Logic from time to time."
2. Section 1.36 of the Agreement shall be amended and restated in its
entirety as follows:
"1.36 "SAMPLES" shall mean human or animal tissue samples, blood
samples or cell lines (i) obtained by Gene Logic pursuant to Section 2.5
or (ii) supplied by JT to Gene Logic for analyses pursuant to the
Research Plan, if applicable."
3. The Research Plans shall be amended to include the activities described
in and contemplated by Section 2.1(d) of the Agreement as set forth in
Exhibit A to this Letter Agreement.
<PAGE> 2
4. Section 2.1 of the Agreement shall be amended to add subsection (d) as
follows:
"(d) Gene Logic will use 42K GeneChips(R) (the
"GeneChips") licensed to Gene Logic by Affymetrix, Inc. ("Affymetrix") in
conducting its activities under the Research Programs in accordance with
the Research Plans. In addition to amounts payable by JT to Gene Logic
under Section 7.1, JT will pay Gene Logic [***] per Sample analyzed using
a single GeneChip set, which payment shall include and cover all costs
relating to Gene Logic's performance of such analysis, including but not
limited to the cost of the GeneChip set, Sample preparation, the GeneChip
assay and data analysis. Such payments by JT for a given quarter shall be
made in advance, concurrently with the research funding payments
described in Section 7.2(b), as an FTE-based cost item. Further, should
Affymetrix's increase its price to Gene Logic for the GeneChips, the
Parties agree to discuss appropriate price adjustments. The number of
Samples to be analyzed in a given quarter shall be subject to
determination in advance by the RMC. For the avoidance of doubt, the
parties agree that the cost of obtaining Samples shall be separately
borne and paid by JT in accordance with Section 2.5. All data and progeny
derived from or generated by Gene Logic's analysis of normal and diseased
Samples using GeneChips pursuant to the Research Plans, as amended
(respectively, "Normal Data" and "Disease Data"), shall be disclosed to
JT pursuant to Section 2.3 hereof. JT shall have the right to use Normal
Data and Disease Data pursuant to the rights granted to it under Section
5.1 hereof. During the Research Database Access Term and any Extended
Term, Gene Logic will have the right to use the Normal Data in its
GeneExpress databases and/or other databases for licensing or providing
access to Third Parties and for its own internal research purposes. After
the Research Database Access Term and any Extended Term, Gene Logic will
have the right to use the Normal Data and the Disease Data in its
GeneExpress databases and/or other databases for licensing or providing
access to Third Parties and for its own internal research purposes. "Raw
Data", herein defined solely comprising a *.dat file which is generated
from the electronic scan of a hybridized GeneChip, shall also be
disclosed to JT pursuant to Section 2.3 hereof. The parties agree that
they will jointly own the Raw Data which is generated from the GeneChip
analysis of normal and/or diseased Samples, which they may each use
without limitation."
5. Section 4.2 of the Agreement shall be amended and restated in its
entirety as follows:
"4.2 OWNERSHIP OF GENE LOGIC TECHNOLOGY, GENE LOGIC SOFTWARE,
GENE LOGIC ASSAYS AND RESEARCH DATABASES. Notwithstanding the foregoing,
subject to the grant of rights to JT under Section 5 and except as to Raw
Data (which is addressed in Section 2.1(d)) and Joint Intellectual
Property (which is addressed in Section 4.4A), Gene Logic shall own all
rights to the Gene Logic Technology, Gene Logic Software, Gene Logic
Assays and the Research Databases, including, but not limited to, all
data and progeny derived from the Samples, all cDNA sequences, partial
cDNAs, and their corresponding full length cDNAs, cDNA Sequence Analyses,
Gene Targets, proteins and applications thereof and information relating
thereto. The filing, prosecution and maintenance of patent(s), copyrights
and other proprietary rights directed at the protection of these rights
shall be the responsibility of, and at the discretion of, Gene Logic."
* CONFIDENTIAL TREATMENT REQUESTED
<PAGE> 3
6. Section 4 of the Agreement shall be amended to add Section 4.4A as
follows:
"4.4A OWNERSHIP OF INTELLECTUAL PROPERTY RIGHTS IN CERTAIN
INVENTIONS. Gene Logic and JT here agree that Gene Logic and JT shall
jointly own all rights to Patent Rights and other intellectual property
rights covering Inventions which are conceived during the Research Term,
owned by Gene Logic and that arise from Gene Logic's analysis of Samples
using GeneChips pursuant to the Research Plans, as amended, and that
relate to Raw Data, Normal Data and/or Disease Data (the "Joint
Intellectual Property"). Gene Logic hereby makes such assignment of its
right, title and interest in and to any such Joint Intellectual Property
as may be necessary to convey to JT joint ownership of such Joint
Intellectual Property. In cases where Gene Logic does not own such
Inventions, pursuant to third party agreements existing as of the date
hereof, Gene Logic shall obtain an exclusive license to Patent Rights and
other intellectual property rights relating thereto and sublicense such
Patent Rights and rights to JT on a fully paid up basis. Gene Logic shall
not during the Research Term and any Extended Term, enter into any
agreement or understanding with a third party which may limit Gene
Logic's ability to assign or sublicense such rights to JT as contemplated
under this Section 4.4A. The filing, prosecution and maintenance of such
Joint Intellectual Property shall be determined pursuant to Section
4.5(b). Any such Joint Intellectual Property that covers a Product,
Biological Therapeutic Product or Diagnostic Product discovered pursuant
to the Collaboration shall be subject to the applicable provision of
Section 4.4."
7. Section 5.1 of the Agreement shall be amended and restated in its
entirety as follows:
"5.1 RESEARCH DATABASES, GENE EXPRESS(TM) AND SOFTWARE. Gene
Logic hereby grants to JT an exclusive, worldwide right to use the
Research Databases and Disease Data, together with a nonexclusive,
worldwide right to use GENE EXPRESS(TM) and Normal Data and a
nonexclusive, worldwide right to use and perform the Gene Logic Software,
in each case solely for research purposes in the Field to identify Gene
Targets during the Program Term and for an additional 90 days thereafter
(such 90-day period shall be referred to as the "Research Database Access
Term"). JT will have no right to assign such rights to Third Parties and
shall not provide the Research Databases, the Gene Logic Software or any
Gene Logic Technology with respect thereto, to any Third Party (other
than consultants to whom disclosure is permitted under Section 9.3)
without prior written consent of Gene Logic. JT may elect to extend the
term of the foregoing exclusive right to the Research Databases and the
foregoing nonexclusive rights to GENE EXPRESS(TM) and the Gene Logic
Software (the "Research Database Extension Option") for an additional
[***] period following the end of the Research Database Access Term (the
"Extended Term") by providing written notice of such election to Gene
Logic at least 90 days prior to the date upon which such rights would
otherwise expire and by paying an extension fee to Gene Logic equal to
[***] at the time such notice is provided."
* CONFIDENTIAL TREATMENT REQUESTED
<PAGE> 4
8. Section 6.1 of the Agreement shall be amended and restated in its
entirety as follows:
"6.1 EXPANSION OPTIONS.
(a) JT shall have options to expand the Collaboration to include the
areas of Indication #2 (as such term is defined on Exhibit A attached
hereto) during the first two years following the Agreement Date (the
"Indication #2 Option") and Indication #3 (as such term is defined on
Exhibit A attached hereto) during the first two years plus 60 days
following the Agreement Date (the "Indication #3 Option") upon the terms
and conditions contained in this Agreement. If the Research Program with
respect to Indication #1 is terminated by JT pursuant to Section 2.6
prior to the exercise or expiration of either Indication #2 Option or
Indication #3 Option, JT shall inform Gene Logic in writing prior to the
expiration of the applicable six-month notice period ofwhether or not JT
will be exercising either or both of such options prior to its expiration
and if so, when it will exercise such option. In the event that JT does
not exercise the Indication #2 Option or the Indication #3 Option prior
to the expiration of the applicable period set forth above or their
earlier termination as provided in this Section 6.1, then Gene Logic
shall thereafter be free to grant rights to a Third Party in the areas of
Indication #2 or Indication #3, as applicable.
(b) In addition, JT shall have the option to expand the
Collaboration to include nonexclusive rights in additional fields (other
than the Indications) at any time during the period ending six months
prior to the end of the Research Term upon terms and conditions to be
negotiated and mutually agreed in good faith by the parties; provided
that the terms for the expansion shall not be less favorable to JT, when
viewed in the aggregate, than the terms previously granted by Gene Logic
to any Third Party for rights of a comparable scope and nature; and
provided further that the parties agree that the Research Program will
not include any research program primarily directed toward the discovery
and characterization of genes associated with the indications listed on
Schedule 6.1 attached hereto for the purpose of identifying potential
targets for screening. JT may exercise the option granted under this
Section 6.1(b) by providing Gene Logic notice of such exercise in writing
at any time prior to the date that is six months prior to the end of the
Research Term."
9. Section 13.11 of the Agreement shall be amended and restated in its
entirety as follows:
"13.11 SURVIVAL. Sections 4.1, 4.2, 4.3, 4.4, 4.4A, 9.2, 10, 11.2
(including the provisions therein that are contemplated to continue
following termination) 12, 13.1, 13.4 and 13.11 shall survive the
termination or expiration of this Agreement."
10. Except as specifically amended by this Letter Agreement, the terms and
conditions of the Agreement shall remain in full force and effect. This
Letter Agreement may be executed in two or more counterparts, each of
which shall be deemed an original, but all of which together shall
constitute one and the same instrument.
<PAGE> 5
If the foregoing is acceptable to you, please sign and date this Letter
Agreement in the place indicated below and return it to me via facsimile at
(301) 987-1701. Please feel free to call the undersigned at (301) 987-1700 with
any questions regarding the foregoing.
Sincerely,
GENE LOGIC INC.
By: /S/ MARK D. GESSLER
-----------------------------------
Name: Mark D. Gessler
---------------------------------
Title: President & COO
---------------------------
Agreed to and accepted:
JAPAN TOBACCO INC.
By: /S/ TATSUYA YONEYAMA
---------------------------------------
Name: Tatsuya Yoneyama
-------------------------------------
Title: Vice President, Pharmaceuticals
------------------------------------
Date: Sept. 28 ,1999
-------------
<PAGE> 6
SCHEDULE 6.1
EXCLUDED INDICATIONS
[***]
*CONFIDENTIAL TREATMENT REQUESTED
<PAGE> 7
EXHIBIT A
RESEARCH PLAN
[***]
*CONFIDENTIAL TREATMENT REQUESTED
<PAGE> 1
GENE LOGIC INC.
SEPTEMBER 30, 1999
EXHIBIT 11.1
Statement Re: Computation of Per Share Earnings
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
----------------------- ------------------------
1999 1998 1999 1998
--------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
BASIC AND DILUTED:
Weighted average common shares outstanding 19,887 14,906 19,799 14,345
Net loss $ (5,387) $ (37,788) $ (14,722) $ (41,356)
========== ========== =========== ==========
Net loss per common share $ (0.27) $ (2.54) $ (0.74) $ (2.88)
========== ========== =========== ==========
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 9-MOS
<FISCAL-YEAR-END> DEC-31-1999 DEC-31-1999
<PERIOD-START> JUL-01-1999 JAN-01-1999
<PERIOD-END> SEP-30-1999 SEP-30-1999
<CASH> 4,400 4,400
<SECURITIES> 12,192 12,192
<RECEIVABLES> 3,502 3,502
<ALLOWANCES> 0 0
<INVENTORY> 0 0
<CURRENT-ASSETS> 22,870 22,870
<PP&E> 15,351 15,351
<DEPRECIATION> (4,555) (4,555)
<TOTAL-ASSETS> 42,974 42,974
<CURRENT-LIABILITIES> 11,131 11,131
<BONDS> 3,207 3,207
0 0
0 0
<COMMON> 199 199
<OTHER-SE> 27,888 27,888
<TOTAL-LIABILITY-AND-EQUITY> 42,974 42,974
<SALES> 0 0
<TOTAL-REVENUES> 4,223 13,502
<CGS> 0 0
<TOTAL-COSTS> 9,355 27,600
<OTHER-EXPENSES> 255 524
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 0 0
<INCOME-PRETAX> (5,387) (14,622)
<INCOME-TAX> 0 100
<INCOME-CONTINUING> (5,387) (14,722)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (5,387) (14,722)
<EPS-BASIC> (0.27) (0.74)
<EPS-DILUTED> (0.27) (0.74)
</TABLE>
